Human Resource Management

Chapter 9

Performance
Management and
Appraisal
Learning Objectives (1 of 2)
• Describe the performance appraisal process.
• Discuss the pros and cons of at least eight traditional
performance appraisal methods.
• Give examples of how to deal with potential appraisal
error problems.
• List steps to take in the appraisal interview.
• Explain key points in how to use the appraisal interview
to boost employee engagement.
• Explain how you would take a performance management
approach to appraisal.
Learning Objectives (2 of 2)
Describe the Performance
Appraisal Process.
Basics of Performance Appraisal
• Performance appraisal—Evaluating an employee’s
current and/or past performance relative to his or her
performance standards.
• Three-step process
1. Set work standards
2. Assess performance
3. Provide feedback to the employee
Why Appraise Performance?
Five reasons:
1. Used for pay, promotion, and retention decisions
2. Links performance management to company goals
– Performance management means continuously
ensuring that each employ ee’s performance makes
sense in terms of the company’s overall goals
3. The manager can correct deficiencies and reinforce
strengths
4. With appraisals employees can review career plans
5. Training needs are identified
 Defining the Employee’s Goals and Performance
Standards

compare “what should be” with “what is.” Manag ers use one or more of
three bases—goals, job dimensions or traits, and behaviors or
competencies
1. Goals: extent the employee is attaining his or her numerical goals. Such goals should
derive from the company’s overall profitability, cost reduction, or efficiency goals. For
example, a company-wide goal of reducing costs by 10% should translate into goals for
how individual employees and/or teams will cut costs.
1. effective goals are “SMART.” They are specific, and clearly state the desired results.
They are measurable, and answer the question, “How much?” They are attainable.
They are relevant, and clearly reflect what the company wants to achieve. And they
are timely, with deadlines and milestones

2. Job dimensions or traits

– A second basis upon which to appraise someone is with a form with basic job
dimensions or traits such as “communication” or “teamwork

3. Behaviors or competencies
– mastery of the competencies (the skills, knowledge, and/or personal behaviors) the
job requires.
 Improving Performance: H R as a Profit Center
Setting Performance Goals at Ball Corporation
Ball Corporation supplies metal packaging to customers such
as food processors and paint manufacturers worldwide.The
management team at one Ball plant concluded that it could
improve plant performance by instituting an improved process
for setting goals and for ensuring that the plant employees’
behaviors were in synch with these goals. The new program
began by training plant leaders on how to improve perfor
mance, and on communicating daily performance goals. They
in turn communicated and tracked daily goal attainment by
distributing team scorecards to the plant’s work teams. Plant
employees received special coaching and training to ensure
they had the skills required for achieving the goals. Within 12
months the plant increased production by 84 million cans,
reduced customer complaints by 50%, and obtained a return
on investment of more than $3 million.
 Who Should Do the Appraising?
1. Peer appraisals: The American military requires generals and admirals to be
evaluated by their peers (and sub ordinates). Facebook has employees compile peer
reviews every 6 months. Google employees receive annual feedback from their
supervisor and their peer
– Crowd appraisals: Social media tools allow almost everyone in the company
(the “crowd,” as in “crowd appraisals”) to continuously appraise their peers’ work.
Rypple (owned by salesforce.com) illustrates one such “social performance
management plat form.”

– Virtual games: a virtual game that helps employees evaluate and reward each
other. Each employee has an avatar. They use these to give real-time feedback to
each other, along with virtual gifts and points.

2. Rating committees: consists of the employee’s immediate supervisor and

three or four other supervisors

3. Self-ratings
4. Appraisal by subordinates: Google, for example, has subordinates
assess their managers twice a year with questions such as “my manager shows
consideration for me as a person

5. 360-degree feedback
360-DEGREE FEEDBACK With 360-degree feedback, the employer collects
performance information all around an employee—from supervisors,
subordinates, peers, and internal or external customers—generally for
developmental rather than pay purposes.

The usual process is to have all raters complete online appraisal

surveys. Computerized systems then compile this into
individualized reports to ratees.
Discuss the Pros and Cons of at Least
Eight Traditional Performance Appraisal
Methods.
Traditional Tools for Appraising
Performance (1 of 2)

1. Graphic rating scale

2. Alternation ranking method
3. Paired comparison method
4. Forced distribution method
5. Critical incident method
6. Narrative forms
7. Behaviorally anchored rating scale (BARS)
8. Management by objectives (MBO)
Traditional Tools for Appraising Performance

