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CHAPTER 7 PERFORMANCE
MANAGEMENT
LEARNING OUTCOMES
CHAPTER SUMMARY
Performance management is the process encompassing all activities related to improving employee
performance, productivity, and effectiveness. In contrast, performance appraisal is a formal, relatively
infrequent process in which an employee’s performance is evaluated along a predetermined set of criteria
that is quantified via a formal performance score.5 Performance appraisals are used for a variety of
decisions such as training recommendations, merit based pay increases, promotion, or termination
decisions.
The five steps in the performance management process are: defining performance expectations;
providing on-going feedback and coaching; conducting performance appraisal and evaluation
discussions; determining performance rewards or consequences; and conducting development and
career opportunities discussions. Performance appraisal methods include: graphic rating scales,
alternation ranking, paired comparison, narrative forms, forced distribution, critical incidents,
behaviourally anchored rating scales (BARS), and management by objectives (MBO). Appraisal
problems include validity and reliability issues, unclear standards, halo and recency effects, distribution
errors (central tendency, strictness, or leniency), and appraisal and similar-to-me biases. Who should
be involved in the appraising? The options include the supervisor, the employee being appraised, peers,
committees and/or subordinates. The use of 360-degree feedback which gathers and consolidates
ratings from different sources (supervisor, self, peers, subordinates, and customers) has grown
rapidly. Formal appraisal discussions take one of three forms: satisfactory-promotable, satisfactory-
not promotable, or unsatisfactory-correctable. Action plans are developed accordingly. Appraisals can be
difficult task for managers; training can help to improve the quality of the performance appraisal
dialogue between manager and employee and increase satisfaction.
LECTURE OUTLINE
Performance management is the process encompassing all activities related to improving employee
performance, productivity, and effectiveness (goal setting, pay for performance, training and
development, career management, and disciplinary action). Effective performance management can
fulfill three main purposes: align employee actions with the organization’s strategic goals, help to
change organizational culture, and provide input in to other HR systems, such as career development and
remuneration (compensation). In contrast, performance appraisal is a formal, relatively infrequent
process in which an employee’s performance is evaluated along a predetermined set of criteria that is
quantified via a formal performance score.5 Performance appraisals are used for a variety of decisions
such as training recommendations, merit based pay increases, promotion, or termination decisions.
Defining performance expectations and goals is a critical step in employees’ understanding how their
work makes a contribution to achieving business results. Job performance consists of two dimensions;
task performance reflects direct contributions to job-related processes, whereas contextual
performance reflects indirect contributions by improving a range of supportive behaviours that go
beyond those specified for the job (e.g. helping, displaying positive attitude).
Teaching Tip: Use the Global HRM Discussion Box (p. 155) to provide a specific example of cultural
differences.
Teaching Tip: Ask students to draw on their past experience to come up with a quick list of other
contextual performance behaviours– behaviours that make the work go smoothly and make
working there more enjoyable.
Traditionally, performance appraisals were conducted annually, in formalized processes, but some
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Chapter 7 – Performance Management 7-3
businesses environments are more dynamic and need to engage in more frequent or timely assessments
of employee performance. There is an ongoing evolution in performance management in Canadian
companies, with over 50 percent of organizations making changes to their performance management
systems in the last three years. There is an increased focus on coaching (A process for improving work
performance, in a frequent contact, hands-on process aimed at helping employees improve performance
and capabilities. It requires the manager to give guidance, encouragement, and support to an employee,
and the employee to assume the role of a learner. A focus on developing people requires more frequent
and informative conversations and coaching by managers, rather than annual reviews. Effective
managerial coaching requires thinking, informing, empowering, assessing, advising, being professional,
caring, developing others, and challenging employees for continuous improvement.
The performance appraisal itself is generally conducted with the aid of a predetermined and formal
method to increase validity and reliability and to reduce error and bias.
All of these methods have advantages and disadvantages (see Table 7.2 p. 167).
Teaching Tip: Consider assigning one of the experiential exercises (p. 1 7 6 ) as class preparation
followed by small group, in-class discussion and debrief. Alternatively, or in addition, have students
comment on the method(s) of performance appraisal used in organizations where they work/have
worked. For added interest, and if time allows, hold a short discussion on whether the
performance of volunteers in non-profit organizations should be evaluated.
Most firms combine several appraisal techniques in order to offset disadvantages of single
methods Ultimately no one single solution is best for all performance management systems.
