Difference between performance appraisal and Performance management?

Answer 1

Performance appraisal is but only one part of the bigger process of performance management. So, the short answer is that performance appraisal (annual review, employee review) fits under performance management.

Answer 2

Performance Appraisal V Performance Management

According to Gillian Hibberd (2011) (strategic director - resources and business transformation - at Buckinghamshire County Council) performance appraisal, after dismissing people, is the task managers hate to carry out the most. Considering that appraisals are intended to plan for the incoming future, when the economic landscape is dominated by uncertainty and likely economic hardship this task is perceived by managers as even more unpleasant and trickier. It can be said that many managers consider it at best a waste of time and at worst a process hampering performance, rather than improving it.

Hibberd (2011) also suggests that many managers, for a whole range of reasons, are, to put it mildly, ill at ease during appraisals, even more so during those periods in which organisations are experiencing significant changes, insofar as they often cancel appraisals meetings on account of other more urgent commitments.

The reasons for managers feeling uncomfortable during appraisals reviews are, in general, linked to the possible need for them to justify their opinions with practical examples, to their lack of skills to effectively perform and of time to properly prepare, appraisals. Additionally, appraisals meetings are supposed to put managers under pressure because of the influence they exert on the future career path of any employee concerned.

Another reason managers might actually dislike appraisals is because of the link many organisations establish between it and reward, and for the role of "assessors or judge" (Torrington, 2008) managers have to play in this circumstance.

But, can organisations actually avoid carrying out appraisals and, most of all, can eventually appraisal be considered as a stand-alone process or should it rather be considered part of a more systematic and more comprehensive process?

In order to provide a consistent answer to this question it is necessary to define what performance appraisal is first and then identify differences, if any, between performance management and performance appraisal.

It must be said that despite a remarkable difference between the two processes does actually exist, some employers, misinterpreting the meaning and scope of each of them, develop performance appraisal systems assuming to have performance management processes in place, practice which is very unlikely to produce truly effective and valuable results.

In general, performance appraisal can be considered a process aiming to assess and rate (Armstrong, 2006) or review (Torrington et al, 2008) employees' performance.

Appraisal is, usually, annually carried out by the relevant manager, whilst the design of the system and the documentation habitually filled during performance review meeting by managers is prepared by the HR Function. Since PA is usually associated with pay, this is the occasion in which managers are supposed to play the role of judge, accounting for the process to be deemed as a top-down process.

Performance management is, instead, considered as a management process enabling managers to constantly stay in contact with individuals in order to clarify and eventually modify, according to the business needs and organisational development changes, mutual expectations and putting managers in the position to play the role of individuals' coach and guide rather than of judge. Basically PM is, then, a forward-looking process, in contrast with PA which is, instead, a retrospective based system.

This definition of performance management, consistent by and large with the definition provided by Armstrong (2006), is also coherent with the definition of performance management provided by Clark (2005) who suggests that PM aims to "establish a framework in which performance by human resources can be directed, monitored, motivated and refined, and that the link in the cycle can be audited".

The distinctive feature of performance management and performance appraisal emerged so far is then linked, first of all, to their different nature: where PA is seen as a system and PM is seen as a process. Moreover, whilst PA is episodic, usually carried out once a year in occasion of the annual performance review meeting, PM is intended to establish a constant link between managers and individuals. Directly consequence of this is that PM actually aims to build between manager and employees a relationship based on mutual respect, trust and understanding, whilst PA is based on a top-down relationship.

PM is forward-looking, the aim of the relationship based on it being to coach and to contribute to the development and growth of individuals. PA can, instead, be considered as a retrospective journey in the individual's previous working year, where managers, very often perfunctorily, "judge" the performance of their staff. So that, whilst PM is inspired to the concept of "management by agreement or contract", PA is instead based on the concept of "management by command" (Armstrong, 2006).

Additionally, whilst PM is intended to establish and nurture a constant relationship between manager and individuals, PA is based on forms designed and developed by the HR function which, in many occasions, are destined to be forgotten in some remote organisation's archive.

Ultimately PM, differently from PA, aims to combine individuals' and organisations' needs and objectives and to find a common point where these two different needs can meet.

As suggested by Armstrong and Baron (2004), PM has to be intended as a means aiming to help organisations to determine and settle objectives individuals are expected to attain, give people what it takes to achieve those objectives (development) and influence individuals to behave consistently with the organisation's culture and values.

Being involved with the attainment of broader and long-run goals PM can clearly be considered strategic, in contrast to PA which is concerned only with short to mid-run goals (CIPD, 2011). Additionally, whilst PM is embracing a whole range of activities aiming to improve the overall organisational performance, insofar as it can definitely be considered holistic, PA is only concerned with individual's performance and as such it represents a distinct system rather than an integrated process.

It must then be said that, as warned by the CIPD (2011), organisations carrying out annual appraisal reviews cannot actually claim to have a PM process in place, in that PA is basically a component or rather one of the tools, arguably the main tool, of PM. Carried out in isolation PA is likely to produce no effects at all and to also be considered pointless and useless by both managers and staff who see it just as a mere "administrative exercise" (Torrington et al, 2008) or as a "dishonest annual ritual" (Armstrong and Murlis, 1998).

To accrue staff's negative perception of PA also contributes the lack of clarity very often associated with the purposes it actually aims to achieve (Torrington et al. 2008). PA can both focus on development, reward, motivation, identifying good potentials and poor performers but, very often, PA turns to be an ineffective tool just because it is expected to cover too many areas, making it difficult to find out its final truly aim.

A little bit more unclear and uncertain appears to be the relationship between PM, PA and pay. Whilst a clearer connection with pay can be ascertained in PA systems, a bit more controversial the matter appears to be, at least in theory, in the PM case.

As anticipated above, PA systems are often used to take decisions on salary increases, bonuses or for granting other forms of financial incentives to individuals. Although it might be perceived negatively by the same managers, it is in fact in this occasion that they are placed in the position of judge, there are cases in which this practice can actually, no pun intended, pay. A study of the Australian Workplace Industrial Relations survey carried out by Brown and Heywood (2005) revealed, in fact, that for non-manual workers AP was more likely and effectively used when individuals were expected to have shorter tenure. The same Authors consider and to some extent justify, employers' resort to this practice considering the circumstance that PA is much more fitting those situations in which deferred rewards, such as promotions, are very unlikely to occur. Enabling employers to promptly pay performance-related rewards relating to brief spells of time, in fact, PA can help businesses to influence staff tenure and, rather likely, to contribute prolonging that tenure.

Nonetheless, although many organisations directly link PA to pay, things should, at least in theory, work differently with PM. It is, in fact, widespread the belief that PM data should not be used for pay-related reasons, insofar as in the US someone has also raised concern over the possible legal action which could arise from such a practice.

In particular in those cases in which PM is extended to an organisation's whole staff, the merit element of pay has been seen exceedingly irrelevant to motivate staff and in some cases even counterproductive in that perceived as "insulting" by staff (Torrington et al, 2008).

Similar results have been achieved by a study carried out by the Institute for Employment Studies (IRS, 2001) which, in particular, revealed that individuals were more satisfied when systems were fostering development and promotion rather than reward.

Although not absolutely necessary, in order to inform contribution pay decisions, some PM systems require the inclusion of rating scales (Armstrong, 2006) (23% of respondents to the e-reward survey 2005 linking reward to PM said not including a rating scale) which can very often cause some serious problems to emerge, namely in relation to the correct and consistent interpretation of the rating scale used within a business.

In this case ad hoc training sessions delivered in favour of all of those managers taking the role of appraisers, "consistency workshop", can definitely turn to be very helpful to enable managers to use ratings in a consistent and coherent way and build a "level of common understanding about rating levels" (Armstrong, 2006).

It must be said that businesses wanting to focus more on the developmental aspect and purpose of PM are the more and more deciding to sensibly reduce, and even completely eliminate, the link with pay in their PM processes.

Actually, even in those cases in which PM has a direct link with reward, differently from PA where this kind of link can just be limited to financial/tangible reward, PM can, if anything, be linked to reward in its total reward concept, albeit not completely without risks.

With reference to financial reward, it can be said that it is, in fact, by means of PM that employers can review the variable or contingent element of pay which relates to merit or performance, i.e. "pay at risk" (Lucas et al, 2006). PM will be, then, adopted as the process on the basis of which employers will take decisions on the allocation, or otherwise, of this element of pay. More in particular this decision will be made on the basis of the attainment of the goals previously settled.

But to this extent, once again, comes to play the rating issue, which has been deemed "highly problematic" (Campbell et al. 1998), cause of problems in term of the validity and accuracy of the rating system used (London et al, 2004) and, since basically representing a form of control carried out by the employer, has also been considered more likely to hamper, rather than leverage, performance (Henry et al, 2000).

Clearly, problems deriving by establishing a direct link between financial reward and PM are not just limited to the measurement aspect. Hendry et al (2000) claim that achieving goals in rapidly changing environment is the more and more difficult, because the direct control exerted by individuals to the attainment of their own goals is often limited whilst is, instead, growing the interdependency relevance of the efforts made by different employees, not necessarily working in the same team or group.

Albeit the number of businesses still linking pay to PM is sensibly declining there is still in the UK a relevant number of organisations linking PM to pay (Armstrong and Baron, 2005).

Also considering the intangible, non-financial, component of reward, as we have seen, PM has a relevant role to play. The reference is to coaching, development, career guidance, quality of working life and growth, all aspects to which the continuous process of PM is openly devoted (Lucas et al, 2006).

However, some serious doubts have been raised as for the possibility that a PM process might be effectively used, at the same time, at the two different levels of tangible and intangible reward. Williams (2002), for instance, argues that a PM focusing on both aspects of reward might result weakened on its developmental, intangible side. More directly, Baron and Armstrong (2005) suggest that PM should be exclusively developmental and that the reward aspect should be addressed by means of another, specific means.

In conclusion it can be said that PA could turn to be, if properly designed and managed, an effective tool of PM. It can also be argued that, in order to improve effectiveness of the overall PM process, having crystal clear ideas about what each tool of PM is intended to achieve will clearly help both managers and staff to welcome and appreciate a PM process. So that, as suggested by Armstrong and Baron, resorting to an additional specific tool and component of PM to deal with pay would surely be beneficial to make the dialog between manager and individuals about development and growth more compelling and constructive. It is, in fact, easy to imagine on which aspect an individual's mind will focus the more during a blended discussion, managers could be speaking of growth, but individuals could be more prone to think about pay, circumstance which should be absolutely avoided