Performance Management

and Appraisal
GMGT5100 Management Studies
Performance Management and Appraisal
Performance Appraisal
Evaluating an employee’s current and/or past performance
relative to his or her performance standards.

Performance Management
The process employers use to make sure employees are
working toward organizational goals. It is about the
integration of performance with other HRM systems for the
purpose of aligning the employees’ work behaviors and
results with the organization’s goals.
Why performance appraisals?

Appraisals play an integral role in the employer’s performance management

process.
Appraisals help in planning for correcting deficiencies and reinforce things
done correctly.
Appraisals, in identifying employee strengths and weaknesses, are useful for
career planning
Appraisals affect the employer’s salary raise decisions.

Functions of performance appraisal:

Administrative function – promotion, transfer, pay raise, probationary
review, policy and program evaluation.
Developmental function – career planning, training needs identification,
setting goals and measuring progress, coaching and supervision.
What to appraise?

Following typical aspects of employee performance are measured

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 to Measure

Results-based (results-oriented) approach: measures 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 reduction
 Customer satisfaction
Makes sense for most jobs
 Results matter (usually)
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

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Types of Performance to Measure
Behavior-based (behavior-oriented) approach: measures 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
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 mystery 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

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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
 Hard to use traits to provide effective feedback

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How to appraise?

Appraisal methods include:

• Objective measures of performance

• Subjective measures of performance
• Ranking
• Rating Scale
• Behaviorally Anchored Rating Scale (BARS)
• Behavioral Observation Scale (BOS)
• Management By Objectives (MBO)
• 360º Feedback
Performance appraisal methods: objective measures

Measure of an employee’s job performance in terms of things we can see and

count with no (or minimal) use of opinion
 Production measures: count units produced by an employee
 Sales measures: count the sales ($) of an employee
 Personnel data: count things in the employee’s personnel file
 Examples:
 Number of times late to work
 Number of times absent
 Number of disciplinary actions taken
 Performance tests: for an employee, evaluate work samples or simulations
under standardized conditions
 Example: for an airline pilot, program a flight simulator with specific flight conditions to test if
the pilot handles it correctly
 Business unit performance measures: for managers who are responsible for a
business unit, measure their performance by measuring the performance of the
business unit they lead
 Examples:
 Market share of the business unit
 Profit measures for the business unit: profits & profit rates (return on sales, return on assets, return on
equity)
 Stock price

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Performance appraisal methods: subjective measures

These methods measure an employee’s job performance using human

judgment

Paired comparison: ranking employees by making a chart of all possible pairs

of the employees for each trait and indicating which is the better employee of
the pair.

Alternation ranking: subjectively rank employees from best to worst

 Example:
1. Zaur
2. Aleksey
3. Narmin
4. Thomas
 Note carefully that the ranking is in terms of subjective opinion (e.g., who is your
best salesperson overall?), not objective factors (e.g., which salesperson sold the
most?)
 Note the ranking requires you to compare one employee to another
 Problem: it can be hard to determine the subjective ranking position of
employees who are in the middle (it all blurs together)

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Ranking by paired comparison method - Example
Performance appraisal methods: subjective measures

Forced distribution: evaluator must place a fixed percentage of

employees in each performance category
• Example:
10% must be rated 5 = Excellent
25% must be rated 4 = Very satisfactory
45% must be rated 3 = Satisfactory
15% must be rated 2 = Unsatisfactory
5% must be rated 1 = Very unsatisfactory
• Note that you are comparing one employee to another
• Problem: what if the distribution being forced doesn’t fit?

