Part Three
Training and Development
Chapter 9
Performance Management and Appraisal
Lecture Outline:
The Basics of Performance Management and Appraisal
The Performance Appraisal Process
Why Appraise Performance?
Performance Management
Using Information Technology to Support Performance Management
Defining the Employee's Goals & Performance Standards
Who Should Do the Appraising?
Techniques for Appraising Performance
Graphic Rating Scale Method
Alternation Ranking Method
Paired Comparison Method
Forced Distribution Method
Critical Incident Method
Narrative Forms
Behaviorally Anchored Rating Scales
Mixed Standard Scales
Management by Objectives (MBO)
Computerized and Web-Based Performance Appraisal
Electronic Performance Monitoring
Dealing with Rater Error Appraisal Problems
Potential Rating Problems
Guidelines for Effective Appraisals
Managing the Appraisal Interview
How to Conduct the Appraisal Interview
How to Handle a Defensive Subordinate
How to Criticize a Subordinate
How to Handle a Formal Written Warning
Talent Management and Employee Appraisal
Appraising and Actively Managing Employees
Segmenting and Actively Managing Employees in Practice
In Brief:
This chapter gives an overview of the performance appraisal process and the different tools
and methods available. The main topics covered include the performance management
process, appraisal methods, appraisal performance problems and solutions, and the appraisal
interview.
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Performance Management and Appraisal
Interesting Issues:
Despite lots of attention, money, and effort, performance appraisals remain an area with which
few managers or employees are satisfied. The following questions may be worth discussing. Is
it just that we don't have a good enough system yet, is there an intrinsic problem with
performance appraisals, or is it just human nature to dislike them.
Learning Objectives:
1. Describe the appraisal process.
2. Define performance management and discuss how it differs from performance appraisal.
3. Develop, evaluate, and administer at least four performance appraisal tools.
4. Explain and illustrate the problems to avoid in appraising performance.
5. Perform an effective appraisal interview.
6. Explain how to “segment” employees for appraisal and reward purposes.
Annotated Outline:
I. The Basics of Performance Management and Appraisal
A. The Performance Appraisal Process - Stripped to its essentials, performance
appraisal always involves the 3-step performance appraisal process: (1)
setting work standards; (2) assessing the employee’s actual performance
relative to those standards, which usually involves some rating form; and (3)
providing feedback to the employee with the aim of helping him or her to
eliminate performance deficiencies or to continue to perform above par.
B. Why Appraise Performance? - For several reasons: 1) many employers still
base pay, etc. on employee appraisals; 2) appraisals play an integral role in
the employer's performance management process; 3) the appraisal lets the
boss and subordinate develop a plan for correcting any deficiencies, and
reinforce those things the employee does correctly; 4) they serve a useful
career planning purpose; and 5) appraisals play a role in identifying training
and development needs.
C. Performance Management includes continuously adjusting how an
organization and its team members do things. Team members who need
coaching and training receive it, and procedures that need changing are
changed.
D. Using Information Technology to Support Performance Management - Many
companies use information technology to automate performance management and to
monitor feedback, and to correct deviations in real time.
E. Defining the Employee's Goals & Performance Standards - At the heart of
performance management is the idea that employees’ effort should be goal
directed, which involves clarifying expectations and quantifying them by
setting measurable standards for each objective. Some guidelines for
effective goal setting are: 1. assign specific goals; 2. assign measurable
goals; 3. assign challenging but doable goals; and 4. make sure the goals are
relevant, and 5. timely.
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Performance Management and Appraisal
F. Who Should Do the Appraising?
1. The immediate supervisor is at the heart of the appraisal process.
However, it does not stop with him or her.
2. Peer Appraisals – Becoming more popular with firms using self-
managing teams.
3. Rating Committees – Consist of multiple raters, typically the
employee’s immediate supervisor and three or four other supervisors.
4. Self-Ratings – Tend to be higher than supervisor or peer ratings.
5. Appraisal by Subordinates – Also known as upward feedback. It is
where subordinates anonymously rate their supervisor’s performance.
