All-round appraisals gaining in popularity

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The premise is simple. Colleagues, superiors, and subordinates reflect upon an individual's performance over the year. Conclusions are thrown into the pot and seasoned with an individual's own perspective on his or her goals and achievements. The intended result: a well-rounded dish that examines performance from as many angles as possible. In the non-hierarchical organisation, every vote counts.

Fairness and democracy make 360-degree appraisals popular among management theorists. Maury Peirperl, associate dean of the London Business School, says: 'They are the single best way of gathering information on performance.'

However, as Peirperl reflects in a recent article in the Harvard Business Review (Getting 360-degree Feedback Right), 360-degree appraisals do not always work in practice.

In reality, appraisals are liable to numerous pitfalls. Among them are disinterest, problems collating responses, and the bias of appraisers. But investment banks also face more particular problems. It is, for example, hard to escape the fact that some votes count more than others. The head of HR in one City of London institution asks: 'What do you do if clients and colleagues say this person's great, but subordinates say that he or she is an awful manager? Nothing.'

In fact, few banks go the full circle. Stephen Sidebottom, chairman of the City Personnel Group and head of HR for global equities at Dresdner Kleinwort Wasserstein, says: 'In practice, not that many people are appraised by their subordinates.'

Small teams in corporate finance and M&A can make subordinate appraisal hard to manage. George Wilson, head of HR at Rothschild and formerly European head of HR at Credit Suisse First Boston and JP Morgan, says: 'People are not going to say anything bad about their boss when they are only one of four direct reports. It's hard to make upward assessment work in banking.'

Banks tend therefore to rely more heavily on the opinions of peers. However, this also brings problems. According to Peirperl peer appraisal embodies several paradoxes or inconsistencies. He suggests that it is impossible to be both a peer and a judge, that focusing on individuals' performance risks disrupting the group dynamic, and that individuals are wary of saying anything negative about colleagues when they know that it will directly affect pay or promotion, but that they will not value the appraisal process unless they know that it does.

'Most people are keenly attuned to peer appraisal when it affects salary reviews and promotions,' says Peirperl. In fact, banks are increasingly linking peer appraisal to just these outcomes. Most now tie bonus allocation to a display of the 'soft' managerial skills that are assessed during 360-degree appraisals. However, in doing so they fall foul of Peirperl's paradox. Rothschild's Wilson says: 'Appraisal systems can be undermined because people only say good things it's not uncommon for people to get their buddies to appraise them.'

Favourable reports from friends are not the only problem with peer appraisals. Research by the Hay Group of management consultants indicates that some nationalities appraise more favourably than others. David Barnard, a consultant at the Hay Group, says: 'Among East Asians there is a tendency to rate performance slightly higher than elsewhere. Europeans are more modest in their ratings. On a bond desk there might be someone from China, Germany and the US. Are you going to adjust each response for cultural bias?'

The answer is no. Anti-discrimination laws may even prevent such generalisations. In most cases, merely achieving a straightforward 360-degree assessment of thousands of employees is a feat in itself. Costs are high, and the opportunity costs of lost working time during the appraisal process are even higher. Unsurprisingly, firms such as UBS Warburg have invested heavily in technology to make the process simpler, and in many cases appraisals now take place entirely online.

Data from 360-degree appraisals is therefore easier to measure than it has ever been before. But this is not where the story ends. Dresdner's Sidebottom says : 'Gathering information is not the hard part. Once you have it, you've got to do something useful with it.'

Behaviour cannot be changed overnight. For this reason, the application of the information gleaned from 360-degree appraisals should be in development plans that look forward rather than backwards.

In the meantime, past performance continues to be more importantly measured in figures. At the end of the day, a talent for revenue generation is likely to count for more than commendations from co-workers, no matter how carefully contrived.

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