PART THREE TRAINING AND DEVELOPMENT

C H A P T E R T N i n e

9
Performance Management
and Appraisal

Lecture Outline
Strategic Overview
Basic Concepts in Performance and Appraisal
Management
Comparing Performance Appraisal and
Performance Management
Why Performance Management?
Defining the Employee's Goals and Work In Brief: This chapter gives an
Efforts overview of the performance
An Introduction to Appraising Performance appraisal process and the different
Why Appraise Performance?
tools and methods available. The
Realistic Appraisals
The Supervisor's Role main topics covered include the
Steps in Appraising Performance performance management process,
Graphic Rating Scale Method appraisal methods, appraisal
Alternation Ranking Method performance problems and solutions,
Paired Comparison Method and the appraisal interview.
Critical Incident Method
Narrative Forms
Behaviorally Anchored Rating Scales
Interesting Issues: Despite lots of
Management by Objectives (MBO) attention, money and effort,
Computerized and Web-Based Performance performance appraisals remain an
Appraisal area with which few managers or
Merging the Methods employees are satisfied. The
Appraising Performance: Problems and Solutions following questions may be worth
Potential Rating Scale Appraisal Problems
discussing. Is it just that we don't
How to Avoid Appraisal Problems
Who Should do the Appraising?
have a good enough system yet, is
The Appraisal Interview there an intrinsic problem with
Types of Interviews performance appraisals, or is it just
How to Conduct the Appraisal Interview human nature to dislike them?
Appraisals in Practice
Creating the Total Performance Management
Process
Improving Productivity Through HRIS

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ANNOTATED OUTLINE

I. Basic Concepts in Performance Appraisal and Performance

Management

A. Comparing Performance Appraisal and Performance Management

Performance appraisal is part of a total integrated process of
performance
management, which consolidates goal setting, performance appraisal,
and
development into a single, common system, the aim of which is to ensure
that the employee's performance is supporting the company's strategic
aims. Figure 9-2 illustrates the components of an effective performance
management process

B. Why Performance Management? Performance management's

emphasis on the integrated nature of goal setting, appraisal and
development reflect Total Quality Management concepts. Second, it
reflects what many studies have shown that traditional performance
appraisals are useless and counter-productive. Third, it is a process that
recognizes that every employees efforts must focus on helping the
company to achieve its strategic goals.

C. Defining the Employee's Goals and Work Standards At the heart of

performance management is the idea that employees effort should be
goal directed, which involves clarifying expectations and quantifying them
by setting measurable standards for each objective. Some guidelines for
effective goal setting are: 1. assign specific goals; 2. assign measurable
goals; 3. assign challenging but doable goals; and 4. encourage
participation.

NOTES Educational Materials to Use

II. An Introduction to Appraising Performance

A. Why Appraise Performance For several reasons; 1) they play an

integral role in the employer's performance management process; 2) the
appraisal lets the boss and subordinate develop a plan for correcting any
deficiencies, and reinforce those things he does correctly; 3) they serve a
useful career planning purpose; and 4) it plays a part in salary decisions.

B. Realistic Appraisals - It is important that a manager be candid when a

subordinate is underperforming.

C. The Supervisor's Role Supervisors must be familiar with basic

appraisal techniques, understand and avoid problems that can cripple
appraisals, and know how to conduct appraisals fairly. The HR
Department serves in a policy-making and advisory role.

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 D. Steps in Appraising Performance 1) define the job; 2) appraise
performance; and 3) provide feedback.

The New Workplace: Performance Appraisals and Joint Venture

Collaboration A recent research project indicated that performance
appraisals that are properly designed can encourage employees to
collaborate and share information

E. Graphic Rating Scale Method is the simplest and most popular

performance appraisal technique. 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. (See example, Figure 9-3) Managers must decide which job
performance aspects to measure. Some options include generic
dimensions, actual job duties, or behaviorally recognizable
competencies..

F. Alternation Ranking Method is where employees are ranked from best

to worst on a particular trait, choosing highest, then lowest, until all are
ranked. Figure 9-6 shows an example of this method.

G. Paired Comparison Method involves ranking employees by making a

chart of all possible pairs of employees for each trait and indicating which
is the better employee of the pair. Figure 9-7 shows an example of the
paired comparison method.

