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PERFORMANCE APPRAISAL

OutlinePerformance MeasurementFunctions of Performance AppraisalCriteria for Effective Performance Appraisal SystemsTypes of Performance to MeasurePerformance Appraisal MethodsPerformance Raters (Evaluators)Performance Feedback

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Performance ManagementPerformance appraisal: the measurement and assessment of an employee’s job performancePerformance management: the integration of performance appraisal systems with other HRM systems for the purpose of aligning the employees’ work behaviors and results with the organization’s goalsExample: link an employee’s pay increase to the employee’s job performanceTo do this, we have to measure the employee’s job performance

Goal: Improve the organization by improving the employees’ work behaviors and results

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Performance Management Cycle

Source of figure: Adapted from Fisher, Schoenfeldt, & Shaw (2006), Figure 10.1, p. 421

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Development Tool

Administrative Tool

Functions of Performance Appraisal

Employee Development ToolGoal setting: Set performance goals for each employeeInvolve the employee in goal settingMake the goals specific, concrete, & measurableExample goals (some of many) for a retail store manager:Sales goal for year = $2 millionCustomer satisfaction goal = average rating of 4.5 on 5-point customer satisfaction rating scaleMake the goals difficult but achievable, challenging but realisticEmpower employees to achieve their goals

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Functions of Performance Appraisal

Employee Development Tool (more)Provide feedback to reinforce & sustain performanceEmployees need to know how they are doingProvide help & advice to improve performanceBe a coach in addition to being a bossAssist employees in achieving career progression goalsDetermine training needsDo employees have job performance deficiencies for which training would be an effective remedy?

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Functions of Performance Appraisal

Administrative ToolLink rewards to performanceExamples: pay increases, promotions, demotions, terminations, disciplinary actions, etc.Goal: Create incentives to motivate employees to increase their performanceEvaluate HRM policies & programsExample: Evaluate a training program: Measure job performance before and after training to see if performance improved

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Criteria for Effective Performance Appraisal

Systems1. Validity: are we measuring the right thing?Are we really measuring job performance?We want to measure important (“relevant”) aspects of job performance, in a way that is free from extraneous or contaminating influences, and that encompasses the whole job (i.e., our measures of job performance are not “deficient”: we aren’t leaving out important aspects of job performance)2. Reliability: consistency of measurementExample: inter-rater reliabilityIf two people observe a particular employee’s job performance, do they agree in their rating of the employee’s performance?

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Criteria for Effective Performance Appraisal

Systems3. Freedom from biasIt does not illegally discriminate (race, sex, age, etc.)It is free from rating errors (intentional or unintentional):Leniency errorsSeverity errorsCentral tendency errorsHalo errors

4. PracticalityThe benefits the organization gets from using it should outweigh the costs of developing & using itUtility analysisIt should be relatively easy to useIt should be accepted by managers and employees

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Types of Performance to Measure

What aspects of an employee’s job performance can we measure?We have 3 basic choices:Results produced by the employeeExample for a salesperson: Amount of sales ($) in the past monthBehaviors of the employeeExample for a salesperson: Number of sales calls in the past monthTraits of the employeeExample for a salesperson: Friendliness

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Types of Performance to Measure

Results-based (results-oriented): measure the results produced by the employeeExamples for a retail store manager (examples of some results for which the store manager has responsibility and so should be held accountable):Sales of the storeProfit per square footInventory shrinkageCustomer satisfactionMakes sense for most jobsResults matter (usually)

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Types of Performance to Measure

Results-based (more)Challenges:Which results are relevant may not be obvious for all jobsSome results are not under the employee’s controlMay foster a “results at all costs” mentalityMay interfere with teamworkMay be difficult to provide effective feedback

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Types of Performance to Measure

Behavior-based (behavior-oriented): measure the employee’s behaviorsExamples for a retail store manager:Good attendanceCompletes management reports correctly & on timeMonitors customers and employees for theftCoaches employees to welcome customers to the store & offer assistance within 3 minutes, and to thank customers as they leaveConducts regular sessions with employees to develop teamwork

Makes sense for many jobsUse it where how the employee produces results matters

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Types of Performance to Measure

Behavior-based (more)Advantage: Makes it easier to provide effective performance feedback to employeesExamples for a retail store manager:Feedback with results-oriented performance appraisal: “You didn’t achieve your sales goal.” (Measured by sales reports)Feedback with behavior-oriented performance appraisal: “You are allowing your employees to wait too long before offering help to customers.” (Measured by observations of a secret shopper)

Challenges:Difficult to capture the full range of relevant behaviorsDifferent behaviors can lead to the same resultsWe may not always care which behaviors were used

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Types of Performance to Measure

Trait-based (trait-oriented): measure the employee’s personal characteristicsExamples for a retail store manager:Ability to make decisionsLoyalty to the companyCommunication skillsLevel of initiative

This is usually a bad idea for several reasons:Poor reliability & validity of measures of traitsWeak relationship between traits and job effectivenessMeasurements of traits are more likely to be subject to biases (sexism, racism, ageism, etc.)Hard to use traits to provide effective feedback

