In the mid-1980s Xerox corporation was faced with a problem—its performance appraisal system was not working. Rather than motivating the employees, its system was leaving them discouraged and disgruntled. Xerox recognized this problem and developed a new system to eliminate it.

Old Performance Appraisal System

The original system used by Xerox encompassed seven main principles:

1. The appraisal occurred once a year.2. It required employees to documenet their accomplishments.

3. The manager would assess these accomplishments in writing and assign numerical ratings.

4. The appraisal included a summary written appraisal and a rating from 1 (unsatisfactory) to 5 (exceptional).

5. The ratings were on a forced distribution, controlled at the 3 level or below.

6. Merit increases were tied to the summary rating level.

7. Merit increase information and performance appraisals occurred in one session.

This system resulted in inequitable ratings and was cited by employees as a major source of dissatisfaction. In fact, in 1983, the Reprographic Business Group (RBG), Xerox’s main copier division, reported that 95 percent of its employees received either a 3 or 4 on their appraisal. Merit raises for people in these two groups only varied by 1 to 2 percent. Essentially, across-the-board raises were being given to all employees, regardless of performance.

New Performance Appraisal System

Rather than attempting to fix the old appraisal system, Xerox formed a task force to create a new system from scratch.The task force itself was made up of senior human resources executives; however, members of the task force also consulted with councils of employees and a council of

middle managers.Together they created a new system, which differed form the old one in many key respects:

1. The absence of a numerical rating system.2. The presence of a half-year feedback session.

3. The provision for development planning.

4. Prohibition in the appraisal guidelines of the use of subjective assessments of performance.

The new system has three stages, as opposed to the one-step process of the old system. These stages are spread out over the course of the year. The first stage occurs at the beginning of the year when the manager meets with each employee. Together, they work out a written agreement on the employee’s goals, objectives, plans, and tasks for the year. Standards of satisfactory performance are explicitly spelled out in measurable, attainable, and specific terms.

The second stage is a mid-year, mandatory feedback and discussion session between the manager and the employee. Progress toward objectives and performance strengths and weaknesses are discussed, as well as possible means for improving performance in the latter half of the year. Both the manager and the employee sign an “objectives sheet” indicating that the meeting took place.

The third stage in the appraisal process is the formal performance review, which takes place at year’s end. Both the manager and the employee prepare a written document, stating how well the employee met the preset performance targets. They then meet and discuss the performance of the employee, resolving any discrepancies between the perceptions of the manager and the employee. This meeting emphasizes feedback and improvement. Efforts are made to stress the positive aspects of the employee’s performance as well as the negative. This stage also includes a developmental planning session in which training, education, or development experiences that can help the employee are discussed. The merit increase discussion takes place in a separate meeting from the performance appraisal, usually a month or two later. The discussion usually centers on the specific reasons for the merit raise amount, such as performance, relationship with peers, and position in salary range. This allows the employee to better see the reasons behind the salary increase amount, as opposed to the summary rank, which tells the employee very little.

A follow-up survey was conducted the year after the implementation of the new appraisal system. Results were as follows:

81 percent better understood work group objectives 84 percent considered the new appraisal fair

72 percent said they understood how their merit raise was determined

70 percent met their personal and work objectives

77 percent considered the system a step in the right direction

In conclusion, it can be clearly seen that the new system is a vast imporvement over the previous one. Despite the fact that some of the philosophies, such as the use of self-appraisals, run counter to conventional management practices, the results speak for themselves.

Questions:

1. What was the problem in the old performance appraisal system ?

major problem of rating is : -

Central Tendency ErrorsCentral tendency errors occur when the rater avoids the extremes of the performance scale andevaluates most employees’ somewhere near the middle of the scale. The error results in mostemployees being rated as “Average”. Leniency, strictness, and central tendency errors limitthe ability of the performance appraisal to discriminate between the performances ofemployees. Thus employees are grouped together at the low, mid-point, or high end of thescale and it is virtually impossible to differentiate performance levels among the employees.

