Case Study—Training Assessment

CHAPTER 9 PERFORMANCE MANAGEMENT

Questions This Chapter Will Help Managers Answer

· 1. What steps can I, as a manager, take to make the performance-management process more relevant and acceptable to those who will be affected by it?

· 2. How can we best fit our approach to performance management with the strategic direction of our department and business?

· 3. Should managers and nonmanagers be appraised from multiple perspectives, for example, by those above, by those below, by coequals, and by customers?

· 4. What strategy should we use to train raters at all levels in the mechanics of performance management and in the art of giving feedback?

· 5. What would an effective performance-management process look like?

Human Resource Management in Action PERFORMANCE REVIEWS: THE DILEMMA OF FORCED RANKING *

In companies across the country, from General Electric to Hewlett-Packard, forced-ranking systems (also known as forced distributions or “rank and yank”)—in which all employees are ranked against one another and grades are distributed along some sort of bell-shaped curve—are creating a firestorm of controversy. In recent years employees have filed class-action lawsuits against Microsoft and Conoco as well as Ford, claiming that the companies discriminate in assigning grades. In each case a different group of disaffected employees brought the charges: older workers at Ford, African Americans and women at Microsoft, U.S. citizens at Conoco. When the American Association of Retired Persons (AARP) sued Goodyear for age discrimination, the company immediately abandoned its forced-ranking system.

Companies implement forced ranking in various ways. General Electric offers its curve, comprised of top (20 percent), middle (70 percent), and bottom (10 percent) categories, as a set of guidelines. Hewlett-Packard uses a 1-to-5 scale, with 15 percent of employees getting a 5 (the top grade) and 5 percent getting a 1. The percentage of employees getting 2, 3, and 4 varies. At AIG, 10 percent of employees receive the top ranking of 1, 20 percent are ranked 2, 50 percent are ranked 3, and the bottom 20 percent are ranked 4. Yahoo! compares each employee to a standard rather than to peers, and has eliminated category labels altogether. The purpose is to improve the dialogue between employees and managers by not focusing on which performance grade they were assigned.

Such systems have been around for decades, but thanks to a global economic recession and an increased focus on pay for performance, 20 percent of the Fortune 1,000 (by one estimate) have instituted such forced rankings or gotten tougher with their existing systems. For example, at Hewlett-Packard a full 5 percent of its workforce now receive HP's lowest grade, rather than the fuzzy 0 to 5 percent of years past.

Of course, one reason that employees are up in arms about forced rankings is that they suspect—often correctly—that managers game the system and that the rankings are a way for companies to rationalize firings more easily. Evidence indicates that doing so actually reduces the effectiveness of a performance-management system. In fact, former General Electric CEO Jack Welch noted an important caution against implementing a forced distribution in any company:

I wouldn't want to inject a vitality curve [i.e., a forced distribution] cold-turkey into an organization without a performance culture already in place. Differentiation is hard stuff. Our curve works because we spent over a decade with candor and openness at every level.

In the conclusion to this case we will examine some of the arguments for and against the use of forced rankings, and explain the dilemma they pose, but in the meantime, what do you think?

Challenges

· 1. Do you support the use of forced rankings or not?

· 2. If the criteria used to determine an employee's rank are more qualitative than quantitative, does this undermine the forced-ranking system?

· 3. Suppose all of the members of a team are superstars. Can forced ranking deal with that situation?

*

Sources: Ng, S, and Lublin, J. S. (2010, Feb. 11). AIG pay plan: Rank and rile. The Wall Street Journal,pp. C1, C4. See also Knowledge@Wharton. (2010, Aug. 18). Ranking employees: Why comparing workers to their peers can often backfire. Retrieved from http://knowledge.wharton.upenn.edu/article.cfm?articleid52567  on July 20, 2011. See also Murphy, K. R. (2008). Explaining the weak relationshipbetween job performance and ratings of job performance. Industrial and Organizational Psychology 1, pp. 148–160. See also McGregor, J. (2006, Jan. 9). The struggle to measure performance. BusinessWeek, pp. 26–28. See also Welch, J., & Welch, S. (2006, Oct. 2). The case for 20-70-10. BusinessWeek, p. 108.

The chapter-opening vignette reveals just how complex performance management can be because it includes both developmental (feedback) and administrative (pay, promotions) issues, as well as both technical aspects (design of an appraisal system) and interpersonal aspects (appraisal interviews). This chapter's objective is to present a balanced view of the performance-management process, considering both its technical and its interpersonal aspects. Let's begin by examining the nature of this process.

MANAGING FOR MAXIMUM PERFORMANCE 1

Consider the following situations:

· ▪ The athlete searching for a coach who really understands her.

· ▪ The student scheduled to see his guidance counselor at school.

· ▪ The worker who has just begun working for a new boss.

· ▪ A self-managing work team and a supervisor about to meet to discuss objectives for the next quarter.

What do these situations all have in common? The need to manage performance effectively—either at the level of the individual or of the work team. Think of  performance management  as a kind of compass, one that indicates a person's actual direction as well as a person's desired direction. Like a compass, the job of the manager (or athletic coach or school guidance counselor) is to indicate where that person is now, and to help focus attention and effort on the desired direction.

Unfortunately, the concept of performance management means something very specific, and much too narrow, to many managers. They tend to equate it with  performance appraisal  an administrative exercise they typically do once a year to identify and discuss job-relevant strengths and weaknesses of individuals or work teams. This is a mistake! Would it surprise you to learn that in a recent poll of 750 HR executives, 58 percent of them graded their own performance-management systems a C or below? Many were frustrated that managers do not have the courage to give constructive feedback to employees. Indeed, only 30 percent of respondents agreed that employees have a sense of trust in their performance-management systems. Although HR professionals often devise the systems and follow up at the end, they cannot control how effectively managers execute reviews. Clearly there is lots of room for improvement. 2

On the other hand, there are solid organizational payoffs for implementing strong performance-management systems, as a recent study found. Organizations with such systems are 51 percent more likely to outperform their competitors on financial measures, and 41 percent more likely to outperform their competitors on nonfinancial measures (e.g., customer satisfaction, employee retention, quality of products or services). 3

Obviously if performance management were easy to do, more firms would do it. One of the reasons it is difficult to execute well throughout an entire organization is that performance management demands daily, not annual, attention from every manager. It is part of a continuous process of improvement over time.

So what is the role of performance appraisal in the overall performance-management process? Performance appraisal is a necessary, but far from sufficient, part of performance management. Managers who are committed to moving from a performance-appraisal orientation to one of performance management tell us that the first step is probably the hardest, for it involves a break with tradition. Typically, appraisal is done annually, or in some firms, quarterly. Performance management requires willingness and a commitment to focus on improving performance at the level of the individual or team every day. A compass provides instantaneous, real-time information that describes the difference between one's current and desired course. To practice sound performance management, managers must do the same thing—provide timely feedback about performance, while constantly focusing everyone's attention on the ultimate objective (e.g., world-class customer service).

At a general level, the broad process of performance management requires that you do three things well:

· 1. Define performance.

· 2. Facilitate performance.

· 3. Encourage performance.

Let's explore each of these ideas briefly.

Define Performance

A manager who defines performance ensures that individual employees or teams know what is expected of them, and that they stay focused on effective performance. 4  How does the manager do this? By paying careful attention to three key elements: goals, measures, and assessment.

Goal setting has a proven track record of success in improving performance in a variety of settings and cultures. 5  How does it improve performance? Studies show that goals direct attention to the specific performance in question (e.g., percentage of satisfied customers), they mobilize efforts to accomplish higher levels of performance, and they foster persistence for higher levels of performance. 6  The practical implications of this work are clear: Set specific, challenging goals, for this clarifies precisely what is expected and leads to high levels of performance. 7  Several important qualifications are in order, though. One, some jobs are too fluid and unpredictable for objectives to be practical. Says the Director of IT operations at Netflix, “I've been here three years, and so far my job and responsibilities have changed every six months.” Two, individual objectives do not work well when work is team based or when results depend on factors outside an employee's control. 8 When individual goal setting is appropriate, however, on average, studies show that you can expect to improve productivity 10 percent by using goal setting. 9

The mere presence of goals is not sufficient. Managers must also be able to measure the extent to which goals have been accomplished. Goals such as “make the company successful” are too vague to be useful. Measures such as the number of defective parts produced per million or the average time to respond to a customer's inquiry are much more tangible.

In defining performance, the third requirement is assessment. Here is where performance appraisal comes in. Regular assessment of progress toward goals focuses the attention and efforts of an employee or a team. If a manager takes the time to identify measurable goals but then fails to assess progress toward them, he's asking for trouble. To define performance properly, therefore, you must do three things well: set goals, decide how to measure accomplishment, and provide regular assessments of progress. Doing so will leave no doubt in the minds of your people what is expected of them, how it will be measured, and where they stand at any given point in time. There should be no surprises in the performance-management process—and regular appraisals help ensure that there won't be.

Facilitate Performance

Managers who are committed to managing for maximum performance recognize that one of their major responsibilities is to eliminate roadblocks to successful performance. 10  Another is to provide adequate resources to get a job done right and on time, and a third is to pay careful attention to selecting employees, all of which are part of  performance facilitation .

