Chapter 8 Performance Appraisal 8 4 PERFORMANCE APPRAISAL CHAPTER OBJECTIVES After studying this chapter, you should be able to: Explain the purpose of performance management. Describe the characteristics of an effective performance measurement. Identify the issues that influence the selection of a performance appraisal system. Discuss rater biases in performance appraisals. Describe commonly used appraisal methods. Explain how the results of performance appraisal affect human resource management. Rate the performance appraisal mechanism in your organization. Describe the guidelines for effective performance evaluation interviews. POWERPOINT® SLIDES Canadian Human Resource Management includes a complete set of Microsoft PowerPoint® files for each chapter. (Please contact your McGraw-Hill Ryerson representative to find out how instructors can receive these files.) In the lecture outline that follows, a reference to the relevant PowerPoint slide for this chapter is placed beside the corresponding lecture material. The slide number helps you to see your location in the slide show sequence and to skip slides that you don’t want to show to the class. (To jump ahead or back to a particular slide, just type the slide number and hit the Enter or Return key.) 8-1 Part 4 Placing, Developing, and Evaluating Human Resources 8-2 Chapter 8 Performance Appraisal ® LECTURE OUTLINE (with PowerPoint slides) 8-3 Part 4 Placing, Developing, and Evaluating Human Resources Performance Management Slide 1 Performance Management Slide 2 Uses of Performance Data Slide 3 Characteristics of Effective Performance Management Slide 2 PERFORMANCE MANAGEMENT Performance management involves much more than just performance appraisal. To meet the organization’s strategic objectives, individual employees need to meet their individual performance goals; collectively employees meeting their goals help the organization to meet its goals. Performance management involves using performance data to mutually inform: corporate culture organizational benchmarks human capital potential systems and processes resources current policies program directions sharing results with shareholders asking for shareholder's input EFFECTIVE PERFORMANCE MANAGEMENT HAS SEVERAL CHARACTERISTICS Performance Objectives. This is a critical aspect of the organization’s overall strategy; if not fulfilled may result in undesirable organizational results Performance Goals. Achievable and realistic targets to which actual outcomes can be compared Performance Measurement. Assessing the efficiency of transforming resources into goods and services, their quality, client satisfaction, quality of decision making, and efficiency and effectiveness of management contributions Output Measures. Quantity and quality assessment Outcome Measures. Results of programs compared to preset targets PERFORMANCE MANAGEMENT SYSTEM GOALS 8-4 Chapter 8 Performance Appraisal Performance Management System Goals Slide 5 Organizations concerned with running an efficient and effective performance management system will try to achieve the following objectives: Transform organizational objectives into clearly understood, measurable outcomes that define success and are shared with stakeholders in and outside the organization Provide instruments for measuring, managing, and improving the overall health and success of the organization Include measures of quality, cost, speed, customer service, and employee satisfaction, motivation, and skills to provide an indepth, predictive performance management system Shift from prescriptive, audit- and compliance-based management to an ongoing, forward -looking strategic partnership between top and middle management and employees PERFORMANCE MANAGEMENT AS PART OF MANAGERIAL STRATEGY Performance Management as part of managerial strategy Slide 6 Uses of Performance Appraisal Slide 7 An important part of the performance management process is the assessment of strengths and weaknesses of the human resources in the organization • Performance appraisal is the process by which organizations evaluate employee job performance -- Provides data to assess the current skill, experience and performance level of every employee -- Impacts human resource planning, training & developing, career development, and compensation expense forecasts -- An effective performance appraisal system (valid performance appraisals) is critical in the performance management process Balanced Scorecard -- Has become a very popular performance management approach -- Combines the performance measures of the total organization, integrating financial measures with other key performance indicators such as customer satisfaction, internal processes, learning, and innovation USES OF PERFORMANCE APPRAISAL • Feedback and performance improvement -- Performance feedback allows the employee, the manager, and human resource specialists to take appropriate action to improve performance Administrative decisions -- Helps decision-makers determine who should receive pay raises, 8-5 Part 4 Placing, Developing, and Evaluating Human Resources • Key Elements Slide 8 Appraisal Systems Slide 9 promotions, transfers, demotions, dismissals, etc. Employee development and career planning -- Poor performance may indicate the need for training; good performance may indicate untapped potential -- Helps to guide a conversation around the employee’s desired career path and goals Criteria for test validation -- We assess the success of training, recruitment, and selection efforts based on whether employees perform well Training program