Designing a Good Performance Appraisal System

Since Chris Marston and I had a brief discussion on performance appraisal systems I have been mulling over the reasons why there are so few good (ie useful and effective) performance appraisal systems. I am sure that you know what I mean if you look at the systems you have experienced (suffered).

I think that the most common failures can be summarised this way:

1. Complexity: Too many systems are just too complicated, try to measure too many things.
2. Centrally imposed and firm focused: This one may sound a bit funny in that performance appraisal systems are almost by definition centrally mandated and intended to improve overall firm performance. It's where we go from there that's important. Good appraisal systems assist individuals to improve personal performance. Otherwise the whole thing becomes just another hurdle that people have to jump through.
3. Linking perfomance appraisal and remuneration. Again, this one may sound a bit funny in that performance is obviously one (but only one) factor in considering remuneration. The problem is that as soon as you establish any form of formal link between performance appraisal sytems and remuneration review, pay immediately comes to dominate.
4. Fear and loathing: Structured appraisal can be a personally frightening process. Many staff fear and even loath the appraisal process. A bad appraisal system itself become an impediment to performance improvement.

Taking these issues into account, I think a good appraisal system:

1. Does not involve pay
2. Focuses on performance improvement
3. Is regular, consistently applied, but kept as simple as possible.
4. Is built into normal management processes and involves a two way appraisal using the previous appraisal as a base
5. Takes varying staff needs into account
6. Is action oriented
7. Has the firm values built into it.