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McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All Rights Reserved.
PerformanceManagementSystemsChapter 11
Chapter Overview
• Understanding Performance
• Performance Appraisal: Definition and Uses
• Performance Appraisal Methods
• Potential Errors in Performance Appraisals
• Overcoming Errors in Performance Appraisals
• Providing Feedback through the Appraisal Interview
• Developing Performance Improvement Plans
• Performance Appraisal and the Law
• Summary of Learning Objectives
11-3
Performance Management Systems• Performance management systems that are
directly tied to an organization’s reward system
• Provide a powerful incentive for employees to work diligently and creatively toward achieving organizational objectives
• When properly designed and implemented, performance management systems let employees
• Know how well they are presently performing
• Clarify what needs to be done to improve performance
11-4
Understanding Performance
• Degree of accomplishment of the tasks that make up an employee’s job
• Reflects how well an employee is fulfilling requirements of a job
• Often confused with effort, which refers to energy expended, performance is measured in terms of results
11-5
Determinants of Performance
• Job performance is net effect of an employee’s effort as modified by abilities and role (or task) perceptions
• Performance in a given situation can be viewed as resulting from interrelationships among effort, abilities, and role perceptions
• Effort – Results from being motivated
• Refers to amount of energy (physical and/or mental) an individual uses in performing a task
• Abilities – Are personal characteristics used in performing a job
• Usually do not fluctuate widely over short periods of time
• Role (task) perceptions – Refer to direction(s) in which individuals believe they should channel their effort on their jobs
• Activities and behaviors people believe are necessary in the performance of their jobs define their role perceptions
11-6
Determinants of Performance
• To attain an acceptable level of performance, a minimum level of proficiency must exist in each of the performance components
• Level of proficiency in any one performance component can place an upper boundary on performance
• If employees put forth tremendous effort and have excellent abilities, but lack a clear understanding of their roles, performance will probably not be good in the eyes of their managers
• Much work will be produced, but it will be misdirected
11-7
Determinants of Performance
• An employee who puts forth a high degree of effort and understands the job but lacks ability probably will rate low on performance
• An employee who has a good ability and understanding of the role but is lazy and expends little effort
• Employee’s performance will likely be low
• An employee can compensate up to a point for a weakness in one area by being above average in one or both of the other areas
11-8
Environmental Factors as Performance Obstacles
• Other factors beyond the control of the employee can also stifle performance
• Such obstacles are sometimes used merely as excuses, they are very real and should be recognized
• Common potential performance obstacles include
• Employee’s lack of time or conflicting demands upon it
• Inadequate work facilities and equipment
• Restrictive policies that affect the job
• Lack of cooperation from others
• Type of supervision
• Temperature, lighting, noise, machine or equipment pacing
• Shifts
• Even luck
11-9
Environmental Factors as Performance Obstacles
• Environmental factors should be viewed not as direct determinants of individual performance but as modifying the effects of effort, ability, and direction
• Poor ventilation or worn-out equipment may well affect the effort an individual expends
• Unclear policies or poor supervision can also produce misdirected effort
• A lack of training can result in underutilized abilities
• One of management’s greatest responsibilities is to provide
• Employees with adequate working conditions
• A supportive environment to eliminate or minimize performance obstacles
11-10
Responsibilities of the Human Resource Department in Performance Management• Responsibilities of the human resource department are
• Design the performance management system and select the methods and forms to be used for appraising employees
• Train managers in conducting performance appraisals
• Maintain a reporting system to ensure that appraisals are conducted on a timely basis
• Maintain performance appraisal records for individual employees
• Responsibilities of managers in performance appraisals are to
• Evaluate the performance of employees
