Chapter 10 Establishing the Performance Management System

CHAPTER 10 ESTABLISHING THE PERFORMANCE MANAGEMENT SYSTEM CHAPTER OVERVIEW The opening segment discusses the effectiveness of performance management systems from both managements and HRs point-of-view. The chapter discusses EEO considerations, and lists steps for maximizing performance appraisal effectiveness. Methods using absolute standards, relative standards, and objectives are described. Sources of error in appraisals are discussed, and suggestions to improve the reliability, validity, and therefore, the legality and usefulness of appraisal ratings are given. Some issues related to appraisal of employees working abroad are discussed. Additional Features of This Chapter: Sample appraisal formats are provided in Exhibits 10-2 (Checklist); 10-3 (Adjective Rating Scale); and 10-4 (BARS). There are two Did You Know snippets you may want to highlight: Fun Facts on Performance Evaluation Performance Metrics in China, which compares and performance evaluations in the USA and China.

contrasts

Ethical Issues in HRM provides a starting point for discussion about the ethics of inaccurate, yet legal, performance appraisals. Workplace Issues: Forced Rankings Are They Working? discusses the impact of forced rankings on employees and organizations. Exhibit 10-5 lists factors that distort appraisals. Technology Corner describes the use of PDA technology by supervisors performing evaluations in the field. ADDITIONAL LECTURE OR ACTIVITY SUGGESTIONS Many students will have been evaluated on their part-time, full-time or summer jobs. Ask them what they have found to be effective and ineffective about the evaluation process. Recently, some experts (e.g., Deming) have recommended against individual performance appraisals, indicating that the damage that they do to morale is not worth their possible benefit. Yet, at the same time, organizations need more than ever to keep track of employee performance. How can managers respond to this paradox? Ask local employers if they will share copies of their performance appraisal forms with
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you. Share them with the class, discussing their strengths and limitations. An alternative to this is to ask students to bring in forms from their current employer. If unemployed, encourage them to use other resources, such as friends, family members, ore the Ask students how they would develop a performance instrument to evaluate faculty. CHAPTER OUTLINE AND LECTURE SUGGESTIONS I. Introduction A. Employees generally see performance evaluations as having a direct effect on their work lives. B. The performance management systems need to include decisions about who should evaluate performance, what format should be used and how the results should be utilized. II. Performance Management Systems A. Purposes of a Performance Management System 1. Feedback - let employees know how well they have done and allow for employee input. 2. Development identify areas in which employees have deficiencies or weaknesses. 3. Documentation - to meet legal requirements. B. Difficulties in Performance Management Systems 1. Focus on the individual: Discussions of performance may elicit strong emotions and may generate conflicts when subordinates and supervisors do not agree. 2. Focus on the process: Company policies and procedures may present barriers to a properly functioning appraisal process. Additionally, appraisers may be poorly trained. III. Performance Management and EEO A. EEO laws state that HRM practices must be bias free, objective and job-related. B. Valid performance appraisals are conducted at established intervals and are done by trained appraisers. IV. The Appraisal Process A. Establishment of performance standards 1. Derived from companys strategic goals.
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2. Based on job analysis and job description. B. Communication of performance standards to employee. 1. Measurement of performance using information from a. Personal observation b. Statistical reports c. Oral reports d. Written reports C. Comparison of actual performance with standards. D. Discussion of appraisal with employee. E. Identification of corrective action where necessary. 1. Immediate action deals with symptoms. 2. Basic corrective action deals with causes. V. Appraisal Methods: 3 approaches absolute standards; relative standards; objectives A. Evaluating absolute standards : An employees performance is measured against established standards. Evaluation is independent of any other employee. 1. Essay Appraisal: Appraiser writes narrative describing employee performance & suggestions. 2. Critical Incident Appraisal: Based on key behavior anecdotes illustrating effective or ineffective job performance. 3. Checklist Appraisal: Appraiser checks off behaviors that apply to the employee. 4. Graphic Rating Scale Appraisal : Appraiser rates employee on a number of job-related factors. 5. Forced-Choice Appraisal: Appraisers choose from sets of statements which appear to be equally favorable, the statement which best describes the employee. 6. Behaviorally Anchored Rating Scales (BARS): Appraiser rates employee on factors which are defined by behavioral descriptions illustrating various dimensions along each rating scale. B. Relative standards: Employees are evaluated by comparing their performance to the performance of other employees. 1. Group Order Ranking: Employees are placed in a classification reflecting their relative performance, such as top one-fifth. 2. Individual Ranking: Employees are ranked from highest to lowest. 3. Paired Comparison: Each individual is compared to every other; final ranking is based on number of times the individual is preferred member in a pair.
