Performance Management
and the Employee
Appraisal Process
The Challenges of Human Resources Management
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1–1
Chapter Objectives
After studying this chapter, you should be able to
LEARNING OUTCOME 1
Explain what performance management is and how the
establishment of goals, ongoing performance feedback, and the
appraisal process are part of it.
LEARNING OUTCOME 2
Explain the purposes of performance appraisals and the reasons
they sometimes fail.
LEARNING OUTCOME 3
Describe the different sources of appraisal information.
LEARNING OUTCOME 4
LEARNING OUTCOME 5
Explain the various methods used to evaluate the performance of
employees.
Outline the characteristics of an effective performance appraisal
interview.
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Performance Appraisal and Other
HRM Functions
Availability of training can aid
in recruitment
Recruitment
Provide an additional
source of trainees
Training may permit hiring
less-qualified applicants
Selection
Effective selection may
reduce training needs
Training aids in the
achievement of performance
Performance
Appraisal
A basis for assessing
training needs and results
Training and development may
lead to higher pay
Compensation
Management
A basis for determining
employee’s rate of pay
Training may include
a role for the union
Labor Relations
Union cooperation can
facilitate training efforts
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Performance Appraisal Programs
• Performance Appraisal

A process, typically performed annually by a
supervisor for a subordinate, designed to help
employees understand their roles, objectives,
expectations, and performance success.
• Performance Management

The process of creating a work environment in which
people can perform to the best of their abilities.
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Ongoing Performance Feedback
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Performance Appraisal Programs
Appraisal Programs
Administrative
Developmental
Compensation
Ind. Evaluation
Job Evaluation
Training
EEO/AA Support
Career Planning
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Purposes of a Performance Appraisal
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Reasons Appraisal Programs
Sometimes Fail
• Lack of top-management information and support
• Unclear performance standards
• Rater bias
• Too many forms to complete
• Use of the appraisal program for conflicting
(political) purposes.
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Let Me Count the Ways
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Managerial Issues Concerning Appraisals
1. There is little face-to-face discussion between the
manager and the employee being appraised.
2. The relationship between the employee’s job description
and the criteria on the appraisal form isn’t clear.
3. Managers feel that little or no benefit will be derived from
the time and energy spent in the process, or they are
concerned only with bad performances.
4. Managers dislike the face-to-face confrontation of
appraisal interviews.
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Managerial Issues Concerning Appraisals (cont.)
5. Managers are not sufficiently adept at rating employees
or providing them with appraisal feedback.
6. The judgmental role of appraisal conflicts with the
helping role of developing employees.
7. The appraisal is just a once-a-year event, and there is
little follow-up afterward.
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Developing an Effective Appraisal Program
• Performance Standards


Must be based on job-related requirements derived
from job analysis and reflected in job description and
job specifications.
Help translate an organization’s goals and objectives
into job requirements that define acceptable and
unacceptable performance levels.
• Calibration

A process whereby managers meet to discuss the
performance of individual employees to ensure their
employee appraisals are in line with one another
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Establishing Performance Standards
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What Are the Performance Standards?
Performance Standards Characteristics
Strategic
Relevance
Individual standards directly
relate to strategic goals.
Criterion
Deficiency
Standards capture all of an
individual’s contributions.
Criterion
Performance capability is not
Contamination reduced by external factors.
Reliability
(Consistency)
Standards are quantifiable,
measurable, and stable.
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Are You Complying with the Law?
• Brito v Zia

The Supreme Court ruled that performance appraisals
were subject to the same validity criteria as selection
procedures.
• Albemarle Paper Company v Moody

The U.S. Supreme Court found that employees had
been ranked against a vague standard, open to each
supervisor’s own interpretation.
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Legal Guidelines for Appraisals
• Performance ratings must be job-related.
• Employees must be given a written copy of their job
standards in advance of appraisals.
• Managers who conduct the appraisal must be able to
observe the behavior they are rating.
• Supervisors must be trained to use the appraisal form
correctly.
• Appraisals should be discussed openly with employees
and counseling or corrective guidance offered.
• An appeals procedure should be established to enable
employees to express disagreement with the appraisal.
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Alternative Sources of Appraisal
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Sources of Performance Appraisal
• Manager and/or Supervisor

Appraisal done by an employee’s manager and
reviewed by a manager one level higher.
• Self-Appraisal

Appraisal done by the employee being evaluated,
generally on an appraisal form completed by the
employee prior to the performance interview.
• Subordinate Appraisal

Appraisal of a superior by an employee, which is
more appropriate for developmental than for
administrative purposes.
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Sources of Performance Appraisal (cont.)
• Peer Appraisal

Appraisal by fellow employees, compiled into a single
profile for use in an interview conducted by the
employee’s manager.

