Chapter Five

Performance Management
and Measurement

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Discussion

1. What comes to your mind when you hear performance

management?
2. Why do organizations need measuring and managing
performance?
3. What is your organization experience in performance
management esp. employee performance management?
 How do you measure performance?
 What tool have you been used so far for
measuring performance?
 What limitations (problems) have you
experienced with the tool, and ‘
 Why do you need Balanced Score Card (BSC)?

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 Section 1
Performance management
defined

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 Performance management
defined

 Performance management is a systematic process for

improving organizational performance by developing the
performance of individuals and teams.
 It is a means of getting better results from the
organization, team and individual by understanding and
managing performance within an agreed framework of
planned goals, standards and competency requirements.

 It is a process for establishing shared understanding about

what to be achieved, how it is to be achieved, and an
approach to managing people that increases the probability of
achieving success.

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Key words

 Process
 Systematic understanding
 Development of People
 Achievement

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Employee Performance Management Defined

Employee Performance management is

the systematic process of:
 Planningwork and setting
expectations
 Continually monitoring performance
 Developing the capacity to perform
 Periodically rating performance
 Rewarding good performance
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 PM is a continuous process of
- identifying
- measuring
- developing
The performance of individuals and teams

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 Objectives of performance
management

 The overall objective of performance management is to

develop the capacity of people to meet and exceed
expectations and to achieve their full potential to the
benefit of themselves and the organization.
 Performance management provides the basis for self-
development but importantly, it is also about ensuring
that the support and guidance people need to develop
and improve is readily available.

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 Characteristics of performance
management

 Performance management is a planned process of

which the five primary elements are agreement,
measurement, feedback, positive reinforcement and
dialogue.

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Performance Appraisal
 Performance refers to the degree of accomplishment of
the tasks that make up employee’s job. It reflects how
well an employee is fulfilling the requirements of the
job.
 Performance can also be regarded as the record of
outcomes achieved

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Performance Appraisal Defined:
 Performance appraisal is a process of evaluating
how well employees do their jobs compared with
a set of standards and communicating that
information to those employees.
 Performance appraisal is a process that involves
communicating an employee how well s/he is
performing the job and establishing a plan for
improvement
 Performance appraisal is the identification,
measurement, and management of human
performance in organizations.


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Performance Appraisal
Defined:
 According to International Labour Organization, “A
regular and continuous evaluation of the quality,
quantity and style of the performance along with the
assessment of the factors influencing the performance
and behavior of an individual is called as performance
appraisal.”

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Comparing Performance Appraisal
and Performance Management

 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.
 Performance Feedback
 The process through which managers share performance
appraisal information, give subordinates an opportunity to
reflect on their own performance, and develop with
subordinates, plans for the future.

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Purposes of Employee
Performance Appraisal
 Performance appraisal has two general purposes in
organizations.
1. Administrative uses: the goal is for administrative
decision promotion, termination, discipline, employee
transfer
2. Developmental uses: employee receive concrete
feedback about their job performance. Help to
improve their future work, employee knows their
weakness and strength.

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Developmental uses
 Identification of individual needs
 Performance feed back
 Determining transfer and job assignments
 Identification of individual strength and developmental
needs

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Administrative uses

 Salary
 Promotion
 Retention or termination
 Recognition of individual performance
 Lay offs
 Identification of poor performers.

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Key elements of
Performance Appraisal
 Measurement: assessing the performance against agreed
targets and objectives
 Feedback: providing information to the individual on
their performance and progress
 Positive Reinforcement: Emphasizing what has been
done well and making only constructive criticism about
what might be improved.
 Exchange of views: a frank exchange of views about
what has happened, how appraises can improve their
performance and support they need
 Agreement: Jointly coming to understanding to over
come any issue.
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Measurement/Appraisal

 Measurement is an important concept in performance

management. It is the basis for providing and generating
feed back. It identifies where things are going well to
provide the foundation for building further success and
it indicates where things are not going well, so that
corrective action can be taken.

