PART THREE APPRAISING AND COMPENSATING EMPLOYEES

C H A P T E R T S i x

6
Performance Management
and Appraisal

Lecture Outline

Overview
Basic Concepts in Performance Management
Why Appraise Performance?
- The Importance of Continuous Feedback
- Performance Management
- Performance Management Defined
- The Appraisal Cycle
Setting Effective Goals and Work Standards
Who Should Do the Appraising?
In Brief: This chapter gives an
Basic Appraisal Methods
Graphic Rating Scale Method
overview of the performance
Alternation Ranking Method appraisal process and the different
Paired Comparison Method tools and methods available. The
Forced Distribution Method main topics covered include the
Critical Incident Method performance management process,
Behaviorally Anchored Rating Scales appraisal methods, appraisal
Appraisal Forms in Practice
performance problems and
The Management by Objectives Method
Computerized and Web-Based Performance
solutions, and the appraisal
Appraisals interview.
Electronic Performance Monitoring
Practical Suggestions for More Effective
Appraisals
Ensure Fairness
Deal with Common Appraisal Problems
Understand the Legal Aspects of Performance
Appraisal
Conduct First-Rate Appraisal Feedback Interviews

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C H A P T E R T S i x

Lecture Outline Continued

Coaching and Career Management

Improving Your Coaching Skills
The Basic Coaching Process
Career Management Methods
Roles in Career Development Interesting Issues: Despite lots of
The Employee’s Role
attention, money, and effort,
The Employer’s Role in Career Management
Corporate Career Development Initiatives
performance appraisals remain an
Gender Issues in Career Development area with which few managers or
Managing Employees’ Promotions and Transfers employees are satisfied. The
Retirement following questions may be worth
Performance Management discussing. Is it just that we don’t
Performance Management vs. Performance have a good enough system yet, is
Appraisal
Using Information Technology to Support
there an intrinsic problem with
Performance Management performance appraisals, or is it
Talent Management Practices and Strategic just human nature to dislike them?
Employee Appraisals
Appraising and Actively Managing Employees
Segmenting and Actively Managing Employees in
Practice

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ANNOTATED OUTLINE

I. Basic Concepts in Performance Appraisal and Management

A. Comparing Performance Appraisal and Performance Management

— Performance appraisal is part of a total integrated process of
performance management, which consolidates goal setting,
performance appraisal, and development into a single, common
system, the aim of which is to ensure that the employee’s
performance is supporting the company’s strategic aims.

Why Appraise Performance? — Performance management’s

emphasis on the integrated nature of goal setting, appraisal, and
development reflect Total Quality Management concepts. Second,
it reflects what many studies have shown: that traditional
performance appraisals are useless and counter-productive. Third,
it is a process that recognizes that every employee’s efforts must
focus on helping the company to achieve its strategic goals.

B. The Importance of Continuous Feedback — For accomplishing

several (or all) of these aims, traditional annual or semi-annual
appraisal reviews make sense.

C. Performance Management — Many employers take a continuous

process approach including having self-directed (and trained) work
teams give themselves ongoing appraisal information.

D. Performance Management Defined — Performance management is

a goal-oriented and continuous way to appraise and manage
employees’ performance.

E. The Appraisal Cycle — The three-step process is: (1) setting work
standards; 2) assessing performance relative to such standards;
and, 3) providing feedback aimed at improving performance
during the next cycle.

F. Setting Effective Goals and Work Standards — Some guidelines

for effective goal setting are: 1) assign specific goals; 2) assign
measurable goals; 3) assign challenging but doable goals; and 4)
encourage participation.

G. Why Appraise Performance? — For several reasons: 1) they play

an integral role in the employer’s performance management
process; 2) the appraisal lets the boss and subordinate develop a
plan for correcting any deficiencies, and reinforce those things he

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 does correctly; 3) they serve a useful career planning purpose; and
4) it plays a part in salary decisions.

H. Who Should Do the Appraising?

1. The Immediate Supervisor — is usually in the best position to

observe and evaluate the subordinate’s performance, and is
responsible for that person’s performance.

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 — or upward feedback, is where

subordinates anonymously rate their supervisor’s performance.

Research Insight—One study shows that upward feedback is very effective

in improving supervisors’ behaviors.

6. 360-Degree Feedback — where ratings are collected from the

employee, 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. Basic Appraisal Methods

A. Graphic Rating Scale Method — 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, and 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.

