Performance Appraisals: Benefits and Challenges

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  • 0:02 Performance Appraisal Benefits
  • 1:22 Performance Appraisal…
  • 3:42 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
Many companies use performance appraisals to assess the performance of their employees. While performance appraisals provide some notable benefits, they are not without challenges. In this lesson, we'll explore these benefits and challenges.

Performance Appraisal Benefits

Mark is 'celebrating' his first year anniversary as a junior executive with his company with a performance review. He's not looking forward to it and is complaining to Alan, a friend of his that works in human resource management. Mark asks Alan what the heck they're good for except to make his life miserable.

Alan explains that the overarching benefit of performance appraisals is that they help an organization and its members become more effective. Performance appraisals do this by providing a sound basis for many employee-related administrative decisions and by making important contributions to employee and organizational development. Performance appraisals help companies identify good performers and poor performers. A company can use performance appraisals to determine who should be rewarded with raises and promotions, which employees need more training and who should be terminated.

Alan explains that the difference between profit and loss is grounded in the effectiveness of an organization in reaching its goals, and performance appraisals can help ensure organizational effectiveness. If you analyze performance appraisals as a group, you can often see patterns that show where performance is good and where performance is poor across an organization. This information will drive decision-making regarding personnel planning and applicant selecting as well as training and development.

Performance Appraisal Challenges

Mark is not convinced that performance appraisals are a benefit. He thinks that Alan is assuming that performance appraisals actually do a good job of judging performance. Alan admits that implementing a sound performance appraisal does pose some challenges.

The overarching challenge of performance appraisals is accuracy. Alan acknowledges that if an appraisal doesn't accurately distinguish between effective performance and ineffective performance, the appraisal may actually be counterproductive. Alan explains that it's necessary to carefully develop performance criteria or standards that accurately describe or predict good performance.

Alan also admits that even if the standards used are accurate, rater error is possible. A rater is the person performing the performance appraisal. Mark asks Alan to provide some examples, thinking he may need the ammunition if his review goes bad. Alan is happy to comply:

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