PERFORMANCE &

POTENTIAL APPRAISAL
 “Nurturing
turns potential
into
performance”
What is performance appraisal?
 Employee Assessment – the assessment of an
employee's effectiveness, usually as undertaken at
regular intervals
 Performance appraisal may be defined as a
structured formal interaction between a subordinate
and supervisor in which the work performance of
the subordinate is examined and discussed
 with a view to identifying weaknesses and strengths as
well as opportunities for improvement and skills’
development
 Performance Management

Performance appraisal: the measurement and

assessment of an employee’s job performance
Performance management: the integration of
performance appraisal systems with other HRM
systems for the purpose of aligning the employees’
work behaviors and results with the organization’s
goals
 Example: link an employee’s pay increase to the employee’s job
performance
 To do this, we have to measure the employee’s job performance
 Goal: Improve the organization by improving the employees’
work behaviors and results

4
 Performance
Management
Linkage

Copyright © 2005 Thomson Business & Professional Publishing. All

rights reserved.
 Difference Between Performance
Management and Performance Appraisals
 Performance  Performance
Management Appraisal
 Processes used to identify,  The process of evaluating
encourage, measure, how well employees perform
evaluate, improve, and their jobs and then
reward employee communicating that
performance. information to the
employees.

Copyright © 2005 Thomson Business & Professional Publishing. All

Why Have Performance Appraisal ?
 Performance Appraisal offers several
advantages at the level of the:
 Individual
 Recognition of past effort
 Developmental requirements can be uncovered
 Team
 Alignment of effort with objectives
 Motivation of team members
 Organization
 Development of staff
 Achievement of key objectives
 Best and focused utilization of human resources
 Objectives

 Compensation decisions
 Promotion decisions
 Training and development programmes
 Feedback to the employee
 Personal growth and development
 Performance Management Cycle

Development Tool

Administrative
Tool

Source of figure: Adapted from Fisher, Schoenfeldt, & Shaw (2006), Figure 10.1, p. 421
9
 The Performance Appraisal Process

Establish performance standards

Communicate the standards
Measure actual performance
Compare actual performance with standards and
discuss the appraisal
Take corrective action, if necessary
 Types of Performance to Measure

What aspects of an employee’s job performance

can we measure?
 We have 3 basic choices:
 Results produced by the employee
 Example for a salesperson: Amount of sales ($) in the past
month
 Behaviors of the employee
 Example for a salesperson: Number of sales calls in the past
month
 Traits of the employee
 Example for a salesperson: Friendliness
 Types of Performance Information

Copyright © 2005 Thomson Business & Professional Publishing. All

 Types of Performance to Measure

Results-based (results-oriented): measure the

results produced by the employee
 Examples for a retail store manager (examples of some
results for which the store manager has responsibility and
so should be held accountable):
 Sales of the store
 Profit per square foot
 Inventory shrinkage
 Customer satisfaction

 Makes sense for most jobs

 Results matter (usually)
 Types of Performance to Measure

Results-based (more)
 Challenges:
 Which results are relevant may not be obvious for all jobs
 Some results are not under the employee’s control
 May foster a “results at all costs” mentality
 May interfere with teamwork
 May be difficult to provide effective feedback
 Types of Performance to Measure

Behavior-based (behavior-oriented): measure the

employee’s behaviors
 Examples for a retail store manager:
 Good attendance
 Completes management reports correctly & on time
 Monitors customers and employees for theft
 Coaches employees to welcome customers to the store & offer
assistance within 3 minutes, and to thank customers as they
leave
 Conducts regular sessions with employees to develop teamwork
 Makes sense for many jobs
 Use it where how the employee produces results matters
 Types of Performance to Measure

Behavior-based (more)
 Advantage: Makes it easier to provide effective performance
feedback to employees
 Examples for a retail store manager:
 Feedback with results-oriented performance appraisal: “You
didn’t achieve your sales goal.” (Measured by sales reports)
 Feedback with behavior-oriented performance appraisal: “You
are allowing your employees to wait too long before offering help
to customers.” (Measured by observations of a secret shopper)
 Challenges:
 Difficult to capture the full range of relevant behaviors
 Different behaviors can lead to the same results
 We may not always care which behaviors were used
 Types of Performance to Measure