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Types of Performance to Measure

So, in most cases, we want to measure the job performance of an employee in terms of the results and behaviors of the employeeMake a list of results & behaviors that are relevant to the jobStarting point: Use the job description to identify the essential tasks of the jobExample task statement on job description for a Retail Store Manager: “Manage inventory shrinkage.”Translate the tasks into results & behaviorsExample (continued): Measure the amount of inventory shrinkage in the store (a result)

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Performance Appraisal Methods

Once we decide which results & behaviors we want to measure, we next need to decide how to measure those results & behaviorsWe have 3 categories of choices:Objective measures of performanceSubjective measures of performanceManagement By Objectives

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Performance Appraisal Methods

Objective measures: measure an employee’s job performance in terms of things we can see and count with no (or minimal) use of opinionProduction measures: count units produced by an employeeSales measures: count the sales ($) of an employeePersonnel data: count things in the employee’s personnel fileExamples:Number of times late to workNumber of times absentNumber of disciplinary actions taken

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Performance Appraisal Methods

Objective measures (more):Performance tests: for an employee, evaluate work samples or simulations under standardized conditionsExample: for an airline pilot, program a flight simulator with specific flight conditions to test if the pilot handles it correctly

Business unit performance measures: for managers who are responsible for a business unit, measure their performance by measuring the performance of the business unit they leadExamples:Market share of the business unitProfit measures for the business unit: profits & profit rates (return on sales, return on assets, return on equity)Stock price

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Performance Appraisal Methods

Subjective measures: measure an employee’s job performance using human judgmentRanking: subjectively rank employees from best to worstExample:1. Bob2. Carol3. Ted4. AliceNote carefully that the ranking is in terms of subjective opinion (e.g., who is your best salesperson overall?), not objective factors (e.g., which salesperson sold the most?)Note the ranking requires you to compare one employee to anotherProblem: it can be hard to determine the subjective ranking position of employees who are in the middle (it all blurs together)

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Performance Appraisal Methods

Subjective measures (more)Paired comparisons: for all possible pairs of employees, subjectively decide which employee is better# of paired comparisons = (N2 − N)/2Example: N = 4 (42 − 4)/2 = 6 paired comparisons:Bob > Carol; Bob > Ted; Bob > AliceCarol > Ted; Carol > AliceTed > AliceExample: N = 12 (122 − 12)/2 = 66 paired comparisonsNote that you are comparing one employee to anotherProblem: inconsistent subjective comparisons: Bob > Carol; Carol > Ted; Ted > Bob (see the inconsistency here?)

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Performance Appraisal Methods

Subjective measures (more)Rating scale (graphic rating scale): subjectively rate the employee’s job performance on a labeled numeric measuring scaleRating scales are perhaps the most commonly used method of subjectively evaluating an employee’s job performanceBefore we use a rating scale to subjectively rate an employee’s job performance, we need to:Identify the aspects of job performance (results & behaviors) that are to be evaluated (rated) using the rating scaleDevelop the rating scale itself

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Performance Appraisal Methods

Rating Scale Examples Rating Scale Examples

Examples of a 5-point scale:5 = Excellent4 = Very satisfactory3 = Satisfactory2 = Unsatisfactory1 = Very unsatisfactory5 = Greatly exceeds standards4 = Exceeds standards3 = Meets standards2 = Below standards1 = Far below standards

Example of a 7-point scale:7 = Truly exceptional6 = Excellent5 = Very good4 = Good3 = Satisfactory2 = Unsatisfactory1 = Very unsatisfactory

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Performance Appraisal Methods

Subjective measures (more)Rating scale (more)The same rating scale can be used to rate:Overall job performance, andMultiple specific aspects of job performanceSome aspects of job performance can be measured objectively and subjectivelyExample: Quality of workObjective measure: defect rate (percentage of units produced by an employee that fail inspection)Subjective measure: subjectively rate the quality of the employee’s work using a 5-point rating scale

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Performance Appraisal Methods

Subjective measures (more)Rating scale (more)Example: MSU Course Evaluation FormNote how the same 5-point rating scale is used to evaluate several different aspects of the professor’s job performance:Course as a wholeInstructor’s contribution to the courseUse of class timeEtc.

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More Examples of Rating Scales

Decisions:Use a graphic or just use words?Label all the points on the scale, or just label some?Odd or even number of points on the scale?Fewer points on the scale, or more points on the scale?

Source of figure: Fisher, Schoenfeldt, & Shaw (2006), Figure 10.6, p. 449

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Performance Appraisal Methods

Subjective measures (more)Rating scale (more)Note that rating scales do not require you to compare one employee to another — the ratings are absolute, not comparativeProblems:No limits on leniency, severity, & central tendency errorsExample: a manager rates all of his employees at “5 = Excellent” regardless of the employees’ actual performancesPossible solution: forced distribution?The terms used in a rating scale to describe different levels of performance tend to be short and vagueExample: What does “Excellent” really mean?Possible solution: BARS?

