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Chapter 3: Literature Review




3.0 Introduction

Performance evaluation reflects an employees actual job performance levels, but in order to
get a true picture, the rating must be accurate. Accuracy is the primary goal of any appraisal
system. Employment decisions that are based on inaccurate ratings are not valid and would
be difficult to justify if legally challenged. Moreover, employees tend to lose their trust in the
system when ratings do not accurately reflect their performance levels, and this cause morale
and turnover problems, it also hinders on their opportunity for advancement.

In many instances, accurate rating seems to be rare. Inaccuracy is most often attributable to
the presence of rater errors such as halo, recency, and leniency errors. Rater errors are errors
in judgment that occur in a systematic manner when an individual observes and evaluates
another. Rater errors may be defined technically as a difference between the output of a
human judgment process and that of an objective, accurate assessment uncolored by bias,
prejudice, or other subjective, extraneous influences (Feldman, 1979). Another element that
can cause inaccuracy in rating is that of raters who lack the necessary training in how to
conduct performance evaluations. Training can help to educate a rater not only on the system
itself, but how to deal with other issues such as consistency in rating and also the sensitization
to appropriate rating strategies and behavior.

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Even though these issues are some of the causes for inaccuracy, there is a main factor that
should be considered at the initial stage of the performance appraisal which is fitting practice
to purpose. Setting performance goals that are in sync with organizational goals are essential.
It would help employees to be aware of the organizations objectives hence allowing them to
be aware of the level of performance expected of them so that the organizations objective can
be achieved. Hence linking employees goals with that of the organization will not only help
to improve employees performance, but also the overall performance of the organization.

This chapter sets out to look at the factors that hinder the accuracy of performance appraisal
and the issues that can help to improve performance appraisal outcomes. This literature
review includes writings, research and scholarly opinions supporting the research.


3.1 Ongoing Performance Evaluation

Performance appraisals are only effective if it is ongoing. Periodic observations, monitoring,
coaching, counseling, feedback and record keeping by rater are crucial. Hence in this way
performance problems are caught early and corrected before they have costly consequences.
The results of performance appraisal must be given frequently to an employee if they are to
bring about a change in an employees behaviour or maintain a high standard of excellence.
Employees need feedback on how well they are doing. They must accurately perceive the
consequences of their efforts and be able to set goals on the basis of this feedback (Latham
and Wexley, 1981).
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Performance appraisals are most commonly undertaken to let an employee know how his/her
performance compares with the supervisors expectations, whether they are working toward
organizational objectives/goals, and to identify areas that require training or development.
Without adequate communication between the employee and supervisor, undesirable work
habits may be formed or good work habits may be modified. Therefore lack of
communication may be viewed by the employee as approval of their current work habits and
performance.

Even though ongoing appraisal has been said to improve performance due to feedback and the
issue of identifying training needs, there are other important areas that impacts such as the
accuracy of appraisals. In order to properly monitor an employee, reviews should be
performed on a frequent and ongoing basis. Frequency of evaluation is associated with
perceptions of fairness and accuracy. Frequent appraisals are needed to give an accurate
account of an individuals performance and make improvements in the future. However,
Fisher (1994) believes that frequency of performance evaluation is a difficult dimension to
describe due to the ambiguity of distinction between an appraisal meeting and an everyday
discussion about work between a supervisor and a member of staff. Fisher (1994) agrees that
the modal frequency of appraisal interviewing is annual however, six-monthly or quarterly are
also possible. The most recent evidence suggest that actual time period may vary in different
organizations and with different aims but a typical frequency would be bi-monthly or
quarterly (Boice and Kleiner, 1997). This practice would help to eliminate selective memory
by the supervisor or the employee and also surprises on the part of the employee at an annual
review. It is natural that a person remembers what happened within the last month or high
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profile situations (good or bad); therefore it is best to have frequent reviews to eliminate this
behavior or tendency of unconscious, selective memory.

