Year in Review

Aug. 22, 2002
Annual performance reviews may vex managers and employees alike, but they can serve as useful communication tools.

Kathleen Franzinger
Assistant Editor










It happens once a year. Anxiety. Tension. Sweaty brows. Wringing hands. Neverending forms to fill out. No, not taxes — performance reviews. Although reviews may plague both managers and employees, they can be a rewarding process if done properly.

We asked MACHINE DESIGN readers to e-mail us their opinions on performance appraisals, and responses ranged from compliments to complaints. Some readers said "appraisals could be effective if properly executed, but require a lot of work, time, and dedication." Others insisted "all peerlevel reviews are a joke, and most yearly reviews not much better."

But, love or hate them, performance appraisalsare likely to stick around because research showsmost employees want feedback on their performance. Randstad North America, an employmentservices company, and RoperASW, a marketing research and consulting firm, conducted a survey onhow employees and employers feel about key issues. The 2002 Employee Review found that morethan 80% of employers and employees agree reviews are important.

Dick Grote, president of Grote Consulting Corp. in Dallas and author of The Performance Appraisal Question and Answer Book, says everybody wants to know what their company expects of them. Everybody wants to know where they're doing well and where they need to work a little harder. If asked, no one would say, "Don't tell me.

I'm not interested."

Getting feedback from those in charge is beneficial for employees, according to Randstad's2002 Employee Review. It found that employeesgiven regular feedback about their performanceare more satisfied with their managers, morelikely to describe their company in positive terms,and have higher job satisfaction. In addition, regular reviews help lower stress and anxiety overjob security. Some 60% of employees who receiveregular reviews say it's not "foolish" to be loyal toone employer.

Survey results show a boost in performancewhen people know what goals they're working toward, particularly when they know and accept theexpectations, rewards, and consequences. Employees tuned into the reasoning behind companydecisions exhibit more confidence in the organization's future, management, and job security.

Performance reviews are important because they give employees and managers a chance to sit down and say what needs to be said and hear what needs to be heard. They provide an opportunity to discuss an individual's work, career objectives, and goals, as well as company performance and objectives.

"Performance reviews are important becausethey let employees know what is expected of themand how they're measuring up to those expectations," says Susan Gebelein, executive vice president for Personnel Decisions International, aglobal management and human resources consulting firm in Minneapolis.

And now is the time for employees to speak upabout where they'd like to go in the company, saysGebelein. "Discussing performance gives employees a chance to influence how they are seen in theorganization and discuss opportunities for the future. It helps set the stage for discussions about career path and areas where a boss can provide newopportunities or coaching to help employees movein the right direction," she explains.

Chuck Hansen, president of Management Recruiters of Jacksonville-South, agrees. "Annual reviews help managers understand employees' long and short-term objectives," he says.

But the true value of performance reviews, according to Grote, goes beyond justifying raises ortelling employees where they're succeeding andwhere they need improvement. "The real value ofperformance appraisals is to get everybody focusedon the objectives of the company and to make sureeveryone understands the mission. If you're holding them accountable for that, then they're going topay attention," he says.

As much as performance appraisals are touted as great communication tools, they can frustrate both managers and employees. One reader simply states, "Most people that do the review, including completing the form, don't like to do it." The 2002 Employee Review showed the need for more personal, one-on-one interaction about employee and company performance, as well as a greater balance between what management wants to say and what employees want to know.

For Grote, there's only one trouble spot for performance appraisals: poor managers. "There really aren't any cons to performance appraisals,other than weak managers don't like doing them.It's usually because upper management forcesthem to, at least annually, sit down with staff members and tell them the truth about their performance," he says. Hansen agrees if reviews dependentirely on the manager, it can be a problem. "Ifthat person is having a bad day or is not very goodat this kind of thing, the review suffers," he says.

Performance reviews can also present a predicament during a company's lean years, addsHansen. If a company is doing poorly, employerscan't afford to give raises or promotions, evenwhen an employee has a stellar year. "There's aperception that performance reviews equal money.And that's difficult to deal with when there's nomoney to give," says Hansen. "When the companyis having one losing year after another, even if theindividual employee's performance is terrific,there's bad news to pass along."

Another sticky point for performance appraisals, especially when it comes to engineers, isevaluating team performance. Often times, whenthe entire team is reviewed, the worst performergets a better-than-deserved rating, and the best performer ends up with a worse-than-deserved review.

"Team members should be sources of information for the review," says Gebelein. "Many times this occurs with engineering groups in the form of project reviews, which include a review from team members. When the individual selects team members to interview, it improves the employees' buy-in to the process and receptivity to feedback. The focus is on getting constructive ideas about how the engineer can be even more effective."

