Performance appraisals: Pitfalls and promises

By better understanding the performance appraisal process, organisations can develop more effective performance appraisal systems, say Professors Gary Greguras and Jochen Reb from SMU Lee Kong Chian School of Business.

Back to Research@SMU Issue 32

By Nadia El-Awady

SMU Office of Research – Records from the Wei Dynasty in China showed that businesses had been assessing their employees for nearly 2,000 years as writings from that period even questioned the biases of the rater.  

A surge in performance appraisal research occurred around the middle of the 20th century and performance appraisals remain a topic of interest to scholars and practitioners.

Professor Gary Greguras and Associate Professor Jochen Reb from Singapore Management University’s Lee Kong Chian School of Business, who specialise in organisational behaviour and human resources, have individually and collaboratively, contributed for many years to a growing body of research on modern day performance appraisal systems. They became interested in this topic because of its relevance and pervasiveness in all types of situations – for example, students are evaluated and also evaluate their instructors; managers evaluate employees’ performance; and customers evaluate organisations.

“Past research showed that various rater errors and biases affected performance appraisals,” says Professor Reb. “By better understanding the performance appraisal process, organisations can use this knowledge to develop better, more valid and effective performance appraisal systems.”

Among their interesting findings was that “performance trend” had a very strong effect on overall performance evaluations. Performance trend describes how an employee’s performance changes dynamically over time: improving, deteriorating or remaining steady. They found that when employees with a similar overall performance level were appraised, managers evaluated those with an improving trend more positively than those with a declining or flat trend. Professor Reb explains that managers generally interpret an improving trend as indicative of an employee undergoing a process of learning in order to perform at a higher level. Performance trend also has a stronger effect when employees are evaluated for being sent to a skills development programme.

On the other hand, the overall mean-level of performance across the evaluation period, was more important when employees were evaluated for promotion and administrative purposes. Both Professors Greguras and Reb argue that this makes sense given that performance trend is likely to be more relevant for developmental purposes, whereas performance level is important for rewarding employees based on performance.

The uncertainty of the appraisal process

In 2014, Professors Greguras and Reb, together with a colleague from the Max Planck Institute of Human Development in Germany and a colleague who is now at the University of British Columbia in Canada, contributed a chapter to “Judgment and Decision Making at Work”, a book published by Routledge. Their chapter, “Performance Appraisals as Heuristic Judgments Under Uncertainty”, reviewed existing studies on areas of judgment and decision-making related to performance appraisals with the aim of identifying where future research would be promising.

“Two of the co-authors came from a judgment and decision-making background and two came from an industrial-organisational psychology background,” says Professor Greguras. “We met to write a chapter at the intersection of these fields, examining judgment and decision processes within the context of performance appraisals. We complemented each other by identifying relevant research theories and models from our respective areas such that the whole was more than the sum of its parts,” he says.

A major concern for researchers and practitioners, the chapter’s co-authors found, was that performance ratings and actual performance did not always match. This suggested that evaluators were less than perfect in their appraisals and/or that rating accuracy might not always be the primary goal of a rater. Existing research clearly indicated that factors other than performance affected overall evaluations (for example, similarity between the rater and ratee, and organisational politics). The chapter’s co-authors emphasised the importance of further research on the various individual, organisational and cultural factors that affect performance ratings and the effectiveness of performance appraisal systems.

Understanding decision-making

A variety of factors, including how information is framed, can affect managers’ decision-making processes and evaluations. Raters evaluated performance information presented in a positive frame (for example, 97% attendance) more favourably than identical information presented in a negative frame (for example, 3% absence).

Even completely irrelevant information can affect a manager’s decision. For example, in one study, athletes with larger numbers printed on their jerseys were evaluated as more likely to perform better in a future game than athletes with smaller numbers on their jerseys.

Despite the inherent difficulty of accurately evaluating employees’ performances, evaluators tend to show a remarkable amount of overconfidence in their judgments. This overconfidence may influence them to overlook the use of decision aids that might help them make a more accurate judgment.

“Given the important consequences of performance appraisals for employees and organisations, organisations inherently have an interest in improving performance appraisal systems and judgments. Ultimately, researchers and human resource practitioners also need to present their findings in a way that demonstrates practical relevance for managers,” says Professor Greguras.

The interplay of emotion and culture

It is only recently that research has begun to investigate the roles of emotions and culture in performance evaluations. Past research focused more on the cognitive processes involved in decision-making related to performance appraisals.

Managers’ decision-making, for example, was recently found to be affected by their anticipated feelings of guilt or regret over the outcomes of their decisions. Their own emotional state during the appraisal process can also affect their judgment. This was less the case when evaluators were aware that their emotions were influenced by something unrelated to the appraisal. However, if they find themselves unable to pinpoint the source of their emotion, they might attribute it to information about the employee’s performance, leading to a more negative rating if they were experiencing negative emotions.

An interesting yet uncommonly addressed area of research in this field is the influence of culture on the appraisal process. Both Professors Greguras and Reb have made this one of their more recent research areas of focus.

“We are currently looking at the evaluation of dynamic performance across East and West,” says Professor Reb. Judgment-making in Western cultures, he explains, is more dominantly analytic, while in Eastern cultures it is more holistic. Also, employers from Eastern cultures tend to highly value employees who defer to superiors, which is often not the case in the more individualistic Western cultures. Not only can culture affect the evaluator, it also affects how employees construe and respond to negative feedback. More research is needed to better understand this in order to maximise the benefits of feedback interventions.

There is much need for an in-depth understanding of judgment and decision-making processes involved in performance appraisals, says Professor Greguras. On the practical side, raters could benefit from explicit instructions or training to focus on dynamic performance characteristics such as performance mean, trend and variation, says Professor Reb. Raters and ratees should also receive clear definitions of performance.

Finally, both the professors recommend more research that takes basic findings – such as those coming from their research – and translate them into valid and practical applications for performance appraisal systems.