1. Performance Management
Chapter 8
Performance Management
In Chapter, Performance Management, we will summarize current performance management practices, present a model of performance that helps us examine the system’s purposes and discuss specific approaches to performance management and the strengths and weaknesses of each. We also look at various sources of performance information and errors resulting from subjective assessments of performance are presented, as well as the means for reducing those errors. We will discuss some effective components to performance feedback and address components of a legally defensible performance management system.
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2. Learning Objectives
Identify major determinants of effective performance management.
Discuss three purposes of performance management.
Identify five criteria for effective performance management systems (PMS) .
Discuss four approaches to performance management, specific techniques used in each approach and ways these approaches compare with criteria for effective PMS.
Identify the major determinants of individual performance.
Discuss the three general purposes of performance management.
Identify the five criteria for effective performance management systems.
Discuss the four approaches to performance management, the specific techniques used in each approach, and the way these approaches compare with the criteria for effective performance management systems.
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3. Learning Objectives, cont.
Choose the most effective approach to performance measurement for a given situation.
Discuss advantages and disadvantages of different sources of performance information.
Choose the most effective sources for performance information.
Distinguish types of rating errors and explain how to minimize each in a performance evaluation.
Conduct an effective performance feedback session.
Identify the cause of a performance problem.
Choose the most effective approach to performance measurement for a given situation.
Discuss the advantages and disadvantages of the different sources of performance information.
Choose the most effective source(s) for performance information for any situation.
Distinguish types of rating errors and explain how to minimize each in a performance evaluation.
Conduct an effective performance feedback session.
Identify the cause of a performance problem.
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4. Introduction
Performance Management - managers ensure that employees’ activities and outputs are congruent with organizational goals.
Performance Appraisal-
organization gets information on how well an employee is doing on the job.
Performance Feedback
provides employees information regarding their performance effectiveness.
A performance management system has three parts: defining performance, measuring performance, and feeding back performance information. Performance management as the process through which managers ensure that employees’ activities and outputs are congruent with the organization’s goals. Performance management is central to gaining competitive advantage.
First, a performance management system specifies which aspects of performance are relevant to the organization, primarily through job analysis.
Second, it measures those aspects of performance through performance appraisal, which is only one method for managing employee performance. If done correctly, performance appraisal can provide benefits to both employees and the company. An important part of appraising performance is to establish employee goals, which should be tied to the company’s strategic goals. A good appraisal process ensures that all employees doing similar jobs are evaluated according to the same standards
Third, it provides feedback to employees through performance feedback sessions so they can adjust their performance to the organization’s goals. Performance feedback is also fulfilled through tying rewards to performance via the compensation system such as through merit increases or bonuses. Because companies are interested in continuous improvement and creating engaged employees—employees who know what to do and are motivated to do it—many companies are moving to more frequent, streamlined performance reviews.
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5. Performance Management Process
Define performance outcomes
for company division and department
2. Develop employee
goals, behavior & actions
to achieve outcomes
6. Provide
consequences
for
performance
results
5. Identify
needed
improvements
This depicts PMS and shows the objective results are measurable, tangible outputs of the work, and a consequence of the employee’s or group’s behavior. PMS seeks to tie the formal performance appraisal process to the company’s strategies by specifying at the beginning of the evaluation period types and level of performance that must be accomplished to achieve the strategy. At the end of the evaluation period, individuals and groups are evaluated based on how closely their actual performance met the performance plan. Ideally, PMS would ensure that all activities support the organization’s strategic goals.
Situational constraints are always at work within the PMS. An employee may have the necessary skills and yet not exhibit the necessary behaviors. Work group norms often influence what the group’s members do and the results they produce. Some may not be motivated to exhibit the right behaviors if the employees do not believe their behaviors will be rewarded with pay raises, promotions, etc., Sometimes organizational culture discourages the employee from doing effective things. Work group norms often dictate what the group’s members do and the results they produce. Some are simply not motivated to exhibit the right behaviors if they do not believe their behaviors will be rewarded with pay raises, promotions, etc.
