Mgmt440 T07 Performance Appraisal

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  • 1. Paul L. Schumann, Ph.D. Professor of Management MGMT 440: Human Resource Management 2008 by Paul L. Schumann. All rights reserved.

2. Outline

  • Performance Measurement
  • Functions of Performance Appraisal
  • Criteria for Effective Performance Appraisal Systems
  • Types of Performance to Measure
  • Performance Appraisal Methods
  • Performance Raters (Evaluators)
  • Performance Feedback

3. Performance Management

  • Performance appraisal:the measurement and assessment of an employees job performance
  • Performance management:the integration of performance appraisal systems with other HRM systems for the purpose of aligning the employees work behaviors and results with the organizations goals
    • Example: link an employees pay increase to the employees job performance
      • To do this, we have to measure the employees job performance
    • Goal: Improve the organization by improving the employees work behaviors and results

4. Performance Management Cycle

  • Source of figure: Adapted from Fisher, Schoenfeldt, & Shaw (2006), Figure 10.1, p. 421

Development Tool Administrative Tool 5. Functions of Performance Appraisal

  • Employee Development Tool
    • Goal setting: Set performance goals for each employee
      • Involve the employee in goal setting
      • Make the goals specific, concrete, & measurable
        • Example goals (some of many) for a retail store manager:
          • Sales goal for year = $2 million
          • Customer satisfaction goal = average rating of 4.5 on 5-point customer satisfaction rating scale
      • Make the goals difficult but achievable, challenging but realistic
      • Empower employees to achieve their goals

6. Functions of Performance Appraisal

  • Employee Development Tool (more)
    • Provide feedback to reinforce & sustain performance
      • Employees need to know how they are doing
    • Provide help & advice to improve performance
      • Be a coach in addition to being a boss
    • Assist employees in achieving career progression goals
    • Determine training needs
      • Do employees have job performance deficiencies for which training would be an effective remedy?

7. Functions of Performance Appraisal

  • Administrative Tool
    • Link rewards to performance
      • Examples: pay increases, promotions, demotions, terminations, disciplinary actions, etc.
      • Goal: Create incentives to motivate employees to increase their performance
    • Evaluate HRM policies & programs
      • Example: Evaluate a training program: Measure job performance before and after training to see if performance improved

8. Criteria for Effective Performance Appraisal Systems

  • 1.Validity:are we measuring the right thing?
    • Are we really measuring job performance?
      • We want to measure important (relevant) aspects of job performance, in a way that is free from extraneous or contaminating influences, and that encompasses the whole job (i.e., our measures of job performance are not deficient: we arent leaving out important aspects of job performance)
  • 2.Reliability:consistency of measurement
    • Example: inter-rater reliability
      • If two people observe a particular employees job performance, do they agree in their rating of the employees performance?

9. Criteria for Effective Performance Appraisal Systems

  • 3.Freedom from bias
    • It does not illegally discriminate (race, sex, age, etc.)
    • It is free from rating errors (intentional or unintentional):
      • Leniency errors
      • Severity errors
      • Central tendency errors
      • Halo errors
  • 4.Practicality
    • The benefits the organization gets from using it should outweigh the costs of developing & using it
      • Utility analysis
    • It should be relatively easy to use
    • It should be accepted by managers and employees

10. Types of Performance to Measure

  • What aspects of an employees job performance can we measure?
    • We have 3 basic choices:
      • Resultsproduced by the employee
        • Example for a salesperson: Amount of sales ($) in the past month
      • Behaviorsof the employee
        • Example for a salesperson: Number of sales calls in the past month
      • Traitsof the employee
        • Example for a salesperson: Friendliness

11. Types of Performance to Measure

  • Results-based (results-oriented):measure the results produced by the employee
    • Examples for a retail store manager (examples of some results for which the store manager has responsibility and so should be held accountable):
      • Sales of the store
      • Profit per square foot
      • Inventory shrinkage
      • Customer satisfaction
    • Makes sense for most jobs
      • Results matter (usually)

12. Types of Performance to Measure

  • Results-based (more)
    • Challenges:
      • Which results are relevant may not be obvious for all jobs
      • Some results are not under the employees control
      • May foster a results at all costs mentality
      • May interfere with teamwork
      • May be difficult to provide effective feedback

13. Types of Performance to Measure

  • Behavior-based (behavior-oriented):measure the employees behaviors
    • Examples for a retail store manager:
      • Good attendance
      • Completes management reports correctly & on time
      • Monitors customers and employees for theft
      • Coaches employees to welcome customers to the store & offer assistance within 3 minutes, and to thank customers as they leave
      • Conducts regular sessions with employees to develop teamwork
    • Makes sense for many jobs
      • Use it wherehowthe employee produces results matters

14. Types of Performance to Measure

  • Behavior-based (more)
    • Advantage: Makes it easier to provide effective performance feedback to employees
      • Examples for a retail store manager:
        • Feedback with results-oriented performance appraisal: You didnt achieve your sales goal. (Measured by sales reports)
        • Feedback with behavior-oriented performance appraisal: You are allowing your employees to wait too long before offering help to customers. (Measured by observations of a secret shopper)
    • Challenges:
      • Difficult to capture the full range of relevant behaviors
      • Different behaviors can lead to the same results
        • We may not always care which behaviors were used

