McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.

PerformanceManagementSystemsChapter 11

Chapter Overview

• Understanding Performance

• Performance Appraisal: Definition and Uses

• Performance Appraisal Methods

• Potential Errors in Performance Appraisals

• Overcoming Errors in Performance Appraisals

• Providing Feedback through the Appraisal Interview

• Developing Performance Improvement Plans

• Performance Appraisal and the Law

• Summary of Learning Objectives

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Performance Management Systems• Performance management systems that are

directly tied to an organization’s reward system

• Provide a powerful incentive for employees to work diligently and creatively toward achieving organizational objectives

• When properly designed and implemented, performance management systems let employees

• Know how well they are presently performing

• Clarify what needs to be done to improve performance

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Understanding Performance

• Degree of accomplishment of the tasks that make up an employee’s job

• Reflects how well an employee is fulfilling requirements of a job

• Often confused with effort, which refers to energy expended, performance is measured in terms of results

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Determinants of Performance

• Job performance is net effect of an employee’s effort as modified by abilities and role (or task) perceptions

• Performance in a given situation can be viewed as resulting from interrelationships among effort, abilities, and role perceptions

• Effort – Results from being motivated

• Refers to amount of energy (physical and/or mental) an individual uses in performing a task

• Abilities – Are personal characteristics used in performing a job

• Usually do not fluctuate widely over short periods of time

• Role (task) perceptions – Refer to direction(s) in which individuals believe they should channel their effort on their jobs

• Activities and behaviors people believe are necessary in the performance of their jobs define their role perceptions

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Determinants of Performance

• To attain an acceptable level of performance, a minimum level of proficiency must exist in each of the performance components

• Level of proficiency in any one performance component can place an upper boundary on performance

• If employees put forth tremendous effort and have excellent abilities, but lack a clear understanding of their roles, performance will probably not be good in the eyes of their managers

• Much work will be produced, but it will be misdirected

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Determinants of Performance

• An employee who puts forth a high degree of effort and understands the job but lacks ability probably will rate low on performance

• An employee who has a good ability and understanding of the role but is lazy and expends little effort

• Employee’s performance will likely be low

• An employee can compensate up to a point for a weakness in one area by being above average in one or both of the other areas

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Environmental Factors as Performance Obstacles

• Other factors beyond the control of the employee can also stifle performance

• Such obstacles are sometimes used merely as excuses, they are very real and should be recognized

• Common potential performance obstacles include

• Employee’s lack of time or conflicting demands upon it

• Inadequate work facilities and equipment

• Restrictive policies that affect the job

• Lack of cooperation from others

• Type of supervision

• Temperature, lighting, noise, machine or equipment pacing

• Shifts

• Even luck

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Environmental Factors as Performance Obstacles

• Environmental factors should be viewed not as direct determinants of individual performance but as modifying the effects of effort, ability, and direction

• Poor ventilation or worn-out equipment may well affect the effort an individual expends

• Unclear policies or poor supervision can also produce misdirected effort

• A lack of training can result in underutilized abilities

• One of management’s greatest responsibilities is to provide

• Employees with adequate working conditions

• A supportive environment to eliminate or minimize performance obstacles

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Responsibilities of the Human Resource Department in Performance Management• Responsibilities of the human resource department are

• Design the performance management system and select the methods and forms to be used for appraising employees

• Train managers in conducting performance appraisals

• Maintain a reporting system to ensure that appraisals are conducted on a timely basis

• Maintain performance appraisal records for individual employees

• Responsibilities of managers in performance appraisals are to

• Evaluate the performance of employees

• Complete the forms used in appraising employees and return them to the human resource department

• Review appraisals with employees

• Establish a plan for improvement with employees

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Performance Appraisal: Definition And Uses• Process of evaluating and communicating to an employee how

he or she is performing the job and establishing a plan for improvement

• When properly conducted

• They let employees know how well they are performing

• Influence their future level of effort and task direction

• Effort should be enhanced if good performance is positively reinforced

• Task perception of the employee should be clarified through establishing a plan for improvement