Recency EffectsThe recency bias occurs when performance is evaluated based on performance in formationthat occurred most recently. Essentially, supervisors rate the employee’s most recent behavior.Recency errors are most likely to occur when there is a long period of time betweenperformance evaluations (such as a year).

Leniency/strictness ErrorsLeniency and strictness error occur when the rater tends to use one of the extremes of a ratingscale. When leniency errors occur, most employees receive very favorable ratings, eventhough it is not warranted by their performance. Leniency errors can occur for a number ofreasons. For example, a supervisor may be uncomfortable comforting particularly aggressiveemployees with less than favorable evaluations. To avoid conflict, the supervisor might chooseto rate everyone high. It is also possible that the supervisor’s own performance evaluation isbased partially on the performance of his/her work group. Rating everyone favorably gives theimpression that the entire work group is very effective.( Anthony, 1999)Strictness errors, which are the opposite of leniency errors, occur when the rater erroneouslyevaluates most employees unfavorably. In this case, supervisors may simply want to appear“tough” or they may have unrealistic expectations of performance. Regardless, mostemployees are assigned rating at the lower end of the performance scale.

Favoritism

Favoritism is a positive bias towards a specific type of employee. The favored employeepossesses specific characteristics and attributes preferred by managers. Regardless, favoritismis an unfair bias towards one group or person over another group or person.It is very difficult to eliminate favoritisms. It is human nature to prefer certain behaviors,attributes, and characteristics over others. Beyond internal conflict between employees,favoritism will cause serious morale problems. Teamwork can never be achieved whenfavoritism is present.

2. What type of performance appraisal is central to new system at Xerox? Which, if any, of the criteria for a successful appraisal does this new system have?

Management by Objectives ( MBO)1. One method that attempts to overcome some of the limitations of result appraisal is

Management of Objectives. MBO is a philosophy of management first proposed by Peter Drucker in 1954 that employees establish objectives through consultation with their superiors and then uses these objectives as a basis for evaluation. MBO is a system involving a cycle that begins with setting the organization’s common goals and objectives and ultimately returns to that step. The system acts as a goal –setting process whereby objectives are established for the organization, departments and individual managers and employees.

2. A significant feature of the cycle is the establishment of specific goals by the employee, but those goals are based on a broad statement of employee responsibilities prepared by the supervisor. Employee-established goals are discussed with the supervisor and jointly reviewed and modified until both parties satisfied with them.

3. The goal statements are accompanied by a detailed account at the actions of the employee proposes to take in order to reach the goals. During periodic reviews, as objective data are made available, the progress that the employee is making towards the goals is then assessed.

4. Goals may be changed at this time as new or additional data are received. At the conclusion of the period of the time, the employee makes a self-appraisal of what she/he has accomplished, substantiating the self-appraisal with factual data wherever possible.

5. The “interview” is an examination of the employee’s self- appraisal by the supervisor and the employee together.

6. The final step is reviewing the connection between individual and organizational performance.

7. To ensure success, MBO programs should be viewed as part of a total system for managing, not merely an addition to the manager’s job. Managers must be willing to empower employees to accomplish their objectives on their own, giving them discretion over the methods they use.

Essay Method

In the Essay method, the appraiser requires to compose a statement that best describes theemployee being appraised. The appraiser is usually instructed to describe the employee’sstrengths and weaknesses and to make recommendations for his/her development. The Essaymethod provides an excellent opportunity to point out the unique characteristics of theemployee being appraised. This aspect of the method is heightened when a supervisor isinstructed to describe specific points about the employee’s promotability, special talents,skills, strengths, and weaknesses.The major limitation of the essay method is that composing an essay that attempts to cover allof employee’s essential characteristics is a very time-consuming task. Plus, the quality of theperformance appraisal may be influenced by the supervisor’s writing skills and compositionstyle. Example, good writers may simply be able to produce more-favorable appraisals. Ittends to be subjective and may not focus on relevant aspects of job performance.