CHAPTER 8: PERFORMANCE MANAGEMENT AND THE EMPLOYEE APPRAISAL PROCESS

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1 CHAPTER 8: PERFORMANCE MANAGEMENT AND THE EMPLOYEE APPRAISAL PROCESS 13 November 2013 PERFORMANCE MANAGEMENT SYSTEMS PERFORMANCE MANAGEMENT is the process of creating a work environment in which people can perform to the best of their abilities. STEP 1: Goals set to align with higher level goals STEP 6: HR decision making (pay, promotion, etc) STEP 2: Behavioural expectations and standards set and then aligned with employee and orgnaizational goals STEP 5: Formal review session conducted STEP 3: Ongoing performance feedback porvided during cycle STEP 4: Performance appraised by manager PERFORMANCE APPRAISALS is the result of an annual or biannual process in which a manager evaluates an employee s performance relative to the requirements of his or her job and uses the information to show the person where improvements are needed and why.

2 ONGOING PERFORMANCE FEEDBACK Because feedback is most useful when it is immediate and specific to a particular situation, it should be a regularly occurring activity. Managers need to constantly engage in a dialogue with their subordinates. Once the manager and employees have a series of discussions, there is an ebb and flow of ideas, some with the potential to serve as catalysts for improvement within the company. The ultimate purpose is to better both parties. Providing employees with feedback on a continual basis also helps them know where they stand when they receive formal appraisals. Anxiety they experience during formal appraisals is often alleviated, and a more meaningful conversation with them and their supervisors can take place. Seven key points to address during feedback sessions: Give specific examples of desirable and undesirable behaviors Focus feedback on behavior, not the person Frame the feedback in turns of helping the employee be successful Direct the feedback toward behavior the employee can control The feedback should be timely Limit feedback to the amount the employee can process Use active communication skills and confirm that the employee is engaged in the conversation PERFORMANCE APPRAISAL PROGRAMS FOCAL PERFORMANCE APPRAISAL is an appraisal system in which all of an organization s employees are reviewed at the same time of the year rather than on the anniversaries of the individual hire dates. Advantages: Helpful if a company is experiencing change and must quickly alter its strategy, after goals of firm established, they can be translated to individual goals employees receive all at the same time. It also enables managers to compare performance of different employees simultaneously. THE PURPOSES OF PERFORMANCE APPRAISAL Good appraisal systems have the capability to influence employee behavior and improve an organization s performance. Strong performance management systems are 40-50% more likely to outperform their competitors in areas of revenue growth, productivity, profitability, and market value. Formal appraisals ensure employees receive at least some feedback from their supervisors. Negative feedback at least lets people know that they matter. Two most common purposes of performance appraisals: administrative and developmental. Administrative Purposes Document personnel decisions Promote employees Determine transfers and assignments Identify performance problems and develop ways to correct them Make retention, termination, and layoff decisions Validate selection criteria Meet legal requirements Evaluate training programs or progress Assist with human resources planning Make reward and compensation decisions Developmental Purposes Provide performance feedback Identify individual strengths and weaknesses Recognize indiivdidual performance achievements Help employees identify goals Evaluate goal achievement of employees Identify individual training needs Determine organizational training needs Reinforce authority structure Allow employees to discuss concerns Improve communciation Provide a forum for leaders to help employees

3 Administrative purposes are appraisal programs (promotions, transfers, layoffs, pay decisions) that pay for performance. Employees who earn performance based pay are more satisfied. It also provides a paper trail for documenting HRM actions that can result in legal action. Performance appraisals are used to develop training and development plans for employees. Developmental purposes, appraisal provides feedback essential for discussing employee and organizational goal alignment. It provides an opportunity to build strengths, eliminate potential weaknesses, identify problems, and set new goals for achieving high performance. Development approach helps employees understand that appraisals are being conducted to improve their future competencies and further careers and not just to judge them on past performance. WHY APPRAISAL PROGRAMS SOMETIMES FAIL Some people believed performance appraisals discourage teamwork because they focus on individual achievements versus what firms accomplish Others contend appraisals are only useful at extremes, for highly effective or highly ineffective employees, and are not useful for the majority of employees in the middle Others point out appraisals focus on short term achievements rather than long term improvement and learning Why performance appraisal systems might not be effective, common problems: Inadequate preparation on the part of the manager Employee not given clear objectives at the beginning of performance period Manager may not be able to observe performance or have all the information Performance standards not clear Inconsistency in ratings among supervisors or other raters Manager rating personality rather than performance The halo effect, contrast effect, or other perceptual bias Inappropriate time span Overemphasis on uncharacteristic performance Inflated ratings because managers do not want to deal with bad news Subjective or vague language in written appraisals Organizational politics or personal relationships cloud judgments No thorough discussion of causes of performance problems Manager not trained at evaluation or giving feedback no follow-up and coaching after the evaluation SUMMARY OF PROBLEMS: Lack of top-management information and support, unclear performance standards, biased ratings because managers lack training, too many time-consuming forms to complete, use of program for conflicting purposes. A main concern employees have relates to the fairness of performance appraisal systems. The managers may sometimes inflate evaluations to get better ratings, to get rid of troublesome employees, to get higher salaries for employees. Employees who believe system as unfair will find appraisal a waste of time and leave interview. By addressing this issue, it is more likely to be successful.

