Chapter 8 Performance Appraisal

8 PERFORMANCE APPRAISAL

CHAPTER OBJECTIVES

After studying this chapter, you should be able to:

Identify the issues that influence the selection of a performance appraisal system.
Explain the uses of performance appraisals.
Discuss rater biases in performance appraisals.
Describe commonly used appraisal methods.
Explain how the results of performance appraisal affect human resource management.

POWERPOINT SLIDES
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(Please contact your McGraw-Hill Ryerson representative to find out how instructors can receive these files.) In the
lecture outline that follows, a reference to the relevant PowerPoint slide for this chapter is placed beside the
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and hit the Enter or Return key.)

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Part 4 Placing, Developing, and Evaluating Human Resources

LECTURE OUTLINE (with PowerPoint slides)
PERFORMANCE MANAGEMENT AS PART OF MANAGERIAL
Performance Appraisal STRATEGY
Slide 1 Performance appraisal is the process by which organizations
evaluate employee job performance
Performance -- Provides data to assess the current skill, experience and
Management
performance level of every employee
Slide 2
-- Impacts human resource planning, training & developing, career
development, and compensation expense forecasts
-- An effective performance appraisal system (valid performance appraisals) is
critical in the performance management process
USES OF PERFORMANCE APPRAISAL
Performance improvement
Uses of Performance -- Performance feedback allows the employee, the manager, and
Appraisal
human resource specialists to take appropriate action to improve
Slide 3
performance
Compensation adjustments
-- Helps decision-makers determine who should receive pay raises
Placement decisions
-- Promotions, transfers, and demotions are usually based on past or
anticipated performance
Training and development needs
-- Poor performance may indicate the need for training; good performance may
indicate untapped potential
Career planning and development
-- Performance feedback guides career decisions
Deficiencies in staffing process
-- Implies strengths or weaknesses in the staffing procedures
Informational inaccuracies
-- Poor performance may indicate errors in job analysis information
or other information that has resulted in inappropriate hiring,
training, or counselling decisions
Job design errors
-- Poor performance may be a symptom of ill-conceived job designs
Avoidance of discrimination
-- Accurate performance appraisals ensure internal placement decisions are not
discriminatory
External challenges
-- Some performance factors may be influenced by external factors

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 Chapter 8 Performance Appraisal

Key Elements
ELEMENTS OF THE PERFORMANCE APPRAISAL SYSTEM
Slide 4
The human resource department usually develops performance
appraisals for employees in all departments
-- This centralization is meant to ensure uniformity in order to provide for useful
results
-- The employees immediate supervisor performs the actual
evaluation 95% of the time
The appraisal system should create an accurate picture of an
individuals job performance. To achieve this goal appraisal systems
Appraisal Systems should be:
Slide 5
Job-related
-- The system evaluates critical behaviours that constitute job success
-- If the system is not job-related it is invalid and probably unreliable
Practical
-- Is understood by evaluators and employees
Performance standards
-- Performance evaluation requires performance standards which are
the benchmarks against which performance is measured
-- Collected through job analysis
Performance measures
-- Performance evaluation also requires performance measures which
are the ratings used to evaluate performance
PERFORMANCE MEASURES
Direct versus Indirect Observation
Performance Measures Direct observation occurs when the rater actually sees the
Slide 6 performance
Indirect observation occurs when the rater can evaluate only substitutes for
actual performance (constructs)
Objective versus Subjective
Objective performance measures are those indications of job
performance that are verifiable by others and are usually quantitative
Subjective performance measures are those ratings that are not
verifiable by others and usually are based on the raters opinions

RATER BIASES
The problem with subjective measures is the opportunity for bias
(distortion of a measurement)
Problems with Subjective
Measures The Halo Effectoccurs when the raters
Slide 7 personal opinion of the employee sways the raters measurement of
performance
The Error of Central Tendencybecause some raters do not like to
assess employees as effective or ineffective they tend to rate
employees near the centre of the rating i.e. average

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The Leniency and Strictness Biasesoccur when raters are too easy or too
harsh in their evaluation of performance
Personal Prejudiceratings can be distorted by a raters dislike for
a person or group
The Recency Effectoccurs when ratings are strongly affected by
the employees most recent actions (either good or bad)