15. Types of Performance to Measure

  • Trait-based (trait-oriented):measure the employees personal characteristics
    • Examples for a retail store manager:
      • Ability to make decisions
      • Loyalty to the company
      • Communication skills
      • Level of initiative
    • This is usually a bad idea for several reasons:
      • Poor reliability & validity of measures of traits
      • Weak relationship between traits and job effectiveness
      • Measurements of traits are more likely to be subject to biases (sexism, racism, ageism, etc.)
      • Hard to use traits to provide effective feedback

16. Types of Performance to Measure

  • So, in most cases, we want to measure the job performance of an employee in terms of theresultsandbehaviorsof the employee
    • Make a list of results & behaviors that are relevant to the job
      • Starting point: Use the job description to identify the essential tasks of the job
        • Example task statement on job description for a Retail Store Manager: Manage inventory shrinkage.
      • Translate the tasks into results & behaviors
        • Example (continued): Measure the amount of inventory shrinkage in the store (a result)

17. Performance Appraisal Methods

  • Once we decidewhichresults & behaviors we want to measure, we next need to decidehowto measure those results & behaviors
    • We have 3 categories of choices:
      • Objectivemeasures of performance
      • Subjectivemeasures of performance
      • Management By Objectives

18. Performance Appraisal Methods

  • Objective measures:measure an employees job performance in terms of things we can see and count with no (or minimal) use of opinion
    • Production measures:count units produced by an employee
    • Sales measures:count the sales ($) of an employee
    • Personnel data:count things in the employees personnel file
      • Examples:
        • Number of times late to work
        • Number of times absent
        • Number of disciplinary actions taken

19. Performance Appraisal Methods

  • Objective measures (more):
    • Performance tests:for an employee, evaluate work samples or simulations under standardized conditions
      • Example: for an airline pilot, program a flight simulator with specific flight conditions to test if the pilot handles it correctly
    • Business unit performance measures:for managers who are responsible for a business unit, measure their performance by measuring the performance of the business unit they lead
      • Examples:
        • Market share of the business unit
        • Profit measures for the business unit: profits & profit rates (return on sales, return on assets, return on equity)
        • Stock price

20. Performance Appraisal Methods

  • Subjective measures:measure an employees job performance using human judgment
    • Ranking:subjectively rank employees from best to worst
      • Example: 1. Bob 2. Carol 3. Ted 4. Alice
      • Note carefully that the ranking is in terms of subjective opinion (e.g., who is your best salesperson overall?), not objective factors (e.g., which salesperson sold the most?)
      • Note the ranking requires you tocompareone employee to another
      • Problem: it can be hard to determine the subjective ranking position of employees who are in the middle (it all blurs together)

21. Performance Appraisal Methods

  • Subjective measures (more)
    • Paired comparisons:for all possible pairs of employees, subjectively decide which employee is better
      • # of paired comparisons = (N 2 N)/2
      • Example: N = 4(4 2 4)/2 = 6 paired comparisons:
        • Bob > Carol; Bob > Ted; Bob > Alice
        • Carol > Ted; Carol > Alice
        • Ted > Alice
      • Example: N = 12(12 2 12)/2 = 66 paired comparisons
      • Note that you arecomparingone employee to another
      • Problem: inconsistent subjective comparisons: Bob > Carol; Carol > Ted; Ted > Bob (see the inconsistency here?)

22. Performance Appraisal Methods

  • Subjective measures (more)
    • Rating scale (graphic rating scale):subjectively rate the employees job performance on a labeled numeric measuring scale
      • Rating scales are perhaps the most commonly used method of subjectively evaluating an employees job performance
      • Before we use a rating scale to subjectively rate an employees job performance, we need to:
        • Identify the aspects of job performance (results & behaviors) that are to be evaluated (rated) using the rating scale
        • Develop the rating scale itself

23. Performance Appraisal Methods

  • Rating Scale Examples
  • Rating Scale Examples
  • Examples of a 5-point scale:
    • 5 = Excellent 4 = Very satisfactory 3 = Satisfactory 2 = Unsatisfactory 1 = Very unsatisfactory
    • 5 = Greatly exceeds standards 4 = Exceeds standards 3 = Meets standards 2 = Below standards 1 = Far below standards
  • Example of a 7-point scale:
    • 7 = Truly exceptional 6 = Excellent 5 = Very good 4 = Good 3 = Satisfactory 2 = Unsatisfactory 1 = Very unsatisfactory

24. Performance Appraisal Methods

  • Subjective measures (more)
    • Rating scale (more)
      • The same rating scale can be used to rate:
        • Overall job performance,and
        • Multiple specific aspects of job performance
      • Some aspects of job performance can be measured objectively and subjectively
        • Example: Quality of work
          • Objective measure: defect rate (percentage of units produced by an employee that fail inspection)
          • Subjective measure: subjectively rate the quality of the employees work using a 5-point rating scale

25. Performance Appraisal Methods

  • Subjective measures (more)
    • Rating scale (more)
      • Example: MSU Course Evaluation Form
        • Note how the same 5-point rating scale is used to evaluate several different aspects of the professors job performance:
          • Course as a whole
          • Instructors contribution to the course
          • Use of class time

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