Chapter 07 – Performance Management and Appraisal
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CHAPTER 7
PERFORMANCE MANAGEMENT AND APPRAISAL
Objectives
After reading this chapter, you should be able to
1. Understand the value and uses of performance appraisals in organizations.
2. Know the prescriptions for more effective performance management and appraisal.
3. Define performance and distinguish between performance and correlates of
performance.
4. Discuss the legal implications of performance appraisal.
5. Explain the various errors and biases in ratings and proven methods to reduce them.
6. Describe the ProMES system and report on its effects.
7. Describe the necessary steps for implementing an effective appraisal feedback system.
Chapter 07 – Performance Management and Appraisal
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CHAPTER 7 –CHAPTER SUMMARY
I. Overview.
A. Performance appraisals are used by most organizations
1. High level of dissatisfaction “the appraisal of performance appraisal is not good”
2. Raters, ratees, and administrators all dissatisfied
1. Legal grounds for challenging appraisal systems are expanding
D. Prescriptions for Effective Performance Management
1. Strive for precision in defining and measuring performance dimensions
2. Derive content from internal and external customer requirements in the context
of organizational objectives
3. Derive ratings from multiple raters
4. Correct the effects of situational constraints
E. Performance Management and appraisal is a continuous process
1. Performance as a whole is equal to the sum of performances on job functions
2. Performance Appraisal (PA) should not focus on the traits or personal
characteristics of the performers
3. Distinguish between the performers knowledge, skills and competencies and
actual performance outcomes
4. Skills, knowledge and competencies indicate potential to perform
5. Performance should be measured within the context of organizational objectives
B. What Are the Uses for Performance Data?
1. Performance Management and Compensation
2. Internal Staffing
a) Promotions and terminations
3. Training Needs Analysis
4. Research and Evaluation
a) Validation research
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III. Legal Issues Associated with Performance Appraisals
A. Appraisal data is subject to considerable legal scrutiny
1. Charges of unfairness and bias can result from decisions made using PA data
2. Seek relief through federal law including CRA and ADEA
B. Suggestions recommended for legal defensibility (see Fig. 7-3, p. 246)
1. Fig 7-3 lists 15 PA characteristics related to the content, process and results of
PA
2. Characteristics presented in approximate order of importance in prediction of
court case outcomes
3. Violation of the 80% rule most important indicator of negative employer outcome
4. Focus on “excessive subjectivity”
5. Conduct audits of PA systems data
1. The focus of the appraisal
2. 6 Categories of Performance Outcomes
a) Quality
3. Overall PA is less accurate rating than those done on each relevant criterion for
each job activity and provides less specific feedback to the performer
1. Three basic ways raters can make performance assessments
2. Comparisons among Ratees’ Performances
a) “Paired comparisons” compares all possible pairs of ratees on “overall
performance” or some other standard
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© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
3. Comparisons among Performance-Level Anchors
a) Computerized adaptive rating scales (CARS): presents raters with pairs of
behavioral statements reflecting different levels of performance on the
same performance dimension
b) Forced choice: requires the rater to compare performance statements and
select one (or more) as the most descriptive
i) Hidden scoring key
ii) Some evidence deliberate bias can be reduced
iii) Raters do not like this method because of the hidden scoring key
4. Comparison to Performance-Level Anchors
a) Graphic rating scales: use adjectives or numbers as anchors but the
descriptive detail of the anchors differs widely
b) Behaviorally anchored rating scales (BARS): graphic scales with specific
behavioral descriptions defining various points along the scale for each
dimension
i) Recording observations on scale can improve performance compared
to other methods
c) Summated scales
i) Behavioral Observation Scales (BOS) the rater is asked to indicate how
frequently the ratee has performed each of the listed behaviors. The
ratings are then averaged or totaled for each person rated.
d) Performance distribution assessment (PDA)
i) Only method that statistically incorporates constraints on performance
as a formal part of the measurement process
e) Management by objectives (MBO), comparison between specific,
quantifiable target goals and actual results achieved by an employee
i) Effective when precise definitions of objectives are used (Figure 7-4)
ii) Mutually agreed upon by employee and supervisor
iii) Popular for managerial PA
5. What Is the ‘Bottom Line” on What It Is We Should be Measuring
a) Focus on the record of outcomes vital to strategic goals of organization
b) Recommendation: Rate outcomes on relative frequency
i) Customer defines levels of performance, then raters indicate the
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
1. Leniency/Severity- leniency is an intentional error, ratings for employees are at
the high end of the rating scale regardless of the actual performance
a) Most serious problem with appraisals whenever they are linked to important
decisions such as compensation
b) Primary reason why companies have turned to forced distribution.
