11-1

Chapter

11

McGraw-Hill/Irwin

Performance
Appraisals

2005 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

11-2

After discussing Chapter 11, students

should be able to:

1. Summarize the key issues involved in defining and

2.
3.
4.
5.
6.
7.

measuring employee performance.

Discuss the key components of the four strategies to
better understand and measure performance .
Identify the five categories of performance appraisal
formats and discuss the issues involved in
determining which format would be the most
appropriate to use.
Understand how raters process information and
identify the major errors that can occur in this
process.
Outline the key elements to maximize a good
outcome in a performance management system.
Understand the legal issues affecting performance
appraisals.
Explain the issues involved in designing merit pay
guidelines to link pay to performance.

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11-3

Chapter Topics
Role

of Performance Appraisals in
Compensation Decisions
Common Errors in Appraising Performance
Strategies for Better Understanding and
Measuring Job Performance
Putting It All Together: Performance Evaluation
Process
EEO and Performance Evaluation
Tying Pay to Subjectively Appraised
Performance
Promotional Increases as a Pay-for-Performance
Tool
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Nature of Performance
Appraisals

11-4

You cant manage what you

dont understand.
You dont understand what you
dont measure.
What gets measured gets done.
What gets measured gets
rewarded.
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Role of Performance
Appraisal
Control
Allows

11-5

mechanism for feedback

employee progress to be assessed

Ensures

strategy-consistent behavior

Reinforces

values of organization

Ensures

alignment of individual
performance and behavior to
Organization
Work

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culture

systems
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Purposes of Performance
Appraisal
Evaluation
Performance
measurement
Compensation
Motivation

McGraw-Hill/Irwin

11-6

Development
Management
development
Identification of
Potential
Feedback
Human resource
planning
Communications
Performance
improvement
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Steps to Improve
Performance Appraisal Process

11-7

Recognize

part of performance is
influenced more by work environment
and systems than by employee behaviors

Identify

strategies to understand and

measure job performance better

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Exhibit 11.1: Common Errors

in Appraisal Process
Halo error

Leniency error

Horn error

Severity error

First impression error

Central tendency error

Recency error

Clone error

11-8

Spillover error

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Factors Related to Inaccurate

Appraisals
1

Guilt

Embarrassment about giving praise

Taking things for granted

Not noticing

Halo effect

Dislike of confrontation

Spending too little time on preparation of appraisal

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11-9

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Exhibit 11.2: Ratings of

Managers
Rating Received

Percent of Managers
Receiving Rating

Above average employee

46.4

Average employee

49.0

Below average employee

McGraw-Hill/Irwin

11-10

4.6

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Strategies to Better Understand

and Measure Job Performance
1

Clearly define job performance

Recognize definition of performance and its

components is expanding

Improve appraisal formats

Select the right raters

Understand way raters process information and

mistakes that may be made

Train raters to improve rating skills

McGraw-Hill/Irwin

11-11

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Strategy to Better Understand

11-12

and Measure Job Performance

Improve
Appraisal
Formats
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Categories of Appraisal
Formats

11-13

Ranking - Rater compares

employees against each other

Categories

Rating - Rater evaluates

employees on some absolute
standard (measured on a
continuum scale)
Essay - Rater answers openended questions in essay form
describing employee
performance

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11-14

Ranking Formats
Straight

ranking

Alternation

ranking

Paired-comparison

ranking

Examples

11.3

McGraw-Hill/Irwin

- Exhibit
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11-15

Rating Formats
Two

common elements

Raters

evaluate employees on some

absolute standard

Each

standard is measured on a scale

-performance variation is described along
a continuum

Types

of descriptors

Adjectives

- Exhibit 11.4

Behaviors

- Exhibits. 11.5 & 11.6

Outcomes

- Exhibits. 11.7 & 11.8

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Exhibit 11.9: Usage of

Performance
Evaluation Formats

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11-16

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11-17

bit 11.10: An Evaluation of Performance Appraisal For

Format
Ranking

CRITERIA
Employee
Personnel
Developmen Administration Research
t

poor

Standard
Rating Scale average

Cost

Validity

poor

average

good

average

average

average

good

average

BARs

good

good

good

average

good

MBO

excellent

poor

poor

poor

excellent

Essay

unknown

poor

poor

average

unknown

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2005 The McGraw-Hill Companies, Inc. All rights reserved.

Strategy to Better Understand

11-18

and Measure Job Performance

Select the
Right Raters

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11-19

Select the Right Raters

Supervisors

Peers

Customers
McGraw-Hill/Irwin

Self

Subordinates

Vendors

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Strategy to Better Understand

11-20

and Measure Job Performance

Understand
How Raters
Process
Information
and Potential
Mistakes
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11-21

The Rating Process

Rater

observes behavior of a ratee

Rater encodes ratee behavior
Rater stores information in memory
When it is time to evaluate a ratee, rater
Reviews

performance dimensions and

Retrieves stored observations to determine
relevance to performance dimensions

Information

is reconsidered and
integrated with other available
information as rater decides on final
ratings

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Understand Why Raters Make

Mistakes

11-22

Errors in rating
process

Types
of
Errors

Errors in observation
(attention)
Errors in storage and
recall
Errors in actual
evaluation

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Training Raters to Rate More

Accurately
Rater-error

11-23

training

Goal

is to reduce psychometric errors by

familiarizing raters with their existence

Performance

dimension training

Exposes

supervisors to
performance dimensions used

Performance-standard

training

Provides

raters with a standard or

frame of reference for making appraisal

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Putting it All Together:

The Performance Evaluation
Process

11-25

Key elements making for a good outcome

Need a sound basis for establishing performance appraisal

dimensions and scales associated with each dimension

Need to involve employees in every stage of developing

performance dimensions and building scales

Need to ensure raters are trained in use of appraisal system

and that all employees understand how system operates

Need to ensure raters are motivated to rate accurately

Raters should maintain a diary of employee performance

Raters should attempt a performance diagnosis to determine

if performance problems exist

Appraisal process should follow guidelines in Exhibit 11.11

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Tips on Appraising Employee

Performance
1

Establish clear sense of direction

Provide opportunity for employees to participate in

setting goals and standards for performance

Provide prompt, honest, and meaningful feedback

Allow for immediate and sincere reinforcement

Provide coaching and suggestions for improving future

performance

Provide fair and respectful treatment

Allow an opportunity for employees to understand and

influence decisions which effect them

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11-26

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EEO and Performance

Evaluation

11-27

Key Issues: Establishing a Performance Appraisal System

Provide specific written instructions on how to complete

appraisal

Incorporate clear criteria for evaluating performance Performance dimensions should be written, objective, and clear

Provide a rational foundation for personnel decisions via

adequately developed job descriptions

Require supervisors to provide feedback about appraisal results

to employees

Incorporate a review of performance ratings by higher level

supervisors

Consistent treatment across raters, regardless of race, color,

religion, sex, and national origin should be evident

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Tying Pay to Subjectively

Appraised Performance

11-28

How do we get

Central issue
involving
merit pay

employees to
view raises as
a reward for
performance?

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2005 The McGraw-Hill Companies, Inc. All rights reserved.

Pay Increase Guidelines with

Low Motivational Impact

11-29

Provide

equal increases to all employees

regardless of performance
General

increase

Cost-of-living

adjustments

Pay

increases based on a preset

progression pattern based on seniority

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2005 The McGraw-Hill Companies, Inc. All rights reserved.

Requirements to Link
Pay to Performance
Define

11-30

performance

Behaviors
Competencies
Traits

Specify

a continuum describing different levels

from low to high on performance measure
Decide how much of a merit increase is given
for different levels of performance
Exhibit 11.12: Performance-based Guideline
Exhibit 11.13: Performance Rating Salary
Increase Matrix
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2005 The McGraw-Hill Companies, Inc. All rights reserved.

Requirements to Link Pay to

Performance
Define

11-31

performance

Behaviors
Competencies
Traits

a continuum describing different

levels from low to high on performance
measure
Decide how much of a merit increase is
given for different levels of performance
Exhibit 11.12: Performance-based
Guidelines
Exhibit 11.13: Performance Rating Salary
Increase Matrix
Specify

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Exhibit 11.12: Performancebased Guidelines

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11-32

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11-33

Designing Merit Guidelines

Four Questions . . .
1

What should the poorest performer be paid as an

increase?

How much should average performers be paid as an

increase?

How much should top performers be paid?

What should be the size of the percentage increase

differential between different levels of performance?

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Exhibit 11.14: Merit Pay

Grid

11-34

Merit grids combine 3 variables:

Level

of performance

Distribution

of employees within their

jobs pay ranges

Merit

McGraw-Hill/Irwin

budget increase percentage

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Promotional Increases as a
Pay-for-Performance Tool

11-35

Promotion

should be accompanied by a
salary increase - 8 to 12%

Characteristics

increases

of promotional pay

Size

of increment is approximately double a

normal merit increase

Represent

a reward to employees for

commitment and exemplary performance

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The Performance Management

Process
Establish
Expectations

Performance
Management Continuous process
where employees and
managers work together

11-36

Coaching and
Development

Feedback

Review
Rewards and
Recognition
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