CHAPTER 8

Performance Management

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Learning Outcomes
LO1 Explain what performance management is and how
the establishment of goals, ongoing performance
feedback, and the evaluation process are part of it.
LO2 Describe the different sources of performance
management information, as well as the strengths
and limitations of each.
LO3 Explain the various methods used to evaluate the
performance of employees as well as their potential
trade-offs.
LO4 Outline the characteristics of effective performance
review meetings and feedback sessions and ways in
to improve the performance of employees.
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Performance Management Systems
• Performance Management
− The process of creating a work environment in
which people can perform to the best of their
abilities
• Performance Review
− A process in which a manager evaluates an
employee’s performance relative to the
requirements of his or her job and uses the
information to show the person where and how
improvements can be made
− Also referred to as performance appraisals and
performance evaluations

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Figure 8.1
Steps in the Performance Management
Process

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The Purposes of Performance
Management – 1
• According to research, organizations with strong
performance management systems are 40 to 50
percent more likely to outperform their
competitors in revenue growth, productivity, and
profitability.
• Figure 8.2 depicts the most common goals of
performance management programs, which are
developmental and/or administrative in nature.

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Figure 8.2
Purposes of a Performance Review

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The Purposes of Performance
Management – 2
• Developmental Purposes
− A performance management system provides
managers with a concrete framework for
gathering and organizing information about an
employee's performance.
− Goal:
• capitalize on a person's strengths, eliminate
potential weaknesses, and advance their
career while also improving the organization

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The Purposes of Performance
Management – 3
• Administrative Purposes
− HRM programs provide input that can be used
for the entire range of HRM activities:
• promotions, transfers, layoffs, and pay
decisions.
− Performance data can also be used to document
HRM actions that can result in legal action. GE,
Adobe, the Gap, and Microsoft are among the
organizations that have redesigned their
performance management programs.

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Why Performance Management
Systems Sometimes Fail
• Only half of HR professionals believe annual
performance reviews are accurate appraisals.
• Many people criticize the formal review process for
emphasizing employees' individual accomplishments.
• Others argue that it discourages work by emphasizing
short-term gains over long-term growth and learning.
• Many organizations no longer conduct formal
evaluations and instead rely on ongoing coaching,
individual development plans, or other feedback
systems

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Developing an Effective
Performance Management System
• The HR department is normally in charge of
overseeing the performance of its employees.
• Managers from the company's operating
departments must be actively involved, especially
when it comes to establishing the objectives of a
company's performance management program and
translating them into on-the-job efforts.

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Developing an Effective
Performance Management System – 1
• Performance standards describe the accepted level
of performance to be achieved by an employee.
• There are four basic elements (Figure 8.4) that
must be considered when establishing performance
standards:
1. strategic relevance
2. criterion deficiency
3. criterion contamination
4. reliability

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Developing an Effective
Performance Management System – 2
• Strategic Relevance
− Individual standards directly relate to strategic
goals.
• Criterion Deficiency
− Standards capture all of an individual’s
contributions.
• Criterion Contamination
− Performance capability is not reduced by
external factors.

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Developing an Effective
Performance Management System – 3
• Reliability
− Standards are quantifiable, measurable, and
stable.
− Calibration:
• A process whereby managers meet to discuss
the performance of individual employees to
ensure that their employee evaluations are in
line with one another

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Figure 8.4
Establishing Performance Standards

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Legal Issues
• Employee performance reviews should meet the
following legal criteria to avoid bias in the process
or the outcomes:
− Relevance
− Timeliness
− Avoid subjectivity
− Transparency
− Fairness
• Managers who conduct the reviews must be able to
assess the behaviour of their employees as well as
their supervisors.
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Figure 8.5
Alternative Sources of Reviews

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Sources of Performance Review
Information – 1
• Manager/Supervisor
− manager and/or supervisor review: A performance
evaluation done by an employee’s manager and
often reviewed by a manager one level higher
• Employee
− self-evaluation: A performance evaluation done by
the employee being evaluated, generally on an
evaluation form completed by the employee prior
to the review meeting
• Subordinates
− subordinate evaluation: A performance review of a
superior by an employee, which is more appropriate
for developmental than for administrative purposes

