The document discusses performance appraisal and management. It defines performance appraisal as measuring and assessing an employee's job performance, while performance management integrates appraisal with other HR systems to align employee work with organizational goals. It outlines the performance management cycle and functions of appraisal for employee development and administrative purposes like rewards. It also discusses criteria for effective appraisal systems and different methods of measuring performance, such as objectively or subjectively.

1. Paul L. Schumann, Ph.D. Professor of Management MGMT 440: Human Resource Management © 2008 by Paul L. Schumann. All rights reserved.

2. Outline Performance Measurement Functions of Performance Appraisal Criteria for Effective Performance Appraisal Systems Types of Performance to Measure Performance Appraisal Methods Performance Raters (Evaluators) Performance Feedback

3. Performance Management Performance appraisal: the measurement and assessment of an employee’s job performance Performance management: the integration of performance appraisal systems with other HRM systems for the purpose of aligning the employees’ work behaviors and results with the organization’s goals Example: link an employee’s pay increase to the employee’s job performance To do this, we have to measure the employee’s job performance Goal: Improve the organization by improving the employees’ work behaviors and results

4. Performance Management Cycle Source of figure: Adapted from Fisher, Schoenfeldt, & Shaw (2006), Figure 10.1, p. 421 Development Tool Administrative Tool

5. Functions of Performance Appraisal Employee Development Tool Goal setting: Set performance goals for each employee Involve the employee in goal setting Make the goals specific, concrete, & measurable Example goals (some of many) for a retail store manager: Sales goal for year = $2 million Customer satisfaction goal = average rating of 4.5 on 5-point customer satisfaction rating scale Make the goals difficult but achievable, challenging but realistic Empower employees to achieve their goals

6. Functions of Performance Appraisal Employee Development Tool (more) Provide feedback to reinforce & sustain performance Employees need to know how they are doing Provide help & advice to improve performance Be a coach in addition to being a boss Assist employees in achieving career progression goals Determine training needs Do employees have job performance deficiencies for which training would be an effective remedy?

7. Functions of Performance Appraisal Administrative Tool Link rewards to performance Examples: pay increases, promotions, demotions, terminations, disciplinary actions, etc. Goal: Create incentives to motivate employees to increase their performance Evaluate HRM policies & programs Example: Evaluate a training program: Measure job performance before and after training to see if performance improved

8. Criteria for Effective Performance Appraisal Systems 1. Validity: are we measuring the right thing? Are we really measuring job performance? We want to measure important (“relevant”) aspects of job performance, in a way that is free from extraneous or contaminating influences, and that encompasses the whole job (i.e., our measures of job performance are not “deficient”: we aren’t leaving out important aspects of job performance) 2. Reliability: consistency of measurement Example: inter-rater reliability If two people observe a particular employee’s job performance, do they agree in their rating of the employee’s performance?

9. Criteria for Effective Performance Appraisal Systems 3. Freedom from bias It does not illegally discriminate (race, sex, age, etc.) It is free from rating errors (intentional or unintentional): Leniency errors Severity errors Central tendency errors Halo errors 4. Practicality The benefits the organization gets from using it should outweigh the costs of developing & using it Utility analysis It should be relatively easy to use It should be accepted by managers and employees

10. Types of Performance to Measure What aspects of an employee’s job performance can we measure? We have 3 basic choices: Results produced by the employee Example for a salesperson: Amount of sales ($) in the past month Behaviors of the employee Example for a salesperson: Number of sales calls in the past month Traits of the employee Example for a salesperson: Friendliness

11. Types of Performance to Measure Results-based (results-oriented): measure the results produced by the employee Examples for a retail store manager (examples of some results for which the store manager has responsibility and so should be held accountable): Sales of the store Profit per square foot Inventory shrinkage Customer satisfaction Makes sense for most jobs Results matter (usually)

12. Types of Performance to Measure Results-based (more) Challenges: Which results are relevant may not be obvious for all jobs Some results are not under the employee’s control May foster a “results at all costs” mentality May interfere with teamwork May be difficult to provide effective feedback

13. Types of Performance to Measure Behavior-based (behavior-oriented): measure the employee’s behaviors Examples for a retail store manager: Good attendance Completes management reports correctly & on time Monitors customers and employees for theft Coaches employees to welcome customers to the store & offer assistance within 3 minutes, and to thank customers as they leave Conducts regular sessions with employees to develop teamwork Makes sense for many jobs Use it where how the employee produces results matters

14. Types of Performance to Measure Behavior-based (more) Advantage: Makes it easier to provide effective performance feedback to employees Examples for a retail store manager: Feedback with results-oriented performance appraisal: “You didn’t achieve your sales goal.” (Measured by sales reports) Feedback with behavior-oriented performance appraisal: “You are allowing your employees to wait too long before offering help to customers.” (Measured by observations of a secret shopper) Challenges: Difficult to capture the full range of relevant behaviors Different behaviors can lead to the same results We may not always care which behaviors were used

