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Noe11e_ch_08_FINAL.pptxChapter 8
Performance Management
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Learning Objectives 1 of 2
LO8-1 Identify the major parts of an effective performance management process.
LO8-2 Discuss the three general purposes of performance management.
LO8-3 Identify the five criteria for effective performance management systems.
LO8-4 Discuss the five approaches to performance management, the specific techniques used in each approach, and the way these approaches compare with the criteria for effective performance management systems.
LO8-5 Choose the most effective approach to performance measurement for a given situation.
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Learning Objectives 2 of 2
LO8-6 Discuss the advantages and disadvantages of the different sources of performance information.
LO8-7 Choose the most effective source(s) for performance information for any situation.
LO8-8 Discuss the potential advantages of social performance management and electronic monitoring for performance management.
LO8-9 Distinguish types of rating errors, and explain how to minimize each in a performance evaluation.
LO8-10 Conduct an effective performance feedback session.
LO8-11 Identify the cause of a performance problem.
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Introduction
Performance Management
Ensure employee activities are congruent with goals
Performance Appraisal
Organization gets information on how well an employee is doing his or her job
Performance Feedback
Provide employees information on their performance
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A performance management system has three parts: defining performance, measuring performance, and feeding back performance information. Performance management as the process through which managers ensure that employees’ activities and outputs are congruent with the organization’s goals. Performance management is central to gaining competitive advantage and critical for companies to execute their talent management strategy, that is, to identify employees’ strengths and weaknesses, link employees to appropriate training and development activity, and reward good performance with pay and other incentives.
First, a performance management system specifies which aspects of performance are relevant to the organization, primarily through job analysis.
Second, it measures those aspects of performance through performance appraisal, which is only one method for managing employee performance. If done correctly, performance appraisal can provide benefits to both employees and the company. An important part of appraising performance is to establish employee goals, which should be tied to the company’s strategic goals. A good appraisal process ensures that all employees doing similar jobs are evaluated according to the same standards
Third, it provides feedback to employees through performance feedback sessions so they can adjust their performance to the organization’s goals. Performance feedback is also fulfilled through tying rewards to performance via the compensation system such as through merit increases or bonuses. Because companies are interested in continuous improvement and creating engaged employees—employees who know what to do and are motivated to do it—many companies are moving to more frequent, streamlined performance reviews.
The Practice of Performance Management
Performance management is a prevalent practice, but often not valued or used effectively.
Many managers don’t consider yearly performance evaluations useful
Half of employees are surprised by their ratings
Most employees are unhappy because they expected a higher rating
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Figure 8.1 Model of the Effective Performance Management Process
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The Process of Performance Management 1 of 5
Step 1
Understand and identify important performance outcomes or results
Align goals and behaviors to organization’s strategies and goals
LO 8-1
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The Process of Performance Management 2 of 5
Step 2
Understand the process (or how) to achieve the goals established in the first step
Identifying measurable goals, behaviors, and activities that will help employees achieve the performance results
Make these part of the employees’ job descriptions
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The Process of Performance Management 3 of 5
Step 3
Provide employees with training, necessary resources and tools, and frequent feedback
Focus on accomplishments as well as issues and challenges influencing performance
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The Process of Performance Management 4 of 5
Step 4
The manager and the employee discuss and compare the targeted performance goals and supporting behaviors with the actual results
Annual or biannual formal performance review
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The Process of Performance Management 5 of 5
Step 5
Identify what the employee can do to capitalize on performance strengths and address weaknesses
Step 6
Provide consequences for achieving (or failing to achieve) performance outcomes
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Purposes of Performance Management 1 of 3
Strategic Purpose
Performance management system should link employee activities with the organization’s goals
Define the results, behaviors, and employee characteristics that are necessary for carrying out those strategies, and then
Develop measurement and feedback systems
LO 8-2
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Purposes of Performance Management 2 of 3
Administrative Purpose
Performance management information used for salary decisions, promotions, retention-termination, layoffs, and recognition of individual performance
Managers tend to be uncomfortable rating employees
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Purposes of Performance Management 3 of 3
Developmental Purpose
Improve the performance of employees
Includes deficiencies and the causes of deficiencies
Helps good performers get training and opportunities
GPS system
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Performance Measures Criteria 1 of 6
Strategic Congruence
Emphasizes the need for the performance management system to guide employees in contributing to the organization’s success
Must be flexible to adapt to change
Critical success factors (CSFs)
LO 8-3
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Strategic congruence is the extent to which a performance management system elicits job performance that is congruent with the organization’s strategy, goals, and culture.
