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4Performance Appraisal

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Learning Outcomes After reading this chapter, you should be able to

• Recognize the importance of performance measurement for organizational success.

• Identify and critique common approaches to measuring employee performance in organizations.

• Explain the differences between objective and subjective performance appraisals.

• Describe the different performance appraisal formats.

• Apply the concepts of validity and reliability to performance appraisal tools and processes.

• Assess the effects of rating errors on performance appraisal accuracy.

• Implement an effective performance management system.

• Apply positive psychology to performance appraisal processes.

• Link employee performance and performance appraisal results to financial outcomes.

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Section 4.1 The Importance of Performance Appraisals

4.1 The Importance of Performance Appraisals Throughout your life, people will evaluate your performance in ways that shape who you become and where you will go. From elementary school through college, on the athletic field and in your community, from your first part-time job to your adult career, others will test and evaluate and compare your performance, the results of which will determine whether you advance to the next phase of life.

Within organizations, assessing employees’ performance tends to be perceived as a necessary evil that neither managers nor staff particularly enjoy. Many employees fear that even one low performance rating could affect their pay or damage their career. Even more concerning is the prospect of receiving low ratings from a manager who doesn’t ever directly observe or work with you but uses secondhand information or personal biases to make his or her evalu- ations. Sadly, this is frequently the case.

Consider This: How Do You Feel About Being Evaluated? Think about one or more occasions in which you were being evaluated. It could be at work, at school, while playing a sport, or elsewhere.

Questions to Consider

1. Describe your feelings and thoughts before you received these evaluations. Were you anxious? Were you looking forward to the evaluation?

2. Describe your feelings and thoughts while receiving these evaluations. Were you sur- prised? Upbeat? Interested in receiving feedback? Actively involved? Did you passively receive the information? Feel under attack?

3. Describe your feelings and thoughts immediately after these evaluations. Were you excited? Flattered? Humiliated? Angry? Defensive?

4. What effects did these evaluations have on your personal, social, or professional life? Did they make you a better person in any way? Explain your answer.

Managers also experience anxiety when completing performance appraisals. Most often, they worry that criticisms, no matter how small, might provoke negative reactions, ranging from disappointment and frustration to anger and hostility. These emotions can strain the man- ager–employee relationship or cause the employee to become less motivated or even to quit. As a result, managers tend to shy away from providing negative performance feedback, which of course negates accuracy.

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Section 4.1 The Importance of Performance Appraisals

If everyone dislikes performance appraisals, why keep doing them? For one thing, unman- aged performance is chaotic and random. Employees’ work needs to be aligned with the orga- nization’s overall goals, and clear performance feedback helps everyone know if this is indeed happening. In fact, a well-designed performance appraisal system should not only provide employees with rich feedback but should also communicate clear performance expectations and include information that will help them perform at their highest level possible (Pulakos & O’Leary, 2011). Appraisals that meet each of these concerns will enable the organization to further its mission to succeed. The question, then, is not whether to keep doing performance appraisals but how to make them most effective.

Using Performance Appraisals A performance appraisal is the formal process through which employee performance is assessed. It involves providing feedback to the employee and designing corrective action plans if necessary. Organizations conduct performance appraisals for the following reasons:

1. To evaluate performance objectively. Organizations need some sort of system to mea- sure the value of each employee’s performance. These measures must be objective and allow managers to consistently compare the performance of people who have the same job function.

Consider This: How Do You Feel About Evaluating Others? Think about one or more occasions in which you had to evaluate or give feedback to someone. Again, it can be at work, at school, or in the context of a sport. Personal and social settings can also be used for this exercise.

Questions to Consider

1. Describe your feelings and thoughts before you gave your evaluation or feedback. Were you anxious? Hesitant? Excited?

2. What were your primary concerns? The fairness of your evaluations? The reactions of the people you were evaluating? The repercussions of your evaluation for yourself and/ or the person you were evaluating?

3. Describe the settings in which you had to communicate your evaluations. Was it face-to- face? On the phone? Via e-mail? In a written report?

4. Describe the content of your feedback. Was it positive, neutral, or negative? 5. How did the person you were evaluating react? Was your feedback appreciated? Toler-

ated? Rejected? 6. How did you manage or leverage the reaction of the person you were evaluating? Did

you involve him or her? Did you ask for his or her input? 7. Describe your feelings and thoughts after giving your evaluation. Were you stressed?

Drained? Relieved? Did you feel more or less confident about your feedback communi- cation skills and your ability to accurately assess others’ performance?

8. What effects did your evaluation have on others’ personal, social, or professional lives? Did it make them better? Did it help them advance their careers? How did it affect your relationships with the individual you evaluated? Explain.

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Section 4.1 The Importance of Performance Appraisals

2. To increase worker motivation. Appraisals provide employees with specific feedback regarding their strengths and weaknesses. When workers know what they should be doing, how they actually are doing, and how they can improve, they are often motivated to perform better.

3. To make administrative decisions. Managers rely heavily on data from performance appraisals when making decisions about employee raises and bonuses, promotions, demotions, or even terminations. Employees must perceive these decisions as fair and free from bias; a good performance appraisal will facilitate those favor- able perceptions.

4. To improve organizational perfor- mance. Performance appraisals are essential to improving organizational performance (DeNisi & Sonesh, 2010). They pinpoint skill deficiencies in specific parts of the organization, helping managers focus their training and selection efforts. Appraisals also enhance an organization’s opportunities for success by identifying poor performers. This not only helps weed out subpar personnel but also motivates top performers to keep their performance levels high. It is important to note that the link between performance appraisals and organizational performance is not always direct. As discussed throughout this chapter, performance appraisal needs to be an integrated part of an effective set of human resource practices in order to have a positive impact on organizational per- formance (DeNisi & Smith, 2014).

5. To establish training requirements. Appraisal data provides insight into workers’ knowledge, skill, and deficiency levels. This information helps managers establish specific training objectives, update or redesign training programs, and provide appropriate retraining for specific employees.

6. To enhance selection and testing processes and outcomes. An important use of perfor- mance appraisal data is to establish the criterion-related validity of selection tests. Recall from Chapter 3 that criterion-related validity establishes a predictive, empiri- cal (number-based) link between test scores and actual job performance by cor- relating applicants’ employment test scores with their subsequent performance on the job. How can the predictive capacity of a test be determined if the organization does not design and implement objective performance measures and procedures? It would have no accurate data with which to correlate test scores, which would hinder its ability to design and use accurate tests and implement effective selection processes.

7. To provide a level playing field. Performance appraisals help clarify expectations. This is especially important in large organizations that feature many managers who oversee similar positions. Both managers and employees should ensure that they are pursuing a unified set of goals and expectations and that there are no discrepancies. A

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Performance appraisals have several benefits, including increased worker motivation. Employees are more productive and satisfied when they know what is expected of them and how they can achieve these results.

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Section 4.2 Approaches to Measuring Performance

formal performance appraisal process can help with that standardization and calibra- tion process. Without performance appraisals, employees may be evaluated unfairly because some managers may be intentionally or unintentionally more lenient than others. You will learn about some of these common biases in this chapter.

4.2 Approaches to Measuring Performance I/O psychologists have identified a number of techniques for measuring employee perfor- mance. These measures can be either objective or subjective. Generally, what is measured and how it is done depends on the type of work an employee performs. Some jobs, such as sales and assembly-line work, have objective outcome measures (sales revenue, number of pieces assembled), whereas others are more subjective (wait staff performance, art design work).

Objective Performance Measures Objective performance measures are quantitative measures of performance that can be found in unbiased organizational records. They are generally easy to gather and include two types of data: production measures (such as sales volume, number of units made, number of error occurrences) and personnel measures (such as absenteeism, tardiness, theft, and safety behaviors). Both measures are also usually evaluated according to the quality of performance.

However, objective measures can be deceivingly simple. Consider the performance of two sales professionals in an insurance company. Over the course of a year, Salesperson A sold 500 pol- icies and Salesperson B sold 1,000. According to this data, Salesperson B appears to be the better salesperson—twice as good, in fact. However, if we examine the quality of each worker’s per- formance, we might learn that Salesperson B sold unprofitable policies, resulting in a $1 mil- lion loss for the company. Salesperson A, on the other hand, sold very profitable policies, result- ing in a $1 million profit.

