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Chapter 8 Performance Management

Learning Outcomes

After studying this chapter, you should be able to

Explain what performance management is and how the establishment of goals, ongoing performance feedback, and the evaluation process are part of it.

Describe the different sources of performance-management information.

Explain the various methods used to evaluate the performance of employees.

Outline the characteristics of effective performance review meetings and feedback sessions and ways in which the performance of employees can be improved.

Discussion Starter #1

A substantial number of organizations, including Adobe Systems, the Gap, Microsoft, General Electric, and IBM, have abolished their performance reviews in favor of continuous feedback and coaching.

What advantages do continuous feedback and coaching offer over performance reviews?

ANSWER: Providing continuous feedback rather than conducting annual or semiannual performance reviews puts managers in more of a coaching role versus that of a judge. Managers need to understand that employees want to know how they are doing and how they can improve. They are less eager to be appraised or judged. That is why it is important for their managers to provide them with ongoing feedback and not just “dump on them” during a review.

Ongoing performance conversations between employees and their managers can benefit both parties. Once the manager and employees have a series of discussions, there is an ebb and flow of ideas, some with the potential to serve as catalysts for improvement within the company. Providing employees with feedback on a continuous basis also helps them know where they stand if and when they receive formal reviews. As a result, the anxiety they experience is often alleviated, and a more meaningful conversation with them and their supervisors can take place.

8.1 Performance Management Systems

Performance management – The process of creating a work environment in which people can perform to the best of their abilities

Performance reviews – A process in which a manager evaluates an employee’s performance relative to the requirements of his or her job and uses the information to show the person where improvement can be made and how

Performance reviews are also referred to as performance appraisals and performance evaluations.

Figure 8.1: Steps in the Performance Management Process

Section 8.1: Performance Management Systems

Figure 8.1 shows the six steps of the performance management process.

Figure 8.2: Purposes of a Performance Review

Section 8.1a: The Purposes of Performance Management

Figure 8.2 shows the other two most common purposes of performance management programs—developmental and administrative.

Figure 8.3: Let Me Count the Ways … Reasons Why Performance Reviews Can Fail

Section 8.1b: Why Performance Management Systems Sometimes Fail

A list of reasons why formal reviews fail is shown in Figure 8.3.

8.2 Developing an Effective Performance Management System

A firm’s HR department ordinarily has the primary responsibility for overseeing and coordinating its performance management system.

However, managers from the company’s operating departments must also be actively involved, particularly when it comes to helping establish the objectives for the program, ensure they are aligned with a company’s strategic goals, and actually translate to on-the-job efforts.

Employees are more likely to accept and be satisfied with a performance management system when they have the chance to participate in its development.

8.2a What Are the Performance Standards? (slide 1 of 4)

Performance standards should be based on job-related requirements derived from a job analysis and reflected in an employee’s job description and job specifications.

Establishing SMART goals can be very helpful for this purpose.

SMART goals – Goals that are specific, measurable, achievable, realistic, and time-based

Figure 8.4: Establishing Performance Standards

Section 8.2a: What Are the Performance Standards?

As Figure 8.4 shows, there are four basic elements that must be considered when establishing performance standards: strategic relevance, criterion deficiency; criterion contamination, and reliability.

8.2a What Are the Performance Standards? (slide 2 of 4)

Strategic Relevance

Strategic relevance refers to the extent to which the performance standards relate to the strategic objectives of the organization.

Criterion Deficiency

When performance standards focus on a single criterion (such as sales revenues) to the exclusion of other important but less quantifiable performance dimensions (such as customer service), then the performance management system is said to suffer from criterion deficiency.

Criterion Contamination

There are factors outside an employee’s control that can influence his or her performance.

8.2a What Are the Performance Standards? (slide 3 of 4)

Reliability

Reliability refers to the stability or consistency of a standard or the extent to which individuals tend to maintain a certain level of performance over time.

Reliability can be measured by correlating two sets of ratings made by a single rater or by two different raters.

To make sure managers are rating employees consistently, some companies use a process called calibration.

Calibration – A process whereby managers meet to discuss the performance of individual employees to ensure their employee reviews are in line with one another

8.2a What Are the Performance Standards? (slide 4 of 4)

Fairness and Acceptability

Employees who believe the performance management system is unfair are likely to consider the process a waste of time or feel frustrated and cynical.

Acceptability relates to how hard or difficult it is to administer and use the performance management system.

If using it is time consuming or difficult, or if it’s hard to see how it’s really helping the organization, the system is likely to fail.

8.2b Do Your Performance Reviews Comply with the Law?