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Performance Measures Criteria 2 of 6
Strategic Congruence continued
Using nonfinancial performance measures
Develop a model
Use existing databases or develop measures
Use statistical and qualitative methods
Revisit the model and revise
Act on conclusions
Audit to see if the desired result was achieved
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Performance Measures Criteria 3 of 6
Validity
Must not be deficient or contaminated
It is deficient if it does not measure all aspects of performance
It is contaminated if it evaluates irrelevant aspects of performance or aspects that are not job related
Concerned with maximizing the overlap between actual job performance and the measure of job performance
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Validity is the extent to which a performance measure assesses all the relevant—and only the relevant—aspects of performance.
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Figure 8.2 Contamination and Deficiency of a Job Performance Measure
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For a performance measure to be valid, it must not be deficient or contaminated. As Figure 8.2 shows, one of the circles represents “true” job performance— all the aspects of performance relevant to success in the job. Companies must use some measure of performance, such as a supervisory rating of performance on a set of dimensions or measures of the objective results on the job. Validity is concerned with maximizing the overlap between actual job performance and the measure of job performance (the green portion in the figure). A performance measure is deficient if it does not measure all aspects of performance. A contaminated measure evaluates irrelevant aspects of performance or aspects that are not job related (the gold portion in the figure). The performance measure should seek to minimize contamination, but its complete elimination is seldom possible.
Performance Measures Criteria 4 of 6
Reliability
Interrater reliability
The consistency among the individuals who evaluate the employee’s performance
Test-retest reliability
Should be reliable over time
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Reliability refers to the consistency of a performance measure.
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Performance Measures Criteria 5 of 6
Acceptability
May take too much time or not be accepted as fair
Three categories of fairness: procedural, interpersonal, and outcome
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Acceptability refers to whether the people who use a performance measure accept it.
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Table 8.2 Categories of Perceived Fairness and Implications for Performance Management Systems
| FAIRNESS CATEGORY | IMPORTANCE FOR PERFORMANCE MANAGEMENT SYSTEM | IMPLICATIONS |
| Procedural fairness | Development | Give managers and employees opportunity to participate in development of system Ensure consistent standards when evaluating different employees Minimize rating errors and biases |
| Interpersonal fairness | Use | Give timely and complete feedback Allow employees to challenge the evaluation Provide feedback in an atmosphere of respect and courtesy |
| Outcome fairness | Outcomes | Communicate expectations regarding performance evaluations and standards Communicate expectations regarding rewards |
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Performance Measures Criteria 6 of 6
Specificity
Relevant to both strategic and developmental purposes
Must measure what an employee must do to achieve company’s goals
Must point out employee’s performance problems
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Specificity is the extent to which a performance measure tells employees what is expected of them and how they can meet these expectations.
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Approaches to Measuring Performance 1 of 19
The Comparative Approach
Ranking
Simple ranking - highest performer to poorest performer
Alternation ranking – cross one name off the list at a time
LO 8-4
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Simple ranking requires managers to rank employees within their departments from highest performer to poorest performer (or best to worst). Alternation ranking, by contrast, consists of a manager looking at a list of employees, deciding who is the best employee, and crossing that person’s name off the list.
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Approaches to Measuring Performance 2 of 19
The Comparative Approach continued
Forced distribution
Employees ranked in predetermined categories
Helps managers tailor development activities to employees based on their performance
Ethical if the system is clearly communicated, the system is part of a positive dimension of the organization’s culture, and the employees have the chance to appeal decisions
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The forced distribution method also uses a ranking format, but employees are ranked in groups.