H. Forced Distribution Method is where predetermined percentages of

rates are placed in various performance categories; similar to grading on
a curve.

Teaching Tip: Discuss what the ramifications of using the forced distribution
method for class grades would be. Students will have strong opinions.

I. Critical Incident Method is where a supervisor keeps a record of

uncommonly good and/or undesirable examples of an employees work-
related behavior, and reviewing it with the employee at predetermined
times.

J. Narrative Forms involve rating the employees performance for each

performance factor, writing down examples and an improvement plan,
aiding the employee in understanding where his/her performance was
good or bad, and summarizing by focusing on problem solving.

K. Behaviorally Anchored Rating Scales (BARS) combines the benefits of

narratives, critical incidents, and quantified scales, by anchoring a scale
with specific behavioral examples of good or poor performance. The five
steps in developing a BARS are: 1) generate critical incidents; 2) develop
performance dimensions; 3) reallocate incidents; 4) scale the incidents;
and 5) develop final instrument. The advantages of BARS include a
more accurate gauge; clearer standards; feedback; independent
dimensions; and consistency.

L. Management by Objectives (MBO) requires the manager to set specific

measurable goals with each employee and then periodically discuss
his/her progress toward these goals. The process consists of six steps:
1) set the organization's goals; 2) set departmental goals; 3) discuss

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 departmental goals; 4) define expected results; 5) performance reviews;
and 6) provide feedback.

M. Computerized and Web-Based Performance Appraisal generally

enables managers to keep notes on subordinates during the year, to rate
employees on a series of performance traits, and then generate written
text to support each part of the appraisal. About 1/3 of employers use
online performance management tools for at least some employees.

N. Merging the Methods Most firms tools include combining several

methods. Anchoring a scale, as in Figure 9-3, improves reliability and
validity of the appraisal scale.

NOTES Educational Materials to Use

III. Appraising Performance: Problems and Solutions

It can be difficult to rate performance for several reasons. Much depends on a good
rating, including career progress, or being able to obtain a raise. There are also technical
problems that can affect the fairness of the process.

A. Potential Rating Scale Appraisal Problems unclear standards; halo

effect; central tendency; leniency or strictness; and bias.

1. Unclear Standards Ambiguous traits and degrees of merit can

result in an unfair appraisal.

2. Halo Effect the influence of a raters general impression on ratings

of specific qualities, can be a problem

3. Central Tendency where supervisors stick to the middle of the

rating scales, thus rating everyone average.

4. Leniency or Strictness supervisors have the tendency to rate

everyone either high or low.

5. Bias the tendency to allow individual differences such as age, race,

and sex to affect the appraisal ratings employees receive, is a
problem.

a. Research Insight Bias can influence the way a person appraises

another person. In one study, for example, the identical
employee was rated differently if pregnant. Figure 9-10 lists other
sample rating errors.

B. How to Avoid Appraisal Problems Appraisal problems can be minimized

by learning and understanding the potential problems and solutions,
using the right appraisal tool, training supervisors to reduce rating errors,
controlling outside influences, and keeping a diary of an employees
performance over the year..

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 Know Your Employment Law: Appraising Performance It
has been found that inadequate appraisal systems tend to
be at the root of illegal discriminatory actions. In addition to
being done legally, appraisals should be done ethically and
honestly. This discussion box provides guidelines for
developing a legally defensible appraisal process.

C. Who Should Do the Appraising?

1. The Immediate Supervisor is usually in the best position to observe

and evaluate the subordinates performance, and is responsible for
that persons performance.

2. Peer Appraisals becoming more popular with firms using self-

managing teams.

3. Rating Committees consist of multiple raters, typically the

employees immediate supervisor and three or four other
supervisors.

4. Self-Ratings tend to be higher than supervisor or peer ratings.

5. Appraisal by Subordinates or upward feedback, is where

subordinates anonymously rate their supervisors performance.

Research Insight One study shows that upward feedback

is very effective in improving supervisors behaviors.

6. 360-Degree Feedback where ratings are collected from the

employees supervisors, subordinates, peers, and internal or external
customers. This method is the subject of considerable debate. One
study found significant correlation between 360-degree ratings and
conventional ratings. Firms should carefully assess potential costs,
carefully train those giving feedback, and not rely solely on 360-
degree feedback.

