Institute of Business Administration

University of Dhaka

H601: Compensation Management

Fall Semester, 2019
Lecture 11
Today’s Lecture outline

Performance Appraisal
Appraisal Methods
Errors in Appraisal
 Basic Concepts in Performance
Management and Appraisal

Comparing
Performance Appraisal and
Performance Management

Performance Appraisal: Performance Management:

Setting work standards, assessing An integrated approach to ensuring
performance, and providing that an employee’s performance
feedback to employees to motivate, supports and contributes to the
correct, and continue their organization’s strategic aims.
performance.
Why Performance Management?

Total Quality
The
Performance
Appraisal Issues
Management
Approach
Strategic Focus
The Building Blocks of an Effective Performance
Management Process
Direction Role Goal setting and
sharing clarification planning

Goal Developmental goal

alignment setting

Ongoing performance
monitoring

Ongoing Coaching and

feedback support

Performance assessment
(appraisal)

Rewards, recognition, and

compensation
Workflow, process control, and return on investment
management
 Defining the Employee’s Goals and
Work Standards

Guidelines for Effective

Goal Setting

Assign
Assign
Assign Specific Challenging Encourage
Measurable
Goals but Doable Participation
Goals
Goals
 Performance Appraisal
• The systematic, periodic and an
impartial rating of an employee’s
excellence in the matters pertaining
to::-
• His present job
• His potential for a better job
 Performance Appraisal
Performance Appraisal means evaluating an
employee's current and/or past performance relative to
his or her performance standards
Involves…
Setting work standards
Assessing the employee’s actual performance relative
to those standards
Providing feedback to the employee with the aim of
motivating him or her to eliminate performance
deficiencies or to continue to perform above par
Relationship between job analysis and
performance appraisal:
Job analysis Performance Performance
standards appraisal

Describes work Translate job Describes the

& Personnel into levels of job relevant
requirement to acceptable strengths and
or unacceptable weakness of
of a particular
performance each individual
job
 Why Appraise Performance?
Most employers still base pay & promotional decisions on
the employee’s appraisal
The appraisal lets the boss & subordinate develop a plan for
correcting any deficiencies & to reinforce the things the
subordinate does right
Appraisals provide an opportunity to review the employee’s
career plans in light of his or her exhibited strengths &
weaknesses
To judge the effectiveness of the other HR functions such as
recruitment, selection, training and development
It is fair and equitable to reward people differentially
according to their performance, competence or contribution.
 HR programs
Administrative
Communication uses

Constructive Organizational
criticism and Maintenance
guidance
PA
Objectives

Pay scales & Documentation

Pay raise

Training and Promotions

development
 Process
Establishing Standards

Communicating Standards and expectations

Measuring the actual performance

Comparing with standards

Providing feedback

Corrective Actions
 Appraising Performance
Steps in Appraising Performance

1 Defining the job

2 Appraising performance
3 Providing feedback
Designing the Appraisal Tool
• What to Measure?
– Work output (quality and quantity)
– Personal competencies
– Goal (objective) achievement
• How to Measure?
– Generic dimensions
– Actual job duties
– Behavioural competencies
Performance Appraisal Roles
Supervisors
Usually do the actual appraising.
Must be familiar with basic appraisal
techniques.
Must understand and avoid
problems that can cripple appraisals.
Must know how to conduct
appraisals fairly.
 Performance Appraisal Roles…
The HR Department
Serves a policy-making and advisory role.
Provides advice and assistance regarding the
appraisal tool to use.
Trains supervisors to improve their appraisal
skills.
Monitors the appraisal system effectiveness
and compliance with relevant laws and
guidelines.
 Types
Types of
of Performance
Performance Information
Information

Trait-based
Trait-based
Information
Information

Job
Job Behaviour-based
Behaviour-based
Performance?
Performance? Information
Information

Results-based
Results-based
Information
Information
Methods/Steps/Tools for Measuring Performance

