1. Copyright © 2016 Pearson Education, Inc.

2. Performance Management and Appraisal
Chapter 8
Performance Management and Appraisal
In this chapter we will cover the basic concepts in performance appraisal, appraisal methods, performance appraisal problems, the appraisal interview, employee engagement guide, and performance management.
Despite lots of attention and effort, performance appraisals remain an area with which few managers or employees are satisfied. However, the perils notwithstanding, performance appraisals play a central role in managing human resources. The challenge is to do the appraisal the right way.
Copyright © 2016 Pearson Education, Inc.

3. Learning Objectives Explain the purpose of performance appraisal.
Discuss the pros and cons of at least eight performance appraisal methods.
Give examples of potential appraisal problems and how to deal with them.
At the conclusion of this chapter, you will be able to:
Explain the purpose of performance appraisal.
Discuss the pros and cons of at least eight performance appraisal methods.
Give examples of potential appraisal problems and how to deal with them.
Copyright © 2016 Pearson Education, Inc.

4. Learning Objectives (cont.)
List the steps to take in the appraisal interview to improve employee engagement.
Explain how you would take a performance management approach to appraisal.
Additionally, at the conclusion of this chapter, you will be able to:
List the steps to take in the appraisal interview to improve employee engagement.
Explain how you would take a performance management approach to appraisal.
Copyright © 2016 Pearson Education, Inc.

5. Explain the purpose of performance appraisal
LO1: Explain the purpose of performance appraisal.
Most companies have some formal and informal means of appraising their employees’ performance. Performance appraisals can be challenging as accurately assessing is the goal while also motivating employees to performance that supports the organization.
Copyright © 2016 Pearson Education, Inc.

6. Performance Appraisal
Steps in Performance Appraisal
Why Appraise Performance?
Defining Employee’s Performance Standards
Performance appraisal may be defined as any procedure that involves 1) setting work standards; 2) assessing the employee’s actual performance relative to the standards; 3) providing feedback to the employee with the aim of motivating that person to eliminate performance deficiencies or to continue the performance above par.
Why appraise performance? There are many reasons to appraise subordinates’ performance. Most employers still base pay, promotion, and retention decisions on the employee’s appraisal. Also, appraisals play a central role in the employer’s performance management process. The appraisals also allow for correcting any deficiencies and opportunity to recalibrate the employee’s career. Thus, it helps identify training and development needs.
Defining the Employee’s Performance Standards is important and appraisals can let employees know what is expected of them. Appraisals can assess to what extent the employee is attaining his or her numerical goals. For example, a company-wide goal of reducing costs by 10% should translate into goals for how individual employees or teams will cut costs.
Copyright © 2016 Pearson Education, Inc.

7. The Three-Step Performance Appraisal Cycle
In this slide, we see the three-step performance appraisal cycle which includes 1) establishing goals and performance standards, 2) appraising the employee’s performance, and 3) feedback and to take corrective action (coach and counsel employee or other steps as required).
Copyright © 2016 Pearson Education, Inc.

8. How to Set Effective Goals
Assign specific goals
Assign measurable goals
Assign challenging but doable goals
Encourage participation
Studies suggest four guidelines for setting performance goals;
Assign specific goals. Performance improves when goals are set.
Assign measurable goals. Putting goals into quantitative terms with target dates is desirable.
Assign challenging but doable goals. Goals should be challenging but not unrealistic.
Encourage participation. Both subordinates and managers should be engaged in collaboration processes.
Copyright © 2016 Pearson Education, Inc.

9. Who Should Do the Appraising?
Peer Appraisals
Rating Committees
Self-Ratings
Appraisal by Subordinates
360-degree Feedback
Crowd Appraisals
To mitigate biases that may occur in performance appraisals, these initiatives can help provide a more accurate picture of the employee’s performance and also create a more fair and just approach.
Peer appraisals are supported by research and noted as effective. One study noted that peer appraisals had an immediate positive impact on perception of open communication, task motivation, social loafing, group viability, cohesion, and satisfaction.
Rating Committees are used by some companies and are usually composed of an employee’s immediate supervisor, and three to four other supervisors.
Self-Ratings are usually in conjunction with supervisors’ ratings. It provides feedback or a perception of the employee regarding his/her performance.
Appraisal by subordinates are usually done for developmental rather than for pay purposes. Anonymity affects such upward feedback.
360-Degree feedback is when the employer collects performance information all around an employee—from his or her supervisors, subordinates, peers, and internal or external customers.
Crowd appraisals are feedback from the crowds though social media. Workforce Rypple is one such source. Crowd appraisals are naturally on the rise as social media use and applications is on the rise.
Copyright © 2016 Pearson Education, Inc.

