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Performance Management and

Appraisal

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This chapter gives an overview of the performance appraisal process and the different tools and methods available. The main topics covered include the performance management process, appraisal methods, appraisal performance problems and solutions, and the appraisal interview.

Despite lots of attention, money, and effort, performance appraisals remain an area with which few managers or employees are satisfied.

The following questions are worth considering with respect to why some managers and employees are dissatisfied.

Is it just that we don't have a good enough system yet?

Is there an intrinsic problem with performance appraisals?

Is it just human nature to dislike them?

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Learning Objectives

Describe the appraisal process.

Define performance management and discuss how it differs from performance appraisal.

Develop, evaluate, and administer at least four performance appraisal tools.

After studying this chapter, you will be able to:

1. Describe the appraisal process.

2. Define performance management and discuss how it differs from performance appraisal

3. Develop, evaluate, and administer at least four performance appraisal tools.

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Learning Objectives

Explain and illustrate the problems to avoid in appraising performance.

Perform an effective appraisal interview.

Explain how to “segment” employees for appraisal and reward purposes.

After studying this chapter, you will be able to:

4. Explain and illustrate the problems to avoid in appraising performance.

5. Perform an effective appraisal interview.

6. Explain how to “segment” employees for appraisal and reward purposes.

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Describe the appraisal process.

For this learning objective, we will discuss the need to have a performance appraisal process, provide continuous feedback and how to manage performance.

Effective appraisals begin before the actual appraisal, with the manager defining the employee’s job and performance criteria. Defining the job means making sure that you and your subordinate agree on his or her duties and job standards and on the appraisal method you will use.

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The Basics of Performance Management and Appraisal

The performance appraisal process steps

Sets work standards

Assesses performance

Provides feedback to the employee

Figure 9-1 sample

evaluation survey

Performance appraisal means evaluating an employee’s current and/or past performance relative to his or her performance standards. You may equate appraisal forms like Figure 9-1 with “performance appraisal,” but appraisal involves more than forms. Many employers still base pay and promotions on employee appraisals.

Appraisals play an integral role in the employer's performance management process. The appraisal lets the boss and subordinate develop a plan for correcting any deficiencies while reinforcing those things the employee does correctly. Appraisals are a useful career planning tool.

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Five reasons:

Used for pay, promotion, and retention decisions

Links performance management to company goals

The manager can correct deficiencies and reinforce strengths

With appraisals employee’s can review career plans

Training needs are identified

Performance Management and Appraisal

Aligning the employee’s efforts with the job’s standards should be a continuous process. When you see a performance problem, the time to take action is immediately. Similarly, when someone does something well, the best reinforcement comes immediately, not six months later.

Performance management includes continuously adjusting how an organization and its team members do things. Team members who need coaching and training receive it, and procedures that need changing are changed.

We have briefly discussed the process of appraising performance results the steps and the need to do so.

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Pay and promotions

Planning

Career planning

Training and development

Ongoing feedback

Teamwork and change

Review

Employers frequently use appraisals as a base for pay and promotions. Improvement and career development planning also originate with an effective appraisal system. In addition, training and development activities are based on the appraisal system. Finally, providing continuous feedback and making improvements to how employees and employers do things contributes to organizational goals and success.

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Define performance management and discuss how it differs from performance appraisal.

Performance management has to do with creating an organizational system that is fair, effective, and widely understood by all. The goal of the system is to support the strategic aims of the firm by establishing a valid and reliable process connecting the employees to it.

Performance appraisal involves:

setting work standards,

assessing actual performance relative to those standards, and

providing feedback to the employee.

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Performance management definition

The continuous process of:

Identifying

Measuring

Developing performance

of individuals and teams

Aligning performance with the organization’s goals

Performance Management

Performance management involves defining, measuring, motivating, and developing

the employee’s goal-oriented performance on a continuing basis.

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Performance Management

Six Elements

Direction sharing

Goal alignment

Ongoing performance monitoring

Ongoing feedback

Coaching and developmental support

Recognition and rewards

Performance management’s six basic elements as follows:

● Direction sharing means communicating the company’s goals throughout the company

and then translating these into doable departmental, team, and individual goals.

● Goal alignment means having a method to help managers and employees to see the link

between their goals and those of their department and company.

