Performance Management and Copyright © 2015 Pearson Education, Inc.

Performance Management and Copyright © 2015 Pearson Education, Inc.
9 Performance Management and Appraisal This chapter gives an overview of the performance appraisal process and the different tools and methods available. The main topics covered include the performance management process, appraisal methods, appraisal performance problems and solutions, and the appraisal interview. Despite lots of attention, money, and effort, performance appraisals remain an area with which few managers or employees are satisfied. The following questions are worth considering with respect to why some managers and employees are dissatisfied. Is it just that we don't have a good enough system yet? Is there an intrinsic problem with performance appraisals? Is it just human nature to dislike them? Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.
Learning Objectives Describe the appraisal process. Define performance management and discuss how it differs from performance appraisal. Develop, evaluate, and administer at least four performance appraisal tools. After studying this chapter, you will be able to: 1. Describe the appraisal process. 2. Define performance management and discuss how it differs from performance appraisal 3. Develop, evaluate, and administer at least four performance appraisal tools. Copyright © 2015 Pearson Education, Inc.

Learning Objectives Explain and illustrate the problems to avoid in appraising performance. Perform an effective appraisal interview. Explain how to “segment” employees for appraisal and reward purposes. After studying this chapter, you will be able to: 4. Explain and illustrate the problems to avoid in appraising performance. 5. Perform an effective appraisal interview. 6. Explain how to “segment” employees for appraisal and reward purposes. Copyright © 2015 Pearson Education, Inc.

Describe the appraisal process.
For this learning objective, we will discuss the need to have a performance appraisal process, provide continuous feedback and how to manage performance. Effective appraisals begin before the actual appraisal, with the manager defining the employee’s job and performance criteria. Defining the job means making sure that you and your subordinate agree on his or her duties and job standards and on the appraisal method you will use. Copyright © 2015 Pearson Education, Inc.

The Basics of Performance Management and Appraisal
The performance appraisal process steps Sets work standards Assesses performance Provides feedback to the employee Figure 9-1 sample evaluation survey Performance appraisal means evaluating an employee’s current and/or past performance relative to his or her performance standards. You may equate appraisal forms like Figure 9-1 with “performance appraisal,” but appraisal involves more than forms. Many employers still base pay and promotions on employee appraisals. Appraisals play an integral role in the employer's performance management process. The appraisal lets the boss and subordinate develop a plan for correcting any deficiencies while reinforcing those things the employee does correctly. Appraisals are a useful career planning tool. Copyright © 2015 Pearson Education, Inc.

Performance Management and Appraisal
Five reasons: Used for pay, promotion, and retention decisions Links performance management to company goals The manager can correct deficiencies and reinforce strengths With appraisals employee’s can review career plans Training needs are identified Aligning the employee’s efforts with the job’s standards should be a continuous process. When you see a performance problem, the time to take action is immediately. Similarly, when someone does something well, the best reinforcement comes immediately, not six months later. Performance management includes continuously adjusting how an organization and its team members do things. Team members who need coaching and training receive it, and procedures that need changing are changed. We have briefly discussed the process of appraising performance results the steps and the need to do so. Copyright © 2015 Pearson Education, Inc.

Review Pay and promotions Planning Career planning Training and development Ongoing feedback Teamwork and change Employers frequently use appraisals as a base for pay and promotions. Improvement and career development planning also originate with an effective appraisal system. In addition, training and development activities are based on the appraisal system. Finally, providing continuous feedback and making improvements to how employees and employers do things contributes to organizational goals and success. Copyright © 2015 Pearson Education, Inc.

Define performance management and discuss how it differs from performance appraisal. Performance management has to do with creating an organizational system that is fair, effective, and widely understood by all. The goal of the system is to support the strategic aims of the firm by establishing a valid and reliable process connecting the employees to it. Performance appraisal involves: setting work standards, assessing actual performance relative to those standards, and providing feedback to the employee. Copyright © 2015 Pearson Education, Inc.

Performance Management Copyright © 2015 Pearson Education, Inc.
Performance management definition The continuous process of: Identifying Measuring Developing performance of individuals and teams Aligning performance with the organization’s goals Performance management involves defining, measuring, motivating, and developing the employee’s goal-oriented performance on a continuing basis. Copyright © 2015 Pearson Education, Inc.

