PART THREE

TRAINING AND DEVELOPMENT

C H A P T E R

N i n e

Performance Management and Appraisal

Lecture Outline
Strategic Overview Basic Concepts in Performance Appraisal and Performance Management Comparing Performance Appraisal and Performance Management Why Performance Management? Defining the Employee's Goals and Work Efforts An Introduction to Appraising Performance Why Appraise Performance? Realistic Appraisals The Supervisor's Role Steps in Appraising Performance Graphic Rating Scale Method Alternation Ranking Method Paired Comparison Method Critical Incident Method Narrative Forms Behaviorally Anchored Rating Scales Management by Objectives (MBO) Computerized and Web-Based Performance Appraisal Mixing the Methods Appraising Performance: Problems and Solutions Potential Rating Scale Appraisal Problems How to Avoid Appraisal Problems Who Should do the Appraising? The Appraisal Interview Types of Interviews How to Conduct the Appraisal Interview Appraisals in Practice Creating the Total Performance Management Process How appraisals are done in some companies in Asia

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In Brief: This chapter gives an overview of the performance appraisal process and the different tools and methods available. The main topics covered include the performance management process, appraisal methods, appraisal performance problems and solutions, and the appraisal interview. Interesting Issues: Despite lots of attention, money and effort, performance appraisals remain an area with which few managers or employees are satisfied. The following questions may be worth discussing. Is it just that we don't have a good enough system yet, is there an intrinsic problem with performance appraisals, or is it just human nature to dislike them?

ANNOTATED OUTLINE I. Basic Concepts Management in Performance Appraisal and Performance

A. Comparing Performance Appraisal and Performance Management Performance appraisal is part of a total integrated process of performance management, which consolidates goal setting, performance appraisal, and development into a single, common system, the aim of which is to ensure that the employee's performance is supporting the company's strategic aims. Figure 9-1 illustrates the components of an effective performance management process B. Why Performance Management? Performance management's emphasis on the integrated nature of goal setting, appraisal and development reflect Total Quality Management concepts. Second, it reflects what many studies have shown that traditional performance appraisals are useless and counter-productive. Third, it is a process that recognizes that every employee's efforts must focus on helping the company to achieve its strategic goals. C. Defining the Employee's Goals and Work Efforts At the heart of performance management is the idea that employees effort should be goal directed, which involves clarifying expectations and quantifying them by setting measurable standards for each objective. Some guidelines for effective goal setting are: 1. Assign Specific Goals 2. Assign Measurable Goals 3. Assign Challenging but Doable Goals

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Educational Materials to Use

II.

An Introduction to Appraising Performance A. Why Appraise Performance For several reasons; 1) they play an integral role in the employer's performance management process; 2) the appraisal lets the boss and subordinate develop a plan for correcting any deficiencies, and reinforce those things he does correctly; 3) they serve a useful career planning purpose; and 4) it plays a part in salary decisions. B. Realistic Appraisals - It is important that a manager be candidate when a subordinate is underperforming. C. The Supervisor's Role Supervisors must be familiar with basic appraisal techniques, understand and avoid problems that can cripple appraisals, and know how to conduct appraisals fairly. The HR Department serves as policy-making and advisory role. D. Steps in Appraising Performance 1) define the job; 2) appraise performance; and 3) provide feedback.

E. Graphic Rating Scale Method the simplest and most popular appraising performance technique, is where 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. F. Alternation Ranking Method is where employees are ranked from best to worst on a particular trait, choosing highest, then lowest, until all are ranked. Figure 9-7 shows an example of this method. G. Paired Comparison Method involves ranking employees by making a chart of all possible pairs of employees for each trait and indicating which is the better employee of the pair. Figure 9-8 shows an example of the paired comparison method. H. Forced Distribution Method is where predetermined percentages of rates are placed in various performance categories; similar to grading on a curve. I. Critical Incident Method is where a supervisor keeps a record of uncommonly good and/or undesirable examples of an employees workrelated behavior, and reviewing it with the employee at predetermined times. Narrative Forms involve rating the employees 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 by focusing on problem solving.

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K. Behaviorally Anchored Rating Scales (BARS) 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; 5) develop final instrument. The advantages of BARS: more accurate gauge; clearer standards; feedback; independent dimensions; and consistency. L. Management by Objectives (MBO) Method requires the manager to set specific measurable goals with each employee and then periodically discuss his/her progress toward these goals, and consist of six steps: 1) set the organization's goals 2) set departmental goals 3) discuss departmental goals 4) define expected results 5) performance reviews 6) provide feedback. Problems with MBO (listed in Asian Perspective) M. Computerized and Web-Based Performance Appraisal 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. N. Mixing the Methods Most companies use a combination of several methods. NOTES Educational Materials to Use

III.

