This chapter is divided into three sections. First, we will discuss performance evaluation systems, then the various appraisal methods and finally, we will discuss effective completion of the appraisal and conducting of the appraisal interview.
This chapter is standard in all HRM textbooks, but this book’s approach is focused on how to actually conduct a performance evaluation rather than getting bogged down by too many terms. The goal is to give students the tools to be able to design their own performance appraisal system once they are done reading the chapter.
Section 1 Learning Objectives
1. Define the reasons for a formal performance evaluation system.
2. Explain the process to develop a performance review system.
A performance evaluation system is a systematic way to examine how well an employee is performing in his or her job. If you notice, the word systematic implies the performance evaluation process should be a planned system that allows feedback to be given in a formal—as opposed to informal—sense.
Purposes of the process: First, the evaluation process should encourage positive performance and behavior. Second, it is a way to satisfy employee curiosity as to how well they are performing in their job. It can also be used as a tool to develop employees. Lastly, it can provide a basis for pay raises, promotions, and legal disciplinary actions.
Determining how often performance evaluations will be given, if pay increase should be tied to performance evaluations and setting goals—in other words, what the organization hopes to achieve from the process are the first steps.
Once these three items have been determined, formalization of the process including determining who will evaluate the employees (sources of data) and creation of the forms that will be used for each specific job in the organization.
Halo effects can occur when the source or the rater feels one aspect of the performance is high and therefore rates all areas high. A mistake in rating can also occur when we compare one employee to another, as opposed to the job description’s standards.
Validity issues are the extent to which the tool measures the relevant aspects of performance. The aspects of performance should be based on the key skills and responsibilities of the job, and these should be reviewed often to make sure they are still applicable to the job analysis and description.
Reliability refers to how consistent the same measuring tool works throughout the organization (or job title).
Acceptability refers to how well members of the organization, manager and employees, accept the performance evaluation tool as a valid measure of performance
Specificity, which tells employees the job expectations and how they can be met. If they are not specific enough, the tool is not useful to the employee for development or to the manager to ensure the employee is meeting expectations.
The Civil Service Reform Act was put into place in 1978. This came about as a result of some legal cases, and put new requirements in place for performance evaluations for public employees. These resulted in private companies paying more attention to the legality of their own performance appraisal systems. The components of the Act include:
All agencies were required to create performance review systems.
Appraisal systems would encourage employee participation in establishing the performance standards they will be rated against.
The critical elements of the job must be in writing.
Employees must be advised of the critical elements when hired.
The system must be based exclusively on the actual performance and critical elements of the job. They cannot be based on a curve, for example.
They must be conducted and recorded at least once per year.
Training must be offered for all persons giving performance evaluations.
The appraisals must provide information that can be used for decision making, such as pay decisions and promotion decisions.
Holley and Field study found that defendants won more cases on performance appraisals if:
Appraisers were given written instructions on how to complete the appraisal for employees.
Job analysis was used to develop the performance measures of the evaluation.
The focus of the appraisal was actual behaviors instead of personality traits.
Upper management reviewed the ratings before the performance appraisal interview was conducted.
Sources of information for performance evaluations include:
Usually has extensive knowledge of the employee’s performance and abilities
Self-analysis can help with employee growth
In the employee’s interest to inflate his/her own ratings
Works well when the supervisor doesn’t always directly observe the employee
If evaluations are tied to pay, this can put both the employee and the peer in an awkward situation
If confidential, may create mistrust within the organization
Customers often have the best view of employee behavior
Can be expensive to obtain this feedback
Can enhance long-term relationships with the customer by asking for feedback
Data garnered can include how well the manager treats employees
Possible retaliation if results are not favorable
Can determine if employees feel there is favoritism within their department
Subordinates may not understand the “big picture” and rate low as a result
Can be used as a self-development tool for managers
If confidential, may create mistrust within the organization
If nothing changes despite the evaluation, could create motivational issues among employees
A performance evaluation system is a systematic way to examine how well an employee is performing in his or her job.
The use of the term systematic implies the process should be planned.
Depending on which research you read, some believe the performance evaluation system is one of the most important to consider in HRM, but others view it as a flawed process, which makes it less valuable and therefore ineffective.
The first step in designing a performance appraisal process is to determine how often the appraisals will be given. Consideration of time and effort to administer the evaluation should be a deciding factor.
Many companies offer pay increases as part of the system, while some companies prefer to separate the process. Determine how this will be handled in the next step in the performance appraisal development process.
Goals of the performance evaluation should be discussed before the process is developed. In other words, what does the company hope to gain from this process? Asking managers and employees for their feedback on this is an important part of this consideration.
After determining how often the evaluations should be given, if pay will be tied to the evaluations and goals, you can now sit down and develop the process. First, determine what forms will be used to administer the process.
After you have determined what forms will be used (or developed), determine who will be the source for the information. Perhaps managers, peers, or customers would be an option. A 360 review process combines several sources for a more thorough review.
Some errors can occur in the process. These include halo effects or comparing an employee to another as opposed to rating them only on the objectives. Other errors might include validity, reliability, acceptability, and specificity.
Performance evaluations should always be based on the actual job description.
Our last step in development of this process is to communicate the process and train our employees and managers on the process. Also, training on how best to use feedback is the final and perhaps most important step of the process.
1. Perform an Internet search on 360 review software. Compare at least two types of software and discuss advantages and disadvantages of each.
Answers: Literally hundreds of options come up when you type 360 degree software in a search engine. Some examples are Insala and Success factors. The disadvantage to both of course is the cost to an organization. They are charged on a per employee basis and may be too expensive and ongoing, whereas the company could be better off by just developing their own process. The software allows feedback for strengths and weaknesses and graphical reports are provided on ratings.
2. Discuss the advantages and disadvantages of each type of performance evaluation source.
Answer: With all sources, there can be potential bias. An advantage of a manager system is that he or she should have specific working knowledge of the employee’s abilities. With self analysis, people tend to rate themselves higher, but the self analysis aspect can be useful to the employee’s development. Peer reviews work well when the manager doesn’t have a lot of contact with an employee. However, if evaluations are tied to pay raises, this can put everyone in an awkward situation. Having the customer review the employee can provide valuable input depending on the type of job, but the information can be expensive to obtain and may not be appropriate. When subordinates rate employees, there tends to be rating inflation and can create a sense of mistrust in the organization. However, good data can be provided on how well the manager treats employees.
Discuss the components of cost to a performance evaluation. Do you feel the cost is justified?
Answer: The cost for a performance evaluation system is mostly based on time cost. If a manager spends two hours writing the appraisal, an hour going over it with the employee, and has fifteen employees, this is forty-five hours! Besides the time the manager takes, the HR professional has responsibilities in filing and/or recording the performance evaluation once it complete, which adds additional costs. If the system is developed correctly—and the goal is to develop and motivate employees—the cost is definitely justified.
performance evaluation system
A systematic way to examine how well an employee is performing in his or her job.
span of control
The number of employees each manager manages.
360 degree performance appraisal
A method to appraise performance by using several sources to measure the employee’s effectiveness.
An error in performance evaluations that can occur when the source or the rater feels one aspect of the performance is high and therefore rates all areas high.
A possible error in performance evaluation, refers to the extent to which the tool measures the relevant aspects of performance.
A possible error in performance evaluation, refers to how consistent the same measuring tool works throughout the organization (or job title).
A possible error in performance evaluation, refers to how well the members of the organization, managers and employees, accept the performance evaluation tool as a valid measure of performance.
A possible error in performance evaluations that tells employees the job expectations and how the expectations can be met.
Section 2 Learning Objective
Be able to describe the various appraisal methods.
Every appraisal is industry specific and should be job specific. When determining what method should be used, we have four basic options.
The first is the trait method, in which managers look at an employee’s specific traits in relation to the job, such as friendliness to the customer. The behavioral method looks at individual actions within a specific job. Comparative methods compare one employee with other employees. Results methods are focused on employee accomplishments, such as whether or not they met a quota.
Criteria are the aspects the employee is actually being evaluated on, which should be tied directly to their job description.
Rating is the type of scale that will be used to rate each criteria in a performance evaluation. For example, scales of 1–5, essay ratings, or yes/no ratings. Tied to the rating and criteria is the weighting each item will be given.
The graphic rating scale, a behavioral method, is perhaps the most popular choice for performance evaluations. This type of evaluation lists traits required for the job and asks the source to rate the individual on each attribute. A discrete scale is one that shows a number of different points. The ratings can include a scale of 1–10; excellent, average, or poor; or meets, exceeds, or doesn’t meet expectations, for example. A continuous scale shows a scale and the manager puts a mark on the continuum scale that best represents the employee’s performance.
In an essay appraisal, the source answers a series of questions about the employee’s performance in essay form. This can be a trait method and/or a behavioral method, depending on how the manager writes the essay. These statements may include strengths and weaknesses about the employee or statements about past performance.
Checklist Scale is a series of questions is asked and the manager simply responds yes or no to the questions, which can fall into either the behavioral or trait method, or both. Another variation to this scale is a check mark in the criteria the employee meets, and a blank in the areas the employee does not meet.
In the Critical incident appraisal, the manager records examples of the employee’s effective and ineffective behavior during the time period between evaluations, which is in the behavioral category.
Work standards approach could be the more effective way of evaluating employees. Best used when employee productivity is most important.
Ranking method system (also called stack ranking), employees in a particular department are ranked based on their value to the manager or supervisor. This system is a comparative method for performance evaluations
Management by objectives (MBOs) is a concept developed by Peter Drucker in his 1954 book The Practice of Management. This method is results oriented and similar to the work standards approach, with a few differences. First, the manager and employee sit down together and develop objectives for the time period. Then when it is time for the performance evaluation, the manager and employee sit down to review the goals that were set and determine whether they were met.
MBOs should be SMART: specific, measureable, attainable, results oriented, and time limited.
BARS method first determines the main performance dimensions of the job, for example, interpersonal relationships. Then the tool utilizes narrative information, such as from a critical incidents file, and assigns quantified ranks to each expected behavior. In this system, there is a specific narrative outlining what exemplifies a “good” and “poor” behavior for each category.
When developing performance appraisal criteria, it is important to remember the criteria should be job specific and industry specific.
The performance appraisal criteria should be based on the job specifications of each specific job. General performance criteria are not an effective way to evaluate an employee.
The rating is the scale that will be used to evaluate each criteria item. There are a number of different rating methods, including scales of 1–5, yes or no questions, and essay.
In a graphic rating performance evaluation, employees are rated on certain desirable attributes. A variety of rating scales can be used with this method. The disadvantage is possible subjectivity.
An essay performance evaluation will ask the manager to provide commentary on specific aspects of the employee’s job performance.
A checklist utilizes a yes or no rating selection, and the criteria are focused on components of the employee’s job.
Some managers keep a critical incidents file. These incidents serve as specific examples to be written about in a performance appraisal. The downside is the tendency to record only negative incidents and the time it can take to record this.
The work standards performance appraisal approach looks at minimum standards of productivity and rates the employee performance based on minimum expectations. This method is often used for sales forces or manufacturing settings where productivity is an important aspect.
In a ranking performance evaluation system, the manager ranks each employee from most valuable to least valuable. This can create morale issues within the workplace.
An MBO or management by objectives system is where the manager and employee sit down together, determine objectives, then after a period of time, the manager assesses whether those objectives have been met. This can create great development opportunities for the employee and a good working relationship between the employee and manager.
MBO objectives should be SMART: specific, measurable, attainable, results oriented, and time limited.
A BARS approach uses a rating scale but provides specific narratives on what constitutes good or poor performance.
Exercises and Solutions
1. Review each of the appraisal methods and discuss which one you might use for the following types of jobs, and discuss your choices.
a. Administrative Assistant
b. Chief Executive Officer
c. Human Resource Manager
d. Retail Store Assistant Manager
Answer: For an administrative assistant, whose tasks are more or less the same from week to week, a graphic rating scale or checklist would likely be the most appropriate. For a CEO, MBOs would likely be the best choice, since he or she has certain specific objectives that need to be met during a period of time. For an HR manager, MBOs or the essay method might also be appropriate. Since the job of a HR manager can change so much, other methods may not work as well. For a retail store assistant manager, you would likely use a ranking method, comparing his or her sales to others in the organization, or work standards, graphic rating scales could be used. In this question, there are really no wrong or right answers. The important thing is that the student understands that certain methods would be used in different situations.
Extra Discussion Question
Create a set of three MBOs following SMART guidelines for a business-to-business software installation salesperson based upon what you know might be important qualifications for this job.
Answer: Some examples might include: xx sales within the next three months; cold call at least 30 new clients; go on at least 20 site visits; and manage installation projects under or at budget.
A category of performance evaluation in which managers look at an employee’s specific traits in relation to the job, such as friendliness to the customer.
A category of performance evaluation in which managers look at individual actions within a specific job.
A category of performance evaluation in which managers compare one employee with other employees.
A category of performance evaluation in which managers are focused on the accomplishments of the employee, such as whether or not they met a quota.
In performance evaluations, the aspects the employee is being evaluated on.
The type of scale that will be used to rate each criteria in a performance evaluation.
graphic rating scale
This type of performance evaluation lists traits required for the job and asks the source to rate the individual on each attribute.
A scale used in performance evaluations, uses a number of different points, such as a 1–10 scale.
A scale used in performance evaluations that uses a continuum; the manager puts a mark on the continuum that best represents the employee’s performance.
mixed standard scale
Similar to a graphic rating scale, this scale includes a series of mixed statements representing excellent, average, and poor performance, and the manager is asked to rate a “+” (performance is better than stated), “0” (performance is at stated level), or “−” (performance is below stated level).
A type of performance appraisal in which the source answers a series of questions about the employee’s performance in essay form.
A performance evaluation method in which a series of questions is asked and the manager simply responds yes or no to the questions.
critical incident appraisal
A performance evaluation method in which the manager is asked to record examples of effective behavior and ineffective behavior of the employee during the time period between evaluations.
work standards approach
A performance evaluation method in which a minimum level of expectation is set and the employee’s performance evaluation is based on this minimum level of productivity.
ranking method system
Employees in a particular department are ranked based on their value to the manager or supervisor, which is used as a performance evaluation method.
forced distribution system
An employee performance evaluation method in which employees are ranked in groups based on high performers, average performers, and nonperformers.
paired comparison system
An employee performance evaluation method in which the manager must compare every employee with every other employee within the department or work group, and a score is given each time one employee performs better than the other he or she is being compared with.
management by objectives (MBOs)
A type of performance appraisal in which the manager and employee work together to develop objectives, and at the end of the period the employee is measured on whether he or she met the objectives.
Section 3 Learning Objectives
1. Be able to discuss best practices in performance review planning.
2. Be able to write an improvement plan for an employee.
Best practices in creation of a performance appraisal system include:
Make sure the evaluation has a direct relationship to the job. Consider developing specific criteria for each job, based on the individual job specifications and description.
Involve managers when developing the process. Garner their feedback to obtain “buy in” for the process.
Consider involving the employee in the process by asking them to fill out a self-evaluation.
Use a variety of methods to rate and evaluate the employee.
Avoid bias by standardizing performance evaluations systems for each job.
Give feedback on performance throughout the year, not just during performance review times.
Make sure the goals of the performance evaluation tie into the organizational and department goals.
Ensure the performance appraisal criteria also tie into the goals of the organization, for a strategic HRM approach.
Review the evaluation for each job title often, since jobs and expectations change.
Managers and employees will need to be trained on a new system or adjustment of an older system. Some ground rules for managers might include:
Use only factual information and avoid opinion or perception.
For each section, comments should be at least two sentences in length, and examples of employee behavior should be provided.
Reviews must be complete and shared with the employee before the deadline.
Make messages clear and direct.
Focus on observable behaviors.
Examples of steps to a process you will want to communicate to your managers:
Review the employee’s last performance evaluation. Note goals from the previous evaluation period.
Review the employee’s file and speak with other managers who interface with this person. In other words, gather data about performance.
Fill out the necessary forms for this employee’s appraisal. Note which areas you want to address in the appraisal interview with the employee.
If your organization bases pay increases with the performance evaluation, know the pay increase you are able to offer the employee.
Write any improvement plans as necessary.
Schedule a time and date with the employee.
Sometimes an improvement plan may be necessary. Here are the aspects to a good improvement plan for the employee.
Define the problem.
Discuss the behaviors that should be modified, based on the problem.
List specific strategies to modify the behavior.
Develop long- and short-term goals.
Define a reasonable timeline for improvements.
Schedule “check in” dates to discuss the improvement plan.
To effectively manage the process, these steps should be followed:
Provide each manager with a job description for each employee. The job description should highlight the expectations of each job title and provide a sound basis for review.
Give the manager instructions and ground rules for filling out the documents.
Work with the manager on pay increases for each employee, if your organization has decided to tie performance evaluations with pay increases.
Provide coaching assistance on objectives development and improvement plans, if necessary.
Give timelines to the manager for each performance review he or she is responsible for writing.
The interview process can be one of three types:
Tell and sell interview--In this type of interview, the manager does most of the talking and passes his or her view to the employee.
In the Tell and listen type of interview, the manager communicates feedback and then addresses the employee’s thoughts about the interview.
Problem-solving interview--the employee and the manager discuss the things that are going well and those that are not going well, which can make for a more productive discussion.
To provide the best feedback to the employee, consider the following:
Be direct and specific. Use examples to show where the employee has room for improvement and where the employee exceeds expectations, such as, “The expectation is zero accidents, and you have not had any accidents this year.”
Do not be personal; always compare the performance to the standard. For example, instead of saying, “You are too slow on the production line,” say, the “expectations are ten units per hour, and currently you are at eight units.”
Remember, it is a development opportunity. As a result, encourage the employee to talk. Understand what they feel they do well and what they think they need to improve.
Thank the employee and avoid criticism. Instead of the interview being a list of things the employee doesn’t do well (which may give the feeling of criticizing), thank the employee for what they do well, and work on action plans together to fix anything the employee isn’t doing well. Think of it as a team effort to get the performance to the standard it needs to be.
Possible outcomes of the interview:
The employee now has written, documented feedback on his or her performance.
The organization has documented information on low performance, in case the employee needs to be dismissed.
The employee has performed well and is eligible for a raise.
The employee has performed well and could be promoted.
Performance is not up to expectations, so an improvement plan should be put into place.
The employee hasn’t done well, improvement plans have not worked (the employee has been warned before), and the employee should be dismissed.
There are many best practices to consider when developing, implementing, and managing a performance appraisal system. First, the appraisal system must always tie into organization goals and the individual employee’s job description.
Involvement of managers in the process can initiate buy in.
Consider using self-evaluation tools as a method to create a two-way conversation between the manager and the employee.
Use a variety of rating methods to ensure a more unbiased result. For example, using peer evaluations in conjunction with self and manager evaluations can create a clearer picture of employee performance.
Be aware of bias that can occur with performance appraisal systems.
Feedback should be given throughout the year, not just at performance appraisal time.
The goals of a performance evaluation system should tie into the organization’s strategic plan, and the goals for employees should tie into the organizations strategic plan as well.
The process for managing performance evaluations should include goal setting, monitoring and coaching, and doing the formal evaluation process. The evaluation process should involve rewards or improvement plans where necessary. At the end of the evaluation period, new goals should be developed and the process started over again.
It is the HR professional’s job to make sure managers and employees are trained on the performance evaluation process.
Standards should be developed for filling out employee evaluations, to ensure consistency and avoid bias.
The HR professional can assist managers by providing best practices information on how to discuss the evaluation with the employee.
Sometimes when performance is not up to standard, an improvement plan may be necessary. The improvement plan identifies the problem, the expected behavior, and the strategies needed to meet the expected behavior. The improvement plan should also address goals, timelines to meet the goals, and check-in dates for status on the goals.
