1. Topic #7: Performance Appraisal
Paul L. Schumann, Ph.D.
Professor of Management
MGMT 440: Human Resource Management
© 2008 by Paul L. Schumann. All rights reserved.

2. Outline Performance Measurement Functions of Performance Appraisal
Criteria for Effective Performance Appraisal Systems
Types of Performance to Measure
Performance Appraisal Methods
Performance Raters (Evaluators)
Performance Feedback

3. Performance Management
Performance appraisal: the measurement and assessment of an employee’s job performance
Performance management: the integration of performance appraisal systems with other HRM systems for the purpose of aligning the employees’ work behaviors and results with the organization’s goals
Example: link an employee’s pay increase to the employee’s job performance
To do this, we have to measure the employee’s job performance
Goal: Improve the organization by improving the employees’ work behaviors and results

4. Performance Management Cycle
Development Tool
Administrative Tool
Source of figure: Adapted from Fisher, Schoenfeldt, & Shaw (2006), Figure 10.1, p. 421

5. Functions of Performance Appraisal
Employee Development Tool
Goal setting: Set performance goals for each employee
Involve the employee in goal setting
Make the goals specific, concrete, & measurable
Example goals (some of many) for a retail store manager:
Sales goal for year = $2 million
Customer satisfaction goal = average rating of 4.5 on 5-point customer satisfaction rating scale
Make the goals difficult but achievable, challenging but realistic
Empower employees to achieve their goals

6. Functions of Performance Appraisal
Employee Development Tool (more)
Provide feedback to reinforce & sustain performance
Employees need to know how they are doing
Provide help & advice to improve performance
Be a coach in addition to being a boss
Assist employees in achieving career progression goals
Determine training needs
Do employees have job performance deficiencies for which training would be an effective remedy?

7. Functions of Performance Appraisal
Administrative Tool
Link rewards to performance
Examples: pay increases, promotions, demotions, terminations, disciplinary actions, etc.
Goal: Create incentives to motivate employees to increase their performance
Evaluate HRM policies & programs
Example: Evaluate a training program: Measure job performance before and after training to see if performance improved

8. Criteria for Effective Performance Appraisal Systems
1. Validity: are we measuring the right thing?
Are we really measuring job performance?
We want to measure important (“relevant”) aspects of job performance, in a way that is free from extraneous or contaminating influences, and that encompasses the whole job (i.e., our measures of job performance are not “deficient”: we aren’t leaving out important aspects of job performance)
2. Reliability: consistency of measurement
Example: inter-rater reliability
If two people observe a particular employee’s job performance, do they agree in their rating of the employee’s performance?

9. Criteria for Effective Performance Appraisal Systems
3. Freedom from bias
It does not illegally discriminate (race, sex, age, etc.)
It is free from rating errors (intentional or unintentional):
Leniency errors
Severity errors
Central tendency errors
Halo errors
4. Practicality
The benefits the organization gets from using it should outweigh the costs of developing & using it
Utility analysis
It should be relatively easy to use
It should be accepted by managers and employees

10. Types of Performance to Measure
What aspects of an employee’s job performance can we measure?
We have 3 basic choices:
Results produced by the employee
Example for a salesperson: Amount of sales ($) in the past month
Behaviors of the employee
Example for a salesperson: Number of sales calls in the past month
Traits of the employee
Example for a salesperson: Friendliness

11. Types of Performance to Measure
Results-based (results-oriented): measure the results produced by the employee
Examples for a retail store manager (examples of some results for which the store manager has responsibility and so should be held accountable):
Sales of the store
Profit per square foot
Inventory shrinkage
Customer satisfaction
Makes sense for most jobs
Results matter (usually)

12. Types of Performance to Measure
Results-based (more)
Challenges:
Which results are relevant may not be obvious for all jobs
Some results are not under the employee’s control
May foster a “results at all costs” mentality
May interfere with teamwork
May be difficult to provide effective feedback

