Performance Management

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Performance Management
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Why Conduct Performance Appraisals?
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Developing an Appraisal System

• GOAL SETTING
• What type of work is examined?
• Who sets the goals?
• How difficult are the goals?
• Team vs. individual goals?
• What is measured?
• MEANS TO EVALUATE
• What rating scale is used?
• 360 degree feedback?
• Includes self-evaluation?

• ADMINISTRATION
• How often?
• Flexible or standardized forms?
• Who conducts appraisals?
• How frequent is feedback?
• Is there an appeal process?
• PERFORMANCE AND PAY
• Tied to rewards?
• Linked to development?
• How are the results used?

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How to Evaluate?

• Compare Employees to Absolute Standards
• Performance compared to set goals
• Avoids conflict among workers
• May decrease differentiation
• Compare Employees Relative to Each Other
• Ranking allows for comparison of employees but
  does not shed light on the distribution of
  employee performance.
• Forces a distribution among workers
• May create false distinctions and competition

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What to Evaluate?

• Traits Measures
• Are an assessment of how the employee fits with
  the organizations culture, not what the employee
  actually does.
• Behavior-based measures
• Focus on what an employee does correctly and what
  the employee should do differently.
• Results-based measures
• Focus is on accomplishments or outcomes that can
  be measured objectively.
• Problems occur when results measures are
  difficult to obtain, outside employee control, or
  ignore the means by which the results were
  obtained.

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Trait-Based Appraisals

• Characteristics that are enduring and general
• e.g. Leadership Communication Decisiveness
• Competency models vs. Trait-based appraisal
• Are the characteristics really related to
  performance?
• Potential Problems
• Focus on person rather than performance
• May be ambiguous or arbitrary
• Poor feedback and goal setting
• Poor reliability and validity

7

• An employer has no business with a mans
  personality. Employment is a specific contract
  calling for specific performance and nothing
  else. Any attempt of an employer to go beyond
  this is usurpation. It is an abuse of power. An
  employee owes no loyalty, he owes no love,
  and no attitudes he owes performance and
  nothing else.
• Peter Drucker
• Management Tasks, Responsibilities, Practices
  (1974)

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Behavior-Based Appraisal

• Focus on specific behaviors with examples
• Simple Behavioral Scale
• Behavioral Frequency / Observation Scale (BOS)
• Behaviorally Anchored Rating Scales (BARS)
• Positives
• More valid and reliable
• Acceptable to employees
• Better for development and improvement
• Potential Problems
• Difficult and expensive to develop
• Needs to match jobs closely to be effective
• Emphasizes behaviors (at the expense of others?)
• Focuses on behavior rather than results

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Results-Based Appraisal

• Focus on results compared to specific goals
• Should be clear and unambiguous
• Requires alignment of expectations
• May promote gaming of the system
• Beware of results at any cost and excessive
  results orientation
• Time consuming and needs constant updating
• Management by Objectives or MBO
• Linking individual goals with business strategy
• Organizational goals flow down to depts. and
  employees
• Focus on planning, action items, and interim
  reviews
• Objectives negotiated and agreed upon by
  employees

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Balanced Scorecard

• What you measure is what you get
• Financial vs. operational measures
• Short term vs. long-term effectiveness
• Specific goals and measures for
• Shareholder satisfaction
• Customer satisfaction
• Operational Excellence
• Innovation and Learning
• Others?

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How to Judge Appraisal Types

• Leads to desired behaviors
• Minimizes negative behaviors
• Reliability and validity
• Perceived fairness (rater and employee)
• Performance improvement and employee development
• Flexibility and administrative cost

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Comparison of Appraisal Forms
Ease of Use Employee Development Employee Acceptance
Traits High Low Low
Behaviors Medium High High
Outcomes Low Medium Medium
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Performance Diagnosis
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Forced Ranking Systems
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Forced Ranking Systems

• Gained popularity following GE
• Up to 20 of companies
• Used by
• Conoco
• Capital One
• Sun Microsystems
• Cisco
• EDS
• Hallmark Cards
• Used and abandoned by
• Ford
• Goodyear

• Microsoft
• Hewlett-Packard
• Intel
• Texas Instruments
• Enron

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When managers have discretion

• They tend to give Above average ratings.
• They prefer to give uniform ratings regardless of
  performance.
• They tend not to use the ends of the rating
  scale.