Trait-based (trait-oriented): measure the employee’s

personal characteristics
 Examples for a retail store manager:
 Ability to make decisions
 Loyalty to the company
 Communication skills
 Level of initiative
 This is usually a bad idea for several reasons:
 Poor reliability & validity of measures of traits
 Weak relationship between traits and job effectiveness
 Measurements of traits are more likely to be subject to biases
(sexism, racism, ageism, etc.)
 Hard to use traits to provide effective feedback
 Types of Performance to Measure

So, in most cases, we want to measure the job

performance of an employee in terms of the results
and behaviors of the employee
 Make a list of results & behaviors that are relevant to the job
 Starting point: Use the job description to identify the essential
tasks of the job
 Example task statement on job description for a Retail Store
Manager: “Manage inventory shrinkage.”
 Translate the tasks into results & behaviors
 Example (continued): Measure the amount of inventory
shrinkage in the store (a result)
Characteristics of an Effective
Appraisal System
 Job-related criteria
 Performance expectations
 Standardization
 Trained appraisers
 Continuous open communication
 Performance reviews
360-Degree Feedback

 Performance information is collected from

supervisors, subordinates, peers, and
internal/external customers
 Generally done for development rather than
for pay raises
360-degree Feedback
 Many organizations now use some form of
360-degree feedback program
 Upward and peer feedback can have positive
effects on behavior
 These effects are sustainable over time
 Introducing a 360-degree system into a culture not
prepared for it can have disastrous effects
360-degree Feedback
 Positive features of a 360-degree system:
 Multiple perspectives of a person’s performance
 Raters base evaluations on contact and observation
 Feedback is provided from multiple directions…
above, below, peer
 Anonymous upward feedback, which results in full
participation
 Learning about weaknesses and strengths is
motivational
360-degree Feedback
 Negative features of a 360-degree system:
 Feedback from all sources can be overwhelming
 Rater can hide in a group of raters and provide
harsh evaluations
 Conflicting ratings can be confusing and frustrating
 Providing feedback that is constructive requires a
plan and well-trained raters
Selected Evaluation Techniques
 Ways of evaluating employees can generally
be divided into two categories:
 Methods that evaluate employees individually
 Multiple-person evaluations
 In a multiple-person evaluation, the supervisor
directly and intentionally compares the
performance of one employee to that of others
Individual Evaluation Methods
 Graphic rating scale
 The rater is presented with a set of traits
 The employee is rated on the traits
 Ratings are assigned points, which are then
computed
 Raters are often asked to explain each rating with a
sentence or two
Individual Evaluation Methods
 Forced choice:
 Was developed because graphic rating scales
allowed supervisors to rate everyone high
 The rater must choose from a set of descriptive
statements about employee
 Supervisors check the statements that describe the
employee, or they rank the statements from most to
least descriptive
 Forced choice can be used by superiors, peers,
subordinates, or a combination of these
Individual Evaluation Methods
 Essay Evaluation
 The rater is asked to describe the strong and weak
aspects of the employee’s behavior
 It can be used by superiors, peers, or subordinates
 Essay evaluations are flexible; an evaluator can
specifically address the ratee’s skill in any area
 Comparing essays is difficult
 Skilled writers can paint a better picture
Individual Evaluation Methods
 Critical Incident Technique
 Raters maintain a log of behavioral incidents that
represent effective and ineffective performance for
each employee
 Two factors determine the success of this technique:
 The supervisor must have enough time to observe

subordinates during the evaluation period

 The supervisor must record incidents as they are

seen
 Logs can help avoid common rating errors and
facilitate discussions about performance improvement
Individual Evaluation Methods
 Checklists
 In its simplest form, the checklist is a set of
objectives or descriptive statements
 If the rater believes that the employee possesses a
listed trait, the item is checked
 A rating score equals the number of checks
Individual Evaluation Methods
 A variation is the weighted checklist
 Supervisors and HR specialists prepare a list of
descriptive statements about behavior
 Judges who have observed behavior on the job sort
the statements into piles rated from excellent to
poor
 When there is agreement on an item, it is included
in the weighted checklist
 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
Individual Evaluation Methods
 Behaviorally Anchored Rating Scales
 Smith and Kendall developed the behaviorally
anchored rating scale (BARS), or the behavioral
expectation scale (BES)
 The BARS approach uses critical incidents to
anchor statements on a scale
 The rater reads the anchors and places an X at some
point on the scale for the ratee
Individual Evaluation Methods
 A BARS usually contains these features:
 Six to 10 performance dimensions identified and
defined by raters and ratees
 The dimensions are anchored with positive and
negative critical incidents
 Each ratee is then rated on the dimensions
 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
 Behaviorally Anchored Rating Scale