• Graphic Rating Scale Method is the simplest

and most popular
• the scale may list several job dimensions or
traits (such as “communication” or
“teamwork”) and a range of performance
values (from “below expectations” to “role
model” or “unsatisfactory” to “outstanding”)
for each trait.
• The supervisor rates each subordinate by
circling or checking the score that best
describes the subordinate’s performance for
each trait, and totals the ratings.
• A competency- (or skill- or behavior-) based
graphic rating scale is another option.
 Narrative Forms
• GRS Definition:
• Retail Industry – Sales Associate Managers provide written descriptions of
at a Supermarket an employee’s strengths, weaknesses, and
overall performance.
• Criteria: Customer Service How It Works:
• Rating Scale: •Performance is described in a structured
or unstructured format rather than
• 1 – Poor (frequently receives
complaints) numerical ratings.
Example:
• 2 – Fair (sometimes gets
negative feedback)
Academia – University Professors in a
Research Institution
• 3 – Average (meets
•“Dr. X has demonstrated excellent
expectations)
research output, publishing two papers in
• 4 – Good (frequently praised by
top journals this year. However, student
customers)
feedback suggests that classroom
• 5 – Excellent (always gets engagement could be improved.”
positive feedback)
• Alternation Ranking Method is Ranking
employees from best to worst on a trait or
traits
• Since it’s usually easier to distinguish between
the worst and best employees, an alternation
ranking method is most popular.
• First, list all subordinates to be rated, and then
cross out the names of any not known well
enough to rank.
• Then, on a form like that in Figure indicate the
employee who is the highest on the
performance dimension being measured and
the one who is the lowest.
• Then choose the next highest and the next
lowest, alternating between highest and lowest
until all employees have been ranked.
• The Paired Comparison Method
makes the ranking method more precise.
• For every trait (quantity of work, quality
of work, and so on), you compare every
employee with every other employee.
• With, say, five employees to rate, you
use a chart as in Figure of all possible
pairs of employees for each trait.
• Then choose who the better employee of
the pair is. Maria ranked highest (has the
most + marks) for quality of work,
whereas Art was ranked highest for
creativity.
 • Forced Distribution Method is similar to grading on a curve.
• Here, the manager places predetermined percentages of ratees into performance categories.
• the top 15% ratees are “1’s,” the middle 75% are “2’s,” and the bottom 10% are “3’s” and the “first
to go.”
• GE used top 20%, middle 70%, and bottom 10% for its managers, and most of the bottom 10% lost
their jobs.
• (GE no longer strictly adheres to its 20/70/10 split. Their current system is reportedly more
informal and less stressful.)

• With the critical incident method,

the supervisor keeps a log of
positive and negative examples
(critical incidents) of a
subordinate’s work-related
behaviors.
• Every 6 month or so, supervisor and
subordinate meet to discuss the
latter’s performance, using the
incidents as examples.
• A behaviorally anchored rating scale (BARS) is an appraisal tool that anchors a numerical
rating scale with specific illustrative examples of good or poor performance.
• Developing a BARS typically involves five steps:
1. Write critical incidents. Ask the job’s jobholders and/or supervisors to write specific
illustrations (critical incidents) of effective and ineffective performance on the job.
2. Develop performance dimensions. Have these people cluster the incidents into five or ten
performance dimensions, such as “salesmanship skills.”
3. Reallocate incidents. To verify these groupings, have another team who also knows the job
reallocate the original critical incidents to the cluster they think it fits best. Retain a critical
incident if most of this second team assigns it to the same cluster as did the first.
4. Scale the incidents. This second group then rates the behavior described by the incident as to
how effectively or ineffectively it represents performance on the dimension.
5. Develop a final instrument. Choose about six or seven of the incidents as the performance
dimension’s behavioral anchors.
 • 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.

• The steps are

1. Set the organization’s goals. Establish a company-wide plan for next year and set goals.

2. Set departmental goals. Department heads and their superiors jointly set goals for their departments.

3. Discuss departmental goals. with their subordinates and ask them to develop their own individual goals. They
should ask, “How could each employee help the department attain its goals?”

4. Define expected results (set individual goals). Department heads and their subordinates set short-term
performance targets for each employee.