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• A company that bets its future on its people
  must remove the lower 10 and keep removing every
  year always raising the bar of performance and
  increasing the quality of leadership.
• Jack Welch, former GE CEO

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The Vitality Curve
The bottom 10
The top 20
The Vital 70
Jack Welch Jack Straight From the Gut 2001
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Why Conduct Forced Rakings?
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Why NOT Conduct Forced Rankings?
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Evolution of Fords Policy

• January, 2000 Ford begins new performance
  evaluation policy
• Top 20,000 managers
• 10 of the executives will get A's, 80 will get
  B's, and 10 will get C's.
• Cs are not eligible for bonuses. Two C's in a
  row are grounds for dismissal.
• Quota for Cs later reduced to 5
• July, 2001 Ford eliminates the "A," "B," and "C"
  ratings in favor of "top achiever," "achiever,"
  or "improvement required. Quotas dropped for
  employees to be ranked as "achiever" and "needs
  improvement."
• April, 2002 Ford revises its performance review
  system to focus on creating bonds between
  managers and employees, and will have no ranking
  quotas.

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The Appraisal Interview
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Who Evaluates?

• Problems with immediate supervisors conducting
  performance evaluations
• Lacking appropriate information to provide
  informed feedback on employee performance.
• Insufficient observation of the employees
  day-to-day work to validly assess performance.
• Lack of knowledge about the technical dimensions
  of a subordinates work.
• Lack of training or appreciation for the
  evaluation process.
• Perceptual errors by supervisors that create bias
  or lack of subjectivity in evaluations.

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Perceptual Errors of Raters

• Halo Effect
• Stereotyping
• Recency Error

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Perceptual Errors of Raters

• Halo Effect
• Rater allows a single trait, outcome or
  consideration to influence other measures of
  performance.
• Stereotyping
• Rater makes performance judgments based on
  employees personal characteristics rather than
  the employees actual performance.
• Recency Error
• Recent events and behaviors of the employee bias
  the raters evaluation of the employees overall
  performance.

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Perceptual Errors of Raters

• Central Tendency Error
• Leniency or Strictness Errors
• Personal Biases and Organizational Politics

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Perceptual Errors of Raters

• Central Tendency Error
• Evaluator avoids higher and lower ends of
  performance assessment rating in favor of placing
  all employees at or near the middle of the
  scales.
• Leniency or Strictness Errors
• Evaluators tendency is to rate all employees
  either above (leniency) or below (strictness)
  their actual performance level.
• Personal Biases and Organizational Politics
• Have a significant impact on the ratings
  employees receive from their supervisors.

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Performance Appraisal Challenges

• Gender Bias
• Managers tend to give women evaluations that are
  less critical and less straightforward.
• Attribution Theory
• People tend to overestimate the influence of
  individual factors (such as motivation) and
  underestimate the influence of environmental
  factors when assessing others behavior.
• Frame of Reference

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Conducting A Fair Appraisal

• 1. Collect appraisal data
• Objective data on job performance
• Critical incidents (good and bad)
• Behavioral observation
• 2. Evaluate performance
• Before completing form think about intended
  result
• Avoid biases
• Consider how the message will be viewed by
  employee
• Consider circumstances beyond employees control
• Consider past evaluations

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Conducting A Fair Appraisal

• 3. Write the appraisal
• Have courage to address poor performers
• Be specific and use examples
• Avoid nitpicking
• Additional evidence needed for high/low
  performers
• Tied to specific goals
• Prioritize development needs

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Providing Performance Feedback

• Choose a quiet private location.
• Describe performance, not personality.
• Providing specific examples and quantify whenever
  possible.
• Be honest.
• Avoid vague statements or unsubstantiated claims.
  
• Limit plans for change, growth, and development
  to a few important items that are achievable.
• Keep career discussions separate from performance
  feedback.
• Create a development plan.
• Give the employee a chance to respond.

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Dealing With Poor Performers

• Avoiding problems usually makes them worse.
• Why didnt you tell me this before?
• Approach the employee for mutual benefit to
  solve the problem and maintain the relationship.
• Threats and punishment increase compliance
  but....
• Good intentions matter.

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Identifying Performance Gap

• 1. Identify a specific gap between performance
  and expectations.
• Assume an employee says
• I know you are not happy with something, but I
  am not sure what I am doing wrong. What exactly
  is it that concerns you?
• OR
• I want to make sure that Im doing the job the
  way you want it done. What exactly should I do
  so that you will say I am doing a good job?

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Dealing With Poor Performers

• Making the business case why the problem must be
  solved. Be prepared to answer
• Whats the big deal?
• Why is this important?
• Thats a dumb rule anyway you know I do a good
  job
• 3. Determine consequences and actions.
• Be specific no vague threats
• Give time for employee to change
• How critical is the problem behavior?

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Dealing With Poor Performers

• Consider a range of action
• Discuss during the appraisal without making a
  written reference.
• Reference the issue in the appraisal narrative
  without lowering ratings.
• Reference the issue and lower the performance
  rating for that particular area.
• Reference the issue in performance summary and
  lower final appraisal rating.
• Use progressively stronger sanctions