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Table 8.3 Performance and Development Based on Forced Distribution and Ranking
| RANKING OR DISTRIBUTION CATEGORY | PERFORMANCE AND DEVELOPMENT PLAN |
| A Above average Exceptional A1 performer | Accelerate development through challenging job assignments Provide mentor from leadership team Recognize and reward contributions Praise employee for strengths Consider leadership potential Nominate for leadership development programs |
| B Average Meets expectations Steady performer | Offer feedback on how B can become a high performer Encourage development of strengths and improvement of weaknesses Recognize and reward employee contributions Consider enlarging job |
| C Below expectations Poor performance | Give feedback and agree upon what specific skills, behavior, and/or results need to be improved, with timetable for accomplishment Move to job that better matches skills Ask to leave the company |
Based on B. Axelrod, H. Handfield-Jones, and E. Michaels, “A New Game Plan for C Players,” HBR, January 2002, pp. 80–88; Walker, “Is Performance Management
as Simple as ABC?” T + D, February 2007, pp. 54–57; T. De Long and V. Vijayaraghavan, “Let’s Hear It for B Players,” HBR, June 2003, pp. 96–102.
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Approaches to Measuring Performance 3 of 19
The Comparative Approach continued
Paired comparison
Tends to be time consuming
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The paired comparison method requires managers to compare every employee with every other employee in the work group, giving an employee a score of 1 every time he or she is considered the higher performer.
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Approaches to Measuring Performance 4 of 19
The Comparative Approach continued
Evaluating the Comparative Approach
Virtually eliminates problems of leniency, central tendency, and strictness
Problems
Often not linked to strategic goals
Validity and reliability depend on the raters themselves
Individuals are completely unaware of what they must do differently to improve their ranking
Employees and managers are less likely to accept evaluations
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Approaches to Measuring Performance 5 of 19
The Attribute Approach
Graphic Rating Scales
Evaluate a list of traits on a five-point scale
Can be discrete scale or continuous scale
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Approaches to Measuring Performance 6 of 19
The Attribute Approach continued
Mixed-Standard Scales
Define the relevant performance dimensions and then develop statements representing good, average, and poor performance along each dimension
These statements are then mixed with the statements from other dimensions on the actual rating instrument
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Mixed-standard scales were developed to get around some of the problems with graphic rating scales.
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Approaches to Measuring Performance 7 of 19
The Attribute Approach continued
Evaluating the attribute approach
Easy to develop and generalizable
Problems
Usually little congruence between the techniques and the company’s strategy
Usually have vague performance standards that are open to different interpretations by different raters
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Approaches to Measuring Performance 8 of 19
The Behavioral Approach
Behaviorally anchored rating scales (BARS)
Can increase interrater reliability
Can bias information recall
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A behaviorally anchored rating scale (BARS) is designed to specifically define performance dimensions by developing behavioral anchors associated with different levels of performance
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Approaches to Measuring Performance 9 of 19
The Behavioral Approach continued
Behavioral Observation Scales (BOS)
May require more information than most managers can process or remember
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A behavioral observation scale (BOS) is a variation of a BARS.
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Approaches to Measuring Performance 10 of 19
The Behavioral Approach continued
Competency Models
Useful for a variety of HR practices including recruiting, selection, training, and development
Can be used to help identify the best employees to fill open positions
Can be used as the foundation for development plans that allow the employee and the manager to target specific strengths and development areas
Must be up-to-date, drive business performance, be job related, be relevant for all of the company’s business units, and provide sufficient detail to make an accurate assessment of employees’ performance
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Competencies are sets of skills, knowledge, abilities, and personal characteristics that enable employees to successfully perform their jobs.
A competency model identifies and provides descriptions of competencies that are common for an entire occupation, organization, job family, or a specific job.
