Performance
Management
Systems
Chapter 11
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.
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
11-3
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
11-4
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
11-5
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
11-6
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
11-7
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
11-8
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
11-9
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
11-10
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
11-11
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
11-12
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
11-13
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
11-14
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
11-15
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
11-16
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
11-17
Examples of How to Improve Work
Objects
11-18
Typical Areas of Supervisory Objectives
11-19
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
11-20
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
11-21
Sample Items on a Graphic Rating Scale
11-22
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
11-23
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
11-24
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
11-25
Example of a Behaviorally
Anchored Rating Scale
11-26
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
11-27
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
11-28
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
11-29
Sample Checklist Questions
11-30
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
11-31
Sample Set of Forced-Choice
Statements
11-32
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
11-33
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
11-34
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
11-35
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
11-36
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
11-37
Forced-Distribution Curve
11-38
Work Standards
•
Involves setting a standard or an expected level of output and
then comparing each employee’s level to the standard
•
•
Work standards should reflect average output of a typical
employee
•
•
•
Most frequently used for production employees and is a form
of goal setting for these employees
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
11-39
Frequently Used Methods for
Setting Work Standards
11-40
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
11-41
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
11-42
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
11-43
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
11-44
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?
11-45
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
11-46
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
11-47
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
11-48
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
11-49
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
11-50
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
11-51
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
11-52
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
11-53
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