Evaluating Employee Performance: Challenging Necessity

In order to reward performance an organization needs to be able to define and measure performance. At the individual level performance is defined using criteria and standards… what needs to be accomplished and how well it needs to be done. The pre-requisites for an effective system are:

  1. performance is defined clearly and is understood by all involved parties at the start of the performance period,
  2. performance is continuously measured and feedback provided,
  3. performance is evaluated in a manner that is considered fair and appropriate by the employee.

Easy to say… not so easy to do effectively.

Performance standards should be set at equivalent levels of difficulty across the organization. Employees are very sensitive to equity and if standards are uneven across units or evaluators it will precipitate feelings of unfairness and lead to dissatisfaction. A fundamental question that must be answered is whether an employee’s performance will be measured against standards or against the performance of others. Although it is possible to develop descriptions of what constitutes “outstanding” or “fully meets standards”performance those standards must be interpreted by individuals. And individuals vary in their interpretations. When a trial run of a newly designed performance appraisal system was done at a major utility the head of Operations with over 600 subordinates rated 1% of his employees “outstanding.” The head of Public Relations rated 60% of his employees “outstanding.” It was very obvious that the two managers had interpreted the description of that level of performance differently. The difficulty of establishing reasonably equivalent interpretations of the rating scale levels is daunting but must be addressed if a system is to be accepted as valid.

It may be argued that ranking employees against peers avoids the difficulties associated with rating against a scale. The problem with ranking is that a considerable amount of variability in what employees in a unit do often exists. This increases the difficulty of comparing contributions. Another issue is that some employees may be long service and be more competent in all aspects of their job than those who have less time on the job. It is very difficult to adjust expectations based on the competence level of employees and some way must be found to accomplish that. In a large research organization I consulted with one technical executive had over 1700 scientists and engineers in his organization. He used a ranking system to evaluate performance on a relative basis. My original skepticism was overcome after I reviewed the process that was in place to do the ranking.

Each Supervisor would rank his or her subordinates, using a list of criteria that should be considered. Then each Manager put subordinate Supervisors in a room and conducted a “calibration session,” which consisted of reaching a consensus on a merged ranking. This process was completed all the way up to the executive and he ranked his direct reports. The system was viewed as fair by most employees but I felt one refinement should be made. The population consisted of new graduates (classified as Associate Engineers/Scientists), those who were competent in most or all aspects of their jobs (Engineers/Scientists), those who were fully competent and who took responsibility for leading and developing others (Senior Engineers/Scientists) and a few who were leaders in their fields and who were expected to create new knowledge (Principal Engineers/Scientists). All employees were classified into these levels based on their competence using a rigorous review process and expectations obviously differed between levels. The refinement was to rank employees against others classified at the same level in the career ladder, which would make it easier to adjust standards based on what reasonably could be expected of individuals.

This became even more critical when employees were arrayed on a histogram with current pay level being the vertical axis and ranking the horizontal axis. Here a second refinement was proposed… change the vertical axis to the compa-ratio. This change made it possible to determine what size of adjustment should be made to the current pay rate. A regression line was created to show how the current rate compared to the rate warranted by performance (rank in the population). Employees paid in the lower part of their range who had high rankings would receive larger increases than those paid in the upper part of their range and who had similar rankings. This is the equivalent to using merit guide charts that tie pay actions to both performance and position in the pay range.

Organizations who evaluate performance against standard definitions generally have scales with three t five levels. Some feel performance should be evaluated as either does not fully meet standards, fully meets standards or significantly exceeds standards. Using an “unacceptable” rating usually triggers a performance improvement plan and it is often considered a management failure if actions have not been taken during the year to correct below standard performance. And having an “outstanding” rating is often seen as difficult to differentiate from a “significantly exceeds” rating. There is not a clear right answer, thus the variability. In some jobs there is limited discretion and complexity and some organizations may use a binary “pass-fail” distinction for incumbents.

No matter the number of evaluation levels used there remains the challenge of comparing individual performance to a rating scale. By using case studies raters can be charged with rating hypothetical employees and then being asked to reconcile their ratings to those of a number of peers in training groups. Over time this can calibrate how raters view the levels used in the rating scale.

If done correctly, applying the fundamentals of sound evaluation, both a ranking and a rating against standard system can work. The current avalanche of articles in the practitioner literature on continuous evaluation and feedback is welcome. No one can manage performance by following an administrative procedure at the end of the performance period if every employee does not know what is expected, how they are doing, and how to get better… every minute of every day.