Chapter 8 Performance Management

Human Resource Management
12th Edition
Global Edition
Chapter 8
Performance Management
and Appraisal
Copyright © 2012 Pearson Education 8-1

HRM in Action: Employee Engagement
as a Strategic HR Tool
• Level of commitment workers make to their
employer
• Engaged employees:
– Want to continue working for their employer
– Feel pride and motivation in their work
– Are willing to finish tasks in their own time and
see a strong link between the firm’s success
and their own career prospects
• A company that has demonstrated the value of
employee engagement is John Lewis, a
department store based in the UK
Performance Management (PM)
• Goal-oriented process ensuring processes are in place
to maximize productivity at employee, team and
organizational levels.
• Close relationship between incentives and performance.
• Performance appraisal is a one-time event each year.
• Performance management is a dynamic, ongoing,
continuous process.
• Each part of the system, such as training, appraisal, and
rewards, is integrated and linked for the purpose of
continuous organizational effectiveness.

Performance Appraisal Defined
• Formal system of
review and evaluation
of individual or team
task performance
– Often negative,
disliked activity that
seems to elude
mastery

Uses of Performance Appraisal
• Human resource planning: Used in making
decisions such as promotion, demotion,
termination, layoff, and transfer
• Training and development: Points out
employees’ specific needs
• Career planning and development: Assesses
employee’s strengths and weaknesses and
determines employee’s potential
• Compensation programs: Provide basis for
rational decisions regarding pay adjustments
Integrating Learning and
Performance Management
• Companies are integrating learning and
performance management into total system.
• Most integrated systems use competency
model.
• Managers rate performance of each
employee, then look for differences between
individual ratings and desired ratings.

Performance Appraisal
Environmental Factors
• External:
– Legislation requiring
nondiscriminatory
appraisal systems
– Labor unions
• Factors within
internal environment,
such as corporate
culture
Legislation Affecting Performance
Appraisal
• Mistretta v Sandia Corporation: Federal judge
ruled against company, stating, “There is
sufficient circumstantial evidence to indicate that
age bias and age-based policies appear
throughout the performance rating process to
the detriment of the protected age group.”
• Albermarle Paper v Moody: Supreme Court case
supported validation requirements for
performance appraisals.

Labor Unions and Performance
Appraisal
• Have traditionally
stressed seniority as
basis for promotions
and pay increases
• May vigorously oppose
use of management-
designed performance
appraisal system

Performance Appraisal Process
External Environment
Internal Environment
Identify Specific
Performance Appraisal
Goals
Establish Performance
Criteria (Standards) and
Communicate Them To
Employees
Examine Work Performed
Appraise the Results
Discuss Appraisal with

Employee

Establish Performance Criteria
(Standards)
• Traits
• Behaviors
• Competencies
• Goal achievement
• Improvement
potential

Traits
• Employee traits such as attitude,

appearance, and initiative are basis
for some evaluations.
• May be unrelated to job performance
or be difficult to define.
• Certain traits may relate to job
performance.
Caution on Traits: Wade v. Mississippi
Cooperative Extension Service
In performance appraisal system, general
characteristics such as “leadership, public
acceptance, attitude toward people, appearance
and grooming, personal conduct, outlook on life,
ethical habits, resourcefulness, capacity for
growth, mental alertness, loyalty to organization
are susceptible to partiality and to the personal
taste, whim, or fancy of the evaluator as well as
patently subjective in form and obviously
susceptible to completely subjective treatment by
those conducting the appraisals.”
Behaviors
• Organizations may evaluate employee’s
task-related behavior or competencies.
• Examples are leadership style, developing
others, teamwork and cooperation, or
customer service orientation.
• If certain behaviors result in desired
outcomes, there is merit in using them in
evaluation process.

Competencies
• Broad range of knowledge, skills,

traits, and behaviors
• May be technical in nature, business
oriented, or related to interpersonal
skills
• Should be those that are closely
associated with job success
Goal Achievement
• Use if organizations
consider ends more
important than means
• Should be within control
of individual or team
• Should be those results
that lead to firm’s
success

Improvement Potential
• Many criteria used

focus on past
• Cannot change past
• Should emphasize
future

Responsibility for Appraisal
• Immediate supervisor
• Subordinates
• Peers and team members
• Self-appraisal
• Customer appraisal

Immediate Supervisor
• Traditionally most common
choice
• Usually in excellent position
to observe employee’s job
performance
• Has responsibility for
managing particular unit