Determining factors include resource constraints (time, money, and people) and organizational
factors (budget, turnover, strategy).
Teaching Tip: Ask students to work in pairs or groups to share their experiences with performance
appraisal – non-existent, just given a rating, or actually received constructive and useful feedback.
8.
a. Satisfactory – promotable: Easy, discuss career plans and develop specific action plan for
educational and professional development
b. Satisfactory – not promotable: not as easy, goal is to maintain satisfactory performance often
through valued incentives (e.g. time off, small bonus, verbal recognition, additional decision-
making authority)
c. Unsatisfactory – correctable: can be difficult, goal is to lay out action plan to resolve
unsatisfactory performance
Assemble the performance data, compare to performance standards, review past appraisals
Prepare the employee – give at least a week to review own performance, analyze
problems, read over job description, formulate questions and comments
Find a mutually agreeable time and private place and allow plenty of time (non- supervisory < 1
hr, supervisory 2 -3 hours)
Because of the high stakes (raises, careers and peace of mind) performance appraisal tends to
be an emotional and difficult experience for both managers and employees. The result is often
dishonest appraisals, avoidance of appraisals, and serious concerns about the fairness of the
process. According to several studies, the majority of organizations view their performance
management systems as ineffective. Many problems are associated and can be fixed with the
design of the appraisal system.
a. Validity and reliability – relevant to the job, cover all aspects of the job, be specific,
produce consistent ratings (see also Ch. 5)
Teaching Tip: Uncover students’ understanding of these problems by having them make the
connection to grading. Students often believe that there is a forced distribution system in play and
complain about strict or central tendency grading (no one can get an “A”). Link back to the workplace
by discussing the impact on employees when they question the quality of the rating process and the
raters.
There are at least four ways in which managers can minimize the impact of appraisal
problems:
Over the past few years, web-based performance management has become a mainstream
practice, even in medium and small organizations. Basic benefits include ability to keep
computerized notes on each employee and combine notes with trait ratings to generate
Technology has also enabled electronic performance monitoring (EPM) where supervisors track
and capture performance data electronically through computer networks, wireless audio or video
links, GPS devices, and monitoring of customer service phone calls.
Teaching Tip: Have students list as many ways as possible that their supervisor can find out what they
are doing, how much they are doing, and where they are using electronic monitoring. For instance,
security cameras can also capture retail clerk activity. Discuss the pros and cons of electronic
monitoring.
Although supervisors are the traditional source of performance appraisals, there are several other
options.
b. Self – opportunity valued by employees, sometimes inflated, more accurate if asked to rate
oneself vs. others, may accentuate differences between rater and rate
c. Peers – often more opportunity to observe at more revealing times, “logrolling” problem
where collusion results in high ratings, can improve perceptions of open communication,
motivation, group cohesion and satisfaction, especially in self-managed teams
f. 360-Degreee Appraisal – feedback collected from multiple different sources (see Fig.
7.4, p. 171), evidence of effectiveness is mixed
360-degree feedback was originally used only for training and development but is now used
for performance management and pay as well. This is important support for coaching,
leadership development, succession planning, rewards and recognition.
Teaching Tip: As preparation for class, ask students to use their social network (family and friends)
to find someone who has gone through a 360 degree appraisal process either as an appraiser or as
the person being appraised, and ask them if they would share their thoughts on the process.
Ethics should be the bedrock of performance management; “tell people where they stand and be
straight with them”. Factors that promote a legally defensible process include:
The key success factor for effective appraisals is the quality of the dialogue between manager and
employee.
DISCUSSION BOXES
The use of performance appraisal has increased in China since 1978, but performance appraisal criteria
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Chapter 7 – Performance Management 7-8
differ from those in the west. Reflecting the Confucian view achievement is a function of effort rather
than ability; as such, the attitudes and moral character of a person have been regarded as highly
relevant to performance. However, researchers discovered that, when given a list of appraisal criteria
from both eastern and western style appraisals, Chinese workers picked three factors that were very
acceptable, including work dedication, efficiency and teamwork. Thus, the researchers demonstrated
that carefully selected criteria can be applicable across cultures.
STRATEGIC HR: Jaguar Land Rover Formal Appraisal Discussion Training. (p. 164)
When Indian conglomerate Tata took over carmaker Jaguar Land Rover in 2008 the performance
management process was redesigned, with one component being new performance appraisal training
for its 1500 managers. Managers were coached on specific techniques for managing the formal
appraisal discussion including: “say what you see”, empathy, “broken record”, active listening,
questioning, reassurance, nonverbal communication, and calm, even tone and pace.
