Full performance strategy analysis

Basics of Performance Appraisal

Learning Objective 9-1 Describe the performance appraisal process.

Few things supervisors do are fraught with more

peril than appraising subordinates’ performance. Employees tend to be overly optimistic about their ratings. And they know their raises, ca‐ reers, and peace of mind may hinge on how you rate them. As if that’s not enough, few appraisal processes are as fair as employers think they are. Many obvious and not-so-obvious problems (such as the tendency to rate everyone “average”) distort the process. However, the perils notwithstanding, performance appraisal plays a big role in managing people.

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The Performance Appraisal Process Performance appraisal means evaluating an employee’s current and/or past performance relative to his or her performance standards. You may equate appraisal forms like Figure 9-1 with “performance appraisal,” but appraisal involves more than forms. It also requires set‐ ting performance standards, and assumes that the employee receives the training, feedback, and incentives required to eliminate perfor‐ mance deficiencies. Stripped to its essentials, performance appraisal always involves the three-step performance appraisal process : (1) setting work standards; (2) assessing the employee’s actual perfor‐ mance relative to those standards (this often involves some rating form); and (3) providing feedback to the employee with the aim of help‐ ing him or her to eliminate performance deficiencies or to continue to perform above par.

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Figure 9-1 Sample Faculty Evaluation Survey

Source: Copyright Gary Dessler, PhD.

Effective appraisals actually begin before the actual appraisal, with the manager defining the employee’s job and performance criteria. Defining the job means making sure that you and your subordinate agree on his or her duties and job standards and on the appraisal method you will use.

Why Appraise Performance? There are five reasons to appraise subordinates’ performance.

First, most employers base pay, promotion, and retention decisions on the employee’s appraisal. Appraisals play a central role in the employer’s performance man‐ agement process. Performance management means continuously ensuring that each employee’s performance makes sense in terms of the company’s overall goals. The appraisal lets the manager and subordinate develop a plan for correcting any deficiencies, and to reinforce the subordinate’s strengths. Appraisals provide an opportunity to review the employee’s career plans in light of his or her exhibited strengths and weaknesses. We address career planning in Chapter 10 . Finally, appraisals enable the supervisor to identify if there is a train‐ ing need, and the remedial steps required.

Defining the Employee’s Goals and Per‐ formance Standards

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The performance appraisal should compare “what

should be” with “what is.” Therefore, as noted, the first step in perfor‐ mance appraisal and management is to decide what should be—in oth‐ er words, to let employees know what you expect of them in terms of performance standards. Managers use one or more of three bases— goals, job dimensions or traits, and behaviors or competencies—to es‐ tablish ahead of time what the person’s performance standards will be.

First, the manager can assess to what extent the employee is attaining his or her numerical goals. Such goals should derive from the compa‐ ny’s overall profitability, cost reduction, or efficiency goals. For exam‐ ple, a company-wide goal of reducing costs by 10% should translate into goals for how individual employees and/or teams will cut costs. The HR as a Profit Center feature shows an example.

IMPROVING PERFORMANCE: HR AS A PROF IT CENTER

Setting Performance Goals at Ball Corporation

Ball Corporation supplies metal packaging to customers such as food processors and paint manufacturers worldwide. The man‐ agement team at one Ball plant concluded that it could improve plant performance by instituting an improved process for setting goals and for ensuring that the plant’s employees’ behaviors were in synch with these goals. The new program began by training plant leaders on how to improve performance, and on setting and communicating daily performance goals. They in turn communicated and tracked daily goal attainment by distrib‐ uting team scorecards to the plant’s work teams. Plant employ‐ ees received special coaching and training to ensure they had the skills required for achieving the goals. According to manage‐ ment, within 12 months the plant increased production by 84 million cans, reduced customer complaints by 50%, and ob‐ tained a return on investment of more than $3 million.

Source: Based on www.ball.com; “Aligning People and Processes for Perfor‐ mance Improvement,” T&D 65, no. 3, March 2011, p. 80.

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If your professor has assigned this, go to the Assignments section of mymanagementlab.com to complete this discussion.

Talk About It 1: Explain what performance appraisal process be‐ haviors the Ball program included.

