Fundamentals of

Human Resource
Management

Chapter 10:
Establishing
the Performance Management Systems
 Most employees experience an evaluation of their performance.

 Employees generally see such evaluations as having some direct effect on their
work lives. As a result any evaluation of employees’ work can create an
emotionally charged event.

 Performance evaluation must focus on work activities. The measure is for the
employees’ performance.

 Many factors go into the performance evaluation process, such as: why we
evaluate, who should benefit from the evaluation, what type of evaluation we
should use, and what problems we might encounter.

 Performance evaluation is not easy.

 No performance appraisal system is perfect.

 The evaluation criteria differs among jobs. The evaluation criteria should be
tailored to the job analysis and the organization’s and the employee’s goals.
 Purposes of
a Performance Management System
 Feedback
 Tell employees how they had done over a period of time and to let
them know what pay raise they would receive.

 Development
 It refers to those areas in which an employee has deficiency or
weakness, or simply an area that simply could be better through effort
to improve performance.

 Documentation
 Performance evaluation systems are used to support the legal needs
of the organization.
 It allows the organization to show the effort-performance linkage.
 Difficulties in
a Performance Management System
 Focus on the individual
 Emotions are involved.
 Supervisors do not like to do appraisals.
 Our perception is that we perform in an outstanding fashion which
may be different from the supervisor perception. So, conflict may raise
between the employee and the appraiser (supervisor).

 Focus on the process

 Some evaluation structures misses some qualitative aspects.
 Company policies and procedures may present barriers to a properly
functioning appraisal process.
 From the appraiser's perspective, there is some uncertainty about how
and what to measure, or how to deal with the employee in the
evaluation process.
 Appraisers are poorly trained leading to judgment errors or biases.
 Performance Management and EEO
 Performance management systems are an integral
part of most organizations.

 EEO laws require organizations to have bias-free

HRM practices. Performance management systems
must be objective and job related; i.e. valid and
reliable.

 Performance management systems must be able to

measure reasonable performance success. Two
factors to consider: (1) conducting performance
appraisal according to some established intervals,
and (2) training the appraisers.
 The Appraisal Process
 It is constituted the following steps:
1. Establishment of performance standards.
 They are set in accordance to the organization’s strategic goals.
 They evolve out of the job analysis and description.
 They should be clear and objective enough to be understood and measured.
2. Mutually set measurable goals.
 They are set mutually by the supervisor and the employee.
 It is necessary to communicate supervisor’s expectations to the employee.
3. Measure actual performance.
 The concern should be on what we measure and how we measure it.
 “What to measure” represents the criteria to evaluation. The criteria must represent
performance.
 “How to measure” may be through personal observation, statistical reports, oral reports,
and/or written reports.
4. Compare actual performance with standards.
5. Discuss the appraisal with the employee.
 The impression that employees receive about their assessment has a strong impact on their
self-esteem, and on their subsequent performance
6. Identification of the corrective action, if necessary.
 Corrective actions can be of two types: (1) immediate and deals with symptoms, or (2) basic
and delves into causes.
 Appraisal Methods
 Three approaches for doing appraisal:
 Absolute standards
 Employees’ performance is measured against established standards; their evaluation is independent of any
other employee in the work group.
 This process assesses employee’s job traits and/or behaviors.
 Included are:
1. The critical incident.
2. The checklist.
3. The adjective rating scale.
4. The forced choice.
5. The behaviorally anchored rating scales (BARS).
 Relative standards
 Employees’ performance is evaluated by comparing the employee with other employees.
 Included are:
1. Group order ranking.
2. Individual ranking.
3. Paired comparison.

 Outcomes
 Employees are evaluated based on how well they accomplished a specific set of objectives determined as
critical in successful completion of their job.
 Included are:
1. Goal setting or Management by objectives (MBO).

 No one approach is the best; each has its advantages and disadvantages.
 Appraisal Methods
Absolute Standards
1. The Critical Incident Appraisal
 It is a performance evaluation that focuses on key behaviors that
differentiate between a job effectively and ineffectively.

 Advantages:
1. It is job-related; it looks at behaviors and judge performance.
2. It provides a rich set of examples from which employees can be shown
which of their behaviors are desirable and which ones call for improvement.

 Disadvantages:
1. Appraisers must regularly write these incidents down, and doing that on a
daily or weekly basis fro all employees is time-consuming and burdensome
for supervisors.
2. Critical incidents suffer from the comparison problem found in essays. They
do not lend themselves to quantification which makes comparison or
ranking employees difficult.
 Appraisal Methods
Absolute Standards
2. The Checklist Appraisal
 It is a performance evaluation in which a rater checks off applicable employee
attributes (behavioral descriptions).
 Once the checklist is completed by the appraiser; it is evaluated by the HRM
staff. An HRM analyst scores the checklist by providing weights to the factors in
relation to their importance to that job. The final evaluation can either return to
the appraiser for discussion with the employee, or someone from HRM can
provide the feedback.
 Review exhibit 10-2, page 252.

 Advantages:
1. It reduces the bias as the rater and the scorer are different.

 Disadvantages:
1. The rater can pick up the positive and negative connections in each item; so bias can
still be introduced.
2. It may be inefficient if the individualized checklists of items must be prepared for
numerous job categories; it is not then cost effective.
 Appraisal Methods
Absolute Standards
3. The Adjective Rating Scale Appraisal
 It is a performance appraisal method that lists traits and a range of performance for each.
 Rating scales can be used to assess factors such as: quantity and quality of work, job
knowledge, cooperation, loyalty, dependability, attendance, honesty, integrity, attitudes, and
initiative. However, this method is most valid when abstract traits like loyalty and integrity
are avoided, unless they can be defined in more specific terms.
 The challenge in designing the rating scale is to ensure that the factors evaluated and scale
points are clearly understood and are unambiguous to the rater.
 Review exhibit 10-3, page 252.

