Chapter 10: Establishing the Performance Management System
Chapter 10:
Establishing the Performance Management System
Learning Outcomes
After reading this chapter, students should be able to:
1. Identify the four purposes of performance management systems and whom they serve.
2. Explain the six steps in the appraisal process.
3. Discuss absolute standards in performance management systems.
4. Describe relative standards in performance management systems.
5. Discuss how management by objective (MBO) can be used as an appraisal method.
6. Explain why performance appraisals might be distorted.
7. Identify ways to make performance management systems more effective.
8. Explain the criteria for a successful performance appraisal meeting.
9. Discuss how performance appraisals may differ in a global environment.
Chapter Overview
No more performance appraisals? Sounds radical, but Apple, Zappos and SAS have chosen a
different approach that increases the feedback and coaching responsibilities of managers. Would
this work in any organization? What would it take to make this type of system effective? These
and the questions at the end of the opener make for a great into to the world of performance
management.
The chapter discusses EEO considerations, and lists steps for maximizing performance appraisal
effectiveness. Methods using absolute standards, relative standards, and objectives are
described. Sources of error in appraisals are discussed, and suggestions to improve the
reliability, validity, and therefore, the legality and usefulness of appraisal ratings are given.
Some issues related to appraisal of employees working abroad are discussed.
Additional features of this chapter:
Exhibits
10 – 1: The Appraisal Process
10 – 2: Sample Checklist Items for Appraising Customer Service Representative
10 – 3: Sample of Graphic Rating Scale Items and Format
10 – 4: Sample BARS for an Employee Relations Specialist
10 – 5: Ranking Employees by Paired Comparison
10 – 6: Factors That Distort Appraisals
10 – 7: Toward a More Effective Performance Management System
10 – 8: Ineffective Appraisals
Boxed Features
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Chapter 10: Establishing the Performance Management System
These features are located within the text and address current issues in HRM within the context
of the relevant learning objectives. They are short and thought provoking with thought questions
at the end providing a great opportunity to provide a break in class lecture to check student
understanding. Questions may be posed to students individually, in small groups, as quick
cooperative learning assignments or as large group discussions.
Contemporary Connection – The Feedback Fix on page 215 looks at how social media
can be used to improve the evaluation process for employees.
Contemporary Connection – Forced Rankings on page 220 discusses the impact forced
rankings on employees and explains the latest research.
Contemporary Connection: Facts on Performance Evaluations on page 223 presents
interesting facts that put performance appraisals in perspective.
Contemporary Connection: The “Anywhere” Performance Appraisal on page 227
describes how future performance appraisals can be given anywhere through the use of
modern technology.
Tips for Success: Team Performance Appraisals on page 229 notes that with
organizations restructuring themselves around teams, there needs to be a way to appraise
performance. Four suggestions are presented for designing a system for team appraisal.
Tips for Success: Performance Metrics in China on page 233 compares a performance
appraisal in the United States with one in China, noting that culture plays a part in what is
measured.
Making Concepts Relevant in Your Classroom
In addition to the activities provided in the lecture notes, these suggested activities help students
apply chapter 10 concepts:
Many students will have been evaluated on their part-time, full-time or summer jobs.
Ask them what they have found to be effective and ineffective about the evaluation
process.
Recently, some experts (e.g., Deming) have recommended against individual
performance appraisals, indicating that the damage that they do to morale is not worth
their possible benefit. Yet, at the same time, organizations need more than ever to keep
track of employee performance. How can managers respond to this paradox?
Ask local employers if they will share copies of their performance appraisal forms with
you. Share them with the class, discussing their strengths and limitations. An alternative
to this is to ask students to bring in forms from their current employer. If unemployed,
encourage them to use other resources, such as friends, family members, ore the
Ask students how they would develop a performance instrument to evaluate faculty.
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Chapter 10: Establishing the Performance Management System
Chapter Outline And Lecture Suggestions
Introduction Slide 3
Performance appraisals are a powerful tool for employee engagement and development,
but frequently the process is administered so poorly that it does more harm than good.
