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Human Resource Management

Sixteenth Edition, Global Edition

Chapter 9

Performance Management and Appraisal

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Learning Objectives (1 of 2)

9.1 Describe the performance appraisal process.

9.2 Discuss the pros and cons of at least eight traditional performance appraisal methods.

9.3 Give examples of how to deal with potential appraisal error problems.

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Learning Objectives (2 of 2)

9.4 List steps to take in the appraisal interview.

9.5 Explain key points in how to use the appraisal interview to boost employee engagement.

9.6 Explain how you would take a performance management approach to appraisal.

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Basics of Performance Appraisal

The performance appraisal process

Sets work standards
Assesses performance
Provides feedback to the employee

Performance appraisal means evaluating an employee’s current and/or past performance relative to his or her performance standards. You may equate forms with “performance appraisal,” but appraisal involves more than forms. Many employers still base pay and promotions on employee appraisals.

Stripped to its essentials, performance appraisal always involves the three-step performance appraisal process:

Setting work standards;
Assessing the employee’s actual performance relative to those standards (this usually involves some rating form); and
Providing feedback to the employee with the aim of helping him or her to eliminate performance deficiencies or to continue to perform above par.

Effective appraisals actually begin before the actual appraisal, with the manager defining the employee’s job and performance criteria. Defining the job means making sure that you and your subordinate agree on his or her duties and job standards and on the appraisal method you will use.

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Why Appraise Performance?

Five reasons:

Used for pay, promotion, and retention decisions
Links performance management to company goals
The manager can correct deficiencies and reinforce strengths
With appraisals employees can review career plans
Training needs are identified

There are five reasons to appraise subordinates’ performance.

● First, most employers base pay, promotion, and retention decisions in large part on the employee’s appraisal.

● Appraisals play a central role in the employer’s performance management process. Performance management means continuously ensuring that each employee’s performance makes sense in terms of the company’s overall goals.

● The appraisal lets the manager and subordinate develop a plan for correcting any deficiencies, and to reinforce the subordinate’s strengths.

● Appraisals provide an opportunity to review the employee’s career plans in light of his or her exhibited strengths and weaknesses.

● Finally, appraisals enable the supervisor to identify if there is a training need, and the remedial steps required.

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Defining the Employee’s Goals and Performance Standards

Goals
Job dimensions or Traits
Behaviors or Competencies

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Who Should Do the Appraising?

Peer Appraisals

Crowd appraisals
Virtual games

Rating Committees
Self Ratings
Appraisal by Subordinates
360-Degree Feedback

Appraisals by the immediate supervisor are still the heart of most appraisal processes. Getting a supervisor’s appraisal is relatively straightforward and makes sense. The supervisor is usually in the best position to observe and evaluate the subordinate’s performance, and is responsible for that person’s performance. The human resources department serves an advisory role. Generally, they provide the advice on what appraisal tool to use, but leaves final decisions on procedures to operating managers. The human resource team should also train supervisors to improve their appraisal skills, monitor the appraisal system’s effectiveness, and ensure that it complies with EEO laws.

Relying only on supervisors’ appraisals isn’t advisable. Managers have several options:

Peer Appraisals. People often come across differently to their peers than they do to their boss. Peer appraisals—appraisals by one’s peers—are therefore increasingly popular. Social media tools allow almost everyone in the company (the “crowd”, as in “crowd appraisals”) to continuously appraise their peers’ work. Many employers conduct peer appraisals by using virtual appraisal games.
Rating Committees. A rating committee usually consists of the employee’s immediate supervisor and three or four other supervisors. Using multiple raters is advantageous. It helps cancel out problems such as bias on the part of individual raters.
Self-Ratings. Some employers obtain employees’ self-ratings, usually in conjunction with supervisors’ ratings. The basic problem, of course, is that employees usually rate themselves higher than do their supervisors or peers.
Appraisal By Subordinates. Many employers have subordinates rate their managers, usually for developmental rather than for pay purposes. Anonymity affects the feedback. Managers who receive feedback from subordinates who identify themselves view the upward feedback process more positively. However, subordinates who identify themselves tend to give inflated ratings. The evidence suggests that upward feedback improves managers’ performance.
360-Degree Feedback With 360-degree feedback, the employer collects performance information all around an employee—from his or her supervisors, subordinates, peers, and internal or external customers—generally for developmental rather than pay purposes. The usual process is to have the raters complete online ratee appraisal surveys. Computerized systems then compile this feedback into individualized reports to rates.

