HRM - Chapter 7: Performance Management and Appraisal

Introduction Formal performance appraisal and multirater systems can have a great influence in the organizational performance and effectiveness (components of high performance work systems), because they are linked to business objectives, personal and organizational development and corporate strategy. On the other hand, its also a source of litigation, mainly because of the growing diversity of the workforce. Certain prescriptions should be followed in the PM system (Figure 7-1): Precision in the definition and measurement of the performance dimensions (as much as feasible) The content and measurement of performance must be linked to internal and external customers requirements. The PM system should investigate and correct the effects of situational constrains on performance.

Definition and why to measure performance Performance: the record of outcomes produced on specified job functions or activities during a specified period of time. The performance on the job as a whole is the average performance in the major functions or activities. The performance does NOT take into account measurement of traits, competencies and other characteristics of the person. Uses of performance data: Performance management and compensation: identify weaknesses in the performance, set targets for improvements and use pay-forperformance system to motivate the achievement of this targets. Internal staffing: decisions about job movement (who to promote, retain or fire). If the 2 jobs are different in terms of the KASOCs needed, its recommended not to use performance appraisal for decisions because the performance of the employees in the jobs are not related. Training needs analysis: employees needs for training or development. Research and evaluation: determine whether human resource programs (selection, training, etc.) are effective.

Legal issues Appraisal is a major target of legal disputes involving employee charges of unfairness and bias. To avoid these situations companies should audit data

to test for possible adverse impact, respect rules like the 80 percent*, and follow recommendations (Figure 7-3). * 80 % rule: the selection rate (number of employees selected / number of candidates) of any class cant be lower than 80% of the class oh higher selection rate.

Designing an appraisal system The people involved should be managers, employees, HR professionals and both internal and external customers, making decisions about measurement content, measurement process, rater and ratee. Measurement content: Performance appraisal must be work-oriented (focus on record of outcomes that a person achieved in the job) instead of person-oriented (focus on personal traits, like perseverance and loyalty), because the latter is not related with actual performance. The outcomes can be assessed in six categories: Quality: if the result approaches perfection, in terms of either conformance to how the activity should be performed or fulfillment of its purpose. Quantity: the amount produced (value, units, etc.) Timeliness: finish the activity at the earliest time desirable. Cost-effectiveness: maximize the gain (or minimize the loss) from each unit of resource. Need for supervision: if the person can carry out an activity without supervision to prevent an adverse outcome. Interpersonal impact: the worker promotes feelings of self-esteem, goodwill and cooperation between colleagues, and help in other activities (beyond formal role) when needed.

The relationships among the criteria have to be also considered by the managers and, in general, the effectiveness of a performance system is higher if the boss assess using more specific content (like the 6 categories) rather than just assess an overall performance, regardless of the purpose. Measurement process: There are three ways to make performance assessment: 1) Comparisons of ratees performances I compare the ratees according to some measure of effectiveness or just overall performance. I can compared all possible pair of employees (paired comparisons), make a ranking from the best to the worst worker

(straight ranking) or allocate the employees to some classes with fixed number of positions (forced distribution). 2) Comparisons among anchors I have a set of statements (anchors) and I have to select the one (or more) that best describes the ratees performance level. I can use the Computerized adaptive rating scale (CARS), or the forced method, which tries to reduce the bias because the scoring key is not known (managers dont like to use because of this). 3) Comparisons of individuals performance to anchors The first option is the graphic rating scale, in which anchors are adjectives and numbers and I have to choose which one matches the performance. One method is the behaviorally anchored rating scales (BARS), that gives some specific observations and the rater has to choose a point in the scale and write its own observation. The most popular method of appraisal is the management by objectives (MBO), in which the employees results are compared with targets set previously by him and his supervisor. The second option is the summated scales, that uses the frequency of achievement of a certain statement (anchor). An example of this method, the performance distribution assessment (PDA) takes into consideration the opportunities to perform at a level, due to situational constrains. The last option is the mixed standard scales, which compares if the performance is better, equal or worse than the anchor. Among all these methods the most reliable seems to be when we use the frequency that the worker achieve a performance level in the context of all the times he had the opportunity (PDA method). Another observation is that for individual level, it makes sense to derive the performance dimensions from the job descriptions, because thats the way workers understand their jobs (what they are paid for). Another function of the process is to control the rating errors that can arise from inaccuracies in judgment and information processing. The kinds of errors are: Leniency/Severity: all the employees with good evaluations (most serious problem with appraisals), or with bad, respectively. Both are related to the characteristics of the rater. The problem is that I cant differentiate my employees. Halo Effect: a rating on one dimension influences the rating in other different dimensions. Central Tendency: the majority of ratees is in the middle of the scale. Fundamental Attribution Error: tendency of observers to underestimate the effects of situational constrains and for performers to overestimate the effects on less than perfect performances,

creating a perception of unfairness. (For situational constrains see Figure 7-9) Representativeness: the rater associate a characteristic of a good (or poor) performer with that level of performance and assess the others based if they have or not such characteristic, but many times there is no link between this characteristic and the work performance. Using detailed descriptions of behaviors and outcomes I can overcome this problem. Availability: extreme performances (very good or very poor) are more memorable, so raters tend to attribute great frequency to them than was actually the case. Anchoring: Raters form a initial impression about workers and they resist to move from this point even with new relevant information.

There are unintentional errors and also intentional errors. Rater training can correct and avoid the first kind, by improving raters observational and categorization skills, with the creation of a common frame of reference among raters and illustration of examples of different levels of performance. On the other hand, intentional errors can be caused by political reasons, by the wish to avoid confrontation or to fire a employee and so on. Just training and rating methods with hidden scoring keys are not enough to deal with this problem, and the best option seems to be the assessment by more than one rater. Defining the rater: Most companies still rely just in the supervisor to assess the employees, but multirater systems, which can include self-assessment, colleagues, subordinates and external customers assessment, are becoming more common. This method is also known as 360-degree appraisal system (Figure 711), and its thought to be more accurate and fair, with less biases, and consequently less often target of lawsuits, being also related with corporate superior financial performance. The biggest advantage is that the raters involved have the knowledge of all aspects of the employees performance, and not just some of them (some aspects are exclusive to a kind of raters). Defining the ratee: The ratees can be defined in the individual, group and organizational level, and more than one level can be combined to create a multilevel system. Assessment in at a higher aggregation level is desired especially when there is a sense of cooperation (individual performance is much related to group work), and in this cases the use of just individual performances can create competition among workers. A process that can also be used is the benchmarking, comparing employees or firms performance with external reference or standards. One should just take care with the use of benchmarking to set targets when companys performance level is too far from benchmarking. This can

discourage employees and performance will decline. The solution is set realistic goals and gradually increase targets (known as shaping). There are many administrative characteristics that have to be considered in the performance management (Figure 7-12). Among them are the extension of the use of computers, the use or not of electronic devices (cameras, telephone and computer monitoring) to monitor the employees, and how the feedback is provided by the rater. The last one has both a motivational and informational purpose, and can have a great link with future performance. The biggest challenge is related with negative feedback, and training may be a way to facilitate the process. In sum a feedback should be clear, specific, descriptive, job related, constructive, frequent and timely.