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Table of contents
Effectiveness of the current performance appraisal system (forced ranking distribution) 6
Validity of the current performance appraisal system.. 9
Executive summary
This report analyzes the case study involving Appraisals at Red Square Industries. This company has a five-level system of appraising the staff members using the forced ranking distribution method. The report begins by introducing the concepts of performance appraisal, forced ranking distribution, its advantages and shortcomings.
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The effectiveness of the current performance appraisal system is analyzed in great detail with specific reference to different theories and models as they apply in the events described in the case study. This sheds light on the need to bring about compatibility between maintenance of quality and high levels of performance. The analysis also brings into sharp focus the need to adapt the existing appraisal system to the organizational culture of Red Square Industries.
Introduction
Performance appraisal is a process through which an employee’s job performance is evaluated mainly in terms of cost, quantity, quality and time, by the employer. Performance appraisal is one of the ways through which employees’ career development activities are carried out. The process entails analysis, obtaining and recording of information about an employee’s relative worth in the organizational context.
Forced ranking distribution is one of the most commonly used methods in performance appraisal. In this system, managers evaluate each individual employee and then rank them into different categories, for instance, ‘excellent’, ‘good’, ‘average’, and ‘poor’. Although this system is relatively widely used, it remains somewhat controversial because of the nature of the competition that it generates. The fact that all employees can never fit perfectly into the set categories means that the appraisal results do not reflect the true level of their performance.
The main advantage of forced distribution is that it forces reluctant managers to make rather difficult decisions by identifying the most as well as the least talented employees in a given workgroup. The system also creates a culture of high levels of performance, whereby there is continuous workforce improvement.
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However, when the competition is too high, it becomes cut-throat and unhealthy. The system can also discourage employees from engaging in teamwork and collaborations both at the departmental level and across departments. Sometimes, teamwork may fail even among peers who previously used to accomplish difficult tasks through the sharing of ideas. Lowly-ranked employees may lose morale. Moreover, the system raises legal concerns, especially with regard to discrimination on the basis of the age of the employees.
The case study of Red Square Industries highlights some serious shortcomings of forced ranking distribution. The CEO of the company is facing a crisis, whereby lowly employees lose morale. Such employees have in the past been avoiding responsibilities, claiming that the highly-rated employees should do everything since they are the stars.
At Red Square Industries, the forced ranking distribution categorizes employees into five levels. The top 10 percent are rated as excellent, followed by the next 25 percent, who are considered ‘good’ performers. The next 45 percent are categorized as ‘acceptable performers’. Marginal performers comprise the next 15 percent and are therefore rated 4. Poor performers are rated 5 and are put on probation ranging between 3 and 6 months. Such employees are often considered for termination if their performance level does not improve within this duration.
In this company, this strategy creates problems relating to morale, competition, and remuneration. This report analyzes these problems and suggests solutions based on various theories and models. In this context, the validity of the current performance appraisal system is assessed and recommendations are made.
Effectiveness of the current performance appraisal system (forced ranking distribution)
Scholtes (1993) argues that total quality management and performance are incompatible. The main reason for this state of affairs is that total quality management requires systems-thinking, customer-consciousness and an understanding of the variations in teamwork. Moreover, mastery of various improvement methods is needed. Employees need to be motivated in order to deliver quality work. Performance appraisal, on the other hand, seeks to understand and control processes with the aim of improving them in order to bring about efficiency, satisfaction and profitability (Feldman, 1981). This makes it difficult for human resource managers to choose both total quality management and performance appraisal.
In this case study, the person in charge of performance appraisal is already experiencing problems in efforts to maintain both performance appraisal systems and total quality management. The main problem is that lowly ranked employees feel discouraged to continue working for the company. They prefer to leave all tasks to the ‘stars’, which is the term used to refer to excellently ranked employees.
The forced ranking distribution system has created ill-feeling in the organization because it is unfair and inaccurate. The company finds it difficult to terminate the employment of lowly ranked employees who belong to the union. This application of double standards makes the other lowly-ranked students to feel as if an injustice has been committed against them. According to Danielle, Wiese, &Ronald (1998), the methods used in performance appraisal have remained ineffective despite receiving a lot of attention from practitioners and scholars.
Jai (1995) notes that performance appraisal is the main cause of quality problems in many American industries. The unfairness of today’s performance systems such forced ranking approach is that they hold the employees responsible for problems that may have been caused by a fault within the system(Folger & Konovsky, 1992). Moreover, it leaves out issues of quality. The forced ranking approach is only aimed at reward systems, that is, management by objectives, goal-setting and pay for performance. In such scenarios, it is difficult for employees to provide quality while being appraised positively.