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Traditional Tools for Appraising Performance (1 of 2)

Graphic Rating Scale
Alternation Ranking Method
Paired Comparison Method
Forced Distribution Method
Critical Incident Method

We will see that many employers use online tools to automate the appraisal/performance management process. With their digital dashboards, these tools monitor, report, and correct performance deviations in real time. Yet, many employers still use traditional performance appraisal tools like the following:

1. The Graphic Rating Scale is the simplest and most popular method for appraising performance. You’ll find several varieties. A scale that lists a number of traits and range of performance for each. The employee is then rated by identifying the score that best describes his or her level of performance for each trait. A competency- (or skill- or behavior-) based graphic rating scale is another option. Finally, the scale might rate how well the employee did with respect to achieving specific profit, cost, or efficiency goals.

2. The Alternation ranking method involves ranking employees from best to worst on a particular trait, choosing highest, then lowest, until all are ranked.

3. The Paired comparison method ranks employees by making a chart of all possible pairs of the employees for each trait and indicating which is the better employee of

the pair.

4. The Forced distribution method is similar to grading on a curve; predetermined percentages of rates are placed in various performance categories.

5. The Critical incident method involves keeping a record of uncommonly good or undesirable examples of an employee’s work-related behavior and reviewing it with the employee at predetermined times.

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Traditional Tools for Appraising Performance (2 of 2)

Narrative Forms
Behaviorally Anchored Rating Scale (B A R S)
Management by Objectives (M B O)

Additional techniques for appraising performance:

6. Narrative Forms – All or part of the written appraisal may be in narrative form. This is when a person’s supervisor assesses the employee’s past performance and required areas of improvement. The supervisor’s narrative assessment helps the employee understand where his or her performance was good or bad, and how to improve that performance.

7. A Behaviorally Anchored Rating Scale (BARS) – An appraisal method that aims at combining the benefits of narrative critical incidents and quantified ratings by anchoring a quantified scale with specific narrative examples of good and poor performance.

8. Management by Objectives – The term management by objectives (MBO) usually refers to a multistep companywide goal-setting and appraisal program. MBO requires the manager to set specific measurable, organizationally relevant goals with each employee, and then periodically discuss the latter’s progress toward these goals.

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Appraisal in Practice

Using Forms, Installed Software, or Cloud-Based Systems
Computerization expedites appraisals

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Electronic Performance Monitoring

Electronic performance monitoring (E P M) systems

use computer network technology to allow managers to monitor their employees’ computers.

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Additional Techniques

Conversation days
Using multiple methods

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Dealing with Rater Error Appraisal Problems

Potential rating problems

Unclear standards
Halo Effect
Central Tendency
Leniency or Strictness
Recency Effects

In a perfect world, all employers would use performance appraisal systems with clear goals, fair appraisals, swift feedback, and useful coaching. Alas, that is rarely the case. Let’s examine some potential rating problems…

Unclear Standards occurs when an appraisal is too open to interpretation. Table 9-2 in the text illustrates this. The way to fix this problem is to include descriptive phrases defining each trait.

The Halo Effect in performance appraisal occurs when a supervisor’s rating of a subordinate on one trait biases the rating of that person on other traits.

Central Tendency is a tendency to rate all employees the same way, such as rating them all average.

Leniency/Strictness is the problem that occurs when a supervisor has a tendency to rate all subordinates either high or low.

Recency Effects means letting what the employee has done recently blind you to what his or her performance has been over the year. The main solution is to accumulate critical incidents all year long.

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Diversity Counts the Problem of Bias

Bias

The tendency for individual differences to affect judgments

The Problem of Bias

Biased appraisals have a variety of causes. One study of bias (the tendency for individual differences to affect judgments) focused on rater personality. Raters who scored higher on “conscientiousness” tended to give their peers lower ratings—they were stricter, in other words; those more “agreeable” gave higher ratings—they were more lenient. Managers also tend to be more lenient when appraising subordinates for administrative purposes like pay raises then for development purposes. Furthermore, “performance ratings amplify the quality of the personal relationship between boss and employee. Good relationships tend to create good [appraisal] experiences, bad relationships bad ones.”

