Institutions, organizations, governments and companies have been adapting themselves to established conditions to get their survival and success. Nowadays, local and global competitions have a strong effect in how companies are trying to perform maintaining their targets (e.g.: word class regulation, profit, competitive advantage, status). The principal organizations’ aim is to remain competitive in this context, where competitiveness has a broad meaning. To adapt to those changes companies develop strategies that let them be more efficient in each new context. Those strategies must be able to mould each one of companies’ components to adapt correctly to changes. Presently, Human Resources (HR) are a fundamental company’s component. Thus, all strategic efforts of the companies have to be headed for the development of new methodologies by adapting HR to the new requirements (de Andrés, García-Lapresta, & González-Pachón, 2010).
In current times, it is critical for companies to maintain talented knowledge workers. It is important for them to find and promote the most qualified candidates; superior human talent becomes the prime source of an organization’s competitive advantage (Moon, Lee, & Lim, 2010)
Companies are permanently searching the increase of efficiency trying to improve their competitive advantages. Employees are critical components of this efficient strategy. In the process of increase efficiency it is essential to have tools that measure performances and orients the decision making process. Performance Appraisal provides to HR a powerful tool evaluating employees’ performance and allowing taking actions guiding them in a continuous improvement.
Performance Appraisal (PA) is a process applied by some companies to evaluate their employees’ efficiency and productivity in order to plan their promotion, salary, layoffs policies, etc. Initially this process was just carried out by the executive staff, but recently it has evolved into an evaluation process. Many companies tend to use informal methods, where only supervisors evaluate employees and often develop formal performance in one direction. Due to this fact, the results of this evaluation process are often biased and subjective, can present the halo effect, can be based on prejudice, Central tendency, Strictness/leniency, Appraisal bias, Similar-to-me-bias, etc. (Dessler & Cole, 2010). Nevertheless, through an effective PA system, companies can realize functions such as developmental uses (measure performance goals, identify employees training needs, etc.), evaluation uses (promotion, retention or termination, layoffs, salary, discipline, etc.), organizational maintenance (human resource planning, determine organization training needs and goal achievement, evaluate human resource systems, etc.), documentation (HR decisions, legal requirements, performance in recruitment, etc.), motivation and satisfaction (effect on levels of employee motivation and satisfaction, etc.), and communication (data for personnel decisions, creating an opportunity for superior–subordinate communication, etc) (de Andrés et al., 2010) (Bouskila-Yam & Kluger, 2011).
The idea of to apply PA for sensitive issues such as promotion, salary, layoff, etc presents important concerns. The paramount concept behind PA seems to be very powerful and valuable for the companies, but very idealistic for the practical usage. To develop a useful PA requires the application of many concepts related with the job, psychology, personality, social interaction, etc., and to be applied by specialists (Spence & Keeping, 2011). PA becomes very demanding in resources; thus, it could be applied for very high positions where the high demand of resources is paid off due to impact of these positions in the company outcomes. This demand of resources drives serious constraints when PA is applied to other line positions. Next step is to develop a more generic PA tool to evaluate line positions. Doing that, HR reduces the demand of resources but increases the uncertainty in outcomes. Finally, a more generic and low demanding PA tool is developed to appraise staff people resulting in an extra increase of uncertainties. As result, PA could work for high level positions but it presents many uncertainties at a different level. This same trend could be identified in small companies, where lower resources significantly affect the PA quality (de Andrés et al., 2010). Finally, these limitations and weaknesses create serious concerns in the use of PA for sensitive issues such as promotions, salaries, etc. In this sense, Bouskila and Kluger (2011) have concluded that PA could even be destructive.
Traditionally, researchers viewed PA as a measurement problem, focusing on ways to increase the validity and reliability of performance ratings. Old approaches do focus in three phases: normalization information, aggregation, and rating phase. In the early 1980s PA research shifted its focus from measurement issues to rather cognitions. Researchers became concerned with how rates establish, encode, and retrieve judgments about performance. From a cognitive perspective, the cornerstone remains in rating accuracy. Specifically, researchers in this domain are primarily concerned with understanding and reducing rate errors in judgments about performance (Spence & Keeping, 2011).
More recently, models PA research have begun to highlight the importance of rater
motivations in the performance rating process. However, there is a relative dearth of research to explain how and why managers navigate the PA context the way they do (Spence & Keeping, 2011). There is another kind of method which uses information from many people who can truly respond to know how an employee performs on the job. The so-called integral evaluation methods (e.g.: 360-degree appraisal) is a mechanism for evaluating worker’s performance based on judgment from everyone with whom the employee comes in contact. These methods present some advantages with regard to the traditional systems (de Andrés et al., 2010). These integral evaluation methods expand the application of PA to more position in the companies. This expansion is a common characteristic or the new PA methods, but still they cannot be applied to any line or staff position due to the demand of resources and their associated benefit.
PA is a powerful tool helping and assisting to the companies in being more efficient through more performing and motivated employees. Nevertheless, the accurate employ of this tool requires the use of extensive and expensive resources that they strongly limit the application to any employee. More generic techniques have been developed to address this bigger spectrum of people to be appraised, but they increase the uncertainty and usefulness of PA. In other cases, the developed techniques could be applied to a small group of positions and any generalization produces quasi random outcomes. The current state of PA methodologies seems not to have the enough maturity for being applied to every employee with the same results. Thus, HR people should have a lot of caution taking conclusion based on any current PA technique. Companies should advocate for more research in the searching of more accurate PA techniques that they could be applied to more employee at reasonable demand of resources.
Bouskila-Yim, O., & Kluger, A. (2011). Strength-based performance appraisal and goal setting. Human Resource Management Review,21, 137-147.
de Andrés, R., García-Lapresta, J., & González-Pachón, J. (2010). Performance appraisal based on distance function methods. European Journal of Operational Research, 270, 1599–1607.
Dessler, G., and Cole, N. (2010). Human Resources Management in Canada: Canadian 11th Edition. Toronto: Pearson Canada Inc.
Moon, C., Lee, J., & Lim, S. (2010). A performance appraisal and promotion ranking system based on fuzzy logic: An implementation case in military organizations. Applied Soft Computing, 10, 512–519.
Spence, J., & Keeping, L. (2011). Conscious Rating Distortion in Performance Appraisal: A review, commentary, and proposed framework for research. Human Resource Management Review, 21, 85-95.
Waite, M., & Stites-Doe, S. 2000. Removing Performance Appraisal and Merit Pay in the Name of Quality. An Empirical Study of Employees’ reactions. Journal of Quality Management, 5, 187-206.
 In this work, the term companies reference institutions, organizations, governments and companies.