Alternatively, Salesperson B may have focused on selling more policies while cutting corners on after-sale service and follow-up, which could have resulted in dissatisfied customers. On the other hand, Salesperson A may have invested more time per sold policy on such interactions. Although the organization may not directly measure or reward after-sale service and follow- up, these customer interactions can help build its reputation and are known to result in more satisfied customers returning for additional products and referring others. Repeat business from and referrals by satisfied customers are significantly less costly for an organization to generate than is building new clientele. However, these additional sales may not be easily attributable to Salesperson A if the returning or referred customers are assigned to another

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Recording how many cars this man sold over the past year is one way to objectively measure his performance, although it does not address other aspects of his performance, such as customer service.

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salesperson. As you can see, evaluating worker performance by quantity alone is not a wise course of action.

Unfortunately, even after accounting for performance quality, objective data may not provide an accurate or complete picture of an employee’s performance. Many factors beyond workers’ control can limit their ability to perform their best. Looking more closely at our two insurance salespeople, we might discover that the difference in sales volume could be attributable to the location of each employee’s branch office. Salesperson A could work in a small town, while Salesperson B works in a large metropolitan region. Thus, Salesperson A could have captured a larger market share of his designated region than Salesperson B, even though he sold fewer policies. Alternatively, perhaps Salesperson B was assigned an easy-to-sell policy because she was a new employee, while Salesperson A, as a veteran employee, was assigned a hard-to-sell but very lucrative policy. As you can see, accurate performance evaluations require more than a cursory look at sales and production numbers, although adding manager interpretation into the mix does make objective performance measures more subjective.

Personnel data, another objective measure, includes components such as theft, tardiness, absenteeism, safety behaviors, and rate of advancement. Though not typically related to a worker’s ability to do the job, these elements do indicate job success or failure. Many jobs, such as teachers, customer service representatives, and bank tellers, require consistent and timely daily attendance. Thus, absenteeism and tardiness are often used to evaluate these workers’ performance. Other jobs, such as machine operators, assembly-line workers, and truck driv- ers, have serious safety risks. With jobs such as these, it makes sense to keep count of employ- ees’ accidents and safety incidents and use them as objective measures of performance.

As with any type of objective data, however, taken on its own, personnel data can be mis- leading. Once again, circumstances outside a worker’s control could affect performance. Sick children, a death in the family, or transportation troubles may affect an otherwise superior employee’s ability to come to work. Similarly, a workplace accident could have been caused by faulty company equipment, not worker error. Because you now understand the limits of objective data, let’s turn to subjective performance measures, their limitations, and ways to keep this data fair and free from bias.

Subjective Performance Measures The allure of objective performance measures has to do with their ability to provide bias-free information on all workers across a specific job. Of course, we now know that objective data can still be misleading. Further, most jobs require much more than simply looking at sales or production numbers, because most jobs are composed of a complex web of tasks, not all of which can be measured objectively. For example, a teacher’s performance must be made up of more than his or her students’ test scores, just as a police officer cannot be evaluated solely on the number of arrests he or she makes each month. While it is in most respects easier to measure things objectively, this can exclude important aspects of a situation that may not be objectively quantifiable but should still be taken into consideration. Examples in the context of performance appraisal include “friendliness” of a salesperson, “helpfulness” of a customer service representative, or “leadership potential” of a frontline employee. To account for these hard-to-quantify characteristics, I/O psychologists created subjective performance mea- sures, which rely on human judgment for evaluation and are thus exposed to some degree

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of subjectivity and personal judgment. Of course, with personal judgment comes some per- sonal bias. To reduce such bias, evaluators must base their ratings on observations of worker behaviors that are critical for successful job performance. Furthermore, these behaviors must be identified by conducting an accurate job analysis.

Interestingly, research shows only a small correlation between objective and subjective per- formance measures, which suggests that they measure different aspects of worker perfor- mance (Bommer, Johnson, Rich, Podsakoff, & McKenzie, 1995). Thus, the two sets of measures are complementary and should be used in conjunction whenever possible.

Organizations use many types of subjective performance measures, ranging from manager- composed performance narratives to numerically oriented rating scales. Each method differs in complexity as well as the amount of time required to create and implement it. The next sec- tion provides a brief review of some common subjective performance measures.

Written Narratives With the written narrative, one of the easiest performance measures to develop, the man- ager writes a paragraph or two summarizing an employee’s performance over a certain length of time. An example of a written narrative is a reference letter written by a supervisor for an intern at the end of an internship. When used to measure performance, managers often share specific examples of the worker’s strengths and weaknesses, which the worker can then use to help improve his or her performance during the next appraisal cycle.

Although written narratives are quick and easy, they have a number of drawbacks. First, every manager will set different evaluation standards, making it impossible to compare workers with different managers. As a result, the written narrative should not be used to make deci- sions about compensation, promotions, or layoffs. Second, managers vary in their quality of written communication skills. Some may use ambiguous, incomplete, or misleading language, which can lead the employee to misinterpret or not understand the feedback. Finally, manag- ers are often reluctant to address poor performance in a straightforward manner and some- times deliberately write the narrative to cast negative behavior in a positive light.

The drawbacks of the written narrative have prompted I/O psychologists to develop a num- ber of techniques to both improve the objectivity of subjective performance measures and reduce managerial biases.

Rank Ordering Rank ordering requires no forms or instruments and is the easiest way to evaluate workers. Managers simply rank their employees from best to worst. Some managers have the tendency to evaluate employees similarly. Rank ordering provides much-needed differentiation, even though the small differences between median employees still make it a challenge for manag- ers to rank employees. Rankings also do not provide workers with performance feedback, which means they are not useful for self-improvement or training guidance. Because of their limitations, rankings should be used only during periods of promotion, downsizing, reorgani- zation, or any other situation in which it would be valuable to understand a worker’s standing relative to other workers.

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Section 4.2 Approaches to Measuring Performance

Paired Comparison As with rank ordering, the paired comparison technique requires the manager to evaluate a worker’s performance compared to the other workers on the team. In a systematic fashion, the manager compares one pair of workers at a time and then judges which of the two dem- onstrates superior performance. After comparing all the workers in all possible pairings, the manager then creates a rank ordering based on the number of times each worker is the better performer of a pair. For example, using the formula N(N - 1)/2)]N to determine the number of discrete pairings in a group, a manager with 10 employees would need to make 45 paired comparisons. A manager with a team of 20 employees would need to make 190 comparisons. As you can see, the number of pairs goes up quite quickly as the size of the team increases. For this reason, paired comparisons are only advantageous for smaller groups.

Like general rank orderings, paired comparisons do not provide performance feedback. How- ever, they are generally simpler to use because managers need only compare one employee pair at a time, instead of the entire work team. Organizational leaders should keep in mind that rankings are not standard across the entire workplace. The lowest ranked member of a high-performing team might, for example, actually perform better than the highest ranked member of a poorly performing team.

Forced Distribution When an organization needs to evaluate a large number of employees, forced distribution is a viable option. With this technique, managers place employees into categories based on pre- established proportions. A typical performance distribution uses the following performance categories and proportions:

Superior 10%

Above average 20%

Average 40%

Below average 20%

Poor 10%

Using this distribution for a team of 100 workers, a manager would identify the top 10 employees (10%) and the bottom 10 employees (10%) and place them in the superior and poor categories, respectively. From the remaining 80 workers, the manager would then select the next 20 highest performers (20%) for the above-average category and the next 20 lowest performers (20%) for the below-average category. The final 40 workers (40% of the origi- nal 100) would fall into the average category. The lowest performance group would then be assigned to additional training, reprimanded, put on probation, or terminated. This approach is most commonly associated with Jack Welch, former CEO of General Electric. The company eliminated the lowest 10% of performers every year using this method.

Obviously, one of the major drawbacks of forced distribution is that it assumes that worker performance follows a normal distribution (some high performers, some low, most some- where in the middle). This method makes no concessions for teams that are filled with supe- rior performers or, conversely, teams fraught with poor performers. Furthermore, it makes no

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Teamwork

Below average

Above average

AveragePoor Superior

2 431 5

Section 4.2 Approaches to Measuring Performance

distinctions among workers in a category; all average workers, for example, are simply con- sidered average. Finally, as with rank ordering and paired comparisons, forced distribution can add artificial luster to “superior” members of poor-performing teams or unfairly tarnish “poor” members of a high-performing team. However, many organizations find forced distri- bution methods necessary to maintain a high-quality workforce in a competitive market. In order for forced distribution to realize its benefits, an organization should consider factors such as how low performers are treated and how high performers are differentiated from low performers in terms of rewards (Blume, Baldwin, & Rubin, 2009)

Consider This: Leadership In this video, former General Electric CEO Jack Welch discusses his leadership strategies, including the value of the forced distribution approach.