Subordinates
• Our culture has viewed evaluation by

subordinates negatively.
• Some firms find that evaluation of
managers by subordinates is both
feasible and needed.
• Issues:
– Could be seen as a popularity contest
– Possible reprisal against employees
Peers and Team Members
• Work closely with
evaluated employee and
probably have undistorted
perspective on typical
performance
• Problems include
reluctance of some people
who work closely together,
especially on teams, to
criticize each other
Self-Appraisal
• If employees understand their objectives
and the criteria used for evaluation, they
are in a good position to appraise own
performance.
• Employee development is self-development
• Self-appraisal may make employees more
highly motivated

Customer Appraisal
• Customer behavior
determines firm’s degree of
success.
• Organizations use this
approach because it
demonstrates commitment
to customer, holds
employees accountable,
and fosters change.
The Appraisal Period
• Prepared at specific
intervals
• Usually annually or
semiannually
• Period may begin with
employee’s date of hire
• All employees may be
evaluated at same time
Performance Appraisal Methods
• 360-degree • Forced distribution
evaluation • Behaviorally
• Rating scales anchored rating
• Critical incidents scales (BARS)
• Essay • Result-based
• Work standards systems
• Ranking
• Paired comparisons
360-Degree Evaluation
• Multi-rater evaluation
• Input from multiple sources
• Focuses on skills needed
across organizational
boundaries
• More objective measure of
performance
• Process more legally defensible
Rating Scales
• Rates employees
according to defined
factors
• Judgments are
recorded on a scale
• Many employees
are evaluated
quickly

Critical Incidents
• Written records of highly

favorable and
unfavorable work actions
• Appraisal more likely to
cover entire evaluation
period
• Does not focus on last
few weeks or months

Essay
• Brief narrative describing
performance
• Tends to focus on extreme
behavior
• Depends heavily on
evaluator's writing ability
• Comparing essay
evaluations might be difficult
Work Standards
• Compares performance
to predetermined
standard
• Standards: Normal
output of average worker
operating at normal pace
• Time study and work
sampling used
• Workers need to know
how standards were set
Ranking
• All employees from group

ranked in order of overall
performance
• Comparison is based on
single criterion, such as
overall performance

Paired Comparison
• Variation of
ranking method
• Compares
performance of
each employee
with every other
employee in group

Forced Distribution
• Rater assigns individual in workgroup to
limited number of categories
• Assumes all groups of employees have
same distribution
• Proponents of forced distribution believe:
– They facilitate budgeting
– They guard against weak managers who are
too timid to get rid of poor performers

Forced Distribution (cont.)
• Require managers to be honest with
workers about how they are doing
• Also called a rank-and-yank system
• Unpopular with many managers
• May damage morale and generate
mistrust of leadership
• Rankings may be way for companies to
easily rationalize firings
Behaviorally Anchored Rating
Scales (BARS)
• Combines traditional rating

scales and critical
incidents methods
• Job behaviors derived
from critical incidents
described more objectively

Result-Based Systems
• Manager and
subordinate agree on
objectives for next
appraisal
• Evaluation based on
how well objectives are
accomplished

Problems in Performance Appraisal
• Appraiser • Recent behavior
discomfort bias
• Lack of objectivity • Personal bias
• Halo/horn error • Manipulating the
• Leniency/strictness evaluation
• Central tendency • Employee anxiety

Appraiser Discomfort
• Performance
appraisal process
cuts into manager’s
time
• Experience can be
unpleasant when
employee has not
performed well
Lack of Objectivity
• Factors such as attitude, appearance,

and personality are difficult to
measure
• Factors may have little to do with
employee’s job performance
• May place evaluator and company in
untenable positions
Halo/Horn Error
• Halo error: Manager generalizes
one positive performance feature or
incident to all aspects of employee
performance, resulting in higher
rating
• Horn error: Manager generalizes
one negative performance feature
or incident to all aspects of
employee performance, resulting in
lower rating
Leniency/Strictness
• Leniency: Giving
undeserved high ratings
• Strictness: Being unduly
critical of employee’s
work performance
• Worst situation is when
firm has both lenient and
strict managers and does
nothing to level inequities.