10. Graphic Rating Scale Method
Appraisal Methods
Graphic Rating Scale Method
LO2: Discuss the pros and cons of at least eight performance appraisal methods.
The manager usually conducts the actual appraisal using one or more of the formal methods described in this chapter.
The graphic rating scale is probably still the most familiar and popular method for appraising performance. This image of an example graphic rating scale document lists several job dimensions and range of performance values from below expectations to “role model.”
Competency based graphic rating forms are another option and zeros in on competencies and skills.
The form might also rate how well the employee did with respect to achieving specific goals.
Copyright © 2016 Pearson Education, Inc.

11. Appraisal Methods Alternation Ranking Paired Comparison Method
Forced Distribution Method
Drawbacks
Alternation Ranking Method involves ranking employees from best to worst on a trait or traits. With this method, the supervisor specifies the employee who is highest on the trait being measured and also the one who is lowest. This is done until all the employees are rated.
Paired Comparison Method is when every subordinate to be rated is paired with and compared to every other subordinate on each trait. The number of times an employee is rated better is added up.
Forced Distribution Method involves the manager placing predetermined percentages of subordinates in performance categories (similar to a grade “curve”). An estimated 60% of Fortune 500 firms use some form of ranking. The advantages are that it 1) prevents supervisors from rating most employees “satisfactory” or “high,” and 2) makes top and bottom performers stand out.
The drawback of forced distribution appraisal is that there is no wiggle room and some are “forced” into the bottom 10%. Also, often office politics and managerial bias can taint the ratings.
Copyright © 2016 Pearson Education, Inc.

12. Paired Comparison Method
In this slide, we see the paired comparison method. Note + means “better than,” and – means “worse than.” For each chart, add up the number of +’s in each column to get the highest-ranked employee.
Copyright © 2016 Pearson Education, Inc.

13. Appraisal Methods (cont.)
Critical Incident Method
Behaviorally Anchored Rating Scales
Appraisal Forms in Practice
Computerized and Web-based Appraisals
Critical Incident Method entails keeping an anecdotal record of good or undesirable examples of an employee’s work-related behavior and reviewing it with the employee at predetermined times. Compiling incidents all year helps reduce supervisors’ tendencies to focus unduly on just the last few weeks when appraising subordinates’ performance.
Behaviorally Anchored Rating Scales (BARS) is an appraisal method that combines the benefits of critical incidents and quantitative ratings by anchoring a quantified scale with specific narrative examples of good and poor performance expressed as specific behaviors. The various performance levels for 10 (high) to 1 (low), are anchored with specific behavioral examples.
Appraisal Forms in Practice often blend several approaches. However, anchoring a rating scale (as in Figure 8.4 and in the next slide) can improve the reliability and validity of the appraisal scale.
More employers use Web- or PC-supported appraisal tools. Many employers have employees enter data and qualitative goal statements into a database system to set goals and development plans for themselves. Employees update their plan quarterly. Additionally, employees self evaluate as well as have supervisors’ ratings.
Copyright © 2016 Pearson Education, Inc.

14. Behaviorally Anchored Rating Scale
Pictured in this slide is an example of the Behaviorally Anchored Rating Scale. This one looks at the automobile salesmanship competency factor and its scale.
Copyright © 2016 Pearson Education, Inc.

15. The Management by Objectives Method
1. Set the organization’s goals
2. Set department goals
3. Discuss departmental goals
4. Define expected results
The term management by objectives (MBO) refers to a multistep, companywide, goal-setting, and appraisal program. MBO requires the manager to set specific and measurable, organizationally relevant goals with each employee. The steps are as follows:
1. Set the organization’s goals 2. Set department goals 3. Discuss departmental goals 4. Define expected results 5. Conduct performance reviews 6. Provide feedback
5. Conduct performance reviews
6. Provide feedback
Copyright © 2016 Pearson Education, Inc.

