Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
Human Resource Management 11th Edition Chapter 8 PERFORMANCE MANAGEMENT AND APPRAISAL Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

HRM in Action: Productivity and Emotional Intelligence
Emotional Intelligence - Ability to recognize and manage emotions Individuals with high EQ - Cope successfully and proactively with life’s demands and pressures; build and use rewarding relationships with others, while not being afraid to make tough decisions Positive relationship between emotionally intelligent leadership and employee engagement, client satisfaction, and bottom line Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Performance Management
Goal-oriented process ensuring organizational processes are in place to maximize productivity of employees, teams, and organization Training and performance appraisal play significant role in process Training, appraisal, and rewards-integrated linked for continuous organizational effectiveness Effort of every worker directed toward achieving strategic goals Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Performance Management (Cont.)
PM has not yet achieved its potential In survey, 75% said it is possible to develop accurate measurement of an employee’s contributions, but only 40% believe their organization had accomplished that objective Organizations need to integrate company’s mission statement, vision, and values into their performance management systems Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Performance Appraisal Defined
Formal system of review and evaluation of individual or team task performance Often negative, disliked activity that seems to elude mastery Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Uses of Performance Appraisal
Human resource planning - Identifies those who have potential to be promoted Recruitment and selection - Helps predict performance of job applicants Training and development - Points out employee’s specific needs for training and development Career planning and development - Assesses employee’s strengths and weaknesses and determines person’s potential Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Uses of Performance Appraisal (Cont.)
Compensation programs - Provides basis for rational decisions regarding pay adjustments Internal employee relations - Used in making decisions such as promotion, demotion, termination, layoff, and transfer Assessment of employee potential - Assesses employee potential as they appraise their job performance Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Trends & Innovations: Performance Management, Appraisal, and Layoffs
Software applications available to assist management downsizing and restructuring Software tools to help identify workers who should go during downsizing Software to compare employee performance and potential ratings Aid to ongoing workforce pruning that may stave off need for layoffs Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Performance Appraisal Environmental Factors
External: Legislation requiring nondiscriminatory appraisal systems Labor unions Factors within internal environment, such as corporate culture Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Legislation Affecting Performance Appraisal
Mistretta v Sandia Corporation - Federal judge ruled against company, stating, “There is sufficient circumstantial evidence to indicate that age bias and age based policies appear throughout the performance rating process to the detriment of the protected age group.” Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Legislation Affecting Performance Appraisal (Cont.)
Albermarle Paper v Moody – Supreme Court case supported validation requirements for performance appraisals Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Labor Unions and Performance Appraisal
Have traditionally stressed seniority as basis for promotions and pay increases May vigorously oppose use of management-designed performance appraisal system Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Performance Appraisal Process External Environment Internal Environment
Identify Specific Performance Appraisal Goals Establish Performance Criteria (Standards) and Communicate Them To Employees Examine Work Performed Appraise the Results Discuss Appraisal with Employee Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Establish Performance Criteria (Standards)
Traits Behaviors Competencies Goal Achievement Improvement Potential Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Traits Employee traits such as attitude, appearance, and initiative are basis for some evaluations May be unrelated to job performance or difficult to define Certain traits may relate to job performance and, if this connection is established, using them may be appropriate Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Caution on Traits: Wade v. Mississippi Cooperative Extension Service
In performance appraisal system, general characteristics such as “leadership, public acceptance, attitude toward people, appearance and grooming, personal conduct, outlook on life, ethical habits, resourcefulness, capacity for growth, mental alertness, loyalty to organization” are susceptible to partiality and to the personal taste, whim, or fancy of the evaluator as well as patently subjective in form and obviously susceptible to completely subjective treatment by those conducting the appraisals.” Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Behaviors Organizations may evaluate person’s task-related behavior or competencies Examples: leadership style, developing others, teamwork and cooperation, or customer service orientation If certain behaviors result in desired outcomes, there is merit in using them in evaluation process Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Competencies Broad range of knowledge, skills, traits, and behaviors that may be technical in nature, relate to interpersonal skills, or be business oriented In leadership jobs, relevant competencies might include developing talent, delegating authority, and people management skills Competencies selected should be those that are closely associated with job success Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Goal Achievement Use if organizations consider ends more important than means Outcomes established should be within control of individual or team Should be those results that lead to firm’s success Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Improvement Potential
Many of criteria used focus on past Cannot change past Should emphasize future, including behaviors and outcomes needed to develop employee, and achieve firm’s goals Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Responsibility for Appraisal
Immediate supervisor Subordinates Peers and team members Self-appraisal Customer appraisal Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Immediate Supervisor Traditionally most common choice Supervisor is usually in excellent position to observe employee’s job performance Supervisor has responsibility for managing particular unit Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Subordinates Our culture has viewed evaluation by subordinates negatively Some firms find evaluation of managers by subordinates is both feasible and needed Will do better job of managing Might be caught up in popularity contest Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Peers and Team Members Work closely with evaluated employee and probably have undistorted perspective on typical performance Problems include reluctance of some people who work closely together, especially on teams, to criticize each other Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Self-Appraisal If employees understand their objectives and criteria used for evaluation, they are in good position to appraise own performance Employee development is self-development Employees who appraise own performance may become more highly motivated Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Customer Appraisal Customer behavior determines firm’s degree of success Organizations use this approach because it demonstrates commitment to customer, holds employees accountable, and fosters change Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

