Performance Management

Learning Objectives 1 of 2

LO8-1 Identify the major parts of an effective performance

management process.
LO8-2 Discuss the three general purposes of performance
management.
LO8-3 Identify the five criteria for effective performance
management systems.
LO8-4 Discuss the five approaches to performance
management, the specific techniques used in each
approach, and the way these approaches compare
with the criteria for effective performance
management systems.
LO8-5 Choose the most effective approach to performance
measurement for a given situation.
 Learning Objectives 2 of 2

LO8-6 Discuss the advantages and disadvantages of the

different sources of performance information.
LO8-7 Choose the most effective source(s) for
performance information for any situation.
LO8-8 Discuss the potential advantages of social
performance management and electronic
monitoring for performance management.
LO8-9 Distinguish types of rating errors, and explain how
to minimize each in a performance evaluation.
LO8-10 Conduct an effective performance feedback
session.
LO8-11 Identify the cause of a performance problem.
 Introduction
Performance Management
• Ensure employee activities are congruent with goals
Performance Appraisal
• Organization gets information on how well an
employee is doing his or her job
Performance Feedback
• Provide employees information on their performance
(A performance management system has three parts: defining performance,
measuring performance, and feeding back performance information. Performance
management as the process through which managers ensure that employees’ activities
and outputs are congruent with the organization’s goals. Performance management is
central to gaining competitive advantage and critical for companies to execute their talent
management strategy, that is, to identify employees’ strengths and weaknesses, link
employees to appropriate training and development activity, and reward good performance
with pay and other incentives.
First, a performance management system specifies which aspects of performance
are relevant to the organization, primarily through job analysis.
Second, it measures those aspects of performance through performance
appraisal, which is only one method for managing employee performance. If done
correctly, performance appraisal can provide benefits to both employees and the company.
An important part of appraising performance is to establish employee goals, which should
be tied to the company’s strategic goals. A good appraisal process ensures that all
employees doing similar jobs are evaluated according to the same standards
Third, it provides feedback to employees through performance feedback sessions
so they can adjust their performance to the organization’s goals. Performance feedback is
also fulfilled through tying rewards to performance via the compensation system such as
through merit increases or bonuses. Because companies are interested in continuous
improvement and creating engaged employees—employees who know what to do and are
motivated to do it—many companies are moving to more frequent, streamlined
performance reviews)
Although many companies use performance management to
manage employee performance and make pay decisions, less than
25% of the companies use performance management to help
manage talent through identifying training needs and
developing leadership talent. Another finding is that 66% of
companies use the same performance management system across
all levels of the organization. Unfortunately, although performance
management is a prevalent practice, it is often not valued or used
effectively. Some 70% of companies believe that they need to
improve their performance management practices—one of the
major reasons is that managers lack the skills needed to coach
employees and provide timely and actionable feedback. Further,
50% of employees are surprised by the ratings they receive, and
90% of those employees are unhappy because they expected a
higher rating.  Finally, 95% of managers are dissatisfied with way
their company conducts performance reviews.             
The Practice of Performance Management
Performance management is a prevalent practice,
but often not valued or used effectively.
• Many managers don’t consider yearly performance
evaluations useful
• Half of employees are surprised by their ratings
• Most employees are unhappy because they
expected a higher rating
Model of the Effective Performance Management Process

Jump to long description in appendix

The Process of Performance Management 1 of 5

Step 1
• Understand and identify important performance
outcomes or results
• Align goals and behaviors to organization’s
strategies and goals

LO 8-1
The Process of Performance Management 2 of 5

Step 2
• Understand the process (or how) to achieve the
goals established in the first step
• Identifying measurable goals, behaviors, and activities
that will help employees achieve the performance results
• Make these part of the employees’ job descriptions
The Process of Performance Management 3 of 5

Step 3
• Provide employees with training, necessary
resources and tools, and frequent feedback
• Focus on accomplishments as well as issues and
challenges influencing performance
The Process of Performance Management 4 of 5

Step 4
• The manager and the employee discuss and
compare the targeted performance goals and
supporting behaviors with the actual results
• Annual or biannual formal performance review
The Process of Performance Management 5 of 5

Step 5
• Identify what the employee can do to capitalize on
performance strengths and address weaknesses
Step 6
• Provide consequences for achieving (or failing to
achieve) performance outcomes
Purposes of Performance Management 1 of 3

Strategic Purpose (Performance management is critical for

companies to execute their talent management strategy, that is, to
identify employees’ strengths and weaknesses, drive employee
engagement, link employees to appropriate training and
development activity, and reward good performance with pay and
other incentives)
Administrative Purpose (Organizations use performance
management information (performance appraisals, in particular) in
many administrative decisions: salary administration (pay raises),
promotions, retention–termination, layoffs, and recognition of
individual performance)
Developmental Purpose(for example, a skill deficiency, a
motivational problem, or some obstacle holding the employee
back.)
Purposes of Performance Management 1 of 3

