Chapter 10 - Performance Management and Appraisal

Performance Management (PM)

A continuous process used to set goals, monitor progress, evaluate employees’ performance, and help employees improve their skills and productivity to achieve organizational goals. It clarifies job responsibilities, optimizes performance, and ensures alignment with strategic goals.

Performance Appraisal (PA)

The formal process of evaluating an employee’s job performance over a specific period of time. It provides feedback on strengths and weaknesses, communicates evaluation results, and provides documentation for employment-related decisions.

Administrative purposes of PAs

Connects employment-related decisions to past performance (backward-looking perspective) for compensation, career movements, and disciplinary action. It provides formal documentation and justification but should not be used primarily as a punishment mechanism.

Developmental purposes of PAs

Connects employees' future aspirations to growth and skill attainment (forward-looking perspective) by identifying training needs, providing feedback, and developing career plans.

Strategic purposes of PAs

Connects employees to the organization (dashboard or looking within perspective) by aligning individual goals with organizational strategic goals, identifying performance gaps, and reinforcing desired values.

Performance Appraisal Controversies

Feedback should be actionable, but many do not receive adequate feedback, leading to gaps between actual and rated performance. Criticism may be perceived negatively, and appraisals can be influenced by rater errors.

Entitlement approach

An approach to organizational rewards in which employees receive compensation, benefits, and rewards primarily based on their organizational membership, status, or tenure rather than job performance. Performance management is often viewed as a bureaucratic exercise.

Performance-driven approach

An approach to organizational rewards in which employees receive compensation, benefits, and rewards primarily based on their individual performance, contributions, and results.

Common employee performance measures

Quantity of output (productivity), quality of output, timeliness, punctuality and attendance, efficiency, and effectiveness of work completed.

Weighting job duties

The process of assigning a percentage or level of importance to each major job responsibility based on its relative contribution to successful job performance and organizational goals.

Performance information

Data and evidence collected about an employee’s job performance, used by organizations to assess, discuss, and improve performance.

Trait-based performance information

Data evaluating an employee’s personal characteristics, qualities, or attributes (e.g., attitude, teamwork) that are believed to contribute to successful job performance. It is considered the least useful and most subjective type of information.

Behavior-based performance information

Data evaluating an employee’s job-related behaviors (e.g., customer satisfaction, communication) while performing their job duties.

Results-based performance information

Data evaluating an employee’s actual work outcomes, accomplishments, and measurable results (e.g., sales volume, cost reduction) compared to established performance goals, objectives, or standards. It is considered the most useful type of information.

Results only work environment (ROWE)

A workplace management approach in which employees are evaluated and held accountable based on their results, outcomes, and accomplishments rather than the number of hours they work, where they work, or when they complete their work.

Objective performance measure

A performance measure based on quantifiable, observable, and verifiable data and facts (e.g., productivity, attendance) that can be measured consistently, with minimal personal judgment.

Subjective performance measure

A performance measure based on an evaluator’s personal judgment, perceptions, opinions, or interpretations of an employee’s performance (e.g., attitude, initiative).

Performance standards

The specific expectations, criteria, or benchmarks that define the level of performance an employee is expected to achieve when performing their job duties. They establish what constitutes acceptable or outstanding work and should be communicated before work is performed.

Performance calibration

The process of having managers compare and discuss employee performance evaluations to ensure that performance standards and ratings are applied consistently and fairly across employees, teams, or departments.

Four PA Process Decisions

Effective systems require deciding appraisal responsibilities (HR vs. managers), timing of appraisals, who conducts appraisals, and selecting the type of appraisal system.

Informal appraisal

Ongoing, casual evaluation of an employee’s performance through everyday observations and feedback. It should occur more frequently for new employees.

Systematic appraisal

Formal, planned, and structured evaluation of an employee’s performance conducted at predetermined intervals (e.g., annually) using established criteria, procedures, and appraisal methods.

Accelerated appraisal

Performance appraisal conducted more frequently than the organization’s typical appraisal schedule to provide employees with more frequent feedback.

360-degree feedback

A performance appraisal feedback collection method used alongside different performance appraisal methods and involves an employee receiving feedback from multiple sources to provide a comprehensive assessment of performance.

Supervisor appraisals

The most common and traditional source of performance appraisals (downward feedback), which may suffer from rating errors and biases.

Subordinate appraisal

Upward feedback from employees to their managers, typically more appropriate for self-improvement and developmental purposes, though it can be affected by fear of retaliation.

Self-appraisal

When an employee evaluates themselves; it may suffer from leniency bias or self-serving bias.

Self-serving bias

The tendency to emphasize one’s own successes and strengths while minimizing weaknesses and attributing failures to external factors.

Peer appraisals

Evaluations conducted by coworkers, which can be affected by biases like friendship bias, reciprocity bias, or a reluctance to criticize.

Friendship bias

When employees give overly positive ratings to their friends, regardless of their actual job performance.

