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Part Three
Training and Development
Chapter 9
Performance Management and Appraisal
Lecture Outline:
Basics of Performance Appraisal
The Performance Appraisal Process
Why Appraise Performance?
Defining the Employee’s Goals and Performance Standards
Improving Performance: HR as a Profit Center
Improving Performance: HR Tools for Line Managers and Small Businesses
Who Should Do the Appraising?
Techniques for Appraising Performance
Graphic Rating Scale Method
Alternation Ranking Method
Paired Comparison Method
Forced Distribution Method
Critical Incident Method
Narrative Forms
Behaviorally Anchored Rating Scales
Mixed Standard Scales
Management by Objectives (MBO)
Computerized and Web-Based Performance Appraisal
Electronic Performance Monitoring
Conversation Days
Appraisal in Practice: Using Multiple Methods
Trends Shaping HR: Customized Talent Management
Improving Performance: The Strategic Context
Dealing with Rater Error Appraisal Problems
Potential Rating Problems
Diversity Counts: The Problem of Bias
The Need for Fairness
Know Your Employment Law
Managing the Appraisal Interview
How to Conduct the Appraisal Interview
How to Handle a Defensive Subordinate
How to Criticize a Subordinate
How to Handle a Formal Written Warning
Employee Engagement Guide for Managers
Use the Appraisal Interview to Build Engagement
Performance Management

Performance Management and Appraisal 9- 2
Total Quality Management and Performance Appraisal
What Is Performance Management?
Trends Shaping HR: Digital and Social Media
Improving Performance: HR Practices Around the Globe
The Manager’s Role in Performance Management
Chapter Review
Where Are We Now…
The purpose of this chapter is to show you how to appraise employee’s performance. The
main topics we cover include the basics of performance appraisal, tools for appraising
performance, dealing with rater error appraisal problems, the appraisal interview, employee
engagement guide for managers, and performance management.
Interesting Issues:
TRW supplies automotive steering, braking, and safety and electronic equipment to customers
worldwide. Several years ago, TRW was deeply in debt. With over 100,000 employees on five
continents, TRW management knew it had to base its new strategy on improving
competitiveness and performance. At the time, most of the firm’s far-flung departments used
their own paper-based performance appraisal systems. Top management decided it needed a
new company-wide performance management system to help bring what TRW’s employees
were doing into synch with the firm’s new strategic goals. We’ll see what they did.
Learning Objectives:
9-1: Describe the appraisal process.
9-2: Discuss the pros and cons of at least eight performance appraisal methods.
9-3: Give examples of potential appraisal problems and how to deal with them.
9-4: List steps to take in the appraisal interview.
9-5: Explain key points in how to use the appraisal interview to boost employee engagement.
9-6: Explain how you would take a performance management approach to appraisal.
Annotated Outline:
I. Basics of Performance Appraisal
A. The Performance Appraisal Process – stripped to its essentials, performance
appraisal always involves the 3-step performance appraisal process: (1) setting
work standards; (2) assessing the employee’s actual performance relative to
those standards, which usually involves some rating form; and (3) providing
feedback to the employee with the aim of helping him or her to eliminate
performance deficiencies or to continue to perform above par.
B. Why Appraise Performance? – for several reasons: 1) many employers still base
pay, promotion, and retention on employee appraisals; 2) appraisals play a

