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Performance Evaluation and Management

McGraw-Hill/Irwin Human Resource Management, 10/e

© 2007 The McGraw-Hill Companies, Inc. All rights reserved.


l Performance

management is: l The process by which executives, managers, and supervisors work to align employee performance with the firm’s goals effective performance management process:
l Has

l An

a precise definition of excellent performance l Uses measurements of performance l Provides feedback to employees


l Tips

for improving a performance management program: l Eliminate “HR-speak” l Set appropriate goals l Make the difficult decisions l Develop a performance culture

9-4 Introduction l A firm’s strategy must be aligned with employees’ competencies and performance to achieve: l Profitability l Growth l Effectiveness l Valuation .

9-5 Introduction l Not all measures are easy to develop l Measurement of tangible outcomes (television sets) can be done with precision l Intangible outcomes (teaching) are difficult to measure l Performance evaluation determines the extent to which an employee performs work efficiently .

9-6 Introduction l Other terms for performance evaluation: l Performance review l Personnel rating l Merit rating l Performance appraisal l Employee appraisal l Employee evaluation .

9-7 Introduction l Many organizations have two evaluation systems: formal and informal l Thinking about how well employees are doing is an informal system l A formal system is set up by the organization to regularly and systematically evaluate employee performance and interpersonal processes influence the informal system l Employees who are liked better have an advantage l Political .

9-8 The Case for Formal Evaluation l Purposes of a well-designed formal evaluation system: l Development l Motivation l Human resource and employment planning l Communication l Legal compliance l HRM research .

9-9 The Case for Formal Evaluation l Employees should consider an evaluation meaningful. fair. helpful. and honest l This is difficult to attain because of a number of factors. including: l Unfairness l Negative practices l A short-term focus .

9-10 Pitfalls of reviews l Employees tend to postpone and delay participation l Biases by reviewers l Providing too positive of an evaluation .

9-11 Steps to effective evaluations l  No surprises l  Review last year’s review l  Understand the concept of documentation l  Avoid extremes l  Incorporate self evaluations l  Distinguish between performance and pay l  Usage of language .

9-12 Evaluation Time Line l 1 month before: prepare employees l 2 weeks before: distribute job descriptions and last year’s review l 1 week before: review individual self-evaluations in one on one meeting l Day of: meet with employee and give formal feedback l 3 to 5 days after: follow up meeting .

so requirements for appraisal systems are less clearly defined .9-13 Performance Evaluation and the Law l Uniform Guidelines on Employment Selection Procedures: l Issued by the EEOC in 1978 to explain how to comply with federal employment legislation l More attention was devoted to selection than to performance evaluation.

the supervisors’ ratings are used as input for human resource decisions l These decisions affect promotions. transfers. and so on l These subjective judgments can introduce bias into the system . pay.9-14 Performance Evaluation and the Law l Most performance evaluation procedures rely on supervisors’ judgments l Once work-related behavior has been judged.

the company’s performance evaluation instrument was invalid because it did not relate to important elements in the jobs for which employees were being evaluated l Other performance evaluation lawsuits have dealt with sex.9-15 Performance Evaluation and the Law l Courts have focused on management’s responsibility to develop and use a performance evaluation system in a legally defensible way l In Brito v. and age discrimination in terminations. Zia Company. promotions. and layoffs . race.

the way the system was developed and whether it was applied consistently are more important than validity l In age discrimination cases.9-16 Performance Evaluation and the Law l A challenge to the validity of a performance evaluation system is less of an issue than a challenge to a selection system l Legally. the type of decision being challenged determines how much proof a company must produce .

sex. uncontaminated data l A formal system of review or appeal should be available for disagreement over appraisals l Use more than one independent evaluator l Use a formal. non-rated. and attitude . national origin. standardized system for evaluation l Avoid ratings on traits. drive. such as dependability. religion. aptitude. or age l Use objective.9-17 Performance Evaluation and the Law l Recommendations for a legally defensible appraisal system: l Procedures must not differ because of race.