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Sources of Performance Review
Information – 2
• Peers
− peer evaluation: A performance evaluation done by
one’s fellow employees, generally on forms
compiled into a single profile for use in the
evaluation meeting conducted by the employee’s
manager
• Team members
− team evaluation: A performance evaluation that
recognizes team accomplishment rather than
individual performance
• Customers
− customer evaluation: A performance evaluation
that includes evaluation from both a firm’s external
and internal customers
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Putting it all Together:
360-Degree Evaluations – 1
• 360-degree evaluation combines data from multiple
sources of performance evaluation.
− feedback is designed to give employees the most
accurate picture of their performance possible
− incorporates feedback from all sources, including
supervisors, peers, subordinates, customers
• Intel observed safeguards to ensure maximum quality
and acceptance: ensure anonymity, make respondents
accountable, prevent “gaming” of the system, use
statistical procedures, and identify and quantify biases.

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Putting it all Together:
360-Degree Evaluations – 2
• Google has used a
multiple-rater approach
that combines various
sources of performance
evaluation information.

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Training Appraisers – 1
• Appraiser training can
improve the performance
review process.
− Establish a review plan
− Provide an explanation
of the performance
appraisal system’s
objectives
− Explain the mechanics
of the rating system
− Alert raters to the
weaknesses and
problems of appraisal
systems
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Training Appraisers – 2
• Eliminating Rating Errors
− error of central tendency: A performance rating
error in which all employees are rated about
average
− leniency or strictness error: A performance rating
error in which the appraiser tends to give
employees either unusually high or unusually low
ratings
− forced distribution: A performance ranking system
whereby raters are required to place a certain
percentage of employees into various performance
categories

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Training Appraisers
• Eliminating Rating Errors (concluded)
− temporal (recency) error: A performance rating
error in which the evaluation is based largely on the
employee’s most recent behaviour rather than on
behaviour throughout the evaluation period
− contrast error A performance rating error in which
an employee's evaluation is biased either upward or
downward because of comparison with another
employee just previously evaluated
− similar-to-me error A performance rating error in
which an appraiser inflates the evaluation of an
employee because of a mutual personal connection

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Performance Review Methods – 1
• Methods are classified as measuring traits, behaviours,
or results.
• Trait methods include:
− Graphic Rating Scale: each employee is rated
according to a scale of characteristics
− Mixed-Standard Scale: similar to other scale
methods but based on comparison with a standard
− Forced-Choice: rater chooses from statements
designed to distinguish between successful and
unsuccessful performance
− Essay: requires the rater to compose a statement
describing employee behaviour
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Performance Review Methods – 2
• Behaviour methods include:
− Critical Incident: An unusual event that denotes
superior or inferior employee performance in
some part of the job
− Behavioural Checklist
− Behaviourally Anchored Rating Scale (BARS): a
series of vertical scales, one for each important
dimension of job performance
− Behaviour Observation Scale (BOS): measures
the frequency of observed behaviour

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Performance Review Methods – 3
• Results methods are more objective and empowering
for employees
− Employees are responsible for their outcomes along
with their discretion over how they accomplish
them.
− Management by Objectives (MBO): A results
review process that rates the performance of
employees based on their achievement of goals set
mutually by them and their manager
− Balanced Scorecard: Focuses on four related
measures: financial, customer, process, and
learning

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Performance Review Meetings and
Feedback Sessions
• Types of Performance Review Meetings and
Feedback Sessions
− Three formats for providing feedback during a
performance evaluation meeting or feedback
session:
1. tell-and-sell
2. tell-and-listen
3. problem solving

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Conducting the Performance Review
Meeting or Feedback Session – 2
• Guidelines to increase employees' willingness to accept
feedback, discuss and improve performance, and increase
their satisfaction with the feedback process include:
− Ask for self-evaluation
− Invite participation
− Express appreciation
− Be supportive and demonstrate that you care
− Minimize criticism
− Establish mutual goals
− Follow up day-to-day
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Improving Performance – 1
• Identifying the Sources of Ineffective Performance
− Performance is a function of several factors, but
can be narrowed to three primary concerns: ability,
motivation, and environment.
− Each person has a distinct set of strengths and
weaknesses that play a role.
− Talented employees who are unmotivated are unlikely
to succeed.
• If an employee's performance is below expectations, it
could be a skill problem (knowledge, abilities, technical
competencies), an effort problem (motivation to
complete the task), or a problem with the external
working conditions.
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Figure 8.9
Factors that Affect An Employee’s
Performance

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