c) Leniency related to the characteristics of the rater-Low Conscientious and
High Agreeableness
d) Self-efficacy training for raters reduces leniency
2. Halo/Horns effect – not deliberate; rater allows a rating on one dimension (or an
overall impression) for an employee to influence the ratings assigned to other
dimensions
3. Central Tendency – deliberate error; ratings for employees tend to be toward
the center (midpoint) of the scale regardless of the actual performance
4. Fundamental attribution error/ Actor-observer Bias
a) Actor-observer bias- tendency of raters to underestimate
external factors and for ratees to overestimate those same factors
b) Major factor causing perception of unfairness, not appropriately considering
situational constraints (Figure 7-9)
c) Training can reduce the error/bias
d) Goal based PA with performance dimension/constraint matrix
5. Representativeness– judgments about people (or their performance) based on
6. Availability – mistaking the ease with which a category of outcomes can be
recalled as an indication of its frequency of occurrence relative to other
categories
7. Anchoring – insufficiently altering a judgment away from some starting point
when new information is received
a) Training can help reduce this error
D. Rater Training
1. Unintentional errors
a) Frame of Reference training improves rater accuracy, controls
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2. Intentional errors
a) Administrative changes (e.g. forced distribution, hidden scoring keys) attempt
1. Ratees
2. Supervisors – most companies give full responsibility of appraisals
3. Peers
4. Clients, customers, mystery shoppers
5. Higher-level managers
6. Using multiple raters (360- degree) is beneficial for greater accuracy, fewer
biases, perceptions of fairness, and fewer legal suits
a) 360 degreee appraisal is a “High Performance Work Practice”
F. Defining the “Ratee”
1. Potentially includes individual, work group, division or organization wide
performance
2. Two Conditions for measuring performance at the aggregated level
3. Process tracing software provides data on the interactions and contributions of
individual team members
4. Match the level of appraisal with the objective being appraised
G. The Productivity Measurement and Enhancement System (ProMES)
1. Method to measure aggregated performance
2. Goal to improve unit productivity or overall performance
3. Designed to give employees precise performance feedback developing sense of
ownership and empowerment
4. Research indicates this method improves performance, job satisfaction, and
reduces job stress
5. Steps of ProMES similar to MBO, outlined in Figure 7-13 p 265
6. Critical to identify relative importance of performance indicators, this can help
1. Process of measuring internal practices against an external reference/ standard
2. Most often used at the aggregate level
3. Critical to have top management support and commitment
4. When radical change is necessary, use the “shaping” process to facilitate gradual,
sustained improvement
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a) Identify what is to be benchmarked
b) Identify comparable companies
c) Collect data to define goal
d) Collect data to determine current performance level
e) Reduce target to measurable steps
f) Train to meet sub-goals
g) Provide feedback and use rewards
h) Increase sub-goals to get closer to target goals
i) Recalibrate benchmarks
I. Administrative Characteristics
1. Issues such as frequency and timing are outlined in Figure 7-16 p 269
2. Many PA’s are computer adaptive or completed are on-line
3. Performance monitoring, is it an invasion of privacy or a way to gather
information about performance, particularly when work is performed at remote
locations
J. Methods of Delivering Performance Feedback
1. Provide specific and timely feedback
2. Supportive feedback provides motivation
3. Greater precision in feedback more likely leads to improved performance
4. Characteristics of effective feedback
a) Working tasks are familiar to the ratee
b) Performance cues support performance
c) Includes information on discrepancies between performance and precisely
defined performance standards
d) Not threatening to the ratee psychologically
5. Recommendations for feedback sessions
a) Avoid being disturbed
b) Make sufficient time
c) Keep notes on effective and ineffective behavior
d) Be relaxed and informal
e) Include praise
f) Include employee’s self assessment
g) Include supervisor’s response to employee’s assessment
h) Include action plans
i) Consider situational constraints
j) Discuss employee’s career aspirations and developmental goals
k) Be clear, specific, descriptive and job related
l) Occur frequently and timely
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6. Strength based PA combined with goal setting focuses on employee strengths and
concentrates on prevention focused behaviors
V. Summary
A. Performance appraisals are important tools
1. Managing and improving the performance of employees
2. Making valid staffing decisions
3. Enhancing the overall effectiveness of the firm’s products and services
B. Performance appraisal systems must be:
1. Carefully developed
2. Monitored
3. Revised as needed
4. Linked with other HR functions, such as determining training
Chapter 07 – Performance Management and Appraisal
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CHAPTER 7 – IMPORTANT TERMS
Availability bias – concluding that the ease with which outcomes can be recalled is an
indication of their frequency of occurrence relative to other categories; the tendency to
believe that the outcomes you remember are also the outcomes that were most frequent
Behaviorally anchored rating scales (BARS) – a graphic rating scale with specific behavioral
description defining various points along the scale for each dimension
performance
Comparisons among performance level anchors – selects the anchor that is most descriptive of
the person being appraised
Comparisons among ratee’s performances – comparing ratees to each other through ranking,
paired comparisons, or forced distribution.
