The time of the year that every employee dreads, managers and subordinates alike. I have had jobs that either didn’t have a performance management system or did not take the system seriously. My most recent position fell into the latter category.

My performance appraisal meeting involved me and several other employees being handed our appraisal and told to sign it and let our supervisor know if we had any questions. We were also told that no one would get fives on the five point scale. “There is always room for improvement,” my supervisor informed all of us. So we all sat in the hallway outside her office, signed our appraisals, and gave them back to her. We later grumbled about our results. One employees was extremely surprised by receiving a 1 for professional appearance. “I wish someone would have told me they didn’t approve of how I dressed before my appraisal.”

This scenario is prevalent in many organizations. Nobody likes performance appraisals and nobody thinks that they are important. Employees view them as a way to get a raise. Managers view them as a tedious part of their job that human resources requires them to do.

The questions is: Why are performance appraisals important and how do we make them useful?

Performance appraisal systems are important to organizations for many reasons. They help organizations keep track of employee’s performance. They are useful for documentation. When used correctly, they can help employees to become more productive. They are also good for identifying high performers in succession planning. They are also an integral part of a good talent management system.

Making performance appraisal systems useful is much harder than just creating the system. Though it may be an excellent system, it may not be used in exactly the way that it was intended. Managers may use the system how they interpret it  and not how it was intended to be used.

Many managers do not want to be the “reason” that employees don’t receive a raise. They may also think that by giving high ratings they will be viewed as a good manager. Or even if they give low ratings they will be viewed as a tough manager. They also may give everyone all 5′s and then when they get fed up with 1 under-performing employee want to fire them without any supporting documentation. Another common interpretation is that by giving a low performer a high rating will motivate them to perform higher and giving a high performer a low rating will do the same.

The key to improve performance appraisal systems’ effectivness is to make sure that all employees and managers are informed of the process. Managers will need some direction on what the performance appraisal does for them and the organization. Rater training is also beneficial in getting all managers to agree on what each rating means. Rater training will help with both accuracy and consistency in ratings.

Managers will need to understand that this is not a one time a year occurrence. The appraisal should be an accumulation of smaller meetings throughout the year. Employees should not be surprised by anything on their performance appraisal.

Employees need to know that the performance appraisal is for their development and not just administrative decisions. They should view it as a way to make improvements on weaknesses and highlight their strengths. They should be prepared for their appraisal with concrete examples of exceptional work. They also need to take responsibilty for eliciting feedback from supervisors.

Performance appraisals are not a perfect system. They can be useful and important to the organization, managers, and employees. Each benefits from a correctly executed performance management system.