Based on his experience, Grote says not many companies review teams as a whole, which is likely a good thing. "In a recent study I conducted on best practices in performance appraisals, I was expecting to find companies doing appraisals of teams because so many people work in teams. But, there aren't any. It's not surprising, considering we never hire or fire people in teams. To get to the team element, it's better to appraise people's individual performance, including their contributions to teams," he says.

Performance appraisals provide a place for accolades and constructive criticism, but there are problems with the process. What can managers and employees do to get the most out of a review?

Like Mom said, honesty is the best policy, evenwhen it comes to annual reviews. Managers need tobe forthright with praise, as well as problem areasand suggestions for improvement. Reviews aren'tthe time to tiptoe around the truth, no matter howmuch it may hurt. As one reader noticed, "It seemsa lot of managers hesitate to tell ‘the real story' because it's difficult to confront someone with marginal performance."

"People don't like to give bad news and don'tknow how to do it. For managers, it's critically important to learn the skills of communicating withtheir employees. This includes the skill of giving information about the need to improve in certain areas, maintaining a constructive relationship withthe employee, and motivating them to go forward,"says Ann J. Willson, senior professional in humanresources and owner of Human Resource Directions in Raleigh.

But Grote believes it doesn't take skill as muchas a willingness to be straightforward with employees. "One word: Courage. That's what it reallytakes," he says.

Honesty should extend to company performance, says Hansen. "The best thing is to be brutally honest and show your employees how top management has planned to make the company more profitable. There's always a tendency to not say too much. There's a tendency to not be honest about the company's chances, especially when things don't look very good," he says.

Randstad's 2002 Employee Review foundthat employers are far less likely to talk to employees about the company's financial outlookthan individual performance. The researchshowed that today's employers give their employees financial information less than 50% ofthe time, with large companies more willing todivulge the facts than smaller companies. Seventy percent of employees say it's important foremployers to tell them how well or poorly thecompany is doing, but only 54% of employersfeel the same.

However, hearing about the company's objectives, goals, and financial performance should bediscussed along with employee performance."Every objective and goal set in regard to individualperformance should link to the company's goals. Ifthey don't, it's a futile exercise that wastes time andmoney. The whole thing has to be set within aframework of how this affects overall companyperformance. Managers should definitely be talking about how the organization is doing, where theissues are, and how the employee can help fit intothat," Willson says.

Grote also suggests managers give employees acopy of the performance appraisals an hour or twobefore meeting, so they aren't forced to read it forthe first time in front of their managers. Giving it tothem ahead of time helps make the medicine godown. It eliminates the immediate emotional rushand defensiveness. When people have a chance tothink about their reviews, a more productive business discussion results.

Some MACHINE DESIGN readers agree performance appraisals can often take an adversarial tone. "Most of the reviews I've been in take some type of defensive argument. This is never productive and makes matters worse," says one reader. Anticipating what managers will say adds to appraisal anxiety. "When you go to a review, you're often wondering what they're going to hit you with," says another. "Did they remember the good things you did or the one goof up?" Another reader sums up, "A performance review shouldn't be a surprise to the employee, and too often it is."

According to a recent study, only about four out of 10 employees and managers know how they can boost their base pay or cash bonuses. WorldatWork, an association for professionals in compensation and benefits, sponsored the survey.

"Many employees and managers simply don't understand why they get paid what they do," says Rob Heneman, professor of management and human resources at Ohio State University's Fisher College of Business and one of the leaders of The Knowledge of Pay study. Most people, says Heneman, agree their employers explain performance objectives and how performance is measured. But, employees are foggy on how performance is linked to pay.

"If companies want employees to work harder and meet certain goals, they have to do a better job explaining what exactly employees need to do to increase their base pay," states Heneman. Employees don't know how to increase base pay or cash bonuses, though survey results show that base-pay knowledge plays a bigger role in overall pay satisfaction than other forms of compensation.

The authors say the results indicate employees who know more about their pay are more satisfied with pay overall. Higher levels of pay satisfaction link to higher levels of retention, commitment to the company, and trust in management. The study also shows that pay knowledge is almost as important as the amount of pay itself in determining satisfaction.

The authors of the study don't condone disclosing actual pay amounts of employees to others within the company. But companies can provide more information about pay practices and policies, such as the process used to determine pay and the average raises in a particular year. Workers want to know how policies apply to their particular situation, Heneman says. Which may mean more one-on-one time between manager and employee, as two-thirds of survey respondents think talking to their supervisor or manager is an effective way to learn about pay.

Employees who say they …
Receive regular performance reviews
Don't receive regular performance reviews
are always looking for a better job
are likely to work for same firm in 1 yr
feel loyal to their employer
feel employer is loyal to them
are optimistic about the company's future
are satisfied with manager or supervisor
Source: 2002 Employee Review conducted by Randstad and RoperASW

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