Performance Appraisals Chapter 11 Performance Appraisals © 2014 by McGraw-Hill Education.  This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.  This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 

Learning Objectives Role of performance appraisals in compensation decisions Strategies for better understanding and measuring job performance Putting it all Together: The performance evaluation process 11-2

Learning Objectives Equal employment opportunity and performance evaluation Tying pay to subjectively appraised performance Promotional increases as a pay-for-performance tool 11-3

The Role of Performance Appraisals in Compensation Decisions Used for organizational decisions Performance ratings are influenced by: Employee behaviors observed by raters Organization values Competition among departments Inter-departmental status differences Economic conditions 11-4

The Role of Performance Appraisals in Compensation Decisions Drawbacks of appraisal Are too subjective Possibility of unfair treatment by supervisor Ways to improve performance appraisal Recognize the influence of work environment and system on performance Identify strategies for measuring job performance better 11-5

Strategies to Better Understand and Measure Job Performance Define job performance What exactly should be measured Determine counterproductive performance Based on negative employee behavior Focus on performance dimensions of: Planning and organizing Training and coaching Developing subordinates and technical proficiency 11-6

Strategies to Better Understand and Measure Job Performance Balance score card approach Determines what contributes value in an organization Success depends on satisfied: Customers Employees Measures four dimensions Customer satisfaction Employee internal growth and commitment Operational efficiency in internal processes Financial measures 11-7

Strategies to Better Understand and Measure Job Performance Improve appraisal formats Select the right raters Understand how raters process information Training raters to rate more accurately 11-8

Improve Appraisal Formats Ranking format: Raters compare employees against each other to: Determine the relative ordering of the group on some performance measure Straight ranking: Employees are ranked relative to each other Alternation ranking: Raters are asked to indicate the best and worst employee Paired-comparison ranking: Raters to make ranking judgments about discrete pairs of people 11-9

Improve Appraisal Formats Rating formats Require raters to evaluate employees on some absolute standard Each performance standard is measured on a scale Standard rating scale: Adjectives are used as anchors Behaviorally anchored rating scales (BARS): Behaviors are used as descriptors 11-10

Exhibit 11.2 - Rating Scale Using Absolute Standards 11-11

Exhibit 11.3 - Standard Rating Scale with Behavioral Scale Anchors 11-12

Exhibit 11.3 - Standard Rating Scale with Behavioral Scale Anchors 11-13

Improve Appraisal Formats Management by objectives (MBO) A planning and an appraisal tool Organization objectives are identified: From the strategic plan of the company Such that they support attainment of organizational goals Essay format: Supervisors describe employee performance: In essay form By answering open- ended questions 11-14

Exhibit 11.6 - Components of a Successful MBO Program 11-15

Exhibit 11.7 - An Evaluation of Performance Appraisal Formats Employee Development Criterion Administration Criterion Personnel Research Criterion Economic Criterion Validity Criterion Ranking Poor Average Good Standard rating scales Behaviorally anchored Management by objectives Excellent Essay Unknown 11-16

Evaluating Performance Appraisal Formats Five dimensions Employee development potential Administrative ease Personnel research potential Cost Validity 11-17

Select the Right Raters 360-degree feedback Assesses employee performance from points of view of: Supervisor, peer, self, customer, subordinate Improves employee understanding and self-awareness Promotes communication and better performance Supervisors as raters Have prior experience in rating employees Have idea about expected level of performance 11-18

Select the Right Raters Peers as raters Work more closely with the ratee Have an undistorted perspective of typical performance Self as rater Generally more lenient and possibly more unreliable Enables realistic assessment Customer as rater Result of recognizing the importance of customers 11-19

Select the Right Raters Subordinate as rater - Allows seniors to: Know how they are viewed by their subordinates See their strengths and their weaknesses as a leader and modify their behavior 11-20

Understand How Raters Process Information The rater Observes the behavior of a ratee Encodes ratee behavior Stores information in memory When evaluating a ratee: Review performance dimensions Retrieve stored observations to determine relevance of performance dimensions 11-21

Common Errors in Appraising Performance Errors in observation (attention) Errors in storage and recall Errors in the actual evaluation 11-22

Exhibit 11.9 - Common Errors in the Appraisal Process 11-23

Common Errors in Appraising Performance Factors that lead raters to give inaccurate appraisals: Guilt Embarrassment about giving praise Taking things for granted Not noticing good or poor performance The halo effect Dislike of confrontation Spending too little time on preparation of the appraisal 11-24

Training Raters to Rate More Accurately Rater-error training Reduces psychometric errors by familiarizing raters with their existence Performance-dimension training Exposes supervisors to the performance dimensions to be used in rating Performance-standard training Provides raters with a standard or frame of reference for making appraisals 11-25

Generalizations About Ways to Improve Rater Training Straightforward lecturing to ratees is ineffective Individualized or small group discussions are more effective Extensive practice and feedback significantly improves rating accuracy Longer training programs are more successful 11-26

Generalizations About Ways to Improve Rater Training Combining performance-dimension and performance-standard training Is more effective than rater-error training Success results from reducing halo errors and improving accuracy 11-27

The Performance Evaluation Process Provides a sound basis for establishing Performance appraisal dimensions and scales associated with each dimension Involves employees Ensure that: Raters are trained in use of appraisal system and motivated to rate accurately All employees understand how the system operates 11-28

The Performance Evaluation Process Raters should maintain a diary of employee performance Raters should attempt a performance diagnosis to: Determine in advance if performance problems arise because of: Motivation, skill deficiency, or external environmental constraints 11-29

Preparation for the Performance Interview Keep a weekly log of individual’s performance Provide continual feedback to the employee on his or her performance Allow sufficient time to write up the evaluation Have employees fill appraisal form Set up an agreed-upon, convenient time to hold the interview 11-30

Preparation for the Performance Interview Be prepared Arrange the room in such a way as to encourage discussion 11-31

Performance Appraisal Steps Set the subordinate at ease Give a general, overall impression of the evaluation Discuss each dimension separately Develop action plans to correct problem areas Close the interview on an optimistic note 11-32

Equal Employment Opportunity and Performance Evaluation Key Issues: Establishing a Performance Appraisal System 1 Provide specific written instructions on how to complete appraisal 2 Incorporate clear criteria for evaluating performance - Performance dimensions should be written, objective, and clear 3 Provide a rational foundation for personnel decisions via adequately developed job descriptions 4 Require supervisors to provide feedback about appraisal results to employees 5 Incorporate a review of performance ratings by higher level supervisors 6 Consistent treatment across raters, regardless of race, color, religion, sex, and national origin should be evident 11-33

Tying Pay to Subjectively Appraised Performance Pay increase guidelines with low-motivation potential provide: Equal increases to all employees regardless of performance General increase Cost-of-living adjustments Seniority increases Pay increases based on a preset progression pattern based on seniority 11-34

Tying Pay to Subjectively Appraised Performance Tying pay to performance requires: Defining performance on basis of Behaviors, competencies, and traits A continuum that describes different levels on the performance measure Deciding how much of a merit increase will be given for different levels 11-35

Exhibit 11.11 - Performance-based Guidelines 11-36

Designing Merit Guidelines Four Questions . . . 1 What should the poorest performer be paid as an increase? 2 How much should average performers be paid as an increase? 3 How much should top performers be paid? 4 What should be the size of the percentage increase differential between different levels of performance? 11-37

Promotional Increases as a Pay-for-Performance Tool Effective method of rewarding good performance Promotion accompanied by a salary increase - 8 to 12% Characteristics of promotional pay increases Size of increment is approximately double a normal merit increase Reward employees for commitment and exemplary performance 11-38