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Performance appraisal methods: subjective measures
Rating scale (graphic rating scale): subjectively rate the employee’s job
performance on a labeled numeric measuring scale
• Rating scales are perhaps the most commonly used method of subjectively
evaluating an employee’s job performance
• Before we use a rating scale to subjectively rate an employee’s job
performance, we need to:
• Identify the aspects of job performance (results & behaviors) that are to be evaluated
(rated) using the rating scale
• Develop the rating scale itself
• The same rating scale can be used to rate both overall job performance, and
(multiple) specific aspects of job performance
• Examples:
• 5-point scale: 5 = Excellent, 4 = Very satisfactory, 3 = Satisfactory, 2 = Unsatisfactory, 1 =
Very unsatisfactory
• 5-point scale: 5 = Greatly exceeds standards, 4 = Exceeds standards, 3 = Meets
standards, 2 = Below standards, 1 = Far below standards
• 7-point scale: 7 = Truly exceptional, 6 = Excellent, 5 = Very good, 4 = Good, 3 =
Satisfactory, 2 = Unsatisfactory, 1 = Very unsatisfactory

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Performance appraisal methods: subjective measures

• Some aspects of job performance can be measured objectively and subjectively. For,
example: Quality of work
• Objective measure: defect rate (percentage of units produced by an employee
that fail inspection)
• Subjective measure: subjectively rate the quality of the employee’s work using a
5-point rating scale
• Note that rating scales do not require you to compare one employee to another —
the ratings are absolute, not comparative.
• Problems:
• No limits on leniency, severity, & central tendency errors
• Example: a manager rates all of his employees at “5 = Excellent” regardless of the employees’
actual performances
• Possible solution: forced distribution?
• The terms used in a rating scale to describe different levels of performance tend to be
short and vague
• Example: What does “Excellent” really mean?
• Possible solution: BARS?

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Examples of Rating Scales
Decisions to make:
 Use a graphic or just use
words?
 Label all the points on
the scale, or just label
some?
 Odd or even number of
points on the scale?
 Fewer points on the
scale, or more points on
the scale?

Source: Fisher, Schoenfeldt, &

Shaw (2006), p. 449

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Performance appraisal methods: subjective measures

Behaviorally Anchored Rating Scale (BARS): replace the vague descriptors in a

rating scale with specific examples of performance
 Example: Customer assistance
5 = Could be expected to volunteer to help customer and to walk with customer to location of
desired product
4 = Could be expected to walk with customer to location of desired product when asked for
help by customer
3 = Could be expected to tell and point customer to where the desired product is located when
asked for help by customer
2 = Could be expected to shrug shoulders and walk away when asked for assistance by
customer
1 = Could be expected to hide from customers in the employee break-room
 Note that a different scale will be needed for each aspect of job performance
 Advantages:
 Job-relevant measures of performance
 Involves employees in developing scales
 Disadvantages:
 More work (time & money) to develop BARS
 Employees may not consistently fit into one of the BARS categories. Possible solution: BOS?

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Performance appraisal methods: subjective measures

• Behavioral Observation Scale

(BOS): evaluators rate the
frequency with which an
employee engages in specific
behaviors
• Example: on a list of possible
employee behaviors, rate how
often the employee engages in
each behavior using a rating
scale where:
1 = almost never  5 = almost
always
• Weighted checklist: from a list
of possible employee
behaviors, check off the ones
that apply to the employee
(Example: Fisher, Schoenfeldt, & Shaw
(2006), p. 452)

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Performance Appraisal Methods - MBO
Management By Objectives (MBO): evaluates employee job performance in terms of the
extent to which the employee achieved each of his or her goals during a specified period of
time
Goals can be both objective and subjective
• Example goals (some of many) for a retail store manager:
• Objective: Sales goal for year = $2 million
• Subjective: Customer satisfaction goal = average rating of 4.5 on 5-point customer satisfaction
rating scale
Commonly used for managers and professionals
Process:
• At the beginning of the review period, the employee and the supervisor meet and they
agree on a set of goals to be achieved by the employee during the review period
• Review period is typically one year, but could be more often
• Apply the goal setting principles:
• Involve the employee in goal setting
• Make the goals specific, concrete, and measurable (Apply SMART technique)
• Make the goals difficult but achievable, challenging but realistic (Goal setting theory)
• Empower employees to achieve their goals
• Throughout the review period, progress toward the goals is monitored
• Employee’s supervisor should be providing coaching to help the employee achieve his or her goals
• At the end of the review period, the employee and the supervisor meet to evaluate the
extent to which each goal was achieved and to set new goals for the next review period
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Performance Appraisal Methods - 360º Feedback
Collects behavioural feedback from
anyone in ‘role-set’ – may include:
• customers
• colleagues
• supervisor
• subordinates
• partners
• other people who are directly involved
with employee’s activity.
They all provide rating against given
criteria once (360 degree feedback) or
twice a year (720 degree feedback)
Performance Raters (Evaluators)

