1. Fundamentals of Human Resource Management 2e
Gary Dessler

2. Performance and Talent Management
Chapter 7
• Basic Concepts in Performance Appraisal
• Appraisal Methods
• Dealing with Appraisal Problems and the
Appraisal Interview
• Performance Management
• Talent Management Practices and Employee
Appraisal

3. When you finish studying this chapter, you should be able to:
Explain the purpose of performance appraisal.
Answer the question, “Who should do the appraising?”
Discuss the pros and cons of at least eight performance appraisal methods.
Give examples of five potential appraisal problems.
When you finish studying this chapter, you should be able to:
Explain the purpose of performance appraisal.
Answer the question, “Who should do the appraising?”
Discuss the pros and cons of at least eight performance appraisal methods.
Give examples of five potential appraisal problems.

4. When you finish studying this chapter, you should be able to:
Explain how to conduct an appraisal feedback interview.
Explain how to install a performance management program.
Illustrate the effects of segmenting and actively managing a company’s talent.
Explain how to conduct an appraisal feedback interview.
Explain how to install a performance management program.
Illustrate the effects of segmenting and actively managing a company’s talent.

5. Basic Concepts in Performance Appraisal and Management
Evaluating an employee’s current and/or past performance relative to his or her performance standards
Performance appraisal, the evaluation of an employee’s current and/or past performance relative to his or her performance standards, plays a central role in human resource management.
It’s a difficult task for supervisors because employees tend to be overly optimistic about the outcome, and they know that their raises and careers hinge on your ratings.
Few appraisal processes are as fair and above-board as employers think. Hundreds of problems, such as bias and the tendency for supervisors to rate everyone “average,” undermine the process.

6. Performance Appraisal
Requires that supervisors set performance standards
Requires that the employee receives the training, feedback, and incentives needed to eliminate performance deficiencies
Effective appraisal requires that the supervisor set performance standards and that the employee receives the training, feedback, and incentives required to eliminate performance deficiencies.

7. The Three-Step Performance Appraisal Cycle: Figure 7.2
Here we see a summary of the three steps always involved in the performance appraisal cycle.
Setting goals and work standards
Assessing the employee’s actual performance relative to those goals and standards
Providing feedback and corrective action to help eliminate performance deficiencies or support to help the employee continue to perform above par

8. Why Appraise Performance?
Most employers still base pay, promotion, and retention decisions on the employee’s appraisal.
Appraisals play a central role in the employer’s performance management process.
An appraisal lets you and the subordinate develop a plan for correcting any deficiencies.
The five main reasons to appraise subordinates’ performance include:
Most employers still base pay, promotion, and retention decisions on the employee’s appraisal.
Appraisals play a central role in the employer’s performance management process, which continuously ensures that each employee’s performance aligns with the company’s overall goals.
An appraisal lets you and the subordinate develop a plan for correcting deficiencies and reinforcing what the subordinate does right.

9. Why Appraise Performance?
Appraisals provide an opportunity to review the employee’s career plans in light of his or her exhibited strengths and weaknesses.
Supervisors use appraisals to identify employees’ training and development needs.
Appraisals provide an opportunity to review the employee’s career plans in light of his or her exhibited strengths and weaknesses. Refer to the special career management module at the end of this book (pages 427–437) that discusses career issues in more detail.
Finally, supervisors use appraisals to identify an employees’ training and development needs to bridge any gaps between an employee’s performance and his or her standards.

10. Performance Management
The continuous process of identifying, measuring, and developing the performance of individuals and teams, and aligning their performance with the organization’s goals
Performance management is the continuous process of identifying, measuring, and developing the performance of individuals and teams, as well as aligning their performance with the organization’s goals.
Recognizing this, many employers today take a more continuous (and often automated) approach to the performance appraisal cycle.
For example, at Toyota Motor’s Lexington, Kentucky Camry plant, teams of employees monitor their own results, even posting individual daily performance metrics.
In frequent meetings, they continuously align those results with the work team’s standards and with the plant’s overall quality and productivity needs by continuously adjusting how they and their team members do things.
Team members who need coaching and training receive it, and procedures that need changing are changed.

11. Who Should Do the Appraising?
The supervisor is usually in the best position to observe and evaluate a subordinate’s performance.
The supervisor is usually in the best position to do the appraisal because he or she regularly observes and evaluates a subordinate’s performance and is responsible for that subordintate’s performance.
Note, however, that sole reliance on supervisors’ ratings is not always advisable, because an immediate supervisor may be biased for or against the employee.

