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9
Performance Evaluation and Management
McGraw-Hill/IrwinHuman Resource Management, 10/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
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Introduction
Performance management is:The process by which executives, managers, and
supervisors work to align employee performance with the firm’s goals
An effective performance management process: Has a precise definition of excellent performance Uses measurements of performance Provides feedback to employees
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Introduction
Tips for improving a performance management program: Eliminate “HR-speak” Set appropriate goals Make the difficult decisions Develop a performance culture
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Introduction
A firm’s strategy must be aligned with employees’ competencies and performance to achieve:ProfitabilityGrowthEffectivenessValuation
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Introduction
Not all measures are easy to develop Measurement of tangible outcomes (television sets)
can be done with precision Intangible outcomes (teaching) are difficult to
measure
Performance evaluation determines the extent to which an employee performs work efficiently
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Introduction
Other terms for performance evaluation: Performance review Personnel ratingMerit ratingPerformance appraisalEmployee appraisalEmployee evaluation
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Introduction
Many organizations have two evaluation systems: formal and informal Thinking about how well employees are doing is an
informal system A formal system is set up by the organization to
regularly and systematically evaluate employee performance
Political and interpersonal processes influence the informal systemEmployees who are liked better have an advantage
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The Case for Formal Evaluation
Purposes of a well-designed formal evaluation system: Development MotivationHuman resource and employment planning CommunicationLegal complianceHRM research
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The Case for Formal Evaluation
Employees should consider an evaluation meaningful, helpful, fair, and honest This is difficult to attain because of a number of
factors, including:UnfairnessNegative practicesA short-term focus
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Performance Evaluation and the Law
Uniform Guidelines on Employment Selection Procedures:Issued by the EEOC in 1978 to explain how to
comply with federal employment legislation More attention was devoted to selection than to
performance evaluation, so requirements for appraisal systems are less clearly defined
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Performance Evaluation and the Law
Most performance evaluation procedures rely on supervisors’ judgments Once work-related behavior has been judged, the
supervisors’ ratings are used as input for human resource decisions
These decisions affect promotions, pay, transfers, and so on
These subjective judgments can introduce bias into the system
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Performance Evaluation and the Law
Courts have focused on management’s responsibility to develop and use a performance evaluation system in a legally defensible way In Brito v. Zia Company, the company’s performance
evaluation instrument was invalid because it did not relate to important elements in the jobs for which employees were being evaluated
Other performance evaluation lawsuits have dealt with sex, race, and age discrimination in terminations, promotions, and layoffs
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Performance Evaluation and the Law
A challenge to the validity of a performance evaluation system is less of an issue than a challenge to a selection systemLegally, the way the system was developed and
whether it was applied consistently are more important than validity
In age discrimination cases, the type of decision being challenged determines how much proof a company must produce
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Performance Evaluation and the Law
Recommendations for a legally defensible appraisal system: Procedures must not differ because of race, sex,
national origin, religion, or ageUse objective, non-rated, uncontaminated data A formal system of review or appeal should be
available for disagreement over appraisals Use more than one independent evaluator Use a formal, standardized system for evaluationAvoid ratings on traits, such as dependability, drive,
aptitude, and attitude
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Performance Evaluation and the Law
Performance data should be empirically validated Communicate specific performance standards Provide raters with written instructions Evaluate employees on specific work dimensions rather
than an overall or global measure Require behavioral documentation for extreme ratings Allow employees to review their appraisals
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Format of Evaluation
The ability to provide accurate, reliable performance data is enhanced if a systematic process is followed:Step 1: Establish performance standards for each
position and the criteria for evaluation (job analysis) Step 2: Establish performance evaluation policies on
when to rate, how often to rate, and who should rateStep 3: Have raters gather data on employees’
performance
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Format of Evaluation
Step 4: Have raters (and employees in some systems) evaluate employees’ performance
Step 5: Discuss the evaluation with the employee
Step 6: Make decisions and file the evaluation
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Establish Criteria
The dimensions of performance upon which an employee is evaluated are called the criteria of evaluation Examples: quality, quantity, and cost of work
A major problem with many evaluation systems:They require supervisors to make person evaluations
rather than performance evaluations
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Establish Criteria
An effective criterion should possess the following characteristics: Reliability RelevanceSensitivityPracticality
Multiple criteria are necessary to measure performance completely One must evaluate both activities and results Management must weigh these criteria
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Who Evaluates, When, and How Often
In the U.S., most organizations evaluate on an annual basis Performance evaluations are often scheduled for
arbitrary dates, such as the date of hireAlternatively, all employees may be evaluated on or
near a single calendar date
It makes more sense to schedule the evaluation after a task cycleFor those without a task cycle based on dates, goals
should be established that allow a beginning and endThe evaluation can be at the end of the task cycle
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Who Should Evaluate the Employee?