Why peer appraisals are not used more often:
1. Peer ratings are simply a popularity contest.
2. Managers are reluctant to give up control over the
appraisal process.
3. Those receiving low ratings might retaliate against
their peers.
4. Peers rely on stereotypes in ratings.
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Sources of Performance Appraisal (cont.)
• Team Appraisal

Based on TQM concepts; recognizes team
accomplishment rather than individual performance
• Customer Appraisal

A performance appraisal that, like team appraisal, is
based on TQM concepts and seeks evaluation from
both external and internal customers
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Pros and Cons of 360-Degree Appraisal
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360-Degree Performance Appraisal System
Integrity Safeguards
• Assure anonymity
• Make respondents accountable
• Prevent “gaming” of the system
• Use statistical procedures
• Identify and quantify biases
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Training Appraisers
• Establishing an Appraisal Plan

Provide an explanation of the performance appraisal
system’s objectives so that raters will understand the
compensation and development purposes for which the
appraisal is to be used.

Explain the mechanics of the rating system
– How frequently the appraisals are to be conducted
– Who will conduct them
– What are the standards of performance.

Alert raters to the weaknesses and problems of appraisal
systems so that they can be avoided.
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Training Performance Appraisers
Common rater-related errors
Error of central tendency
Leniency or strictness errors
Similar-to-me errors
Recency errors
Contrast and halo errors
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Rater Errors
• Error of Central Tendency

A rating error in which all employees are rated about
average.
• Leniency or Strictness Error

A rating error in which the appraiser tends to give all
employees either unusually high or unusually low
ratings.
• Recency Error

A rating error in which appraisal is based largely on an
employee’s most recent behavior rather than on
behavior throughout the appraisal period.
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Rater Errors (cont.)
• Contrast Error

A rating error in which an employee’s evaluation is
biased either upward or downward because of
comparison with another employee just previously
evaluated.
• Similar-to-Me Error

An error in which an appraiser inflates the evaluation
of an employee because of a mutual personal
connection.
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Rater Errors: Training and Feedback
• Rating Error Training



Observe other managers making errors
Actively participate in discovering their own errors
Practice job-related tasks to reduce the errors they
tend to make
• Feedback Skills Training



Communicating effectively
Diagnosing the root causes of performance problems
Setting goals and objectives
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Performance Appraisal Methods
Graphic Rating
Scale
Trait
Methods
Mixed Standard
Scale
Forced-Choice
Essay
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Trait Methods
• Graphic Rating-Scale Method

A trait approach to performance appraisal whereby
each employee is rated according to a scale of
individual characteristics.
• Mixed-Standard Scale Method

An approach to performance appraisal similar to other
scale methods but based on comparison with (better
than, equal to, or worse than) a standard.
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Trait Methods (cont.)
• Forced-Choice Method

Requires the rater to choose from statements
designed to distinguish between successful and
unsuccessful performance.
1. ______ a) Works hard
2. ______ a) Shows initiative
3. ______ a) Produces poor quality
_____ b) Works quickly
_____ b) Is responsive to customers
_____ b) Lacks good work habits
• Essay Method

Requires the rater to compose a statement describing
employee behavior.
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Trait Methods
• Forced-Choice Method

Requires the rater to choose from statements
designed to distinguish between successful and
unsuccessful performance.
1. ______ a) Works hard
2. ______ a) Shows initiative
3. ______ a) Produces poor quality
_____ b) Works quickly
_____ b) Is responsive to customers
_____ b) Lacks good work habits
• Essay Method

Requires the rater to compose a statement describing
employee behavior.
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Behavioral Methods
Critical Incident
Behavioral Checklist
Behavioral
Methods
Behaviorally Anchored
Rating Scale (BARS)
Behavior Observation
Scale (BOS)
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Behavioral Methods (cont.)
• Critical Incident Method

Critical incident
– An unusual event that denotes superior or inferior
employee performance in some part of the job
– The manager keeps a log or diary for each employee
throughout the appraisal period and notes specific
critical incidents related to how well they perform.
• Behavioral Checklist Method

The rater checks statements on a list that the rater
believes are characteristic of the employee’s
performance or behavior.
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Behavioral Methods (cont.)
• Behaviorally Anchored Rating Scale (BARS)

Consists of a series of vertical scales, one for each
dimension of job performance; typically developed by a
committee that includes both subordinates and managers.
• Behavior Observation Scale (BOS)

A performance appraisal that measures the frequency of
observed behavior (critical incidents).