5. Conduct performance reviews. After a period, department heads compare each employee’s actual and expected
results.

6. Provide feedback. Department heads hold periodic performance review meetings with subordinates.

For example, Google’s CEO sets company-wide “OKRs” (objectives and key results) quarterly. All Google
employees then make sure their own goals are in synch with the CEO’s. All employees’ goals are posted on
Google’s internal website next to their names
Advantages and disadvantages of different methods
Appraisal in Practice: Using Forms, Installed Software, or Cloud-Based Systems

• Employers use either hard-copy forms, installed appraisal software packages, or cloud-based
systems to actually conduct appraisals.
• Many smaller employers use hard-copy forms, available from vendors such as Staples and HR
Direct.
• Forms are simple to use, but become time-consuming as headcount rises.
• Most computerized appraisal packages today (whether installed locally or cloud-based) are
modules—components of talent management systems that also include, for instance, applicant
tracking systems.
• For example, with Bamboo HR (see www.bamboohr.com) the employer can adopt the full bamboo
HR system or just the appraisal module. The module is available as both a cloud service, or installed
on Mac or Windows systems.
• Electronic performance monitoring (EPM) systems allow managers to
monitor the employees’ rate, accuracy, and time spent working online.
• EPM can improve productivity, but also seems to raise employee stress.
• Similarly, some employers track workers’ performance through wearables. For
example, the British retailer Tesco has warehouse workers wear armbands.
These track which specific goods each worker is moving and how long the
task is taking to complete, and quantify and report things like how long it takes
each worker to fulfill each order
• Conversation Days
• When employees at Juniper Networks Inc. expressed concerns about their
annual performance reviews and the lack of positive feedback, Juniper
changed the process.
• Instead of once-a-year performance reviews, there are now semiannual
“conversation days.”
• The stress in these manager–employee conversations is on areas for
improvement and growth, and on setting stretch goals that align with the
employee’s career interests
Appraisal in Practice
• Using forms, PC software packages, or cloud-based
systems
• Computerization facilitates appraisals
Big Data
• AI
• Machine learning

https://www.betterworks.com/magazine/ai-performance-
management/#:~:text=AI%20helps%20managers%20and%20peers,driven%20feedback%20and%2
0documented%20conversations.
Electronic Performance Monitoring
• Electronic performance monitoring (EPM) systems
– use computer network technology to allow managers
to monitor their employees’ computers.
The New Normal

Electronic Performance Monitoring of remote workers

Let’s take a look…

Additional Techniques
• Conversation days
• Using multiple methods
Trends Shaping HR: Customized Talent
Management

Customizing of Appraisals

Let’s take a look…

Give Examples of How to Deal with
Potential Appraisal Error Problems.
Dealing With Rater Error Appraisal
Problems

• Potential rating problems

– Unclear standards
– Halo effect
– Central tendency
– Leniency or strictness
– Recency effects
 Dealing with Rater Error Appraisal Problems

• Raters errors are systematic errors in judgment that occur when people evaluate each other: unclear
standards, halo effect, central tendency, leniency or strictness, and bias.
• UNCLEAR STANDARDS This rating scale seems objective. However, it might well result in
unfair appraisals, because the traits and degrees of merit are ambiguous. For example, different
supervisors might define “good” performance, “fair” performance, and so on, differently. The same
is true of traits such as “quality of work.”
• HALO EFFECT Experts define halo effect as “the influence of a rater’s general
impression on ratings of specific ratee qualities.” For example, supervisors often
rate unfriendly employees lower on all traits, rather than just on “gets along well
with others.”
• when a supervisor’s rating of a subordinate on one trait biases the rating of that
person on other traits.
• Being aware of this problem is a step toward avoiding it. Supervisory training can
also alleviate the problem, as can using a BARS (on which, recall, the performance
dimensions are usually more independent of each other).
• CENTRAL TENDENCY means rating all employees average.
• For example, if the rating scale ranges from 1 to 7, raters tend to avoid the highs (6
and 7) and lows (1 and 2) and rate most of their people between 3 and 5.
• LENIENCY OR STRICTNESS Other supervisors tend to rate all their
subordinates high (or low), just as some instructors are notoriously high or low
graders.
• This strictness/leniency problem is especially severe with graphic rating scales.

• RECENCY EFFECTS Recency means letting what the employee has done
recently blind you to what his or her performance has been over the year.
 Diversity Counts: The Problem of Bias

• Biased appraisals (bias means the tendency to allow individual differences such as age,race, and
sex to affect the appraisal ratings employees receive) have various causes.
• One is rater personality. For example, raters who score higher on “conscientiousness” tend to give
their peers lower ratings—they were stricter, in other words; those more “agreeable” gave higher
ratings—they were more lenient.
• 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.
For example, it’s often argued that a “glass ceiling” largely explains the few women in top
management jobs.
 The Need for Fairness :how to ensure?

• So, due to either the supervisor’s ineptness or the appraisal method’s inherent
unfairness, many appraisals are unfair.
• The employees’ standards should be clear, employees should understand the basis
on which you’re going to appraise them, and the appraisal should be objective.
• Give the employee an opportunity to express his or her opinions.
 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.

• 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.

• 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.

