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1. Part of the forced-ranking label reflects the intent force distinctions among worker performance levels. In an absolute-rating system, everyone could be rated “above average.” Does this difference between the absolute- and relative-rating approaches mean that one of the methods (e.g. the absolute performance or the forced-ranking) of judgment is wrong? Explain
The relative- or absolute- rating approach is not wrong, just incomplete. The relative judgment method forces managers to find distinctions between employees when distinctions may not exist (Gomez-Mejia, Balkin, and Cardy, 2012). The relative approach focuses too much on comparative analysis, while the absolute approach, in theory, ignores it. Some form of relative judgment should be included during performance appraisals since it is a natural occurrence (Gomez-Mejia et al., 2012). Comparative judgement occurs every day, for example, a work outfit is chosen based on multiple comparative factors. When choosing a vacation locale, comparisons are made between hotels, rental cars, airlines, surrounding cities, etc. Even though comparisons are made (relative), they each are determined based on some form of standard (absolute); number of compliments received while wearing a specific outfit, cleanliness ratings of a hotel, gas mileage of a vehicle, airline miles awarded, number of popular eating destinations within the city. Since people form judgments based on comparative measures against some form of performance standard, both relative and absolute judgments should be incorporated in performance appraisals.
Challenges can arise out of both a relative- and absolute- rating approach. “On the one side, a formula-based aggregation may produce game-playing behaviors; on the other side, a subjective evaluation may generate unfairness perception and impede the understanding of the results” (Ahn, & Novoa, 2016). Employees aware of performance standards may attempt to excel within those parameters thereby skewing their performance. However, unidentified performance standards could be neglected because they do not translate into greater appraisal rankings. Organizations should choose a rating system perceived as ‘fair’ by employees.
Perceptions of fairness, or in other words, justice, have been linked to important organizational outcomes, such as: organizational commitment (Folger & Konovsky, 1989; McFarlin & Sweeney, 1992; Tang & Sarsfield-Baldwin, 1996), job satisfaction (Landy, Barnes & Murphy, 1978), questions over the legitimacy of organizational theories and policies (Greenberg, 1994), performance (Adams, 1965; Lind, Kanfer, & Earley, 1990), pilfering (Greenberg, 1993), organizational citizenship behaviors (Moorman, 1991; Niehoff & Moorman, 1993), disobeying authorities' decisions (Lind, Kulik, Ambrose, & De Vera Park, 1993), and turnover (e.g., Jones & Skarlicki, 2003; Simons & Roberson, 2003). (Roch, Sternburg, & Caputo, 2007).
2. 2. There are two common types of performance rating formats – relative and absolute. The main difference between the two is the standard of comparison utilized to rate individuals (Roch, Sternburgh, & Caputo, 2007). “Relative formats require raters to rate individuals relative to one another,” and “absolute rating formats involve raters rating each ratee against an absolute standard” (Roch et al., 2007, p.303). While they are quite different in their approach, this does not make one method of judgement wrong. Rather, they are useful to different types of organizations, for different performance appraisal purposes. Both formats are discussed more below.
Relative Performance Rating
Overview. In relative judgement formats, employees are rated and directly compared to other employees performing the same job (Gomez-Mejia, Balkin, & Cardy, 2016). Forced ranking is a popular relative rating system that applies performance ratings to a bell curve. The bottom 10% of performers (according to the curve) are put on probation or terminated, and the top 20% are amply rewarded (Hazels & Sasse, 2008). According to Gomez-Mejia, Balkin, and Cardy (2016), organizations generally only find relative performance ratings suitable for administration purposes, such as when making decisions regarding promotions, terminations, or pay increases. Hazels and Sasse (2008) suggested it only be used by certain larger organizations on a short-term basis, and only be used in conjunction with (not as a replacement for) traditional performance evaluations. There are both potential benefits and drawbacks of relative formats; however, the majority of HR specialists feel that the drawbacks outweigh the benefits (Gomez-Mejia et al., 2016).
Benefits. Relative rating formats force managers to make distinctions between their employees, thus adding value to the appraisal system (Gomez-Mejia et al., 2016). Forced ranking requires managers to be honest with their employees, which (according to its supporters) benefits both top and bottom performers. Those at the top are rewarded generously, while those at the bottom are informed of their inadequacies and given a chance to find a new job that is “more suitable to their skills” (Hazels & Sasse, 2008, p.36). Other potential advantages of forced ranking include improvement in the pool of talent, promotion of a high-performance culture, and enhancement of self-efficacy (O’Malley, 2003).
Drawbacks. Relative performance ratings sometimes force managers to rank employees on differences that may not actually exist. Also, relative formats are not clear on the degree of differences among employees, nor do they provide absolute information. Hence, they “…do not reveal whether the top-rated worker in one work team is better or worse than an average worker in another work team” (Gomez-Mejia et al., 2016, p.208). Additionally, O’Malley (2003) stated that force ranking may instill fear in employees, as well as inadvertently encourage gamesmanship that disrupts the collaboration required for organizational success. Furthermore, relative formats can result in high costs. Employee turnover can prove expensive, as well as legal cases related to relative ratings (Hazels & Sasse, 2008).
Absolute Performance Rating
Overview. In absolute judgement formats, employees are rated and compared against an absolute performance standard, with no comparison being made to coworkers’ performance. Absolute standards can be based on behaviors or traits, or both. Managers generally rate employees on performance dimensions that are considered relevant to their specific job (Gomez-Mejia et al., 2016). Behaviorally anchored rating scales, graphic rating scales, the weighted checklist, and BOS are all examples of absolute rating formats (Roch et al., 2007). Even though absolute rating formats tend to be preferred over relative formats, they too have disadvantages.
Benefits. One benefit is that absolute formats provide feedback that is more specific and helpful to individual employees. They also allow for employees from different departments (and even rated by different managers) to be compared. Another benefit is that if all employees are above-average performers, absolute rating formats allow for them all to be rated as above-average (Gomez-Mejia et al., 2016). Furthermore, employees generally perceive absolute formats as being more fair than relative formats, mostly due to performance standards being clearly defined throughout the rating scale (Roch et al., 2007).
Drawbacks. Managers are sometimes reluctant to make distinctions among employees. Absolute rating enables them to resort to rating all employees in a work group the same, thus destroying the value of the appraisal system. Additionally, different managers or supervisors may evaluate performance standards drastically different from others – some may judge leniently, while others may judge strictly. This could result in unfair comparisons (Gomez-Mejia et al., 2016).
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