Chapter 09

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Performance Evaluation and Management

McGraw-Hill/IrwinHuman Resource Management, 10/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

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Introduction

Performance management is:The process by which executives, managers, and

supervisors work to align employee performance with the firm’s goals

An effective performance management process: Has a precise definition of excellent performance Uses measurements of performance Provides feedback to employees

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Introduction

Tips for improving a performance management program: Eliminate “HR-speak” Set appropriate goals Make the difficult decisions Develop a performance culture

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Introduction

A firm’s strategy must be aligned with employees’ competencies and performance to achieve:ProfitabilityGrowthEffectivenessValuation

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Introduction

Not all measures are easy to develop Measurement of tangible outcomes (television sets)

can be done with precision Intangible outcomes (teaching) are difficult to

measure

Performance evaluation determines the extent to which an employee performs work efficiently

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Introduction

Other terms for performance evaluation: Performance review Personnel ratingMerit ratingPerformance appraisalEmployee appraisalEmployee evaluation

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Introduction

Many organizations have two evaluation systems: formal and informal Thinking about how well employees are doing is an

informal system A formal system is set up by the organization to

regularly and systematically evaluate employee performance

Political and interpersonal processes influence the informal systemEmployees who are liked better have an advantage

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The Case for Formal Evaluation

Purposes of a well-designed formal evaluation system: Development MotivationHuman resource and employment planning CommunicationLegal complianceHRM research

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The Case for Formal Evaluation

Employees should consider an evaluation meaningful, helpful, fair, and honest This is difficult to attain because of a number of

factors, including:UnfairnessNegative practicesA short-term focus

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Performance Evaluation and the Law

Uniform Guidelines on Employment Selection Procedures:Issued by the EEOC in 1978 to explain how to

comply with federal employment legislation More attention was devoted to selection than to

performance evaluation, so requirements for appraisal systems are less clearly defined

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Most performance evaluation procedures rely on supervisors’ judgments Once work-related behavior has been judged, the

supervisors’ ratings are used as input for human resource decisions

These decisions affect promotions, pay, transfers, and so on

These subjective judgments can introduce bias into the system

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Courts have focused on management’s responsibility to develop and use a performance evaluation system in a legally defensible way In Brito v. Zia Company, the company’s performance

evaluation instrument was invalid because it did not relate to important elements in the jobs for which employees were being evaluated

Other performance evaluation lawsuits have dealt with sex, race, and age discrimination in terminations, promotions, and layoffs

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A challenge to the validity of a performance evaluation system is less of an issue than a challenge to a selection systemLegally, the way the system was developed and

whether it was applied consistently are more important than validity

In age discrimination cases, the type of decision being challenged determines how much proof a company must produce

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Recommendations for a legally defensible appraisal system: Procedures must not differ because of race, sex,

national origin, religion, or ageUse objective, non-rated, uncontaminated data A formal system of review or appeal should be

available for disagreement over appraisals Use more than one independent evaluator Use a formal, standardized system for evaluationAvoid ratings on traits, such as dependability, drive,

aptitude, and attitude

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Performance data should be empirically validated Communicate specific performance standards Provide raters with written instructions Evaluate employees on specific work dimensions rather

than an overall or global measure Require behavioral documentation for extreme ratings Allow employees to review their appraisals

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Format of Evaluation

The ability to provide accurate, reliable performance data is enhanced if a systematic process is followed:Step 1: Establish performance standards for each

position and the criteria for evaluation (job analysis) Step 2: Establish performance evaluation policies on

when to rate, how often to rate, and who should rateStep 3: Have raters gather data on employees’

performance

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Format of Evaluation

Step 4: Have raters (and employees in some systems) evaluate employees’ performance

Step 5: Discuss the evaluation with the employee

Step 6: Make decisions and file the evaluation

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Establish Criteria

The dimensions of performance upon which an employee is evaluated are called the criteria of evaluation Examples: quality, quantity, and cost of work

A major problem with many evaluation systems:They require supervisors to make person evaluations

rather than performance evaluations

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Establish Criteria

An effective criterion should possess the following characteristics: Reliability RelevanceSensitivityPracticality

Multiple criteria are necessary to measure performance completely One must evaluate both activities and results Management must weigh these criteria

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Who Evaluates, When, and How Often

In the U.S., most organizations evaluate on an annual basis Performance evaluations are often scheduled for

arbitrary dates, such as the date of hireAlternatively, all employees may be evaluated on or

near a single calendar date

It makes more sense to schedule the evaluation after a task cycleFor those without a task cycle based on dates, goals

should be established that allow a beginning and endThe evaluation can be at the end of the task cycle

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Who Should Evaluate the Employee?