What are some examples of obstacles that can inhibit maximum performance? Consider just a few: outdated or poorly maintained equipment, delays in receiving supplies, inefficient design of work spaces, and ineffective work methods. Employees are well aware of these, and they are only too willing to identify them—if managers will only ask for their input. Then it's the manager's job to eliminate these obstacles.

Having eliminated roadblocks to successful performance, the next step is to provide adequate resources—capital resources, material resources, or human resources. After all, if employees lack the tools to reach the challenging goals they have set, they will become frustrated and disenchanted. Indeed, one observer has gone so far as to say “It's immoral not to give people tools to meet tough goals.” 11  Conversely, employees really appreciate it when their employer provides everything they need to perform well. Not surprisingly, they usually do perform well under those circumstances.

A final aspect of performance facilitation is the careful selection of employees. After all, the last thing any manager wants is to have people who are ill-suited to their jobs (e.g., by temperament or training) because this often leads to overstaffing, excessive labor costs, and reduced productivity. In leading companies like Apple and Google, even top managers are expected to get actively involved in selecting new employees. Both companies typically require even experienced software developers to go through five or six hours of intense interviews. 12  If you're truly committed to managing for maximum performance, you pay attention to all of the details—all of the factors that might affect performance—and leave nothing to chance. That doesn't mean that you are constantly looking over everyone's shoulder. On the contrary, it implies greater self-management, more autonomy, and lots of opportunities to experiment, take risks, and be entrepreneurial.

Encourage Performance

The last area of management responsibility in a coordinated approach to performance management is  performance encouragement . To encourage performance, especially repeated good performance, it's important to do three more things well: (1) provide a sufficient number of rewards that employees really value, (2) in a timely fashion, and (3) in a fair manner.

Don't bother offering rewards that nobody cares about, like a gift certificate to see a fortune teller. On the contrary, begin by asking your people what's most important to them—for example, pay, benefits, free time, merchandise, or special privileges. Then consider tailoring your awards program so that employees or teams can choose from a menu of similarly valued options.

Next, provide rewards in a timely manner, soon after major accomplishments. If there is an excessive delay between effective performance and receipt of the reward, then the reward loses its potential to motivate subsequent high performance.

Finally, provide rewards in a manner that employees consider fair. Fairness is a subjective concept, but it can be enhanced by adhering to four important practices:13

· 1. Voice—collect employee input through surveys or interviews.

· 2. Consistency—ensure that all employees are treated consistently when seeking input and communicating about the process for administering rewards.

· 3. Relevance—as noted earlier, include rewards that employees really care about.

· 4. Communication—explain clearly the rules and logic of the rewards process.

In practice, there is much room for improvement. Thus, in a recent survey of 10,000 managers and employees, only 46 percent of the managers and 29 percent of the employees agreed with the statement, “My last raise was based on performance.”

In summary, managing for maximum performance requires that you do three things well: define performance, facilitate performance, and en courage performance. Like a compass, the role of the manager is to provide orientation, direction, and feedback. These ideas are shown graphically in Figure 9–1 .

Figure 9–1 Elements of a performance management system.

Performance Management in Practice

A study by RainmakerThinking of more than 500 managers in 40 different organizations found, unfortunately, that few managers consistently provide their direct reports with what Rainmaker calls the five management basics: clear statements of what's expected of each employee, explicit and measurable goals and deadlines, detailed evaluation of each person's work, clear feedback, and rewards distributed fairly. Can you see the similarity with the “Define, Facilitate, Encourage Performance” approach shown in  Figure 9–1 ? Only 10 percent of managers provide all five of the basics at least once a week. Only 25 percent do so once a month. About a third fail to provide them even once a year! 14  Even more worrisome are the results of a 2009 poll of 700 business leaders in which 92 percent said they recognize superior talent as providing a competitive advantage, but only 7 percent of managers and 10 percent of senior executives are held accountable for developing their direct reports through performance-management processes. 15  Clearly there is much room for improvement.

PURPOSES OF PERFORMANCE-APPRAISAL SYSTEMS

As we have seen, performance appraisal plays an important part in the overall process of performance management. Hence, it is important that we examine it in some detail. Performance appraisal has many facets. It is an exercise in observation and judgment, it is a feedback process, and it is an organizational intervention. It is a measurement process as well as an intensely emotional process. Above all, it is an inexact, human process. Not surprisingly, therefore, more than 60 percent of workers say reviews don't do anything to help their future performance. 16  In view of such widespread dissatisfaction, why do appraisals continue to be used? What purposes do they serve?

In general, appraisal serves a twofold purpose: (1) to improve employees’ work performance by helping them realize and use their full potential in carrying out their firms’ missions, and (2) to provide information to employees and managers for use in making work-related decisions. More specifically, appraisals serve the following purposes:

· 1. Appraisals provide legal and formal organizational justification for employment decisionsto promote outstanding performers; to weed out marginal or low performers; to train, transfer, or discipline others; to justify merit increases (or no increases); and as one basis for reducing the size of the workforce. In short, appraisal serves as a key input for administering a formal organizational reward and punishment system.

· 2. Appraisals are used as criteria in test validation. That is, test results are correlated with appraisal results to evaluate the hypothesis that test scores predict job performance. 17 However, if appraisals are not done carefully, or if considerations other than performance influence appraisal results, the appraisals cannot be used legitimately for any purpose.

· 3. Appraisals provide feedback to employees and thereby serve as vehicles for personal and career development.

· 4. Appraisals can help to identify developmental needs of employees and also to establish objectives for training programs.

· 5. Appraisals can help diagnose organizational problems by identifying training needs and the personal characteristics to consider in hiring, and they also provide a basis for distinguishing between effective and ineffective performers. Appraisal therefore represents the beginning of a process, rather than an end product. These ideas are shown graphically in  Figure 9–2 .

Figure 9–2 Purposes of performance appraisal systems.

Despite their shortcomings, appraisals continue to be used widely, especially as a basis for tying pay to performance. 18  To attempt to avoid these shortcomings by doing away with appraisals is no solution, for whenever people interact in organized settings, appraisals will be made—formally or informally. The real challenge, then, is to identify appraisal techniques and practices that (1) are most likely to achieve a particular objective, and (2) are least vulnerable to the obstacles listed above. Let us begin by considering some of the fundamental requirements that determine whether a performance-appraisal system will succeed or fail.

Requirements of Effective Appraisal Systems

Legally and scientifically, the key requirements of any appraisal system are relevance, sensitivity, and reliability. In the context of ongoing operations, the key requirements are acceptability and practicality. 19  Let's consider each of these.

Relevance

Relevance  implies that there are clear links between the performance standards for a particular job and organizational objectives and between the critical job elements identified through a job analysis and the dimensions to be rated on an appraisal form. In short, relevance is determined by answering the question “What really makes the difference between success and failure on a particular job, and according to whom?” The answer to the latter question is simple: the customer. Customers may be internal (e.g., your immediate boss, workers in another department) or external (those who buy your company's products or services). In all cases, it is important to pay attention to the things that the customer believes are important (e.g., on-time delivery, zero defects, information to solve business problems).

ETHICAL DILEMMA Performance-Appraisal Decisions

Performance appraisal actually encompasses two distinct processes: observation and judgment. Managers must observe performance, certainly a representative sample of an employee's performance, if they are to be competent to judge its effec tiveness. a  Yet some managers assign performance ratings on the basis of small (and perhaps unrepresentative) samples of their subordinates’ work. Others assign ratings based only on the subordinate's most recent work. Is this ethical? And further, is it ethical to assign performance ratings (either good or bad) that differ from what a manager knows a subordinate deserves?

a

Aguinis, H. (2009). Performance Management (2nd Ed.). Upper Saddle River, NJ: Pearson Prentice Hall. See also Moser, K., Schuler, H., and Funke, U. (1999). The moderating effect of raters’ opportunities to observe ratees’ job performance on the validity of an assessment center.International Journal of Selection and Assessment 7(3), pp. 355–367.

Performance standards  translate job requirements into levels of acceptable or unacceptable employee behavior. They play a critical role in the job analysis-performance appraisal linkage, as Figure 9–3  indicates. Job analysis identifies what is to be done. Performance standards specify how well work is to be done. Such standards may be quantitative (e.g., time, errors) or qualitative (e.g., quality of work, ability to analyze market research data or a machine malfunction).

Figure 9–3 Relationship of performance standards to job analysis and performance appraisal.

Relevance also implies the periodic maintenance and updating of job analyses, performance standards, and appraisal systems. Should the system be challenged in court, relevance will be a fundamental consideration in the arguments presented by both sides.

Sensitivity

Sensitivity  implies that a performance-appraisal system is capable of distinguishing effective from ineffective performers. If it is not, and the best employees are rated no differently from the worst employees, then the appraisal system cannot be used for any administrative purpose. It certainly will not help employees to develop, and it will undermine the motivation of both supervisors (“pointless paperwork”) and subordinates.

A major concern here is the purpose of the rating. One study found that raters process identical sets of performance-appraisal information differently, depending on whether a merit pay raise, a recommendation for further develop ment, or the retention of a probationary employee is involved. 20  These results highlight the conflict between appraisals made for administrative purposes and those made for employee development. Appraisal systems designed for administrative purposes demand performance information about differences between individuals, while systems designed to promote employee growth demand information about differences withinindividuals. The two different types of information are not interchangeable in terms of purposes, and that is why performance-management systems designed to meet both purposes are more complex and costly.

