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What Makes Performance Appraisals Effective?

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Performance appraisals are often criticized and poorly done. However, they are not going away and should not go away. They are needed to effectively manage an organization’s talent. Our research suggests that performance management systems can be effective if they are designed and executed correctly. Performance management systems are effective when they are based on goals that are jointly set and are driven by an organization’s business strategy. The use of competency models that are based on business strategy is strongly associated with organizational effectiveness. When they drive salary increases and bonuses, they are executed better. Often absent but critical to the success of performance management systems is senior management leadership and ownership; much less important is ownership by human resources. Additional keys to effectiveness are training managers to do appraisals, holding them accountable for how well they do appraisals and using measures of how results are achieved.
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Compensation & Benefits Review
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DOI: 10.1177/0886368712462331
2012 44: 191 originally published online 2 October 2012Compensation & Benefits Review
Edward E. Lawler III, George S. Benson and Michael McDermott
What Makes Performance Appraisals Effective?
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Performance appraisals are one of the most frequently
criticized talent management practices. The criticisms
range from their being an enormous waste of time to their
having a destructive impact on the relationship between
managers and their subordinates.1 Criticizing perfor-
mance appraisals has a long history. For decades, the lit-
erature on human resources management has pointed out
the flaws in most performance management systems
and in some cases recommended completely abandoning
them. The problem with abandoning them is that they are
vital to effective talent management.
It is hard to imagine a company doing a good job of
managing its talent without gathering information about
how well individuals perform their jobs, what their skills
and knowledge are and what their responsibilities and
performance goals are for the future.2 These data are sim-
ply fundamental to the effective management of any
organization.
The literature on performance management contains
many suggestions about how performance appraisals can
be improved.3 Many of them are focused on the “technol-
ogy” of appraisals systems. For example, they suggest new
rating scales, using forced distribution methods, better
descriptions of competencies and performance levels and
automatic ties to pay and termination. The introduction of
web-based performance management systems has
increased the speed with which they can be done and has
created a number of options with respect to how they are
done. However, it is not clear whether it has increased their
effectiveness, nor is it clear how frequently and how well
web-based appraisals are being done. The technology of
appraisals is important, but it may not be the most impor-
tant determinant of performance appraisal effectiveness.
Less frequently focused on, but perhaps more important,
are the management systems and leadership behaviors that
determine how appraisals are executed and utilized.
In 2002, we did a study of performance management
in over 50 large U.S. firms and found that every firm had
a performance management system.4,5 In some cases,
they were functioning reasonably well. There were, of
course, organizations that did not have an effective system
462331CBRXXX10.1177/0886368712462331C
ompensation & Benefits ReviewLawler et al.
2012
Corresponding Author:
Edward E. Lawler III, Marshall School of Business, Center for Effective
Organizations, University of Southern California, 3415 S. Figueroa
Street, DCC 200, Los Angeles, CA 90089, USA
Email: elawler@marshall.usc.edu
What Makes Performance
Appraisals Effective?
Edward E. Lawler III, Professor, University of Southern California;
George S. Benson, Associate Professor, University of Texas at Arlington;
and Michael McDermott, McDermott Sitzman & Associates, PC
Abstract
Performance appraisals are often criticized and poorly done. However, they are not going away and should not
go away. They are needed to effectively manage an organization’s talent. Our research suggests that performance
management systems can be effective if they are designed and executed correctly. Performance management systems
are effective when they are based on goals that are jointly set and are driven by an organization’s business strategy. The
use of competency models that are based on business strategy is strongly associated with organizational effectiveness.
When they drive salary increases and bonuses, they are executed better. Often absent but critical to the success of
performance management systems is senior management leadership and ownership; much less important is ownership
by human resources. Additional keys to effectiveness are training managers to do appraisals, holding them accountable
for how well they do appraisals and using measures of how results are achieved.
Keywords
pay for performance, performance appraisals, organization effectiveness, performance management, organizational
effectiveness, performance ratings, performance system audit
Compensation Management
192 Compensation & Benefits Review 44(4)
and were expecting to either redesign their system or
cease doing performance appraisals. The latter is what
you would expect organizations to do if they followed the
advice of many of the critics of performance appraisals.
But are they following it?
Recently, we took another look at whether organiza-
tions are doing performance appraisals and how they are
doing them. The results of the survey of 100 large U.S.
corporations provide some interesting data on whether
organizations are doing performance appraisals. The bot-
tom line is that every company reported that they have a
performance management system, and only 6% said that
they are considering eliminating performance appraisals
for some, or all, of their employees. In short, the death of
performance appraisals has not occurred and is unlikely
to occur.