central role in the employer's performance management process; 3) the appraisal
lets the manager and subordinate develop a plan for correcting any deficiencies,
and reinforce those things the employee does correctly; 4) they serve a useful
career planning purpose; and 5) appraisals play a role in identifying training and
development needs.
C. Defining the Employee’s Goal and Performance Standards – includes comparing
“what should be” with “what is” and assess to what extent the employee is
attaining his or her numerical goals. Effective goals should be SMART =
specific, measurable, attainable, relevant, and timely.
D. Improving Performance: HR as a Profit Center
E. Improving Performance: HR Tools for Line Managers and Small Businesses
How to Set Effective goals involve four guidelines: 1) Assign specific goals, 2)
Assign measurable goals, 3) Assign challenging but doable goals, 4) Encourage
participation.
F. Who Should Do the Appraising?
1. The immediate supervisor is at the heart of the appraisal process. Getting a
supervisor’s appraisal is relatively straightforward and makes sense.
However, it does not stop with him or her.
2. Peer Appraisals – being appraised by one’s peer can be effective. One’s
peer sees aspects of the person that the boss may never see, so peers’
opinions can be useful developmentally.
3. Rating Committees – consist of multiple raters, typically the employee’s
immediate supervisor and three or four other supervisors.
4. Self-Ratings – tend to be higher than supervisor or peer ratings.
5. Appraisal by Subordinates – also known as upward feedback. It is where
subordinates anonymously rate their supervisor’s performance.
6. 360-Degree Feedback – ratings are collected from the employee’s
supervisors, subordinates, peers, and internal or external customers. One
study found significant correlation between 360-degree ratings and
conventional ratings. Firms should carefully assess potential costs,
carefully train those giving feedback, and not rely solely on 360-degree
feedback.
II. Techniques for Appraising Performance
A. Graphic Rating Scale Method – it is the simplest and most popular
performance appraisal technique. A scale is used to list a number of traits and
a range of performance for each, then the employee is rated by identifying the
score that best describes his/her performance level for each trait. Managers
must decide which job performance aspects to measure. Some options include
generic dimensions, actual job duties, or behaviorally recognizable
competencies. Figure 9-2 illustrates.
B. Alternation Ranking Method – employees are ranked from best to worst on a
particular trait, choosing highest, then lowest, until all are ranked.
C. Paired Comparison Method – it involves ranking employees by making a
chart of all possible pairs of employees for each trait and indicating which one
is the better employee of the pair.

D. Forced Distribution Method – predetermined percentages of rates are placed
in various performance categories, which is similar to grading on a curve.
E. Critical Incident Method – a supervisor keeps a record of positive and
negative examples of a subordinate’s work-related behavior, and reviews the
record with the employee at predetermined times.
F. Narrative Forms – the method involves rating the employee’s performance for
each performance factor, writing down examples and an improvement plan,
aiding the employee in understanding where his/her performance was good or
bad, and summarizing with a focus on problem solving.
G. Behaviorally Anchored Rating Scales (BARS) – a method that combines the
benefits of narratives, critical incidents, and quantified scales by anchoring a
scale with specific behavioral examples of good or poor performance. The
five steps in developing a BARS are: 1) generate critical incidents; 2) develop
performance dimensions; 3) reallocate incidents; 4) scale the incidents; and 5)
develop a final instrument. The advantages of BARS include a more accurate
gauge, clearer standards, feedback, independent dimensions, and consistency.
H. Mixed Standard Scales – these are similar to BARS. The employer “mixes”
together sequentially the good and poor behavioral example statements when
listing them. The aim is to reduce rating errors by making it less obvious to
the appraiser 1) what performance dimensions he or she is rating; and 2)
whether the behavioral example statements represent high, medium, or low
performance.
I. Management by Objectives (MBO) – the manager sets specific measurable
goals with each employee and then periodically discusses the employee’s
progress toward these goals. The process consists of six steps: 1) set the
organization's goals; 2) set departmental goals; 3) discuss departmental goals;
4) define expected results (set individual goals); 5) conduct performance
reviews; and 6) provide feedback.
J. Computerized and Web-Based Performance Appraisal – this method generally
enables managers to keep notes on subordinates during the year, to rate
employees on a series of performance traits, and then generate written text to
support each part of the appraisal. About 1/3 of employers use online
performance management tools for at least some employees.
K. Electronic Performance Monitoring – these systems use computer network
technology to allow managers to monitor their employees’ computers and
employee rate, accuracy, and time spent working online.
L. Conversation Days – manager-employee conversation that focus on areas of
improvement, growth, and setting stretch goals.
M. Appraisal in Practice: Using Multiple Methods
N. Trends Shaping HR: Customized Talent Management
O. Improving Performance: The Strategic Context
III. Dealing with Rater Error Appraisal Problems – it can be difficult to rate performance for
several reasons, such as a systematic error in judgment that occurs when people evaluate
each other: unclear standards, halo effect, central tendency, leniency or strictness, and
bias.

A. Potential Rating Problems:
1. Unclear Standards – ambiguous traits and degrees of merit can result
in an unfair appraisal.
2. Halo Effect – the influence of a rater’s general impression on ratings
of specific qualities can be a problem.
3. Central Tendency – this occurs when supervisors stick to the middle of
the rating scales, thus rating everyone average.
4. Leniency or Strictness – supervisors have the tendency to rate
everyone either high or low.
5. Regency Effects – this involves letting what the employee has done
recently blind the manager to the employee’s performance over the
rest of the year.
B. Diversity Counts: The Problem of Bias –the tendency to allow individual
differences such as age, race, and sex affect employee appraisal ratings is
a problem.
C. The Need for Fairness – due to a supervisor’s ineptness or the method’s
inherent unfairness many are unfair.
D. Know Your Employment Law – it’s important for an employer to ensure
that appraisals are legally defensible.
IV. Managing the Appraisal Interview – the supervisor and subordinate review the appraisal
and make plans to remedy deficiencies and reinforce strengths.
A. How to Conduct the Appraisal Interview – prepare for the interview by assembling the
data, preparing the employee, and choosing the time and place. Be direct and specific,
using objective examples; don’t get personal; encourage the person to talk; and reach
agreement.
B. How to Handle a Defensive Subordinate – recognize that defensive behavior is normal;
never attack a person’s defenses; postpone action; and recognize your own limitations.
C. How to Criticize a Subordinate – when required, criticize in a private and
constructive manner that lets the person maintain his/her dignity and sense of
worth.
D. How to Handle a Formal Written Warning – written warnings should identify
the standards by which the employee is judged, make it clear that the
employee was aware of the standard, specify any deficiencies relative of the
standard, and show that the employee had an opportunity to correct the
behavior.
V. Employee Engagement Guide for Managers
A. Use the Appraisal Interview to Build Engagement – managers can use the
appraisal interview to improve their employee’s engagement by doing some of
the following:
1. Take the opportunity to show the employee how his or her efforts
contribute to the “big picture.”
2. Use the interview to emphasize the meaningfulness to the company of
what the employee is doing.

3. Be candid and objective but do so supportively and without
unnecessarily undermining the employee’s self-image.
4. Make certain the employee has what he or she needs to do a good job.
5. Managers should be candid and honest. Focus on the strengths.
6. Show your employees that you listen to their ideas and value their
contributions.
7. Allow the opportunity for the employee to discuss where he or she
sees himself or herself heading career-wise to improve their career.
8. Make sure that the interviewee views the appraisal and the rewards or
remedial actions as fair.
VI. Performance Management
A. Total Quality Management and Performance – (TQM) Total Quality
Management programs are organizationwide programs that integrate all
functions and processes of the business. TQM advocates argue that the
organization is a system of interrelated parts, and that employees’
performance is more a function of things like training, communication,
tools, and supervision than of their motivation.
B. What is Performance Management? – is a continuous process of
identifying, measuring, and developing the performance of individuals and
teams and aligning their performance with the organization’s goals.
C. Trends Shaping HR: Digital and Social Media
D. Improving Performance: HR Practices Around the Globe
E. The Manager’s Role in Performance Management – link employees’ goals
to the company’s goals, give employees continuous feedback, provide
required resources and coaching, reward good performance, and remember
that employees’ performance reflects more than just whether they’re
motivated.
Chapter Review
Chapter Section Summaries:
9-1: Performance appraisal means evaluating an employee’s current or past performance
relative to his or her performance standards.
9-2: The appraisal is generally conducted using one or more popular appraisal methods or
tools.
9-3: The appraisal process can be improved by eliminating chronic problems that often
undermine appraisals and graphic rating scales in particular.
9-4: An appraisal typically culminates in an appraisal interview.
9-5: The manager can use the appraisal interview to improve the employees’ level of
engagement.
9-6: Performance management is the continuous process of identifying, measuring, and
developing the performance of individuals and teams and aligning their performance with
the organization’s goals.