Jack Welch on Leadership

Graphic Rating Scale Graphic rating scales are the most commonly used method for rating worker performance. Managers observe specific employee behaviors or job duties along a number of predeter- mined performance dimensions such as quality of work, teamwork, initiative, leadership abil- ity, and judgment. Then the manager rates the quality of performance for each dimension on a scale ranging from high to low performance. Looking at Figure 4.1, you can see that this employee received a below-average rating on teamwork.

Figure 4.1: General graphic rating scale

Teamwork

Below average

Above average

AveragePoor Superior

2 431 5

Each point on a graphic rating scale, called an anchor, is defined along the continuum. Anchors can vary in number, description, and depth of detail and can be stated in numbers, words, longer phrases, or a combination of these forms. Typically, the manager rates workers’ per- formance for each anchor using the 5-point rating scale, although 7- or even 9-point scales are not uncommon.

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Judgment: Evaluates situations and people effectively when choosing to respond. Makes ethical decisions. Is able to identify relevant and irrelevant issues in a situation and respond appropriately. Applies the correct standards and policies.

Judgment

Poor Superior 2 431 5

Judgment: Makes sound decisions that affect his/her work

Needs improvement

Above expectations

Meets expectations

Unsatisfactory Exceeds

expectations

2 431 5

1. Outstanding 2. Very good 3. Good 4. Improvement needed 5. Unsatisfactory

Excellent Satisfactory UnsatisfactoryOutstanding

Judgment: Makes clear, logical decisions

Comments

(D)

(C)

(B)

(A)

Section 4.2 Approaches to Measuring Performance

Graphic rating scales are versatile, inexpensive, and quickly made. However, in order for the manager to make clear, accurate distinctions in worker performance across different dimen- sions, care must be taken to create specific and unambiguous anchor descriptions. For exam- ple, in Figure 4.2, Scale A uses only qualitative anchors and requires the rater to place a check mark at the point that represents the worker’s current performance level. This is a poorly designed rating scale because the rating anchors are left undefined. Similarly, Scales B, C, and D include both verbal and numerical anchors, but ratings rely solely on manager judgment.

Figure 4.2: Examples of different graphic rating scales

Judgment

Poor Superior 2 431 5

Judgment: Makes sound decisions that affect his/her work

Needs improvement

Above expectations

Meets expectations

Unsatisfactory Exceeds

expectations

2 431 5

1. Outstanding 2. Very good 3. Good 4. Improvement needed 5. Unsatisfactory

Excellent Satisfactory UnsatisfactoryOutstanding

Judgment: Makes clear, logical decisions

Comments

(D)

(C)

(B)

(A)

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Completes work at a high standard and by the deadline assigned

Always meet deadlines and require only minimal supervision

Take on major projects beyond his or her duties with little or no supervision

Ratee can be expected to…

Responsibility

1 Never meet deadlines

Sometimes accept as little responsibility as possible and often miss deadlines

Accept ownership of projects only when assigned

Regularly meet deadlines and accept responsibility for only his/her duties

Section 4.2 Approaches to Measuring Performance

Of course, this can be problematic, because one manager might judge his or her employees more or less stringently than another. Standard measures allow for clear comparisons across workers, even if they have different managers.

Some organizations ask managers to provide written examples that support their ratings of employees for each performance dimension and/or for the employee’s overall performance level. By combining both their rating scores and written feedback, employees learn how their performance compares to the company’s expectations and what their current strengths and weaknesses are. This allows the company to set goals or devise training strategies accord- ingly, and it allows the employee to seek out self-improvement or educational resources.

Behaviorally Anchored Rating Scale First proposed by Smith and Kendall in 1963, the behaviorally anchored rating scale (BARS) attempts to evaluate workers’ performance of very specific behaviors critical for job success. These behaviors are established using the critical incidents job analysis technique discussed in Chapter 2.

Developing a BARS can be a long and difficult process. To begin, a group of supervisors famil- iar with the job both identifies the performance dimensions (quality of work, teamwork, initiative, etc.) that should be measured and observes critical incidents that exemplify both effective and ineffective job performance. Another group of subject matter experts transforms the list of critical incidents into behavioral statements that describe different levels of perfor- mance. A final group evaluates the behavioral statements and assigns a numerical value scale to each. See Figure 4.3 for an example.

Completes work at a high standard and by the deadline assigned

Always meet deadlines and require only minimal supervision

Take on major projects beyond his or her duties with little or no supervision

Ratee can be expected to…

Responsibility

1 Never meet deadlines

Sometimes accept as little responsibility as possible and often miss deadlines

Accept ownership of projects only when assigned

Regularly meet deadlines and accept responsibility for only his/her duties

Figure 4.3: Example of a BARS

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Greets customers upon arrival

Bank teller...

Correctly counts money

Accurately describes product characteristics to customers

Quickly addresses customer problems

Never

1 2 3 4 5

Sometimes Always

Section 4.3 Sources of Performance Appraisal

One positive feature of the BARS approach is that the behaviorally defined anchors are very explicit as to what performance criteria are being measured. This makes it much easier for managers to distinguish between high and low performers. Additionally, because the rating scale is standardized, managers can compare BARS performance ratings across individuals and teams. Furthermore, workers perceive BARS to have high face validity, which reduces negative reactions to low ratings.

Despite the advantages, the significant time investment needed to develop BARS means that most organizations do not employ this technique. Additionally, this method’s overall rating quality still depends on each manager’s observational skills (or lack thereof ). Finally, research shows that the BARS is no more valid or reliable than any other rating method, nor is it more successful at decreasing rater error (Landy & Farr, 1980).

Behavioral Observation Scale The behavioral observation scale (BOS) is similar to BARS in that both use critical incidents to identify worker behaviors observed on the job. The biggest difference between BOS and BARS is the rating format. Instead of quality, BOS rates the frequency with which a worker is observed to perform a critical job behavior (see Figure 4.4 for an example). Frequency is typically measured on a 5-point rating scale, comprising numerical (0%–20% of the time, 21%–40% of the time, etc.) or verbal assignments (sometimes, always, never, etc.) or a combi- nation. The ratings are aggregated across all behavioral statements to establish a total score. Some researchers have tried to determine which method—BARS or BOS—is superior, but the research has been mixed and inconclusive.

Figure 4.4: Example of a BOS for a bank teller

Greets customers upon arrival

Bank teller...

Correctly counts money

Accurately describes product characteristics to customers

Quickly addresses customer problems

Never

1 2 3 4 5

Sometimes Always

4.3 Sources of Performance Appraisal The goal of performance appraisal is to accurately measure employees’ performance. To do so, raters must directly observe an employee’s actions and behaviors. In many cases managers do not get to directly observe their employees. A police chief, for example, cannot accompany all of his or her officers as they perform their daily patrols, nor can a school principal sit in classrooms all day long. Who, then, should evaluate such workers? For many jobs, input from

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a variety of sources helps create a more accurate, well-rounded performance appraisal—for a police officer, these sources might include his or her partner or members of the community; for a professor, they might include students or fellow faculty members. The following section describes the most common sources of input.

Supervisor Evaluation Supervisors are the most common source of input for a performance appraisal, and rightly so. After all, managers are in the best position to evaluate employees’ performance as it relates to the organization’s objectives. Furthermore, because managers are responsible for recom- mending rewards and punishments, they must be able to tie their evaluations to employees’ performance. Without this link between performance and rewards, employees can become less motivated, resulting in poorer performance. Indeed, research shows that supervisors’ performance ratings are more strongly correlated to employees’ actual performance than any other rating source (Becker & Klimoski, 1989).

Peer Evaluations Peer evaluations, or those made by one worker about a coworker, are common in jobs that require employees to work as a team. Peer feedback can be especially insightful. Coworkers often understand the job in greater depth than managers and can analyze how team mem- bers’ behaviors affect each other and contribute to the team’s success. Similarly, peer ratings on the dimension of leadership effectiveness provide a valuable perspective into a worker’s leadership skills and abilities.

How do employees respond to peer evaluations? Generally, reactions are mixed. In some sit- uations, workers are appreciative because their peers are the only ones who ever directly observe their performance and are therefore the only ones who can accurately evaluate them. Furthermore, because peer ratings are nearly as accurate as supervisory ratings, they are excellent guides for self-improvement (Harris & Schaubroeck, 1988). On the other hand, workers may question the validity of a negative peer review, which can detrimentally affect their future performance. DeNisi, Randolph, and Blencoe (1983) found that workers who received negative peer-rating feedback went on to hold more negative perceptions of group performance, group cohesion, and overall satisfaction during the subsequent team task. Con- versely, positive peer feedback did not significantly affect any of these variables on the next task. Peer ratings, therefore, should serve as a supplemental—not sole—source of a worker’s performance evaluation.

Subordinate Evaluations Subordinates are uniquely capable of assessing their manager’s actions and effectiveness across a broad range of dimensions, including delegation, coaching, communication, leader- ship, and goal setting. The process of subordinate evaluation, also called upward feedback, involves allowing subordinates to evaluate their superior’s performance.

Some research supports the notion that upward feedback can improve management’s perfor- mance. In one study, subordinates rated their managers on a number of different dimensions

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(quality, fairness, support, and communication). Superiors who received low to moderate rat- ings showed significantly more rating improvements 6 months later than those who received high ratings (Smither et al., 1995). Further research shows that managers can improve their ratings even more by discussing upward feedback with their subordinates (Walker & Smither, 1999).

Confidentiality is critical to ensure that subordinate evaluations are accurate. Many employ- ees fear there will be potential repercussions to giving managers negative feedback and will artificially inflate their evaluations if they know the manager will be able to identify them (Antonioni, 1994).

Self-Evaluation Employees who complete self-evaluations, or evaluations of their own performance, feel as though they have a voice in the appraisal process, which in turn increases their acceptance of and decreases their potential defensiveness about the final ratings. Although typically used as supplemental evaluative data, self-ratings are especially useful with workers who work alone or independently.

Generally, self-ratings show more leniency, less variability, greater bias, and less agreement with those provided by supervisors, peers, or subor- dinates (Harris & Schaubroeck, 1988). These differences could stem from the worker’s use of a different evaluative standard (Schrader & Steiner, 1996), but research has identified sev- eral ways to make self-ratings more accurate. First, workers can be told that their self-ratings will be compared against objective performance criteria. Second, the organization can make it clear that the self-evaluation will be used only for self-developmental purposes (Meyer, 1991). Third, educating both superiors and subordi- nates on the rating criteria and appraisal process leads to greater agreement between supervisor ratings and self-ratings (Williams & Levy, 1992).

360° Appraisals 360° appraisal is a multisource evaluative process; it utilizes performance input from many different viewpoints. In this process, a manager might, for example, receive feedback from his or her supervisor, peers, subordinates, and internal or external customers, as well as conduct a self-evaluation. Normally, each source uses a rating scale to evaluate the manager’s current proficiency level for a predetermined set of job duties and/or leadership dimensions (coach- ing, delegating, communicating, etc.). After all ratings are complete, they are compiled in a report and shared with the manager.

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Although self-ratings show more leniency and greater bias than those provided by supervisors or peers, employees who complete self-evaluations feel more engaged in the appraisal process, which can decrease their feelings of defensiveness regarding the final ratings.

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Over the past 30 years, 360° appraisals have become significantly more popular. In the mid- 1980s fewer than 10% of companies used this method to evaluate managers (Bernardin, 1986). Today, even though there is no exact percentage, it is likely that every Fortune 1000 company has some experience with conducting 360° appraisals. Interestingly, there is no con- sensus on how exactly to use these evaluations. Some believe it is appropriate to use them to make administrative decisions (Church & Bracken, 1997), but most disagree, suggesting they be used only for management development purposes (Antonioni, 1996; Coates, 1996). Some of this debate stems from concerns that employees may feel uncomfortable with rating their superiors and may fear the repercussions of providing an unfavorable evaluation. On the other hand, managers may feel that their peers or employees are unqualified to rate their performance because they may not have the full picture. However, despite differing opinions on how 360° appraisals should be used, research shows that consulting various sources pro- vides unique and distinct perspectives about an employee’s competencies, performance, and effectiveness (Semeijn, Van Der Heijden, & Van Der Lee, 2014).

I/O psychologists recommend a number of practices to increase the effectiveness of 360° appraisals. First, both raters and the manager should receive instructions on how to interpret the different performance dimensions and the rating scale. Second, all participants must be explicitly told that feedback will only be used for the purpose of manager development. Fur- thermore, maintaining rater anonymity tends to prompt subordinates to view 360° apprais- als more positively, although, interestingly, managers tend to prefer that employees be held accountable for their ratings (Antonioni, 1994). Finally, to ensure the highest quality, a 360° appraisal program must include skilled coaches to help managers interpret and use their feedback to create goals and courses of developmental action (Coates, 1996; Crystal, 1994). Absence of such coaching can compromise the desired behavioral changes and performance improvements and can lead to disengagement (Nowack & Mashihi, 2012).

Consider This: Seeking Feedback 1. Most of us often seek feedback on our performance in various life domains, whether at

work, at school, at home, in sports, or at church. In which domains of your life do you normally seek or get feedback on your performance?

2. What are the advantages and disadvantages of each source of feedback?

Find Out for Yourself: Performance Measures and Sources Review the following templates from the HR offices at University of California–Berkeley and University of California–Davis for examples of performance measures that utilize feedback from different sources as well as performance evaluations that use these measures.

UC Berkeley Annual Performance Planning and Review

UC Davis Employee Performance Appraisal Report

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http://hr.berkeley.edu/sites/default/files/attachments/FY16_Perf_Mgt_Form-Director_of_Finance_and_Strategic_Planning_RP.docx

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Section 4.4 Sources of Rating Error and Bias in Performance Evaluation

4.4 Sources of Rating Error and Bias in Performance Evaluation Performance appraisal relies on the assumption that human judgment is capable of some degree of accuracy. However, humans are not objective observers. We can never be completely certain that our judgments are free from error or personal biases. Often, of course, errors are unintentional. In the workplace, rating errors can occur if managers do not observe workers’ performance or if they do not use the rating scale correctly. More insidious, managers can also harbor unacknowledged biases against certain types of workers. At other times, rating errors are intentional. Managers can deliberately inflate a poorly performing employee’s rat- ings because they don’t want to jeopardize their relationship with the employee or because they don’t want to cause negative reactions. I/O psychologists have worked hard to identify, understand, and correct sources of rating error.

Types of Rating Error In order to improve accuracy, one must first identify and understand error. With performance appraisals, rater errors typically fall into three major categories: observational errors, distribu- tional errors, and rating-scale errors. In this section, we review the specific rating errors associ- ated with each category and discuss how these errors reduce performance appraisal accuracy.

Observational Errors As stressed throughout this chapter, appraisals must be based on thorough observation of an employee’s performance in order to be accurate. Without direct observation, managers may rate employees based on unreliable sources of information such as general impressions, observations from past ratings, or hearsay.

Even if managers are able to observe workers’ performance, they are often unable to remem- ber more than an employee’s most memorable performance accomplishments (or failures). An average appraisal cycle lasts up to 12 months, and as you might expect, a manager will remember and thus more strongly emphasize recent performance, an effect called recency error. Of course, when a recency error occurs, a worker’s ratings do not accurately represent his or her overall performance throughout the entire appraisal cycle.

The best way to overcome recency error is simple: Reduce the amount of performance information the manager needs to remember. One practical way for managers to do this is to shorten the appraisal cycle by conducting more frequent appraisals throughout the year instead of once annually. Additionally, managers can improve recall by keeping a detailed performance log for each employee, especially at the beginning of the rating cycle. Regular feedback is important for motivation and development. Thus, performance appraisal should not be viewed as a once-a-year event but as an ongoing process. The timing and frequency of performance feedback should be determined by employee needs, situations that necessitate such feedback, and logical milestones in the employee’s performance goals.

Distributional Errors Within an organization, evaluation standards tend to differ from manager to manager. Signifi- cant error occurs if managers inaccurately distribute rating scores along the rating scale. For

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example, some managers may clump everyone together with average scores. Others may be overly positive or afraid to give anyone negative scores. A third group of managers may be too stringent and thus give most of their employees low scores. These faulty judgments are called distributional errors.

First, one of the most common forms of rating error in general is leniency error. In this sit- uation, managers have a low performance standard and rate their employees higher than their performance deserves. A graphic representation of a lenient manager’s rating scores will show that they tend to cluster on the positive end of the distribution. Even though the high scores could be a reflection of a truly high-performing team, research tells us that such a result is unlikely. Normal worker performance distribution tends to follow a bell-curve pat- tern, with some workers falling at the high and low ends but most clustering somewhere in the middle. Leniency error is very obvious when it occurs. For example, one study found that out of 12,000 federal employees, 85% received ratings at the superior level on their perfor- mance appraisals, whereas only 1% received ratings below the fully successful level (Marrelli & Tsugawa, 2009). It is extremely unlikely that this distribution is accurate.

Research shows that rater personality characteristics such as agreeableness and conscien- tiousness could be linked to leniency error. In an experimental lab study, people with low con- scientiousness and high agreeableness rated their peers more positively, regardless of actual performance (Bernardin, Cooke, & Villanova, 2000). As previously discussed, a manager’s reluctance to give negative feedback is another common impetus for rating leniency. Most managers want to develop and maintain positive relationships with their subordinates, and offering positive feedback during a performance discussion is certainly more enjoyable than the alternative. Unfortunately, being lenient not only fails to challenge and improve workers’ future performance, it also makes it legally difficult to terminate a poor performer.

The second form of distributional error is central tendency. Central tendency error occurs when a manager is reluctant to rate employees as either superior or inferior. As a result, ratings scores cluster around the middle of the performance scale. Third is severity error, in which a manager holds excessively high standards and rates employee performance as lower than it actually is. A severe manager’s ratings scores will cluster around the low end of the performance scale. Although these two distribution errors are less common than leniency error, they are just as problematic. Because they fail to address the real differences among employees’ performance, scores tainted by severity and central tendency error are worthless for making employee decisions.

Find Out for Yourself: Distributional Errors and Biases The next time you participate in a group activity or team project, rate each of the group mem- bers (excluding yourself ) on his or her performance and contribution to the project on a scale of 1–10. Then ask each team member to evaluate each of the other members (excluding him- self or herself ).

What Did You Learn?

1. Are your evaluations consistently more lenient than, more stringent than, or compa- rable to your team members’ evaluations?

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Rating-Scale Error Sometimes performance appraisal errors occur because the rater does not know how to use the rating scale correctly. In other cases a manager’s general opinion about a specific employee can color his or her ratings of all performance dimensions for that employee (Lance, LaPointe, & Stewart, 1994). This tendency, called the halo effect, is the most common form of rating-scale error and can either artificially inflate or deflate ratings. For example, if a man- ager believes one of his or her subordinates is extremely smart, he or she might transfer that positive opinion to evaluations of other performance areas, such as collaboration, ethics, and loyalty. Basically, then, managers who rate workers high (or low) on one significant dimen- sion will go on to score them high (or low) on all other dimensions on the appraisal, especially if the other dimensions are not well defined or directly observed.

One way to counteract the halo effect is for managers to rate all employees on the same dimen- sion before moving on to the next one. This helps managers keep employee performance in perspective. Another option is to use more than one source to rate employees.

Although most researchers believe that the halo effect is present in almost all ratings and set- tings, some studies suggest that it is less prevalent—and less of a concern—than previously thought. In a review of past research, Murphy, Jako, and Anhalt (1993) concluded that, in the studies they examined, halo was not nearly as common as traditionally believed and, even when it did occur, did not negatively affect rating accuracy. Surprisingly, when organizations consciously try to control halo, they end up with less accurate ratings (Murphy & Reynolds, 1988). Organizations must therefore not become overzealous in their attempts to eliminate halo. Indeed, some employees really are very strong (or very weak) across all performance dimensions, and their consistent ratings reflect an accurate evaluation of their performance.

Rater Biases Ratings can also be influenced by a worker’s per- sonal relationship with the evaluator. Similar-to- me error, for example, occurs when evaluators give higher ratings to workers whom they perceive to be like them (Wexley, Alexander, Greenawalt, & Couch, 1980). A study of 104 air force officers showed that familiarity between the officers and the aviators they debriefed, if it existed, positively affected the aviators’ ratings of the officers (Scotter, Moustafa, Burnett, & Michael, 2007). Other research has exam- ined personal characteristics such as attractiveness and demographic characteristics, each of which influences performance ratings.

Another source of rater bias is implicit person the- ory. People tend to hold implicit theories about the extent to which a person can change. Those who adopt an incremental implicit theory believe in people’s malleability and ability to change, while those who adopt an entity implicit theory believe that people’s characteristics are inherently fixed and difficult to change. Research shows that managers who adopt an incremental theory are more likely to observe changes in employee behaviors from one performance appraisal to the next and are less likely to be

Stockbyte/Thinkstock

Performance ratings are often based on the evaluator’s personal bias regarding gender, age, and race. For instance, older workers typically receive lower performance ratings than their younger coworkers.

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bogged down by prior impressions in judging current performance than their entity theory counterparts. Thus, these managers are more likely to provide more accurate and objec- tive performance evaluations. Managers can be trained to use an incremental theory when evaluating their employees and thus become more effective performance evaluators (Heslin, Latham, & VandeWalle, 2005). In other words, when managers believe in their employees’ ability to change and develop, they are more likely to observe changes in their behaviors over time and to evaluate them more accurately and objectively. Thus, effective performance management systems should emphasize supervisor training in order for raters to have an appropriate mind-set for yielding accurate and beneficial results.

Three demographic characteristics require particular attention: race, gender, and age. As you recall from Chapter 2, any tool organizations use to make decisions about employees (hiring, promotion, placement, compensation, termination, etc.) must not discriminate against pro- tected classes. In most organizations, performance appraisals provide important data used to make those decisions. You can easily understand, then, that any personal biases based on race, gender, and age are especially problematic for an organization if they significantly influ- ence performance appraisal ratings.

Research on race, gender, and age biases has produced mixed results. In the category of race, research shows that overall, Black employees receive slightly lower ratings than White employees (McKay & McDaniel, 2006). However, because closer examination shows that all managers tend to give higher ratings for individuals of their own race, the overall results seem to be due to a combination of similar-to-me error and the higher proportion of Whites in managerial roles.

Likewise, gender bias occurs in some situations, but it tends to be limited to situations of gender role incongruence. Specifically, male employees’ performance tends to be rated higher than female employees’ performance in traditionally masculine roles but lower in tradition- ally feminine roles, and vice versa for women (Pulakos, White, Oppler, & Borman, 1989). A more recent study of 448 upper level managers examined the equity of promotions for men and women and found that women needed to show significantly higher performance appraisal ratings than men in order to be considered for promotion (Lyness & Heilman, 2006).

Finally, research shows that managers may favor younger workers. In general, older work- ers receive lower ratings than their younger coworkers, and the bias increases when older employees work for younger managers (Shore, Cleveland, & Goldberg, 2003).

Improving Rater Accuracy Clearly, performance appraisals are susceptible to numerous types of rating errors, which affect the appraisals’ usefulness in employee decision making and self-improvement. To thwart the negative effects of error, I/O psychologists have identified several ways to increase rating accuracy. Let’s take a moment to review some of these techniques.

Rating-Error Training One way to deal with rating errors is to train raters not to make them. Rating-error training involves teaching raters about the different types of rating errors along with practical strate- gies for avoiding them. When dealing with leniency error, for example, raters will first learn

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about the type of error (in this case, inflated ratings with little variability), then its possible causes (e.g., raters wish to maintain a positive relationship with the employee), and finally strategies to overcome it (e.g., rank order employees before rating each one). This process assumes that educating raters about potential errors and possible solutions can help them overcome their biases.

Unfortunately, the perceptual biases that lead to rating errors (such as stereotypes, the need to please, and high expectations) are ingrained in our cognitive processes and are difficult to change. Rating-error training thus requires significant time and effort, with sessions typically lasting from 6 to 8 hours (Latham, Wexley, & Pursell, 1975). Yet even with extensive training, improved rating accuracy is short lived (Fay & Latham, 1982).

Rating-Accuracy Training Like rating-error training, frame-of-reference (FOR) training aims to help raters improve their accuracy. With this method, raters learn about the type of employee performance their orga- nization wishes to see. They are given a frame of reference, or model, against which to com- pare their employees. If raters know the organization’s performance standard for a specific job position, they will be less likely to use their own idiosyncratic standards to judge a worker in that position.

Designing FOR training involves a number of important steps. First, the raters receive a clear and concrete definition of the various performance dimensions and rating scale included on the appraisal they will be using. Next, the trainer discusses work behavior that illustrates appropriate performance at each rating-scale level. After the raters have a basic understand- ing of the different performance expectations, they practice using the rating scale, usually by watching video scenarios of people working at various levels of performance and then attempting to appropriately rate them. Finally, the trainer goes over each scenario, discussing at which performance level each sample employee should have been rated.

