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9
Performance Evaluation and Management

McGraw-Hill/Irwin Human Resource Management, 10/e

© 2007 The McGraw-Hill Companies, Inc. All rights reserved.

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Introduction
Performance

management is: The process by which executives, managers, and supervisors work to align employee performance with the firm’s goals effective performance management process:
Has

An

a precise definition of excellent performance Uses measurements of performance Provides feedback to employees

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Introduction
Tips

for improving a performance management program: Eliminate “HR-speak” Set appropriate goals Make the difficult decisions Develop a performance culture

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Introduction

A

firm’s strategy must be aligned with employees’ competencies and performance to achieve: Profitability Growth Effectiveness Valuation

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Introduction
Not

all measures are easy to develop Measurement of tangible outcomes (television sets) can be done with precision Intangible outcomes (teaching) are difficult to measure

Performance

evaluation determines the extent to which an employee performs work efficiently

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Introduction
Other

terms for performance evaluation:

Performance

review Personnel rating Merit rating Performance appraisal Employee appraisal Employee evaluation

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Introduction
Many

organizations have two evaluation systems: formal and informal Thinking about how well employees are doing is an informal system A formal system is set up by the organization to regularly and systematically evaluate employee performance and interpersonal processes influence the informal system Employees who are liked better have an advantage

Political

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The Case for Formal Evaluation
Purposes

of a well-designed formal evaluation

system: Development Motivation Human resource and employment planning Communication Legal compliance HRM research

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The Case for Formal Evaluation
Employees

should consider an evaluation meaningful, helpful, fair, and honest This is difficult to attain because of a number of factors, including: Unfairness Negative practices A short-term focus

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Performance Evaluation and the Law
Uniform

Guidelines on Employment Selection Procedures: Issued by the EEOC in 1978 to explain how to comply with federal employment legislation More attention was devoted to selection than to performance evaluation, so requirements for appraisal systems are less clearly defined

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Performance Evaluation and the Law
Most

performance evaluation procedures rely on supervisors’ judgments Once work-related behavior has been judged, the supervisors’ ratings are used as input for human resource decisions These decisions affect promotions, pay, transfers, and so on These subjective judgments can introduce bias into the system

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Performance Evaluation and the Law
Courts

have focused on management’s responsibility to develop and use a performance evaluation system in a legally defensible way In Brito v. Zia Company, the company’s performance evaluation instrument was invalid because it did not relate to important elements in the jobs for which employees were being evaluated Other performance evaluation lawsuits have dealt with sex, race, and age discrimination in terminations, promotions, and layoffs

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Performance Evaluation and the Law
A

challenge to the validity of a performance evaluation system is less of an issue than a challenge to a selection system Legally, the way the system was developed and whether it was applied consistently are more important than validity In age discrimination cases, the type of decision being challenged determines how much proof a company must produce

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Performance Evaluation and the Law
Recommendations

for a legally defensible appraisal

system: Procedures must not differ because of race, sex, national origin, religion, or age Use objective, non-rated, uncontaminated data A formal system of review or appeal should be available for disagreement over appraisals Use more than one independent evaluator Use a formal, standardized system for evaluation Avoid ratings on traits, such as dependability, drive, aptitude, and attitude

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Performance Evaluation and the Law
Performance

data should be empirically validated Communicate specific performance standards Provide raters with written instructions Evaluate employees on specific work dimensions rather than an overall or global measure Require behavioral documentation for extreme ratings Allow employees to review their appraisals

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Format of Evaluation
The

ability to provide accurate, reliable performance data is enhanced if a systematic process is followed: Step 1: Establish performance standards for each position and the criteria for evaluation (job analysis) Step 2: Establish performance evaluation policies on when to rate, how often to rate, and who should rate Step 3: Have raters gather data on employees’ performance

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Format of Evaluation
Step

4: Have raters (and employees in some systems) evaluate employees’ performance Step 5: Discuss the evaluation with the employee Step 6: Make decisions and file the evaluation

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Establish Criteria
The

dimensions of performance upon which an employee is evaluated are called the criteria of evaluation Examples: quality, quantity, and cost of work major problem with many evaluation systems: They require supervisors to make person evaluations rather than performance evaluations

A

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Establish Criteria
An

effective criterion should possess the following characteristics: Reliability Relevance Sensitivity Practicality criteria are necessary to measure performance completely One must evaluate both activities and results Management must weigh these criteria