16. Appraisal Methods (cont.)
Virtual Appraisal Games
Electronic Performance Monitoring
Talent Management and Employee Appraisal
Conversation Days
Virtual Appraisal Games are games that allow employees to evaluate and reward each other. Every employee has a virtual avatar. Employees use them to give real-time feedback to each other, including virtual gifts and points. The system seems to have reduced turnover and improved performance.
Electronic Performance Monitoring (EPM) systems use computer technology to allow managers to monitor their employees’ rate, accuracy, and time spent working online or just on their computers. The obvious drawback to this is that it increases employee stress.
Talent Management and Employee Appraisal: Most employers still tend to tie an employee’s raises and rewards to the person’s performance. However, some question if this makes sense in terms of best talent management practice. Talent management emphasizes the importance of tying HR decisions to the company’s goals. Some are advocating the directing of resources to the company’s mission-critical employees, those who are critical to achieving the company’s strategic goals.
Some companies are incorporating semiannual conversation days in lieu of once-a-year performance reviews as a way to get quicker feedback and opportunity to express concerns. These conversations are to emphasize areas of improvement and growth and on setting “stretch” goals.
Copyright © 2016 Pearson Education, Inc.

17. Performance Appraisal Problems & Appraisal Interview
Clarify Standard
Fair Appraisals
LO3: Give examples of potential appraisal problems and how to deal with them.
There are several other potential sources of rating errors. Open ended questions could arise in unfair appraisals because the traits and degrees of merit are unclear. It helps clarification to have scales or ratings on each trait.
Fair appraisals must be the goal and there are many strategies in achieving this goal. First, there must be trust established between employee and supervisor that is aided by frequent and immediate feedback. Developing an environment that allows for conversations is “healthy” and establishes the much needed trust and fairness perception.
Pictured in this slide, is a checklist for administering fair performance appraisals. Let’s look at some of these items.
Copyright © 2016 Pearson Education, Inc.

18. Performance Appraisal Problems & Appraisal Interview (cont.)
Avoid Halo Effect Ratings
Avoid the Middle
Don’t Be Lenient or Strict
Errors and biases can be prevented if the proper instruments are used and managers are trained properly.
The halo effect rating means that the rating you give a subordinate on one trait (such as “gets along with others”) influences the way you rate the person on other traits. Note that the halo effect can be either way—all negative ratings or all positive ratings.
Avoid the Middle—the central tendency issue refers to a tendency to rate all employees as being about average, or in the middle. Such restrictions make evaluations less useful for promotion, salary, and counseling purposes.
Don’t be lenient or strict—some supervisors rate all their employees consistently high or low. One solution is to insist on ranking subordinates because that forces the supervisor to distinguish between high and low performance.
Similarly, individual differences among ratees in terms of characteristics like age, race, and gender can affect their ratings, often quite apart from their actual performance. One study found that raters generally penalized female trainees who had apparently done well in training because they were rated with the bias of perceiving some tasks as “male-typical” tasks.
The next slide shows similarities, differences, advantages, and disadvantages of appraisal tools.
Avoid Bias
Copyright © 2016 Pearson Education, Inc.

19. Performance Appraisal Problems & Appraisal Interview (cont.)
Let’s look at the overview of the appraisal tools discussed and view the similarities, differences, advantages, and disadvantages of these appraisal tools.
Copyright © 2016 Pearson Education, Inc.

20. Steps to Ensure Appraisals are Legally Defensible
In this slide, we see the steps to ensure that appraisals are legally defensible. Let’s look at the steps needed.
Copyright © 2016 Pearson Education, Inc.

21. How to Conduct the Appraisal Interview
Talk in terms of objective work data
Don’t get personal
Encourage the person to talk
Don’t tiptoe around
Equally important to choosing the correct appraisal instruments is to also conduct the appraisal interview effectively. There are four things to keep in mind in actually conducting the interview:
Talk in terms of objective work data
Don’t get personal
Encourage the person to talk
Don’t tiptoe around
Copyright © 2016 Pearson Education, Inc.

22. How to Handle a Defensive Subordinate
Recognize that defense behavior is normal
Never attack a person’s defenses
Postpone action
Recognize your own limitations
In this slide we look at the following suggestions for how to effectively handle defensive subordinates.
Recognize that defense behavior is normal
Never attack a person’s defenses
Postpone action
Recognize your own limitations
Copyright © 2016 Pearson Education, Inc.

