Industrial/ Organizational Psychology
Chapter 7: Evaluating Employee Performance
Aamodt
Performance Appraisal Process
Step 1: Determine the Reason for Evaluating
Employee Performance
The forced-choice rating scale
● A performance appraisal method
● It is excellent for determining compensation
but terrible for training purposes.
360-degree feedback
● It is an excellent source for improving
employee performance but is not appropriate
for determining salary increases.
Providing Employee Training and Feedback
● The most important use is to improve
employee performance by providing feedback
about what employees are doing right and
wrong.
● Semi-annual Performance Appraisal
Review
○ It is an excellent time to meet with
employees to discuss their strengths and
weaknesses.
○ But more important, it is the time to
determine how weaknesses can be
corrected.
Determining Salary Increases
● The difference in compensation between two
individuals within the same job is a function of
both tenure and job performance.
○ It would not seem fair to pay a poor-
performing employee the same amount as
an excellently performing one.
● One important reason for evaluating
employee performance is to provide a fair
basis on which to determine an employee’s
salary increase.
○ If performance appraisal results are to be
used to determine salary increases, a
numerical rather than narrative format is
probably needed.
Making Promotion Decisions
● Even though promoting employees on the
basis of performance or tenure seems fair, it
may not always be smart.
○ The best employee at one level is not
always the best at the next level.
● Peter Principle—the promotion of employees
until they reach their highest level of
incompetence.
● Care should be taken to ensure that the
employee is evaluated well on the job
dimensions that are similar to those of the
new position.
Making Termination Decisions
● When performance management techniques
are not successful, the results might suggest
that the best course of action is to terminate
the employee.
Conducting Personnel Research
Step 2: Identify Environmental and Cultural
Limitations
● Identify the environmental and cultural factors
that could affect the system.
● In an environment in which there is no money
available for merit pay, developing a
 numerically complex system will become
frustrating, and the results of the evaluation
may not be taken seriously.
● In an environment in which employees are
very cohesive, the use of peer ratings might
reduce the cohesiveness.
Step 3: Determine Who Will Evaluate
Performance
Figure 7.2 Who observes employee performance?
Supervisors
● Though supervisors may not see every
minute of an employee’s behavior, they do
see the end result.
Peers
● They often see the actual behavior.
● It usually comes from employees who work
directly with an employee
● They are fairly reliable only when the peers
who make the ratings are similar to and well
acquainted with the employees being rated
● Employees who score high in self-esteem,
high in self-monitoring, and low in
individualism react most favorably to peer
ratings
Subordinates
● also called upward feedback
● It is an important component of 360-degree
feedback
○ As subordinates can provide a very
different view about a supervisor’s
behavior.
● This can be difficult to obtain because
employees fear a backlash if they unfavorably
rate their supervisor
○ Especially when a supervisor has only
one or two subordinates.
● Subordinates’ feedback can be encouraged if:
a. Supervisors appear open to employee
comments
b. If the ratings are made anonymously
c. If the ratings are used for developmental
purposes
d. If the employee feels competent to make
the rating
e. Feels there will be no retaliation for
making honest ratings
f. Will somehow benefit by providing honest
ratings
● Performance increases can be enhanced
when the feedback is provided in a workshop
conducted by a feedback facilitator rather
than by a direct supervisor
Customers
● This done through filing complaints or
complimenting a manager about one of her
employees.
● Secret shoppers
○ Current customers who have been
enlisted by a company to periodically
evaluate the service they receive.
○ In exchange for their ratings, they get a
few dollars and a free meal.
Self-Appraisal
● Employee self-appraisals tend to suffer from
leniency, correlate only moderately with actual
performance, and poorly with subordinate and
management ratings
● It appears to be most accurate when the it will
not be used for such administrative purposes
as raises or promotions
● They are also more accurate when
employees understand the performance
appraisal system
Step 4: Select the Best Appraisal Methods to
Accomplish Your Goals
Criteria—are ways of describing employee
success.
Prior to developing the actual performance
appraisal instrument, two important decisions must
be made:
1. The focus of the performance appraisal
dimensions
2. Whether to use rankings or ratings.
Decision 1: Focus of the Appraisal
Dimensions
● Trait-Focused Performance Dimensions
○ It concentrates on employee attributes
such as dependability, honesty, and
courtesy.
 ○ These are not a good idea because they
provide poor feedback and thus will not
result in employee development and
growth.
○
● Competency-Focused Performance
Dimensions
○
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