Performance Appraisal Presentation

Paul L. Schumann, Ph.D.Professor of Management

MGMT 440: Human Resource Management

1© 2008 by Paul L. Schumann. All rights reserved.

OutlinePerformance MeasurementFunctions of Performance AppraisalCriteria for Effective Performance Appraisal

SystemsTypes of Performance to MeasurePerformance Appraisal MethodsPerformance Raters (Evaluators)Performance Feedback

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Performance ManagementPerformance appraisal: the measurement and

assessment of an employee’s job performancePerformance management: the integration of

performance appraisal systems with other HRM systems for the purpose of aligning the employees’ work behaviors and results with the organization’s goalsExample: link an employee’s pay increase to the

employee’s job performance To do this, we have to measure the employee’s job performance

Goal: Improve the organization by improving the employees’ work behaviors and results

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Performance Management Cycle

Source of figure: Adapted from Fisher, Schoenfeldt, & Shaw (2006), Figure 10.1, p. 421

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Development Tool

Administrative Tool

Functions of Performance AppraisalEmployee Development Tool

Goal setting: Set performance goals for each employee Involve the employee in goal setting Make the goals specific, concrete, & measurable

Example goals (some of many) for a retail store manager: Sales goal for year = $2 million Customer satisfaction goal = average rating of 4.5 on

5-point customer satisfaction rating scale Make the goals difficult but achievable, challenging but

realistic Empower employees to achieve their goals

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Functions of Performance AppraisalEmployee Development Tool (more)

Provide feedback to reinforce & sustain performance Employees need to know how they are doing

Provide help & advice to improve performance Be a coach in addition to being a boss

Assist employees in achieving career progression goals

Determine training needs Do employees have job performance deficiencies for

which training would be an effective remedy?6

Functions of Performance AppraisalAdministrative Tool

Link rewards to performance Examples: pay increases, promotions, demotions,

terminations, disciplinary actions, etc. Goal: Create incentives to motivate employees to

increase their performanceEvaluate HRM policies & programs

Example: Evaluate a training program: Measure job performance before and after training to see if performance improved

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Criteria for Effective Performance Appraisal Systems1. Validity: are we measuring the right thing?

Are we really measuring job performance? We want to measure important (“relevant”) aspects of job

performance, in a way that is free from extraneous or contaminating influences, and that encompasses the whole job (i.e., our measures of job performance are not “deficient”: we aren’t leaving out important aspects of job performance)

2. Reliability: consistency of measurementExample: inter-rater reliability

If two people observe a particular employee’s job performance, do they agree in their rating of the employee’s performance?

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Criteria for Effective Performance Appraisal Systems3. Freedom from bias

It does not illegally discriminate (race, sex, age, etc.)It is free from rating errors (intentional or

unintentional): Leniency errors Severity errors Central tendency errors Halo errors

4. PracticalityThe benefits the organization gets from using it

should outweigh the costs of developing & using it Utility analysis

It should be relatively easy to useIt should be accepted by managers and employees

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Types of Performance to MeasureWhat aspects of an employee’s job

performance can we measure?We have 3 basic choices:

Results produced by the employee Example for a salesperson: Amount of sales ($) in

the past month Behaviors of the employee

Example for a salesperson: Number of sales calls in the past month

Traits of the employee Example for a salesperson: Friendliness

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Types of Performance to MeasureResults-based (results-oriented): measure the

results produced by the employeeExamples for a retail store manager (examples

of some results for which the store manager has responsibility and so should be held accountable): Sales of the store Profit per square foot Inventory shrinkage Customer satisfaction

Makes sense for most jobs Results matter (usually)

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Types of Performance to MeasureResults-based (more)

Challenges: Which results are relevant may not be obvious for

all jobs Some results are not under the employee’s control May foster a “results at all costs” mentality May interfere with teamwork May be difficult to provide effective feedback

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Types of Performance to MeasureBehavior-based (behavior-oriented): measure the

employee’s behaviorsExamples for a retail store manager:

Good attendance Completes management reports correctly & on time Monitors customers and employees for theft Coaches employees to welcome customers to the store &

offer assistance within 3 minutes, and to thank customers as they leave

Conducts regular sessions with employees to develop teamwork

Makes sense for many jobs Use it where how the employee produces results matters

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Types of Performance to MeasureBehavior-based (more)

Advantage: Makes it easier to provide effective performance feedback to employees Examples for a retail store manager:

Feedback with results-oriented performance appraisal: “You didn’t achieve your sales goal.” (Measured by sales reports)

Feedback with behavior-oriented performance appraisal: “You are allowing your employees to wait too long before offering help to customers.” (Measured by observations of a secret shopper)

Challenges: Difficult to capture the full range of relevant behaviors Different behaviors can lead to the same results

We may not always care which behaviors were used14

Types of Performance to MeasureTrait-based (trait-oriented): measure the

employee’s personal characteristicsExamples for a retail store manager:

Ability to make decisions Loyalty to the company Communication skills Level of initiative

This is usually a bad idea for several reasons: Poor reliability & validity of measures of traits Weak relationship between traits and job effectiveness Measurements of traits are more likely to be subject to

biases (sexism, racism, ageism, etc.) Hard to use traits to provide effective feedback

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Types of Performance to MeasureSo, in most cases, we want to measure the

job performance of an employee in terms of the results and behaviors of the employeeMake a list of results & behaviors that are

relevant to the job Starting point: Use the job description to identify

the essential tasks of the job Example task statement on job description for a

Retail Store Manager: “Manage inventory shrinkage.”