• Complete the forms used in appraising employees and return them to the human resource department
• Review appraisals with employees
• Establish a plan for improvement with employees
11-11
Performance Appraisal: Definition And Uses• Process of evaluating and communicating to an employee how
he or she is performing the job and establishing a plan for improvement
• When properly conducted
• They let employees know how well they are performing
• Influence their future level of effort and task direction
• Effort should be enhanced if good performance is positively reinforced
• Task perception of the employee should be clarified through establishing a plan for improvement
• Common uses of performance appraisals is for making administrative decisions relating to promotions, firings, layoffs, and merit pay increases
• An employee’s present job performance is often the most significant consideration for determining whether to promote the person
11-12
Performance Appraisal: Definition And Uses• Performance appraisal information can
• Provide needed input for determining both individual and organizational training and development needs
• These data can then be used to help determine the organization’s overall training and development needs
• For individual employees, completed performance appraisal should include a plan outlining specific training and development needs
• Performance appraisals can also be used to encourage performance improvement
• Used as a means of communicating to employees how they are doing
• Suggesting needed changes in behavior, attitude, skills, or knowledge
11-13
Performance Appraisal: Definition And Uses
• Feedback clarifies for employees manager’s job expectations
• Feedback must be followed by coaching and training
• Information from performance appraisals can be used as
• Input to validation of selection procedures
• Input to human resource planning
• How often to conduct performance appraisals
• No real consensus on how frequently performance appraisals should be done
• In general, as often as necessary to let employees know
• What kind of job they are doing
• If performance is not satisfactory, measures that must be taken for improvement
• It is recommended that informal performance appraisals be conducted two or three times a year in addition to an annual formal performance appraisal
11-14
Performance Appraisal Methods
• Whatever method of performance appraisal an organization uses, it must be job related
• Prior to selecting a performance appraisal method, an organization must conduct job analyses and develop job descriptions
• Methods of performance appraisals include
• Management by objectives (MBO)
• Multi-rater assessment (or 360-degree feedback)
• Graphic rating scale
• Behaviorally anchored rating scale (BARS)
• Critical-incident appraisal
• Essay appraisal
• Checklist
• Forced-choice rating
• Ranking methods
• Work standards approach
11-15
Management by Objectives (MBO)
• More commonly used with professional and managerial employees
• Consists of
• Establishing clear and precisely defined statements of objectives for the work to be done by an employee
• Establishing an action plan indicating how these objectives are to be achieved
• Allowing employee to implement the action plan
• Measuring objective achievement
• Taking corrective action when necessary
• Establishing new objectives for the future
• Other names for MBO include management by results, performance management, results management, and work planning and review program
11-16
Management by Objectives (MBO)• For this system to be successful, several requirements must be
met
• Objectives should be quantifiable and measurable
• Objectives whose attainment cannot be measured or at least verified should be avoided where possible
• Objectives should also be challenging yet achievable, and they should be expressed in writing and in clear, concise, unambiguous language
• Employees participate in objective-setting process
• Employee’s active participation is also essential in developing the action plan
• Objectives and action plan must serve as a basis for regular discussions between manager and employee concerning employee’s performance
• Provide an opportunity for manager and employee to discuss progress and modify objectives when necessary
11-17
Examples of How to Improve Work Objects
11-18
Typical Areas of Supervisory Objectives
11-19
Multi-Rater Assessment (or 360-Degree Feedback)
• Managers, peers, customers, suppliers, or colleagues are asked to complete questionnaires on the employee being assessed
• Person assessed also completes a questionnaire
• Questionnaires are generally lengthy. Typical questions are:
• “Are you crisp, clear, and articulate? Abrasive? Spreading yourself too thin?”
