PERFORMANCE MANAGEMENT AND
THE EMPLOYEE APPRAISAL PROCESS
A properly planned and effectively utilized performance appraisal program should contribute
to improved employee performance. In this chapter there is an extensive discussion of the
development of an appraisal program, including various sources of appraisal information. In
addition, several performance appraisal methods are described within the categories of trait,
behavior, and results approaches. A summary of the major strengths and weaknesses of
It is important for students to realize that training employees will not eliminate many of the
differences found among employees at the time they are hired. For this reason, performance
appraisal should be viewed as one of the important HR functions that can contribute to the
CHAPTER LEARNING OUTCOMES
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Explain what performance management is and how the establishment
of goals, ongoing performance feedback, and the appraisal process
are part of it.
LEARNING OUTCOME 1
LECTURE OUTLINE
I. PERFORMANCE MANAGEMENT SYSTEMS
• Performance appraisal is a process, typically delivered annually by a supervisor to a
subordinate, that is designed to help employees understand their roles, objectives, and
• Performance management is the process of creating a work environment in which
employees can perform to the best of their abilities.
II. ONGOING PERFORMANCE FEEDBACK
Because feedback is most useful when it is immediate and specific to a particular situation,
it should be a regularly occurring activity. For example, if you are a sales manager, should
employees.
Outline the characteristics of an effective performance appraisal
interview.
LEARNING OUTCOME 5
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you wait to appraise your employees once or twice a year? Probably not. Most likely you
would want to monitor their sales on a weekly and monthly basis. Has a particular
III. PERFORMANCE APPRAISAL PROGRAMS
A. The Purposes of Performance Appraisal
Performance appraisal programs benefit both the employee and the organization.
1. Administrative Purposes—For the organization, performance appraisals
provide inputs for many other HR functions. The concept of “pay–for-performance”
2. Developmental Purposes
• For the employee, performance appraisals provide feedback about daily
performance while also stressing employee training, development, and growth
plans.
• Refer to Figure 8.2 in the textbook to illustrate the more common uses of
B. Why Appraisal Programs Sometimes Fail
• Have students, in groups or individually, brainstorm why performance appraisal
programs fail. List their reasons on the board and compare them to those given in
the textbook.
IV. DEVELOPING AN EFFECTIVE APPRAISAL PROGRAM
• Developing an appraisal system is normally the joint responsibility of the HR
department and line and staff managers. The HR department is responsible for over-
Chapter 8: Performance Management and the Employee Appraisal Process 99
A. What Are the Performance Standards?
Before managers can appraise the performance of employees, appropriate
1. Strategic Relevance—This refers to how the appraisal standards relate to the
strategic objectives of the organization. A strategy-driven performance appraisal
2. Criterion Deficiency
• Performance standards must capture the full range of a person’s job. When
3. Criterion Contamination—Performance standards should not be influenced
by factors outside the employee’s control. For example, if bad materials or poor
4. Reliability
• This refers to the stability or consistency of a standard, or the extent to which
individuals tend to maintain a certain level of performance over time.
• Stress that performance standards should be written and that they should be
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• Obtain some sample performance appraisal forms from organizations. Have
students critique (1) the characteristics on which individuals are evaluated in
terms of how relevant they are to the job, and (2) the evaluator’s probable
opportunity to observe the behaviors described on the forms.
B. Are You Complying with the Law?
Based on recent court rulings, HR managers recommend that performance
appraisals meet these legal guidelines:
1. Performance ratings must be job-related (based on job analysis).
C. Who Should Appraise an Employee’s Performance?
• Just as there are multiple standards by which to evaluate performance, there are
a multitude of persons with valuable information about a person’s work
effectiveness.
• Use Figure 8.5 in the textbook as a basis for discussion about multiple sources
of appraisal.
1. Manager/Supervisor Appraisal—Because managers and supervisors work
2. Self-Appraisal—Self-appraisals are used when managers seek to increase
employees’ involvement in the appraisal process. One problem with this method is
3. Subordinate Appraisal—Appraisal by subordinates has been used when
supervisors seek feedback on how subordinates view them. Employees are in a
4. Peer Appraisal—Have students discuss when peer appraisals can be most
effectively used. What are several advantages and disadvantages of this appraisal
method? Have students discuss why this appraisal approach is not widely used.
