Performance Appraisal: Measurement, Assessment, and Management Chapter 7 Radius Images/Getty Images Learning Objectives After reading this chapter, you should be able to do the following: Use a holistic approach to define work performance and identify its dimensions. Discuss the outcomes of effective performance appraisal. Apply the concepts of validity and reliability to performance measurement. Describe various commonly used performance appraisal methods. Link performance appraisal with other functions within the HRM process. Identify emerging trends, opportunities, and challenges in performance appraisal. 7 Pre-Test Chapter 7 Pre-Test 1. is an aggregate of many separate behaviors occurring over a particular span of time. a) Job performance b) Employee productivity c) Performance appraisal d) Job analysis 2. After identifying performance expectations, what is the next step of performance management usually undertaken by a manager? a) Communicating performance expectations and measurement levels b) Ensuring compliance and measuring performance c) Providing feedback d) Evaluating performance as documented against the defined expectations 3. Which of the following is LEAST likely to be measured using a subjective performance evaluation method? a) Teamwork capabilities b) Employee attendance c) Communication skills d) Level of professionalism 4. The graphic rating scale and forced distribution method are two examples of absolute performance evaluation techniques. a)\tTrue b)\tFalse 5. The duties and responsibilities associated with each job, as well as the human qualities necessary to efficiently and successfully perform the job tasks, are most likely to be included in: a) job design. b)\trecruitment. c) job analysis. d)\tselection. 6. Different employee perceptions toward jobs do not impact their performance or attitudes toward their organizations as long as they perceive the process of performance appraisal as fair. a)\tTrue b)\tFalse Answers 1. a) Job performance. The correct answer can be found in Section 7.1. 2. a) Communicating performance expectations and measurement levels. The correct answer can be found in Section 7.2. Introduction Chapter 7 3. b) Employee attendance. The correct answer can be found in Section 7.3. 4. b) False. The correct answer can be found in Section 7.4. 5. c) job analysis. The correct answer can be found in Section 7.5. 6. b) False. The correct answer can be found in Section 7.6. Introduction Performance management is the process of setting and communicating performance standards and expectations, observing and evaluating (appraising) performance on an ongoing basis against those standards and expectations, and regularly conducting performance reviews with employees to provide them with feedback and design action plans for improvement. Although performance appraisal (observation and evaluation of performance) and performance review (providing employees with feedback and designing improvement plans) are components of performance management systems, in the business literature and in practice the three terms are often used interchangeably, and the whole process is usually referred to as \"performance appraisal.\" Thus, this is the approach we adopt in this chapter. Lawler (2012) noted that it is hard to imagine a company doing a good job of managing its talent without gathering and evaluating information about how well individuals perform their jobs, what their skills and knowledge are, and what their responsibilities and performance goals will be for the futureall of which are considered essential characteristics of the performance management and appraisal process. There is evidence of increasing use of performance appraisals across business and industry (Wise & Buckley, 1998; Nankervis & Compton, 2006), and currently 80 to 90% of firms in the United States use such appraisals (Prowse & Prowse, 2009). While it is inconceivable that an organization would not want to see high performance from its employees resulting from well-designed and effectively executed systems for performance management, research by Rowland & Hall (2012) concluded that such is seldom the case, and Lawler's (2012) research concluded that although some corporations do indeed employ high levels of performance management practices, others are just as likely not to do so. That employee performance appraisal is routinely criticized in the management literature is not in dispute (Lawler, 2012; Stepanovich, 2013). In a classic piece on employee performance appraisal, McGregor (1957) observed that managers and supervisors are reluctant to make judgments about their direct reports (i.e., to \"play God\"), and to avoid making such judgments they demonstrate a propensity to rate all subordinates as close as possible to the middle rating point, thus making performance appraisals meaningless. McGregor also argued that the performance appraisal process dehumanizes subordinates by treating them like physical objects, thus further adding to managerial reluctance to engage in the process and raising questions as to the real meaning of any performance appraisal. Many years after McGregor made his observations, not much has changed: managers report disliking the task of conducting performance appraisals second only to the task of firing employees (Heathfield, 2007). Longenecker et al. (1987) observed that organizational politics influence attempts to appraise employee performance. Politics are frequently manifested in deliberate attempts by individuals to enhance or protect self-interests when conflicting courses of action are possible, thus resulting in bias and inaccuracy in the rating of a direct report. For instance, out of a desire to curry favor with a subordinate in hope of gaining extensive effort on an upcoming project, Introduction Chapter 7 a manager or supervisor might overrate some competency across measures of performance during the last performance cycle rather than rate the employee objectively across the entire range of measures. One of the most frequently cited attacks against the practice of performance appraisal came from the late Edward Deming, father of the total quality movement. He charged that while employee performance appraisal enhances short-term performance, it annihilates long-term planning, builds fear, demolishes teamwork, and nourishes rivalry and politics (Deming, 1982/2000). At the center of his criticism is a belief that the work situation, not the employee, is the major determinant of performance. That is, variation in employee performance is commonly the result of employees working within organizational systems that restrict them from having the necessary information, technology, or control to adequately perform their jobs (Waldman, 1994), resulting in the performance appraisal process leaving people feeling bitter, crushed, dejected, and battered but unable to comprehend why they have been judged as inferior or, at best, as average (Deming, 1982/2000). There is no federal statute requiring employers to develop or implement a performance appraisal system, but many employers do so, often motivated by a desire to defend against possible charges of discrimination. However, there is evidence that performance appraisal may actually create even more claims of discrimination. The feelings and emotions identified by Deming resulting from documentation of performance can cause poor employee relations and have been shown to lead solid employees to feel that they are justified in filing complaints with the EEOC (Wood, 1999). At the heart of all justifications for continuing performance appraisal is the vital role that constructive feedback can play in helping individual employees improve their performance (Risher, 2011). Despite all the criticism and evidence leveled at performance appraisal, the critics seldom suggest an alternative process capable of providing vital feedback, developing motivation, identifying training needs, or justifying attempts at reward and career development opportunities (Hartle, 1997). Nevertheless, as suggested by critics of the process, it is common for organizations to measure performance poorly and thus to be in the dark about the quality of their employees' performance. To address this dilemma, performance measurement in today's business world requires greater creativity and a more holistic approach than has been observed in the past, and what follows in this chapter is information intended to enhance an already indispensable management tool. O P E N I N G C A S E S T U DY Jack Welch and His (In)Famous Rank-and-Yank System Access the following link: http://usatoday30.usatoday.com/educate/college/careers/Advice/advice4-18-05.htm As you will learn in this chapter, performance appraisal systems can have absolute or relative standards. The system adopted by Jack Welch, the former CEO of General Electric, is an extreme example of relative performance appraisal standards. Employees are compared to each other and ranked accordingly. Jack Welch believes this system to be \"kind\" to employees, under the right conditions. (continued) What Is Performance? Chapter 7 Discussion Questions 1. To what extent are you comfortable with giving someone else feedback on his or her performance? 