Reliability

A third requirement of sound appraisal systems is  reliability . In this context it refers to consistency of judgment. For any given employee, appraisals made by raters working independently of one another should agree closely. In practice, ratings made by supervisors tend to be more reliable than those made by peers. 21  Certainly raters with different perspectives (e.g., supervisors, peers, subordinates) may see the same individual's job performance very differently, and this can actually make the feedback less useful and more problematic. 22  To provide reliable data, each rater must have an adequate opportunity to observe what the employee has done and the conditions under which he or she has done it; otherwise, unreliability may be confused with unfamiliarity.

Note that throughout this discussion there has been no mention of the validity or accuracy of appraisal judgments. This is because we really do not know what “truth” is in performance appraisal. However, by making appraisal systems relevant, sensitive, and reliable—by satisfying the scientific and legal requirements for workable appraisal systems—we can assume that the resulting judgments are valid, as well.

Acceptability

In practice,  acceptability  is the most important requirement of all. HR programs must have the support of those who will use them, or human ingenuity will be used to thwart them. Unfortunately, many organizations have not put much effort into garnering the front-end support and participation of those who will use the appraisal system. We know this in theory, but practice is another matter. On the other hand, evidence indicates that appraisal systems that are acceptable to those who will be affected by them lead to more favorable reactions to the process, increased motivation to improve performance, and increased trust for top management. 23

Smart managers enlist the active support and cooperation of subordinates or teams by making explicit exactly what aspects of job performance they will be evaluated on. As we have seen, performance definition is the first step in performance management. Only after managers and subordinates or team members define performance clearly can we hope for the kind of acceptability and commitment that is so sorely needed in performance appraisal.

Practicality

Practicality  implies that appraisal instruments are easy for managers and employees to understand and use. Those that are not, or that impose inordinate time demands on all parties, simply are not practical, and managers will resist using them. As we have seen, managers need as much encouragement and organizational support as possible if thoughtful performance management is to take place.

In a broader context, we are concerned with developing employment-decision systems. From this perspective, relevance, sensitivity, and reliability are simply technical components of a system designed to make decisions about employees. As we have seen, just as much attention needs to be paid to ensuring the acceptability and practicality of appraisal systems. These are the five basic requirements of performance-appraisal systems, and none of them can be ignored. However, because some degree of error is inevitable in all employment decisions, the crucial question to be answered in regard to each appraisal system is whether its use results in less human, social, and organizational cost than is currently paid for these errors. Answers to that question will result in a wiser, fuller use of talent.

LEGALITIES PERFORMANCE APPRAISAL

There is a rich body of case law on performance appraisal, and multiple reviews of it reached similar conclusions. 24  To avoid legal difficulties, consider taking the following steps:

· 1. Conduct a job analysis to determine the characteristics necessary for successful job performance.

· 2. Incorporate these characteristics into a rating instrument. This may be done by tying rating instruments to specific job behaviors (e.g., Behaviorally Anchored Rating Scales, as described later in this chapter), but the courts routinely accept less sophisticated approaches, such as simple graphic rating scales. Regardless of the method used, provide written standards to all raters.

· 3. Provide written instructions and train supervisors to use the rating instrument properly, including how to apply performance standards when making judgments. The uniform application of standards is very important. The vast majority of cases lost by organizations have involved evidence that subjective standards were applied unevenly to members of protected groups versus all other employees.

· 4. Establish a system to detect potentially discriminatory effects or abuses of the appraisal process.

· 5. Include formal appeal mechanisms, coupled with higher-level review of appraisals.

· 6. Document the appraisals and the reason for any termination decisions. This information may prove decisive in court, as long as it was not generated after the supervisor made the decision to terminate. Credibility is enhanced by documented appraisal ratings that describe specific examples of poor performance based on personal knowledge. 25

· 7. Provide some form of performance counseling or corrective guidance to assist poor performers.

Here is a good example of step 6. In Stone v. Xerox, the organization had a fairly elaborate procedure for assisting poor performers. 26  Stone was employed as a sales representative and in fewer than six months had been given several written reprimands concerning customer complaints about his selling methods and failure to develop adequate written selling proposals. As a result, he was placed on a one-month performance-improvement program designed to correct these deficiencies. This program was extended 30 days at Stone's request. When his performance still did not improve, he was placed on probation and told that failure to improve substantially would result in termination. Stone's performance continued to be substandard, and he was discharged at the end of the probationary period. When he sued Xerox, he lost.

Certainly, the type of evidence required to defend performance ratings is linked to the purposes for which the ratings are made. For example, if appraisal of past performance is to be used as a predictor of future performance (i.e., promotions), evidence must show (1) that the ratings of past performance are, in fact, valid, and (2) that the ratings of past performance are statistically related to future performance in another job. 27  At the very least, this latter step should include job analysis results indicating the extent to which the requirements of the lower- and higher-level jobs overlap. Finally, to assess adverse impact, organizations should keep accurate records of who is eligible for and interested in promotion. These two factors, eligibility and interest, define the  applicant group .

In summary, it is not difficult to offer prescriptions for scientifically sound, court-proof appraisal systems, but as we have seen, implementing them requires diligent attention by organizations plus a commitment to make them work. In developing a performance-appraisal system, the most basic requirement is to determine what you want the system to accomplish. This requires a strategy for the management of performance.

The Strategic Dimension of Performance Appraisal

In the study of work motivation, a fairly well-established principle is that the things that get rewarded get done. At least one author has termed this “The greatest management principle in the world.” 28  A fundamental issue for managers, then, is “What kind of behavior do I want to encourage in my subordinates?” If employees are rewarded for generating short-term results, they will generate short-term results. If they are rewarded (e.g., through progressively higher commissions or bonuses) for generating repeat business or for reaching quality standards over long periods of time, then they will do those things.

Managers, therefore, have choices. They can emphasize short- or long-term objectives in the performance-management process, or some combination of the two. Short-term objectives emphasize such things as bottom-line results for the current quarter. Long-term objectives emphasize such things as increasing market share and securing repeat business from customers. To be most useful, however, the strategic management of performance must be linked to the strategies an organization (or strategic business unit) uses to gain competitive advantage—for example, innovation, speed, quality enhancement, or cost control. 29  As one manager observed, “If you can't find hard measures of why something's strategically important, you let it go.” 30

Some appraisal systems that are popular in the United States, such as management by objectives (MBO), are less popular in other parts of the world, such as Japan and France. MBO focuses primarily on results, rather than on how the results were accomplished. Typically it has a short-term focus, although this need not always be the case.

In Japan, greater emphasis is placed on the psychological and behavioral sides of performance appraisal than on objective outcomes. Thus, an employee will be rated in terms of the effort he or she puts into a job; on integrity, loyalty, and cooperative spirit; and on how well he or she serves the customer. Short-term results tend to be much less important than long-term personal development, the establishment and maintenance of long-term relationships with customers (i.e., behaviors), and increasing market share. 31

Once managers decide what they want the appraisal system to accomplish, their next questions are “What's the best method of performance appraisal? Which technique should I use?” As in so many other areas of HR management, there is no simple answer. The following section considers some alternative methods, along with their strengths and weaknesses. Because readers of this book are more likely to be users than developers of appraisal systems, the following will focus most on describing and illustrating them. For more detailed information, consult the references cited.

ALTERNATIVE METHODS OF APPRAISING EMPLOYEE PERFORMANCE

Many regard rating methods or formats as the central issue in performance appraisal; this, however, is not the case. 32  Broader issues must also be considered—such as trust in the appraisal system; the attitudes of managers and employees; the purpose, frequency, and source of appraisal data; and rater training. Viewed in this light, rating formats play only a supporting role in the overall appraisal process.

Behavior-oriented rating methods  focus on employee behaviors, either by comparing the performance of employees to that of other employees (so-called  relative rating systems ) or by evaluating each employee in terms of performance standards without reference to others (so-called absolute rating systems ).  Results-oriented rating methods  place primary emphasis on what an employee produces; dollar volume of sales, number of units produced, and number of wins during a baseball season are examples. Management by objectives (MBO) and work planning and review use this results-oriented approach.

Evidence indicates that ratings (i.e., judgments about performance) are not strongly related to results. 33  Why? Ratings depend heavily on the mental processes of the rater. Because these processes are complex, there may be errors of judgment in the ratings. Conversely, results depend heavily on conditions that may be outside the control of the individual worker, such as the availability of supplies or the contributions of others. Thus, most measures of results provide only partial coverage of the overall domain of job performance. With these considerations in mind, let's examine the behavior- and results-oriented systems more fully.

Behavior-Oriented Rating Methods

Narrative Essay

The simplest type of absolute rating system is the  narrative essay , in which a rater describes, in writing, an employee's strengths, weaknesses, and potential, together with suggestions for improvement. This approach assumes that a candid statement from a rater who is knowledgeable about an employee's performance is just as valid as more formal and more complicated rating methods.

If essays are done well, they can provide detailed feedback to subordinates regarding their performance. On the other hand, comparisons across individuals, groups, or departments are almost impossible since different essays touch on different aspects of each subordinate's performance. This makes it difficult to use essay information for employment decisions because subordinates are not compared objectively and ranked relative to one another. Methods that compare employees to one another are more useful for this purpose.

