8 Describe the various performance appraisal methods.

9 List the problems that have been associated with performance appraisal.

10 Explain the characteristics of an effective appraisal system.

11 Describe the legal considerations associated with performance appraisal.

12 Explain how the appraisal interview should be conducted.

13 Discuss how performance appraisal is affected by a country’s culture.

1 Describe performance management.

2 Define performance appraisal.

3 Identify the uses of performance appraisal.

4 Discuss the performance appraisal process.

5 Identify the various performance criteria (standards) that can be established.

6 Identify who may be responsible for performance appraisal.

7 Explain the performance appraisal period.

Chapter ObjeCtives After completing this chapter, students should be able to:

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Performance Management and Appraisal7




The tools we describe in this chapter and in Chapters 8 provide human resources (HR) professionals with a foundation to evaluate and improve the capability of a company’s employees (human capital) to its competitive advantage. Let’s consider a metaphor to bring the opening sentence to life. Think about, for example, a delivery vehicle. Many factors contribute to fuel efficiency, two of which include low tire pressure or an air conditioner that is low in refrigerant. In the former case, insufficient tire pressure creates greater drag on the vehicle, which raises fuel consumption. In the latter case, the  air conditioner will not efficiently cool the car, and the compressor will continually run because it cannot keep the interior of the car at the desired lower temperature. Compressors are driven by the engine, which, of course, are fueled by gasoline.

Companies prefer to have fuel-efficient vehicles to maintain lower operating costs because they want to maximize profitability. Mechanics can use an air gauge to determine whether tire pressure falls within standard limits specified by the automobile manufacturer. Specialized ther- mometers can be used to determine the adequacy of refrigerant levels in air conditioning systems.

From an HR standpoint, delivery vehicles are capital, and we have learned that employees are human capital. Both help add value to companies. Fuel efficiency is a measure of performance. Lower-than-standard or expected fuel efficiency can be thought of as (lower) job performance. Air gauges and specialized thermometers can be thought of as performance appraisal techniques that help mechanics (managers or supervisors) judge two factors known to influence a vehicle’s fuel efficiency (an employee’s job performance). We take up the topics of performance management and performance appraisal in this chapter.

performance Management performance management (pM) is a goal-oriented process directed toward ensuring that organizational processes are in place to maximize the productivity of employees, teams, and ultimately, the organization. It is a major player in accomplishing organizational strategy in that it involves measuring and improving the value of the workforce. PM includes incentive goals and the corresponding incentive values so that the relationship can be clearly understood and communicated. There is a close relationship between incentives and performance.

PM systems are one of the major focuses in business today. Although every HR function contributes to PM, training, performance appraisal, and compensation appraisal play a more sig- nificant role. Whereas performance appraisal occurs at a specific time, PM is a dynamic, contin- uous process. Every individual in the organization is a part of the PM system. Every component of the system is integrated to ensure continuous organizational effectiveness. With PM, every

ObjeCtive 7.1

Describe performance management.

HR Web Wisdom

Performance Management http://www.opm.gov/perform/ overview.asp

Office of Personnel Management Web site on performance management.

performance management (PM) Goal-oriented process directed toward ensuring that organizational processes are in place to maximize the productivity of employees, teams, and ultimately, the organization.



166 Part 3 • Performance management and training

worker’s efforts should focus on achieving strategic goals. A well-developed job description is needed to determine whether performance expectations have been achieved. If workers’ skills need improvement, additional training should be provided. In PM systems, training has a direct tie-in to achieving organizational effectiveness, as does pay and performance. A good PM system ensures that people make good, effective use of their time.

PM may be the single largest contributor to organizational effectiveness in recent years. An effective PM system should be the responsibility of everyone in the organization starting with the CEO and moving throughout the entire organization because companies that disregard PM do not prosper.1

performance appraisal performance appraisal (pa) is a formal system of review and evaluation of individual or team task performance. A critical point in the definition is the word formal because, in actuality, managers should be reviewing an individual’s performance on a continuing basis.