6. 360-Degree Feedback – Ratings are collected from the employee’s
supervisors, subordinates, peers, and internal or external customers.
This method is the subject of considerable debate. One study found
significant correlation between 360-degree ratings and conventional
ratings. Firms should carefully assess potential costs, carefully train
those giving feedback, and not rely solely on 360-degree feedback.
II. Techniques for Appraising Performance
A. Graphic Rating Scale Method – It is the simplest and most popular
performance appraisal technique. A scale is used to list a number of traits
and a range of performance for each, then the employee is rated by
identifying the score that best describes his/her performance level for each
trait. Managers must decide which job performance aspects to measure.
Some options include generic dimensions, actual job duties, or
behaviorally recognizable competencies.
B. Alternation Ranking Method – Employees are ranked from best to worst
on a particular trait, choosing highest, then lowest, until all are ranked.
C. Paired Comparison Method – It involves ranking employees by making a
chart of all possible pairs of employees for each trait and indicating which
one is the better employee of the pair.
D. Forced Distribution Method – Predetermined percentages of rates are
placed in various performance categories, which is similar to grading on a
curve.
E. Critical Incident Method – A supervisor keeps a record of uncommonly
good and/or undesirable examples of an employee’s work-related
behavior, and reviews the record with the employee at predetermined
times.
F. Narrative Forms – The method involves rating the employee’s
performance for each performance factor, writing down examples and an
improvement plan, aiding the employee in understanding where his/her
performance was good or bad, and summarizing with a focus on problem
solving.
G. Behaviorally Anchored Rating Scales (BARS) – A method that combines
the benefits of narratives, critical incidents, and quantified scales by
anchoring a scale with specific behavioral examples of good or poor
performance. The five steps in developing a BARS are: 1) generate
critical incidents; 2) develop performance dimensions; 3) reallocate
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Performance Management and Appraisal
incidents; 4) scale the incidents; and 5) develop a final instrument. The
advantages of BARS include a more accurate gauge, clearer standards,
feedback, independent dimensions, and consistency.
H. Mixed Standard Scales – These are similar to BARS but generally list just
3 behavioral examples or standards for each, of 3, performance
dimensions.
I. Management by Objectives (MBO) – The manager sets specific
measurable goals with each employee and then periodically discusses the
employee’s progress toward these goals. The process consists of six steps:
1) set the organization's goals; 2) set departmental goals; 3) discuss
departmental goals; 4) define expected results; 5) conduct performance
reviews; and 6) provide feedback.
J. Computerized and Web-Based Performance Appraisal – This method
generally enables managers to keep notes on subordinates during the year,
to rate employees on a series of performance traits, and then generate
written text to support each part of the appraisal. About 1/3 of employers
use online performance management tools for at least some employees.
K. Electronic Performance Monitoring – These systems use computer
network technology to allow managers access to their employees’
computers and telephones.
III. Dealing with Rater Error Appraisal Problems - It can be difficult to rate performance for
several reasons. Much depends on a good rating, including career progress, or being able
to obtain a raise. There are also technical problems that can affect the fairness of the
process.
A. Potential Rating Problems:
1. Unclear Standards – Ambiguous traits and degrees of merit can result
in an unfair appraisal.
2. Halo Effect – The influence of a rater’s general impression on ratings
of specific qualities can be a problem.
3. Central Tendency – This occurs when supervisors stick to the middle
of the rating scales, thus rating everyone average.
4. Leniency or Strictness – Supervisors have the tendency to rate
everyone either high or low.
5. Regency Effects – This involves letting what the employee has done
recently blind the manager to the employee’s performance over the
rest of the year.
6. Bias – The tendency to allow individual differences such as age, race,
and sex affect employee appraisal ratings is a problem.
B. Guidelines for Effective Appraisals – Appraisal problems can be more
effective by following these five things: 1) know the problem; 2) use the
right appraisal tool; 3) keep a diary; 4) get agreement on a plan and; 5) be
fair.
IV. Managing the Appraisal Interview – The supervisor and subordinate review the
appraisal and make plans to remedy deficiencies and reinforce strengths.