To gain competitive advantage, the attributes, behaviors, and results must be tied to the company’s strategy. Regardless of the job or company, effective PMS measure performance criteria as precisely as possible. Effective PMS serve a strategic function by linking performance criteria to internal and external customer requirements, include a process for changing the system based on situational constraints and have administrative and developmental purposes.
3. Provide support & ongoing
performance discussions
4. Evaluate
Performance
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6. 3 Purposes of Performance Management (PMS)
Strategic
Administrative
Developmental
A performance management system (PMS) should link employee activities with the organization's goals. Important uses for PMS is to help motivate and reward employees for effective performance, identify employees’ strengths and weaknesses, link employees to appropriate training and development activity, and reward good performance with pay and other incentives.
Performance management is critical for companies to execute their talent management strategy and for executing a talent management system. It involves one-on-one contact with managers to ensure that proper training and development are taking place. When employees are not performing as well as they should, performance management seeks to improve their performance. The feedback given during a performance evaluation process often pinpoints the employee’s weaknesses and should be received on a day-to-day basis as well as during the formal annual performance review.
Performance‑management information is used for such administrative decisions. Organizations use performance management information (performance appraisals) in many administrative decisions: salary administration (pay raises), promotions, retention–termination, layoffs, and recognition of individual performance.
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7. 5 Criteria of Performance Measures
Strategic
Congruence
Validity
Reliability
Acceptability
Specificity
This shows the the five criteria underlying job performance measures: strategic congruence, validity, reliability, acceptability, and specificity.
Strategic congruence - extent to which PMS elicits job performance that is congruent with the organization's strategy, goals, and culture. Strategic congruence emphasizes the need for the performance management system to guide employees in contributing to the organization’s success.
Validity- extent to which the performance measure assesses all the relevant—and only the relevant—aspects of job performance. Validity is concerned with maximizing the overlap between actual job performance and the measure of job performance.
Reliability - consistency of the performance measure.
Acceptability - whether the people who use the performance measure accept it. Acceptability is affected by the extent to which employees believe the performance management system is fair. Performance management systems that are perceived as unfair are likely to be legally challenged, be used incorrectly, and decrease employee motivation to improve.
Specificity -extent to which a performance measure gives specific guidance to employees about what is expected of them and how they can meet these expectations.
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8. Measuring Performance
Comparative approach compares performance with others.
Ranking
Simple ranking ranks employees from highest to lowest performer.
Alternation ranking crosses off best and worst employees.
Forced distribution ranks employees in groups.
Paired comparison - managers compare every employee with every other employee in work group.
The comparative approach to performance requires the rater to compare an individual’s performance with that of others. This approach usually uses some overall assessment of an individual’s performance or worth and seeks to develop some ranking of the individuals within a work group. At least three techniques fall under the comparative approach: ranking, forced distribution, and paired comparison.
1. Ranking is one of the techniques that arrive at an overall assessment of the individual's performance.
a. Simple ranking requires managers to rank employees within their departments from highest performer to poorest performer.
b. Alternation ranking -manager looks at a list of employees, deciding who is the best employee, and crossing that person’s name off the list.
2. Forced Distribution—requires the managers to put certain percentages of employees into predetermined categories.
3. Paired Comparison—requires managers to compare every employee with every other employee in the work group, giving an employee a score of one every time he or she is considered the higher performer. Employees are ranked by how many points they receive.
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9. Attribute Approach Graphic rating scales
list of traits evaluated by 5-point rating scale.
legally questionable.
Mixed-standard scales
define relevant performance dimensions
develop statements representing good, average, and poor performance along each dimension.
The attribute approach to performance management focuses on the extent to which individuals have certain attributes:
1. Graphic Rating Scales can provide a number of different points (a discrete scale) or a continuum along which the rater simply places a check mark (a continuous scale).
2. Mixed Standard Scales are developed by defining the relevant performance dimensions with statements representing good, average, and poor performance along each dimension.