CHARACTERISTICS OF AN EFFECTIVE PERFORMANCE

Characteristics for APPRAISAL SYSTEM
Effectiveness
Slide 8 Validity is of utmost importance. The most valid criteria are results. Valid, or
job-related, performance criteria must be based on a thorough job analysis
Reliability (consistency), is difficult to achieve because of different raters and
changing work environments. However, valid criteria tend to reliable, but reliable
criteria are not necessarily valid
Input into system development increases the probability of acceptance of the
system by both supervisors and employees. It gives employees a sense of
ownership
Acceptable performance standards mean the standards should be set with
employees to gain their commitment
Acceptable goals are seen as achievable by the employee
Control of standards i.e. recognizes that jobs are highly
interdependent. A standard of performance that is not fully under the
control of the employee is not valid
Frequency of feedbackmost appraisals take place once a year.
Ideally, performance feedback would be given by the supervisor
immediately after effective or ineffective job behaviour was observed
Characteristics for Rater training in observation techniques and categorization skills as
Effectiveness (contd)
well as to be familiarized with potential rating errors
Slide 9
Ratee training to ensure the performance appraisal system is well-
understood and accepted by employees
Input into interview process increases employee satisfaction and
morale
Appraisal consequences are required to maintain effectiveness and
ensure employees and supervisors see that appraisal results are taken
seriously and followed up on. There is also a crucial link to a merit
pay system
Different sources (raters) will have different but valid views of a job and the
performance of the employee and reduces the risk of biases (rating errors)

PAST-ORIENTED APPRAISAL METHODS

Noncomparative evaluation methods do not compare one employee against
another, but use scales or reports with performance criteria

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 Chapter 8 Performance Appraisal

Rating Scale is perhaps the oldest and most widely used form of performance
appraisal
Past-Oriented: -- Rater provides a subjective evaluation of an individuals performance along a
Noncomparative
scale from low to high
Slide 10
-- Responses may given numerical values to enable calculation of an
average score
-- Although inexpensive to develop and administer there are many disadvantages
including rater biases and omissions of specific performance criteria in order to
be useful to a variety of jobs
Critical Incident Method requires the rater to record statements that describe
extremely effective or ineffective employee behaviour related to performance
criteria (critical incidents)
-- Very useful for giving employees job-related feedback, however, it is difficult to
ensure supervisors record incidents as they occur
Behaviourally Anchored Rating Scales (BARS) attempt to reduce the
subjectivity and biases of subjective performance measures by using descriptions
of effective and ineffective performance provided by a variety of sources
-- Specific examples of behaviours are placed along a scale
-- BARS are job-related, practical, and standardized for similar jobs
-- Serious limitation is that only a limited number of performance
categories are included
Performance Tests and Observations may include paper-and pencil tests or an
actual demonstration of skills
-- Must be valid (i.e. job-related) and reliable to be useful

Comparative evaluation methods compare one persons performance

with that of co-workers
Ranking method has the rater place each employee in order from
best to worst
-- Although easy to administer and explain, this method is subject to
the halo and recency effects
Forced distributions require raters to sort employees into different
categories or classifications
Past-Oriented: -- Usually a certain proportion must be put into each category
Comparative
Slide 11
-- Although this method overcomes the biases of central tendency,
leniency, and strictness, some employees and supervisors dislike
this method because they feel some employees are rated lower
than they think to be correct

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Future-Oriented Methods FUTURE-ORIENTED APPRAISAL METHODS

Slide 12 Future-oriented appraisals focus on future performance by evaluating
employee potential or setting future performance goals. Techniques
include:
Self-Appraisals
-- Useful to further self-development
-- Can be used with any evaluation approach, past- or future-
oriented
Management-by-Objectives Approach
-- Employee and supervisor jointly establish performance goals for
the future
-- Ideally, these goals are mutually agreed upon and objectively measurable
Assessment Centre Technique
-- Evaluation of future potential that relies on multiple types of
evaluation and multiple raters
-- Usually used for groups of middle-level managers with potential
RECENT DEVELOPMENTS
360-degree performance appraisal
Recent Developments
Slide 13
-- Most recent popular method of assessment
-- In line with the trend toward flatter organizations and requires a suitable
corporate culture
-- Combination of self, peer, supervisor, and subordinate evaluation
-- Performance appraisal software is a new tool used to analyze,
store and retrieve data
Balanced Scorecard
-- Has become a very popular performance management approach
-- Combines the performance measures of the total organization,
integrating financial measures with other key performance
indicators such as customer satisfaction, internal processes,
learning, and innovation
IMPLICATIONS OF APPRAISAL
Training Raters
-- Raters need knowledge of the system and its purpose
-- Require training not only focused on rating errors, but also on the
cognitive aspect of the rating process i.e. ability to make
judgments based on relatively complex information
EVALUATION INTERVIEWS
Evaluation interviews are performance review sessions that give
Evaluation Interviews employees feedback about their past performance or future
Slide 14 potential
The interview should be a positive, performance-improving
dialogue