2. How do you go about giving and balancing positive and negative feedback? 3. To what extent are you comfortable with someone else giving you feedback on your performance? 4. Would you rather be evaluated on an absolute or a relative standard? Why? 5. Would you rather evaluate others on an absolute or a relative standard? Why? 6. What is your opinion about Jack Welch's performance appraisal system? 7.1 What Is Performance? Job performance is the total expected value to the organization of discrete behavioral episodes that an employee carries out over a prescribed period of time. This definition implies that job performance is a property of behavior. That is, job performance is an aggregation of multiple, discrete behaviors that occur over a span of time. A further implication is that some sets of behavior are distinct from other sets of behavior in their contributions to or detractions from the effectiveness of the organization and therefore receive greater attention. Finally, results are states or conditions of things that are changed by what employees do in ways that help or hinder the organization in reaching its objectives, and this accounts for results being appealing as a focal point when considering employee performance (Motowidlo, 2003). This discussion points toward a holistic approach to performance appraisal involving a multidimensional system of interrelated parts. In this section, numerous components of performance are discussed and integrated. These components provide the foundation for the design, measurement, assessment, and management of an effective performance appraisal system that can be conducive to continuous performance improvement at both the individual and organizational levels. Employee Productivity Productivity is the most prominent component of performance. Generally speaking, any job or role has a core set of functions, duties, and responsibilities that its incumbent needs to perform. Often, there are also some standards regarding the minimum level of acceptable performance for each of these functions, duties, and responsibilities. This predetermined set of criteria can be used as the bare minimum to define and measure employees' performance. Employee productivity can then be defined as the ratio of the actual employee production to the planned or anticipated production for the core set of imagebroker.net/SuperStock Employee productivity can be defined as the ratio of what employees actually produce and what an organization predicted employees would produce based on the specific responsibilities of a job. What Is Performance? Chapter 7 functions, duties, and responsibilities of the job performed. For instance, the job of operations manager would likely include among its tasks that of production planning and control. An efficiency ratio for this task might involve the time the incumbent spent in production planning divided by the estimated average time for all incumbents in the same job. A ratio for effectiveness on the task of planning and control could be determined by the percentage of variation from the production plan. Efficiency and effectiveness ratios for other critical tasks such as budgeting and control, forecasting, scheduling, and quality could also be determined. Appropriate weights would be assigned to the various ratios and a productivity matrix developed. The result would be an overall productivity index for the job incumbent (Ahmed et al., 1991). Employee Attitudes Attitudes can be defined as cognitive and emotional appraisals that shape subsequent behavioral tendencies. Although attitudes are not performance per se, employees' attitudes have a direct influence on their productivity, as well as on the organizational culture as a whole. As you learned in Chapter 6, this fact makes employee attitudes valid predictors of performance. Organizations that want a more accurate depiction of their employees' performance often incorporate employees' attitudes in their performance appraisals. Because attitudes are subjective, two people may appraise the same situation differently and therefore be inclined to respond to it differently. Important positive attitudes in the workplace that have been shown to have a direct impact on performance include job satisfaction (Judge, Thoresen, Bono, & Patton, 2001) organizational commitment (Riketta, 2002) work engagement (Harter, Schmidt, & Hayes, 2002) Negative work attitudes include cynicism (Wanous, Reichers, & Austin, 2000) disengagement (Robison, 2010) Each of these five attitudes has been shown to be a significant predictor of work performance. Importantly, the \"softer\" and less tangible nature of attitudes makes them harder to measure. However, these specific attitudes have scientifically designed, valid, and reliable measures that can be incorporated within performance appraisal systems, and well-supported HR initiatives can be used to develop and manage these attitudes. Employees with negative attitudes express these attitudes in their behavioral patterns and adversely influence their co-workers, which in turn depresses employee morale and team spirit, triggers employee conflicts, and reduces efficiency, quality, and ultimately performance. On the other hand, employees who are satisfied with their jobs are generally more committed to fulfill their tasks and responsibilities efficiently. In addition, they are more likely to get involved and actively engaged in job activities. Employees with positive attitudes can also create a \"cheerleader effect\" that transfers their positive energy to other individuals and creates a favorable atmosphere that promotes work engagement, commitment, and productivity. Performance appraisal systems that account for attitude recognize that employees with positive attitudes are valuable assets, and these systems provide the means to properly recognize and reward these employees for these attitudes. They also provide mechanisms to identify What Is Performance? Chapter 7 negative attitudes, diagnose their causes, and design corrective action plans before they can be manifested into performance problems. Work Behaviors Performance is often visualized in terms of productivity and efficiency. However, the following elements of performance should also be considered in evaluations of employee performance: coaching, mentoring, or supporting new co-workers sharing skills and experience promoting a friendly work environment and a healthy team spirit abiding by and encouraging others to follow organizational norms, regulations, and procedures assisting employees with their emotional and personal problems These work behaviors are known as organizational citizenship behaviors (OCBs) (Organ, 1988). They are all forms of positive performance that go above and beyond the call of duty. They are not explicit role expectations and are rarely, if ever, formally recognized or rewarded by an organization. However, research shows that most managers take OCBs into account when evaluating their employees' performance. Moreover, many service-oriented and knowledgebased