Managers often say that effective goals should be “SMART.” They are specific, and clearly state the desired results. They are measurable, and answer the question “how much?” They are attainable. They are rele‐ vant, and clearly derive from what the manager and company want to achieve. And they are timely, with deadlines and milestones. Research provides insights into setting motivational goals. The accompanying HR Tools feature summarizes these findings.

IMPROVING PERFORMANCE: HR TOOLS FOR L INE MAN ‐ AGERS AND SMALL BUSINESSES

How to Set Effective Goals

Behavioral science research studies suggest four guidelines for setting performance goals:

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1. Assign specific goals. Employees who receive specific goals usually perform better than those who do not.

2. Assign measurable goals. Put goals in quantitative terms and include target dates or deadlines. If measurable re‐ sults will not be available, then “satisfactory comple‐ tion”—such as “satisfactorily attended workshop”—is the next best thing.

3. Assign challenging but doable goals. Goals should be challenging, but not so difficult that they appear unrealistic.

4. Encourage participation. Managers often face this ques‐ tion: Should I tell my employees what their goals are, or let them participate with me in setting their goals? The ev‐ idence suggests that participatively set goals do not con‐ sistently result in higher performance than assigned goals, nor do assigned goals consistently result in higher performance than participative ones. It is only when the participatively set goals are set higher than the assigned ones that the participatively set goals produce higher per‐ formance. Because it tends to be easier to set higher standards when your employees participate, participation tends to lead to improved performance.

Source: Based on E. A. Locke and G. P. Latham, “Building a Practically Useful Theory of Goal Setting and Task Motivation. A 35-Year Odyssey,” American Psy‐ chologist 57, no. 9 (2002), pp. 705–717.

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If your professor has assigned this, go to the Assignments section of mymanagementlab.com to complete this dis‐ cussion question.

Talk About It 2: “Why is it not a good idea to simply tell employees to ‘do their best’ when assigning a task?”

A second basis upon which to appraise someone is to use a form with basic job dimensions or traits such as such as “communication” or “teamwork.” The assumption is that “good teamwork” is a useful stan‐ dard for “what should be.”

A third option is to appraise employees based on their mastery of the competencies (the skills, knowledge, and/or personal behaviors) per‐ forming the job requires. For example, we saw in Chapter 4 that BP’s exploration division appraises employees’ skills using a skills ma‐ trix (see Figure 4-11 , page 120). This matrix shows the basic skills to be assessed (such as “technical expertise”), and the minimum level of each skill the job requires (what the minimum skill level “should be”). Employees appraised as having the requisite level of each skill are qual‐ ified to fill the position.

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Who Should Do the Appraising? Appraisals by the immediate supervisor are still the heart of most ap‐ praisal processes. Getting a supervisor’s appraisal is relatively straight‐ forward and makes sense. The supervisor is usually in the best position to observe and evaluate the subordinate’s performance, and is respon‐ sible for that person’s performance.

The human resources department serves an advisory role. Generally, they provide the advice on what appraisal tool to use, but leaves final decisions on procedures to operating managers. The human resource team should also train supervisors to improve their appraisal skills, monitor the appraisal system’s effectiveness, and ensure that it com‐ plies with EEO laws.

However, relying only on supervisors’ appraisals isn’t advisable. For ex‐ ample, an employee’s supervisor may not appreciate how customers and colleagues see the employee’s performance. There is also always some danger of bias for or against the employee. If so, managers have several options.

PEER APPRAISALS People often come across differently to their peers than they do to their boss. Peer appraisals—appraisals by one’s peers—are therefore increasingly popular. The American military re‐ quires generals and admirals to be evaluated by their peers (and subor‐ dinates). Facebook has employees compile peer reviews every 6 months. Google employees receive annual feedback from both their

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supervisor and their peers. (We’ll discuss automated “crowd” ap‐ praisals later in this chapter.)

Typically, an employee due for a peer appraisal chooses an appraisal chairperson. The latter (perhaps with the employee’s input) then selects a supervisor and several peers to evaluate the employee’s work.

Peer appraisals can be effective. One’s peers see aspects of the person that the boss may never see, so peers’ opinions can be useful develop‐ mentally. Knowing your colleagues will appraise you can also change behavior. One study involved undergraduates placed into self-manag‐ ing work groups. The researchers found that instituting peer appraisals had “an immediate positive impact on [improving] perception of open communication, task motivation, social loafing, group viability, cohe‐ sion, and satisfaction.”