objectives -- Set training objectives based on employee performance in specific domains Job re-design -- Poor performance may indicate errors in job analysis information or other information that has resulted in inappropriate hiring, training, or counselling decisions, or may be a symptom of illconceived job designs ELEMENTS OF THE PERFORMANCE APPRAISAL SYSTEM The human resource department usually develops performance appraisals for employees in all departments -- This centralization is meant to ensure uniformity in order to provide for useful results -- The employee’s immediate supervisor performs the actual evaluation 95% of the time The appraisal system should create an accurate picture of an individual’s job performance. To achieve this goal appraisal systems should be: Job-related -- The system evaluates critical behaviours that constitute job success -- If the system is not job-related it is invalid and probably unreliable Practical -- Is understood by evaluators and employees Have performance standards -- Performance evaluation requires performance standards which are the benchmarks against which performance is measured -- Collected through job analysis Have performance measures -- Performance evaluation also requires performance measures which are the ratings used to evaluate performance 8-6 Chapter 8 Performance Appraisal Performance Measures Slide 10 PERFORMANCE MEASURES Direct versus Indirect Observation Direct observation occurs when the rater actually sees the performance Indirect observation occurs when the rater can evaluate only substitutes for actual performance (constructs) Objective versus Subjective Objective performance measures are those indications of job performance that are verifiable by others and are usually quantitative Subjective performance measures are those ratings that are not verifiable by others and usually are based on the rater’s opinions Characteristics for Effectiveness Slide 11 CHARACTERISTICS OF AN EFFECTIVE PERFORMANCE APPRAISAL SYSTEM Characteristics for Effectiveness (cont’d) Slide 12 Validity is of utmost importance. The most valid criteria are results. Valid, or job-related, performance criteria must be based on a thorough job analysis Reliability (consistency) is difficult to achieve because of different raters and changing work environments. However, valid criteria tend to reliable, but reliable criteria are not necessarily valid Input into system development increases the probability of acceptance of the system by both supervisors and employees. It gives employees a sense of ownership Acceptable performance standards mean the standards should be set based on the job analysis Acceptable goals are derived from the strategic business plans of the organization, but must be operationalized by managers and made to be achievable by the employee Control of standards, i.e., recognizes that jobs are highly interdependent. An employee must have control over meeting a standard of performance for it to be valid Frequency of feedback—most appraisals take place once a year. Ideally, performance feedback would be given by the supervisor monthly, or quarterly, and immediately after effective or ineffective job behaviour was observed Rater training in observation techniques and categorization skills as well as to be familiarized with potential rating errors Ratee training to ensure the performance appraisal system is wellunderstood and accepted by employees Input into interview process increases employee satisfaction and morale Appraisal consequences are required to maintain effectiveness and 8-7 Part 4 Placing, Developing, and Evaluating Human Resources ensure employees and supervisors see that appraisal results are taken seriously and followed up on. There is also a crucial link to a merit pay system Different sources (raters) will have different but valid views of a job and the performance of the employee and reduces the risk of biases (rating errors) METHODS OF EVALUATING PAST PERFORMANCE Past Performance: Noncomparative Slide 13 Noncomparative evaluation methods do not compare one employee against another, but use scales or reports with performance criteria Rating Scale is perhaps the oldest and most widely used form of performance appraisal -- Rater provides a subjective evaluation of an individual’s performance along a scale from low to high -- Responses may given numerical values to enable calculation of an average score -- Although inexpensive to develop and administer there are many disadvantages including rater biases and omissions of specific performance criteria in order to be useful to a variety of jobs Behaviourally Anchored Rating Scales (BARS) attempt to reduce the subjectivity and biases of subjective performance measures by using descriptions of effective and ineffective performance provided by a variety of sources -- Specific examples of behaviours are placed along a scale -- BARS are job-related, practical, and standardized for similar jobs -- Serious limitation is that only a limited number of performance categories are included -- Similar to BARS, Behavioural Observation Scales (BOS) involve making judgements on the frequency at which observed behaviours occurred Performance Tests and Observations may include paper-and pencil tests or an actual demonstration of skills -- Must be valid (i.e., job-related) and reliable to be useful 360-Degree Performance Appraisals involve using multiple sources of performance appraisal ratings including self, peer, supervisor, subordinate, and even client or customer ratings. Past Performance: Comparative