• Common uses of performance appraisals is for making administrative decisions relating to promotions, firings, layoffs, and merit pay increases

• An employee’s present job performance is often the most significant consideration for determining whether to promote the person

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Performance Appraisal: Definition And Uses• Performance appraisal information can

• Provide needed input for determining both individual and organizational training and development needs

• These data can then be used to help determine the organization’s overall training and development needs

• For individual employees, completed performance appraisal should include a plan outlining specific training and development needs

• Performance appraisals can also be used to encourage performance improvement

• Used as a means of communicating to employees how they are doing

• Suggesting needed changes in behavior, attitude, skills, or knowledge

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Performance Appraisal: Definition And Uses

• Feedback clarifies for employees manager’s job expectations

• Feedback must be followed by coaching and training

• Information from performance appraisals can be used as

• Input to validation of selection procedures

• Input to human resource planning

• How often to conduct performance appraisals

• No real consensus on how frequently performance appraisals should be done

• In general, as often as necessary to let employees know

• What kind of job they are doing

• If performance is not satisfactory, measures that must be taken for improvement

• It is recommended that informal performance appraisals be conducted two or three times a year in addition to an annual formal performance appraisal

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Performance Appraisal Methods

• Whatever method of performance appraisal an organization uses, it must be job related

• Prior to selecting a performance appraisal method, an organization must conduct job analyses and develop job descriptions

• Methods of performance appraisals include

• Management by objectives (MBO)

• Multi-rater assessment (or 360-degree feedback)

• Graphic rating scale

• Behaviorally anchored rating scale (BARS)

• Critical-incident appraisal

• Essay appraisal

• Checklist

• Forced-choice rating

• Ranking methods

• Work standards approach

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Management by Objectives (MBO)

• More commonly used with professional and managerial employees

• Consists of

• Establishing clear and precisely defined statements of objectives for the work to be done by an employee

• Establishing an action plan indicating how these objectives are to be achieved

• Allowing employee to implement the action plan

• Measuring objective achievement

• Taking corrective action when necessary

• Establishing new objectives for the future

• Other names for MBO include management by results, performance management, results management, and work planning and review program

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Management by Objectives (MBO)• For this system to be successful, several requirements must be

met

• Objectives should be quantifiable and measurable

• Objectives whose attainment cannot be measured or at least verified should be avoided where possible

• Objectives should also be challenging yet achievable, and they should be expressed in writing and in clear, concise, unambiguous language

• Employees participate in objective-setting process

• Employee’s active participation is also essential in developing the action plan

• Objectives and action plan must serve as a basis for regular discussions between manager and employee concerning employee’s performance

• Provide an opportunity for manager and employee to discuss progress and modify objectives when necessary

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Examples of How to Improve Work Objects

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Typical Areas of Supervisory Objectives

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Multi-Rater Assessment (or 360-Degree Feedback)

• Managers, peers, customers, suppliers, or colleagues are asked to complete questionnaires on the employee being assessed

• Person assessed also completes a questionnaire

• Questionnaires are generally lengthy. Typical questions are:

• “Are you crisp, clear, and articulate? Abrasive? Spreading yourself too thin?”

• Human resources department provides results to the employee, who in turn gets to see how his or her opinion differs from those of the group doing the assessment

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Graphic Rating Scale

• Requires rater to indicate on a scale where the employee rates on factors such as

• Quantity of work

• Dependability

• Job knowledge

• Cooperativeness

• Rating scales include both numerical ranges and written descriptions

• Potential weakness

• Evaluators are unlikely to interpret written descriptions in the same manner due to differences in background, experience, and personality

• Choice of rating categories

• It is possible to choose categories that have little relationship to job performance

• Omit categories that have a significant influence on job performance

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Sample Items on a Graphic Rating Scale

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Behaviorally Anchored Rating Scale (BARS)• Determines an employee’s level of performance based on

whether or not certain specifically described job behaviors are present

• Focus of BARS is not on performance outcomes but on functional behaviors demonstrated on the job