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 B. Alternation Ranking Method — involves employees being ranked
from best to worst on a particular trait, choosing highest, then
lowest, next highest, next lowest, and so forth until all are ranked.

C. Paired Comparison Method — involves ranking employees by

making a chart of all possible pairs of employees for each trait and
indicating which is the better employee of the pair.

D. Forced Distribution Method — Predetermined percentages of rates

are placed in various performance categories; similar to grading on
a curve.

Teaching Tip: Discuss what the ramifications of using the forced distribution
method for class grades would be. Students will have strong opinions.

E. Critical Incident Method — a supervisor keeps a detailed record of

uncommonly good or undesirable examples of an employee’s
work-related behavior, and reviews it with the employee at
predetermined times.

F. Behaviorally Anchored Rating Scales (BARS) — combine 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 incidents; 4) scale the incidents; and 5) develop final
instrument. The advantages of BARS include a more accurate
gauge, clearer standards, feedback, independent dimensions, and
consistency.

G. Appraisal Forms in Practice — involve 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 by
focusing on problem solving.

H. Management by Objectives (MBO) — requires the manager to set

specific measurable goals with each employee and then
periodically discuss his/her 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) mutually
define expected results; 5) conduct performance reviews; and 6)
provide feedback.

I. Computerized and Web-Based Performance Appraisal — generally

enables managers to keep notes on subordinates during the year,

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 rate employees on a series of performance traits, and then generate
written text to support each part of the appraisal. About one-third
of employers use online performance management tools for at least
some employees.

J. Electronic Performance Monitoring — systems used to allow

managers access to their employees’ computers and telephones.

III. Practical Suggestions for More Effective Appraisals Few

supervisory tasks are as complex and poorly administered than
appraisals.

A. Ensure Fairness — The first challenge is to make sure the

subordinate views the appraisal as fair. Many managers don’t focus
on the developmental aspect of the appraisal, but instead use it for
political purposes.

B. Deal with Common 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.

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 — involves supervisors sticking to the

middle of the rating scales, thus rating everyone approximately
average.

4. Leniency or Strictness — Supervisors have the tendency to rate

everyone either high or low.

5. Bias — the tendency to allow individual differences such as

age, race, and sex to affect the appraisal ratings employees
receive is a problem.

Research Insight — Bias can influence the way a person appraises another
person. In one study, for example, the identical employee was rated differently
if pregnant.

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 C. Understand the Legal Aspect of Performance Appraisal —
Performance appraisals have legal implications, because they often
affect raises, promotions, training, and other HR actions.

D. Conduct First-Rate Appraisal Feedback Interviews — an interview

in which the supervisor and subordinate review the appraisal and
make plans to remedy deficiencies and reinforce strengths.

E. Preparing for the Appraisal Interview

Step 1 — give the subordinate enough notice to review his/her

work. Step 2 — Study his/her job description.
Step 3 — Choose the right place for the interview and schedule
enough time for it.

F. Conducting the Interview — Prepare for the interview by

conducting the interview in a private area without interruptions.
Talk in terms of objective, observable work data using examples.
Get agreement with the employee of how you will know
improvement has occurred. Ensure the process is fair and learn
how to deal with defensiveness.

IV. Coaching and Career Management

A. Improving Your Coaching Skills — Coaching means educating,

instructing, and training subordinates. Mentoring means advising,
counseling, and guiding. Coaching focuses on teaching shorter-
term job related skills, mentoring on helping employees navigate
longer-term career hazards.

B. The Basic Coaching Process — Preparing to coach involves

understanding the problem, the employee, and his or her skills.
Planning requires reaching consensus on the problem and on what
to change. Finally, once agreement is reached, educating,
instructing, training and ongoing encouragement are the important
steps in the change process.

V. Career Management Methods

A. Mentoring — Having a mentor — a senior person in the firm who

can be a sounding board for your career questions and concerns —
can enhance career satisfaction and success.

B. The Employee’s Role — An individual must accept responsibility

for his/her own career; assess his/her own interests, skills, and
values; and take the steps required to ensure a happy and fulfilling

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 career. Finding a mentor who can be a sounding board is often
helpful. Mentoring programs can be informal or formal.