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10. Example of a Graphic Rating Scale
Performance Rating
Dimensions Distinguished 4 Excellent 3 Commendable 2 Adequate 1 Poor
Knowledge
Communication
Judgment
Managerial skill
Quality performance
Teamwork
Interpersonal skills
Initiative
Creativity
Problem solving
The most common form that the attribute approach to performance management takes is the graphic rating scale. Table 8.4 shows a graphic rating scale used in a manufacturing company. A list of traits is evaluated by a five-point (or some other number of points) rating scale. The manager considers one employee at a time, circling the number that signifies how much of that trait the individual has. Graphic rating scales can provide a number of different points (a discrete scale) or a continuum along which the rater simply places a check mark (a continuous scale).These areas of performance are significant to most positions. Indicate your assessment of performance on each dimension by circling the appropriate rating.
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11. Behavioral Approach
Critical incidents approach requires managers to keep record of specific examples of effective and ineffective performance.
Behaviorally anchored rating scales (BARS)
Behavioral observation scales (BOS)
Organizational behavior modification is a formal system of behavioral feedback and reinforcement.
Assessment centers are multiple raters who evaluate employees’ performance on a number of exercises.
The behavioral approach to performance management attempts to define the behaviors an employee must exhibit to be effective in the job. Techniques define those behaviors and then require managers to assess the extent to which employees exhibit them. The behavioral approach - best suited to less complex jobs (where the best way to achieve results is somewhat clear) and least suited to complex jobs (where there are multiple ways, or behaviors, to achieve success).
Critical Incidents— requires managers to keep a record of specific examples of effective and ineffective performance for each employee.
2. Behaviorally anchored rating scales (BARS) specifically define performance dimensions by developing behavioral anchors associated with different levels of performance.
Behavioral observation scales (BOS) is a variation of a BARS developed from critical incidents but use a larger number of the behaviors that are necessary for effective performance. Rather than assessing which behavior best reflects an individual’s performance, a BOS requires managers to rate the frequency with which the employee exhibited each behavior during the rating period. These ratings are then averaged to compute an overall performance rating .
Organizational behavior modification (OBM) entails managing the behavior of employees through a formal system of behav­ioral feedback and reinforcement.
Assessment centers - used for measuring managerial performance. During assessment, individuals perform a number of simulated tasks, and assessors observe and evaluate the individual's skill or potential as a manager.
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12. Competency Model
Competencies are sets of skills, knowledge, abilities and personal characteristics that enable employees to successfully perform their jobs. A competency model identifies competencies necessary for each model and provides descriptions common for an entire occupation, organization, job family or specific job, useful for recruiting, selection, training and development.
Competencies are sets of skills, knowledge, abilities and personal characteristics that enable employees to successfully perform their jobs.
A competency model identifies competencies necessary for each model and provides descriptions common for an entire occupation, organization, job family or specific job. Also useful for recruiting, selection, training and development. Competency models can be used to help identify the best employees to fill open positions, and as the foundation for development plans that allow the employee and manager to target specific strengths and development areas.
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13. Results Approach Management by Objectives
top management passes down company’s strategic goals to managers to define goals.
Productivity Measurement and Evaluation System (ProMES)
goal is to motivate employees to
higher levels of productivity.
Goals
Results approach to PM focuses on managing the objective, measurable results of a job or work group. It assumes that subjectivity can be eliminated from the measurement process and that results are the closest indicator of one's contribution to organizational effectiveness.
Management by objectives (MBO) is a joint goal‑setting process in which goals are agreed upon between the managers and each subordinate. These goals then become standards used to evaluate the individual's performance. This goal‑setting process cascades down the organization so that all managers are setting goals that help the company achieve its goals. These goals are used as the standards by which an individual’s performance is evaluated. The most effective goals are SMART goals. Goals are specific, clearly stated, define the result to be achieved), measurable), attainable, relevant, and timely. Different types of measurements can be used for goals or objectives including timeliness, quality, quantity, or financial metrics.
Productivity measurement and evaluation system (ProMES) The goal of ProMES is to motivate employees to higher levels of productivity. Four steps:
Identify objectives, products, or set of activities or objectives that the organization expects to accomplish; staff defines indicators of the products;
Staff establishes contingencies between the amount of the indicators and the level of evaluation associated with the amount;
A feedback system- provides employees and groups with information about their specific level of performance on each indicators.