12.    Peer Appraisal
Peer appraisals have a positive impact on improving perception of:
Open communication
Task motivation
Social loafing
Group viability
Cohesion
Satisfaction
With more firms using self-managing teams, appraisal of an employee by his or her peers—peer appraisal—is gaining popularity.
Typically, the employee due for appraisal chooses an appraisal chairperson, who then selects one supervisor and three peers to evaluate the employee’s work.

13. Rating Committee
Composed of immediate supervisor and three or four other supervisors
Can help cancel out problems such as bias on the part of individual raters
Can include the different facets of an employee’s performance observed by different appraisers
Some companies use rating committees, usually composed of the employee’s immediate supervisor and three or four other supervisors.
This approach can:
Eliminate bias on the part of individual raters
Provide a way to appraise the different facets of an employee’s performance as observed by different appraisers, because ratings obtained from different sources rarely match. At a minimum, most employers require that the supervisor’s boss sign off on any appraisals the supervisor does.

14. Self-Ratings  
One problem with self-ratings is that employees usually rate themselves higher than their supervisors or peers would rate them.
40% of employees in jobs of all types placed themselves in the top 10%.
Some employers obtain employees’ self-ratings, usually in conjunction with supervisors’ ratings.
The problem is that employees usually rate themselves higher than their supervisors or peers do.
One study shows that 40% of employees in jobs of all types placed themselves in the top 10%, and virtually all remaining employees rated themselves at least in the top 50%.
However, averaging the employee’s supervisor, peer, and subordinate ratings predicts the subjects’ assessment center performance, based on a complex appraisal method.

15. Appraisal by Subordinates
Upward feedback
Subordinates evaluate their supervisors’ performance
Usually for developmental rather than pay purposes
Many employers have subordinates rate their managers, usually for developmental rather than for pay purposes.
This upward feedback can improve a manager’s performance, and managers who met with their subordinates to discuss their upward feedback improved more than managers who did not.

16. 360-Degree Feedback  
Performance information is collected from supervisors, subordinates, peers, and internal/external customers
More candid when subordinates know rewards or promotions are not involved
With 360-degree feedback, the employer collects performance information from the employee’s supervisors, subordinates, peers, and internal or external customers—generally for developmental rather than pay purposes.
Usually the raters complete online appraisal surveys, and subordinates are more candid when they know that promotions are not involved.

17. Online 360-Degree Feedback: Figure 7.3
Here we see how a computerized system compiles multiple feedback into individualized reports and delivers the reports to those rated.

18. Improving 360-Degree Appraisals
Anchor the 360-degree rating dimensions with specific behavioral examples
Carefully train the people who are giving and receiving the feedback
Make sure that the feedback the employee receives is productive, unbiased, and development oriented
Use a web-based system to reduce administrative costs
Let’s look at several ways to make 360-degree appraisals more effective:
Anchor the 360-degree rating dimensions (such as “conflict management”) with specific behavioral examples (such as “effectively deals with conflicts”)
Carefully train the people who give and receive the feedback
Make sure that the feedback the employee receives is productive, unbiased, and development oriented
Reduce administrative costs by using an easy-to-use web-based system, such as the one we saw in the previous slide

19. Basic Appraisal Methods
Graphic Rating Scale
Alternation Ranking Method
Paired Comparison Method
Forced Distribution Method
Critical Incident Method
BARS
Management by Objectives
The manager usually conducts the actual appraisal using one or more of the formal methods seen here, which we will discuss in more detail in the following slides.
The Graphic Rating Scale Method lists a number of traits and a range of performance standards for each.
The Alternation Ranking Method specifies the employee who is highest on the trait being measured and the employee who is the lowest, and then ranks all the employees in between.
With the Paired Comparison Method, every subordinate to be rated is paired with and compared to every other subordinate on each trait.
The Forced Distribution Method places predetermined percentages of subordinates in performance categories, as if “grading on a curve.”
The Critical Incident Method involves keeping an anecdotal record of good or undesirable examples of an employee’s work-related behavior.
A Behaviorally Anchored Rating Scale (BARS) combines critical incidents with quantitative ratings by anchoring a quantified scale with specific narrative examples of good and poor performance.
The Management by Objectives Method (MBO) refers to a multistep appraisal program that requires the manager to set specific, measurable, organizationally relevant goals with each employee, and discuss progress.

