Does your organization conduct performance appraisals? How often are they conducted? Are they tied to pay increases?

Performance appraisals

The results are in and show that 92.5% of the organizations represented by our 1,198 survey participants conduct performance appraisals!

Down from last year’s rate of 75.2%, only 65.3% rate their organization as average or above regarding the way it conducts performance appraisals, with excellent as the rating for 2.3% (2.1% in 2014) and above average selected by 22.8% (21.9% last year). The remaining 40.2% (51.2% in 2014) rated their organization as average. At the other end of the spectrum, 34.8% (24.8% last year) rate their organization as needs improvement or terrible in the way that performance evaluations are conducted.

Overall performance is measured by 79.8% of survey participants and specific attributes are measured by 45.2%. Completion of specific goals is a measurement criterion for 50.7% and our favorite catchall “other” includes:

• Competencies
• Leadership behavior
• Core values and behaviors
• Developmental needs
• Industry knowledge

When asked what they do instead of standard performance appraisals, 73 participants (6% of survey participants) responded. Their alternatives to formal reviews include:

• Ad hoc feedback to employees
• Coaching discussions on a semiregular basis
• Management by objective or goal setting
• Corrective counseling
• Annual RIF
• COLA or longevity increases
• Everyone watches everyone else
• Notes to file
• Supervisor observation
• Personality tests
• Attendance awards
• Recognition programs

Performance factors

The top 5 factors used when evaluating nonexempt performance include: job knowledge (76.6%), quality of work (74.6%), attitude & cooperation (68.8%), communication skills (67.7%), and attendance/punctuality (65.2%).

The 5 least used factors in nonexempt performance appraisals are leadership (27.9%), creativity (23.6%), staff development (20%), staff utilization (15.5%), and financial management (13.7%).

Flagged by 7.6% of survey participants, the “other” basket included performance factors such as:

• Knowledge sharing
• Grooming
• Attention to detail
• Teamwork
• Personal accountability
• Integrity

The top 5 factors used when evaluating exempt performance are job knowledge (75.2%), communication skills (73.9%), quality of work (72.8%), achievement of preset goals (72.6%), and attitude/cooperation (66.9%).

The 5 least used factors in exempt performance appraisals are safety (42.8%), resourcefulness (40.4%), financial management (39.9%), staff utilization (38.7%), and creativity (35.7%).

The “other” basket (7.6%) for exempt employee performance factors includes networking, client retention, accountability, ethical and legal standards, teamwork, business development, integrity, collaboration, accountability, and alignment with company goals.

Evaluation process

Not surprisingly, supervisors evaluating employees is the norm for 98% of survey participants. Employee self-evaluation is part of the process for 58.8% and peer evaluation is a best practice for 9.7%. Subordinates evaluating supervisors is an option for 7.5% of survey participants and 5.2% have a mechanism in place for customers to evaluate their employees.   

When a sked which employee groups do not receive evaluations, 40.9% indicated that temporary employees’ performance is not formally reviewed. Senior management and executives are not reviewed by 24.8% (19.6% in 2014 and 23% in 2013) and part-time employees do not receive performance reviews at 13.7% of survey participants’ organizations.  

Performance evaluations accomplish their intended goal most of the time for 47.3%. They are great in theory but nearly impossible to implement for 28.3% and 4.5% believe they are not a good idea so would like to abolish them altogether. Our old friend “other” includes comments such as:

• When done correctly, can provide valuable information to employee regarding performance
• Appraisal ratings are biased and the department heads do not rate based on their employees’ performance
• If done correctly they accomplish the intended goal
• Necessary evil, getting managers to give it the time value it needs is the challenge
• They are a very useful tool but require support from the top down
• The success of the process is in direct correlation to the efforts put into by the stakeholders (employee, supervisor, HR and Mgmt.)
• Conversations should take place on a regular basis and evaluations are needed if you pay for performance
• Great in theory but inconsistent in application from supervisor to supervisor
• They need to be a continuous process of coaching and developing
• Very important, requires nudging to get done
• Performance feedback is valuable to employees, but supervisors don’t want to spend much time on it. They think of it as just more paper they have to fill out
• Some employees are better served by them than others.

Frequency/timing

Performance appraisals are conducted annually for 47.8%. They are conducted after the first 90 days then annually thereafter for 23.4%. Reviews are every 6 months for 13.5% of survey participants and 2.8% have no firm schedule. The “other” basket for this question reveals quite a few options, including:

• Every two years
• Annually with a mid-year check-in
• Quarterly
• After first 90 days, after 6 months, then annually
• Every six months
• When job performance deteriorates
• Depends on the employee
• Every 13 weeks and annually
• Annually with quarterly assessment of goals

New employees receive their first performance review after 6 weeks on the job for 8% of survey participants and after 3 months for 46.3%. Newbies get their first review after 6 months for 17.1% and after 9 months for 0.8%, while 14.6% receive their first indicator of success or failure after a full year of employment.

What we do. A common review date is utilized by 55% of participants and a variation of common review dates (e.g., common dates staggered by groups) is used by 6.4%. Appraisals are spread out over the year for 21.2% and a combination of common date and scattered throughout the year is used by 9.8% of survey participants.

What we’d rather do. Conducting all reviews at the same time is preferred by 42.8% and 30.9% prefer that they be spread throughout the year. A combination is preferred by 18.4% and 7.9% had no opinion one way or the other.

The frequency with which individual pay for performance plans are aligned with organizational objectives and strategies is annually for 60.1% and bi-annually for 1.8%. Alignment is intermittent with no set schedule for 9.1% and never (as far as they know) for 23.6% of survey participants.