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 B. The Employer’s Role — Employers can support career
development efforts in many ways. There are several
organizational career-planning practices. The means for helping to
further an employee’s career depends on the length of time the
employee has been with the firm.

C. Gender Issues in Career Development—Women and men face

different challenges as they advance through their careers. Women
face the glass ceiling. Minority women may be particularly at risk.

D. Managing Employees’ Promotions and Transfers

1. Making Promotion Decisions — Promotions usually provide

opportunities to reward the exceptional performance of tested
and loyal employees. However, unfairness, arbitrariness, or
secrecy can diminish the effectiveness of the promotion
process for all concerned.

2. Handling Transfers — Transfers are moves from one job to

another, usually with no change in salary or grade. The
frequent relocating of transfer employees has been assumed to
have a damaging effect on transferees’ family life. Transfers
are also costly financially.

E. Retirement—Some employers are instituting formal preretirement

counseling aimed at easing the passage of their employees into
retirement. A large majority of employees have said they expect to
continue to work beyond the normal retirement age. Part-time
employment is an alternative to outright retirement. Employers can
benefit from retirement planning by becoming able to anticipate
labor shortages.

1. Create a Culture that Honors Experience — Changing cultures

that are explicitly or implicitly biased against older workers
can help make a company more attractive to retirees.

2. Modify Selection Procedures

3. Offer Flexible Work — Redesigning jobs to include

telecommuting and other options will attract and retain
workers.

4. Phased retirement — Phased retirement programs combine

reduced work hours, job change, and reduced responsibilities.

VI. Performance Management

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 A. Performance management vs. Performance Appraisal — refers to an ongoing,
continuous process of deciding upon goals, evaluating results and providing
feedback. It is always goal-directed.

B. Using Information Technology to Support Performance Management —

allows the supervisor to assign financial and nonfinancila goals to each team’s
acitivities and to keep all employees informed of their goals.

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VII. Talent Management Practices and Strategic Employee Appraisals

A. Appraising and Actively Managing Employees — Several examples of

strategically managing employees performance and value to the organization
are provided.

B. Segmenting and Actively Managing Employees in Practice — Compass

Group, Tesco PLC, McKinsey Consulting and others are highlighted as
examples.

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KEY TERMS

Performance appraisal Evaluating an employee’s current or past performance

relative to his/her performance standards.

Performance management Is the continuous process of identifying, measuring, and

developing the performance of individuals and teams and
aligning their performance with the organization’s goals.

Performance appraisal Involves this three-step process:

process 1. Setting work standards
2. Assessing the employee’s actual performance relative to
those standards
3. Providing feedback to the employee

Peer appraisal Appraisal of an employee by his or her peers.

Upward feedback Appraisals in which subordinates rate their supervisors’

performance.

Graphic rating scale Lists a number of traits and a range of performance for
each.

Alternation ranking This method is used to indicate the employee who is the
method highest on the trait being measured and also the one who is
the lowest.

Paired comparison method An appraisal method in which every subordinate to be rated

is paired with and compared to every other subordinate on
each trait.

Forced distribution method The manager places predetermined percentages of

subordinates in performance categories.

Critical incident method Entails keeping a record of uncommonly good or

undesirable examples of an employee’s work-related
behaviors and reviewing it with the employee periodically.

Management by objective This method requires the manager to set measurable goals
with each employee and then periodically discuss the
latter’s progress toward these goals.

Halo effect Means that the rating of a subordinate on one trait

influences the way you rate the person on other traits.

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Central tendency Refers to a tendency to rate all employees about average.

Appraisal interview An interview in which the supervisor and subordinate

review the appraisal and make plans to remedy deficiencies
and reinforce strengths.

Coaching Means educating, instructing, and training subordinates.

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Career management A process for enabling employees to better understand and
develop their career skills and interests and to use these
skills and interests both within the company and even after
they leave the firm.

DISCUSSION QUESTIONS

1. Discuss the pros and cons of at least four performance appraisal tools. The text
lists nine different performance appraisal tools (methods). Students might discuss the
pros and cons of any four of these nine. (Examples of some of the pros and cons are:
Graphic Rating Scale method is easy to use, simple, and does not take much time to
administer. However, different supervisors may interpret a numerical rating
differently, and the traits rated may or may not relate to performance.)