Unfortunately, subordinates’ demographic traits (age, race, gender, and so on) also affect ratings. A 36-year-old supervisor ranked a 62-year-old subordinate at the bottom of the department’s rankings, and then fired him. The court held that the younger boss’s discriminatory motives might have prejudiced the dismissal decision. In one study, promoted women had to have received higher performance ratings than promoted men to be promoted, “suggesting that women were held to stricter standards for promotion.” In another study, raters penalized successful women for their success. The point is that the appraisal often says more about the appraiser than about the appraisee. (Or, as one researcher said, “Rater idiosyncratic biases account for the largest percentage of the observed variances in performance ratings.”) Potential bias is one reason to use multiple raters, have the supervisor’s boss review the rating, and/or have “calibration” meetings where supervisors discuss their reasons for the appraisals they gave each of their subordinates.

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The Need for Fairness (1 of 4)

Figure 9-10: Checklist of Best Practices for Administering Fair Performance Appraisals

Base the performance review on duties and standards from a job analysis.
Try to base the performance review on observable job behaviors or objective performance data.
Make it clear ahead of time what your performance expectations are.
Use a standardized performance review procedure for all employees.

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The Need for Fairness (2 of 4)

Make sure whoever conducts the reviews has frequent opportunities to observe the employee’s job performance.
Either use multiple raters or have the rater’s supervisor evaluate the appraisal results.
Include an appeals mechanism.
Document the appraisal review process and results.

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The Need for Fairness (3 of 4)

Discuss the appraisal results with the employee.
Let the employees know ahead of time how you’re going to conduct the reviews.
Let the employee provide input regarding your assessment of him or her.
Indicate what the employee needs to do to improve.

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The Need for Fairness (4 of 4)

Train the supervisors who will be doing the appraisals. Make sure they understand the procedure to use, how problems (like leniency and strictness) arise, and how to deal with them.

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Managing the Appraisal Interview

Appraisal Interview – an interview in which the supervisor and subordinate review the appraisal and make plans to remedy deficiencies and reinforce strengths.

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How to Conduct the Appraisal Interview

Preparation
Planning

Steps to Take
Measure Success
Date to Complete

Coaching

Useful interviews begin before the interview. Beforehand, review the person’s job description, compare performance to the standards, and review the previous appraisals. Give the employee at least a week’s notice to review his or her work. Set a time for the interview. Interviews with lower level personnel like clerical workers should take less than an hour. Interviews with management employees often take 1 or 2 hours. Conduct the interview privately with no interruptions.

Preparation means understanding the problem and the employee. Here the manager will watch the employee to see what he or she is doing, review productivity data, and observe the workflow.

Planning the solution is next. This requires reaching agreement on the problem, and laying out a change plan in the form of steps to take, measures of success, and date to complete.

With agreement on a plan, the manager can then start the actual coaching.

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Guidelines to Conducting the Appraisal Interview

Objective data
Don’t get personal
Encouragement
Agreement

Useful guidelines in conducting the appraisal interview include:

1. Talk in terms of objective work data. Use examples such as absences, tardiness, and productivity.

2. Don’t get personal. Don’t say, “You’re too slow producing those reports.” Instead, compare the person’s performance to a standard. (“These reports should normally be done within 10 days.”) Similarly, don’t compare the person’s performance to that of other people. (“He’s quicker than you are.”)

3. Encourage the person to talk. Stop and listen to what the person is saying; ask open-ended questions (such as, “What do you think we can do to improve the situation?”). Use a command such as “Go on.” Restate the person’s last point as a question, as in, “You don’t think you can get the job done?”

4. Get agreement. Make sure the person leaves knowing specifically what he or she is doing right and doing wrong and with agreement on how things will be improved, and has an action plan with targets and dates.

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How to Handle a Defensive Subordinate

Recognize behavior
Never attack defenses
Postpone action
Recognize limitations

When a supervisor tells someone his or her performance is poor, the first reaction is often denial. Denial is a defense mechanism. By denying the fault, the person avoids having to question his or her own competence.

Therefore, dealing with defensiveness is an important appraisal skill. In his book Effective Psychology for Managers, psychologist Mortimer Feinberg suggests the following:

1. Recognize that defensive behavior is normal.

2. Never attack a person’s defenses. Don’t try to “explain someone to themselves” (as in, “You know the reason you’re using that excuse is that you can’t bear to be blamed.”). Instead, concentrate on the fact (“sales are down”).