Central Tendency
• Error occurs when employees are

incorrectly rated near average or
middle of scale
• May be encouraged by some rating
scale systems requiring evaluator to
justify extremely high or extremely
low ratings

Recent Behavior Bias
• Employee’s behavior often improves

and productivity rises several days or
weeks before scheduled evaluation
• Natural for rater to remember recent
behavior more clearly than past actions
• Necessary to maintain records of
performance

Personal Bias (Stereotyping)
• Managers allow individual differences
such as gender, race, or age to affect
ratings.
• Effects of cultural bias, or stereotyping,
can influence appraisals.
• Other factors
– Example: Mild-mannered employees may be
appraised more harshly, simply because they
do not seriously object to appraisal results.
Manipulating the Evaluation
• Sometimes, managers control every

aspect of appraisal process and
manipulate the system.
• Example:
– A supervisor wants to give pay raise to
certain employee, so supervisor may
give employee an undeserved high
performance evaluation.
Employee Anxiety
• Evaluation process may
create anxiety for
appraised employee
• Opportunities for
promotion, better work
assignments, and
increased
compensation may
hinge on results
Characteristics of Effective
Appraisal System
• Job-related criteria
• Performance expectations
• Standardization
• Trained appraisers
• Continuous open communication
• Performance reviews
• Due process
Job-Related Criteria
• Most basic criterion

needed in employee
performance
appraisals
• Uniform Guidelines
and court decisions
are clear on this point

Performance Expectations
• Managers and subordinates must

agree on performance expectations in
advance of appraisal period.
• If employees clearly understand
expectations, they can evaluate own
performance and make timely
adjustments.

Standardization
Firms should use

same evaluation
instrument for all
employees in same
job category who
work for same
supervisor.

Trained Appraisers
• Seldom receive training on how to

conduct effective evaluations
• Training should be ongoing
• Includes how to rate employees and
how to conduct appraisal interviews

Continuous Open Communication
• Employees need to
know how well they are
performing
• Good appraisal system
provides highly desired
feedback on continuing
basis
• Should be few surprises
in performance review

Conduct Performance Reviews
• Special time should be set for formal
discussion of employee’s performance.
• Withholding appraisal results is absurd.
• Performance review allows employees to
detect any errors or omissions in
appraisal.
• Employee may simply disagree with
evaluation and want to challenge it.
Due Process
• Provides employees
opportunity to appeal
appraisal results
• Must have procedure
for pursuing grievances
and having them
addressed objectively

Legal Implications
• Employee lawsuits
may result from
negative evaluations
• Unlikely that any
appraisal system will
be immune to legal
challenge

What Courts Normally Require
• Either absence of adverse impact on members
of protected classes or validation of process
• System that prevents one manager from
directing or controlling a subordinate’s career
• Appraisal should be reviewed and approved by
someone or some group in organization
• Raters must have personal knowledge of
employee’s job performance
• Predetermined criteria that limits manager’s
discretion
Appraisal Interview
• Achilles heel of entire evaluation process
• Scheduling interview
• Interview structure
• Use of praise and criticism
• Employee’s role
• Use of software
• Concluding interview

Interview Structure
• Discuss employee’s performance

• Assist employee in setting goals and
personal development plans for next
appraisal period
• Suggesting means for achieving
established goals, including support
from manager and firm
Conducting Separate Interviews
• Conduct separate interviews
for discussing:
1. Employee performance and
development
2. Pay
• When pay emerges in
interview, it tends to dominate
conversation.
• Performance improvement
then takes a back seat.
Use of Praise and Criticism
• Praise is appropriate when warranted

• Criticism, even if warranted, is
especially difficult to give
• “Constructive” criticism is often not
perceived that way

Employee’s Role
• Should go through diary
or files and make notes
of all projects, regardless
of their success
• Information should be on
appraising manager’s
desk well before review

Concluding the Interview
• Ideally, employees will leave interview with
positive feelings about management,
company, job, and themselves.
• Cannot change past behavior; future
performance is another matter.
• Interview should end with specific and
mutually agreed-upon plans for
employee’s development.

Global View of Performance
Appraisal
• Special problems when translated into
different cultural environments
• Example: Chinese companies tend to focus
appraisals on different criteria
– Place great emphasis upon moral
characteristics
– May tolerate less than optimal performance
because maintaining family control is so
important
All rights reserved. No part of this publication may be reproduced, stored in
a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the United States of
America.

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Human Resource Management

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Examine Work Performed

Appraise the Results

Discuss Appraisal with

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• Employee traits such as attitude,

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• Broad range of knowledge, skills,

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• Many criteria used

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• Our culture has viewed evaluation by

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• Written records of highly

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• All employees from group

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• Combines traditional rating

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• Factors such as attitude, appearance,

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• Error occurs when employees are

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• Employee’s behavior often improves

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• Sometimes, managers control every

• Most basic criterion

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• Managers and subordinates must

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Firms should use

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• Seldom receive training on how to

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• Discuss employee’s performance

• Praise is appropriate when warranted

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