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o However, when raters must justify their scoring of subordinates in writing,
the rating is more accurate.
E. Strategy 4: Training Raters to Rate More Accurately
• Most research indicates rater training is an effective method for reducing
appraisal errors.
• Rater training programs can be divided into three distinct categories.
• Several generalizations about ways to improve rater training can be
summarized:
o Straightforward lecturing to ratees about ways to improve the quality of
their ratings generally is ineffective.
o Individualized or small-group discussion sections are more effective in
o The greatest success has come from efforts to reduce halo errors and
improve accuracy.
• Leniency errors are the most difficult form of error to eliminate.
o Think about the consequences to a supervisor of giving inflated ratings
versus those of giving accurate or even deflated ratings.
Chapter Eleven: Performance Appraisals 11 – 18
distinction between truly good and poor performers.
F. Strategy 5: Improving Rater Motivation and Opportunity to Rate More
Accurately
• As introduced in Chapter 2, any performance behavior is a function of ability,
motivation, and opportunity to perform.
o It is reasonable to describe the four strategies above as focusing primarily on
rater ability and rater opportunity to perform.
o However, there are often rater motivation-related factors as well.
▪ For example, what can happen when a supervisor does not give a high
performance rating and/or generally positive performance feedback to a
subordinate?
• A basic tool that some organizations use is called a calibration session, which
involves higher level managers and same level managers who meet to review
draft performance ratings and modify them as necessary to improve consistency
and accuracy/validity.
• The basic steps in calibration session are:
o Managers prepare preliminary performance appraisals, including proposed
appraisal ratings.
III. Putting It All Together: The Performance Evaluation Process
• First, some of the key elements in the total process that from day one make for a good
appraisal outcome are outlined below:
o Figure out what your culture and strategy are. This should help figure out the key
factors for measure.
11 – 19 Compensation – Thirteenth Edition Gerhart │Newman │Milkovich
• Second, employees need to be involved in every stage of developing performance
dimensions and building scales to measure how well they perform on these
dimensions.
o In cases where this occurs, employees have more positive reactions to ratings,
• Third, raters should be trained in the use of the appraisal system and all employees
should understand how the system operates and what it will be used for.
• Fourth, raters should be motivated to rate accurately.
• Fifth, raters should maintain a diary of employee performance, both as documentation
and to jog memory.
“New” Performance Appraisal
• The focus on more timely (and frequent) performance feedback is a reality.
o At accounting firm PricewaterhouseCoopers LLP, performance reviews were
overhauled and now rely on a tool called “snapshots,” a review only takes a
• These new approaches are defined by three attributes:
o Ratingless reviews
o Ongoing feedback
o Crowdsourced feedback
o Emphasis is on providing ongoing, regular, constructive, detailed feedback “in
words” not as a number or rating.
▪ Crowdsourced feedback refers to the use of social media platforms to
Chapter Eleven: Performance Appraisals 11 – 20
• The “ratingless” term does not mean performance reviews have gone away.
o There is “more” performance review, but with a focus on getting performance
IV. Equal Employment Opportunity and Performance Evaluation
• Equal employment opportunity (EEO) and affirmative action have influenced HR
decision making for more than 40 years.
• While there are certainly critics of these programs, at least one important trend can be
traced to the civil rights vigil in the workplace.
• Performance appraisals are subject to the same scrutiny as employment tests. This
interpretation of performance evaluation as a test, subject to validation requirements,
was made in Brito v. Zia Company.
o Zia Company used performance evaluations based on a rating format to lay off
employees.
• The courts stress six issues in setting up a performance appraisal system.
o Courts are favorably disposed to appraisal systems that give specific written
instructions on how to complete the appraisal.
o Organizations tend to be able to support their cases better when the appraisal
system incorporates clear criteria for evaluating performance.
▪ Performance dimensions and scale levels that are written, objective, and clear
o The presence of adequately developed job descriptions provides a rational
foundation for personnel decisions.
11 – 21 Compensation – Thirteenth Edition Gerhart │Newman │Milkovich
o Courts also approve of appraisal systems that require supervisors to provide
feedback about appraisal results to the employees affected.
▪ Absence of secrecy permits employees to identify weaknesses and to
challenge undeserved appraisals.
• The focal question then becomes: Are similarly situated individuals treated similarly?
• This standard is particularly evident in a court case involving performance appraisal
and merit pay.
o A black male filed suit against General Motors, claiming race discrimination in
both the timing and the amount of a merit increase.
• Experts note that firms approaching performance appraisal primarily as a way to
defend against discrimination claims may actually create more claims.
o Documentation of performance to discourage claims only causes poor employee
V. Tying Pay to Subjectively Appraised Performance
• The central issue involving merit pay is, “How do we get employees to view raises as
a reward for performance?”
• From a pragmatic perspective, organizations frequently grant increases that are not
designed or communicated to be related to performance.