The immediate supervisor conducts most appraisals Other options:

Rating by a committee of several supervisors Rating by the employee’s peers (co-workers) Rating by the employee’s subordinates Rating by someone outside the immediate work

situation Self-evaluation Rating by a combination of approaches

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360-degree Feedback

Many organizations now use some form of 360-degree feedback program Upward and peer feedback can have positive effects

on behavior These effects are sustainable over time Almost 90 percent of companies using 360-degree

programs use the information for such decisions as pay increases and promotions

Introducing a 360-degree system into a culture not prepared for it can have disastrous effects

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360-degree Feedback

Positive features of a 360-degree system: Multiple perspectives of a person’s performance Raters base evaluations on contact and observation Feedback is provided from multiple directions…

above, below, peer Anonymous upward feedback, which results in full

participation Learning about weaknesses and strengths is

motivational

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360-degree Feedback

Negative features of a 360-degree system: Feedback from all sources can be overwhelming Rater can hide in a group of raters and provide harsh

evaluations Conflicting ratings can be confusing and frustrating Providing feedback that is constructive requires a

plan and well-trained raters

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Selected Evaluation Techniques

Ways of evaluating employees can generally be divided into two categories: Methods that evaluate employees individually Multiple-person evaluations

In a multiple-person evaluation, the supervisor directly and intentionally compares the performance of one employee to that of others

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Individual Evaluation Methods

Graphic rating scaleThe rater is presented with a set of traits The employee is rated on the traitsRatings are assigned points, which are then computed Raters are often asked to explain each rating with a

sentence or two

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Two modifications make the scale more effective: A mixed standard scale gives the rater three

statements describing each traitOperational and benchmark

statements are added to describe different levels of performance

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Forced choice:Was developed because graphic rating scales allowed

supervisors to rate everyone high The rater must choose from a set of descriptive

statements about employeeSupervisors check the statements that describe the

employee, or they rank the statements from most to least descriptive

Forced choice can be used by superiors, peers, subordinates, or a combination of these

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Essay Evaluation The rater is asked to describe the strong and weak

aspects of the employee’s behavior It can be used by superiors, peers, or subordinates Essay evaluations are flexible; an evaluator can

specifically address the ratee’s skill in any areaComparing essays is difficult

Skilled writers can paint a better picture

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Critical Incident TechniqueRaters maintain a log of behavioral incidents that

represent effective and ineffective performance for each employee

Two factors determine the success of this technique:The supervisor must have enough time to observe

subordinates during the evaluation period The supervisor must record incidents as they are

seen Logs can help avoid common rating errors and

facilitate discussions about performance improvement

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ChecklistsIn its simplest form, the checklist is a set of

objectives or descriptive statements If the rater believes that the employee possesses a

listed trait, the item is checked A rating score equals the number of checks

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A variation is the weighted checklist Supervisors and HR specialists prepare a list of

descriptive statements about behavior Judges who have observed behavior on the job sort

the statements into piles rated from excellent to poor When there is agreement on an item, it is included in

the weighted checklistThe employee’s evaluation is the sum of the scores

(weights) on the items checked

Checklists and weighted checklists can be used by superiors, peers, or subordinates

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Behaviorally Anchored Rating ScalesSmith and Kendall developed the behaviorally

anchored rating scale (BARS), or the behavioral expectation scale (BES)

The BARS approach uses critical incidents to anchor statements on a scale

The rater reads the anchors and places an X at some point on the scale for the ratee

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A BARS usually contains these features: Six to 10 performance dimensions identified and

defined by raters and ratees The dimensions are anchored with positive and

negative critical incidents Each ratee is then rated on the dimensions Ratings are fed back using the terms on the form

It takes two to four days to construct a BARS that is jargon free and closely related to the requirements of the job

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Behavioral Observation Scales (BOS)Developed by Latham and associates

Like BARS, the BOS uses critical incidentsInstead of identifying which behaviors occurred,

the rater identifies how they occurred The hope was that BARS and BOS would yield more

objective ratings than other scale formats Most researchers find that the format of the rating

scale has little effect on the quality of a performance appraisal system

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Sample BOS ItemsInsert Exhibit 9-9 here