13. Types of Performance to Measure
Behavior-based (behavior-oriented): measure the employee’s behaviors
Examples for a retail store manager:
Good attendance
Completes management reports correctly & on time
Monitors customers and employees for theft
Coaches employees to welcome customers to the store & offer assistance within 3 minutes, and to thank customers as they leave
Conducts regular sessions with employees to develop teamwork
Makes sense for many jobs
Use it where how the employee produces results matters

14. Types of Performance to Measure
Behavior-based (more)
Advantage: Makes it easier to provide effective performance feedback to employees
Examples for a retail store manager:
Feedback with results-oriented performance appraisal: “You didn’t achieve your sales goal.” (Measured by sales reports)
Feedback with behavior-oriented performance appraisal: “You are allowing your employees to wait too long before offering help to customers.” (Measured by observations of a secret shopper)
Challenges:
Difficult to capture the full range of relevant behaviors
Different behaviors can lead to the same results
We may not always care which behaviors were used

15. Types of Performance to Measure
Trait-based (trait-oriented): measure the employee’s personal characteristics
Examples for a retail store manager:
Ability to make decisions
Loyalty to the company
Communication skills
Level of initiative
This is usually a bad idea for several reasons:
Poor reliability & validity of measures of traits
Weak relationship between traits and job effectiveness
Measurements of traits are more likely to be subject to biases (sexism, racism, ageism, etc.)
Hard to use traits to provide effective feedback

16. Types of Performance to Measure
So, in most cases, we want to measure the job performance of an employee in terms of the results and behaviors of the employee
Make a list of results & behaviors that are relevant to the job
Starting point: Use the job description to identify the essential tasks of the job
Example task statement on job description for a Retail Store Manager: “Manage inventory shrinkage.”
Translate the tasks into results & behaviors
Example (continued): Measure the amount of inventory shrinkage in the store (a result)

17. Performance Appraisal Methods
Once we decide which results & behaviors we want to measure, we next need to decide how to measure those results & behaviors
We have 3 categories of choices:
Objective measures of performance
Subjective measures of performance
Management By Objectives

18. Performance Appraisal Methods
Objective measures: measure an employee’s job performance in terms of things we can see and count with no (or minimal) use of opinion
Production measures: count units produced by an employee
Sales measures: count the sales ($) of an employee
Personnel data: count things in the employee’s personnel file
Examples:
Number of times late to work
Number of times absent
Number of disciplinary actions taken

19. Performance Appraisal Methods
Objective measures (more):
Performance tests: for an employee, evaluate work samples or simulations under standardized conditions
Example: for an airline pilot, program a flight simulator with specific flight conditions to test if the pilot handles it correctly
Business unit performance measures: for managers who are responsible for a business unit, measure their performance by measuring the performance of the business unit they lead
Examples:
Market share of the business unit
Profit measures for the business unit: profits & profit rates (return on sales, return on assets, return on equity)
Stock price

20. Performance Appraisal Methods
Subjective measures: measure an employee’s job performance using human judgment
Ranking: subjectively rank employees from best to worst
Example: 1. Bob 2. Carol 3. Ted 4. Alice
Note carefully that the ranking is in terms of subjective opinion (e.g., who is your best salesperson overall?), not objective factors (e.g., which salesperson sold the most?)
Note the ranking requires you to compare one employee to another
Problem: it can be hard to determine the subjective ranking position of employees who are in the middle (it all blurs together)

21. Performance Appraisal Methods
Subjective measures (more)
Paired comparisons: for all possible pairs of employees, subjectively decide which employee is better
# of paired comparisons = (N2 − N)/2
Example: N = 4  (42 − 4)/2 = 6 paired comparisons:
Bob > Carol; Bob > Ted; Bob > Alice
Carol > Ted; Carol > Alice
Ted > Alice
Example: N = 12  (122 − 12)/2 = 66 paired comparisons
Note that you are comparing one employee to another
Problem: inconsistent subjective comparisons: Bob > Carol; Carol > Ted; Ted > Bob (see the inconsistency here?)