ETHICAL DILEMMAS
Is it fair to factor in employee self-ratings in 360-degree performance appraisal when we know that
these appraisals tend to be inflated? (p. 172)
While it is true that employees value the opportunity to participate in performance appraisal
factoring in self-ratings makes a great deal of sense. Employees are more likely to accept and act upon
the results if they have had the opportunity to provide input. Furthermore, since other raters may have
a strictness bias, which may “balance out” the final evaluation results, resulting in composite ratings
that are more reliable, fair, and valid. The difference between employee self-ratings and others
ratings can be a useful point of discussion, as some employees are not aware of how they are perceived
by others.
KEY TERMS
360-degree appraisal A performance appraisal technique that uses multiple raters including peers,
subordinates, supervisors, and customers. (p. 171)
alternation ranking method Ranking employees from best to worst on a particular trait. (p. 158)
appraisal bias The tendency to allow individual differences such as age, race, and sex to affect the
appraisal ratings that these employees receive. (p. 166)
behaviourally anchored rating scale (BARS) An appraisal method that aims to combine the benefits of
narratives, critical incidents, and quantified ratings by anchoring a quantified scale with specific
narrative examples of good and poor performance. (p. 159)
central tendency A tendency to rate all employees in the middle of the scale. (p. 165)
electronic performance monitoring (EPM) Having supervisors electronically monitor the amount of
computerized data an employee is processing per day and thereby his or her performance.
(p. 168)
forced distribution method Predetermined percentages of ratees are placed in various performance
categories. (p. 158)
formal appraisal discussion An interview in which the supervisor and employee review the appraisal
and make plans to remedy deficiencies and reinforce strengths. (p. 162)
graphic rating scale A scale that lists a number of traits and a range of performance for each. The
employee is then rated by identifying the score that best describes his or her level of
performance for each trait. (p. 156)
halo effect In a performance appraisal, the problem that occurs when a supervisor's rating of an
employee on one trait biases the rating of that person on other traits. (p. 165)
management by objectives (MBO) Involves setting specific measurable goals with each employee
and then periodically reviewing the progress made. (p. 161)
paired comparison method Ranking employees by making a chart of all possible pairs of the
employees for each trait and indicating the better employee of the pair. (p. 158)
performance management The process encompassing all activities related to improving employee
performance, productivity, and effectiveness. (p. 153)
recency effect The rating error that occurs when ratings are based on the employee’s most recent
performance rather than performance throughout the appraisal period. (p. 166
similar-to-me bias The tendency to give higher performance ratings to employees who are
perceived to be similar to the rater in some way. (p. 166)
strictness/leniency The problem that occurs when a supervisor has a tendency to rate all
employees either high or low. (p.166)
task performance An individual’s direct contribution to their job –related processes. (p. 154)
unclear performance standards An appraisal scale that is too open to interpretation of traits and
standards. (p.165)
1. Describe the five steps in the performance appraisal process. (p. 153-162) The
2. Explain how to ensure that the performance appraisal process is carried out ethically and without
violating human rights laws. (p. 172-173)
In order to ensure that the performance appraisal process is carried out ethically and without violating
human rights laws:
keep well documented performance records and performance appraisal feedback
let employees know where they stand and be straight with them
conduct a job analysis to ascertain characteristics required for successful job performance
incorporate these characteristics into a rating instrument tied to specific job behaviours
ensure definitive performance standards are provided to all
use clearly defined individual dimensions of job performance
use different kinds of ratings
train supervisors
ensure appraisers have regular contact with appraisees
use multiple appraisers
use formal appeal mechanisms and reviews
document all decisions
provide corrective guidance
3. Discuss the pros and cons of using different potential raters to appraise a person's
performance. (p. 169-172)
Immediate Supervisor
Pros: The supervisor has easy access to the employee and knows the employee’s work. Cons:
Supervisors are prone to rater errors.
Peers
Pros: Effective in predicting future management success, high correlation between peer and
supervisor ratings, more opportunity to observe ratees, and to observe them at more revealing times
than supervisors.
Cons: Logrolling; all the peers simply get together to rate each other high.
