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Performance Appraisals. Chapter 11. Chapter Topics. Role of Performance Appraisals in Compensation Decisions Common Errors in Appraising Performance Strategies for Better Understanding and Measuring Job Performance Putting It All Together: Performance Evaluation Process.
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Performance Appraisals Chapter 11
Chapter Topics • Role of Performance Appraisals in Compensation Decisions • Common Errors in Appraising Performance • Strategies for Better Understanding and Measuring Job Performance • Putting It All Together: Performance Evaluation Process
Chapter Topics (cont.) • EEO and Performance Evaluation • Tying Pay to Subjectively Appraised Performance • Promotional Increases as a Pay-for-Performance Tool
The Role of Performance Appraisalsin Compensation Decisions • Used for several organizational decisions • To guide allocation of merit increases • For developmental purposes • Two uses are often in conflict • Performance ratings are influenced by: • Employee behaviors observed by raters • Organization values • Competition among departments
The Role of Performance Appraisalsin Compensation Decisions (cont.) • Employees often frustrated about the appraisal process • Appraisals are too subjective • Possibility of unfair treatment by a supervisor • Experts argue that rather than throwing out the entire performance appraisal process, total-quality-management principles should be applied to improving it
Factors Related to Inaccurate Appraisals • Guilt • Embarrassment about giving praise • Taking things for granted • Not noticing good or poor performance • The halo effect • Dislike of confrontation • Spending too little time on preparation of the appraisal
Strategies to Better Understand and Measure Job Performance • Clearly define job performance • Recognize definition of performance and its components is expanding • Improve appraisal formats • Select the right raters • Understand way raters process information and mistakes that may be made • Train raters to improve rating skills
Strategy to Better Understand and Measure Job Performance Strategy 1: Improve Appraisal Formats
Categories of Appraisal Formats Ranking - Rater compares employees against each other Categories Rating - Rater evaluates employees on some absolute standard (measured on a continuum scale) Essay - Rater answers open-ended questions in essay form describing employee performance
Ranking Formats • Straight ranking • Alternation ranking • Paired-comparison ranking
Employee Comparisons • Rank order/forced choice/paired comparison • Advantages • Distribution for decision making • No central tendency/leniency • Disadvantages • Halo error/individual errors • Comparing pears to bananas • Feedback/justification • Scale doesn’t provide for amount of differences
Rating Formats • Two common elements • Raters evaluate employees on some absolute standard • Each standard is measured on a scale -performance variation is described along a continuum
Rating Formats (cont.) • Types of descriptors • Adjectives • Standard rating scale • Behaviors • Behaviorally anchored rating scales • Outcomes • Management by objectives • Essay format
Sample Trait Scales Rate each worker using the scales below. Decisiveness: 1 2 3 4 5 6 7 Very low Moderate Very high Reliability: 1 2 3 4 5 6 7 Very low Moderate Very high Energy: 1 2 3 4 5 6 7 Very low Moderate Very high Loyalty: 1 2 3 4 5 6 7 Very low Moderate Very high
Trait Rating Scales • Advantages • Easy to develop • Inexpensive • Use across different jobs • Disadvantages • Subjective/subject to errors • Not job specific • Difficulty with feedback • Potential legal problems
Behavior-based Scales • Behavior Expectation Scales • (Behaviorally Anchored Rating Scales) • 1. Ask managers for critical incidents – behaviors that reflect particularly effective/ineffective behavior • 2. Sort into categories and rank within each category • 3. Ask for additional incidents to fill in categories • 4. Retranslate – ask managers to sort
Behavior Based Scales • Advantages • Based on samples of actual observed behavior • More effective behavior identified for training • Instrument used by those who helped develop it • Spin offs – selection, training, objectives • Disadvantages - Cost of development - Opportunity to observe behaviors for many employees
Objective-based Ratings • Profits/production/quality/sales • Advantages • Objective/eliminate rating errors • Disadvantages • Deficient – may omit important factors • Focus on quantifiable/observable results • Situational factors • Feedback • Encourages results at all costs
Evaluating Performance Appraisal Formats • What makes for a good appraisal format? • Employee development potential • Administrative ease • Personnel research potential • Cost • Validity
