Milkovich/Newman: Compensation, Ninth Edition

Chapter 11
Performance
Appraisals

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
 Nature of Performance Appraisals
 You can’t manage what you don’t understand
 You don’t understand what you don’t measure
 What gets measured is what gets done
 What gets measured is what gets rewarded
 What gets rewarded is what gets repeated

11-2
 The Role of Performance Appraisals
in Compensation Decisions
 Employees often frustrated about the appraisal
process
– Appraisals are too subjective
– Possibility of unfair treatment by a supervisor
 Experts argue that rather than throwing out the
entire performance appraisal process, total-
quality-management principles should be
applied to improving it
– Recognize part of performance influenced more by
work environment and systems than by ee behaviors
11-3
Exhibit 11.1: Common Errors
in the Appraisal Process

11-4
Exhibit 11.2: Ratings of Managers

11-5
 Strategies to Better Understand and
Measure Job Performance
 Clearly define job performance
 Recognize definition of performance and its
components is expanding
 Improve appraisal formats
 Select the right raters
 Understand way raters process information and
mistakes that may be made
 Train raters to improve rating skills

11-6
 Categories of Appraisal Formats

Ranking - Rater compares

employees against each other

Rating - Rater evaluates

Categories employees on some absolute
standard (measured on a
continuum scale)

Essay - Rater answers open-

ended questions in essay form
describing employee
performance
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 Ranking Formats
 Straight ranking

 Alternation ranking

 Paired-comparison
ranking

 See Ex. 11.3

11-8
 Rating Formats
 Two common elements
– Raters evaluate employees on some absolute
standard
– Each standard is measured on a scale -
performance variation is described along a
continuum

11-9
 Rating Formats (cont.)
 Types of descriptors
– Adjectives
 Standard rating scale (Ex. 11.4)
– Behaviors
 Behaviorally anchored rating scales (Ex. 11.5)
– Outcomes
 Management by objectives (Ex. 11.7, 11.8)

11-10
Exhibit 11.9: Usage of Performance
Evaluation Formats

11-11
Exhibit 11.10: An Evaluation of Performance
Appraisal Formats

11-12
Training Raters to Rate More Accurately
 Rater-error training
– Goal is to reduce psychometric errors by
familiarizing raters with their existence
 Performance-dimension training
– Exposes supervisors to
performance dimensions used
 Performance-standard training
– Provides raters with a standard or
frame of reference for making appraisal

11-13
 Ways to Improve Rater Training
Straightforward lecturing to ratees is ineffective
Individualized or small group discussions more
effective
When sessions are combined with extensive
practice and feedback, rating accuracy improves
Longer training programs are generally more
successful than shorter programs
Performance-dimension and performance-
standard training more effective than rater-error
training
Success results from efforts to reduce halo errors
and improve accuracy

11-14
 Putting it All Together: The
Performance Appraisal Process
Need a sound basis for establishing performance
appraisal dimensions and scales associated with
each dimension
Need to involve employees in every stage of
developing performance dimensions and building
scales
Need to ensure raters are trained in use of
appraisal system and that all employees
understand how system operates

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 Putting it All Together: The
Performance Appraisal Process (cont.)
Need to ensure raters are motivated to rate
accurately
Raters should maintain a diary of employee
performance
Ratersshould attempt a performance diagnosis to
determine if performance problems exist

11-16
Exhibit 11.11: Tips on Appraising Employee Performance

11-17
Exhibit 11.11: Tips on Appraising Employee
Performance (con’t)

11-18
 EEO and Performance Evaluation
Key Issues: Establishing a Performance Appraisal System

Provide specific written instructions on how to complete

1 appraisal

Incorporate clear criteria for evaluating performance -

2 Performance dimensions should be written, objective, and clear

Provide a rational foundation for personnel decisions via

3 adequately developed job descriptions

Require supervisors to provide feedback about appraisal results

4 to employees

Incorporate a review of performance ratings by higher level

5 supervisors

Consistent treatment across raters, regardless of race, color,

6 religion, sex, and national origin should be evident

11-19
Tying Pay to Subjectively Appraised
Performance

How do we get
employees to
Central issue
involving view raises as
merit pay a reward for
performance?

11-20
 Pay Increase Guidelines with Low
Motivational Impact
 Provide equal increases to all employees
regardless of performance

– General increase

– Cost-of-living adjustments

 Pay increases based on a preset progression

pattern based on seniority

11-21
 Requirements to Link Pay to
Performance
Define performance
– Behaviors
– Competencies
– Traits
Specify a continuum describing different levels
from low to high on performance measure
Decide how much of a merit increase is given for
different levels of performance

11-22
Exhibit 11.12: Performance-based
Guidelines

11-23
 Designing Merit Guidelines
Four Questions . . .
What should the poorest performer be paid as an
1 increase?

How much should average performers be paid as an

2 increase?

3 How much should top performers be paid?

What should be the size of the percentage increase

4 differential between different levels of performance?

11-24
Exhibit 11.14: Merit Pay Grid

11-25
 Promotional Increases as a Pay-for-
Performance Tool
 Promotion should be accompanied by a salary
increase - 8 to 12%

 Characteristics of promotional pay increases

– Size of increment is approximately double a normal
merit increase

– Represent a reward to employees for commitment

and exemplary performance

11-26