Performance Appraisal and Finance: Avoiding the Hidden Costs

Performance appraisal costs a lot of money. A real lot of money.

First, of course, there's the time involved, from
  • Deciding the form and format to use...to
  • Identifying, with Finance, what the available budget will be for any associated salary increases or bonuses...to
  • Determining and coordinating the schedule by which the appraisal process will be executed across the enterprise...to
  • Determining how the salary and bonus numbers will be communicated to all levels...to
  • Training management in legal requirements and correct completion of the forms...to
  • Training (or at least, hopefully, guiding) employees in their part of the process...
...all of which (and more) finally gets you to the actual completion of the forms for every employee and then the individual meetings with each employee.

Okay, those are just a sample of the visible costs - because every minute that's spent on the appraisal process is time not spent on necessary productivity, customer support and profit and revenue generation.

Now let's look at the hidden costs - because those are exponentially higher than the ones you can see, track and manage.

As soon as your employees know that performance appraisal season is at hand, their attention has officially strayed away from their regular job duties and your organization's critical mission.

It doesn't matter what your mission is. Nor does it matter whether the employees are high fliers or low performers. They're distracted. And rightfully so.

Performance appraisal is rarely used as a positive, developmental tool - no matter how it's presented to the staff. As a result, employees are justifiably concerned about what, exactly, the appraisal is going to be used for.

More than that, they wonder how they and their performance are going to be presented to them by management. They believe they need to be prepared to respond to any information (or misinformation) they hear, practice appropriate responses - and, most important, they're going to speculate about why. 

Always remember: Your employees aren't stupid. You wouldn't have hired them if they were. That means that they're looking at any number of possible scenarios that the management team might be working toward or operating to - any or all of which will impact them and their families. Probably not well.

It's that distraction that gives you your first level of hidden costs - because all of that is taking place before you've even done the appraisal.

Next comes what happens after...and it's worse.

Your employees aren't going to be happy with the process, the verbal appraisal you've given them, the results or, particularly, their ratings - whether in numerical or word scales. If you've got any raises or bonuses attached to the process, they'll be even less happy with those.

On a practical level, what you're doing with the performance appraisal process (and, btw, you can call it '360 Degree Feedback,' 'evaluation,' 'review' or anything else - it's the same thing in your employees' eyes) is telling them what you think of them. And, if you follow the path of too many HR organizations, what you're telling them is that they're 'average.'

Sure, you appreciate their work - but it's average. And average people get average ratings. They also get average salary increases - if they get increases at all - and forget about a bonus.

It doesn't matter that your people live their work lives end-running all the management systems that keep them from succeeding to the extent they'd like. It doesn't matter that they've not been adequately trained. It doesn't matter that they have no idea exactly why they're being asked to do the work they do.

All of that comes from management. But, when it's performance appraisal time, what they see is that for all that they try from within the system to do what management wants (and needs) them to do - that same system is now telling them that they aren't very good at it anyway.

They're average.

What would you do? How would you react? 

And what does that dissatisfaction sound like throughout and beyond the enterprise - from hallway conversations to email, Facebook, Twitter and Whisper?

All of which makes your organization a less attractive employer...which further lessens productivity. It also decreases innovation and puts your competitive position at risk.

Performance appraisal as a developmental tool isn't hard. It just takes a shift in perspective and a commitment to a different, more holistic way of building your enterprise.

The faster you make the shift, the more quickly you'll see the results in productivity and profit improvement.
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Please note that nothing expressed above constitutes legal advice.