Designing Performance Appraising System Lesson 10 & 11 Presented By: Furqan Ilyas Divisional Manager HR Shahkam Industries (Pvt.) Limited

8–2 Objectives After studying this chapter, you should be able to: 1.Identify the characteristics of an effective appraisal program. 2.To Identify the Competencies for the Jobs in your Organization 3.Explain Performance Objective and IDP’s (Individual Development Plans) 4.Designing KRA’s & KPI’s for Various Functions 5.Explain the various methods used for performance evaluation.

8–3 Strategy- Based Performance Management Strategic Business Plan Mission/Vision/Values Department/Unit/ Individual Objectives Core Competencies How Competencies What Performance Objectives Employee’s Responsibilities Achieve objective Solicit feedback & coaching Communicate openly Collect & Share Data Prepare for reviews Manager’s Responsibilities Create conditions that motivate Update objectives Provide feedback Provide develop. opportunities Reinforce effective behavior Phase 1: Performance Planning Objectives Competencies IDP’s Phase 3: Evaluation Objectives Competencies IDP’s Phase 2: Monitoring & Coaching Objectives Competencies IDP’s

8–4  Trait evaluation  Confidential reports  Evaluation against set objectives  Individual  Groups/teams  Organisation HISTORY

8–5 CHANCE FACTORS ENVIRONMENTAL FACTORS THE EQUATION OF PERFORMANCE INVIDUAL PERFORMANCE = ABILITY x MOTIVATION x ORGANISATIONAL SUPPORT Ability – training, retraining, instructions Motivation – intrinsic/extrinsic company policies, departmental atmosphere, personal matters Organizational support – post training, developmental plans

8–6 The Three Components of Performance Management If an employee fails to meet certain work objectives, the competency evaluation will typically reveal the reasons why. An employee can meet their performance targets, yet be rude to customers, disrupt the team, and fail to keep commitments. Providing employees with performance feedback on competencies gives them the information they need to be successful. Objectives : Identifying and evaluating employees’ major work objectives – this is a measurement of results. Competencies: this is a measurement of the behavioral characteristics that impact results. Development: Creating Individual Development Plans (IDPs) to enhance employee strengths and to close performance gaps as determined by the competency evaluation.  Tip:  Objectives measure the What of the job.  Competencies measure the How of the job.

8–7 The Three Phases of Performance Management Phase One – Performance Planning: During Phase One, supervisors and their direct reports:  Identify major work objectives.  Review competencies.  Establish individual development plans (IDPs).  Identify action steps for achieving both the performance objectives and personal development.

8–8 The Three Phases of Performance Management Phase Two – Monitoring and Coaching: During Phase Two, supervisors work closely with direct reports to monitor progress toward meeting the major work objectives and follow through with planned professional development activities.  Phase Two is really the backbone of the successful performance management system – it is a continuous process. Employees need regular reinforcement to help maintain focus on their goals, and get regular encouragement to participate in professional development activities.  There is a range of options for providing feedback – some organizations require formal monitoring and coaching sessions on a quarterly basis. In others, supervisors incorporate monitoring and coaching into their everyday interactions with their direct reports.

8–9 The Three Phases of Performance Management Phase Three – Evaluation: During Phase Three, supervisors evaluate performance results for objectives, Individual Development Plans and competencies.  In many organizations, supervisors perform a unilateral assessment of all three.  However, the process is much more effective when employees participate fully by completing self assessments of their objectives and competencies. Even when employees’ self-assessments are inaccurate, there can be tangible benefits from a process that requires employees to think through their degree of proficiency in the competencies most important for success.  Performance Assessment and Development FormDevelopment

8–10 SALES FROM Rs 2 CRORES TO Rs 3 SALES OF ABC FROM Rs 2 CRORES TO Rs 3 CRORES FOR THE YEAR SALES OF ABC FROM Rs 2 CRORES TO Rs 3 CRORES IN THE WESTERN REGION FOR THE YEAR SETTING OBJECTIVES- SMART CRITERIA

8–11 JOB OBJECTIVES CHECK LIST Do they cover almost all areas/aspects of the job where I am likely to make a difference ? Are they linked to overall performance of the department/unit ? Do they fulfill the SMART criteria ? Do they give me a sense of direction ? Do they clarify my role ? Do I have an activity list or action plan for each JO ? Do they relate to my performance as contrasted with that of my subordinates, peers or seniors ? Do they indicate the extent to which I will be spending my time and the extent to which each is important ?

