Personally I am not a fan of linking appraisals to reward. The point of appraisals ( for me) is to have an honest open series of conversations about performance , development needs etc etc. by linking this directly to reward you risk the honest / open conversation not happening fully.

I'd always thought working towards agreed goals and achieving them should be rewarded. If you have an appraisal system that doesn't actually reward you then what does it matter? For me, demonstrating values, behaviours and achieving objectives meant I really worked on them.

In reply to Sunny:

The challenge, for me,  is how you both objectively measure success /movement, and If you are sacrificing honesty / openness in the discussion by linking it to reward.

Certainly both systems are commonly used. 

Where reward is linked I have personally seen more desire to get “higher” scores rather than being more objective. Like most things in HR there is no one right answer.

It matters ( to answer your question) because you focus on how they are actually doing, what you can do to help them do better and areas of weakness to address. Money isn’t the only motivator for the majority of people.

I don't think you have to solely measure success objectively. Behavioural and objective measures can be used. Surely higher scores reflect the agreed values and behaviours and that's a good thing?

In reply to Sunny:

As I said some people link appraisals to reward. Some don’t. I personally don’t believe it’s a good idea due the reasons given.

Whenever reward is linked there is an incentive ( by design) to score higher.

This book was recommended on another thread on this topic, Abolishing Performance Appraisals - Why They Backfire and What to do Instead (Tom Coens and Mary Jenkins).

I can recommend it for a good bit of open-minded thinking about where performance appraisals have come from and why they will always be a poor way of achieving all the conflicting ends that people would like them to.

And also - I agree with you Sunny that informal conversations throughout the year is the way forward.

However, I disagree that if you *have* to keep an annual performance review, it should be tied to measures and reward.As Keith has said, that is trying to achieve two opposing aims with one process, and is one of the reasons performance appraisals don’t tend to work particularly well for either employer or employee.

In reply to Sunny:

I'd always thought working towards agreed goals and achieving them should be rewarded.

Yes, with *continued employment*.

In principle, I agree with you that continuous informal appraisal if the ideal. However, there are a number of challenges in practice.

First is the main issue with informal appraisal, which is that, more often than not, it doesn't get recorded. So when there's a challenge and someone's performance is called into question there's no established evidence trail either way when the employee says "but no one ever told me there was a problem before now!"

Second is the problem with communication. What managers say and what employees hear in informal appraisal are often markedly different. When a manager says "I feel like you have some areas I'd like to see you work on for the next quarter" they think they're saying "you're not meeting my expectations and if you don't sort yourself out I'm going to fire you", whereas the employee hears "I'd like you to be better at this stuff, but you're basically doing fine". Even when this doesn't collide with the first point, it results in effort being incorrectly allocated.

Third is the issue of perception. A manager has a five minute chat with someone in the break room and thinks they've done an appraisal, whereas the employee thinks they were just shooting the breeze,

Finally is the issue of time. When managers hear the word "informal", they generally understand this to mean "unimportant". If there's no recording going on and no dedicated structure to follow in the conversation, they don't allocate the completion of ongoing appraisals a high priority, which means that none of the problems above happen because the appraisals themselves never happen.

At the same time, of course, formalized annual appraisals are a huge problem. They cause enormous stress and pressure, consume vast amounts of time and energy and achieve almost none of what they set out to achieve.

My preferred solution has been to try to take what's good from formal appraisals (structure, recording, planning) and what's good about informal appraisals (brevity, low pressure) and combine them into light-touch quarterly appraisals that can be done in person or by email. It's largely a tick-box exercise that seeks to answer one basic question: is the employee achieving what the business needs them to achieve? If the answer is "yes", the process is quick, simple and painless. If the answer is "no", then it shifts rails to an HR-supported procedure in which the areas where the employee is failing are specifically identified and articulated and a pathway back to improvement is agreed.

The Holy Grail of continuous informal appraisal is only achievable in a business where *every* manager is a trained, experienced professional people manager.

In reply to Robey:

Robey's hit the nail on the head for me here. Having well trained experienced professional people managers is so important, and I think especially so if the appraisal process is linked to reward.

At my ex-employer, although HR made a valiant effort to provide clear guidance for the box marking process, the implementation varied greatly from manager to manager. The result been that there was no fairness to the distribution of rewards. The attitude that an individual's manager had towards the system (and towards the employee) had at least as much influence on the rating given as the employee's performance did.

I agree that 'informal' appraisals have the risk of becoming no appraisals at all.

I think for me, the key starting point is to begin by being clear about what you want to achieve though the process and then take an evidence based approach to deciding the best way to reach that goal.

In reply to Sunny:

I'd always thought working towards agreed goals and achieving them should be rewarded. If you have an appraisal system that doesn't actually reward you then what does it matter?"

I always thought the reward was continued employment and pay.  : -)

Not if every one else is offering the same.

HI Sunny
I have worked in quite a few organisations and none of the appraisals have been linked to bonus or pay rise. All have focused on development of the employee and looked to see if they were lacking in a skillset and how to correct that.

In my last organisation I developed a new appraisal/PM system that allowed variability depending on where someone was at in their career. We identified four stages an employee might be at:
1. Newly appointed/inexperienced - structured support needed
2. A year or so's experience, or new to the organisation but not to the role/work, or taken on a new role or responsibility - structured but light touch support
3. Performing - experienced, knows what they are doing - light touch support
4. Progressing - ready for promotion or planning retirement

The idea being that the appraisal format would be guided by the needs of the individual rather than a tick box exercise - and so someone in the first couple of stages might need quarterly meetings and interventions, by the time you got to 'performing' you could have an appraisal timeline that was agreed with the manager and employee of up to 3 years between formal reviews. Similarly when in category 4, they may need more (promotion) or less (retirement) support, but without making an assumption - it would be agreed.

For all of this, my presumption has been away from appraisal leading to reward - because in my organisation (a school) it's almost impossible to assess outputs fairly - and if you're measuring inputs, then that's really doing the job, for which you're employed. The structure we came up with only works if you decide that appraisal isn't about judging people - it's about supporting and developing them.

I think it's disingenuous to say appraisals link to reward as there are so many other factors that determine reward too. Perhaps a spot bonus to reward clear criteria could work although it sets off a whole other convo about unintended consequences.

On-going feedback and convos about development, adjusting work and careers are more the culture of the day. There's a good CIPD report on good practice on performance that's worth a read.