Psychology

Chapter 4 Performance Appraisal

Chapter 4: Performance Appraisal 1

Actual Criterion

Criterion

Contamination Criterion Relevance

Theoretical Criterion

Criterion Deficiency

Performance Appraisal

Why do we appraise employees?

If you have ever had a job, then chances are you had some sort of performance appraisal. You may

have experienced both “fair” and “unfair” performance evaluations. In this chapter, we will talk

about how performance appraisals should be used in an organization. These practices and

processes help insure employees are evaluated fairly, which in turn helps the organization

rewards outstanding employees and identify problems in training and development and even

poor performers.

IMPORTANT NOTE:

How you reward employees will have a major impact on their job performance. So for example, if

an employee’s raise (merit increase) or bonus (variable pay) is not directly linked to his/her

performance appraisal then you should expect them to focus on tasks and activities he or she can

relate to the incentive, not what is on the performance appraisal. While this seems obvious, many

organizations overlook this when designing a performance appraisal system. The most common

example is basing the merit increase or variable pay on seniority/tenure (length of service),

rather than on the employee’s actual job performance. So in essence the organization is

rewarding poor performers for staying with the company and good performers get no reward for

their high performance.

What is a good performance appraisal system?

A good performance appraisal system can increase productivity, align employees daily tasks to

the organizations larger goals and mission. A bad performance appraisal system can increase

turnover, reduce employee engagement, and create an unpleasant work environment.

In this chapter, it’s important to understand the key elements of appraisals, so when we talk

about other subjects during the semester you will have an understanding that how employees’ are

appraised has an impact on overall organizational performance.

A good appraisal system is beneficial to both employees and organizations.

A fair and accurate performance appraisal can help employees define success for themselves, and

can help the organization identify gaps in training, skill sets, and identify problems. However, no

matter how good a performance appraisal system is it will always be retrospective (meaning it’s a

lagging - a past representation) of an employee’s performance. Thus, having a “good” system

becomes even more important if the organization wants to manage human capital appropriately.

The information gathered during a PA can be used for various activities within an organization.

Such as, administrative decisions, employee development and feedback, research into effective

organizational practices.

What do we mean by administrative decisions?

Many administrative decisions are based in part on job performance (e.g., promotions,

demotions, pay raises, and termination, variable pay – bonus)

The basis for using job performance data for these decisions can be found in both contracts and

laws. For example, a union contract with employees may specify that job performance will be

used for administrative decisions whereas another contract may specify that no performance

appraisals will be conducted. In other instances performance appraisal is a legal requirement,

e.g., in the U.S. laws require administrative decisions to be based on job performance.

Employee development and feedback

Employees need information regarding their job performance in order to improve or maintain

their job skills. This cannot occur if standards are not clear, or if the employees are not given

feedback. Now we come back to the importance of job analysis and job descriptions. The

standards by which an employee’s are evaluated should (by law) be directly linked to the job

description.

Research

Much of an I/O psychologist’s activities and effort are directed at improving performance.

Performance data is the criterion or measuring stick for evaluating such activities. Organizations

are always interested in increasing job performance of employees. If an organization can improve

the performance of individual employees across the entire organization, then in theory they

increase the performance of the organization.

So what are the criteria for a good performance appraisal system?

Before we can design a PA system, we must have a job analysis and job description that:

1. Sets up the criteria or standard of comparison that defines good performance. If you haven’t

defined what good performance looks like, how would you know if an employee has met, failed

to meet, or exceeded in his/her job.

2.Develop a procedure to compare employees to this standard. Once the standard has been set

and a manager knows what a good performance is, then the employee is compared to the

standard. However, this is where many PA systems break down. Often, managers evaluate

employees based on the other criteria other than the standard. And even evaluating against a

standard, many managers use personal feelings and judgment to evaluate an employee against

standard.

Setting performance criteria

Characteristics of criteria

A criterion is a standard against which you can judge performance, distinguishing good from bad

performance. It is necessary to define good performance before you can evaluate performance.

Criteria can be classified as either theoretical or actual.

1. The theoretical criterion is the definition of what good performance is. It is a theoretical

construct.