NOTES Educational Materials to Use

IV. The Appraisal Interview is an interview in which the supervisor and

subordinate review the appraisal and make plans to remedy deficiencies and
reinforce strengths.

A. Types of Appraisal Interviews 1) Satisfactory Promotable This is the

easiest interview, with the objective to make development plans; 2)
Satisfactory Not Promotable This type of interview has the objective of
maintaining performance when promotion is not possible; and 3)
Unsatisfactory Correctable with the objective to plan correction via the
development of an action plan.

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 B. How to Conduct the Interview Prepare for the Interview by assembling
the data, preparing the employee, and choosing the time and place. Be
direct and specific, using objective examples; dont get personal;
encourage the person to talk; and dont tiptoe around.

1. How to Ensure the Interview Leads to Improved Performance

Clear-up job-related problems and set improvement goals and a
schedule for achieving them.

2. How to Handle a Defensive Subordinate Recognize that defensive

behavior is normal; never attack a persons defenses; postpone
action; and recognize your own limitations.

3. How to Criticize a Subordinate When required, criticize in a manner

that lets the person maintain his/her dignity and sense of worth, in
private, and constructively.

4. How to Handle a Formal Written Warning Written warnings should

identify the standards by which the employee is judged, make it clear
that the employee was aware of the standard, specify any violation of
the standard, and show that the employee had an opportunity to
correct the behavior.

C. Appraisals in Practice Research shows that performance appraisals

are required for most employees. Various types of appraisal formats are
used, but most include reviews and feedback.

IV. Creating The Total Performance Management Process

In this section several examples are provided of how a small firm, a large
firm, and the Hotel Paris created a total performance management process

A. Improving Productivity through HRIS: TRWs New Performance

Management System In this example of how a large firm implemented
a performance management system, TRW moved from a paper based
performance appraisal system to an online system, through which most
TRW employees and supervisors could input and review their data
electronically. Figures 9-12 and 9-13 show the information required for
this web-based system.

NOTES Educational Materials to Use

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DISCUSSION QUESTIONS

1. What is the purpose of a performance appraisal? The purpose of a performance

appraisal is to provide employees with feedback on how they are doing, as well as give them
an opportunity to give feedback.

2. Discuss the pros and cons of at least four performance appraisal tools. The text lists
eight different performance appraisal tools. Students might discuss the pros and cons of any
four of these eight. An example of some of the pros and cons is: Graphic Rating Scale
method is easy to use, simple, and does not take much time to administer. However, different
supervisors may interpret a numerical rating differently and the traits rated may or may not
relate to performance.

3. Explain how you would use the alternation ranking method, the paired comparison
method, and the forced distribution method. The alternation method would be used by
listing all employees to be rated, deciding who is the best in a trait to be rated, and which is
the worst. Then decide who is the second best, and the second worst ... the third best and
the third worst ... and so on until all the employees have been ranked for that trait. Then do
the same with the next trait to be rated. With the paired comparison, for each trait to be
rated, the supervisor would have a sheet with employee names in pairs ... every employee
name is paired with every other name. For each pair, the supervisor would circle the one of
the two that is better in that trait. Forced Distribution gives the supervisor a set rating scale
(such as 1 through 5). The supervisor is limited to giving a pre-determined percentage of his
or her employees' rating. For example: 15% can get a 1; 20% can get a 2; 30 % can get a
3 ... and so forth.

4. Explain in your own words how you would go about developing a behaviorally
anchored rating scale. Each student should express the five steps in his or her own words.
Those five steps are: 1) generate critical incidents; 2) develop performance dimensions; 3)
reallocate incidents; 4) scale the incidents; and 5) develop final instrument.

5. Explain the problems to be avoided in appraising performance. The five main rating
scale problems listed in the text are: 1) unclear standards; 2) halo effect; 3) central tendency;
4) leniency or strictness; and 5) bias.

6. Discuss the pros and cons of using different potential raters to appraise a person's
performance. The advantage of using several raters (either a rating committee, or a
combination of peer, supervisor, and subordinate ratings) is that the ratings tend to be more
valid than those of one individual rater. The negatives might include the time and cost
involved as well as problems with the amount of daily contact that some raters may not have
with the employee being rated.