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Why measuring performance

 What gets measured gets done;

 If you don’t measure results, you can’t tell success from
failure;
 If you can’t see success, you can’t reward it;
 If you can’t reward success, you could be rewarding
failure;
 If you can’t see success, you can’t learn from it;
 If you can’t recognize failure, you can’t correct it.

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Need and Importance of
Performance Appraisal
Performance is always measured in terms of outcome and
not efforts. Performance Appraisal is needed in most of
the organizations in order:
1. To give information about the performance of employees
on the job and give ranks on the basis of which
decisions regarding salary fixation, demotion,
promotion, transfer and confirmation are taken.
2. To provide information about amount of achievement
and behavior of subordinate in their job. This kind of
information helps to evaluate the performance of the
subordinate, by correcting loopholes in performances
and to set new standards of work, if required.

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Need and Importance of
Performance Appraisal
3. To provide information about an employee’s job-
relevant strengths and & weaknesses.
4. To provide information so as to identify shortage in
employee regarding ability, awareness and find out training
and developmental needs.
5. To avoid grievances and in disciplinary activities in the
organization.
6. It is an ongoing process in every large scale organization.

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Characteristics of Effective
Performance Evaluation System

The following are essentials of effective performance

appraisal system:
 It must be easily understandable.
 It must have the support of all people who administer
it.
 The system should fit the organization's operations and
structures.
 The appraisal system should be valid and reliable.
 The appraisal system should build the incentive scheme
within it.
 The appraisal system should be periodically evaluated.
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Pre-requisites of Performance
appraisal system

 Documentation
 Standard/goals
 Appraisal techniques
 Communication
 Feedback
 Personal bias (to avoid training)
 Emphasis on objectives

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Who Should Make Performance
Appraisal?

The appraiser may be any person, who has thorough knowledge about the job
content, content to be appraised, and who observes the employee while
performing a job
 Performance appraisal by managers: Performance appraisal done by an
employee’s manager and often reviewed by a manager one level higher.
 Appraisal by Immediate Manager or Supervisor: Performance appraisal of a
superior by an employee, which is more appropriate for developmental than
for administrative purposes.
 Evaluation by Peer (Co-workers/subordinate):
 Self Evaluation: Performance appraisal done by the employee being
evaluated, generally on an appraisal form completed by the employee prior
to the performance review.
 Evaluation by Outside People users of service:
 Customers:
 360° Appraisals

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What should be rated

 Quality,
 Quantity,
 Timelines,
 Cost effectiveness,
 need for supervision,
 Interpersonal impact

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 Process/steps of Performance Appraisal

The process of performance appraisal can be influenced by

various internal and external factors to the organization.
Nevertheless, the process of performance evaluation
encompasses the following steps.
1. Establish Performance Standards:
2. Communicating the Standards Set for an Employee:
3. Measuring of the Actual Performances:
4. Comparing Actual Performance with Standards Set in the
Beginning:/evaluation
5. Discussion with the Concerned Employee/ Provision of
Feedback
6. Initiate Corrective Action

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Evolution of performance management

 Trait-based performance appraisal system

 Behavioral-based performance appraisal system
 Result-oriented performance appraisal system
 Strategic performance management (BSC)

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1. Trait based performance appraisal: employees are

assessed based on their traits(Who a person is) such

as personality, attitude, skill, ability

Question: What is the limitation of this approach?

2. Behavioral based performance appraisal: distinguishes

what a person does and encourage employees to adopt

desirable behavior at work place.

Question: What is limitation of this approach?

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3. Result-oriented performance appraisal: it is result-
based, and rational management philosophy

Managers and employees develop specific individual and

group goals, develop appropriate action plans, organize
the resource properly, and establish the needed control
standards.

It helps managers to avoid management by crisis or fire-

fighting.

Question
What is limitation of this method ?

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Limitation of previous performance
measurement

A) Inconsistent with today's business reality: today value

creation rests on its intangible assets

What are they?

