Human Resource Management

Dr. Karim Kobeissi

Islamic University of Lebanon - 2014

Chapter 8: Performance Management & Appraisal

Performance Management (PM)

Performance management is a goal-oriented process
used to maximize the productivity of employees, teams,
and the overall organization.
Close relationship between incentives and performance.
Whereas performance appraisal occurs at a specific
time, performance management is an ongoing process.
Each part of the system, such as training, appraisal, and
rewards, is integrated and linked for the purpose of
continuous organizational effectiveness.
To encourage this, performance management systems
often include incentives so that workers are rewarded for
achieving strategic goals.

Performance Appraisal Defined

Performance appraisal is a formal system of review and
evaluation of individual and team performance.
Performance appraisals are often a disliked requirement
of organizational life. It usually goes without saying that
most managers do not like giving performance appraisals
and most employees do not like receiving them.
However, appraisal is a critical part of performance
management because it helps provide feedback,
encourage performance improvement, identify training
and development needs, and defend personnel
decisions. As such, developing an effective performance
appraisal system has been, and will continue to be, a
high priority for management.

Uses of Performance Appraisal

For many organizations, the primary goal of a performance
appraisal system is to improve individual and organizational
performance.
Human resource planning: Used in making decisions such
as promotion, demotion, termination, layoff, and transfer
Training and development: Points out employees specific
needs
Career planning and development: Assesses employees
strengths and weaknesses and determines employees
potential
Compensation programs: Provide basis for rational
decisions regarding pay adjustments

Integrating Learning and Performance Management

For many years, there were separate HR learning management
and performance management systems that did not work
together, but now these systems have converged into an
integrated total system.
Most integrated systems use competency model where skills
are first identified for each job and the competencies provide
the basis for performance appraisal.
Managers rate the performance of each employee, then look for
differences between individual ratings and desired ratings.
Employee development plans are formulated based on these
gaps.

Performance Appraisal Environmental

Factors
External and internal environmental factors can
influence the appraisal process.
Factors within external environment, such as:
Legislation requiring nondiscriminatory appraisal systems
Labor unions

Factors within internal environment, such as:

- Corporate culture

Labor Unions and Performance Appraisal

The labor union is another external factor that might
affect

firms appraisal

traditionally

stressed

process.

seniority

as

Unions
the

basis

have
for

promotions and pay increases.

Labor unions may vigorously oppose the use of
management-designed performance appraisal system.

Performance Appraisal Process

The starting point for the performance appraisal process is
identifying specific performance goals. The next step is to
establish performance criteria and communicate these
expectations to employees. At the end of the appraisal
period, which is typically anywhere from 3 to 12 months, the
supervisor and the employee review work performance
against the performance standards. This review helps
determine how well employees have done, explores
reasons for deficiencies, and develops a plan to correct the
problems.

Establish Performance Criteria (Standards)

Management must carefully select performance
criteria that pertain to achieving strategic goals.
The most common appraisal criteria are:
Traits
Behaviors
Competencies
Goal achievement
Improvement potential

Establish Performance Criteria: Traits

Using

traits

for

evaluation

may

be

appropriate if they can shown to be job

related.
Certain

traits

such

as

adaptability,

judgment, appearance, and attitude may

directly relate to job performance.
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Caution on Traits
Organizations need to be cautious when using
traits for evaluations, as many of these qualities
are subjective and may be either unrelated to job
performance or difficult to define. In such cases,
inaccurate evaluations may occur and create legal
problems for the organization.

Establish Performance Criteria : Behaviors

When an individuals task outcome is difficult to
determine, organizations may evaluate the persons
task-related behavior. For example, an appropriate
behavior to evaluate for a manager might be leadership
style.
For

individuals

working

in

teams,

behaviors

like

teamwork, cooperation, or customer service orientation

might be appropriate if they lead to desired outcomes.

Establish Performance Criteria: Competencies

Competencies

include

broad

range

of

knowledge, skills, and behaviors that may be

technical in nature, business oriented, or related to
interpersonal skills. For example, analytical thinking
and achievement orientation might be essential in
professional jobs.
The

competencies

purposes

should

be

selected
those

associated with job success.

for
that

evaluation
are

closely

Establish Performance Criteria: Improvement Potential

When
organizations
evaluate
their
employees performance, the focus is often
on the past. However, firms should also
emphasize the development of behaviors
employees need to achieve the firms
goals.
This begins with an accurate assessment of
the employees improvement potential to
ensure effective career planning and
development.

Responsibility for Appraisal

The HR department is usually responsible for coordinating
the design and implementation of performance appraisal
programs. However, it is essential that line managers
are involved from beginning to end. These individuals
usually conduct the appraisals; therefore, they should
participate in the design of the program if it is to
succeed.

Immediate Supervisor
An employees immediate supervisor is usually the most
logical choice for evaluating performance. The supervisor is
usually in an excellent position to observe the employees job
performance and the performance of a team. On the negative
side, individual supervisors may only focus on certain
aspects of employee performance, or may manipulate
evaluations to justify pay increases and promotions.

Subordinates
Historically, our culture has viewed the evaluation of managers by
subordinates negatively. However, subordinates are in an
excellent position to view their superiors managerial effectiveness.
Advocates believe that this approach leads supervisors to become
especially conscious of the work groups needs and to do a better
job of managing. Critics argue that managers may view it as a
popularity contest or that employees will be fearful of revenge.

Peers and Team Members

A major strength of using peers to appraise performance is
that they work closely with the employee and probably have
an accurate perspective on day-to-day performance.
Problems with peer evaluations include the unwillingness of
some people, especially on teams, to criticize each other.
On the other hand, if an employee has a conflict with
another worker he or she might provide an unfair
evaluation. Another problem concerns peers who interact
infrequently and therefore lack the information needed to
make an accurate assessment.

Self-Appraisal
If employees understand their objectives and the criteria used
for evaluation, they are in a good position to appraise their
own performance. Many people know what they do well on
the job and what they need to improve. If they have the
opportunity,

they

will

criticize

their

own

performance

objectively and take action to improve it. If the appraisal

system is fair and equitable, self-appraisal can actually lead
to more highly motivated employees.

Customer Appraisal
Customers often determine a firms success, so
some organizations believe it is important to obtain
performance input from them as well. Organizations
use this approach because it demonstrates a
commitment to the customer, holds employees
accountable, and fosters positive change.

The Appraisal Period

Formal performance evaluations usually
occur annually or semiannually. Managers
should understand that to effectively
manage
performance,
performance
appraisal must be a continuous process of
coaching and development throughout the
year.
Period may begin with employees date of
hire

Performance Appraisal Methods

There are a number of performance appraisal methods available, and the
methods used should reflect the intended purpose:

360-degree evaluation

Rating scales

Critical incidents

Essay

Work standards

Ranking

Paired comparisons

Behaviorally anchored rating scales (BARS)

Result-based systems

Work Standards
The work standards method is a
performance appraisal technique that
compares
each
employees
performance to a predetermined
standard. Firms may apply work
standards to virtually all types of jobs,
but production jobs generally receive
the most attention. An advantage of
using this method is that it can be
very objective if standards are fair
and set in a transparent manner.
8-30

Ranking
Ranking is when a rater ranks all
employees from a group in order
of overall performance. Some
professionals
believe
this
comparative
approach
is
especially
useful
when
management must make human
resource decisions such as
promotion or pay increases.
8-31

Paired Comparison
Paired comparison is a variation of
the ranking method in which the
performance of each employee is
compared with that of every other
employee in the group. The
employee who receives the
greatest number of favorable
comparisons receives the highest
ranking.

Behaviorally Anchored Rating Scales (BARS)

The behaviorally anchored rating scale (or BARS) method combines
elements of the traditional rating scales and critical incident methods.
A BARS system differs from rating scales because, instead of using
terms such as high, medium, and low, it uses behavioral comments
related to the criterion being measured. This clarifies the meaning of
each point on the scale and reduces rater bias and error by anchoring
the rating with specific behavioral examples based on job analysis
information. Among the various appraisal techniques, the BARS
method is perhaps the most highly defensible in court because it is
based on actual observable job behaviors.

Result-Based Systems
The
manager
and
subordinate jointly agree on
objectives for the next
appraisal period in a
results-based system. At
the end of the appraisal
period,
the
evaluation
focuses on how well the
employee achieved these
objectives.

Problems in Performance Appraisal

Many of the problems commonly mentioned about
performance appraisal are not inherent in the
method, but rather reflect improper implementation.
For example, firms may fail to provide adequate
rater training or they may use appraisal criteria that
are too subjective and are not clearly job related.
The following section highlights some of the more
common problem areas.
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1- Appraiser Discomfort
Conducting performance appraisals is
often a frustrating management task. If a
performance appraisal system has a
faulty design or improper administration,
employees will fear receiving appraisals
and the managers will hate giving them.
In fact, some managers have always
disliked the time, paperwork, difficult
choices, and discomfort that often
accompanies the appraisal process.
Effective training will help alleviate some,
but probably not all, of this appraiser
discomfort.

2- Lack of Objectivity
A potential weakness of traditional performance appraisal
methods is that they lack objectivity. Employee
appraisal based primarily on factors such as attitude,
appearance, and personality are difficult to measure and
may have little to do with an employees job performance.
Although subjectivity will always be present in appraisal,
using personal characteristics will always be difficult to
defend if they are not clearly job related.
8-37

3- Halo/Horn Error
A

halo

error

occurs

when

manager

generalizes one positive performance feature

or incident to all aspects of employee
performance, resulting in a higher rating.
Likewise, with the horn error, a manager
generalizes a negative performance feature
to all aspects of employee performance,
resulting in a lower rating.

4- Leniency/Strictness
Giving undeserved high ratings to an employee is
referred to as leniency. This behavior is often
motivated by a desire to avoid disagreement over
the appraisal. When managers know they are
evaluating
employees
for
administrative
purposes, such as pay increases, they are likely
to be more lenient than when evaluating
performance to achieve employee development.
Being overly critical of an employees work
performance is referred to as strictness. The
worst situation is when a firm has both lenient
and strict managers, and therefore is not able to
make fair comparisons across employee
evaluations.

5- Central Tendency
Central tendency is an error that occurs when employees
are incorrectly rated near the middle of a scale. This
practice may be encouraged by some systems that require
the evaluator to justify, in writing, any extremely high or
low ratings. With such a system, the rater may avoid
possible disagreement or criticism by giving only average
ratings. When a manager gives an underachiever or
overachiever

an

average

rating,

compensation and promotion systems.

it

damages

the

6- Recent Behavior Bias

Although his or her actions may not be conscious,
an employees behavior often improves and
productivity tends to rise several days or weeks
before an evaluation. It is only natural for a rater
to remember recent behavior more clearly than
actions from the more distant past. An
individuals performance over the entire period
should be considered, and maintaining detailed
records of performance helps avoid this
problem.
8-41

7- Personal Bias
When managers allow individual differences, such as
gender, race, or age, to influence ratings, not only is
this harmful to morale, but it is obviously illegal and
can result in costly lawsuits.

8- Manipulating the Evaluation

Managers often control virtually every aspect of the appraisal
process and are therefore in a position to manipulate the
evaluation. For example, a supervisor may want to give a
pay raise to a certain employee and will give the employee
an undeserved high performance rating. Or the supervisor
may want to get rid of an employee, and may give the
individual an undeserved low rating. In either instance, the
system is distorted, the performance appraisals are not
valid, and the evaluations would not be defensible in court.

8-43

9-Employee Anxiety
The evaluation process may also create
anxiety

for

the

appraised

employee.

Managers should be aware that this is a

serious issue because opportunities for
promotion, better work assignments, and
increased compensation are at stake for the
employee. This could cause not only anxiety,
but also hinge on results

Characteristics of Effective Appraisal System

The basic purpose of a performance appraisal system is to
improve the performance of individuals, teams, and the entire
organization. The system may also serve to assist in making
administrative

decisions

concerning

pay

increases,

promotions, or terminations. Although a perfect system does

not

exist,

every

system

should

possess

certain

characteristics and should honestly inform employees of how

they stand with the organization.

1- Job-Related Criteria
Job-relatedness is the most basic criterion needed in
employee

performance

appraisals.

The

Uniform

Guidelines on Employee Selection Procedures and court

decisions are clear on this point: Evaluation criteria
should be determined through job analysis. Subjective
factors, such as initiative, enthusiasm, loyalty, and
cooperation may be important, but should NOT be used
unless they can be shown to be job related.

2- Performance Expectations
Managers and subordinates must agree on
performance expectations in advance of the
appraisal period. How can employees be expected
to function effectively if they do not know the
standard against which their performance will be
measured? If employees clearly understand the
expectations, they can evaluate their own
performance and make adjustments as they
perform their jobs, without having to wait for a
formal review.

3- Standardization
Firms should use the same evaluation instrument
and procedure for all employees in the same job
category. Supervisors should also conduct
appraisals covering similar periods for these
employees. Having regular feedback sessions,
documenting appraisal data, and standardizing
the entire process makes it more effective and
protects against possible legal action.

4- Trained Appraisers
A common deficiency in appraisal systems is that
the evaluators seldom receive training on how
to

conduct

effective

evaluations.

Training

should be an ongoing process that covers how

to rate employees and how to conduct
appraisal interviews.

8-49

5- Continuous Open Communication

Most employees want to know how they
are doing. A good appraisal system
provides feedback on a regular basis,
so there should be few surprises at the
performance review. Managers should
not save up problems for months at a
time and then address them during the
performance appraisal.

8-50

6- Conduct Performance Reviews

In addition to the need for ongoing communication
between managers and their employees, a special
time should be set for a formal discussion of an
employees performance.
A formal performance review allows employees to
detect any errors or omissions in the appraisal and
discuss these issues in an appropriate setting.

7- Due Process
Ensuring due process is vital. If the
company does not have a formal
complaint

procedure,

it

should

develop one to provide employees

an opportunity to appeal appraisal
results that they consider inaccurate
or unfair.

8-52

Legal Implications
Employee lawsuits may result from
negative evaluations. Employees
often win these cases, thanks in
part to the employers own
inadequate performance appraisal
procedures. A review of court
cases makes it clear that legally
defensible performance appraisal
systems should always be in
place.

Appraisal Interview
The appraisal interview is often the
Achilles heelor weakest pointof the
entire evaluation process.
To minimize the possibility of hard
feelings, the face-to-face meeting and
the written review must have
performance
improvement,
not
criticism, as their goal.
We will now look at ways to make the
appraisal interview more effective in
the areas listed here.
8-54

Interview Structure
Supervisors should always let employees know what is on the
agenda well before meeting for the appraisal interview.
Supervisors may be hesitant to meet face-to-face with poor
performers, but these are often the employees who can benefit
most from honest feedback and coaching on how to improve.
The interview structure should facilitate this sort of open
discussion and planning for future development.
8-55

Conducting Separate Interviews

There is tremendous value in separating the
discussion on employee performance and
development from the discussion about pay.
Many managers have learned that as soon as
the topic of pay emerges in an interview, it
tends to dominate the conversation, with
performance improvement taking a back seat.
For this reason, it is advisable to defer the
discussion on pay until several weeks after the
appraisal interview.

Use of Praise and Criticism

Conducting an appraisal interview requires diplomacy and
patience on the part of the evaluator. Praise is appropriate
when justified, but should not be given if it is not deserved. If an
employee must eventually be terminated because of poor
performance, a managers false praise could bring into question
the real reason for the employees termination. Criticism,
even when constructive, is almost always difficult to give.
Effective managers can help minimize threats to an employees
self-esteem by criticizing the specific behavior or action, and
not the person.

Employees Role
About two weeks before the review, employees
should go through their notes (in diaries & files)
on all the projects on which they have worked
during the review period.
Providing a summary of how they added value or
what they learned on these projects can help
managers in developing a more objective and
accurate appraisal.

Concluding the Interview

Ideally, employees will leave the review with positive
feelings about management and themselves.
If the meeting is de-motivating, the prediction for
improved performance will be miserable Although
you

cannot

change

past

behavior,

future

performance is another matter. The review should

end with specific and mutually agreed-upon plans for
the employees development.

Global View of Performance Appraisal

Performance appraisal has special problems when
translated into different cultural environments.
For example, Chinese managers often have a different
idea about how to define and measure performance than
Western managers do.
Chinese companies may define performance in terms of
personal characteristics, such as loyalty and morality,
rather than outcomes, as is common in the United
States.