• Human resources department provides results to the employee, who in turn gets to see how his or her opinion differs from those of the group doing the assessment
11-20
Graphic Rating Scale
• Requires rater to indicate on a scale where the employee rates on factors such as
• Quantity of work
• Dependability
• Job knowledge
• Cooperativeness
• Rating scales include both numerical ranges and written descriptions
• Potential weakness
• Evaluators are unlikely to interpret written descriptions in the same manner due to differences in background, experience, and personality
• Choice of rating categories
• It is possible to choose categories that have little relationship to job performance
• Omit categories that have a significant influence on job performance
11-21
Sample Items on a Graphic Rating Scale
11-22
Behaviorally Anchored Rating Scale (BARS)• Determines an employee’s level of performance based on
whether or not certain specifically described job behaviors are present
• Focus of BARS is not on performance outcomes but on functional behaviors demonstrated on the job
• Assumption is that these functional behaviors will result in effective job performance
• Job dimensions – Means broad categories of duties and responsibilities that make up a job
• Each job is likely to have several job dimensions, and separate scales must be developed for each
• Scale values – Define specific categories of performance
• Anchors – Specific written statements of actual behaviors that, when exhibited on the job, indicate the level of performance on the scale opposite that particular anchor
11-23
Behaviorally Anchored Rating Scale (BARS)• Rating performance using a BARS requires
• Rater to read list of anchors on each scale to find the group of anchors that best describe the employee’s job behavior during the period being reviewed
• Scale value opposite the group of anchors is then checked. Process is followed for all the identified dimensions of the job
• Total evaluation combines the scale values checked for all job dimensions
• BARSs are normally developed following these steps:
• Managers and job incumbents identify relevant job dimensions for the job
• Managers and job incumbents write behavioral anchors for each job dimension
• As many anchors as possible should be written for each dimension
• Managers and job incumbents reach consensus concerning scale values to be used and grouping of anchor statements for each scale value
11-24
Behaviorally Anchored Rating Scale (BARS)
• Advantages
• BARSs are developed through active participation of both managers and job incumbents
• Anchors are developed from observations and experiences of employees who actually perform the job
• Increases the likelihood that the method will be accepted
• BARSs can be used to provide specific feedback concerning an employee’s job performance
• Drawbacks
• Takes considerable time and commitment to develop
• Separate forms must be developed for different jobs
• From a technical point of view, BARS is a graphic rating scale that was developed to help overcome errors in performance appraisals
11-25
Example of a Behaviorally Anchored Rating Scale
11-26
Critical-Incident Appraisal
• Rater keeps a written record of incidents that illustrate both positive and negative employee behaviors
• Rater then uses these incidents as a basis for evaluating the employee’s performance
• Incidents recorded should involve job behaviors illustrating both satisfactory and unsatisfactory performance of employee being rated
• Drawback
• Rater is required to jot down incidents regularly, which can be burdensome and time-consuming
• Definition of a critical incident is unclear and may be interpreted differently by different people
• Method may lead to friction between manager and employees when employees believe manager is keeping a “book” on them
11-27
Essay Appraisal
• Rater prepares a written statement describing an individual’s strengths, weaknesses, and past performance
• Requires that evaluation describe an employee’s performance in written narrative form
• Instructions are often provided as to the topics to be covered
• Typical essay appraisal question might be
• “Describe, in your own words, this employee’s performance, including quantity and quality of work, job knowledge, and ability to get along with other employees.”
• “What are the employee’s strengths and weaknesses?”
• Drawback
• Their length and content can vary considerably, depending on rater
• Essay appraisals are difficult to compare
• Writing skill of appraiser can also affect appraisal
• It is possible to use a critical incident method to support essay methods however
11-28
Checklist
• Rater answers with a yes-or-no a series of questions about the behavior of the employee
• Checklist can also assign varying weights to each question
• Normally, human resource department keeps the scoring key for the checklist method
• Evaluator is generally not aware of weights associated with each question
• Drawbacks
• Raters can see positive or negative connotation of each question, which introduces bias
• It is time-consuming to assemble questions for each job category
• Separate listing of questions must be developed for each job category
• Checklist questions can have different meanings for different raters
11-29
Sample Checklist Questions
11-30
Forced-Choice Rating
• Requires rater to rank a set of statements describing how an employee carries out the duties and responsibilities of the job
• Statements are normally weighted
• Rater generally does not know the weights
• After rater ranks all the forced-choice statements, human resource department applies weights and computes a score
• Attempts to eliminate evaluator bias by forcing rater to rank statements that are seemingly indistinguishable or unrelated
• Drawbacks
• Been reported to irritate raters, who feel they are not being trusted
• Results of forced-choice appraisal can be difficult to communicate to employees
11-31
Sample Set of Forced-Choice Statements
11-32
Ranking Methods
• Performance of an employee is ranked relative to the performance of others
• Three of the more commonly used ranking methods are
• Alternation
• Paired comparison
• Forced distribution
11-33
Alternation Ranking
• Lists names of employees to be rated on the left side of a sheet of paper
• Rater chooses most valuable employee on the list, crosses that name off the left-hand list, and puts it at the top of the column on the right-hand side of the paper
• Appraiser then selects and crosses off name of least valuable employee from left-hand column and moves it to bottom of right-hand column
• Rater repeats this process for all names on the left-hand side of the paper
• Resulting list of names in right-hand column gives a ranking of employees from most to least valuable
11-34
Paired Comparison Ranking
• Best illustrated with an example
• Suppose a rater is to evaluate six employees; their names are listed on the left side of a sheet of paper
• Evaluator then compares first employee with second employee on a chosen performance criterion, such as quantity of work
• If he or she believes the first employee has produced more work than second employee, a check mark is placed by the first employee’s name
• Rater then compares the first employee to the third, fourth, fifth, and sixth employee on the same performance criterion, placing a check mark by the name of employee who produced most work in each paired comparison
11-35
Paired Comparison Ranking
• Process is repeated until each employee has been compared to every other employee on all of the chosen performance criteria
• Employee with most check marks is considered to be best performer
• Employee with fewest check marks is lowest performer
• Drawback
• It becomes unwieldy when comparing more than five or six employees
11-36
Force Distribution
• Requires rater to compare performance of employees and place a certain percentage of employees at various performance levels
• Assumes performance level in a group of employees will be distributed according to a bell-shaped, or “normal,” curve
• Drawback
• In small groups of employees, a bell-shaped distribution of performance may not be applicable
• Even where distribution may approximate a normal curve, it is probably not a perfect curve
• This means some employees probably will not be rated accurately
• Ranking methods differ dramatically from other methods in that one employee’s performance evaluation is a function of performance of other employees in the job
• Civil Service Reform Act does not permit use of ranking methods for federal employees
11-37
Forced-Distribution Curve
11-38
Work Standards
• Involves setting a standard or an expected level of output and then comparing each employee’s level to the standard
• Most frequently used for production employees and is a form of goal setting for these employees
• Work standards should reflect average output of a typical employee
• Attempt to define a fair day’s output
• Advantage
• Performance review is based on highly objective factors
• To be effective, affected employees must view standards as being fair
• Drawback
• Lack of comparability of standards for different job categories
11-39
Frequently Used Methods for Setting Work Standards
11-40
Potential Errors In Performance Appraisals• Leniency
• Occurs when a manager’s ratings are grouped at the positive end instead of being spread throughout the performance scale
• Central tendency
• Tendency of a manager to rate most employees’ performance near the middle of the performance scale
• Recency
• Tendency of a manager to evaluate employees on work performed most recently, usually one or two months prior to evaluation
• These errors make it difficult to compare ratings from different raters
11-41
Potential Errors In Performance Appraisals• Halo effect
• Occurs when a rater allows a single prominent characteristic of an employee to influence his or her judgment on each separate item in the performance appraisal
• Results in employee receiving approximately same rating on every item
• Personal preferences, prejudices, and biases can also cause errors in performance appraisals
• Managers with biases or prejudices tend to look for employee behaviors that conform to their biases
• Appearance, social status, dress, race, and sex have influenced many performance appraisals
• Managers have also allowed first impressions to influence later judgments of an employee
• People tend to retain these impressions even when faced with contradictory evidence
11-42
Overcoming Errors In Performance Appraisals• One approach to overcoming errors is to make
refinements in the design of appraisal methods
• One could say that forced-distribution method of performance appraisal attempts to overcome errors of leniency and central tendency
• Behaviorally anchored rating scales are designed to reduce halo, leniency, and central tendency errors as they provide managers with specific examples of performance against which to evaluate
• It does not appear likely that refining appraisal instruments will totally overcome errors in performance appraisals
• Since refined instruments frequently do not overcome all the obstacles
11-43
Overcoming Errors In Performance Appraisals
• Another approach to overcoming errors is to improve the skills of raters
• Suggestions on specific training to be given to evaluators, although vague, normally emphasize that evaluators should be trained to observe behavior more accurately and judge it more fairly
• More research is needed before a definitive set of topics for rater training can be established
• At a minimum, raters should receive training in
• Performance appraisal method(s) used by company
• Importance of rater’s role in total appraisal process
• Use of performance appraisal information
• Communication skills necessary to provide feedback to employee
11-44
Providing Feedback Through the Appraisal Interview• Unless feedback interview is properly conducted, it can
and does result in an unpleasant experience for both manager and employee
• To prepare for it, the manager should answer the following questions:
• What results should the interview achieve?