GUIDELINES FOR EFFECTIVE PERFORMANCE EVALUATION

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 Chapter 8 Performance Appraisal

INTERVIEWS
Effective Evaluation Interviews
Slide 15
1. Emphasize positive aspects of employee performance
2. Tell each employee that the evaluation session is to improve performance, not to
discipline
3. Conduct the performance review session in private with minimum interruptions
4. Review performance formally at least annually and more frequently for new
employees or those who are performing poorly
5. Make criticisms, specific, not general and vague
6. Focus criticisms on performance, not on personality characteristics
7. Stay calm and do not argue with the person being evaluated
8. Identify specific actions the employee can take to improve performance
Effective Evaluation Interviews 9. Emphasize the evaluators willingness to assist the employees
(contd)
Slide 16
efforts and to improve performance
10. End the evaluation session by stressing the positive aspects of the employees
performance and reviewing plans to improve performance

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ANSWERS TO REVIEW AND DISCUSSION
QUESTIONS
1. What are the uses of performance appraisals?
Figure 8-1, p. 354, summarizes the uses of
performance appraisals. It may be worth indicating to
students that the performance appraisal also provides
feedback on how well the human resource department
is performing.
2. Suppose a company for which you work uses a
rating scale. The items on the scale are general
personality characteristics. What criticism do you
have of this method?
A rating scale is very subject to rater biases. When the
scale uses general personality characteristics, biases are
more likely to appear. Furthermore, it is very unlikely
that personality characteristics bear much of a
relationship to actual job performance.
3. If you were asked to recommend a replacement
for the rating scale, what actions would you take
before selecting another appraisal technique?
Students should seek a performance appraisal
technique that is job-related, practical, and
standardized. Additionally, the method selected should
consider the nature and availability of performance
standards and measures that are available for
evaluating performance.
4. Why are direct and objective measures of
performance usually considered superior to indirect
and subjective measures?
Direct measures are based on actual observation of job
behaviour, i.e., the supervisor has opportunities to see
an employee in action. Indirect measures are
substitutes for direct observation, e.g., a test substituted
for direct observation.
Objective measures are verifiable, e.g., counting
mistakes. Subjective measures are not verifiable, e.g,
the opinion of a supervisor regarding the performance
of an employee. Opinions may be biased.
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5. If your organization were to use subjective
measures to evaluate employee performance, what
instructions would you give evaluators about the
biases they might encounter?
The various biases should be reviewed and their causes
discussed. Evaluators should be instructed to justify
their evaluations based on the employee's actual
performance.
6. Describe how you would conduct a typical
performance evaluation interview.
The three major approaches to conducting a
performance evaluation interview outlined in the
chapter include tell-and-sell, tell-and-listen, and
problem solving. Figure 8-10, p. 375, provides specific
guidelines for conducting the interview itself,
regardless of the approach selected.
7. How do the results of performance appraisals
affect other human resource management activities?
Performance appraisals can be viewed as providing
feedback on the entire range of human resource
activities discussed in this book. Poor performance may
be indicative of just that -- poor employee performance.
However, it may reveal problems in the way the human
resource department defines its objectives; meets
external challenges; deals with employment equity;
helps with job design; collects job analysis information;
conducts human resource plans; handles recruitment;
proceeds through the selection process; provides
orientation, training, and development; assists with
career planning; deals with change in the organization;
or designs and implements performance appraisal
techniques.
 Chapter 8 Performance Appraisal

8. Describe the characteristics of a 360-degree

performance appraisal.
.
A 360-degree performance appraisal is a combination
of self, peer, supervisor, and subordinate feedback,
sometimes even from customers. Advantage: different
perspectives. It proves very useful in flat organizations,
with fewer managers who have to supervise more
employees, making it more difficult to assess individual
performance.