Performance reviews should meet the following legal guidelines:

Performance ratings must be job related, with performance standards developed through a job analysis.

Employees must be provided with clear, written job standards in advance of their reviews so they understand what they need to do to get top ratings.

Managers who conduct the reviews must be able to observe the behavior they are rating.

Document performance problems when they occur.

A firm’s HR department should review the evaluations to see if minority groups are being adversely impacted.

The reviews should be discussed openly with employees and counseling or corrective guidance offered to help poor performers improve their performance.

An appeals procedure should be established to enable employees to express their disagreement with the evaluations.

Figure 8.5: Alternative Sources of Reviews

Section 8.2c: Sources of Performance Review Information

Given the complexity of today’s jobs, it’s unrealistic to presume that one person can fully observe and evaluate an employee’s performance. As Figure 8.5 shows, the raters can include supervisors, peers, team members, employees themselves, their subordinates, customers, vendors, and suppliers.

8.2c Sources of Performance Review Information

Manager and/or supervisor evaluation – A performance evaluation done by an employee’s manager and often reviewed by a manager one level higher

Self-evaluation – A performance evaluation done by the employee being evaluated, generally on an evaluation form completed by the employee prior to the evaluation meeting

Subordinate evaluations – A performance evaluation of a superior by an employee, which is often used for developmental rather than for administrative purposes

Peer evaluation – A performance evaluation done by one’s fellow employees, generally on forms compiled into a single profile for use in the evaluation meeting conducted by the employee’s manager

Team evaluation – A performance evaluation that recognizes team accomplishments rather than individual performance

Customer evaluation – A performance evaluation that includes evaluations from both a firm’s external and internal customers

Video Highlight #1

A management and sales trainer provides tips on how to write an effective and powerful self-evaluation for a performance review in this video.

“How to Write an Effective and Powerful Self-Evaluation for a Performance Review ”

Section 8.2c: Sources of Performance Review Information

VIDEO: How to Write an Effective and Powerful Self-Evaluation for a Performance Review (1:32)

A management and sales trainer provides tips on how to write an effective and powerful self-evaluation for a performance review in this video.

https://www.youtube.com/watch?v=CIl1ZB4R9RU

TOPICS/CONCEPTS: performance review, self-evaluation, sources of performance reviews

8.2d Putting It All Together: 360-Degree Evaluations

360-degree evaluation – A performance evaluation done by different people who interact with the employee, generally on forms compiled into a single document for use in the evaluation meeting conducted by the employee’s manager

Figure 8.6: Pros and Cons of 360-Degree Reviews

Section 8.2d: Putting It All Together: 360-Degree Evaluations

Figure 8.6 shows a list of the advantages and disadvantages of a 360-degree review.

Video Highlight #2

360-degree feedback is a tool used by a growing number of companies when conducting performance reviews, but it can easily do more harm than good if not used correctly. This video discusses three things managers don’t want to do when providing 360-degree feedback to employees.

“The 3 Don’ts of 360 Feedback ”

Section 8.2d: Putting It All Together: 360-Degree Evaluations

VIDEO: The 3 Don’ts of 360 Feedback (4:36)

https://www.youtube.com/watch?v=ZsSnhicpVgA

TOPICS/CONCEPTS: 360-degree evaluations, 360-degree feedback

8.2e Training Appraisers (slide 1 of 5)

A weakness of many performance review programs is that raters are not adequately trained for the task, and so the feedback they provide their subordinates is not as accurate or useful as it might be, or is actually destructive.

Establishing a Review Plan

A training program for raters is most effective when it follows a systematic process that begins by explaining the objectives of the firm’s performance management system and its philosophy on reviews.

The mechanics of the rating system should also be explained, including how managers keep performance records and review them, how frequently the reviews are to be conducted, who will conduct them, what the standards of performance are, and how to go about preparing for reviews.

8.2e Training Appraisers (slide 2 of 5)

Eliminating Rating Errors

Distributional Errors

A distributional rating error occurs when a single rating is skewed toward an entire group of employees.

Error of central tendency – A performance rating error in which all employees are rated about average

Leniency or strictness error – A performance rating error in which the appraiser tends to give employees either unusually high or unusually low ratings

8.2e Training Appraisers (slide 3 of 5)

Eliminating Rating Errors (cont’d)

Distributional Errors (cont’d)

Ways to reduce distributional errors:

Explain to raters that when you are looking at large groups of employees, you should generally expect to find significant differences among them.

Use “anchors”—clearly defined characteristics or dimensions of performance and meaningful descriptions of behavior on the scale.

Require ratings to conform to a forced distribution—a performance ranking system whereby raters are required to place a certain percentage of employees into various performance categories.