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Multiple-Person Evaluation Methods

RankingA supervisor is asked to rank subordinates in order on

some overall criterion It is easier to rank the best and worst employees

than average ones Alternative rankings can help with this difficulty

Pick the top employee first, then the bottom one The second best is chosen, then the second worst Follow this process until everyone has been ranked

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Paired ComparisonThe supervisor reviews a series of cards; each

contains two subordinates names The higher performer in each pair is chosenFinal ranking is made by counting how many times a

given employee was chosen as the better performerA major limitation is the number of paired

comparisons that must be made With only 10 subordinates, a supervisor would

have 45 pairs of names

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Forced DistributionEmployees are rated on a pre-existing distribution of

pre-determined categoriesThe predetermined distribution must be followed,

regardless of how well the employees performed A supervisor with all exceptional subordinates will be

forced to rate some poorlyA supervisor with mediocre subordinates must rate

some highly

This technique is similar to grading on a curve

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Point allocation technique (PAT)A variation of forced distribution Each rater is given a number of points per employee The points must then be allocated on a criterion basis The total number of points cannot exceed the number

of points per employee times the number of employees evaluated

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Management by Objectives (MBO) The MBO approach emerged from the beliefs of

McGregor, Drucker, and Odiorne With MBO, managers and subordinates plan,

organize, control, communicate, and debate The subordinate has a course to follow and a target

to shoot for

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An MBO program follows a systematic process: Superior/subordinates define tasks and set objectives The superior, consulting with subordinates, sets

criteria for assessing objective accomplishment Dates to review progress are agreed upon and used Superior and subordinates make any required

modifications in the original objectives A final evaluation by the superior is made The superior meets with the subordinate in a

counseling, encouraging session Objectives for the next cycle are set

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For MBO and other performance management programs to work:Both the manager and subordinate must be actively

involved in objective formulation They must also agree on what measures will be used

to evaluate success and failure

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A central feature of MBO is discussion about subordinates’ performance, centered on results Many now find MBO programs too results-oriented

and insufficiently process-oriented Deming argues that MBO places too much emphasis

on detecting problems, too little on preventing them The manager and employee must work cooperatively

to improve the underlying basis for productivity To do so, managers must be coaches and counselors,

not judges

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Any employee’s performance is affected by:His/her ability and motivation The production system that is in place

Therefore, consider an appraisal system in which someone’s merit is not tied exclusively to whether goals were met

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Pitfalls and problems with MBO: If too many objectives are set, confusion occursToo much paperwork It is forced into jobs where setting

objectives is difficult Rewards may not be tied to results There may be too much emphasis on the short term Superiors are not trained in the MBO process Original objectives are never modified It is used as a rigid control device that intimidates

rather than motivates

In some situations MBO is very effective; in others it is costly and disruptive

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Which Technique to Use

The most commonly used evaluation techniques: The graphic rating scale The essay method Checklists

Used by about 5 percent of firms: Forced choice, critical incident, BARS, BOS, field

review, MBO

Used by 10 to 13 percent of firms: Ranking, paired comparison

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Which Technique to Use

MBO is most likely to be used for:Managerial, professional, and technical employees

Each technique is sometimes good and sometimes poor The problem lies with how the techniques are used,

and by whom The rater is more critical than the technique

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Performance Evaluation Problems

No technique is perfect;they all have limitations

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Opposition to Evaluation

Most employees are wary of performance evaluation Subjective bias and favoritism are real problems

Opponents of formal evaluation argue that: They focus too much symptoms of poor performance

rather than finding the underlying causes Managers and employees dislike the process Raters have trouble deciding performance levels Employees who are not placed in the top performance

category experience a reverse motivation effect

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System Design and Operating Problems

Performance evaluation systems break down because they are poorly designed If the criteria focus solely on results, or on

personality traits rather than performance, the evaluation may not be well received

Some techniques take a long time to carry out or require extensive written analysis, both of which managers resist

Some systems are not fully online

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Rater Problems

Even if a system is well designed, problems can arise if raters are not cooperative and well trained Supervisors may not be comfortable “playing God”

Inadequate training can lead to: Problems with standards of evaluation Halo effectLeniency or harshnessCentral tendency error“Recency of events” errorContracts effectsPersonal bias (stereotyping, similar to me)