A. How to Conduct the Appraisal Interview - Prepare for the interview by assembling
the data, preparing the employee, and choosing the time and place. Be direct and
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Performance Management and Appraisal
specific, using objective examples; don’t get personal; encourage the person to talk;
and reach agreement.
B. How to Handle a Defensive Subordinate - Recognize that defensive behavior is
normal; never attack a person’s defenses; postpone action; and recognize your own
limitations.
C. How to Criticize a Subordinate - When required, criticize in a private and
constructive manner that lets the person maintain his/her dignity and sense
of worth.
D. How to Handle a Formal Written Warning - Written warnings should
identify the standards by which the employee is judged, make it clear that
the employee was aware of the standard, specify any violation of the
standard, and show that the employee had an opportunity to correct the
behavior.
V. Talent Management and Employee Appraisal
A. Appraising and Actively Managing Employees – Talent management
requires actively managing decisions like these. The point is that the
traditional practice of allocating pay raises, development opportunities,
and other scarce resources across the board or based just on performance
makes less sense than it used to. Today, employers also need to focus their
attention and resources on their company’s mission-critical employees,
who are essential to the firm’s strategic needs.
B. Segmenting and Actively Managing Employees in Practice – Examples
are discussed of organizations who actively manage their employees.
Improving Performance Questions:
9-1: Describe three examples of scorecard displays GDAS might show on their performance
management system’s digital dashboard-type display.
9-2: Explain what performance management behaviors the Ball program included.
9-3: Write a short paragraph that addresses the question: “Why is it not a good idea to simply tell
employees to ‘do their best’ when assigning a task?”
9-4: TRW wanted a “consistent” system it could use globally. A study similarly found that large
multinational companies from the United States, Holland, Japan, Korea, and Taiwan used
the same performance management forms and procedures abroad that they do at
headquarters. Discuss two cultural differences between the United States and any one other
country that you might have thought would make having a single system less than feasible.
Discussion Questions:
9-5: What is the purpose of a performance appraisal?
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Performance Management and Appraisal
The purpose of a performance appraisal is to provide employees with feedback on how they are
doing, as well as give them an opportunity to give feedback.
9-6: Should the appraisal process concentrate on past performance, future performance, or
both? Give reasons for your answer.
Appraisals by the immediate supervisor are still the heart of most appraisal processes, however,
with more firms using self-managing teams, appraisal of an employee by his or her peers—peer
appraisal—is popular, as is 360° feedback. With 360-degree feedback, the employer collects
performance information all around an employee—from his or her supervisors, subordinates,
peers, and internal or external customers—generally for developmental rather than pay purposes.
Some employers obtain employees’ self-ratings, usually in conjunction with supervisors’ ratings.
Many employers even have subordinates rate their managers, usually for developmental rather
than for pay purposes. Anonymity affects the feedback.
9-7: What is a critical incident, and how can it help improve performance?
These are negative or positive examples of an employee’s work-related behaviour that can be
used to aid discussion of past performance. It can help improve performance by focussing on
incidents throughout the year (instead of just the most recent) which can be used to explain
performance ratings at appraisals.
9-8: Explain management by objectives, and suggest some benefits and drawbacks of this
process.
Management by objectives involves the setting up of a company-wide goal-setting and appraisal
programme. Managers set specific measurable and relevant goals with each employee, and
then periodically discuss the latter’s progress toward these goals. However, it is not suitable
for all companies. It would be appropriate for a knowledge-based company where roles
involve a high level of empowerment rather than a high level of supervision. In this situation
it could encourage teams to manage themselves and therefore promote creativity and
innovation. The results orientated nature of MBO could also be useful to manage the
performance of senior managers.
9-9: Explain in your own words how you would go about developing a behaviorally
anchored rating scale.
Each student should express the five steps in his or her own words. Those five steps are: 1)
generate critical incidents; 2) develop performance dimensions; 3) reallocate incidents; 4)
scale the incidents; and 5) develop a final instrument.
9-10: Explain the problems to be avoided in appraising performance.
