McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Performance Appraisals Chapter 11

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved You can’t manage what you don’t understand. You don’t understand what you don’t measure. What gets measured gets done. What gets measured gets rewarded. Nature of Performance Appraisals

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Steps to Improve Performance Appraisal Process  Recognize part of performance is influenced more by work environment and systems than by employee behaviors  Identify strategies to understand and measure job performance better

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Exhibit 11.1: Common Errors in Appraisal Process Halo error Horn error First impression error Recency error Leniency error Severity error Central tendency error Clone error Spillover error

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Strategies to Better Understand and Measure Job Performance 1 1 Clearly define job performance 2 2 Recognize definition of performance and its components is expanding 3 3 Improve appraisal formats 4 4 Select the right raters 5 5 Understand way raters process information and mistakes that may be made 6 6 Train raters to improve rating skills

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Categories of Appraisal Formats Ranking - Rater compares employees against each other Rating - Rater evaluates employees on some absolute standard (measured on a continuum scale) Essay - Rater answers open- ended questions in essay form describing employee performance Categories

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Ranking Formats  Straight ranking  Alternation ranking  Paired-comparison ranking  Examples - Exhibit 11.3

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Rating Formats  Two common elements  Raters evaluate employees on some absolute standard  Each standard is measured on a scale - performance variation is described along a continuum  Types of descriptors  Adjectives - Exhibit 11.4  Behaviors - Exhibits & 11.6  Outcomes - Exhibits & 11.8

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Exhibit 11.9: Usage of Performance Evaluation Formats

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Exhibit 11.10: An Evaluation of Performance Appraisal Formats Format Standard Rating Scale BARs MBO Essay Ranking Administration average good poor Personnel Research average good poor average Cost good poor average good Validity good average excellent unknown average good excellent unknown poor Employee Development CRITERIA

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Training Raters to Rate More Accurately  Rater-error training  Goal is to reduce psychometric errors by familiarizing raters with their existence  Performance dimension training  Exposes supervisors to performance dimensions used  Performance-standard training  Provides raters with a standard or frame of reference for making appraisal

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Need a sound basis for establishing performance appraisal dimensions and scales associated with each dimension 2 2 Need to involve employees in every stage of developing performance dimensions and building scales 3 3 Need to ensure raters are trained in use of appraisal system and that all employees understand how system operates 4 4 Need to ensure raters are motivated to rate accurately 5 5 Raters should maintain a diary of employee performance 6 6 Raters should attempt a performance diagnosis to determine if performance problems exist 7 7 Appraisal process should follow guidelines in Exhibit Key elements making for a good outcome Putting it All Together: The Performance Evaluation Process

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Tips on Appraising Employee Performance 1 1 Establish clear sense of direction 2 2 Provide opportunity for employees to participate in setting goals and standards for performance 3 3 Provide prompt, honest, and meaningful feedback 4 4 Allow for immediate and sincere reinforcement 5 5 Provide coaching and suggestions for improving future performance 6 6 Provide fair and respectful treatment 7 7 Allow an opportunity for employees to understand and influence decisions which effect them

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved EEO and Performance Evaluation 1 1 Provide specific written instructions on how to complete appraisal 2 2 Incorporate clear criteria for evaluating performance - Performance dimensions should be written, objective, and clear 3 3 Provide a rational foundation for personnel decisions via adequately developed job descriptions 4 4 Require supervisors to provide feedback about appraisal results to employees 5 5 Incorporate a review of performance ratings by higher level supervisors 6 6 Consistent treatment across raters, regardless of race, color, religion, sex, and national origin should be evident Key Issues: Establishing a Performance Appraisal System

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Tying Pay to Subjectively Appraised Performance How do we get employees to view raises as a reward for performance? Central issue involving merit pay

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved  Provide equal increases to all employees regardless of performance  General increase  Cost-of-living adjustments  Pay increases based on a preset progression pattern based on seniority Pay Increase Guidelines with Low Motivational Impact

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Requirements to Link Pay to Performance  Define performance  Behaviors  Competencies  Traits  Specify a continuum describing different levels from low to high on performance measure  Decide how much of a merit increase is given for different levels of performance  Exhibit 11.12: Performance-based Guideline  Exhibit 11.13: Performance Rating Salary Increase Matrix

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved  Define performance  Behaviors  Competencies  Traits  Specify a continuum describing different levels from low to high on performance measure  Decide how much of a merit increase is given for different levels of performance  Exhibit 11.12: Performance-based Guidelines  Exhibit 11.13: Performance Rating Salary Increase Matrix Requirements to Link Pay to Performance

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Exhibit 11.12: Performance-based Guidelines

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Designing Merit Guidelines 1 1 What should the poorest performer be paid as an increase? 2 2 How much should average performers be paid as an increase? 3 3 How much should top performers be paid? 4 4 What should be the size of the percentage increase differential between different levels of performance? Four Questions...

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Merit grids combine 3 variables:  Level of performance  Distribution of employees within their jobs’ pay ranges  Merit budget increase percentage Merit grids combine 3 variables:  Level of performance  Distribution of employees within their jobs’ pay ranges  Merit budget increase percentage Exhibit 11.14: Merit Pay Grid

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved Promotional Increases as a Pay-for-Performance Tool  Promotion should be accompanied by a salary increase - 8 to 12%  Characteristics of promotional pay increases  Size of increment is approximately double a normal merit increase  Represent a reward to employees for commitment and exemplary performance