• 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.
List Steps to Take in the Appraisal
Interview.
 Managing appraisal interview
• Satisfactory—Promotable is the easiest interview: The person’s performance is satisfactory and
promotion looms. Your objective is to develop specific development plans.
• Satisfactory—Not promotable is for employees whose performance is satisfactory but for whom
promotion is not possible. The objective here is to maintain satisfactory performance.
– The best option is usually to find incentives that maintain performance, such as extra time off,
a small bonus, or recognition.
• When the person’s performance is unsatisfactory but correctable, the interview objective is to lay
out an action/development plan for correcting the unsatisfactory performance.
• Finally, the interview where the employee is unsatisfactory and the situation is uncorrectable may
be particularly tense. Dismissal is often the usual option.
 How to Conduct the Appraisal Interview

• Beforehand, review the person’s job description, compare performance to the

standards, and review previous appraisals.
• Give the employee 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.
• An effective interview requires effective coaching skills.
• Coaching doesn’t mean telling someone what to do. Instead, it is a process.
• Preparation understanding the problem and the
employee. Here the manager will watch the employee • Talk in terms of objective work data
at work to see what he or she is doing, review • Don’t get personal
productivity data, and observe the workflow. • Encourage the person to talk
• Get agreement
• Planning the solution requires reaching agreement on • Make a Dialogue
the problem, and laying out a change plan in the form • the best appraisal interviews are dialogues
of steps to take, measures of success, and date to between equal partners
complete.

• With agreement on a plan, the manager can start the

actual coaching.

• “An effective coach offers ideas and advice in such a

way that the subordinate can hear them, respond to
them, and appreciate their value.”
 Use the Appraisal Interview to Build
Engagement

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

• Employees who understand how they and their departments contribute to the company’s success are more
engaged.

• employees’ engagement rose when they experienced what the researchers called “psychological
meaningfulness” (the perception that one’s role in the organization is worthwhile and valuable).

• Employees who experience “psychological safety” (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

• Involvement in decision making and letting employees voice their opinions improve employee engagement

• Research shows a significant positive association between (1) distributive [what rewards people get] and
informational [what information they get] justice dimensions, and (2) employee engagement
how you would take a performance management approach to appraisal.
• TQM and PA

• Management experts have long argued that most performance appraisals neither motivate employees nor guide their development.

• Some proponents of 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

Visitors to Toyota Motor’s Lexington, Kentucky, Camry plant would find such a system where Teams of employees monitor
their own results, generally without managers’ interventions
 Performance management in Action
• In comparing performance management and
performance appraisal, “the distinction is the Direction sharing: communicating the company’s goals to all
contrast between (1) a year-end event (the employees and then translating these into departmental, team, and
completion of the appraisal form) and (2) a individual goals.
process that starts the year with performance Goal alignment means having a method that enables managers and
planning and is integral to the way people are employees to see the link between the employees’ goals and those of
managed throughout the year.” their department and company.
• Performance management is the continuous Ongoing performance monitoring usually means computerized
process of identifying, measuring, and developing systems to continuously measure the team’s and/or employee’s
the performance of individuals and teams and progress toward meeting performance goals.
aligning their performance with the organization’s Ongoing feedback means providing face-to-face and computerized
goals continuous feedback regarding progress toward goals.
Coaching and developmental support should be part of the feedback
process.
Recognition and rewards should provide incentives to keep the
employee’s goal directed performance on track.
 Performance Management Technology
• Cloud-based performance management software:
– Cloud-based performance management software is a digital tool that allows
organizations to track, evaluate, and improve employee performance through an
online platform. Unlike traditional paper-based or on-premise systems, these
platforms provide real-time feedback, goal-setting, performance analytics, and
seamless integration with HR functions.
▪ Microsoft adopted Workday, a cloud-based HR and performance management system, to streamline its
employee evaluations.

• HR scorecards
– HR scorecards are strategic tools used to measure and align HR performance with
business objectives. They focus on key HR metrics like employee retention, training
effectiveness, recruitment success, and workforce productivity to evaluate HR’s
impact on organizational goal
▪ Google uses a data-driven HR scorecard system to track employee satisfaction, performance, and
retention.

• Digital dashboards
• Digital dashboards are interactive, visual tools that provide real-time data insights on
various HR and business metrics. They consolidate information from multiple sources,
helping managers and HR professionals make informed decisions quickly
▪ Amazon utilizes custom-built digital dashboards to monitor workforce efficiency, employee attendance,
and productivity levels in real time.
Performance Management Process Example

Deloitte

take a look…
The Manager’s Role in Performance
Management

• The manager’s behaviors should include:

– Linking employees’ goals to the company’s goals
– Giving employees continuous feedback
– Providing required resources and coaching
– Rewarding good performance
– Remembering that employees’ performance reflects
more than just whether they’re motivated