jobs do not have clearly identifiable tasks. Thus, the distinction between DragonImages/iStock/Thinkstock role expectations and OCBs is blurred, Organizational citizenship behaviors include promoting a friendly which makes it necessary to account for OCBs when evaluating an employee's work environment and supporting one's co-workers. overall performance. For example, great customer service often requires employees to go above and beyond an explicit set of tasks that can be identified in a job description. It cannot be reduced to a script or a sequence of behaviors that the employee is trained to enthusiastically reiterate. When personalization and customization to the customer's needs and personality are necessary, whether the customer is internal (e.g., colleagues, managers, or associates) or external (e.g., clients), the line between performance and OCB is blurred. Thus, OCBs are very challenging to evaluate because they are very subjective in nature. Evaluating OCBs requires the assessor to analyze and evaluate multiple subjective parameters simultaneously, which may introduce bias and inaccuracy. Providing the employee with specific feedback on their OCBs is also challenging but necessary for their development. Lee and Allen (2002) identify two types of OCBs: individual-oriented and organizationoriented behaviors. Individual-oriented OCBs are targeted toward other individuals; an example is helping a co-worker with a difficult task. Organization-oriented OCBs are targeted toward the organization; conserving office supplies and speaking highly of one's employer in a social setting are examples of organization-oriented OCBs. After extensive review of the relevant research literature, Organ et al. (2006) concluded that OCBs are positively related to organizational outcomes such as the quantity and quality of work group production, sales The Strategic Value of Performance Management Chapter 7 team performance, customer satisfaction, sales revenue, profitability, and operation management. Thus, OCBs are particularly relevant to a holistic performance appraisal system. Some work behaviors can also be counterproductive. Bennett and Robinson (2000, p. 556) define counterproductive work behaviors (CWBs) as \"voluntary behavior of organizational members that violates significant organizational norms, and in doing so, threatens the well-being of the organization and/or its members.\" Examples of CWBs include physical violence, verbal aggression, harassment, theft, intentionally producing lower quantity or quality, wasting resources or supplies, sabotaging organizational property, leaking confidential information, or refusing to help co-workers (Robinson & Bennett, 1995; Robinson & Greenberg, 1998). Many reasons can prompt these behaviors. For example, environmental conditions such as work stressors, perceptions of injustice, or situational frustration, and high levels of negative affect tend to strengthen paths leading to CWB (Yang & Diefendorff, 2009; Johnson et al., 2010). These behaviors hinder the organization's ability to achieve its goals and objectives and can have serious implications on performance to such a degree that Chappell and Di Martino (2006) see it as one of the most serious problems facing today's organizations. That's why it is critical for an organization to take necessary actions to detect, assess, and correct counterproductive behaviors (Spector, Fox, & Domagalski, 2005). Thus, addressing CWBs should also be an integral component of performance appraisal systems. Team Performance There are several approaches for measuring team performance because it is more than the sum of the individual performance of the team members. Some approaches focus on individuals and their contributions to the team, while other approaches focus on the team as a unit, including the synergies, added effectiveness, productivity, problem-solving capabilities, and innovation realized as a result of collaboration across team members (McCann & Aldersea, 2002). One major issue with evaluation of teams is that of \"free riders\" or \"social loafers\" who make only minimal contributions to team productivity but enjoy equal rewards with those making greater contributions, and this suggests that individual contributions to team performance must be assessed and recognized. Finally, not all teams are created equal. That is, different teams such as work or service teams, project teams, and network teams will require different emphasis at both the individual and team levels (Cascio & Aguinis, 2011). 7.2 The Strategic Value of Performance Management Figure 7.1 outlines the performance management process and positions it within the strategic HRM process (various sections and discussions in this chapter elaborate on those linkages). As described at the beginning of the chapter, at the dyadic level (i.e., manager and direct report) performance appraisal is part of a larger process commonly referred to as performance management. Reference was made earlier to the fact that job performance has specific beginning and ending points, and performance management is a series of coordinated managerial activities within a specific time frame that is repeated on a cyclical basis. The various activities represented in Figure 7.1 can be grouped into four distinct steps commonly associated with performance management. 1. Step one: Identify performance expectations. The first step in the performance management cycle collectively involves a series of activities (e.g., defining performance, selecting The Strategic Value of Performance Management Chapter 7 performance measures, determining validity and reliability, and ensuring legal compliance) that focus on identifying performance expectations to be assigned to each direct report. From a practical perspective, managers should look at the critical goals and objectives for which they are accountable and then define levels of performance regarding employee productivity, attitude, work behavior, and team performance necessary to achieve those goals and objectives during the job performance cycle. It is likely that expectations will vary across employees given their individual levels of knowledge, skills, and abilities. To ensure focus, it is prudent for managers to acknowledge the Pareto principle, which holds that 80% of a direct report's contribution to the manager's goals and objectives will likely come from successful performance of 20% of the tasks defined in his or her job description. Equally important, managers must define the expected levels of job performance in terms that are observable, measurable, and documentable, thus enabling direct reports to continually self-monitor the degree to which they are successfully performing their jobs. 2. Step two: Communicate expectations of performance and levels of measurement. The second step in the performance management cycle occurs after the validity and reliability of the selected performance measures have been assessed and before attempts to monitor compliance are implemented. It requires managers to discuss and communicate individually with direct reports the expected levels of performance and the metrics that will be used to determine successful job performance. Employees want to know what's important to the organization, the level of performance expected of them, and how to determine what they are achieving, matching, or exceeding. In terms of practice, managers should never be accused of playing \"gottcha\" with employees, and when it comes time to actually deliver the results of the performance appraisal to a direct report there should be no surprises. 3. Step three: Ensure compliance, measure performance, and provide feedback. In reality, these activities are much more extensive than this brief statement indicates. They involve tracking, measuring, and documenting performance; giving both corrective and reinforcing feedback; providing necessary resources; and coaching and mentoring direct reports throughout the job performance cycle. From a practical perspective, whatever gets observed, measured, and documented throughout the performance cycle maintains the attention of direct reports. 