Slide 14 Comparative evaluation methods compare one person’s performance with that of co-workers Ranking method has the rater place each employee in order from best to worst -- Although easy to administer and explain, this method is subject to the halo and recency effects Forced distributions require raters to sort employees into different categories or classifications 8-8 Chapter 8 Performance Appraisal -- Usually a certain proportion must be put into each category -- Although this method overcomes the biases of central tendency, leniency, and strictness, some employees and supervisors dislike this method because they feel some employees are rated lower than they think to be correct Future Performance Methods Slide 15 Other Developments Slide 16 METHODS TO TARGET FUTURE PERFORMANCE Future-oriented appraisals focus on future performance by evaluating employee potential or setting future performance goals. Techniques include: • Management-by-Objectives Approach -- Employee and supervisor jointly establish performance goals for the future -- Ideally, these goals are mutually agreed upon and objectively measurable • Assessment Centre Technique -- Evaluation of future potential that relies on multiple types of evaluation and multiple raters -- Usually used for groups of middle-level managers with potential OTHER DEVELOPMENTS Web-based performance appraisal -- Now the mainstream standard for all sizes of firms -- These systems are: developed by experts, adaptable to an organization’s needs, easy to use, and they allow for data to be easily analyzed, stored, and retrieved. -- Ideally performance appraisal software is part of an enterprisewide software system including other HR software (e.g., application data, interview guides for selection, computer-based training, and payroll) and software for other organizational functions such as finance, purchasing, distribution, manufacturing, and more. Competencies -- Historically, it was the performance standards set in job descriptions that guided supervisors in their assessment; now there is a tendency to focus more on skill levels than job performance. -- One problem within performance appraisal still to be addressed is evaluating the performance on contingency workers 8-9 Part 4 Placing, Developing, and Evaluating Human Resources Implications of Appraisal: Training Slide 17 Talent Management is emerging within the HR field. It involves identifying and developing specific individuals who are seen as having high potential -- It comes from recognizing that employees who are top performers are not necessarily the people with the highest potential for working at key organizational positions or areas, or for moving up in the organization. -- Tools such as the 9 box grid provide for assessments of employee potential along with performance, and guide conversations around which employees to target for remedial training, employee development, and future promotion. IMPLICATIONS OF APPRAISAL Training Raters -- Raters need knowledge of the system and its purpose -- Require training not only focused on rating errors, but also on the cognitive aspect of the rating process i.e., ability to make judgments based on relatively complex information The Recency Effect—occurs when ratings are strongly affected by the employee’s most recent actions (either good or bad) Implications of Appraisal: Evaluation Interviews Slide 18 Effective Evaluation Interviews Slide 19 Effective Evaluation Interviews (contd) Slide 20 Contrast Errors – occur when raters compare employees to each other rather than to a performance standard EVALUATION INTERVIEWS Evaluation interviews are performance review sessions that give employees feedback about their past performance or future potential – Can use tell-and-sell, tell-and-listen, or problem-solving approaches -- The interview should be a positive, performance-improving dialogue GUIDELINES FOR EFFECTIVE PERFORMANCE EVALUATION INTERVIEWS 1. Emphasize positive aspects of employee performance 2. Tell each employee that the evaluation session is to improve performance, not to discipline 3. Provide immediate positive and developmental feedback in a private location, and explicitly state that you are providing performance feedback 4. Review performance formally at least annually and more frequently for new employees or those who are performing poorly 8-10 Chapter 8 Performance Appraisal 5. 6. 7. 8. Make criticisms specific, not general and vague Focus criticisms on performance, not on personality characteristics Stay calm and do not argue with the person being evaluated Identify specific actions the employee can take to improve performance 9. Emphasize the evaluators willingness to assist the employee’s efforts and to improve performance 10. End the evaluation session by stressing the positive aspects of the employee’s performance and reviewing plans to improve performance Human Resource Management Feedback Slide 21 Legal Aspects of Performance Appraisal Slide 22 HUMAN RESOURCE MANAGEMENT FEEDBACK The performance appraisal process also provides insight into the effectiveness of the human resource management function. -- If poor performance is widespread, many employees are excluded from internal promotions and transfers, or they may be terminated. -- Unacceptably high numbers of poor performers may indicate errors elsewhere in the human resource management function (e.g., the selection process may be screening candidates poorly, job analysis information may be incorrect, or the HR department may be failing to respond to the challenges of the external environment) LEGAL ASPECTS OF PERFORMANCE APPRAISAL A performance appraisal form is a legal document. -- Raters must use only performance criteria that are relevant to the job, and performance criteria must be valid and used consistently. -- Nonrelevant criteria can be avoided if performance standards are established through a thorough job analysis and recorded in a job description. -- A reasonable time frame must be set for performance improvement with the length of time depending on the job. -- Well-documented performance shortcomings can avoid serious embarrassments, and feedback interviews have been viewed favourably in court or with arbitrators. 