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Standards of Evaluation

Problems with evaluation standards arise because of perceptual differences in the meaning of words Good, adequate, satisfactory, and excellent mean

different things to different evaluators

If only one rater is used, evaluations can be distorted This arises most often in graphic rating scalesIt may also appear with essays, critical incidents,

and checklists

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The Halo Effect

Halo error occurs when a rater assigns values on the basis of an overall impression of the ratee Halo error can be positive or negative The ratings represent an error only if not justified True halo occurs when uniformly high or low ratings

are justified by the ratee’s performance

Halo errors are not as common as once believed When they do occur, they are hard to eliminate To reduce the possibility, evaluate all subordinates on

one dimension before proceeding to the next

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Leniency or Harshness Error

Being objective is difficult for everyone Consequently, leniency or harshness errors may

occur

Raters can assess their tendencies by examining their ratings Asking raters to distribute ratings can force a normal

distribution

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Central Tendency Error

A central tendency error occurs when a rater avoids using high or low ratings This “average” rating fails to discriminate between

subordinates It offers little information for making HRM decisions

regarding:CompensationPromotionTrainingWhat should be fed back to ratees

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“Recency of Events” Error

Raters forget more about past behavior than current behavior Many persons are evaluated more on the results of the

past several weeks than the past six months

Some employees are well aware of this difficulty They are sure to be visible and noticed in positive

ways for several weeks in advance of a review

This problem can be mitigated by using critical incident, MBO, or irregularly scheduled evaluations

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Contrast Effects

A contrast effect error occurs when a supervisor lets another employee’s performance influence the ratings given to someone else Contrast effects also occur when a supervisor

unknowingly compares an employee’s present performance with their past performance

Poor performers could get rated “above average” if they improve, even if the improvement only brings performance up to “average”

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Personal Bias Error

A personal bias rating error is related to a personal bias held by the supervisor Some can be conscious, such as sex discriminationOr, a supervisor could “play favorites” Other biases may be more subtle, such as giving a

higher rating because the ratee is similar to the rater Personal liking can also affect ratings and feedback

The effect is usually small if there is sufficient performance-related information on which to base ratings

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Eliminating Rater Errors

Behavior-based rating scales were created to help eliminate the kinds of ratings errors just described Such scales didn’t demonstrate consistent superiority

over other rating formatsResearchers now concentrated on the rating process More effort is now placed on

helping raters accurately observe, recall, and report behavior

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Rater Training

The two most popular training programs are designed to: Eliminate common rating errors Improve supervisor observation and recording skills

Programs dealing with errors are effective, even if short and relatively inexpensive Focusing on observation and recording skills offers

greater improvement than simply focusing on errors

Training alone will not solve all problems Raters must be motivated to use the system and be

allowed to observe subordinate performance

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Avoiding Problems with Employees

For an evaluation system to work well, employees must: Understand it Feel that it is fairBelieve it is used correctly

The system should be: As simple as possible Implemented in a way that fully informs employees

about how it will be used

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Avoiding Problems with Employees

To foster understanding about the system:Allow employees to participate in its developmentProvide training in performance evaluation methods

Self-evaluation can be a useful addition to an evaluation systemThis facilitates performance evaluation discussions

with a supervisor

If raters are incompetent or unfair, employees may resist, sabotage, or ignore the rating system

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The Feedback Interview

An effective performance interview involves two-way communication Evaluation should be a continuing process

Supervisors should hold evaluation interviews in order to: Discuss the appraisal Set objectives for the upcoming appraisal period

The employee’s development or salary should not be discussed during this interview

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Suggestions for effective interviews:Prepare for the meetingPut the employee at easeSplit the budgeted time with the employeePresent facts, not opinionsBe specificDiscuss performance, not personal criticismsInclude positive commentsDon’t overwhelm the ratee with informationEncourage the ratee’s involvementFocus on the future

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With good interviewing skills, many problems related to discussing performance can be overcomeSpeak clearly Listen carefullyGather and analyze information thoroughlyNegotiate the amount and use of resources

A poor feedback interview is due to:Poor preparationMiscalculation about the purpose of the sessionFailure of the rater and ratee to understand each other

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Sometimes there is no choice but to give negative feedback It is easier to accept criticism if the discussion is part

of the larger topic: ways to improve future performance

The goal of the feedback interview is to: Recognize and encourage superior performance Sustain acceptable behaviors Change the behavior of ratees whose performance is

not meeting organizational standards

Documents

Chapter 09