The five main rating scale problems listed in the text are: 1) unclear standards; 2) halo
effect; 3) central tendency; 4) leniency or strictness; 5) regency effects; and 6) bias.
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Performance Management and Appraisal
9-11: Identify and explain the problems in performance ratings.
Unclear standards: A rating scale that uses definitions like creativity and quality can be
open to interpretation. Managers can also have different ideas about what constitutes “good”,
“satisfactory” or “excellent” performance.
Halo effect: A manager’s impression of the personality of an employee can influence their
judgment of their work abilities.
Central tendency: There can be a tendency to rate the majority of employees as average or
satisfactory.
Leniency or strictness: Conversely some managers rate employees either high or low.
Recency effect: Recent achievements by an employee can impress managers more than
performance over the year as a whole.
Individual and Group Activities:
9-12: Working individually or in groups, suggest disadvantages of using peer appraisals
and 360-degree feedback for an organization.
In peer appraisals raters may not have much experience with rating employees, and may
be reluctant to rate a colleague of the same grade at a low level.
In 360 degree appraisals subordinates may have an agenda against a manager and this can
affect their judgement. Also confidentiality can be difficult to maintain.
9-13: Working individually or in groups, study the drawbacks of segmenting employees
based on how critical they are to an organization’s success.
It may be difficult to devise a truly objective method of deciding which employees are
critical to the company. Those deemed non-critical may feel that their development is being
neglected. This may lead to demotivation particularly if they feel their role may be
outsourced.
9-14: Working individually or in groups, discuss how you would appraise employees who
feel defensive about their performance.
Encourage the employee to discuss their own performance. Ensure that the conversation
focusses on facts and remains objective throughout. Criticize employees constructively
and always in private. Recognize that defensive behavior is normal.
9-15: Appendix A, PHR and SPHR Knowledge Base at the end of this book lists the
knowledge someone studying for the HRCI certification exam needs to have in each
area of human resource management (such as in Strategic Management, Workforce
Planning, and Human Resource Development). In groups of 4-5 students, do four
things: (1) review Appendix A; (2) identify the material in this chapter that relates to
the required knowledge Appendix A lists; (3) write four multiple-choice exam
questions on this material that you believe would be suitable for inclusion in the
HRCI exam; and (4) if time permits, have someone from your team post your team's
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Performance Management and Appraisal
questions in front of the class, so that students in all teams can answer the exam
questions created by the other teams.
9-16: Working individually or in groups, find three contrasting appraisal forms on the
Internet and identify the rating scales used. Do you think they are suitable for the
jobs that are being appraised?
Answers will vary depending on students’ research. They may find graphic scales such as
behaviorally anchored or competency-based as well as alternation, paired comparison and
forced distribution.
Experiential Exercise: Grading the Professor
Purpose: The purpose of this exercise is to give you practice in developing and using a
performance appraisal form.
Required Understanding: You are going to develop a performance appraisal form for an
instructor and should therefore be thoroughly familiar with the discussion of performance
appraisals in this chapter.
How to Set up the Exercise/Instructions: Divide the class into groups of four or five students.
9-17: First, based on what you now know about performance appraisal, do you think Figure 9-1
is an effective scale for appraising instructors? Why? Why not?
9-18: Your group should develop its own tool for appraising the performance of an instructor.
Decide which of the appraisal tools (graphic rating scales, alternation ranking, and so on)
you are going to use, and then design the instrument itself.
9-19: Have a spokesperson from each group post his or her group’s appraisal tool on the board.
How similar are the tools? Do they all measure the same factors? Which factor appears
most often? Which do you think is the most effective tool on the board?
9-20: The class should select the top 10 factors from all of the appraisal tools presented to create
what the class perceives to be the most effective tool for appraising the performance of the
instructor.
Video Case Appendix:
Video Title: Performance Management (California Health Foundation)
Synopsis:
Kim Galvin, the human resources director of the California Health Foundation, explains the
nature of the company’s performance management system. The employee appraisal system is
open-ended and includes just a few general categories, covering the employees’ past
performance with respect to their objectives set at the previous year’s appraisal, and their future
goals in the company.
