Chapter 8

This chapter gives an overview of the performance appraisal process and the different tools and
methods available. The main topics covered include the performance management process,
appraisal methods, appraisal performance problems and solutions, and the appraisal interview.

Despite lots of attention, money, and effort, performance appraisals remain an area with which
few managers or employees are satisfied. The following questions may be worth discussing.
Do we have a good enough system yet? Is there an intrinsic problem with performance
appraisals? Is it just human nature to dislike them?
I. Basic Concepts in Performance Management and Appraisal

A. Why Appraise Performance? Many employers still base pay, promotions,

assignments and the like on employee appraisals. Appraisals play an integral role
in the employer's performance management process. The appraisal lets the
supervisor and subordinate develop a plan for correcting any deficiencies, and
reinforce those things the employee does correctly. Appraisals serve a useful
career planning purpose. Finally, appraisals play an important role in identifying
training and development needs.

B. Steps in Performance Appraisal ⎯ Stripped to its essentials, performance

appraisal always involves the three-step performance appraisal process: (1)
setting work standards, (2) assessing the employee’s actual performance relative
to those standards which involves some rating form, and (3) providing feedback to
the employee with the aim of helping him or her to eliminate performance
deficiencies or to continue to perform above par.

C. Defining the Employee's Performance Standards ⎯ Managers use goals, job

dimensions or traits, and competencies—or some combination of these—to
establish performance standards. These allow managers to assess to what extent
the employee is attaining his or her numerical goals. Effective goals are
S.M.A.R.T: specific, measurable, attainable, relevant, and timely. Job dimensions
permit evaluation of non-numerical goals. Setting goals for competencies allows
the manager to appraise the employee’s skills, knowledge, and behaviors.

D. Who Should Do the Appraising? ⎯ The immediate supervisor is usually in the best
position to observe and evaluate the subordinate’s performance, and typically is
responsible for that person’s performance.

1. Peer Appraisals ⎯ Becoming more popular with firms using self-managing

teams.

2. Rating Committees ⎯ Consist of multiple raters, typically the employee’s

immediate supervisor and three or four other supervisors.

3. Self-Ratings ⎯ Tend to be higher than supervisor or peer ratings.

4. Appraisal by Subordinates ⎯ Also known as upward feedback, subordinates

anonymously rate their supervisor’s performance.

5. 360-Degree Feedback ⎯ Ratings are collected from the employee’s

supervisors, subordinates, peers, and internal or external customers. This
method is the subject of considerable debate. One study found significant
correlation between 360-degree ratings and conventional ratings. Firms

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 should carefully assess potential costs, carefully train those giving feedback,
and not rely solely on 360-degree feedback.

6. Social Media and HR ⎯ “Crowd” appraisals is an approach to use social-

media to let everyone in the company appraise each other. It supplements
traditional appraisals.

II. Traditional Appraisal Methods

A. Graphic Rating Scale Method ⎯ It is the simplest and most popular performance
appraisal technique. A scale is used to list a number of traits and a range of
performance for each, and then the employee is rated by identifying the score that
best describes his/her performance level for each trait. (See example in Figure
8.2.) Managers must decide which job performance aspects to measure. Some
options include generic dimensions, actual job duties, or behaviorally recognizable
competencies.

B. Alternation Ranking Method ⎯ Employees are ranked from best to worst on a

particular trait, choosing highest, then lowest, until all are ranked. Figure 8.5
shows an example of this method.

C. Paired Comparison Method ⎯ It involves ranking employees by making a chart of

all possible pairs of employees for each trait and indicating which one is the better
employee of the pair. Figure 8.6 shows an example of the paired comparison
method.

D. Forced Distribution Method ⎯ Predetermined percentages of rates are placed in

various performance categories, which is similar to grading on a curve. This
method makes the best and worst stand out. But some balk at forced distribution
appraisal. Inequities can arise for example when a high performing team must cut
their “worst” employee who is a better performer than employees in a different
department.

E. Critical Incident Method ⎯ In this approach, a supervisor keeps a record of

uncommonly good and/or undesirable examples of an employee’s work-related
behavior, and reviews the record with the employee at predetermined times. The
challenge for the supervisor is to make the time to record the incidents as soon as
possible.

F. Behaviorally Anchored Rating Scales (BARS) ⎯ This method combines the

benefits of narratives, critical incidents, and quantified scales by anchoring a scale
with specific behavioral examples of good or poor performance.

G. Appraisal Forms in Practice ⎯ The most effective appraisal forms often merge
several approaches.

H. The Management by Objectives Method (MBO) ⎯ The manager sets specific

measurable goals with each employee and then periodically discusses the
employee’s progress toward these goals. The process consists of six steps: 1) set
the organization's goals; 2) set departmental goals; 3) discuss departmental goals;
4) define expected results; 5) conduct performance reviews; and 6) provide
feedback.

