Please click here to access the new HRM Failures case associated with this chapter. HRM Failures features
real-life situations in which an HR conflict ended up in court. Each case includes a discussion
questions and possible answers for easy use in the classroom. HRM Failures are not included in
the text so that you can provide your students with additional real-life content that helps engrain
chapter concepts.
1.1.1.1.1.1.1 Chapter Summary
This chapter examines a variety of approaches to performance management. The chapter begins
with a model of the performance-management process that examines the system’s purposes.
Then, the specific approaches to performance management are discussed, including the strengths
and weaknesses of each approach. The various sources of performance information are also
presented. Next, the errors resulting from subjective assessments of performance are identified,
as well as the means for reducing those errors. Then, the effective components to performance
feedback are discussed. Finally, the causes of performance problems are identified.
Learning Objectives
After studying this chapter, the student should be able to:
1. Identify the major determinants of individual performance.
2. Discuss the three general purposes of performance management.
3. Identify the five criteria for effective performance-management systems.
4. Discuss the four approaches to performance management, the specific techniques used in
each approach, and the way these approaches compare with the criteria for effective
performance-management systems.
5. Choose the most effective approach to performance measurement for a given situation.
6. Discuss the advantages and disadvantages of the different sources of performance
information.
7. Choose the most effective source(s) for performance information for any situation.
8. Distinguish types of rating errors and explain how to minimize each in a performance
evaluation.
9. Conduct an effective performance feedback session.
10. Identify the cause of a performance problem.
Extended Chapter Outline
Note: Key terms appear in boldface and are listed in the “Chapter Vocabulary” section.
Opening Vignette:
Performance Management Helps Turn-around a Health Care Organization
VivaKi Nerve Center in Chicago is the research, development, and production unit of advertising
and communications firm Publicis Groupe’s VivaKi. The nerve center has a set of core values
called “The Way We Work” that guide employees in being successful. Research shows that the
most profitable firms have a CEO who puts forth challenging financial goals and communicate a
vision that goes beyond those financial goals (for example, to be innovative, provide great
customer service, etc.). Another example of a firm that uses values to guide performance
management is Eastern Idaho Regional Medical Center (EIRMC). EIRMC evaluates their
employees on seven values and their underlying behaviors. The challenge appears to be in
managing behaviors that underlie values more so than managing performance itself. It boils
down to managing how things get done, not what gets done.
Discussion Question
1. How does this vignette illustrate the strategic importance of performance management?
Clearly, organizations that recognize that performance is much more than bottom line
numbers have a leg up on their competition when it comes to managing overall
Having a value system makes it easier for managers to set goals and to track goals that
I. Introduction
A. Performance management is the process through which managers ensure that
employees’ activities and outputs are congruent with the organization’s goals.
Performance management is central to gaining competitive advantage. The
performance management system has three parts: defining performance,
measuring performance, and feeding back performance information. (See Table
8.1 in the text)
B. Performance Appraisal is the process through which an organization gets
information on how well an employee is doing his or her job.
C. Performance Feedback is the process of providing employees information
regarding their performance effectiveness.
II. The practice of performance management
1. Several recent surveys of human resource professionals suggest that most
companies’ performance management practices require annual
paper-driven reviews that include both behavior and business goals.
2. Because companies are interested in continuous improvement and creating
engaged employees—employees who know what to do are motivated to
do it—many companies are moving to more frequent, streamlined
performance reviews.
III. The Process of Performance Management (See Figure 8.1).
A. Performance Management does include the once or twice a year appraisal or
evaluation meeting, but it is a process, not an event.
B. Performance Management involves two steps.
1. Identifying what the company is trying to accomplish.
2. Understanding the process to achieve the goals established in the first step.
C. Effective Performance Management requires that managers take time to provide
feedback.
IV. Purposes of Performance Management
1.1.1.1.1.1.1.1 A. Strategic Purpose
1. First and foremost, a performance management system should link
employee activities with the organization’s goals.
2. Performance management is critical for companies to execute their talent
management strategy.