Research has found that FOR training does indeed lead to more accurate performance appraisal ratings (Woehr & Huffcutt, 1994). As an added bonus, research by Davis and Mount (1984) found that managers who received FOR training became more effective at creating development plans for their direct reports because they more clearly understood what the company expected of its employees.

Rater Accountability Raters need to be motivated to make accurate rat- ings, but organizations often do not provide much incentive to do so. If your boss never underwent formal performance appraisal training, or if he or she was never really held accountable for the quality of his or her performance ratings, how

iStockphoto/Thinkstock

In calibration meetings, managers must discuss the ratings of employees in similar jobs. As such, calibration meetings increase accountability, as they require managers to justify their ratings of each employee to their peers.

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motivated would he or she be to take performance appraisal seriously? In turn, how likely will you be to take it seriously when it is time for you to evaluate your own staff ? Unfortunately, the poor behavior modeled by some executives often provokes similarly cavalier attitudes among the company’s entire management team. If, however, managers are held accountable, they will take the appraisal process seriously, and their ratings will be more accurate (Harris, Ipsas, & Schmidt, 2008; Mero & Motowidlo, 1995). One way to increase accountability is for organizations to hold calibration meetings, at which managers discuss the performance and ratings of workers in similar jobs. As you might surmise, because they force managers to jus- tify their ratings to their peers, these meetings increase rating consistency across employees (McIntyre, Smith, & Hassett, 1984).

4.5 Performance Management Systems So far in this chapter, we have focused on the need for and strategies used to improve the accuracy of performance appraisals. However, even the most accurate appraisal can fuel neg- ative manager and employee reactions if it does not include quality feedback. This knowledge has prompted some I/O psychologists to suggest that worker self-improvement, rather than rating accuracy, should be the focus of a performance appraisal (Ilgen, 1993). In order to build a successful self-improvement plan, an employee needs to have the following information: (a) clear performance expectations, (b) an understanding of his or her own current performance, and (c) suggestions from his or her manager on how to improve.

Performance appraisal, then, is really part of a larger performance management system, which includes not only the appraisal but also the setting of performance expectations and continu- ous feedback. Recent research has presented serious criticism of conducting performance appraisals without integrating them into an effective performance management system. Com- mon examples include annual performance ratings that are not connected to daily operations, retrofitted ratings to justify pay increases that are not necessarily related to performance, and appraisals that result in limited or no pay differentials between high and low perform- ers (Pulakos, Mueller Hanson, Arad, & Moye, 2015). In fact, Pulakos et al. (2015) presented an interesting and unique case study of Cargill, a very large organization in the food-service industry that has 149,000 employees in 70 countries. Cargill has abandoned performance ratings altogether, with minimal impact on the organization’s operations and effectiveness. When performance appraisals are integrated into a performance management system, how- ever, they offer important benefits that should not be overlooked. Thus, it is critical that orga- nizations do not consider performance ratings in isolation, but in terms of their links to stra- tegic decision making (Adler et al., 2016; Gorman, Cunningham, Bergman, & Meriac, 2016; Smither, 2015).

Of course, if an employee truly wishes to improve his or her performance, the employee must be willing to listen to and act upon constructive performance feedback, something that will not happen unless the manager and employee are able to establish a strong, high-quality relationship with a significant amount of trust. In this section, we will review the three major components of the performance management system: building relationships and trust, pro- viding continuous feedback, and setting expectations. We will also discuss the effects of cross- cultural similarities and differences on performance management systems and practices.

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Building Relationships and Trust Think about the last time you worked with a peer or for a manager you did not trust. How did you feel? Chances are, at one time or another, you experienced frustration, confusion, apa- thy, or even anger toward that person. Now imagine that the person took some time to offer you constructive performance feedback. How would you respond? Most of us would ques- tion this untrustworthy person’s intentions, withdraw from the situation, or even become hostile, ignoring the feedback or interpreting it in a negative way. Furthermore, most people would stay quiet and not question the feedback if they feared they might be punished for disagreeing. Actual negative feedback is even more detrimental, especially when little trust exists between the manager and the employee. Employees can become unmotivated and lose confidence (Kluger & DeNisi, 1996). When trust exists, however, workers are more likely to accept criticism openly, believing their manager has their best interests in mind.

As you can see, a positive manager–employee relationship is necessary to have a positive per- formance appraisal experience, and trust is a prerequisite for executing an effective perfor- mance management system (Peterson & Hicks, 1996). In fact, research shows that the quality of the relationship between manager and employee has a stronger influence on reactions to performance appraisals than the favorability of the ratings or whether the employee par- ticipates in the appraisal process (Pichler, 2012). Relationship quality and perceived orga-

nizational justice are key factors in employees’ satisfaction and buy-in (Dusterhoff, Cunningham, & MacGregor, 2014). Therefore, it is important for organizations to train man- agers how to build relationships and trust with their staff by keeping their commitments, displaying integrity, pro- viding timely feedback, and showing an interest in their subordinates.

Providing Continuous Feedback During a typical annual postappraisal meeting, a man- ager will hold a one-sided conversation with an employee, reviewing the employee’s successes and failures from the most recent performance review cycle. As you may have determined from the opening exercises of this chapter, the meeting can quickly become tense, even hostile, if the feed- back includes criticism. Employees tend to instinctively deflect criticism, blaming it on forces outside their con- trol. Just think for a moment, though: If this meeting were a once-a-year occurrence, how desirable or useful would criticism be if it referred to something that happened 10 months ago? Could the employee even do anything now to fix the situation? Probably not. How might an employee react differently if, instead of annually, she or he received informal feedback on a more regular basis?

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When managers provide continuous feedback, employees feel less threatened and can immediately adjust their performance to solve existing problems and account for current demands.

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Both scientific researchers and in-the-field practitioners advocate the habit of providing con- tinuous informal feedback to employees (Corporate Executive Board, 2011; Gregory, Levy, & Jeffers, 2008). More specifically, continuous feedback should be given in addition to, not at the exclusion of, the annual performance appraisal, and it must be provided immediately after any instance of effective or ineffective employee performance. Once-a-year feedback has never been very effective and is especially unhelpful for today’s users of instant-communica- tion systems such as Facebook and Twitter. Increasing its frequency makes feedback not only less threatening but also more helpful, because employees can actually use the information to solve existing problems or adjust performance to meet current demands.

In addition to increasing frequency, I/O psychologists have identified a number of other con- ditions under which employees will be more likely to adopt managers’ feedback suggestions:

1. Feedback must address specific employee behaviors or actions, not personal char- acteristics. It is best to use facts, data, statistics, or direct observations to support positive or negative feedback.

2. Feedback should involve two-way communication between managers and employ- ees. If employees feel they can express their views, they are more likely to be satis- fied with the feedback process (Dipboye & de Pontbriand, 1981).

3. Managers should provide constructive feedback only on behaviors the employee can control.

4. If feedback is negative, it should be constructive. Furthermore, managers should pro- vide support for the employees’ self-improvement.

Setting Expectations Most of us truly wish to do our best at our jobs, but it is hard to do so if we do not understand what is expected of us. Managers can facilitate effective goal-setting sessions by following these guidelines (Latham, 2009b):

1. Encourage employee participation. Managers should not simply assign perfor- mance goals. Rather, they should collaborate with employees to create mutually agreed-upon expectations. Participating in the goal-setting process increases an employee’s goal-aspiration motivation (his or her desire to meet the goal) and leads to the creation of more challenging goals.

2. Set clear, realistic goals. Goals that are specific and challenging yet achievable more successfully motivate workers to perform their best.

3. Determine specific achievement deadlines. Workers perceive open-ended goals as less urgent than those with deadlines and are therefore less likely to achieve them.

4. Link performance to rewards. Employees tend to follow the adage “What gets rewarded gets done.” Employees should always understand how achieving (or not achieving) goals will impact them and how accomplishments will be rewarded.

5. Facilitate priority setting. Not all goals hold the same importance. Managers should help employees prioritize and order goals according to their importance.

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Cross-Cultural Perspectives Cross-cultural differences have substantial effects on business practices. Many organizational practices do not transfer readily across cultures and thus require adaptation (Hofstede, 1980; House et al., 1999; House et al., 2004). Performance management is particularly prone to such differences and necessary adaptations. The United States is largely an individualistic culture, which leads to an emphasis on individual success and accomplishment. By contrast, collectivistic cultures, often found in Eastern and Middle Eastern countries, place a high value on saving face and maintaining harmony. Thus, negative feedback can be perceived as too confrontational and may have far more damaging effects on relationships. Even positive feed- back in the form of public recognition can be uncomfortable to high-performing employees in collectivistic cultures; they may prefer to be recognized privately in order to avoid alienating their colleagues (Sumelius, Björkman, Ehrnrooth, Mäkelä, & Smale, 2014). That is why in col- lectivistic cultures, it is usually recommended that recognition occurs in a private, one-on-one setting.