Exhibit 11.10: An Evaluation of Performance Appraisal Formats
Strategy to Better Understand and Measure Job Performance Strategy 2: Select the Right Raters
Select the Right Raters • Focus on who might conduct the ratings and which of these sources is more likely to be accurate • 360-degree feedback – assesses employee performance from five points of view • Supervisor • Peer • Self • Customer • Subordinate
Strategy 3: Understand How Raters Process Information Strategy to Better Understand and Measure Job Performance
The Rating Process • Rater observes behavior of a ratee • Rater encodes ratee behavior • Rater stores information in memory • When it is time to evaluate a ratee, rater: • Reviews performance dimensions • Retrieves stored observations to determine relevance to performance dimensions • Information is reconsidered and integrated with other available information as rater decides on final ratings
Types of Errors Understand Why Raters Make Mistakes Errors in rating process Errors in observation (attention) Errors in storage and recall Errors in actual evaluation
Strategy 4: Training Raters to Rate More Accurately Strategy to Better Understand and Measure Job Performance
Training Raters to Rate More Accurately • Rater-error training • Goal is to reduce psychometric errors by familiarizing raters with their existence • Performance-dimension training • Exposes supervisors toperformance dimensions used • Performance-standard training • Provides raters with a standard orframe of reference for making appraisal
Ways to Improve Rater Training • Straightforward lecturing to ratees is ineffective • Individualized or small group discussions more effective • When sessions are combined with extensive practice and feedback, rating accuracy improves • Longer training programs are generally more successful than shorter programs • Performance-dimension and performance-standard training more effective than rater-error training • Success results from efforts to reduce halo errors and improve accuracy
Putting it All Together: The Performance Evaluation Process • Need a sound basis for establishing performance appraisal dimensions and scales associated with each dimension • Need to involve employees in every stage of developing performance dimensions and building scales • Need to ensure raters are trained in use of appraisal system and that all employees understand how system operates
Putting it All Together: The Performance Evaluation Process (cont.) • Need to ensure raters are motivated to rate accurately • Raters should maintain a diary of employee performance • Raters should attempt a performance diagnosis to determine if performance problems exist
Exhibit 11.11: Tips on Appraising Employee Performance (con’t)
1 Provide specific written instructions on how to complete appraisal 2 Incorporate clear criteria for evaluating performance - Performance dimensions should be written, objective, and clear 3 Provide a rational foundation for personnel decisions via adequately developed job descriptions 4 Require supervisors to provide feedback about appraisal results to employees 5 Incorporate a review of performance ratings by higher level supervisors 6 Consistent treatment across raters, regardless of race, color, religion, sex, and national origin should be evident EEO and Performance Evaluation Key Issues: Establishing a Performance Appraisal System
How do we get employees to view raises as a reward for performance? Tying Pay to Subjectively Appraised Performance Central issue involving merit pay
Pay Increase Guidelines with Low Motivational Impact • Provide equal increases to all employees regardless of performance • General increase • Cost-of-living adjustments • Pay increases based on a preset progression pattern based on seniority
Requirements to Link Pay to Performance • Define performance • Behaviors • Competencies • Traits • Specify a continuum describing different levels from low to high on performance measure • Decide how much of a merit increase is given for different levels of performance
Designing Merit Guidelines Four Questions . . . 1 What should the poorest performer be paid as an increase? 2 How much should average performers be paid as an increase? 3 How much should top performers be paid? 4 What should be the size of the percentage increase differential between different levels of performance?
Promotional Increases as a Pay-for-Performance Tool • Promotion should be accompanied by a salary increase - 8 to 12% • Characteristics of promotional pay increases • Size of increment is approximately double a normal merit increase • Represent a reward to employees for commitment and exemplary performance