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Approaches to Measuring Performance 11 of 19
The Behavioral Approach continued
Evaluation of the behavioral approach
Can link the company’s strategy to the specific behavior necessary for implementing that strategy
Provides specific guidance and feedback for employees about the performance expected of them
Acceptability and reliability are high
Weaknesses
Behaviors and measures must be continually monitored and revised
Assumes that there is “one best way” to do the job and that the behaviors that constitute this best way can be identified
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Approaches to Measuring Performance 12 of 19
The Results Approach
The Use of Objectives
Managers set goals that are used as standards to evaluate individuals’ performance
Results-based systems have three common components
Require setting effective goals (SMART)
Different types of measurements can be used for goals or objectives
Goals usually set with managers’ and subordinates’ participation
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Table 8.9 Best Practices in Goal Setting
Employees and managers should discuss and set no more than three to five goals.
Goals should be brief, meaningful, challenging, and include the results the employee is expected to achieve.
The time frame for goal achievement should be related to when they are expected to be accomplished.
The relationship between goals and rewards should be appropriate.
Goals should be “linked up” rather than “cascaded down.” This means that functions, teams, and employees should set their own goals that are related to company goals.
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SOURCES: Based on R. Hanson and E. Pulakos, Putting the “Performance” Back in Performance Management (Alexandria, VA: Society for Human Resource Management, 2015); R. Noe and L. Inks, It’s about People: How Performance Management Helps Middle Market Companies Grow Faster (Columbus, OH: National Center for the Middle Market, Ohio State University Fisher College of Business, GE Capital, 2014): D. Grote, How to Be Good at Performance Appraisals (Boston, MA: Harvard University Press, 2011); A. Fox, “Put Plans into Action,” HR Magazine, April 2013, pp. 27–31.
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Approaches to Measuring Performance 13 of 19
The Results Approach continued
Balanced Scorecard
Four perspectives of performance
Financial
Customer
Internal or operations
Learning and growth
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Approaches to Measuring Performance 14 of 19
The Results Approach continued
Productivity Measurement and Evaluation System (ProMES)
Identify the products, or the set of activities or objectives, the organization expects to accomplish
Define indicators of the products
Establish the contingencies between the amount of the indicators and the level of evaluation associated with that amount
Develop a feedback system
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The main goal of the Productivity Measurement and Evaluation System (ProMES) is to motivate employees to improve team or company-level productivity.
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Approaches to Measuring Performance 15 of 19
The Results Approach continued
Evaluation of the Results Approach
Minimizes subjectivity
Links an individual’s results with the organization’s strategies and goals
Challenges
Can be both contaminated and deficient
Individuals may focus only on aspects of their performance that are measured, neglecting those that are not
Feedback may not help employees learn how they need to change their behavior to increase their performance
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Approaches to Measuring Performance 16 of 19
The Quality Approach
Customer orientation
Prevention approach to errors
Continuous improvement
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Approaches to Measuring Performance 17 of 19
The Quality Approach continued
Most existing systems measure performance in terms of quantity, not quality.
Employees are held accountable for good or bad results to which they contribute but do not completely control.
Companies do not share the financial rewards of successes with employees according to how much they have contributed to them.
Rewards are not connected to business results
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Approaches to Measuring Performance 18 of 19
The Quality Approach continued
Statistical process control techniques
Process-flow analysis
Cause-and-effect diagrams
Pareto charts
Control charts
Histograms
Scattergrams
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Process-flow analysis identifies each action and decision necessary to complete work, such as waiting on a customer or assembling a television set. Process-flow analysis is useful for identifying redundancy in processes that increase manufacturing or service time. In cause-and-effect diagrams, events or causes that result in undesirable outcomes are identified. Employees try to identify all possible causes of a problem. The feasibility of the causes is not evaluated, and as a result, cause-and-effect diagrams produce a large list of possible causes. A Pareto chart highlights the most important cause of a problem. In a Pareto chart, causes are listed in decreasing order of importance, where importance is usually defined as the frequency with which that cause resulted in a problem. The assumption of Pareto analysis is that the majority of problems are the result of a small number of causes. Control charts involve collecting data at multiple points in time. By collecting data at different times, employees can identify what factors contribute to an outcome and when they tend to occur. Histograms display distributions of large sets of data. Data are grouped into a smaller number of categories or classes. Histograms are useful for understanding the amount of variance between an outcome and the expected value or average outcome.