● Ongoing performance monitoring usually includes using computerized systems that measure

and then e-mail progress and exception reports based on the person’s progress toward

meeting his or her performance goals.

● Ongoing feedback includes both face-to-face and computerized feedback regarding

Progress toward goals.

● Coaching and developmental support should be an integral part of the feedback process.

● Recognition and rewards keep the employee’s goal-directed performance on track.

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Information Technology Supports Performance Management

Assign financial and nonfinancial goals

Inform all employees of their goals

Use IT-supported scorecard software

Continuously take corrective action

Many companies use information technology to automate performance management and to monitor feedback, and correct deviations in real time.

●Assign financial and nonfinancial goals to each team’s activities along the strategy map

chain of activities leading from the team’s activities up to the company’s overall strategic

goals. (For example, an airline measures ground crew aircraft turnaround time in terms

of “improve turnaround time from an average of 30 minutes per plane to 26 minutes per

plane this year.”)

● Inform all employees of their goals.

● Use IT-supported tools like scorecard software and digital dashboards to continuously

display, monitor, and assess each team’s and employee’s performance. (We discussed

these in Chapter 3, Human Resource Management Strategy and Analysis.) Figure 9-2

Presents an employee’s online performance management report.

● Take corrective action on a continuous basis.

At the Hotel Paris, both Lisa and the firm’s CFO were concerned by the current disconnect between (1) what the current appraisal process was focusing on and (2) what the company wanted to accomplish in terms of its strategic goals. They wanted the firm’s new performance management system to help breathe life into the firm’s strategic performance. To see what they did, read the case on pages 288–289 of this chapter.

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IMPROVING PERFORMANCE:

HR Practices Around the Globe

GDAS makes products for the military, industrial, and commercial markets

Use scorecard reporting system

Team

Divisional

Performance Management at General Dynamics Armament Systems (GDAS)

GDAS uses multiple Scorecards to display performance metrics, such as for team and for divisional performance. The Scorecards allow GDAS to maintain all of its crucial performance data in one system so managers can easily access the information anytime via the Intranet. The Scorecards provide GDAS with approximately 450 performance reports and charts. To produce these charts manually would require 13 full-time employees.

Instead, the Performance Measures Reporting System, at a cost of $1 million, generates the reports and charts automatically.

Discussion Question: Describe three examples of scorecard displays GDAS might show on their performance management system’s digital dashboard-type display.

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Defining the Employee’s Goals and Performance Standards

Manager assess:

Attaining numerical goals

Meeting quality and quantity criteria

Mastering competencies

Managers goals are SMART:

Specific

Measurable

Attainable

Relevant

Timely

Both performance appraisal and performance management function by comparing “what should be” with “what is.” Managers use one or more of three bases—goals, job dimensions, and competencies—to establish ahead of time what the employees' end results “should be.” Whichever you use, remember that employees need and expect to know ahead of time on what basis their managers will appraise them.

Employees appraised as having the requisite level of each skill are qualified to fill the position.

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IMPROVING PERFORMANCE:

HR as a Profit Center

Ball Corporation supplies packaging to manufacturers worldwide

Trained plant leaders on:

How to set performance goals

Track daily goal attainment

Use scorecards

Setting Performance Goals at Ball Corporation

Plant employees received special coaching and training to ensure they had the skills required for achieving the goals. According to management, within 12 months the plant increased production by 84 million cans, reduced customer complaints by 50%, and obtained a return-on-investment of more than $3 million.

Discussion Question: Explain what performance management behaviors the Ball program included.

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IMPROVING PERFORMANCE:

HR Tools for Line Managers and Entrepreneurs

1. Should a manager tell employees what their

goals are or let them participate in setting the goals?

2. Write a short paragraph that addresses the question: “Why is it not a good idea to simply tell employees to ‘do their best’ when assigning a task?”

How to Set Effective Goals

1. Assign specific goals. Employees who receive specific goals usually perform better than those who do not.

2. Assign measurable goals. Put goals in quantitative terms and include target dates or deadlines. If measurable results will not be available, then “satisfactory completion”—such as “satisfactorily attended workshop”—is the next best thing.

3. Assign challenging but doable goals. Goals should be challenging, but not so difficult that they appear unrealistic.

4. Encourage participation. Managers often face this question: Should I tell my employees what their goals are, or let them participate with me in setting their goals?