PA is especially critical to the success of PM. Although PA is but one component of PM, it is a vital one, in that it directly reflects the organization’s strategic plan. Although evaluation of team performance is critical when teams exist in an organization, the focus of PA in most firms remains on the individual employee. Regardless of the emphasis, an effective appraisal system evaluates accomplishments and initiates plans for development, goals, and objectives.

Most managers rely on PA techniques as a basis to provide feedback, encourage performance improvement, make valid decisions, justify terminations, identify training and development needs, and defend personnel decisions such as why one employee received a higher pay increase than another employee. PA serves many purposes, and improved results and efficiency are increasingly critical in today’s globally competitive marketplace. Therefore, abandoning the only program with performance in its name and employees as its focus would seem to be an ill-advised over- reaction. Additionally, managers must be concerned about legal issues, which we consider later in this chapter. Developing an effective PA system has been and will continue to be a high priority for management.

Uses of performance appraisal For many organizations, the primary goal of an appraisal system is to improve individual and organizational performance. There may be other goals, however. A potential problem with PA, and a possible cause of much dissatisfaction, is expecting too much from one appraisal plan. For example, a plan that is effective for developing employees may not be the best for determining pay increases. Yet a properly designed system can help achieve organizational objectives and enhance employee performance. In fact, PA data are potentially valuable for virtually every human resource functional area.

Human Resource Planning In assessing a firm’s HR, data must be available to identify those who have the potential to be promoted or for any area of internal employee relations. Through PA it may be discovered that there is an insufficient number of workers who are prepared to enter management. Plans can then be made for greater emphasis on management development. Succession planning is a key concern for all firms. A well-designed appraisal system provides a profile of the organization’s human resource strengths and weaknesses to support this effort.

Training and Development Performance appraisal should point out an employee’s specific needs for training and develop- ment. For instance, if Pat Compton’s job requires skill in technical writing and her evaluation reveals a deficiency in this factor, she may need additional training to overcome this shortcom- ing. If a firm finds that a number of first-line supervisors are having difficulty in administering disciplinary action, training sessions addressing this problem may be appropriate. By identifying deficiencies that adversely affect performance, training and development (T&D) programs can be developed that permit individuals to build on their strengths and minimize their deficiencies.

ObjeCtive 7.2

Define performance appraisal.

performance appraisal (PA) Formal system of review and evaluation of individual or team task performance.

ObjeCtive 7.3

Identify the uses of performance appraisal.



chaPter 7 • Performance management and aPPraisal 167

An appraisal system does not guarantee properly trained and developed employees. However, determining T&D needs is more precise when appraisal data are available.

Career Planning and Development Career planning is an ongoing process whereby an individual sets career goals and identifies the means to achieve them. On the other hand, career development is a formal approach used by the organization to ensure that people with the proper qualifications and experiences are avail- able when needed. PA data is essential in assessing an employee’s strengths and weaknesses and in determining the person’s potential. Managers may use such information to counsel subordinates and assist them in developing and implementing their career plans.

Compensation Programs PA results provide a basis for rational decisions regarding pay adjustments. Most managers believe that you should reward outstanding job performance tangibly with pay increases. They believe that the behaviors you reward are the behaviors you get. Rewarding behaviors necessary for accomplishing organizational objectives is at the heart of a PM system. To encourage good performance, a firm should design and implement a reliable PA system and then reward the most productive workers and teams accordingly. Creators of total rewards systems want to ensure that individual performance supports organizational objectives.

Internal Employee Relations PA data are also used for decisions in several areas of internal employee relations, including promotion, demotion, termination, layoff, and transfer. For example, an employee’s performance in one job may be useful in determining his or her ability to perform another job on the same level, as is required in the consideration of transfers. Certainly, PA data is vital when promotions are considered or layoffs must be made. However, when the performance level is unacceptable, demotion or even termination may be appropriate.