Performance Evaluation and the Law
l Performance

data should be empirically validated l Communicate specific performance standards l Provide raters with written instructions l Evaluate employees on specific work dimensions rather than an overall or global measure l Require behavioral documentation for extreme ratings l Allow employees to review their appraisals


Format of Evaluation
l The

ability to provide accurate, reliable performance data is enhanced if a systematic process is followed: l Step 1: Establish performance standards for each position and the criteria for evaluation (job analysis) l Step 2: Establish performance evaluation policies on when to rate, how often to rate, and who should rate l Step 3: Have raters gather data on employees’ performance


Format of Evaluation
l Step

4: Have raters (and employees in some systems) evaluate employees’ performance l Step 5: Discuss the evaluation with the employee l Step 6: Make decisions and file the evaluation

and cost of work major problem with many evaluation systems: l They require supervisors to make person evaluations rather than performance evaluations l A .9-21 Establish Criteria l The dimensions of performance upon which an employee is evaluated are called the criteria of evaluation l Examples: quality. quantity.

9-22 Establish Criteria l An effective criterion should possess the following characteristics: l Reliability l Relevance l Sensitivity l Practicality criteria are necessary to measure performance completely l One must evaluate both activities and results l Management must weigh these criteria l Multiple .

When. such as the date of hire l Alternatively. and How Often l In the U.. most organizations evaluate on an annual basis l Performance evaluations are often scheduled for arbitrary dates.S. all employees may be evaluated on or near a single calendar date makes more sense to schedule the evaluation after a task cycle l For those without a task cycle based on dates. goals should be established that allow a beginning and end l The evaluation can be at the end of the task cycle l It .9-23 Who Evaluates.

9-24 Who Should Evaluate the Employee? l The immediate supervisor conducts most appraisals l Other options: l Rating by a committee of several supervisors l Rating by the employee’s peers (co-workers) l Rating by the employee’s subordinates l Rating by someone outside the immediate work situation l Self-evaluation l Rating by a combination of approaches .

9-25 360-degree Feedback l Many organizations now use some form of 360-degree feedback program l Upward and peer feedback can have positive effects on behavior l These effects are sustainable over time l Almost 90 percent of companies using 360-degree programs use the information for such decisions as pay increases and promotions l Introducing a 360-degree system into a culture not prepared for it can have disastrous effects .

below. peer l Anonymous upward feedback.9-26 360-degree Feedback l Positive features of a 360-degree system: l Multiple perspectives of a person’s performance l Raters base evaluations on contact and observation l Feedback is provided from multiple directions… above. which results in full participation l Learning about weaknesses and strengths is motivational .

9-27 360-degree Feedback l Negative features of a 360-degree system: l Feedback from all sources can be overwhelming l Rater can hide in a group of raters and provide harsh evaluations l Conflicting ratings can be confusing and frustrating l Providing feedback that is constructive requires a plan and well-trained raters .

9-28 Selected Evaluation Techniques l Ways of evaluating employees can generally be divided into two categories: l Methods that evaluate employees individually l Multiple-person evaluations l In a multiple-person evaluation. the supervisor directly and intentionally compares the performance of one employee to that of others .

which are then computed l Raters are often asked to explain each rating with a sentence or two .9-29 Individual Evaluation Methods l Graphic rating scale l The rater is presented with a set of traits l The employee is rated on the traits l Ratings are assigned points.

9-30 Individual Evaluation Methods l Two modifications make the scale more effective: l A mixed standard scale gives the rater three statements describing each trait l Operational and benchmark statements are added to describe different levels of performance .

peers. subordinates. or they rank the statements from most to least descriptive l Forced choice can be used by superiors. or a combination of these .9-31 Individual Evaluation Methods l Forced choice: l Was developed because graphic rating scales allowed supervisors to rate everyone high l The rater must choose from a set of descriptive statements about employee l Supervisors check the statements that describe the employee.

peers. or subordinates l Essay evaluations are flexible. an evaluator can specifically address the ratee’s skill in any area l Comparing essays is difficult l Skilled writers can paint a better picture .9-32 Individual Evaluation Methods l Essay Evaluation l The rater is asked to describe the strong and weak aspects of the employee’s behavior l It can be used by superiors.