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C. Using Achieved Outcomes to Evaluate Employees 1. Formal approach is Management by Objectives (MBO) which is a performance appraisal method that includes mutual objective setting and evaluation based on the attainment of the specific objectives. 2. Common elements in an MBO program are goal specificity, participative decision making, an explicit time period, and performance feedback. 3. Studies confirm that MBO effectively increases employee performance and organizational productivity. VI. Factors That Can Distort Appraisals A. Leniency error 1. Each evaluator has his/her own value system. 2. Some evaluate high (positive leniency) and others, low (negative leniency). B. Halo error: Evaluator lets an assessment of an individual on one trait influence evaluation on all traits. C. Similarity error: Evaluator rates others in the same way that the evaluator perceives him or herself. D. Low appraiser motivation: Evaluators may be reluctant to be accurate if important rewards for the employee depend on the results. E. Central tendency: The reluctance to use the extremes of a rating scale and to adequately distinguish among employees being rated. F. Inflationary pressures: Pressures for equality and fear of retribution for low ratings leads to less differentiation among rated employees. G. Inappropriate substitutes for performance : Effort, enthusiasm, appearance, etc. are less relevant for some jobs than others. H. Attribution Theory 1. Evaluations are affected based on whether someones performance is due to internal factors they can control or external factors which they cannot; e.g., if poor performance is attributed to internal control, the judgment is harsher than when it is attributed to external control. 2. Impression management: If employee positively influences the relationship with the supervisor, he/she is likely to receive a higher rating. VII. Creating More Effective Performance Management Systems

A. Use Behavior-Based Measures: Measures based on specific descriptions of behavior are more job-related and elicit more inter-rater agreement than traits, such as loyalty or friendliness. B. Combine Absolute and Relative Standards:
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positively lenient; relative standards suffer when there is little variability. Combining the standards tends to offset the weaknesses of each. C. Provide Ongoing Feedback: Expectations and disappointments should be shared with employees on a frequent basis. D. Use Multiple Raters: Increasing the number of raters leads to more reliable and valid ratings. 1. Use peer evaluations: Coworkers offer constructive insights and more specific evaluations; upward appraisals allow employees to give their managers feedback. 2. 360-Degree appraisals: Supervisors, peers, employees, team members, customers and others with relevant information evaluate the employee. E. Rate Selectively 1. Appraisers only evaluate in those areas about which they have sufficient knowledge. 2. Appraisers should be organizationally as close as possible to the individual being evaluated. 3. More effective raters are asked to do the appraisals. F. Train Appraisers: Untrained appraisers who do poor appraisals can demoralize employees and increase legal liabilities. VIII. International Performance Appraisal

A. Who performs the evaluation? 1. Different cultural perspectives and expectations between the parent and local country may make evaluation difficult. 2. Evaluation forms may not be translated accurately. 3. Quantitative measures may be misleading because regulations, accounting practices, and chances for success differ across countries. B. Evaluation Formats 1. May make sense to use different forms for parent-country nationals and hostcountry nationals. 2. Performance criteria for a particular position should be modified to fit the overseas position and site. 3. Include a current expatriates insights as part of the evaluation. DEMONSTRATING COMPREHENSION: Questions for Review 1. To what three purposes can performance appraisal be applied, and whom do they serve? The three purposes of performance management systems are feedback, development, and documentation. Performance appraisals are designed to
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support the employees, the appraisers, and the organization. 2. Describe the appraisal process. How should it work? The six-step appraisal process is as follows: 1) Establish performance standards with employees. 2) Manager and employee set measurable goals. 3) Measure actual performance. 4) Compare actual performance with standards. 5) Discuss the appraisal with the employee. 