The Appraisal Period Prepared at specific intervals Usually annually or semiannually Period may begin with employee’s date of hire All employees may be evaluated at same time Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

The Appraisal Period (Cont.)
Consider monitoring performance more often 63% of high-growth companies review performance more than once a year compared to 22% of low-growth companies In high-tech organizations, speed of change mandates that performance period be shorter, perhaps every three or four months Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Performance Appraisal Methods
360-Degree Evaluation Rating Scales Critical Incidents Essay Work Standards Ranking Paired Comparisons Forced Distribution Behaviorally Anchored Rating Scales (BARS) Result-Based Systems Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

360-Degree Evaluation Multi-rater evaluation Input from multiple levels within firm and external sources Focuses on skills needed across organizational boundaries More objective measure of performance Process more legally defensible Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Critical Incidents Written records of highly favorable and unfavorable work actions Appraisal more likely to cover entire evaluation period Does not focus on last few weeks or months Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Essay Brief narrative describing performance Tends to focus on extreme behavior Depends heavily on evaluator's writing ability Comparing essay evaluations might be difficult Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Work Standards Compares performance to predetermined standard Standards - Normal output of average worker operating at normal pace Time study and work sampling used Workers need to know how standards were set Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Ranking All employees from group ranked in order of overall performance Comparison is based on single criterion, such as overall performance Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Forced Distribution Rater assigns individual in workgroup to limited number of categories similar to normal distribution Assumes all groups of employees have same distribution Proponents of forced distribution believe they facilitate budgeting and guard against weak managers who are too timid to get rid of poor performers Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Forced Distribution (Cont.)
Require managers to be honest with workers about how they are doing Also called a rank-and-yank system Unpopular with many managers May damage morale and generate mistrust of leadership Suspect that rankings are way for companies to rationalize firings more easily Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Behaviorally Anchored Rating Scales (BARS)
Combines traditional rating scales and critical incidents methods Job behaviors derived from critical incidents described more objectively Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Result-Based Systems Manager and subordinate agree on objectives for next appraisal Evaluation based on how well objectives accomplished Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Use of Computer Software
Available in recording appraisal data Reduces required paperwork Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Problems in Performance Appraisal
Appraiser discomfort Lack of objectivity Halo/horn error Leniency/strictness Central tendency Recent behavior bias Personal bias Manipulating the evaluation Employee anxiety Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Appraiser Discomfort Performance appraisal process cuts into manager’s time Experience can be unpleasant when employee has not performed well Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Lack of Objectivity In rating scales method, factors such as attitude, appearance, and personality are difficult to measure Factors may have little to do with employee’s job performance Employee appraisal based primarily on personal characteristics may place evaluator and company in untenable positions Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Halo/Horn Error Halo error - Occurs when manager generalizes one positive performance feature or incident to all aspects of employee performance, resulting in higher rating Horn error - Evaluation error occurs when manager generalizes one negative performance feature or incident to all aspects of employee performance, resulting in lower rating Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Leniency/Strictness Leniency - Giving undeserved high ratings Strictness - Being unduly critical of employee’s work performance Worst situation is when firm has both lenient and strict managers and does nothing to level inequities Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Central Tendency Error occurs when employees are incorrectly rated near average or middle of scale May be encouraged by some rating scale systems requiring evaluator to justify in writing extremely high or extremely low ratings Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Recent Behavior Bias Employee’s behavior often improves and productivity rises several days or weeks before scheduled evaluation Only natural for rater to remember recent behavior more clearly than actions from past Maintaining records of performance Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Personal Bias (Stereotyping)
Managers allow individual differences such as gender, race, or age to affect ratings Effects of cultural bias, or stereotyping, can influence appraisals Other factors – Example: mild-mannered employees may be appraised more harshly simply because they do not seriously object to results Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Manipulating the Evaluation