The evidence suggests that participatively set goals do not consistently result in higher performance than assigned goals, nor do assigned goals consistently result in higher performance than participative ones. It is only when the participatively set goals are set higher than the assigned ones that the participatively set goals produce higher performance. Because it tends to be easier to set higher standards when your employees participate, participation tends to lead to improved performance.

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Who Should Do the Appraising?

Peer appraisals

Rating committees

Self-ratings

Appraisal by subordinates

360-degree feedback

Who should do the appraising? The immediate supervisor is usually in the best position to observe and evaluate the subordinate’s performance. He or she also is typically responsible for that person’s performance.

Peer appraisals are becoming more popular with firms using self-managing teams.

Rating committees consist of multiple raters, typically the employee’s immediate supervisor and three or four other supervisors.

Self-ratings tend to be higher than supervisor or peer ratings although input from the subordinate is always to be encouraged.

Appraisal by subordinates is also known as upward feedback. In this instance, subordinates anonymously rate their supervisor’s performance.

FIGURE 9-3 Online 360-Degree Feedback

360-degree feedback has become more widely used. Ratings are collected from the employee’s supervisors, subordinates, peers, and occasionally, internal or external customers. The best advice is that firms should carefully assess costs, train those giving feedback thoroughly, and not rely solely on 360-degree feedback.

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Review

Performance management’s definition

The six basic elements

Improving performance examples

Use IT to automate performance management

Performance standards

SMART goals

We discussed Performance management’s definition and the six basic elements.

Many companies use information technology to automate performance management and to monitor, feedback,

and correct deviations in real time.

We reviewed the company specific Improving Performance examples.

We also discussed SMART goals that managers use with performance appraisals.

Lastly, we discussed who should do the appraisal.

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Review

Use a check-list for performance reviews.

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Develop, evaluate, and administer at least four performance appraisal tools.

Next, we will discuss and interpret performance appraisal tools.

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Techniques for Appraising Performance

Graphic rating scale method

What to rate?

The graphic rating scale method is the simplest and most popular performance appraisal technique. First, a scale is used to list a number of traits and a range of performance for each. Then the employee is rated by identifying the score that best describes his/her performance level for each trait.

Managers must decide which job performance aspects to measure. Such aspects include generic dimensions, actual job duties, or behaviorally recognizable competencies.

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Performance Appraisal Tools

Alternation ranking

Paired comparison

Forced distribution

Critical incident

Narrative forms

Behaviorally Anchored Rating Scales (BARS)

The Alternation Ranking Method ranks employees from best to worst on a specific trait, choosing highest, then lowest, until all are ranked.

The Paired Comparison Method involves ranking employees by making a chart of all possible pairs of employees for each trait. The manager then indicates which one is the better employee of the pair.

Forced Distribution Method – Predetermined percentages of employee ratings are placed in various performance categories, similar to grading on a curve.

Critical Incident Method – A supervisor keeps a record of uncommonly good and/or undesirable examples of an employee’s work-related behavior. The supervisor then reviews the record with the employee at predetermined times.

The Narrative Forms method involves rating the employee’s performance for each performance factor needed on the job. Written examples and an improvement plan is provided. The process then aids the employee in understanding where his/her performance was good or bad focusing on problem solving.

Behaviorally Anchored Rating Scales (BARS) is a method that combines the benefits of narratives, critical incidents, and quantified scales. It does so by anchoring a scale with specific behavioral examples of good or poor performance. The advantages of BARS include accuracy, clearer standards, feedback, independent dimensions, and consistency.

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Performance Appraisal Tools

Mixed standard scales

Management by objectives (MBO)

Computerized and web-based performance appraisal

Electronic performance monitoring (EPM)

Conversation Days

Using Multiple Methods

Mixed Standard Scales are similar to BARS but generally list just three behavioral examples or standards for each of the three performance dimensions.

Management by Objectives (MBO) – The manager sets specific measurable goals with each employee and then periodically discusses the employee’s progress toward them. The process consists of six steps:

set organizational goals

set departmental goals

discuss

define expected results

conduct performance reviews

provide feedback

Having a conversation is focused on stretched goals and career interests there are no ratings.

Rating forms often merge multiple methods.

