Employee Performance Evaluation Systems
By Thomas S. Clausen, Keith T. Jones, and Jay S. RichFEBRUARY 2008 - Performance appraisals are a reality in organizations of all sizes and types. The process may take considerable time on the part of supervisors and may require subordinates to gather reams of information and prepare descriptions of their own performance. Some take the process very seriously, while others simply see it as a burden. Supervisors must be careful how they deliver the results, and subordinates must be careful how they respond. Relationships and trust may become permanently strained due to misunderstanding and miscommunication.
An effective system of evaluating job performance should accurately outline employees’ responsibilities and contributions to an organization, motivate employees, and provide valid and important input in personnel decisions. However, employees often find the evaluation system ineffective, and frustrations with their appraisals can lead to discontent, apathy, turnover, or, worse, lawsuits due to real or perceived unfairness. Furthermore, many may find that they are wasting time on administrative matters, and become cynical and unmotivated in the process if they sense that the evaluations do not really matter.
The following survey asked accountants working in government, industry, and public accounting about their perceptions of performance evaluations. Participants were asked general questions, including how often they receive evaluations, whether these evaluations are written or oral, and the relative importance of certain factors in their evaluations. In addition, the survey asked how important respondents believe performance evaluations are for key compensation and promotion decisions. The answers to the latter question may be surprising, especially for employers and employees who may perceive the evaluation process differently. It may be time for organizations to reevaluate whether their systems are meeting their needs and if their efforts add as much value as expected.
How Often Should Performance Evaluations Occur?
Best practices suggest that employees receive performance evaluations at least once per year, but is that really enough? The survey’s first question was how many times per year respondents receive performance evaluations. The answers ranged from zero (typically from those in organizations with three or fewer employees) to 13. The participants were then asked how many evaluations they would like to receive per year. Interestingly, employees who received three or fewer performance evaluations annually wanted more. Moreover, respondents generally indicated they wanted one more than they had had. Those receiving four or more per year, on the other hand, wanted fewer performance evaluations. (In fact, the one participant who received 13 performance evaluations annually preferred to receive zero.)
Finally, the survey asked how satisfied respondents were with the frequency of their performance evaluations. Consistent with their stated preferences, those respondents receiving three or four performance evaluations per year were significantly more satisfied with the frequency than those receiving more or less. Despite the participants’ clear preference for three or four performance evaluations per year, approximately 75% of the sample group received two or fewer.
The authors also asked how frequently performance evaluations included written and oral communication. Across all types of organizations, evaluations included written communications only about half of the time, while oral communications took place most of the time. The survey revealed that participants’ level of satisfaction with the format of their performance evaluations was higher when the frequency of written communication was greater. It is not clear from the survey why this is so; however, one possibility is that written evaluations provide a more comprehensive, uniform feedback mechanism.
What Skills Matter the Most?
One aspect of performance evaluation is providing employees with performance feedback. Such feedback should reinforce the link between employee performance and employer expectations. As such, employers should consider which aspects of performance employees perceive to be the most important, to see if employees’ perceptions match with organizational expectations. Exhibit 1 shows the average weights respondents attached to a number of different skill areas, arranged by sector.
In this survey, participants assigned a rank of 1 to 8 to each skill area, with 8 being their perception of the most important skill at their organization. The authors named seven specific skills and gave participants a chance to write in other factors considered important in performance evaluation at their organizations.
As shown in Exhibit 1, technical competence ranked highest in relative importance among the skills surveyed for all four types of organizations. Interestingly, public accountants ranked technical competence significantly lower than respondents from the other three sectors. It is possible that technical competence is more consistent across practitioners in public accounting than among those in other sectors. If this is the case, other factors, such as interpersonal skills and the ability to gain business, likely begin to separate one employee from another in important personnel-related decisions.
Six participants ranked “other” as most important. The other factors written in as important were “ability to the get the job done,” “achieving results,” “adding value,” “cost reductions,” “customer service/good results,” and “integrity.”
Consistent with many similar surveys, interpersonal skills were a strong second place for all types of organizations, followed by oral communication skills. There were no statistically significant differences between any of the groups relative to these communication-related skills.
The ability to gain new business was a significantly different factor across different types of organizations. Because accounting is a support department in most types of organizations outside of public accounting, bringing in new business may not be part of the typical accountant’s job.
Government employees perceived that their employers attach less importance to performing their jobs within time budgets than in other sectors; all other sectors considered this factor relatively important. One might expect time budget performance to be valued most in the public accounting environment, yet the increasingly competitive business environment may have changed things.
Does Performance Evaluation Matter?
The survey asked participants to indicate how important performance evaluation is for the two following purposes: determining compensation levels and determining promotion potential. Exhibit 2 summarizes the responses to these questions.
The results are surprising because of the rather lukewarm nature of the responses. While generally over half of the participants in each type of organization indicated that performance evaluation is important for compensation and promotion, a surprising number did not agree. Around one-third of the respondents did not perceive performance evaluations to be important for compensation or promotion decisions, or they were unsure. Among public accountants, around half did not think performance evaluations were important for compensation or promotion. Therefore, either their performance evaluations do not matter in the decisions that affect these respondents, or they simply did not see the link.