20. Appraisal Methods Graphic Rating Scale
Lists a number of traits and a range of performance for each.
The supervisor rates each subordinate by circling or checking the score that best describes the subordinate’s performance for each trait, and then totals the scores for all traits.
A Graphic Rating Scale lists a number of traits and a range of performance for each.
The supervisor rates each subordinate by circling or checking the score that best describes the subordinate’s performance for each trait, and then totals the scores for all traits.

21. Sample Graphic Rating Form with Behavioral Examples: Figure 7.4
Here we see a typical scale that lists traits (such as “teamwork”) and a range of performance standards (such as “Below Expectations,” “Meets Expectations,” and “Role Model”) for each trait.

22. Appraisal Methods Alternation Ranking Method
Ranking employees from best to worst on a trait
Alternates between highest and lowest until all employees to be rated have been addressed
Ranking employees from best to worst on a trait or traits is another popular appraisal method.
With this method, the supervisor specifies the employee who is highest on the trait being measured and also the one who is the lowest, and then alternates between highest and lowest until all employees to be rated have been ranked.

23. Alternation Ranking Method: Figure 7.5
A supervisor uses a form like the Alternation Ranking Scale sheet we see here to specify the employee who is highest on the trait being measured, the one who is the lowest, and then ranks the rest of the employees to be appraised in between.

24. Appraisal Methods Paired Comparison Method
Every subordinate to be rated is paired with and compared to every other subordinate on each trait
With the Paired Comparison Method, every subordinate to be rated is paired with and compared to every other subordinate on each trait.
Let’s look next at how a manager might set up a pair comparison chart.

25. Paired Comparison Method: Figure 7.6
If five employees need to be rated, their manager can use a chart like the one seen here to display all the possible pairs of employees for each trait being measured. The supervisor indicates, with a plus or minus sign, who is the better employee of the pair.
Next, the number of times an employee is rated better is added up. So, in this example, Maria ranked highest (that is, she has the most plus marks) for “quality of work,” and Art ranked highest for “creativity.”

26. Appraisal Methods Forced Distribution Method
Manager places predetermined percentages of subordinates in performance categories
Prevents supervisors from leniently rating most employees “satisfactory”
Makes top and bottom performers stand out
With the Forced Distribution Method, the manager places predetermined percentages of subordinates in performance categories, like a professor might “grade on a curve.”
About 25% of Fortune 500 companies, including Sun, Microsoft, Conoco, and Intel, use forced distribution because:
It prevents supervisors from leniently rating most employees “satisfactory,” and
It makes top and bottom performers stand out.

27. Forced Distribution Method
At Sun Microsystems, managers appraise employees in groups of about 30.
There is a top 20%, a middle 70%, and a bottom 10%.
The bottom 10% can either take a quick exit package or embark on a 90-day performance improvement action plan.
For many years, managers at Sun Microsystems (now owned by Oracle Corporation) appraised employees in groups of about 30.
There was a top 20%, a middle 70%, and a bottom 10%.
The bottom 10% could either take a quick exit package or embark on a 90-day performance improvement plan.
- If the improvement plan didn’t work, employees got a chance to resign and take severance pay. If they stayed and didn’t improve, they were fired without severance.
GE, which first popularized forced ranking, no longer strictly adheres to its famous 20/70/10 split, and tells managers to use common sense in assigning rankings.

28. Appraisal Methods Critical Incident Method
Keeping an anecdotal record of uncommonly good or undesirable examples of an employee’s work-related behavior, and reviewing it with the employee at predetermined times
The Critical Incident Method entails keeping an anecdotal record of good or undesirable examples of an employee’s work-related behavior to review with the employee at predetermined times.
Employers often compile such incidents to supplement a rating or ranking method, because it provides concrete examples of what subordinates can specifically do to eliminate any performance deficiencies, and offers opportunities for mid-year corrections if required.

29. Appraisal Methods Behaviorally Anchored Rating Scale
Combines the benefits of narrative critical incidents and quantitative ratings by anchoring a quantified scale with specific narrative examples of good and poor performance
A Behaviorally Anchored Rating Scale (BARS) combines the benefits of critical incidents and quantitative ratings by anchoring a quantified scale with specific narrative examples of good and poor performance, which psychologists refer to as “behavioral competencies.”

30. Behaviorally Anchored Rating Scale: Figure 7.7
Here we see an example of a BARS.
It shows the behaviorally anchored rating scale for the trait “salesmanship skills,” used to appraise a car salesperson.
Note how the various performance levels, from 10 (high) to 1 (low), are anchored with the employee’s specific behavioral examples.

