Chapter 16 – Appraising and Rewarding Performance
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CHAPTER 16
Appraising and Rewarding Performance
LEARNING OBJECTIVES
1. Define performance appraisal.
2. Define performance.
3. Explain the determinants of performance.
4. Explain the contents of a job description.
5. Define job analysis.
6. List and describe the major performance appraisal methods.
7. Discuss common errors made in performance appraisals.
8. Suggest ways to make performance appraisal systems more legally acceptable.
9. Define compensation.
SUGGESTIONS FOR PRESENTATION
1. Have the students bring in their company’s performance appraisal form.
systems under which they’ve been evaluated?
2. Demonstrate some of the problems with a performance appraisal
The purpose of this exercise is to demonstrate rating inflation and differences in perception
between supervisors and subordinates.
• Type up or copy and distribute the “performance appraisal” sheet on page 344.
be a mix. Ask them to discuss why.
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LECTURE OUTLINE
Supervision Dilemma
It is time for John to conduct performance appraisals of his employees. He does not want to put
employee how well he or she is performing the job and also, ideally, involves establishing a plan
for improvement. Performance appraisals are handled in most organizations in one of two ways.
• Informal appraisals occur in all organizations, and many small businesses have informal
appraisal systems. If a supervisor conducts appraisals informally, the employee will be
given a general impression of how the supervisor feels about his or her performance.
o In all too many cases, such appraisals are conducted only when the employee has
made a mistake.
• The other way of handling performance appraisals is to have a formal appraisal system.
Under such a system, procedures, methods, and times are established for conducting
appraisals.
o Formal appraisal systems contain an informal element. For example, general
comments that a supervisor makes about an employee’s performance are a type of
informal performance appraisal.
I. What Is Performance?
• An employee’s performance can be influenced by conditions that are not under the
employee’s direct control.
o Such factors include inadequate work facilities and equipment, restrictive policies
that affect the job, lack of cooperation from other people and departments, and even
luck.
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• To obtain an acceptable level of performance, all three of the factors that determine
performance must be present to some extent.
• The key to obtaining good performance, therefore, is to encourage effort by employees, to
develop their ability, and to clearly communicate what they are expected to do on the job.
II. Job Descriptions and Job Specifications
• A job description and job specification result from a job analysis, which is the process of
determining, through observation and study, the pertinent information regarding a specific
job.
• In most large organizations, job analyses, job descriptions, and job specifications are
developed by the human resources department.
o However, the supervisor plays a key role in their development by providing much of
the necessary information to the human resources department.
III. Performance Appraisal Defined
• Performance appraisal is a process that involves communicating to an employee how well
the employee is performing the job and also, ideally, involves establishing a plan for
improvement.
• Performance appraisals are used for wage and salary administration, promotions or
demotions, transfers, layoffs, discharges, counseling with employees, and human resources
planning.
• Performance appraisal systems have three principal purposes:
management decisions
• Figure 16.3 outlines many of the benefits that result from a sound performance appraisal
system.
IV. Performance Appraisal Methods
• Locating or creating satisfactory measures of job success can be difficult.
o There are many jobs for which performance measures can be developed but with a
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greater degree of difficulty.
• Job performance is often influenced by factors outside the employee’s control.
o For this reason and others, performance appraisals are often based on personal
characteristics and other subjective factors.
• Numerous problems exist in performance appraisal systems based on personal
characteristics.
o One problem is that supervisors often resist such systems.
o Another problem is that such systems tempt the supervisor to favor close friends and
associates.
A. Graphic Rating Scale
• With the graphic rating scale, the supervisor is asked to evaluate an individual on
such factors as initiative, dependability, cooperativeness, and quality of work
B. Essay Appraisals
• Essay appraisals require the supervisor to write a series of statements about an
employee’s past performance, potential for promotion, and strengths and weaknesses.
• This method depends on the writing skills of the supervisor.
C. Checklist
• With the checklist, the supervisor checks yes or no responses on a series of questions
concerning the employee’s performance.
• Figure 16.5 gives some typical questions
• The principal advantage of this method is that it is easy to use.
o However, assembling the questions is a difficult job.
o Another drawback of this method is that a different set of questions must be
assembled for most job categories.