4 DEVELOPING AN EFFECTIVE APPRAISAL PROGRAM Employees are more likely to accept and be satisfied with the performance appraisal program when they have the chance to participate in its development. WHAT ARE THE PERFORMANCE STANDARDS? Standards should be based on job related requirements. There are four basic considerations in establishing performance standards: strategic relevance, criterion, deficiency, criterion contamination, and reliability. STRATEGIC RELEVANCE is the extent to which the standards of an appraisal relate to the strategic objectives of the organization (IE: Standard that 95% of customer complaints resolved in one day, customer service representatives will be held to this standard when evaluated). These strategic objectives are translated into performance standards for employees. A strategy-driven performance appraisal process provides documentation HR managers need to justify various training expenses to close any gaps between employees current skills and those they need in the future to execute the firm s strategy. CRITERION DEFICIENCY is the extent to which the standards capture the entire range of employee s responsibilities (IE: Focus on single criteria (revenue) and exclude important but less quantifiable dimensions (customer service), then appraisal system is suffering from criterion deficiency). CRITERION CONTAMINATION are the factors outside an employee s control that influence his or her performance (IE: Comparison of performance of production workers should not be contaminated by fact some work with newer machines). RELIABILITY is the stability or consistency of a standard, the extent to which individuals tend to maintain a certain level of performance over time. In terms of appraisal ratings, reliability can be measured by correlating two sets of ratings made by a single rater or by two different raters. CALIBRATION is the process whereby managers meet to discuss the performance of individual employees to ensure their employee appraisals are in line with one another. LEGAL ISSUES Legal challenges may occur when appraisals indicate an employee s performance is acceptable or above average, but person is later passed over for promotion, disciplined for poor performance, discharged, or laid off from organization (discriminatory). Legal guidelines: Performance ratings must be job related, performance standards developed through job analysis Employees must be given a written copy of job standards Managers who conduct appraisals must be able to observe behavior they are rating Do not allow performance problems to continue unchecked Supervisors should be trained to use appraisal form correctly Appraisals should be discussed openly with employees and counselling offered to help improve Appeals procedure should be established to enable employees to express disagreement WHO SHOULD APPRAISE PERFORMANCE Raters may include supervisors, peers, team members, self, subordinates, customers, vendors, and suppliers.

5 MANAGER AND/OR SUPERVISOR APPRAISAL is the performance appraisal done by an employee s manager and often reviewed by a manager one level higher (traditional). Managers often complain they do not have time to fully observe the performance of employees, these managers must rely on performance records. When supervisor appraises employees independently, provision is often made for a review of appraisal by supervisors superior to reduce chance of superficial or biased evaluations. SELF-APPRAISAL is the performance appraisal done by the employee being evaluated, generally on an appraisal form completed by the employee prior to the performance interview. This gets employee thinking about his or her strengths and weaknesses and lead to discussions about barriers to effective performance. During performance interview, manager and employee discuss job performance and agree on final appraisal. Critics say employees are more lenient than managers in assessments and tend to present themselves in a favorable light and can lead employees to become frustrated when expectations not met. This approach is best for developmental purposes rather than administrative. SUBORDINATE APPRAISAL is the performance appraisal of a superior by an employee, which is more appropriate for developmental than for administrative purposes. To give managers feedback on how subordinates view them because they are in frequent contact. To avoid potential problems, subordinate appraisals should be submitted anonymously. PEER APPRAISAL is the performance appraisal done by fellow employees, generally on forms that are compiled into a single profile for use in the performance interview conducted by the employee s manager. Advantage is the belief that they furnish more accurate and valid information than appraisals by superiors (realistic picture). Reasons they are not used frequently: Peer ratings are popularity contest Managers are reluctant to give up control over appraisal process Those receiving low ratings might retaliate against peers Peers rely on stereotypes in ratings When peers are in competition in one another, peer appraisals should not be used to make administrative decisions. TEAM APPRAISAL is the performance appraisal, based on total quality management concepts that recognize team accomplishment rather than individual performance. CUSTOMER APPRAISAL is the performance appraisal that, like team appraisals, is based on total quality management concepts and seeks evaluation from both external and internal customers. PUTTING IT ALL TOGETHER: 360-DEGREE APPRAISAL 360-degree feedback is intended to provide employees with as accurate a view of their performance as possible by getting input from all angles. Because it combines more information than typical performance appraisal, it can become administratively complex. They developed Workstream 7.0 to give mangers single view of all talent manager information. It observed the following safeguards to ensure maximum quality and acceptance: Ensure anonymity Make respondents accountable (make sure they used scales appropriately) Prevent gaming of the system (check for invalid responses) Use statistical procedures (weighted averages) Identify and quantify biases (check for prejudice related to groups)