23. How to Conduct the Appraisal Interview (cont.)
How to criticize a subordinate
How to ensure the interview leads to Improved Performance
How to Handle a Formal Written Warning
For all supervisors, at one time, the appraisal interview will involve pointing out the employee’s weaknesses. This conversation should be done in the most positive manner while allowing the employee to maintain his/her dignity and sense of self worth. It is important to focus on behavior or task that is the issue and not the person. Avoid using extreme language such as “always” or “never.”
Whether a subordinate expresses satisfaction with their appraisal interview depends on several things, such as not feeling threatened during the interview, having an opportunity to present their ideas, and having a helpful supervisor conduct the interview. Remember that the main aim is to get the employee’s performance to improve. Letting the employee see the performance gaps and delicately pointing this out without causing a negative reaction can occur. Furthermore, the employee needs to be given the tools and support to improve performance.
There will be times when an employee’s performance is so poor that a formal written warning is required. Such warnings serve two purposes: 1) they serve to shake the employee out of his/her bad habits, and 2) they help defend ratings, both to the boss and to the courts. Written warnings should identify the standard by which the employee is judged.
Copyright © 2016 Pearson Education, Inc.

24. Employee Engagement Guide
1. Show how efforts are part of the “big picture”
2. Manifest “psychological meaningfulness”
3. Be candid and objective while respectful
4. Provide support, resources, and tools needed
5. Focus on the strengths
LO4: List steps to take in the appraisal interview to improve employee engagement.
Research shows that managers can also use the appraisal interview to improve their employees’ level of engagement. Here are relevant research findings.
Show how efforts are part of the “big picture”
2. Manifest “psychological meaningfulness”
3. Be candid and objective while respectful
4. Provide support, resources, and tools needed
5. Focus on the strengths
6. Listen and value employees’ feedback
7. Show how efforts are part of career development
8. Ensure fair and just rewards or remedial actions
6. Listen and value employees’ feedback
7. Show how efforts are part of career development
8. Ensure fair and just rewards or remedial actions
Copyright © 2016 Pearson Education, Inc.

25. Performance Management
Total Quality Management & Performance Appraisal
Organization-wide programs
Built on a philosophy
Continuous improvement
Remove barriers
LO5: Explain how you would take a performance management approach to appraisal.
Management experts have long argued that most performance appraisals neither motivate employees nor guide their development. Some proponents of the total quality management (TQM) movement even argued for eliminating performance appraisals altogether. TQM programs are organization-wide programs that integrate all functions and processes of business such that all aspects of the business including design, planning, production, distribution, and field service are aimed at maximizing customer satisfaction through continuous improvement. TQM programs operate on a philosophy of continuous improvement and aim to drive out fear from those so they may work effectively and remove barriers that rob employees of their pride of workmanship.
Copyright © 2016 Pearson Education, Inc.

26. What is Performance Management?
Direct sharing
Goal alignment
Ongoing performance monitoring
Ongoing feedback
Coaching and developmental support
Recognition and rewards
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. We can summarize performance management’s six basic elements as follows.
Direct sharing
Goal alignment
Ongoing performance monitoring
Ongoing feedback
Coaching and developmental support
Recognition and rewards
Copyright © 2016 Pearson Education, Inc.

27. Summary of Performance Management Process
This slide represents a performance goal scorecard. The employee is scored against company performance goals and personal target goals with each goal weighted and scored.
Copyright © 2016 Pearson Education, Inc.

28. Using Information Technology
Assign financial and nonfinancial goals
Inform all teams and employees
Use IT-supported tools
Take corrective action
Performance management needn’t be high-tech. However, information technology does enable management to automate performance management. The process is as follows:
Assign financial and nonfinancial goals
Inform all teams and employees
Use IT-supported tools
Take corrective action
Copyright © 2016 Pearson Education, Inc.

29. Summary Performance appraisal and performance management
Appraisal methods
The appraisal method can be improved
Improving employee engagement
Performance management is a continuous process
In this chapter, we have covered and discussed the following areas:
Performance appraisal and performance management
Appraisal methods
The appraisal method can be improved
Improving employee engagement
Performance management is a continuous process
Copyright © 2016 Pearson Education, Inc.

30. Copyright © 2016 Pearson Education, Inc.