Companies reported that on average, 93% of their sal-
aried employees receive a performance appraisal, typi-
cally at least once every year. Only one company reported
that they had recently stopped doing evaluations for 50 or
more of their employees. The survey did find that on the
average, companies are not more satisfied with their per-
formance management systems than they were 10 years
ago. However, the vast majority, about 85%, report that
their system is at least moderately effective. Given the
relatively low satisfaction level with their appraisal sys-
tem, it is not surprising that almost 50% say they are con-
sidering making major changes to it.
The obvious conclusion is that companies will con-
tinue to do performance appraisals despite their short-
comings and despite the many criticisms that appear in
the management literature. It is also likely that they will
continue to look for ways to improve their appraisal pro-
grams. This is hardly surprising; large organizations have
no choice. They need valid performance appraisal data.
Therefore, instead of wasting our time debating whether
to eliminate performance appraisals, we should be focus-
ing our efforts on how to make them more effective.
Performance management systems are complex and
involve a number of features. To some degree, the right
features are a function of fit with the design of organiza-
tion and its strategy. Because of this, no size fits all
situations, but it is possible to determine whether most
performance appraisal practices are usually effective or
ineffective.
To gather data on the effectiveness of a range of perfor-
mance management designs and practices, survey data were
collected from 102 large corporations. In addition to asking
about performance management practices and systems, it
asked about their effectiveness and about the performance
of the organization’s human resources (HR) function and
its overall performance relative to its competitors.
Use of Goals
The literature on goals is extensive and definitive. It
clearly shows that goals can contribute to directing
individuals to perform in ways that contribute to organi-
zational effectiveness and can motivate them to perform
effectively. Goals provide a very effective approach to
directing individuals to support the business strategy of
an organization and can translate strategies from an orga-
nizational objective to specific individual behaviors.6,7
It is hard to imagine an effective performance manage-
ment system that does not utilize performance goals in
some way. The key to their being effective is the type of
goals that are set and, of course, how they are set. As far
as setting goals is concerned, a key difference is between
goals that are preset and handed to those that are expected
to perform and goals that are jointly set between the
appraiser and the individual being appraised. The survey
results with respect to this difference are shown in Table 1
and are definitive. The use of preset goals is not signifi-
cantly related to the effectiveness of the performance
management system or the organization. On the other
hand, performance goals that are jointly set are strongly
related to the effectiveness of the performance management
system and the HR functions performance. Furthermore,
the most effective performance goals are those that are
driven by the business strategy. These are most strongly
related to the performance management system effective-
ness as well as to the HR functions’ performance and the
overall organization’s performance. The latter finding is
particularly interesting.
Table 1. Use of Goals
Correlation coefficient
Performance management system Meana
Overall performance
management
effectiveness
Organization’s human
resources function
performance
Organization’s
performance
Preset performance goals for individuals 2.82 .187 .086 .096
Jointly set performance goals for individuals 3.72 .353*** .219* .158
Performance goals that are driven by business strategy 3.89 .423*** .395*** .341***
a. Response scale: 1 = no, 2 = some, 3 = moderate, 4 = great, 5 = very great.
*p < .05, two-tailed. **p < .01, two-tailed. ***p < .001, two-tailed.
Lawler et al. 193
Table 2. Employee Development
Correlation coefficient
Performance management system Meana
Overall performance
management
effectiveness
Organization’s human
resources function
performance
Organization’s
performance
Development planning 3.36 .382*** .387*** .076
Competencies 3.51 .393*** .219* .128
Competency models that are based on business strategy 3.05 .398*** .278** .339***
Discussion of development held separately from appraisal 3.08 .369*** .189 .049
Measures of how individuals achieve their results 3.21 .500*** .342*** .217*
A 360° process that is used for development only 2.41 .235* .098 .053
Training for managers doing appraisals 3.14 .541*** .370*** .168
Training for individuals being appraised 2.42 .376*** .334*** .137
a. Response scale: 1 = no, 2 = some, 3 = moderate, 4 = great, 5 = very great.
*p < .05, two-tailed. **p < .01, two-tailed. ***p < .001, two-tailed.
The strong correlation with organization performance
undoubtedly is due to more than simply having goals
that are aligned with the organization’s strategy. So many
things influence an organization’s performance that this
one practice is unlikely, by itself, to lead to a high level of
organizational performance. However, it is most likely that
an organization that has done a good job of tying business
strategy to individual performance goals also does a num-
ber of other things with respect to strategy implementation,
which produce outstanding organizational performance.
This relates to the point that system issues are a big influ-
ence on the effectiveness of performance management sys-
tems and organizations. Goals need to be clearly related to
the organization’s strategy and as our data suggest, need to
be influenced by individuals, not just imposed on them.
The best explanation for the low relationship between pre-
set goals and performance is the acceptance of the goals by
the individual who is expected to meet them. Individuals who
do not participate in setting goals often lack the internal com-
mitment to reach them and, therefore, are not highly moti-
vated to achieve them. They may see them as too difficult or
simply as something that is not important to them; as a result,
the intrinsic rewards associated with goal achievement are
not present to the degree that they are when they participate
in setting them and make a commitment to meeting them.
A comparison between the 2002 and 2012 survey data
shows a change in two of the three items concerned with
goal setting. Organizations in 2012 are less likely to
jointly set goals and less likely to have performance goals
that are driven by business strategy. This clearly is not a
positive change. Both of these changes are likely to reduce
the effectiveness of the performance management system
since they are both positively related to its effectiveness.
Employee Development
The ability of individuals to perform well enough to meet
their goals and objectives is a critical determinant of their
ultimate performance. Thus, a key issue for any perfor-
mance management system is how effectively it identi-
fies the skill needs of individuals and assures that they
are adequate. Table 2 presents the data from seven ques-
tionnaire items concerning employee development. All
of the items are highly correlated with the overall effec-
tiveness of the performance management system. There
are, however, differences in how strongly they are cor-
related with the HR function’s performance and with the
overall organization’s performance.
Only competency models that are based on business
strategy are strongly related to the organization’s perfor-
mance. This is not surprising since this feature is key to
determining whether individuals have the right skills for
the organization to execute its strategy. In the absence of
a close tie to business strategy, individuals may develop
skills and abilities that are not helpful in achieving high
organizational performance or may fail to develop their
skills at all. The results do show that development plan-
ning, particularly where competency models are involved,
is a positive contributor to performance management sys-
tem effectiveness.
The data also show that it is advantageous to hold a
discussion of development separate from the discussion of
performance effectiveness. This is undoubtedly because
of the fact that appraisal discussions are often difficult to
hold and can make it difficult for individuals to focus and
participate meaningfully in a discussion of their develop-
ment. All too often, appraisals contain some negative
feedback and it tends to dominate the discussion.
Perhaps the most surprising result in Table 2 is the
strong relationship between utilizing measures of how
individuals achieve their results and the three kinds of
performance. In some respects, it is easy to see why mea-
sures of how individuals achieve their results would be
helpful in guiding individuals to perform even better
and thus be a powerful contributor to the right kind of
194 Compensation & Benefits Review 44(4)
employee development and performance. Still, the cor-
relations with respect to organizational performance are
surprisingly high since how the results are accomplished
may not be a direct contributor to organizational perfor-
mance. In most cases, it is more important whether the
desired results are achieved. Regardless, the data clearly
support the importance of measuring how individuals
achieve their results as well as whether they achieve
them. It is not just a nice thing or the right thing to do; it
is an important thing because it is related to the effective-
ness of the system and the organization.
The last two items focus on the type of training support
that is provided to managers and the individuals being
appraised. The correlation between whether managers are
trained to do appraisals and the performance effectiveness
of appraisals is very high. It is also high for the effective-
ness of the organization’s HR function. Lower correlations
exist for training individuals who are being appraised, but
even this correlates significantly with both performance
management system effectiveness and the organization’s
HR functions effectiveness. These data strongly support the
argument that it is worthwhile doing training to improve the
skills of the individuals who are involved in appraisals. This
is hardly surprising given that being in an appraisal session
is an unusual and infrequent event both for the individual
doing the appraisal and the individual being appraised.
Some of the discomfort and anxiety involved with
being in an appraisal situation can potentially be eliminated
by training sessions that help make both the appraiser and
the appraisee comfortable with the situation and what is
going to transpire in it. One interesting training approach
is to have them role-play an appraisal event. It can be
done either with the individuals who will ultimately be
meeting with each other in an appraisal or with individu-
als who are not going to be involved with each other in an
appraisal event. There are no data on which approach is
best, but our guess is that it is role-playing with individu-
als who will meet in appraisal.
Table 2 clearly shows that training for managers is
more common than training for individuals. This is not
surprising since appraisals are traditionally seen as a
management controlled event that requires certain skills
to execute well. It is worth noting, however, that it is also
an unusual event for the individuals being appraised and
that they are likely to gain more from it if they have an
understanding of what is going to occur and what their
role in the event should be. Educating them is also a way
to be sure that they understand what their rights are and
what they should expect in terms of fairness, accountabil-
ity and outcomes.
The data showing the frequency of using competen-
cies for employee development indicate that most organi-
zations are not utilizing them as much as they should.
They are only used between a moderate and great extent.
The lowest use is of competency models that are based on
business strategy. This is clearly an area where improve-
ment is desirable given that it has the highest correlation
with organizational performance.
Organizations need to separate the discussion of
development from the discussion of performance apprais-
als impact on rewards. There is evidence that when pay
and appraisal results are discussed at the same time, there
is a tendency for individuals to not hear development
feedback and will respond to it poorly. Despite this, the
results show this is not a highly utilized practice. Despite
its positive relationship to effectiveness, training those
who are being appraised is also not a common practice.
This is another missed opportunity to improve perfor-
mance management systems.
System Management
and Leadership
Performance management systems are complex and
require effective management actions as well as the right
types of leadership behaviors. The best designed system
will fail if there is not the right leadership and manage-
ment support practices in place. In some respects, perfor-
mance management requires some “unnatural” behaviors.
As a result, managers, appraisers and those being
appraised may do the wrong thing or nothing at all, if a
system of checks and balances is not in place to ensure
that they execute the system properly.
Table 3 provides data on the key managerial and lead-
ership practices that it can be argued determine the
effectiveness of performance management systems. They
include leadership by senior management, management
ownership, checks and balances and operational systems.
The first three items deal with who owns and leads the
system. According to the data, line management has a
greater ownership than the HR function in most organiza-
tions. It also shows that this is very much a positive for the
effectiveness of the system. Line management ownership
correlates highly with performance management effec-
tiveness while HR ownership does not. Effectiveness is
most highly correlated with leadership by senior manage-
ment. All three of these items correlate highly with HR
function performance and the effectiveness of the perfor-
mance management system. None of them quite reach
statistical significance with respect to organizational per-
formance. It is a little surprising they are not more highly
correlated with organizational performance, but as noted
earlier, there is a considerable distance between how a
performance management system is run and the overall
performance of a large, complex organization.
The other three items in Table 3 all have to do with the
operation of the system and the degree to which it includes
checks and balances to be sure that the performance
appraisals are done well. They all show significant posi-
tive relationships to the effectiveness of the performance
Lawler et al. 195
management system. The lowest is for appraisals of how
well managers do appraisals. It is a bit surprising that this
accountability measure does not correlate more strongly
with performance management effectiveness, but it does
correlate significantly. It is also surprising that it seems to
be a relatively rare activity, as over 50% of the respon-
dents say it exists within their organizations to a little or
to no extent. This is clearly an area where additional
focus on how appraisals are done is appropriate and
will potentially lead to better performance management
outcomes.
Measures of the effectiveness of the system are not
frequently used. Again, the fact that this practice is not
present to a great extent argues that firms are not doing as
much as they should be doing with respect to supporting
the effectiveness of their performance management sys-
tems. This item is a particularly important one as it has
the highest correlation with the effectiveness of the sys-
tem of any survey item.
Calibration meetings have been used for a number of
years to sharpen the quality of the ratings that managers
make and to improve managers’ skills and insight into the
performance management process. The frequency data
concerning this practice show that it is used to only a
moderate extent even though calibration meetings are
significantly related to performance management effec-
tiveness and the HR functions effectiveness. They are a
practice that warrant more use given their effectiveness
ratings. They have the potential to both educate managers
on how to do appraisals and create a type of accountabil-
ity that often is lacking when there is no calibration sys-
tem in place. The key here is managers having to defend
their ratings to other managers and the opportunity that it
provides for managers to hear what each other thinks
about the performance of individuals and what consti-
tutes effective performance.
Overall, the data show that there is enormous room for
improvement in the leadership and systems management
aspect of performance management systems and that this
is a very important area. Most companies do not report
high levels of activity with respect to the practices and
systems that are shown to be key determinants of the
effectiveness of the performance management system. A
particularly good candidate for improvement is measures
of the effectiveness of the system. It has a very low score
with respect to the extent that measures are used but the
highest correlation with overall performance manage-
ment system effectiveness. Also important to note is that
ownership of the performance management system defi-
nitely should rest with line management. This is a rela-
tively high-scoring item with respect to the extent that it
exists, but it could be much higher and probably should
be in order to have an effective performance management
system.
Web Appraisal Systems
There are a number of reasons why organizations should
and are moving their appraisal systems onto the web.
Even the most minimal appraisal system involves a con-
siderable amount of paperwork and a great deal of infor-
mation moving from one individual to another. For those
companies that have a well-developed information tech-
nology network, a logical way to accomplish perfor-
mance management is by using one of the many software
products that are available.
Table 4 presents data on the effectiveness of web-
based performance management systems. None of the
differences in effectiveness between the companies that
use and do not use them are statistically significant. The
largest difference is for overall performance management
effectiveness. This difference nears but does not reach
statistical significance. The data for the impact of having
a web-based system on the HR functions performance
show only a minor difference between organizations that
have it and those who do not. The same is true of the
Table 3. Managerial Behavior
Correlation coefficient
Performance management system Meana
Overall performance
management
effectiveness
Organization’s
human resources
function
performance
Organization’s
performance
Leadership by senior management 3.31 .502*** .312** .189
Ownership of performance management by line management 3.59 .541*** .371*** .049
Ownership of performance management by human resources 3.17 .270** .185 .179
Appraisal of how well managers do appraisals 1.79 .273** .240* .089
Calibration meetings that compare ratings by different managers 3.13 .329*** .255** .123
Measures of the effectiveness of the system 2.40 .559*** .357*** .168
a. Response scale: 1 = no, 2 = some, 3 = moderate, 4 = great, 5 = very great.
