Performance Appraisals Chapter 11 Performance Appraisals

Learning Objectives After discussing Chapter 11, students should be able to: Summarize the key issues involved in defining and measuring employee performance. Discuss the key components of the four strategies to better understand and measure performance. Identify the five categories of performance appraisal formats and discuss the issues involved in determining which format would be the most appropriate to use. Understand how raters process information and identify the major errors that can occur in this process. Outline the key elements to maximize a good outcome in a performance management system. Understand the legal issues affecting performance appraisals. Explain the issues involved in designing merit pay guidelines to link pay to performance.

Nature of Performance Appraisals You can’t manage what you don’t understand. You don’t understand what you don’t measure. What gets measured gets done. What gets measured gets rewarded.

Role of Performance Appraisal Control mechanism for feedback Allows employee progress to be assessed Ensures strategy-consistent behavior Reinforces values of organization Ensures alignment of individual performance and behavior to Organization culture Work systems

Purposes of Performance Appraisal Evaluation Performance measurement Compensation Motivation Development Management development Identification of Potential Feedback Human resource planning Communications Performance improvement

Steps to Improve Performance Appraisal Process Recognize part of performance is influenced more by work environment and systems than by employee behaviors Identify strategies to understand and measure job performance better

Strategies to Better Understand and Measure Job Performance 1 Clearly define job performance 2 Recognize definition of performance and its components is expanding 3 Improve appraisal formats 4 Select the right raters 5 Understand way raters process information and mistakes that may be made 6 Train raters to improve rating skills

Strategy to Better Understand and Measure Job Performance Improve Appraisal Formats

Performance Appraisal Approaches Attribute graphic rating scales Comparative ranking forced distribution paired comparison Behavioral critical incidents BARS/BES BOS Results - objective measures Show me the performance!

Rating Errors Group Errors Individual Errors Central tendency Leniency Strictness Individual Errors Halo/stereotype/similar-to-me Recency Contrast

Rate each worker using the scales below. Sample Trait Scales Rate each worker using the scales below. Decisiveness: 1 2 3 4 5 6 7 Very low Moderate Very high Reliability: 1 2 3 4 5 6 7 Very low Moderate Very high Energy: 1 2 3 4 5 6 7 Very low Moderate Very high Trait appraisal instruments ask the supervisor to make judgments about traits. Shown here are four traits that are typically found on trait-based rating scales. Trait ratings have been criticized for being much too ambiguous, and leaving the door open for conscious or unconscious bias, In addition, trait ratings are less defensible in court than other types of ratings. Loyalty: 1 2 3 4 5 6 7 Very low Moderate Very high

Trait Rating Scales Advantages Disadvantages Easy to develop Inexpensive Use across different jobs Disadvantages Subjective/subject to errors Not job specific Difficulty with feedback Potential legal problems

Employee Comparisons Rank order/forced choice/paired comparison Advantages Distribution for decision making No central tendency/leniency Disadvantages Halo error/individual errors Comparing pears to bananas Feedback/justification Scale doesn’t provide for amount of differences

Behavior-based Scales Behavior Expectation Scales (Behaviorally Anchored Rating Scales) 1. Ask managers for critical incidents – behaviors that reflect particularly effective/ineffective behavior 2. Sort into categories and rank within each category 3. Ask for additional incidents to fill in categories 4. Retranslate – ask managers to sort

Objective-based Ratings Profits/production/quality/sales Advantages Objective/eliminate rating errors Disadvantages Deficient – may omit important factors Focus on quantifiable/observable results Situational factors Feedback Encourages results at all costs

Usage of Performance Evaluation Formats

Strategy to Better Understand and Measure Job Performance Select the Right Raters

Select the Right Raters Supervisors Peers Self Vendors Subordinates Customers

Strategy to Better Understand and Measure Job Performance Understand How Raters Process Information and Potential Mistakes

The Rating Process Rater observes behavior of a ratee Rater encodes ratee behavior Rater stores information in memory When it is time to evaluate a ratee, rater Reviews performance dimensions and Retrieves stored observations to determine relevance to performance dimensions Information is reconsidered and integrated with other available information as rater decides on final ratings

Understand Why Raters Make Mistakes Errors in rating process Types of Errors Errors in observation (attention) Errors in storage and recall Errors in actual evaluation

Training Raters to Rate More Accurately Rater-error training Goal is to reduce psychometric errors by familiarizing raters with their existence Performance dimension training Exposes supervisors to performance dimensions used Performance-standard training Provides raters with a standard or frame of reference for making appraisal

Putting it All Together: The Performance Evaluation Process Key elements making for a good outcome 1 Need a sound basis for establishing performance appraisal dimensions and scales associated with each dimension 2 Need to involve employees in every stage of developing performance dimensions and building scales 3 Need to ensure raters are trained in use of appraisal system and that all employees understand how system operates 4 Need to ensure raters are motivated to rate accurately 5 Raters should maintain a diary of employee performance 6 Raters should attempt a performance diagnosis to determine if performance problems exist 7 Appraisal process should follow guidelines in Exhibit 11.11

Tips on Appraising Employee Performance 1 Establish clear sense of direction 2 Provide opportunity for employees to participate in setting goals and standards for performance 3 Provide prompt, honest, and meaningful feedback 4 Allow for immediate and sincere reinforcement 5 Provide coaching and suggestions for improving future performance 6 Provide fair and respectful treatment 7 Allow an opportunity for employees to understand and influence decisions which effect them

EEO 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

Tying Pay to Subjectively Appraised Performance How do we get employees to view raises as a reward for performance? Central issue involving merit pay

Pay Increase Guidelines with Low Motivational Impact Provide equal increases to all employees regardless of performance General increase Cost-of-living adjustments Pay increases based on a preset progression pattern based on seniority

Requirements to Link Pay to Performance Define performance Behaviors Competencies Traits Specify a continuum describing different levels from low to high on performance measure Decide how much of a merit increase is given for different levels of performance

Requirements to Link Pay to Performance Define performance Behaviors Competencies Traits Specify a continuum describing different levels from low to high on performance measure Decide how much of a merit increase is given for different levels of performance

Performance-based Guidelines

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?

Merit grids combine 3 variables: Merit Pay Grid Merit grids combine 3 variables: Level of performance Distribution of employees within their jobs’ pay ranges Merit budget increase percentage

Promotional Increases as a Pay-for-Performance Tool Promotion should be accompanied by a salary increase - 8 to 12% Characteristics of promotional pay increases Size of increment is approximately double a normal merit increase Represent a reward to employees for commitment and exemplary performance

The Performance Management Process Establish Expectations Coaching and Development Performance Management - Continuous process where employees and managers work together Feedback Review Rewards and Recognition