Alternatives to Appraisals MANA 4328 Dr. George Benson benson@uta.edu 1

Arguments Against Appraisals

Alternatives to Appraisals

How to Deal with Poor Performance Appraisals seldom provide good support for termination. Managers tend not to give poor reviews Language in reviews is often ambiguous Alternatives: Document specific performance problems and incidents Use a review system for only those ready to terminate. Forced ranking systems?

Forced Ranking Systems Gained popularity following GE Up to 20% of companies Used by: Conoco Capital One Sun Microsystems Cisco EDS Hallmark Cards Used and abandoned by: Ford Goodyear Microsoft Hewlett-Packard Intel Texas Instruments Enron

When managers have discretion: They tend to give “Above average” ratings. They prefer to give uniform ratings regardless of performance. They tend not to use the ends of the rating scale. “Range Restriction” “Central-tendency Error”

What Expectations are Appropriate? Tom Peters on appraisal: “Employee evaluations should reflect perform-or-else principles...” Simply showing up and doing what you are told is not enough... Continuous improvement means doing more with less year after year...

How to Evaluate? Absolute Measurement Employees are all measured strictly by absolute performance requirements or standards of their jobs. Performance compared to set goals Avoids conflict among workers May decrease differentiation Relative Assessment Employees are measured against other employees . Ranking allows for comparison of employees but does not shed light on the distribution of employee performance. Forces a distribution among workers May create false distinctions and competition

“A company that bets its future on its people must remove the lower 10% and keep removing every year – always raising the bar of performance and increasing the quality of leadership.” Jack Welch, former GE CEO

The “Vitality Curve” “The bottom 10” “The top 20” “The Vital 70” Jack Welch “Jack: Straight From the Gut” 2001

Forced Ranking Systems Assume….

Why Conduct Forced Rakings?

Why NOT Conduct Forced Rankings?

Evolution of Ford’s Policy July 1998: Ford begins buyout offers U.S. salaried employees designated by as "low performers" or "limited potential.” Offers go to less than 2,000 employees with around 1,000 accepting. January, 2000: Ford begins new performance evaluation policy Top 20,000 managers 10% of the executives will get A's, 80% will get B's, and 10% will get C's. C’s are not eligible for bonuses. Two C's in a row are grounds for dismissal. Quota for C’s later reduced to 5% July, 2001: Ford eliminates the "A," "B," and "C" ratings in favor of "top achiever," "achiever," or "improvement required.” Quotas dropped for employees to be ranked as "achiever" and "needs improvement." December, 2001: Ford agrees to pay $10.5 million to settle lawsuit 620 employees Mostly older, white men April, 2002: Ford revises its performance review system to “focus on creating bonds between managers and employees”, and will have no ranking quotas.