The immediate supervisor conducts most appraisals Other options:
Rating by a committee of several supervisors Rating by the employee’s peers (co-workers) Rating by the employee’s subordinates Rating by someone outside the immediate work
situation Self-evaluation Rating by a combination of approaches
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360-degree Feedback
Many organizations now use some form of 360-degree feedback program Upward and peer feedback can have positive effects
on behavior These effects are sustainable over time Almost 90 percent of companies using 360-degree
programs use the information for such decisions as pay increases and promotions
Introducing a 360-degree system into a culture not prepared for it can have disastrous effects
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360-degree Feedback
Positive features of a 360-degree system: Multiple perspectives of a person’s performance Raters base evaluations on contact and observation Feedback is provided from multiple directions…
above, below, peer Anonymous upward feedback, which results in full
participation Learning about weaknesses and strengths is
motivational
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360-degree Feedback
Negative features of a 360-degree system: Feedback from all sources can be overwhelming Rater can hide in a group of raters and provide harsh
evaluations Conflicting ratings can be confusing and frustrating Providing feedback that is constructive requires a
plan and well-trained raters
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Selected Evaluation Techniques
Ways of evaluating employees can generally be divided into two categories: Methods that evaluate employees individually Multiple-person evaluations
In a multiple-person evaluation, the supervisor directly and intentionally compares the performance of one employee to that of others
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Individual Evaluation Methods
Graphic rating scaleThe rater is presented with a set of traits The employee is rated on the traitsRatings are assigned points, which are then computed Raters are often asked to explain each rating with a
sentence or two
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Individual Evaluation Methods
Two modifications make the scale more effective: A mixed standard scale gives the rater three
statements describing each traitOperational and benchmark
statements are added to describe different levels of performance
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Individual Evaluation Methods
Forced choice:Was developed because graphic rating scales allowed
supervisors to rate everyone high The rater must choose from a set of descriptive
statements about employeeSupervisors check the statements that describe the
employee, or they rank the statements from most to least descriptive
Forced choice can be used by superiors, peers, subordinates, or a combination of these
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Individual Evaluation Methods
Essay Evaluation The rater is asked to describe the strong and weak
aspects of the employee’s behavior It can be used by superiors, peers, or subordinates Essay evaluations are flexible; an evaluator can
specifically address the ratee’s skill in any areaComparing essays is difficult
Skilled writers can paint a better picture
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Individual Evaluation Methods
Critical Incident TechniqueRaters maintain a log of behavioral incidents that
represent effective and ineffective performance for each employee
Two factors determine the success of this technique:The supervisor must have enough time to observe
subordinates during the evaluation period The supervisor must record incidents as they are
seen Logs can help avoid common rating errors and
facilitate discussions about performance improvement
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Individual Evaluation Methods
ChecklistsIn its simplest form, the checklist is a set of
objectives or descriptive statements If the rater believes that the employee possesses a
listed trait, the item is checked A rating score equals the number of checks
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Individual Evaluation Methods
A variation is the weighted checklist Supervisors and HR specialists prepare a list of
descriptive statements about behavior Judges who have observed behavior on the job sort
the statements into piles rated from excellent to poor When there is agreement on an item, it is included in
the weighted checklistThe employee’s evaluation is the sum of the scores
(weights) on the items checked
Checklists and weighted checklists can be used by superiors, peers, or subordinates
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Individual Evaluation Methods
Behaviorally Anchored Rating ScalesSmith and Kendall developed the behaviorally
anchored rating scale (BARS), or the behavioral expectation scale (BES)
The BARS approach uses critical incidents to anchor statements on a scale
The rater reads the anchors and places an X at some point on the scale for the ratee
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Individual Evaluation Methods
A BARS usually contains these features: Six to 10 performance dimensions identified and
defined by raters and ratees The dimensions are anchored with positive and
negative critical incidents Each ratee is then rated on the dimensions Ratings are fed back using the terms on the form
It takes two to four days to construct a BARS that is jargon free and closely related to the requirements of the job
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Individual Evaluation Methods
Behavioral Observation Scales (BOS)Developed by Latham and associates
Like BARS, the BOS uses critical incidentsInstead of identifying which behaviors occurred,
the rater identifies how they occurred The hope was that BARS and BOS would yield more
objective ratings than other scale formats Most researchers find that the format of the rating
scale has little effect on the quality of a performance appraisal system
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Individual Evaluation Methods
Sample BOS ItemsInsert Exhibit 9-9 here
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Multiple-Person Evaluation Methods
RankingA supervisor is asked to rank subordinates in order on
some overall criterion It is easier to rank the best and worst employees