9-33 Individual Evaluation Methods l Critical Incident Technique l Raters maintain a log of behavioral incidents that represent effective and ineffective performance for each employee l Two factors determine the success of this technique: l The supervisor must have enough time to observe subordinates during the evaluation period l The supervisor must record incidents as they are seen l Logs can help avoid common rating errors and facilitate discussions about performance improvement .

9-34 Individual Evaluation Methods l Checklists l In its simplest form. the item is checked l A rating score equals the number of checks . the checklist is a set of objectives or descriptive statements l If the rater believes that the employee possesses a listed trait.

it is included in the weighted checklist l The employee’s evaluation is the sum of the scores (weights) on the items checked Checklists and weighted checklists can be used by superiors. peers. or subordinates .9-35 Individual Evaluation Methods l A variation is the weighted checklist l Supervisors and HR specialists prepare a list of descriptive statements about behavior l Judges who have observed behavior on the job sort the statements into piles rated from excellent to poor l When there is agreement on an item.

9-36 Individual Evaluation Methods l Behaviorally Anchored Rating Scales l Smith and Kendall developed the behaviorally anchored rating scale (BARS). or the behavioral expectation scale (BES) l The BARS approach uses critical incidents to anchor statements on a scale l The rater reads the anchors and places an X at some point on the scale for the ratee .

9-37 Individual Evaluation Methods l A BARS usually contains these features: l Six to 10 performance dimensions identified and defined by raters and ratees l The dimensions are anchored with positive and negative critical incidents l Each ratee is then rated on the dimensions l Ratings are fed back using the terms on the form It takes two to four days to construct a BARS that is jargon free and closely related to the requirements of the job .

the BOS uses critical incidents l Instead of identifying which behaviors occurred.9-38 Individual Evaluation Methods l Behavioral Observation Scales (BOS) l Developed by Latham and associates l Like BARS. the rater identifies how they occurred l The hope was that BARS and BOS would yield more objective ratings than other scale formats l Most researchers find that the format of the rating scale has little effect on the quality of a performance appraisal system .

9-39 Individual Evaluation Methods l Sample BOS Items .

then the bottom one l The second best is chosen. then the second worst l Follow this process until everyone has been ranked .9-40 Multiple-Person Evaluation Methods l Ranking l A supervisor is asked to rank subordinates in order on some overall criterion l It is easier to rank the best and worst employees than average ones l Alternative rankings can help with this difficulty l Pick the top employee first.

each contains two subordinates names l The higher performer in each pair is chosen l Final ranking is made by counting how many times a given employee was chosen as the better performer l A major limitation is the number of paired comparisons that must be made l With only 10 subordinates.9-41 Multiple-Person Evaluation Methods l Paired Comparison l The supervisor reviews a series of cards. a supervisor would have 45 pairs of names .

9-42 Multiple-Person Evaluation Methods l Forced Distribution l Employees are rated on a pre-existing distribution of pre-determined categories l The predetermined distribution must be followed. regardless of how well the employees performed l A supervisor with all exceptional subordinates will be forced to rate some poorly l A supervisor with mediocre subordinates must rate some highly This technique is similar to grading on a curve .

9-43 Multiple-Person Evaluation Methods l Point allocation technique (PAT) l A variation of forced distribution l Each rater is given a number of points per employee l The points must then be allocated on a criterion basis l The total number of points cannot exceed the number of points per employee times the number of employees evaluated .

organize. communicate.9-44 Multiple-Person Evaluation Methods l Management by Objectives (MBO) l The MBO approach emerged from the beliefs of McGregor. control. Drucker. and debate l The subordinate has a course to follow and a target to shoot for . and Odiorne l With MBO. managers and subordinates plan.