Such practice by a supervisor when doing an appraisal would result in recency bias. Recency
bias is the tendency to assess people based on most recent behavior and ignoring behavior that
is older. Recent performance of a worker can significantly influence the appraisal. If recent
performance takes precedent in the mind of the appraiser over performance during the entire
appraisal period it may bias his/her judgment. Therefore, appraisers need to guard against
good, average or poor recent performance influencing the appraisal disproportionately.
Collecting and evaluating demonstrated behavior over the entire course of the appraisal period
may minimize the recency error.

Most supervisors do not have the time or recourses to closely monitor an employees
performance over a year or make detailed notes. In this case, the appraiser is forced to consult
memory, which is clearer and more dependable in the months leading up to the appraisal as
opposed to the earlier part of the rating period. This practice can be positive or negative for
an employee because if an employee had a good year except for immediately before the
appraisal and was rated on the most recent events alone, it would be unfair and vice versa.
Both the supervisor and the employee need to know that there is a performance problem prior
to the major annual review in order to eliminate surprises. The longer a problem is allowed to
continue, the more difficult it is to take corrective action. Hence frequent performance
appraisals should eliminate the surprise element and help to modify performance prior to
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annual review. Informal performance reviews may be done continually if a good relationship
exists between the supervisor and the employee.

Poor performance should not remain unchallenged because a performance review is not due, it
should be dealt with and at the same time objectives can be clarified and revised. This
practice would lead to better informed employees who are better equipped to perform their job
satisfactorily. Crane (1991) also believes that as a part of ongoing performance evaluation,
and to ensure the effective use or performance appraisal scheme, it is necessary to keep and
maintain accurate records of employees performance. Careful reviews of these records at the
time of the appraisal would help to eliminate selective memory.

According to Sahi (1990), frequent reviews give supervisors more opportunity to assure that
progress is being made in developmental objectives. J ob demands can frequently prevent
employees from achieving specified objectives. Supervisors in these instances must re-assign
work to allow the completion of this objective or modify the objective to reflect the changing
conditions of the job. However these shortcomings can only be identified if supervisors are
constantly monitoring employees.

There is evidence in literature that annual appraisal does not meet all the objectives of
employees and curtails effectiveness. It does not allow employees to prepare themselves for
responsibilities and goals are not completed (Lee, 1996). Alternatively, they are poorly
completed and the appraisal results in ineffectiveness, poor communication and feedback
(Day, 1989). As a result we will examine the following research question:
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Research Question 1: Are supervisors who fail to conduct ongoing appraisal
periodically (i.e. quarterly, monthly) more prone to making
assessment errors?


3.2 Halo / Horns Effect

Whether to determine pay or to set goals through performance management, job evaluations
are the foundation for decision-making. Unfortunately, the process has potential for errors.
One of such errors is the halo/horn effect. This occurs when the rating of a position on one
compensable factor unduly influences the rating of other compensable factors for the same
position. This can be observed as a higher than warranted rating of a particular factor (halo
effect) or a lower rating of a particular factor (horn effect).

According to Nisbett and Wilson (1997), halo error is the longest recognized, most pervasive
and yet leased understood form of rating error. They believe that the implication is that an
overall impression causes or forces the rating of separate dimensions to be consistent with a
global evaluation, even when the rater has sufficient information to render independent
judgment of the dimensions. Newcomb (1993) views halo as arising from the raters implicit
assumption about covariance among dimension as opposed to Nisbet and Wilson (1997) view
that its a direct influence of a global assessment of the individual being rated.