Performance Management Copyright © 2015 Pearson Education, Inc.
Six Elements Direction sharing Goal alignment Ongoing performance monitoring Ongoing feedback Coaching and developmental support Recognition and rewards Performance management’s six basic elements as follows: ● Direction sharing means communicating the company’s goals throughout the company and then translating these into doable departmental, team, and individual goals. ● Goal alignment means having a method to help managers and employees to see the link between their 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 person’s progress toward meeting his or her 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 keep the employee’s goal-directed performance on track. Copyright © 2015 Pearson Education, Inc.

Information Technology Supports Performance Management
Assign financial and nonfinancial goals Inform all employees of their goals Use IT-supported scorecard software Continuously take corrective action Many companies use information technology to automate performance management and to monitor feedback, and correct deviations in real time. ●Assign financial and nonfinancial goals to each team’s activities along the strategy map chain of activities leading from the team’s activities up to the company’s overall strategic goals. (For example, an airline measures ground crew aircraft turnaround time in terms of “improve turnaround time from an average of 30 minutes per plane to 26 minutes per plane this year.”) ● 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. (We discussed these in Chapter 3, Human Resource Management Strategy and Analysis.) Figure 9-2 Presents an employee’s online performance management report. ● Take corrective action on a continuous basis. At the Hotel Paris, both Lisa and the firm’s CFO were concerned by the current disconnect between (1) what the current appraisal process was focusing on and (2) what the company wanted to accomplish in terms of its strategic goals. They wanted the firm’s new performance management system to help breathe life into the firm’s strategic performance. To see what they did, read the case on pages 288–289 of this chapter. Copyright © 2015 Pearson Education, Inc.

IMPROVING PERFORMANCE: HR Practices Around the Globe
GDAS makes products for the military, industrial, and commercial markets Use scorecard reporting system Team Divisional Performance Management at General Dynamics Armament Systems (GDAS) GDAS uses multiple Scorecards to display performance metrics, such as for team and for divisional performance. The Scorecards allow GDAS to maintain all of its crucial performance data in one system so managers can easily access the information anytime via the Intranet. The Scorecards provide GDAS with approximately 450 performance reports and charts. To produce these charts manually would require 13 full-time employees. Instead, the Performance Measures Reporting System, at a cost of $1 million, generates the reports and charts automatically. Discussion Question: Describe three examples of scorecard displays GDAS might show on their performance management system’s digital dashboard-type display. Copyright © 2015 Pearson Education, Inc.

Defining the Employee’s Goals and Performance Standards
Manager assess: Attaining numerical goals Meeting quality and quantity criteria Mastering competencies Managers goals are SMART: Specific Measurable Attainable Relevant Timely Both performance appraisal and performance management function by comparing “what should be” with “what is.” Managers use one or more of three bases—goals, job dimensions, and competencies—to establish ahead of time what the employees' end results “should be.” Whichever you use, remember that employees need and expect to know ahead of time on what basis their managers will appraise them. Employees appraised as having the requisite level of each skill are qualified to fill the position. Copyright © 2015 Pearson Education, Inc.

IMPROVING PERFORMANCE: Copyright © 2015 Pearson Education, Inc.
HR as a Profit Center Ball Corporation supplies packaging to manufacturers worldwide Trained plant leaders on: How to set performance goals Track daily goal attainment Use scorecards Setting Performance Goals at Ball Corporation Plant employees received special coaching and training to ensure they had the skills required for achieving the goals. According to management, within 12 months the plant increased production by 84 million cans, reduced customer complaints by 50%, and obtained a return-on-investment of more than $3 million. Discussion Question: Explain what performance management behaviors the Ball program included. Copyright © 2015 Pearson Education, Inc.

IMPROVING PERFORMANCE: HR Tools for Line Managers and Entrepreneurs
1. Should a manager tell employees what their goals are or let them participate in setting the goals? 2. Write a short paragraph that addresses the question: “Why is it not a good idea to simply tell employees to ‘do their best’ when assigning a task?” How to Set Effective Goals 1. Assign specific goals. Employees who receive specific goals usually perform better than those who do not. 2. Assign measurable goals. Put goals in quantitative terms and include target dates or deadlines. If measurable results will not be available, then “satisfactory completion”—such as “satisfactorily attended workshop”—is the next best thing. 3. Assign challenging but doable goals. Goals should be challenging, but not so difficult that they appear unrealistic. 4. Encourage participation. Managers often face this question: Should I tell my employees what their goals are, or let them participate with me in setting their goals? The evidence suggests that participatively set goals do not consistently result in higher performance than assigned goals, nor do assigned goals consistently result in higher performance than participative ones. It is only when the participatively set goals are set higher than the assigned ones that the participatively set goals produce higher performance. Because it tends to be easier to set higher standards when your employees participate, participation tends to lead to improved performance. Copyright © 2015 Pearson Education, Inc.