*p < .05, two-tailed. **p < .01, two-tailed. ***p < .001, two-tailed.
196 Compensation & Benefits Review 44(4)
relationship between organizational performance and
having a web-based system. Thus, overall, there is no evi-
dence that having a web-based performance management
system actually improves the performance of the HR
function or of an organization.
It is not obvious why web performance management
systems do not help make the HR function and the perfor-
mance management systems of organizations more effec-
tive. Using the web should speed the process up and
allow a broader participation base in the appraisal, goal-
setting and work-structuring process for individuals.
Multiple individuals can see what others are planning to
do, comment and get involved in the process. One possi-
ble explanation for the lack of relationship between using
the web and performance appraisal effectiveness is that
the programs being used are still relatively new and the
users of them are not at this point highly skilled or adept
at employing them. In any case, it is likely that in the
future we will see most major companies using web-
based appraisal systems. They have a great deal to offer,
with respect to speed, cost and the potential to integrate
the results with other pieces of the talent management
process of corporations.
The use of web-based performance management sys-
tems is increasing. Our data show an increase in company
use from 57% in 2002 to 71% in 2012. In some respects,
it is surprising that the result in 2012 is only 71%. Most,
if not all, of the companies surveyed have extensive web-
based information systems, so the lack of technology
should not be a factor leading to nonadoption of web-
based performance management systems. It must be that
they simply have not felt it was worth making the invest-
ment in the software that is needed to install a web-based
performance management system. Again, given the talent
management software suites that are now being offered
by a number of major vendors, it is very likely that most
of the 29% who do not currently have a web-based per-
formance management system will have one in the near
future.
Web-based performance management systems can
perform a number of pieces of the performance manage-
ment process. Table 5 shows data for nine potential per-
formance appraisal uses of web-based systems. It also
shows the percentage of organizations that use them for
each of the purposes and the overall performance effec-
tiveness of those that use and do not use them. Almost
half of the firms use their web-based system for every-
thing and have a paperless system. Those that do use
them for everything have a slightly, but not significantly,
lower effectiveness rating than those that use it for a lim-
ited number of things. Obviously, this is not a ringing
endorsement for the idea of going totally paperless when
it comes to performance management.
The areas where the web systems are used most fre-
quently are those that involve developing performance
goals and measures. Of the sample, 69% say that they use
them for this purpose. Here, too, the results do not show
this use as a positive contributor to performance appraisal
effectiveness. The data show a slightly lower effective-
ness rating for those organizations that use the web for
developing performance goals and measures, but the dif-
ference is not statistically significant.
Providing information, measuring performance and
providing feedback are other frequent uses of web-based
appraisal systems. However, none of these uses is signifi-
cantly associated with appraisal effectiveness. The most
effective use of the web seems to be for 360-degree
appraisals. This makes sense given the amount of data
collection and analysis that is needed to pull off a true
360-degree evaluation process. However, just to do a
360-degree process may not be a sufficient reason to get
a total web-based appraisal system. In the current sample
of companies, only 28% had a 360-degree process that
used the web.
Clearly, the idea of using the web as a substitute for
face-to-face meetings has not caught on. Only two com-
panies in the sample are using it to substitute for face-to-
face meetings. They also rated their overall appraisal
system as very ineffective. Another infrequently used
feature of web-based performance management systems
is facilitating social networking. This would seem be a
natural use of the web, particularly for the younger gen-
eration given their use of Facebook and other programs
that allow them to talk about what they are doing and how
they are doing it and to get feedback. Obviously, it
has not caught on as a feature of company performance
Table 4. Web Appraisal Systems
Utilization
Performance management system effectiveness Yes, N = 72, Mean N o, N = 30, Mean
Overall performance management effectivenessa4.77 4.37
Human resources function performanceb3.72 3.53
Organization’s performanceb3.85 3.97
a. Response scale: 1 = not effective at all to 7 = very effective.
b. Response scale: 1 = much below average, 2 = somewhat below average, 3 = about average, 4 = somewhat above average, 5 = much above average.
Lawler et al. 197
Table 5. Web Appraisal Systems
Effectivenessa
Utilization Utilization
Performance management system Yes, % N o , %
Yes,
Mean
No,
Mean
Everything (paperless system) 43.7 56.3 4.38 4.62
Developing performance goals and measures 69.0 31.0 4.38 4.81
Providing information to participants 53.5 46.5 4.46 4.58
Training participants 29.6 70.4 4.28 4.61
Facilitating social networking about performance 7.0 93.0 4.01 4.55
Measuring performance 66.2 33.8 4.42 4.71
360-degree process 28.2 71.8 4.73 4.43
Providing feedback 59.2 40.8 4.47 4.57
As a substitute for a face-to-face meeting 1.4 98.6 1.29* 4.56
a. Mean rating, response scale: 1 = not effective at all to 7 = very effective.