Rating Committees
Pros: Using multiple raters can be advantageous. While there may be a discrepancy in the ratings
made by individual supervisors, the composite ratings tend to be more reliable, fair, and valid. When
there are variations in raters' ratings, they usually stem from the fact that raters often observe
different facets of an employee's performance; the appraisal ought to reflect these differences.
Cons: This method is very time-consuming.
Self
Pros: Employees value the opportunity to participate in performance appraisal more for the
opportunity to be heard than for the opportunity to influence the end result.
Cons: Employees usually rate themselves higher than they are rated by supervisors or peers.
360-Degree Appraisal
Pros: The 360-degree approach supports the activities of performance feedback, coaching,
leadership development, succession planning, and rewards and recognition. This method is also
more meaningful in today's reality of complex jobs, with matrix and team reporting relationships.
A 360-degree appraisal can be perceived as a jury of peers, rather than the supervisor as a single
judge, which enhances perceptions of fairness.
Cons: significant investment of time required for it to function successfully. There are few data on the
effectiveness of 360-degree feedback, and some organizations have abandoned it for appraisal
purposes because of negative attitudes from employees and inflated ratings.
4. Describe two examples of important techniques managers may use during a formal appraisal discussion
(p. 163).
Follow these steps: assemble the data, prepare the employee and find a mutually agreeable time and place
and allow plenty of time.
5. Explain how to handle a defensive employee in a formal appraisal discussion. (p. 191- 192)
Important points to remember when faced with a defensive employee in a performance appraisal
interview are: recognize defensive behaviour as normal; never attack a person’s defences;
postpone action; and recognize human limitations.
1. Assume you are presenting to an upper-year group of business students and one student
asks the question, “Which performance appraisal system is the best?” How would you respond
to that question?
Most firms combine several appraisal techniques in order to offset disadvantages of single
methods (see Table 7.2 p. 1 6 7 ). Ultimately no one single solution is best for all performance
management systems. Determining factors include resource constraints (time , money, and people) and
organizational factors (budget, turnover, strategy).
2. How can the problem of inconsistency between managers who are rating workers be solved, or at
least diminished? Make two or more suggestions.
To eliminate or minimize rater inconsistency, there are many strategies that can be used. Rater training
is one. Making raters aware of rating scale problems is essential, since understanding the problems
can help to prevent them. Improving appraisal accuracy also requires reducing outside factors, such
as union pressure and time constraints.
3. What are the challenges of the coaching method, where feedback is given more frequently and
informally? Identify possible solutions to these challenges.
Communication needs to be frequent, ongoing and the supervisor needs to recognize the performance
rather than rate it. The manager is called on to give guidance, encouragement and support and the
employee needs to be an active learner – new roles for both. Coaching requires thinking, informing,
empowering, assessing, advising, being professional, caring, developing employees and challenging
4. Some HR professionals avoid using BARS given that it is so time-consuming to develop. How
could the development steps be streamlined?
Note: specific development steps appear are not in the fourth edition of the text. Instead, other ideas
for making the development of BARS more efficient are to use slightly more generic BARS
available from consultants and other assessment providers and modify to suit the organization
and its specific jobs. HR professionals could also use their social networks to see if any of their contacts
have BARS for benchmark jobs. Using pre-determined BARS for most jobs (with customization) and just
creating original BARS for unique jobs could help to streamline the process.
5. Do you agree with the use of annual performance reviews? Why or why not?
Students can discuss coaching versus annual appraisals. There are pros and cons to each. Have the
students identify jobs that are better suited to annual appraisals and jobs that are suited for coaching.
6. How might a supervisor handle a situation in which negative appraisals in the past have caused
an employee to undervalue his or her performance?
From one appraisal to the next, the supervisor has a key function to provide the employee with a
reasonable amount of time to improve performance. Perhaps more important, he or she should
provide active support to facilitate improvement. In this connection, the supervisor could provide
frequent constructive feedback and schedule periodic (monthly or quarterly, for example)
conversations to review performance and agree on targets for the next period.
Once the employee’s work has improved, the supervisor should clearly communicate this to the
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Chapter 7 – Performance Management 7-13
employee in order to clarify the employee’s perceptions of the value of his/her performance. It may
be that the negative appraisals were related to political issues or personality differences with a
former boss, which may have caused the employee to undervalue his/her work effort. A new
supervisor may evaluate the employee’s work more positively and may need to provide extra
positive reinforcement through ongoing verbal recognition of the employee’s good work in order for
the employee to enhance his/her perceptions about the value of his/her work.