Who Should Do the Appraising? Copyright © 2015 Pearson Education, Inc.
Peer appraisals Rating committees Self-ratings Appraisal by subordinates 360-degree feedback Who should do the appraising? The immediate supervisor is usually in the best position to observe and evaluate the subordinate’s performance. He or she also is typically responsible for that person’s performance. Peer appraisals are becoming more popular with firms using self-managing teams. Rating committees consist of multiple raters, typically the employee’s immediate supervisor and three or four other supervisors. Self-ratings tend to be higher than supervisor or peer ratings although input from the subordinate is always to be encouraged. Appraisal by subordinates is also known as upward feedback. In this instance, subordinates anonymously rate their supervisor’s performance. FIGURE 9-3 Online 360-Degree Feedback 360-degree feedback has become more widely used. Ratings are collected from the employee’s supervisors, subordinates, peers, and occasionally, internal or external customers. The best advice is that firms should carefully assess costs, train those giving feedback thoroughly, and not rely solely on 360-degree feedback. Copyright © 2015 Pearson Education, Inc.

Review Performance management’s definition The six basic elements Improving performance examples Use IT to automate performance management Performance standards SMART goals We discussed Performance management’s definition and the six basic elements. Many companies use information technology to automate performance management and to monitor, feedback, and correct deviations in real time. We reviewed the company specific Improving Performance examples. We also discussed SMART goals that managers use with performance appraisals. Lastly, we discussed who should do the appraisal. Copyright © 2015 Pearson Education, Inc.

Techniques for Appraising Performance
Graphic rating scale method What to rate? The graphic rating scale method is the simplest and most popular performance appraisal technique. First, a scale is used to list a number of traits and a range of performance for each. Then the employee is rated by identifying the score that best describes his/her performance level for each trait. Managers must decide which job performance aspects to measure. Such aspects include generic dimensions, actual job duties, or behaviorally recognizable competencies. Copyright © 2015 Pearson Education, Inc.

Performance Appraisal Tools Copyright © 2015 Pearson Education, Inc.
Alternation ranking Paired comparison Forced distribution Critical incident Narrative forms Behaviorally Anchored Rating Scales (BARS) The Alternation Ranking Method ranks employees from best to worst on a specific trait, choosing highest, then lowest, until all are ranked. The Paired Comparison Method involves ranking employees by making a chart of all possible pairs of employees for each trait. The manager then indicates which one is the better employee of the pair. Forced Distribution Method – Predetermined percentages of employee ratings are placed in various performance categories, similar to grading on a curve. Critical Incident Method – A supervisor keeps a record of uncommonly good and/or undesirable examples of an employee’s work-related behavior. The supervisor then reviews the record with the employee at predetermined times. The Narrative Forms method involves rating the employee’s performance for each performance factor needed on the job. Written examples and an improvement plan is provided. The process then aids the employee in understanding where his/her performance was good or bad focusing on problem solving. Behaviorally Anchored Rating Scales (BARS) is a method that combines the benefits of narratives, critical incidents, and quantified scales. It does so by anchoring a scale with specific behavioral examples of good or poor performance. The advantages of BARS include accuracy, clearer standards, feedback, independent dimensions, and consistency. Copyright © 2015 Pearson Education, Inc.

Performance Appraisal Tools Copyright © 2015 Pearson Education, Inc.
Mixed standard scales Management by objectives (MBO) Computerized and web-based performance appraisal Electronic performance monitoring (EPM) Conversation Days Using Multiple Methods Mixed Standard Scales are similar to BARS but generally list just three behavioral examples or standards for each of the three performance dimensions. Management by Objectives (MBO) – The manager sets specific measurable goals with each employee and then periodically discusses the employee’s progress toward them. The process consists of six steps: set organizational goals set departmental goals discuss define expected results conduct performance reviews provide feedback Having a conversation is focused on stretched goals and career interests there are no ratings. Rating forms often merge multiple methods. Copyright © 2015 Pearson Education, Inc.

Review Alternation Pairs Distribution Incidents Narratives BARS Scales MBO Computerized EPM For this learning objective, we have discussed various ranking and rating approaches. The alternation ranking requires managers to rank employees from high to low while paired comparisons examines employees one pair at a time. Forced distribution is similar to grading on a curve while critical incidents require managers to keep detailed notes throughout the year on each person’s critical behaviors. A narrative is similar to critical incidents in that it requires him or her to keep ongoing notes but in narrative format. Copyright © 2015 Pearson Education, Inc.