9-45 Multiple-Person Evaluation Methods l An MBO program follows a systematic process: l Superior/subordinates define tasks and set objectives l The superior. consulting with subordinates. encouraging session l Objectives for the next cycle are set . sets criteria for assessing objective accomplishment l Dates to review progress are agreed upon and used l Superior and subordinates make any required modifications in the original objectives l A final evaluation by the superior is made l The superior meets with the subordinate in a counseling.

9-46 Multiple-Person Evaluation Methods l For MBO and other performance management programs to work: l Both the manager and subordinate must be actively involved in objective formulation l They must also agree on what measures will be used to evaluate success and failure .

too little on preventing them l The manager and employee must work cooperatively to improve the underlying basis for productivity l To do so. managers must be coaches and counselors. centered on results l Many now find MBO programs too results-oriented and insufficiently process-oriented l Deming argues that MBO places too much emphasis on detecting problems.9-47 Multiple-Person Evaluation Methods l A central feature of MBO is discussion about subordinates’ performance. not judges .

9-48 Multiple-Person Evaluation Methods l Any employee’s performance is affected by: l His/her ability and motivation l The production system that is in place consider an appraisal system in which someone’s merit is not tied exclusively to whether goals were met l Therefore. .

9-49 Multiple-Person Evaluation Methods l Pitfalls and problems with MBO: l If too many objectives are set. confusion occurs l Too much paperwork In some situations MBO is l It is forced into jobs where setting very effective. in objectives is difficult others it is costly and disruptive l Rewards may not be tied to results l There may be too much emphasis on the short term l Superiors are not trained in the MBO process l Original objectives are never modified l It is used as a rigid control device that intimidates rather than motivates .

field review. BOS. paired comparison l Used l Used . MBO by 10 to 13 percent of firms: l Ranking. critical incident. BARS.9-50 Which Technique to Use l The most commonly used evaluation techniques: l The graphic rating scale l The essay method l Checklists by about 5 percent of firms: l Forced choice.

and technical employees technique is sometimes good and sometimes l Each poor l The problem lies with how the techniques are used. professional.9-51 Which Technique to Use l MBO is most likely to be used for: l Managerial. and by whom l The rater is more critical than the technique .

they all have limitations .9-52 Performance Evaluation Problems No technique is perfect.

9-53 Opposition to Evaluation l Most employees are wary of performance evaluation l Subjective bias and favoritism are real problems of formal evaluation argue that: l They focus too much symptoms of poor performance rather than finding the underlying causes l Managers and employees dislike the process l Raters have trouble deciding performance levels l Employees who are not placed in the top performance category experience a reverse motivation effect l Opponents .

both of which managers resist l Some systems are not fully online . the evaluation may not be well received l Some techniques take a long time to carry out or require extensive written analysis. or on personality traits rather than performance.9-54 System Design and Operating Problems l Performance evaluation systems break down because they are poorly designed l If the criteria focus solely on results.

similar to me) l Inadequate .9-55 Rater Problems l Even if a system is well designed. problems can arise if raters are not cooperative and well trained l Supervisors may not be comfortable “playing God” training can lead to: l Problems with standards of evaluation l Halo effect l Leniency or harshness l Central tendency error l “Recency of events” error l Contracts effects l Personal bias (stereotyping.

critical incidents. and excellent mean different things to different evaluators only one rater is used. and checklists l If . evaluations can be distorted l This arises most often in graphic rating scales l It may also appear with essays. adequate.9-56 Standards of Evaluation l Problems with evaluation standards arise because of perceptual differences in the meaning of words l Good. satisfactory.

evaluate all subordinates on one dimension before proceeding to the next l Halo . they are hard to eliminate l To reduce the possibility.9-57 The Halo Effect l Halo error occurs when a rater assigns values on the basis of an overall impression of the ratee l Halo error can be positive or negative l The ratings represent an error only if not justified l True halo occurs when uniformly high or low ratings are justified by the ratee’s performance errors are not as common as once believed l When they do occur.

leniency or harshness errors may occur l Raters can assess their tendencies by examining their ratings l Asking raters to distribute ratings can force a normal distribution .9-58 Leniency or Harshness Error l Being objective is difficult for everyone l Consequently.

