How to create the right performance appraisal culture

Four elements to create the right performance appraisal culture

It is performance appraisal review season, and you know the drill! You probably received the third reminder email from your diligent HR business partner asking you to complete the performance appraisals of your team. Most people see this process as a ticking the box exercise, an exercise to complete so as to comply with the organization’s requirements.

However, the opportunity to give constructive feedback to your team should not be taken lightly. It is truly an invaluable privilege not offered to many and should be considered as an important priority to all managers. At its core, this process is all about people and their development, and people are the greatest asset in any organization. As Zig Ziglar rightly said “You don’t build a business. You build people and then people build the business”.

Effective performance appraisals are critical not only for an individual’s growth and development but also for a team’s performance. Effective performance appraisals can increase productivity, motivation, and engagement; they can improve working relationships and talent retention.  But the imperative word here is ‘effective’.

A recent study revealed very thought-provoking statistics: only around 50% of all companies conduct annual performance appraisals and furthermore, only around 50% of employees believe their performance appraisal is effective. Why is that?

I believe the answer to that lies in the fact that the right performance appraisal culture is missing. Although many organizations follow processes and procedures, they lack the culture to embrace and support this activity. Even if they attempt to create the right organizational culture, it will take a few performance-appraisal cycles to institutionalize the change. This is not an easy task and certainly not a short-term undertaking. It is an ongoing, dynamic, and fragile journey that will require positive reinforcement along the way. So, how do we create the right culture?

Drawing from my experiences and my many mistakes along the way, I believe the following four elements need to be addressed to create the right performance appraisal culture.

1.     Make performance appraisal part of the organization’s purpose

When embarking on such culture development/change in the workplace, one must begin with a purpose. Today, employees like to know they are making an impact and contribute to the success of their organization. So, first and foremost, managers and staff need to understand and appreciate the ‘why’, of the performance appraisal system. The process’s objectives and deliverables should be linked to the overall goals and values of the organization to be able to drive everyday company behavior and create a more aligned and stronger performance culture.

The individual’s objectives should also be aligned with the company’s strategy. Only then performance appraisals will have an emotional engagement, will be accepted genuinely, will obtain the buy-in from the employees and will have a direct impact on business results.

2.     Develop a credible, reliable and trustworthy performance appraisal process

I will focus on three main issues that I consider critical in a performance appraisal process. If you get them right, most likely than not you will have a bulletproof process, that will strengthen your culture development journey.

First, set clear and challenging expectations

As cliché as it sounds, the most important step in the performance appraisal process is the goal setting aspect. It all starts from here! It is essential that your team has absolute clarity and alignment on what is expected of their performance. If this is not done right everything else will fail.

Invest time, a lot of time, to set SMART goals with your team. I will not elaborate on that, just make sure, you’ve embedded goals that stretch and challenge the team and create that healthy feeling of anxiety as they embark on their execution. These objectives will push them out of their comfort zone. These are the objectives that will help them develop and grow.

Second, encourage communication and review constructively performance against expectations

This is the main execution part of the process and naturally the most difficult. Therefore, it is important to prepare well before the evaluation process discussion. Make sure you encourage healthy communication with an unbiased and open conversation. You must be specific and clear on how you evaluated their performance toward each objective.

Give many examples. The more examples you give the more they will be able to understand, accept and act on the feedback. And don’t let recent events affect your judgement, your evaluation covers their performance for an entire year.

Reinforce positive behavior by recognizing and rewarding objectives that were successfully overdelivered. And focus on constructive feedback, that is, examine their areas for improvement, and how they can use their strengths to overcome performance issues. Most importantly be honest, but not brutal. Deliver feedback how you’d want to receive it!

A good chunk of the discussion should be focused on their personal development, what they have done or not done towards that. This tends to be forgotten or under-valued in the process. How prepared they come to discuss their own and their team’s development plans, is a big indication on how seriously they take their professional development and their career.  

Third, calibrate results across the organization

An inherent issue with the performance appraisal process is that no matter how well defined the appraising dimensions are, judgements on performance are usually subjective. Thus, ratings by different managers, from different functions/business units, with vastly diverse experiences and backgrounds are usually incomparable. What is excellent work for one manager may be unacceptable/average for another manager.

HR department plays a crucial role in dealing with this issue. To reduce this as much as possible, clear objective definitions of the rating scale must be clarified and explained to the entire organization. And a detailed calibration of results across all functions/business units should be carried out to ensure consistency. This calibration process is critical and is required to give validity and ensure ratings are fair across the organization.

3.     Offer appropriate and timely training

Setting the right objectives and giving effective and developmental feedback is not easy nor simple by any means. And it doesn’t come naturally to many people. Especially, if the feedback is challenging. This is a ‘people process’, hence unpredictable, potentially emotional, and stressful. Therefore, appropriate and timely training must be offered to managers on how to set the right objectives and how to be effective in communicating and delivering performance appraisals. In higher levels some ‘coaching’ training would probably be even more appropriate.

4.     Treat performance appraisal as an ongoing process

Finally, don’t treat performance appraisal process as once-a-year event. This should be an on-going activity; monitor performance against key expectations and provide regular, informal feedback throughout the year. There shouldn’t be any surprises come year-end review time.

I recommend  quarterly face-to-face alignment meetings to discuss progress and make any changes needed. Nowadays, the business environment is so dynamic and everchanging, very rarely, all the objectives you set at the beginning of the year will be relevant until year end – so the process should be dynamic and allow for adjustments.

In summary, leadership is the most important building block in developing and maintaining the right performance appraisal culture. In creating such culture, leaders need to ensure that employees are able to see the ‘why’ behind the ‘what’ of the process; they need to set clear expectations and provide constructive performance feedback against those objectives; they need to ensure the process is fair and equitable across the organization; they should receive and offer training to ensure the task is effectively executed and finally they should treat this as an all-year round ongoing activity. 

Only then, leaders will be able to set the tone, motivate and inspire their employees to reach their full potential and excel on multiple levels.