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Performance Appraisal Methods

Subjective measures (more)Forced distribution: evaluator must place a fixed percentage of employees in each performance categoryExample:10% must be rated 5 = Excellent25% must be rated 4 = Very satisfactory45% must be rated 3 = Satisfactory15% must be rated 2 = Unsatisfactory5% must be rated 1 = Very unsatisfactoryNote that you are comparing one employee to anotherProblem: what if the distribution being forced doesn’t fit?

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Performance Appraisal Methods

Subjective measures (more)Behaviorally Anchored Rating Scale (BARS): replace the vague descriptors in a rating scale with specific examples of performanceExample: Customer assistance5 = Could be expected to volunteer to help customer and to walk with customer to location of desired product4 = Could be expected to walk with customer to location of desired product when asked for help by customer3 = Could be expected to tell and point customer to where the desired product is located when asked for help by customer2 = Could be expected to shrug shoulders and walk away when asked for assistance by customer1 = Could be expected to hide from customers in the employee break-room

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Performance Appraisal Methods

Subjective measures (more)BARS (more)Note that a different scale will be needed for each aspect of job performanceAdvantages:Job-relevant measures of performanceInvolves employees in developing scalesDisadvantages:More work (time & money) to develop BARSEmployees may not consistently fit into one of the BARS categoriesPossible solution: BOS?

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Performance Appraisal Methods

Subjective measures (more)

Behavioral Observation Scale (BOS): evaluators rate the frequency with which an employee engages in specific behaviors

Example: on a list of possible employee behaviors, rate how often the employee engages in each behavior using a rating scale where:1 = almost never 5 = almost always

Weighted checklist: from a list of possible employee behaviors, check off the ones that apply to the employeeExample: Fisher, Schoenfeldt, & Shaw (2006), Figure 10.8, p. 452

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Performance Appraisal Methods

Management By Objectives (MBO): evaluate employee job performance in terms of the extent to which the employee achieved each of his or her goals during a specified period of timeGoals can be both objective and subjectiveExample goals (some of many) for a retail store manager:Objective: Sales goal for year = $2 millionSubjective: Customer satisfaction goal = average rating of 4.5 on 5-point customer satisfaction rating scaleCommonly used for managers and professionals

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Performance Appraisal Methods

MBO (more)Process:At the beginning of the review period, the employee and the supervisor meet and they agree on a set of goals to be achieved by the employee during the review periodReview period is typically one year, but could be more oftenApply the goal setting principles:Involve the employee in goal settingMake the goals specific, concrete, & measurableMake the goals difficult but achievable, challenging but realisticEmpower employees to achieve their goals

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Performance Appraisal Methods

MBO (more)Process (more):Throughout the review period, progress toward the goals is monitoredEmployee’s supervisor should be providing coaching to help the employee achieve his or her goalsAt the end of the review period, the employee and the supervisor meet to evaluate the extent to which each goal was achieved and to set new goals for the next review period

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Performance Raters (Evaluators)

Who should be asked to evaluate the job performance of an employee?Performance evaluators need to have:Opportunity to observe the employee’s job performanceAbility to translate observations of performance into an evaluation of performanceMotivation to do a good job of observing & evaluating

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Performance Raters (Evaluators)

Options for Job Performance EvaluatorsSupervisorsSelf-evaluationPeers (co-workers)SubordinatesCustomersExternal customersInternal customers360-Degree Appraisals

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Performance FeedbackEmployees need effective feedbackAllow time & eliminate distractionsOkay to cover both administrative issues (e.g., pay increase) & developmental issues (e.g., future goals) in one feedback sessionProvide specific feedbackExample:Don’t say: “You’re always late.”Do say: “You were more than 5 minutes late on 25 occasions in the past 3 months. This is unacceptable. We need to develop (1) a specific goal concerning prompt attendance and (2) an action plan that you will follow to achieve the goal.”

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Performance FeedbackTypes of feedback sessions:Tell-and-sell: the supervisor tells the employee the results of the performance appraisal and explains the reasons why the appraisal is correctTell-and-listen: the supervisor tells the employee the results of the performance appraisal and listens to the employee’s responseProblem solving: the supervisor acts as a coach to assist the employees in setting their own goals and in evaluating their own job performance

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Performance FeedbackTypes of feedback sessions (more):Combination of tell-and-sell & problem solving:First part of feedback session: tell-and-sellFocus on the past:Supervisor tells the employee the results of the performance appraisal and explains the reasons why the appraisal is correctSupervisor tells the employee about any administrative decisions that were made (e.g., pay increases, etc.)Second part of feedback session: problem solvingFocus on the future:Supervisor acts as a coach to help the employee identify barriers to improved future job performance

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OutlinePerformance MeasurementFunctions of Performance AppraisalCriteria for Effective Performance Appraisal SystemsTypes of Performance to MeasurePerformance Appraisal MethodsPerformance Raters (Evaluators)Performance Feedback

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