• Assumption is that these functional behaviors will result in effective job performance

• Job dimensions – Means broad categories of duties and responsibilities that make up a job

• Each job is likely to have several job dimensions, and separate scales must be developed for each

• Scale values – Define specific categories of performance

• Anchors – Specific written statements of actual behaviors that, when exhibited on the job, indicate the level of performance on the scale opposite that particular anchor

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Behaviorally Anchored Rating Scale (BARS)• Rating performance using a BARS requires

• Rater to read list of anchors on each scale to find the group of anchors that best describe the employee’s job behavior during the period being reviewed

• Scale value opposite the group of anchors is then checked. Process is followed for all the identified dimensions of the job

• Total evaluation combines the scale values checked for all job dimensions

• BARSs are normally developed following these steps:

• Managers and job incumbents identify relevant job dimensions for the job

• Managers and job incumbents write behavioral anchors for each job dimension

• As many anchors as possible should be written for each dimension

• Managers and job incumbents reach consensus concerning scale values to be used and grouping of anchor statements for each scale value

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Behaviorally Anchored Rating Scale (BARS)

• Advantages

• BARSs are developed through active participation of both managers and job incumbents

• Anchors are developed from observations and experiences of employees who actually perform the job

• Increases the likelihood that the method will be accepted

• BARSs can be used to provide specific feedback concerning an employee’s job performance

• Drawbacks

• Takes considerable time and commitment to develop

• Separate forms must be developed for different jobs

• From a technical point of view, BARS is a graphic rating scale that was developed to help overcome errors in performance appraisals

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Example of a Behaviorally Anchored Rating Scale

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Critical-Incident Appraisal

• Rater keeps a written record of incidents that illustrate both positive and negative employee behaviors

• Rater then uses these incidents as a basis for evaluating the employee’s performance

• Incidents recorded should involve job behaviors illustrating both satisfactory and unsatisfactory performance of employee being rated

• Drawback

• Rater is required to jot down incidents regularly, which can be burdensome and time-consuming

• Definition of a critical incident is unclear and may be interpreted differently by different people

• Method may lead to friction between manager and employees when employees believe manager is keeping a “book” on them

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Essay Appraisal

• Rater prepares a written statement describing an individual’s strengths, weaknesses, and past performance

• Requires that evaluation describe an employee’s performance in written narrative form

• Instructions are often provided as to the topics to be covered

• Typical essay appraisal question might be

• “Describe, in your own words, this employee’s performance, including quantity and quality of work, job knowledge, and ability to get along with other employees.”

• “What are the employee’s strengths and weaknesses?”

• Drawback

• Their length and content can vary considerably, depending on rater

• Essay appraisals are difficult to compare

• Writing skill of appraiser can also affect appraisal

• It is possible to use a critical incident method to support essay methods however

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Checklist

• Rater answers with a yes-or-no a series of questions about the behavior of the employee

• Checklist can also assign varying weights to each question

• Normally, human resource department keeps the scoring key for the checklist method

• Evaluator is generally not aware of weights associated with each question

• Drawbacks

• Raters can see positive or negative connotation of each question, which introduces bias

• It is time-consuming to assemble questions for each job category

• Separate listing of questions must be developed for each job category

• Checklist questions can have different meanings for different raters

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Sample Checklist Questions

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Forced-Choice Rating

• Requires rater to rank a set of statements describing how an employee carries out the duties and responsibilities of the job

• Statements are normally weighted

• Rater generally does not know the weights

• After rater ranks all the forced-choice statements, human resource department applies weights and computes a score

• Attempts to eliminate evaluator bias by forcing rater to rank statements that are seemingly indistinguishable or unrelated

• Drawbacks

• Been reported to irritate raters, who feel they are not being trusted

• Results of forced-choice appraisal can be difficult to communicate to employees

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Sample Set of Forced-Choice Statements

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Ranking Methods

• Performance of an employee is ranked relative to the performance of others

• Three of the more commonly used ranking methods are

• Alternation

• Paired comparison

• Forced distribution

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Alternation Ranking

• Lists names of employees to be rated on the left side of a sheet of paper

• Rater chooses most valuable employee on the list, crosses that name off the left-hand list, and puts it at the top of the column on the right-hand side of the paper