4. Step four: Evaluate documented performance against defined expectations. The preceding three steps clearly imply that performance appraisal is not a single event but rather a series of activities within the larger process of performance management. In the fourth and final step, managers evaluate the documented performance of direct reports over the prescribed time period against the defined expectations and standards, discuss that evaluation with the employee, and engage with the employee in developing action plans for the next cycle of job performance. Finally, after completing the performance review with direct reports, it behooves managers to reflect on the entire performance management process by asking questions such as: Did the expected levels of performance inspire and motivate? Were they clear and specific? Could they be measured and documented? Did they contribute to enhanced performance? Did the performance management process work as intended? Although the main objective of performance appraisals is to evaluate employees' work performance, performance appraisals are also important for organizations because they reflect the effectiveness and efficiency of achieving organizational goals and objectives. Organizations use performance appraisals for many purposes such as The Strategic Value of Performance Management Chapter 7 Figure 7.1: Performance appraisal Strategic HR planning Benefits and benefits administration Job analysis and job design Attraction and recruitment of talent Compensation Training and development Selection and job fit Performance appraisal/ management Defining performance Selecting performance measures Developing action plans Assessing validity and reliability Providing feedback Measuring performance Ensuring legal compliance f07.01_OMM618.ai Performance Measurement Chapter 7 managing salaries, wages, and pay adjustments providing performance feedback for employees and communicating points of strength and weakness Performance appraisals are also used by management to determine job placement decisions such as promotions, demotions, and transfers to justify employee disciplinary actions such as termination or dismissal Performance appraisals are often linked to such incentive systems as bonuses, which sustain a culture of rewarding employees based on their job performance rather than their seniority. However, badly prepared performance appraisals can negatively affect high performers because they may not be fairly rewarded, which can ultimately destroy their morale and sense of trust in organizational practices. Finally, performance appraisals can provide the necessary information for assessing training needs and designing the appropriate training and development initiatives to meet those needs. 7.3 Performance Measurement Organizations often use a combination of performance measures because each type of measure has strengths and weaknesses, as you will see in this section. However, regardless of the types of information measured, reliable and valid results are always the goal. Objective Versus Subjective Performance Measures Objective evaluations involve factors that are measurable, mostly in the form of performance metrics associated with achieving certain goals and targets within specific time frames. Most HRM professionals prefer to work with objective measures (Milkovich et al., 2011). Specifically, evidence suggests that 13% of hourly workers' and 70% of managerial workers' performance appraisals are based on objective, quantifiable results (Jackson et al., 1989). However, the emphasis on what can be quantified sometimes leads to a narrow scope that may not adequately represent the nature of the job. For example, when the cost of labor is tightly bound to hours an employee is present at a worksite, HR professionals are inclined to use face time as a proxy of performance, at the expense of complex, harder-to-measure, more subjective, but important performance dimensions such as decision-making, leadership, initiative, creativity, teamwork, and other positive qualities. Examples of objective evaluations include employee annual attendance hourly rate of production cost savings per year Objective performance evaluations are successful only when they are applied to tasks where direct employee measurement is possible, and where performance can be compared across individuals who perform similar tasks within the same time frame. However, objective measures are not useful when managers attempt to apply them to complex processes. For example, the number of reported safety incidents per month would not constitute an effective objective measure because such incidents vary in terms of importance and severity. Cameron (1963) quoted an observation by Albert Einstein,\"Not everything that counts can be counted, and not everything that can be counted counts,\" and this is the essence of the debate among management professionals regarding the use of subjective performance evaluations. Performance Measurement Chapter 7 While rater characteristics such as gender, age, and interest have demonstrated no general effect on subjective performance ratings, characteristics such as race, education level, and personality characteristics have demonstrated a general effect (Cascio & Aguinis, 2011). In any event, subjective evaluations may be more helpful for professionals whose performance cannot be clearly measured (such as lawyers, market analysts, and trainers) or whose tasks do not lend themselves to objective measurement. Areas where subjective measures might be applicable include: teamwork capabilities communication skills levels of professionalism A study by Caranikas-Walker et al. (2008) concluded that subjective human judgment makes a significant contribution in evaluating and rewarding CEO performance. Further, there is qualified support for using subjective measures of job performance in non-management positions. A study by Hoffman et al. (1991) demonstrated a significant correlation between the subjective evaluation by managers of the performance of direct reports and objective measures of the reports' productivity, but not measures of quality; this study produced results identical to an earlier study by Nathan and Alexander (1988). However, there is also evidence that the value of subjective measures is limited to identifying performances at the high and low end of a distribution and that these measures are of little value in distinguishing performances in the middle of the range (Jacob & Lefgren, 2008). Measurement scales used for selection are described in Chapter 6. In designing subjective performance evaluations, similar measures can be created for each particular metric based on its weight or importance to the job. The measures can then be assessed for validity and reliability, further refined, and finally utilized to assess performance along those dimensions. For example, managers can be asked to provide actual examples of specific behaviors they expect from their employees for a particular performance criterion (the examples can also be gathered using the narrative or critical incident methods as discussed below). These examples can then be used to create a measurement scale for managers to rate their employees. For instance, a leadership measurement scale may ask managers to rate their employees on items such as \"takes initiative,\" \"positively influences others,\" \"works independently,\" and so forth. Although subjective evaluations provide managers with more flexibility in assessing performance, they can sometimes be unfair, especially in cases of unfavorable manager-employee relationships. Absolute Versus Relative Performance Standards Absolute performance evaluations assess each individual on the successful completion of his or her targets and goals in comparison to some pre-established standards. In a relative performance evaluation, by contrast, one individual is evaluated in relation to others who perform the same or similar tasks. Individuals are then categorized based on their performance rankings. These rankings are particularly relevant when management needs to identify