Ranking

Simple ranking  requires only that a rater order all employees from highest to lowest, from “best” employee to “worst” employee.  Alternation ranking  requires that a rater initially list all employees on a sheet of paper. From this list he or she first chooses the best employee (No. 1), then the worst employee (No. n), then the second best (No. 2), then the second worst (No. n − 1), and so forth, alternating from the top to the bottom of the list until all employees have been ranked.

Paired Comparisons

Use of  paired comparisons  is a more systematic method for comparing employees to one another. Here each employee is compared with every other employee, usually in terms of an overall category such as “present value to the organization.” The number of pairs of ratees to be compared may be calculated from the formula [n(n − 1)]/2. Hence if 10 individuals were being compared, [10(9)]/2 or 45 comparisons would be required. The rater's task is simply to choose the “better” of each pair, and each employee's rank is determined by counting the number of times she or he was rated superior. As you can see, the number of comparisons becomes quite large as the number of employees increases. On the other hand, ranking methods that compare employees to one another are useful for generating initial rankings for purposes of employment decisions.

Forced Distribution

Forced distribution  is another method of comparing employees to one another. As the chapter-opening vignette noted, the overall distribution of ratings is forced into a normal, or bell-shaped, curve under the assumption that a relatively small portion of employees is truly outstanding, a relatively small portion is unsatisfactory, and everybody else falls in between.  Figure 9–4  illustrates this method, assuming that five rating categories are used.

Figure 9–4 Example of a forced distribution: 40 percent of the ratees must be rated “average,” 20 percent “above average,” 20 percent “below average,” 10 percent “outstanding,” and 10 percent “unsatisfactory.”

Forced distribution does eliminate clustering almost all employees at the top of the distribution (rater  leniency ), at the bottom of the distribution (rater  severity ), or in the middle ( central tendency ). Who tends to be most lenient? One study found that individuals who score high in agreeableness (trustful, sympathetic, cooperative, and polite) tend to be most lenient, while those who score high in conscientiousness (strive for excellence, high performance standards, set difficult goals) tend to be least lenient. 34

Forced distribution can foster a great deal of employee resentment, however, if an entire group of employees as a group is either superior or substandard. In general, such systems are seen as less fair than absolute rating systems. 35  They are most useful when a large number of employees must be rated and there is more than one rater.

Behavioral Checklist

Here the rater is provided with a series of statements that describe job-related behavior. His or her task is simply to check which of the statements, or the extent to which each statement, describes the employee. In this approach raters are not so much evaluators as reporters whose task is to describe job behavior. Moreover, descriptive ratings are likely to be more reliable than evaluative (good–bad) ratings,36 and they reduce the cognitive demands placed on raters. 37  One such method, the  Likert method of summed ratings , presents a declarative statement (e.g., “She or he follows up on customer complaints”) followed by several response categories, such as “always,” “very often,” “fairly often,” “occasionally,” and “never.” The rater checks the response category that he or she thinks describes the employee best. Each category is weighted, for example, from 5 (“always”) to 1 (“never”) if the statement describes desirable behavior. To derive an overall numerical rating (or score) for each employee, the weights of the responses that were checked for each item are summed.  Figure 9–5  shows a portion of a summed rating scale for appraising teacher performance.

Figure 9–5 A portion of a summed rating scale. The rater simply checks the response category that best describes the teacher's behavior. Response categories vary in scale value from 5 points (strongly agree) to 1 point (strongly disagree). A total score is computed by summing the points associated with each item.

Critical Incidents

Critical incidents  are brief anecdotal reports by supervisors of things employees do that are particularly effective or ineffective in accomplishing parts of their jobs. They focus on behaviors, not traits. For example, a store manager in a retail computer store observed Mr. Wang, a salesperson, doing the following:

Mr. Wang encouraged the customer to try our latest word-processing package by having the customer sit down at the computer and write a letter. The finished product was full of grammatical and spelling errors, each of which was highlighted for the customer when Mr. Wang applied a “spelling checker” and “grammar examiner” to the written material. As a result, Mr. Wang sold the customer the word-processing program plus a typing tutor.

Such anecdotes force attention onto the ways in which situations determine job behavior and also on ways of doing the job successfully that may be unique to the person described. Hence they can provide the basis for training programs. Critical incidents also lend themselves nicely to appraisal interviews because supervisors can focus on actual job behaviors rather than on vaguely defined traits. They are judging performance, not personality. On the other hand, supervisors may find that recording incidents for their subordinates on a daily, or even a weekly, basis is burdensome. Moreover, incidents alone do not permit comparisons across individuals or departments. Graphic rating scales may overcome this problem.

Graphic Rating Scales

Many organizations use  graphic rating scales . 38   Figure 9–6  shows a portion of one such scale. Many different forms of graphic rating scales exist. In terms of the amount of structure provided, the scales differ in three ways:

Figure 9–6 A portion of a graphic rating scale.

· 1. The degree to which the meaning of the response categories is defined (in  Figure 9–6 , what does “conditional” mean?).

· 2. The degree to which the individual who is interpreting the ratings (e.g., a higher-level reviewing official) can tell clearly what response was intended.

· 3. The degree to which the performance dimensions are defined for the rater (in  Figure 9–6 , what does “dependability” mean?).

Graphic rating scales may not yield the depth of essays or critical incidents, but they are less time-consuming to develop and administer. They also allow results to be expressed in quantitative terms; they consider more than one performance dimension; and, because the scales are standardized, they facilitate comparisons across employees. Graphic rating scales have come under frequent attack, but when compared with more sophisticated forced-choice scales, the graphic scales have proven just as reliable and valid and are more acceptable to raters. 39

Behaviorally Anchored Rating Scales

Graphic rating scales that use critical incidents to anchor various points along the scale are known as  behaviorally anchored rating scales (BARS) . Their major advantage is that they define the dimensions to be rated in behavioral terms and use critical incidents to describe various levels of performance. BARS therefore provide a common frame of reference for raters. An example of the job-knowledge portion of a BARS for police patrol officers is shown in  Figure 9–7 . BARS require considerable effort to develop,40 yet there is little research evidence to support the superiority of BARS over other types of rating systems. 41  Nevertheless, the participative process required to develop them provides information that is useful for other organizational purposes, such as communicating clearly to employees exactly what good performance means in the context of their jobs.

Figure 9–7 A behaviorally anchored rating scale to assess the job knowledge of police patrol officers.

Results-Oriented Rating Methods

Management by Objectives

Management by objectives (MBO)  is a well-known process of managing that relies on goal setting to establish objectives for the organization as a whole, for each department, for each manager within each department, and for each employee. MBO is not a measure of employee behavior. Rather, it is a measure of each employee's contribution to the success of the organization. 42

To establish objectives, the key people involved should do three things: (1) meet to agree on the major objectives for a given period of time (e.g., every year, every six months, or quarterly), (2)develop plans for how and when the objectives will be accomplished, and (3) agree on the measurement tools for determining whether the objectives have been met. Progress reviews are held regularly until the end of the period for which the objectives were established. At that time, those who established objectives at each level in the organization meet to evaluate the results and to agree on the objectives for the next period. 43

To some, MBO is a complete system of planning and control and a complete philosophy of management. 44  In theory, MBO promotes success in each employee because, as each employee succeeds, so do that employee's manager, the department, and the organization. But this is true only to the extent that the individual, departmental, and organizational goals are compatible. 45 That is typically not the case.46

Beyond that, in light of the corporate scandals that characterized the early part of the 21st century, progressive firms such as Lockheed Martin and 3M do not focus only on results achieved. Rather, they also focus on how those results were achieved. That approach is known as “full-spectrum leadership.” 47  Consistent with this approach, Scripps Health, a community health-care system in San Diego, evaluates each of its 12,000 employees on results as well as behaviors. The latter include three core values at Scripps: respect, quality, and efficiency. 48

Work Planning and Review

Work planning and review  is similar to MBO; however, it places greater emphasis on the periodic review of work plans by both supervisor and subordinate in order to identify goals attained, problems encountered, and the need for training. 49  This approach has long been used by Corning Inc.  Table 9–1  presents a summary of the appraisal methods we have just discussed.

Table 9–1 A SNAPSHOT OF THE ADVANTAGES AND DISADVANTAGES OF ALTERNATIVE APPRAISAL METHODS

Behavior-oriented methods Narrative essay. Good for individual feedback and development, but difficult to make comparisons across employees. Ranking and paired comparisons. Good for making comparisons across employees, but provides little basis for individual feedback and development. Forced distribution. Forces raters to make distinctions among employees, but may be unfair and inaccurate if a group of employees, as a group, is either very effective or ineffective. Behavioral checklist. Easy to use, provides a direct link between job analysis and performance appraisal, can be numerically scored, and facilitates comparisons across employees. However, the meaning of response categories may be interpreted differently by different raters. Critical incidents. Focuses directly on job behaviors, emphasizes what employees did that was effective or ineffective, but can be very time consuming to develop. Graphic rating scales (including BARS). Easy to use, very helpful for providing feedback for individual development and facilitating comparisons across employees. BARS are very time consuming to develop, but dimensions and scale points are defined clearly. Graphic rating scales often do not define dimensions or scale points clearly.