Appraising Performance: Problems and Solutions A. Potential Rating Scale Appraisal Problems unclear standards; halo effect; central tendency; leniency or strictness; and bias. 1. Unclear Standards Ambiguous traits and degrees of merit can result in an unfair appraisal. 2. Halo Effect the influence of a raters general impression on ratings of specific qualities, can be a problem 3. Central Tendency where 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. Bias the tendency to allow individual differences such as age, race, and sex to affect the appraisal ratings employees receive, is a problem. B. How to Avoid Appraisal Problems Appraisal problems can be minimized by learning and understanding the potential problems and solutions, using the right appraisal tool, training supervisors to reduce rating errors; and keeping a diary. C. Who Should Do the Appraising? 1. The Immediate Supervisor usually in the best position to observe and evaluate the subordinates performance, and is responsible for that persons performance. 2. Peer Appraisals becoming more popular with firms using selfmanaging teams. 3. Rating Committees consist of multiple raters, typically the employees immediate supervisor and three or four other supervisors. 4. Self-Ratings tend to be higher than supervisor or peer ratings. 5. Appraisal by Subordinates or upward feedback, is where subordinates anonymously rate their supervisors performance. 6. 360-Degree Feedback where ratings are collected from the employees supervisors, subordinates, peers, and internal or external customers.

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Educational Materials to Use

IV.

The Appraisal Interview is an interview in which the supervisor and subordinate review the appraisal and make plans to remedy deficiencies and reinforce strengths. A. Types of Interviews 1) Satisfactory Promotable with the objective to make development plan 2) Satisfactory Not Promotable with the objective to maintain performance; 3) Unsatisfactory Correctable with the objective to plan correction via the development of an action plan. 4) Unsatisfactory Uncorrectable B. How to Conduct the Interview Prepare for the Interview by assembling the data, preparing the employee, and choosing the time and place. Be direct and specific; dont get personal; encourage the person to talk; and dont tiptoe around. 1. How to Handle a Defensive Subordinate Recognize that defensive behavior is normal; never attack a persons defenses; postpone action; and recognize your own limitations. How to Criticize a Subordinate When required, criticize in a manner that lets the person maintain his/her dignity and sense of worth, in private, and constructively. How to Ensure the Interview Leads to Improved Performance Clearup job-related problems and set improvement goals and a schedule for achieving them. 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 violation of the standard, and show that the employee had an opportunity to correct the behavior.

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C. Appraisals in Practice Research shows that performance appraisals are required for most employees. Various types of appraisal formats are used, but most include reviews and feedback. NOTES Educational Materials to Use

IV.

Creating The Total Performance Management Process In this section several examples are provided of how a small firm, a large firm, and the Hotel International created a total performance management process. The HR Scorecard Strategy and Results: The New Performance Appraisal System The continuing example of Hotel International, discusses how they used the HR Scorecard as a tool to focus

employee's behavior specifically on the performance that would help the Hotel International achieve its strategic goals, as illustrated in Figure 9-16.

NOTES

Educational Materials to Use

PERFORMANCE APPRAISAL IN ASIA Performance appraisal practices in Asian companies are varied. China: Performance appraisals are widely practiced in state-owned enterprises. Hong Kong: Performance appraisals are more common in larger companies. Malaysia: Practices are similar among American and British subsidiaries. Singapore: Rating scales using standard form are commonly used. South Korea: Companies have annual performance appraisal for employee development purposes as promotion is based on seniority Thailand: American and European subsidiaries have appraisals to link pay with work-related performance. Among local companies, performance-based approach is more common for managers and professionals. Vietnam: Appraisal in state-owned enterprises depended on the agreeableness of the subordinate-manager relationship. DISCUSSION QUESTIONS 1. What is the purpose of a performance appraisal? The purpose of a performance appraisal is to provide employees with feedback on how they are doing, as well as give them an opportunity to give feedback. 2. Discuss the pros and cons of at least 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. 3. Explain how do you use the alternation ranking method, the paired comparison method, and the forced distribution method. The alternation method would be used by listing all employees to be rated, deciding who is the best in a trait to be rated, and which 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 ... every employee name is paired with every other name. For each pair, the supervisor would circle the one of the two 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. For example: 15% can get a 1; 20% can get a 2; 30 % can get a 3 ... and so forth.

4. Explain in your own words how do you develop 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 final instrument. 5. 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; and 5) bias. 6. Discuss the pros and cons of using different potential raters to appraise a person's performance. The advantage of using several raters (either a rating committee, or a combination of peer, supervisor, and subordinate ratings) is that the ratings tend to be more valid than those of one individual rater. The negatives might include the time and cost involved as well as problems with the amount of daily contact that some raters may not have with the employee being rated. 7. Compare and contrast performance management and performance appraisal. Performance appraisal means evaluating an employee's current and/or past performance relative to his or her performance standards. Performance management is the process that consolidates goal setting, performance appraisal, and development into a single, common system, the aim of which is to ensure that the employee's performance is supporting the company's strategic aims. Performance management includes practices through which the manager defines the employee's capabilities, and evaluates and rewards the person's effort. 8. Answer the question: "How would you get the interviewee to talk during an appraisal interview? There are several techniques that will help: 1) stop and listen to what the person is saying ... don't be afraid of a little silence; 2) ask open-ended questions; 3) use prompting statements like "go on," or "tell me more;" 4) restate the person's last statement as a question.