Discussion Questions:
9-1: What is the purpose of a performance appraisal?
This item can be assigned as a Discussion Question in MyManagementLab. Student
responses will vary.
9-2: Answer the question, “Who should do the appraising?”
Appraisals by the immediate supervisor are still the heart of most appraisal processes.
However, with more firms using self-managing teams, appraisal of an employee by his or her
peers—peer appraisal—is popular, as is 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 customers—generally for
developmental rather than pay purposes. Some employers obtain employees’ self-ratings,
usually in conjunction with supervisors’ ratings. Many employers even have subordinates
rate their managers, usually for developmental rather than for pay purposes. Anonymity
affects the feedback.
9-3: Discuss the pros and cons of four performance appraisal tools.
The text lists eight different performance appraisal tools. Students might discuss the pros
and cons of any four of these eight. An example of some of the pros and cons is: Graphic
Rating Scale method is easy to use, simple, and does not take much time to administer.
However, different supervisors may interpret a numerical rating differently and the traits
rated may or may not relate to performance.
9-4: Explain how you would use the alternation ranking method, the paired comparison
method, and the forced distribution method.
The alternation ranking method would be used by listing all employees to be rated, deciding
who is the best in a trait to be rated, and which employee is the worst. Then decide who is
the second best, and the second worst ... the third best and the third worst ... and so on until
all the employees have been ranked for that trait. Then do the same with the next trait to be
rated. With the paired comparison, for each trait to be rated, the supervisor would have a
sheet with employee names in pairs. For each pair, the supervisor would circle the one of the
two employees that is better in that trait. Forced distribution gives the supervisor a set rating
scale (such as 1 through 5). The supervisor is limited to giving a pre-determined percentage
of his or her employees' rating.
9-5: Explain in your own words how you would go about developing a behaviorally
anchored rating scale.

Each student should express the five steps in his or her own words. Those five steps are: 1)
generate critical incidents; 2) develop performance dimensions; 3) reallocate incidents; 4)
scale the incidents; and 5) develop a final instrument.
9-6: Explain the problems to be avoided in appraising performance.
The five main rating scale problems listed in the text are: 1) unclear standards; 2) halo effect;
3) central tendency; 4) leniency or strictness; 5) regency effects; and 6) bias.
9-7: Compare and contrast performance management and performance appraisal.
This item can be assigned as a Discussion Question in MyManagementLab. Student
responses will vary.
Individual and Group Activities:
9-8: Working individually or in groups, develop a graphic rating scale for the following
jobs: secretary, professor, bus driver.
Answer should include job characteristics for each position. In each case, the students
should come up with a defining statement that clarifies what the job characteristic means.
9-9: Working individually or in groups, describe the advantages and disadvantages of using
the forced distribution appraisal method for college professors.
Students should review the section on the forced distribution method and describe how the
use of this method would impact the rating of their college professors.
9-10: Working individually or in groups, develop, over the period of a week, a set of critical
incidents covering the classroom performance of one of your instructors.
If you had the class conduct a job analysis and create a job description for an instructor in
Chapter 3, it would be helpful to refer to that to help identify what kinds of behavior and
tasks the instructor should be doing. This will give a good basis for students to observe
and watch for critical incidents. If they find critical incidents that are not based in these
other documents, it will be a good opportunity to go back and review how all this ties
together and that we haven't communicated to the instructor in the job description these
behaviors or tasks that they are now wanting to rate them on.
9-11: Appendices A and B at the end of this book list the knowledge someone studying for
the HRCI (Appendix A) or SHRM (Appendix B) certification exam needs to have in
each area of human resource management (such as in Strategic Management and
Workforce Planning). In groups of several students, do four things: (1) review
Appendix A and/or B; (2) identify the material in this chapter that relates to the
Appendix A and/or B required knowledge lists; (3) write four multiple-choice exam

