Milkovich/Newman: Compensation, Ninth Edition

Chapter 11
Performance
Appraisals

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
 Nature of Performance Appraisals
 You can’t manage what you don’t understand
 You don’t understand what you don’t measure
 What gets measured is what gets done
 What gets measured is what gets rewarded
 What gets rewarded is what gets repeated

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 The Role of Performance Appraisals
in Compensation Decisions
 Employees often frustrated about the appraisal
process
– Appraisals are too subjective
– Possibility of unfair treatment by a supervisor
 Experts argue that rather than throwing out the
entire performance appraisal process, total-quality-
management principles should be applied to
improving it
– Recognize part of performance influenced more by
work environment and systems than by ee behaviors

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Exhibit 11.1: Common Errors
in the Appraisal Process

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 Strategies to Better Understand and
Measure Job Performance
 Clearly define job performance
 Recognize definition of performance and its
components is expanding
 Improve appraisal formats
 Select the right raters
 Understand way raters process information and
mistakes that may be made
 Train raters to improve rating skills
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 Categories of Appraisal Formats

Ranking - Rater compares

employees against each other

Rating - Rater evaluates

Categories employees on some absolute
standard (measured on a
continuum scale)

Essay - Rater answers open-

ended questions in essay form
describing employee
performance
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 Ranking Formats

 Straight ranking

 Alternation ranking

 Paired-comparison
ranking

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 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

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 Rating Formats (cont.)
 Types of descriptors
– Adjectives
 Standard rating scale Behaviors
 Behaviorally anchored rating scales
– Outcomes
 Management by objectives

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Exhibit 11.10: An Evaluation of Performance
Appraisal Formats

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Training Raters to Rate More Accurately
 Rater-error 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

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 Ways to Improve Rater Training
Straightforward lecturing to ratees is ineffective
Individualized or small group discussions more
effective
When sessions are combined with extensive
practice and feedback, rating accuracy improves
Longer training programs are generally more
successful than shorter programs
Performance-dimension and performance-
standard training more effective than rater-error
training
Success results from efforts to reduce halo errors
and improve accuracy

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 Putting it All Together: The
Performance Appraisal Process
Need a sound basis for establishing performance
appraisal dimensions and scales associated with
each dimension
Need to involve employees in every stage of
developing performance dimensions and
building scales
Need to ensure raters are trained in use of
appraisal system and that all employees
understand how system operates

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 Putting it All Together: The
Performance Appraisal Process (cont.)
Need to ensure raters are motivated to rate
accurately
Raters should maintain a diary of employee
performance
Raters should attempt a performance diagnosis
to determine if performance problems exist

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Exhibit 11.11: Tips on Appraising Employee Performance

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Exhibit 11.11: Tips on Appraising Employee
Performance (con’t)

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 EEO and Performance Evaluation
Key Issues: Establishing a Performance Appraisal System
Provide specific written instructions on how to complete
1 appraisal

Incorporate clear criteria for evaluating performance -

2 Performance dimensions should be written, objective, and clear

Provide a rational foundation for personnel decisions via

3 adequately developed job descriptions

Require supervisors to provide feedback about appraisal results

4 to employees

Incorporate a review of performance ratings by higher level

5 supervisors

Consistent treatment across raters, regardless of race, color,

6 religion, sex, and national origin should be evident

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Tying Pay to Subjectively Appraised
Performance- (Student Discussion)

How do we get

Central issue employees to

involving view raises as a
merit pay reward for
performance?

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 Pay Increase Guidelines with Low
Motivational Impact
 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

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Exhibit 11.12: Performance-based
Guidelines

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 Designing Merit Guidelines
Four Questions . . .
What should the poorest performer be paid as an
1 increase?

How much should average performers be paid as an

2 increase?

3 How much should top performers be paid?

What should be the size of the percentage increase

4 differential between different levels of performance?

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 Promotional Increases as a Pay-for-
Performance Tool
 Promotion should be accompanied by a salary
increase - 8 to 12%

 Characteristics of promotional pay increases

– Size of increment is approximately double a normal
merit increase

– Represent a reward to employees for commitment

and exemplary performance

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Review

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