Strategic Purpose
• Performance management system should link
employee activities with the organization’s goals
• Define the results, behaviors, and employee
characteristics that are necessary for carrying
out those strategies, and then
• Develop measurement and feedback systems

LO 8-2
Purposes of Performance Management 2 of 3

Administrative Purpose
• Performance management information used for
salary decisions, promotions, retention-termination,
layoffs, and recognition of individual performance
• Managers tend to be uncomfortable rating
employees
Purposes of Performance Management 3 of 3

Developmental Purpose
• Improve the performance of employees
• Includes deficiencies and the causes of deficiencies
• Helps good performers get training and opportunities
• GPS system (The new system eliminated the rating and
replaced it with a process called GPS, which stands for
growth, plan, and support. The objective of GPS is to
encourage managers to have frequent performance
conversations with employees and for employees to take
more responsibility for their performance and
development. A month before the anniversary of their
hiring date, employees are reminded to have GPS
meetings with their managers to discuss their career goals
and the resources they need to perform successfully. )
 Performance Measures Criteria 1 of 6

Once the company has determined, through job analysis

and design, what kind of performance it expects from its
employees, it needs to develop ways to measure that
performance.
1. strategic congruence,
2. validity,
3. reliability,
4. acceptability, and
5. specificity.
 Performance Measures Criteria 1 of 6

Strategic Congruence (is the extent to which a performance

management system elicits job performance that is congruent
with the organization’s strategy, goals, and culture)
• Emphasizes the need for the performance management
system to guide employees in contributing to the
organization’s success
• Must be flexible to adapt to change
• Critical success factors (CSFs)/ or key performance indicators
(KPIs)

LO 8-3
 Performance Measures Criteria 3 of 6

Validity (is the extent to which a performance

measure assesses all the relevant)
• Must not be deficient or contaminated
• It is deficient if it does not measure all aspects
of performance
• It is contaminated if it evaluates irrelevant
aspects of performance or aspects that are not
job related
 Performance Measures Criteria 4 of 6

Reliability (The consistency of a performance measure; the

degree to which a performance measure is free from random
error)
• Interrater reliability
• The consistency among the individuals who evaluate the employee’s
performance
• Test-retest reliability
• Should be reliable over time
For example, if salespeople are evaluated based on their actual
sales volume during a given month, it would be important to
consider their consistency of monthly sales across time. What if
an evaluator in a department store examined sales only during
May? Employees in the lawn and garden department would have
high sales volumes, but those in the men’s clothing department
would have somewhat low sales volumes. Clothing sales in May
are traditionally lower than in other months. One needs to
measure performance consistently across time.
 Performance Measures Criteria 5 of 6

Acceptability
• May take too much time or not be accepted as fair
• Three categories of fairness: procedural, interpersonal,
and outcome

(refers to whether the people who use a performance

measure accept it. Many elaborate performance
measures are extremely valid and reliable, but they
consume so much of managers’ time that they refuse to
use it. Alternatively, those being evaluated by a measure
may not accept it).
Categories of Perceived Fairness and Implications for
Performance Management Systems
IMPORTANCE
FOR
PERFORMANCE
FAIRNESS MANAGEMENT
CATEGORY SYSTEM IMPLICATIONS
Procedural Development • Give managers and employees opportunity to
fairness participate in development of system
• Ensure consistent standards when evaluating
different employees
• Minimize rating errors and biases
Interpersonal Use • Give timely and complete feedback
fairness • Allow employees to challenge the evaluation
• Provide feedback in an atmosphere of respect
and courtesy
Outcome Outcomes • Communicate expectations regarding
fairness performance evaluations and standards
• Communicate expectations regarding rewards
 Performance Measures Criteria 6 of 6
Specificity
• Relevant to both strategic and developmental purposes
• Must measure what an employee must do to achieve
company’s goals
• Must point out employee’s performance problems

(Specificity is relevant to both the strategic and

developmental purposes of performance management.
If a measure does not specify what an employee must
do to help the company achieve its strategic goals, then
it does not achieve its strategic purpose. Additionally, if
the measure fails to point out employees’ performance
problems, it is almost impossible for the employees to
correct their performance.)
Approaches to Measuring Performance 1 of 19

1. The Comparative Approach (This approach usually uses some overall

assessment of an individual’s performance or worth and seeks to develop some
ranking of the individuals within a work group.)

