PERFORMANCE
MANAGEMENT
9–2
Basic Concepts in Performance
Management and Appraisal
Comparing
Performance Appraisal
and
Performance Management
Performance Appraisal:
Performance Management:
Setting work standards, assessing
performance, and providing
feedback to employees to
motivate, correct, and continue
their performance.
An integrated approach to
ensuring that an employee’s
performance supports and
contributes to the organization’s
strategic aims.
The Performance Management Process in a Typical
Organization
Purpose of PM System
Strategic: help top mgmt achieve strategic objective
 Administrative: furnish valid information to make admin
decisions about employees
 Developmental: allow managers to coach employees
 Informational: inform employees about their
performance and expectations from them
 Organisational maintenance: provide information to be
used in HR planning and allocation
 Documentational: collect information that can be used
for different purposes

PM is goal directed


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.
SMART Goal Setting
WHEN?
Frequency of Appraisal

Informal evaluation – Continuous

Formal evaluation – Annual or Biannual
Designing the Appraisal Tool
9–8

What to Measure?
 Work
output (quality and quantity)
 Personal
 Goal

competencies
(objective) achievement
How to Measure?
 Generic
 Actual
dimensions
job duties
 Behavioral
competencies
WHAT?
Criteria used
Traits or
characteristics
Actual
performance
Training
Needs
Behaviour
Potential
Performance Appraisal Roles
9–11

Supervisors
 Usually
 Must
do the actual appraising.
be familiar with basic appraisal techniques.
 Must
understand and avoid problems that can
cripple appraisals.
 Must
know how to conduct appraisals fairly.
Performance Appraisal Roles
(continued)
9–12

The HR Department
 Serves
a policy-making and advisory role.
 Provides
advice and assistance regarding the appraisal
tool to use.
 Trains
supervisors to improve their appraisal skills.
 Monitors
the appraisal system effectiveness and
compliance with relevant laws and guidelines.
Performance Appraisal Roles
(continued)
9–13

The HR Department
 Serves
a policy-making and advisory role.
 Provides
advice and assistance regarding the appraisal
tool to use.
 Trains
supervisors to improve their appraisal skills.
 Monitors
the appraisal system effectiveness and
compliance with relevant laws and guidelines.
Performance Appraisal
Methods(Ranking and Rating)
9–14
Appraisal Methodologies
1
Graphic Rating Scale Method
6
Narrative Forms
2
Alternation Ranking Method
7
Behaviorally Anchored Rating
Scales (BARS)
3
Paired Comparison Method
8
Management by Objectives
(MBO)
4
Forced Distribution Method
9
Computerized and Web-Based
Performance Appraisal
5
Critical Incident Method
10
Merged Methods
11
Annual Confidential Report (ACR)
Graphic Rating Form
Scale for Alternate Ranking of Appraisee
Ranking Employees by the Paired Comparison Method
Note: + means “better than.” - means “worse than.” For each chart, add up
the number of +’s in each column to get the highest ranked employee.
Forced Distribution on a Bell-Shaped Curve
Pros and Cons of Annual Review

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Annual review is a useful framework for deciding
Identifying a star employee
How to deal with pay decisions and how to reward a star employee.
Developing a Culture of meritocracy and differentiation.
Shadow ranking goes on in the background (more informally)
Demerits:
The annual review ineffective in boosting performance.
It actively alienates employees
Often arbitrary and biased
Bell curve became an exercise in bureaucracy instead of an agent
of change
Critical Incidents
Examples of Critical Incidents for Assistant Plant Manager
Continuing Duties
Targets
Critical Incidents
Schedule production
for plant
90% utilization of
personnel and machinery
in plant; orders delivered
on time
Instituted new production
scheduling system; decreased
late orders by 10% last month;
increased machine utilization in
plant by 20% last month
Supervise
procurement of raw
materials and on
inventory control
Minimize inventory costs
while keeping adequate
supplies on hand
Let inventory storage costs rise
15% last month; over-ordered
parts “A” and “B” by 20%;
under-ordered part “C” by 30%
Supervise machinery
maintenance
No shutdowns due
to faulty machinery
Instituted new preventative
maintenance system for plant;
prevented a machine breakdown
by discovering faulty part
Narrative Forms


Final appraisals are
frequently written in a
narrative form
Supervisor rates
employee by
describing the
behaviour related to
each factor
Behaviorally Anchored Rating Scale (BARS)