22. Performance Appraisal Methods
Subjective measures (more)
Rating scale (graphic rating scale): subjectively rate the employee’s job performance on a labeled numeric measuring scale
Rating scales are perhaps the most commonly used method of subjectively evaluating an employee’s job performance
Before we use a rating scale to subjectively rate an employee’s job performance, we need to:
Identify the aspects of job performance (results & behaviors) that are to be evaluated (rated) using the rating scale
Develop the rating scale itself

23. Performance Appraisal Methods
Rating Scale Examples
Rating Scale Examples
Examples of a 5-point scale:
5 = Excellent 4 = Very satisfactory 3 = Satisfactory 2 = Unsatisfactory 1 = Very unsatisfactory
5 = Greatly exceeds standards 4 = Exceeds standards 3 = Meets standards 2 = Below standards 1 = Far below standards
Example of a 7-point scale:
7 = Truly exceptional 6 = Excellent 5 = Very good 4 = Good 3 = Satisfactory 2 = Unsatisfactory 1 = Very unsatisfactory

24. Performance Appraisal Methods
Subjective measures (more)
Rating scale (more)
The same rating scale can be used to rate:
Overall job performance, and
Multiple specific aspects of job performance
Some aspects of job performance can be measured objectively and subjectively
Example: Quality of work
Objective measure: defect rate (percentage of units produced by an employee that fail inspection)
Subjective measure: subjectively rate the quality of the employee’s work using a 5-point rating scale

25. Performance Appraisal Methods
Subjective measures (more)
Rating scale (more)
Example: MSU Course Evaluation Form
Note how the same 5-point rating scale is used to evaluate several different aspects of the professor’s job performance:
Course as a whole
Instructor’s contribution to the course
Use of class time
Etc.

26. More Examples of Rating Scales
Decisions:
Use a graphic or just use words?
Label all the points on the scale, or just label some?
Odd or even number of points on the scale?
Fewer points on the scale, or more points on the scale?
Source of figure: Fisher, Schoenfeldt, & Shaw (2006), Figure 10.6, p. 449

27. Performance Appraisal Methods
Subjective measures (more)
Rating scale (more)
Note that rating scales do not require you to compare one employee to another — the ratings are absolute, not comparative
Problems:
No limits on leniency, severity, & central tendency errors
Example: a manager rates all of his employees at “5 = Excellent” regardless of the employees’ actual performances
Possible solution: forced distribution?
The terms used in a rating scale to describe different levels of performance tend to be short and vague
Example: What does “Excellent” really mean?
Possible solution: BARS?

28. Performance Appraisal Methods
Subjective measures (more)
Forced distribution: evaluator must place a fixed percentage of employees in each performance category
Example: 10% must be rated 5 = Excellent 25% must be rated 4 = Very satisfactory 45% must be rated 3 = Satisfactory 15% must be rated 2 = Unsatisfactory 5% must be rated 1 = Very unsatisfactory
Note that you are comparing one employee to another
Problem: what if the distribution being forced doesn’t fit?

29. Performance Appraisal Methods
Subjective measures (more)
Behaviorally Anchored Rating Scale (BARS): replace the vague descriptors in a rating scale with specific examples of performance
Example: Customer assistance 5 = Could be expected to volunteer to help customer and to walk with customer to location of desired product 4 = Could be expected to walk with customer to location of desired product when asked for help by customer 3 = Could be expected to tell and point customer to where the desired product is located when asked for help by customer 2 = Could be expected to shrug shoulders and walk away when asked for assistance by customer 1 = Could be expected to hide from customers in the employee break-room

30. Performance Appraisal Methods
Subjective measures (more)
BARS (more)
Note that a different scale will be needed for each aspect of job performance
Advantages:
Job-relevant measures of performance
Involves employees in developing scales
Disadvantages:
More work (time & money) to develop BARS
Employees may not consistently fit into one of the BARS categories
Possible solution: BOS?