2. The Attribute Approach (The attribute approach to performance

management focuses on the extent to which individuals have certain attributes
(characteristics or traits) believed desirable for the company’s success)

3. The Behavioral Approach (The behavioral approach to performance

management attempts to define the behaviors an employee must exhibit to be
effective in the job. The various techniques define those behaviors and then
require managers to assess the extent to which employees exhibit them)

4. The Results Approach

5. The Quality Approach
Approaches to Measuring Performance 1 of 19
The Comparative Approach
At least three techniques fall under the comparative approach:
1.ranking,
2. forced distribution, and
3. paired comparison

• Ranking
• Simple ranking - highest performer to poorest performer
• Alternation ranking – cross one name off the list at a time

LO 8-4
Approaches to Measuring Performance 2 of 19
The Comparative Approach continued
• Forced distribution (The forced distribution method
also uses a ranking format, but employees are ranked
in groups. This technique requires the manager to put
certain percentages of employees into predetermined
categories. Most commonly, employees are grouped
into three, four, or five categories, usually of unequal
size, indicating the best workers, the worst workers,
and one or more categories in between. )
• Employees ranked in predetermined categories
• Helps managers tailor development activities to employees
based on their performance
• Ethical if the system is clearly communicated, the system is
part of a positive dimension of the organization’s culture, and
the employees have the chance to appeal decisions
Performance and Development Based on Forced Distribution and Ranking

RANKING OR
DISTRIBUTION
CATEGORY PERFORMANCE AND DEVELOPMENT PLAN
A • Accelerate development through challenging job assignments
Above average • Provide mentor from leadership team
Exceptional • Recognize and reward contributions
A1 performer • Praise employee for strengths
• Consider leadership potential
• Nominate for leadership development programs
B • Offer feedback on how B can become a high performer
Average • Encourage development of strengths and improvement of
Meets expectations weaknesses
Steady performer • Recognize and reward employee contributions
• Consider enlarging job
C • Give feedback and agree upon what specific skills, behavior, and/or
Below expectations results need to be improved, with timetable for accomplishment
Poor performance • Move to job that better matches skills
• Ask to leave the company

Based on B. Axelrod, H. Handfield-Jones, and E. Michaels, “A New Game Plan for C Players,” HBR, January 2002, pp. 80–88; Walker, “Is Performance Management
as Simple as ABC?” T + D, February 2007, pp. 54–57; T. De Long and V. Vijayaraghavan, “Let’s Hear It for B Players,” HBR, June 2003, pp. 96–102.
Approaches to Measuring Performance 3 of 19

The Comparative Approach continued

• Paired comparison
• Tends to be time consuming
Approaches to Measuring Performance 4 of 19

The Comparative Approach continued

• Evaluating the Comparative Approach
• Problems
• Often not linked to strategic goals
• Validity and reliability depend on the raters
themselves
• Individuals are completely unaware of what they
must do differently to improve their ranking
• Employees and managers are less likely to
accept evaluations
Approaches to Measuring Performance 5 of 19

The Attribute Approach (The attribute approach to

performance management focuses on the extent to
which individuals have certain attributes (characteristics
or traits) believed desirable for the company’s success)
• Graphic Rating Scales
• Evaluate a list of traits on a five-point scale
• Can be discrete scale or continuous scale
• The manager considers one employee at a time,
circling the number that signifies how much of that
trait the individual has. Graphic rating scales can
provide a number of different points (a discrete
scale) or a continuum along which the rater simply
places a check mark (a continuous scale)
Approaches to Measuring Performance 6 of 19

The Attribute Approach continued

• Mixed-Standard Scales
• Define the relevant performance dimensions and then
develop statements representing good, average, and
poor performance along each dimension
• These statements are then mixed with the statements
from other dimensions on the actual rating instrument
Approaches to Measuring Performance 7 of 19

The Attribute Approach continued

• Evaluating the attribute approach
• Easy to develop and generalizable
• Problems
• Usually little congruence between the techniques
and the company’s strategy
• Usually have vague performance standards that are
open to different interpretations by different raters
Approaches to Measuring Performance 8 of 19