3. Postpone action. Sometimes it’s best to do nothing. Employees may react to sudden threats by hiding behind their defenses. Given sufficient time, a more rational reaction takes over.

4. Recognize your limitations. The supervisor is (probably) not a psychologist. Offering understanding is one thing; trying to deal with psychological problems is another.

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How to Criticize a Subordinate

Maintain his or her dignity
Discuss in private
Provide constructive criticism
Provide examples
Give feedback periodically
Be objective and free of personal bias
Get agreement on a plan

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How to Handle a Formal Written Warning

Weak performance may require a formal written warning.
Serve two purposes:

to shake your employee out of his or her bad habits, and
to help you defend your rating to your own boss and (if needed) to the courts.

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Employee Engagement Guide for Managers

Use the Appraisal Interview to Build Engagement

Show how efforts contribute to the “big picture”
Emphasize the meaningfulness
Be candid and objective
Share what he or she needs to do a good job
Don’t unnecessarily emphasize the negatives
Listen to their ideas
Discuss in the context of his or her career
Ensure interviewee views the appraisal as fair

Managers can use the appraisal interview to improve their employees’ engagement.

Here are relevant findings and implications.

1. Employees who understand how they and their departments contribute to the company’s success are more engaged. Therefore, take the opportunity to show the employee how his or her efforts contribute to the “big picture”—to his or her team’s and the company’s success.

2. Another study found that employees’ engagement rose when they experienced what the researchers called “psychological meaningfulness” (namely, the perception that one’s role in the organization is worthwhile and valuable). Use the interview to emphasize the meaningfulness to the company of what the employee is doing.

3. Employees who experience “psychological safety” (namely, the perception that it’s safe to bring oneself to a role without fear of damage to self-image, status, or career) were more engaged. Therefore, be candid and objective but do so supportively and without unnecessarily undermining the employee’s self-image.

4. Efficacy drives engagement, so use the interview to make sure your employee has what he or she needs to do a good job.

5. Managers should be candid and honest, but don’t unnecessarily emphasize the negatives. Doing so undermines employee engagement. In one survey, Gallup asked about 1,000 U.S. employees to respond to two statements: “My supervisor focuses on my strengths or positive characteristics” and “My supervisor focuses on my weaknesses or negative characteristics.” It found that about three times more employees whose managers focused on strengths were engaged, compared with those whose managers focused on weaknesses.

6. Research shows that involvement in decision making and letting employees voice their opinions improve employee engagement. Use the interview as an opportunity to show your employees that you listen to their ideas and value their contributions.

7. Engagement rises when employees have an opportunity to improve their careers. During the interview discuss the person’s evaluation in the context of where he or she sees himself or herself heading career-wise.

8. Research shows “a significant positive association between distributive [what rewards people get] and informational [what information they get] justice dimensions, and employee engagement.” Bottom line: Make sure that the interviewee views the appraisal and the rewards or remedial actions as fair.

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Performance Management

Performance appraisal is fine in theory, but in practice, appraisals don’t always go smoothly.
Performance Management

the continuous process of identifying, measuring, and developing the performance of individuals and teams and aligning their performance with the organization’s goals.

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Total Quality Management and Performance Appraisal

Maximizing customer satisfaction through continuous improvements

Cease Dependence
Continuous Improvement
Extensive Training
Drive out Fear
Remove Barriers
Self Improvement

Management experts have long argued that most performance appraisals neither motivate employees nor guide their development. Some proponents of the total quality management (TQM) movement even argued for eliminating performance appraisals altogether.

Total quality management (TQM) programs are organization-wide programs that integrate all functions and processes of the business such that all aspects of the business including design, planning, production, distribution, and field service are aimed at maximizing customer satisfaction through continuous improvements.

TQM programs are built on a philosophy encapsulated by several principles, such as: cease dependence on inspection to achieve quality; aim for continuous improvement; institute extensive training; drive out fear so that everyone may work effectively; remove barriers that rob employees of their pride of workmanship (in particular, the annual merit rating); and institute a vigorous program of self-improvement.

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What is Performance Management?

Performance management is the continuous process of identifying, measuring, and developing the performance of individuals and teams and aligning their performance with the organization’s goals.

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The Manager’s Role in Performance Management

Having the right philosophy
Having the right on-the-job behaviors