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8Appraising and Managing Performance
Learning objectives
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Discuss the relationship between strategy, performance management and performance appraisal.
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Understand the objectives of performance appraisal.
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Identify the sources of error in performance appraisal.
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Discuss the major types of performance appraisal systems.
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Understand the importance of goal setting in performance improvement.
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Appreciate the impact of EEO on performance appraisal.
Chapter outline
This chapter is divided into six sections. The first three sections introduce the topic of performance appraisaland its relationship to business strategy and various HRM activities. The third section then offers a detailedoverview of the types of performance appraisal systems used by organisations and their associated problems.The remaining sections in this chapter discuss the key characteristics of an effective appraisal system and theimportance of ensuring that the appraisal system satisfies all EEO requirements.
Strategy, performance management and performance appraisal
Organisations need ever-improving performance to survive and prosper in today’s competitive world:individual and organisational performance improvement are the keys to competitive advantage. Theevaluation of organisational and employee performance permits managers to check that strategic businessobjectives are valid, are being successfully communicated throughout the organisation and are beingachieved.Performance appraisal, by providing a dynamic link to employee recruitment, selection, training anddevelopment, career planning, compensation and benefits, safety and health and industrial relations, is a vitaltool for strategy execution. It signals to managers and employees what is really important; it provides waysto measure what is important; it fixes accountability for behaviour and results; and it helps to improve performance.
Performance management
Organisational interest in performance management has increased as a result of competitive pressures, theinfluence of HRM and the individualisation of the employment relationship. The key elements of  performance management are:
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the creation of a shared vision of the organisation’s strategic objectives
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the establishment of performance objectives for each function, group and individual to ensure thattheir performance is aligned with the needs of the business
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the use of a formal review process to evaluate functional, group and individual progress towards goalachievement
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the linking of performance evaluation and employee development and rewards to motivate andreinforce desired behaviour.
Performance appraisal
Performance appraisal may be viewed as an overall measure of organisational effectiveness: organisationalobjectives are met through the effort of individual employees. If employee performance is improved, theorganisation will lift its performance. However, it should be noted that some experts do not accept theseassumptions. Nevertheless, appraisal of employee performance remains a critical and ongoing management
 
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activity. This is because managers are continually observing and judging their employees. This evaluation process may be formal or informal. Either way, it has a direct impact on the employees’ salary increases, promotions, demotions, terminations, training and career development.
Performance appraisal objectives
 Discrimination
A manager must be able to objectively discriminate between those who are contributing to the achievementof the organisation’s strategic business objectives and those who are not. Those who are underperformingshould be given the opportunity and assistance to improve. Leaving non-performers in the organisationsends the wrong signals to other employees who are performing well. Employees who achieve want to berecognised and rewarded for their efforts.
 REWARD —
To encourage performance it must be rewarded. Employees who have contributed the most tothe achievement of the organisation’s strategic business objectives should receive the greatestrewards
. DEVELOPMENT —
Employee development is the third aim of performance appraisal. Performanceimprovement comes about by building on strengths and overcoming weaknesses. It is themanager’s job to remove blocks to employee performance and to help each employee to growand develop.
 FEEDBACK—-
Managers are responsible for evaluating the performance of their people and for accuratelycommunicating that assessment. This requires the manager to identify the employee’sdeficiencies and determine how they can be overcome; to know what specialised training anddevelopment are needed; and to ensure that opportunities are created for any new jobexperiences required. Communicating clear, specific expectations and giving both positive andnegative feedback are essential parts of the performance appraisal process.
 
Rater of employee performance
 The evaluation of employee performance is done by the immediate supervisor in most organisations.However, performance appraisal can be done by anyone who:
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is familiar with the job’s responsibilities and performance objectives
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has sufficient opportunity to observe the employee’s job performance
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has the know-how to distinguish between behaviours which produce effective or ineffective job performance.
SUPERVISOR EVALUATION —
Overwhelmingly, performance appraisals are the responsibility of theimmediate supervisor
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PEER EVALUATION — Organisations employing total quality management concepts and teams areincreasingly using peer evaluations.SELF-EVALUATION — This occurs where the employee evaluates their own performance. Someorganisations use self-appraisals as a supplement to supervisor and/or peer evaluations.
 
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SUBORDINATE EVALUATION — Sometimes called upward performance appraisals involves thesubordinate evaluating the performance of their superior.MULTISOURCE EVALUATIONS — Multi-source or 360 degree evaluations are gaining increasingpopularity. It seeks performance feedback on employees from their colleagues, superiors, customers andsubordinates.
TEAM BASE EVALUATIONS — 
Are appraisals that are specially designed to evaluate how well a team has performed.
Sources of error in performance appraisal
Research evidence indicates that managers can clearly discriminate between performing and non-performingemployees. However, their ratings will not necessarily reflect their actual judgements. This is becausemanagers often distort their evaluations when completing performance appraisal forms. Typical rater errorsthat occur are halo effect, central tendency, prejudice, recency effect, relationship effect, leniency/strictnessbias, and emphasis on subjective performance criteria.
Major types of performance appraisal systems
When choosing an employee performance appraisal system to introduce, managers must consider thestrategic business objectives of the organisation as well as specific performance evaluation purposes.
RANKING — compares each person’s performance, with the manager ranking all subordinates from ‘best’to ‘worst’.GRADING — compares the employee’s performance with the grade definitions, then the employee is placedin the grade that best describes his or her performance.GRAPHIC SCALES — Rating scale that evaluates employee performance using specific employeebehaviour or characteristics
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CRITICAL INCIDENTS — requires the manager to record those occurrences or critical incidents of employee job behaviour which highlight good or bad job performance.
BEHAVIOURALLY ANCHORED RATING SCALES — a method that combines elements of thetraditional rating scale and critical incidents method.BEHAVIOUR OBSERVATION SCALES — A behaviour observation scale (BOS) uses critical incidents todevelop a list of the desired behaviours needed to successfully perform a specific job.
ESSAY DESCRIPTION — A manager may be asked to describe, in his or her own words, the employee’sperformance (covering the quantity and quality of work performed, job know-how, humanrelations skills, strengths and weaknesses and so on).MANAGEMENT BY OBJECTIVES (MBO) — Management by objectives is a technique whereby themanager and the subordinate mutually identify common goals, define the subordinate’s majorareas of responsibility in terms of expected results, and use these as measures in assessing thesubordinate’s performance.ASSESSMENT CENTRES — The primary purpose of an assessment centre is typically to identifypromotable or high-potential employees. Assessment centres are rarely used for performanceappraisal purposes because they are costly and time consuming.
WORKPLACE SURVEILLANCE — The introduction of workplace surveillance equipment to monitor employee performance and behaviour is rapidly becoming matter of considerable controversy.
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