Another distinct difference can be seen in how cultures view power distance. In the United States there is a strong emphasis on equality and fairness. It is acceptable for employees to express their opinions freely, even when they disagree with their managers. Power and status are earned based on achievements. However, in some cultures, power and status differences are readily accepted and rarely challenged. Examples include most Asian and South Ameri- can countries. In such cultures, employees will likely conform to the process and accept its results, but they will be less likely to actively participate in setting their ratings or disagree with their managers. Similarly, in high power distance cultures, ratings by peers or subordi- nates are unlikely to be authentic and may not be accepted as legitimate or taken seriously because they are not assigned by a superior (Sumelius et al., 2014). In such cultures, tradi- tional top-down performance evaluations are usually more effective.

Because in many countries pay, promotions, and status continue to be highly based on senior- ity, performance appraisals may be perceived as an imposed Western practice, and thus not taken seriously or adopted wholeheartedly. This can at best make the process a waste of time, and at worst a counterproductive practice that can damage relationships and cause divisive- ness. This notion is particularly relevant to multinational corporations when they attempt to implement uniform practices across their global operations. It is thus necessary and valuable to adapt various features of performance management systems to cross-cultural differences (Sumelius et al., 2014).

Finally, it is important to note that cultural diversity can exist even within one country or geo- graphic location, and cultures can differ substantially from one area of a country to another. For example, in the United States cultural differences exist between the West Coast, East Coast, Midwest, and South, as well as from rural to urban to suburban locations. Organizations often find it necessary to adapt business practices across operations, even within the same country. Managers should also understand these differences when dealing with employees from differ- ent backgrounds, whether these involve local, regional, national, or international differences.

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U.K. and U.S. = Good job, okay

Japan = Money

Russia and France = Zero

Brazil = Insult

U.S. = Good job, approval U.S. (palm facing inward or outward) = Peace, victory, 2

Australia, U.K., South Africa (palm facing inward) = Insult

Australia, Greece, Middle East = Insult

Germany, Hungary = 1

Japan = 5

Section 4.6 The R in ROI: Linking Performance Evaluations to Financial Results—Friend or Foe?

4.6 The R in ROI: Linking Performance Evaluations to Financial Results—Friend or Foe? Performance measurement is extremely important, for the numerous reasons discussed ear- lier. However, performance appraisals can also become a laborious exercise that I/O psychol- ogists or HR departments push on the rest of the organization to serve other, less important goals. For example, managing the performance appraisal system can become a goal in itself for those whose job is to ensure that the system is functional and well maintained. It justifies the jobs they are holding and the salaries they are paid. When that is the case, the managers who perform the evaluations start to view the performance appraisal system as a formality and do not take it very seriously. They may fill in the necessary forms, but the accuracy of their ratings will likely be questionable.

Another common but often less effective approach to performance appraisals is to limit their outcomes to only determine annual salary increases. Especially in a tight economy, when

Consider This: Delivering Compliments Across Cultures Even simple gestures can mean different things across cultures. Consider how you would interpret the gestures in Figure 4.5.

In some cultures, these gestures would be considered positive and complimentary. In others, they could be impolite or even offensive. Managers should be sensitive to their employees’ cultural backgrounds. They should not assume that anything they say or do in their own cul- ture would be readily accepted in other cultures. Similarly, organizations should keep cross- cultural differences front and center when making strategic decisions.

Figure 4.5: Cross-cultural interpretations of the same gestures

U.K. and U.S. = Good job, okay

Japan = Money

Russia and France = Zero

Brazil = Insult

U.S. = Good job, approval U.S. (palm facing inward or outward) = Peace, victory, 2

Australia, U.K., South Africa (palm facing inward) = Insult

Australia, Greece, Middle East = Insult

Germany, Hungary = 1

Japan = 5

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overall payroll allocations are frozen, relatively stable, or even decreased, linking perfor- mance appraisals solely to annual raises is unlikely to be conducive to performance outcomes. For example, when the best performers get a raise of only 4% and the worst performers get a raise of 2%, you can see why the difference is unlikely to translate into any constructive performance feedback for either employee. In cases where there is a limited pool of resources to distribute, high performers often feel guilty about getting a raise at the expense of their colleagues, rather than feeling appreciated or rewarded. Conducting performance appraisals only to determine annual raises also ignores their purpose of providing continuous construc- tive performance feedback. As discussed earlier, employees need to receive feedback on their performance more often. This feedback should be provided to help them better align their per- formance with the organization’s goals. When appraisals are always linked to pay, appraisal sessions become mostly about money, rather than about performance improvement.

Performance appraisals are also often used in conjunction with layoff decisions. Even though this is a legitimate use, if they are only used to justify these decisions, they become perceived as a way for the organization to provide a legally defensible paper trail. This diminishes the appraisals’ value, and the process becomes resented and distrusted by managers and employ- ees alike. Again, although the above uses of performance appraisals are important and legiti- mate, their primary use should be as a tool with which to objectively measure performance and facilitate its improvement.

So how do organizations, managers, I/O psychologists, and HR departments design truly effective performance appraisals systems? It is critical to choose the correct measures. As discussed earlier, the correct measures should be readily linked to the organization’s goals and its success. This chapter offers numerous ways to enhance the quality of performance measures. However, in the words of sociologist William Bruce Cameron (1963) in his book Informal Sociology: A Casual Introduction to Sociological Thinking: “Not everything that can be counted counts, and not everything that counts can be counted” (p. 13). The Pareto efficiency principle, also known as the 80–20 rule, posits that in most situations, 80% of outcomes are caused by 20% of the inputs. In performance appraisal, this means that it would be most effective for managers to focus on their employees’ most critical behaviors, which constitute about 20% of everything the employees do on a daily basis, because these critical behaviors cause 80% of the outcomes that truly impact the organization’s success and effectiveness.

Although not the only approach, performance measures that are directly linked to financial results tend to be perceived as objective and fair because they reflect an employee’s true value to an organization. They are also critical for making resource allocation decisions, because they put HR decisions on a par with other investments. For example, the financial value of an employee’s performance can justify the costs of hiring or retaining that employee over outsourcing the position or investing in a piece of equipment that would allow the job to be automated.

Should an appraisal system, then, attempt to capture the financial value of every aspect of an employee’s performance? Absolutely not! The concept of opportunity cost, introduced in earlier chapters, implies that appraisals should only capture those performance dimen- sions where the benefits of measurement exceed the costs. For example, even though it is easy to quantify stationery consumption, the cost of policing employees to be less wasteful in their use of inexpensive stationery items can be higher than the cost savings that may accrue from these initiatives (such as saving paper). Similarly, many organizations install expensive

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equipment or have their managers waste numerous hours managing their employees’ atten- dance when the costs of the few minutes that an employee may come in late or leave early far exceed the costs of monitoring.

What, then, should an appraisal system track? The Pareto efficiency principle implies that it should focus on performance dimensions that would be of high enough financial value to jus- tify the cost. The key is not always the absolute cost or benefit of a performance dimension but rather the variation of that cost or benefit. To use our previous example, the difference between the most and least conservative use of stationery is not substantial. In measuring the perfor- mance dimensions that would have the most substantial effects on financial outcomes, empha- sis should be on the dimensions with the highest variability and the ones that are “pivotal” to performance (Cascio & Boudreau, 2011). For example, at an upscale restaurant, the most piv- otal performance dimension for cooks is their cooking skills. On the other hand, the most piv- otal skills of the wait staff are their social skills. Although cooks need to have some social skills to effectively deal with the wait staff and restaurant management, social skills are not pivotal for cooks. They can still be subjectively evaluated (e.g., using a narrative or a rating scale), but attempting to place a financial value on those skills is both impractical and unnecessary.

Consider This: Appraising Performance Dimensions That Really Matter

Choose a job that would be of interest to you. It can be your current job, a job you held in the past, a job you hope to have in the future, or just a job that you have come across in a job- opening announcement or advertisement. Describe the job in detail. For more information, you may search for job descriptions of similar jobs.

Questions to Consider

1. How would you measure the performance of the incumbent of this job? What are the most important dimensions to measure, according to the Pareto efficiency principle?