2. The actual criterion is the way in which the theoretical criterion is assessed. It is the

operational definition of the theoretical criterion; or the performance appraisal

technique used.

3. A close correspondence between the theoretical and actual criterion exists for some jobs

(insurance salesman: make sales, count sales), but not for others (artist: create great art,

critics’ opinions).

Actual criteria may be only rough estimates, or imperfect indicators of theoretical criteria. This

imperfection may result from criterion contamination, deficiency, or relevance.

Criterion contamination refers to the part of the actual criterion that reflects something other

than the theoretical criterion. This can arise from biases and from unreliability. Biases are

common when judgments/opinions are used as the actual criterion. This is more common in

service based jobs than manufacturing/assembly type of jobs.

Unreliability in the actual criterion arises from errors in measurement.

1. Criterion deficiency means that the actual criterion does not adequately cover the entire

theoretical criterion. It’s incomplete.

2. Criterion relevance is the extent to which the actual criterion assesses the theoretical

criterion, or the overlap between them. The closer the correspondence, the greater the

relevance of the actual criterion. It can be hard to judge the relevance of a criterion as

relevance concerns the inferences and interpretations made about the meaning of the

measurements of performance.

3. Criteria can be developed for individual tasks or for entire jobs. The desired level of

specificity depends on the purpose of the assessment information. Task level is better for

giving feedback to help an employee develop his/her skills. Job level is more useful for

administrative decisions.

**See PowerPoint slide for visual of how this works.

Criterion complexity

Most jobs have more than one performance dimension, making multiple criterion measures

necessary to assess performance adequately. Quantity refers to how much or how quickly a

person does a job. Quality refers to how well a person may perform a job.

Other criteria may include maintaining a professional appearance, motivating others, and

following directions

There are multiple ways to combine these performance dimensions.

1. Composite criterion approach- individual criteria are combined into a single score. Preferred

for comparing individual employee performance.

2.Multidimensional approach- separate score for each criterion. Helpful for giving employees

feedback about the dimensions of performance.

Dynamic criteria

The dynamic criterion refers to variability of performance over time.

• This concept is a controversial one. Some I/O psychologists question how stable job

performance is over time. Some psychologists think it’s stable, some claim that it’s not. This

may depend on the nature of the job and the job setting.

Contextual performance

Consists of extra, voluntary things employees do to benefit coworkers and the organization. This

behavior is not required, but do affect performance ratings.

METHODS FOR ASSESSING JOB PERFORMANCE

Procedures for assessing performance can be divided into objective measures and subjective measures.

Objective measures of job performance

Objective measures are counts of job-related behaviors or the results of job behaviors.

Examples: days absent, widgets produced.

Organizations record many behaviors—for example, absences, accidents, incidents, latenesses,

and sometimes productivity; the importance of each for performance depends on the job.

Absences and latenesses measure attendance, these are important for jobs with structured

schedules. Accidents include all on-the-job injuries (automotive and nonautomotive).

Incidents are important job-relevant events that vary with the job. (Examples: shooting someone

for a police officer, medical error for a nurse, complaints about service for a waitress.

Productivity is the amount of work produced.

Advantages of objective measures

1. Meaning is often easy to interpret. For example, no absences is a good indicator of satisfactory

attendance.

2.The quantitative nature of objective measures make it easy to compare individuals in the same

job; just compare their numbers.

3.Objective measures can be tied to organizational objectives, like productivity or service.

4.Objective measures are often already in organizational records, so there is no need to create a

special performance appraisal system.

Disadvantages of objective measures

1. Many are not suitable for all jobs; there may be no countable output so productivity would not

be a feasible indicator of performance.

2.Often the meaning of the number is not always obvious. For example, how many nursing

errors is considered unsatisfactory performance?

3.Data taken from records may be contaminated and inaccurate: some information may have

been omitted, credited to wrong person, mistyped, or deliberately distorted by friends/

enemies.

4.Objective measures are often deficient as indicators of the theoretical criterion; they tend to

focus on specific behaviors or may omit relevant behavior (e.g., focus on quantity, but not

quality).