B) Financial measure is like driving with rear mirror

Financial measure focuses on historical data

It is not future-oriented

So, What is the problem?

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C) Scarifies long-term thinking

Financial measure focuses on cost-cutting efforts or short term gains

What is its implication?

D) Financial measures are too summarized

They do not show all levels of organizational performance

What does this mean to an organization?

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4. Strategic performance management: This approach
encompasses result oriented performance appraisal
system and also emphasizes on integration of the
value creation and delivery system.

It has balanced view of organizational performance .

This it is called Balanced Scorecard

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Methods of Performance Appraisal

 Over the years many and varied methods of appraising

performance have been developed and set in use. These
methods can be classified in several ways.

The four major categories used here are:

 Category rating methods;
 Comparative methods;
 Narrative methods; and
 Other/Special Methods.

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Methods of Performance
Appraisal/Rating –cont--
1. Category Rating Methods
 Graphic rating scale,
 Checklists, and
 Forced choice
2. Comparative Methods
 Ranking,
 Paired Comparison, and
 Forced Distribution

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Methods of Performance
Appraisal- cont
3. Narrative Methods
 Critical incident,
 Essay, and
 Field review
4. Other/Special Methods
 Behavioral Rating Approaches
 Management by Objectives and
 360° Performance Appraisal methods
 Computerized and Web-Based Performance Appraisal

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1. Category Rating Methods

 The simplest methods for appraising performance are

category-rating methods, which require a manager to
mark an employee’s level of performance on a specific
form.

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Category Rating Methods
a). Graphic rating scale
 This technique measures two major areas of employee work
characteristics:
(1) the basic work characteristics such as knowledge,
initiative, dependability, leadership, loyalty, etc.
(2) the employee's contribution to the organization
such as quality and volume of work done.

 A scale that lists a number of traits and a range of

performance for each that is used to identify the score that
best describes an employee’s level of performance for each
trait.
 Performance appraisal whereby each employee is rated
according to a scale of pre-defined characteristics that are job
performance related.
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 Graphic
Rating Scale
with Space
for
Comments

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 B. Checklist
In this method, the evaluator has a list of situations and
statements and compares it with employees. The checklist
is a presentation of employee’s characteristics and
performance. The results can be quantitative and give
weight to characteristics.
Certain statements are listed and rater tick eg. ‘Yes’ or
‘no'

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c). Forced choice
 The officer doing the rating is forced to select a pair of
sentences (which are ready made) that best describe
the employee. The purpose of this technique is to
minimize bias; as his lack of knowledge or inconsistency
is easy to detect from his choices.
- the rater is given a series of statements
about an employee
- the rater is forced to select statements,
which are readymade.

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2. Comparative Methods

 Comparative methods require that managers directly

compare the performance of their employees against
one another.
 Comparative techniques include ranking, paired
comparison, and forced distribution.

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Alternation ranking method

 The supervisor ranks his subordinates from the most

productive to the least productive.
 Ranking employees from best to worst on a particular
trait, choosing highest, then lowest, until all are
ranked.

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Alternation Ranking Scale

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Paired comparison method

 Each employee is compared with every other employee

in the comparison group and rated as either the
superior or weaker member of the pair
 Each employee is assigned a summary ranking based on
the number of superior scores achieved

 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.

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 Ranking Employees by the
Paired Comparison Method

Note: + means “better than.” − means “worse than.” For each chart, add up the
number of 1’s in each column to get the highest-ranked employee.
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3. Narrative Methods

 Some managers and HR specialists are required to

provide written appraisal information.
 Narrative appraisal method includes critical incident,
essay, and field review.

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critical incident

 Critical Incidents. The supervisor's attention is focused on specific or

critical behaviors that separate effective from ineffective performance.