8-11 Part 4 Placing, Developing, and Evaluating Human Resources ANSWERS TO REVIEW AND DISCUSSION QUESTIONS 1. Discuss the differences between performance management and performance appraisal. 6. Why are direct and objective measures of performance usually considered superior to indirect and subjective measures? Performance management looks at a number of variables of which performance appraisal is just one. Performance management looks at how organization strategy can be met through the performance of every member within the organization. Direct measures are based on actual observation of job behaviour, i.e., the supervisor has opportunities to see an employee in action. Indirect measures are substitutes for direct observation, e.g., a test substituted for direct observation. 2. Explain why Wal-Mart is a good example of effective performance management. What did management do to make it one of the most efficient and profitable companies in the world? Objective measures are verifiable, e.g., counting mistakes. Subjective measures are not verifiable, e.g., the opinion of a supervisor regarding the performance of an employee. Opinions may be biased. One of the reasons of Wal-Mart's success was the introduction of bar codes, which allowed tracking of items for instant feedback on sales. 7. If your organization were to use subjective measures to evaluate employee performance, what instructions would you give evaluators about the biases they might encounter? 3. What are the uses of performance appraisals? The various biases should be reviewed and their causes discussed. Evaluators should be instructed to justify their evaluations based on the employee's actual performance. Figure 8-2, p. 304, summarizes the uses of performance appraisals. It may be worth indicating to students that the performance appraisal also provides feedback on how well the human resource department is performing. 8. Describe how you would conduct a typical performance evaluation interview. 4. Suppose a company for which you work uses a rating scale. The items on the scale are general personality characteristics. What criticism do you have of this method? The three major approaches to conducting a performance evaluation interview outlined in the chapter include tell-and-sell, tell-and-listen, and problem solving. Figure 8-11, p. 320, provides specific guidelines for conducting the interview itself, regardless of the approach selected. A rating scale is very subject to rater biases. When the scale uses general personality characteristics, biases are more likely to appear. Furthermore, it is very unlikely that personality characteristics bear much of a relationship to actual job performance. 9. How do the results of performance appraisals affect other human resource management activities? 5. If you were asked to recommend a replacement for the rating scale, what actions would you take before selecting another appraisal technique? Performance appraisals can be viewed as providing feedback on the entire range of human resource activities discussed in this book. Poor performance may be indicative of just that -- poor employee performance. However, it may reveal problems in the way the human resource department defines its objectives; meets external challenges; deals with employment equity; helps with job design; collects job analysis information; conducts human resource plans; handles recruitment; proceeds through the selection process; provides Students should seek a performance appraisal technique that is job-related, practical, and standardized. Additionally, the method selected should consider the nature and availability of performance standards and measures that are available for evaluating performance. 8-12 Chapter 8 Performance Appraisal orientation, training, and development; assists with career planning; deals with change in the organization; or designs and implements performance appraisal techniques. 14. What are the minimum requirements of a due process appraisal system? 10. Describe the characteristics of a 360-degree performance appraisal. 1. Valid criteria 2. Consistent use 3. Reasonable time frame 4. Well-documented A 360-degree performance appraisal is a combination of self, peer, supervisor, and subordinate feedback, sometimes even from customers. Advantage: different perspectives. It proves very useful in flat organizations, with fewer managers who have to supervise more employees, making it more difficult to assess individual performance. See p.321 for details. . 11. In what ways is the Balanced Scorecard approach a useful performance appraisal instrument? The balanced scorecard concept combines the performance measures of the total organization instead of relying on independent measures of its parts. It provides a view or an organization’s overall performance by integrating financial measures with other key performance indicators around customer satisfaction, internal organizational processes and growth, learning, and innovation. 