Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-1 Human Resource Management Chapter Nine Performance Management

© 2008 Prentice Hall, Inc. All rights reserved. 9–2 Basic Concepts in Performance Management and Appraisal Performance Appraisal: Setting work standards, assessing performance, and providing feedback to employees to motivate, correct, and continue their performance. Performance Management: An integrated approach to ensuring that an employee’s performance supports and contributes to the organization’s strategic aims. Comparing Performance Appraisal and Performance Management

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-3 Why Performance Management Is Important How well employees perform is a function of the effort they expend Manager’s goal is to motivate employees to work hard and continually improve This involves evaluating performance of employees against the standards and helping them develop action plans to improve

© 2008 Prentice Hall, Inc. All rights reserved. 9–4 An Introduction to Appraising Performance 1 Is useful in career planning. Plays an integral role in performance management. Why Appraise Performance? Is basis for pay and promotion decisions. Helps in correcting deficiencies and reinforcing good performance. 234

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-5 Purposes of Performance Management Administrative because it directly affects a firm’s decisions regarding its workforce (raises, incentives, promotions, etc.) Developmental because it helps employees improve performance, achieve their potential and add value to the company

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-6 Steps in the Performance Management Process 1.Identify performance dimensions 2.Develop performance measures 3.Evaluate employee performance 4.Providing Feedback 5.Develop Action Plans to improve performance

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-7 Identifying Performance Dimensions Performance dimensions are different areas that are being evaluated—should reflect the reasons the job exists (tasks, duties, responsibilities)

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-8 Evaluating Employee Performance Individual Comparisons Ranking approach—comparing employees to each other (e.g. best to worst) Paired comparison—each employee is compared to every other employee and points are assigned to the “better” individual, points are totaled and compared Forced distribution—managers are forced to distribute employees into predetermined categories and prevented from rating everyone as outstanding, or average

© 2008 Prentice Hall, Inc. All rights reserved. 9–9 FIGURE 9–6Scale for Alternate Ranking of Appraisees

© 2008 Prentice Hall, Inc. All rights reserved. 9–10 FIGURE 9–7Ranking Employees by the Paired Comparison Method Note: + means “better than.” – means “worse than.” For each chart, add up the number of +’s in each column to get the highest-ranked employee.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-11 Forced Distribution

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-12 Absolute Approaches Comparing employees against certain “absolute” standards rather than against each other Each employee’s evaluation is independent of others and includes traits, attributes, and behaviors

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-13 Graphic Rating Scale Raters evaluate employees based on various traits or attributes they possess relevant to their performance

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-14 Behavior-Based Approaches Rely on variety of performance dimensions and evaluate employees’ behavior along a range of standards Critical incident approach—examples of exceptionally good or poor performance throughout the evaluation period (behaviors)

© 2008 Prentice Hall, Inc. All rights reserved. 9–15 TABLE 9–1Examples of Critical Incidents for a Plant Manager Continuing DutiesTargetsCritical Incidents Schedule production for plant 90% utilization of personnel and machinery in plant; orders delivered on time Instituted new production scheduling system; decreased late orders by 10% last month; increased machine utilization in plant by 20% last month Supervise procurement of raw materials and inventory control Minimize inventory costs while keeping adequate supplies on hand Let inventory storage costs rise 15% last month; overordered parts “A” and “B” by 20%; underordered part “C” by 30% Supervise machinery maintenance No shutdowns due to faulty machinery Instituted new preventative maintenance system for plant; prevented a machine breakdown by discovering faulty part

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-16 Behaviorally Anchored Rating Scales (BARS)

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-17 Results-Based Approaches Rely on objective performance dimensions such as production or quality measures Direct measures approach—evaluation on outcomes such as sales, productivity, absenteeism, etc. Management by Objectives (MBO)—based on goals set with employees at the beginning of the performance period

© 2008 Prentice Hall, Inc. All rights reserved. 9–18 Defining the Employee’s Goals and Work Standards SMART Goals: Specific, and clearly state the desired results. Measurable in answering “how much.” Attainable, and not too tough or too easy. Relevant to what’s to be achieved. Timely in reflecting deadlines and milestones.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-19 Sources of Performance Data Supervisors—a key source but may not have time to monitor and observe employees every day Co-Workers—may be able to comment on cooperation and support, but may intentionally skew rating Self-Appraisal—can be useful starting point and developmental tool to help employee improve performance Subordinates—may be hard to separate skill from “likeability” Customers—satisfaction levels may only report extremely good or bad experiences

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Degree Approach Involves gathering performance data from as many sources as possible—supervisors, peers, subordinates, and customers Can be cumbersome and takes time to sift through all the feedback

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-21 Performance Measurement Errors Halo/horn error—overall positive or negative view of employee’s performance biases the ratings given on individual criteria Contrast effect—manager artificially inflates or deflates an employee’s rating after comparing employee to another individual Primacy error—rater’s earlier impressions of individual bias later evaluations of the person Recency error—rater focuses on employee’s performance near the time of the evaluation

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-22 Performance Measurement Errors (cont’d) Similar-to-me error—when managers more highly rate employees who resemble them in some way Leniency error—rating employees on high end of the scale Strictness error—rating employees on low end of the scale Error of central tendency—rating everyone “average”

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-23 Reducing Rating Errors Make rating formats more specific, defining precisely what is being evaluated Use multiple raters Performance Appraisal training—to familiarize raters with errors that can occur Frame-of-reference training—to help raters understand performance standards and dimensions and develop common evaluation standards

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-24 Providing Feedback Most firms require appraisals every six months to a year Feedback meeting on performance could be separate from meeting on salary decisions Focus on behaviors rather than employee Balance approach—positive and improvement areas Involve/engage employee in discussion

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-25 Developing Action Plans to Improve Performance Seek to understand causes of poor performance, which could stem from: Work environment Design of jobs Technology Support or performance of co-workers Employee’s competencies, attitudes and behaviors

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-26 Taking Action Removing barriers to employee success Training and development activities Coaching and mentoring Work design and technology solutions Addressing quality of employee’s performance

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-27 Taking Action to Improve Employee Performance Review performance dimensions with employees to ensure they know what is expected of them Review standards of performance with employees to ensure they know how to be successful Ensure performance measures are accurate Evaluate potential role overload or ambiguity Reach agreements on targets for improved performance and timelines Ensure manager’s support

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-28 Disciplining Employees Progressive discipline Verbal warning Written warning (copy to employee and file) Suspension Termination Positive discipline Meeting to focus on constructive feedback—how to improve the performance Meet to arrive at new action plan (documented) Final termination warning if problem not corrected Termination

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-29 Which Performance Dimensions Are Emphasized Impacted by company’s strategy and how jobs add value Low cost strategy will emphasize number of transactions performed High customer service strategy will emphasize quality of interactions and relationships

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-30 Performance Evaluation Method Used Comparative approach will foster a competitive climate and is more manageable in small companies Absolute approach will enable each person to be evaluated on attributes and behaviors— more likely used in larger companies, but is time-consuming and expensive

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-31 Objectives of Performance Management Systems In a competitive culture, an administrative approach to performance management might be used (comparative, attribute, results) In cultures that focus on well-being of employees, a developmental approach might be used (how employees perform their jobs)

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-32 Perceptions of Procedural and Distributive Justice When employees perceive performance evaluations reflect their true performance they are more likely to accept them (distributive justice) When employees perceive evaluations included dimensions beyond their control, standards were too hard to achieve, or they were not given sufficient guidance (procedural justice) the evaluation process is less likely to motivate

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-33 Globalization and Performance Management Evaluations of employees on international assignments could be based on dimensions used in home country or host country Performance can be affected by political environment, social norms, cultural differences, union relations, etc. Companies must clearly communicate the standards for which employees are accountable Usually rely on more than one rater to provide feedback (home and host country)

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-34 Ethics and Performance Management Employees will view a system that has procedural and distributive fairness as more ethical Employees who are allowed to participate in the process and are allowed to voice concerns and discuss discrepancies will perceive fairness of system Surveillance and monitoring systems may impact employee’s trust of employer

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall9-35 Other Issues Impacting Performance Management Comparative evaluations may foster climate where employees are willing to cheat System stressing financial performance might encourage managers to engage in unethical accounting practices