Results-oriented systems Management by objectives. Focuses on results and on identifying each employee's contribution to the success of the unit or organization. However, MBO is generally short-term oriented, provides few insights into employee behavior, and does not facilitate comparison across employees. Work planning and review. In contrast to MBO, emphasizes process over outcomes. Requires frequent supervisor/subordinate review of work plans. Is time consuming to implement properly, and does not facilitate comparisons across employees.

When Should Each Technique Be Used?

You have just read about a number of alternative appraisal formats, each with its own advantages and disadvantages. At this point you are probably asking yourself “What's the bottom line? I know that no method is perfect, but what should I do?” First, remember that the rating format is not as important as the relevance and acceptability of the rating system. Second, here is some advice based on systematic comparisons among the various methods.

An extensive review of the research literature that relates the various rating methods to indicators of performance appraisal effectiveness found no clear “winner, and researchers generally agree that the type of rating scale per se does not lead to better ratings” 50  However, the researchers were able to provide several “if … then” propositions and general statements based on their study, including the following:

· ▪ If the objective is to compare employees across raters for important employment decisions (e.g., promotion, merit pay), then don't use MBO or work planning and review. They are not based on a standardized rating scheme for all employees.

· ▪ If you use a BARS, then also make diary keeping a part of the process. This will improve the accuracy of the ratings, and it also will help supervisors distinguish between effective and ineffective employees.

· ▪ If objective performance data are available, then MBO is the best strategy to use. Work planning and review is not as effective as MBO under these circumstances. Remember though, that how an employee or manager achieves results is also important.

· ▪ In general, appraisal methods that are best in a broad, organizational sense—BARS and MBO—are the most difficult to use and maintain. No rating method is foolproof.

· ▪ Methods that focus on describing, rather than evaluating, behavior (e.g., BARS, summed rating scales) produce results that are the most interpretable across raters. They help remove the effects of individual differences in raters. 51

· ▪ No rating method has been an unqualified success when used as a basis for merit pay or promotional decisions.

· ▪ When certain statistical corrections are made, the correlations between scores on alternative rating formats are very high. Hence all the formats measure essentially the same thing.

Which techniques are most popular? One survey of performance-management systems and practices in 278 organizations (two-thirds of which were multinational enterprises) from 15 different countries revealed three important findings:

· 1. Managers rely on a balance of subjective (66 percent) and objective (71 percent) data in performance reviews.

· 2. Over the past five years forced rankings have become more common (34 percent of organizations use them), but few managers find them to be effective.

· 3. Only 20 percent of organizations use online or software-based performance-management systems, but another third plan to introduce them. 52

WHO SHOULD EVALUATE PERFORMANCE?

The most fundamental requirement for any rater is that he or she has an adequate opportunity to observe the ratee's job performance over a reasonable period of time (e.g., six months). This suggests several possible raters.

The Immediate Supervisor.

Among the nearly 80 percent of firms that conduct performance appraisals, this person is the most common rater. 53  She or he is probably most familiar with the individual's performance and, in most jobs, has had the best opportunity to observe actual job performance. Furthermore, the immediate supervisor is probably best able to relate the individual's performance to what the department and organization are trying to accomplish, and to distinguish among various dimensions of performance. 54  Because she or he also is responsible for reward (and punishment) decisions, and for managing the overall performance-management process,55 it is not surprising that feedback from supervisors is more highly related to performance than that from any other source. 56

Peers.

In some jobs, such as outside sales, the immediate supervisor may observe a subordinate's actual job performance only rarely (and indirectly, through written reports). In other environments, such as self-managed work teams, there is no supervisor. Sometimes objective indicators, such as number of units sold, can provide useful performance-related information, but in other circumstances the judgment of peers is even better. Peers can provide a perspective on performance that is different from that of immediate supervisors. Thus, a member of a cross-functional team may be in a better position to rate another team member than that team member's immediate supervisor. However, to reduce potential friendship bias while simultaneously increasing the feedback value of the information provided, it is important to specify exactly what the peers are to evaluate 57 —for example, “the quality of her help on technical problems.” Even then, however, it is important to be aware of context effects. That is, ratings might differ, depending on the context in which the technical problems occurred—in a crisis versus a less stressful context. 58  Peer ratings can provide useful information, but in light of the potential problems associated with them, friendship bias and context effects, it is wise not to rely on them as the sole source of information about performance.

Subordinates.

Appraisal by subordinates can be a useful input to the immediate supervisor's development,59 and the ratings are of significantly higher quality when used for that purpose. 60  Subordinates know firsthand the extent to which the supervisor actually delegates, how well he or she communicates, the type of leadership style he or she is most comfortable with, and the extent to which he or she plans and organizes. Longitudinal research shows that managers who met with their direct reports to discuss their upward feedback improved more than other managers. Further, managers improved more in years when they discussed the previous year's feedback with their direct reports than in years when they did not. This is important because it demonstrates that what managers do with upward feedback is related to its benefits. 61

Should subordinate ratings be anonymous? Managers want to know who said what, but subordinates prefer to remain anonymous to avoid retribution. To address these concerns, collect and combine the ratings in such a manner that a manager's overall rating is not distorted by an extremely divergent opinion. 62  Like peer assessments, they provide only one piece of the appraisal puzzle, although evidence indicates that ratings provided by peers and subordinates are comparable, for they reflect the same underlying dimensions. 63

Self-Appraisal.

There are several arguments to recommend wider use of self-appraisals. The opportunity to participate in the performance-appraisal process, particularly if appraisal is combined with goal setting, improves the ratee's motivation and reduces her or his defensiveness during the appraisal interview. 64  On the other hand, self-appraisals tend to be more lenient, less variable, more biased, and to show less agreement with the judgments of others. 65  Thus a recent study of 3,850 managers of Walgreens drugstores who were in the same store and had the same boss for two straight years found a correlation of of only 0.40 between self- and boss-ratings. 66  Moreover, because U.S. employees tend to give themselves higher marks than their supervisors do (conflicting findings have been found with mainland Chinese and Taiwanese employees),67 self-appraisals are probably more appropriate for counseling and development than for employment decisions.

Customers Served.

In some situations the consumers of an individual's or organization's services can provide a unique perspective on job performance. Examples abound: subscribers to a cable-television service, bank customers, clients of a brokerage house, and citizens of a local police- or fire-protection district. Although the customers’ objectives cannot be expected to correspond completely with the organization's objectives, the information that customers provide can serve as useful input for employment decisions, such as those regarding promotion, transfer, and need for training. It can also be used to assess the impact of training or as a basis for self-development. At General Electric, for example, the customers of senior managers are interviewed formally and regularly as part of the managers’ appraisal process. Their evaluations are important in appraisal, but at the same time they also build commitment, because customers are giving time and information to help GE. 68

Customers are often able to rate important aspects of the performance of employees in frontline customer-contact positions.

Computers.

As noted earlier, employees spend a lot of time unsupervised by their bosses. Now technology has made continuous supervision possible—and very real for millions of workers. What sort of technology? Computer software that monitors employee performance.

HR BUZZ THIRD NATIONAL BANK AND AMERICAN EXPRESS

Using Computers to Monitor Job Performance 

To proponents, it is a great new application of technology to improve productivity. To critics, it represents the ultimate intrusion of Big Brother in the work place. For several million workers today, being monitored on the job by a computer is a fact of life. a

Computers measure quantifiable tasks performed by secretaries, factory and postal workers, and grocery and airline-reservation sales agents. For example, major airlines regularly monitor the time reservation sales agents spend on each call. Until now, lower-level jobs have been affected most directly by computer monitoring. But as software becomes more sophisticated, even engineers, accountants, and doctors are expected to face electronic scrutiny.

Critics feel that overzealous employers will get carried away with information gathering and overstep the boundary between work performance and privacy. Moreover, being watched every second can be stressful, thereby stifling worker creativity, initiative, and morale.

Not everyone views monitoring as a modern-day version of Modern Times, the Charlie Chaplin movie in which the hapless hero was tyrannized by automation. At the Third National Bank of Nashville, for example, encoding clerks can earn up to 25 percent more than their base pay if their output is high—and they like that system.

To be sure, monitoring itself is neither good nor bad; how managers use it determines its acceptance in the workplace. Practices such as giving employees access to data collected on them, establishing procedures for challenging erroneous records, and training supervisors to base actions and decisions on actual observation of employees, not just on computer-generated records, can alleviate the fears of employees. b  At American Express, for example, monitored employees are given feedback about their performance every two weeks.

Managers who impose monitoring standards without asking employees what is reasonable may be surprised at the responses of employees. Tactics can include workstation operators who pound the space bar or hold down the underlining bar while chatting, and telephone operators who hang up on customers with complicated problems. The lesson, perhaps, is that even the most sophisticated technology can be thwarted by human beings who feel they are being pushed beyond acceptable limits. c

a

Alge, B. J. (2001). Effects of computer surveillance on perceptions of privacy and procedural justice.Journal of Applied Psychology 86, pp. 797–804. See also Piller, C. (1993, July). Privacy in peril.Macworld, pp. 124–130. See also Brophy, B. (1986, Sept. 29). New technology, high anxiety. U.S. News & World Report, pp. 54, 55.

b

Alge, 2001, op. cit. See also Nebeker, D. M., and Tatum, C. B. (1993). The effects of computer monitoring, standards, and rewards on work performance and stress. Journal of Applied Psychology 28, pp. 508–534. See also Chalykoff, J., and Kochan, T. A. (1989). Computer-aided monitoring: Its influence on employee job satisfaction and turnover. Personnel Psychology 42, pp. 807–834.

c

Brophy, 1986, op. cit.