• Two types of pay increase guidelines with low-motivation potential provide equal
increases to all employees regardless of performance.
o General increases—provide equal increase to all employees regardless of
performance.
o Across-the-board increases—provide equal increase to all employees regardless
Chapter Eleven: Performance Appraisals 11 – 22
of performance.
o A third form of guideline is Seniority increases—comes somewhat closer to
tying pay to performance.
• In practice, tying pay to performance requires three things:
o First, a company needs some definition of performance.
▪ As discussed in Chapter 6, one set of subjective measures involves the
Competency: Customer Care
2. Defines and communicates customer requirements
4. Demonstrates empathy for customer feelings
6. Displays a professional image at all times
7. Communicates a positive image of the company and individuals to
customers
o Second, the company needs some continuum that describes different levels from
low to high on the performance measure.
• As noted in Chapter 10, a merit increase grid ties pay not only to performance but
also to position in the pay range.
o Exhibit 11.11 illustrates such a system for a food market firm – percentages are
changed yearly to reflect changing economic conditions.
A. Performance- and Position-Based Guidelines
11 – 23 Compensation – Thirteenth Edition Gerhart │Newman │Milkovich
• Given a salary (or merit) increase matrix (or grid), merit increases are
relatively easy to determine.
o As Exhibit 11.11 indicates, an employee at the top of his or her pay grade
• Exhibit 11.12 shows that organizations vary in the degree to which a merit
increase matrix allows a manager discretion in assigning a base pay increase
based on an employee’s place in the matrix.
B. Designing Merit Guidelines
• Designing merit guidelines involves answering four questions.
o First, what should the poorest performer be paid as an increase?
o Second, how much should average performers be paid as an increase?
▪ Most organizations try to ensure that average performers are kept
o Third, how much should the top performers be paid?
▪ In part, budgetary considerations answer this question.
o Finally, matrixes can differ in the size of the differential between different
levels of performance.
▪ A larger jump between levels would signal a stronger commitment to
VI. Your Turn: Performance Appraisal at American Energy Development
Summary of Case
Chapter Eleven: Performance Appraisals 11 – 24
American Energy Development is an oil drilling company. The founder passed away and
Learning Objective
Analyze a performance appraisal system and accompanying merit pay system, identifying
any problems. Identify ways to improve the performance review sessions. Interpret
employee reactions and identify ways to improve employee outcomes.
Teaching Guideline
Use this case to make students analyze some common issues in performance appraisal
systems and merit pay systems. Help students evaluate all possible scenarios for Billy
Ray, and Elizabeth, pointing out best possible outcomes.
Discussion of Case Questions
1. What problems do you see in the performance appraisal system and accompanying
merit pay system? Did any of these problems contribute to the people problems John
had with his two employees in the performance review process?
There is no evidence the PA system is linked to the strategy of the company. Indeed we
don’t know what strategy that is. Also, it’s unclear how the performance dimensions
2. What might John have done differently in the early communications process to
improve later performance review sessions?
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3. Should Billy Ray have quit? Why? Should John have accepted his return? What
other action might Billy Ray have taken that could have been hurtful to the
company?
4. Was Elizabeth treated fairly? Should initiative be a performance dimension? What
other action might she take? Could she make a case that she was discriminated
against? What defense, if any, might the company have?
The treatment of Elizabeth was shameful. It sounds like she was taken advantage of by
Answers to Review Questions
1. We talked in depth about four ways to improve performance ratings. Pick one that
you think shows the most promise and defend your position.
Choices on performance rating improvement strategies may vary among students
depending on their findings.
The four methods of improving performance ratings include:
• Strategy 1: Improve appraisal formats
The types of formats:
o Ranking:
Ranking formats include the straight ranking, alternate ranking, and the paired-
comparison procedures.
o Rating:
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(4) cost; and (5) validity.
• Strategy 2: Select the right raters
This includes the 360-degree feedback which entails feedback by raters encompassed
by the supervisors, peers, self, customer, and subordinates.
• Strategy 3: Understand how raters process information
Research shows that:
o Raters observe ratee’s behavior
o Rater encodes this behavior (forming stereotypes)
• Strategy 4: Training raters to rate more accurately:
Rater training can be divided into three distinct categories
2. You own a nonunion company with 93 nonexempt employees. All of these employees
pack books into boxes for shipment to customers throughout the United States.
Because of wide differences in performance, you have decided to try performance
appraisal, something never done before. Until now, you have given every worker the
same size increase. Now you want to measure performance and reward the best
performers with bigger increases. Without any further information, which of the five
types of appraisal formats do you think would be most appropriate? Justify your
answer. Do you anticipate any complaints, or other comments, from employees after
you implement your new system?
The nature of the task—packing books into boxes for shipment to customers throughout
the United States—is fairly routine and mechanistic. The most appropriate appraisal
11 – 27 Compensation – Thirteenth Edition Gerhart │Newman │Milkovich
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pay increases. The dimensions selected should reflect the activities involved in the task.