8–12 EXERCISES – EVALUATE THESE OBJECTIVES To assist the division head in conducting abc study on need basis 2% training mandays for subordinates out of available mandays To enforce adequate internal control in these areas relating to raw materials, store equipments and other service contracts. To provide adequate working capital for operations including business driven variations 15 days training for Mr.. Xyz

8–13 EXERCISES – EVALUATE THESE OBJECTIVES To develop strong second and third line in the department over a period of 1-2 years Provide technical support to achieve x crores worth of production as per budget requirement Training of staff/workmen for higher safety rules and regulations along with house keeping Ensure timely completion of testing activities of QA FP section (approx samples/year) Improve profitability of abc product To produce 50 Mt/month of product Improve RM consumption norms

8–14 SOME GOOD OBJECTIVES Increase in sale of 555 from 2 to 3 crores in the western region for the year Develop a, b and c upto plant scale up by March Achieve RM consumption of x kg/kg of FP to y kg/kg of FP by March 03 Increase internal customer satisfaction from 65% to 70% by March 03 Reduce absenteeism in the manufacturing area by 5% for the year Achieve a average interest rate of X% for the year 02-03

8–15 Anchoring Targets to the Rating Scale Business Success CriteriaTarget Order BookingRs. 20 Crore 20 Million 22 Million 25 Million 15 Million18 Million The required level of achievement for each point on the Five Point Rating Scale must be defined

8–16 Evaluation of Individual Performance Objective To set “clear performance expectations” from the individual Step 1 Performance Planning Step 2 Monthly reviews and feedback Step 4 Final Performance Appraisal [Q4] Key features Performance measured on KRA’s and Routine Responsibilities KRA’s, typically from the Department scorecard, identified at the beginning of the year Targets, set once every quarter (Q1: Mid-March, Q2: Mid-July, Q3: Mid-October, Q4: Mid- January) Pre-determined weightages based on job type and Division category Monthly reviews between appraiser and appraisee (important to ensure that any relative change in importance of particular KRA gets reflected or updated in the form) Appraisal & feedback on a quarterly basis Rater bias removed through the introduction of a reviewer Step 3 Quarterly appraisal, review and feedback [Q1, Q2 & Q3]

8–17 Action Planning The Action Plan describes the specific steps, milestones and resources planned by the Appraisee to accomplish the KRA or Routine Responsibility. KRATarget Order BookingRs. 20 Crore Action Plan: –Scan the market on an ongoing basis to identify opportunities –Analyze existing customer base to identify possibilities of repeat orders –Reduce cycle time to submit proposals/tender –Conduct analysis identifying reasons for loss of past orders and determine weather loss was due to technical or commercial reasons –Gather market intelligence on pricing strategy of competitors and keeps units abreast of the same –Have on-going discussions with units on bids being prepared so as to ensure that optimal techno-commercial bid is prepared

8–18 SOME QUESTIONS WE CAN ASK OURSELVES WHILE WE SET OBJECTIVES What are the areas of my activity ? What are the final outcomes of my activity? What outcomes are desired by my management ? What is the desired level of performance ? What is significant about the job I do ? What are the interesting/useful achievements of the past as regards your job ?

8–19 Reasons Appraisal Programs Sometimes Fail Lack of top-management information and support Unclear performance standards Rater bias Too many forms to complete Use of the appraisal program for conflicting (political) purposes.

8–20 Figure 8–2 Let Me Count the Ways... There are many reasons why performance appraisal systems might not be effective. Some of the most common problems include the following: Sources: Patricia Evres, “Problems to Avoid during Performance Evaluations,” Air Conditioning, Heating & Refrigeration News 216, no. 16 (August 19, 2002): 24–26; Clinton Longnecker and Dennis Gioia, “The Politics of Executive Appraisals,” Journal of Compensation and Benefits 10, no. 2 (1994): 5–11; “Seven Deadly Sins of Performance Appraisals,” Supervisory Management 39, no. 1 (1994): 7–8. Inadequate preparation on the part of the manager. Employee is not given clear objectives at the beginning of performance period. Manager may not be able to observe performance or have all the information. Performance standards may not be clear. Inconsistency in ratings among supervisors or other raters. Rating personality rather than performance. The halo effect, contrast effect, or some other perceptual bias.

8–21 Figure 8–2 Let Me Count the Ways (cont’d)... Inappropriate time span (either too short or too long). Overemphasis on uncharacteristic performance. Inflated ratings because managers do not want to deal with “bad news.” Subjective or vague language in written appraisals. Organizational politics or personal relationships cloud judgments. No thorough discussion of causes of performance problems. Manager may not be trained at evaluation or giving feedback. No follow-up and coaching after the evaluation. Sources: Patricia Evres, “Problems to Avoid during Performance Evaluations,” Air Conditioning, Heating & Refrigeration News 216, no. 16 (August 19, 2002): 24–26; Clinton Longnecker and Dennis Gioia, “The Politics of Executive Appraisals,” Journal of Compensation and Benefits 10, no. 2 (1994): 5–11; “Seven Deadly Sins of Performance Appraisals,” Supervisory Management 39, no. 1 (1994): 7–8. There are many reasons why performance appraisal systems might not be effective. Some of the most common problems include the following:

8–22 Who Does the Appraising? Rating Committee Peers You Subordinates Your Boss

Why 360 Feedback is Not Good Enough? ARTICLE # 01

8–24 Figure 8–5 Pros and Cons of 360-Degree Appraisal Sources: Compiled from David A. Waldman, Leanne E. Atwater, and David Antonioni, “Has 360-Degree Feedback Gone Amok?” Academy of Management Executive 12, no. 2 (May 1998): 86–94; Bruce Pfau, Ira Kay, Kenneth Nowak, and Jai Ghorpade, “Does 360-Degree Feedback Negatively Affect Company Performance?” HRMagazine 47, no. 6 (June 2002): 54–59; Maury Peiperl, “Getting 360-Degree Feedback Right,” Harvard Business Review 79, no. 1 (January 2001): 142–47; Joyce E. Bono and Amy E. Colbert, Understanding Responses to Multi-Source Feedback: The Role of Core Self-Evaluations,” Personnel Psychology 58, no. 1 (Spring 2005): 171–205. PROS  The system is more comprehensive in that responses are gathered from multiple perspectives.  Quality of information is better. (Quality of respondents is more important than quantity.)  It complements TQM initiatives by emphasizing internal/external customers and teams.  It may lessen bias/prejudice since feedback comes from more people, not one individual.  Feedback from peers and others may increase employee self- development.

8–25 Figure 8–5 Pros and Cons of 360-Degree Appraisal (cont’d) Sources: Compiled from David A. Waldman, Leanne E. Atwater, and David Antonioni, “Has 360-Degree Feedback Gone Amok?” Academy of Management Executive 12, no. 2 (May 1998): 86–94; Bruce Pfau, Ira Kay, Kenneth Nowak, and Jai Ghorpade, “Does 360-Degree Feedback Negatively Affect Company Performance?” HRMagazine 47, no. 6 (June 2002): 54–59; Maury Peiperl, “Getting 360-Degree Feedback Right,” Harvard Business Review 79, no. 1 (January 2001): 142–47; Joyce E. Bono and Amy E. Colbert, Understanding Responses to Multi-Source Feedback: The Role of Core Self-Evaluations,” Personnel Psychology 58, no. 1 (Spring 2005): 171–205. CONS  The system is complex in combining all the responses.  Feedback can be intimidating and cause resentment if employee feels the respondents have “ganged up.”  There may be conflicting opinions, though they may all be accurate from the respective standpoints.  The system requires training to work effectively.  Employees may collude or “game” the system by giving invalid evaluations to one another.  Appraisers may not be accountable if their evaluations are anonymous.

8– Degree Performance Appraisal System Integrity Safeguards Assure anonymity. Make respondents accountable. Prevent “gaming” of the system. Use statistical procedures. Identify and quantify biases.

8–27 Scheduling 1. Schedule the review and notify the employee ten days to two weeks in advance. 2. Ask the employee to prepare for the session by reviewing his or her performance, job objectives, and development goals. 3. Clearly state that this will be the formal annual performance appraisal. Preparing for the Review 1. Review the performance documentation collected throughout the year. Concentrate on work patterns that have developed. 2. Be prepared to give specific examples of above- or below-average performance. 3. When performance falls short of expectations, determine what changes need to be made. If performance meets or exceeds expectations, discuss this and plan how to reinforce it. 4. After the appraisal is written, set it aside for a few days and then review it again. 5. Follow whatever steps are required by your organization’s performance appraisal system. Conducting the Review 1. Select a location that is comfortable and free of distractions. The location should encourage a frank and candid conversation. 2. Discuss each topic in the appraisal one at a time, considering both strengths and shortcomings. 3. Be specific and descriptive, not general and judgmental. Report occurrences rather than evaluating them. 4. Discuss your differences and resolve them. Solicit agreement with the evaluation. 5. Jointly discuss and design plans for taking corrective action for growth and development. 6. Maintain a professional and supportive approach to the appraisal discussion. Supervisor’s Checklist for the Performance Appraisal

8–28 Performance Appraisal Methods Trait Methods Graphic Rating Scale Mixed Standard Scale Forced-ChoiceForced-Choice EssayEssay

8–29 Trait Data Approach  Makes judgments about traits that tend to be consistent and enduring.  The five - point trait - based scale:  1 very low; 2 low; 3 moderate; 4 high; 5 very high  Has the tendency to focus more on the person and his/her behavior on the job, rather than on the performance, with the qualitative and quantitative indicators.

8–30 Trait Methods Graphic Rating-Scale Method  A trait approach to performance appraisal whereby each employee is rated according to a scale of individual characteristics. Mixed-Standard Scale Method  An approach to performance appraisal similar to other scale methods but based on comparison with (better than, equal to, or worse than) a standard. Outstanding

8–31 Graphic Rating Scale with Provision for Comments

8–32 Highlights in HRM 3 Example of a Mixed-Standard Scale

8–33 Forced-Choice Method Requires the rater to choose from statements designed to distinguish between successful and unsuccessful performance. 1. _ a) Works hard _____ b) Works quickly 2. _ a) Shows initiative_____ b) Is responsive to customers 3. _ a) Produces poor quality_____ b) Lacks good work habits Merck began using this rating method for exempt employees when it found other methods resulted in 80% of employees rated a 4 or higher on a 5 point scale.

8–34 Narrative Forms / Essay method Final appraisals are frequently in a written narrative form Supervisor rates employee’s:  Performance factor or skill  Give examples & an improvement plan  Explains good & bad performance areas

8–35 Behavioral Methods Critical Incident Behavioral Checklist Behaviorally Anchored Rating Scale (BARS) Behavior Observation Scale (BOS)

8–36 Behavioral Data Approach  Behavioral standards are concrete, they provide employees with specific examples on the types of behaviors to engage in (and to avoid), if they want to do well in the organization.  The development of standards is time- consuming, the specificity of the anchors is clear and concrete, but it offers only examples.

8–37 Behavioral Methods Critical Incident Method  Critical incident  An unusual event that denotes superior or inferior employee performance in some part of the job  The manager keeps a log or diary for each employee throughout the appraisal period and notes specific critical incidents related to how well they perform. Behavioral Checklist Method  The rater checks statements on a list that the rater believes are characteristic of the employee’s performance or behavior.

8–38 Behavioral Methods Behaviorally Anchored Rating Scale (BARS)  Consists of a series of vertical scales, one for each dimension of job performance; typically developed by a committee that includes both subordinates and managers. Behavior Observation Scale (BOS)  A performance appraisal that measures the frequency of observed behavior (critical incidents).  Preferred over BARS for maintaining objectivity, distinguishing good performers from poor performers, providing feedback, and identifying training needs.

8–39 Highlights in HRM 4 Example of a BARS for Municipal Fire Companies FIREFIGHTING STRATEGY: Knowledge of Fire Characteristics. Source: Adapted from Landy, Jacobs, and Associates. Reprinted with permission.

8–40 Highlights in HRM 5 Sample Items from Behavior Observation Scales

8–41 Results Methods Productivity Measures  Appraisals based on quantitative measures (e.g., sales volume) that directly link what employees accomplish to results beneficial to the organization.  Criterion contamination  Focus on short-term results Management by Objectives (MBO)  A philosophy of management that rates performance on the basis of employee achievement of goals set by mutual agreement of employee and manager.

8–42 Result Approach  Position:  is an aggregate of functions (critical functions and accountabilities)  Function:  is an aggregate of tasks  Tasks:  are clearly defined daily duties  Expected standards /outcomes:  are built and agreed upon for functions and accountabilities  Relative weight/importance:  is given to each critical accountability

8–43 Figure 8–6 Performance Appraisal under an MBO Program MANAGEMENT BY OBJECTIVES

8–44 Figure 8–7 Summary of Various Appraisal Methods

8–45 Computerized Performance Appraisal Visit these web sites for online performance rating tools

8–46 Most Commonly Used Appraisal Methods Society for Human Resource Management reports about 89% of surveyed managers use performance appraisal for all their employees

Management Appraisal at Attock Refinery Limited CASE STUDY

8–48 After careful reading of the case you are required to answer following question?  What are the primary objectives of the Management Appraisal System at Attock Refinery?  What is your evaluation of the ARL’s Management Appraisal System?  How important is Management Appraisal System such as the one at Attock Refinery for managing effective managerial performance?  What steps should Mr.Khattak take to make the appraisal system more effective and aligned to Organizational Strategy?

Preparation: communication, appeals process, training programs and pilot testing IMPLEMENTING A PERFORMANCE MANAGEMENT SYSTEM

8–50 1-Communications: A good communication plan answers the following  What is performance management?  How does performance management fits into our strategy?  What’s in it for me?  What are my responsibilities?  How is performance management related to other initiatives?

8–51 Considerations to minimize the effects of communication barriers Selective exposure, selective perception and selective retention biases are pervasive and could easily render the communication plan ineffective; Considerations to minimize the effects of communication barriers  Involve employees  Understand employee needs  Strike first: create a positive attitude for the new Performance Management system before any negative attitude and rumors are created.  Provide facts and consequences  Put it in writing  Use multiple channels of Communication  Use credible communications  Say it, and say it again

8–52 2- Appeal procedure The inclusion of an appeal process is important in gaining employee acceptance for the Performance Management system;  It allows employees to understand that, if there is a disagreement regarding ratings or any resulting decisions, then such disagreements can be resolved in an amicable and non-retaliatory way.  It increases perceptions of the system as fair. the employees have the ability to question 2 types of issues;  Judgmental- validity of performance evaluation, rating on one or more principle functions, explanatory remarks etc  Administrative-whether the policies and procedures are followed properly or not e.g. violation of regular review practice, failure to receive performance bonus when eligible, the amount of the increase of bonus

8–53 3-Training the rater Content areas that can be included in Rater Training Programs  Reasons for implementing the Performance Management System  Information on the Appraisal form and system mechanism  How to identify and rank the Job activities  How to minimize raters errors  How to conduct an appraisal interview  How to train, counsel and coach

8–54 4-Pilot Testing It is a good idea to test a version of the entire system before formal implementation of PMS as it allows for the identification and early correction of any flaws before the system is implemented through out the organization.  evaluations are not recorded on the employees files.  It is another way to achieve the early acceptance Selection of the group for pilot test  Willingness of the manager  The manager / team should be flexible and willing to try new things?  Team/Group should be sufficiently large & representative of the entire organization

8–55 5-ongoing monitoring and review  Regularly review the  number of individuals evaluated  distribution of the performance ratings  quality of information provided in the open ended sections  quality of performance discussion meetings  system satisfaction  overall cost/benefit ratio

8–56 Do Appraisals Really Help? Traditional appraisals may be counterproductive One study showed 32% rated appraisals ineffective; 4% rated them effective Performance management System may offer better results

8–57 Key Terms behavior observation scale (BOS) behaviorally anchored rating scale (BARS) contrast error critical incident customer appraisal error of central tendency essay method forced-choice method graphic rating-scale method leniency or strictness error management by objectives (MBO) manager and/or supervisor appraisal mixed-standard scale method peer appraisal performance appraisal performance management recency error self-appraisal similar-to-me error subordinate appraisal team appraisal