Forms and tools

Basically the same form is used for all or almost all employees at the organizations represented by 47.4% of our survey participants. Different forms for different departments or positions are used by 19.8% and different forms for exempt vs. nonexempt are used by 17.9%. Management appraisals are conducted using a different form than the one used for non-management employees by 20.1% and 2.6% have no standard form.

Appraisal forms with ratings/scales works well for 79% and essay questions work for 26.9%. Multiple choice review statement/questions works well for 15.1% and 6.9% like yes/no statement/questions.

Performance review software is not an option for 63.4% of survey participants and 6.4% have no performance appraisal software but are interested in learning more about it. Software is used by 15.3% with good results but using it hasn’t improved the process for another 8.7%. A small group (1.6%), have looked for such software but not found anything that meets their needs.

When it comes to what kind of software is used, the responses in our survey are all over the map. ADP and in-house developed software tie at 11.6%. Success Factors is used by 11%, Halogen eAppraisal is used by 7.1%, and PeopleSoft is used by 6.1%. The largest group, however, is the “other” basket at 34.5%.

Employees’ role

When setting individual performance pay factors, employees are heavily involved for 8.5% (up from 6.8% in 2014) of our survey participants and somewhat involved for 19.3%. They are minimally involved for 20.6% (16.3% in 2014) and not involved at all for 51.6%.

When it comes to whether employees have sufficient impact on individual performance factors that affect their pay, 49.9% believe they do and 31.1% believe they do not. The remaining 18.9% are not sure. Interestingly, when asked if the employees in their organizations are pleased with their individual pay for performance programs, 26.4% indicate they are and 36.7% indicate that they are not. The remaining 36.8% aren’t sure one way or the other.

Supervisors’ role

Management’s top responsibilities when it comes to performance evaluations are writing evaluations of their direct reports for 81.8% of survey participants, followed closely by setting goals for/with employees for 73.8%, conducting review meetings for 73.8%, and coaching employees for improved performance for 71.2%. Finishing out the field is reviewing evaluations prepared by their direct reports for their own employees (62.6%), deciding employee salary raises (49.3%), and providing input to other supervisors on their direct reports (37%).

The errors performance evaluators make include: not completing the evaluation (20.2%), halo effect (23.4%), and horn effect (17%). The three most common errors are:

• Not following up with employee to check on progress, 45.6%
• Being late in completing evaluation(s), 40.8%
• Focusing on the most recent performance rather than the entire review period, 38.6%

Supervisors never receive discipline or poor marks for poorly executing performance appraisals for 37% of survey participants and only rarely for 34.1%. Training for supervisors on how to evaluate performance and conduct appraisals is offered annually by 25% and never for 27.5%.   

When asked how they’ve successfully implemented performance appraisal programs, survey participants provided several helpful hints, including:

• Communication and follow-up, 61.5%
• Send reminder emails, 55.2%
• Offer assistance as needed, 39.8%
• Track who has turned them in, 35.8%
• Tie to supervisor/manager job performance, 28.5%
• Train individually as requested, 27.8%
• HR is involved in each evaluation, 25.1%
• Have management review after supervisor has completed, 18.5%
• Make evaluation forms shorter, 16.6%
• No evaluations turned in means no raise given, 10.1%
• Publish a false deadline that is two weeks before they are really due, 7.6%

HR’s role

HR’s responsibility for the performance appraisal process varies but several functions were widely practiced, including:

• Formal training for evaluators, 48.4%
• Filing the paperwork, 49.2%
• Reviewing all evaluations, 52.7%
• Informal coaching for evaluators, 54.7%

Additionally, for 39.4% of survey participants, HR screens performance evaluations for anything that might be illegal before supervisors/managers meet with employees.

Merit increases

Evaluations are tied to most salary increases for 42.5% and are completely separate for 20.8%. They are partially tied together for 31.1%. Those who separate evaluations from increases do so because:

• A union agreement governs pay increases, 7.8%
• Evaluations are conducted more frequently than raises are issued, 8.4%
• They fear supervisors will be tempted to give good yet false appraisals so employees receive a good raise, 15.4%
• Budget doesn’t allow for raises every time employees receive evaluations, 16%
• Employee pay increases are on a different schedule than evaluations, 17.8%
• Appraisals are more valuable and constructive if raises aren’t tied to them, 18.6%
• It helps keep employees from having an entitlement mentality (evaluation = raise), 25.7%
• They want to focus attention on employee performance instead of on amount of raise, 31.4%

Even if salary increases are not an option due to pay freezes or some other reason, 79.6% (down from 84.6% in 2014) of survey participants still conduct performance appraisals.

Survey participants

Organizations with up to 250 employees account for 56.9% of our survey participants and 23.4% have 251 to 1,000 employees. Another 16% employ 1,001 to 10,000 individuals and 3.7% of participants work in organizations with more than 10,000 employees.

Privately owned organizations are represented by 53% of survey participants and nonprofits account for 19.3%. Public corporations make up 13.6% and governments are represented by 14.1%.

Industries include manufacturing (17.3%); health care and social assistance (15.2%); other services (except public administration) (11%); finance and insurance (8.9%); and professional, technical, and scientific services (8.4%). Educational services represent 8.2% of our survey participants, and public administration accounts for 4.8%.  

Our 1,198 survey participants are 15.6% staff level, 42.8% manager level, 26.3% director level, and 15.2% are VP level or higher.