SHRM Foundation Research The Link Between Performance Appraisal and Culture: An Examination Across 21 Countries Funded: November 2007 Completed: May 2008 Hilla Peretz, Ph.D., Syracuse University, (Visiting ‘07-’08) Yitzhak Fried, Ph.D., Syracuse University Executive Summary The use of individual-based merit performance appraisal practices has been shown to have a positive impact on organizational outcomes. Such merit systems are widespread in the U.S. and are consistent with the individualistic values that characterize it. However, would such performance appraisal practices be equally effective in organizations embedded in other countries that may have a more collectivistic orientation? Hilla Peretz and Yitzhak Fried examined the influence of cultural values on performance appraisal practices adopted by organizations across 21 countries. Further, they explored the effect of the level of fit between a nation’s cultural values and the characteristics of the organization’s performance appraisal practices on organizational performance. KEY FINDINGS AND IMPLICATIONS FOR PRACTICE Power distance is the degree to which members of a collective expect power to be distributed equally. In high power distance societies, hierarchy is rigidly adhered to. Organizations in cultures with high power distance are less likely to use 360 degree performance appraisal processes. 360-degree performance appraisal systems reduce absenteeism, and have a positive effect on innovation, and productivity rates in lower power distanced societies rather than higher power distance societies. Future orientation is the degree to which individuals engage in future-oriented behaviors such as investment and development to prepare the workforce to meet future organizational needs. Organizations in cultures with strong future orientations are more likely to use performance appraisal processes to evaluate employees. In societies characterized by high future-orientation, organizations that adopt performance appraisal systems and evaluate a high proportion of employees have higher productivity and innovation levels, and lower absenteeism rates. Individualism/collectivism refers to the degree to which societies value individual rights and opportunities versus group success and loyalty to the group. Organizations in collectivist cultures are more likely to use 360-degree performance systems. In collectivist societies, organizations that adopt performance systems with a high focus on individual outcomes have higher levels of absenteeism and turnover and lower levels of innovation, relative to organizations that adopt performance systems that do not emphasize individual outcomes. Uncertainty avoidance is the extent to which a society relies on social norms, rules, and procedures to alleviate the unpredictability of future events. Societies high in uncertainty avoidance are more likely to develop strict rules and norms. Organizations in cultures high in uncertainty avoidance are more likely to use performance appraisal systems. In societies characterized by high uncertainty avoidance, organizations that implement formal performance systems tend to have lower absenteeism and turnover, and higher innovation, than organizations that do not implement such formal performance systems. Bottom Line National culture influences the types of performance appraisal processes that are implemented. Organizations should understand the cultural values in which the organization operates to ensure the performance system used is appropriate and will be effective. Study Methods Using a sample of 5,991 organizations from 21 countries, the researchers examined performance appraisal practices and how those practices and their effectiveness varied as a function of national culture. Turnover, absenteeism, level of service quality, productivity, and rate of innovation were used as organizational indicators of performance. Download the full research report (in pdf). View the full list of SHRM Foundation funded research.