INDIVIDUAL AND GROUP ACTIVITIES 1. Working individually or in groups, develop a graphic rating scale for the following jobs: secretary, engineer. Job characteristics may include, but not be limited to: Secretary--quantity of work, frequency of errors, attendance, and initiative; Engineer-initiative, significance of contribution to the organization, problem solving skills, frequency of errors, and communication skills. 2. 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 the use of this method would impact the rating of their college professors. 3. 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.

Examples of multiple choice questions:

1. Graphic Rating Scale, Paired Comparison Method, and Forced Distribution Method are all examples of: a. b. c. d. measures on the HR Scorecard techniques for appraisal performance performance management systems management by objectives

Answer: b 2. The problem that occurs when a supervisors rating of a subordinate on one trait biases the rating on that person on other traits is called: a. b. c. d. the halo effect central tendency leniency or strictness problems bias

Answer: a 3. An appraisal method that aims at combining the benefits of narrative and quantified ratings by anchoring a quantified scale with specific narrative examples of good and poor performance is called: a. management by objectives b. behavioral anchored rating scale c. critical incident method d. alternation ranking method Answer: b 4. The process that consolidates goal setting, performance appraisal, and development into a single, common system is called: a. b. c. d. Performance Appraisal The HR Scorecard Performance Management Management by Objectives

Answer: c EXPERIENTIAL EXERCISES & CASES Experiential Exercise: Performance Appraisal Grading the Professor Students are asked to develop an appraisal form. 1. Students should develop their own tool for appraising the performance of an instructor. Look for them to apply concepts discussed in this chapter. 2. Students should present their tools to the class. How similar are the tools? Do they all measure about the same factors? Which factor appears most often? Which do you think is the most effective tool? Encourage students to reflect on the factors that they chose, or did not choose. Share your perspective on what makes good teaching.

Application Case: Appraising the Secretaries at City U

1. 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. 2. Do you think that the Vice President 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? 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. 3. What performance appraisal system would you develop for the secretaries if you were the Vice President? 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: Kwik and Kleen (KK) Laundry Company: The Performance Appraisal 1. Is Jen 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 the need to provided reasons for their decision. Develop a performance appraisal method for the workers and managers in each store. The students need to be familiar with different appraisal methods discussed in the chapter. They should use the sample appraisal forms given in the chapter as guides.

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HOTEL INTERNATIONAL In this case, HR Director Li must develop a performance appraisal system that supports the hotels competitive strategy. Questions 1. Pick out 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 standard for that chosen job. Answers should include competencies that will help the hotel to become more service-oriented. Use examples from the case itself, such as 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. 2. Based on that, create a performance appraisal form for appraisal that job. There are examples in the text. If possible, before class ask students to bring sample performance appraisal forms to class, either from jobs they have held or samples from the Internet. Suggest combining graphic rating scales with use of the critical incident method to improve ongoing coverage of employee performance. Also stress that a once-yearly formal appraisal will not be sufficient unless it is supplemented by regular verbal feedback.

For more Instructors Resources, visit the Dessler & Tan companion Web site for Human Resource Management: An Asian Perspective (2nd edition) at http://www.pearsoned-asia.com/desslertan/.

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KEY TERMS
performance appraisal Evaluating an employees current and/or past performance relative to his or her performance standards. Managing all elements of the organizational process that affect how well employees perform. 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 performance for each trait. Ranking employees from best to worst on a particular trait, choosing highest, then lowest, until all are ranked. 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. Similar to grading on a curve; predetermined percentages of rates are placed in various performance categories. 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. An appraisal method that aims at combining the benefits of narrative and quantified ratings by anchoring a quantified scale with specific narrative examples of good and poor performance. Involves setting specific measurable goals with each employee and then periodically reviewing the progress made.

performance management

graphic rating scale

alternation ranking method paired comparison method

forced distribution method critical incident method

behaviorally anchored rating scale (BARS)

management by objectives (MBO)

unclear standards halo effect

An appraisal scale that is too open to interpretation. 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. A tendency to rate all employees the same way, such as rating them all average. The problem that occurs when a supervisor has a tendency to rate all subordinates either high or low. The tendency to allow individual differences such as age, race, and sex to affect the appraisal rates these employees receive. An interview in which the supervisor and subordinate review the appraisal and make plans to remedy deficiencies and reinforce strengths.

central tendency

strictness / leniency

bias

appraisal interviews

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