exceptionally good employees for the purpose of promotions or special assignments. They are also helpful in identifying a poor fit between individuals and positionsidentifications that can be useful in making transfer or termination decisions or when workforce reductions are necessary. Aside from those unique situations, research demonstrates that most employees prefer to be evaluated based on absolute standards rather than on their relative performance ranking (Boyle, 2001; Lawler, 2003; McGregor, 2006). Relative performance creates a culture of competitiveness where slower performers are not tolerated. One of the most critical disadvantages Common Performance Appraisal Methods Chapter 7 of relative performance evaluation systems is potential lawsuits from some protected classes that are perceived to be slower performers, such as older members or individuals with certain disabilities. Another shortcoming of the relative performance system is its negative influence on team spirit, as these evaluations create rivalries and competition. Relative performance is also ineffective in providing employees with useful feedback on their performance that would help them improve, which defies the main and most important purpose of a performance evaluation. Validity and Reliability Revisited Due to the measurement-intensive nature of performance appraisal, its tools, methods, and procedures are subject to the same validity and reliability standards that are discussed in Chapter 6. Thus, these concepts are revisited here, as follows: For a performance appraisal system to be deemed valid, its results should correlate to objective performance standards. For example, an appraisal system that yields similar evaluations, regardless of variations in actual performance, has low validity. An illustrative example is a manager who scores all of her employees as \"above average\" so that they can all receive the same pay raise. A reliable performance appraisal system should yield consistent results. For instance, an effective performance appraisal system must result in the same conclusions about an employee's performance, regardless of such variations in input factors as the manager conducting the appraisal, the time of day, or the location of the evaluation. It is also important that the appraisal system be designed expressly to measure and assess performance, rather than for other unrelated or indirectly related goals. Otherwise, performance evaluations will be biased and their outcomes will be misleading for both the employees and the organization. For example, performance appraisals can be used solely to determine annual raises or bonuses instead of as a way to provide employees with feedback about their performance and help them improve. In these cases, managers tend to ignore the appraisal process until the last week of the year and then give most of their employees the same evaluations in an effort to be \"fair\" in distributing those financial rewards. As a result, these employees rarely take performance appraisal seriously. Oxford/E+/Getty Images It is important for an appraisal system to be adequately designed for evaluating, measuring, and assessing the right performance indicators to avoid any bias. 7.4 Common Performance Appraisal Methods Organizations commonly use many valid and reliable performance appraisal methods. Different methods provide different types of information. Some measures are objective and some are subjective; some have absolute standards and others are relative. Similar to selection methods, performance measures vary in their validity and reliability. Organizations generally use a combination of methods to accurately assess their employees' performance, since each Common Performance Appraisal Methods Chapter 7 method has its advantages and limitations. The following link provides some examples of the performance appraisal methods discussed in this section. Web Links Performance Appraisal Methods http://www.humanresources.hrvinet.com/performance-appraisal-methods/ This link provides examples of the performance appraisal methods discussed in this section. As you read about each method below, take a look at the examples and try to create similar ones for your current job or a job that you are familiar with. Discussion Questions: 1. Which appraisal methods best fit the nature of your job? Why? 2. Are these methods subjective or objective? How can objectivity be increased? 3. Are these methods absolute or relative? 4. Which of the measured criteria represent dimensions of productivity, attitudes, and behaviors? Which ones are individually based? Which ones are team-based? Absolute Methods The narrative technique, the critical incident method, and the management by objective method are all subjective, absolute ways of appraising employees. Although the subjective nature of these methods can compromise reliability, they have their advantages. The narrative technique is a subjective tool in which the evaluator provides a written essay describing the employee's job performance and behavioral patterns. The descriptive nature of the narrative technique gives it high validity, but it creates a burden on assessors, who must devote a great deal of time in the development of a specific evaluation for each employee. The critical incident method is an absolute method that provides a slightly more objective approach than the narrative technique. In this approach, managers keep track of incidents in which an employee's job-related performance deviates either positively or negatively from an expected standard. The primary advantage of this method over the basic narrative technique is that it is less time-consuming. Only critical incidents are recorded, which helps evaluators remember each employee's performance for the whole period being evaluated rather than focusing on the last few days or week preceding the evaluation. A commonly used format for recording critical incidents is \"STAR\" (i.e., situation, task, action, result) in which notation is made AP Photo/The Evansville Courier & Press/Kevin Swank regarding the expected standard of perAn accident involving a company vehicle is an example of a formance, the situation or task observed, critical incident regarding job performance that would need to be the action taken by the employee, and the recorded. Common Performance Appraisal Methods Chapter 7 result of that action. The advantage of the critical incident method is that it depicts the actual performance of employees with its positives and negatives. It also forces managers to regularly observe employees and maintain a regularly updated account of important performance events. This method's disadvantage is that it cannot be used to compare employees' performance. Management by objective is an absolute method that evaluates employees' successful completion of pre-established goals and objectives in a time frame specified beforehand, which makes this method more objective than narratives and critical incidents. The manager and employee jointly set goals and performance standards at the beginning of the evaluation period, and then employees are evaluated at the end of the period based on the extent of their goal completion. Critical to the success of this method is that the means, tools, and processes that lead to goal achievement are left to the discretion of the employee, rather than the manager's dictating them. The main advantage of the management-by-objective method is that it promotes an environment of high performance among employees. Their evaluations are tied up to the accomplishment of their objectives, which can be linked to the organization's strategic goals. This enhances the method's validity. The disadvantage of this method is that it is time-consuming, as specific job objectives have to be formulated for every single employee in the organization. The degree of subjectivity/objectivity of this method varies depending on the nature of the objectives and their measurability. The graphic rating scale method is an absolute performance appraisal method that lists all the criteria associated with the job. Managers evaluate employees