Sometimes, managers control every aspect of appraisal process and manipulate system. Example: Want to give pay raise to certain employee. Supervisor may give employee an undeserved high performance evaluation. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Employee Anxiety Evaluation process may create anxiety for appraised employee Opportunities for promotion, better work assignments, and increased compensation may hinge on results Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Reasons for Intentionally Inflating Ratings
Believe accurate ratings would damage subordinate’s motivation and performance Improve employee’s eligibility for merit raises Avoid airing department’s “dirty laundry” Avoid creating negative permanent record that might haunt employee in future Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Reasons for Intentionally Inflating Ratings (Cont.)
Protect good workers whose performance suffered because of personal problems Reward employees displaying great effort even when results were relatively low Avoid confrontation with hard-to-manage employees Promote a poor or disliked employee up and out of department Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Reasons for Intentionally Lowering Ratings
Scare better performance out of employee Punish difficult or rebellious employee Encourage problem employee to quit Create strong record to justify planned firing Minimize amount of merit increase subordinate receives Comply with organizational edict discouraging managers from giving high ratings Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Characteristics of Effective Appraisal System
Job-related criteria Performance expectations Standardization Trained appraisers Continuous open communication Conduct performance reviews Due process Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Job-Related Criteria Most basic criterion needed in employee performance appraisals Uniform Guidelines and court decisions quite clear on this point Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Performance Expectations
Managers and subordinates must agree on performance expectations in advance of appraisal period If employees clearly understand expectations, they can evaluate own performance and make timely adjustments Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Trained Appraisers Common deficiency in appraisal systems – evaluators seldom receive training on how to conduct effective evaluations Training should be ongoing How to rate employees and how to conduct appraisal interviews Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Continuous Open Communication
Employees have strong need to know how well they are performing Good appraisal system provides highly desired feedback on continuing basis Should be few surprises in performance review Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Conduct Performance Reviews
Special time should be set for formal discussion of employee’s performance Withholding appraisal results is absurd Performance review allows them to detect any errors or omissions in appraisal, or employee may simply disagree with evaluation and want to challenge it Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Due Process Provide employees opportunity to appeal appraisal results Must have procedure for pursuing grievances and having them addressed objectively Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Legal Implications Employers must prepare for more discrimination lawsuits and jury trials related to performance appraisals Unlikely that any appraisal system will be immune to legal challenge Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Courts Normally Require
Either absence of adverse impact on members of protected classes or validation of process System that prevents one manager from directing or controlling a subordinate’s career Appraisal should be reviewed and approved by someone or some group in organization Rater, or raters, must have personal knowledge of employee’s job performance Must use predetermined criteria that limits manager’s discretion Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Appraisal Interview Achilles’ heel of entire evaluation process
Scheduling interview Interview structure Use of praise and criticism Employees’ role Use of software Concluding interview Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Interview Structure Discuss employee’s performance Assist employee in setting goals and personal development plans for next appraisal period Suggesting means for achieving established goals, including support from manager and firm Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Conducting Separate Interviews
Merit in conducting separate interviews for discussing (1) employee performance and development and (2) pay When topic of pay emerges in interview, it tends to dominate conversation with performance improvement taking a back seat Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Use of Praise and Criticism
Praise is appropriate when warranted Criticism, even if warranted, is especially difficult to give “Constructive” criticism is often not perceived that way Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Employees’ Role Should go through diary or files and make notes of every project worked on, regardless of whether they were successful or not Information should be on appraising manager’s desk well before review Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Concluding the Interview
Ideally, employees will leave interview with positive feelings about management, company, job, and themselves Cannot change past behavior; future performance is another matter Should end with specific and mutually agreed upon plans for employee’s development Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

A Global Perspective: Two Cultures’ View of Performance Appraisal
Special problems when translated into different cultural environments Chinese companies tend to focus appraisals on different criteria Place great emphasis upon moral characteristics May tolerate less than optimal performance because maintaining family control is so important Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

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