• Who should be asked to evaluate the job performance of an

employee?
• Performance evaluators need to have:
• Opportunity to observe the employee’s job performance
• Ability to translate observations of performance into an evaluation of performance
• Motivation to do a good job of observing & evaluating
• Options for Job Performance Evaluators
• Supervisors
• Self-evaluation
• Peers (co-workers)
• Subordinates
• Customers
• External customers
• Internal customers

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Performance appraisal tools: comparison
Tool Advantages
Graphic rating scale Simple to use; provides
quantitative rating for each
employee
BARS Accurate; provides behavioral Difficult to develop
‘anchors’
Alternation ranking Simple to use (not as simple
as graphic rating scale).
Avoids central tendency and
other problems of rating
scale.
Forced distribution End up with pre-determined
% or number in each group
MBO Tied to jointly agreed upon
performance targets
Disadvantages
Standards may be unclear;
halo effect; central tendency
effect; leniency and other
biases
Can cause disagreement
among employees and be
unfair if all employee are in
fact excellent
Employees’ appraisal result
depend on the choice of cut
off points
Time consuming
Performance Feedback
Employees need effective feedback
 Allow time & eliminate distractions
 Both administrative issues (e.g., pay increase) & developmental
issues (e.g., future goals) should be covered
 Provide specific feedback
 Example:
 Don’t say: “You’re always late.”
 Do say: “You were more than 5 minutes late on 25 occasions in the past 3 months. This is
unacceptable. We need to develop (1) a specific goal concerning prompt attendance and
(2) an action plan that you will follow to achieve the goal.”

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Performance Feedback
Types of feedback sessions:
• Tell-and-sell: the supervisor tells the employee the results of the
performance appraisal and explains the reasons why the appraisal is correct
• Tell-and-listen: the supervisor tells the employee the results of the
performance appraisal and listens to the employee’s response
• Problem solving: the supervisor acts as a coach to assist the employees in
setting their own goals and in evaluating their own job performance
• Combination of tell-and-sell & problem solving:
 First part of feedback session: tell-and-sell
 Focus on the past:
 Supervisor tells the employee the results of the performance appraisal and explains the reasons why the
appraisal is correct
 Supervisor tells the employee about any administrative decisions that were made (e.g., pay increases,
etc.)
 Second part of feedback session: problem solving
 Focus on the future:
 Supervisor acts as a coach to help the employee identify barriers to improved future job performance

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Criteria for Effective Performance Appraisal
Systems
1. Validity: are we measuring the right thing?
• Are we really measuring job performance?
• We want to measure important (“relevant”) aspects of job performance, in a way that is free from extraneous
or contaminating influences, and that encompasses the whole job (i.e., our measures of job performance are
not “deficient”: we aren’t leaving out important aspects of job performance)
2. Reliability: consistency of measurement
• Example: inter-rater reliability
• If two people observe a particular employee’s job performance, do they agree in their rating of the employee’s
performance?
3. Freedom from bias
 It does not illegally discriminate (race, sex, age, etc.)
 It is free from rating errors (intentional or unintentional):
 Leniency and severity errors
 Central tendency errors
 Primacy and recency errors
 Halo/horm errors
4. Practicality
 The benefits the organization gets from using it should outweigh the costs of developing & using
it
 It should be relatively easy to use
 It should be accepted by managers and employees

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Thank you

Questions