15. Types of Performance to Measure Trait-based (trait-oriented): measure the employee’s personal characteristics Examples for a retail store manager: Ability to make decisions Loyalty to the company Communication skills Level of initiative This is usually a bad idea for several reasons: Poor reliability & validity of measures of traits Weak relationship between traits and job effectiveness Measurements of traits are more likely to be subject to biases (sexism, racism, ageism, etc.) Hard to use traits to provide effective feedback

16. Types of Performance to Measure So, in most cases, we want to measure the job performance of an employee in terms of the results and behaviors of the employee Make a list of results & behaviors that are relevant to the job Starting point: Use the job description to identify the essential tasks of the job Example task statement on job description for a Retail Store Manager: “Manage inventory shrinkage.” Translate the tasks into results & behaviors Example (continued): Measure the amount of inventory shrinkage in the store (a result)

17. Performance Appraisal Methods Once we decide which results & behaviors we want to measure, we next need to decide how to measure those results & behaviors We have 3 categories of choices: Objective measures of performance Subjective measures of performance Management By Objectives

18. Performance Appraisal Methods Objective measures: measure an employee’s job performance in terms of things we can see and count with no (or minimal) use of opinion Production measures: count units produced by an employee Sales measures: count the sales ($) of an employee Personnel data: count things in the employee’s personnel file Examples: Number of times late to work Number of times absent Number of disciplinary actions taken

19. Performance Appraisal Methods Objective measures (more): Performance tests: for an employee, evaluate work samples or simulations under standardized conditions Example: for an airline pilot, program a flight simulator with specific flight conditions to test if the pilot handles it correctly Business unit performance measures: for managers who are responsible for a business unit, measure their performance by measuring the performance of the business unit they lead Examples: Market share of the business unit Profit measures for the business unit: profits & profit rates (return on sales, return on assets, return on equity) Stock price

20. Performance Appraisal Methods Subjective measures: measure an employee’s job performance using human judgment Ranking: subjectively rank employees from best to worst Example: 1. Bob 2. Carol 3. Ted 4. Alice Note carefully that the ranking is in terms of subjective opinion (e.g., who is your best salesperson overall?), not objective factors (e.g., which salesperson sold the most?) Note the ranking requires you to compare one employee to another Problem: it can be hard to determine the subjective ranking position of employees who are in the middle (it all blurs together)

21. Performance Appraisal Methods Subjective measures (more) Paired comparisons: for all possible pairs of employees, subjectively decide which employee is better # of paired comparisons = (N 2 − N)/2 Example: N = 4  (4 2 − 4)/2 = 6 paired comparisons: Bob > Carol; Bob > Ted; Bob > Alice Carol > Ted; Carol > Alice Ted > Alice Example: N = 12  (12 2 − 12)/2 = 66 paired comparisons Note that you are comparing one employee to another Problem: inconsistent subjective comparisons: Bob > Carol; Carol > Ted; Ted > Bob (see the inconsistency here?)

22. Performance Appraisal Methods Subjective measures (more) Rating scale (graphic rating scale): subjectively rate the employee’s job performance on a labeled numeric measuring scale Rating scales are perhaps the most commonly used method of subjectively evaluating an employee’s job performance Before we use a rating scale to subjectively rate an employee’s job performance, we need to: Identify the aspects of job performance (results & behaviors) that are to be evaluated (rated) using the rating scale Develop the rating scale itself

23. Performance Appraisal Methods Rating Scale Examples Rating Scale Examples Examples of a 5-point scale: 5 = Excellent 4 = Very satisfactory 3 = Satisfactory 2 = Unsatisfactory 1 = Very unsatisfactory 5 = Greatly exceeds standards 4 = Exceeds standards 3 = Meets standards 2 = Below standards 1 = Far below standards Example of a 7-point scale: 7 = Truly exceptional 6 = Excellent 5 = Very good 4 = Good 3 = Satisfactory 2 = Unsatisfactory 1 = Very unsatisfactory

24. Performance Appraisal Methods Subjective measures (more) Rating scale (more) The same rating scale can be used to rate: Overall job performance, and Multiple specific aspects of job performance Some aspects of job performance can be measured objectively and subjectively Example: Quality of work Objective measure: defect rate (percentage of units produced by an employee that fail inspection) Subjective measure: subjectively rate the quality of the employee’s work using a 5-point rating scale

25. Performance Appraisal Methods Subjective measures (more) Rating scale (more) Example: MSU Course Evaluation Form Note how the same 5-point rating scale is used to evaluate several different aspects of the professor’s job performance: Course as a whole Instructor’s contribution to the course Use of class time Etc.

26. More Examples of Rating Scales Decisions: Use a graphic or just use words? Label all the points on the scale, or just label some? Odd or even number of points on the scale? Fewer points on the scale, or more points on the scale? Source of figure: Fisher, Schoenfeldt, & Shaw (2006), Figure 10.6, p. 449

27. Performance Appraisal Methods Subjective measures (more) Rating scale (more) Note that rating scales do not require you to compare one employee to another — the ratings are absolute, not comparative Problems: No limits on leniency, severity, & central tendency errors Example: a manager rates all of his employees at “5 = Excellent” regardless of the employees’ actual performances Possible solution: forced distribution? The terms used in a rating scale to describe different levels of performance tend to be short and vague Example: What does “Excellent” really mean? Possible solution: BARS?