Preferred over BARS for maintaining objectivity,
distinguishing good performers from poor performers,
providing feedback, and identifying training needs.
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Results Methods
• Productivity Measures

Appraisals based on quantitative measures
(e.g., sales volume) that directly link what employees
accomplish to results beneficial to the organization.
– Criterion contamination
– Focus on short-term results
• Management by Objectives (MBO)

A philosophy of management that rates performance
on the basis of employee achievement of goals set by
mutual agreement of employee and manager.
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Performance Appraisal Under an MBO Program
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Creating an Effective MBO Program
1. Managers and employees must be willing to establish
goals and objectives together.
2. Objectives should be quantifiable and measurable for
the long and short terms.
3. Expected results must be under the employee’s control
and free from criterion contamination.
4. Goals and objectives must be consistent for each
employee level (top executive, manager, and employee).
5. Managers and employees must establish specific times
when the goals are to be reviewed and evaluated.
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The Balanced Scorecard
• The appraisal focuses on four related categories

Financial, customer, processes, and learning
• Ensuring the method’s success:






Translate strategy into a scorecard of clear objectives.
Attach measures to each objective.
Cascade scorecards to the front line.
Provide performance feedback based on measures.
Empower employees to make performance
improvements.
Reassess strategy.
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Summary of Appraisal Methods
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Appraisal Interviews
Types of Appraisal Interviews
Tell and Sell - persuasion
Tell and Listen - nondirective
Problem Solving - focusing the
interview on problem resolution
and employee development
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Appraisal Interview Guidelines
Invite Participation
Change Behavior
Minimize Criticism
Establish Goals
Ask for a Self-Assessment
Problem Solving Focus
Express Appreciation
Be Supportive
Follow Up Day by Day
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Factors That Affect an Employee’s Performance
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Performance Diagnosis
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Managing Ineffective Performance
• Possible Courses of Action





Provide training to increase skills and abilities
Transfer employee to another job or department
Attention of actions to motivate employee
Take disciplinary action
Discharge the employee
• Cautions


All actions taken must be objective and fair.
Do not treat underperformer differently, setting the
employee up to fail.
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Key Terms
behavior observation scale (BOS)
management by objectives (MBO)
behaviorally anchored
manager and/or supervisor appraisal
rating scale (BARS)
mixed-standard scale method
calibration
peer appraisal
contrast error
performance appraisal
critical incident
performance management
customer appraisal
recency error
error of central tendency
self-appraisal
essay method
similar-to-me error
forced-choice method
subordinate appraisal
graphic rating scale method
team appraisal
leniency or strictness error
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Chapter 8 - Learning Outcomes
Learning Outcome Statements
Related Outcomes from Body of the Text
1
Explain what performance management is and how the
establishment of goals, ongoing performance feedback,
and the appraisal process are part of it.
Does your school have a performance management system in place to
help students succeed? If so, how do you think the system might be
similar or different to performance management systems in the
workplace?
2
Explain the purposes of performance appraisals and the
reasons they sometimes fail.
Have ever been given a formal performance appraisal? If you have not,
what do you think your employer’s rationale was for not appraising you or
other employees?
3
Describe the different sources of appraisal information.
Do you think as an employee you would be in a good position to
appraise your boss? What aspects of his or her performance might you
be in a good position to appraise?
4
Explain the various methods used to evaluate the
performance of employees.
As an employee, would you rather be evaluated on your personal traits
or characteristics, your on-the-job behaviors, or the results you get?
Would it depend upon the job you were doing?
5
Outline the characteristics of an effective performance
appraisal interview.
As a manager, how might you get an employee who is reluctant to talk
during an appraisal to share his or her thoughts?
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