1. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–19–1 Part 3: Training and Developing Human Resources Chapter 9: Performance Management and Appraisal Prepared by Linda Eligh, University of Western Ontario

2. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–29–2 Learning Objectives After you have read this chapter, you should be able to: 1.Identify the components of performance management systems. 2.Discuss important employee performance measures including individual performance factors. 3.Explain the administrative and developmental uses of performance appraisal and the legal implications of performance management. 4.Describe the decisions concerning the performance appraisal process. 5.Introduce the methods of appraising performance and their advantages and disadvantages. 6.Discuss the importance of training managers and employees about performance appraisal, and give examples of several rater errors. 7.Identify several concerns about appraisal feedback and ways to make it more effective.

3. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–39–3 Nature of Performance Management Performance Management  Processes used to identify, encourage, measure, evaluate, improve, and reward employee performance  Provide information to employees about their performance.  Clarify organizational performance expectations.  Identify the development steps that are needed to enhance employee performance.  Document performance for personnel actions.  Provide rewards for achieving performance objectives.

4. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–49–4 Performance Management Linkage Fig. 9-1

5. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–59–5 Difference Between Performance Management and Performance Appraisals Performance Management  Processes used to identify, encourage, measure, evaluate, improve, and reward employee performance. Performance Appraisal  The process of evaluating how well employees perform their jobs and then communicating that information to the employees.

6. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–69–6 Identifying and Measuring Employee Performance Performance  What an employee does and does not do.  Quantity of output Quality of output  Timeliness of output Presence at work Job Criteria  Important elements in a given job

7. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–79–7 Types of Performance Information Fig. 9-2

8. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–89–8 Relevance of Performance Criteria OveremphasisOveremphasis DeficiencyDeficiencyContaminationContamination Performance Criteria

9. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–99–9 Relevance of Performance Criteria FairnessFairness ReliabilityReliabilityPracticalityPracticality Performance Appraisal

10. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–10 Performance Standards  Expected levels of performance  Benchmarks, goals, and targets  S.M.A.R.T. approach for writing performance standards  S=Specific  M=Measurable  A=Attainable  R=Relevant  T=Time bound

11. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–11 Legal Concerns and Performance Appraisals Legally Defensible PA System:  Objective performance appraisal criteria based on job analysis  Absence of disparate impact and evidence of validity  Formal evaluation criteria that limit managerial discretion  A rating instrument linked to job duties and responsibilities  Documentation of the appraisal activities  Personal knowledge of and contact with the appraised individual  Training of supervisors in conducting appraisals  Review process to prevent undue control of careers  Counseling to help poor performers improve

12. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–12 Conflicting Uses for Performance Appraisal Fig. 9-3

13. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–13 Uses of Performance Appraisal Criticisms of Performance Appraisal  Focus is too much on the individual and does little to develop employees.  Employees and supervisors believe the appraisal process is seriously flawed.  Appraisals are inconsistent, short-term oriented, subjective, and useful only at the extremes of performance.

14. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–14 Developmental Uses of Performance Appraisal Performance Appraisal Giving Performance Feedback Administering Wages and Salaries Identifying Strengths and Weaknesses

15. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–15 Typical Division of HR Responsibilities: Performance Appraisal Fig. 9-4

16. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–16 Decisions Concerning PA Process Performance Appraisal (PA)  The process of evaluating how well employees perform their jobs when compared to a set of standards, and then communicating the information to employees.  Informal Appraisal  Day-to-day contacts, largely undocumented  Systematic Appraisal  Formal contact at regular time intervals, usually documented  Timing of Appraisals  Probationary (60-90 days), six months and annually

17. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–17 Who Conducts Appraisals Supervisors who rate their employees Employees who rate their supervisors Team members who rate each other Employees’ rating themselves Outside sources rating employees Multisource (360° feedback) appraisal

18. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–18 Traditional Performance Appraisal Process Fig 9-5

19. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–19 Employee Rating of Managers Advantages  Helps in identifying competent managers  Serves to make managers more responsive to employees  Can contribute to the career development of managers Disadvantages  Negative reactions by managers to employee ratings  Subordinates’ fear of reprisals may inhibit them from giving realistic (negative) ratings  Ratings are useful only for self-improvement purposes

20. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–20 Team/Peer Rating Advantages  Helps improve the performance of lower-rated individuals  Peers have opportunity to observe other peers  Peer appraisals focus on individual contributions to teamwork and team performance Disadvantages  Can negatively affect working relationships  Can create difficulties for managers in determining individual performance  Organizational use of individual performance appraisals can hinder the development of teamwork

21. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–21 Multisource Appraisal Fig. 9-6

22. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–22 Methods for Appraising Performance Category Scaling Behavioural Rating Scales Comparative Methods Narrative Methods Results Based Methods Combination Methods

23. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–23 Category Scaling Methods Graphic Rating Scale  A scale that allows the rater to indicate an employee’s performance on a continuum of job behaviours.  Aspects of performance measured:  Descriptive categories, job duties, and behavioural dimensions  Drawbacks  Restrictions on the range of possible rater responses  Differences in the interpretations of the meanings of scale items and scale ranges by raters  Poorly designed scales that encourage rater errors  Rating form deficiencies limit effectiveness of the appraisal

24. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–24 Sample Performance Appraisal Form Fig. 9-7

25. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–25 Terms Defining Standards at One Company Fig. 9-8

26. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–26 Behavioural Rating Scales Behavioural Rating Approach  Assesses employees’ behaviours instead of other characteristics  Consists of a series of scales created by:  Identifying important job dimensions  Creating statements describing a range of desired and undesirable behaviours (anchors)  Behaviourally anchored rating scales (BARS)  Describes behaviours, differentiating between effective and ineffective performers that can be observed, and anchors them at points on a scale.  Employee’s behaviour is compared against examples and rated accordingly

27. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–27 Behaviourally-Anchored Rating Scale for Customer Service Skills Fig. 9-9

28. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–28 Comparative Methods Ranking  A listing of all employees from highest to lowest in performance.  Drawbacks  Does not show size of differences in performance between employees.  Implies that lowest-ranked employees are unsatisfactory performers.  Becomes an unwieldy process if the group to be ranked is large.

29. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–29 Comparative Methods (cont’d) Forced Distribution  Performance appraisal method in which ratings of employees are distributed along a bell-shaped curve.  Drawbacks  Assumes a normal distribution of performance.  Resistance by managers to placing individuals in the lowest or highest groups.  Providing explanation for placement in a higher or lower grouping can be difficult.  Is not readily applicable to small groups of employees.

30. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–30 Forced Distribution on a Bell-Shaped Curve Fig. 9-10

31. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–31 Narrative Methods Critical Incident  Manager keeps a written record of highly favourable and unfavourable employee actions.  Drawbacks  Variations in how managers define a “critical incident” Essay  Manager writes a short essay describing an employee’s performance.  Drawback  Depends on the managers’ writing skills and their ability to express themselves.

32. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–32 Results Based Methods Results Based Performance Appraisal System focuses on concrete standards of performance that employees are expected to achieve.  Management by Objectives  Specifies the performance goals that an individual and manager mutually identify.  Balanced Scorecard  Links the strategy, resource allocation and performance appraisal systems in an organization.  Expands on MBO by considering multiple segments of the organization from which to develop employee objectives.  Four key perspectives measure: financial, internal business process, customer and learning and growth.

33. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–33 The Management by Objectives (MBO) Process Job Review and Agreement Development of Performance Standards Objective Setting Continuing Performance Discussions

34. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–34 The Balance Scorecard Fig. 9-11.

35. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–35 Combination of Methods So what’s the best method?  No single appraisal method is best for all situations.  Using a combination of methods may be sensible in certain circumstances.  Using combinations may offset various advantages and disadvantages of individual methods.  When managers can articulate what they want a performance appraisal system to accomplish, they can choose and mix methods for desired results.  Different categories of employees might require different combinations of methods.

36. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–36 Training of Managers and Employees Appraisal Training Topics:  Appraisal process and timing  Performance criteria and job standards that should be considered  How to communicate positive and negative feedback  When and how to discuss training and development goals  Conducting and discussing the compensation review  How to avoid common rating errors

37. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–37 Common Rater Errors Fig. 9-12

38. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–38 Appraisal Feedback Appraisal Feedback Interview:  Communicate results to an employee after an appraisal interview  Provide employee with a clear understanding of how they stand in the eyes of immediate superiors and the organization  Clear up any misunderstandings on both sides  Focus on coaching and development  Avoid “Here is how you rate and why” message

39. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–39 Appraisal Interview Hints Fig. 9-13 DO  Prepare in advance  Focus on performance and development  Be specific about reasons for ratings  Decide on specific steps to be taken for improvement  Consider supervisor’s role in employee’s performance Reinforce desired behaviours Focus on future performance DON’T  Do all the talking  Lecture the employee  Mix performance appraisal and salary or promotion issues  Concentrate only on the negative  Be overly critical or “harp” on a failing  Feel it is necessary that both parties agree in all areas  Compare the employee with others

40. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–40 Appraisal Feedback Action Based on Evaluation DataData Evaluation of Data Feedback as a System

41. Copyright © 2008 by Nelson, a division of Thomson Canada Limited.9–41 Appraisal Feedback Effective Performance Management Systems  Consistent with the strategic mission of the organization  Beneficial as development tool  Useful as an administrative tool  Legal and job-related  Viewed as generally fair by employees  Effective in documenting employee performance