6 Pros System is more comprehensive in that responses are gathered from multiple perspectives Quality of information is better Complements TQM initiatves by emphasizing internal/external customers and teams May lessen bias or prejudice because feedback comes from more people Feedback from peers and others may increase employees self-development Cons System is complex in combining all responses Feedback can be intimidating and cause resentment if an employee feels the respondents have "ganged up" Conflicting opinions, although they may be all accurate from respective standpoints System requires training to work effectively Employees may collude or "game" the system by giving invalid evaluations to one another Appraisers may not be accountable if evaluations are anonymous TRAINING APPRAISERS A weakness of many performance appraisal programs it hat managers and supervisors are not adequately trained for the appraisal task, so the feedback they provide to their subordinates is not as useful as it might be and can often be meaningless, if not destructive. Establishing an appraisal plan, a training program is most effective when it follows a systematic process that begins with an explanation of the objectives of the firm s performance appraisal system. It is also important for rater to know the purpose for which the appraisal is to be used (compensation vs. development purposes). Weaknesses and problems of appraisals should be alerted to be avoided. Eliminating rater error, subjective errors should be eliminated: HALO ERROR, sol n: comments tend to reduce halo error HORN ERROR, the opposite of halo effect, occurs when a manager focuses on one negative aspect about an employee and generalizes it into an overall poor appraisal rating, personality conflict between manager and employee increases probability of horn effect DISTRIBUTIONAL ERROR, a group of ratings given across various employees o ERROR OF CENTRAL TENDENCY, is where employees are rated about average, raters who are reluctant to assign extremely high or low rating, sol n: one should find significant differences in behavior, productivity, and other characteristics o LENIENCY OR STRICTNESS ERROR, is when appraisers give employees unusually high or low ratings, sol n: define the characteristics or dimensions of performance and to provide meaningful descriptions of behavior FORCED DISTRIBUTION, what some managers require, to place certain percentage of employees to various performance categories (solve leniency and strictness error) PEER RANKING, whereby employees are ranked against one another from best to worst (solve leniency and strictness error) RECENCY ERROR, based on employee s most recent behavior rather than on behavior throughout the appraisal period (temporal), managers who give higher ratings because employees are showing improvement is committing recency error, sol n: managers keep a diary or a log to routinely document employee accomplishment or failures throughout the whole appraisal period

7 CONTRAST ERROR, is biased either upward or downward because of comparison with another employee just previously evaluated, sol n: training that focuses on using objective standards and behavioral anchors to appraise performance SIMILAR-TO-ME ERROR, inflates the evaluation of an employee because of a mutual personal connection, sol n: be aware of stereotypes they may hold Feedback training, provide general points for planning and providing feedback. Feedback training should cover: Communicating effectively Diagnosing the root causes of performance problems Setting goals and objectives PERFORMANCE APPRAISAL METHODS Performance appraisal methods can be broadly classified as measuring traits, behaviors, or results. Trait approaches continue to be more popular despite their inherent subjectivity. Behavioral approaches provide more action oriented information to employees and therefore may be best for development. The results-oriented approach is gaining popularity because it focuses on the measurable contributions that employees make to the organization. TRAIT METHODS Designed to measure the extent to which an employee possess certain characteristics (dependability, creativity, initiative, and leadership), that are viewed as important for the job. GRAPHIC RATING SCALE METHOD is where each employee is rated according to a scale of characteristics. Differences in rating scales are the characteristics or dimensions on which individuals are rated, degree to which performance dimensions are defined for rater, and how clearly the points on the scale are defined MIXED STANDARD SCALE METHOD is based on comparison with (better than, equal to, or worse than) a standard FORCED CHOICE METHOD is where the rater choose from statements designed to distinguish between successful and unsuccessful performance (IE: 1. a) Works hard). Disadvantage: Cost of establishing and maintaining its validity, source of frustration, cannot be used effectively as method for developing employees ESSAY METHOD requires the rater to compose a statement describing employee behavior. Advantage: Provides an excellent opportunity to point out the unique characteristics of the employee being appraised. Disadvantage: Composing an essay attempts to cover all of an employee s essential characteristics is very time-consuming task, quality of performance appraisal may be influenced by the supervisor s writing skills and composition style, good writers will write more favorable appraisals, subjective, does not focus on relevant aspects of person s job performance BEHAVIORAL METHODS Designed to specifically describe which actions should (or should not) be exhibited on the job. Used to provide employees with developmental feedback. CRITICAL INCIDENT METHOD is an unusual event that denotes superior or inferior employee performance in some part of the job (IE: Favorable: Janitor observes a file cabinet containing classified documents have been left unlocked at the close of business and calls the firm s security officer to correct the problem). Manager keeps a log or diary for each employee throughout the