Are Supervisors’ Ratings Affected by Other Sources of Information about Performance?

Thus far we have assumed that each source of performance information, be it the supervisor, peer, subordinate, self, or client, makes his or her judgment individually and independently from other individuals. In practice, however, appraising performance is not strictly an individual task. Thus Toronto software firm Rypple lets people post Twitter-length questions about their performance in exchange for anonymous feedback. Two-thirds of the questions come from managers. 69  In other words, supervisors often use information from outside sources in making their own judgments about performance. Furthermore, supervisors may change their ratings, particularly when a ratee's peers provide information perceived as useful. 70  Indirect information is perceived to be most useful when it agrees with the rater's direct observation of the employee's performance. 71  In sum, although direct observation is the main influence on ratings, the presence of indirect information also is likely to affect them. 72  Beyond that, supervisors are not simply passive measurement instruments, trying their best to provide accurate assessments of the performance of their subordinates. In fact, they may distort their ratings to accomplish goals that they value (e.g., motivating subordinates), or to avoid negative repercussions from assigning ratings that their subordinates or their superiors will find objectionable. 73  Now let's consider a more formal procedure for incorporating multiple sources of performance information.

Multirater or 360-Degree Feedback

Many organizations now use input from managers, subordinates, peers, and customers to provide a perspective on performance from all angles (360 degrees). There are at least four reasons such an approach is potentially valuable:74

· 1. It includes observations from different perspectives, and perhaps includes different aspects of performance that capture the complexities of an individual's performance in multiple roles.

· 2. Feedback from multiple sources may reinforce feedback from the boss, thereby making it harder to discount the viewpoint of that single person.

· 3. Discrepancies between self-ratings and those received from others may create an awareness of a person's needs for development, and motivate individuals to improve their performance in order to reduce or eliminate such discrepancies.

· 4. At least some senior managers believe that if they can improve leadership among their organization's leaders, ultimately that will benefit the bottom line.

What does the research literature on  360-degree feedback  tell us? Evidence indicates that ratings from these different sources generally do not agree closely with each other. Thus, one study found that the correlations among ratings made by self, peer, supervisor, and subordinate raters ranged from a high of 0.79 (supervisor–peer) to a low of 0.14 (subordinate–self). 75  However, evidence also indicates that ratings from the different sources are comparable, for they reflect the same underlying dimensions of performance. 76

What about the effectiveness of feedback from such systems? Does it improve subsequent job performance? A comprehensive review found that the effects of multi-source feedback have been mixed at best. 77  Perhaps the biggest problem is that conflicting feedback information often generated from 360-degree appraisal systems can actually make the feedback less useful and even problematic. This finding has led many practitioners to become quite negative about these systems, even though they had been quite positive when the systems were first introduced. 78

To overcome these potential problems, decision-makers need to be aware of the personal biases of raters and attempt to control their effects. To do this, consider taking the following steps:79

· ▪ Make sure appraisal has a single, clear purpose—development.

· ▪ Train all raters to understand the overall process as well as how to complete forms and avoid common rating errors. UPS, for example, explains the 360-degree feedback process and discusses how data will be used. Recognize, however, that no amount of training is going to be of any help if the organizational climate is politically charged and trust is low. 80

· ▪ Seek a variety of types of information about performance, and make raters accountable to upper-level review. Allowing employees to nominate raters who will provide information about their performance (typically 6 to 12 raters) increases acceptance of the results. 81

· ▪ Help employees interpret and react to the ratings, perhaps with the help of a personal coach. 82  Longitudinal research demonstrates convincingly that a key ingredient in producing positive changes in the ratee's behavior is organizational support that facilitates both the feedback and development process. 83

· ▪ Link 360-degree feedback to other HR systems (e.g., training, rewards), and take the time to evaluate their effectiveness. 84  Today, many organizations administer 360-degree feedback via the Internet in order to minimize paperwork and to reduce the time involved in collecting, organizing, and summarizing the data. Termed “talent-management” systems, they allow organizations to manage data about employees in a systematic and coordinated way. 85

Finally, the written report should contain the following elements: a summary that integrates the main themes from the scores (assuming quantitative results are part of the process) and a detailed summary of ratings from each source. 86  Careful attention to these action steps is an integral component of performance management. Another important consideration is the timing and frequency of performance appraisal.

WHEN AND HOW OFTEN SHOULD APPRAISAL BE DONE?

Traditionally, formal appraisal is done once, or at best twice, a year. Research, however, has indicated that once or twice a year is far too infrequent. 87  Unless he or she keeps a diary, considerable difficulties face a rater who is asked to remember what several employees did over the previous 6 or 12 months. This is why firms such as Hamilton Standard, Southern California Gas, and Synygy add frequent, informal “progress” reviews between the annual ones. 88

Research indicates that if a rater is asked to assess an employee's performance over a 6- to 12-month period, biased ratings may result, especially if information has been stored in the rater's memory according to irrelevant, oversimplistic, or otherwise faulty categories. 89  Unfortunately, faulty categorization seems to be the rule more often than the exception.

For example, consider the impact of prior expectations on ratings. 90  Supervisors of tellers at a large West Coast bank provided predictions about the future job performance of their new tellers. Six months later they rated the job performance of each teller. The result? Inconsistencies between prior expectations and later performance clearly affected the judgments of the raters. Thus, when a teller's actual performance disappointed or exceeded a supervisor's prior expectations about that performance, ratings were lower than warranted by actual performance. The lesson to be learned is that it is unwise to assume that raters are faulty, but motivationally neutral, observers of on-the-job behavior.

More and more companies are realizing that once-a-year reviews don't work very well. There should be no surprises in appraisals, and one way to ensure this is to do them frequently. We noted earlier that social-networking–style systems developed by Accenture and Rypple now let employees post Twitter-length questions, such as “How can I run meetings better?” in exchange for anonymous feedback. This enables them to get job-related feedback as often as they want. At the very least, says former GE chief executive Jack Welch, “it's reasonable to expect two candid performance appraisals a year that make it absolutely clear how you're doing relative to your peers and ambitions…. No boss is doing his job properly if he's not letting each of his people know where they stand in constructive detail.” 91

EVALUATING THE PERFORMANCE OF TEAMS

Our discussion so far has focused on the assessment and improvement of individual performance. However, numerous organizations (80 percent of U.S. corporations) are structured around teams. 92 Team-based organizations do not necessarily outperform organizations that are not structured around teams,93 but there seems to be an increased interest in organizing how work is done around teams. 94  Therefore, given the popularity of teams, it makes sense for performance-management systems to target not only individual performance, but also an individual's contribution to the performance of his or her team(s)—as well as the performance of teams as a whole.

The assessment of team performance does not imply that individual contributions should be ignored. On the contrary, if individual performance is not assessed and recognized, social loafing may occur. 95  Even worse, when other team members see there is a “free rider,” they are likely to withdraw their effort in support of team performance. 96  Assessing team performance, therefore, should be seen as complementary to the assessment and recognition of (1) individual performance (as we have discussed so far), and (2) individuals’ behaviors and skills that contribute to team performance (e.g., self-management, communication, decision making, collaboration). 97

Not all teams are created equal, however. Different types of teams require different emphasis on performance measurement at the individual and team levels. Depending on the complexity of the task (from routine to nonroutine) and membership configuration (from static to dynamic), we can identify three different types of teams:98

· ▪ Work or service teams. Intact teams engaged on routine tasks (e.g., manufacturing or service tasks).

· ▪ Project teams. Teams assembled for a specific purpose and expected to disband once their task is completed. Their tasks are outside the core production or service of the organization and therefore less routine than those of work or service teams.

· ▪ Network teams. Teams that include membership not constrained by time or space and membership is not limited by organizational boundaries (i.e., they are typically geographically dispersed and stay in touch via telecommunications technology). Their work is extremely nonroutine.

Table 9–2  shows a summary of recommended measurement methods for each of the three types of teams.

Table 9–2 APPRAISAL METHODS FOR DIFFERENT TYPES OF TEAMS

Source: Scott, S. G., and Einstein, W. O. (2001, May). Strategic performance appraisal in team-based organizations: One size does not fit all. Academy of Management Executive 15, p. 111. Reprinted by permission of the Academy of Management Executive.

For example, regarding project teams, end-of-project outcome measures may not benefit the team's development because the team is likely to disband once the project is over. Instead, measurements taken during the project can be implemented so that corrective action can be taken if necessary before the project is over. This is what Hewlett-Packard uses with its product-development teams. 99

Regardless of whether performance is measured at the individual level or at the individual and team levels, raters are likely to make intentional or unintentional mistakes in assigning performance scores. 100  The good news, however, is that raters can be trained to minimize such biases. We address this topic next.