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There is empirical evidence to support these suggestions. Bretz, Mikovich and Read (1992)
defines halo effects as group of ratings, or appraisals, that are generally inflated and correlated
with each other due to a general perception of the rater that is not tied to the specific
characteristics being rated. A halo appears when, instead of differentiating between levels of
performance on different dimensions, the rater assigns ratings on the basis of a global
impression of the ratee (Borman, 1975). The halo effect causes individuals to be rated as
consistently good or consistently poor performers (Nathan and Lord, 1983). This halo effect is
omnipresent in nature and represents a substantial hurdle in conducting performance appraisal.
Researchers (Borman, 1978; Cooper, 1981; Pulakos, Schmitt, and Ostroff, 1986). Pulakos,
Schmitt, and Ostroff (1986) believe that in order to solve the issue, the goal is to partial out
"true" interdimension scores from halo effects.

Another method to reduce halo error is to increase observation of performance -relevant ratee
behaviour (Bernardin and Walter, 1977; Latham and Wexley, 1981; Spool, 1978). This can
be done when ongoing performance reviews are conducted so that reviews are not done based
on one overall impression or a recent event. Global impressions are likely to be stronger
sources of judgments on performance dimensions when the rater lacks performance relevant
information on the ratee. Raters who have differential or limited opportunities to observe
ratee performance are likely to rely on more general expectations when providing judgment of
dimensions for which they lack specific information (Freidson and Rhea, 1965). This simply
helps us to understand and reiterate the importance of ongoing appraisal so as not to have a
global opinion on any specific dimension. Therefore not only does ongoing appraisal help to
remove the issue of recency, but it also help in trying to lessen halo error.
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The halo effect acts as a barrier to accurate appraisal because those guilty of it fail to identify
the specific strengths and weakness of their employees. The point is that people have both
strength and weaknesses and each need to be evaluated independently. As a result, the
following research question will be examined:
Research Question 2: Are supervisor allowing the grading of one the grading of one
category to influence the grade of another?


3.3 Leniency / Severity Bias

Leniency bias is another form of rating error in performance appraisals. Like halo, it gives
employees unfair ratings. Leniency error occurs when individuals are given ratings that are
higher than actual performance warrants. Leniency errors most often occur when
performance standards are vaguely defined. That is, an individual who has not earned an
excellent rating is most likely to receive one when excellent is not clearly defined.

There are many reasons why raters distort their rating in an upward or downward direction.
Some people do it due to political reasons, that is, they manipulate the ratings to enhance or
protect their self-interests. This can be backed up by Longenecker (1989), who believes that
Organizations are political entities and few, if any, important decisions are made without the
key actors attempting to protect their own interests. However political distortions become
possible because raters are not held responsible for inaccurate ratings (Mero and Motowidlo,
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1995). If they are held accountable, they would become less lenient in rating. In other
instances it is done because of rater allows their personal feelings to affect their judgment.
Sometimes a lenient rating may be given because the rater likes the employee.

According to Longenecker (1987), managers feel the need to manipulate ratings for the best
interest of themselves, the employees and the institution. Because performance appraisals
exist in the context of an organization, the process often becomes a means of supporting
personal or departmental agendas. Executives admit that rating accuracy is not always a goal;
however, the main goal is exercising discretion (Gioia and Longenecker, 1994) as well as
ensuring effectiveness and survival of the organization (Longenecker, 1989). Managers may
increase performance appraisal ratings to increase subordinate loyalty (Gioia and
Longenecker, 1994) or to avoid airing the department's dirty laundry if ratings are made
public (Longenecker, 1989). When performance appraisal ratings are assigned to achieve
personal or departmental goals, the goal of organizational effectiveness may be compromised
(Gioia and Longenecker, 1994), as this does not give a true picture of how the employee is
actually performing.

Although politically motivated rating distortions are usually toward leniency, they may also
be geared toward severity to make cases for termination. Severity error occurs when some
raters tend to give ratings that are lower than actual performance warrants. In many
organizations, the practice is to dismiss the employee if they perform below a certain standard.
The rater may over a period of time, rate the employee lower than the actual performance in
order to make a case for termination (Ilgen and Feldman, 1983). This occurs in some cases
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due to dislike for an individual, such as personal bias, or it may be due to a very high standard
of a rater, or a rater sending a message to an employee to improve his/her performance.
According to Ramsey (1998), raters are required to appraise officers who perform the task
better than themselves, resulting in envy and jealousy. The ratee is then given poorer rating
than he/she deserves.