• Appraiser then selects and crosses off name of least valuable employee from left-hand column and moves it to bottom of right-hand column

• Rater repeats this process for all names on the left-hand side of the paper

• Resulting list of names in right-hand column gives a ranking of employees from most to least valuable

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Paired Comparison Ranking

• Best illustrated with an example

• Suppose a rater is to evaluate six employees; their names are listed on the left side of a sheet of paper

• Evaluator then compares first employee with second employee on a chosen performance criterion, such as quantity of work

• If he or she believes the first employee has produced more work than second employee, a check mark is placed by the first employee’s name

• Rater then compares the first employee to the third, fourth, fifth, and sixth employee on the same performance criterion, placing a check mark by the name of employee who produced most work in each paired comparison

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Paired Comparison Ranking

• Process is repeated until each employee has been compared to every other employee on all of the chosen performance criteria

• Employee with most check marks is considered to be best performer

• Employee with fewest check marks is lowest performer

• Drawback

• It becomes unwieldy when comparing more than five or six employees

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Force Distribution

• Requires rater to compare performance of employees and place a certain percentage of employees at various performance levels

• Assumes performance level in a group of employees will be distributed according to a bell-shaped, or “normal,” curve

• Drawback

• In small groups of employees, a bell-shaped distribution of performance may not be applicable

• Even where distribution may approximate a normal curve, it is probably not a perfect curve

• This means some employees probably will not be rated accurately

• Ranking methods differ dramatically from other methods in that one employee’s performance evaluation is a function of performance of other employees in the job

• Civil Service Reform Act does not permit use of ranking methods for federal employees

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Forced-Distribution Curve

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Work Standards

• Involves setting a standard or an expected level of output and then comparing each employee’s level to the standard

• Most frequently used for production employees and is a form of goal setting for these employees

• Work standards should reflect average output of a typical employee

• Attempt to define a fair day’s output

• Advantage

• Performance review is based on highly objective factors

• To be effective, affected employees must view standards as being fair

• Drawback

• Lack of comparability of standards for different job categories

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Frequently Used Methods for Setting Work Standards

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Potential Errors In Performance Appraisals• Leniency

• Occurs when a manager’s ratings are grouped at the positive end instead of being spread throughout the performance scale

• Central tendency

• Tendency of a manager to rate most employees’ performance near the middle of the performance scale

• Recency

• Tendency of a manager to evaluate employees on work performed most recently, usually one or two months prior to evaluation

• These errors make it difficult to compare ratings from different raters

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Potential Errors In Performance Appraisals• Halo effect

• Occurs when a rater allows a single prominent characteristic of an employee to influence his or her judgment on each separate item in the performance appraisal

• Results in employee receiving approximately same rating on every item

• Personal preferences, prejudices, and biases can also cause errors in performance appraisals

• Managers with biases or prejudices tend to look for employee behaviors that conform to their biases

• Appearance, social status, dress, race, and sex have influenced many performance appraisals

• Managers have also allowed first impressions to influence later judgments of an employee

• People tend to retain these impressions even when faced with contradictory evidence

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Overcoming Errors In Performance Appraisals• One approach to overcoming errors is to make

refinements in the design of appraisal methods

• One could say that forced-distribution method of performance appraisal attempts to overcome errors of leniency and central tendency

• Behaviorally anchored rating scales are designed to reduce halo, leniency, and central tendency errors as they provide managers with specific examples of performance against which to evaluate

• It does not appear likely that refining appraisal instruments will totally overcome errors in performance appraisals

• Since refined instruments frequently do not overcome all the obstacles

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Overcoming Errors In Performance Appraisals

• Another approach to overcoming errors is to improve the skills of raters

• Suggestions on specific training to be given to evaluators, although vague, normally emphasize that evaluators should be trained to observe behavior more accurately and judge it more fairly

• More research is needed before a definitive set of topics for rater training can be established

• At a minimum, raters should receive training in

• Performance appraisal method(s) used by company

• Importance of rater’s role in total appraisal process

• Use of performance appraisal information

• Communication skills necessary to provide feedback to employee

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Providing Feedback Through the Appraisal Interview• Unless feedback interview is properly conducted, it can

and does result in an unpleasant experience for both manager and employee

• To prepare for it, the manager should answer the following questions:

• What results should the interview achieve?