2. Explain how you would use the alternation ranking method, the paired
comparison method, and the forced distribution method. The alternation method
would be used by listing all employees to be rated, deciding who is the best in a trait
to be rated, and who is the worst. Then decide who is the second best, and the second
worst, the third best and the third worst, and so on, until all the employees have been
ranked for that trait. Then do the same with the next trait to be rated. With the paired
comparison, for each trait to be rated, the supervisor would have a sheet with
employee names in pairs; every employee name is paired with every other name. For
each pair, the supervisor would circle the one of the two that is better in that trait.
Forced distribution gives the supervisor a set rating scale (such as 1 through 5). The
supervisor is limited to giving a predetermined percentage of his/her employees’
rating. For example: 15 percent can get a 1, 20 percent can get a 2, 30 percent can get
a 3, and so forth.

3. 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; and 5) bias. Students should define and
describe them, not simply list them.

4. Discuss the pros and cons of using different potential raters to appraise a
person’s performance. The advantages of using several raters (either a rating
committee or a combination of peer, supervisor, and subordinate ratings) are that the
ratings tend to be more valid than those of one individual rater. The negatives might
include the time and cost involved, as well as problems with the amount of daily
contact that some raters may not have with the employee being rated.

5. Explain how to conduct an appraisal interview. There are four things listed in the
text to keep in mind: 1) be direct and specific; 2) don’t get personal; 3) encourage the
person to talk; and 4) don’t tiptoe around. Students should expound on these basic
principles of conducting the interview.

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APPLICATION EXERCISES

INDIVIDUAL AND GROUP ACTIVITIES

1. Working individually or in groups, develop a graphic rating scale for the

following jobs: secretary, engineer, and directory assistance operator. Job
characteristics may include but not be limited to: Secretary—quantity of work,
frequency of errors, attendance, and initiative; Engineer—initiative, significance of
contribution to the organization, problem-solving skills, frequency of errors, and
communication skills; Directory Assistance Operator—speed, attendance, accuracy,
and friendliness.

2. Working individually or in groups, describe the advantages and disadvantages

of using the forced distribution appraisal method for college professors. The
disadvantages include decreased morale, interdepartmental inequities, and unfair
rankings. The advantages would include steering clear of many of the biases listed, as
well as overcoming the central tendency problem.

3. Working individually or in groups, develop, over the period of a week, a set of

critical incidents covering the classroom performance of one of your instructors.
If you had the class conduct a job analysis and create a job description for an
instructor in Chapter 3, it would be helpful to refer to that to help identify what kinds
of behavior and tasks the instructor should be doing. This will give a good basis for
students to observe and watch for critical incidents. If they find critical incidents that
are not based in these other documents, it will be a good opportunity to go back and
review how all this ties together and that we haven’t communicated to the instructor
in the job description these behaviors or tasks for which they are now wanting to rate
them.

4. Working individually or in groups, evaluate the rating scale in Figure 6.1.

Discuss ways to improve it. There are many things that might be suggested for
improvements. These suggestions might include but not be limited to: clearer
explanation of the rating scale (what does “very descriptive” mean?), consider
reducing the rating scale from seven points to four or five, provide behavioral anchors
for the scale points, and rework the items so that each one is only rating one trait or
behavior (some have several).

HR in Action Case Incident 1: Appraising the Secretaries at Sweetwater U

1. 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? Although controversial,
the recommendations would, in fact, encourage administrators to fill the forms out

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 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. Because 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.

2. 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.

3. What performance appraisal system would you develop for the secretaries if you
were Rob Winchester? Defend your answer. 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

1. 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. Of course she is
right! Jennifer already outlined some of the reasons for the need for appraisals:
probationary period, motivation, feedback, and so on. It is not clear that objectives
and goals have been clearly established and communicated. Also, it is important to tie
salary, promotion, and disciplinary decisions to these goals. Without it, employees
will do what they prefer or enjoy doing. With it, they should understand what the
priorities are and what they need to be doing.

2. 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.

Experiential Exercise: Setting Goals and Appraising an Instructor

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Purpose: The purpose of this exercise is to give you practice in developing and using a
performance appraisal system.

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: Divide the class into groups of four or five students. 1)
First, based on what you now know about performance appraisals, do you think Figure
6.1 is an effective scale for appraising instructors? Why? 2) Next, the group should
develop its own tool for appraising the instructor. 3) Last, have a spokesperson from each
group put his/her group’s appraisal tool on the board.

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