questions on this material that you believe would be suitable for inclusion in the
HRCI exam; and (4) if time permits, have someone from your team post your team’s
questions in front of the class, so that students in all teams can answer the exam
questions created by the other teams.
9-12: Just about every week, Donald Trump tells another "apprentice," "You're fired."
Review recent (or archived) episodes of Donald Trump's The Apprentice, and answer
this: What performance appraisal system did Mr. Trump use, and do you think it
resulted in valid appraisals? What techniques discussed in this chapter did he seem
to apply? How would you suggest he change his appraisal system to make it more
effective?
Most critics agree that Trump's method of providing performance feedback could be
vastly improved. Lead a discussion by first asking students to identify the methods
Trump used, a critique on how well he used any methods discussed in this chapter, and
then suggest which methods outlined in this chapter would be more effective, and
specifically how it would be applied in the scenario/episode they selected.
Experiential Exercise: Grading the Professor
Purpose: The purpose of this exercise is to give you practice in developing and using a
performance appraisal form.
Required Understanding: You are going to develop a performance appraisal form for an
instructor and should therefore be thoroughly familiar with the discussion of performance
appraisals in this chapter.
How to Set up the Exercise/Instructions: Divide the class into groups of four or five students.
9-13: First, based on what you now know about performance appraisal, do you think
Figure 9-1 is an effective scale for appraising instructors? Why? Why not?
9-14: Next, your group should develop its own tool for appraising the performance of an
instructor. Decide which of the appraisal tools (graphic rating scales, alternation
ranking, and so on) you are going to use, and then design the instrument itself.
9-15: Next, have a spokesperson from each group post his or her group’s appraisal tool on
the board. How similar are the tools? Do they all measure the same factors? Which
factor appears most often? Which do you think is the most effective tool on the
board?
9-16: The class should select the top 10 factors from all of the appraisal tools presented to
create what the class perceives to be the most effective tool for appraising the
performance of the instructor.
Application Case: Appraising the Secretaries at Sweetwater U

9-17: Do you think that the experts' recommendations will be sufficient to get most of the
administrators to fill out the rating forms properly? Why? Why not? What
additional actions (if any) do you think will be necessary?
While controversial, the recommendations would, in fact, encourage administrators to fill the
forms out correctly. Using the more detailed form and not tying the performance ratings to
salary increases would allow the managers to feel more free about rating the secretaries
accurately. There would, however, need to be some strong training sessions (both for
administrators and secretaries) to help them understand the new system. Since all secretaries
have traditionally received the same salary increases and have been pleased with that, it
would be advisable to consider lowering the maximum increase to an amount that could be
given to all secretaries while staying within budget. Then all secretaries with a satisfactory
rating or better would receive that increase.
9-18: Do you think that Vice President Winchester would be better off dropping graphic
rating forms, substituting instead one of the other techniques we discussed in this
chapter such as a ranking method? Why or why not?
Certainly other methods could be used. He has already had a taste of what would result if he
went to a forced distribution or other ranking method. A BARS system might be best, but it
could be costly to develop if the clerical staff has positions that are significantly different.
9-19: What performance appraisal system would you develop for the secretaries if you
were Rob Winchester? Defend your answer.
If the development costs are not too great, the BARS system would give the strongest
solution to the current situation. The behavioral anchors would make it more difficult to just
rate everyone at the top. It would also help to eliminate the different interpretations of what
the rating scales mean.
Continuing Case: Carter Cleaning Company – The Performance Appraisal
9-20: Is Jennifer right about the need to evaluate the workers formally? The managers?
Why or why not?
Based on the information presented in the chapter, the students need to determine if the
workers and managers should be evaluated formally or informally, and they need to provide
reasons for their decision. Outcome: Describe the process of performance appraisal and
different appraisal methods.
9-21: Develop a performance appraisal method for the workers and managers in each
store.
The students need to be familiar with thr different appraisal methods discussed in the chapter.
They should use the sample appraisal forms given in the chapter as guides.