12. What is the relationship between a performance appraisal system and a selection system? No selection system can be validated without a valid performance appraisal. Validation would be done by correlating selection scores (interview, tests) with performance scores. 13. Explain the legal aspect of a performance appraisal system. Under what circumstances could it become a crucial document? Dismissals are often based on grounds of low performance. Many low performance assessments are poorly documented and based often on the opinion of a supervisor, which have no validity in a court of law or with an arbitrator. However, if low performance is well documented, management usually has no problems ridding itself of a poor performer. It could also be a crucial document if an organization has to prove that its selection system is valid. This can be done only with a valid performance appraisal system. 8-13 Part 4 Placing, Developing, and Evaluating Human Resources ANSWERS TO CRITICAL THINKING QUESTIONS 1. If the dean of your faculty asked you to serve on a committee to develop a performance appraisal system for evaluating the faculty, what performance criteria would you identify? Of these criteria, which ones do you think are most likely to determine the faculty members' success at your school? What standards would you recommend to the dean regardless of the specific evaluation instrument selected? 3. Can one performance appraisal instrument be used for all levels in an organization, i.e., executives, middle managers, and employees? Why or why not? It is unlikely that one instrument could be used effectively for different job groups. The text emphasizes the importance of job-relevant performance criteria which, by definition, would be different for each job. It is true that often one performance appraisal systems is used for different groups, but this is at the expense of its validity. To students, the primary performance criterion is teaching ability. If students are encouraged, they may identify many individual criteria that comprise effective teaching. Examples might include fair grading, reasonable tests, interesting classroom presentations, freedom from annoying mannerisms, and others. It is possible to use one part of a performance appraisal instrument for different jobs, if the latter contain similar job elements, e.g., managers may have common decision making skill requirements. The other part of the appraisal instrument would then use job specific criteria. Such elements the above jobs do not have in common. As an example, a manufacturing manager probably requires some manufacturing-related specific skills, which would be different from the skill requirements of a marketing manager, but both jobs may have some common management/supervisory skills. The criteria most likely to determine success at your college or university are probably unique to your institution, and depend on whether the school is considered to have a teaching, research, or community service orientation. In turn, this orientation affects the specific standards a student is likely to recommend. 2. Your organization has dismissed an employee for not performing up to par. She sues the company for unjust dismissal, claiming that the company's performance appraisal instrument is not a valid assessment tool, since no woman had served on the committee responsible for developing it. Are you able to persuade a judge that despite the fact that no woman served on the committee, your appraisal instrument is valid? The employee would have to demonstrate that the instrument is gender sensitive, i.e., discriminates against women (or men), which would be unusual. It is much more common that biases originate from raters. However, the issue here is whether the performance appraisal instrument is valid, because no woman was involved in its development. If proper development rules have been followed (see Figure 8-4, p. 307), and if job-relevant performance criteria were developed, then it really does not matter whether women were involved in the instrument's development or not. 8-14 Chapter 8 Performance Appraisal ETHICS QUESTION Comments to Instructors There is no right or wrong answer to this question. It is for class discussion purposes. WEB RESEARCH Comments to Instructors These exercises have been designed for students to demonstrate their computer and Internet skills to research the required information. Answers will vary. 8-15 Part 4 Placing, Developing, and Evaluating Human Resources INCIDENT 8.1: THE MALFUNCTIONING REGIONAL HUMAN RESOURCE DEPARTMENT Incident Comments The main value in this incident is that it identifies some of the potential problems that can emerge if careful attention is not paid to the organization's performance appraisal process. The incident also underscores the interdependency of various human resource activities. 1. What do you think is the major problem with the performance appraisal process in the regional office? In a word, feedback. The survey indicates that many employees felt feedback was insufficient. Still others apparently never saw their evaluations, another sign of limited feedback. Even those who did see their evaluations felt the standards were irrelevant and unfair, an indication that these employees do not understand the standards. 