9. In what ways is the Balanced Scorecard approach

a useful performance appraisal instrument?

The balanced scorecard concept combines the

performance measures of the total organization instead
of relying on independent measures of its parts. It
provides a view or an organizations overall
performance by integrating financial measures with
other key performance indicators around customer
satisfaction, internal organizational processes and
growth, learning, and innovation.

10. What is the relationship between a performance

appraisal system and a selection system?

No selection system can be validated without a valid

performance appraisal. Validation would be done by
correlating selection scores (interview, tests) with
performance scores.

11. Explain the legal aspect of a performance

appraisal system. Under what circumstances could it
become a crucial document?

Dismissals are often based on grounds of low

performance. Many low performance assessments are
poorly documented and based often on the opinion of a
supervisor, which have no validity in a court of law or
with an arbitrator. However, if low performance is well
documented, management usually has no problems
ridding itself of a poor performer.

It could also be a crucial document if an organization

has to prove that its selection system is valid. This can
be done only with a valid performance appraisal
system.

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Part 4 Placing, Developing, and Evaluating Human Resources

ANSWERS TO CRITICAL THINKING QUESTIONS

1. If the dean of your faculty asked you to serve on a

committee to develop a performance appraisal
system for evaluating the faculty, what performance
criteria would you identify? Of these criteria, which
ones do you think are most likely to determine the
faculty members' success at your school? What
standards would you recommend to the dean
regardless of the specific evaluation instrument
selected?
To students, the primary performance criterion is
teaching ability. If students are encouraged, they may
identify many individual criteria that comprise
effective teaching. Examples might include fair
grading, reasonable tests, interesting classroom
presentations, freedom from annoying mannerisms,
and others.
The criteria most likely to determine success at your
college or university are probably unique to your
institution, and depend on whether the school is
considered to have a teaching, research, or community
service orientation. In turn, this orientation affects the
specific standards a student is likely to recommend.
2. Your organization has dismissed an employee for
not performing up to par. She sues the company for
unjust dismissal, claiming that the company's
performance appraisal instrument is not a valid
assessment tool, since no woman had served on the
committee responsible for developing it. Are you
able to persuade a judge that despite the fact that
no woman served on the committee, your appraisal
instrument is valid?
3. Can one performance appraisal instrument be
used for all levels in an organization, i.e., executives,
middle managers, and employees? Why or why not?
It is unlikely that one instrument could be used
effectively for different job groups. The text emphasizes
the importance of job-relevant performance criteria
which, by definition, would be different for each job. It
is true that often one performance appraisal systems is
used for different groups, but this is at the expense of
its validity.
It is possible to use one part of a performance appraisal
instrument for different jobs, if the latter contain
similar job elements, e.g., managers may have
common decision making skill requirements. The other
part of the appraisal instrument would then use job
specific criteria. Such elements the above jobs do not
have in common. As an example, a manufacturing
manager probably requires some manufacturing-related
specific skills, which would be different from the skill
requirements of a marketing manager, but both jobs
may have some common management/supervisory
skills.

The employee would have to demonstrate that the

instrument is gender sensitive, i.e., discriminates
against women (or men), which would be unusual. It is
much more common that biases originate from raters.
However, the issue here is whether the performance
appraisal instrument is valid, because no woman was
involved in its development. If proper development
rules have been followed (see Figure 8-4, p. 361), and
if job-relevant performance criteria were developed,
then it really does not matter whether women were
involved in the instrument's development or not.
 ETHICS QUESTION

Comments to Instructors
There is no right or wrong answer to this question. It is for class discussion purposes.

WEB RESEARCH

Comments to Instructors
These exercises have been designed for students to demonstrate their computer and Internet skills to research the
required information. Answers will vary.
 INCIDENT 8.1: THE MALFUNCTIONING
REGIONAL HUMAN RESOURCE DEPARTMENT

Incident Comments
The main value in this incident is that it identifies some of the potential problems that can emerge if careful attention is
not paid to the organization's performance appraisal process. The incident also underscores the interdependency of
various human resource activities.

1. What do you think is the major problem with the performance appraisal process in the regional office?

In a word, feedback. The survey indicates that many employees felt feedback was insufficient. Still others apparently
never saw their evaluations, another sign of limited feedback. Even those who did see their evaluations felt the
standards were irrelevant and unfair, an indication that these employees do not understand the standards.