For example, behavioral examples that reflect quantity and quality issues can be specified,
with clear criteria related to the procedures involved in packing books into boxes.
To minimize employee complaints, employees need to be involved in the process of
developing performance dimensions and building the scales to measure how well they
perform on these dimensions. Research indicates participation results in employees having
more positive reactions to ratings, regardless of how well they do. They are happier with
the system’s fairness, appraisal accuracy, and give better evaluations of managers. They
also indicate intentions to stay with the organization. Managers also respond well to
employee involvement. They feel they have a greater ability to resolve work problems,
have higher job satisfaction, and have less reason to distort appraisal results to further their
own interests.
3. Think about the last group project you worked on. Describe that project and identify
three performance criteria you think would be appropriate for evaluating the team
members. Should every team member be able to rate one another on all these
dimensions? Should the team-member ratings be used for feedback only or for
feedback and part of the overall grade (with teacher approval, of course). Should the
teacher rate each team member on performance (all three criteria) in the group
assignment? How are these questions relevant to setting up a 360° performance
review?
Descriptions of group projects will vary depending on the students’ experiences.
Suggestions of activities related to the project might include research activities, writing a
paper on the project topic, typing the paper, preparing an oral presentation on the project
Chapter Eleven: Performance Appraisals 11 – 28
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• A team member whose contribution has been judged to be so far below that of all
other team members must be assigned a grade of zero (0). Assignment of such a
percentage grade must be justified to the instructor in writing. A zero grade will be
omitted from the computation of the average grade assigned to other team members.
• After completion of the group project, each team member will provide the grade
distribution for all team members, including his/her own grade. Each team member
must indicate agreement with the outcome of the grade distribution with his/her
signature.
While some teachers may rate team members on their performance, some may be
interested in letting the team members assume total responsibility for this. This method of
evaluation is similar to the 360-degree feedback since it measures performance
(contribution to the project) on two different aspects: supervisor (teacher), peer (team-
members). This method differs from the 360-degree feedback in that it does not allow self-
evaluation and there are no customers and subordinates for a team project.
4. Angela Lacy, an African-American employee in your accounts receivable
department, has filed a charge of discrimination, alleging she was unfairly passed
over for promotion and regularly receives smaller pay increases than do employees
who perform less well (she alleges). You have to go to your boss, the VP of HR, and
explain what elements of your HR system can be used in your legal defense. What
things do you hope you did in setting up and administering your systems to counter
this discrimination charge?
The following components of the company’s HR system can be used in the legal defense
of Angela’s discrimination charge:
• The performance appraisal system used by your company incorporates clear criteria
(performance dimensions and scale levels are objectively stated) for evaluating
11 – 29 Compensation – Thirteenth Edition Gerhart │Newman │Milkovich
VII. Appendix 11-A: Balanced Scorecard Example: Department of Energy (Federal
Personal Property Management Program)
A. The Balanced Score Card (BSC) Perspective:
1. Customer Perspective
• Enables organizations to align the core measure (customer satisfaction) to
2. Internal Business Processes Perspective
• The objective is to assure that an effective federal personal property
management program is established to:
o Support customer needs
3. Learning and Growth
• The two objectives are to promote organizational and individual growth that
will provide long-term benefits to the federal personal property management
program.
o The Learning and Growth objectives provide the infrastructure needed to
4. Financial Perspective
• The objective is to strive for optimum efficiency in the federal personal
property management program.
o To achieve that, processes need to be analyzed to determine:
Chapter Eleven: Performance Appraisals 11 – 30
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Education.
efficiencies.
• This perspective is important because optimizing the cost efficiency of the
federal personal property management program ensures that the maximum
amount of funds are available for accomplishing the primary missions of the
Department and its field organizations.
o Managers must ensure that federal personal property management
program operating costs are optimized in order to meet the challenge of
creating business programs that work better and cost less.
B. Objectives, Measures, and Targets:
1. General
• Each federal personal property BSC should contain both national and local
performance objectives, measures, and targets.
o National elements are developed by the Department in support of the
2. National (Core) Measures
• The core measures contained in the federal personal property BSC are
measures that the Department expects all entities charged with federal
3. Local Measures
• The federal personal property BSC should also include local measures to track
performance in areas of importance to the local site.
• The following measures are provided as examples of local measures that are
currently in use throughout the DOE complex:
o Customer Perspective
▪ Percent accuracy of key property data elements (property control
11 – 31 Compensation – Thirteenth Edition Gerhart │Newman │Milkovich
▪ Number of classes or training sessions, supporting BSC objectives,
provided to personal property custodians/representatives during the
period.
VIII. Appendix 11-B: Sample Appraisal Form for Leadership Dimension: Pfizer
Pharmaceutical
Exhibit: District Manager Baseline Capability Assessment
Exhibit: District Manager Strategic Capabilities