2. What major problems do you think exist with the regional office's (a) job analysis information? (b) human resource planning? (c) training and development? (d) career planning? Job analysis information may not have identified accurate performance standards; if those standards were accurate, they may be outdated. Human resource planning may not be addressing the organization's future human resource needs, as indicated by the perceived high proportion of outsiders used to fill job openings. Training and development may be insufficient, since few employees showed any improvement on their performance ratings from one year to another. Career planning also may be insufficient, since employees complain about a lack of career opportunities within the organization. 8-16 Chapter 8 Performance Appraisal EXERCISE 8-1: DEVELOPING A PERFORMANCE APPRAISAL SYSTEM 1. Define at least three performance criteria for the instructor. To students, the primary performance criterion is teaching ability. Individual criteria that comprise effective teaching may include fair grading, reasonable tests, and providing effective classroom presentations. Additional criteria may include research and publication results, and community involvement. The criteria most likely to determine success at your college or university are probably unique to your institution, and depend on whether the school is considered to have a teaching, research, or community service orientation. 2. How would you measure them so that the results would be useful for a tenure and promotion decision? Objective, job-related performance measures should be used to ensure that tenure and promotion decisions are made in a non-discriminatory manner. 3. Which type of instrument or method do you suggest? Why? Recommended methods or instruments include use of BARS to assess teaching ability. BARS is job-related and could be standardized for the instructor job. 360-degree performance appraisal could also be used to gather diverse perspectives including student assessments of performance. Other criteria such as fair grading and reasonable tests could be assessed through the use of performance tests or the use of an assessment center to provide objective assessments. Criteria such as research and publication could be measured using specific, quantifiable results e.g. number of publications, research funds generated, etc. using a MBO approach. Consideration should also be given to the balanced scorecard approach as a means to integrate and balance the institution’s overall performance measures. 4. Who should be the appraisers? Appraisers may include members of the Faculty Evaluation Committee, supervisors (i.e., Dean or Associate Dean), students, other instructors and/or teaching experts from a university or college teaching/education discipline. 5. Time permitting, compare the results in your group with those of another group. Students should compare performance criteria, instruments, and who was chosen to be raters. 8-17 Part 4 Placing, Developing, and Evaluating Human Resources CASE STUDY: MAPLE LEAF SHOES LTD., PERFORMANCE APPRAISAL ISSUES Answers to Discussion Questions 1. You are Tim Lance. Please write an assessment of Maple Leaf Shoes' performance evaluation system. 2. What changes would you recommend to the company? Why? The strength of the present evaluation system is that it is easy to use and that 10 percent of the supervisors are trying, seriously trying, to make it work as intended. The weaknesses, however, are numerous. For the majority of supervisors, the system is not worth the paper it is written on. First, the criteria are vague and the standards are unspecified. Second, the supervisors do not seem to have received any training in using it or had its importance impressed upon them. Third, the employees generally receive no feedback and have indifferent or mixed feelings about the system. Fourth, the senior management do not consult the evaluation results for promotions or raises. So it has become a useless system carried on by untrained people. The only recommendation here is for the company to formally dissolve the system and start training the supervisors in the art and science of performance appraisal. Supervisors should hold periodic conferences with their subordinates to give them feedback as to how they are doing. At the next stage, perhaps a formal evaluation form with specific criteria may be devised, and a format such as BARS or MBO can be established in consultation with the supervisors and employees. In the third stage, an attempt might be made to link salary decisions to performance appraisal. The linkage should perhaps be a qualitative one rather than a quantitative one. 8-18 Chapter 8 Performance Appraisal CASE STUDY: CANADIAN PACIFIC AND INTERNATIONAL BANK Answers to Discussion Question critical incidents that indicate whether the employee meets the performance standards on each performance criteria. This means that the relevant performance dimensions and standards should be determined a priori (i.e., what behaviours would indicate mistakes and why), and that they be incorporated in the BARS measure. This system allows for documenting concrete, overt behaviours, which reflect the relevant performance requirements of the job, and thus is legally defensible. 1. How can the bank develop a system that will be legally foolproof? The appraisal system should accurately reflect the performance criteria and standards of the job, and the ratings should indicate the level of performance in the appraisal itself. One way to make it foolproof is to document the specific behaviours that are deemed as unacceptable, and why they are considered mistakes relative to the specified standards. This can be done through BARS, which is based on writing in specific 8-19