Performance appraisal
It is an element of the principal-agent framework, that describes the relationship of information between the employer and employee, and in this case the direct effect and response received when a performance review is conducted.
[24] In public sector organizations that serve diverse populations, inclusive PAs can contribute to better hiring practices and employee development programs.
[25] Labor unions emphasize that these systems should reflect collective efforts rather than focusing solely on individual accomplishments, as collaboration is key in creating an inclusive public workforce.
[26] Communication PAs are used as mechanisms for feedback, to clarify job expectations and organizational goals,[18] and to prevent misunderstandings that may arise, including those stemming from cultural differences.
[27] Research has found that face-to-face discussions and continuous feedback help improve the performance appraisal process by enhancing clarity and mutual understanding.
[29] Cognitive biases such as the anchoring effect and halo effect can impact the accuracy of appraisals used to identify training and professional development needs by relying too heavily on initial information (anchor) when making judgments; or a rater's overall positive impression of an individual, both of which can influence the assessment of performance, leading to biased judgments that influence evaluations.
By identifying key competencies, PAs help ensure that recruitment and selection processes are inclusive, enabling public sector organizations to meet the needs of diverse communities.
[18] Public sector unions emphasize the importance of non-monetary rewards, such as career development or increased responsibility, which can be particularly meaningful for employees from groups that more traditionally suffer from social exclusion, as these provide pathways to leadership and broader representation.
As such, organizations sometimes face difficulties maintaining a competitive edge when LIFO rules limit their ability to retain high-performing but less-tenured staff.
High-performing employees with shorter tenures might feel demotivated if they see senior colleagues receiving higher wages and opportunities simply due to their length of service.
This structure can also impose financial burdens on organizations during economic downturns, as they must continue paying higher wages to senior employees regardless of business performance.
To address these issues, some companies have implemented hybrid wage systems that combine seniority with performance-based incentives, allowing them to recognize both experience and merit.
To address this, many labor contracts have adopted flexible seniority systems, where an employee’s abilities, skills, and job performance are also considered alongside their tenure.
During disputes, records from performance reviews and probation periods often play a crucial role in arbitration, helping to determine whether a firing was justified.
[57][58] In recent years, some organizations have increasingly questioned traditional seniority-based approaches, arguing that they can stifle innovation and adaptability, especially in fast-paced markets like technology and healthcare.
Modern labor contracts increasingly seek a middle ground, integrating seniority provisions with performance-based assessments to create a fair and efficient work environment.
[66] Inflated ratings are more common when PAs are conducted for judgmental and administrative purposes, such as promotions, pay increases, or job retention, rather than for developmental reasons.
[69] For instance, an environmental, such as, a national crisis can impair raters to rely on heuristic thinking rather than making an objective and cognitive evaluation of subordinates PA, as described by dual-process theory.
[65] When higher management emphasizes the importance of PAs by providing endorsements, resources, training, and time for participation, it can motivate raters to be more accountable and thorough in conducting accurate appraisals.
[15] In a recent research study concerning the timeliness of PAs, "one of the respondents even suggested that the performance review should be done formally and more frequently, perhaps once a month, and recorded twice a year.
[64] These errors arise predominantly from social cognition and the theory in that how we judge and evaluate other individuals in various contexts is associated with how we "acquire, process, and categorize information".
These tools typically take the form of a multi-format questionnaire that might include VAS, Likert scoring and the collection of both quantitative and qualitative data by a number of means.
This paradigm creates adverse selections and moral hazards for the hiring company in deciding how to effectively minimize the potential threat of shirking; disruption to daily operations; and loss in output margins due to actions of the employee.
[citation needed] Fixed payment ensures a safer, standardized mode of contract that delivers reassurance in spite of performance fluctuations and external environment volatility.
These changes are particularly concerned with areas such as elimination of subjectivity and bias, training of appraisers, improvement of the feedback process and the performance review discussion.
If these management practices are employed without consideration of the emotional response to said devices, then the agent's willingness to engage in the company's ambitions are greatly reduced as suggested in empirical studies.
Employers who base their personnel decisions on the results of a well-designed performance review program that includes formal appraisal interviews are much more likely to be successful in defending themselves against claims of discrimination.
[110] Performance appraisal (PA) systems, and the premises of which they were based, that have been formed and regarded as effective in the United States may not have the transferability for effectual utilization in other countries or cultures, and vice versa.
The second aspect is in mediating the feedback process, by recording and aggregating performance ratings and written observations and making the information available on-line; many software packages are available for this.
The use of IT in these ways undoubtedly helps in making the appraisal process more manageable, especially where multiple rating sources are involved, but it also raises many questions about appraisees' reactions and possible effects on PA outcomes.
