Original Date: 07/18/1994
Revision Date: 01/18/2007

To overcome the limitations of traditional performance appraisal systems in a team environment, Mason & Hanger (M&H) has developed a unique performance appraisal system based on inputs from peers and customers. This system, called the 360 Degree Feedback System, is used to determine merit pay. It was developed and implemented in June 1992 in the 150- person Materiel Division as a pilot for the entire plant.

The need for a new approach to employee performance appraisal arose as M&H adopted a team concept and recognized that traditional performance appraisal systems did not work well in a team environment. Team leaders become the primary customer because they controlled merit increases under the traditional system. These systems did not measure the most important internal and external customer perceptions, were subject to too much reviewer bias, and promoted individualism instead of teamwork.

The 360 Degree peer/customer appraisal approach (developed by the Materiel Division) gives a reliable, valid, and credible appraisal keyed to actual performance while enhancing teamwork. Initially, the appraisal form utilized the existing human resources appraisal format and performance evaluation categories. These have been modified several times based on employee feedback and benchmarking data from other companies.

Participation is mandatory for an employee to be considered for merit pay. The employee randomly chooses three internal customers, three external customers, and completes a self review. Random selection of reviewers is left to the honor of the employee, and reviewers are not required to sign the appraisal form. Feedback provided to the employee includes copies of the seven reviews including all comments, a summary report showing the ratings and averages in each evaluation category, a report showing averages for the team, a division averages report, and a documented explanation of how the system works.

Copies of the seven reviews plus a document signed by the employee indicating receipt and understanding of the reviews is retained in the employee's human resource personnel file. Surveys of the employees using this approach have indicated that employees liked this system over the traditional system, considered it to be fair, and believed they learned more about their performance than before.

The merit portion of the system seeks to evaluate performance criteria that employees control and maximize the use of objective data over opinion. Its objective is to associate merit results to customer feedback and other emphasized criteria. Four weighted evaluation measures were established - peer/customer performance evaluation (50%), action item system responsiveness (25%), initiative/involvement (15%), and work effort (10%). After determining the score for each of the four evaluation measures for each employee, the scores are added to obtain an overall score. Performance zones (Above, Average, and Below) are established, and the overall score is normalized to place an employee in the appropriate performance zone from which the determination of merit increase is made. Employees receive a documented explanation of the merit system, notification of the merit increase (percent change, dollar change, new salary), and a summary report (total points received, performance position, comments). Although not mandatory, either the division team leader or the employee can request a face-to-face review.

The 360 Degree Feedback system has been well received by employees and management and is effectively meeting performance appraisal requirements in a team environment. Future directions include plant- wide adoption and more emphasis on team performance.

For more information see the Point of Contact for this survey.