• What good contributions is the employee making?

• Is the employee working up to his or her potential?

• Is the employee clear about the manager’s performance expectations?

• What training does the employee need to improve?

• What strengths does the employee have that can be built on or improved?

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Providing Feedback Through the Appraisal Interview• In addition, the manager should remember several basic

guidelines in conducting the interview:

• Manager must know the employee’s job description

• Evaluation must be based on employee’s performance and not on his or her personality

• Manager must be positive and build on the employee’s strengths

• Manager must be candid and specific

• Manager must listen to the employee as well as presenting her or his own views

• Manager must elicit employee feedback on how to improve performance

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Factors Influencing Success or Failure of Appraisal Interviews

• More the employees are allowed to participate in the appraisal process, the more

• Satisfied they will be with the appraisal interview

• Satisfied they will be with the manager

• Likely they will be to accept and meet performance improvement objectives

• More a manager uses positive motivational techniques, the more satisfied the employee is likely to be with appraisal interview and with manager

• Manager and employee mutually setting specific performance improvement objectives results in better performance than when managers use a general discussion or criticism

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Factors Influencing Success or Failure of Appraisal Interviews

• Discussing and solving problems hampering employee’s current job performance improve employee’s performance

• More the thought and preparation that both manager and employee devote before the appraisal interview, greater the benefits of the interview

• More the employee perceives that performance appraisal results are tied to organizational rewards, the more beneficial the interview will be

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Developing Performance Improvement Plans

• Step of including a performance improvement plan in a completed performance appraisal is often ignored

• Managers must recognize that an employee’s development is a continuous cycle of

• Setting performance goals

• Providing training necessary to achieve goals

• Assessing performance related to accomplishing goals

• Setting new, higher goals

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Developing Performance Improvement Plans• Performance improvement plan consists of the following

components:

• Where are we now?

• Answered in the performance appraisal process

• Where do we want to be?

• Requires evaluator and person being evaluated to mutually agree on areas that can and should be improved

• How does the employee get from where he or she is now to where he or she wants to be?

• Critical to performance improvement plan

• Manager and employee must agree upon specific steps to be taken

• May include training employee to improve his or her performance

• May include how evaluator will help employee achieve performance goals

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Performance Appraisal and the Law• Title VII of the Civil Rights Act permits use of a bona fide

performance appraisal system

• Generally not considered to be bona fide when their application results in adverse effects on minorities, women, or older employees

• Number of court cases have ruled that performance appraisal systems used by organizations were discriminatory and not job related

• Brito et al. v. Zia Company

• Mistretta v. Sandia Corporation

• Chamberlain v. Bissel, Inc.

• Price Waterhouse v. Hopkins

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Performance Appraisal and the Law• Some suggestions that have been offered for making

performance appraisal systems more legally acceptable include

• Deriving the content of the appraisal system from job analyses

• Emphasizing work behaviors rather than personal traits

• Ensuring that the results of appraisals are communicated to employees

• Ensuring that employees are allowed to give feedback during the appraisal interview

• Training managers in how to conduct proper evaluations

• Ensuring that appraisals are written, documented, and retained

• Ensuring that personnel decisions are consistent with the performance appraisals

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Summary of Learning Objectives

• Define performance

• Define performance appraisal

• Explain management by objectives

• Describe multi-rater assessment

• Describe the graphic rating scale

• Explain critical-incident appraisal

• Describe essay appraisal

• Describe the checklist method of performance appraisal

• Explain the forced-choice method of performance appraisal

• Describe the work standards approach to performance appraisal

• Define leniency, central tendency, recency, and the halo effect

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