Human Resource Management

10th Edition
Chapter 8
PERFORMANCE MANAGEMENT
AND APPRAISAL

© 2008 by Prentice Hall 8-1

HRM In Action: Identifying Those In
The Middle Is Also Important
• Many focus solely on top-performing and
high-potential employees
• More middle-friendly
• They’re workhorses; they get the job done
• Make incentive system objective through
clearly defined goals and precise
definitions
• Nonfinancial rewards
© 2008 by Prentice Hall 8-2
 Performance Management
• Goal-oriented process directed toward
ensuring organizational processes are in
place to maximize productivity of
employees, teams, and organization
• Training and performance appraisal play
significant role in process
• With PM, training, appraisal, and rewards,
is integrated and linked for the purpose of
continuous organizational effectiveness
© 2008 by Prentice Hall 8-3
Performance Appraisal Defined

• Formal system of review

and evaluation of
individual or team task
performance
• Often negative, disliked
activity that seems to
elude mastery
© 2008 by Prentice Hall 8-4
 Uses of Performance Appraisal
• Human resource planning - Data must be
available to identify those who have the potential
to be promoted
• Recruitment and selection - May be helpful in
predicting the performance of job applicants
• Training and development - Point out an
employee’s specific needs for training and
development
• Career planning and development - Essential in
assessing an employee’s strengths and
weaknesses and in determining the person’s
potential
© 2008 by Prentice Hall 8-5
 Uses of Performance Appraisal
(Cont.)
• Compensation programs - Provide a basis for
rational decisions regarding pay adjustments
• Internal employee relations - Used for decisions
in several areas of internal employee relations,
including promotion, demotion, termination,
layoff, and transfer
• Assessment of employee potential - Some
organizations attempt to assess employee
potential as they appraise their job performance

© 2008 by Prentice Hall 8-6

 Performance Appraisal
Environmental Factors
• External:
– Legislation requiring nondiscriminatory
appraisal systems
– Labor unions
• Factors within internal environment, such
as type of corporate culture

© 2008 by Prentice Hall 8-7

 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.”

© 2008 by Prentice Hall 8-8

 Legislation Affecting Performance
Appraisal (Cont.)
• Albermarle Paper v Moody –
Supreme Court case supported
validation requirements for
performance appraisals

© 2008 by Prentice Hall 8-9

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

© 2008 by Prentice Hall 8-10

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
© 2008 by Prentice Hall 8-11
Establish Performance Criteria
(Standards)
• Traits
• Behaviors
• Competencies
• Goal Achievement
• Improvement
Potential

© 2008 by Prentice Hall 8-12

 Traits
• Certain employee traits such as attitude,
appearance, and initiative are the basis for
some evaluations
• May be either unrelated to job
performance or difficult to define
• Certain traits may relate to job
performance and, if this connection is
established, using them may be
appropriate
© 2008 by Prentice Hall 8-13
 Caution on Traits: Wade v. Mississippi
Cooperative Extension Service
• In a 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.
© 2008 by Prentice Hall 8-14
 Behaviors
• Organizations may evaluate person’s task-
related behavior or competencies
• Examples: 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
the evaluation process

© 2008 by Prentice Hall 8-15

 Competencies
• Broad range of knowledge, skills, traits and
behaviors that may be technical in nature, relate
to interpersonal skills, or be business oriented
• In leadership jobs, relevant competencies might
include developing talent, delegating authority
and people management skills
• Competencies selected should be those that are
closely associated with job success

© 2008 by Prentice Hall 8-16

 Goal Achievement
• Use if organizations consider ends more
important than means
• Outcomes established should be within
control of individual or team
• Should be those results that lead to firm’s
success

© 2008 by Prentice Hall 8-17

 Improvement Potential
• Many of criteria used focus on the past
• Cannot change past
• Firms should emphasize future, including
behaviors and outcomes needed to
develop the employee, and, in the
process, achieve firm’s goals

© 2008 by Prentice Hall 8-18

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

© 2008 by Prentice Hall 8-19

 Immediate Supervisor
• Traditionally been most common choice
• Supervisor is usually in excellent position
to observe employee’s job performance
• Supervisor has responsibility for managing
a particular unit

© 2008 by Prentice Hall 8-20

 Subordinates
• Our culture has viewed evaluation by
subordinates negatively
• Some firms conclude that evaluation of
managers by subordinates is both feasible
and needed
• Will do a better job of managing
• Might be caught up in a popularity contest