7. Compare and contrast performance management and performance appraisal.

Performance appraisal means evaluating an employee's current and/or past performance
relative to his or her performance standards. Performance management is the process that
consolidates goal setting, performance appraisal, and development into a single, common
system, the aim of which is to ensure that the employee's performance is supporting the
company's strategic aims. Performance management includes practices through which the
manager defines the employee's capabilities, and evaluates and rewards the person's effort.

8. Answer the question: "How would you get the interviewee to talk during an appraisal
interview? There are several techniques that will help: 1) stop and listen to what the person
is saying ... don't be afraid of a little silence; 2) ask open-ended questions; 3) use prompting
statements like "go on," or "tell me more;" 4) restate the person's last statement as a
question.

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communication tools, one-click navigation of chapter content, and great resources,
such as Internet Resources, an HRCI Exam Prep Guide, assessment exercises, and
more.

INDIVIDUAL AND GROUP ACTIVITIES

1. Working individually or in groups, develop a graphic rating scale for the following
jobs: secretary, engineer, directory assistance operator. Job characteristics may
include, but not be limited to: Secretary--quantity of work, frequency of errors, attendance,
and initiative; Engineer--initiative, significance of contribution to the organization, problem
solving skills, frequency of errors, and communication skills; Directory Assistance Operator--
speed, attendance, accuracy, and friendliness. In each case, the students should come up
with a defining statement that clarifies what the job characteristic means.

2. Working individually or in groups, describe the advantages and disadvantages of using

the forced distribution appraisal method for college professors. Students should review
the section on the forced distribution method and describe the use of this method would
impact the rating of their college professors.

3. Working individually or in groups, develop, over the period of a week, a set of critical
incidents covering the classroom performance of one of your instructors. If you had
the class conduct a job analysis and create a job description for an instructor in Chapter 3, it
would be helpful to refer to that to help identify what kinds of behavior and tasks the instructor
should be doing. This will give a good basis for students to observe and watch for critical
incidents. If they find critical incidents that are not based in these other documents, it will be
a good opportunity to go back and review how all this ties together and that we haven't
communicated to the instructor in the job description these behaviors or tasks that they are
now wanting to rate them on.

4. The HRCI "Test Specifications" appendix at the end of this book lists the knowledge
someone studying for the HRCI certification exam needs to know in each area of
human resource management (such as in Strategic Management, Workforce Planning,
and Human Resource Development). In groups of 4-5 students, do four things: (1)
review that appendix now; (2) identify the material in this chapter that relates to the
required knowledge the appendix lists; (3) write four multiple choice exam questions
on this material that you believe would be suitable for inclusion in the HRCI exam; and
(4) if time permits, have someone from your team post your team's questions in front
of the class, so the students in other teams can take each other's exam questions.

5. Every week, like clockwork, during 2004, Donald Trump told another "apprentice",
"you're fired". Review recent (or archived) episodes of Donald Trump's The Apprentice
show, and answer this: What performance appraisal system did Mr. Trump use, and do
you think it resulted in valid appraisals? What techniques discussed in this chapter

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EXPERIENTIAL EXERCISES & CASES
did he seem to apply? How would you suggest he change his appraisal system to
make it more effective? Most critics agree that Trump's method of providing performance
feedback could be vastly improved. Lead a discussion by first asking students identify the
methods Trump used, a critique on how well he used any methods discussed in this chapter,
and then suggest which methods outlined in this chapter would be more effective, and
specifically how it would be applied in the scenario/episode they selected.

Experiential Exercise: Grading the Professor

1. Students should develop their own tool for appraising the performance of an instructor. Look
for them to apply concepts discussed in this chapter.

2. Students should present their tools to the class. How similar are the tools? Do they all
measure about the same factors? Which factor appears most often? Which do you think is
the most effective tool? Encourage students to reflect on the factors that they chose, or
did not choose.

The class should select the top 10 factors from all of the appraisal tools presented to create
what the class perceives to be the most effective tool for appraising the performance of the
instructor. Share your perspective on what makes a good teacher.