There are many other reasons why ratings are distorted, besides enhancing personal agenda.
According to Longenecker, Sims, and Gioia (1987), they discovered that the reasons why
ratings are distorted are usually to protect employees from the consequences of negative
ratings, the fear of damaging working relationships and avoiding conflict. When performance
appraisal results are linked to pay, managers hesitate to rate negatively because of the severity
of the consequences. Managers seek to avoid creating permanent negative records and may
feel the need to protect employees whose performance has suffered because of personal
problems (Longenecker, 1989). In cases of this nature being lenient in grading will not solve
the issue of the employees personal problem. Management should seek to assist the
employee by enrolling them in an Employee Assistant Program that would help them to deal
with their problems hence improving their work performance.

Avoiding the imposition of financial harm on an employee is not the only hesitation on the
part of the supervisor, but also the issue of negative interpersonal feedback. Individuals
generally attempt to avoid conveying negative information to others (Blumberg, 1972; Katz
and Kahn, 1978; Tessor and Rosen, 1975). In such instances where negative feedback is
necessary, managers generally tend to procrastinate, or distort the feedback. However
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because performance appraisal ratings are normally mandatory, procrastination is not an
option, hence rating distortion is seen as the only viable alternative for the supervisor who is
hesitant to convey negative feedback. This also links back to the issue of ongoing assessment.
If there is ongoing assessment and feedback, the employee would be aware of problems
affecting their performance throughout the year giving them the opportunity to improve
performance. Therefore, there might not be a need to give negative feedback at the final
assessment period.

Many supervisors choose the inflated route in rating their subordinate because of the fact that
they want to avoid conflict. In the case where there is a full-circle feedback system in place, it
may be the supervisors best interest to rate leniently so as not to upset subordinates who may
retaliate. Many times supervisors have found the issue of discussing a rating with an
employee to be very traumatic experience. This is due to the fact that some employees who
receive negative feedback are typically not motivated to do better and often do worse after the
interview. As a result supervisors avoid giving negative ratings when the ratings have to be
shown to employees.

When this type of leniency/severity bias occurs, the organization will be unable to provide its
employees with useful feedback regarding their performance. This could result in an
employee who receives a lenient rating lulled into thinking that performance improvement is
unnecessary and gives them a false sense of security. On the other hand, Severity errors can
create motivational and morale problems. Based on previous research, question will be
examined:
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Research Question 3: Are supervisors who are too concerned about employees
perception when poor performance is detected more likely to
have leniency bias?


3.4 Performance Management/Appraisal training

Effectiveness in undertaking performance appraisal depends on the skills of the raters.
Effective performance evaluation requires many skills in the areas of communication,
counseling, problem solving and planning. In order for managers to acquire these skills,
training is important. In most instances, raters are given an orientation on the system that
includes a brief review of the design steps, procedures, review procedures, deadlines for
completion of forms and thorough instructions in form completion. However, training for
users is far more complex. Carroll and Schneier (1982) draws on the work of Baird, Beatty
and Schneier (1982) in emphasizing that the training helps raters to develop skills in areas
such as communication and coaching, so that the performance appraisal can be used
effectively. Other important areas of focus that would help to enhance appraisals are training
on techniques of appraisal and ways to evaluate employees and it is essential that raters
acquire these skills.