1. Making Comparisons
2. Rating Individuals
3. Measuring Results
4. Total Quality Measurement (TQM)
 Methods for Measuring Performance
1. Making Comparisons: …Compare one
individual’s performance with that of others
a) Simple ranking: …Requires managers to rank
employees in their group from the highest performer to
the poorest performer
b) Forced-distribution method: ..Assigns a certain
percentage of employees to each category in a set of
categories
c) Paired-comparison method: …Compares each
employee with each other employee to establish
rankings
Ranking method

Employee Rank

A 2

B 1

C 3

D 5

E 4
Forced-distribution method
Exceptional- 5 percent
Exceeds standards- 25 percent
Meets standards- 55 percent
Room for improvement- 10 percent
Not expectable- 5 percent
 Forced-distribution method

No.
of
employees
10% 20% 40% 20% 10%
poor Below average good Excellent
average

Force distribution curve

Ranking Employees by the Paired-Comparison Method

Note: + means “better than.” – means “worse than.” For each chart, add up the
number of +’s in each column to get the highest-ranked employee.
 Methods for Measuring Performance…
2. Rating Individuals: Measures relative to a uniform
set of standards…evaluate in terms of attributes
believed desirable…a rating scale from 1 to 5…
a) Rating attributes
i. Graphic rating scale:…Lists traits & provides a
rating scale for each trait; the employer uses the
scale to indicate the extent to which an employee
displays each trait
ii. Mixed-standard scale:...Uses several statements
describing each trait to produce a final score for that
trait
 Rating Attributes
Graphic Rating Scale
Rating
Performance Distinguished Excellent Commendable Adequate Poor
dimension
Knowledge 5 4 3 2 1

Communication 5 4 3 2 1

Initiative 5 4 3 2 1

Problem solving 5 4 3 2 1
Rating Attributes
 Rating Attributes
Mixed-standard Scale
Three traits being assessed Levels of performance in statements

Initiative High

Intelligence Medium

Relations with others Low

High This employee is a real self-starter. The employee always takes the
(Initiative) initiative & his/her supervisors never has to prod (push) this individual

Medium While generally this employee shows initiative, occasionally his/her

(initiative) superior must prod him/her to complete work

Low This employee has a bit of tendency to it around & wait for direction
(initiative)
Methods for Measuring Performance..
b) Rating behaviours: …Begins by defining which
behaviours are associated with success on the job
i. Critical-incident method:...Based on managers’ records of specific
examples of the employees acting in ways that are either
effective or ineffective…keeping a daily or weekly log of critical
incidents
ii. Behaviourally anchored rating scale (BARS):...Rates behaviour in
terms of a scale showing specific statements of behaviour that
describe different levels of performance
iii. Behavioural observation scale (BOS):…A variation of BARS which
uses all behaviours necessary for effective performance to rate
performance at a task
iv. Organizational behaviour modification (OBM):…a plan of
managing the behaviour of employees through a formal system
of feedback & reinforcement
Examples of Critical Incidents for Assistant Plant Manager

Continuing Duties Targets Critical Incidents

Schedule production for 90% utilization of Instituted new production scheduling
plant personnel and machinery system; decreased late orders by 10% last
in plant; orders month; increased machine utilization in
delivered on time plant by 20% last month

Supervise procurement Minimize inventory costs Let inventory storage costs rise 15% last
of raw materials and while keeping adequate month; overordered parts “A” and “B” by
inventory control supplies on hand 20%; underordered part “C” by 30%

Supervise machinery No shutdowns due to Instituted new preventative maintenance

maintenance faulty machinery system for plant; prevented a machine
breakdown by discovering faulty part
 Critical Incident method

Example: A fire, sudden breakdown, accident

Workers reaction scale

A informed the supervisor immediately 5

B Become anxious on loss of output 4
C tried to repair the machine 3
D Complained for poor maintenance 2
E was happy to forced test 1
Always early for work, gathers
all necessary equipment to go Task-BARS Rating
to work, fully dressed, uses
time before roll call to review Dimension
previous shift’s activities & any
new bulletins, takes notes of
previous shift’s activities
mentioned during roll call