2. What major problems do you think exist with the regional office's
(a) job analysis information?
(b) human resource planning?
(c) training and development?
(d) career planning?

Job analysis information may not have identified accurate performance standards; if those standards were accurate, they
may be outdated.

Human resource planning may not be addressing the organization's future human resource needs, as indicated by the
perceived high proportion of outsiders used to fill job openings.

Training and development may be insufficient, since few employees showed any improvement on their performance
ratings from one year to another.

Career planning also may be insufficient, since employees complain about a lack of career opportunities within the
organization.
 EXERCISE 8-1: DEVELOPING A PERFORMANCE
APPRAISAL SYSTEM
1. Define at least three performance criteria for the instructor.

To students, the primary performance criterion is teaching ability. Individual criteria that comprise effective teaching
may include fair grading, reasonable tests, and providing effective classroom presentations. Additional criteria may
include research and publication results, and community involvement.

The criteria most likely to determine success at your college or university are probably unique to your institution, and
depend on whether the school is considered to have a teaching, research, or community service orientation.

2. How would you measure them so that the results would be useful for a tenure and promotion decision?

Objective, job-related performance measures should be used to ensure that tenure and promotion decisions are made in
a non-discriminatory manner.

3. Which type of instrument or method do you suggest? Why?

Recommended methods or instruments include use of BARS to assess teaching ability. BARS is job-related and could
be standardized for the instructor job. 360-degree performance appraisal could also be used to gather diverse
perspectives including student assessments of performance. Other criteria such as fair grading and reasonable tests
could be assessed through the use of performance tests or the use of an assessment center to provide objective
assessments. Criteria such as research and publication could be measured using specific, quantifiable results e.g.
number of publications, research funds generated, etc. using a MBO approach. Consideration should also be given to
the balanced scorecard approach as a means to integrate and balance the institutions overall performance measures.

4. Who should be the appraisers?

Appraisers may include members of the Faculty Evaluation Committee, supervisors (i.e. Dean or Assistant Dean),
students, other instructors and/or teaching experts from a university or college teaching/education discipline.
Part 4 Placing, Developing, and Evaluating Human Resources
CASE STUDY: MAPLE LEAF SHOES LTD.,
PERFORMANCE APPRAISAL ISSUES
Answers to Discussion Questions
1. You are Tim Lance. Please write an assessment of
Maple Leaf Shoes' performance evaluation system.
The strength of the present evaluation system is that it
is easy to use and that 10 percent of the supervisors are
trying, seriously trying, to make it work as intended.
The weaknesses, however, are numerous. For the
majority of supervisors, the system is not worth the
paper it is written on. First, the criteria are vague and
the standards are unspecified. Second, the supervisors
do not seem to have received any training in using it or
had its importance impressed upon them. Third, the
employees generally receive no feedback and have
indifferent or mixed feelings about the system. Fourth,
the senior management do not consult the evaluation
results for promotions or raises. So it has become a
useless system carried on by untrained people.
2. What changes would you recommend to the
company? Why?
The only recommendation here is for the company to
formally dissolve the system and start training the
supervisors in the art and science of performance
appraisal. Supervisors should hold periodic
conferences with their subordinates to give them
feedback as to how they are doing. At the next stage,
perhaps a formal evaluation form with specific criteria
may be devised, and a format such as BARS or MBO
can be established in consultation with the supervisors
and employees. In the third stage, an attempt might be
made to link salary decisions to performance appraisal.
The linkage should perhaps be a qualitative one rather
than a quantitative one.
 CASE STUDY: CANADIAN PACIFIC AND
INTERNATIONAL BANK
1. How can the bank develop a system that will be
legally foolproof?
The appraisal system should accurately reflect the
performance criteria and standards of the job, and the
ratings should indicate the level of performance in the
appraisal itself. One way to make it foolproof is to
document the specific behaviours that are deemed as
unacceptable, and why they are considered mistakes
relative to the specified standards. This can be done
through BARS, which is based on writing in specific
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Answers to Discussion Question
critical incidents that indicate whether the employee
meets the performance standards on each performance
criteria. This means that the relevant performance
dimensions and standards should be determined a
priori (i.e., what behaviours would indicate mistakes
and why), and that they be incorporated in the BARS
measure. This system allows for documenting concrete,
overt behaviours, which reflect the relevant
performance requirements of the job, and thus is
legally defensible.