28. Performance Appraisal Methods Subjective measures (more) Forced distribution: evaluator must place a fixed percentage of employees in each performance category Example: 10% must be rated 5 = Excellent 25% must be rated 4 = Very satisfactory 45% must be rated 3 = Satisfactory 15% must be rated 2 = Unsatisfactory 5% must be rated 1 = Very unsatisfactory Note that you are comparing one employee to another Problem: what if the distribution being forced doesn’t fit?

29. Performance Appraisal Methods Subjective measures (more) Behaviorally Anchored Rating Scale (BARS): replace the vague descriptors in a rating scale with specific examples of performance Example: Customer assistance 5 = Could be expected to volunteer to help customer and to walk with customer to location of desired product 4 = Could be expected to walk with customer to location of desired product when asked for help by customer 3 = Could be expected to tell and point customer to where the desired product is located when asked for help by customer 2 = Could be expected to shrug shoulders and walk away when asked for assistance by customer 1 = Could be expected to hide from customers in the employee break-room

30. Performance Appraisal Methods Subjective measures (more) BARS (more) Note that a different scale will be needed for each aspect of job performance Advantages: Job-relevant measures of performance Involves employees in developing scales Disadvantages: More work (time & money) to develop BARS Employees may not consistently fit into one of the BARS categories Possible solution: BOS?

31. Performance Appraisal Methods Subjective measures (more) Behavioral Observation Scale (BOS): evaluators rate the frequency with which an employee engages in specific behaviors Example: on a list of possible employee behaviors, rate how often the employee engages in each behavior using a rating scale where: 1 = almost never  5 = almost always Weighted checklist: from a list of possible employee behaviors, check off the ones that apply to the employee Example: Fisher, Schoenfeldt, & Shaw (2006), Figure 10.8, p. 452

32. Performance Appraisal Methods Management By Objectives (MBO): evaluate employee job performance in terms of the extent to which the employee achieved each of his or her goals during a specified period of time Goals can be both objective and subjective Example goals (some of many) for a retail store manager: Objective: Sales goal for year = $2 million Subjective: Customer satisfaction goal = average rating of 4.5 on 5-point customer satisfaction rating scale Commonly used for managers and professionals

33. Performance Appraisal Methods MBO (more) Process: At the beginning of the review period, the employee and the supervisor meet and they agree on a set of goals to be achieved by the employee during the review period Review period is typically one year, but could be more often Apply the goal setting principles: Involve the employee in goal setting Make the goals specific, concrete, & measurable Make the goals difficult but achievable, challenging but realistic Empower employees to achieve their goals

34. Performance Appraisal Methods MBO (more) Process (more): Throughout the review period, progress toward the goals is monitored Employee’s supervisor should be providing coaching to help the employee achieve his or her goals At the end of the review period, the employee and the supervisor meet to evaluate the extent to which each goal was achieved and to set new goals for the next review period

35. Performance Raters (Evaluators) Who should be asked to evaluate the job performance of an employee? Performance evaluators need to have: Opportunity to observe the employee’s job performance Ability to translate observations of performance into an evaluation of performance Motivation to do a good job of observing & evaluating

36. Performance Raters (Evaluators) Options for Job Performance Evaluators Supervisors Self-evaluation Peers (co-workers) Subordinates Customers External customers Internal customers 360-Degree Appraisals

37. Performance Feedback Employees need effective feedback Allow time & eliminate distractions Okay to cover both administrative issues (e.g., pay increase) & developmental issues (e.g., future goals) in one feedback session Provide specific feedback Example: Don’t say: “You’re always late.” Do say: “You were more than 5 minutes late on 25 occasions in the past 3 months. This is unacceptable. We need to develop (1) a specific goal concerning prompt attendance and (2) an action plan that you will follow to achieve the goal.”

38. Performance Feedback Types of feedback sessions: Tell-and-sell: the supervisor tells the employee the results of the performance appraisal and explains the reasons why the appraisal is correct Tell-and-listen: the supervisor tells the employee the results of the performance appraisal and listens to the employee’s response Problem solving: the supervisor acts as a coach to assist the employees in setting their own goals and in evaluating their own job performance

39. Performance Feedback Types of feedback sessions (more): Combination of tell-and-sell & problem solving: First part of feedback session: tell-and-sell Focus on the past: Supervisor tells the employee the results of the performance appraisal and explains the reasons why the appraisal is correct Supervisor tells the employee about any administrative decisions that were made (e.g., pay increases, etc.) Second part of feedback session: problem solving Focus on the future: Supervisor acts as a coach to help the employee identify barriers to improved future job performance

40. Outline Performance Measurement Functions of Performance Appraisal Criteria for Effective Performance Appraisal Systems Types of Performance to Measure Performance Appraisal Methods Performance Raters (Evaluators) Performance Feedback