Uses specific descriptions of actual behaviors to rate various levels of actual

performance
 Behaviorally-Anchored Rating Scale
for Customer Service Skills

Copyright © 2005 Thomson Business & Professional Publishing. All

Multiple-Person Evaluation Methods
 Ranking
 A supervisor is asked to rank subordinates in order
on some overall criterion
 It is easier to rank the best and worst employees
than average ones
 Alternative rankings can help with this difficulty
 Pick the top employee first, then the bottom one
 The second best is chosen, then the second worst
 Follow this process until everyone has been ranked
Multiple-Person Evaluation Methods
 Paired Comparison
 The supervisor reviews a series of cards; each
contains two subordinates names
 The higher performer in each pair is chosen
 Final ranking is made by counting how many times
a given employee was chosen as the better
performer
 A major limitation is the number of paired
comparisons that must be made
 With only 10 subordinates, a supervisor would have
45 pairs of names
Paired Comparison Method
Multiple-Person Evaluation Methods
 Forced Distribution
 Employees are rated on a pre-existing distribution
of pre-determined categories
 The predetermined distribution must be followed,
regardless of how well the employees performed
 A supervisor with all exceptional subordinates will
be forced to rate some poorly
 A supervisor with mediocre subordinates must rate
some highly

This technique is similar to grading on a curve

Forced Distribution Method
 At Sun Microsystems managers appraise
employees in groups of about 30.
 There is a top 10%, a middle 70%, and a
bottom 10%.
 The bottom 10% can either take a quick exit
package or embark on a 90-day performance
improvement action plan.
 Forced Distribution on a Bell-Shaped Curve

Copyright © 2005 Thomson Business & Professional Publishing. All

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

No technique is perfect;
they all have limitations
Opposition to Evaluation
 Most employees are wary of performance evaluation
 Subjective bias and favoritism are real problems

 Opponents of formal evaluation argue that:

 They focus too much symptoms of poor performance
rather than finding the underlying causes
 Managers and employees dislike the process
 Raters have trouble deciding performance levels
 Employees who are not placed in the top performance
category experience a reverse motivation effect
System Design and Operating Problems
 Performance evaluation systems break down
because they are poorly designed
 If the criteria focus solely on results, or on
personality traits rather than performance, the
evaluation may not be well received
 Some techniques take a long time to carry out or
require extensive written analysis, both of which
managers resist
 Some systems are not fully online
Rater Problems
 Even if a system is well designed, problems can arise if
raters are not cooperative and well trained
 Supervisors may not be comfortable “playing God”

 Inadequate training can lead to:

 Problems with standards of evaluation
 Halo effect
 Leniency or harshness
 Central tendency error
 “Recency of events” error
 Contracts effects
 Personal bias (stereotyping, similar to me)
Standards of Evaluation
 Problems with evaluation standards arise
because of perceptual differences in the
meaning of words
 Good, adequate, satisfactory, and excellent mean
different things to different evaluators
 If only one rater is used, evaluations can be
distorted
 This arises most often in graphic rating scales
 It may also appear with essays, critical incidents,
and checklists
 Potential appraisal

 The objective of potential appraisal is to identify the

potential of a given employee to occupy higher positions in
the organizational hierarchy and undertake higher
responsibilities. It is required to:
 Inform employees about their future prospects
 Help the organization chalk out a suitable succession plan
 Update training efforts from time to time
 Advise employees about what they must do to improve their
career prospects.
 Problem Stars
Children
P
O
T
E
N
T
I Planned separation Solid citizens
A
L

PERFORMANCE