 In this method the rater is expected to show incidents in the work

situation in which the employee being evaluated has shown positive or
negative influences in work situations. Factors such as initiative,
judgment, creativity, etc., are to be shown.
- focuses on key factors which make difference in
performing a job efficiently
- more related to job and based on individual’s
performance than characteristic
- the manager writes down the positive and negative
individuals’ performance behavior in evaluation term

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Essay Method

A trait approach to performance appraisal

that requires the rater to compose a
statement describing employee behavior.
- Write a Behavioral Statement
- Strengths versus Weaknesses
- Describe Selected Traits
- Evaluate Performance

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Field review techniques

 This method allows external specialists (from out side

assesses own department) to evaluate the employee.
The out sider review employee records and hold
interview with rate and his or her supervisor
 Due to the cost involved, this technique is used very
sparingly. One of its setbacks is that the outside
specialist does not know the employee nor does he have
the necessary information for an objective evaluation.

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4. Other/Special Methods

 Special methods of employee performance appraisal

include behavioral rating approaches, Management by
Objectives (MBO) and 360° performance appraisal
methods.
 Recently, result oriented performance management
system have been introduced in most organization as
efficient employee performance evaluation method that
related individual performance of an employee with
organization’s plan and strategies.

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Behavioral Rating
Approaches
Behavioral rating approaches attempt to assess an
employee's behaviors instead of other characteristics.
A rater must indicate which behavior on each scale best
describes an employee’s performance.
Some of the different behavioral approaches are:
1. Behavioral Anchored Rating Scales (BARS),
2. Behavioral Observation Scales (BOS), and
3. Behavioral Expectation Scales (BES).

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Behaviorally Anchored
Rating Scale (BARS)
A behavioral approach to
performance appraisal that
consists of a series of vertical
scales, one for each important
dimension of job performance.

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 Management by Objectives
(MBO):
Based on the setting of clear and measurable objectives, and the use of those objectives to
evaluate and review performance.
Employees are evaluated by how well they accomplish a specific set of objectives determined
to be critical in the successful completion of their jobs
Philosophy of management that rates performance on the basis of employee achievement of
goals set by mutual agreement of employee and manager.
Involves setting specific measurable goals with each employee and then periodically reviewing
the progress made.
1. Set the organization’s goals.
2. Set departmental goals.
3. Discuss departmental goals.
4. Define expected results (set individual goals).
5. Performance reviews.
6. Provide feedback.
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Advantages of MBO
 Employees Can Measure Performance
 Quantifiable Goals
 Joint Effort
 Employee Satisfaction in Participation

Disadvantages of MBO
 Success Not Validates by Research Studies
 Easy to Set Unrealistic Goals
 Hard to Get Full Commitment to Process
 Difficult to Define Some Goals

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360° Performance Appraisal:

 360-degree feedback, also known as multi-source

assessment, is a process in which someone’s
performance is assessed and feedback is given by a
number of people who may include their manager,
subordinates, colleagues and customers.
 The sources are immediate supervisors, peers,
customers, self

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360° Performance
Appraisal:
 The 360-degree evaluation can help one person be
rated from different sides, different people which can
give the wider prospective of the employee’s
competencies


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The 360º Appraisal Interview
Supervisor

Other Superiors Other Superiors

Individual
Peers Staff Customers
Self-Assessment

Teams Teams

Sub-Ordinates
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 Computerized and Web-Based
Performance Appraisal
Performance appraisal software programs
 Keep notes on subordinates during the year.
 Electronically rate employees on a series of performance traits.
 Generate written text to support each part of the appraisal.
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.

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Result Oriented Performance
Management System
 This is a systematic approach to performance
improvement through an ongoing process of establishing
strategic performance objectives; measuring
performance; collecting, analyzing, reviewing, and
reporting performance data; and using that data to
drive performance improvement.

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Student Reflection

 We have adopted different performance evaluation

approaches in Our country.
 Do you think they bring intended results or applied
according to principles?
 Use as an input for your assignment.

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Balanced Scorecard

 One approach of performance management lately

adopted in our country is Balanced Score Card (BSC)

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Balanced Scorecard

 The balanced scorecard, is a set of measures that allow for a

holistic, integrated view of business performance. The
scorecard was originally created to supplement "traditional
financial measures with criteria that measured performance
from three additional perspectives those of customers, internal
business process and learning and growth".

