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11-1

Chapter

11

McGraw-Hill/Irwin

Performance
Appraisals

© 2005 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

11-2

After discussing Chapter 11, students
should be able to:

1. Summarize the key issues involved in defining and
2.
3.
4.
5.
6.
7.

measuring employee performance.
Discuss the key components of the four strategies to
better understand and measure performance .
Identify the five categories of performance appraisal
formats and discuss the issues involved in
determining which format would be the most
appropriate to use.
Understand how raters process information and
identify the major errors that can occur in this
process.
Outline the key elements to maximize a good
outcome in a performance management system.
Understand the legal issues affecting performance
appraisals.
Explain the issues involved in designing merit pay
guidelines to link pay to performance.

McGraw-Hill/Irwin

© 2005 The McGraw-Hill Companies, Inc. All rights reserved.

11-3

Chapter Topics
Role

of Performance Appraisals in
Compensation Decisions
Common Errors in Appraising Performance
Strategies for Better Understanding and
Measuring Job Performance
Putting It All Together: Performance Evaluation
Process
EEO and Performance Evaluation
Tying Pay to Subjectively Appraised
Performance
Promotional Increases as a Pay-for-Performance
Tool
McGraw-Hill/Irwin

© 2005 The McGraw-Hill Companies, Inc. All rights reserved.

All rights reserved. . Inc. You don’t understand what you don’t measure. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. What gets measured gets done. What gets measured gets rewarded.Nature of Performance Appraisals 11-4 You can’t manage what you don’t understand.

Inc. . All rights reserved.Role of Performance Appraisal Control Allows 11-5 mechanism for feedback employee progress to be assessed Ensures strategy-consistent behavior Reinforces values of organization Ensures alignment of individual performance and behavior to  Organization  Work McGraw-Hill/Irwin culture systems © 2005 The McGraw-Hill Companies.

Purposes of Performance Appraisal Evaluation  Performance measurement  Compensation  Motivation McGraw-Hill/Irwin 11-6 Development  Management development  Identification of Potential  Feedback  Human resource planning  Communications  Performance improvement © 2005 The McGraw-Hill Companies. All rights reserved. . Inc.

All rights reserved. . Inc.Steps to Improve Performance Appraisal Process 11-7 Recognize part of performance is influenced more by work environment and systems than by employee behaviors Identify strategies to understand and measure job performance better McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies.

Exhibit 11. All rights reserved. .1: Common Errors in Appraisal Process Halo error Leniency error Horn error Severity error First impression error Central tendency error Recency error Clone error 11-8 Spillover error McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. Inc.

.Factors Related to Inaccurate Appraisals 1 Guilt 2 Embarrassment about giving praise 3 Taking things for granted 4 Not noticing 5 Halo effect 6 Dislike of confrontation 7 Spending too little time on preparation of appraisal McGraw-Hill/Irwin 11-9 © 2005 The McGraw-Hill Companies. All rights reserved. Inc.

.2: Ratings of Managers Rating Received Percent of Managers Receiving Rating Above average employee 46. All rights reserved. Inc.0 Below average employee McGraw-Hill/Irwin 11-10 4.4 Average employee 49.6 © 2005 The McGraw-Hill Companies.Exhibit 11.

Strategies to Better Understand and Measure Job Performance 1 Clearly define job performance 2 Recognize definition of performance and its components is expanding 3 Improve appraisal formats 4 Select the right raters 5 Understand way raters process information and mistakes that may be made 6 Train raters to improve rating skills McGraw-Hill/Irwin 11-11 © 2005 The McGraw-Hill Companies. All rights reserved. . Inc.

Inc. .Strategy to Better Understand 11-12 and Measure Job Performance Improve Appraisal Formats McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. All rights reserved.

Rater evaluates employees on some absolute standard (measured on a continuum scale) Essay . All rights reserved. Inc. .Rater compares employees against each other Categories Rating .Rater answers openended questions in essay form describing employee performance McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies.Categories of Appraisal Formats 11-13 Ranking .

All rights reserved.11-14 Ranking Formats Straight ranking Alternation ranking Paired-comparison ranking Examples 11. Inc.3 McGraw-Hill/Irwin .Exhibit © 2005 The McGraw-Hill Companies. .

Exhibits.11-15 Rating Formats Two common elements Raters evaluate employees on some absolute standard Each standard is measured on a scale -performance variation is described along a continuum Types of descriptors Adjectives .Exhibit 11. All rights reserved.8 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies.4 Behaviors .Exhibits. 11. . 11.7 & 11.5 & 11.6 Outcomes . Inc.

.Exhibit 11.9: Usage of Performance Evaluation Formats McGraw-Hill/Irwin 11-16 © 2005 The McGraw-Hill Companies. All rights reserved. Inc.

Inc.10: An Evaluation of Performance Appraisal For Format Ranking CRITERIA Employee Personnel Developmen Administration Research t poor Standard Rating Scale average Cost Validity poor average good average average average good average BARs good good good average good MBO excellent poor poor poor excellent Essay unknown poor poor average unknown McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. .11-17 bit 11. All rights reserved.

.Strategy to Better Understand 11-18 and Measure Job Performance Select the Right Raters McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. All rights reserved. Inc.