6) If necessary, initiate corrective action. The appraisal process must be objective and job-related. Any techniques used should be reliable and valid and should measure reasonable performance success. All aspects of the appraisal process must be bias-free. 3. Contrast the advantages and disadvantages of (1) absolute standards and (2) relative standards. Absolute standards refers to a method in performance management systems whereby employees are measured against company-set performance requirements. Absolute standard evaluation methods involve the essay appraisal, the critical incident approach, the checklist rating, the graphic rating scale, the forced-choice inventory, and the behaviorally-anchored rating scale (BARS). Relative standards refers to a method in performance management systems whereby employees' performance is compared to that of other employees. Relative standard evaluation methods include group order ranking, individual ranking, and paired comparisons. The advantage of absolute standards is that employees can be assessed as adequate against the external standard, but the disadvantage is that there is no indication of how employees compare to each other. With relative standards, the opposite is true. The advantage is that employees are compared to each other, but there is no external yardstick. 4. What is BARS? Why might BARS be better than trait-oriented measures? A Behaviorallyanchored rating scale (BARS) is an absolute assessment technique. Critical incidents are identified, and a range of performance possibilities (from poor to good) are described for each dimension. This behavioralbased measure is preferable to a traitoriented measure because it captures actual observable, job performance rather than a trait that may or may not influence performance. 5. Describe MBO, its advantages and disadvantages.
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Management by Objectives (MBO) is an approach to appraisal that makes use of objectives. Organizational objectives are converted into individual objectives in a fourstep process: goal setting, actual planning, selfcontrol, and periodic reviews. Advantages are that it uses a results-oriented emphasis. It assists the planning and control functions and provides motivation. Employees know exactly what is expected of them and should have a greater commitment to goals that are mutually set. Disadvantages are that it will not work well where management has little trust in its employees. The MBO process is time-consuming. Finally, it may be difficult to measure whether the MBO activities are being carried out properly. 6. What are some of the major factors that distort performance appraisals? Performance appraisal might be distorted for a number of reasons, such as leniency error, halo error, similarity error, central tendency, low appraiser motivation, inflationary pressures, and inappropriate substitutes for performance. 7. How should performance appraisals change when teams, rather than individuals, are evaluated? There are four suggestions for modifying an individual process to a team process: a. Tie the teams results to the organizations goals. b. Begin with the teams customers and the work process the team follows to satisfy customers needs. c. Measure both team and individual performance; then assess each members contributions to the teams overall performance. d. Train the team to create its own measures. 8. What is a 360-degree feedback process? How valid do you believe them to be? In a 360-degree feedback process evaluations are made by oneself, supervisors, employees, team members, customers, suppliers, etc., to create a complete picture of ones performance. Approximately 90 percent of the Fortune 1000 firms use 360-degree appraisals. Research indicates more accurate feedback, empowered employees, reduction of subjective factors in the evaluation process, and positive leadership development. 9. Identify ways to make performance evaluations more effective. Do you believe one of the suggestions is of higher priority than the others? Explain. More effective appraisals can be achieved with behavior-based measures, combined absolute and relative ratings, ongoing feedback, multiple raters,
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selective rating, trained appraisers, peer assessment, and rewards to accurate appraisers. Having trained appraisers is a must. All of the methods developed to make appraisals more effective will not be of value unless the evaluator is trained in how to use them appropriately. 10. How does the global nature of business affect performance management systems? Cultural differences among countries must be considered in international performance appraisals. Business practices may vary. What managers consider important performance indicators may vary. Evaluation instruments may need to be modified to accommodate the local environment. LINKING CONCEPTS TO PRACTICE: Discussion Questions 1. "Performance appraisal should be multi-faceted. Supervisors should evaluate their employees, and employees should be able to evaluate their supervisors. And customers should evaluate them all." Do you agree or disagree with this statement? Discuss. Agree. The subordinate is in a unique position to evaluate the work of a supervisor. To the extent that the supervisor's work is the