What Makes Performance Appraisals Effective?

Abstract

Performance appraisals are often criticized and poorly done. However, they are not going away and should not go away. They are needed to effectively manage an organization’s talent. Our research suggests that performance management systems can be effective if they are designed and executed correctly. Performance management systems are effective when they are based on goals that are jointly set and are driven by an organization’s business strategy. The use of competency models that are based on business strategy is strongly associated with organizational effectiveness. When they drive salary increases and bonuses, they are executed better. Often absent but critical to the success of performance management systems is senior management leadership and ownership; much less important is ownership by human resources. Additional keys to effectiveness are training managers to do appraisals, holding them accountable for how well they do appraisals and using measures of how results are achieved.