Appraising Employee Job Performance

Chapter 8

• Understand how effective performance appraisal systems enhance competitive advantage.

• Specify the standards an effective performance appraisal must meet.

• Describe the different types of appraisal rating instruments.• Explain how a firm should develop its performance appraisal

system.

Chapter 1 Objectives

What is Performance Appraisal?

Performance Appraisal: • Evaluating an employee’s current and/or past

performance relative to his or her performance standards.

• The identification, measurement, and management of human performance in organizations.

Performance Management:• The process employers use to make sure

employees are working toward organizational goals.

Linking Performance Appraisal to Competitive Advantage

• Performance appraisals should accurately assess the quality of employee job performance.

• Job performance can be improved in two ways:– Directing employee behavior towards organizational

goals.– Monitoring behavior to ensure that goals are met.

Linking Performance Appraisal to Competitive Advantage

Performance Appraisals Can Help Assess the Quality of Employee Performance

Standards for Effective Performance Appraisal Systems

Standards for Effective Performance Appraisal Systems

• The quality of the rating form:– Relevance:

• The degree to which the rating form includes necessary information:

– Criterion deficiency: Omission of pertinent performance criteria.

– Criterion contamination: Inclusion of irrelevant criteria on the rating form.

Standards for Effective Performance Appraisal Systems

• The quality of the rating form (cont.):– Clear performance

standards:• Indicate the level of

performance an employee is expected to achieve.

• Help direct employee behavior.

• Help supervisors provide more accurate ratings.

Standards for Effective Performance Appraisal Systems

• Accuracy of the ratings:– Accurate ratings reflect the

employees’ actual job performance levels.

– Inaccuracy is most often attributable to the presence of rater errors.

Standards for Effective Performance Appraisal Systems

• Some of the common rater errors:• Leniency error: Raters provide ratings that are

unduly high.• Severity error: Ratings are unduly low.• Causes of leniency and severity errors:

• Political reasons• Raters’ lack of conscientiousness• Personal bias

Standards for Effective Performance Appraisal Systems

• Some of the common rater errors (cont.):• Central tendency error: Appraisers purposely avoid

giving extreme ratings even when such ratings are warranted.

• Causes of central tendency error:• Administrative procedures.• End points of the rating scale are unrealistically defined.

Standards for Effective Performance Appraisal Systems

• Some of the common rater errors (cont.):• Halo effect:

– Appraiser’s overall impression of an employee is based on a particular characteristic.

– Acts as a barrier to accurate appraisals.– Caused due to vague rating standards and failure to

conscientiously complete the rating form.

Standards for Effective Performance Appraisal Systems

• Some of the common rater errors (cont.):• The rater’s use of implicit personality theory

– Implicit personality theory: Rater’s estimation based on a personal “theory” of how different types of people behave in certain situations.

– Using this theory, organizations are unable to identify employees’ specific strengths and weaknesses.

Standards for Effective Performance Appraisal Systems

• Some of the common rater errors (cont.):• Recency error

– Is a consequence of memory decay. – Ratings are heavily influenced by recent events that are more

easily remembered.– Ratings that unduly reflect recent events can present a false

picture of the individual’s job performance during the entire rating period.

Standards for Effective Performance Appraisal Systems

• Legal standards– Appraisal systems must meet all the criteria

imposed by EEO laws.– Specifically, a court would examine the:

• Nature of the appraisal instrument.• Fairness and accuracy of the ratings.

Types of Rating Instruments

Types of Rating Instruments

• Employee comparison systems:– Employee performance is evaluated relative to other employees’

performances.– Uses rankings rather than ratings.– Ranking formats:

• Simple rankings: Require raters to rank-order their employees from best to worst, according to their job performance.

• Paired comparison: A rater compares each possible pair of employees.

• Forced distribution: Requires a rater to assign a certain percentage of employees to each category of excellence such as “best,” “average,” or “worst.”

Types of Rating Instruments

• Employee comparison systems:

• Strengths• Low cost and practical.• Take very little time and

effort.• Eliminates some rating

errors.• Employment decisions

become much easier to make.

• Weaknesses• Disrupts teamwork.• Accuracy and fairness

questioned.• Fails to adequately direct

employee behavior.• Performance of people

from different departments cannot be compared.

Types of Rating Instruments

• Graphic rating scales:– Presents appraisers with a list of traits assumed to

be necessary to successful job performance.– A five- or seven-point rating scale accompanies

each trait.– Points on the scale are defined by numbers and/or

descriptive words or phrases that indicate level of performance.

Types of Rating Instruments

• Strengths• Practical.• Low cost.• Can be developed quickly.• A single form is applicable to

all or most jobs within an organization.

• Weaknesses• Vaguely defined traits to

evaluate (e.g. demeanor or attitude)

• Does not effectively direct behavior.

• Fails to provide specific, nonthreatening feedback.

• Accurate ratings are not likely to be achieved.

• Can lead to a multitude of rating errors.

• Occurrence of bias.

Graphic rating scales:

Types of Rating Instruments

• Behaviorally anchored rating scales (BARS):

• Strengths• Ability to direct and

monitor behavior.

