Peter F. Drucker first published the management approach “Leading by objectives” in the 1950s and developed it further during the 1960s and 1970s. Until today, this approach remains the predominant method of how managers and employees interact in many companies.

If the Drucker’s approach is to be taken seriously, a company needs to plan the strategy every year, to set or at least check annually the strategic goals. These are broken down to all organisational levels down to the employee level, and the operational goals of each unit derived from them. The daily business should be aligned with this pyramid of objectives. Based on this cascade of purposes, each company then develops various strategies for achieving the goals, which are adopted by the top level and thus operationally transferred into the care of the respective unit managers.

As a manager, this means holding a target agreement discussion with each employee at least once a year.

Aiming – Discussion:
This should take place at the beginning of the business year and is intended to determine with the employee what his or her contribution is to be achieving the company’s objectives. The more clearly these objectives are defined, the easier it is to measure the degree of achievement at the end of the year. Since very often, salary components also depend on the accomplishment of the objectives, and the definition of goals must be as straightforward as possible for both sides. If the agreed objectives change during the year; it is essential to record these revised objectives in the target agreement  between employee and manager. If the aims are relatively short-term, we recommend that an “interim review” be carried out after the objectives have been achieved, to document the partial result promptly for the annual meeting.

Within the framework of target agreement at the employee level, content/process targets, and personal development goals should be agreed in each case. Overall, we recommend keeping the number of objectives relatively small (no more than 1-3 per category) but defining them well enough to be understandable and achievable for the employee.

Target and performance review discussions:
During the year, regular face-to-face meetings should take place between employees and their  manager to keep the objectives from the target agreement on the “radar” of both sides and to ensure that these objectives do not fall victim to day-to-day operations. During these meetings, the executive acts in an advisory, coaching or corrective capacity if the achievement of the goals is at risk. The employee has the opportunity to present his progress, get feedback or advice if he is “up for discussion” on one or the other topic.

Appraisal Dialogue:
The purpose of the appraisal dialogue is to assess the employee in terms of his personal development (personal goals) and terms of his performance (content and process goals). This assessment is used very differently in companies. In some cases, the employee appraisal is used to determine commissions or as a basis for the payment of variable salary components. In this case, of course, the highest possible target (over)achievement is massively in the interest of the employee. At the same time, organisational hygiene needs to have a transparent system that assesses objectives as objective as possible. The less clearly formulated the goals are, the more often there are different views between managers and employees and thus sometimes a high potential for conflict.

For this topic, we recommend to establish criteria that are as clear and unambiguous as possible when defining objectives, as well as a clear purpose, so that it is objectively measurable whether the aim has been achieved or not. This is also possible with so-called soft targets. We differentiate, for example, knowledge-consciousness-skills-strength through observable behavioural anchors within the criteria when using the Coverdale “Aims Grid”.

Employee funding discussion:
Every manager is also a personnel developer for his employees. As a manager, you should ensure that the employees have the necessary skills to carry out their tasks. These can be acquired through training or coaching on the job. The manager should also identify potential talents and enable them to develop their skills within the company further to retain outstanding people for a more extended period. In recent years, career path models have become more and more widespread, which are very helpful for this very purpose. (specialist career, project or management career).

Very often, the three types of the interview mentioned are summarised as “systematic appraisal interview” or “annual appraisal”.  From a purely organisational point of view, the combination of the three types of the interview mentioned above into one “big” appraisal interview is a good idea. At least once a year, a review of the previous year’s goals, agreement on the new annual goals and the opportunity for the employee to discuss personal development goals and wishes with his or her supervisor are required.

In many organisations, however, the annual review is supplemented by additional aspects that consider new developments in leadership behaviour:

  • Mutual feedback:
    The purpose of this part of the conversation is to get feedback on how the other side has affected you in cooperation. On the role of the manager, it is relatively difficult to give “clean” feedback, as the ability to “work together” is something that a manager will evaluate in the context of the Employee Assessment. Thus, the well-intentioned “feedback” very often mutates into criticism, which is then only very reluctantly “taken” by the employee. It is also difficult for an employee to give manager feedback on the cooperation without being evaluative. In our opinion, for feedback to arrive correctly – “correct” feedback is always meant as a gift, it needs a different framework—for example, a coaching situation with a self-defined goal of the employee.
  • An “upward assessment” of the manager:
    This is also a relatively new aspect of the annual appraisal interview and is intended to allow the manager to compare his or her image with that of others. If this assessment cannot be carried out anonymously as part of 360-degree feedback, many employees have reservations about openly giving an evaluation, especially if it is not complimentary.
  • Fitting with the corporate values or management guidelines:
    This topic is often used to better anchor these two issues in the minds of the employee by making them “the topic”. Our experience is that if leadership behaviour in line with the guidelines is a personal goal and the behavioural anchors are clearly defined, this topic is also easily measurable as a “strategic” goal. Value-compliant behaviour (especially for employees) also requires a clear definition of behavioural anchors if the issue is to be measurably anchored in the organisation. A general “talk about it” tends to cause resentment among employees.

It is no longer possible to imagine everyday company life without classic employee appraisals. However, they are by no means a substitute for the regular exchange between managers and employees on operational issues and questions of cooperation. It is essential for human resources departments that behind the topic of performance appraisal a clearly defined process is established in the company, which regulates the deadlines for holding these interviews, the administrative aspects such as: where are the forms kept, who gets which parts, who gets access to them etc. If a works council has been established in the company, it must also be involved in the establishment of appraisal interviews.