As published in

Global competition is profoundly affecting corporate America and its workforce. In his latest book, The World Is Flat, Thomas L. Friedman effectively describes how communications technologies (computers, the Internet, worldwide fiber optic connections) are leveling the playing field, making it possible for any company or person anywhere in the world to compete for jobs.

We all know that much of our manufacturing has moved to China. And lately, we're seeing an increasing use of Indian workers in lieu of American workers in the area of customer service. Indian workers are also making inroads in what were once thought to be protected professional areas, such as tax preparation and overnight lab analysis of MRIs and CAT scans in patient care.

In our newly flattened world, job functions are rapidly being redefined and transferred abroad, which means there is more job competition across the globe. Geographical distance and borders no longer protect American companies and jobs. Herein lies the challenge: For American companies to remain competitive, they must engage their employees in developing new products and services of higher value based on innovation and creativity.

Overhauling the appraisal process

Today's business atmosphere makes it clear both America's companies and its workforce must align to meet this challenge. What is needed is a new paradigm that supports a new set of criteria for rewarding employees based on their ability to continue to learn new skills and adapt to the changing economic conditions. To understand the underpinnings of the new performance appraisal, it is critical to understand the outmoded assumptions of the traditional performance appraisal model.

Old model is out of sync with the times

The existing performance review makes two basic assumptions: (1) compensation is linked to performance; (2) raises are based on an employee's past accomplishments.

Regarding the first assumption, American workers are used to associating performance reviews with salary reviews. The problem, however, is the average raise for American workers today ranges between 4 percent for average performance and 6 percent for outstanding performance.

Considering the increasing cost of living in the United States, a raise of this amount does little to motivate employees to work to their full potential. In fact, raises of 4 to 6 percent may do more harm than good in the long run: Not only do employers run the risk of demotivating their work force but, more seriously, they run the risk of creating an apathetic workforce that is out-of-touch with the reality of global competition.

The second assumption has many flaws. First, a performance review based on yesterday's performance says little about what skills are needed for the future to ensure a worker will continue to contribute at his or her full potential. This assumes the requirements of an employee's position can be defined at the beginning of the performance period and will remain constant throughout the year even in the face of shifting global forces. Second, this model applies a top-down approach to executing performance reviews: It holds management responsible for both defining the requirements of a position and measuring an employee's performance vis-à-vis these requirements. This power structure in itself has the potential of creating an adversarial relationship between employers and employees, particularly if an employee disagrees with an evaluation and feels unjustifiably penalized for a negative review.

The plain truth is the majority of employees and employers have become increasingly dissatisfied with the existing review process because it is considered a useless exercise that brings neither significant monetary reward nor valuable insight into how employees can contribute to the goals of the organization while furthering their own individual career goals.

New model focuses on skill development and creating new value

By contrast, the new model breaks the link between compensation and performance by severing the association between the two. In other words, employers must make clear performance reviews are not the same as salary reviews. An effective way to do this is to have management give performance reviews at a different time of the year from when compensation is considered. In this way, the performance review takes on a new function: Its purpose is to have supervisor and employee come face-to-face as a team for a productive and honest discussion of what is required of both parties to ensure the competitive edge of both the organization and its employees.

Now instead of being seen as a passive or subservient player in the review process, the new structure enables American workers to take the lead in developing their own performance criteria based on their own queries such as: What can I do better? How can I increase my value to the company? What skills do I need to develop to become more competitive, productive, strategic, and innovative? Likewise, supervisors are expected to raise questions that will support the employee's criteria of how he or she is to be evaluated. For example, they might ask: What can I do to help my employees achieve their goals? What kind of assistance or training does my staff need to develop new skills to improve their performance and productivity?

In essence, the re-purposed performance appraisal model transforms what might have been traditionally viewed as a punitive or adversarial relationship to one that is dynamic and forward thinking. Seen as such, the performance appraisal becomes a means to an end — the creation of a collaborative and highly skilled workforce whose primary goal is to help both the organization and its individual employees compete for the gold in the global marketplace.