31. Management by Objectives
Management by Objectives (MBO)
Requires the manager to set measurable goals with each employee and then periodically discuss progress toward these goals
Management by Objectives (MBO) usually refers to a multistep, companywide goal-setting and appraisal program, which requires the manager to set specific, measurable, organizationally relevant goals with each employee, and then to periodically discuss the employee’s progress toward these goals.

32. MBO Set the organization’s goals Set departmental goals
Discuss departmental goals
Define expected results
Conduct performance reviews and measure the results
Provide feedback
The steps of the MBO appraisal are:
1. Set the organization’s plan and set goals for the next year.
2. Department heads and their superiors jointly set departmental goals.
3. Department managers discuss departmental goals with their subordinates, ask how each employee can help the department attain its goals, and request the employees to develop their own individual goals.
4. Department heads and their subordinates define expected results by setting short-term performance targets for each employee.
5. Department managers conduct performance reviews to compare each employee’s actual and expected results.
6. Department heads provide feedback through periodic performance review meetings with subordinates, and make plans for rectifying or continuing each employee’s performance.

33. Online Appraisal Tool: Figure 7.8
Here we see an example of an online appraisal tool, the eAppraisal system from Halogen Software.

34. Electronic Performance Monitoring
Electronic Performance Monitoring (EPM)
Uses computer technology to allow managers to monitor their employees’ rate, accuracy, and time spent working online or just on their computers
Electronic Performance Monitoring (EPM) systems use computer technology to let managers monitor their employees’ rate, accuracy, and time spent working online or just on their computers.
EPM can improve productivity, as seen when monitored subjects keyed in more data entries than unmonitored participants of the same high skill level. However, EPM seems to raise employee stress and may cause low-skilled but highly monitored participants to do more poorly than unmonitored subjects of the same skill level.

35. Selected Best Practices for Fair Performance Appraisals: Figure 7.9
Here we see a summary of some of the best practices for administering fair performance appraisals.

36. Dealing with Appraisal Problems
Ensure fairness
Clarify standards
Avoid halo effect ratings
Avoid the middle
Don’t be lenient or strict
Avoid bias
Rating employee performance is difficult at best, but it’s even more problematic when structural problems (such as unfairness) can cast doubt on the process.
Here we see six appraisal problems that can be avoided; let’s start with the first.
To ensure fairness, the subordinate must view the appraisal as fair. Employees’ standards should be clear, they should understand the basis on which the appraiser going to appraise them, and the appraisals should be objective and fair.
Figure 7.9 on p. 201 summarizes some best practices for administering fair performance appraisals.

37. Unclear Standards
The rating scale seen here would probably result in unfair appraisals because the traits and degrees of merit are too open to interpretation.
The best way to resolve this problem is to clarify the standards by developing and including descriptive phrases that define each trait and degree of merit.

38. Common Appraisal Problems
Halo effect
The rating of a subordinate on one trait influences the way you rate the subordinate on other traits
Central tendency
The tendency to rate all employees about average
Leniency or strictness 
Rating all subordinates consistently high or low
Supervisors should avoid the halo effect, which means that the rating given to a subordinate on one trait (such as “gets along with others”) influences the subordinate’s ratings on other traits (such as “quantity of work”).
The central tendency problem is the inclination to rate all employees as being about average. For example, if the rating scale ranges from 1 to 7, a supervisor may tend to avoid the highs (6 and 7) and lows (1 and 2). But by rating most employees between 3 and 5, evaluations are less useful for promotion, salary, and counseling purposes. Using a graphic rating scale can eliminate this problem.
The strictness/leniency issue means that supervisors tend to rate all their subordinates consistently high or low, which can be resolved by ranking subordinates to distinguish between high and low performers.

39. Important Similarities, Differences, and Advantages and Disadvantages of Appraisal Tools: Table 7.1
Here we see a summary of how the most popular appraisal methods rate in addressing the problems we just discussed.

40. Legally Defensible Appraisals
Performance appraisals affect raises, promotions, training opportunities, and other HR actions.
If the manager is inept or biased in making the appraisal, how can any promotion decisions stemming from that appraisal be defended?
The HR in Practice feature, seen here and on p. 203, summarizes several steps to make appraisals legally defensible.