by assigning a numerical value for each of those criteria based on a predetermined scoring scale. For example, a manager may be asked to use a 1-10 scale to rate each employee on a list of criteria such as productivity, performance quality, initiative, communication, conformity to organizational policies, and so on. The graphic rating scale method is favored by organizations because it is fairly simple and easy to apply. It also provides a clear quantitative measure of performance. However, its validity and reliability may be questionable when the involved criteria are obscure or biased. While graphic rating scales appear objective on the surface, evaluators can be subjective in their ratings if they do not attend to and control their perceptual and attributional biases, discussed later in this chapter. The behaviorally anchored rating scale (BARS) is also an absolute performance appraisal method. It is a more elaborate form of a graphic rating scale: each of the points on the scoring scale is anchored with specific behavioral descriptions for what constitutes performance at that level. This anchoring facilitates accuracy, objectivity, and consistency, especially inter-rater reliability, in the use of the scale. However, thorough analysis must be conducted to determine the specific behavioral patterns associated with each taska time-consuming task. About 80% of all performance appraisals rely on a single source of information to evaluate the job incumbentthe immediate supervisor. The assumption is that the immediate supervisor is in the best position to evaluate the work of a direct report (Jackson et al., 1989). To lessen the impact of a single source of evaluation, the 360-degree feedback method (another absolute method) has grown in popularity to the point where it and other related forms of multi-rater assessment methods have become a \"must-have\" tool for integration into the overall performance and human resource management strategy (Church & Bracken, 1997). Using the same measures, the method assesses employee performance from up to five perspectives: immediate supervisor, peers, self, customers, and subordinates. The underlying assumption driving 360-degree feedback rating systems is that when individuals compare Common Performance Appraisal Methods Chapter 7 composite ratings of work-related behaviors from others with self-perceptions on the same behaviors, they are forced into a cognitive process of reflection that ultimately results in greater levels of awareness of their own actions and the consequences those actions have for others across various levels in and out of the organization (Church & Bracken, 1997). Absent such feedback for comparison, little behavioral and performance change should be expected of organizational members (Funderburg & Levy, 1997). Among the often-cited advantages of 360-degree feedback are that the flexibility of the process makes it appealing to employees at all levels of the organization and because it improves employee understanding and self-awareness it is useful for developmental purposes (Milkovich et al., 2011). Among the reported disadvantages are frustration from those filling out the review regarding the number of surveys they have to complete and the time involved in completing the process (Waldman et al., 1998). In addition, while improving self-awareness and understanding, it may not change an employee's work-related behaviors (Brett & Atwater, 2001) or produce results any better than a standard performance appraisal (Pfau, et al., 2002). Relative Methods The main strength of relative performance evaluation techniques is that they prevent managers from grouping a large number of employees in the same performance category and provide a more logical distribution of employees that causes top and bottom performers to stand out. This result enhances the validity of relative performance appraisal methods. However, the performance evaluation results are solely dependent on the preselection of the percentage of employees allocated for each appraisal category, which compromises their reliability and sometimes their validity. This outcome is especially likely when managers resort to artificially placing employees in rankings that do not represent their performance. For example, in organizations that force managers to place some of their associates in the lowest performance category despite their adequate performance, many managers routinely alternate their associates into that category in order to \"spread the pain\" fairly and equitably. Rank ordering is a relative approach that simply requires that the rater order all direct reports from highest to lowest, from \"best\" to \"worst.\" The opening case provides a good example. Rankings can be based on objective or subjective criteria and can be related to productivity, attitudes, behaviors, or a combination thereof. Not only individuals, but teams can also be ranked based on performance, collaboration, creativity, and other group-based criteria. The forced-distribution method is a relative performance evaluation technique that allows managers to assign or allocate certain percentages of employees into predetermined appraisal categories. For example, the top 25% of employees based on performance would be considered \"excellent,\" the next 25% would be considered \"satisfactory,\" the following 25% would be considered \"below expectations,\" and the lowest 25% would be considered \"unsatisfactory.\" This lowest performance group would then be reprimanded, put on probation, or terminated. This approach is most commonly associated with Jack Welch, a former CEO of General Electric. GE eliminated the lowest 10% of performers every year using this method. The paired comparison method is another relative performance evaluation technique. It uses a matrix in which each employee is evaluated against each and every other employee performing the same job. For each two employees compared against each other, the manager uses a positive or a negative sign to indicate which employee is better. Finally, all positives and negatives are added for each employee and the employees are ranked accordingly, with the one earning the most positives rated the highest. Linking Performance Appraisal to the Strategic HRM Process Chapter 7 7.5 \u0007 inking Performance Appraisal to the Strategic L HRM Process Performance appraisal is a critical component of the strategic HRM process. Proper assessment of employee performance can facilitate and enhance many HR processes in several ways. Performance Appraisal as an Internal Resource for Strategic HR Planning Performance appraisals provide HR management with valuable feedback that assists in planning and decision making. Data received from performance appraisals reflects many aspects about employees such as their personality growth potential adaptability to variation in work environment respect for organizational rules and regulations productivity efficiency leadership and teamwork capabilities communication skills other strengths and weaknesses Using this valuable data, HR managers can identify certain employees for promotions, internal transfers to different positions, or layoffs and termination. Succession planning is one very important area that performance appraisals serve. Succession planning is an area of great concern to HR managers as companies wish to ensure that qualified employees are available within the organization to fill managerial positions once they are vacant in order to lead the organization into fulfilling its future goals and objectives. Data about qualified individuals can be extracted from performance appraisals to ensure that qualified candidates are selected based on valid and reliable data. Job Analysis as a Source of Information for Performance Appraisal As discussed in Chapter 4, job analysis yields the job descriptions and job specifications that outline the duties and responsibilities associated with each job. It also outlines the human qualities necessary to successfully and efficiently perform the job taskssuch as the education level, experience level, and other physical and personal aspects