Training can create a better understanding of what the organization hopes to accomplish with
the performance appraisal system. It can also create a better understanding of the system,
forms and terminology to be employed. By training raters, it may convince the participants
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that the organization is serious about obtaining useful ratings and also it may also contribute
to consistency among raters. In that case all raters would be using the same standards to
measure performance and they would be able to use appropriate rating strategies and
behaviours, which would result in more accuracy (Carroll and Schneier, 1982). As long as
there is consistency among raters, the ratee would show higher level of acceptance of the
system. In many instances raters have low self confidence about their rating skills; therefore
by engaging in training there self confidence can be built leading to them conducting better
performance evaluations.

Although managerial awareness of the importance of training to organizational success seems
to be increasing, many managers still fail to appreciate the value of performance evaluation in
the training process. Roberts (1996), draws on the work of Woehr and Huffcutt (1994) stating
that very often organizations do not invest the required time and energy to training. Few
organizations incorporate training that will reduce rater errors in their performance appraisal
system. It is assumed that the careful construction of the appraisal instrument will obviate the
need for training raters. However, it has been proven time and time again, no matter how hard
you try to find an appropriate appraisal instrument, training will still be necessary because
without training the same problems will surface regardless of the instrument used.

According to Driver (1942) training of those who are to rate employees is one of the
fundamental steps in the rating process. Those required to rate employees are skeptical of the
procedure and this may be demonstrated by lack of interest, antagonism, leniency and lack of
confidence in ratings. There is ample evidence to claim that supervisors lack confidence in
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ratings (Carroll and Schneier, 1982) cause them to be overtly lenient in performance ratings as
they are not armed to deal with ratees defensive reactions (Bernardin and Buckle, 1981; cited
in Neck et al, 1995). In order to build their confidence they must get a clear understanding on
the purpose of the appraisal system, how to use and the necessary techniques required to get
the best results. Even though there is so much value placed on performance appraisal, it
remains one of the most neglected, least-like and least-rewarded activities a manager is asked
to perform.

Rater-training research has focused on increasing observational accuracy (e.g., Thornton and
Zorich, 1980), reducing rating errors (e.g., Latham, Wexley, and Pursell, 1975), increasing
rating accuracy (e.g., Woehr and Huffcutt, 1994), and providing raters with a common frame
of reference (e.g., Sulsky and Day, 1992). These programs are designed to educate raters
about the key cognitive and observational demands of the rating process. Effective rater
training would involve a program where raters would acquire the necessary skills to both
observe and evaluate subordinates performance objectively and accurately and provide
feedback and cope with emotional reactions. Therefore the training would not only eliminate
the issue of rating error, but it will increase the probability of getting more accurate results
from appraisals. Hence the rater training program increases validity, fairness and accuracy of
ratings.

There have been several attempts made to identify a reliable training method to improve
accuracy of performance ratings. According to Bernardin and Buckley (1981), the most
promising methods to emerge for improving the accuracy of performance ratings is Frame of
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Reference (FOR) training. It sets out to establish a common conceptualization of performance
among raters that would serve as a basis for observing and evaluating performance, which
reduces idiosyncratic rating tendencies. FOR attempts to give raters a common frame of
reference as to what constitutes desired job behaviour, they use a formal diary-keeping system
to standardize behaviour observation and training designed to enable the rater to cope with the
many interpersonal problems that may emerge as a result of making accurate ratings. FOR
training imparts shared understanding of performance dimension and standards for evaluating
behaviour relevant to these standards hence improving accuracy.

Empirical studies on rater training by Latham and Wexley (1981) showed that intensive
workshop focusing observational skills (including training in the recognition and avoidance of
several rating errors) led to increased accuracy. Base on all the literature it is clearly stated
that in order to remove or lessen problems associated with performance evaluation and
accuracy, it is essential to train raters. As a result we will examine the following research
question:
Research Question 4: Are supervisors who lack adequate performance management/
appraisal training are more likely to make assessment errors?