9-59 Central Tendency Error l A central tendency error occurs when a rater avoids using high or low ratings l This “average” rating fails to discriminate between subordinates l It offers little information for making HRM decisions regarding: l Compensation l Promotion l Training l What should be fed back to ratees .

9-60 “Recency of Events” Error l Raters forget more about past behavior than current behavior l Many persons are evaluated more on the results of the past several weeks than the past six months employees are well aware of this difficulty l They are sure to be visible and noticed in positive ways for several weeks in advance of a review l Some l This problem can be mitigated by using critical incident. or irregularly scheduled evaluations . MBO.

9-61 Contrast Effects l A contrast effect error occurs when a supervisor lets another employee’s performance influence the ratings given to someone else l Contrast effects also occur when a supervisor unknowingly compares an employee’s present performance with their past performance l Poor performers could get rated “above average” if they improve. even if the improvement only brings performance up to “average” .

a supervisor could “play favorites” l Other biases may be more subtle. such as giving a higher rating because the ratee is similar to the rater l Personal liking can also affect ratings and feedback effect is usually small if there is sufficient performance-related information on which to base ratings l The .9-62 Personal Bias Error l A personal bias rating error is related to a personal bias held by the supervisor l Some can be conscious. such as sex discrimination l Or.

and report behavior .9-63 Eliminating Rater Errors l Behavior-based rating scales were created to help eliminate the kinds of ratings errors just described l Such scales didn’t demonstrate consistent superiority over other rating formats l Researchers now concentrated on the rating process l More effort is now placed on helping raters accurately observe. recall.

even if short and relatively inexpensive l Focusing on observation and recording skills offers greater improvement than simply focusing on errors alone will not solve all problems l Raters must be motivated to use the system and be allowed to observe subordinate performance l Programs l Training .9-64 Rater Training l The two most popular training programs are designed to: l Eliminate common rating errors l Improve supervisor observation and recording skills dealing with errors are effective.

employees must: l Understand it l Feel that it is fair l Believe it is used correctly system should be: l As simple as possible l Implemented in a way that fully informs employees about how it will be used l The .9-65 Avoiding Problems with Employees l For an evaluation system to work well.

or ignore the rating system l If . sabotage.9-66 Avoiding Problems with Employees l To foster understanding about the system: l Allow employees to participate in its development l Provide training in performance evaluation methods l Self-evaluation can be a useful addition to an evaluation system l This facilitates performance evaluation discussions with a supervisor raters are incompetent or unfair. employees may resist.

9-67 The Feedback Interview l An effective performance interview involves two-way communication l Evaluation should be a continuing process should hold evaluation interviews in order to: l Discuss the appraisal l Set objectives for the upcoming appraisal period l Supervisors l The employee’s development or salary should not be discussed during this interview .

9-68 The Feedback Interview l Suggestions for effective interviews: l Prepare for the meeting l Put the employee at ease l Split the budgeted time with the employee l Present facts. not opinions l Be specific l Discuss performance. not personal criticisms l Include positive comments l Don’t overwhelm the ratee with information l Encourage the ratee’s involvement l Focus on the future .

9-69 The Feedback Interview l With good interviewing skills. many problems related to discussing performance can be overcome l Speak clearly l Listen carefully l Gather and analyze information thoroughly l Negotiate the amount and use of resources poor feedback interview is due to: l Poor preparation l Miscalculation about the purpose of the session l Failure of the rater and ratee to understand each other l A .

9-70 The Feedback Interview l Sometimes there is no choice but to give negative feedback l It is easier to accept criticism if the discussion is part of the larger topic: ways to improve future performance l The goal of the feedback interview is to: l Recognize and encourage superior performance l Sustain acceptable behaviors l Change the behavior of ratees whose performance is not meeting organizational standards .