1 Minute Summary: Takeaways from Cappelli's What Do Performance Appraisals Do?

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Peter Cappelli is a Wharton professor and wrote What Do Performance Appraisals Do?, which is the best academic introduction and review on performance reviews I’ve read to date. Here are my top takeaways from the article:

  • Performance appraisals have been traced back to the early 1800s and Robert Owen who ran UK cotton mills.

  • They became popular in the United States after World War II.

  • According to SHRM, a whopping 97.2% of US respondents reported their organization had a performance appraisal process. The Aberdeen Group, in 2010, stated 91% of worldwide respondents have a performance appraisal process.

  • The notable exceptions to performance reviews include unions and almost all professor jobs.

  • Cappelli describes a theory that performance appraisals is a form of contract between employer and employee that governs forward looking performance and compensation. As a contract, employers typically do not clawback compensation from employees due to non performance.

  • Cappelli maintains that the supervisor is the best judge of an individual’s performance because “only the supervisor is in a position to know what individual employees were directed to do over time, the priorities and expectations held for various tasks, and what standards constitute good results. Even objective measures such as sales per person may not be accurate measures of individual performance if, for example, the supervisor instructed an employee to take time away from selling to train a subordinate, or if business conditions deteriorated.”

  • Performance appraisals have been critiqued since at least 1959. Likert was attributed with this quote: 'Performance review interviews as a rule are seriously deflating to an employee's sense of importance and self-worth. Not only is the conventional review failing to contribute, in many executives' opinion, it can do irreparable harm'.

  • The most common criticism of appraisals is managers are either reluctant to differentiate employees due to concerns over hard feelings, and they don’t want to give poor ratings.

  • Cappelli used data on 50,000 employees, coming from a US retailer in the S&P 500 index, to answer the question, are performance appraisals useful?

  • Their findings were as follows: despite popular wisdom, performance appraisal scores are differentiated:

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  • Cappelli argues that there’s no evidence that “long-term relationships with the same supervisor bias appraisal scores upward, or that breaking those relationships by changing supervisors leads to lower scores.”

  • They did find a correlation where more senior managers have higher average appraisal scores:

higher-appraisal-scores-for-mgrs.png
  • Cappelli states that concerns over horns and halo effect are likely to be exaggerated. In their dataset, he sees an individual’s performance vary widely.

  • All in all, Cappelli’s data shows, with statistical significance, that an employee’s rating can impact performance:

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Cappelli maintains that ratings do predict future potential; the ratings aren’t just a settling up of previous performance.

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