Performance Review Effectiveness

These are pretty common questions, and now, thanks to a research project led by John Milliman, of the University of Colorado at Colorado Springs, we have some hard data to answer them.

Milliman enlisted the help of a multinational team of Pacific rim professors who gave his survey to samples of managers and employees in Korea, Taiwan, Japan, and the U.S. The goal was to find connections between current performance review practices and perceptions of the outcomes of these practices on the appraisal process, employees' job satisfaction, and the organization as a whole.

Milliman's survey asked people to identify the purposes of their performance appraisal system as they practiced it, and it offered 5 choices: 1) to develop employees, 2) to document their performance, 3) to allow employees to express their views, 4) to determine their rates of pay, and 5) to determine promotions. Next, it asked them to rate the effectiveness of these practices and the company as a whole. And finally, it asked about job satisfaction.

When Milliman analyzed the data, he began by examining the factors that led people in the different countries to believe their performance review practices were effective. Then he compared the findings across the four countries.

He found people in Japan relying upon all five purposes, and this was a surprise. Press reports from Japan suggest little reliance upon performance review as a management tool. But Milliman's analysis revealed that the Japanese view their performance review practices as leading to more satisfied employees and more effective organizations.

The U.S. results stand in stark contrast. Here, only three of the purposes were judged to lead to effective performance review practices: documenting performance, allowing employee expression of views, and determining promotions. And in the U.S., while these practices stimulated job satisfaction, these same people viewed their performance review practices as leading to less effective organizations -- much less!

How could an effective performance review process that leads to more satisfied employees harm their organizations? Milliman turned to previous critics of traditional performance review practices and suggested these critics may be right. Perhaps performance review practices in this country lead to self satisfaction yet also stir emotions that cause some employees to turn against their employers. A chilling prospect!

Curiously, the analysis did not reveal employee development as a purpose of performance reviews in the U.S. In Japan, Korea, and Taiwan it was significantly related to effective reviews and to effective organizations. Apparently, the much-promoted purpose of performance reviews in this country to help develop employees is just hype. And we probably have only ourselves to blame.

Finally, survey results from Korea and Taiwan show many similarities; however, Korean organizations place greater emphasis on using performance reviews to discuss promotions, while Taiwanese firms emphasize pay. In both countries, effective performance review procedures lead to satisfied employees and effective organizations.

One implication of Milliman's research will strike you as you look around your workplace. Employees of Asian descent may react differently than people of other backgrounds to what you say. One thing is clear, you should chose your words carefully when conducting performance reviews.

Reference: Milliman, John F., Stephen Nason, Kevin Lowe, Nam-Hyeon Kim, and Paul Huo (1995). An Empirical Study of Performance Appraisal Practices in Japan, Korea, Taiwan, and the U.S. Best Papers Proceedings, Fifty-fifth annual meeting of the Academy of Management, Vancouver, British Columbia, Canada, August 6-9, 1995, 182-186. www.businesspsych.org

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