ProMES –measures and feeds back productivity information to personnel.
Hierarchy
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14. Balanced Scorecard Approach
4 Perspectives of Performance
financial
customer
internal or operations
learning and growth
Balanced Scorecard Approach includes four perspectives of performance – financial, customer, internal or operations and learning and growth.
Financial focuses on creating sustainable growth in shareholder value.
Customer defines value for customers.
Internal or operations focuses on processes that influence customer satisfaction.
Learning and growth focuses on company’s capacity to innovate and continuously improve.
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15. Quality Approach
A (PMS) designed with a strong quality orientation can:
Assess both person and system factors in the measurement system.
Emphasize managers and employees working together to solve performance problems.
Involve both internal and external customers in setting standards and measuring performance.
Use multiple sources to evaluate person and system factors.
Sustainability is key element of quality approach.
Companies with strong values are incorporating them into PMS. The major focus of performance evaluations should be to provide employees with feedback about areas in which they can improve. Two types of feedback are necessary: (1) subjective feedback from managers, peers, and customers about the personal qualities of the employee and (2) objective feedback based on the work process itself using statistical quality control methods.
Two fundamental characteristics of the quality approach are a customer orientation and a prevention approach to errors. Improving customer satisfaction is the primary goal of the quality approach. How employees perform can be as important as what was accomplished. Customers can be internal or external to the organization. A PMS designed with a strong quality orientation can be expected to:
Emphasize an assessment of both person and system factors in the measurement system.
Emphasize that managers and employees work together to solve performance problems.
Involve both internal and external customers in setting standards and measuring performance.
Use multiple sources to evaluate person and system factors.
Sustainability is an increasingly important consideration of quality approach and continuous improvement.
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16. Statistical Process Quality Control Techniques
Process-flow analysis
Cause-and-effect diagrams
Pareto chart
Control chart
Histogram
Scattergram
Kaizen - practices participated in by employees from all levels of the company that focus on continuous improvement of business processes
Process‑flow analysis involves identifying each action and decision necessary to complete work.
A Pareto chart highlights the most important cause of a problem. In a Pareto chart, causes are listed in decreasing order of importance, where importance is usually defined as the frequency with which that cause resulted in a problem. The assumption of Pareto analysis is that the majority of problems are the result of a small number of causes.
In cause-and-effect diagrams, events or causes that result in undesirable outcomes are identified. Employees try to identify all possible causes of a problem. The feasibility of the causes is not evaluated, and as a result, cause-and-effect diagrams produce a large list of possible causes.
Control charts involve collecting data at multiple points in time. By collecting data at different times, employees can identify what factors contribute to an outcome and when they tend to occur.
Histograms display distributions of large sets of data and allow data to be grouped into a smaller number of categories or classes. Histograms are useful for understanding the amount of variance between an outcome and the expected value or average outcomes.
Scattergrams show the relationship between two variables, events, or different pieces of data and help employees determine whether the relationship between two variables or events is positive, negative, or zero.
Kaizen- practices participated in by employees from all levels of the company that focus on continuous improvement of business processes The most effective way of measuring performance is to rely on a combination of two or more alternatives.
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17. 5 Performance Information Sources
360
Managers
Customers
Peers
Whatever approach to performance management is used, decide whom to use as the source of the performance measures. Each source has specific strengths and weaknesses. Five primary sources include managers, peers, subordinates, self, and customers.
Managers are the most frequently used source.
Peers, or coworkers, are excellent sources of information when the supervisor does not always observe the employee.
Subordinates are a valuable source of performance information when managers are evaluated. They often have the best opportunity to evaluate how well a manager treats employees.
Self‑ratings can be valuable but are not usually used as the sole source of performance information.
The customer is often the only person present to observe the employee's performance.
The 360 technique consists of having multiple raters (boss, peers, subordinates, customers) provide input into a manager’s evaluation. It provide a means for minimizing bias in an otherwise subjective evaluation technique.
Subordinates
Self
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18. 3 Ways Technology Influences PMS
Web-based Online paperless PMS Technology
-Social media; electronic monitoring
Aligns performance goals across all levels
Access to performance information, data and tools
Improves efficiency of PMS
Technology is influencing performance management in three ways as companies move to web-based paperless PMS:
Aligns performance goals across all levels
Access to performance information, data and tools
Improves efficiency of PMS. It can also make it easier to weight the relative values by setting up the online system to do so automatically.
Social media are increasingly being used to deliver timely feedback.
Electronic tracking and monitoring systems and software to ensure that employees are working when and how they should be and to block access to visiting certain websites (such as those containing pornographic images). These systems include hand and fingerprint recognition systems, global positioning systems (GPS), and systems that can track employees using cell phones and handheld computers.
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19. Typical Rater Errors Similar to Me Contrast Leniency Strictness
Central Tendency
Halo
Horns
Because humans have tremendous limitations in processing information, we often use “heuristics,” or simplifying mechanisms, to make judgments, whether about investments or about people. These heuristics, which appear often in subjective measures of performance, can lead to rater errors. Performance evaluations may also be purposefully distorted to achieve personal on company goals (appraisal politics). Typical rater errors in performance management include:
“Similar to Me” is the error we make when we judge those who are similar to us more highly than those who are not.
Contrast errors occur when we compare individuals with one another instead of with an objective standard.
Leniency- Rater gives high ratings to all employees regardless of their performance.
4. Strictness- Rater gives low ratings to all employees regardless of their performance.
5. Central Tendency- Rater gives middle or average ratings to all employees despite their performance.
6. Halo errors occur when one positive performance aspect causes the rater to rate all other aspects of performance positively. Halo error leads to employees believing that no aspects of their performance need improvement
7. Horns error works in the opposite direction: one negative aspect results in the rater assigning low ratings to all the other aspects. Horns error makes employees frustrated and defensive.
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20. Reducing Rater Errors and Politics
Appraisal politics - evaluators purposefully distorting a rating to achieve goals.
3 Approaches to Reducing Rater Error:
rater error training
frame-of-reference or rater accuracy training
calibration meetings
Appraisal politics refer to evaluators purposefully distorting a rating to achieve personal or company goals. Factors, inherent in the appraisal system and company culture, are most likely to occur when raters are accountable to the employee being rated, there are competing rating goals, a direct link exists between performance appraisal and highly desirable reward or if top executives tolerate distortion or are complacent toward it, if distortion strategies are part of “company folklore” and are passed down from senior employees to new employees.
Rater error training attempts to make managers aware of rating errors and helps them develop strategies for minimizing those errors.
Rater accuracy training, also called frame-of-reference training, emphasizes the multidimensional nature of performance and thoroughly familiarizes raters with actual content of various performance dimensions. This involves providing examples of performance for each dimension and then discussing the actual or “correct” level of performance that the example represents. Accuracy training seems to increase accuracy, provided that in addition the raters are held accountable for ratings, job-related rating scales are used, and raters keep records of the behavior they observe.
Calibration Meetings- attended by managers to discuss employee performance ratings. Evidence supporting the ratings is provided to reduce the influence of rating errors and politics on performance appraisals.
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21. Improve Performance Feedback
Give feedback frequently, not once a year.
Create right context for discussion.
Ask employees to rate performance before the session.
Encourage employee to participate.
Recognize effective performance through praise.
Focus on solving problems.
Focus feedback on behavior or results, not on the person.
Minimize criticism.
Agree to specific goals and set progress review date.
Performance Feedback is a process that is complex and provokes anxiety for both the manager and the employee. If employees are not made aware of how their performance is not meeting expectations, their performance will almost certainly not improve and may get worse. Effective managers provide specific performance feedback in a way that elicits positive behavioral responses. To provide effective performance feedback managers should:
Give feedback frequently, not once a year.
Create right context for discussion.
Ask employees to rate performance before the session.
Encourage employee to participate.
Recognize effective performance through praise.
Focus on solving problems.
Focus feedback on behavior or results, not on the person.