2. What are the performance dimensions that will likely exhibit the most variability (the most pivotal dimensions)?

3. Which dimensions will be most readily linked to financial results? Explain. 4. Which dimensions should be subjectively evaluated? 5. Which dimensions should be ignored and not evaluated? Note that this is an important

decision because it can significantly affect the efficiency and effectiveness of a perfor- mance appraisal system. It is also a decision that is often neglected or inadequately addressed.

4.7 Toward More Positive Appraisal Sessions As humans, we have a tendency to overemphasize and amplify the magnitude of negativ- ity in our lives (Baumeister, Bratslavsky, Finkenauer, & Vohs 2001). Negative stimuli tend to receive more of our attention and energy. For example, threatening personal relationships have been shown to receive more of our thought time than supportive ones, and blocked goals tend to receive more thought time than those with open and available options (Klinger,

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Barta, & Maxeiner, 1980). Performance appraisal is no exception. It is much easier to dwell on our own or others’ faults than to acknowledge talents, strengths, and positive performance attributes. Doing the latter requires intention.

So why do humans in general tend to focus on neg- ativity? The tendency to overemphasize negativity has been attributed to primitive survival mecha- nisms in reaction to perceived physical danger. In civilized societies, overemphasis on negativity has been attributed to four psychological factors that are comparable to these survival mechanisms: intensity, urgency, novelty, and singularity (Cam-

eron, 2008). The first factor is the intensity of negative stimuli. Because negative events are perceived as threatening, they are experienced more intensely. Second is the sense of urgency that negative stimuli place on our perceptions and action tendencies, because something is wrong and needs to be fixed. Positive stimuli do not pose the same sense of urgency, because ignoring positive stimuli does not pose as much risk as ignoring negative stimuli. Third is the perceived novelty of negative events. Believe it or not, a lot of what is going on in most peo- ple’s lives is positive. That’s why it tends to go unnoticed. Negativity is the exception. That’s why it gets more attention.

Fourth, one of the unique characteristics of negativity is what is referred to as singularity. Imagine a system with one defective component, a body with one ailing organ, a team with one counterproductive employee, or a family with one dysfunctional member. A single negative component is capable of tainting the performance of the collective, which causes that single negative component to really stand out and alert the rest to the need to somehow remedy the problem. On the other hand, positivity tends to be more general and global. One positive component alone does not necessarily make a system better. One good employee alone usually cannot make an organization successful. One healthy organ alone cannot make the whole body healthy. This singularity makes the effect of negativity more pronounced and far reaching.

Paradoxically, humans also have a natural tendency, referred to as the heliotropic tendency, to gravitate toward what is pleasurable (i.e., positive) and away from painful or uncomfort- able stimuli. However, this tendency tends to be overwhelmed by the intensity, urgency, nov- elty, and singularity of negativity and needs to be encouraged through intentional decisions and actions. That is why although most managers recognize their tendency to overemphasize their employees’ weaknesses, faults, and mistakes and wish they could be more positive, they cannot. For example, they may get overwhelmed by the urgent need to address the dysfunc- tional behaviors of their worst employees and end up with no time to interact with and praise their better ones for their consistent positive behaviors. Moreover, those consistent positive behaviors may no longer stand out; they may be taken for granted. A manager may even for- get to recognize them when appraising these employees’ performances.

So how can managers overcome their negative tendencies and conduct more positive perfor- mance appraisal sessions? First, a manager needs to recognize the importance of positivity, which was introduced in Chapter 3. Although extreme positivity is unnecessary and can even

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be dysfunctional, research supports the idea that humans thrive and flourish in a positive environment (Keyes, 2002). So managers need to intentionally create positive interactions with their employees, especially when they need to counterbalance a negative interaction, such as when it is necessary to give negative feedback. In performance appraisal sessions, managers should put in the effort to find and comment on positive aspects of their employ- ees’ performance. This requires the art of catching employees doing something right instead of the common practice of focusing on problems and mistakes. You might think that this hand-holding is more necessary for new or inexperienced employees and that more mature employees or more established relationships can tolerate less positivity. However, research shows that even more positivity is needed in more complex settings such as top management teams and marital relationships (Fredrickson, 2013; Gottman, 1994).

Consider This: Positive Performance Appraisal Sessions In order to conduct more positive performance appraisal sessions, managers need to be more positive when collecting and sharing performance information. What follows are two exam- ples of positively oriented practices that can be used to replace the negative practices often used by managers.

Example 1

Negative: Reprimand workers when late.

Positive: Praise and reward workers who are consistently on time.

Rationale: Workers who are on time will know that their positive behavior is noticed and appreciated instead of ignored. Late workers will start coming on time to get the manager’s attention and receive rewards.

Example 2

Negative: Criticize an employee for weaknesses (e.g., having poor people or leadership skills).

Positive: Find and acknowledge the employee’s strengths that parallel those weaknesses (e.g., being an independent thinker or being willing and able to follow directions). Suggest changes in role to better fit employee strengths and/or training opportunities to develop lacking skills.

Rationale: Weaknesses may be based on stable personality traits that cannot be readily changed (e.g., introversion). In these cases role changes are more likely to lead to improve- ments in performance. In others training and development are more likely to be perceived as opportunities. Criticism is more likely to be perceived as a threat.

It is important to note that positive feedback and recognition have been found to positively influence performance almost as much as financial rewards (Luthans & Stajkovic, 1999; Stajkovic & Luthans, 2003). Since positive feedback and recognition hardly cost managers and organizations anything, it may seem surprising that they are not used more often or more effec- tively. Furthermore, millennials rate development opportunities as more important than pay (McCarthy, 2015). When feedback is framed positively and offered as a way to develop, it can have important motivational effects that facilitate the attraction and retention of employees.

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Summary and Conclusion

Organizations that excel in their ability to measure their employees’ performance are at a significant competitive advantage. They place themselves in a favorable position to select the best employees, capitalize on their talents and skills, promote them into their areas of excellence, adequately reward them, and retain them for enough time to reap significant returns on their investment in them. They also have an edge in accurately and promptly identifying performance deficiencies and pursuing corrective measures. Accurate perfor- mance appraisals can be a source of information for the organization, a communication vehicle for managers, and a much needed feedback process for employees.

However, in many instances, performance appraisal systems can be plagued with so much subjectivity that they not only defeat their purpose but become counterproductive. They can be perceived as inequitable, which can damage morale and performance. They can also be discriminatory, which may result in legal costs and damage to the organization’s reputation. Thus, a poorly designed performance appraisal system may be worse than not having one at all!

Organizations should view the process of designing and maintaining a well-functioning performance appraisal system as a worthwhile investment, rather than just an expense, a formality, or a necessary evil. Accurate measures should be designed to assess the most pivotal dimensions of performance. They should be integrated with other HR systems, such as recruitment, selection, training, and compensation, as well as with overall organizational goals and strategies in order to ensure full utilization and impact on the organization’s bot- tom line.

behaviorally anchored rating scale (BARS) A method for rating worker perfor- mance in which performance dimensions and critical incidents that exemplify both effective and ineffective job performance are identified, transformed into behavioral statements that describe different levels of performance, assigned numerical values, and used as anchors in a typical graphic rat- ing scale.

behavioral observation scale (BOS) A method for rating worker performance that is similar to BARS, except that instead of performance quality, it rates the frequency with which a worker is observed to perform a critical job behavior.

forced distribution A subjective perfor- mance measure in which managers place employees into performance categories based on preestablished proportions.

graphic rating scale The most commonly used method for rating worker perfor- mance, in which managers observe specific employee behaviors or job duties along a number of predetermined performance dimensions and rate the quality of perfor- mance for each dimension on a scale ranging from high to low.

objective performance measures Quanti- tative measures of performance that can be found in unbiased organizational records.

Key Terms

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Summary and Conclusion

paired comparison A subjective perfor- mance measure in which managers system- atically evaluate each worker’s performance compared to the other workers on the team by comparing one pair of workers at a time, judging which of the two demonstrates superior performance, and then creating a rank ordering based on the number of times each worker is considered the better per- former of a pair.

performance appraisal The formal pro- cess in which employee performance is assessed, feedback is provided, and correc- tive action plans are designed.

rank ordering A subjective performance measure in which managers rank their employees from best to worst.

subjective performance measures Per- formance measures that rely on human judgments.

360° appraisal A multisource evaluative process that utilizes performance feed- back from a variety of sources, such as an employee’s supervisor, peers, subordinates, and internal or external customers, as well as self-evaluation.

written narrative A subjective perfor- mance measure in which the manager writes a paragraph or two summarizing a specific employee’s performance over a certain length of time.

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