© 2008 by Prentice Hall 8-21

 Peers and Team Members
• Work closely with evaluated employee and
probably have an undistorted perspective
on typical performance
• Problems include reluctance of some
people who work closely together,
especially on teams, to criticize each other

© 2008 by Prentice Hall 8-22

 Self-Appraisal
• If employees understand their objectives
and criteria used for evaluation, they are in
good position to appraise their own
performance
• Employee development is self-
development
• Employees who appraise their own
performance may become more highly
motivated
© 2008 by Prentice Hall 8-23
 Customer Appraisal
• Customer behavior determines a firm’s
degree of success
• Organizations use this approach because
it demonstrates a commitment to
customer, holds employees accountable,
and fosters change

© 2008 by Prentice Hall 8-24

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
© 2008 by Prentice Hall 8-25
 Performance Appraisal Methods
• Forced Distribution
360-Degree Evaluation
• Rating ScalesAnchored Rating Scales (BARS)
Behaviorally
• Critical Incidents
Result-Based Systems
• Essay
• Work Standards
• Ranking
• Paired Comparisons

© 2008 by Prentice Hall 8-26

 360-Degree Valuation
• Multi-rater evaluation
• Input from multiple levels within firm and
external sources
• Focuses on skills needed across
organizational boundaries
• More objective measure of performance
• Process more legally defensible

© 2008 by Prentice Hall 8-27

Trends & Innovations: 720-Degree
Review
• More intense, personalized and greater
review of upper-level managers that brings
in perspective of their customers or
investors, as well as subordinates
• Start with a 360-degree review, but then
go out and do interviews

© 2008 by Prentice Hall 8-28

Rating Scales

• Rates according to
defined factors
• Judgments are
recorded on a scale
• Many employees are
evaluated quickly

© 2008 by Prentice Hall 8-29

 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

© 2008 by Prentice Hall 8-30

 Essay
• Brief narrative describing
performance
• Tends to focus on extreme
behavior
• Depends heavily on
evaluator's writing ability
• Comparing essay evaluations
might be difficult

© 2008 by Prentice Hall 8-31

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
© 2008 by Prentice Hall 8-32
 Ranking
• All employees from group ranked in
order of overall performance
• Comparison is based on single
criterion, such as overall performance

© 2008 by Prentice Hall 8-33

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

© 2008 by Prentice Hall 8-34

 Forced Distribution
• Rater assigns individual in work
group to limited number of categories
similar to normal distribution
• Assumes all groups of employees
have same distribution

© 2008 by Prentice Hall 8-35

Behaviorally Anchored Rating
Scales (BARS)
• Combines traditional rating
scales and critical
incidents methods
• Job behaviors derived
from critical incidents
described more objectively

© 2008 by Prentice Hall 8-36

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

© 2008 by Prentice Hall 8-37

Use of Computer Software

• Available in recording
appraisal data
• Reduces required
paperwork

© 2008 by Prentice Hall 8-38

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

© 2008 by Prentice Hall 8-39

Appraiser Discomfort
• Performance
appraisal process
cuts into manager’s
time
• Experience can be
unpleasant when
employee has not
performed well
© 2008 by Prentice Hall 8-40
 Lack of Objectivity
• In rating scales method, commonly used
factors such as attitude, appearance, and
personality are difficult to measure
• Factors may have little to do with
employee’s job performance
• Employee appraisal based primarily on
personal characteristics may place
evaluator and company in untenable
positions
© 2008 by Prentice Hall 8-41
 Halo/Horn Error
• Halo error - Occurs when manager
generalizes one positive performance
feature or incident to all aspects of
employee performance resulting in
higher rating
• Horn error - Evaluation error occurs
when manager generalizes one
negative performance feature or
incident to all aspects of employee
performance resulting in lower rating
© 2008 by Prentice Hall 8-42
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
© 2008 by Prentice Hall 8-43
 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 in
writing extremely high or extremely low
ratings

© 2008 by Prentice Hall 8-44

 Recent Behavior Bias
• Employee’s behavior often improves and
productivity tends to rise several days or
weeks before scheduled evaluation
• Only natural for rater to remember recent
behavior more clearly than actions from
more distant past
• Maintaining records of performance