than average ones Alternative rankings can help with this difficulty
Pick the top employee first, then the bottom one The second best is chosen, then the second worst Follow this process until everyone has been ranked
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Multiple-Person Evaluation Methods
Paired ComparisonThe supervisor reviews a series of cards; each
contains two subordinates names The higher performer in each pair is chosenFinal ranking is made by counting how many times a
given employee was chosen as the better performerA major limitation is the number of paired
comparisons that must be made With only 10 subordinates, a supervisor would
have 45 pairs of names
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Multiple-Person Evaluation Methods
Forced DistributionEmployees are rated on a pre-existing distribution of
pre-determined categoriesThe predetermined distribution must be followed,
regardless of how well the employees performed A supervisor with all exceptional subordinates will be
forced to rate some poorlyA supervisor with mediocre subordinates must rate
some highly
This technique is similar to grading on a curve
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Multiple-Person Evaluation Methods
Point allocation technique (PAT)A variation of forced distribution Each rater is given a number of points per employee The points must then be allocated on a criterion basis The total number of points cannot exceed the number
of points per employee times the number of employees evaluated
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Multiple-Person Evaluation Methods
Management by Objectives (MBO) The MBO approach emerged from the beliefs of
McGregor, Drucker, and Odiorne With MBO, managers and subordinates plan,
organize, control, communicate, and debate The subordinate has a course to follow and a target
to shoot for
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Multiple-Person Evaluation Methods
An MBO program follows a systematic process: Superior/subordinates define tasks and set objectives The superior, consulting with subordinates, sets
criteria for assessing objective accomplishment Dates to review progress are agreed upon and used Superior and subordinates make any required
modifications in the original objectives A final evaluation by the superior is made The superior meets with the subordinate in a
counseling, encouraging session Objectives for the next cycle are set
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Multiple-Person Evaluation Methods
For MBO and other performance management programs to work:Both the manager and subordinate must be actively
involved in objective formulation They must also agree on what measures will be used
to evaluate success and failure
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Multiple-Person Evaluation Methods
A central feature of MBO is discussion about subordinates’ performance, centered on results Many now find MBO programs too results-oriented
and insufficiently process-oriented Deming argues that MBO places too much emphasis
on detecting problems, too little on preventing them The manager and employee must work cooperatively
to improve the underlying basis for productivity To do so, managers must be coaches and counselors,
not judges
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Multiple-Person Evaluation Methods
Any employee’s performance is affected by:His/her ability and motivation The production system that is in place
Therefore, consider an appraisal system in which someone’s merit is not tied exclusively to whether goals were met
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Multiple-Person Evaluation Methods
Pitfalls and problems with MBO: If too many objectives are set, confusion occursToo much paperwork It is forced into jobs where setting
objectives is difficult Rewards may not be tied to results There may be too much emphasis on the short term Superiors are not trained in the MBO process Original objectives are never modified It is used as a rigid control device that intimidates
rather than motivates
In some situations MBO is very effective; in others it is costly and disruptive
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Which Technique to Use
The most commonly used evaluation techniques: The graphic rating scale The essay method Checklists
Used by about 5 percent of firms: Forced choice, critical incident, BARS, BOS, field
review, MBO
Used by 10 to 13 percent of firms: Ranking, paired comparison
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Which Technique to Use
MBO is most likely to be used for:Managerial, professional, and technical employees
Each technique is sometimes good and sometimes poor The problem lies with how the techniques are used,
and by whom The rater is more critical than the technique
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Performance Evaluation Problems
No technique is perfect;they all have limitations
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Opposition to Evaluation
Most employees are wary of performance evaluation Subjective bias and favoritism are real problems
Opponents of formal evaluation argue that: They focus too much symptoms of poor performance
rather than finding the underlying causes Managers and employees dislike the process Raters have trouble deciding performance levels Employees who are not placed in the top performance
category experience a reverse motivation effect
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System Design and Operating Problems
Performance evaluation systems break down because they are poorly designed If the criteria focus solely on results, or on
personality traits rather than performance, the evaluation may not be well received
Some techniques take a long time to carry out or require extensive written analysis, both of which managers resist
Some systems are not fully online
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Rater Problems
Even if a system is well designed, problems can arise if raters are not cooperative and well trained Supervisors may not be comfortable “playing God”
Inadequate training can lead to: Problems with standards of evaluation Halo effectLeniency or harshnessCentral tendency error“Recency of events” errorContracts effectsPersonal bias (stereotyping, similar to me)
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Standards of Evaluation