supervision and direction of subordinates, those workers are the 'experts' on that subject. Disagree. The supervisor's job is larger than the portion of it that the subordinate sees. Therefore, the subordinate has no knowledge of and cannot have an informed opinion about, the rest of the supervisor's job. 2. "The higher the position an employee occupies in an organization, the easier it is to appraise his or her performance objectively." Do you agree or disagree with this statement? Why? Agree. Higher level management positions usually have more quantifiable goals that can be objectively measured by such things as profit and loss statements, business unit statistics, etc. Disagree. The numbers do not always tell the whole story. Turnover, and employee problems may not show up in the numbers. Also, some problems may not appear in the short- term. Further, external influences may help determine the numbers, beyond the performance of the employee. 3. "Using an invalid performance evaluation instrument is a waste of time." Do you agree or disagree with this statement? Discuss.
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Agree. Such a process can be more than a waste of time. It can damage trust, loyalty, commitment and performance for both employees and managers, if individuals believe that the ratings are unfair or meaningless. If personnel actions are based on these ratings, there could also be potential legal liabilities. Disagree. It depends on how the evaluation instrument is used. If ratings are primarily used to stimulate an honest discussion between manager and employee, the quality of the ratings themselves is not as important as the usefulness of the communications process. Even if ratings are the basis for decision-making, no form is perfectly valid but ratings can be improved by using multiple raters, training raters, and providing behavior-based guidelines to help raters make judgments. 4. Without a supportive culture in an organization, peer evaluations are subject to too many distortions. Accordingly, they should not be widely used. Do you agree or disagree? Defend your position. Agree. In order to be of value, peer evaluations must be seen as positive encouragement rather than punitive. Employees must also see peer evaluations as free of individual biases. If employees have not received training in how to properly evaluate their peers, peer evaluations may be more detrimental than useful. 5. Customer feedback needs to be part of every employees evaluation when that employee has customer contact. Do you agree or disagree? Explain your position. Agree. This is consistent with the 360-degree appraisal process. If customer service is part of an employees job responsibilities, then that aspect of their job performance needs to be evaluated by the individuals being served the customer. CASE APPLICATION 10-A: RANK EM AND YANK EM CASE SUMMARY The case describes the use of a performance appraisal process referred to as Rank and Yank. Ford Motor Company is mentioned as one company under suit by employees who claim the practice discriminates against older workers. 1. What types of evaluation process would you say is being used in this case? Describe the elements to support your position. The Ford approach is a relative standard method in which an employees performance is compared to other employees. The specific method appears to be group order ranking, in which employees are grouped into specific classifications, such as 1, 2, 3 or 4. There is an element of forced ranking in this examples, since some managers are required to give the lowest rating (4) to the
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lowest 10% of performers. This implies that there may be some use of individual ranking. 2. What effect, if any, do you believe rank and yank evaluation systems have on managers? Do you see these effects as positive or negative? Defend your position. Student response is may vary. Regardless of responses, focuses on the strength of the students arguments. Suggested response: The text mentions the potential negative of such programs several times. The process is stressful for both employees and their managers. Since employees tend to perceive this approach as punitive, we can assume that many will be resistant or fearful of the process. This puts pressure on the manager to help employees maintain motivation. One can also assume that, at times, managers might be forces to release employees who are solid performers merely because they were in the bottom 10% of a high-performing group. 3. What role does such a system have in distorting performance appraisals? Mangers may avoid giving lower marks to people they want to retain to avoid the impact of a $ rating. Employees fearing their jobs are at stake might become more competitive. This is likely to diminish team-orientated work and possibly encourage unethical behaviors as employees try to make themselves look better. One could imagine that some employees would even attempt to sabotage peers. 