Minimize criticism.
Agree to specific goals and set progress review date.
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22. Input Employee Performance Characteristics Standards/ 5 Factors to
Consider
When Analyzing
Poor Performance
Performance
Standards/
Goals
When diagnosing causes of poor performance consider whether the poor performance is detrimental to the business. That is, is poor performance critical to completing the job and does it affect business results? If detrimental, conduct a performance analysis to determine the cause of poor performance. The five categories to consider include input, employee characteristics, feedback, performance standards/goals, and consequences.
Consequences
Feedback
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23. Ways to Manage Performance
Solid performers
High ability and motivation; provide development
Misdirected effort
Lack of ability but high motivation; focus on training
Underutilizers
High ability but lack motivation; focus on interpersonal abilities
Deadwood
Low ability and motivation; managerial action, outplacement, demotion, firing
Marginal employees are those employees who are performing at a bare minimum level because of a lack of ability and/or motivation to perform well. Managers need to take into account whether employees lack ability, motivation, or both in considering ways to improve performance. To determine an employee’s level of ability, a manager should consider if he or she has the knowledge, skills, and abilities needed to perform effectively. Lack of ability may be an issue if an employee is new or the job has recently changed. To determine employees’ level of motivation, managers need to consider if employees are doing a job they want to do and if they feel they are being appropriately paid or rewarded. A sudden negative change in an employee’s performance may indicate personal problems.
Employees with high ability and motivation are likely good performers (solid performers). Managers should not ignore employees with high ability and high motivation. Managers should provide development opportunities to keep them satisfied and effective. Poor performance resulting from lack of ability but not motivation (misdirected effort) may be improved by skill development activities such as training or temporary assignments. Managers with employees who have the ability but lack motivation (underutilizers) need to consider actions that focus on interpersonal problems or incentives. These actions include making sure that incentives or rewards that the employee values are linked to performance and making counseling available to help employees deal with personal problems or career or job dissatisfaction. Chronic poor performance by employees with low ability and motivation (deadwood) indicates that outplacement or firing may be the best solution.
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24. Withstand Legal Scrutiny
Conduct a valid job analysis related to performance.
Base system on specific behaviors or results.
Train raters to use system correctly.
Review performance ratings and allow for employee appeal.
Provide guidance/support for poor performers.
Use multiple raters.
Document performance evaluations.
In discrimination suits, the plaintiff often claims that the performance ratings were subjective and that the rater was biased and influenced by gender or racial stereotypes. Because of the potential costs of discrimination and unjust dismissal suits, an organization needs to determine exactly what the courts consider a legally defensible performance management system. Base the system on specific behaviors or results rather than questioning on potential underlying reasons for behavior such as physical or mental disabilities. Based on reviews of such court decisions, these are characteristics of a system that will better withstand legal scrutiny.
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25. Summary
Measuring and managing performance are key to gain competitive edge.
Performance management systems (PMS) serve strategic, administrative and developmental purposes.
PMS should be evaluated against criteria of strategic congruence, validity, reliability, acceptability and specificity.
Effective managers need to
be aware of the issues involved in determining best methods and legal scrutiny.
feed performance information back to employees
take action based on causes for poor performance: ability, motivation or both
Measuring and managing performance is a challenging enterprise and one of the keys to gaining competitive advantage. Performance management systems serve strategic, administrative, and developmental purposes— their importance cannot be overestimated. A performance measurement system should be evaluated against the criteria of strategic congruence, validity, reliability, acceptability, and specificity. Measured against these criteria, the comparative, attribute, behavioral, results, and quality approaches have different strengths and weaknesses. Deciding which approach and which source of performance information are best depends on the job in question.
Effective managers need to be aware of the issues involved in determining the best method or combination of methods for their particular situations. In addition, once performance has been measured, a major component of a manager’s job is to feed that performance information back to employees in a way that results in improved performance rather than defensiveness and decreased motivation. Managers should take action based on the causes for poor performance: ability, motivation, or both. Managers must be sure that their performance management system can meet legal scrutiny, especially if it is used to discipline or fire poor performers.
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