INTERNATIONAL APPLICATION The Impact Of National Culture On Performance Management

It is one thing to institute a performance management system with a home-country manager on an international assignment. It is quite another to do so with a local manager or local employees whose customs and culture differ from one's own. Western expatriate managers are often surprised to learn that their management practices have unintended consequences when applied in non-Western cultures. For example, we know that concepts such as individual rewards for individual performance and making explicit distinctions in performance among employees are not universally accepted. Indeed, where the prevailing view is that it takes contributions from everyone to achieve continuous improvement (that is, the concept of kaizen in Japanese enterprises), the practice of singling out one employee's contribution may actually cause that employee to “lose face” among his or her fellow work-group members. In other cultures, where nepotism is common and extended family members work together, the primary objective is to preserve working relationships. That objective may cause host-country managers to overlook results that more objective observers might judge to be inadequate. a

As a general conclusion, managers will need to modify the performance management process that is familiar to them when working with cultures other than their own. Doing so shows respect and recognizes the importance of groups as well as individuals in the organization. b

a

Cascio, W. F. (2011). The puzzle of performance management in the multinational enterprise.Industrial and Organizational Psychology 4, pp. 190–193. See also McEvoy, G. M., and Cascio, W. F. (1990). The United States and Taiwan: Two different cultures look at performance appraisal.Research in Personnel and Human Resources Management (Suppl. 2), pp. 201–219.

b

For more on this see Cascio (In press), op. cit.

APPRAISAL ERRORS AND RATER-TRAINING STRATEGIES

The use of ratings assumes that the human observer is reasonably objective and accurate. As we have seen, raters’ memories are quite fallible, and raters subscribe to their own sets of likes, dislikes, and expectations about people, expectations that may or may not be valid. 101  These biases produce rating errors, or deviations between the true rating an employee deserves and the actual rating assigned. 102  We discussed some of the most common types of rating errors previously: leniency, severity, and central tendency. Three other types are halo, contrast, and recency errors.

· 1.  Halo error  is not as common as is commonly believed. 103  Raters who commit this error assign their ratings on the basis of global (good or bad) impressions of ratees. An employee is rated either high or low on many aspects of job performance because the rater knows (or thinks she or he knows) that the employee is high or low on some specific aspect. In practice, halo is probably due to situational factors or to the interaction of a rater and a situation (e.g., a supervisor who has limited opportunity to observe her subordinates because they are in the field dealing with customers). 104  Thus, halo is probably a better indicator of how raters process cognitive information than it is as a measure of rating validity or accuracy. 105

· 2.  Contrast error  results when a rater compares several employees to one another rather than to an objective standard of performance. 106  If, say, the first two workers are unsatisfactory while the third is average, the third worker may well be rated outstanding because, in contrast to the first two, her or his average level of job performance is magnified. Likewise, average performance could be downgraded unfairly if the first few workers are outstanding. In both cases, the average worker receives a biased rating.

· 3.  Recency error  results when a rater assigns his or her ratings on the basis of the employee's most recent performance. It is most likely to occur when appraisals are done only after long periods. Here is how one manager described the dilemma of the recency error: “Many of us have trouble rating for the entire year. If one of my people has a stellar three months prior to the review … [I] don't want to do anything that impedes that person's momentum and progress.” 107  Of course, if the subordinate's performance peaks three months prior to appraisal every year, that suggests a different problem!

Recent survey data indicate that training for managers (55 percent) and nonmanagers (28 percent) has doubled in the past 10 years but that fewer than 40 percent of firms hold managers accountable for the effectiveness of the performance-management system. 108  Implementing a performance-management system without training all parties in how to use it as designed is a waste of time and money. Training managers, but then not holding them accountable for implementing what they have been trained on, is just as bad. What can be done? Begin by identifying some key topics to address with respect to performance-management training. These include the following:109

· ▪ Philosophy and uses of the system.

· ▪ Description of the rating process.

· ▪ Roles and responsibilities of employees and managers.

· ▪ How to define performance, and how to set expectations and goals.

· ▪ How to provide accurate assessments of performance, minimizing rating errors and rating inflation.

· ▪ The importance of ongoing, constructive feedback in behavioral terms.

· ▪ How to give feedback in a manner that minimizes defensiveness and maintains the self-esteem of the receiver.

· ▪ How to react to and act on feedback in a constructive manner.

· ▪ How to seek feedback from others effectively.

· ▪ How to identify and address needs for training and development.

Of the many types of rater training programs available today, meta-analytic evidence has demonstrated reliably that  frame-of-reference (FOR) training 110  is most effective at improving the accuracy of performance appraisals. 111  Moreover, the addition of other types of training in combination with FOR training does not seem to improve rating accuracy beyond the effects of FOR training alone. 112  Such FOR training proceeds as follows:113

· 1. Participants are told that they will evaluate the performance of three ratees on three separate performance dimensions.

· 2. They are given rating scales and instructed to read them as the trainer reads the dimension definitions and scale anchors aloud.

· 3. The trainer then discusses ratee behaviors that illustrate different performance levels for each scale. The goal is to create a common performance theory (frame of reference) among raters such that they will agree on the appropriate performance dimension and effectiveness level for different behaviors.

· 4. Participants are shown a videotape of a practice vignette and are asked to evaluate the manager using the scales provided.

· 5. Ratings are then written on a blackboard and discussed by the group of participants. The trainer seeks to identify which behaviors participants used to decide on their assigned ratings, and to clarify any discrepancies among the ratings.

· 6. The trainer provides feedback to participants, explaining why the ratee should receive a certain rating (target score) on a given dimension.

FOR training provides trainees with a theory of performance that allows them to understand the various performance dimensions, how to match these performance dimensions to rate behaviors, how to judge the effectiveness of various ratee behaviors, and how to integrate their judgments into an overall rating of performance. 114  Rater training is clearly worth the effort, and research indicates that the kind of approach advocated here is especially effective in improving the meaningfulness and usefulness of the performance-management process. 115

SECRETS OF EFFECTIVE PERFORMANCE-FEEDBACK INTERVIEWS

The use of performance feedback, at least in terms of company policies on the subject, is widespread. Most companies require that appraisal results be discussed with employees. 116  As is well known, however, the existence of a policy is no guarantee that it will be implemented, or implemented effectively. Consider just two examples. First, we know that feedback is most effective when it is given immediately following the behavior in question. 117  How effective can feedback be if it is given only once a year during an appraisal interview?

IMPACT OF PERFORMANCE MANAGEMENT ON PRODUCTIVITY, QUALITY OF WORK LIFE, AND THE BOTTOM LINE

Performance management is fundamentally a feedback process, and research indicates that feedback may result in increases in performance varying from 10 to 30 percent, although it is not uniformly effective. a  Feedback is a fairly inexpensive way to improve productivity, but, to work effectively, feedback programs require sustained commitment. The challenge for managers, then, is to establish clear goals, and then to provide feedback regularly to all their employees.

From an employee's perspective, lack of regular feedback about performance detracts from his or her quality of work life. Most people want to improve their performance on the job, to receive constructive suggestions regarding areas they need to work on, and to be commended for things that they do well. The cost of failure to provide such feedback may result in the loss of key professional employees, the continued poor performance of employees who are not meeting performance standards, and a loss of commitment by all employees. In sum, the myth that employees know how they are doing with out adequate feedback from management can be an expensive fantasy. b

a

DeNisi and Sonesh, 2011, op. cit. See also Landy, F. J., Farr, J. L., and Jacobs, R. R. (1982). Utility concepts in performance measurement. Organizational Behavior and Human Performance 30, pp. 15–40.

b

Hymowitz, C. (2007, Mar. 19). Managers lose talent when they neglect to coach their staffs. The Wall Street Journal, p. B1. See also Joinson, C. (1996, Aug.). Re-creating the indifferent employee. HR Magazine, pp. 77–80.

Second, we have known for decades that when managers use a problem-solving approach, subordinates express a stronger motivation to improve performance than when other approaches are used. 118  Yet evidence indicates that most organizations still use a “tell-and-sell” approach in which a manager completes an appraisal independently, shows it to the subordinate, justifies the rating, discusses what must be done to improve performance, and then asks for the subordinate's reaction and sign-off on the appraisal. 119  Are the negative reactions of subordinates really that surprising?

If organizations really are serious about fostering improved job performance as a result of performance-feedback interviews, the kinds of activities shown in  Table 9–3  are essential before, during, and after the interview. Let's briefly examine each of these important activities.

Table 9–3 SUPERVISORY ACTIVITIES BEFORE, DURING, AND AFTER PERFORMANCE-FEEDBACK INTERVIEWS

Before:

Communicate frequently with subordinates about their performance. Get training in performance appraisal interviewing. Plan to use a problem-solving approach rather than “tell-and-sell.” Encourage subordinates to prepare for performance-feedback interviews.

During: Encourage subordinates to participate. Judge performance, not personality and mannerisms. Be specific. Be an active listener. Set mutually agreeable goals for future improvements. Avoid destructive criticism.

After: Communicate frequently with subordinates about their performance. Periodically assess progress toward goals. Make organizational rewards contingent on performance.

Communicate Frequently.

Research on the appraisal interview at General Electric indicated clearly that once-a-year performance appraisals are of questionable value and that coaching should be a day-to-day activity—particularly with poor performers or new employees. 120  Feedback has maximum impact when it is given as close as possible to the action. If a subordinate behaves effectively (ineffectively), tell him or her immediately. Don't file incidents away so that they can be discussed in six to nine months.

Research strongly supports this view. Thus, one study found that communication of performance feedback in an interview is most effective when the subordinate already has relatively accurate perceptions of her or his performance before the session. 121

Get Training in Performance Feedback and Appraisal Interviewing.

