Organizations use a variety of methods for evaluating employee performance. There are so many types of performance management methods, understanding how each of them works will help determine the best one to use within your organization. Each type has benefits and drawbacks; however, an assessment of your work force, management style and business environment will make the decision easier for you.
Management by Objectives
Management by objectives, or MBOs, is a type of performance management system that requires the manager and employee to identify employee goals as they relate to the overall business. For example, a sales representative’s objectives may include increasing revenue by 25 percent in 12 months. The employee determines how best to achieve this goal and establishes a timeline for the tasks she needs to accomplish to increase revenue: improve sales and decrease costs. Often, MBOs track progress on a quarterly basis, which is one of the benefits of using this method. Regular feedback is an effective motivator for many employees.
The forced distribution method is one that receives criticism and praise due, in part, to the popularity of this at corporate giant, General Electric, under the leadership of Jack Welch, author of the book “Winning”. Forced distribution–sometimes referred to as forced ranking–requires managers to determine three groups into which their employees fall according to performance. The three groups include performance rankings, usually called “20-70-10.” This means an organization has 20 percent of its work force in the top rank, average performers compromise roughly 70 percent of the work force and poor performers comprise the bottom 10 percent. This method is difficult to promote in small businesses because they don’t have enough employees and this is a very regimented system utilized in large corporate environments.
360 Degree Feedback
The use of a 360 degree feedback appraisal system is ideal for businesses that value the input of employees concerning the effectiveness of supervisors and managers. This type of performance appraisal method solicits input from employees of all ranks who interact with the employee being evaluated. Everyone from executive leaders to frontline workers receive anonymous and carefully considered feedback from co-workers. Using a 360 degree feedback method requires training on how to evaluate others. Individuals who don’t have experience composing appraisal statements may need additional training pertaining to evaluating the quality of work rather than the employee’s personality or popularity. Nevertheless, this is a very effective way to get a good reading on your management talent by obtaining commentary from the people who frequently interact with managers.
Deemed a very competitive method, performance ranking requires managers to evaluate employees against each other rather than how well the employee performs in relationship to company goals and objectives. In a small business, this may not be the ideal method for evaluating performance simply because of the few number of employees. In addition, water cooler conversations between your employees will inevitably occur where employees start to compare notes about their performance ratings. This will only fuel a more competitive work environment.
Combined Manager-Employee Appraisal
This method of employee appraisal combines the employee’s self-evaluation and manager feedback to construct a balanced performance appraisal. This type of evaluation sets the stage for a discussion to occur between the employee and his manager. This also provides an opportunity for the employee and manager to work together to identify goals for the year ahead. A combined approach gives the employee an opportunity to share accomplishments his manager may have overlooked, which makes for a more comprehensive performance appraisal.
II. Useful materials for performance review systems