*p < .05 in the two-sided test of equality for column means.
management systems, even though it could have positive
results concerning coaching, goal setting and the inter-
faces people have with other individuals. Overall, the
data on effectiveness are not particularly favorable to the
idea of social networking, which shows the lowest effec-
tiveness rating of any of the uses except for being a sub-
stitute for face-to-face meetings.
Overall, the data on web-based performance manage-
ment systems are not particularly favorable. Yes, there is
growing use of them and organizations are finding a num-
ber of pieces of the performance management process
that they can use them for, but there is no evidence that
this is increasing the effectiveness of the user’s perfor-
mance management systems. It may be that it is simply a
matter of time. Individuals and organizations will learn
how to effectively use these systems, and when they do,
the results will be more positive. It does seem that the
logistic and operational advantages of doing performance
management on electronic systems are so significant that,
eventually, they will be the only way performance man-
agement is done in larger organizations.
Appraiser Design Decisions
The work in large corporations varies enormously on
almost every dimension that can be imagined. There are
extremely simple jobs that require little training and can
be done in a few seconds or at most a few minutes. With
these jobs, it is easy to determine how well someone
performs them and to give immediate feedback. On the
other hand, there are extremely complex, difficult jobs
that take years to master and often good and bad perfor-
mance can only be determined after several years. This is
particularly true for research and development jobs in
industries such as pharmaceuticals and technology and,
of course, for senior management jobs.
Because of the variety of jobs that exist in most cor-
porations, it is highly unlikely that a single performance
management system will fit every job. Despite this, in
our sample of companies, 58% have only one system.
When companies have different systems, they differ by
function in some cases (37%) but more likely by man-
agement level (74%) and by the country where they exist
(55%). Thus, there is an effort to match performance
management systems to some characteristics of the work
in a minority of companies. These attempts are relatively
crude, since work within a particular country is likely to
vary greatly as is work in different functions. For exam-
ple, creating a different system for the accounting func-
tion is only a small step toward designing a system that
fits the accounting work individuals do. Perhaps the
most effective approach is varying the performance
management system by level of the organization.
Position in the hierarchy is a huge determinant in the
kind of work individuals do; thus, it usually makes sense
to vary the type of appraisal that is done by level in the
organization.
An interesting alternative to having different systems
for different types of jobs is to allow appraisers to design
the systems that they use with their direct reports. After
all, they are the ones that have the best knowledge of the
work being done. They also “should” have the most
information with respect to how it should be evaluated,
appraised and rewarded. A performance management
system that is designed to allow the appraiser to custom-
ize the process will require training of the appraiser. They
need expertise with respect to what should influence how
appraisals are structured.
To determine whether organizations have moved in
the direction of allowing appraisers to at least partially
customize the appraisal process that they use, we asked a
series of questions about the decisions that the appraisers
198 Compensation & Benefits Review 44(4)
Table 6. Appraiser Decisions
Effectivenessa
Utilization Utilization
Performance management system Yes, % No, % Ye s No
Whether they do appraisals 5.0 95.0 3.06 4.45*
How often they do appraisals 13.9 86.1 4.18 4.41
Who among their reports is appraised 5.9 94.1 3.68 4.43
What appraisal form they use 3.0 97.0 3.52 4.41
What their reports are appraised on 48.5 51.5 4.37 4.39
Whether they have face-to-face appraisal meetings 22.8 77.2 4.11 4.46
a. Mean rating, response scale: 1 = not effective at all to 7 = very effective.
*p < .05 in the two-sided test of equality for column means.
can make. Table 6 presents the results as well as the data
about the effectiveness of having appraisers make these
decisions. In this case, effectiveness is measured by the
rating of the effectiveness of the performance manage-
ment system.
The results in Table 6 show that there is relatively
little opportunity for appraisers to make decisions about
how appraisals are structured and carried out. Not sur-
prisingly, the place where they have the most say is with
respect to what their direct reports are appraised on,
48.5% can determine what outcomes their reports are
appraised on. This makes good sense since they are in the
best position to know what their reports should be doing
and how they can be measured. If anything, it is surpris-
ing that only this percentage of managers can actually
make this decision.
A bit more surprising is that 22.8% can make deci-
sions concerning whether they have a face-to-face
appraisal meeting with their direct reports. This is higher
than might be expected since most “how to do it” writing
on performance appraisals say face-to-face meetings
should always take place.