This chapter will explain the purpose and strategic nature of performance management
systems, steps leading to an effective appraisal process, as well as the potential problems
that may occur.
Purposes of Performance Management Systems Slide 4 – 5
Learning Objective 1: Identify the four purposes of performance management systems
and whom they serve.
Performance appraisals are just one part of a system designed to motivate employees by
evaluating the employee’s effort on the job, comparing it to standards, and using those
results to help employees improve
Feedback
Let employees know how well they have done and allow for employee input.
Motivation
Increases when goal are clear and progress is communicated.
Employee Development
Identify areas in which employees have deficiencies or weaknesses.
Documentation Slide 6
In case of discipline, dismissal or claims of discrimination and retaliation.
The Appraisal Process Slide 7
Learning Outcome 2: Explain the six steps in the appraisal process.
Establishing Performance Standards (step 1) Slide 8
The appraisal process begins with establishment of performance standards in
accordance with the organization’s strategic goals.
The performance standards should be clear and objective enough to be understood
and measured.
Communicate Expectations (step 2)
Managers should clearly communicate the expectations; employees should not
have to guess what is expected of them.
Measure Actual Performance (step 3) Slide 9
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Chapter 10: Establishing the Performance Management System
Measure performance using information from:
Personal observation
Statistical reports
Oral reports
Written reports
Compare Actual Performance with Standards (step 4) Slide 10
Note deviations between standard performance and actual performance.
Discuss the Appraisal with the Employee (step 5) Slide 11
The appraisal discussion, an evaluation of one’s contribution and ability, has a
strong impact on the self-esteem and subsequent performance of the employee.
Initiate Corrective Action If Necessary (step 6)
Immediate corrective action deals predominantly with symptoms.
Described as “putting out fires.”
Basic corrective action deals with causes.
Looks for source of deviation and seeks to adjust the difference permanently.
Exhibit 10 – 1 The Appraisal Process page 214 illustrates the six steps in the
process.
Evaluating Performance with Absolute Standards Slide 12
Learning Outcome 3: Discuss absolute standards in performance management systems
An employee’s performance is measured against established standards. Evaluation is
independent of any other employee.
Critical Incident Appraisal Slide 13
Focuses the rater’s attention on critical or key behaviors that make the difference
between doing a job effectively and doing it ineffectively.
Checklist Appraisal
Appraiser uses a list of behavioral descriptions and checks off behaviors that
apply to the employee.
Exhibit 10 – 2 Sample Checklist Items for Appraising a Customer Service
Representative page 217 shows how checklists are structured.
Graphic Rating Scale Appraisal
Appraiser rates employee on a number of job-related factors, such as, quantity and
quality of work, job knowledge, cooperation, loyalty, dependability, attendance,
honesty, and so forth.
Exhibit 10 – 3 Sample of a Graphic Rating Scale Items and Format page 218
is an example of this common type of evaluation tool.
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Chapter 10: Establishing the Performance Management System
Forced-Choice Appraisal Slide 14
Appraisers choose between two or more specific statements about an employee’s
work behavior.
The statement chosen is that which the rater believes is most descriptive of the
individual being evaluated.
Behaviorally Anchored Rating Scales (BARS)
These scales combine major elements from the critical incident and graphic rating
scale approaches.
Appraiser rates employee on factors which are defined by behavioral descriptions
illustrating various dimensions along each rating scale.
Examples of Absolute Standards Appraisals Slides 15 – 17
Exhibit 10 – 4 Sample BARS For an Employee Relations Specialist page 219
illustrates a Behaviorally Anchored Rating Scale.
Evaluating Performance with Relative Standards Slide 18
Learning Outcome 4: Describe relative standards in performance management systems.
Employees are evaluated by comparing their performance to the performance of other
employees.
Group Order Ranking Slide 19
Employees are placed in a classification reflecting their relative performance,
such as “top 20 percent.”
Individual Ranking
Employees are ranked from highest to lowest.
Paired Comparison
A job trait is selected and then each individual is compared to every other.