5.What is measured may not be under employee’s control. For example, productivity may reflect

machinery breakdowns, or inferior sales territory.

Subjective measures of job performance

Subjective measures are ratings by people who should be knowledgeable about the person’s job

performance. Usually, supervisors provide job performance ratings for their subordinates.

Subjective measures are the most frequently used means of assessing job performance. Many

rating forms are in use:

1. Graphic rating. This form is the most popular measure. It asks for ratings on several

dimensions of performance, usually including work quality, work quantity, and relevant

personal traits such as appearance, motivation, and dependability. For each dimension the

supervisor checks off his rating (e.g., “poor” to “outstanding”) of the employee for each

dimension.

2.Behavior-focused rating forms concentrate on specific instances of behavior. The form

contains behaviors representing good and poor levels of performance for various dimensions.

The rater indicates which behaviors are typical of the person being rated. There are several

different such forms. Among them:

a. Behaviorally Anchored Rating Scale (BARS) is a rating scale in which the

response choices are defined in behavioral terms along a continuum of

performance effectiveness. A BARS evaluation form contains several scales,

each assessing an important dimension of job performance. For each scale,

the rater picks the behavior that comes closest to describing the

performance of the person being rated.

b. Mixed Standard Scale (MSS) provides the rater with a list of behaviors that

vary in their effectiveness on performance dimensions. For each behavior,

the rater indicates if the ratee is better than the statement, the statement fits

the ratee, or the ratee is worse than the statement. The scale includes

several dimensions of performance, and several behaviors for each

dimension. The statments for the dimensions are presented in random

order.

c. Behavior Observation Scale (BOS) contains items based on critical

incidents. A rater indicates the percent of time the employee engaged in

each behavior. Raters indicate frequency of behavior, showing how often

employees engage in performance relevant behavior. Use of frequencies has

been criticized because the behavior determines the criterion for good

performance in terms of frequency. Therefore, considerable judgment is

required in interpreting the meaning of frequency ratings.

Development of behavior-focused forms consumes a lot of time and effort because it requires

developing a form for a specific job or similar group of jobs. There are four steps:

! ! 1.! A job analysis identifies the dimensions of performance.

! ! 2.! Develop descriptions of effective and ineffective behavior on these

dimensions using critical incidents obtained from workers and supervisors.

! ! 3.! Have people knowledgeable about the job sort the behaviors into

dimensions, to show that the behaviors reflect the intended dimensions.

! ! 4.! Have people knowledgeable about the job rate the behaviors on a

continuum of effectiveness. Select a subset of behaviors that represent the desired levels.

(Examples: For the BARS, this places the behaviors along the scale. For the MSS, this groups

the behaviors into good, satisfactory, or poor.)

Cognitive processes underlying subjective ratings

If we’re going to use ratings in performance appraisal, we need to know how people make these

ratings and what factors influence them. Models of the cognitive processes that influence ratings

of performance suggest that the rating process actually includes several steps:

1. Observing the employee’s performance. The process begins with observation of the employee

by the supervisor.

2.Storing information about performance in memory. The supervisor’s observations are stored

in memory.

3.Retrieving information about performance from memory. Retrieval from memory occurs when

the supervisor is asked to rate the employee.

4.Translating the retrieved information into ratings. The retrieved information is used in some

manner to decide on a performance rating.

Models vary in their descriptions of how the information is processed at each step. One

suggestion is that people use schemata--categories or frames of reference--to interpret and

organize experience.

One schema is the stereotype--a belief about characteristics of the members of a group, can be

favorable or unfavorable.

Another schema is the prototype --a model of some characteristic or type of person. This schema

is used as a standard to assign people to the category of good manager, for example.

Schemata can influence all four steps in the evaluation process. They might affect the behaviors

observed; how the behaviors are organized and stored in memory, how they are retrieved; and

how the behaviors are used to decide on ratings. The evaluations that result are not necessarily

inaccurate although schemata are used.

Some I/O psychologists argue that if supervisors use schemata, appraisal techniques might be

improved by designing them to use the dimensions in the supervisors’ schemata.

! ! 1.! It should be easier to make ratings then.