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Review

Alternation

Pairs

Distribution

Incidents

Narratives

BARS

Scales

MBO

Computerized

EPM

For this learning objective, we have discussed various ranking and rating approaches. The alternation ranking requires managers to rank employees from high to low while paired comparisons examines employees one pair at a time. Forced distribution is similar to grading on a curve while critical incidents require managers to keep detailed notes throughout the year on each person’s critical behaviors. A narrative is similar to critical incidents in that it requires him or her to keep ongoing notes but in narrative format.

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Explain and illustrate the problems to avoid in appraising performance.

Understanding problems to avoid gives managers guidance when its time to appraise their subordinates’ performance. We now turn to appraisal problems and how to solve them, and to several other appraisal issues.

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Dealing with Appraisal Problems and Interviews

Potential appraisal problems

Unclear standards

Halo effect

Central tendency

Leniency or strictness

Recency effects

Bias

If standards are unclear, ambiguous traits and degrees of merit can result in an unfair appraisal.

The influence of a rater’s general impression on ratings of specific qualities is known as the halo effect.

Central tendency occurs when supervisors stick to the middle of the rating scales, thus rating everyone average.

Leniency or strictness occurs if supervisors have a tendency to rate everyone either high or low.

Recency effects involve letting what the employee has done recently blind the manager to the employee’s performance over the entire year.

Bias is a tendency to allow individual differences such as age, race, and sex affect employee appraisal ratings.

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Guidelines for Effective Appraisals

Know the problems

Use the right tool

Keep a diary

Get agreement on a plan

Ensure fairness

Appraisals and the law

See TABLE 9-3 Important Advantages and Disadvantages of Appraisal Tools

See FIGURE 9-12 Check list of Best Practices for Administering Fair Performance Appraisals

Appraisals can be more effective by following these five guidelines:

Know the problem

Use the right appraisal tool

Keep a diary

Get agreement on a plan

Be fair

The courts have found that inadequate appraisal systems tend to be at the root of illegal discriminatory actions. In addition to being done legally, appraisals should be handled ethically and honestly.

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Review

For this learning objective, we have covered various problems to avoid while appraising performance. These include the halo effect, bias, the effect of recency, the impact of leniency or strictness, unclear standards, and the impact of central tendency.

Unclear Standards

Central Tendency

Halo Effect

Recency Effect

Bias

Leniency/

Strictness

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Problems

Tools

Records

Fairness

Legal

Ethics

Review

For this learning objective, the best advice is to use common sense. Find out the real problem and use the right tool to address it. Keep a record, agree on a plan, be fair, and be aware of legal issues.

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Perform an effective appraisal interview.

Most employees need and expect to know ahead of time on what basis their employer will appraise them. Let’s discuss how you can make this happen.

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How to Conduct the Appraisal Interview

Prepare

Plan

Coach

Be objective

Useful interviews begin before the interview. Beforehand, review the person’s job description, compare performance to the standards, and review the previous appraisals.

Give the employee at least a week’s notice to review his or her work. Set a time for the interview. Interviews with lower level personnel like clerical workers should take less than an hour. Interviews with management employees often take 1 or 2 hours. Conduct the interview privately with no interruptions.

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How to Conduct the Appraisal Interview

Types of appraisal interviews

How to conduct the appraisal interview

Objective data

Don’t get personal

Encouragement

Agreement

Supervisors face four types of appraisal interviews, each with its unique objectives:

Satisfactory – Promotable This is the easiest interview, the objective is to make development plans.

Satisfactory – Not Promotable This type of interview has the objective of maintaining performance when promotion is not possible.

Unsatisfactory – Correctable This has the objective to plan correction via the development and successful implementation of an action plan.

Prepare for the interview by assembling the data, preparing the employee, and choosing the time and place. Be direct and specific, using objective examples. Don’t get personal. Encourage the person to talk. Plan on reaching agreement.

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Managing the Appraisal Interview

Handling a defensive subordinate

Criticizing a subordinate

The formal written warning

Realistic appraisals

Recognize that defensive behavior is normal. Never attack or belittle a person’s defenses; they are legitimate to him or her. Postpone action as appropriate and recognize your own limitations.

When required, criticize in a private and constructive manner that lets the person maintain his/her dignity and sense of worth.

Written warnings should identify the standards by which the employee is judged, make it clear that the employee was aware of the standard. Then specify any violation of the standard, and show that the employee had an opportunity to correct the behavior. You may place this in his or her permanent personnel file. If circumstances warrant, you may remove the warning after a specified amount of time, say 90 days or longer.