The Behavioral Approach (The behavioral

approach to performance management attempts to
define the behaviors an employee must exhibit to
be effective in the job. The various techniques
define those behaviors and then require managers
to assess the extent to which employees exhibit
them)
• Behaviorally anchored rating scales (BARS)
• Can increase interrater reliability
• Can bias information recall
Approaches to Measuring Performance 11 of 19
The Behavioral Approach continued
• Evaluation of the behavioral approach
• Can link the company’s strategy to the specific behavior
necessary for implementing that strategy
• Provides specific guidance and feedback for employees
about the performance expected of them
• Acceptability and reliability are high
• Weaknesses
• Behaviors and measures must be continually
monitored and revised
• Assumes that there is “one best way” to do the job
and that the behaviors that constitute this best way
can be identified
Approaches to Measuring Performance 12 of 19
The Results Approach(The results approach
focuses on managing the objective, measurable
results of a job or work group are the closest
indicator of one’s contribution to organizational
effectiveness)
 Best Practices in Goal Setting
1. Employees and managers should discuss and set no
more than three to five goals.
2. Goals should be brief, meaningful, challenging, and
include the results the employee is expected to achieve.
3. The time frame for goal achievement should be related
to when they are expected to be accomplished.
4. The relationship between goals and rewards should be
appropriate.
5. Goals should be “linked up” rather than “cascaded
down.” This means that functions, teams, and
employees should set their own goals that are related to
company goals.
Approaches to Measuring Performance 16 of 19
The Quality Approach Fundamental characteristics
of the quality approach include -
1. Customer orientation
2. Prevention approach to errors
3. Continuous improvement
A performance management system designed with a strong
quality orientation can be expected to do the following:
1. Emphasize that managers and employees work
together to solve performance problems
2. Involve both internal and external customers in setting
standards and measuring performance
3. Use multiple sources to evaluate person and system
factors
 Why Quality Approach ?
1. Most existing systems measure performance in terms of
quantity, not quality.
2. Employees are held accountable for good or bad results
to which they contribute but do not completely control.
3. Companies do not share the financial rewards of
successes with employees according to how much they
have contributed to them.
4. Rewards are not connected to business results
Choosing a Source for Performance Information 1 of 6
Managers
Peers
Direct Reports
Self
Customers
360-Degree Appraisal
Choosing a Source for Performance Information 1 of 6

Managers
• Most frequently used source of performance
information
• Motivated to make accurate ratings
• Feedback from supervisors is strongly related to
performance and to employee perceptions of the
accuracy of the appraisal

LO 8-6, 8-7
Choosing a Source for Performance Information 2 of 6

Peers
• Have expert knowledge of job requirements
• Often have the most opportunity to observe the
employee
• Often in the best position to praise and recognize
each other’s performance on a daily basis in day-
to-day activities
• Peers are not expected to provide feedback
Choosing a Source for Performance Information 3 of 6

Direct Reports
• Have best opportunity to evaluate how manager
treats employees
• Upward feedback
• Gives subordinates power over managers
• Might lead to emphasis of employee satisfaction
over production
Choosing a Source for Performance Information 4 of 6

Self
• Not often used as the sole source of performance
information, but can still be valuable
• Tendency toward inflated assessments
Choosing a Source for Performance Information 5 of 6

Customers
• The customer is often the only person present to
observe the employee’s performance and thus is
the best source of performance information.
• Service companies use customer evaluations.
• When an employee’s job requires direct service to the
customer or linking the customer to other services within
the company
• When the company is interested in gathering information
to determine what products and services the customer
wants
Choosing a Source for Performance Information 6 of 6

360-Degree Appraisal
• Multiple raters (boss, peers, subordinates,
customers) provide input into a manager’s
evaluation.
• Minimizes bias
Use of Technology in Performance Management 1 of 4

Technology influences performance management

systems in three ways
• Web-based systems
• Social media
• Social performance management
• Electronic tracking and monitoring systems
• Software that analyzes employees’ computers
and creates a profile
LO 8-8
 Performance Feedback
The Manager’s Role in an Effective Performance
Feedback Process
• Feedback Should Be Given Frequently, Not Once a Year
• Create the Right Context for the Discussion.
• Ask the Employee to Rate His or Her Performance before
the Session.
• Have Ongoing, Collaborative Performance Conversations.
• Recognize Effective Performance through Praise. 
• Focus on Solving Problems. 
• Focus Feedback on Behavior or Results, Not on the
Person. 
• Minimize Criticism.
• Agree to Specific Goals and Set a Date to Review Progress.

LO 8-10
Developing and Implementing a System That Follows Legal Guidelines

Two types of cases related to performance

management
• Discrimination
• Based on age, race, gender, or national origin
• Unjust dismissal
• Dismissal for reasons other than those employer
claims
Factors to Consider in Analyzing Poor Performance

Input

Does the employee recognize what he or she is supposed to do? Are the job flow and procedures logical? Do
employees have the resources (tools, equipment, technology, time) needed for successful performance? Are other job
demands interfering with good performance in this area?

 Employee Characteristics

Does the employee have the necessary skills and knowledge needed? Does the employee know why the desired
performance level is important? Is the employee mentally, physically, and emotionally able to perform at the expected
level?

 Feedback

Has the employee been given information about his or her performance? Is performance feedback relevant, timely,
accurate, specific, and understandable?

Performance Standard/Goals

Do performance standards exist? Does the employee know the desired level of expected performance? Does the
employee believe she or he can reach the performance standard?  

Consequences

Are consequences (rewards, incentives) aligned with good performance? Are the consequences of performance
valuable to the employee? Are performance consequences given in a timely manner? Do work group or team norms
encourage employees not to meet performance standards?

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