Multiple

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Who Evaluates, When, and How Often
In

the U.S., most organizations evaluate on an annual basis Performance evaluations are often scheduled for arbitrary dates, such as the date of hire Alternatively, all employees may be evaluated on or near a single calendar date makes more sense to schedule the evaluation after a task cycle For those without a task cycle based on dates, goals should be established that allow a beginning and end The evaluation can be at the end of the task cycle

It

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Who Should Evaluate the Employee?
The

immediate supervisor conducts most appraisals Other options: Rating by a committee of several supervisors Rating by the employee’s peers (co-workers) Rating by the employee’s subordinates Rating by someone outside the immediate work situation Self-evaluation Rating by a combination of approaches

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360-degree Feedback
Many

organizations now use some form of 360-degree feedback program Upward and peer feedback can have positive effects on behavior These effects are sustainable over time Almost 90 percent of companies using 360-degree programs use the information for such decisions as pay increases and promotions Introducing a 360-degree system into a culture not prepared for it can have disastrous effects

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360-degree Feedback
Positive

features of a 360-degree system: Multiple perspectives of a person’s performance Raters base evaluations on contact and observation Feedback is provided from multiple directions… above, below, peer Anonymous upward feedback, which results in full participation Learning about weaknesses and strengths is motivational

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360-degree Feedback
Negative

features of a 360-degree system: Feedback from all sources can be overwhelming Rater can hide in a group of raters and provide harsh evaluations Conflicting ratings can be confusing and frustrating Providing feedback that is constructive requires a plan and well-trained raters

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Selected Evaluation Techniques
Ways

of evaluating employees can generally be divided into two categories: Methods that evaluate employees individually Multiple-person evaluations In a multiple-person evaluation, the supervisor directly and intentionally compares the performance of one employee to that of others

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Individual Evaluation Methods
Graphic

rating scale The rater is presented with a set of traits The employee is rated on the traits Ratings are assigned points, which are then computed Raters are often asked to explain each rating with a sentence or two

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Individual Evaluation Methods
Two

modifications make the scale more effective: A mixed standard scale gives the rater three statements describing each trait Operational and benchmark statements are added to describe different levels of performance

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Individual Evaluation Methods
Forced

choice: Was developed because graphic rating scales allowed supervisors to rate everyone high The rater must choose from a set of descriptive statements about employee Supervisors check the statements that describe the employee, or they rank the statements from most to least descriptive Forced choice can be used by superiors, peers, subordinates, or a combination of these

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Individual Evaluation Methods
Essay

Evaluation The rater is asked to describe the strong and weak aspects of the employee’s behavior It can be used by superiors, peers, or subordinates Essay evaluations are flexible; an evaluator can specifically address the ratee’s skill in any area Comparing essays is difficult Skilled writers can paint a better picture

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Individual Evaluation Methods
Critical

Incident Technique Raters maintain a log of behavioral incidents that represent effective and ineffective performance for each employee Two factors determine the success of this technique: The supervisor must have enough time to observe subordinates during the evaluation period The supervisor must record incidents as they are seen Logs can help avoid common rating errors and facilitate discussions about performance improvement

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Individual Evaluation Methods
Checklists In

its simplest form, the checklist is a set of objectives or descriptive statements If the rater believes that the employee possesses a listed trait, the item is checked A rating score equals the number of checks

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Individual Evaluation Methods
A

variation is the weighted checklist Supervisors and HR specialists prepare a list of descriptive statements about behavior Judges who have observed behavior on the job sort the statements into piles rated from excellent to poor When there is agreement on an item, it is included in the weighted checklist The employee’s evaluation is the sum of the scores (weights) on the items checked
Checklists and weighted checklists can be used by superiors, peers, or subordinates

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Individual Evaluation Methods
Behaviorally

Anchored Rating Scales Smith and Kendall developed the behaviorally anchored rating scale (BARS), or the behavioral expectation scale (BES) The BARS approach uses critical incidents to anchor statements on a scale The rater reads the anchors and places an X at some point on the scale for the ratee

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Individual Evaluation Methods
A

BARS usually contains these features: Six to 10 performance dimensions identified and defined by raters and ratees The dimensions are anchored with positive and negative critical incidents Each ratee is then rated on the dimensions Ratings are fed back using the terms on the form

It takes two to four days to construct a BARS that is jargon free and closely related to the requirements of the job

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Individual Evaluation Methods
Behavioral

Observation Scales (BOS) Developed by Latham and associates Like BARS, the BOS uses critical incidents Instead of identifying which behaviors occurred, the rater identifies how they occurred The hope was that BARS and BOS would yield more objective ratings than other scale formats Most researchers find that the format of the rating scale has little effect on the quality of a performance appraisal system

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Individual Evaluation Methods
Sample

BOS Items Insert Exhibit 9-9 here

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Multiple-Person Evaluation Methods
Ranking A

supervisor is asked to rank subordinates in order on some overall criterion It is easier to rank the best and worst employees than average ones Alternative rankings can help with this difficulty Pick the top employee first, then the bottom one The second best is chosen, then the second worst Follow this process until everyone has been ranked

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Multiple-Person Evaluation Methods
Paired

Comparison The supervisor reviews a series of cards; each contains two subordinates names The higher performer in each pair is chosen Final ranking is made by counting how many times a given employee was chosen as the better performer A major limitation is the number of paired comparisons that must be made With only 10 subordinates, a supervisor would have 45 pairs of names

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Multiple-Person Evaluation Methods
Forced

Distribution Employees are rated on a pre-existing distribution of pre-determined categories The predetermined distribution must be followed, regardless of how well the employees performed A supervisor with all exceptional subordinates will be forced to rate some poorly A supervisor with mediocre subordinates must rate some highly
This technique is similar to grading on a curve

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Multiple-Person Evaluation Methods
Point

allocation technique (PAT) A variation of forced distribution Each rater is given a number of points per employee The points must then be allocated on a criterion basis The total number of points cannot exceed the number of points per employee times the number of employees evaluated

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Multiple-Person Evaluation Methods
Management

by Objectives (MBO) The MBO approach emerged from the beliefs of McGregor, Drucker, and Odiorne With MBO, managers and subordinates plan, organize, control, communicate, and debate The subordinate has a course to follow and a target to shoot for

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Multiple-Person Evaluation Methods
An

MBO program follows a systematic process: Superior/subordinates define tasks and set objectives The superior, consulting with subordinates, sets criteria for assessing objective accomplishment Dates to review progress are agreed upon and used Superior and subordinates make any required modifications in the original objectives A final evaluation by the superior is made The superior meets with the subordinate in a counseling, encouraging session Objectives for the next cycle are set

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Multiple-Person Evaluation Methods

For

MBO and other performance management programs to work: Both the manager and subordinate must be actively involved in objective formulation They must also agree on what measures will be used to evaluate success and failure

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Multiple-Person Evaluation Methods
A

central feature of MBO is discussion about subordinates’ performance, centered on results Many now find MBO programs too results-oriented and insufficiently process-oriented Deming argues that MBO places too much emphasis on detecting problems, too little on preventing them The manager and employee must work cooperatively to improve the underlying basis for productivity To do so, managers must be coaches and counselors, not judges

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Multiple-Person Evaluation Methods
Any

employee’s performance is affected by: His/her ability and motivation The production system that is in place consider an appraisal system in which someone’s merit is not tied exclusively to whether goals were met

Therefore,

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Multiple-Person Evaluation Methods
Pitfalls

and problems with MBO: If too many objectives are set, confusion occurs Too much paperwork In some situations MBO is It is forced into jobs where setting very effective; in objectives is difficult others it is costly and disruptive Rewards may not be tied to results There may be too much emphasis on the short term Superiors are not trained in the MBO process Original objectives are never modified It is used as a rigid control device that intimidates rather than motivates

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Which Technique to Use
The

most commonly used evaluation techniques: The graphic rating scale The essay method Checklists by about 5 percent of firms: Forced choice, critical incident, BARS, BOS, field review, MBO by 10 to 13 percent of firms: Ranking, paired comparison

Used

Used

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Which Technique to Use
MBO

is most likely to be used for: Managerial, professional, and technical employees technique is sometimes good and sometimes

Each

poor The problem lies with how the techniques are used, and by whom The rater is more critical than the technique

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Performance Evaluation Problems

No technique is perfect; they all have limitations

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Opposition to Evaluation
Most

employees are wary of performance evaluation Subjective bias and favoritism are real problems of formal evaluation argue that: They focus too much symptoms of poor performance rather than finding the underlying causes Managers and employees dislike the process Raters have trouble deciding performance levels Employees who are not placed in the top performance category experience a reverse motivation effect

Opponents

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System Design and Operating Problems
Performance

evaluation systems break down because they are poorly designed If the criteria focus solely on results, or on personality traits rather than performance, the evaluation may not be well received Some techniques take a long time to carry out or require extensive written analysis, both of which managers resist Some systems are not fully online

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Rater Problems
Even

if a system is well designed, problems can arise if raters are not cooperative and well trained Supervisors may not be comfortable “playing God” training can lead to: Problems with standards of evaluation Halo effect Leniency or harshness Central tendency error “Recency of events” error Contracts effects Personal bias (stereotyping, similar to me)

Inadequate

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Standards of Evaluation
Problems

with evaluation standards arise because of perceptual differences in the meaning of words Good, adequate, satisfactory, and excellent mean different things to different evaluators only one rater is used, evaluations can be distorted This arises most often in graphic rating scales It may also appear with essays, critical incidents, and checklists

If

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The Halo Effect
Halo

error occurs when a rater assigns values on the basis of an overall impression of the ratee Halo error can be positive or negative The ratings represent an error only if not justified True halo occurs when uniformly high or low ratings are justified by the ratee’s performance errors are not as common as once believed When they do occur, they are hard to eliminate To reduce the possibility, evaluate all subordinates on one dimension before proceeding to the next

Halo

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Leniency or Harshness Error
Being

objective is difficult for everyone Consequently, leniency or harshness errors may occur

Raters

can assess their tendencies by examining their ratings Asking raters to distribute ratings can force a normal distribution

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Central Tendency Error
A

central tendency error occurs when a rater avoids using high or low ratings This “average” rating fails to discriminate between subordinates It offers little information for making HRM decisions regarding: Compensation Promotion Training What should be fed back to ratees

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“Recency of Events” Error
Raters

forget more about past behavior than current behavior Many persons are evaluated more on the results of the past several weeks than the past six months employees are well aware of this difficulty They are sure to be visible and noticed in positive ways for several weeks in advance of a review

Some

This

problem can be mitigated by using critical incident, MBO, or irregularly scheduled evaluations

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Contrast Effects
A

contrast effect error occurs when a supervisor lets another employee’s performance influence the ratings given to someone else Contrast effects also occur when a supervisor unknowingly compares an employee’s present performance with their past performance Poor performers could get rated “above average” if they improve, even if the improvement only brings performance up to “average”

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Personal Bias Error
A

personal bias rating error is related to a personal bias held by the supervisor Some can be conscious, such as sex discrimination Or, a supervisor could “play favorites” Other biases may be more subtle, such as giving a higher rating because the ratee is similar to the rater Personal liking can also affect ratings and feedback effect is usually small if there is sufficient performance-related information on which to base ratings

The

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Eliminating Rater Errors
Behavior-based

rating scales were created to help eliminate the kinds of ratings errors just described Such scales didn’t demonstrate consistent superiority over other rating formats Researchers now concentrated on the rating process More effort is now placed on helping raters accurately observe, recall, and report behavior

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Rater Training
The

two most popular training programs are designed to: Eliminate common rating errors Improve supervisor observation and recording skills dealing with errors are effective, even if short and relatively inexpensive Focusing on observation and recording skills offers greater improvement than simply focusing on errors alone will not solve all problems Raters must be motivated to use the system and be allowed to observe subordinate performance

Programs

Training

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Avoiding Problems with Employees
For

an evaluation system to work well, employees must: Understand it Feel that it is fair Believe it is used correctly system should be: As simple as possible Implemented in a way that fully informs employees about how it will be used

The

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Avoiding Problems with Employees
To

foster understanding about the system: Allow employees to participate in its development Provide training in performance evaluation methods

Self-evaluation

can be a useful addition to an evaluation system This facilitates performance evaluation discussions with a supervisor raters are incompetent or unfair, employees may resist, sabotage, or ignore the rating system

If

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The Feedback Interview
An

effective performance interview involves two-way communication Evaluation should be a continuing process should hold evaluation interviews in order to: Discuss the appraisal Set objectives for the upcoming appraisal period

Supervisors

The

employee’s development or salary should not be discussed during this interview

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The Feedback Interview
Suggestions

for effective interviews: Prepare for the meeting Put the employee at ease Split the budgeted time with the employee Present facts, not opinions Be specific Discuss performance, not personal criticisms Include positive comments Don’t overwhelm the ratee with information Encourage the ratee’s involvement Focus on the future

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The Feedback Interview
With

good interviewing skills, many problems related to discussing performance can be overcome Speak clearly Listen carefully Gather and analyze information thoroughly Negotiate the amount and use of resources poor feedback interview is due to: Poor preparation Miscalculation about the purpose of the session Failure of the rater and ratee to understand each other

A

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The Feedback Interview
Sometimes

there is no choice but to give negative

feedback It is easier to accept criticism if the discussion is part of the larger topic: ways to improve future performance
The

goal of the feedback interview is to: Recognize and encourage superior performance Sustain acceptable behaviors Change the behavior of ratees whose performance is not meeting organizational standards

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