that are necessary. Job descriptions and specifications can also be used to highlight key performance factors associated with the job. These factors can serve as the basis for performance appraisals. However, a performance appraisal method may demonstrate criterion deficiency by omitting measurement of important factors or by assigning too much importance to some measures and too little to others. On the other hand, an appraisal method can demonstrate criterion contamination by measuring non-relevant performance factors or allowing non-performance factors to affect performance scores. Thus, it is very important to justify what is being measured by reference to the job description and specifications resulting from a thorough job analysis. Finally, performance appraisal results may show consistent deficiencies in employees' performance of certain tasks, and these results may in turn trigger further job analysis efforts, job redesign, and subsequent modifications in job descriptions and job specifications. Linking Performance Appraisal to the Strategic HRM Process Chapter 7 Performance Appraisal as a Tool for Identifying, Recruiting, and Selecting the Right Talent HR managers can effectively use performance appraisals in their future employee recruiting and selection activities. For instance, data collected from performance appraisals can include degree of adaptability, technical experience, communication skills, and other qualities and key performance tasks necessary for a particular job. This data can help HR management foresee the performance of candidates who apply for a particular job. Performance appraisals can also help HR management identify, select, and determine the potential for some employees to occupy leading and managerial positions. Performance Appraisal as an Indicator of Training Needs and Knowledge Gaps Many organizations misuse performance appraisals or limit their use only to making decisions regarding salaries and promotions, yet the main objective of performance appraisals is employee development. Employees' points of strength and weakness are more clearly identified as they are evaluated against pre-established key performance indicators pertaining to their jobs. This identification enables HR managers to target and refine the weaker skills that require development through positive feedback, training, and development. This process allows the performance appraisal system to work as a positive, proactive mechanism for detecting areas of improvement, rather than as a reactive tool or punishment system whereby employees with performance deficiencies are judged as not meeting job performance criteria and weeded out. Performance Appraisal as a Determinant of Fair Compensation and Reward Distribution Practices Managers use performance appraisals to reward and compensate employees based on their contribution to the efficient completion and fulfillment of their job duties and responsibilities. These appraisals promote perceptions of equity and justice, promote an organizational culture favorable to reward employees who exceed expectations through excellent performance, and help the organization achieve its strategic goals and objectives. Promoting these ends gives organizations a reason to invest in designing and implementing a valid, reliable, and fair performance appraisal system that employees can rely on. EYE ON THE GOAL Relating Performance Attitudes to Organizational Profitability: Not a One-Way Street Until recently, the adage \"a happy worker is a productive worker\" was assumed to be true. In fact this assumption continues to be propagated by consultants, the media, and many credible references, and it's a shaping factor of many HR systems and policies. However, recent studies shed addi(continued) Linking Performance Appraisal to the Strategic HRM Process Chapter 7 tional light on the relationship between employee attitudes and performance. While the correlation between job satisfaction and job performance is significant, the direction of causality is debatable. Recent studies show that if you measure satisfaction and performance over time, you will find that the relationship is bidirectional (e.g., satisfaction at Time 1 predicts performance at Time 2, and performance at Time 1 also predicts satisfaction at Time 2). However, performance has a stronger relationship with satisfaction than vice versa (Judge et al., 2001). What does all this mean in practice? Most organizations undertake many interventions and launch many programs and initiatives in the hope of increasing job satisfaction and job performance, yet it appears that the best way to increase satisfaction is to help employees perform better. How? Support them, train them, give them the tools and information they need, and then get out of their way and leave them alone to do what they do best! One fact exacerbates a problem for performance appraisal: supervisory ratings are usually influenced less by the employee's productivity than by the employee's attitudes, organizational citizenship behaviors (OCBs), and the learning abilities that he or she exhibits during training (Schmidt, 2009). Managers' perceptions are biased toward the belief that employees who have positive attitudes, go out of their way to help, and are fast learners should outperform others. In reality, higher performers may not need any additional training, positive attitudes, or extra behaviors to shine. All they need is for their supervisors to support them in their superior performance, and their attitudes will follow suit. Instead, they are penalized by their supervisors' subjectivity and biases. Finally, linking employee and organizational performance is always challenging, but especially so when employee performance is based on subjective or biased measures. However, objective performance measures are sometimes inaccurate, unavailable, or simply undisclosed. Several studies have shown that using multiple measures in these cases is likely to compensate for this inevitable deficiency, even if some of these measures are subjective (Chakravarthy, 1986; Dess & Robinson, 1984). For example, it may be impossible for a manager to objectively assess a salesperson's performance in the field. However, using customer satisfaction surveys with specific questions about the salesperson's knowledge and behaviors can provide a proxy for the missing data. Similarly, rather than expecting managers to micromanage their employees in order to accurately evaluate their performance, performance data can be collected from various stakeholders to reflect the employees' actual behaviors that can truly impact the organization's performance. Studies support the idea that this approach is even more effective in measuring strategic organizational performance than traditional financial measures, which only focus on shareholders. This perspective also supports the holistic approach to performance appraisal adopted in this chapter. Discussion Questions: 1. On a scale of 1-10, mark your level of satisfaction with your job today. Also make a brief list of the most important events that have led to your level of job satisfaction. 2. On a scale of 1-10, mark your evaluation of your productivity at work today. 3. Repeat this exercise for at least two weeks. 4. Create a chart similar to the examples provided in Figure 7.2 to trace your job satisfaction and your productivity. 5. Based on your chart, does your prior performance seem to lead to your subsequent satisfaction, or does your prior satisfaction seem to lead to your subsequent performance? 