4. Do you believe there is a connection between the revised performance evaluation system and layoffs? Why or why not? Student responses will vary so focus on critical thinking. CASE APPLICATION 10-B: TEAM FUN! CASE SUMMARY Management is trying to decide how to measure employee performance. What kind of standards should they set and should standards be different for a new store like Bobbys versus standards for established stores? What rating methodology will work best for TEAM FUN!? 1. Does TEAM FUN! follow the six step appraisal process? TEAM FUN! does appear to follow the six step appraisal process. Eric says he first works out with each shift and team performance standards and what the goals are for each quarter. At the end of the quarter they assess actual
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performance and compare it against the standards set. Discussions are held about who helped or hindered achieving company goals and, where necessary, different assignments are made. 2. Is an MBO plan good for the company? What could be done to improve it? Evaluate Bobbys goals according to MBO criteria. Suggest an alternative to their MBO exclusive performance appraisal process. TEAM FUN!s modified MBO process seems to work well for the company. Their discussions of the previous years successes and failures could be improved by having discussions with the individual employees about how they did or did not meet last years goals. Bobbys goals probably need to be more realistic. Obviously everyone at the new store is enthusiastic, but in order to sustain that enthusiasm, Bobby needs to set goals that are realistic and achievable. He is on the right track in establishing goals that are quantifiable and measurable. An alternative appraisal process could be selected from one of the following: A) absolute standards 1) essay appraisal 2) critical incident appraisal 3) checklist appraisal 4) graphic rating scale 5) forced choice appraisal 6) behaviorally anchored rating scales (BARS) B) relative standards 1) group order ranking 2) individual ranking 3) paired comparison 3. Comment on the overall effectiveness of the performance appraisal process at TEAM FUN! TEAM FUN!s evaluation processes have worked well so far, but as the company continues to grow, it will be difficult for Kenny and Norton to personally know enough about their employees to effectively evaluate them. They will need to rely more on the evaluations of others. To ensure the accuracy of the information they receive, they need to have Tony develop some evaluation instruments that can be used for all evaluations. 4. Provide an outline for their discussion on absolute and relative measurement techniques for fun. Absolute standards require that employees be compared to a standard independent of any other employee in a work group. With relative standards, employees are compared against other employees. A listing of absolute and
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relative standards is provided in question 2. Tony needs to explain each kind of rating instrument and its pluses and minuses. As a team, Kenny, Norton, Tony, and Eric need to decide which method or combination of methods, will work best for the company. WORKING WITH A TEAM: THE 360 DEGREE PERFORMANCE APPRAISAL OVERVIEW Student teams are asked to conduct a thirty minute presentation for 10-15 supervisors to introduce a new 360-degree performance appraisal system. SUGGESTIONS/VARIATIONS Students should first discuss what changes a company is likely to make when implementing a 360-degree appraisal system, and which aspects of this type of system supervisors are likely to resist. Issues such as the extra work and paperwork requirements, the possibility of inconsistent performance information coming from different sources, the difficulty of conveying negative feedback to employees, the desire to be well-liked by employees, are all possibilities. Students can design their own role background material so that they can realistically play the roles of supervisors with different concerns about a new appraisal system. Others can take the roles of consultants, executives, and HR Department staff. Students should consider which of the performance appraisal topics listed in the instructions will be most relevant for obtaining supervisor support for the system. Will supervisors benefit most from a technical presentation of performance appraisal issues (rating errors, etc.). Or, do they first need to understand the need for a good system and their role in using it to improve company performance? A variation would be to have students play the role of managers or HR staff who are meeting with supervisors to obtain input before the new appraisal process is finalized. Students can practice listening skills and incorporating input into the design of a management tool. Then, they can design and present the finalized version of the system in a training session.

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