A corporate president put a senior executive in charge of a failing operation. His only directive was “Get it in the black.” Within two years of that injunction, the new executive moved the operation from a deficit position to one that showed a profit of several million. Fresh from his triumph, the executive announced himself as a candidate for a higher-level position, and indicated that he was already receiving offers from other companies.

The corporate president, however, did not share the executive’s positive opinions of his behavior. In fact, the president was not at all pleased with the way the executive had handled things.

Naturally the executive was dismayed, and when he asked what he had done wrong, the corporate president told him that he had indeed accomplished what he had been asked to do, but he had done it single-handedly, by the sheer force of his own personality. Furthermore, the executive was told, he had replaced people whom the company thought to be good employees with those it regarded as compliant. In effect, by demonstrating his own strength, he had made the organization weaker. Until the executive changed his authoritarian manner, his boss said, it was unlikely that he would be promoted further.

Implicit in this vignette is the major fault in performance appraisal and management by objectives—namely, a fundamental misconception of what is to be appraised.

Performance appraisal has three basic functions: (1) to provide adequate feedback to each person on his or her performance; (2) to serve as a basis for modifying or changing behavior toward more effective working habits; and (3) to provide data to managers with which they may judge future job assignments and compensation. The performance appraisal concept is central to effective management. Much hard and imaginative work has gone into developing and refining it. In fact, there is a great deal of evidence to indicate how useful and effective performance appraisal is. Yet present systems of performance appraisal do not serve any of these functions well.

As it is customarily defined and used, performance appraisal focuses not on behavior but on outcomes of behavior. But even though the executive in the example achieved his objective, he was evaluated on how he attained it. Thus, while the system purports to appraise results, in practice, people are really appraised on how they do things—which is not formally described in the setting of objectives, and for which there are rarely data on record.

In my experience, the crucial aspect of any manager’s job and the source of most failures, which is practically never described, is the “how.” As long as managers appraise the ends yet actually give greater weight to the means, employ a static job description base which does not describe the “how,” and do not have support mechanisms for the appraisal process, widespread dissatisfaction with performance appraisal is bound to continue. In fact, one personnel authority speaks of performance appraisal as “the Achilles heel of our profession…”¹

Just how these inadequacies affect performance appraisal systems and how they can be corrected to provide managers with realistic bases for making judgments about employees’ performance is the subject of this article.

Inadequacies of appraisal systems

It is widely recognized that there are many things inherently wrong with most of the performance appraisal systems in use. The most obvious drawbacks are:

• No matter how well defined the dimensions for appraising performance on quantitative goals are, judgments on performance are usually subjective and impressionistic.

• Because appraisals provide inadequate information about the subtleties of performance, managers using them to compare employees for the purposes of determining salary increases often make arbitrary judgments.

• Ratings by different managers, and especially those in different units, are usually incomparable. What is excellent work in one unit may be unacceptable in another in the same company.

• When salary increases are allocated on the basis of a curve of normal distribution, which is in turn based on rating of results rather than on behavior, competent employees may not only be denied increases, but may also become demotivated.²

• Trying to base promotion and layoff decisions on appraisal data leaves the decisions open to acrimonious debate. When employees who have been retired early have complained to federal authorities of age discrimination, defendant companies have discovered that there were inadequate data to support the layoff decisions.

• Although managers are urged to give feedback freely and often, there are no built-in mechanisms for ensuring that they do so. Delay in feedback creates both frustration, when good performance is not quickly recognized, and anger, when judgment is rendered for inadequacies long past.

• There are few effective established mechanisms to cope with either the sense of inadequacy managers have about appraising subordinates, or the paralysis and procrastination that result from guilt about playing God.

Some people might argue that these problems are deficiencies of managers, not of the system. But even if that were altogether true, managers are part of that system. Performance appraisal needs to be viewed not as a technique but as a process involving both people and data, and as such the whole process is inadequate.

Recognizing that there are many deficiencies in performance appraisals, managers in many companies do not want to do them. In other companies there is a great reluctance to do them straightforwardly. Personnel specialists attribute these problems to the reluctance of managers to adopt new ways and to the fear of irreparably damaging their subordinates’ self-esteem. In government, performance appraisal is largely a joke, and in both private and public enterprise, merit ratings are hollow.³

One of the main sources of trouble with performance appraisal systems is, as I have already pointed out, that the outcome of behavior rather than the behavior itself is what is evaluated. In fact, most people’s jobs are described in terms that are only quantitatively measurable; the job description itself is the root of the problem.

The static job description

When people write their own job descriptions (or make statements from which others will write them) essentially they define their responsibilities and basic functions. Then on performance appraisal forms, managers comment on these functions by describing what an individual is supposed to accomplish. Forms in use in many companies today have such directions as:

1. “List the major objectives of this person’s job that can be measured qualitatively or quantitatively.”

2. “Define the results expected and the standards of performance—money, quantity, quality, time limits, or completion dates.”

3. “Describe the action planned as a result of this appraisal, the next steps to be taken—reevaluation, strategy, tactics, and so on.”

4. “List the person’s strong points—his assets and accomplishments—and his weak points—areas in which improvement is needed. What are the action plans for improvement?”

In most instances the appraiser is asked to do an overall rating with a five point scale or some similar device. Finally, he is asked to make a statement about the person’s potential for the next step or even for higher-level management.

Nowhere in this set of questions or in any of the performance appraisal systems I have examined is anything asked about how the person is to attain the ends he or she is charged with reaching.

While some may assert that the ideal way of managing is to give a person a charge and leave him or her alone to accomplish it, this principle is oversimplified both in theory and practice. People need to know the topography of the land they are expected to cross, and the routes as perceived by those to whom they report.

Every manager has multiple obligations, not the least of which are certain kinds of relationships with peers, subordinates, and various consumer, financial, government, supplier, and other publics. Some of these are more important than others, and some need to be handled with much greater skill and aplomb than others. In some situations a manager may be expected to take a vigorous and firm stand, as in labor negotiations; in others he may have to be conciliative; in still others he may even have to be passive. Unless these varied modes of expected behavior are laid out, the job description is static. Because static job descriptions define behavior in gross terms, crucially important differentiated aspects of behavior are lost when performance appraisals are made.

For example, in one of the more progressive performance appraisal systems, which is used by an innovative company, a manager working out his own job description prepares a mission or role statement of what he is supposed to do according to the guide which specifically directs him to concentrate on the what and the when, not on the why and the how.⁴ The guide instructs him to divide his mission into four general areas: (1) innovation, (2) problem solving, (3) ongoing administration, and (4) personal.