Performance Appraisals at Fortune 500 Companies

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It is estimated that 90 percent of Fortune 500 companies are using a 360-degree performance review process to evaluate employees' performance. These performance reviews involve a formalized process in which the employee receives feedback from multiple individuals who regularly interact with the person reviewed. The objective of this system is to provide the employee with feedback on their performance, as well as their potential and to identify and establish goals for development. Typically, the individuals rating the employee represent the employee's supervisor, peers, subordinates, and customers.

GE uses 360- degree performance review process to review employees' performance annually, and awarded a numerical ranking of between 1 and 5. Employees are ranked on items such as meeting deadlines, quality, and meeting yearly goals. "The implicit understanding is that both the individual and his or her score are moving up or it's time to leave the company" (Jennings, Haughton, 2002). Jack Welch implemented a system in which feedback was given to employees, that was also converted to divide employees into three distinct segments, the top 20 percent of performers, the middle 70 percent, and the bottom 10 percent. Welch indicated that people were used to being graded from the time they were in grade school until they graduated with an MBA, so this process should be acceptable in grading employees. At GE, Welch used the data to then take "the top 20 percent of employees and make them feel loved - take the middle 70 percent and tell them what they need to do to get into the top 20 percent" (Vollmer, 2005) and weed out the bottom 10 percent. The importance of this procedure is to let employees know where they stand. ...