Discussion Questions:
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Performance Management and Appraisal
9-21: Specifically what type of appraisal tool does the company seem to be using, based on what
you read in this chapter? How would you modify it?
9-22: What do you think of the idea of getting anonymous third party feedback on the employee?
Why?
9-23: Why does Kim Galvin think that, besides the human resources director, only an employee
and his or her manager should review the employee’s performance review? What (if any)
is the drawback of not having the supervisor’s own manager review the appraisal? Would
you require some type of review, and why?
9-24: Suppose, as Kim Galvin says, you have an employee who is very well liked but not
meeting the job expectations. What would you do?
9-25: How does the California Health Foundation handle employees who may be candidates for
future promotion?
Video Title: Appraising (Hautelook)
Synopsis:
Performance appraisal can be performed both by employees and by their supervisors. The online
clothing retail company Hautelook conducts evaluations by both a formal and an informal
process. Informal evaluations can happen at any time during the year, whereas formal
evaluations are in January, with an informal mid-year review in July. Hautelook has an informal
culture, where managers have an open-door policy and employees are encouraged to have
regular discussions with managers as to their performance, as well as to self-evaluate their own
performance continually. Hautelook rewards employees in various ways, such as by recognition,
raises, bonuses, and promotions. Filling positions by internal promotion is strongly emphasized,
and employees are encouraged to think about how they might advance their position in the
company in the future.
Discussion Questions:
9-26: What appraisal tool or tools would you recommend using at Hautelook, and why?
9-27: What do you think of how Hautelook handled its attendance problem? Was this an
appraisal or a discipline problem? What difference would it make in how you handle the
problem?
9-28: Which appraisal problems from this chapter would help to explain the “fairness and
accuracy” issues that sometimes arise in the company’s appraisals?
9-29: From what you’ve seen in this video, what exactly would you do to turn Hautelook’s
appraisal process into more of a performance management process?
Video Title: Appraising (The Weather Channel)
Synopsis:
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Performance Management and Appraisal
Employee appraisals at The Weather Channel are recommended to be done on an ongoing,
continual basis so that an employee always knows where he or she stands as far as what is
expected and how well he or she is doing. This way, the employee can look forward to
performance reviews instead of dreading them. The idea is that the appraisals will be a
confirmation of the progress the employee has been making. An employee is recognized not just
for what he or she has achieved during the appraisal year, but for the ways in which his or her
goals were accomplished. The employee can thereby have opportunities identified for building
on his or her previous performance and better progress within the company.
Discussion Questions:
9-30: From what Ms. Taylor says, does The Weather Channel really use a “performance
management” process? Why do you conclude that?
9-31: How, specifically, does a firm’s performance management process support its training
process?
9-32: How would you reduce the anxiety and stress of an appraisal, based on what you read in
this chapter?
9-33: How exactly would you appraise the employees’ “competencies”? What tools would you
use specifically, and why?
Application Case: Appraising the Secretaries at Sweetwater U
9-34: Do you think that the experts' recommendations will be sufficient to get most of the
administrators to fill out the rating forms properly? Why? Why not? What
additional actions (if any) do you think will be necessary?
While controversial, the recommendations would, in fact, encourage administrators to fill the
forms out correctly. Using the more detailed form and not tying the performance ratings to
salary increases would allow the managers to feel more free about rating the secretaries
accurately. There would, however, need to be some strong training sessions (both for
administrators and secretaries) to help them understand the new system. Since all secretaries
have traditionally received the same salary increases and have been pleased with that, it
would be advisable to consider lowering the maximum increase to an amount that could be
given to all secretaries while staying within budget. Then all secretaries with a satisfactory
rating or better would receive that increase.
9-35: Do you think that Vice President Winchester would be better off dropping graphic
rating forms, substituting instead one of the other techniques we discussed in this
chapter such as a ranking method? Why?
Certainly other methods could be used. He has already had a taste of what would result if he
went to a forced distribution or other ranking method. A BARS system might be best, but it
could be costly to develop if the clerical staff has positions that are significantly different.
