© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. Chapter 8 Appraising Employee Job Performance

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. Chapter Outline 8-1 Gaining Competitive Advantage 8-2 HRM Issues and Practices 8-3 The Manager’s Guide

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-1a Opening Case: Gaining Competitive Advantage at McKesson Information Solutions Problem: An inadequate performance appraisal system. Solution: Develop an effective performance appraisal system. How the new performance appraisal system enhanced competitive advantage  Workforce has become much more motivated.  Employees’ job satisfaction levels have enhanced.  Retention rates have increased.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-1b Linking Performance Appraisal to Competitive Advantage Performance appraisals should accurately assess the quality of employee job performance. Job performance can be improved in two ways:  Directing employee behavior towards organizational goals.  Monitoring behavior to ensure that goals are met.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. Figure 8-1 Performance Appraisals Can Help Assess the Quality of Employee Performance

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2a Standards for Effective Performance Appraisal Systems The quality of the rating form Accuracy of the ratings Legal standards

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2a Standards for Effective Performance Appraisal Systems (cont.) The quality of the rating form  Relevance -The degree to which the rating form includes necessary information. -Criterion deficiency: Omission of pertinent performance criteria. -Criterion contamination: Inclusion of irrelevant criteria on the rating form.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2a Standards for Effective Performance Appraisal Systems (cont.) The quality of the rating form (cont.)  Clear performance standards -Indicate the level of performance an employee is expected to achieve. -Help direct employee behavior. -Help supervisors provide more accurate ratings.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2a Standards for Effective Performance Appraisal Systems (cont.) Accuracy of the ratings  Accurate ratings reflect the employees’ actual job performance levels.  Inaccuracy is most often attributable to the presence of rater errors.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2a Standards for Effective Performance Appraisal Systems (cont.) Leniency error: Raters provide ratings that are unduly high. Severity error: Ratings are unduly low. Causes of leniency and severity errors:  Political reasons  Raters’ lack of conscientiousness  Personal bias

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2a Standards for Effective Performance Appraisal Systems (cont.) Central tendency error: Appraisers purposely avoid giving extreme ratings even when such ratings are warranted. Causes of central tendency error:  Administrative procedures.  End points of the rating scale are unrealistically defined.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2a Standards for Effective Performance Appraisal Systems (cont.) Halo effect:  Appraiser’s overall impression of an employee is based on a particular characteristic.  Acts as a barrier to accurate appraisals.  Caused due to vague rating standards and failure to conscientiously complete the rating form.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2a Standards for Effective Performance Appraisal Systems (cont.) The rater’s use of implicit personality theory  Implicit personality theory: Rater’s estimation based on a personal “theory” of how different types of people behave in certain situations.  Using this theory, organizations are unable to identify employees’ specific strengths and weaknesses.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2a Standards for Effective Performance Appraisal Systems (cont.) Recency error  Is a consequence of memory decay.  Ratings are heavily influenced by recent events that are more easily remembered.  Ratings that unduly reflect recent events can present a false picture of the individual’s job performance during the entire rating period.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2a Standards for Effective Performance Appraisal Systems (cont.) Legal standards  Appraisal systems must meet all the criteria imposed by EEO laws.  Specifically, a court would examine the: -Nature of the appraisal instrument. -Fairness and accuracy of the ratings.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2b Types of Rating Instruments Employee comparison systems Graphic rating scale (GRS) Behaviorally anchored rating scale (BARS) Behavior observation scale (BOS) Management by objectives (MBO)

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2b Types of Rating Instruments (cont.) Employee comparison systems  Employee performance is evaluated relative to other employees’ performances.  Uses rankings rather than ratings.  Ranking formats: -Simple rankings: Require raters to rank-order their employees from best to worst, according to their job performance. -Paired comparison: A rater compares each possible pair of employees. -Forced distribution: Requires a rater to assign a certain percentage of employees to each category of excellence such as “best,” “average,” or “worst.”

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2b Types of Rating Instruments (cont.) Employee comparison systems Strengths  Low cost and practical.  Take very little time and effort.  Eliminates some rating errors.  Employment decisions become much easier to make. Weaknesses  Disrupts teamwork.  Accuracy and fairness questioned.  Fails to adequately direct employee behavior.  Performance of people from different departments cannot be compared.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2b Types of Rating Instruments (cont.) Graphic rating scales  Presents appraisers with a list of traits assumed to be necessary to successful job performance.  A five- or seven-point rating scale accompanies each trait.  Points on the scale are defined by numbers and/or descriptive words or phrases that indicate level of performance.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2b Types of Rating Instruments (cont.) Graphic rating scales Strengths  Practical.  Low cost.  Can be developed quickly.  A single form is applicable to all or most jobs within an organization. Weaknesses  Vaguely defined traits to evaluate (e.g. demeanor or attitude)  Does not effectively direct behavior.  Fails to provide specific, nonthreatening feedback.  Accurate ratings are not likely to be achieved.  Can lead to a multitude of rating errors.  Occurrence of bias.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2b Types of Rating Instruments (cont.) Behaviorally anchored rating scales (BARS)  Similar to graphic rating scale.  Requires appraisers to rate employees on their traits.  Includes seven or eight traits, referred to as “dimensions,” each anchored by a seven- or nine-point scale.  Anchors each trait with examples of specific job behaviors that reflect varying levels of performance.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2b Types of Rating Instruments (cont.) Behaviorally anchored rating scales (BARS) Strengths  Ability to direct and monitor behavior. Weaknesses  Difficult to select one behavior that is most indicative of the employee’s performance.  Time consuming to develop.  Requires a lot of effort to develop.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2b Types of Rating Instruments (cont.) Behavior observation scales (BOS)  Contains a list of desired behaviors required for the successful performance of specific jobs.  Developed like BARS, where critical incidents are collected and categorized into dimensions.  An appraiser rates job performance by indicating the frequency with which the employee engages in each behavior.  A five-point scale is used ranging from “almost never” (1) to “almost always” (5).

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2b Types of Rating Instruments (cont.) Behavior observation scales (BOS) Strengths  Is more legally defensible than BARS or graphic rating scales.  Effective in directing employees’ behavior.  Used to monitor behavior and give specific feedback. Weaknesses  Time consuming to develop.  Not always cost-effective.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2b Types of Rating Instruments (cont.) Management by objectives (MBO)  A management system designed to achieve organizational effectiveness by steering each employee’s behavior towards the organization’s mission.  MBO process includes: -Goal setting: Establishment of the organization’s mission statement and strategic goals. -Planning: Identify potential obstacles to reaching goals and devise strategies to overcome these obstacles. -Evaluation: Success at meeting goals is evaluated against agreed-on performance standards.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2b Types of Rating Instruments (cont.) Management-by-objectives (MBO) Strengths  Outcome-focused.  Widely practiced.  Improves job performance.  States performance standards in relatively objective terms.  Practical and cost effective.  Provides employees a greater stake in achieving their goals and more perceived control over their work environment. Weaknesses  Behaviors required to reach goals not specified.  Success may be attributed to factors outside employee’s control.  Performance standards vary, providing no common basis for comparison.  Creates performance pressures and stress.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2c Designing an Appraisal System Step 1: Gaining support for the system  Gain the support of upper-level managers: -Make the performance appraisal process meaningful. -Get managers’ input in developing the system. -Train managers and help them find a way to keep track of things employees have done during the review period. -Hold managers accountable for providing accurate ratings on a timely basis.  Gain the support of employees: -Encourage both managers and workers to participate in the planning and development of the system to enhance support for it.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2c Designing an Appraisal System (cont.) Step 2: Choosing the appropriate rating Instrument – Three important factors to be considered are:  Practicality: The performance appraisal instrument must be practical.  Cost: Includes development costs, implementation costs, and utilization costs.  Nature of job: The choice of rating instrument depends, in part, on the type of data that can be realistically collected about a particular job. -Executive, managerial, and professional employees are usually rated based on results. -Lower-level jobs are most often rated on behavioral or trait-oriented criteria.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2c Designing an Appraisal System (cont.) Step 3: Choosing the rater(s)  Supervisory ratings: Serve as management tools for supervisors, giving them a means to direct and monitor employee behavior.  Peer ratings: Supplement supervisory ratings, helping develop a consensus about an individual’s performance; helps eliminate biases and leads to greater employee acceptance of appraisal systems. -Competitive nature of the organization’s reward system and friendship are potential problems limiting the usefulness of peer ratings.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2c Designing an Appraisal System (cont.) Self-ratings  May be used for employee development.  May not be effective as an evaluative tool. 360-degree feedback system  Appraisal system for managers, who are evaluated by a “circle” of people who frequently interact with the manager.  Evaluations are limited to job behaviors directly observed.  Primarily used as feedback devices.  Lacks accountability.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2c Designing an Appraisal System (cont.) Step 4: Determining the appropriate timing of appraisals  Mostly conducted annually; frequent appraisals are considered too time-consuming.  Annual appraisals pose a problem as appraisers may have a difficult time remembering events of the past year; this can be minimized by: -Maintaining records of employee performance; record keeping also serves as documentation for EEO suits.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-2c Designing an Appraisal System (cont.) Step 5: Ensuring appraisal fairness  Upper-level management review: Helps to ensure fairness, and may serve to keep appraisers “honest.”  Appeals system -Provides a means for employees to obtain a fair hearing if they are dissatisfied with their appraisals. -Allows employees to voice their concerns. -Fosters more accurate ratings. -Prevents the involvement of outside third parties. -Tends to undermine the authority of the supervisor and may encourage leniency error.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-3a Performance Appraisal and the Manager’s Job Completing the ratings Providing performance feedback Setting performance goals

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-3b How the HRM Department Can Help Developing the appraisal system Providing rater training: Usually focuses on:  Establishing work expectations.  Observing and documenting behavior.  Conducting day-to-day performance feedback and coaching.  Appraising performance and avoiding rating errors.  Providing written justifications for ratings.  Conducting formal performance appraisal feedback conferences.  Identifying training needs and formulating a development plan for employees.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-3b How the HRM Department Can Help (cont.) Monitoring and evaluating the appraisal system  Monitoring means taking steps to ensure that each appraisal has been completed on time and that instructions have been followed.  Evaluation consists of gauging the users’ satisfaction with the appraisal system.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-3c HRM Skill-Building for Managers Conducting periodic performance review sessions  Objective is to identify problems the employee is facing and to discuss solutions to these problems.  Should be brief, informal, and employee-centered. Conducting the annual performance review conference  Objective is to inform employees of their ratings and how the information will be used, keep effective workers “on target,” and improve ineffective workers’ performance.

© 2010 Cengage Learning. Atomic Dog is a trademark used herein under license. All rights reserved. 8-3c HRM Skill-Building for Managers (cont.) Setting goals for MBO: An individual’s goals must be:  Consistent with goals set at higher organizational levels.  Specific and challenging.  Realistic and achievable.  Measurable.