Use peer rankings, whereby employees in a work group are ranked against one another from best to worst.

8.2e Training Appraisers (slide 4 of 5)

Eliminating Rating Errors (cont’d)

Temporal Errors

Recency error – A performance rating error in which the evaluation is based largely on the employee’s most recent behavior rather than on behavior throughout the evaluation period

Contrast Error

Contrast error – A performance rating error in which an employee’s review is biased either upward or downward because of comparison with another employee just previously evaluated

Similar-to-Me Error

Similar-to-me error – A performance rating error in which an appraiser inflates the review of an employee because of a mutual personal connection

8.2e Training Appraisers (slide 5 of 5)

Feedback Training

A training program for raters should provide some pointers managers can use to provide performance feedback to employees on an ongoing basis and during formal reviews and feedback sessions.

Feedback training should cover at least three basic areas:

Communicating effectively so as to gain the employee’s support

Diagnosing the root causes of performance problems

Setting goals and objectives for the employee to achieve in conjunction with the feedback

8.3 Performance Review Methods

Performance review methods can be broadly classified as measuring traits, behaviors, or results.

Trait approaches are based on people’s characteristics.

Behavioral approaches provide more action-oriented information to employees and may be best for development.

The results-oriented approach focuses on the measurable contributions that employees make to the organization.

8.3a Trait Methods

Graphic rating scale method – A trait approach to performance rating whereby each employee is rated according to a scale of characteristics

Mixed-standard scale method – A trait approach to performance rating similar to other scale methods but based on a comparison with (better than, equal to, or worse than) a standard

Forced-choice method – A trait approach to performance rating that requires the rater to choose from statements designed to distinguish between successful and unsuccessful performance

Essay method – A trait approach to performance rating that requires the rater to write a statement describing an employee’s behavior

8.3b Behavioral Methods (slide 1 of 2)

Critical Incident Method

When using the critical incident method, the manager keeps a log or diary for each employee throughout the review period and notes specific critical incidents related to how well they perform.

Behavioral Checklist Method

The behavioral checklist method requires the rater to check statements on a list that describe characteristics of the employee’s behavior.

Behavior Observation Scale

Behavior observation scale (BOS) – A behavioral approach to performance rating that measures the frequency of observed behavior

8.3b Behavioral Methods (slide 2 of 2)

Behaviorally Anchored Rating Scale

Behaviorally anchored rating scale (BARS) – A behavioral approach to performance rating that consists of a series of vertical scales, one for each important dimension of job performance

These dimensions are “anchored” by behaviors identified through a critical incident job analysis.

The critical incidents are placed along the scale and are assigned point values according to the opinions of experts.

8.3c Results Methods

Sales, Productivity, and Quality Measures

Sales, productivity, and quality measures directly link what employees accomplish to results that benefit the organization.

Management by Objectives

Management by objectives (MBO) – A philosophy of management that rates the performance of employees based on their achievement of goals set mutually by them and their managers

The Balanced Scorecard

A balanced-scorecard review takes into account four related categories: (1) financial measures, (2) customer measures, (3) process measures, and (4) learning measures.

Figure 8.7: Performance Review under an MBO Program

Section 8.3c: Results Methods

Figure 8.7 shows that an MBO system consists of a cycle that begins with setting the organization’s common goals and objectives and ultimately returns to that step. The system acts as a goal-setting process whereby objectives are established for the organization (Step 1), departments (Step 2), and individual managers and employees (Step 3).

As Figure 8.7 shows, employees help establish specific goals, but those goals are based on a broad statement of an employee’s responsibilities prepared by the person’s supervisor. The employee-established goals are then discussed with the supervisor and jointly reviewed and modified until both parties are satisfied with them (Step 4). The goal statements are accompanied by a detailed account of the actions the employee proposes to take to reach the goals and how they will be measured (the metrics).

During periodic reviews, the progress the employee makes toward the goals is then assessed (Step 5). The goals and metrics may be changed at this time as new or additional information is received. After a period of time, the employee does a self-evaluation and documents what he or she has accomplished. The person and his or her manager then jointly review and discuss the self-evaluation (Step 6). The final step (Step 7) is reviewing the connection between the employee’s performance and the organization’s.

Figure 8.8: A Summary of Various Review Methods

Section 8.3d: Which Performance Review Method Should You Use?

Figure 8.8 lists some of the strengths and weaknesses of trait, behavior, and results approaches to appraising employees.

8.4 Performance Review Meetings and Feedback Sessions

The format for the meeting or session will be determined in large part by its purpose, type of performance management system used, and organization of a firm’s review form.