 Advantages:
1. It is less time consuming to develop and administer.
2. It provides quantitative analysis useful for comparison purposes.
3. It has more general items which makes it possible to compare with individuals in diverse job
categories.

 Disadvantages:
1. It introduces bias.
2. It does not provide in depth information.
 Appraisal Methods
Absolute Standards
4. Forced-Choice Appraisal
 It is a performance evaluation in which the rater must choose between
two specific statements about an employee’s work behavior.
 The appraiser’s job is to identify which statement is most (or in some
cases least) descriptive of the individual being evaluated. The right
answers are not known to the rater.
 Someone in the HRM scores the answers based on the answer key for the
job being evaluated.

 Advantages:
1. It reduces bias and distortion.

 Disadvantages:
1. Appraisers dislike this method. They are frustrated with a system in which
they do not know what represents a good or bad answer.
 Appraisal Methods
Absolute Standards
5. Behaviorally Anchored Rating Scales (BARS)
 It is a performance appraisal technique that generates critical incidents
and develop behavioral dimensions of performance. The evaluator
appraises behaviors rather than traits.
 Review exhibit 10-4, page 254.

 Advantages:
1. It can be produce a relatively free and reliable ratings.
2. It specifies definite, observable, and measurable job behavior.
3. It reduces rating errors.
4. It clarifies to both the employee and the rater which behaviors represent good
performance and which do not.

 Disadvantages:
1. It is time consuming.
2. It suffers from rating distortions.
 Appraisal Methods
Relative Standards
1. Group Order Ranking
 It requires the evaluator to place employees into a
particular classification, such as “top 20%”.

 Advantages:
1. It prevents raters from inflating their evaluations.

 Disadvantages:
1. It is problematic when the number of employees to be
rated is small. However, as the number increases, the
validity of the relative scores as an accurate measure
increases.
2. The zero-sum consideration is another disadvantage.
 Appraisal Methods
Relative Standards
2. Individual Ranking
 It requires the evaluator to list employees in
order from highest to lowest. Only one
employee is rated the best.

 This method has the same pluses and minuses

of the group ranking method.
 Appraisal Methods
Relative Standards
3. Paired Comparison
 It is ranking individual’s performance by counting
the times any one individual is the preferred
member when compared with all other employees.

 Advantages:
1. It ensures that each employee is compared against every
other.

 Disadvantages:
1. It can become unwieldy when comparing large number
of employees.
 Appraisal Methods
Outcomes
1. Management by Objectives
 MBO is a performance appraisal method that includes
mutual objective setting and evaluation based on the
attainment of the specific objectives.

 MBO works from bottom up as well as from the top down.

 Common elements in an MBO program:

1. Goal specificity.
2. Participative decision making.
3. An explicit time period.
4. Performance feedback.
 Factors Distorting Appraisals
 A completely error-free performance
appraisal is only an ideal we can aim for.

 For some jobs, it is hard for evaluators to

interpret and standardize the criteria upon
which their employees will be appraised. It
is expected that appraisals use
nonperformance or subjective criteria.
 Factors Distorting Appraisals (Cont’d)
 The distortions are:
1. Leniency error / negative leniency error (strictness error)
 It is caused by evaluating employees against one’s own value system.
2. Halo error
 It is the tendency to let our assessment of an individual on one trait influence our evaluation of that
person on other specific traits.
3. Similarity error / projection
 Evaluating employees based on the way an evaluator perceives him/herself.
4. Low appraiser motivation
 If the evaluator knows that a poor appraisal could significantly hurt the employee’s future, the evaluator
may be reluctant to give a realistic appraisal.
5. Central tendency
 The tendency of a rater to give average ratings.
6. Inflationary pressures
7. Inappropriate substitutes for performance
8. Attribution theory
 A theory of performance evaluation based on the perception of who is in control of an employee’s
performance.
 When appraisers attribute an employee’s poor performance to internal control, the judgment is harsher than when the
same poor performance is attributed to external factors.
 When an employee performs satisfactorily, appraisers will evaluate the employee more favorably if the performance
is attributed to the employee\s own effort that if the performance is attributed to outside forces.
 Impression management: If an employee impresses his/her supervisor positively, there is a strong likelihood that the
individual’s performance rating will be higher.
 Creating More Effective
Performance Management Systems
1. Use behavior-based measures.

2. Combine absolute with relative standards.

3. Provide ongoing feedback.

4. Use multiple raters.

A. Self-rating.
B. Use peer evaluations.
C. Upward appraisals/reverse review.
D. 360 degree appraisals.

5. Rate selectively.

6. Train appraisers.
 International Performance Appraisal
 Evaluating employee performance in international
environments brings other factors into play.

 Who performs the evaluation? Is it the host-country or home-

country management?
 Cultural perspectives and expectations may alter vastly the
supervisor’s performance appraisal.
 Confusion may rise from the use of parent-country evaluation forms
if they are misunderstood.
 Evaluation is mostly based on quantitative measures, such as: profits,
market shares, and gross sales. However, these numbers are difficult
in their calculations and are not always comparable.

 Evaluation formats
 We must determine if we are going to use the same evaluation format
for all employees.