• Weaknesses• Difficult to select one

behavior that is most indicative of the employee’s performance.

• Time consuming to develop.

• Requires a lot of effort to develop.

Types of Rating Instruments

• Behavior observation scales (BOS):• Contains a list of desired behaviors required for the successful performance of specific jobs.• Developed like BARS, where critical incidents are collected and categorized into dimensions.• An appraiser rates job performance by indicating the frequency with which the employee engages in each behavior.• A five-point scale is used ranging from “almost never” (1) to “almost always” (5).

Types of Rating Instruments

• Behavior observation scales (BOS):

• Strengths• Is more legally defensible

than BARS or graphic rating scales.

• Effective in directing employees’ behavior.

• Used to monitor behavior and give specific feedback.

• Weaknesses• Time consuming to

develop.• Not always cost-effective.

Types of Rating Instruments

• Management by objectives (MBO):– A management system designed to achieve

organizational effectiveness by steering each employee’s behavior towards the organization’s mission.

– MBO process includes:• Goal setting: Establishment of the organization’s mission

statement and strategic goals. • Planning: Identify potential obstacles to reaching goals

and devise strategies to overcome these obstacles. • Evaluation: Success at meeting goals is evaluated

against agreed-on performance standards.

Types of Rating Instruments

• Management-by-objectives (MBO)• Strengths

• Outcome-focused.• Widely practiced.• Improves job performance.• States performance

standards in relatively objective terms.

• Practical and cost effective. • Provides employees a

greater stake in achieving their goals and more perceived control over their work environment.

• Weaknesses• Behaviors required to

reach goals not specified.• Success may be attributed

to factors outside employee’s control.

• Performance standards vary, providing no common basis for comparison.

• Creates performance pressures and stress.

• Gain the support of upper-level managers:• Make the performance appraisal process meaningful.• Get managers’ input in developing the system.• Train managers and help them find a way to keep track

of things employees have done during the review period.• Hold managers accountable for providing accurate

ratings on a timely basis.

• Gain the support of employees:• Encourage both managers and workers to participate in

the planning and development of the system to enhance support for it.

Designing an Appraisal SystemStep 1: Gaining Support for the System

• Three important factors to be considered are:– Practicality: The performance appraisal instrument must be

practical.

– Cost: Includes development costs, implementation costs, and utilization costs.

– Nature of job: The choice of rating instrument depends, in part, on the type of data that can be realistically collected about a particular job.

• Executive, managerial, and professional employees are usually rated based on results.

• Lower-level jobs are most often rated on behavioral or trait-oriented criteria.

Designing an Appraisal SystemStep 2: Choosing the Appropriate Rating Instrument

• Supervisory ratings: Serve as management tools for supervisors, giving them a means to direct and monitor employee behavior.

• Peer ratings: Supplement supervisory ratings, helping develop a consensus about an individual’s performance; helps eliminate biases and leads to greater employee acceptance of appraisal systems.

• Competitive nature of the organization’s reward system and friendship are potential problems limiting the usefulness of peer ratings.

Designing an Appraisal SystemStep 3: Choosing the Rater

• Self-ratings– May be used for employee development.– May not be effective as an evaluative tool.

• 360-degree feedback system– Appraisal system for managers , who are

evaluated by a “circle” of people who frequently interact with the manager.

– Evaluations are limited to job behaviors directly observed.

– Primarily used as feedback devices. – Lacks accountability.

Designing an Appraisal SystemStep 3: Choosing the Rater

• Mostly conducted annually; frequent appraisals are considered too time-consuming.

• Annual appraisals pose a problem as appraisers may have a difficult time remembering events of the past year; this can be minimized by:

• Maintaining records of employee performance; record keeping also serves as documentation for EEO suits.

Designing an Appraisal SystemStep 4: Determining the Appropriate Timing of Appraisal

• Upper-level management review: Helps to ensure fairness, and may serve to keep appraisers “honest.”

• Appeals system• Provides a means for employees to obtain a fair

hearing if they are dissatisfied with their appraisals.

• Allows employees to voice their concerns.• Fosters more accurate ratings.• Prevents the involvement of outside third parties.• Tends to undermine the authority of the

supervisor and may encourage leniency error.

Designing an Appraisal SystemStep 5: Ensuring Appraisal Fairness

Performance AppraisalArrow ProcessThe Manager’s Job

Performance AppraisalArrow ProcessHow the HRM Department Can Help

• Developing the appraisal system• Providing rater training: Usually focuses on:

• Establishing work expectations.• Observing and documenting behavior.• Conducting day-to-day performance feedback and coaching.• Appraising performance and avoiding rating errors.• Providing written justifications for ratings.• Conducting formal performance appraisal feedback conferences.• Identifying training needs and formulating a development plan for employees.

Performance AppraisalArrow ProcessHow the HRM Department Can Help

• Monitoring and evaluating the appraisal system

• Monitoring means taking steps to ensure that each appraisal has been completed on time and that instructions have been followed.• Evaluation consists of gauging the users’ satisfaction with the appraisal system.