Be realistic and honest when giving an appraisal. It is important that a manager be candid when a subordinate is underperforming. Focus on specifics and allow opportunities to improve.

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How to Conduct the Appraisal Interview

Managing the Appraisal Interview

Type of interviews

Defensiveness

Criticism

Warnings

Realism

Review

With this objective we have focused our energy on the types of appraisal interviews and how to conduct effective interviews. Using objective data, not getting personal, providing encouragement and obtaining agreement are key ingredients.

We also discussed subordinate defensiveness, handling criticism, using written warnings, and remaining realistic in the process.

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Explain how to “segment” employees for appraisal and reward purposes.

To perform effective talent management we segment employees to emphasize active management

of high potential employees.

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Talent Management and Employee Appraisal

Appraising and Actively Managing Employees

Segmenting and Actively Managing Employees in Practice

Talent management-oriented employers do use performance appraisal to evaluate how their employees are performing. However, they also segment their employees based on how critical the employees are to the company’s success. Then they focus more effort and resources on the company’s “mission-critical” employees.

Figure 9-16 illustrates this. Accenture uses a 4 × 4 strategic role assessment matrix to plot employees by Performance (exceptional, high, medium, low) and Value to the Organization (mission-critical, core, necessary, non-essential).

Segmenting employees is a way to emphasize successful management of high potential employees. It may include such activities as identifying top performers and assessing them for promotability, time-frame, and leadership potential. You also may limit the “high potential group in whom the company invests heavily to no more than 10% to 20% of managerial and professional staff.” One company appoints “career stewards” to meet regularly with “emerging leaders.” In all situations, the goal is to focus effort and extra resources by investing in a firm’s future leaders.

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Review

Talent management and employee appraisal

Segmenting and actively managing employees in practice

Talent management requires actively managing decisions affecting employees and making certain they have input and a clear understanding of expectations. The traditional practice of allocating pay raises, development opportunities, and other scarce resources across the board does not make for a competitive, successful firm. Today, employers must focus their attention and resources on their company’s mission-critical employees essential to the firm’s strategic needs.

Segmenting and Actively Managing Employees in Practice: Several examples can illustrate how this works in practice.

● McKinsey & Co. recommends limiting the “high potential group in whom the company

invests heavily to no more than 10 to 20% of managerial and professional staff.”

● Unilever includes 15% of employees per management level in its high potential list each

year, and expects these people to move to the next management level within five years.

● GE prioritizes jobs and focuses on what it calls its employee “game changers.”

● Shell China appoints “career stewards” to meet regularly with “emerging leaders.” They

make sure they’re getting the right development opportunities.

See FIGURE 9-16 Accenture’s Strategic Role Assessment Matrix.

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Focus the appraisal on strategic goal achievement

Actions that achieve hotel goals

A performance management system with a focus on competencies and objectives

Job descriptions that include competencies

Improving Performance at The Hotel Paris

Translating Strategy into HR Policies and Practices

Both Lisa and the firm’s CFO were concerned by the current disconnect

between (1) what the current appraisal process was focusing

on and (2) what the company wanted to accomplish in terms of its

strategic goals. They wanted the firm’s new performance management

system to help breathe life into the firm’s strategic performance, by

focusing employees’ behavior specifically on the performances that

would help the Hotel Paris achieve its strategic goals.

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1. Choose one job, such as front-desk clerk. Based on any information you have (including job descriptions you may have created in other chapters), write a list of duties, competencies,

and performance standards for that chosen job.

2. Based on that job, create a performance appraisal form for appraising that job.

Improving Performance at

The Hotel Paris

Translating Strategy into HR Policies and Practices

In addition to the goals and competencies-based appraisals, other

Hotel Paris performance management forms laid out the development

efforts that the employee would undertake in the coming year. Instructions

also reminded the supervisors that, in addition to the annual and

semiannual appraisals, they should continuously interact with and update

their employees.

The result was a comprehensive performance management system:

The supervisor appraised the employee based on goals and competencies

that were driven by the company’s strategic needs. And, the actual appraisal

resulted in new goals for the coming year, as well as in specific development

plans that made sense in terms of the company’s and the employees’ needs

and preferences.

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Hotel Paris

Strategy

Chapter 9

Hotel Paris Strategy Chapter 9

9-40

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