Hotel Paris: Improving Performance at the Hotel Paris – The New Performance
Management System
9-22: Choose one job, such as front desk clerk. Based on any information you have
(including job descriptions you may have created in other chapters), write a list of
duties, competencies, and performance standards for that chosen job.
Answers should include competencies that will help Hotel Paris become more service
oriented. Use examples from the case itself, such as the “ability to check a guest in or out in
five minutes or less,” to get the class started. Discuss what has made students happy or
unhappy when checking into a hotel, or in seeking other services.
9-23: Based on that, create a performance appraisal form for appraising that job.
There are samples in the text. If possible, before class ask students to bring in sample
performance appraisal forms, either from jobs they have held or samples from the Internet.
Suggest combining graphic rating scales with the critical incident method to improve on-
going coverage of employee performance. Also stress that a once-yearly formal appraisal
will not be sufficient unless it is supplemented by regular verbal feedback.
My Management Lab
Students can find the following assisted-graded writing questions at mymanagementlab.com.
Answers to these questions are graded against rubrics in the MyLab.
9-24: Discuss the pros and cons of using different potential raters to appraise a person’s
performance.
9-25: As a new supervisor, you’re about to hold your first-ever appraisal interview with one of
your subordinates, someone who has not been performing very well for the past 6 months.
What should you keep in mind about managing the appraisal interview as you begin the
conversation?
Key Terms:
Performance Appraisal – Evaluating an employee’s current and/or past performance relative to
his or her performance standards.
Performance Appraisal Process – A three-step appraisal process involving (1) setting work
standards, (2) assessing the employee’s actual performance relative to those standards, and (3)
providing feedback to the employee with the aim of helping him or her to eliminate performance
deficiencies or to continue to perform above par.

Graphic Rating Scale – A scale that lists a number of traits and a range of performance for
each. The employee is then rated by identifying the score that best describes his or her level of
performance for each trait.
Alternation Ranking Method – Ranking employees from best to worst on a particular trait,
choosing highest, then lowest, until all are ranked.
Paired Comparison Method – Ranking employees by making a chart of all possible pairs of the
employees for each trait and indicating which is the better employee of the pair.
Forced Distribution Method – Similar to grading on a curve; predetermined percentages of
rates are placed in various performance categories.
Critical Incident Method – Keeping a record of uncommonly good or undesirable examples of
an employee's work-related behavior and reviewing it with the employee at predetermined times.
Behaviorally Anchored Rating Scale (BARS) – An appraisal method that aims at combining
the benefits of narrative critical incidents and quantified ratings by anchoring a quantified scale
with specific narrative examples of good and poor performance.
Electronic Performance Monitoring (EPM) – Having supervisors electronically monitor the
amount of computerized data an employee is processing per day, and thereby his or her
performance.
Unclear Standards – An appraisal scale that is too open to interpretation.
Halo Effect – In performance appraisal, the problem that occurs when a supervisor's rating of a
subordinate on one trait biases the rating of that person on other traits.
Central Tendency – A tendency to rate all employees the same way, such as rating them all
average.
Strictness/Leniency – The problem that occurs when a supervisor has a tendency to rate all
subordinates either high or low.
Bias – The tendency to allow individual differences such as age, race, and sex to affect the
appraisal ratings employees receive.
Appraisal Interviews – An interview in which the supervisor and subordinate review the
appraisal and make plans to remedy deficiencies and reinforce strengths.
Performance Management – The continuous process of identifying, measuring, and developing
the performance of individuals and teams and aligning their performance with the organization’s
goals.

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