41. Handling the Appraisal Interview
Supervisor and subordinate review the appraisal and formulate plans to remedy deficiencies and reinforce strengths.
A performance appraisal usually culminates in an appraisal interview, when the supervisor and the subordinate discuss the appraisal and formulate plans to remedy deficiencies and reinforce strengths.

42. Preparing for the Appraisal Interview
Give the subordinate at least a week’s notice to review his or her work
Compare the employee’s performance to his or her standards
Find a private area for the interview
Find a mutually agreeable time for the interview and leave enough time
The following four steps will help you prepare for the appraisal interview:
Give the subordinate at least a week’s notice to review his or her work and to compile questions and comments.
Compare the employee’s performance to his or her standards, and review his or her previous appraisals.
Find a private area for the interview.
Set a mutually agreeable time for the interview and leave enough time—perhaps a half-hour for lower-level personnel, such as clerical workers, and an hour or so for management employees.

43. Conducting the Interview
Talk in terms of objective work data
Get agreement before the subordinate leaves on how things will improve and in what time frame
Ensure that the process is fair
Know how to deal with defensiveness
Here are some tips for conducting a successful appraisal interview:
The interview aims to reinforce satisfactory performance or diagnose and improve unsatisfactory performance. So be direct, specific, and talk in terms of objective work data.
Before the subordinate leaves, get agreement on an action plan for what will improve and in what time frame. If a formal written warning is required, it should identify the standards under which the employee is judged, clarify that the employee knew of the standard, specify any violation, and show that the employee had an opportunity to correct his or her behavior.
Ensure that the appraisal process is fair by letting employees participate and by listening to their opinions.
Be prepared to deal with defensiveness.

44. Performance Management vs. Performance Appraisal
Performance management means continuous, daily, or weekly interactions and feedback to ensure continuous improvement.
Performance management is always goal-directed.
Performance management means continuously re-evaluating and (if need be) modifying how the employee and team get their work done.
Three main things distinguish performance management from performance appraisal.
Performance management means continuous, daily, or weekly interactions and feedback to ensure continuous improvement—not a once- or twice-yearly discussion.
Performance management is always goal-directed, which involves comparing the employee’s or team’s performance against goals that specifically stem from and link to the company’s strategic goals.
Performance management means continuously re-evaluating and, if needed, modifying how the employee and team get their work done.

45. Performance Management’s Basic Elements
Direction sharing
Goal alignment
Ongoing performance monitoring
Ongoing feedback
Coaching and developmental support
Recognition and rewards
Performance management has six basic elements, as shown here:
Direction sharing means communicating the company’s goals throughout the company and translating them into achievable departmental, team, and individual goals.
Goal alignment involves having a method that enables managers and employees to see the link between the employees’ goals and those of their department and company.
Ongoing performance monitoring usually includes using computerized systems that measure and then progress and exception reports based on the employee’s progress toward meeting performance goals.
Ongoing feedback includes both face-to-face and computerized feedback regarding progress toward goals.
Coaching and developmental support should be an integral part of the feedback process.
Recognition and rewards provide the consequences needed to keep the employee’s goal-directed performance on track.

46. Using Information Technology to Support Performance Management
Assign financial and nonfinancial goals
Inform all employees of their goals
Use IT-supported tools
Take corrective action before things swing out of control
In many production facilities, performance management is a simple daily meeting of work teams to review their performance and align their efforts.
On the other hand, information technology can support the performance management process as follows:
Assign financial and nonfinancial goals to each team’s activities along the strategy map chain of activities to the company’s overall strategic goals.
Inform all employees of their goals.
Use IT-supported tools, like scorecard software and digital dashboards, to continuously display, monitor, and assess each team’s and employee’s performance.
Help managers to take corrective action early.

47. Talent Management Talent management
The goal-oriented and integrated process of planning, recruiting, developing, managing, and compensating employees
In Chapter 4, we defined talent management as the goal-oriented and integrated process of planning, recruiting, developing, appraising, and compensating employees—which differs from traditional HR practices.
Next, let’s look at how one way of managing talent by focusing attention and resources on the company’s mission-critical employees, those who are essential to the firm’s strategic needs.

48. Accenture’s Strategic Role Assessment Matrix
Here we see how Accenture—a management consulting, technology, and outsourcing firm—uses a Strategic Role Assessment matrix to plot employees by Performance (exceptional, high, medium, low) and Value to the Organization (mission-critical, core, necessary, nonessential).
The company then ties pay, development, dismissal, and other personnel decisions to each employee’s position in the matrix.

49. Copyright
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.