Contextual performance contributions – factors facilitating a pleasant work environment,
and compliance with organizational and subunit policies
Chapter 07 – Performance Management and Appraisal
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© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Frame of Reference Training – designed to reduce unintentional rating error by familiarizing
raters with what behaviors or outcomes to consider when making their ratings, allowing for
practice making ratings, and providing feedback on their practice
Forced choice – the rater makes comparisons among anchors or performance level anchors for
a job activity
Forced distribution – presents the rater with a limited number of categories and requires the
rater to place a designated portion of the ratees into each category similar to a bell shaped
curve
Fundamental attribution error – attributing observed behaviors or outcomes to the
disposition of the person being observed while underestimating the causal role of factors
Intentional bias – errors committed because rater is in some way motivated to provide an
inaccurate rating, for example giving a higher rating to avoid a negative discussion with an
employee
Inter-rater reliability – extent to which independent raters agree on an evaluation of
performance
response bias by raters. MSS usually consist of sets of three statements that describe high,
medium, and low levels of performance on a job activity or dimension.
Paired comparisons – comparing all possible pairs of ratees on “overall performance” or some
other standard
Performance – record of outcomes produced on a specified job function or activity during a
Chapter 07 – Performance Management and Appraisal
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CHAPTER 7 – DISCUSSION QUESTIONS
1. Why has performance appraisal taken on increased significance in recent years?
First, performance management is one strategy for improving productivity, and performance
appraisal is the foundation of performance management. Effective PA is a High Performance
2. As the work force becomes more diverse, why does performance appraisal become a
more difficult process?
PA will be a more difficult process than it already is because the perceived or real biases and
3. Ford was accused of age discrimination based on the use of its forced-distribution rating
system. What evidence would you investigate to test this allegation?
The most important evidence would be statistical data related to age. There are many factors
to consider when assessing the legal defensibility of the PA system, including the appraisal
system’s procedures, content, documentation, and raters. Regarding the procedures, a legally
Chapter 07 – Performance Management and Appraisal
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© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Regarding the documentation, all termination decisions and extreme ratings should be
documented. Also, the design of the system should be tracked and documented (e.g., paper
trail which includes job analysis, results, surveys, etc.).
Regarding raters, all raters should be trained and have ample opportunity to observe
performance. As U.S. firms move toward a total quality approach, training should also
emphasize the accountability of situational constraints to performance. Further, one may even
want to train raters in how to provide and deal with performance feedback. Finally, more than
one rater should be used for each employee.
4. Many managers describe performance appraisal as the responsibility that they like the
least. Why is this? What could be done to improve the situation?
The main reason is that people in general do not like to give negative feedback. Students may
note several factors that cause managers to dislike performance appraisal (PA). An example
response might be:
Managers typically find this task unappealing because appraisal systems rarely do what they say
5. Describe several advantages and disadvantages to using rating instruments that are based
on comparisons among ratees’ performance, comparisons among anchors, and
comparisons to anchors.
Rater biases, particularly leniency, can be mitigated when a forced choice among performance
level anchors is used. However, raters don’t like the key being hidden. Feedback on
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6. What steps would you take if your performance appraisal system resulted in disparate or
adverse impact?
First, one should determine whether the group that was affected was given more difficult or
7. Under what circumstances would you use customer or client evaluation as one basis for
appraising employees?
Responses will vary, but most students will suggest that customer evaluations will be especially
important to organizations in the service industry. A possible response would be as follows:
In industries that are chiefly service-oriented, such as Burger King, Marriott, McDonalds,
Dominos Pizza, Taco Bell, and Delta believe a good source of performance data is the customer.
8. Why are so many companies using 360-degree feedback systems? What are the benefits
of such systems?
360-degree feedback uses multiple raters for a broader and more complete picture of the