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Approaches to Measuring Performance 19 of 19
The Quality Approach continued
Evaluation of the quality approach
Adopts a systems-oriented focus
Advocates evaluation of personal traits (such as cooperation), which are difficult to relate to job performance unless the company has been structured into work teams
LO 8-5
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Choosing a Source for Performance Information 1 of 6
Managers
Most frequently used source of performance information
Motivated to make accurate ratings
Feedback from supervisors is strongly related to performance and to employee perceptions of the accuracy of the appraisal
LO 8-6, 8-7
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Choosing a Source for Performance Information 2 of 6
Peers
Have expert knowledge of job requirements
Often have the most opportunity to observe the employee
Often in the best position to praise and recognize each other’s performance on a daily basis in day-to-day activities
Peers are not expected to provide feedback
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Choosing a Source for Performance Information 3 of 6
Direct Reports
Have best opportunity to evaluate how manager treats employees
Upward feedback
Gives subordinates power over managers
Might lead to emphasis of employee satisfaction over production
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Upward feedback refers to appraisals that involve collecting subordinates evaluations of a manager’s behavior or skills.
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Choosing a Source for Performance Information 4 of 6
Self
Not often used as the sole source of performance information, but can still be valuable
Tendency toward inflated assessments
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Choosing a Source for Performance Information 5 of 6
Customers
The customer is often the only person present to observe the employee’s performance and thus is the best source of performance information.
Service companies use customer evaluations.
When an employee’s job requires direct service to the customer or linking the customer to other services within the company
When the company is interested in gathering information to determine what products and services the customer wants
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Choosing a Source for Performance Information 6 of 6
360-Degree Appraisal
Multiple raters (boss, peers, subordinates, customers) provide input into a manager’s evaluation.
Minimizes bias
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360-degree appraisal. This technique consists of having multiple raters (boss, peers, subordinates, customers) provide input into a manager’s evaluation.
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Use of Technology in Performance Management 1 of 4
Technology influences performance management systems in three ways
Web-based systems
Social media
Social performance management
Electronic tracking and monitoring systems
Software that analyzes employees’ computers and creates a profile
Wearables
LO 8-8
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Social performance management Social media and microblogs similar to Facebook, LinkedIn, and Yammer that allow employees to quickly exchange information, talk to each other, provide coaching, and resolve feedback and recognition in the form of electronic badges.
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Use of Technology in Performance Management 2 of 4
Privacy Concerns
Electronic monitoring systems threaten employees’ rights and dignity to work without being monitored
Needless surveilling results in less productivity and motivation, demoralizes employees, and creates stress
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Use of Technology in Performance Management 3 of 4
Reducing Rater Errors, Politics, and Increasing Reliability and Validity of Ratings
Heuristics
Unconscious bias
Appraisal politics
LO 8-9
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Unconscious bias is a judgment outside of our consciousness that affects decisions based on background, culture, and personal experience.
Appraisal politics refer to evaluators purposefully distorting a rating to achieve personal or company goals.