Only 13.9% say that they can decide how often they
do appraisals. In some ways, it is understandable why this
number is so low since there is a certain convenience,
accountability and efficiency that exist when appraisals
are done at a specified time. On the other hand, this is one
area where customizing the individual appraisal process
makes a great deal of sense. Jobs differ tremendously in
how quickly they can be appraised and how often they
can be appraised. It is often the appraiser who is in the
best position to determine what the right timing is for the
appraisal process.
A few organizations do give their managers a great
deal of discretion on some critical issues—for example,
whether they do appraisals at all, who is appraised and
what form is used. It is interesting that some organiza-
tions are granting this amount of customization power
to their managers. It makes a great deal of sense if the
managers are knowledgeable enough to make good deci-
sions and the information system of the organization is
able to absorb, analyze and handle the complexity that
ultimately will result from a high level of individualiza-
tion. One way to potentially handle this level of custom-
ization is to develop an expert system that gathers data
about the characteristics of the work and relationships
with other members of the organization and then creates
a customized appraisal process for each individual based
on his or her situation in the organization.
The results on performance appraisal effectiveness are
not favorable as far as customization is concerned. Only
one of the effectiveness differences between standardized
and customized is statistically significant: that is, whether
appraisals are done. Those systems that do not give this
decision to individual managers are rated as more effec-
tive than those that do. All the other decisions show
higher effectiveness scores when managers are not
allowed to customize the appraisal process, although
none of these differences reaches statistical significance.
Overall, the idea of customizing the appraisal process
and practice has not achieved a high level of popularity,
nor does it lead to more effective appraisals. However, it
may be too early to write it off as a bad idea. Given the
way organizations and work are evolving, it makes sense.
If technology can be developed so that managers can
make good decisions and organizations can develop
information systems that are able to manage the resulting
complexity, there is a good chance that it can lead to more
effective performance appraisals.
Conclusions
There are definitely better and worse ways to do perfor-
mance management in large, complex organizations.
Some of the best ways are used by corporations at a rela-
tively high level, but some are not. Interestingly, many of
the highest impact items involve process and manage-
ment leadership, not the technical structure of appraisal
Lawler et al. 199
forms and systems. For example, jointly set goals that are
strategy driven appear to be a large winner.
Another key to successful performance management
is the ownership and leadership of senior management.
When management owns the system instead of HR, and
when senior leaders support it, performance management
systems are much more effective. This is particularly true
if they are committed to systems that measure the effec-
tiveness of the performance appraisal process. In other
words, when management puts its metrics behind the
behavior that it advocates, the appraisal process is much
more likely to be successful than when it does not. This is
in line with the saying that what is measured gets done;
the point here is that what gets measured for effectiveness
gets done effectively.
There are some practices that have a positive impact.
One of these is separating the development discussion
from the appraisal discussion. It is hardly surprising that
this appears as a positive practice since it is hard for indi-
viduals to hear about the effectiveness of their perfor-
mance and at the same time to think about what skills
they need to develop in the future and how they can
develop them. Clearly, the evaluation of performance
should take place first, and then a separate meeting should
take place about development. Despite the obvious nature
of this point, organizations often do combine the two
discussions.
It is also interesting that often organizations do not
train individuals who do appraisals or the individuals
who are appraised. Appraisal discussions usually are
uncomfortable for individuals to participate in and to
conduct, and in the absence of training, they lack an
understanding of what is supposed to happen and how the
overall system works. This should be a relatively easy fix
for performance appraisal system designers, but they
seem to overlook the importance of providing the
appraiser and the appraisee with training.
There is a relatively low use of performance manage-
ment system effectiveness measures. This should be an
easy practice to add to any performance appraisal pro-
cess. “All” that is needed is an audit of how well the
appraisal activities are carried out. This audit should
include survey data as well as an analysis of the quality of
the materials produced by the appraisal process. Are they
complete? Do they cover the right materials? Are they
produced in a timely manner? All of these questions need
to be answered to have an effective performance manage-
ment process in an organization.
There are some processes and practices that have a
positive impact but are less frequently utilized in 2012
than they were in 2002. Perhaps the most important fea-
ture, which falls into this category, is senior leadership.
There is a significant decline from 2002 to 2012, in the
degree to which senior leadership exists with respect to
performance management. This is clearly unacceptable.
It is hard to imagine any organization having an effective
performance management system without strong senior
leadership. The reason for the senior leadership decline in
support may well be “fatigue” and the constant criticism
of performance management systems in magazines, jour-
nals and the popular press. The irony is that by pulling
back from supporting the system, they are responsible for
the decline of the system; thus they are sabotaging a criti-
cal part of their organization’s talent and performance
management infrastructure.
