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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