It is the job of the HR professional to organize the process for the organization. HR should provide the manager with training, necessary documents (such as criteria and job descriptions), instructions, pay increase information, and coaching, should the manager have to develop improvement plans.
Some HR professionals organize the performance evaluation information in an Excel spreadsheet that lists all employees, job descriptions, and due dates for performance evaluations.
There are many types of software programs available to manage the process. This software can manage complicated 360 review processes, self-evaluations, and manager’s evaluations. Some software can also provide timeline information and even send out e-mail reminders.
The performance evaluation process should be constantly updated and managed to ensure the results contribute to the success of the organization.
A variety of ramifications can occur, from the employees earning a raise to possible dismissal, all of which should be determined ahead of the performance appraisal interview.
Exercises and Solutions
1. What are the important aspects of an improvement plan? Why are these so important?
Answer: The six steps are defining the problem, discuss the behaviors that should be modified, list specific strategies that will modify the behavior, create goals, timelines and schedule check-in dates to touch base. They are important because an improvement plan can clearly laid out.
2. Name and describe three best practices for a performance evaluation system.
Answer: Possible answers include: Make sure the evaluation has a direct relationship to the job. Consider developing specific criteria for each job, based on the individual job specifications and description. Involve managers when developing the process. Garner their feedback to obtain “buy in” for the process. Consider involving the employee in the process by asking them to fill out a self-evaluation. Use a variety of methods to rate and evaluate the employee. Avoid bias by standardizing performance evaluations systems for each job. Give feedback on performance throughout the year, not just during performance review times. Make sure the goals of the performance evaluation tie into the organizational and department goals. Ensure the performance appraisal criteria also tie into the goals of the organization, for a strategic HRM approach. Review the evaluation for each job title often, since jobs and expectations change.
Extra Discussion Question
When conducting the appraisal interview, what are the interview types. Would you use a different approach in different situations?
Answer: The tell and sell interview is one in which the manager does most of the talking and passes his or her view onto the employee. In the tell and listen interview, the manager communicates feedback and then asks the employees opinion. In the problem-solving interview, it is a two-way discussion in which the manager and the employee discuss things that are going well and not going well. Depending on the relationship between employees, and the employees performance, a different approach may be used. However, the problem-solving interview would work in most situations, both with poor and excellent performance. It can create a collabroatve environment.
A document developed by both manager and employee to address any performance deficiencies.
tell and sell interview
A type of performance appraisal interview in which the manager does most of the talking and passes his or her view to the employee.
tell and listen
A type of performance appraisal interview in which the manager communicates feedback and then the employee’s thoughts about the interview are addressed.
A type of performance appraisal interview in which the employee and the manager discuss the things that are going well and the things that are not, which can make for a more productive discussion.
The Author discusses the case for Chapter 11:
Additional Case Study Exercise
Your company employs 25 people and has never had a formal performance appraisal process in place. Since your organization is growing, the managers have decided that a process should be created and you have decided to take the lead on this process. The company has 10 different job descriptions and employees are spread between two offices and two cities. In some cases, the manager does not work directly with the employee in the same city. Using the information outlined in this chapter, be prepared to present the steps, information sources, timelines and goals of your company’s new process. Prepare a brief PowerPoint presentation outlining your plan.
Answer: This case study purposely is vague so students have the freedom to develop as they see fit. Possible goals might be to provide motivation and incentive to employees. Students should also outline how pay raises will be tied to performance appraisals. Since managers do not always work in the same city as employees, alternate sources of data, such as peers or customers might be a viable option. The steps would include: determining sources, goals, and timelines. Writing criteria for all jobs based on the job descriptions. Possible approval from current employees and managers. Creation of a spreadsheet or other way to track the timing of the evaluations. Manager training on the process, then communication with employees on the new process.
Useful Outside Resources
The Human Resource Certification Institute: http://www.hrci.org/
Society for Human Resource Management: http://www.shrm.org/Pages/default.aspx YouTube videos:
Patt Goodwin discusses performance appraisals: