Performance Management

Why Conduct Performance Appraisals?

Developing an Appraisal System GOAL SETTING What type of work is examined? Who sets the goals? How difficult are the goals? Team vs. individual goals? What is measured? MEANS TO EVALUATE What rating scale is used? 360 degree feedback? Includes self-evaluation? ADMINISTRATION How often? Flexible or standardized forms? Who conducts appraisals? How frequent is feedback? Is there an appeal process? PERFORMANCE AND PAY Tied to rewards? Linked to development? How are the results used?

How to Evaluate? Compare Employees to Absolute Standards Performance compared to set goals Avoids conflict among workers May decrease differentiation Compare Employees Relative to Each Other Ranking allows for comparison of employees but does not shed light on the distribution of employee performance. Forces a distribution among workers May create false distinctions and competition

What to Evaluate? Traits Measures Behavior-based measures Are an assessment of how the employee fits with the organization’s culture, not what the employee actually does. Behavior-based measures Focus on what an employee does correctly and what the employee should do differently. Results-based measures Focus is on accomplishments or outcomes that can be measured objectively. Problems occur when results measures are difficult to obtain, outside employee control, or ignore the means by which the results were obtained.

Trait-Based Appraisals Characteristics that are enduring and general e.g. “Leadership” “Communication” “Decisiveness” Competency models vs. Trait-based appraisal Are the characteristics really related to performance? Potential Problems Focus on person rather than performance May be ambiguous or arbitrary Poor feedback and goal setting Poor reliability and validity

“An employer has no business with a man’s personality “An employer has no business with a man’s personality. Employment is a specific contract calling for specific performance and nothing else. Any attempt of an employer to go beyond this is usurpation. It is an abuse of power. An employee owes no “loyalty,” he owes no “love,” and no “attitudes” – he owes performance and nothing else.” Peter Drucker Management Tasks, Responsibilities, Practices (1974)

Behavior-Based Appraisal Focus on specific behaviors with examples Simple Behavioral Scale Behavioral Frequency / Observation Scale (BOS) Behaviorally Anchored Rating Scales (BARS) Positives More valid and reliable Acceptable to employees Better for development and improvement Potential Problems Difficult and expensive to develop Needs to match jobs closely to be effective Emphasizes behaviors (at the expense of others?) Focuses on behavior rather than results

Results-Based Appraisal Focus on results compared to specific goals Should be clear and unambiguous Requires alignment of expectations May promote gaming of the system Beware of results at any cost and excessive results orientation Time consuming and needs constant updating “Management by Objectives” or MBO Linking individual goals with business strategy Organizational goals flow down to depts. and employees Focus on planning, action items, and interim reviews Objectives negotiated and agreed upon by employees

Balanced Scorecard “What you measure is what you get” Financial vs. operational measures Short term vs. long-term effectiveness Specific goals and measures for: Shareholder satisfaction Customer satisfaction Operational Excellence Innovation and Learning Others?

How to Judge Appraisal Types Leads to desired behaviors Minimizes negative behaviors Reliability and validity Perceived fairness (rater and employee) Performance improvement and employee development Flexibility and administrative cost

Comparison of Appraisal Forms Ease of Use Employee Development Employee Acceptance Traits High Low Behaviors Medium Outcomes

Performance Diagnosis

Forced Ranking Systems

Forced Ranking Systems Gained popularity following GE Up to 20% of companies Used by: Conoco Capital One Sun Microsystems Cisco EDS Hallmark Cards Used and abandoned by: Ford Goodyear Microsoft Hewlett-Packard Intel Texas Instruments Enron

When managers have discretion: They tend to give “Above average” ratings. They prefer to give uniform ratings regardless of performance. They tend not to use the ends of the rating scale.

“A company that bets its future on its people must remove the lower 10% and keep removing every year – always raising the bar of performance and increasing the quality of leadership.” Jack Welch, former GE CEO

The “Vitality Curve” “The bottom 10” “The top 20” “The Vital 70” Jack Welch “Jack: Straight From the Gut” 2001

Why Conduct Forced Rakings?

Why NOT Conduct Forced Rankings?