Explain and illustrate the problems to avoid in appraising performance. Understanding problems to avoid gives managers guidance when its time to appraise their subordinates’ performance. We now turn to appraisal problems and how to solve them, and to several other appraisal issues. Copyright © 2015 Pearson Education, Inc.

Dealing with Appraisal Problems and Interviews
Potential appraisal problems Unclear standards Halo effect Central tendency Leniency or strictness Recency effects Bias If standards are unclear, ambiguous traits and degrees of merit can result in an unfair appraisal. The influence of a rater’s general impression on ratings of specific qualities is known as the halo effect. Central tendency occurs when supervisors stick to the middle of the rating scales, thus rating everyone average. Leniency or strictness occurs if supervisors have a tendency to rate everyone either high or low. Recency effects involve letting what the employee has done recently blind the manager to the employee’s performance over the entire year. Bias is a tendency to allow individual differences such as age, race, and sex affect employee appraisal ratings. Copyright © 2015 Pearson Education, Inc.

Guidelines for Effective Appraisals
Know the problems Use the right tool Keep a diary Get agreement on a plan Ensure fairness Appraisals and the law See TABLE 9-3 Important Advantages and Disadvantages of Appraisal Tools See FIGURE 9-12 Check list of Best Practices for Administering Fair Performance Appraisals Appraisals can be more effective by following these five guidelines: Know the problem Use the right appraisal tool Keep a diary Get agreement on a plan Be fair The courts have found that inadequate appraisal systems tend to be at the root of illegal discriminatory actions. In addition to being done legally, appraisals should be handled ethically and honestly. Copyright © 2015 Pearson Education, Inc.

Review Unclear Standards Central Tendency Halo Effect Recency Effect Bias Leniency/ Strictness For this learning objective, we have covered various problems to avoid while appraising performance. These include the halo effect, bias, the effect of recency, the impact of leniency or strictness, unclear standards, and the impact of central tendency. Copyright © 2015 Pearson Education, Inc.

Review Problems Tools Records Fairness Legal Ethics For this learning objective, the best advice is to use common sense. Find out the real problem and use the right tool to address it. Keep a record, agree on a plan, be fair, and be aware of legal issues. Copyright © 2015 Pearson Education, Inc.

Perform an effective appraisal interview.
Most employees need and expect to know ahead of time on what basis their employer will appraise them. Let’s discuss how you can make this happen. Copyright © 2015 Pearson Education, Inc.

How to Conduct the Appraisal Interview
Prepare Plan Coach Be objective Useful interviews begin before the interview. Beforehand, review the person’s job description, compare performance to the standards, and review the previous appraisals. Give the employee at least a week’s notice to review his or her work. Set a time for the interview. Interviews with lower level personnel like clerical workers should take less than an hour. Interviews with management employees often take 1 or 2 hours. Conduct the interview privately with no interruptions. Copyright © 2015 Pearson Education, Inc.

How to Conduct the Appraisal Interview
Types of appraisal interviews How to conduct the appraisal interview Objective data Don’t get personal Encouragement Agreement Supervisors face four types of appraisal interviews, each with its unique objectives: Satisfactory – Promotable This is the easiest interview, the objective is to make development plans. Satisfactory – Not Promotable This type of interview has the objective of maintaining performance when promotion is not possible. Unsatisfactory – Correctable This has the objective to plan correction via the development and successful implementation of an action plan. Prepare for the interview by assembling the data, preparing the employee, and choosing the time and place. Be direct and specific, using objective examples. Don’t get personal. Encourage the person to talk. Plan on reaching agreement. Copyright © 2015 Pearson Education, Inc.

Managing the Appraisal Interview
Handling a defensive subordinate Criticizing a subordinate The formal written warning Realistic appraisals Recognize that defensive behavior is normal. Never attack or belittle a person’s defenses; they are legitimate to him or her. Postpone action as appropriate and recognize your own limitations. When required, criticize in a private and constructive manner that lets the person maintain his/her dignity and sense of worth. Written warnings should identify the standards by which the employee is judged, make it clear that the employee was aware of the standard. Then specify any violation of the standard, and show that the employee had an opportunity to correct the behavior. You may place this in his or her permanent personnel file. If circumstances warrant, you may remove the warning after a specified amount of time, say 90 days or longer. Be realistic and honest when giving an appraisal. It is important that a manager be candid when a subordinate is underperforming. Focus on specifics and allow opportunities to improve. Copyright © 2015 Pearson Education, Inc.