• What good contributions is the employee making?
• Is the employee working up to his or her potential?
• Is the employee clear about the manager’s performance expectations?
• What training does the employee need to improve?
• What strengths does the employee have that can be built on or improved?
11-45
Providing Feedback Through the Appraisal Interview• In addition, the manager should remember several basic
guidelines in conducting the interview:
• Manager must know the employee’s job description
• Evaluation must be based on employee’s performance and not on his or her personality
• Manager must be positive and build on the employee’s strengths
• Manager must be candid and specific
• Manager must listen to the employee as well as presenting her or his own views
• Manager must elicit employee feedback on how to improve performance
11-46
Factors Influencing Success or Failure of Appraisal Interviews
• More the employees are allowed to participate in the appraisal process, the more
• Satisfied they will be with the appraisal interview
• Satisfied they will be with the manager
• Likely they will be to accept and meet performance improvement objectives
• More a manager uses positive motivational techniques, the more satisfied the employee is likely to be with appraisal interview and with manager
• Manager and employee mutually setting specific performance improvement objectives results in better performance than when managers use a general discussion or criticism
11-47
Factors Influencing Success or Failure of Appraisal Interviews
• Discussing and solving problems hampering employee’s current job performance improve employee’s performance
• More the thought and preparation that both manager and employee devote before the appraisal interview, greater the benefits of the interview
• More the employee perceives that performance appraisal results are tied to organizational rewards, the more beneficial the interview will be
11-48
Developing Performance Improvement Plans
• Step of including a performance improvement plan in a completed performance appraisal is often ignored
• Managers must recognize that an employee’s development is a continuous cycle of
• Setting performance goals
• Providing training necessary to achieve goals
• Assessing performance related to accomplishing goals
• Setting new, higher goals
11-49
Developing Performance Improvement Plans• Performance improvement plan consists of the following
components:
• Where are we now?
• Answered in the performance appraisal process
• Where do we want to be?
• Requires evaluator and person being evaluated to mutually agree on areas that can and should be improved
• How does the employee get from where he or she is now to where he or she wants to be?
• Critical to performance improvement plan
• Manager and employee must agree upon specific steps to be taken
• May include training employee to improve his or her performance
• May include how evaluator will help employee achieve performance goals
11-50
Performance Appraisal and the Law• Title VII of the Civil Rights Act permits use of a bona fide
performance appraisal system
• Generally not considered to be bona fide when their application results in adverse effects on minorities, women, or older employees
• Number of court cases have ruled that performance appraisal systems used by organizations were discriminatory and not job related
• Brito et al. v. Zia Company
• Mistretta v. Sandia Corporation
• Chamberlain v. Bissel, Inc.
• Price Waterhouse v. Hopkins
11-51
Performance Appraisal and the Law• Some suggestions that have been offered for making
performance appraisal systems more legally acceptable include
• Deriving the content of the appraisal system from job analyses
• Emphasizing work behaviors rather than personal traits
• Ensuring that the results of appraisals are communicated to employees
• Ensuring that employees are allowed to give feedback during the appraisal interview
• Training managers in how to conduct proper evaluations
• Ensuring that appraisals are written, documented, and retained
• Ensuring that personnel decisions are consistent with the performance appraisals
11-52
Summary of Learning Objectives
• Define performance
• Define performance appraisal
• Explain management by objectives
• Describe multi-rater assessment
• Describe the graphic rating scale
• Explain critical-incident appraisal
• Describe essay appraisal
• Describe the checklist method of performance appraisal
• Explain the forced-choice method of performance appraisal
• Describe the work standards approach to performance appraisal
• Define leniency, central tendency, recency, and the halo effect
11-53
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