One might expect that perceptions of the importance of the performance evaluation process would differ depending upon participants’ position in the organization (i.e., nonsupervisory; lower and middle management; or upper management and ownership). Statistical tests did not, however, show this factor to be an important discriminator in the responses. If performance evaluations are not the most important input into compensation and promotion decisions, then what is? It would appear that other, less formal aspects of an organization’s culture are seen as more important. It is also likely that some of the individual factors, such as the ability to gain new business, weigh more heavily than other factors at certain types of organizations (such as public accounting) when assessing suitability for promotion.
Summary and Implications
Across all sectors, respondents were the most satisfied with a frequency of three to four evaluations per year. Respondents were more satisfied with their performance evaluations when they included written communication.
Accounting practitioners of all types viewed technical competence as highly important for performance evaluation purposes, but communication skills were important as well. Although time budgets are often most highly associated with auditing, public accountants did not attach any higher importance to them than did other respondents. Perhaps the increasingly competitive marketplace has made the ability to perform one’s job within time budgets important across the entire private sector.
Surprisingly, respondents did not think performance evaluations were important in determining compensation and promotion decisions, especially in public accounting. Undoubtedly, performance evaluations rarely capture everything relevant in assessing employees’ performance and their contributions to the organization over a period of time. Often, evaluations are forced into standard, predetermined formats that may omit important aspects of performance.
Although one must be careful in interpreting the results, due to the small sample sizes, the organizations represented in this survey invariably encountered one of two situations. On the one hand, perhaps performance evaluations really are key inputs into compensation and promotion decisions, but accountants simply do not perceive them as such. In this case, management must more effectively communicate the link between evaluations and key decisions.
Alternatively, respondents may be correct in their perceptions. This would suggest that organizational values have shifted since the performance evaluation systems were developed. If such a shift is strategic, the organization should update the evaluation system and criteria. It could also indicate superiors are rewarding behavior that the organization does not value; however, there is no direct evidence of this in the data. For example, a superior could reward an employee with a raise or promotion for unethical behavior that helps the unit reach organizational goals (e.g., questionable revenue recognition to meet sales growth targets). In this case, employee dissatisfaction with the performance evaluation system could be a red flag that warrants further investigation.
Considering the time that many supervisors must spend completing their assessments of subordinates’ performance, reviews should accomplish more. An ideal performance evaluation system would provide a key means of communicating whether employees are successfully aligning their efforts with the organization’s goals. Evaluations should reflect employees’ contributions and performance, and motivate them to improve. Key judgments, such as whether an employee should be promoted, should flow from the evaluation.
When management assesses an organization’s performance evaluation system, it should consider the following questions: How frequent are performance evaluations? Are employees satisfied with this frequency? How closely are performance evaluations tied to important personnel decisions, such as compensation and promotion? If employees do not perceive much impact on their paychecks as a result of evaluations, then the system may not be effective. Additionally, if the evaluation does not tie in with organizational goals, linking decisions to performance evaluations will not properly motivate employees.
Although there may be no way to capture everything important in any system of performance evaluation, considering the benefits of an effective system and the costs of a bad system, creating a system that encompasses the needs and expectations of most employees is worth trying.
Based on the authors’ review of websites and prior research (see the Sidebar), the following list of questions reflects factors that seem important for an effective system:
Due to considerable research in accounting, psychology, and organizational behavior, many sources provide information regarding the various aspects of performance evaluation. The following is a brief discussion of a few thought-provoking examples that readers may want to investigate further.
The University of Texas provides a website with a best-practices guide for its supervisors (www.utexas.edu/hr/er/perfeval/index.html). It encourages supervisors to clearly set and communicate expectations for every position, gather data, and communicate on an ongoing basis how well employees are meeting expectations. It stresses that performance evaluation is not a one-time event and that supervisors should gather data about employee performance systematically throughout the year. The website contains links to a sample performance record and a coaching and counseling log. The coaching log calls for supervisors to record the date that specific feedback information is shared with an employee, the employee’s comments, and agreement as to the appropriate action items.
Bacal and Associates, a business and management training and consulting company, has a very useful website (www.performanceappraisals.org/appraisal-library/index.html) that refers to a number of books and articles authored by Robert Bacal and hundreds of other articles by unaffiliated authors. The site has a link to introductory information from Toolpack Consulting, which briefly discusses problems with traditional performance appraisals and offers fee-based custom-designed services. Toolpack Consulting provides a brief discussion of current practices aimed at more effective appraisals, including peer review, self-review, upward assessment (evaluating one’s manager), and “360-degree review,” in which one receives feedback from supervisors, subordinates, and peers. The company suggests involving the affected employees in the design of any new system. Employees should know what is expected and buy into the system.
One caveat often noted by experts is that just because one approach works at one organization, this does not mean it will automatically work at another. A wealth of information is available for organizations to draw upon. The success of any initiative may depend upon the effectiveness of its delivery. Any system needs to fit an organization’s strategy and culture. Performance evaluation systems are important for all kinds of organizations, but they are never perfect. As in all business processes, continuous improvement is needed if performance evaluation is to be of value.
Thomas S. Clausen, PhD, CPA, is an assistant professor of accounting in the department of accountancy at the University of Illinois at Springfield.
Keith T. Jones, PhD, CPA, is an assistant professor, and Jay S. Rich, PhD, CPA, is an associate professor, both in the department of accounting at Illinois State University, Normal, Ill.