Review How to Conduct the Appraisal Interview Managing the Appraisal Interview Type of interviews Defensiveness Criticism Warnings Realism With this objective we have focused our energy on the types of appraisal interviews and how to conduct effective interviews. Using objective data, not getting personal, providing encouragement and obtaining agreement are key ingredients. We also discussed subordinate defensiveness, handling criticism, using written warnings, and remaining realistic in the process. Copyright © 2015 Pearson Education, Inc.

Explain how to “segment” employees for appraisal and reward purposes.
To perform effective talent management we segment employees to emphasize active management of high potential employees. Copyright © 2015 Pearson Education, Inc.

Talent Management and Employee Appraisal
Appraising and Actively Managing Employees Segmenting and Actively Managing Employees in Practice Talent management-oriented employers do use performance appraisal to evaluate how their employees are performing. However, they also segment their employees based on how critical the employees are to the company’s success. Then they focus more effort and resources on the company’s “mission-critical” employees. Figure 9-16 illustrates this. Accenture uses a 4 × 4 strategic role assessment matrix to plot employees by Performance (exceptional, high, medium, low) and Value to the Organization (mission-critical, core, necessary, non-essential). Segmenting employees is a way to emphasize successful management of high potential employees. It may include such activities as identifying top performers and assessing them for promotability, time-frame, and leadership potential. You also may limit the “high potential group in whom the company invests heavily to no more than 10% to 20% of managerial and professional staff.” One company appoints “career stewards” to meet regularly with “emerging leaders.” In all situations, the goal is to focus effort and extra resources by investing in a firm’s future leaders. Copyright © 2015 Pearson Education, Inc.

Review Talent management and employee appraisal Segmenting and actively managing employees in practice Talent management requires actively managing decisions affecting employees and making certain they have input and a clear understanding of expectations. The traditional practice of allocating pay raises, development opportunities, and other scarce resources across the board does not make for a competitive, successful firm. Today, employers must focus their attention and resources on their company’s mission-critical employees essential to the firm’s strategic needs. Segmenting and Actively Managing Employees in Practice: Several examples can illustrate how this works in practice. ● McKinsey & Co. recommends limiting the “high potential group in whom the company invests heavily to no more than 10 to 20% of managerial and professional staff.” ● Unilever includes 15% of employees per management level in its high potential list each year, and expects these people to move to the next management level within five years. ● GE prioritizes jobs and focuses on what it calls its employee “game changers.” ● Shell China appoints “career stewards” to meet regularly with “emerging leaders.” They make sure they’re getting the right development opportunities. See FIGURE 9-16 Accenture’s Strategic Role Assessment Matrix. Copyright © 2015 Pearson Education, Inc.

Improving Performance at The Hotel Paris
Focus the appraisal on strategic goal achievement Actions that achieve hotel goals A performance management system with a focus on competencies and objectives Job descriptions that include competencies Translating Strategy into HR Policies and Practices Both Lisa and the firm’s CFO were concerned by the current disconnect between (1) what the current appraisal process was focusing on and (2) what the company wanted to accomplish in terms of its strategic goals. They wanted the firm’s new performance management system to help breathe life into the firm’s strategic performance, by focusing employees’ behavior specifically on the performances that would help the Hotel Paris achieve its strategic goals. Copyright © 2015 Pearson Education, Inc.

Improving Performance at Copyright © 2015 Pearson Education, Inc.
The Hotel Paris 1. Choose one job, such as front-desk clerk. Based on any information you have (including job descriptions you may have created in other chapters), write a list of duties, competencies, and performance standards for that chosen job. 2. Based on that job, create a performance appraisal form for appraising that job. Translating Strategy into HR Policies and Practices In addition to the goals and competencies-based appraisals, other Hotel Paris performance management forms laid out the development efforts that the employee would undertake in the coming year. Instructions also reminded the supervisors that, in addition to the annual and semiannual appraisals, they should continuously interact with and update their employees. The result was a comprehensive performance management system: The supervisor appraised the employee based on goals and competencies that were driven by the company’s strategic needs. And, the actual appraisal resulted in new goals for the coming year, as well as in specific development plans that made sense in terms of the company’s and the employees’ needs and preferences. Copyright © 2015 Pearson Education, Inc.

Performance Management and Copyright © 2015 Pearson Education, Inc.

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