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BARS is an appraisal tool that anchors a numerical rating
scale with specific examples of good or poor performance.
It’s a combination of GRS and Critical Incidents.
Its proponents say it provides better, more equitable
appraisals than do the other appraisal tools.
It takes more time to develop a BARS, but the tool has
several advantages.
The process of developing a truly effective BARS often
extremely expensive and time consuming. They are rarely
used in their pure form. Some workable modification of the
scale is used to reap the benefits without incurring the cost.
Example of
BARS for
Dimension
Salesmanship
Skills
Behavioural Observation Scale(BOS)




An improvement upon BARs Developed from critical
incidents
Rather than using sample behaviours that reflect
effective/ineffective performance, BOS uses
substantially more of the behaviours to define
specifically all the measures necessary for effective
performance
A BOS also allows managers to rate the frequency of
each behavior and then averages these ratings to
calculate an overall performance rating.
It takes more time and is more expensive to develop
than BARs.
Goal based or Management by
Objectives
MBO refers to a 6 step organizational goal setting
and appraisal program
Set the
organization’s
goals
Set the
departmental
goals
Discuss
developmental
goals
Define
expected
results
Performance
reviews
Provide
feedback
Sources of Information for
Performance Appraisal: 360 degree
feed back
Pros and Cons of 360° Feedback


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provides a broader perspective on employees
it is a valuable performance enhancement and employee
development tool.
Sometimes fellow team members or subordinates have important
information that is not apparent to managers, and this information
can help those receiving feedback with increasing personal
effectiveness.
a strong performance in one area—customer service,—might offset
a marginal performance in another.
can damage morale.
It can focus too heavily on weaknesses instead of emphasizing
strengths, which can leave employees discouraged.
It can be expensive, time-consuming and labor-intensive to
implement.
Errors in Performance Measurement
RATER ERROR
PRACTICAL IMPACT
Varying standards
Similar perf is rated differently
Primacy and Recency Error
Timing of information affects rating
Leniency/Strictness/
Central Tendency
Everyone is rated the same
Rater bias
Rater prejudices affect rating
Halo / Horns
Generalisation is made from only one
trait
Contrast error
Comparison is made to other people
not standards
Similar-to-me Error
Rater compares employee to self
Sampling error
Available information is insufficient
or inaccurate
The Appraisal Interview
Satisfactory—Promotable
Types of
Appraisal
Interviews
Satisfactory—Not Promotable
Unsatisfactory—Correctable
Unsatisfactory—Uncorrectable
Organization Performance and
Balanced Scorecard
The starting points of the balanced scorecard are the vision and
the strategy that are viewed from four perspectives: the financial
perspective, the customer perspective, the internal business
processes and learning & growth.
Financial perspective

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The financial perspective is important for all shareholders
and other financial backers of an organization. It answers
the question: “How attractive must we appear to our
shareholders and financial backers?”
This is mainly a quantitative benchmark based on figures
from the past.In addition, it provides a reliable insight into
the operational management and the sustainability of the
chosen strategy.
The delivered added value from the other three
perspectives will be translated into a financial success.
In the balanced scorecard, when there is a higher added
value, the profits will also be higher.
Customer perspective


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Customers determine for example the quality, price, service
and the acceptable margins on these products and/or
services.
Organizations always try to meet customer expectations that
may change at any time.
The existence of alternatives (those of the competitor) has a
large influence on customer expectation.
This perspective answers the question: “How attractive
should we appear to our customers?”
Internal Business Processes



From the perspective of internal processes the question
should be asked what internal processes have actually
added value within the organizations and what
activities need to be carried out within these processes.
Added value is mainly expressed as the performance
geared towards the customer resulting from an optimal
alignment between processes, activities and decisions.
This perspective answers the question: “What must we
excel at to satisfy our customers and shareholders/
financial backers?”
Learning and growth


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An organization’s learning ability and innovation
indicate whether an organization is capable of
continuous improvement and/or growth in a dynamic
environment.
This dynamic environment is subject to change on a
daily basis due to new legislation and regulations,
economic changes or even increasing competition.
This perspective answers the question: “How can we
sustain our ability to achieve our chosen strategy?”.
Implementation of Balanced Scorecard
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The implementation of the Balanced Scorecard can be carried out in
different manners.
Broadly, this could include the following steps:
Set up a vision, mission and strategic objectives.
Perform a stakeholder analysis to gauge the expectations of
customers and shareholders.
Make an inventory of the critical success factors
Translate strategic objectives into (personal) goals
Set up key performance indicators to measure the objectives
Determine the values for the objectives that are to be achieve
Translate the objectives into operational activities.
It is important to mention that achieving strategic objectives is a continuous
process: plan-do-check-act (see PDCA- or Deming circle).