As we noted earlier, raters should be trained to observe behavior accurately and fairly. Focus on managerial characteristics that are difficult to rate and on characteristics that people think are easy to rate but that generally result in disagreements. Such factors include risk taking and development of subordinates. 122  Use a problem-solving, rather than a “tell-and-sell,” approach, as noted earlier.

Encourage Subordinates to Prepare.

Research conducted across a variety of organizations has yielded consistent results. Subordinates who spend more time prior to performance-feedback interviews analyzing their job responsibilities and duties, problems they encounter on the job, and the quality of their performance are more likely to be satisfied with the performance-management process, more likely to be motivated to improve their performance, and more likely actually to improve. 123

Encourage Participation.

A perception of ownership—a feeling by the subordinate that his or her ideas are genuinely welcomed by the manager—is related strongly to subordinates’ satisfaction with the appraisal interview, the appraisal system, motivation to improve performance, and the perceived fairness of the system. 124  Participation provides an opportunity for employee voice in performance appraisal. It encourages the belief that the interview was a fair process, that it was a constructive activity, that some current job problems were cleared up, and that future goals were set. 125

Judge Performance, Not Personality.

In addition to the potential legal liability of dwelling on personality rather than on job performance, supervisors are far less likely to change a subordinate's personality than they are his or her job performance. Maintain the problem-solving, job-related focus established earlier because evidence indicates that supervisory support enhances employees’ motivation to improve. 126  Conversely, an emphasis on the employee as a person or his or her self-concept, as opposed to the task and task performance only, is likely to lead to lower levels of future performance. 127

Be Specific, and Be an Active Listener.

Maximize information relating to performance improvements and minimize information concerning the relative performance of other employees. 128  By being candid and specific, the supervisor offers clear feedback to the subordinate concerning past actions. She or he also demonstrates knowledge of the subordinate's level of performance and job duties. By being an active listener, the supervisor demonstrates genuine interest in the subordinate's ideas.  Active listening  requires that you do five things well:

· 1. Take the time to listen—hold all phone calls and do not allow interruptions.

· 2. Communicate verbally and nonverbally (e.g., by maintaining eye contact) that you genuinely want to help.

· 3. As the subordinate begins to tell his or her side of the story, do not interrupt and do not argue.

· 4. Watch for verbal as well as nonverbal cues regarding the subordinate's agreement or disagreement with your message.

· 5. Summarize what was said and what was agreed to.

Specific feedback and active listening are essential to subordinates’ perceptions of the fairness and accuracy of the process. 129

Avoid Destructive Criticism.

Destructive criticism  is general in nature, is frequently delivered in a biting, sarcastic tone, and often attributes poor performance to internal causes (e.g., lack of motivation or ability). It leads to three predictable consequences:

· 1. It produces negative feelings among recipients and can initiate or intensify conflict.

· 2. It reduces the preference of individuals for handling future disagreements with the giver of the feedback in a conciliatory manner (e.g., compromise, collaboration).

· 3. It has negative effects on self-set goals and on feelings of self-confidence. 130

Needless to say, this is one type of communication to avoid.

Set Mutually Agreeable Goals.

How does goal setting work to improve performance? Studies demonstrate that goals direct attention to the specific performance in question, that they mobilize effort to accomplish higher levels of performance, and that they foster persistence for higher levels of performance. 131  The practical implications of this work are clear: Set specific, challenging goals, because this clarifies for the subordinate precisely what is expected and leads to high levels of performance. We cannot change the past, but interviews that include goal setting and specific feedback can affect future job performance.

Continue to Communicate, and Assess Progress toward Goals Regularly.

Periodic tracking of progress toward goals has three advantages:

· 1. It helps keep behavior on target.

· 2. It provides a better understanding of the reasons behind a given level of performance.

· 3. It enhances the subordinate's commitment to perform effectively.

All of this helps to improve supervisor/subordinate work relationships. Improving supervisor/subordinate work relationships, in turn, has positive effects on performance. 132

Make Organizational Rewards Contingent on Performance.

Research results are clear-cut on this point. If subordinates see a link between appraisal results and employment decisions regarding issues such as merit pay and promotion, they are more likely to prepare for performance-feedback interviews, to participate actively in them, and to be satisfied with the overall performance-management system. 133  At Netflix for example, CEO Reed Hastings rewards managers who unleash talent and generate high performance from their staffs. 134

IMPLICATIONS FOR MANAGEMENT PRACTICE

Throughout this chapter we have emphasized the difficulty of implementing and sustaining performance-management systems. A basic issue for every manager is “What's in it for me?” If organizations are serious about improving the performance-management process, top management must consider the following policy changes:

· ▪ Make quality of performance feedback to subordinates and development of subordinatesintegral parts of every manager's job description.

· ▪ Tie rewards to effective performance in these areas.

· ▪ Recognize that performance management and appraisal is a dialogue involving people and data; both political and interpersonal issues are involved. No method is perfect, but

Human Resource Management in Action: ConclusionPERFORMANCE REVIEWS: THE DILEMMA OF FORCED RANKING

Here's the dilemma: Forced distributions do differentiate employees from one another and they eliminate rater leniency, but evidence indicates that they tend to be associated with lower effectiveness of performance-management systems, particularly when appraisal results are tied to termination. Proponents of forced rankings argue that they facilitate budgeting and guard against spineless managers who are too afraid to jettison poor performers. Forced rankings, the thinking goes, force managers to be honest with workers about how they are doing. Like any such system, forced rankings can also be undermined, as by managers who avoid having to assign the lowest grades to any of their people by trading employees beforehand with supervisors of other teams.

Critics say forced rankings compel managers to penalize a good, but not great, employee who is part of a superstar team. Conversely, a mediocre employee on a struggling unit can come out looking great. Most companies guard against this problem by refraining from rigidly applying the distribution to smaller teams—but this means the spread has to be made up somewhere else. The result: Different managers spend hours haggling with one another to meet the overall distribution requirements. According to one middle manager at Microsoft, this horse-trading process can be frustrating and time consuming. While the company says it does not require managers to assign a certain percentage of employees to each level, the middle manager says there is unspoken pressure to do so.

Another area of contention is the ranking criteria. In contrast to objective criteria, such as sales revenue generated or error-free products produced, many organizations use fuzzy, qualitative criteria to evaluate employees. While there is no doubt that teamwork and communication skills are vital, they are tough to measure. After all, one manager's team player is another's yes-person. Indeed a senior manager at one large firm admits that the company's ranking criteria are “very subjective,” adding, “There aren't easy labels for what type of person someone is.”

After a string of age-discrimination suits, fewer companies seem to be adopting forced-distribution systems. A major problem seems to be that they simply don't work well in company cultures that value teamwork, collaboration, and risk taking. Moreover, they mask differences in performance across divisions and workgroups. That is, it is likely that some workgroups are more effective than others, but with forced-distribution ratings it is impossible to distinguish groups that are performing well from those that are performing poorly.

SUMMARY

Performance management requires the willingness and commitment to focus on improving performance at the level of the individual or team every day. Like a compass, an ongoing performance-management system provides instantaneous, real-time information that describes the difference between the current and the desired course. To practice sound performance management, managers must do the same thing—provide timely feedback about performance, while constantly focusing everyone's attention on the ultimate objective (e.g., world-class customer service).

At a general level, the broad process of performance management requires that you do three things well: define performance (through goals, measures, and assessments), facilitate performance (by identifying obstacles to good performance and providing resources to accomplish objectives), and encourage performance (by providing fair and timely rewards that people care about in a sufficient amount).

Performance appraisal (the systematic description of the job-relevant strengths and weaknesses of an individual or a team) is a necessary, but not sufficient, part of the performance-management process. It serves two major purposes in organizations: (1) to improve the job performance of employees, and (2) to provide information to employees and managers for use in making decisions. In practice, many performance-appraisal systems fail because they do not satisfy one or more of the following requirements: relevance, sensitivity, reliability, acceptability, and practicality. The failure is frequently accompanied by legal challenge to the system based on its adverse impact against one or more protected groups.

Performance appraisal is done once or twice a year in most organizations, but research indicates that this is far too infrequent. It should happen upon the completion of projects or upon the achievement of important milestones. The specific rating method used depends on the purpose for which the appraisal is intended. Thus, comparisons among employees are most appropriate for generating rankings for salary-administration purposes, while MBO, work planning and review, and narrative essays are least appropriate for this purpose. For purposes of employee development, critical incidents or behaviorally anchored rating scales are most appropriate. Finally, rating methods that focus on describing rather than evaluating behavior (e.g., BARS, behavioral checklists) are the most interpretable across raters.

Performance management and appraisal may be done at the level of the individual or the team. Because different types of teams exist, such as work or service teams, project teams, and network teams, different appraisal methods are most appropriate for each team type (see  Table 9–2 ). Recognize, however, that rater judgments are subject to various types of biases: leniency; severity; central tendency; and halo, contrast, and recency effects. To improve the reliability and validity of ratings, use frame-of-reference training to help raters observe behavior more accurately. To improve the value of performance-feedback interviews, communicate frequently with subordinates; encourage them to prepare and to participate in the process; judge performance, not personality; be specific; avoid destructive criticism; set goals; assess progress toward goals regularly; and make rewards contingent on performance.