Integrity In Action:
Listening and Recognizing a Good Job: Key Performance Management Practices Modeled
by Company Leaders
While the chapter emphasizes the importance of feedback, listening to employee concerns, and
reinforcing employee positive behavior it remains difficult to get managers to do just that. The
case talks about CarMax’s CEO, Tom Folliard, who visits all 119 CarMax stores to meet
employees, answer questions, and seek feedback. Former chairman of Mattel, Robert Eckert,
feels employees come to work motivated, but do not get the feedback they need to remain so.
Both of these organizational leaders exhibit the behaviors managers should take heed of if they
are going to inspire great performance from their employees.
Discussion Question
1. What other things can company leaders do to create a culture that encourages
feedback and recognition and reinforce the importance of performance
management?
Student answers will vary, but should exhibit an understanding and appreciation
1.1.1.1.1.1.1.2 B. Administrative Purpose
1. Performance-management information is used for such administrative
decisions such as salary administration, promotions, retention-termination,
layoffs, and recognition of individual performance.
2. Many managers see the performance-appraisal process as a necessary evil,
and they feel uncomfortable feeding back evaluations to the employees;
thus, they tend to rate everyone high, or at least rate them the same.
1.1.1.1.1.1.1.3 C. Developmental Purpose
1. Performance management can be used to develop employees who are
ineffective at their jobs.
2. Ideally, the performance management system identifies not only any
deficient aspects of the employee’s performance but also the causes of
these deficiencies—for example, a skill deficiency, a motivational
problem, or some obstacle holding the employee back.
1.1.1.1.1.1.1.3.1
1.1.1.1.1.1.1.3.2 V. Performance Measures Criteria
A. Strategic congruence is the extent to which the performance management system
elicits job performance that is congruent with the organization’s strategy, goals,
and culture.
Competing Through Globalization:
A Mix of Metrics are Needed to Support Local and Company Performance
WD-40 is a company headquartered in San Diego, California and whose products are found
under the sink, in the garage, and in toolboxes of customers all over the world. The company
produces lubricants, heavy-duty hand cleaners, toilet bowl cleaners, bathroom cleaners, and
carpet stain and room odor eliminators. WD-40 stands for “Water Displacement, 40th attempt.”
WD-40 is a global company who, at one time, paid out bonuses to employees based upon overall
financial performance and twenty percent by financial performance within an employee’s
country. However, in 2008, the results of an employee survey showed that employees wanted
more of their bonus to be linked to performance measures under their control. In response, the
company placed greater emphasis on country-specific performance while still rewarded global
business results.
Discussion Question
1. One of the criteria used to evaluate a performance management system is strategic
congruence. How would you evaluate WD-40s Double Vision program according
to this criteria? Explain your evaluation..
Up until 2008, bonuses were more largely determined by global performance
results and employees felt that this was not an optimal way to determine bonuses,
B. Validity is the extent to which the performance measure assesses all the relevant
—and only the relevant—aspects of job performance. It is also called “content
validity.”
1. Validity is concerned with maximizing the overlap between actual job
performance and the measure of job performance (Figure 8.2).
2. A performance measure is deficient if it does not measure all aspects of
performance.
Example: A company’s performance measure for managers is deficient
because it does not measure such aspects of managerial performance as
developing others or social responsibility.
3. A contaminated measure evaluates irrelevant aspects of performance or
aspects that are not job related.
Example: A company’s performance measure would be contaminated if it
evaluated its managerial employees based on how physically attractive
they were.
C. Reliability refers to the consistency of the performance measure.
1. Interrater reliability is the consistency among the individuals who evaluate
the employee’s performance.
2. With some measures, the extent to which all the items rated are internally
consistent is important (internal consistency reliability).
3. The measure should be reliable over time (test-retest reliability).
D. Acceptability refers to whether the people who use the performance measure
accept it. It is affected by the extent to which employees believe the performance
management system is fair (Table 8.2).
E. Specificity is the extent to which a performance measure gives specific guidance
to employees about what is expected of them and how they can meet these
expectations.
Example: Paula, a sales representative for a brokerage firm, is expected to record
25 cold calls per day and call each client on her books every two weeks. She is
also expected to make sales of at least $30,000 per month to remain in her
position.