3.5 Setting Performance Criteria to Organizational Goals

The main purpose of a performance management system is to align employee and
departmental goals to organizational goals and objectives and ensure that employees
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performance is consistent with those goals. However, little attention has been paid to the
goals that are likely to be pursued by ratees in performance appraisal (Fisher, 1989). Goals
affect performance for several reasons. Primarily, the setting of goals has a direct effect on
what people think and do, it activates behaviour. Goals focus activity in one particular
direction rather than other. At the same time, goals regulate energy expenditure, since people
typically put forth effort in proportion to the difficulty of the goal, given that the goal is
accepted. Goals that are specific lead to higher productivity levels than a generalized goal,
such as do your best. Hence, hard goals lead to higher employee performance than easy
goals (Ferris et al, 1990).

There exist an obvious relationship among individual, unit and organizational performance.
Not only does the performance of each person and unit contribute to an organizations overall
performance, but there must be direct links from organizational level objectives to unit,
department, or work-group objectives and to criteria against which individuals are to be
evaluated. The knowledge and values laid out for employees to aspire toward have to
correspond to what their organizations need in order to be successful and this must be done
when setting performance goals. When employees are aware of and accepts the
organizational goals, this helps to boosts the individual performance which in turns results in
improved and higher organizational performance. In order to have such end results, it must be
ensured that the raters, who will help in setting the ratees goals in sync with that of the
organizations goal, are properly trained. This ties in to the fact that raters must be trained in
order to get accurate results from performance appraisal.

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As a means of attaining desired results of performance, supervisors need to communicate
organizational goals to individual and link them to performance in order to energize
employees. The goals must not only be communicated to employees, but they must be also be
accepted by employees. This will help in increasing individuals persistence as well as
transfer effort into commitment and motivation. Employees who have accepted
organizational goals would strive toward achieving them, hence their performance would
improve.

By coordinating the work of the employee with that of the organization, everyone will be
going into the same direction, hence it would lead to a success, not only in employee
performance but overall output of the organization. This is possible because the goals of the
organization are broken down into smaller chunks that are then assigned or delegated to
employees. The organization achieves their overall goals to the extent that each employee
does his or her part in completing the right job tasks in effective ways. The notion of having
employees participate in the accomplishment of corporate goals can be described as
participatory management or collaborative leadership style (Nash, 1984). Only by tying
individual performance planning to the corporate performance planning process can a
company be sure that individual performance goals are integrated and consistent with one
another.

Also, by helping employees understand how their individual work contributes to the overall
goals of the organization, it enable them to make their own decisions about how to spend their
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work time so that their work is consistent with the priorities of the organization. This result in
employees knowing what they must do, how well they must do it, and why they are doing it.

By ensuring that employees are aware of organizational goals and also by letting them feel
that they contribute to the overall success of the organization, the performance
appraisal/review becomes much easier, causes far less anxiety, and goes much faster when
there are clear performance goals. In fact, the better the performance goals, the clearer they
are and the more measurable they are the less managers and employees have to venture into
the realm of vague opinions about performance during the appraisal process which is the case
of recency bias. In addition to the fact that performance goals allow employees to monitor
their efforts and the results throughout the year we get an appraisal process that is much more
effective and yields no surprises for the employee. It also give positive results as it free the
rater from the tendency of setting standards that are based on their own implicit standards. .

In order for Performance goals to result in better performance they must be derived from the
goals and priorities of the individual, work unit and the organization. This is because goal
setting alone does not work if individual goals are not linked to corporate goals so they can
become shared and become ours (Nash, 1984). If management does not ensure that goals
are set in the like manner, it could result with having hostile or indifferent employees who see
performance standards and goals as pressure and punishment.

There is little literature on linking corporate strategy and employees goal setting, thus
confirmed by Wilkens (1972). However the literature that does exist clearly states that setting
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goals in sync with organizational goals is important for the employee as well as the
organization wellbeing. Therefore the following question will be examined:
Research Question 5: Do organizations that fits performance criteria to purpose
(business strategies or goals) more likely to achieve effective
performance appraisal or management?

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