8 appraisal period and notes specific critical incidents related to how well they perform. Advantage: Helps counsel employees when they are having performance problems while problem is still minor, increases objectivity BEHAVIORAL CHECKLIST METHOD is having the rater check the statements on a list that the rater believes are characteristic of the employee s performance or behavior BEHAVIORAL ANCHORED RATING SCALE (BARS) consists of a series of vertical scales, one for each important dimension of job performance. Based on critical incidents. Advantage: Personnel outside the HR department participate with HR staff in its development, employee participation can lead to greater acceptance of the performance appraisal process and of performance measures it uses. Disadvantage: Requires considerable time and effort to develop, scales are specific to particular job. Example: High Average Low 7 Finds the fire when no one else can 6 Correctly assesses best point of entry for fighting fire 5 Uses type of smoke as indicator of type of fire 4 Understands basic hydraulics 3 Cannot tell the type of fire by observing the color of flame 2 Cannot identify location of fire 1 Will not change firefighting strategy in spite of flashbacks and other signs that accelerants are present BEHAVIORAL OBSERVATION SCALE (BOS) measures frequency of observed behavior. Based on critical incidents. This approach allows the appraiser to play the role of the observer rather than judge. Users prefer this over BARS or trait scales. Advantage: Maintains objectivity, distinguishes good performers from poor performers, provides feedback, identifies training needs RESULTS METHODS Designed to measure results they achieve through work, accomplishments. They are more objective and empowering for employees, less subjective and open to bias. PRODUCTIVITY MEASURES are what employees accomplish and results that benefit the organization, directly align employee and organizational goals. Disadvantages: Can be contaminated by external factors that employees cannot influence, appraisals can be encouraged to look good on a short-term basis while ignoring long-term ramifications, if appraisal focuses on narrow set of results to other important process they may suffer from criterion deficiency MANAGEMENT BY OBJECTIVES (MBO) where employees establish objectives (production costs, quality standards, profits) through consultation with superiors and use these objectives as a basis for evaluation Step 1: Organization goals and metrics Step 2: Department goals and metrics Step 3A: Supervisor lists goals and metrics for suborindate Step 3B: Subordinate proposes goals and metrics Step 4: Mutual agreement of goals and metrics Step 5A: Inappropriate goals or metrics deleted Step 5B: New inputs are then provided Step 5: Interim review

9 Step 6: Final review Step 7: Review of organization performance Step 1: System acts as a goal-setting process whereby objectives are established for the organization Step 2: Departments Step 3: Individual managers and employees Step 4: Employee established goals are discussed with the supervisor and jointly reviewed and modified until both parties are satisfied with them Step 5: During periodic reviews, objective data are made available, progress that the employee is making toward the goals is then assessed Step 6: The interview is an examination of the employee s self-appraisal by the supervisor and employee together Step 7: Reviewing the connection between individual and organizational performance BALANCED SCORECARD (BSC) takes into account: financial, customer, processes, and learning. Internal processes are critical for creating customer satisfaction and loyalty. Recommendations for method s success: o Translate the strategy into a scorecard of clear objectives o Attach measures to each objective o Cascade scorecards to the front line o Provide performance feedback based on measures o Empower employees to make performance improvements o Reassess strategy WHICH PERFORMANCE APPRAISAL METHOD TO USE? The simplest and least expensive techniques often yield the least accurate information. Trait Methods Advantage: 1) Are expensive to develop 2) Use meaningful dimensions 3) Are easy to use Disadvantage: 1) Have high potential for rating errors 2) Are not useful for employee counselling 3) Are not useful for allocating rewards 4) Are not useful for promotion decisions Behavioural Methods Advantage: 1) Specific dimensions 2) Acceptable to employees and superiors 3) Providing feedback 4) Fair for reward and promotion decisions Disadvantage: 1) Can be time consuming to develop or use 2) Can be costly to develop 3) Have some potential for rating error Results Methods Advantage: 1) Less bias 2) Acceptable to employees and superiors 3) Link indiv and org performance 4) Mutual goal setting 5) Good for reward and promotion decisions Disadvantage: 1) Time consuming to develop or use 2) Short-term perspective 3) Contaminated criteria 4) Deficient criteria