Employees might refuse to work under such conditions and quit or initiate a grievance. Good change
management practices such as explaining the benefits to both the organization and employees,
educating employees on how the system functions and uses to which the resulting data will be put are
primary responses to employees concerns and should be put in place before the technology is
implemented
8. How might a supervisor deal with an extremely defensive yet productive member of his or her team
in the event of having to deliver the “improvement portion” of the employee’s performance appraisal?
What techniques would the supervisor need to use to maximize the efficacy of the appraisal and
reduce the defensibility of the employee?
What this translates to is giving the person time to digest the information, sending them off with a
written evaluation, and possibly setting up a follow-up meeting. In between meetings the person
may have a better opportunity to reflect on their own performance (if this step was not included in
the preparation for the initial meeting and consult with valued others. Hopefully they will come back
with a more balanced perspective and some questions, which should be encouraged. For these
types of people there often needs to be repeated stressing of their positive contributions, as they
pay more attention to negative information.
1. Working individually or in groups, develop a graphic rating scale for a retail sales associate
and a fast-food restaurant manager. Reflect on the types of biases that your scale introduces
inadvertently, and discuss the challenges you faced when developing the scale.
To answer this question, students must first identify the main duties and responsibilities of each of the
jobs, and then establish an appropriate traits and behaviours related to different levels of each trait.
Table 7.1 (p. 165) can help students to avoid the common pitfall of lack of clarity in performance
standards in graphic rating scales.
Appraisal criteria might include reliability, quality of work, amount of initiative, problem-solving skills,
and significance of contribution to the firm, among numerous other things. Further criteria used for
rating a fast food restaurant manager could include speed and accuracy of budget and accounting,
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Chapter 7 – Performance Management 7-14
management of employees, as well as customer-relations skills.
Biases could include all – validity issues, reliability issues, unclear performance standards, halo effect,
central tendency, strictness/leniency, appraisal bias, recency effect and similar-to-me bias.
Challenges may include not knowing the tasks and associated behaviours to accomplish the tasks of the
2 jobs. A starting point may be to have the students visit the National Occupational Classification (NOC)
to see some job descriptions. Another challenge may be in not knowing how to recognize when the
biases are creeping in and affecting the ratings. Having multiple raters may help minimize this issue.
2. Working individually or in groups develop over a week, develop a set of critical incidents
covering the classroom performance of one of your instructors. Categorize the critical incidents to
identify themes within activities that are viewed positively and negatively. Expand on this
identification by assessing how the one-week period may be affecting the results and what
differences you would have expected had you selected a different week within the year to conduct
the assessment.
The critical incident method is described on p. 159 (see also Table 7.2, p. 167). Students should make
sure they keep a log of both desirable and undesirable examples, and be as specific as possible in
describing the behaviour of their instructor. There are some limitations to this exercise. Critical incidents
recorded over a one-week period may reflect recent performance that is not representative (the
recency effect). To be effective, examples of performance must be recorded over the entire appraisal
period (typically one year).
However, the exercise will provide students with an opportunity to observe and record examples of
particularly effective and/or ineffective performance and to see how such information can provide
concrete data on which to base an appraisal, specific examples to explain why performance is not
meeting standards, and ways in which it can be improved.
3. Working in groups, using the NOC job description for cafeteria staff at a local university or college,
develop a b e h a v i o u r a l l y a n c h o r e d r a t i n g s c a l e w i t h f i v e t o e i g h t i t e m s for the job of
a chef within the cafeteria. Identify why your prioritized the items that you did.
4. Once you have drafted your form, exchange forms with another student or group. Critique and suggest
possible improvements to the forms. Then with your revised form in hand, develop statements of
behavioural incidents for two of your rating scale items to address the following circumstances:
The purpose of this exercise is to give the students practice in developing factual and specific
performance feedback. It usually takes 55-60 minutes to complete including a large class debrief
of some of the feedback statements.
Debrief: Ask students to volunteer some of their feedback statements for large class critique. Make
sure to get examples covering all three circumstances. If necessary, ask students how they would feel
if they were a professor receiving the feedback as presented.
Many times, the students err by making personal judgements about character and personality rather
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Chapter 7 – Performance Management 7-15
than focusing on behaviour. Teaching Tip: To help students understand behaviours, have them search
online for Competency Dictionaries. Many universities and government departments have competency
dictionaries online. Typically, each skill is defined and effective behaviours that demonstrate that skill
are listed.