Chapter 8: Performance Management and the Employee Appraisal Process 101
5. Team Appraisal—This is an extension of the peer appraisal. In a team setting,
6. Customer Appraisal—Driven by TQM concerns, internal and external
D. Putting It All Together: 360-Degree Appraisal
• Over 25 percent of all U.S. companies and over 90 percent of Fortune 1000
companies use some form of 360-degree appraisal. The system is intended to
E. Training Appraisers
Although performance appraisal is widely practiced by organizations, many
managers must perform the process without the benefit of training. This point is
highlighted by the quote by the following quote in the textbook: “What’s important is
not the (appraisal) form or (measuring) scale. What’s important is that managers can
objectively observe people’s performance and give them objective feedback on that
performance.” To accomplish this goal, performance appraisal training programs
should focus on the following:
1. Establishing an Appraisal Plan—This systematic process covers (1) the
2. Eliminating Rater Error
• Research has shown that appraisers are prone to make several different types
of rating errors.
• Distributional errors (e.g., central tendency, leniency, and strictness errors)
involve the arrangement of a group of ratings across several employees.
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• Temporal errors (e.g., recency) are the result of how a person evaluates
information over time.
3. Feedback Training
• Feedback not only provides employees with knowledge of results, but it also
allows the manager and employee to discuss current problems and set future
V. PERFORMANCE APPRAISAL METHODS
This section discusses the major contemporary methods of performance appraisal. Other,
less frequently used systems are also reviewed. Performance appraisal systems can be
broadly classified as trait methods, behavioral methods, or results-oriented methods.
A. Trait Methods
1. Graphic Rating Scales—In the graphic rating-scale method, traits or
characteristics are rated on a line or scale. Highlights in HRM 2 in the textbook
2. Mixed-Standard Scales
• These scales are extensions of the basic rating scale. In the mixed-standard
scales method, the manager evaluates the trait under consideration (e.g.,
3. Forced-Choice Method—In the forced-choice method, the manager is
required to choose from a pair of statements that appear equally favorable or
Chapter 8: Performance Management and the Employee Appraisal Process 103
4. Essay Method
• The essay method of performance appraisal requires the supervisor to write
B. Behavioral Methods
1. Critical Incident Method—The critical incident method appraises employees
based on favorable or unfavorable critical incidents related to the job. Managers
2. Behavioral Checklist Method—Checklists consist of groups of statements that
pertain to a given job. The rater checks those statements that apply to the ratee.
3. Behaviorally Anchored Rating Scale (BARS)
• A behaviorally anchored rating scale (BARS) is often mentioned as one
way to improve rating scales. It does this by providing a description of
4. Behavior Observation Scales (BOS)—A behavior observation scale (BOS) is
C. Results Methods
1. Productivity Measures
• A number of measures can be used to assess results achieved. Salespeople,
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2. Management by Objectives
• Developed by Peter Drucker in 1954, management by objectives (MBO) is a
philosophy of management as well as a goal–setting and performance
a. Requirements for a Successful MBO Program
• To be successful, MBO programs must meet several characteristics.
Established goals should be quantifiable and set for both the long run and
the short run. Goals must be realistically set and under the employee’s
b. Criticisms of MBO. The disadvantages of MBO include (1) some studies
3. The Balanced Scorecard
• Developed by Harvard professors Robert Kaplan and David Norton, the
Balanced Scorecard (BSC), discussed initially in Chapter 2, is a measurement
framework that helps managers translate strategic goals into operational
Chapter 8: Performance Management and the Employee Appraisal Process 105
D. Which Performance Appraisal Method to Use?
• The choice of which appraisal method to use largely depends on the intended
purpose of the appraisal program. To discuss the major strengths and weaknesses
• It is common for a supervisor’s appraisal of an employee to be reviewed by higher
VI. APPRAISAL INTERVIEWS
Appraisal interviews are a very important part of the entire appraisal process. Unfortunately,
many supervisors do not devote the time or attention needed to conduct the interview
A. Three Types of Appraisal Interviews
Norman Maier, an authority on the appraisal interview, notes that there are three basic
appraisal interview types.
1. Tell-and-Sell Interview—This method requires that the supervisor use
2. Tell-and-Listen Interview—When using this method, the supervisor discusses
the employee’s strong and weak points during the first half of the interview.
3. Problem-Solving Interview—The supervisor who uses the problem-solving
method employs nondirective interviewing procedures, but in addition, the
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B. Conducting the Appraisal Interview
• The textbook provides several considerations for conducting the appraisal
interview. A guiding rule to follow is not to discuss too much information at one
1. Ask for a Self-Assessment—Self-assessment gets employees thinking about
their performance and assures that they know the standards against which they
will be evaluated.
2. Invite Participation—Participation helps bring out some of the root causes of
3. Express Appreciation—Praise is a powerful motivator. However, avoid the
“sandwich technique.” With this method, positive statements are given first,
followed by negative statements, which are followed by more positive remarks.
4. Minimize Criticism—Criticism leads to defensiveness, and this may hurt the
chances of solving the problem. It’s hard to change a person’s behavior with a
single conversation, so “laying it on the line” isn’t probably a good idea.
5. Change the Behavior, Not the Person—Instead of focusing on traits that are
personal characteristics (and difficult to change) focus on behaviors that can be
corrected or improved.
Chapter 8: Performance Management and the Employee Appraisal Process 107
C. Improving Performance
Employees cannot improve their performance unless they know exactly what is
1. Identifying Sources of Ineffective Performance
• Use Figure 8.9: Factors That Influence Performance and Figure 8.10:
2. Performance Diagnosis
• Although performance appraisal systems can often tell us who is not
performing well, they typically cannot reveal why. So, if someone is not
3. Managing Ineffective Performance—A three–step process is recommended to
correct poor employee performance. First, identify the source of poor
performance. Second, develop a course of action to improve performance.
Third, motivate the employee to correct undesirable job behavior.
Performance Diagnosis
1. Noting that Carl works very hard on the gopher problem, this may offer a clue
that his problem is not motivation or external issues, but that he lacks the skills
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3. There could be several explanations including lack of sales training or perhaps
his college degree is in a different field that is of greater interest to him.
Students will have various explanations.
ANSWERS TO END–OF-CHAPTER DISCUSSION QUESTIONS
1. The performance appraisal an employee receives is directly linked with other HR functions.
A poor appraisal review can limit promotional or transfer opportunities. A poor appraisal
2. The courts have emphasized the importance of having carefully defined and measurable
3. Some criteria that can be used to appraise performance in the following jobs are:
a. Sales representative: Volume of sales made, number of sales contacts made, and
customer complaints.
4. a. The tell-and-sell method requires the ability to persuade an individual to change in the
prescribed manner. The tell-and-listen method requires the ability to communicate the strong
and weak points of a subordinate’s performance and to explore the subordinate’s feelings
Chapter 8: Performance Management and the Employee Appraisal Process 109
5. Poor performance should be detected during the daily observation of employees. The major
factors that influence performance are listed in Figure 8.8 in the textbook.
ANSWERS TO USING THE INTERNET ACTIVITIES
Internet Exercise #1, page 358
Question:
Visit the website of the U.S. Office of Personnel Management and conduct a search of “360–
degree assessment” for the organization’s training assistance program. Review the
organization’s 360-degree feedback procedures and list the sources of feedback. What questions
are considered for each feedback source?
Answer:
The feedback sources included in OPM’s 360-feedback process include the following:
Internet Exercise #2, page 368
Question:
Visit the U.S. Army Research Institute and conduct a search of “behaviorally anchored rating
scales” (BARS). Provide a summary of how the U.S. Army has used BARS to assess tactical
thinking.
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Answer:
An ongoing need exists in the Army to enhance combat leaders’ tactical thinking skills. A
Chapter 8: Performance Management and the Employee Appraisal Process 111
VIDEO CASE DISCUSSION GUIDE
Students will offer a number of answers to this question, so they should be encouraged to fully
explain their rationale for their ideas. Some possibilities might include increasing job
satisfaction by encouraging employees to take on additional tasks or increasing productivity
through training.
The video suggests that the two owners do most of the performance reviews. Guide students in
discussing who else might be able to offer accurate, reliable performance evaluations. Then
guide students in discussing the merits and feasibility of having other stakeholders, such as
peers, participate in performance evaluations. Ask students to share their opinions about
whether the employees should be given an opportunity to evaluate themselves.
NOTES FOR END–OF-CHAPTER CASE STUDIES
Case Study 1: Performance Management System Helps Freeport McMoran
Switch Strategic Gears
1. The firm needed a means o coordinating and focusing its workforce around the world on
2. In posting that question to the class, it will be interesting to see if anyone thinks that paper and
pencil would be better. Some might argue that if those who are going to do the appraisals are
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Case Study 2: Appraising Employees at the San Diego Zoo
1. The performance appraisal an employee receives is directly linked with other HR functions.
A poor appraisal review can limit promotional or transfer opportunities. A poor appraisal
2. The courts have emphasized the importance of having carefully defined and measurable
3. Some criteria that can be used to appraise performance in the following jobs are:
a. Sales representative: Volume of sales made, number of sales contacts made, and
customer complaints.
4. a. The tell-and-sell method requires the ability to persuade an individual to change in the
prescribed manner. The tell-and-listen method requires the ability to communicate the strong
and weak points of a subordinate’s performance and to explore the subordinate’s feelings
5. Poor performance should be detected during the daily observation of employees. The major
factors that influence performance are listed in Figure 8.8 in the textbook.