A formal performance evaluation should be scheduled far enough in advance to allow the subordinate and manager to prepare for the discussion.

Usually 10 days to 2 weeks is a sufficient amount of lead time.

8.4a Types of Performance Review Meetings and Feedback Sessions

Three types of formats for providing feedback during a performance review meeting or feedback session:

Tell-and-sell

This requires a manager to skillfully use motivational and persuasive techniques to try to change an employee’s behavior.

Tell-and-listen

The appraiser or supervisor communicates the strong and weak points of an employee’s job performance during the first part of the session.

During the second part of the session, the employee’s feelings about the review are thoroughly explored.

Problem-solving

This format seeks to obtain the employees’ buy-in for a mutually agreed-upon way to overcome obstacles and actually improve the person’s actual performance.

Discussion Starter #2

Three types of review meetings are described in this chapter.

What different skills are required for each? What reactions can one expect from using these different skills?

How can a manager develop the skills needed to conduct a problem-solving type of meeting?

Which method do you feel is the least desirable? Why?

ANSWER: The tell-and-sell method requires the ability to persuade an employee to change his or her behavior in a certain way. The tell-and-listen method requires the ability to communicate the strong and weak points of an employee’s performance and to explore the employee’s feelings about the review. The problem-solving method requires the ability to listen, accept, and respond to feelings and to obtain the employee’s buy-in.

The problem-solving format is the most proactive. Training and practice in listening, accepting, and responding to feelings are essential.

Probably most students will agree that the tell-and-sell method is the least desirable because the employee has the least opportunity to communicate.

8.4b Conducting the Performance Review Meeting or Feedback Session

There are no hard-and-fast rules for how to conduct a review, but the guidelines that follow can increase the willingness of employees to accept feedback, discuss their performance and improve it, and increase their overall satisfaction with the feedback process.

Ask for a self-evaluation

Invite participation

Express appreciation

Be supportive and demonstrate that you care

Minimize criticism

Establish goals

Follow up day to day

8.4c Improving Performance

Identifying the Sources of Ineffective Performance

A person’s performance is a function of several factors, but perhaps it can be boiled down to three primary concerns: ability, motivation, and environment.

Performance Diagnosis

By comparing different performance measures, managers can begin to get an idea of the underlying causes of performance problems.

Managing Ineffective Performance

Once the sources of performance problems are known, a course of action can be planned, such as providing training or transferring the employee.

Focus on Changing the Behavior, Not the Person

A manager must separate the employee from the behavior.

Figure 8.9: Factors That Affect an Employee’s Performance

Section 8.4c: Improving Performance

Figure 8.9 provides a picture of how ability, motivation, and environment can influence people’s performance. As Figure 8.9 shows, if an employee’s performance is not up to standards, the cause could be a skill problem (a lack of knowledge, abilities, or technical competencies), an effort problem (a lack of motivation to get the job done), or some problem in the external conditions of work (poor economic conditions, worker shortages due to downsizing, difficult sales territories, etc.). Problems in any one of these areas could cause the person’s performance to suffer.

Figure 8.10: Performance Diagnosis

Section 8.4c: Improving Performance

Figure 8.10 shows how the performance metrics (competency, behavior, and results) match up with the factors affecting an employee’s performance (ability, motivation, and environment). The actions that should be taken to rectify the situation are also shown. As Figure 8.10 shows, results measures cannot distinguish between ability, motivation, and the situational determinants of performance. So if someone is not achieving the desired results, it could be due to one or more of these factors. In contrast, behavioral measures are less affected by external constraints. So if someone is demonstrating all the desired behaviors but is not achieving the desired results, logic suggests that it might be due to factors beyond his or her control.

Discussion Starter #3

Discuss how you would go about diagnosing an employee’s performance problems. List several factors to consider.

ANSWER: A person’s performance is a function of several factors, but perhaps it can be boiled down to three primary concerns: ability, motivation, and environment. Figure 8.9 in the chapter provides a better picture of how these three factors can influence people’s performance. Problems in any one of these areas could cause the person’s performance to suffer.

Group Activity

Step 1: Read the following article before coming to class:

“Performance Appraisal: Methods and Rating Errors”

Step 2: Divide into groups of two and enact a performance appraisal scenario, taking turns as the interviewer and the interviewee. Each student should follow one of the three approaches discussed in the article.

Step 3: Present a short oral report to the class.

The report should talk about usefulness of the approach, its limitations, and your recommendations to overcome the problems you faced.

The report should also mention if there were instances of personal biases affecting your judgment.

Estimated class time: 60 minutes