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Table 8.12 Typical Rater Errors
| RATER ERROR | DESCRIPTION |
| Similar to me | Individuals who are similar to us in race, gender, background, interest, beliefs, and the like receive higher ratings than those who are not. |
| Contrast | Ratings are influenced by comparison between individuals instead of an objective standard (e.g., employee receives lower-than-deserved ratings because he or she is compared to outstanding peers). |
| Leniency | Rater gives high ratings to all employees regardless of their performance. |
| Strictness | Rater gives low ratings to all employees regardless of their performance. |
| Central tendency | Rater gives middle or average ratings to all employees despite their performance. |
| Halo | Rater gives employee high ratings on all aspects of performance because of an overall positive impression of the employee. |
| Horns | Rater gives employee low ratings on all aspects of performance because of an overall negative impression of the employee. |
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Use of Technology in Performance Management 4 of 4
Reducing Rater Errors, Politics, and Increasing Reliability and Validity of Ratings continued
Reducing errors
Error training
Frame-of-reference training
Unconscious bias training
Calibration meetings
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Rater error training attempts to make managers aware of rating errors and helps them develop strategies for minimizing those errors
Rater accuracy training, also called frame-of-reference training, attempts to emphasize the multidimensional nature of performance and to get raters to understand and use the same idea of high, medium, and low performance when making evaluations.
Calibration meetings provide a way to discuss employees’ performance with the goal of ensuring that similar standards are applied to their evaluations.
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Performance Feedback
The Manager’s Role in an Effective Performance Feedback Process
Feedback Should Be Given Frequently, Not Once a Year
Create the Right Context for the Discussion.
Ask the Employee to Rate His or Her Performance before the Session.
Have Ongoing, Collaborative Performance Conversations.
Recognize Effective Performance through Praise.
Focus on Solving Problems.
Focus Feedback on Behavior or Results, Not on the Person.
Minimize Criticism.
Agree to Specific Goals and Set a Date to Review Progress.
LO 8-10
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What Managers Can Do to Diagnose Performance Problems and Manage Employees’ Performance 1 of 2
Diagnosing the Causes of Poor Performance
Consider whether the poor performance is detrimental to the business
Determine the cause
Meet with the employee
LO 8-11
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What Managers Can Do to Diagnose Performance Problems and Manage Employees’ Performance 2 of 2
Actions for Managing Employees’ Performance
Take into account employees’ ability, motivation, or both
Solid performers – high ability and motivation
Misdirected effort – motivated but lack of ability
Underutilizers – have ability but lack motivation
Deadwood – low ability and motivation
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Figure 8.8 Factors to Consider in Analyzing Poor Performance
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SOURCES: Based on G. Rummler, “In Search of the Holy Performance Grail,” Training and Development, April 1996, pp. 26–31; C. Reinhart, “How to Leap over Barriers to Performance,” Training and Development, January 2000, pp. 20–24; F. Wilmouth, C. Prigmore, and M. Bray, “HPT Models: An Overview of the Major Models in the Field,” Performance Improvement 41 (2002), pp. 14–21.
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Developing and Implementing a System That Follows Legal Guidelines
Two types of cases related to performance management
Discrimination
Based on age, race, gender, or national origin
Unjust dismissal
Dismissal for reasons other than those employer claims
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Appendix of Image Long Descriptions
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Appendix 1 Figure 8.1 Model of the Effective Performance Management Process
Step 1 Define performance outcomes for company division and department.
Step 2 Develop employee goals, behavior, and actions to achieve outcomes.
Step 3 Provide support and ongoing performance discussions.
Step 4 Evaluate performance.
Step 5 Identify improvements needed.
Step 6 Provide consequences for performance results.
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Appendix 2 Figure 8.8 Factors to Consider in Analyzing Poor Performance
Input
Does the employee recognize what he or she is supposed to do? Are the job flow and procedures logical? Do employees have the resources (tools, equipment, technology, time) needed for successful performance? Are other job demands interfering with good performance in this area?
Employee Characteristics
Does the employee have the necessary skills and knowledge needed? Does the employee know why the desired performance level is important? Is the employee mentally, physically, and emotionally able to perform at the expected level?
Feedback
Has the employee been given information about his or her performance? Is performance feedback relevant, timely, accurate, specific, and understandable?
Performance Standard/Goals
Do performance standards exist? Does the employee know the desired level of expected performance? Does the employee believe she or he can reach the performance standard?
Consequences
Are consequences (rewards, incentives) aligned with good performance? Are the consequences of performance valuable to the employee? Are performance consequences given in a timely manner? Do work group or team norms encourage employees not to meet performance standards?
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