Translate the tasks into results & behaviors Example (continued): Measure the amount of

inventory shrinkage in the store (a result)

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Performance Appraisal MethodsOnce we decide which results & behaviors

we want to measure, we next need to decide how to measure those results & behaviorsWe have 3 categories of choices:

Objective measures of performance Subjective measures of performance Management By Objectives

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Performance Appraisal MethodsObjective measures: measure an employee’s job

performance in terms of things we can see and count with no (or minimal) use of opinionProduction measures: count units produced by an

employeeSales measures: count the sales ($) of an

employeePersonnel data: count things in the employee’s

personnel file Examples:

Number of times late to work Number of times absent Number of disciplinary actions taken

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Performance Appraisal MethodsObjective measures (more):

Performance tests: for an employee, evaluate work samples or simulations under standardized conditions Example: for an airline pilot, program a flight simulator with

specific flight conditions to test if the pilot handles it correctly

Business unit performance measures: for managers who are responsible for a business unit, measure their performance by measuring the performance of the business unit they lead Examples:

Market share of the business unit Profit measures for the business unit: profits & profit rates

(return on sales, return on assets, return on equity) Stock price

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Performance Appraisal MethodsSubjective measures: measure an employee’s job

performance using human judgmentRanking: subjectively rank employees from best to worst

Example:1. Bob2. Carol3. Ted4. Alice

Note carefully that the ranking is in terms of subjective opinion (e.g., who is your best salesperson overall?), not objective factors (e.g., which salesperson sold the most?)

Note the ranking requires you to compare one employee to another

Problem: it can be hard to determine the subjective ranking position of employees who are in the middle (it all blurs together)

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Performance Appraisal MethodsSubjective measures (more)

Paired comparisons: for all possible pairs of employees, subjectively decide which employee is better # of paired comparisons = (N2 − N)/2 Example: N = 4 (42 − 4)/2 = 6 paired comparisons:

Bob > Carol; Bob > Ted; Bob > Alice Carol > Ted; Carol > Alice Ted > Alice

Example: N = 12 (122 − 12)/2 = 66 paired comparisons Note that you are comparing one employee to another Problem: inconsistent subjective comparisons: Bob >

Carol; Carol > Ted; Ted > Bob (see the inconsistency here?)

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Rating scale (graphic rating scale): subjectively rate the employee’s job performance on a labeled numeric measuring scale Rating scales are perhaps the most commonly used

method of subjectively evaluating an employee’s job performance

Before we use a rating scale to subjectively rate an employee’s job performance, we need to: Identify the aspects of job performance (results &

behaviors) that are to be evaluated (rated) using the rating scale

Develop the rating scale itself22

Performance Appraisal MethodsRating Scale Examples Rating Scale ExamplesExamples of a 5-point

scale:5 = Excellent

4 = Very satisfactory3 = Satisfactory2 = Unsatisfactory1 = Very unsatisfactory

5 = Greatly exceeds standards4 = Exceeds standards3 = Meets standards2 = Below standards1 = Far below standards

Example of a 7-point scale:7 = Truly exceptional

6 = Excellent5 = Very good4 = Good3 = Satisfactory2 = Unsatisfactory1 = Very unsatisfactory

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Rating scale (more) The same rating scale can be used to rate:

Overall job performance, and Multiple specific aspects of job performance

Some aspects of job performance can be measured objectively and subjectively Example: Quality of work

Objective measure: defect rate (percentage of units produced by an employee that fail inspection)

Subjective measure: subjectively rate the quality of the employee’s work using a 5-point rating scale

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Performance Appraisal MethodsSubjective measures

(more)Rating scale (more)

Example: MSU Course Evaluation Form Note how the same 5-

point rating scale is used to evaluate several different aspects of the professor’s job performance: Course as a whole Instructor’s

contribution to the course

Use of class time Etc.

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More Examples of Rating ScalesDecisions:

Use a graphic or just use words?

Label all the points on the scale, or just label some?

Odd or even number of points on the scale?

Fewer points on the scale, or more points on the scale?

Source of figure: Fisher, Schoenfeldt, & Shaw (2006), Figure 10.6, p. 449

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Rating scale (more) Note that rating scales do not require you to compare one

employee to another — the ratings are absolute, not comparative

Problems: No limits on leniency, severity, & central tendency errors

Example: a manager rates all of his employees at “5 = Excellent” regardless of the employees’ actual performances

Possible solution: forced distribution? The terms used in a rating scale to describe different levels

of performance tend to be short and vague Example: What does “Excellent” really mean? Possible solution: BARS?