Problems with evaluation standards arise because of perceptual differences in the meaning of words Good, adequate, satisfactory, and excellent mean
different things to different evaluators
If only one rater is used, evaluations can be distorted This arises most often in graphic rating scalesIt may also appear with essays, critical incidents,
and checklists
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The Halo Effect
Halo error occurs when a rater assigns values on the basis of an overall impression of the ratee Halo error can be positive or negative The ratings represent an error only if not justified True halo occurs when uniformly high or low ratings
are justified by the ratee’s performance
Halo errors are not as common as once believed When they do occur, they are hard to eliminate To reduce the possibility, evaluate all subordinates on
one dimension before proceeding to the next
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Leniency or Harshness Error
Being objective is difficult for everyone Consequently, leniency or harshness errors may
occur
Raters can assess their tendencies by examining their ratings Asking raters to distribute ratings can force a normal
distribution
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Central Tendency Error
A central tendency error occurs when a rater avoids using high or low ratings This “average” rating fails to discriminate between
subordinates It offers little information for making HRM decisions
regarding:CompensationPromotionTrainingWhat should be fed back to ratees
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“Recency of Events” Error
Raters forget more about past behavior than current behavior Many persons are evaluated more on the results of the
past several weeks than the past six months
Some employees are well aware of this difficulty They are sure to be visible and noticed in positive
ways for several weeks in advance of a review
This problem can be mitigated by using critical incident, MBO, or irregularly scheduled evaluations
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Contrast Effects
A contrast effect error occurs when a supervisor lets another employee’s performance influence the ratings given to someone else Contrast effects also occur when a supervisor
unknowingly compares an employee’s present performance with their past performance
Poor performers could get rated “above average” if they improve, even if the improvement only brings performance up to “average”
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Personal Bias Error
A personal bias rating error is related to a personal bias held by the supervisor Some can be conscious, such as sex discriminationOr, a supervisor could “play favorites” Other biases may be more subtle, such as giving a
higher rating because the ratee is similar to the rater Personal liking can also affect ratings and feedback
The effect is usually small if there is sufficient performance-related information on which to base ratings
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Eliminating Rater Errors
Behavior-based rating scales were created to help eliminate the kinds of ratings errors just described Such scales didn’t demonstrate consistent superiority
over other rating formatsResearchers now concentrated on the rating process More effort is now placed on
helping raters accurately observe, recall, and report behavior
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Rater Training
The two most popular training programs are designed to: Eliminate common rating errors Improve supervisor observation and recording skills
Programs dealing with errors are effective, even if short and relatively inexpensive Focusing on observation and recording skills offers
greater improvement than simply focusing on errors
Training alone will not solve all problems Raters must be motivated to use the system and be
allowed to observe subordinate performance
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Avoiding Problems with Employees
For an evaluation system to work well, employees must: Understand it Feel that it is fairBelieve it is used correctly
The system should be: As simple as possible Implemented in a way that fully informs employees
about how it will be used
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Avoiding Problems with Employees
To foster understanding about the system:Allow employees to participate in its developmentProvide training in performance evaluation methods
Self-evaluation can be a useful addition to an evaluation systemThis facilitates performance evaluation discussions
with a supervisor
If raters are incompetent or unfair, employees may resist, sabotage, or ignore the rating system
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The Feedback Interview
An effective performance interview involves two-way communication Evaluation should be a continuing process
Supervisors should hold evaluation interviews in order to: Discuss the appraisal Set objectives for the upcoming appraisal period
The employee’s development or salary should not be discussed during this interview
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The Feedback Interview
Suggestions for effective interviews:Prepare for the meetingPut the employee at easeSplit the budgeted time with the employeePresent facts, not opinionsBe specificDiscuss performance, not personal criticismsInclude positive commentsDon’t overwhelm the ratee with informationEncourage the ratee’s involvementFocus on the future
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The Feedback Interview
With good interviewing skills, many problems related to discussing performance can be overcomeSpeak clearly Listen carefullyGather and analyze information thoroughlyNegotiate the amount and use of resources
A poor feedback interview is due to:Poor preparationMiscalculation about the purpose of the sessionFailure of the rater and ratee to understand each other
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The Feedback Interview
Sometimes there is no choice but to give negative feedback It is easier to accept criticism if the discussion is part
of the larger topic: ways to improve future performance
The goal of the feedback interview is to: Recognize and encourage superior performance Sustain acceptable behaviors Change the behavior of ratees whose performance is
not meeting organizational standards