10 APPRAISAL INTERVIEWS Gives manager the opportunity to discuss a subordinate s performance record and to explore areas of possible improvement and growth. To not have the interviewer overburdened of discussing too much, appraisal interview is divided into two sessions: performance review, employee s growth plans. 3 TYPES OF APPRAISAL INTERVIEWS Able to use one or more interview type, flexible approach. TELL-AND-SELL INTERVIEW includes the ability to persuade an employee to change a prescribed manner, requires development of new behaviors of employees and skillful use of motivational incentives of appraiser TELL-AND-LISTEN INTERVIEW include the ability to communicate the strong and weak points of job performance (1 st part) and employee s feeling about the appraisal explored (2 nd part). Gives both managers and employees opportunity to release any feelings of frustration, advise employees to speak freely PROBLEM-SOLVING INTERVIEW include the ability of listening, accepting, and responding to feelings. It stimulates growth and development CONDUCTING THE APPRAISAL INTERVIEW Some guidelines can increase an employee s willingness to discuss his or her performance and improve it, accept feedback from his or her supervisors, and increase person s overall satisfaction with the interview. Ask for a self-assessment, self-appraisal starts the employee thinking about his or her accomplishments, ensures employee knows against what criteria he or she is being evaluated, eliminating surprises. Manager can discuss where they reached different conclusions. Invite participation, will more likely identify root causes and obstacles to performance. Participation strongly relates to employee s satisfaction with feedback, extent to which employee believes it is fair and useful, and his or her intention to improve performance. Express appreciation, a powerful motivator, will feel less defensive and more likely to talk about aspects not going well. Avoid sandwich technique. Minimize criticism, managers should focus on few objective issues that are most problematic, criticism should be given in small doses. Consider whether it is necessary, consider the person, be specific and do not exaggerate, watch your timing, make improvement to your goal. Change the behavior, not the person, be empathetic, and avoid suggestions about personal traits to change, suggest more acceptable ways of performing. Focus on solving problems, avoid the blame game. Be supportive, convey to the employee he or she will eliminate roadblocks and work with employee to achieve a higher standard. Establish goals, focus on future rather than pass. Emphasize strengths on which employee can build and how employee efforts will contribute to organization, concentrate on opportunities for growth, limit plans

11 for growth to a few important items within a reasonable time, establish a specific action plan, highlight how both employee and firm will excel if goals are achieved. Follow up day to day, have informal talks periodically. IMPROVING PERFORMANCE Once responsibilities are clarified, they are in a position to take corrective action to improve performance. Identifying sources of ineffective performance, a person s performance is a function of several factors, 3 primary concerns: ability, motivation, and environment. Other factors in the external environment include: personal, family, community concerns. Ability Technical skills Interpersonal skills Problem-solving skills Analytical skills Communication skills Physical limitations Motivation Career ambition Employee conflict Frustration Fairness or satisfaction Goals or expectation Environment Equipment or materials Job design Economic conditions Unions Rules and policies Management support Laws and regulations Performance diagnosis, compare different performance measures, managers can get an idea of the underlying causes of performance problems. Results Behavior Ability Motivation Environment Results measures cannot distinguish between ability, motivation, or situational determinants of performance. So if someone is not achieving results it could be due to ability, motivation, or external constraints. Behavioral measures are less affected by external constraints. They still do not separate ability from motivation. If someone exhibits the behaviors but doesn t achieve the results, it may be due to external constraints Competency Competency tests measures can do factors such as knowledge and skills. If someone has the competency but doesn t exhibit the behaviors, there may be a motivational problem

12 Managing ineffective performance, action can be planned once problems are known. Could be increasing knowledge or skill, transfer to another job or department, and motivate the individual. Examples: PERFORMANCE Low competency DIAGNOSIS Possible skill issue ACTION Training PERFORMANCE High competency, poor behaviour DIAGNOSIS Possible motivation issue ACTION Coaching, incentives PERFORMANCE High behaviour rating, poor results DIAGNOSIS Work environment ACTION Work design, leadership