Final ranking is based on number of times the individual is preferred member in a
pair.
Exhibit 10 – 5 Ranking Employees by Paired Comparison page 221 shows a
matrix that evaluates five employees against each other.
Class Activity: Contemporary Connection – Forced Rankings page 220 poses some
interesting questions on how forced rankings are used. Does your college require grades
based on a bell curve with a required number of students failing? It’s become very rare,
but how would students feel if that was the requirement of this class? Their workplace?
Using Achieved Outcomes to Evaluate Employees Slide 20
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Chapter 10: Establishing the Performance Management System
Learning Outcome 5: Discuss how management by objective (MBO) can be used as an
appraisal method
Formal approach is Management by Objectives (MBO) which is a performance appraisal
method that includes mutual objective setting and evaluation based on the attainment of
the specific objectives.
Common elements in an MBO program are:
Specific goals – concise statements of expected accomplishments.
Participative decision making – manager and employee choose goals and
agree on how they will be achieved.
Specific time period – concise time in which each objective is to be
completed.
Performance feedback – continuous feedback that allows individuals to
monitor and correct their own actions.
Studies confirm that MBO effectively increases employee performance and
organizational productivity.
Class Activity: Contemporary Connection – Facts on Performance Evaluations page
222 After reviewing these statistics, compare them to the experience of your students.
Factors That Can Distort Appraisals Slide 21
Learning Outcome 6: Explain why performance appraisals might be distorted
Even if appraisers are trained, all six steps are utilized, forms are well constructed and
appraisers have adequate time, things can still go wrong.
Exhibit 10 – 6 Factors That Distort Appraisals page 221 lists the common problems
found in the process.
Leniency Error Slide 22
Each evaluator has his/her own value system.
Some evaluate high (positive leniency) and others, low (negative leniency).
Calibration meeting coach supervisors to learn consistency.
Negative leniency example: Evaluator feels “nobody is perfect” and evaluate
everyone harshly.
Positive leniency example: Evaluator hasn’t been very observant or kept any
usable records during the evaluation period and evaluates everyone positively due
to inability to document any criticism.
Halo Error
Evaluator lets an assessment of an individual on one trait influence evaluation on
all traits.
Example: Employee develops a desirable or difficult technological skill, so
evaluator assumes he or she can easily master other unrelated skills.
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Chapter 10: Establishing the Performance Management System
Similarity Error Slide 23
Evaluator rates others in the same way that the evaluator perceives him or herself.
Example: Evaluator sees the employee as “just like me at that age” and rates him
or her favorably as a result. On the other hand, if an employee is an introvert, an
extroverted evaluator may evaluate him or her lower in unrelated areas.
Low Appraiser Motivation
Evaluators may be reluctant to be accurate if important rewards for the employee
depend on the results.
Example: Employee may not receive raise or promotion if evaluation is less than
excellent.
Central Tendency Slide 24
The reluctance to use the extremes of a rating scale and to adequately distinguish
among employees being rated.
Poorly explained levels of performance on a form may contribute to errors.
Example: Evaluators may be reluctant to use 1 or 5 on a graphic rating scale that
has ratings from 1 to 5, effectively reducing the choices to just 2, 3, 4.
Inflationary Pressures
Pressures for equality and fear of retribution for low ratings leads to less
differentiation among rated employees.
Example: Evaluator increases ratings slightly every year. Eventually, long-tenure
employees have no room for improvement on the form.
Inappropriate Substitutes for Performance Slide 25
Effort, enthusiasm, appearance, and so forth, are less relevant for some jobs than
others.
Traits with less relevance to strong performance should be weighted less than
more important measures.
Example: Quality and Quantity of Work are often only one trait out of many on a
form, although they may be much more important that other traits that have the
same weight.
Attribution Theory
Evaluations are affected based on whether someone’s performance is due to
internal factors they can control or external factors which they cannot.
Example: If poor performance is attributed to internal control, the judgment is
harsher than when it is attributed to external control.