Evolution of Ford’s Policy January, 2000: Ford begins new performance evaluation policy Top 20,000 managers 10% of the executives will get A's, 80% will get B's, and 10% will get C's. C’s are not eligible for bonuses. Two C's in a row are grounds for dismissal. Quota for C’s later reduced to 5% July, 2001: Ford eliminates the "A," "B," and "C" ratings in favor of "top achiever," "achiever," or "improvement required.” Quotas dropped for employees to be ranked as "achiever" and "needs improvement." April, 2002: Ford revises its performance review system to “focus on creating bonds between managers and employees”, and will have no ranking quotas.

The Appraisal Interview

Who Evaluates? Problems with immediate supervisors conducting performance evaluations: Lacking appropriate information to provide informed feedback on employee performance. Insufficient observation of the employee’s day-to-day work to validly assess performance. Lack of knowledge about the technical dimensions of a subordinate’s work. Lack of training or appreciation for the evaluation process. Perceptual errors by supervisors that create bias or lack of subjectivity in evaluations.

Perceptual Errors of Raters Halo Effect Stereotyping Recency Error

Perceptual Errors of Raters Halo Effect Rater allows a single trait, outcome or consideration to influence other measures of performance. Stereotyping Rater makes performance judgments based on employee’s personal characteristics rather than the employee’s actual performance. Recency Error Recent events and behaviors of the employee bias the rater’s evaluation of the employee’s overall performance.

Perceptual Errors of Raters Central Tendency Error Leniency or Strictness Errors Personal Biases and Organizational Politics

Perceptual Errors of Raters Central Tendency Error Evaluator avoids higher and lower ends of performance assessment rating in favor of placing all employees at or near the middle of the scales. Leniency or Strictness Errors Evaluator’s tendency is to rate all employees either above (leniency) or below (strictness) their actual performance level. Personal Biases and Organizational Politics Have a significant impact on the ratings employees receive from their supervisors.

Performance Appraisal Challenges Gender Bias Managers tend to give women evaluations that are less critical and less straightforward. Attribution Theory People tend to overestimate the influence of individual factors (such as motivation) and underestimate the influence of environmental factors when assessing others behavior. Frame of Reference

Conducting A Fair Appraisal 1. Collect appraisal data Objective data on job performance Critical incidents (good and bad) Behavioral observation 2. Evaluate performance Before completing form – think about intended result Avoid biases Consider how the message will be viewed by employee Consider circumstances beyond employee’s control Consider past evaluations

Conducting A Fair Appraisal 3. Write the appraisal Have courage to address poor performers Be specific and use examples Avoid nitpicking Additional evidence needed for high/low performers Tied to specific goals Prioritize development needs

Providing Performance Feedback Choose a quiet private location. Describe performance, not personality. Providing specific examples and quantify whenever possible. Be honest. Avoid vague statements or unsubstantiated claims. Limit plans for change, growth, and development to a few important items that are achievable. Keep career discussions separate from performance feedback. Create a development plan. Give the employee a chance to respond.

Dealing With Poor Performers Avoiding problems usually makes them worse. “Why didn’t you tell me this before?” Approach the employee for mutual benefit – to solve the problem and maintain the relationship. Threats and punishment increase compliance but.... Good intentions matter.

Identifying Performance Gap 1. Identify a specific gap between performance and expectations. Assume an employee says: “I know you are not happy with something, but I am not sure what I am doing wrong. What exactly is it that concerns you?” OR “I want to make sure that I’m doing the job the way you want it done. What exactly should I do so that you will say I am doing a good job?”

Dealing With Poor Performers Making the business case why the problem must be solved. Be prepared to answer: “What’s the big deal?” “Why is this important?” “That’s a dumb rule anyway – you know I do a good job” 3. Determine consequences and actions. Be specific – no vague threats Give time for employee to change How critical is the problem behavior?

Dealing With Poor Performers Consider a range of action Discuss during the appraisal without making a written reference. Reference the issue in the appraisal narrative without lowering ratings. Reference the issue and lower the performance rating for that particular area. Reference the issue in performance summary and lower final appraisal rating. Use progressively stronger sanctions