9-36: What performance appraisal system would you develop for the secretaries if you
were Rob Winchester? Defend your answer.
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Performance Management and Appraisal
If the development costs are not too great, the BARS system would give the strongest
solution to the current situation. The behavioral anchors would make it more difficult to just
rate everyone at the top. It would also help to eliminate the different interpretations of what
the rating scales mean.
Continuing Case: Carter Cleaning Company - The Performance Appraisal
9-37: Is Jennifer right about the need to evaluate the workers formally? The managers?
Why or why not?
Based on the information presented in the chapter, the students need to determine if the
workers and managers should be evaluated formally or informally, and they need to provide
reasons for their decision. Outcome: Describe the process of performance appraisal and
different appraisal methods.
9-38: Develop a performance appraisal method for the workers and managers in each
store.
The students need to be familiar with different appraisal methods discussed in the chapter.
They should use the sample appraisal forms given in the chapter as guides.
Hotel Paris: Improving Performance at the Hotel Paris – The New Performance Management
System
9-39: Choose one job, such as front desk clerk. Based on any information you have
(including job descriptions you may have created in other chapters), write a list of
duties, competencies, and performance standards for that chosen job.
Answers should include competencies that will help Hotel Paris become more service
oriented. Use examples from the case itself, such as “ability to check a guest in or out in five
minutes or less,” to get the class started. Discuss what has made students happy or unhappy
when checking into a hotel, or in seeking other services.
9-40: Based on that, create a performance appraisal form for appraising that job.
There are samples in the text. If possible, before class ask students to bring sample
performance appraisal forms in to class, either from jobs they have held or samples from the
Internet. Suggest combining graphic rating scales with the critical incident method to
improve on-going coverage of employee performance. Also stress that a once-yearly formal
appraisal will not be sufficient unless it is supplemented by regular verbal feedback.
Key terms:
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Performance Management and Appraisal
Performance Appraisal - Evaluating an employee’s current and/or past performance relative to
his or her performance standards.
Performance Appraisal Process - A 3-step appraisal processing involving (1) setting work
standards, (2) assessing the employee’s actual performance relative to those standards, and (3)
providing feedback to the employee with the aim of helping him or her to eliminate performance
deficiencies or to continue to perform above par.
Performance Management - Managing all elements of the organizational process that affect
how well employees perform.
Graphic Rating Scale - A scale that lists a number of traits and a range of performance for each.
The employee is then rated by identifying the score that best describes his or her performance for
each trait.
Alternation Ranking Method - Ranking employees from best to worst on a particular trait,
choosing highest, then lowest, until all are ranked.
Paired Comparison Method - Ranking employees by making a chart of all possible pairs of the
employees for each trait and indicating which is the better employee of the pair.
Forced Distribution Method - Similar to grading on a curve; predetermined percentages of
rates are placed in various performance categories.
Critical Incident Method - Keeping a record of uncommonly good or undesirable examples of
an employee's work-related behavior and reviewing it with the employee at predetermined times.
Behaviorally Anchored Rating Scale (BARS) - An appraisal method that aims at combining
the benefits of narrative and quantified ratings by anchoring a quantified scale with specific
narrative examples of good and poor performance.
.
Electronic Performance Monitoring (EPM) - Having supervisors electronically monitor the
amount of computerized data an employee is processing per day, and thereby his or her
performance.
Unclear Standards - An appraisal scale that is too open to interpretation.
Halo Effect - In performance appraisal, the problem that occurs when a supervisor's rating of a
subordinate on one trait biases the rating of that person on other traits.
Central Tendency - A tendency to rate all employees the same way, such as rating them all
average.
Strictness/Leniency - The problem that occurs when a supervisor has a tendency to rate all
subordinates either high or low.
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Performance Management and Appraisal
Bias - The tendency to allow individual differences such as age, race, and sex to affect the
appraisal rates these employees receive.
Appraisal Interviews - An interview in which the supervisor and subordinate review the
appraisal and make plans to remedy deficiencies and reinforce strengths.
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