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Forced distribution: evaluator must place a fixed percentage of employees in each performance category Example:

10% must be rated 5 = Excellent25% must be rated 4 = Very satisfactory45% must be rated 3 = Satisfactory15% must be rated 2 = Unsatisfactory5% must be rated 1 = Very unsatisfactory

Note that you are comparing one employee to another Problem: what if the distribution being forced doesn’t

fit?

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Behaviorally Anchored Rating Scale (BARS): replace the vague descriptors in a rating scale with specific examples of performance Example: Customer assistance

5 = Could be expected to volunteer to help customer and to walk with customer to location of desired product4 = Could be expected to walk with customer to location of desired product when asked for help by customer3 = Could be expected to tell and point customer to where the desired product is located when asked for help by customer2 = Could be expected to shrug shoulders and walk away when asked for assistance by customer1 = Could be expected to hide from customers in the employee break-room

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BARS (more) Note that a different scale will be needed for each

aspect of job performance Advantages:

Job-relevant measures of performance Involves employees in developing scales

Disadvantages: More work (time & money) to develop BARS Employees may not consistently fit into one of the

BARS categories Possible solution: BOS?

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Behavioral Observation Scale (BOS): evaluators rate the frequency with which an employee engages in specific behaviors Example: on a list of possible employee behaviors, rate

how often the employee engages in each behavior using a rating scale where:1 = almost never 5 = almost always

Weighted checklist: from a list of possible employee behaviors, check off the ones that apply to the employee Example: Fisher, Schoenfeldt, & Shaw (2006), Figure 10.8,

p. 452

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Performance Appraisal MethodsManagement By Objectives (MBO): evaluate

employee job performance in terms of the extent to which the employee achieved each of his or her goals during a specified period of timeGoals can be both objective and subjective

Example goals (some of many) for a retail store manager: Objective: Sales goal for year = $2 million Subjective: Customer satisfaction goal = average rating

of 4.5 on 5-point customer satisfaction rating scale

Commonly used for managers and professionals

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Performance Appraisal MethodsMBO (more)

Process: At the beginning of the review period, the employee

and the supervisor meet and they agree on a set of goals to be achieved by the employee during the review period Review period is typically one year, but could be more

often Apply the goal setting principles:

Involve the employee in goal setting Make the goals specific, concrete, & measurable Make the goals difficult but achievable, challenging

but realistic Empower employees to achieve their goals

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Performance Appraisal MethodsMBO (more)

Process (more): Throughout the review period, progress toward the

goals is monitored Employee’s supervisor should be providing coaching

to help the employee achieve his or her goals At the end of the review period, the employee and

the supervisor meet to evaluate the extent to which each goal was achieved and to set new goals for the next review period

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Performance Raters (Evaluators)Who should be asked to evaluate the job

performance of an employee?Performance evaluators need to have:

Opportunity to observe the employee’s job performance

Ability to translate observations of performance into an evaluation of performance

Motivation to do a good job of observing & evaluating

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Performance Raters (Evaluators)Options for Job Performance Evaluators

SupervisorsSelf-evaluationPeers (co-workers)SubordinatesCustomers

External customers Internal customers

360-Degree Appraisals

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Performance FeedbackEmployees need effective feedback

Allow time & eliminate distractionsOkay to cover both administrative issues (e.g.,

pay increase) & developmental issues (e.g., future goals) in one feedback session

Provide specific feedback Example:

Don’t say: “You’re always late.” Do say: “You were more than 5 minutes late on 25

occasions in the past 3 months. This is unacceptable. We need to develop (1) a specific goal concerning prompt attendance and (2) an action plan that you will follow to achieve the goal.”

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Performance FeedbackTypes of feedback sessions:

Tell-and-sell: the supervisor tells the employee the results of the performance appraisal and explains the reasons why the appraisal is correct

Tell-and-listen: the supervisor tells the employee the results of the performance appraisal and listens to the employee’s response

Problem solving: the supervisor acts as a coach to assist the employees in setting their own goals and in evaluating their own job performance

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Performance FeedbackTypes of feedback sessions (more):

Combination of tell-and-sell & problem solving: First part of feedback session: tell-and-sell

Focus on the past: Supervisor tells the employee the results of the

performance appraisal and explains the reasons why the appraisal is correct

Supervisor tells the employee about any administrative decisions that were made (e.g., pay increases, etc.)

Second part of feedback session: problem solving Focus on the future:

Supervisor acts as a coach to help the employee identify barriers to improved future job performance

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OutlinePerformance MeasurementFunctions of Performance AppraisalCriteria for Effective Performance Appraisal

SystemsTypes of Performance to MeasurePerformance Appraisal MethodsPerformance Raters (Evaluators)Performance Feedback

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Documents

Performance Appraisal Presentation