Amidst a sea of policies, procedures, tactics and best practices, one of the most critical tools an organization must have in place is a credible performance evaluation system that will serve to increase productivity and efficiency, improve customer satisfaction and market share and increase employee commitment.

With a well-developed system in place aligning organizational, team/departmental and individual goals, the organization will be in a much better position to achieve their overarching financial goals.

A survey of 203 top executives across all industries representing organizations in sales ranging from $27 million to $50 billion resulted in the following major findings (Towers Perrin 2002):

  • Organizations in which employees are measurement-managed were identified as being in the top one-third of their industry (83 percent versus 52 percent).
  • Employee performance measurement is the single most important measurement area that separates successful firms from less successful firms.
  • High performance companies are more likely to directly link pay to the performance management process than lower performing companies.

It is essential for organizations to connect the strategy, vision and values of the organization to the work of teams and individuals. Team/departmental and individual goals need to measure both "what" is done (objectives) and "how" it is done (behaviors).  If the right model is implemented, then the organization will reinforce superior performance with financial awards allowing significant differentiation between high and low performers.


It's important to address a "best practice" performance management evaluation system that will ensure an organization's ability to attract, retain and motivate key talent in today's increasingly competitive marketplace. A performance evaluation program that is aligned with the organization's mission, vision and values will contain the following components:

(1) Behavioral attributes/values (the "how" of performance)

(2) Objectives (the "what" of performance)

(3) Development plan 

Behavioral Attributes

The first component of the performance evaluation system looks at behavioral attributes/values and addresses the manner, methods and behaviors through which objectives will be attained. Behavioral attributes are "how" results should be achieved to ensure short-term results are not achieved at the expense of long-term business results at the expense of our values, or the expense of employees or customers. Mastery of behavioral attributes is necessary for employees to be in alignment with their culture.  Some examples of behavioral attributes are:


(1) Flexibility/adaptability

(2) Communication

(3) Innovation

(4) Risk taking

(5) Technical expertise


(6) Developing others

(7) Teamwork 

These types of behavioral attributes would be the same for all employees in an organization; however, some may only be applicable at the management level (i.e., development of people or budgetary responsibilities).


The second component of a performance evaluation system is objectives. The objectives are where the rubber meets the road. The objectives may be organizational, team/departmental, or individual. All objectives should follow SMART criteria:

(1) Specific


(2) Measurable

(3) Attainable

(4) Relevant

(5) Time-bound 

Specific criteria are the reason why the job exists. This is where you are focusing on the results. Measurable criteria are quantitative. The question that must be addressed is: "How will I know when I have reached the desired result?" Then, look at whether the objective is attainable: "Did we set realistic targets?" "Is there a reasonable chance targets will be achieved?" Next, consider relevance: "Is there a direct link to an employee's job that supports departmental/team objectives?" It is here where an organization must ask the question: "Is this task relevant to the department goals or the job?" 

The final set of criteria is referred to as time-bound. It is extremely important that companies establish specific due dates. If an objective is due to be achieved at the end of the year, then the organization must break it up into milestone dates where successes can be achieved along the way toward achievement of the overall goal. The question becomes: "When can these results be achieved?"

Development Plan

The final component of a performance evaluation system should include a development plan.  The development plan is critical for the development in an individual's current position, as well as the development for future career progression opportunities. The development plan should contain the following elements:

(1) Targeted development needs

(2) Action plan

(3) Target dates

(4) Completion dates

Employees should play an active role in their own development while organizations provide the environment, resources and ongoing coaching and feedback necessary for the employee's growth. With the coming workforce crisis, organizations will need to have a sufficient number of employees developed to take on higher levels of responsibilities as baby boomers begin to retire.

Why Performance Appraisals Fail

So, with a performance evaluation system in place, why do some performance appraisals fail?  There are many reasons for this:

  • The manager is not adequately prepared.
  • The employee does not have effective performance objectives at the beginning of the performance review cycle.
  • The supervisor may not be able to observe performance or have all of the information.
  • The performance standards are unclear or unrealistic.
  • There is inconsistency among the various raters.
  • The system is actually rating personality rather than performance.
  • The halo effect, contrast effect or some other perceptual bias comes into play.
  • There is an inappropriate time span (either too short or too long).
  • Inflated ratings are given because supervisors do not want to deal with "bad news."
  • Subjective or vague language is used in written appraisals.
  • Organizational politics or personal relationships cloud judgments.
  • There is a lack of discussion regarding causes of performance problems.
  • There is no follow-up and coaching after the evaluation.
  • The supervisor may not be trained in how to do an effective performance evaluation or in giving feedback.

Giving Feedback

In order for a performance evaluation system to be value-added, it is extremely important for managers to be trained in how to give appropriate feedback on an ongoing basis. This happens to be the No. 1 reason why the performance appraisal process fails. Once a manager has communicated their expectations to employees, they must take time to observe an employee's work and provide timely feedback on their performance.

Two types of feedback that a supervisor needs to provide employees with are motivational and corrective. Motivational feedback should be given immidiately after the employee has performed the task. This behavior on a manager's part is critical to encouraging and supporting the person. Corrective feedback should be given just before the individual does the task again. It is possible to give the employee both motivational and corrective feedback at the same time if the task will be repeated right away. However, when the task will not be repeated right away, they should be done separately.

A manager's feedback should be specific and focus on the behavior of the employee-not their personality.  It is important to recognize what the employee did that was important.  Many managers simply say to an employee, "Great job!"  How will the employee know what is being reinforced?  Managers must identify exactly what it was that the employee did and why it was so important.

Feedback needs to be balanced. It is critical not make the common error of glossing over an employee's deficiencies and focusing only on his or her strengths. Helping an employee to recognize deficiencies will help him or her to develop into a stronger person and a more valuable asset for the company. In order for a manager to provide credible feedback that is balanced, he/she must provide an environment where an employee has the tools and support system to take ownership for performance and make improvements in those areas required. And what will be the result? Employees will learn to take pride in their work and will be willing to take on more challenging assignments with confidence. 

Rewarding Performance 

One of the key goals of a performance evaluation system is administrative-rewarding performance with pay.  With a merit pay system, it may be appropriate and efficient to review an employee's salary at the time of the performance evaluation.  This alignment between performance and pay could make the company and its employees take the performance evaluation process more seriously and at the same time reinforce a pay-for-performance environment.  A separate discussion regarding a pay increase should be held to ensure the focus on the initial discussion is on performance and not pay.

Benefits of a Performance Appraisal System  

In the final analysis, an effective performance appraisal system will help an organization achieve its mission, vision, values and strategic goals.  Such a system can help an organization to:

  • Hire employees that exhibit both the "how" and "what" of performance to ensure an organizational fit.
  • Know how each employee's job can further the overall goals of the organization.
  • Evaluate each employee as an individual and evaluate the employee's strengths and areas for further development.
  • Reward key players to foster loyalty and motivation.
  • Sustain high levels of employee morale through ongoing coaching and feedback.
  • Identify the needs of the workforce to ensure employee retention and increase organizational productivity and creativity.
  • Reduce the risks of complaints and litigation by ensuring employee's are treated fairly and consistently.
  • Identify problem employees early on and either turn them into productive workers or lay the groundwork for discipline and, if necessary, termination.
  • When the day is done, this translates into better employee performance, which leads to increased organizational productivity and ultimately to higher profits. 

Also, remember that if the heart of the performance appraisal process is designed to improve employee performance, then managers must focus more on what the employee can do going forward, not just how the employee did in the past.  


Construction Business Owner, September 2007