Impression management: If employee positively influences the relationship with
the supervisor, he/she is likely to receive a higher rating.
Creating More Effective Performance Management Systems Slide 26
Learning Outcome 7: Identify ways to make performance management systems more
effective.
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Chapter 10: Establishing the Performance Management System
There are several ways to eliminate errors and bias in the process.
Exhibit 10 – 7 Toward a More Effective Performance Management System
page 226 illustrates this list of best practices for performance management.
Use Behavior-Based Measures
Measures based on specific descriptions of behavior are more job-related and
elicit more inter-rater agreement than traits, such as “loyalty” or “friendliness.”
Combine Absolute and Relative Standards
Absolute standards tend to be positively lenient; relative standards suffer when
there is little variability. Combining the standards tends to offset the
weaknesses of each.
Provide Ongoing Feedback Slide 27
Expectations and disappointments should be shared with employees on a
frequent basis.
Class Activity: Contemporary Connection – The Feedback Fix page 215 If you have a
significant number of millenials in your class, this is a great opportunity to discuss their
use of social media and expectations for feedback. Is social media a substitute or tool for
workplace feedback? Classroom feedback?
Use Multiple Raters
Increasing the number of raters leads to more reliable and valid ratings.
Self-Appraisals
Employee insights into their personal performance.
Peer Evaluations
Coworkers offer constructive insights and more specific evaluations;
upward appraisals allow employees to give their managers feedback.
360-Degree Appraisals
Supervisors, peers, employees, team members, customers and others with
relevant information evaluate the employee.
Rate Selectively Slide 28
Appraisers only evaluate in those areas they are familiar with.
Appraisers should have first-hand knowledge of the individual being evaluated
and his or her actual performance.
Use only trained and effective raters.
Train Appraisers
Untrained appraisers who do poor appraisals can demoralize employees and
increase legal liabilities.
Class Activity: Tips for Success – Team Performance Appraisals page 227 Team based
appraisals are designed to promote teamwork and interdependence, but some
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Chapter 10: Establishing the Performance Management System
high-performing Type A personalities find them frustrating and a bit scary. If your class
has a group project, this is an opportunity to discuss group evaluations, using the
questions in this feature.
The Performance Appraisal Meeting Slide 29
Learning Outcome 8: Explain the criteria for a successful performance appraisal meeting.
Performance appraisals should be an opportunity for constructive feedback.
Steps for the performance appraisal meeting.
Prepare for and schedule the appraisal in advance.
Explain the purpose of the meeting in advance and create a supportive
environment to put the employee at ease.
Describe the purpose of the appraisal to the employee.
Involve the employee in the appraisal discussion.
Focus the discussion on work behaviors, not the employee.
Support your evaluation with specific examples.
Give both positive and negative feedback.
Ensure employees understand what was discussed in the appraisal.
Generate a development plan.
Exhibit 10 – 8 Ineffective Appraisals page 230 provides a funny but sadly not too
far-fetched example of a bad performance review.
Class Activity: Contemporary Connection – The Anywhere Performance Appraisal
page 227 Shows how HRIS makes performance appraisal a web-based tool for
communication. Questions in this feature focus on how much technology students expect
a prospective employer to utilize. How much mobile technology do they expect your
class or college to utilize?
International Performance Appraisal Slide 30
Learning Outcome 9: Discuss how performance appraisals may differ in a global
environment
Who Performs the Evaluation?
Different cultural perspectives and expectations between the parent and local
country may make evaluation difficult.
Evaluation forms may not be translated accurately.
Quantitative measures may be misleading because regulations, accounting
practices, and chances for success differ across countries.
Class Activity: Tips for Success – Performance Metrics in China page 233 This short
feature explains how cultural differences in expectations result in different metrics used
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Chapter 10: Establishing the Performance Management System
to evaluate executives in the U.S. and China. If a local organization has an international
branch, ask their HR department to address how overseas evaluations are different.
HRM Workshop
The HRM Workshop includes several different types of activities requiring students to apply
chapter concepts aligned with the learning objectives. Suggested answers are provided.
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