Assessment of Employee Potential Some organizations attempt to assess an employee’s potential as they appraise his or her job performance. Although past behaviors may be a good predictor of future behaviors in some jobs, an employee’s past performance may not accurately indicate future performance in other jobs. The best salesperson in the company may not have what it takes to become a successful district sales manager, where the tasks are distinctly different. Similarly, the best systems analyst may, if promoted, be a disaster as an information technology manager. Overemphasizing technical skills and ignoring other equally important skills is a common error in promoting employees into management jobs. Recognition of this problem has led some firms to separate the appraisal of performance, which focuses on past behavior, from the assessment of potential, which is future oriented.

performance appraisal process As shown in Figure 7-1, the starting point for the PA process is identifying specific performance goals. An appraisal system probably cannot effectively serve every desired purpose, so manage- ment should select the specific goals it believes to be most important and realistically achievable. For example, some firms may want to stress employee development, whereas other organizations may want to focus on pay adjustments. Many firms rely on PA results to help inform decisions to terminate employment, particularly after a regular pattern of inadequate job performance. In any case, PA serves a developmental purpose, evaluative purpose, or both.

The next step in this ongoing cycle continues with establishing performance criteria (stan- dards) and communicating these performance expectations to those concerned. Then the work is performed and the supervisor appraises the performance. At the end of the appraisal period, the appraiser reviews work performance and evaluates it against established performance standards. This review helps determine how well employees have met these standards, determines reasons for deficiencies, and develops a plan to correct the problems. At this meeting, goals are set for the next evaluation period, and the cycle repeats.

ObjeCtive 7.4

Discuss the performance appraisal process.



168 Part 3 • Performance management and training

establish performance Criteria (standards) Management must carefully select performance criteria as it pertains to achieving corporate goals.2 The most common appraisal criteria are traits, behaviors, competencies, goal achievement, and improvement potential.

Traits, Behaviors, and Competencies Traits, behaviors, and competencies are often used as PA standards. Traits represent an individ- ual’s predisposition to think, feel, and behave, and many traits are usually thought of as being biologically created. A personality trait is more ingrained with an individual as with a person being introverted or extroverted, or less conscientious or more conscientious.

Behaviors are typically viewed as resulting from a variety of sources including traits and situational context. For example, a highly conscientious person is more likely to engage in behaviors that lead to timely task completion than someone who is less conscientious because conscientious- ness is associated with dutifulness. Employees who tend to be less conscientious may step up their game in situations where they have the opportunity to earn substantial performance-based bonuses than in situations where pay is the same regardless of performance differences.

A behavior may have been learned from parents, from significant friends, or from a certain work environment. A behavior can be changed, but traits are usually more established. Often a young person who joins the military will have many behavioral changes take place prior to return- ing to civilian life. An appropriate behavior to evaluate for a manager might be leadership style. For individuals working in teams, developing others, teamwork and cooperation, or customer service orientation might be appropriate. Desired behaviors may be appropriate as evaluation criteria because if they are recognized and rewarded, employees tend to repeat them. If certain behaviors result in desired outcomes, there is merit in using them in the evaluation process.

Competencies, as we discussed in Chapter 4, refer to an individual’s capability to orchestrate and apply combinations of knowledge, skills, and abilities consistently over time to perform work successfully in the required work situations. Competencies may be technical in nature, relate to interpersonal skills, or are business oriented. For example, analytical thinking and achievement orientation might be essential in professional jobs. In leadership jobs, relevant competencies might include developing talent, delegating authority, and people management skills. The competencies selected for evaluation purposes should be those that are closely associated with job success.

Many of these commonly used traits, behaviors, and competencies are subjective and may be either unrelated to job performance or difficult to define. In such cases, inaccurate evaluations may

ObjeCtive 7.5

Identify the various performance criteria (standards) that can be established.

Identify Specific Performance

Appraisal Goals

Establish Performance Criteria and

Communicate Them to


Examine Work Performed

Appraise Performance

Discuss Appraisal with Employee

Figure 7-1 Performance Appraisal Process



chaPter 7 • Performance management and aPPraisal 169

occur and create legal problems for the organization as well. This was the case in Wade v. Mississippi Cooperative Extension Service where the circuit court ruled:

In a performance appraisal system, general characteristics such as leadership, public acceptance, attitude toward people, appearance and grooming, personal conduct, outlook on life, ethical habits, resourcefulness, capacity for growth, mental alertness, and loyalty to organization are susceptible to partiality and to t