Preparing for duty

Late for roll call majority
of period, does not
check equipment or
vehicle, does not have
necessary equipment to
go to work
Rating Individuals: Behaviours
 Example of a
Behaviorally
Anchored Rating
Scale for the
Dimension
Salesmanship Skills
 Sample
Sample of
of BARS
BARS system
system
Dimension: Planning & Organizing
Scale Value Anchor
5 [ ] Excellent Develops a comprehensive plan, documents well,
obtains approval & distributes to all concerned
4 [ ] Good Lays out all plans and allows for slack. Satisfies
customer time constraints and overruns are
infrequent
3 [ ] Average Revises due dates as project progresses &
investigates customer complaints. Does not report
slippages in plan
2 [ ] Below Average Poor plans & unrealistic time schedules are
common. Cannot plan for more a day or two ahead
1 [ ] Unacceptable Seldom completes a project and does not bother.
Fails due to lack of planning and is not interested in
improving
Methods for Measuring Performance…
3. Measuring Results
a) Measurement of productivity: …refers to the
output of production workers (output per worker
or per dollar spent on production)
b) Management by objectives (MBO): A system in
which people at each level of the organization set
goals in a process that flows from top to bottom,
so employees at all levels are contributing to the
organization’s overall goals; these goals become
the standards for evaluating each employee’s
performance
Methods for Measuring Performance
Rating individuals: Results
Methods for Measuring Performance..
4. Total Quality Measurement (TQM): …assesses both
individual performance & the system…combines
measurements of attributes & results
a)Subjective Feedback:…from managers, peers, &
customers about the employee’s personal qualities such
as cooperation & initiative.
b)Objective Feedback: …based on the work process. Comes
from a variety of methods called statistical quality
control. These methods use charts to detail causes of
problems, measures of performance, or relationships
between work-related variables. Employees are
responsible for tracking these measures to identify areas
where they can avoid or correct problems.
Important Advantages and Disadvantages of Appraisal Tools
Tool Advantages Disadvantages
Graphic rating scale Simple to use; provides a quantitative Standards may be unclear; halo effect,
rating for each employee. central tendency, leniency, bias can also
be problems.

BARS Provides behavioral “anchors.” Difficult to develop.

BARS is very accurate.

Alternation ranking Simple to use (but not as simple as Can cause disagreements among
graphic rating scales). Avoids central employees and may be unfair if all
tendency and other problems of rating employees are, in fact, excellent.
scales.

Forced distribution End up with a predetermined number or Employees’ appraisal results depend on
method % of people in each group. your choice of cutoff points.

Critical incident Helps specify what is “right” and “wrong” Difficult to rate or rank employees relative
method about the employee’s performance; to one another.
forces supervisor to evaluate
subordinates on an ongoing basis.

MBO Tied to jointly agreed-upon performance Time-consuming.

objectives.
Who Should Do the Appraising?

Immediate
Self-Rating
Supervisor

Peers
Potential Subordinates
Appraisers

Rating 360-Degree
Committee Feedback
 Errors in Performance Management
Types of rating errors
 People often tend to give a higher evaluation to people
they consider similar to themselves. Most of us think of
ourselves as effective, so if others are like us, they must be
effective, too. Research has demonstrated that this effect
is strong
 If the rater compares an individual, not against an
objective standard, but against other employees, contrast
errors occur
 Raters make distributional errors when they tend to use
only one part of a rating scale
 Raters often let their opinion of one quality colour their
opinion of others
(Halo error, Horn error, First impression error)
Errors in Performance Management

First impression
 Stereotypes
Just-like-me
Halo effect
Horn effect
Contrast effect
 Giving Performance Feedback
Scheduling performance feedback
Preparing for a feedback session
Conducting the feedback session

Concentrate on the behaviour, not the person

Be specific
Be realistic
Own the feedback
Be timely
Offer continuing support
Finding Solutions to Performance Problems
Lack of Ability: When a motivated employee lacks
knowledge, skills, or abilities in some area, the manager
may offer coaching, training, & more detailed feedback
Lack of Motivation: Managers with an unmotivated
employee can explore ways to demonstrate that the
employee is being treated fairly & rewarded adequately
Lack of Both: Performance may improve if the manager
directs the employee’s attention to the significance of
the problem by withholding rewards or providing
specific feedback