D. Forced-Choice Rating
• There are many variations of the forced-choice rating method.
o The most common practice requires the manager to rank a set of statements
describing how an employee carries out the duties and responsibilities of the
job.
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o Figure 16.6 gives some examples of statements that might appear in a forced-
choice rating method.
• This method attempts to eliminate bias by forcing the manager to rank statements
that are seemingly indistinguishable or unrelated.
o However, the forced-choice method can irritate managers who think they are
not being trusted.
E. Critical-Incident Appraisals
• With critical-incident appraisals, the supervisor keeps a written record of unusual
incidents that show both positive and negative actions by an employee.
o The employee is then evaluated based on actual behavior.
F. Work-Standards Approach
• With the work-standards approach, attempts are made to establish objective
measures of an employee’s work performance.
o An example of a work standard for production workers is the number of pieces
produced per hour.
o A salesperson’s quota is another type of work standard.
• The major advantage of the work-standards approach is that it bases the performance
appraisal on factors that are generally more objective than those used in other
methods.
o However, to be effective the standards must be fair and the employees must
view them as being fair.
G. Ranking Methods
• The most commonly used ranking methods are alternation ranking, paired-
comparison ranking, and forced-distribution ranking.
• Under alternation ranking, a supervisor’s employees are listed down the left side of
a sheet of paper.
o The supervisor then chooses the most valuable employee, crosses this name off
the list, and places it at the top of the column on the right side.
o The supervisor then selects and crosses off the name of the least valuable
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employee and places it at the bottom of the right-hand column.
o The supervisor then repeats this process for all the names on the left side.
o The listing of names on the right side gives the supervisor a ranking of his or
her employees from most valuable to least valuable.
• Under paired-comparison ranking, the supervisor again lists his or her employees’
names down the left side of a sheet of paper.
o The supervisor then evaluates the performance of the first employee on the list
against the performance of the second employee on the list.
o The employee with the most check marks is evaluated to be the most valuable
employee, and the employee with the least check marks is evaluated to be the
least valuable.
• Under forced-distribution ranking, the rater compares the performance of employees
and places a certain percentage of employees at various performance levels.
o This method assumes that the performance level in a group of employees will
be distributed according to a bell-shaped, or “normal,” curve.
o Figure 16.7 illustrates how the method works.
H. Management by Objectives (MBO)
• With management by objectives (MBO) the supervisor and the employee jointly
agree on what the employee’s work objectives will be and how they will be
accomplished.
• The employee’s performance appraisal is based on the degree to which the work
objectives are accomplished.
I. Multi-Rater Assessment (or 360-Degree feedback)
• With multi-rater assessment, or 360-degree feedback, managers, peers, customers,
suppliers, or colleagues are asked to complete questionnaires on the performance of
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the employee being evaluated.
• The human resources department provides the results to the employee, who in turn
gets to see how his or her opinion differs from those of the group doing the
assessment.
V. Frequency of Performance Appraisals
• There seems to be no consensus on the question of how frequently performance appraisals
should be conducted.
o The answer seems to be as frequently as is necessary to let employees know how
they are doing.
• Many organizations require a formal performance appraisal at least once a year.
VI. Supervisor Biases in Performance Appraisals
• Leniency is the grouping of ratings at the positive end instead of spreading them
throughout the performance scale.
• Central tendency is the rating of all or most employees in the middle of the scale.
• A recency error occurs when the supervisor recalls only the most recent events, either
positive or negative, just prior to appraising the employee.
• Halo effect occurs when supervisors allow a single prominent characteristic of an
employee to influence their judgment on each of the items in the performance appraisal.
• Personal preferences and prejudices can also cause errors in performance appraisals.
o Supervisors with biases or prejudices tend to look for employee behaviors that
conform to their biases.
• Supervisors have also allowed first impressions to influence later judgments of an
employee.
o First impressions are only a sample of behavior.
o However, people tend to retain these impressions even when faced with contradictory
evidence later.
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VII. Overcoming Biases in Performance Appraisals
• One approach to overcoming these biases is to make refinements in the design of appraisal
methods.