. All rights reserved.11-19 Select the Right Raters Supervisors Peers Customers McGraw-Hill/Irwin Self Subordinates Vendors © 2005 The McGraw-Hill Companies. Inc.

. Inc.Strategy to Better Understand 11-20 and Measure Job Performance Understand How Raters Process Information and Potential Mistakes McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. All rights reserved.

rater  Reviews performance dimensions and  Retrieves stored observations to determine relevance to performance dimensions Information is reconsidered and integrated with other available information as rater decides on final ratings McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies.11-21 The Rating Process Rater observes behavior of a ratee Rater encodes ratee behavior Rater stores information in memory When it is time to evaluate a ratee. . All rights reserved. Inc.

. All rights reserved.Understand Why Raters Make Mistakes 11-22 Errors in rating process Types of Errors Errors in observation (attention) Errors in storage and recall Errors in actual evaluation McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. Inc.

Training Raters to Rate More Accurately Rater-error 11-23 training  Goal is to reduce psychometric errors by familiarizing raters with their existence Performance dimension training  Exposes supervisors to performance dimensions used Performance-standard training  Provides raters with a standard or frame of reference for making appraisal McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. . All rights reserved. Inc.

All rights reserved.11 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. . Inc.Putting it All Together: The Performance Evaluation Process 11-25 Key elements making for a good outcome 1 Need a sound basis for establishing performance appraisal dimensions and scales associated with each dimension 2 Need to involve employees in every stage of developing performance dimensions and building scales 3 Need to ensure raters are trained in use of appraisal system and that all employees understand how system operates 4 Need to ensure raters are motivated to rate accurately 5 Raters should maintain a diary of employee performance 6 Raters should attempt a performance diagnosis to determine if performance problems exist 7 Appraisal process should follow guidelines in Exhibit 11.

and meaningful feedback 4 Allow for immediate and sincere reinforcement 5 Provide coaching and suggestions for improving future performance 6 Provide fair and respectful treatment 7 Allow an opportunity for employees to understand and influence decisions which effect them McGraw-Hill/Irwin 11-26 © 2005 The McGraw-Hill Companies. honest. . All rights reserved. Inc.Tips on Appraising Employee Performance 1 Establish clear sense of direction 2 Provide opportunity for employees to participate in setting goals and standards for performance 3 Provide prompt.

EEO and Performance Evaluation 11-27 Key Issues: Establishing a Performance Appraisal System 1 Provide specific written instructions on how to complete appraisal 2 Incorporate clear criteria for evaluating performance Performance dimensions should be written. . and clear 3 Provide a rational foundation for personnel decisions via adequately developed job descriptions 4 Require supervisors to provide feedback about appraisal results to employees 5 Incorporate a review of performance ratings by higher level supervisors 6 Consistent treatment across raters. Inc. regardless of race. and national origin should be evident McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. objective. All rights reserved. sex. color. religion.

.Tying Pay to Subjectively Appraised Performance 11-28 How do we get Central issue involving merit pay employees to view raises as a reward for performance? McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. Inc. All rights reserved.

Inc. .Pay Increase Guidelines with Low Motivational Impact 11-29 Provide equal increases to all employees regardless of performance  General increase  Cost-of-living adjustments Pay increases based on a preset progression pattern based on seniority McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. All rights reserved.

Requirements to Link Pay to Performance Define 11-30 performance  Behaviors  Competencies  Traits Specify a continuum describing different levels from low to high on performance measure Decide how much of a merit increase is given for different levels of performance Exhibit 11.12: Performance-based Guideline Exhibit 11.13: Performance Rating Salary Increase Matrix McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. Inc. All rights reserved. .

.12: Performance-based Guidelines  Exhibit 11. Inc. All rights reserved.13: Performance Rating Salary Increase Matrix  Specify McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies.Requirements to Link Pay to Performance  Define    11-31 performance Behaviors Competencies Traits a continuum describing different levels from low to high on performance measure  Decide how much of a merit increase is given for different levels of performance  Exhibit 11.

Exhibit 11.12: Performancebased Guidelines McGraw-Hill/Irwin 11-32 © 2005 The McGraw-Hill Companies. Inc. . All rights reserved.

1 What should the poorest performer be paid as an increase? 2 How much should average performers be paid as an increase? 3 How much should top performers be paid? 4 What should be the size of the percentage increase differential between different levels of performance? McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. . All rights reserved. Inc.11-33 Designing Merit Guidelines Four Questions . . .

14: Merit Pay Grid 11-34 Merit grids combine 3 variables: Level of performance Distribution of employees within their jobs’ pay ranges Merit McGraw-Hill/Irwin budget increase percentage © 2005 The McGraw-Hill Companies. All rights reserved. .Exhibit 11. Inc.

8 to 12% Characteristics increases of promotional pay  Size of increment is approximately double a normal merit increase  Represent a reward to employees for commitment and exemplary performance McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies. All rights reserved. . Inc.Promotional Increases as a Pay-for-Performance Tool 11-35 Promotion should be accompanied by a salary increase .

Inc. . All rights reserved.The Performance Management Process Establish Expectations Performance Management Continuous process where employees and managers work together 11-36 Coaching and Development Feedback Review Rewards and Recognition McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies.