Reference_Performance Appraisal.pdf

M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 234 8 CHAPTER Performance Management and Appraisal HRM in Action: Employee Engagement as a Strategic...

M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 234 8 CHAPTER Performance Management and Appraisal HRM in Action: Employee Engagement as a Strategic HR Tool Employee engagement refers to the level of commitment workers make to their employer, seen in their willingness to stay at the firm and to go beyond the call of duty.1 Firms want employees that are highly motivated and feel they have a real stake in the company’s success. Such employees are willing to finish tasks in their own time and see a strong link between the firm’s success and their own career prospects. In short, motivated, empowered employees work hand in hand with employers in an atmosphere of mutual trust. Companies with engaged workforces have also reported less absenteeism, more engagement with customers, greater employee satisfaction, less mistakes, fewer employees leaving, and naturally higher profits. Such is the power of this concept that former Secretary of State for Business, Peter Mandelson, commissioned David McLeod and Nita Clarke to investigate how much UK competitiveness could be enhanced by wider use of employee engage- ment. David and Nita concluded that in a world where work tasks have become increasingly similar, engaged employees could give some companies the edge over their rivals. They also identified significant barriers to engagement such as a lack of appreciation for the concept of employee engagement by some companies and managers. Full participation by line managers is particularly crucial. From the employee point of view, it is easy to view engagement as a management fad, particularly if the company fails to demonstrate the necessary commitment. Some also feel that in a recession, employee engagement becomes less of a priority when in 234 M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 235 CHAPTER OBJECTIVES After completing this chapter, students should be able to: 1. Define performance 4. Describe the performance 8. List the problems that have management and describe the appraisal process. been associated with importance of performance 5. Identify the various performance performance appraisal. management. criteria (standards) that can be 9. Explain the characteristics of an 2. Define performance appraisal established. effective appraisal system. and identify the uses of 6. Identify who may be responsible performance appraisal. 10. Describe the legal implications for performance appraisal and of performance appraisal. 3. Discuss the performance the performance period. appraisal environmental 7. Identify the various performance 11. Explain how the appraisal factors. appraisal methods. interview should be conducted. fact it could be the factor that enables a business in trouble to stay afloat. Others feel that in an environment where recruitment is easier due to increasing unemployment, firms tend to slacken their commitment to engagement. A company that has demonstrated the value of employee engagement is John Lewis, who sell a range of household goods, clothes, and electronics. The John Lewis business model has been hailed as a good way to run public services and 70,000 store employees recently received a slice of a £151.3 million bonus. The engagement strategy of John Lewis is facilitated by its unusual employee-owned structure. Employees are known as partners and the company is run by a Partnership Council, a Partnership Board, and a Chairman. At least 80 percent of the Partnership Council is elected and this is one of the ways employees feel that they can influence the working of the company. At the core of the John Lewis philosophy is a belief that employees are critical to success. Employees benefit from an environment that positively encourages a healthy work–life balance and engagement in community projects and charity work. Tangible benefits include a noncontributory final salary pension scheme, store discounts, subsidized holidays, and even a contribution towards concert tickets. Tesco is another retailing company that has embraced employee engagement. Chief Executive, Terry Leahy, remarked recently that he knew more about Tesco customers than his employees and set out to improve that situation. One of the most significant factors in this process has been an improved understanding with USDAW, the shop workers union. Tesco also launched two notable engagement projects in 2008, one of which encouraged employees to take part in a talent contest. Vouchers for in-store shopping were also distrib- uted to employees at Christmas. 235 M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 236 Tesco is already receiving encouraging results for its investment in employee engage- ment. Stores with the most committed employees are the most successful in terms of turnover. However, suprisingly, many companies still conclude that employee engagement is not for them.2 employee This chapter begins by discussing employee engagement. Then engagement performance management is defined and the importance of integrating learning Level of commitment workers make to their and performance management discussed. The relationship of performance employer, seen in their management to performance appraisal is then studied. Next, we look at the uses willingness to stay at the made of appraisal data and the environmental factors affecting the perform- firm and to go beyond the ance appraisal process. The performance appraisal process is then described and call of duty. the possible criteria used in evaluating performance are discussed. Then the person(s) responsible for appraisal and the appraisal period are described, and the various performance appraisal methods are explained. Problems associated with performance appraisal and characteristics of an effective appraisal system are described next, followed by a discussion of the legal aspects of performance appraisal and the appraisal interview. This chapter concludes with a global perspective entitled “Two Cultures’ Views of Performance Appraisal.” OBJECTIVE 8.1 Performance Management Define performance Performance management (PM) is a goal-oriented process directed toward ensuring that management and organizational processes are in place to maximize the productivity of employees, teams, and describe the importance of performance ultimately, the organization. It is a major player in accomplishing organizational strategy in that management. it involves measuring and improving the value of the workforce. PM includes incentive goals and the corresponding incentive values so that the relationship can be clearly understood and performance communicated. There is a close relationship between incentives and performance.3 management (PM) Performance management systems are one of the major focuses in business today. Although Goal-oriented process every HR function contributes to performance management, training and performance appraisal directed toward ensuring play a more significant role. Whereas performance appraisal occurs at a specific time, perform- that organizational ance management is a dynamic, ongoing, continuous process. Every person in the organization processes are in place to maximize the productivity is a part of the PM system. Each part of the system, such as training, appraisal, and rewards, is of employees, teams, and integrated and linked for the purpose of continuous organizational effectiveness. With PM, the ultimately, the organization. effort of each and every worker should be directed toward achieving strategic goals. If a worker’s skills need to be improved, training is needed. With PM systems, training has a direct tie-in to achieving organizational effectiveness. In addition, pay and performance are directly related to achieving organizational goals. performance appraisal Robert J. Greene, CEO of Reward Systems Inc., said, “Performance management is the (PA) single largest contributor to organizational effectiveness. If you ignore performance management, Formal system of review you fail.”4 Organizations must take a more strategic approach to performance appraisal. Instead of and evaluation of individual using the familiar “check the box, write a comment” ritual, organizations need to integrate the or team task performance. company’s mission, vision, and values into their performance management systems. OBJECTIVE 8.2 Performance Appraisal Define performance Performance appraisal (PA) is a formal system of review and evaluation of individual or team appraisal and identify the uses of performance task performance. A critical point in the definition is the word formal, because in actuality, man- appraisal. agers should be reviewing an individual’s performance on a continuing basis.5 PA is especially critical to the success of performance management. Although performance appraisal is but one component of performance management, it is vital, in that it directly reflects 236 M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 237 CHAPTER 8 PERFORMANCE MANAGEMENT AND APPRAISAL 237 the organization’s strategic plan. Although evaluation of team performance is critical when teams exist in an organization, the focus of PA in most firms remains on the individual employee. Regardless of the emphasis, an effective appraisal system evaluates accomplishments and initiates plans for development, goals, and objectives. HR Web Wisdom Performance appraisal is often a negative, disliked activity and one that seems to elude mastery.6 Managers do not like giving them and employees do not like receiving them.7 In Performance fact, in one survey, almost 80 percent of workers stated dissatisfaction with their PA process.8 If Management this is so, why not just eliminate it? Actually, some managers might do just that if they did not http://www.opm.gov/ need to provide feedback, encourage performance improvement, make valid decisions, justify perform/overview.asp terminations, identify training and development needs, and defend personnel decisions.9 Office of Personnel Performance appraisal serves many purposes, and improved results and efficiency are increas- Management Web site ingly critical in today’s globally competitive marketplace. Therefore, abandoning the only on performance program with performance in its name and employees as its focus would seem to be an ill- management. advised overreaction. On top of these considerations, managers must be concerned about legal ramifications. Developing an effective performance appraisal system has been and will continue to be a high priority for management. Uses of Performance Appraisal For many organizations, the primary goal of an appraisal system is to improve individual and organizational performance. There may be other goals, however. A potential problem with PA, and a possible cause of much dissatisfaction, is expecting too much from one appraisal plan. For example, a plan that is effective for developing employees may not be the best for determining pay increases. Yet, a properly designed system can help achieve organizational objectives and enhance employee performance. In fact, PA data are potentially valuable for virtually every human resource functional area. Human Resource Planning In assessing a firm’s human resources, data must be available to identify those who have the potential to be promoted or for any area of internal employee relations. Through performance appraisal it may be discovered that there is an insufficient number of workers who are prepared to enter management. Plans can then be made for greater emphasis on management develop- ment. Succession planning (discussed previously in Chapter 4) is a key concern for all firms. A well-designed appraisal system provides a profile of the organization’s human resource strengths and weaknesses to support this effort. Recruitment and Selection Performance evaluation ratings may be helpful in predicting the performance of job applicants. For example, it may be determined that a firm’s successful employees (identified through performance evaluations) exhibit certain behaviors when performing key tasks. These data may then provide benchmarks for evaluating applicant responses obtained through behavioral inter- views, discussed in Chapter 6. Also, in validating selection tests, employee ratings may be used as the variable against which test scores are compared. In this instance, determination of the selection test’s validity would depend on the accuracy of appraisal results. Training and Development Performance appraisal should point out an employee’s specific needs for training and develop- ment. For instance, if Pat Compton’s job requires skill in technical writing and her evaluation reveals a deficiency in this factor, she may need additional training in written communication. If a firm finds that a number of first-line supervisors are having difficulty in administering disci- plinary action, training sessions addressing this problem may be appropriate. By identifying deficiencies that adversely affect performance, T&D programs can be developed that permit individuals to build on their strengths and minimize their deficiencies. An appraisal system does not guarantee properly trained and developed employees. However, determining T&D needs is more precise when appraisal data are available. M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 238 238 PART 4 HUMAN RESOURCE DEVELOPMENT Career Planning and Development As discussed in the appendix to Chapter 7, career planning is an ongoing process whereby an individual sets career goals and identifies the means to achieve them. On the other hand, career development is a formal approach used by the organization to ensure that people with the proper qualifications and experiences are available when needed. Performance appraisal data is essential in assessing an employee’s strengths and weaknesses and in determining the person’s potential. Managers may use such information to counsel subordinates and assist them in devel- oping and implementing their career plans. Compensation Programs Performance appraisal results provide a basis for rational decisions regarding pay adjustments. Most managers believe that you should reward outstanding job performance tangibly with pay increases. They believe that the behaviors you reward are the behaviors you get. Rewarding behaviors necessary for accomplishing organizational objectives is at the heart of a firm’s strategic plan. To encourage good performance, a firm should design and implement a reliable performance appraisal system and then reward the most productive workers and teams accordingly. Internal Employee Relations Performance appraisal data are also used for decisions in several areas of internal employee relations, including promotion, demotion, termination, layoff, and transfer. For example, an employee’s performance in one job may be useful in determining his or her ability to perform another job on the same level, as is required in the consideration of transfers. When the perform- ance level is unacceptable, demotion or even termination may be appropriate. Assessment of Employee Potential Some organizations attempt to assess an employee’s potential as they appraise his or her job performance. Although past behaviors may be a good predictor of future behaviors in some jobs, an employee’s past performance may not accurately indicate future performance in other jobs. The best salesperson in the company may not have what it takes to become a successful district sales manager, where the tasks are distinctly different. Similarly, the best systems analyst may, if promoted, be a disaster as an information technology manager. Overemphasizing technical skills and ignoring other equally important skills is a common error in promoting employees into management jobs. Recognition of this problem has led some firms to separate the appraisal of performance, which focuses on past behavior, from the assessment of potential, which is future-oriented. OBJECTIVE 8.3 Performance Appraisal Environmental Factors Discuss the performance External and internal environmental factors can influence the appraisal process. For example, appraisal environmental factors. legislation requires that appraisal systems be nondiscriminatory. In the case of Mistretta v Sandia Corporation (a subsidiary of Western Electric Company, Inc.), a federal district court judge ruled against the company, stating, “There is sufficient circumstantial evidence to indicate that age bias and age based policies appear throughout the performance rating process to the detriment of the protected age group.” The Albemarle Paper v Moody case also supported validation requirements for performance appraisals, as well as for selection tests. Organizations should avoid using any appraisal method that results in a disproportionately negative impact on a protected group. The labor union is another external factor that might affect a firm’s appraisal process. Unions have traditionally stressed seniority as the basis for promotions and pay increases. They may vigorously oppose the use of a management-designed performance appraisal system used for these purposes. Factors within the internal environment can also affect the performance appraisal process. For instance, a firm’s corporate culture can assist or hinder the process. Today’s dynamic organizations, which increasingly use teams to perform jobs, recognize overall team results as M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 239 CHAPTER 8 PERFORMANCE MANAGEMENT AND APPRAISAL 239 T R E N D S & I N N O VAT I O N S Integrating Learning and Performance Management C ompanies are now integrating learning and performance mana- assess how they are doing. When the next appraisal date arrives, the manager and the employee have a clear record of gement into a total system. Mike the employee’s development activities.12 DeVries, vice president of human Historically, HR has struggled with describing to upper resources at Cummins Mid-South management the value of training. David Karel, vice president LLC, said, “We didn’t have a good of product marketing for SuccessFactors, a learning and system on goals [and] development performance management systems provider in San Mateo, plans, tracking progress throughout California, said, “In the old world, the learning organization the year. More time was spent was tracking the number of people trained. Now, learning administering [appraisals] than can tie what they are doing to productivity. They can show looking at effectiveness. In addi- much more directly how they are impacting the company.” tion, the company did not have Jon Ciampi, vice president of product management for defined learning offerings for all SumTotal, said, “Employees will leave if they don’t see a employees.”10 career path. By identifying skills gaps and a path to get there, The company looked for automated solutions to you can let employees actively manage their own careers.” In accommodate its 550 employees. Today, DeVries’ world is addition, time spent on the appraisal has been significantly much different. He says, “Now, individual goals are aligned reduces. DeVries said, “Appraisals are more consistent, with corporate goals. We can calculate the effectiveness of there’s more content, and employees know what they are [employees’] reviews and goals, and the system identifies being assessed on.”13 training needs.” More companies are integrating their These systems can also assist in staffing. With an integrated learning and performance functions as technology makes it system, managers can easily view up-to-date information on easier and more affordable.11 employees’ skills. Tamar Elkeles, Qualcomm’s vice president of There has been a need for integrating learning and learning and organizational development, said, “Without a lot performance for years but technology had not caught up to of hiring, you need to find ways to utilize talent differently.” the need. There were learning management systems and For example, if 30 new multimedia engineers are needed, and performance management systems but they did not work the system can identify 15 current employees with the neces- together as a total system. Now they have converged. Most sary skill sets, then only 15 have to be hired.14 integrated systems use a competency model where com- Those who have lived with the new systems have no petencies or skills are first identified for each job and the desire to go back to the old way. DeVries said, “Without a competencies provide the basis for performance appraisal. system like this, it’s hard for a manager to understand how to Managers rate the performance of each employee and look do a development plan and follow through on it, to identify for differences between individual ratings and desired ratings. skills gaps and track those. If you’re trying to keep up with An employee development plan is formulated based on the improving performance without a system like this, I don’t see gaps. Employees can go to the system to review the plan and how you can get there.”15 well as individual contributions. A nontrusting culture does not provide the environment needed to encourage high performance by either individuals or teams. In such an atmosphere, the credi- bility of an appraisal system will suffer regardless of its merits. OBJECTIVE 8.4 Performance Appraisal Process Describe the performance As shown in Figure 8.1, the starting point for the PA process is identifying specific performance appraisal process. goals. An appraisal system probably cannot effectively serve every desired purpose, so management should select the specific goals it believes to be most important and realistically achievable. For example, some firms may want to stress employee development, whereas other organizations may want to focus on pay adjustments. Too many PA systems fail because management expects too much from one method and does not determine specifically what it wants the system to accomplish. M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 240 240 PART 4 HUMAN RESOURCE DEVELOPMENT Figure 8.1 Identify Specific Performance Performance Appraisal Process Appraisal Goals Establish Performance Criteria and Communicate Them to Employees Examine Work Performed Appraise Performance Discuss Appraisal with Employee The next step in this ongoing cycle continues with establishing performance criteria (standards) and communicating these performance expectations to those concerned. Then the work is performed and the supervisor appraises the performance. At the end of the appraisal period, the appraiser and the employee together review work performance and evaluate it against established performance standards. This review helps determine how well employees have met these standards, determines reasons for deficiencies, and develops a plan to correct the problems. At this meeting, goals are set for the next evaluation period, and the cycle repeats. OBJECTIVE 8.5 Establish Performance Criteria (Standards) Identify the various There is an old adage that says “What gets watched gets done.” Therefore, management must performance criteria (standards) that can be carefully select performance criteria as it pertains to achieving corporate goals.16 The most established. common appraisal criteria are traits, behaviors, competencies, goal achievement, and improve- ment potential. Traits Certain employee traits such as attitude, appearance, and initiative are the basis for some evaluations. However, many of these commonly used qualities are subjective and may be either unrelated to job performance or difficult to define. In such cases, inaccurate evaluations may occur and create legal problems for the organization as well. This was the case in Wade v Mississippi Cooperative Extension Service where the circuit court ruled: In a performance appraisal system, general characteristics such as leadership, public acceptance, attitude toward people, appearance and grooming, personal conduct, outlook on life, ethical habits, resourcefulness, capacity for growth, mental alertness, and loyalty to organization are susceptible to partiality and to the personal taste, whim, or fancy of the evaluator as well as patently subjective in form and obviously susceptible to completely subjective treatment by those conducting the appraisals. At the same time, certain traits may relate to job performance and, if this connection is established, using them may be appropriate. Traits such as adaptability, judgment, appearance, and attitude may be used when shown to be job-related. M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 241 CHAPTER 8 PERFORMANCE MANAGEMENT AND APPRAISAL 241 Behaviors When an individual’s task outcome is difficult to determine, organizations may evaluate the person’s task-related behavior or competencies. For example, an appropriate behavior to evaluate for a manager might be leadership style. For individuals working in teams, developing others, teamwork and cooperation, or customer service orientation might be appropriate. Desired behaviors may be appropriate as evaluation criteria because if they are recognized and rewarded, employees tend to repeat them. If certain behaviors result in desired outcomes, there is merit in using them in the evaluation process. Competencies competencies Competencies include a broad range of knowledge, skills, traits, and behaviors that may be Broad range of knowledge, technical in nature, relate to interpersonal skills, or are business-oriented. skills, traits, and behaviors Some managers recommend that cultural competencies such as ethics and integrity be used that may be technical for all jobs. There are also competencies that are job-specific. For example, analytical thinking in nature, relate to and achievement orientation might be essential in professional jobs. In leadership jobs, relevant interpersonal skills, or are competencies might include developing talent, delegating authority, and people management business-oriented. skills. The competencies selected for evaluation purposes should be those that are closely associ- ated with job success. Research conducted by the University of Michigan Business School and sponsored by the Society for Human Resource Management (SHRM) and the Global Consulting Alliance determined that success in HR is dependent on competency and specific skills in the following five key areas: 䊉 Strategic contribution: Connecting firms to their markets and quickly aligning employee behaviors with organizational needs. 䊉 Business knowledge: Knowing how businesses are run and translating this into action. 䊉 Personal credibility: Demonstrating measurable value; being part of an executive team. 䊉 HR delivery: Providing efficient and effective service to customers in the areas of staffing, performance management, development, and evaluation. 䊉 HR technology: Using technology and Web-based means to deliver value to customers.17 Goal Achievement If organizations consider ends more important than means, goal achievement outcomes become an appropriate factor to evaluate. The outcomes established should be within the control of the individual or team and should be those results that lead to the firm’s success. At upper levels, the goals might deal with financial aspects of the firm such as profit or cash flow, and market consid- erations such as market share or position in the market. At lower organizational levels, the outcomes might be meeting the customer’s quality requirements and delivering according to the promised schedule. To assist the process, the manager needs to provide specific examples of how the employee can further his or her development and achieve specific goals. Both parties should reach an agreement as to the employee’s goals for the next evaluation period and the assistance and resources the manager needs to provide. This aspect of employee appraisal should be the most positive element in the entire process and help the employee focus on behavior that will produce positive results for all concerned. Improvement Potential When organizations evaluate their employees’ performance, many of the criteria used focus on the past. From a performance management viewpoint, the problem is that you cannot change the past. Unless a firm takes further steps, the evaluation data become merely historical documents. Therefore, firms should emphasize the future, including the behaviors and outcomes needed to develop the employee, and, in the process, achieve the firm’s goals. This involves an assessment of the employee’s potential. Including potential in the evaluation process helps to ensure more effective career planning and development. You should remember that the evaluation criteria presented here are not mutually exclusive. In fact, many appraisal systems are hybrids of these approaches. M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 242 242 PART 4 HUMAN RESOURCE DEVELOPMENT OBJECTIVE 8.6 Responsibility for Appraisal Identify who may be Often the human resource department is responsible for coordinating the design and imple- responsible for mentation of performance appraisal programs. However, it is essential that line managers play a performance appraisal and the performance key role from beginning to end. These individuals usually conduct the appraisals, and they must period. directly participate in the program if it is to succeed. Several possibilities exist with regard to the person who will actually rate the employee. Immediate Supervisor An employee’s immediate supervisor has traditionally been the most logical choice for eva- luating performance and this continues to be the case. The supervisor is usually in an excellent position to observe the employee’s job performance and the supervisor has the responsibility for managing a particular unit. When someone else has the task of evaluating subordinates, the supervisor’s authority may be undermined. Also, subordinate training and development is an important element in every manager’s job and, as previously mentioned, appraisal programs and employee development are usually closely related. On the negative side, the immediate supervisor may emphasize certain aspects of employee performance and neglect others. Also, managers have been known to manipulate evaluations to justify pay increases and promotions and vice versa. When geography separates subordinates from their supervisors, evaluation becomes increasingly difficult. In other cases, the appraised employee may be more technically knowledgeable than the boss, and this presents another potential problem. One suggestion for overcoming these disadvantages is to bring subordinates into the process more closely. Have them suggest ways to fairly evaluate their performance and then use their suggestions as part of the appraisal criteria. In most instances, the immediate supervisor will probably continue to be involved in evaluating performance. Organizations will seek alternatives, however, because of technological advances and a desire to broaden the perspective of the appraisal. Subordinates Historically, our culture has viewed evaluation by subordinates negatively. However, this think- ing has changed somewhat. Some firms conclude that evaluation of managers by subordinates is both feasible and needed. They reason that subordinates are in an excellent position to view their superiors’ managerial effectiveness. Advocates believe that this approach leads supervisors to become especially conscious of the work group’s needs and to do a better job of managing. In the higher education environment, it is a common practice for instructors to be evaluated by students. Critics are concerned that the manager (and instructors) will be caught up in a popu- larity contest or that employees will be fearful of reprisal. If this approach has a chance for success, one thing is clear: the evaluators must be guaranteed anonymity. Ensuring this might be particularly difficult in a small department and especially if demographic data on the appraisal form could identify raters. Peers and Team Members A major strength of using peers to appraise performance is that they work closely with the evaluated employee and probably have an undistorted perspective on typical performance, especially in team assignments. Organizations are increasingly using teams, including those that are self-directed. The rationale for evaluations conducted by team members includes the following: 䊉 Team members know each others’ performance better than anyone and can, therefore, evaluate performance more accurately. 䊉 Peer pressure is a powerful motivator for team members. 䊉 Members who recognize that peers within the team will be evaluating their work show increased commitment and productivity. 䊉 Peer review involves numerous opinions and is not dependent on one individual. Problems with peer evaluations include the reluctance of some people who work closely together, especially on teams, to criticize each other. On the other hand, if an employee has been M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 243 CHAPTER 8 PERFORMANCE MANAGEMENT AND APPRAISAL 243 at odds with another worker he or she might really “unload on the enemy,” resulting in an unfair evaluation. Another problem concerns peers who interact infrequently and lack the information needed to make an accurate assessment. When employees work in teams, and their appraisal system focuses entirely on individual results, it is not surprising that they show little interest in their teams. But, this problem can be corrected. If teamwork is essential, make it a criterion for evaluating employees; rewarding collaboration will encourage teamwork. Self-Appraisal If employees understand their objectives and the criteria used for evaluation, they are in a good position to appraise their own performance. Many people know what they do well on the job and what they need to improve. If they have the opportunity, they will criticize their own perform- ance objectively and take action to improve it. Paul Falcone, vice-president of HR at Nickelodeon, said, “The fascinating thing is that employees are usually tougher on themselves than you will ever be.”18 Also, because employee development is self-development, employees who appraise their own performance may become more highly motivated. Self-appraisal provides employees with a means of keeping the supervisor informed about everything the worker has done during the appraisal period.19 Even if a self-appraisal is not a part of the system, the employee should at least provide the manager a list of his or her most important accomplishments and contributions over the appraisal period. This will prevent the manager from being blindsided when the employee complains, perhaps justifiably, “You didn’t even mention the Bandy contract I landed last December!” As a complement to other approaches, self-appraisal has great appeal to managers who are primarily concerned with employee participation and development. For compensation purposes, however, its value is considerably less. Some individuals are masters at attributing good performance to their own efforts and poor performance to someone else’s. Customer Appraisal Customer behavior determines a firm’s degree of success. Therefore, some organizations believe it is important to obtain performance input from this critical source. Organizations use this approach because it demonstrates a commitment to the customer, holds employees accountable, and fosters change. Customer-related goals for executives generally are of a broad, strategic nature, whereas targets for lower-level employees tend to be more specific. For example, an objective might be to improve the rating for accurate delivery or reduce the number of dissatis- fied customers by half. It is important to have employees participate in setting their goals and to include only factors that are within the employees’ control. Appraisal Period Formal performance evaluations are usually prepared at specific intervals. Although there is nothing magical about the period for formal appraisal reviews, in most organizations they occur either annually or semiannually. Even more significant, however, is the continuous interaction (primarily informal), including coaching and other developmental activities, that continues throughout the appraisal period. Managers should be conditioned to understand that managing performance is a continuous process that is built into their job every day. In the current business climate, it may be well for all firms to consider monitoring perform- ance more often. Southwest Airlines has asked its managers to have monthly check-ins with staff rather than semi-annual ones.20 One study found that 63 percent of high-growth companies review performance more than once a year; in comparison, just 22 percent of low-growth com- panies review performance more than once a year.21 Changes occur so fast that employees need to look at objectives and their own roles throughout the year to see whether changes are in order. In high-tech organizations, the speed of change mandates that a performance period be shorter, perhaps every three or four months. Some organizations use the employee’s date of hire to determine the rating period. At times a subordinate’s first appraisal may occur at the end of a probationary period, anywhere from M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 244 244 PART 4 HUMAN RESOURCE DEVELOPMENT 30 to 90 days after his or her start date. However, in the interest of consistency, it may be advisable to perform evaluations on a calendar basis rather than on anniversaries. If firms do not conduct all appraisals at the same time, it may be impossible to make needed comparisons between employees. OBJECTIVE 8.7 Performance Appraisal Methods Identify the various Managers may choose from among a number of appraisal methods. The type of performance performance appraisal appraisal system used depends on its purpose. If the major emphasis is on selecting people for methods. promotion, training, and merit pay increases, a traditional method, such as rating scales, may be appropriate. Collaborative methods, including input from the employees themselves, may prove to be more suitable for developing employees. 360-degree feedback 360-Degree Feedback Evaluation Method evaluation method The 360-degree feedback evaluation method is a popular performance appraisal method that Popular performance involves evaluation input from multiple levels within the firm as well as external sources. appraisal method that The 360-degree method is unlike traditional performance reviews, which provide employ- involves evaluation input ees with feedback only from supervisors.22 In this method, people all around the rated from multiple levels within the firm as well as external employee may provide ratings, including senior managers, the employee himself or herself, sources. supervisors, subordinates, peers, team members, and internal or external customers.23 As many as 90 percent of Fortune 500 companies use some form of 360-degree feedback for either employee evaluation or development.24 Many companies use results from 360-degree programs not only for conventional applications but also for succession planning, training, and professional development. Unlike traditional approaches, 360-degree feedback focuses on skills needed across HR Web Wisdom organizational boundaries. Also, by shifting the responsibility for evaluation to more than one person, many of the common appraisal errors can be reduced or eliminated. Software is available 360 Degree Evaluation to permit managers to give the ratings quickly and conveniently. The 360-degree feedback http://www. method may provide a more objective measure of a person’s performance. Including the custominsight.com/ perspective of multiple sources results in a broader view of the employee’s performance and 360-degree-feedback/ may minimize biases that result from limited views of behavior. 360-delivering- Having multiple raters also makes the process more legally defensible. However, it is feedback.asp important for all parties to know the evaluation criteria, the methods for gathering and sum- Delivering feedback. marizing the feedback, and the use to which the feedback will be put. An appraisal system involving numerous evaluators will naturally take more time and, therefore, be more costly. Nevertheless, the way firms are being organized and managed may require innovative alter- natives to traditional top-down appraisals. According to some managers, the 360-degree feedback method has problems. Ilene Gochman, director of Watson Wyatt’s organization effectiveness practice, says, “We’ve found that use of the 360 is actually negatively correlated with financial results.”25 GE’s former CEO Jack Welch maintains that the 360-degree system in his firm had been “gamed” and that people were saying nice things about one another, resulting in all good ratings.26 Another critical view with an opposite twist is that input from peers, who may be competitors for raises and pro- motions, might intentionally distort the data and sabotage the colleague. Yet, since so many firms use 360-degree feedback evaluation, it seems that many firms have found ways to avoid the pitfalls. Google has a different approach to 360-degree feedback as it provides managers and employees to nominate ‘peer reviewers’ from anywhere across the organization. According to the company’s manager of HR technology and operations, Melissa Karp, “People are fairly candid in their feedback.”27 One might ask, what happens at Google when people write uncon- structive comments? Karp said, “managers are encouraged to use that as a ‘coachable moment’ to talk to the person who wrote something unconstructive. However, at Google this hasn’t been too much of a problem.”28 The biggest risk with 360-degree feedback is confidentiality. Many firms outsource the process to make participants feel comfortable that the information they share and receive is M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 245 CHAPTER 8 PERFORMANCE MANAGEMENT AND APPRAISAL 245 completely anonymous, but the information is very sensitive and, in the wrong hands, could impact careers. Rating Scales Method rating scales method The rating scales method is a performance appraisal method that rates employees according to Performance appraisal defined factors. method that rates Using this approach, evaluators record their judgments about performance on a scale. The employees according to scale includes several categories, normally 5–7 in number, defined by adjectives such as defined factors. outstanding, meets expectations, or needs improvement. Although systems often provide an overall rating, the method generally allows for the use of more than one performance criterion. One reason for the popularity of the rating scales method is its simplicity, which permits quick evaluations of many employees. When you quantify the ratings, the method facilitates compari- son of employees’ performances. The factors chosen for evaluation are typically of two types: job-related and personal characteristics. Note that in Figure 8.2, job-related factors include quality and quantity of work, Figure 8.2 Rating Scales Method of Performance Name Job Title Appraisal Supervisor/Manager Department Appraisal Period: From To Evaluate the performance in each of the following factors on a scale of 1 to 5: 5 = Outstanding, consistently exceeds expectations for this factor. 4 = Above Expectations, consistently meets and occasionally exceeds expectations. 3 = Meets Expectations, consistently meets expectations. 2 = Below Expectations, occasionally fails to meet expectations. 1 = Needs Improvement, consistently fails to meet expectations. Part 1—Task Outcomes (Weighted 80% of total score) List mutually agreed-to performance factors from the job description Points and goals established from the preview performance review. Quality of work Quantity of work Total Points Average Score (Divide total points by number of factors used) Multiplied by 16 = Comments Part 2—Personal Behaviors (10% of total score) Leadership Interpersonal skills Developing others Customer service Teamwork Total Points Average Score (Divide total points by number of applicable factors) Multiplied by 2 = Comments M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 246 246 PART 4 HUMAN RESOURCE DEVELOPMENT Figure 8.2 Continued Part 3—Personal Traits (10% of total score) Adaptability Judgment Appearance Attitude Initiative Total Points Average Score (Divide total points by 5) Multiplied by 2 = Comments Points from Part 1 + Part 2 + Part 3 = Total Points Performance goals for next appraisal period: Self-development activities for this employee Employee comments Evaluated By: Title Date Approved Title Date Employee’s Signature (Does not necessarily indicate agreement) Title Date whereas personal factors include such behaviors as interpersonal skills and traits, like adaptability. The rater (evaluator) completes the form by indicating the degree of each factor that is most descriptive of the employee and his or her performance. In this illustration, evalua- tors total and then average the points in each part. They then multiply this average by a factor representing the weight given to each section. The final score (total points) for the employee is the total of each section’s points. Some firms provide space for the rater to comment on the evaluation given for each factor. This practice may be especially encouraged, or even required, when the rater gives an extreme rating, either the highest or lowest. For instance, if an employee is rated needs improvement (a 1 on the sample form) on teamwork, the rater provides written justification for this low evaluation. The purpose of this requirement is to focus on correcting deficiencies and to dis- courage arbitrary and hastily made judgments. M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 247 CHAPTER 8 PERFORMANCE MANAGEMENT AND APPRAISAL 247 The more precise the definition of factors and degrees, the more accurately the rater can evaluate worker performance. For instance, in order to receive an outstanding rating for a factor such as quality of work, a person must consistently go beyond the prescribed work requirements. When the various performance levels are described merely as above expecta- tions or below expectations without further elaboration, what has the employee really learned? These generalities do not provide the guidance needed for improving performance. It is important that each rater interpret the factors and degrees in the same way. Raters acquire this ability through performance appraisal training. Many rating scale forms also provide for consideration of future behavior. Notice that the form shown as Figure 8.2 has space for performance goals for the next period and self-development activities for the next appraisal period. Critical Incident Method critical incident The critical incident method is a performance appraisal method that requires keeping written method records of highly favorable and unfavorable employee work actions. Performance appraisal When such an action, a “critical incident,” affects the department’s effectiveness signi- method that requires ficantly, either positively or negatively, the manager writes it down. At the end of the appraisal keeping written records of period, the rater uses these records along with other data to evaluate employee performance. highly favorable and With this method, the appraisal is more likely to cover the entire evaluation period and not focus unfavorable employee work actions. on the past few weeks or months. Essay Method essay method The essay method is a performance appraisal method in which the rater writes a brief narrative Performance appraisal describing the employee’s performance. method in which the rater This method tends to focus on extreme behavior in the employee’s work rather than on writes a brief narrative routine day-to-day performance. Ratings of this type depend heavily on the evaluator’s writing describing the employee’s ability. Supervisors with excellent writing skills, if so inclined, can make a marginal worker performance. sound like a top performer. Comparing essay evaluations might be difficult because no common criteria exist. However, some managers believe that the essay method is not only the most simple but also an acceptable approach to employee evaluation. Work Standards Method work standards The work standards method is a performance appraisal method that compares each employee’s method performance to a predetermined standard or expected level of output. Performance appraisal Standards reflect the normal output of an average worker operating at a normal pace. Firms method that compares each may apply work standards to virtually all types of jobs, but production jobs generally receive the employee’s performance to most attention. An obvious advantage of using standards as appraisal criteria is objectivity. a predetermined standard However, in order for employees to perceive that the standards are objective, they should under- or expected level of output. stand clearly how the standards were set. Management must also explain the rationale for any changes to the standards. Ranking Method ranking method The ranking method is a performance appraisal method in which the rater ranks all employees Performance appraisal from a group in order of overall performance. method in which the rater For example, the best employee in the group is ranked highest, and the poorest is ranked ranks all employees from a lowest. You follow this procedure until you rank all employees. A difficulty occurs when all group in order of overall individuals have performed at comparable levels (as perceived by the evaluator). performance. Paired comparison is a variation of the ranking method in which the performance of each employee is compared with that of every other employee in the group. A single criterion, such as overall performance, is often the basis for this comparison. The employee who receives the greatest number of favorable comparisons receives the highest ranking. M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 248 248 PART 4 HUMAN RESOURCE DEVELOPMENT Some professionals in the field argue for using a comparative approach, such as ranking, whenever management must make human resource decisions. They believe that employees are promoted or receive the highest pay increases not because they achieve their objectives, but rather because they achieve them better than others in their work group. Forced Distribution Method forced distribution The forced distribution method of performance appraisal requires the rater to assign individuals method in a work group to a limited number of categories, similar to a normal frequency distribution. The Performance appraisal purpose of forced distribution is to keep managers from being excessively lenient and having a method in which the rater disproportionate number of employees in the “superior” category.29 is required to assign Forced distribution systems have been around for decades and firms such as General Electric, individuals in a work group Cisco Systems, EDS, Hewlett-Packard, Microsoft, Pepsi, Caterpillar, Sun Microsystems, to a limited number of Goodyear, Ford Motor, and Capital One use them today.30 Proponents of forced distribution categories, similar to a normal frequency believe they facilitate budgeting and guard against weak managers who are too timid to get rid of distribution. poor performers. They think that forced rankings require managers to be honest with workers about how they are doing. The forced distribution systems tend to be based on three levels. In GE’s system, the best performers are placed in the top 20 percent, the next group in the middle 70 percent, and the poor- est performing group winds up in the bottom 10 percent. The underperformers are, after being given a time to improve their performance, generally let go.31 If any of the underperformers are able to improve their performance, you might wonder if any in the 70 percent group would get nervous! Although used by some prestigious firms, the forced distribution system appears to be unpopular with many managers. In a survey of HR professionals, 44 percent of respondents thought their firm’s forced ranking system damages morale and generates mistrust of leader- ship.32 Some believe it fosters cutthroat competition, paranoia, and general ill will, and destroys employee loyalty. A Midwestern banker states that his company “began a rank-and-yank system that flies directly in the face of the ‘teamwork’ that senior management says it wants to encour- age. Don’t tell me I’m supposed to put the good of the team first and then tell me the bottom 10 percent of us are going to lose our jobs because, team be damned, I’m going to make sure I’m not in that bottom 10 percent.”33 Critics of forced distribution contend that they compel managers to penalize a good, although not a great, employee who is part of a superstar team. One reason employees are opposed to forced ranking is that they suspect that the rankings are a way for companies to rationalize firings more easily. Behaviorally Anchored Rating Scale Method behaviorally anchored The behaviorally anchored rating scale (BARS) method is a performance appraisal method rating scale (BARS) that combines elements of the traditional rating scales and critical incident methods; various per- method formance levels are shown along a scale with each described in terms of an employee’s specific Performance appraisal job behavior. method that combines Table 8.1 illustrates a portion of a BARS system that was developed to evaluate college elements of the traditional recruiters. Suppose the factor chosen for evaluation is Ability to Present Positive Company rating scale and critical incident methods; various Image. On the very positive end of this factor would be “Makes excellent impression on college performance levels are recruits. Carefully explains positive aspects of the company. Listens to applicant and answers shown along a scale with questions in a very positive manner.” On the very negative end of this factor would be “Even each described in terms of with repeated instructions continues to make a poor impression. This interviewer could be an employee’s specific job expected to turn off college applicants from wanting to join the firm.” As may be noted, there behavior. are several levels in between the very negative and the very positive. The rater is able to deter- mine more objectively how frequently the employee performs in each defined level. A BARS system differs from rating scales because, instead of using terms such as high, medium, and low at each scale point, it uses behavioral anchors related to the criterion being measured. This modification clarifies the meaning of each point on the scale and reduces rater bias and error by anchoring the rating with specific behavioral examples based on job analysis information. Instead of providing a space for entering a rating figure for a category such as Above Expectations, the BARS method provides examples of such behavior. This approach M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 249 CHAPTER 8 PERFORMANCE MANAGEMENT AND APPRAISAL 249 Table 8.1 BARS for Factor: Ability to Present Positive Company Image Clearly Outstanding Performance Makes excellent impression on college recruits. Carefully explains positive aspects of the company. Listens to applicant and answers questions in a very positive manner. Excellent Performance Makes good impression on college recruits. Answers all questions and explains positive aspects of the company. Answers questions in a positive manner. Good Performance Makes a reasonable impression on college recruits. Listens to applicant and answers questions in knowledgeable manner. Average Performance Makes a fair impression on college recruits. Listens to applicant and answers most questions in a knowledgeable manner. Slightly Below Average Performance Attempts to make a good impression on college recruits. Listens to applicants but at times could be expected to have to go to other sources to get answers to questions. Poor Performance At times makes poor impression on college recruits. Sometimes provides incorrect information to applicant or goes down blind avenues before realizing mistake. Very Poor Performance Even with repeated instructions continues to make a poor impression. This interviewer could be expected to turn off college applicant from wanting to join the firm. facilitates discussion of the rating because it addresses specific behaviors, thus overcoming weaknesses in other evaluation methods. Regardless of apparent advantages of the BARS method, reports on its effectiveness are mixed. A specific deficiency is that the behaviors used are activity oriented rather than results oriented. Also, the method may not be economically feasible since each job category requires its own BARS. Yet, among the various appraisal techniques, the BARS method is perhaps the most highly defensible in court because it is based results-based system on actual observable job behaviors. Performance appraisal method in which the Results-Based System manager and subordinate jointly agree on objectives The manager and subordinate jointly agree on objectives for the next appraisal period in a for the next appraisal results-based system, in the past a form of management by objectives. period; in the past a form In such a system, one objective might be, for example, to cut waste by 10 percent. At of management by the end of the appraisal period, an evaluation focuses on how well the employee achieved this objectives. objective. OBJECTIVE 8.8 Problems in Performance Appraisal List the problems that As indicated at the beginning of this chapter, performance appraisal is constantly under a bar- have been associated with rage of criticism. The rating scales method seems to be the most vulnerable target. Yet, in all performance appraisal. fairness, many of the problems commonly mentioned are not inherent in this method but, rather, reflect improper implementation. For example, firms may fail to provide adequate rater training or they may use appraisal criteria that are too subjective and lack job-relatedness. The following section highlights some of the more common problem areas. Appraiser Discomfort Conducting performance appraisals is often a frustrating human resource management task. One management guru, Edward Lawler, noted the considerable documentation showing that performance appraisal systems neither motivate individuals nor effectively guide their M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 250 250 PART 4 HUMAN RESOURCE DEVELOPMENT development. Instead, he maintains, they create conflict between supervisors and sub- ordinates and lead to dysfunctional behaviors.34 This caveat is important. If a performance appraisal system has a faulty design, or improper administration, employees will dread receiving appraisals and the managers will despise giving them. In fact, some managers have HR Web Wisdom always loathed the time, paperwork, difficult choices, and discomfort that often accompanies the appraisal process. Going through the procedure cuts into a manager’s high-priority work- Appraisal News load and the experience can be especially unpleasant when the employee in question has not http://www. performed well. performance-appraisal. com/home.htm Lack of Objectivity Performance appraisal news and general PA A potential weakness of traditional performance appraisal methods is that they lack objec- information is provided. tivity. In the rating scales method, for example, commonly used factors such as attitude, appearance, and personality are difficult to measure. In addition, these factors may have little to do with an employee’s job performance. Although subjectivity will always exist in appraisal methods, employee appraisal based primarily on personal characteristics may place the evaluator and the company in untenable positions with the employee and equal emp- loyment opportunity guidelines. The firm may be hard-pressed to show that these factors are job-related. Halo/Horn halo error A halo error occurs when a manager generalizes one positive performance feature or incident to Evaluation error that occurs all aspects of employee performance, resulting in a higher rating.35 when a manager For example, Rodney Pirkle, accounting supervisor, placed a high value on neatness, a generalizes one positive factor used in the company’s performance appraisal system. As Rodney was evaluating the performance feature or performance of his senior accounting clerk, Jack Hicks, he noted that Jack was a very neat incident to all aspects of individual and gave him a high ranking on this factor. Also, consciously or unconsciously, employee performance, Rodney permitted the high ranking on neatness to carry over to other factors, giving Jack unde- resulting in a higher rating. served high ratings on all factors. Of course, if Jack had not been neat, the opposite could have horn error occurred. This phenomenon is known as the horn error, an evaluation error that occurs when a Evaluation error that occurs manager generalizes one negative performance feature or incident to all aspects of employee when a manager performance, resulting in a lower rating. generalizes one negative performance feature or incident to all aspects of Leniency/Strictness employee performance, Some managers are too generous with praise or too hard on a person. Dick Grote, a perform- resulting in a lower rating. ance management expert and president of Grote Consulting Corporation, a management con- sulting firm in Dallas, said, “It is not OK to have performance rated differently from manager to manager because these decisions impact compensation, development and succession planning.”36 leniency Giving undeserved high ratings to an employee is referred to as leniency. This behavior is Giving an undeserved high often motivated by a desire to avoid controversy over the appraisal. It is most prevalent when performance appraisal highly subjective (and difficult to defend) performance criteria are used, and the rater is rating to an employee. required to discuss evaluation results with employees. When managers know they are evaluat- ing employees for administrative purposes, such as pay increases, they are likely to be more lenient than when evaluating performance to achieve employee development. Leniency, how- ever, may result in failure to recognize correctable deficiencies. The practice may also deplete the merit budget and reduce the rewards available for superior employees. In addition, an organization will find it difficult to terminate poor-performing employees who continuously receive positive evaluations. strictness Being unduly critical of an employee’s work performance is referred to as strictness. Being unduly critical of an Although leniency is usually more prevalent than strictness, some managers, on their own initi- employee’s work ative, apply an evaluation more rigorously than the company standard. This behavior may be due performance. to a lack of understanding of various evaluation factors. The worst situation is when a firm has both lenient and strict managers and does nothing to level the inequities. Here, the weak M08_MOND2998_12_PIE_C08.QXD 1/19/11 11:37 PM Page 251 CHAPTER 8 PERFORMANCE MANAGEMENT AND APPRAISAL 251 performers get relatively high pay increases and promotions from a lenient boss, whereas the strict manager shortchanges the stronger employees. This can have a demoralizing effect on the morale and motivation of the top-performing people. Central Tendency central tendency error Central tendency error is an evaluation appraisal error that occurs when employees are Evaluation appraisal error incorrectly rated near the average or middle of a scale. This practice may be encouraged that occurs when by some rating scale systems that require the evaluator to justify in writing extremely high or employees are incorrectly extremely low ratings. With such a system, the rater may avoid possible controversy or rated near the average or criticism by giving only average ratings. However, since these ratings tend to cluster in middle of a scale. the fully satisfactory range, employees do not often complain. Nevertheless, this error does exist and it influences the accuracy of evaluations. Typically, when pay raises are given, they will be based on an employee’s performance. When a manager gives an underachiever or overachiever, an average rating, it undermines the compensation system.37 Recent Behavior Bias Anyone who has observed the behavior of young children several weeks before Christmas can readily identify with the problem of recent behavior bias. Suddenly, the wildest kids in the nei