Finally, there is a decrease in the degree to which per-
formance management is integrated with other talent
management practices and processes. This is a major step
backward for performance management. Integration with
the overall human resources strategy is a critical enabler
of not just the performance management processes but
also the overall talent management system in an organi-
zation. This decline likely reflects the human resources
function’s lack of commitment to performance manage-
ment because of the high level of criticism it receives.
Separating it from the other human resources manage-
ment systems is exactly the wrong approach, however.
What organizations need to do is create performance
management systems that are integrated with the other
human resources management systems they have and the
overall talent management strategy of the organization.8
Indeed, they need to go beyond just integrating it with the
talent management practices of the organization; they
need to make sure it is integrated with the strategy of the
organization. There has always been, and our data say
there continues to be, a strong correlation between the
effectiveness of performance management systems and
the degree to which they are driven by the business strat-
egy of an organization.
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with
respect to the research, authorship, and/or publication of this
article.
Funding
The authors received no financial support for the research,
authorship, and/or publication of this article.
Notes
1. Culbert, S. A. (2010). Get rid of the performance review!
How companies can stop intimidating, start managing—and
focus on what really matters. New York, NY: Business Plus.
2. Lawler, E. E. (2008). Talent: Making people your competi-
tive advantage. San Francisco, CA: Jossey-Bass.
3. Grote, D. (2011). How to be good at performance appraisals:
Simple, effective, done right. Boston, MA: Harvard Business
Review Press.
200 Compensation & Benefits Review 44(4)
4. Lawler, E. E. (2003). Reward practices and performance
management system effectiveness. Organizational Dynamics,
32, 396-404.
5. Lawler, E. E., & McDermott, M. (2003). Current performance
management practices. WorldatWork Journal, 12, 49-60.
6. Latham, G. P., & Locke, E. A. (1984). Goal setting: A
motivational technique that works. Englewood Cliffs, NJ:
Prentice Hall.
7. Latham, G. P., Greenbaum, R. L., & Bardes, M. (2009).
Work motivation and performance management prescrip-
tions. In C. Cooper & R. Burke (Eds.), The peak performing
organization (pp. 33-49). London, England: Routledge.
8. Lawler, E. E., & Boudreau, J. W. (2012). Effective human
resource management: A global analysis. Palo Alto, CA:
Stanford University Press.
Bios
Edward E. Lawler III is Director of the Center for Effective
Organizations and Distinguished Professor at the University of
Southern California. He is the author of over 350 articles and
43 books. His most recent books include Useful Research:
Advancing Theory and Practice (2011), Management Reset:
Organizing for Sustainable Effectiveness (2011) and Effective
Human Resource Management: A Global Analysis (2012).
For more information, visit http://www.edwardlawler.com and
http://ceo.usc.edu.
George S. Benson is an associate professor at the University of
Texas at Arlington. He earned his PhD from the University of
Southern California and is an affiliated researcher at the Center
for Effective Organizations. He previously worked as a research
analyst at the American Society for Training and Development.
He also holds degrees from Washington and Lee University and
Georgetown University.
Michael McDermott is an executive consultant with
McDermott Sitzman & Associates, PC. He is an adjunct profes-
sor at the McDonough School of Business at Georgetown
University and a member of the University of Southern
California Center for Effective Organization’s advisory board.
He earned his PhD from the University of Notre Dame. Mike
has served as a Human Resources Executive at Capital One,
AES, and T. Rowe Price. His consulting practice focuses on
leader and organization development.
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Talent: Making people your competitive advantage
  • E E Lawler
Lawler, E. E. (2008). Talent: Making people your competitive advantage. San Francisco, CA: Jossey-Bass.
How to be good at performance appraisals: Simple, effective, done right
  • D Grote
Grote, D. (2011). How to be good at performance appraisals: Simple, effective, done right. Boston, MA: Harvard Business Review Press.
III is Director of the Center for Effective Organizations and Distinguished Professor at the University of Southern California. He is the author of over 350 articles and 43 books. His most recent books include Useful Research: Advancing Theory and Practice
  • E Edward
  • Lawler
Edward E. Lawler III is Director of the Center for Effective Organizations and Distinguished Professor at the University of Southern California. He is the author of over 350 articles and 43 books. His most recent books include Useful Research: Advancing Theory and Practice (2011), Management Reset: Organizing for Sustainable Effectiveness (2011) and Effective Human Resource Management: A Global Analysis (2012).
His most recent books include Useful Research: Advancing Theory and Practice
  • Edward E Lawler
Edward E. Lawler III is Director of the Center for Effective Organizations and Distinguished Professor at the University of Southern California. He is the author of over 350 articles and 43 books. His most recent books include Useful Research: Advancing Theory and Practice (2011), Management Reset: Organizing for Sustainable Effectiveness (2011) and Effective Human Resource Management: A Global Analysis (2012). For more information, visit http://www.edwardlawler.com and http://ceo.usc.edu.