The numerical relative ranking approach that are used in the case study results in many employees being inevitably being categorized in the ‘below average’ or average’ category. For instance, 45% have to belong to the category of merely ‘acceptable’ performers while 15% are set to join the category of marginal performers. This creates a high percentage of employees who are ranked extremely unfavorably. This creates a situation whereby good performance may be denigrated merely it is rather low compared to other performances in the group.
The performance appraisal system that is being used at Red Square Industries has not been tailored to the needs of the organization. The decisions on employees are supposed to be based on the output of the system and not the performance appraisal system criteria. In order for the appraisal system to function well, three main areas of assessment need to be put into consideration; they include system control, system monitoring, and furnishing feedback to the people who are using the system(Martin&Bartol, 1998).
Human resource managers at Red Square Industries also failed to put into consideration the matter of people who belong to unions, such employees have a greater bargaining power than those who do not belong to the union. Either the appraisal system should be made to reflect this difference, or it should be replaced by a different one.
In terms of control, all facets of the performance systems are not being properly coordinated. The existing perceptions on performance appraisal are negative. Employees are assigned names by their colleagues on the basis of their membership in a certain forced rank, hence the use of names such as ‘stars’, ‘starlets’, ‘workhorses’ and ‘dogs’. These derogatory words are an indication of lack of any training relating to the rationale behind and the importance of performance appraisal.
The employees of the company, it appears, do not understand the role of the rater, the organization and rate as well as the manner in which the appraisal results are used. According to Prendergast & Topel (1993), the ideal performance system is one whereby all the provisions for an individual’s written standards of performance are well-known by the employee. Where possible, the employees can even be involved in the formulation of these standards (Prendergast & Topel, 1993).
Recent research in the field of procedural justice gives the suggestion that fairness ought to underlie all decisions and actions relating to employee performance, including continued use of performance appraisal ratings (Napier, 1986). This can be accomplished by incorporating individuals’ goals into the appraisal process. Where possible, a self-rating mechanism appears to be the most motivational approach, since it ensures that employees are not appraised using the standards of just a few people within the social class hierarchy.
The forced ranking distribution ranking approach also fails to consider discrepancies in employees’ level of experience and their familiarity with the organization’s structural operations(Roberts, 2003). Ideally, the results of the company’s appraisal system ought to apply only to those employees, who despite familiarity with the job, fail to perform according to the set standards (Prendergast & Topel, 1993). This weakness may be attributed to the relegation of the system, which is currently being undertaken by the personnel department. Initially, the appraisal system was being promoted in the form of a management program.
Furthermore, it appears that there is no appeals procedure for enabling the employees to express their views on the level of success of the performance appraisal program. If such a procedure exists, it is not being used effectively or the suggestions expressed are not being acted upon in the right manner.
Validity of the current performance appraisal system
There is lack of consistency between the method of appraisal being used and the established organizational culture at Red Square Industries. These changes, while alienating employees from the company’s organizational structure provide a justification for the company to award pay increases to its employees. Without this understanding, employees may find it difficult to continue feeling like they are an integral part of the company.
The refusal by senior managers in some departments to rank any of the employees under them in either 4th or 5th ranks adds to the feeling of unfairness among employees who work in other departments. In such departments, most employees are stars and starlets, not because of their high level of performance, but because of the influence exerted on the process by senior managers.
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The case study of Red Square Industries touches on the implicit person theory (IPT) in a significant manner, because of the issue of the malleability of one’s personal attributes such as ability and personality. When managers are not convinced about the level of change in an employee’s behavior, this may lead to unfavorable rankings. This means that the criteria use may not be as objective one may think whenever time for practical application (Heslin, 2005). Implicit theories are simply laid beliefs concerning the level of the malleability of one’s personal attributes (Townley, 1997). Prototypically, an entity implicit theory fronts the assumption that each person’s attributes are to a large extent a fixed entity. On the other hand, the incremental implicit theory is based on the assumption that someone’s personal attributes are always relatively malleable.
In this context of the case study of Red Square Industries, the implicit person theory is relevant in terms of their influence on different aspects of self-regulation, such as the goals that individual employees set. If one considers the manner in which the performance appraisal standards are being set and measured in this organization, it is clear that the individual needs of employees have been ignored.
Moreover, IPTs appear to influence the performance appraisal standards that are set by different managers (Heslin, 2005). In the given case study of Red Square Industries, different managers seem to use different yardsticks when appraising employees. No wonder a certain manager did not believe that the employees in his department deserve to rank in grades 4 and 5.