© 2008 by Prentice Hall 8-45

 Personal Bias (Stereotyping)
• Managers allow individual differences
such as gender, race or age to affect
ratings they give
• 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 results
© 2008 by Prentice Hall 8-46
 Manipulating the Evaluation
• Sometimes, managers control virtually
every aspect of appraisal process and are
in position to manipulate system
• Example: Want to give pay raise to
certain employee. Supervisor may give
employee a undeserved high performance
evaluation

© 2008 by Prentice Hall 8-47

Employee Anxiety
• Evaluation process may
create anxiety for
appraised employee
• Opportunities for
promotion, better work
assignments, and
increased compensation
may hinge on results

© 2008 by Prentice Hall 8-48

 Reasons for Intentionally Inflating
Ratings
• Believe accurate ratings would damage subordinate’s
motivation and performance.
• Improve employee’s eligibility for merit raises.
• Avoid airing department’s “dirty laundry.”
• Avoid creating negative permanent record that might
haunt employee in future.
• Protect good workers whose performance suffered
because of personal problems.
• Reward employees displaying great effort even when
results were relatively low.
• Avoid confrontation with hard-to-manage employees.
• Promote a poor or disliked employee up and out of
department.
© 2008 by Prentice Hall 8-49
Reasons for Intentionally Lowering
Ratings
• Scare better performance out of employee.
• Punish difficult or rebellious employee.
• Encourage problem employee to quit.
• Create strong record to justify planned firing.
• Minimize amount of merit increase a subordinate
receives.
• Comply with organizational edict that discourages
managers from giving high ratings.

© 2008 by Prentice Hall 8-50

 Characteristics of Effective
Appraisal System
• Job-related criteria
• Performance expectations
• Standardization
• Trained appraisers
• Continuous open communication
• Conduct performance reviews
• Due process

© 2008 by Prentice Hall 8-51

 Job-Related Criteria
• Most basic criterion needed in employee
performance appraisals
• Uniform Guidelines and court decisions
quite clear on this point

© 2008 by Prentice Hall 8-52

 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

© 2008 by Prentice Hall 8-53

Standardization

Firms should use

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

© 2008 by Prentice Hall 8-54

Trained Appraisers
• Common deficiency in
appraisal systems
-evaluators seldom receive
training on how to conduct
effective evaluations
• Training should be ongoing
• How to rate employees and
how to conduct appraisal
interviews
© 2008 by Prentice Hall 8-55
Continuous Open Communication
• Employees have strong
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
© 2008 by Prentice Hall 8-56
 Conduct Performance Reviews
• Special time should be set for formal
discussion of employee’s performance
• Withholding appraisal results is absurd
• Performance review allows them to detect
any errors or omissions in appraisal, or
employee may simply disagree with
evaluation and want to challenge it

© 2008 by Prentice Hall 8-57

 Due Process
• Provide employees
opportunity to appeal
appraisal results
• Must have procedure
for pursuing
grievances and
having them
addressed objectively

© 2008 by Prentice Hall 8-58

Legal Implications

• Employers must prepare for

more discrimination
lawsuits and jury trials
related to performance
appraisals
• Unlikely that any appraisal
system will be immune to
legal challenge
© 2008 by Prentice Hall 8-59
 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.
• Rater, or raters, must have personal knowledge
of employee’s job performance.
• Must use predetermined criteria that limits
manager’s discretion.
© 2008 by Prentice Hall 8-60
 Appraisal Interview
• Achilles’ heel of entire evaluation process
• Scheduling interview
• Interview structure
• Use of praise and criticism
• Employees’ role
• Use of software
• Concluding interview

© 2008 by Prentice Hall 8-61

 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

© 2008 by Prentice Hall 8-62

Conducting Separate Interviews
• Merit in conducting separate
interviews for discussing (1)
employee performance and
development and (2) pay
• When topic of pay emerges in
interview, it tends to dominate
conversation with performance
improvement taking a back seat

© 2008 by Prentice Hall 8-63

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

© 2008 by Prentice Hall 8-64

Employees’ Role
• Should go through diary or
files and make notes of
every project worked on,
regardless of whether they
were successful or not
• Information should be on
appraising manager’s desk
well before review

© 2008 by Prentice Hall 8-65

 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
• Should end with specific and mutually
agreed upon plans for employee’s
development
© 2008 by Prentice Hall 8-66
A Global Perspective: Two Cultures’
View of Performance Appraisal
• Special problems when translated into different
cultural environments
• 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

© 2008 by Prentice Hall 8-67

© 2008 by Prentice Hall 8-68