VI. Approaches to Measuring Performance
A. The Comparative Approach—The comparative approach to performance requires
the rater to compare an individual’s performance with that of others.
1. Ranking is one of the techniques that arrive at an overall assessment of the
individual’s performance.
a. Simple ranking requires managers to rank employees within their
departments from highest performer to poorest performer.
b. Alternation ranking consists of a manager looking at a list of
employees, deciding who is the best employee, and crossing that
person’s name off the list.
c. In the courts, the ranking system has not been looked at favorably.
2. Forced Distribution—The forced distribution method requires the
managers to put certain percentages of employees into predetermined
categories. (Table 8.3 in the text)
3. Paired Comparison—The paired comparison method requires managers to
compare every employee with every other employee in the work group,
giving an employee a score of one every time he or she is considered the
higher performer. Employees are ranked by how many points they receive.
4. Evaluating the Comparative Approach
a. The comparative approach is an effective tool in differentiating
employee performance; it virtually eliminates problems of
leniency, central tendency, and strictness.
b. Comparative approach techniques are not linked to the strategic
goals of the organization; the validity and reliability depend on the
raters themselves due to the subjective nature of the ratings, and
they lack specificity for feedback purposes.
B. The Attribute Approach—The attribute approach to performance management
focuses on the extent to which individuals have certain attributes (characteristics
or traits) believed to be desirable for the company’s success.
1. Graphic Rating Scales
a. Graphic rating scales can provide a number of different points (a
discrete scale) or a continuum along which the rater simply places
a check mark (a continuous scale). (Table 8.4 in the text)
2. Mixed Standard Scales
a. Mixed standard scales are developed by defining the relevant
performance dimensions with statements representing good,
average, and poor performance along each dimension (text Table
8.5).
3. Evaluating the Attribute Approach
a. Attribute-based performance methods are the most popular
methods in organizations. They are easy to develop and are
generalizable across a variety of jobs, strategies, and organizations.
b. There is usually little strategic congruence between the attribute
approach methods and the company’s strategy; they usually have
very vague standards that result in low validity and reliability; and
when raters give feedback, these techniques tend to elicit
defensiveness from employees.
C. The Behavioral Approach—The behavioral approach to performance management
attempts to define the behaviors an employee must exhibit to be effective in the
job.
1. Behaviorally anchored rating scales (BARS) specifically define
performance dimensions by developing behavioral anchors associated
with different levels of performance (text Figure 8.4).
a. BARS can increase interrater reliability by providing a precise and
complete definition of the performance dimension.
b. BARS can bias information recall—that is, behavior that closely
approximates the anchor is more easily recalled than other
behaviors. Also, research has demonstrated that managers and
their subordinates do not make much of a distinction between
BARS and trait scales.
2. Behavioral observation scales (BOS) is a variation of a BARS. They are
developed from critical incidents but use a larger number of the behaviors
that are necessary for effective performance. Rather than assessing which
behavior best reflects an individual’s performance, a BOS requires
managers to rate the frequency with which the employee has exhibited
each behavior during the rating period. These ratings are then averaged to
compute an overall performance rating (text Table 8.6).
a. BOS consume more of the manager’s time than BARS and may
require more information than most managers can process or
remember.
b. A direct comparison of BOS, BARS, and graphic rating scales
found that both managers and employees prefer BOS for
differentiating good from poor performers, maintaining objectivity,
providing feedback, suggesting training needs, and being easy to
use among managers and subordinates.
3. Competencies: sets of skills, knowledge, abilities and personal
characteristics that enable employees to successful perform their jobs.
a. A competency model identifies the competencies necessary for
each job. Competency models provide descriptions of
competencies that are common for an entire occupation,
organization, job family, or specific job.
b. Table 8-7 shows the competency model that Luxottica Retail
known for premium, luxury, and sports eyewear sold through
LensCrafters, Sunglass Hut, and Pearle Vision developed for its
associates in field and store positions.