Heslin (2005) highlights the differences in the opinions of incremental theorists compared to those of entity theorists. He notes that positive first impressions always possess a more enduring effect on all subsequent judgments for entity theorists compared to incremental theorists. However, in contrast to entity theorists, incremental theorists tend to pay much more attention to information that contradicts their preexisting positive stereotypes(Carson &Dobbins, 1991, Arvey & Murphy, 1998). However, it is not clear whether the patterns of attention allocation observed have an effect on the way participants judge others in subsequent assessments.
In this case study, incremental theorists are those who fail to appreciate a drop in the level of performance of different employees. On the other hand, entity theorists are reluctant to show any leniency towards employees whose performance standards seem to fall below the expectations of the organization (DeNisi, 1984). Growth-oriented beliefs among managers could be the main source of motivation for incremental theorists’ failure to acknowledge employees’ poor performance in one department at Red Square Industries.
According to the performance appraisal theory, appraisal ratings ought to be a reflection of nothing else other than the performance of an employee (Banks, 1985). However, in some cases, such as that of Red Square Industries, it reflects assimilation, escalation of commitment and prior impression effects. In other words, different theoretical perspectives provide proof that performance appraisal ratings are always unduly influenced by information and judgments that accumulated prior to commencement of duties by the employee.
Recommendations
The aim of performance appraisal is to determine the level of an employee’s performance relative to that of other employees. However, managers at Red SquareIndustries seem to be in problems with regard to how they should implement an efficient performance appraisal system without hurting quality and morale.
The first measure that the managers should do is to ensure that there is uniformity in use of the forced ranking distribution approach in all departments. Secondly, the performance appraisal procedures being applied should be compatible with the organizational culture of the company. In its current state, only a few employees appear to appreciate it. This is injurious as far as matters of career development and improvement in quality and morale are concerned.
Thirdly, human resource managers should stop giving preferential treatment to employees on the basis of the power of their first impression. On the same note, they should never accord favorable treatment to poor performers just because they are members of a certain union. The performance appraisal standards should apply to everyone in order for the whole undertaking to retain its meaning.
Lastly, there is need for the organizational culture at the company to be changed. The fact that confidential information on employees’ levels of performance always leaks is an indication of a negative culture whereby some employees blatantly violate the privacy policies of the company. This is the surest way of getting rid of a mentality that accords prejudicial names to people who belong to different performance levels.
Conclusion
In summary, this case study presents a scenario that takes place in many modern companies where the forced ranking distribution method of performance appraisal is being used. Both incremental theorists and entity theorists agree on the role that performance appraisal plays in aggravating the problem of low morale and failure of teamwork.
However, theorists and human resource practitioners do not agree on how these challenges should be dealt with. For this reason, further research is needed in order for a common ground to be reached with regard to ways of transforming performance appraisal systems in order to make them more effective.
References
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Banks, C. (1985) Toward Narrowing the Research-Practice Gap in Performance Appraisal, Personnel Psychology, 38(2), 335–345.
Carson, K. & Dobbins, G. (1991) Performance Appraisal as Effective Management or Deadly Management Disease: Two Initial Empirical Investigations, Group Organization Management, 6(2), 143-159.
DeNisi, A. (1984) A cognitive view of the performance appraisal process: A model and research propositions, Organizational Behavior and Human Performance, 33(3), 360-396.
Feldman, J. (1981) Beyond attribution theory: cognitive processes in performance appraisal, Journal of applied psychology, 66(2), 127-148.
Folger, R. & Konovsky, M. (1992) A due process metaphor for performance appraisal, Research in Organizational Behavior, 14, 129-177.
Heslin, P. (2005) The Effect of Implicit Person Theory on Performance Appraisals, Journal of Applied Psychology, 90(5), 842–856.
Jai, G. (1995) Creating quality-driven performance appraisal systems, Academy of management executive, 9(1), 32-41.
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Napier, N. (1986) Outcome Expectancies of People Who Conduct Performance Appraisals, Personnel Psychology, 39(4), 827–837.
Prendergast, C. & Topel, R. (1993) Discretion and bias in performance evaluation, European Economic Review, 37, 355-365.
Scholtes, P. (1993) Total quality or performance appraisal: Choose one, National Productivity Review, 12(3), 349–363.
The evolution of the performance appraisal process, Journal of Management History, 4(3), 233 – 249
Townley, B. (1997) The Institutional Logic of Performance Appraisal, Organization Studies, 18(2), 261-285.
Roberts, G. (2003) Employee performance appraisal system participation: A technique that works, Public Personnel Management, 32(1), 89-98.
