"The system forced me to turn people who were excellent performers into people who were getting mediocre ratings," says Eric Wisnefsky, Chemtura's vice-president for corporate finance. "That demotivates them, and they'd follow up with asking: 'What could I do differently next year?' That's a very difficult question to answer when you feel that people actually met all your expectations." Chemtura's new process still assigns grades. But to better motivate employees in the middle, labels such as "satisfactory" have been upgraded to phrases such as "successful performance."
As we mentioned in our previous thread on performance without appraisal more organizations are acting on what most people know - performance appraisal process is counter-productive. Deming on Performance Appraisal, Out of the Crisis, page 101:
From Business Week's article:
There are no easy answers, but what it should be about is managing the system to produce the best results. My best advice is to read chapter 9 of The Leader's Handbook and read the rest of the Leader's Handbook and other great management improvement books. And manage using the ideas of Deming, Ackoff, Scholtes, McGregor, Ohno... Refer back to the great books as you gain experience and continue to learn and practice management improvement. It still won't be easy but the chance of you managing systems and people effectively will greatly increase.
Two great books on managing people: Abolishing Performance Appraisals: Why They Backfire and What to Do Instead by Tom Coens, Mary Jenkins and forward by Peter Block - Peopleware: Productive Projects and Teams by Tom DeMarco and Timothy Lister.