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 I. Computerized and Online Performance Appraisal ⎯ This method generally
enables managers to rate employees on a series of performance traits, and then
generate written text to support each part of the appraisal.

J. Virtual Appraisal Games ⎯ Allows employees to evaluate and award each other
through a virtual game. Employees can give real-time feedback to each other
including virtual gifts and points.

K. Electronic Performance Monitoring ⎯ These systems use computer network

technology to allow managers access to their employees’ computers and
telephones.

L. Talent Management and Differential Employee Appraisal ⎯ Some talent

management experts suggest that company resources should be directed to the
company’s mission-critical employees, those who are critical to achieving the
company’s strategic goals.

M. Conversation Days ⎯ The emphasis in these manager–employee conversations

is on areas for improvement and growth, and on setting stretch goals that align
with the employee’s career interests. There are no explicit performance ratings.

III. How to Deal with Rater Error Problems and the Appraisal Interview

It can be difficult to rate performance for several reasons. For employees, much
depends on a good rating, including career progress, or being able to obtain a raise.
There are also technical problems that can affect the fairness of the process.

A. Clarify Standards ⎯ Ambiguous traits and degrees of merit can result in an unfair
appraisal.

B. Avoid Halo Effect Ratings ⎯ The influence of a rater’s general impression on

ratings of specific qualities can be a problem.

C. Avoid the Middle ⎯ The central tendency problem can occur when supervisors
stick to the middle of the rating scales, thus rating everyone average.

D. Don’t be Lenient or Strict ⎯ Supervisors have the tendency to rate everyone either
high or low.

E. Diversity Counts ⎯ The concept refers to the tendency to allow individual

differences such as age, race, and sex affect employees’ appraisal ratings.

F. Know Your Employment Law ⎯ Inadequate appraisal systems tend to be at the

root of illegal discriminatory actions.

G. How to Conduct the Appraisal Interview ⎯ The supervisor and subordinate review
the appraisal and make plans to remedy deficiencies and reinforce strengths.
During the interview: 1) Talk in terms of objective work data, 2) Don’t get personal,
3) Encourage the person to talk, and 4) Don’t tiptoe around.

1. How to Handle a Defensive Subordinate ⎯ Recognize the behavior is normal

and never attack a person’s defenses. Postpone the action and recognize
your own limitations.

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 2. How to Criticize a Subordinate ⎯ Do so in a way that allows the person to
maintain his or her dignity.

3. How to Ensure the Interview Leads to Improved Performance ⎯ The main aim
is to get them to improve their performance. Must provide the tools and the
support the person needs to improve.

4. How to Handle a Formal Written Warning ⎯ There are times when an

employee’s performance is so poor that a formal written warning is required.

IV. Employee Engagement Guide for Managers: Use the Appraisal Interview to Build
Engagement

A. Research shows that managers can use the appraisal interview to improve their
employees’ level of engagement. Managers should take the opportunity to show
how an employee’s effort contributes to the company’s success. They should use
the interview to emphasize the meaningfulness of what the employee does.
Managers should be supportive, and use the interview to make sure the employee
has what he or she needs to do a good job. Managers should focus on strengths
and use the opportunity to show employees that the manager listens to his or her
ideas.

V. Performance Management Today

A. Total Quality Management and Performance Appraisal ⎯ Total Quality

Management (TQM) programs are organization-wide programs that integrate all
functions and processes of the business such that all aspects of the business
including design, planning, production, distribution, and field service are aimed at
maximizing customer satisfaction through continuous improvements.

B. What is Performance Management? ⎯ Performance management is continuous,

not just once a year, it is goal-directed, and it is continuously re-evaluating and
modifying the way people accomplish their work.

C. HR and Social Media ⎯ IT allows management to monitor and correct deficiencies

in real-time. Such performance management involves assigning financial and
nonfinancial goals, informing employees of their goals, using an IT system to
monitor and assess performance, and taking corrective action.

D. The Manager’s Role in Performance Management ⎯ Managers must have the

right philosophy and behaviors to support performance management. This
includes an aim for continuous improvement, and linking employee goals to
company goals.

Key concepts

Performance appraisal Any procedure that involves (1) setting work standards; (2)
assessing the employee’s actual performance relative to the
standards; and (3) providing feedback to the employee with
the aim of motivating that person to eliminate performance
deficiencies or to continue the performance above par.

360-degree feedback The employer collects performance information all around

an employee—from his or her supervisors, subordinates,
peers, and internal or external customers.

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Graphic rating scale The graphic rating scale is a performance appraisal tool
that lists several job dimensions and a range of
performance values for each. The supervisor rates each
subordinate by circling or checking the score that best
describes the subordinate’s performance for each trait or
dimension.

Performance management The continuous process of identifying, measuring, and

developing the performance of individuals and teams and
aligning their performance with the organization’s goals.