Application Case: Appraising the Secretaries at Sweetwater U

1. Do you think that the experts' recommendations will be sufficient to get most of the
administrators to fill out the rating forms properly? Why? Why not? What additional
actions (if any) do you think will be necessary? While controversial, the
recommendations would, in fact, encourage administrators to fill the forms out correctly.
Using the more detailed form and not tying the performance ratings to salary increases would
allow the managers to feel more free about rating the secretaries accurately. There would,
however, need to be some strong training sessions (both for administrators and secretaries)
to help them understand the new system. Since all secretaries have traditionally received the
same salary increases, and have been pleased with that, it would be advisable to consider
lowering the maximum increase to an amount that could be given to all secretaries while
staying within budget. Then all secretaries with a satisfactory rating or better would receive
that increase.

2. Do you think that Vice President Winchester would be better off dropping graphic
rating forms, substituting instead one of the other techniques we discussed in this
chapter such as a ranking method? Why? Certainly other methods could be used. He
has already had a taste of what would result if he went to a forced distribution or other
ranking method. A BARS system might be best, but it could be costly to develop if the clerical
staff has positions that are significantly different.

3. What performance appraisal system would you develop for the secretaries if you were
Rob Winchester? Defend your answer. If the development costs are not too great, the
BARS system would give the strongest solution to the current situation. The behavioral
anchors would make it more difficult to just rate everyone at the top. It would also help to
eliminate the different interpretations of what the rating scales mean.

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Continuing Case: Carter Cleaning Company; The Performance Appraisal

1. Is Jennifer right about the need to evaluate the workers formally? The managers?
Why or why not? Based on the information presented in the chapter, the students need
to determine if the workers and managers should be evaluated formally or informally, and
the need to provided reasons for their decision.

2. Develop a performance appraisal method for the workers and managers in each
store. The students need to be familiar with different appraisal methods discussed in the
chapter. They should use the sample appraisal forms given in the chapter as guides.

Translating Strategy Into HR policies and practices case: the Hotel Paris

The New Performance Appraisal System In this case, HR manager Lisa Cruz must develop a
performance appraisal system that supports company competitive strategies.

1. Pick out 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.

Answers should include competencies that will help Hotel Paris become more service-
oriented. Use examples from the case itself, such as ability to check a guest in or out in five
minutes or less to get the class started. Discuss what has made students happy or unhappy
when checking into a hotel, or in seeking other services.

2. Based on that, create a performance appraisal form for appraising that job.

There are samples in the text. If possible, before class ask students to bring sample
performance appraisal forms in to class, either from jobs they have held or samples from the
Internet. Suggest combining graphic rating scales with use of the critical incident method to
improve on-going coverage of employee performance. Also stress that a once-yearly formal
appraisal will not be sufficient unless it is supplemented by regular verbal feedback.

KEY TERMS
performance appraisal Evaluating an employees current and/or past performance
relative to his or her performance standards.

performance management Managing all elements of the organizational process that affect
how well employees perform.

graphic rating scale A scale that lists a number of traits and a range of performance
for each. The employee is then rated by identifying the score
that best describes his or her performance for each trait.

alternation ranking Ranking employees from best to worst on a particular

method trait, choosing highest, then lowest, until all are ranked.

paired comparison Ranking employees by making a chart of all possible pairs of the

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method employees for each trait and indicating which is the better
employee of the pair.

forced distribution Similar to grading on a curve; predetermined percentages

method of rates are placed in various performance categories.

critical incident method Keeping a record of uncommonly good or undesirable examples

of an employee's work-related behavior and reviewing it with the
employee at predetermined times.

behaviorally anchored An appraisal method that aims at combining the benefits

rating scale (BARS) of narrative and quantified ratings by anchoring a quantified
scale with specific narrative examples of good and poor
performance.

management by Involves setting specific measurable goals with each employee

objectives (MBO) and then periodically reviewing the progress made.

electronic performance Having supervisors electronically monitor the amount of

monitoring (EPM) computerized data an employee is processing per day, and
thereby his or her performance.

unclear standards An appraisal scale that is too open to interpretation.

halo effect In performance appraisal, the problem that occurs when a

supervisor's rating of a subordinate on one trait biases the rating
of that person on other traits.

central tendency A tendency to rate all employees the same way, such as rating
them all average.

strictness / leniency The problem that occurs when a supervisor has a tendency to
rate all subordinates either high or low.

bias The tendency to allow individual differences such as age, race,

and sex to affect the appraisal rates these employees receive.

appraisal interviews An interview in which the supervisor and subordinate review the
appraisal and make plans to remedy deficiencies and reinforce
strengths.

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