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 The Balanced Scorecard was developed out of belief
that traditional ways of thinking that relied primarily on
financial accounting measures were becoming obsolete.

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BSC Perspectives Cont…

 The balanced scorecard suggests that we view the

organization from four perspectives, and to develop
metrics, collect data and analyze it relative to each of
these perspectives:
 Financial Perspective
 Customer Perspective
 Internal Process Perspective
 Learning and Growth Perspective:

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BSC Perspectives Cont…

1. Customer/Stakeholder Perspective - (Through the eyes

of our customers and stakeholders, how will they
judge our products and services?)
How we appears to our customers?

2. Financial Perspective- " Financial Performance" For

businesses,( how do we create value for owners?)
For government and not-for-profit, how do we maximize
cost-effectiveness of resources?)

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BSC Perspectives Cont…

3. Internal Process Perspective.

(How can we improve internal processes to improve
quality, timeliness, economics, and functionality?)
4. “Learning and Growth Perspective" “Knowledge and
Innovation perspective”
(How can we continually get smarter, innovate, and
improve and add value?)

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Nine Steps
Step One: Assessment (Change Management

Plan, BSC Program Plan, Organization Climate

Scan, Customers & Stakeholders )

Step Two: Strategy (Customer Value

Proposition, Strategic Themes & results,

Perspectives)

Step Three: Strategic Objectives

Step four: Strategy Mapping

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Step five: Performance Measures and Targets

Step six: Strategic initiatives

Step Seven: Automation

Step Eight: Cascading

Step Nine: evaluation

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Advantages and Disadvantages of Appraisal
Tools

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Problems in Performance Appraisal

There are several problems that hinder the success of

performance evaluation scheme. The appraisers usually commit
personal bias in appraising employee performance.
In addition, many performance appraisal methods have been
severely criticized for their deficiency in measuring
performance objectively.

These problems can be classified in to three general categories:

(a) system design and implementation problems;
(b) rater related appraisal problems; and
(c) rate/employee related performance appraisal problems

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Problems of Performance Appraisal

 (a) Halo Effect: The rater allows one outstanding

negative or positive incident or trait to influence his
rating of the employee
 (b) The Leniency: a tendency to avoid conflict with
their employees, the rater has the tendency to be
overly generous in judgment
 (c) Strictness Biases: refers to the tendency of raters to
be overly harsh while judging performance of
employees
 (d) split over: takes place when past performance
appraisal ratings unjustifiably influence current ratings

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Problems of Performance
Appraisal- cont--
 (e) Bias effect: to allow individual differences such as
sex, race, and age to affect the appraisal ratings
employee receive
 (f) Rater effect: High or low ratings are given to certain
individuals or groups based on rater’s attitude towards
the ratee not on actual performance or output.
 (g) Status effect: The employees working at higher
level jobs are overrated whereas employees working at
lower level jobs underrated
 (h) Pressure of time – This is associated with the lack
of time that induces management to rush the appraisal.

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Rating Errors Example
Job Rating Scale
Halo EXCELLENT
on all factors

Job Rating Scale Job Rating Scale Job Rating Scale Job Rating Scale
Leniency Employee A Employee B Employee C Employee D
EXCELLENT EXCELLENT SUPERIOR EXCELLENT

Job Rating Scale Job Rating Scale Job Rating Scale Job Rating Scale
Central
Employee A Employee B Employee C Employee D
Tendency AVERAGE AVERAGE AVERAGE AVERAGE

Leniency Job rating scale behavior during the

Bias last month has been POOR.
How to Avoid Appraisal
Problems
 Learn and understand the potential problems, and the
solutions for each.
 Use the right appraisal tool. Each tool has its own pros
and cons.
 Train supervisors to reduce rating errors such as halo,
leniency, and central tendency.
 Have raters compile positive and negative critical
incidents as they occur.

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