There are early references to performance appraisal in America going back over a hundred years. The federal Civil Service Commission’s merit rating system was in place in 1887. Lord & Taylor introduced performance appraisal in 1914. Many companies were inﬂuenced by Frederick Taylor’s ‘‘scientiﬁc management’’ efforts of the early twentieth century and concocted performance appraisals.
Before World War II, however, very few organizations conducted any formal performance appraisals. A handful of companies and the military were the only ones using the procedure regularly. Most appraisals that were done concentrated more on an individual’s personality and traits than on actual achievements against goals and formal analyses of the behaviors that produced those results.
Then, in the 1950s Peter Drucker’s novel idea of management by objectives (MBO) and Douglas McGregor’s book The Human Side of Enterprise, which introduced his notions of Theory X and Theory Y, gained a lot of attention. A few companies moved from a mere trait assessment to the development of a procedure that concentrated on goal setting and made the appraisal process a shared responsibility between the individual and the manager. From the work of Drucker and McGregor, the performance appraisal procedure has grown to the point where a huge majority of companies now have a formal appraisal system.
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Effective development of managers,McGregor wrote in a 1957 Harvard Business Review article, ‘‘does not include coercing them (no matter how benevolently) into acceptance of the goals of the enterprise, nor does it mean manipulating their behavior to suit organizational needs. Rather, it calls for creating a relationship within which a man can take responsibility for developing his own potentialities, plan for himself, and learn from putting his plans into action.’’ Drucker’s initial proposal of an MBO process to replace trait appraisals and McGregor’s integration of a ‘‘Theory Y’’ approach into the appraisal process produced a change in the way organizations went about assessing the contributions of their members. General Electric was singled out by McGregor as an example of a company that was using an MBO/Theory Y approach to performance appraisal. GE conducted a truly scientiﬁc study in the early 1960s to test the effectiveness of its annual, comprehensive appraisal approach. It found that:
- Criticism has a negative effect on achievement of goals.
- Praise has little effect one way of the other.
- Performance improves most when speciﬁc goals are established.
- Defensiveness resulting from critical appraisal produces inferior performance.
- Coaching should be a day-to-day, not a once-a-year activity.
- Mutual goal setting, not criticism, improves performance.
- Interviews designed primarily to improve a man’s performance should not at the same time weigh his salary or promotion in the balance.
- Participation by the employee in the goal-setting procedure helps produce favorable results.
These ﬁndings remain today as valid as they were when GE ﬁrst developed them. Performance appraisal as a management tool spread quickly in the 1950s, when about half of 400 employers surveyed reported using appraisal systems. Today, depending on the survey, somewhere between three-quarters and nine-tenths of all companies use a formal performance appraisal procedure.