• A more promising approach to overcoming biases in performance appraisals is to improve
the skills of raters. At a minimum, raters should receive training in:
o The performance appraisal method(s) used by the company
o Rater biases and causes of those biases
VIII. Conducting Performance Appraisal Interviews
• The purposes of communicating the appraisal are to:
o Provide the employee with a clear understanding of how the supervisor feels the
employee is performing the job
o Improve the working relationship between the supervisor and the employee
• Effective performance appraisal interviews are the result of good planning by the
supervisor.
o Whatever form or method is used, considerable time and thought should be given to
completing the form.
• A private room or office should be used, interruptions should be held to a minimum, and
the confidential nature of the information should be explained to the employee.
• When conducting performance evaluations, it is extremely important that the supervisor be
specific so that people know exactly what they are doing well and what needs
improvement.
o The supervisor should ask for feedback from the employee as to how the supervisor
might improve his or her own performance.
• Figure 16.9 presents a suggested set of specific steps to be followed when conducting an
employee performance review.
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IX. Preparing for Your Own Performance Appraisal Interview
• Like employees, supervisors also receive performance appraisals.
• Figure 16.10 offers some suggestions on how supervisors can prepare for their own
performance appraisal session.
X. Handling the Poor Performer
• Supervisors are frequently faced with the common problem of what to do about the poor
performer.
o There may be a number of causes for the employee’s poor performance.
o Improper placement, poor training, poor communication, and lack of motivation are
common causes of poor performance.
• The supervisor’s alternatives in dealing with the poor performer are:
o Improve the employee’s performance to an acceptable level
o Transfer the employee to a job that better fits his or her abilities
o Demote the employee to a job that he or she can handle
▪ If unable to accomplish any of these possibilities, attempt to terminate the
employee.
XI. Performance Appraisal and the Law
• Title VII of the Civil Rights Act permits the use of a bona fide performance appraisal
system.
o Performance appraisal systems generally are not considered to be bona fide when
their application results in adverse effects on minorities, women, or older employees.
• Many suggestions have been offered for making performance appraisal systems more
legally acceptable. Some of these include:
o Deriving the content of the appraisal system from job analyses
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o Ensuring that appraisals are written, documented, and retained
o Ensuring that personnel decisions are consistent with the performance appraisals
XII. Rewarding Performance
A. Organizational Reward System
• The organizational reward system consists of the types of rewards the organization
offers.
• Organizational rewards include all types of rewards, both intrinsic and extrinsic, that
are received as a result of employment by the organization.
• Though intrinsic and extrinsic rewards are different, they are also closely related.
o Often an extrinsic reward provides the recipient with intrinsic rewards.
• Compensation consists of the extrinsic rewards offered by the organization and
includes the base wage or salary, any incentives or bonuses, and any benefits
employees receive in exchange for their work.
o The base wage or salary is the hourly, weekly, or monthly pay employees
receive for their work.
o Incentives are rewards offered in addition to the base wage or salary and are
usually directly related to performance.
o Benefits are rewards employees receive because of their employment with the
organization.
B. Relating Rewards to Performance
• The free enterprise system is based on the premise that rewards should depend on
performance.
o This performance–reward relationship is desirable not only at the corporate
level but also at the individual employee level.
• Rewards, such as promotion, can and should be related to performance.
o However, opportunities for promotion may occur only rarely.
• A key organizational variable that can be used to reward individuals and reinforce
performance is basing an employee’s annual pay raise on his or her performance.
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o This is often referred to as merit pay.
• While no successful formula for implementing a merit pay program has been
developed, a number of desirable preconditions have been identified and generally
accepted:
o Trust in management
o Absence of performance constraints
o Flexible reward schedule
Solution to the Supervision Dilemma
John needs to prepare himself to conduct the performance appraisal.
Supervision Illustrations
16-1: Jelly Belly Candy Company
16-2: Forced Choice Ranking at GE
16-3: The Importance of Frequent Feedback
16-4: Advice To Employees: How To Have A Successful Performance Appraisal Interview
REVEW QUESTIONS
1. Define performance appraisal.
2. What is performance? What factors influence an employee’s level of performance?