! ! 2.! There is evidence of good agreement among supervisors on dimensions

of good performance, e.g., Borman’s (1987) study of Army officers.

Rater bias and error

Human judgement is imperfect. Supervisors’ rating of performance often include rating biases

and rating errors. These are apparent in patterns of ratings and are referred to as halo and

distributional errors.

Halo errors occur when a rater gives an individual the same rating on all dimensions; this pattern

is visible within the rating form for one individual. (One employee gets all l’s, another all 5’s.)

This might occur if raters form a general impression of an individual’s performance and make

their ratings on all dimensions from that impression. One problem with halo error is

distinguishing it from true halo--in which an employee actually performs at the same level on all

dimensions.

Distributional errors occur when a rater tends to rate everyone the same; this shows up in

comparing the rating forms of different individuals.

Leniency errors—the rater rates everyone at the top end of the rating scale.

Severity errors—the rater rates everyone at the bottom of the rating scale.

Central tendency errors—the rater rates everyone in the middle of the scale. Again, what appears

to be error may reflect reality—all employees might have performed the same, leading to similar

ratings.

Control of rater bias and error

I/O psychologists have tried to develop assessment forms that resist rating errors. Behavior-

focused rating scales were one attempt and may be effective. The idea was that rater would be

more accurate if s/he focused on specific behaviors rather than traits. So far the research results

have been mixed.

Training raters to avoid errors has also been tried. Rater error training (RET) is the most

popular. This approach familiarizes raters with rating errors and teaches them to avoid those

patterns. It seems to reduce errors, but reduces accuracy as well. Avoiding certain patterns may

lead raters to create less accurate patterns, substituting one rating error for another.

Observation training involves teaching raters how to observe performance behavior and how to

make judgments using those observations. Seems to increase accuracy but not to reduce rating

errors.

Frame of reference training has demonstrated some promising results. It attempts to provide a

common understanding of the rating task. Raters are given specific examples that represent

various levels of performance for each dimension.

Factors influencing performance ratings

The willingness of a supervisor to give accurate ratings varies with characteristics of the

supervisor and the rating situation.

1. Supervisors give better ratings to subordinates they like (though they tend to like people who

perform well).

2.Ratings are also influenced by expectancies; so that people who have done well in the past tend

to get good ratings.

Rater’s mood can affect ratings. A laboratory study showed that depressed subjects gave lower

ratings than elated subjects, but more accurate ratings with less halo.

Who should rate performance?

1. Supervisors usually rate performance.

2. The use of multiple perspectives for manager feedback has been called 360 degree feedback.

This involves adding ratings by peers, self, and subordinates and can be useful for employee

development. It also has the advantage of reducing individual biases.

Legal Issues in Performance Appraisal

It is illegal to discriminate in performance appraisal on the basis of certain non-performance

factors: sex, race, religion, color, national origin, disability, age (over 40).

YOU SHOULD KNOW THESE PROTECTED GROUPS

Performance appraisal systems have been challenged in court when an employee believed

discrimination occurred. Subjective methods are especially vulnerable to legal attack.

A well-designed performance appraisal system should be legally defensible. Barrett and Kernan

(1987) suggest that a legally defensible system of performance appraisal should include the

following six components:

1. A job analysis should be conducted to define the dimensions of performance.

2.Rating forms should be developed to assess dimensions from point 1.

3.Raters should be trained in how to assess performance.

4.Higher management should review ratings and allow employees to appeal evaluations.

5.Performance should be documented and detailed records maintained.

6.Assistance and counseling should be provided to poor-performing employees prior to actions

against them.

Future Issues and Challenges

Performance appraisal systems must be improved. Objective measures are often deficient,

whereas subjective measures are contaminated by rating errors.

Rater training shows promise in improving rating accuracy.

Computerization has allowed opportunities to do a more thorough job of evaluating performance

and integrating appraisal into a broader performance management system.

Organizations need to be convinced that it’s practical to have the most complete and unbiased

performance appraisal systems possible.

A sound system is less likely to be challenged in court by an employee who believes that s/he has

been unfairly evaluated. A sound system is likely to be more effective in meeting its objectives.