4. Evaluation of the Behavioral Approach
a. The behavioral approach can link the company’s strategy to
specific behaviors; it provides specific guidance and feedback for
employees about the performance expected of them. The major
weaknesses have to do with the organizational context of the
system. The behaviors must be constantly monitored to ensure
they are linked to the corporate strategy, and the approach is not
suited for complex jobs where there are multiple ways to achieve
success. This approach assumes there is “one best way” to do the
job.
D. The Results Approach—The results approach to performance management
focuses on managing the objective, measurable results of a job or work group.
This approach assumes that subjectivity can be eliminated from the measurement
process and that results are the closest indicator of one’s contribution to
organizational effectiveness.
1. The Use of Objectives
a. The most effective goals are SMART goals. That is, the goals are
specific (clearly state, define the result to be achieved), measurable,
attainable, and timely.
b. Research on objectives has revealed that objectives usually increase
productivity (see Table 8.8).
2. Balanced Scorecard approach
a. The balanced scorecard includes four perspectives of performance
including financial, customer, internal or operations, and learning
and growth (see Table 1.9 in Chapter 1).
3. Productivity Measurement and Evaluation System (ProMES)
a. Productivity measurement and evaluation system (ProMES)
consists of four steps: (1) identify the objectives the products, or
the set of activities or objectives, the organization expects to
accomplish; (2) the staff defines indicators of the products; (3) the
staff establishes the contingencies between the amount of the
indicators and the level of evaluation associated with the amount;
(4) a feedback system is developed that provides employees and
work groups with information about their specific level of
performance on each of the indicators.
b. ProMES is somewhat new, but some research has shown increased
productivity (text Figure 8.6). ProMES also tends to be an
effective feedback mechanism.
c. ProMES, however, it is time-consuming to develop.
4. Evaluating the Results Approach
a. The results approach minimizes subjectivity, relying on objective,
quantifiable indicators of performance. It is highly acceptable and
links an individual’s results with the organization’s strategies and
goals.
a. Objective measurements can be both contaminated and deficient;
individuals may focus only on aspects of their performance that are
being measured; and the feedback may not help employees learn
how they need to change.
E. The Quality Approach—Two fundamental characteristics of the quality approach
are a customer orientation and a prevention approach to errors. Improving
customer satisfaction is the primary goal of the quality approach.
1. Kaizen refers to practices participated in by employees from all levels of
the company that focus on continuous improvement of business processes.
A performance management system designed with a strong quality
orientation can be expected to:
a. Emphasize an assessment of both person and system factors in the
measurement system.
b. Emphasize that managers and employees work together to solve
performance problems.
c. Involve both internal and external customers in setting standards
and measuring performance.
d. Use multiple sources to evaluate person and system factors.
2. Objective Performance Evaluation feedback–Statistical process quality
control techniques are used to provide employees with an objective tool to
identify causes of problems and potential solutions.
a. Process-flow analysis involves identifying each action and
decision necessary to complete work.
b. Cause-and-effect diagrams identify events or causes that result in
undesirable outcomes.
c. A Pareto chart is used to highlight the most important cause of a
problem. Causes are listed in decreasing order of importance (text
Figure 8.7).
d. Control charts involve collecting data at multiple points in time so
that employees can identify what factors contribute to an outcome
and when they tend to occur (text Figure 8.7).
e. Histograms display distributions of large sets of data and allow
data to be grouped into a smaller number of categories or classes
(text Figure 8.8).
f. Scattergrams show the relationship between two variables, events,
or different pieces of data.
3. Evaluation of the Quality Approach
a. The quality approach relies primarily on a combination of the
attribute and results approaches to performance measurement. The
quality approach adopts a systems-oriented focus in which
traditional performance systems focus on individual employee
performance.
b. Many companies may be unwilling to completely abandon their
traditional performance management system because it serves as
the bias for personnel selection validation, identification of training
needs, or compensation decisions.
4. Evaluation of Approaches to Performance Measurement—Table 8.9
summarizes the various approaches to measuring performance based on
the criteria set forth earlier (strategic congruence, validity, reliability,
acceptability, and specificity) and illustrates that each approach has
strengths and weaknesses.