6. Based on your findings, what would you recommend as the most effective way for your boss to motivate you? What would be the least effective approach? (continued) Linking Performance Appraisal to the Strategic HRM Process Chapter 7 Figure 7.2: Examples of productivity and job satisfaction plots (a) Job satisfaction the day before leads to productivity on the next day. (b) Productivity the day before leads to job satisfaction on the next day. 12 Pr Productivity 10 Jo Job Satisfaction 8 6 4 2 0 1 2 3 4 5 6 7 8 9 10 Day (a) Job satisfaction the day before leads to productivity on the next day. ob da 12 Productivity Pr 10 Job Satisfaction Jo 8 6 4 2 0 1 2 3 4 5 6 7 8 9 10 Day b) Productivity the day before leads to job satisfaction on the next day. f07.02_OMM618.ai Opportunities, Challenges, and Recent Developments in Performance Management Chapter 7 7.6 \u0007 pportunities, Challenges, and Recent O Developments in Performance Management Opportunities, challenges, and recent developments in performance management include jobs that defy objective measurement, legal implications, employee attitudes, global and cross-cultural considerations, organizational culture and politics, employee discipline, and avoiding common biases. Jobs That Defy Objective Measurement In many professions today, there are significant challenges in objectively measuring incumbents' performance quantity, quality, efficiency, or effectiveness. Examples of these professionals include scientists, engineers, managers, and high-caliber technicians. Also referred to as knowledge work, such fields employ many professionals whose jobs consist of complex, goal-oriented activities that require high levels of competency. Their work seldom has a single set of correct results or best practices, and the incumbent, rather than the manager or the HR department, is often the one with the most expertise about his or her job. Knowledge work is on the rise in modern economies (Quinn, 2005). Performance measurement can be challenging in some jobs that were discussed earlier; they include service positions and work that involves being part of a team. In these jobs, the line between direct job responsibilities and OCBs is blurred, necessitating a holistic approach to performance management. Telecommuting jobs also pose measurement challenges, and they necessitate a results-oriented management style and substantially quantifiable job outcomes. Otherwise, managers are unable to monitor their employees' day-to-day behaviors on the job. Moreover, with increased emphasis on corporate social responsibility, employees are now encouraged to become involved in volunteering activities and community service to positively influence their organizations' reputations, which can further blur the boundaries of job performance. Finally, recent research demonstrates that riskms/iStock/Thinkstock Scientists are considered knowledge workers because of the level different people may view the same work as just a job, as a career, or as a calling. of expertise and competency required to perform their jobs. These different perceptions can have a significant impact on their performance and attitudes toward their jobs and organizations (Bunderson & Thompson, 2009; Peterson, Park, Hall, & Seligman, 2009). Performance Appraisal in a Union Environment While union membership in the United States has fallen from a high of 33% of all workers in the 1950s to less than 10% today (Brown & Warren, 2011), union membership is dominant on the East and West Coasts, thus representing a large geographical segment of the country. There are challenges in designing and conducting a performance appraisal in a union setting. Opportunities, Challenges, and Recent Developments in Performance Management Chapter 7 Where union membership is most dense, the likelihood of performance appraisal is significantly decreased (Ng & Maki, 1994; Brown & Heywood, 2005), to the extent that a study by Nurse (2005) suggests that formal performance appraisal systems should not be expected in the majority of unionized firms. There are numerous explanations of this fact. First, unions arose to counterbalance, through the collective voice and actions of workers, the misuse of power in the \"master-servant\" relationship that characterized most employment in the two previous centuries (Brown & Warren, 2011), and unions now exist to guard their membership against the reappearance of such abuse. Thus, given that unions generally view management-run performance appraisals as subjective processes that serve only the purposes of management at the expense of union members, unions logically oppose such systems (Verma, 2005). Second, the existence of a collective bargaining agreement addresses issues surrounding working conditions and makes moot any argument for establishing a performance appraisal system. Third, union resistance to performance appraisal is most evident when it is linked to pay. Linking individual worker performance to pay violates and destroys solidarity in pursuit of wage gains for union members (Balkin, 1989). Finally, there is reason to assume that unions are generally in agreement with Deming's earlier cited argument that variation in worker performance is commonly the result of employees not having the necessary information, technology, or control to adequately perform their jobs. In short, from the union's perspective, performance management and appraisal should be restricted to what workers need to effectively carry out their duties, and those needs can range from training to details about the work environment (Todd, 2005). Brown and Warren (2011) offer the following suggestions for addressing the challenge of implementing performance appraisal in a union setting: 1) Do not expect the union to be overly concerned with the appraisal format; 2) Make the focus of the process developmental in nature; 3) Give the union a voice in creating and implementing the system; 4) Restrict the bulk of administrative issues to the collective bargaining agreement; and 5) Make use of goal setting to introduce and improve upon a performance appraisal system. Legal Implications of Performance Appraisal It is vitally important that organizations exercise extreme caution when developing and implementing a performance appraisal process due to the legal implications (Buttrick, 2003). That is, where measures designed to assess individual job performance should certainly discriminate, the question of greatest concern is whether the discrimination is relevant to job performance or unrelated to it (Viswesvaran, 2001). Where discrimination is the result of membership in a protected class rather than variation in individual job performance, employers assume extensive liabilities. Furthermore, performance appraisals may be subject to legal scrutiny when they are subjective, rather than being actual measures and true reflections of employee performance. For example, if an employee who had consistently received \"outstanding\" evaluations were terminated based on a new manager's evaluation of the employee as a poor performer, the termination could raise red flags regarding the new manager's discriminatory biases and practices. On the other hand, objective performance evaluations might have been documented over time, and the organization might adopt a progressive discipline system in which the employee would be counseled about the performance deficiencies, given opportunities to improve, and then reprimanded progressively for poor performance. In that case, the termination could stand up to scrutiny as resulting from poor performance by the employee rather than discrimination by the manager. Opportunities, Challenges, and Recent Developments in Performance Management Chapter 7 Legal concerns are growing, particularly in regard to the implementation of forceddistribution systems, which obligate managers to allocate certain percentages of employees to different performance appraisal categories such as \"outstanding,\" \"exceeding expectations,\" \"meeting expectations,\" and \"below expectations.\" For example, the classification of the lowest-performing employees as \"below expectations\" would be questionable if most of the employees in a department have met or exceeded performance expectations according to industry standards. The Equal Employment Opportunity Commission (EEOC) emphasizes that performance appraisals must be related to the actual job activities that are nondiscriminatory, properly recorded, and documented (Goemaat, 2003). There are established approaches to designing and implementing fair, properly structured, legally defensible systems to manage performance (Barrett & Kernan, 1987; Feild & Holley, 1982; Werner & Bolino, 1997). The