RATING COMMITTEES A rating committee usually consists of the em‐ ployee’s immediate supervisor and three or four other supervisors.

Using multiple raters is advantageous. It helps cancel out problems such as bias on the part of individual raters. It can also provide a way to include in the appraisal the different facets of an employee’s perfor‐ mance observed by different appraisers. Studies often find that the rat‐ ings obtained from different sources rarely match. It’s therefore advis‐ able to obtain ratings from the supervisor, his or her boss, and at least one other manager who is familiar with the employee’s work. At a minimum, employers require that the supervisor’s boss sign off on any appraisals the supervisor does.

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Many employers use rating committees to appraise employees. Oliver Eltinger/Fancy/AGE Fotostock

SELF-RATINGS Some employers obtain employees’ self-ratings, usu‐ ally in conjunction with supervisors’ ratings. The basic problem, of course, is that employees usually rate themselves higher than do their supervisors or peers. One study found that, when asked to rate their own job performances, 40% of employees in jobs of all types placed themselves in the top 10%, and virtually all remaining employees rated themselves at least in the top 50%. In another study, subjects’ self- ratings correlated negatively with their subsequent performance in an assessment center—the higher they appraised themselves, the worse they did in the center. In contrast, an average of the person’s supervi‐

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sor, peer, and subordinate ratings predicted the subjects’ assessment center performance.

APPRAISAL BY SUBORDINATES Many employers have subordinates rate their managers, usually for developmental rather than for pay pur‐ poses. Anonymity affects the feedback. Managers who receive feed‐ back from subordinates who identify themselves view the upward feed‐ back process more positively. However, subordinates who identify themselves tend to give inflated ratings.

The evidence suggests that upward feedback improves managers’ per‐ formance. One study focused on 252 managers during five annual ad‐ ministrations of an upward feedback program. Managers who were ini‐ tially rated poor or moderate “showed significant improvements in [their] upward feedback ratings over the five-year period.” And, man‐ agers who met with their subordinates to discuss their upward assess‐ ment improved more than the managers who did not.

Of course, employees no longer need their employers for upward evalu‐ ation systems—sites like Glassdoor and apps like Memo let employees post their own anonymous comments.

360-DEGREE FEEDBACK With 360-degree feedback, the employer collects performance information all around an employee—from his or her supervisors, subordinates, peers, and internal or external cus‐ tomers—generally for developmental rather than pay purposes. The usual process is to have the raters complete online ratee appraisal sur‐ veys. Computerized systems then compile this feedback into individual‐ ized reports to rates.

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Results are mixed. Participants seem to prefer this approach, but one study concluded that multisource feedback led to “generally small” im‐ provements in subsequent ratings by supervisors, peers, and subordi‐ nates. Such appraisals are more candid when subordinates know re‐ wards or promotions are not involved. Make sure the feedback the per‐ son receives is productive, unbiased, and development oriented. And, it helps to collect multisource feedback by using a Web-based system that lets the rater rate the person along a series of dimensions.

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Techniques for Appraising Performance

Learning Objective 9-2 Discuss the pros and cons of at least eight performance appraisal methods.

We will see that many employers use digital tools

to automate the appraisal/performance management process. With their digital dashboards, these tools monitor, report, and correct perfor‐ mance deviations in real time. Yet many employers still use traditional performance appraisal tools like those described next.

Graphic Rating Scale Method

The graphic rating scale is the simplest and

most popular method for appraising performance. You’ll find several va‐ rieties. As in the graphic rating scale in Figure 9-2 , the scale may lists several job dimensions or traits (such as “communication” or “teamwork”) and a range of performance values (from “below expecta‐ tions” to “role model” or “unsatisfactory” to “outstanding”) for each trait. The supervisor rates each subordinate by circling or checking the score that best describes the subordinate’s performance for each trait, and totals the ratings.