31. Performance Appraisal Methods
Subjective measures (more)
Behavioral Observation Scale (BOS): evaluators rate the frequency with which an employee engages in specific behaviors
Example: on a list of possible employee behaviors, rate how often the employee engages in each behavior using a rating scale where: 1 = almost never  5 = almost always
Weighted checklist: from a list of possible employee behaviors, check off the ones that apply to the employee
Example: Fisher, Schoenfeldt, & Shaw (2006), Figure 10.8, p. 452

32. Performance Appraisal Methods
Management By Objectives (MBO): evaluate employee job performance in terms of the extent to which the employee achieved each of his or her goals during a specified period of time
Goals can be both objective and subjective
Example goals (some of many) for a retail store manager:
Objective: Sales goal for year = $2 million
Subjective: Customer satisfaction goal = average rating of 4.5 on 5-point customer satisfaction rating scale
Commonly used for managers and professionals

33. Performance Appraisal Methods
MBO (more)
Process:
At the beginning of the review period, the employee and the supervisor meet and they agree on a set of goals to be achieved by the employee during the review period
Review period is typically one year, but could be more often
Apply the goal setting principles:
Involve the employee in goal setting
Make the goals specific, concrete, & measurable
Make the goals difficult but achievable, challenging but realistic
Empower employees to achieve their goals

34. Performance Appraisal Methods
MBO (more)
Process (more):
Throughout the review period, progress toward the goals is monitored
Employee’s supervisor should be providing coaching to help the employee achieve his or her goals
At the end of the review period, the employee and the supervisor meet to evaluate the extent to which each goal was achieved and to set new goals for the next review period

35. Performance Raters (Evaluators)
Who should be asked to evaluate the job performance of an employee?
Performance evaluators need to have:
Opportunity to observe the employee’s job performance
Ability to translate observations of performance into an evaluation of performance
Motivation to do a good job of observing & evaluating

36. Performance Raters (Evaluators)
Options for Job Performance Evaluators
Supervisors
Self-evaluation
Peers (co-workers)
Subordinates
Customers
External customers
Internal customers
360-Degree Appraisals

37. Performance Feedback Employees need effective feedback
Allow time & eliminate distractions
Okay to cover both administrative issues (e.g., pay increase) & developmental issues (e.g., future goals) in one feedback session
Provide specific feedback
Example:
Don’t say: “You’re always late.”
Do say: “You were more than 5 minutes late on 25 occasions in the past 3 months. This is unacceptable. We need to develop (1) a specific goal concerning prompt attendance and (2) an action plan that you will follow to achieve the goal.”

38. Performance Feedback Types of feedback sessions:
Tell-and-sell: the supervisor tells the employee the results of the performance appraisal and explains the reasons why the appraisal is correct
Tell-and-listen: the supervisor tells the employee the results of the performance appraisal and listens to the employee’s response
Problem solving: the supervisor acts as a coach to assist the employees in setting their own goals and in evaluating their own job performance

39. Performance Feedback Types of feedback sessions (more):
Combination of tell-and-sell & problem solving:
First part of feedback session: tell-and-sell
Focus on the past:
Supervisor tells the employee the results of the performance appraisal and explains the reasons why the appraisal is correct
Supervisor tells the employee about any administrative decisions that were made (e.g., pay increases, etc.)
Second part of feedback session: problem solving
Focus on the future:
Supervisor acts as a coach to help the employee identify barriers to improved future job performance

40. Outline Performance Measurement Functions of Performance Appraisal
Criteria for Effective Performance Appraisal Systems
Types of Performance to Measure
Performance Appraisal Methods
Performance Raters (Evaluators)
Performance Feedback