978-1305115248 Chapter 6 Solution Manual Part 1

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Chapter 6

Performance Management and Appraisal

Chapter Overview

Performance management systems are used to identify, encourage,

measure, evaluate, improve, and reward performance. Performance appraisal

is the process of determining how well employees perform their jobs relative

to a standard and then communicating that information to them. The chapter

includes discussions about the following:

The nature of performance management

Identifying and measuring employee performance

Performance appraisals

Who conducts appraisals?

Tools for appraising performance

Training managers and employee in performance appraisal

Appraisal feedback

Performance management is linked to varying corporate cultures.

Globalization requires that global organizations be aware of global cultural

di%erences regarding performance management issues. However, most

successful organizations strive to develop a performance-focused

organizational culture rather than an entitlement approach. Executive

commitment to performance management is a crucial aspect to a

performance-focused culture.

Next, different types of performance information, relevance of performance criteria, performance

standards, and the performance metrics used in service businesses are explored. The next section

looks at performance appraisals including the use of appraisals for administrative and

development uses, important decisions about the performance appraisal process (responsibilities,

informal vs. systematic, and timing of appraisals), and legal concerns.

Then, the issue of who conducts appraisals is covered. Traditionally,

appraisals have been conducted by an individual’s immediate supervisor, but

increasingly organizations are turning to 360o (multisource) evaluation.

Managers and supervisors may evaluate subordinates, team members may

rate each other, outsiders such as customers may do ratings, and employees

may do self-appraisals. Not to be overlooked is the possibility of employees

being given the freedom to rate their managers.

Next, tools for performance appraisal are described including category

scaling methods, graphic rating scales, behaviorally anchored rating scales

(BARS), comparative methods such as ranking or forced distribution,

narrative methods such as critical incident, essay, and Management by

Objectives (MBO). Each of these methods is described with the relative

advantages and limitations of each.

The chapter then presents a discussion of rater errors. Several errors are

described—recency and primacy effect, central tendency, leniency, and

strictness errors; rater bias; halo and horn effect; contrast error; similar to

me/di%erent-from-me error; and sampling errors. The chapter ends with a

discussion on appraisal feedback. Hints for an effective appraisal interview

are given, the reactions of managers and appraised employees are

discussed, and requirements for an effective performance management

system are described.

Chapter Outline

Well-designed performance management efforts greatly increase the likelihood that for many

good performance will follow and for others poor performance will be identified and dealt with.

I. The Nature of Performance Management

The performance management process starts with identifying the goals an organization needs to

accomplish to remain competitive and profitable. Managers then determine how they and their

A. Strategic Performance Management

Performance management links strategy to results (Figure 6-1). However, just having a

strategic plan does not guarantee that desired results will be achieved. Strategies must be

Performance management is often confused with one of its primary components—

performance appraisal. Performance management is a series of activities designed to ensure

that the organization gets the performance it needs from its employees. Performance

At a minimum a performance management system should do the following:

Make clear what the organization expects

Document performance for personnel records

In some countries and cultures, it is uncommon for managers to rate employees or to give

direct feedback, particularly if some points are negative. Employees may view criticism from

B. Performance-Focused Organizational Cultures

Organizational cultures can vary on many dimensions, and one of these differences

involve the degree to which performance is emphasized. Some corporate cultures are

based on an entitlement approach, which tends to mean that adequate

At the other end of the spectrum is a performance-driven organizational

culture that is focused on results and contributions. Figure 6-2 shows the

components of a successful performance-focused culture. However, a pay-for-

performance approach can present several challenges to organizations such as the potential for

II. Identifying and Measuring Employee Performance

Performance criteria vary from job to job, but common employee-performance measures include

the following:

Quantity of output

Quality of output

Timeliness of output

Presence/attendance on the job

Specific job duties from a job description should identify the important elements in a given job

and define what the organization pays employees to do. Therefore, the performance of

individuals on their job duties should be measured, compared against appropriate standards, and

A. Types of Performance Information

Managers can use three different types of information about employee performance (Figure 6-

3):

Trait-based information identifies a character trait of the employee, such as attitude,

initiative, or creativity, and may or may not be job related.

oTraits tend to be hard to identify, and biases of raters can affect how traits are

oAlso, focusing too much on trait characteristics can lead managers to ignore

Behavior-based information focuses on specific behaviors that lead to job success.

oBehavioral information can specify the behaviors management expects employees

oA potential problem arises when any of several behaviors can lead to successful

Results-based information considers employee accomplishments, and for jobs in which

B. Performance Standards

Performance standards define the expected levels of employee performance. Sometimes

they are labeled benchmarks, goals, or targets—depending on the approach taken. Realistic,

measurable, clearly understood performance standards benefit both organizations and

Both numerical and nonnumerical standards can be established. Sales quotas and production

output standards are familiar numerical performance standards. A standard of performance

C. Performance Metrics in Service Businesses

Measuring service performance is difficult because services are often very individualized for

customers, there is typically great variation in the services that can be offered, and quality is

somewhat subjective. Yet the performance of people in service jobs is commonly evaluated

along with the basic productivity measures used in the industry. Some of the most useful

sources of performance differences among managers in service businesses are as follows:

Regional differences in labor costs

Service agreement differences

On an individual employee level, common measures might include:

Cost per employee

Incidents per employee per day

Number of calls per product

Once managers have determined appropriate measures of the service variance in their

III. Performance Appraisals

Performance appraisals are used to assess an employee’s performance and to provide a platform

for feedback about past, current, and future performance expectations. Several terms can be used

Performance appraisals are widely used for administering wages and salaries and for identifying

individual employee strengths and weaknesses. Performance appraisals can provide answers to a

wide array of work-related questions, and poor performance can sometimes be improved when a

But a gap may exist between actual job performance and the way it is rated. Poorly done

performance appraisals lead to disappointing results for all concerned, and there is reason to

believe that evaluations can cause bad feelings and damaged relationships if not managed well.

A. Performance Appraisals and Ethics

Performance appraisals may or may not focus on the ethics with which a manager performs

his or her job. Managers may be expected to take an active role in managing ethics in their

area of responsibility but often do not understand the process. Many companies do not have a

B. Uses of Performance Appraisals

Organizations generally use performance appraisals in two potentially conflicting ways

(Figure 6-4):

One use is to provide a measure of performance for consideration in making pay or

other administrative decisions about employees. This administrative role often creates

The other use focuses on the development of individuals. In this role, the manager acts

more as a counselor and coach than as a judge.

oThe developmental performance appraisal emphasizes current training and

Administrative Uses of Appraisals

Three administrative uses of appraisal impact managers and employees the most:

Determining pay adjustments

Choosing employee disciplinary actions up to and including termination of

A performance appraisal system is often the link between employee job performance and

the additional pay and rewards that the employee can receive. Performance-based

compensation affirms the idea that pay raises are given for performance accomplishments

rather than for length of service (seniority), or granted automatically to all employees at the

Many U.S. workers say that they see little connection between their performance and the

size of their pay increases due to flaws in performance appraisals. Consequently, people

argue that performance appraisals and pay discussions should be done separately. Two

realities support this view:

One is that employees often focus more on the pay received than on the

The other is that managers sometimes manipulate ratings to justify the pay they wish

to give individuals. As a result, many employees view the appraisal process as a

To address these issues, managers can first conduct performance appraisals and discuss the

results with employees, and then several weeks later hold a shorter meeting to discuss pay

Developmental Uses of Appraisals

For employees, a performance appraisal can be a primary source of information and

feedback. By identifying employee strengths, weaknesses, potentials, and training needs

through performance appraisal feedback, supervisors can inform employees about their

progress, discuss areas in which additional training may be beneficial, and outline future

The use of teams provides a different set of circumstances for developmental appraisals.

The manager may not see all of an employee’s work, but the employee’s team members do.

Team members can provide important feedback. However, whether teams can handle

C. Decisions about the Performance-Appraisal Process

A number of decisions must be made when designing performance appraisal systems. Some

important ones involve identifying the appraisal responsibilities of the HR unit and of the

Appraisal Responsibilities

If done properly, the appraisal process can benefit both the organization and the employees.

The HR unit typically designs a performance appraisal system (Figure 6-5). Managers then

It is important for managers to understand that appraisals are their responsibility. Through

the appraisal process, good employee performance can be made even better, poor employee

Type of Appraisals: Informal versus Systematic

Performance appraisals can occur in two ways: informally and/or systematically.

A supervisor conducts an informal appraisal whenever necessary. The day-to-day

oA manager communicates this evaluation through various conversations on or

off the job, or by on-the-spot discussion of a specific occurrence. Although

oFrequent informal feedback to employees can prevent surprises during a formal

A systematic appraisal is used when the contact between a manager and employee is

more formal, and a system is in place to report managerial impressions and

observations on employee performance. This approach to appraisals is quite

common.

oSystematic appraisals feature a regular time interval, which distinguishes them

from informal appraisals. Both employees and managers know that

Timing of Appraisals

Most companies require managers to conduct appraisals once or twice a year, most often

annually. Employees commonly receive an appraisal 60 to 90 days after hiring, again at 6

months, and annually thereafter. Probationary or introductory employees, who are new and

in a trial period, should be informally evaluated often—perhaps weekly for the first month,

D. Legal Concerns and Performance Appraisals

Since appraisals are supposed to measure how well employees are doing their jobs, it may

seem unnecessary to emphasize that performance appraisals must be job related. However, it

IV. Who Conducts Appraisals?

Performance appraisals can be conducted by anyone familiar with the performance of individual

employees. Possible rating situations include the following:

Supervisors rating their employees

Employees rating their superiors

Team members rating each other

A. Supervisory Rating of Subordinates

The most widely used means of rating employees is based on the assumption that the

immediate supervisor is the person most qualified to evaluate an employee’s performance

B. Employee Rating of Managers

A number of organizations ask employees to rate the performance of their immediate

managers. A variation of this type of rating takes place in colleges and universities, where

Requiring employees to rate managers provides three primary advantages:

In critical manager-employee relationships, employee ratings can be quite useful for

This type of rating program can help make a manager more responsive to employees.

This advantage can quickly become a disadvantage if the manager focuses on being

Employee appraisals can contribute to career-development efforts for managers by

A major disadvantage of asking employees to rate managers is the negative reaction many