Competency- (or skill- or behavior-) based graphic rating scales are an‐ other option. For example, Figure 9-3 shows a partial rating form for a pizza chef. This graphic rating form assesses the person’s competen‐ cies and skills. Here the employer wants to appraise a pizza chef’s job- related skills, one of which is: “Be able to maintain adequate inventory of pizza dough.” As another example, Section I of Figure 9-4 focus‐ es on behavioral competencies. Here “Effectively leads and motivates nurses” is a required behavioral competency for a nurse supervisor.

Finally, the scale might rate (as in Section II of Figure 9-4 ) how well the employee did with respect to achieving specific profit, cost, or effi‐ ciency goals. “Nursing unit experienced zero patient medication errors in period” would be one example.

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Alternation Ranking Method Ranking employees from best to worst on a trait or traits is another op‐ tion. Since it is usually easier to distinguish between the worst and best employees, an alternation ranking method is most popular. First, list all subordinates to be rated, and then cross out the names of any not known well enough to rank. Then, on a form like that in Figure 9-5 (page 282), indicate the employee who is the highest on the performance dimension being measured and the one who is the lowest. Then choose the next highest and the next lowest, alternating between highest and lowest until all employees have been ranked.

Paired Comparison Method The paired comparison method makes the ranking method more precise. For every trait (quantity of work, quality of work, and so on), you compare every employee with every other employee. With, say, five employees to rate, you use a chart as in Figure 9-6 (page 282) of all possible pairs of employees for each trait. Then choose who the better employee of the pair is. In Figure 9-6 , Maria ranked highest (has the most + marks) for quality of work, whereas Art was ranked highest for creativity.

Figure 9-2 Sample Graphic Performance Rating Form with Behavioral Examples

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Source: Reproduced with permission of the SHRM Foundation.

Forced Distribution Method The forced distribution method is similar to grading on a curve. With this method, the manager places predetermined percentages of ratees into performance categories. At Lending Tree, the top 15% ra‐ tees are “1’s,” the middle 75% are “2’s,” and the bottom 10% are “3’s” and the “first to go.” GE used top 20%, middle 70%, and bottom 10% for its managers, and most of the bottom 10% lost their jobs. (GE no longer strictly adheres to its 20/70/10 split, and today is experimenting with less stressful alternatives.)

Figure 9-3 One Item from an Appraisal Form Assessing Employee Performance on Specific Job-Related Skills

Forced distribution’s big advantage is that it prevents supervisors from rating all or most employees “satisfactory” or “high.” Forced distribu‐ tion makes some sense. It reflects the fact that top employees often outperform average or poor ones by as much as 100%. About a fourth of Fortune 500 companies use versions of it.

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But, as students know, with forced grading you’re either in the top 5% or 10% (and get that “A”), or you’re not. Forced distribution rating sys‐ tems may also increase the risk of discriminatory adverse impact. One survey found that 77% of responding employers were at least “somewhat satisfied” with forced ranking, while the remaining 23% were dissatisfied. The biggest complaints: 44% said it damages morale. Some writers refer unkindly to it as “Rank and Yank.” Therefore, appoint a committee to review any employee’s low ranking. And remember that distinguishing between top and bottom performers is usually not even the problem: “The challenge is to differentiate mean‐ ingfully between the other 80%.” For many years, Microsoft graded employees against one another in what employees called the “stack,” ranking them from 1 to 5. Microsoft recently substituted more fre‐ quent and qualitative appraisals.

Critical Incident Method With the critical incident method , the supervisor keeps a log of positive and negative examples (critical incidents) of a subordinate’s work-related behaviors. Every 6 months or so, supervisor and subordi‐ nate meet to discuss the latter’s performance, using the incidents as examples. One study involved 112 first-line supervisors. The conclusion of this and similar studies is that compiling critical incidents as they oc‐ cur anchors the eventual appraisal in reality and thus improves ap‐ praisal outcomes. It’s thus advisable to keep a diary of employees’ performances.

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Compiling incidents is useful. It provides examples the supervisor can use to explain the person’s rating. It makes the supervisor think about the subordinate’s appraisal all during the year (so the rating doesn’t just reflect the employee’s most recent performance). The downside is that it doesn’t produce relative ratings for pay raise purposes. In Table 9-1 , one of the assistant plant manager’s duties was to super‐ vise procurement and minimize inventory costs. The critical incident log shows that he or she let inventory storage costs rise 15%; this provides an example of what performance to improve.