Designing Appraisal Systems MANA 4328 Dennis C. Veit dveit@uta.edu 1

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? TYPE OF APPRAISAL What rating scale is used? Includes a self-appraisal? 360 degree feedback? Uses a forced ranking system? ADMINISTRATION How often? 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? Absolute Measurement Employees are all measured strictly by absolute performance requirements or standards of their jobs. Performance compared to set goals Avoids conflict among workers May decrease differentiation Relative (Comparative) Assessment Employees are measured against other employees . Ranking allows for comparison of employees but does not shed light on the distribution of employee performance. “Forced distribution” among workers May create false distinctions and competition

Establish Performance Criteria (Standards) “What get’s watched get’s done” Management must carefully select performance criteria as it pertains to achieving corporate goals. What goes into a “appraisal System” Traits Behaviors Competencies Goal achievement Improvement potential

Responsibility for Appraisal It is essential that line managers play a key role from beginning to end. Several possibilities exist with regard to the person who will actually rate the employee: Immediate Supervisor Subordinates Peers and Team Members Self Appraisal Customer Appraisal

Appraisal Period How do you establish your time frames for reviews? There is nothing “Magical” about the period for formal appraisal reviews, in most organizations they occur annually or semi-annually. However, Managers should be trained that continuous interaction (primarily informally) through coaching and other developmental activities should be continuous It is a continuous effort built into their everyday job!

Appraisal Period (Cont.) Standards: Employee’s date of hire Probation period of 30, 60, 90 days - ( Legal considerations must be involved) Anniversary date All at one time Annual by calendar basis Spread out over the year

Methods to Use Rating Scales Method – Defined factors Critical Incident Method Essay Method Work Standards Method Ranking Method Forced Distribution Method Behaviorally Anchored Rating Scale Method Results-Based System

Problems in Performance Appraisals Appraiser Discomfort Lack of Objectivity Halo / Horns Leniency / Strictness Ccntral Tendency Recent Behavior Bias Personal Bias (Sterotyping) Manipulating the Evaluation Employee Anxiety

Uses of Performance Appraisals? Human Resource Planning Recruitment and Selection Training and Development Career Planning and Development Compensation Programs Internal Employee Relations Assessment of Employee Potential

Challenges for Performance Management Rater errors and bias Halo Contrast effects Range restriction / Central tendency The influence of liking Organizational politics --Rater errors can be addressed by training Performance appraisal is often a negative, disliked activity and one that seem to elude mastery

Challenges for PM (Cont) Mangers do not like giving them and EE’s don’t like receiving them! Surveys have shown that 80 percent of workers stated dissatisfaction with their PA process. Why not eliminate PM’s? Because: managers must provide feedback Encourage performance improvements Make valid decisions, Justify terminations Identify training Development needs Defend personnel decisions

Acceptability Performance management systems need to be perceived as fair Procedural fairness Interpersonal fairness Outcome (distributive) fairness Valid – evaluated based on job related metrics. Reliable – evaluations should not depend on which manager are conducting the evaluations.

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.

PERFORMANCE APPRAISAL PROCESS Identify Specific Performance Appraisal Goals Establish Performance Criteria and communicate to your employee Examine Work Performed Appraise Performance Discuss Appraisal with employee

Appraisal Forms Trait Behavior Results / Outcomes Global / Essay “Least important elements of the appraisal process” Appraisal forms are most often contain various styles Performance focused vs. situation focused appraisal Approaches to Appraisal Forms Trait Behavior Results / Outcomes Global / Essay **Too many PA systems fail because management expects too much from one method and does not determine specifically what it wants the system to accomplish

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

Behavior-Based Appraisal Focus on specific behaviors with examples Behavioral Frequency / Observation Scale (BOS) Behaviorally Anchored Rating Scales (BARS) Positives More valid and reliable Acceptable to employees Better for development and improvement

Developing Behavioral Scales Identify critical incidents and behaviors Sort similar behaviors into dimensions Validate sorting Collect data on relationship between behavior and performance Assign a rating scale Validate the scale

Behavior-Based Appraisal Potential Problems Difficult and expensive to develop Needs to match jobs closely to be effective Behaviors may be hard to develop and interpret Emphasizes behaviors (at the expense of others?) Focuses on behavior rather than results May be no more reliable and valid than simple scale Process of developing the rating system is more important than the system itself.

Results-Based Appraisal Uses future results as performance targets Challenge is setting goals and measures Can the goals be quantified? Unique goals for every individual Appraisal forms tend to be very simple Still need a rating scale

Results-Based Appraisal “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

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

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

MBO and 360* Management by Objectives Requires the manager to set specific measurable goals with each employee Perodically discussed his or her progress toward these goals. Refers to comprehensive, organization wide goal-setting and appraisal program consisting of six main steps: Set the organization's goals. Set department goals. Discuss departmental goals Define expected results Performance reviews – measured by results Provide feedback

MBA and 360* (Cont) Problems with MBA: Setting unclear, un-measurable objectives MBO is time consuming Setting objectives with the subordinate sometimes turns into a tug of way with Mgr. asking for more subordinate pulling back. 360 Review - Process where employer collects performance information all around an employee – supervisor/peers/intrenal-external customers—generally for performance purposes – not pay