In this paper, I discuss the popular performance appraisal methods, and how they have developed and changed over time. In a performance-based pay system, Performance Appraisal is important to link employee's performance and pay. I will show how performance appraisal became important as a communication tool, through the improvement. I choose two popular methods, MBO and Rating scale.
The MBO (management by objectives) method was first used in the 1950s. Douglas McGregor suggested that the MBO is an effective tool for performance appraisal. He criticized old methods, such as rating scales, based on the assumption that management is in the best position to evaluate employees' performance and behavior by "playing God" and by passing judgment from above. He proposed a more collaborative approach where management and employees jointly decide their goals, thus asking for a change in the job description. In the 1950s, the job description did not specify responsibilities and was only applied to clerical workers.
After the 1950s, the MBO became popular, especially for exempt employees (i.e. professional, technical, and executive), and the job description was defined for managers and professionals. A clear definition of their jobs was needed to show the basis of their salaries. The American Management Association supported this idea.
But even after specifying the job description, the MBO needed modification and adjustments to be more effective. In the collaborative mode, communication is essential, although sometimes only the boss decides the goal and the subordinates are not eager to participate in the process of performance appraisal. It is important that the top executives have to understand the philosophy of the MBO and not just the implementation. The MBO improved through these collaborative activities and discussions.
The rating scale method is a popular appraisal technique for non-exempt employees (i.e. clerical workers). It was born in the 1920s and remains popular. Like in MBO, the implementations of the rating scale have also changed. While the early application of performance appraisal emphasized administrative uses of appraisal (i.e. compensation and placement decisions), emphasis has shifted toward dual uses of appraisal for administrative and developmental-motivational purposes. I examine the actual implementation of performance appraisal methods in certain companies and how it has changed through time.
In the 1980s, many companies in the US changed the performance appraisal system. The reasons given were the lack of clear responsibility, insufficient feedback, de-motivation and so on. Motivation was an especially important factor. Some companies used a method to force a normal distribution of appraisals around the average or mean performance of all members of the working group. The forced distribution technique was used in about half of all US companies in the 1980's. Research on Fortune's hundred companies shows, however, that the shape of the distribution is not normal and that both the desired and the observed distributions are clearly top heavy. If the distribution was pre-determined, some people would get lower ratings as they would be evaluated relative to others. This may de-motivate, have psychological effects, and even prevent teamwork. These demerits cannot be overlooked. Employees' review of results also caused the abolition of forced normal distribution, the results of which were not based on employee job performance and were deemed unfair. After the 1960s, the equal employment opportunity became a big issue, so the job description was defined and updated for all employees. The EEO changed the appraisal procedures. The feedback of the result to employee became popular to avoid law suits.
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