Reciprocity bias

The tendency to give an employee a favorable performance rating because the employee will also give them a favorable performance rating or has previously done something nice for them (back scratching).

Outsider appraisal

Evaluations from non-employees such as customers, often using tools like comment cards or secret shoppers that focus on reaction outcomes.

Absolute appraisal format

A performance appraisal format in which an employee’s performance is evaluated against predetermined standards or established performance criteria (e.g., Graphic Rating Scale, BARS).

Relative appraisal format

A performance appraisal format in which an employee’s performance is evaluated by comparing them with the performance of other employees (e.g., Ranking, Forced Distribution).

Category scaling methods

Performance appraisal methods in which an employee’s performance is evaluated using a predetermined scale or categories of performance criteria, such as checklists and graphic rating scales.

Checklist

A performance appraisal method in which an evaluator uses a list of statements or job-related behaviors and checks off the items that describe or apply to an employee’s performance (typically yes/no).

Graphic rating scale

A performance appraisal method in which an evaluator rates an employee’s performance on specific job-related characteristics using a predetermined numerical or descriptive scale (e.g., 1 for poor to 5 for excellent).

Behaviorally Anchored Rating Scale (BARS)

An objective, legally defensible category scaling method that provides a common frame of reference by anchoring numerical ratings with specific behavioral examples. Development is difficult and requires separate scales for each job category.

Comparative methods

Performance appraisal methods in which an employee’s performance is evaluated by comparing them with the performance of other employees rather than performance standards.

Straight ranking

A performance appraisal method in which a manager orders employees from highest-performing to lowest-performing based on their overall job performance.

Alternation ranking

A performance appraisal method in which a manager orders employees by alternately selecting the highest-performing and lowest-performing employees based on their overall job performance from the remaining group.

Paired comparison

A performance appraisal method in which employees are compared against one another two at a time (in pairs) to determine which employee performs better, often using a matrix.

Forced distribution

A performance appraisal method that forces raters to rank employees into predetermined performance categories according to a fixed distribution (a regular, bell-shaped vitality curve). It reduces rating inflation but is often viewed as unfair.

Narrative methods

Performance appraisal methods in which an evaluator uses written descriptions and comments to describe an employee’s job performance, contributions, and accomplishments.

Critical incident technique

A performance appraisal method in which a manager keeps a record of specific examples of an employee’s particularly effective or ineffective job behaviors (critical incidents) throughout the appraisal period.

Essay method

A performance appraisal method in which a manager writes a detailed narrative or written report describing an employee’s overall job performance, including their strengths, weaknesses, achievements, work habits, attitudes, and areas that need improvement.

Management by objectives (MBO)

A performance appraisal method in which managers and employees jointly set specific, measurable performance goals, and employee performance is evaluated based on how well those goals are achieved.

Ratingless review

A performance appraisal approach in which managers evaluate an employee’s job performance by focusing on providing feedback, identifying areas for improvement, and setting future goals, without assigning numerical scores, letter grades, or rankings.

Shadow ratings

Hidden internal performance ratings assigned by managers and used for employment decisions, even when employees do not receive formal ratings (often used alongside ratingless reviews).

Rater training

Training provided to managers to teach the appraisal process, performance standards, how to avoid rating errors, and how to communicate feedback.

Rating error

A mistake or bias made by a rater when assessing an employee’s job performance, resulting in an inaccurate, unfair, or inconsistent performance appraisal.

Varying standards

A rater error that occurs when evaluators use different performance standards or expectations when evaluating employees (e.g., different definitions of "on time").

Recency effect

A rater error that occurs when an evaluator gives too much weight to an employee’s most recent performance.

Primacy effect

A rater error that occurs when an evaluator gives too much weight to an employee’s initial performance or first impression.

Leniency error

A rater error that occurs when an evaluator consistently gives employees higher performance ratings than they actually deserve, often to avoid conflict or protect their own image.

Strictness error

A rater error that occurs when an evaluator consistently gives employees lower performance ratings than they actually deserve, common among highly conscientious or perfectionistic raters.

Central tendency error

A rater error that occurs when an evaluator consistently avoids extremely high or low performance ratings and gives employees ratings near the middle (e.g., all 3s out of 5) to play it safe.

Contrast error

A rater error that occurs unintentionally when an evaluator’s judgment of one employee is influenced by the performance of another employee evaluated immediately before them.

Rater bias

A rater error that occurs when an evaluator’s personal beliefs, attitudes, preferences, stereotypes, or prejudices influence how they evaluate an employee’s performance.

Halo effect

A rater error that occurs when an evaluator allows one positive characteristic or quality of an employee to influence their overall performance rating.

Horns effect

A rater error that occurs when an evaluator allows one negative characteristic or quality of an employee to influence their overall performance rating.

Similar-to-me error

A rater error that occurs when an evaluator gives higher performance ratings to employees who share similar characteristics or interests with the evaluator (also known as clone error).

Different-than-me error

A rater error that occurs when an evaluator gives lower performance ratings to employees because they have different characteristics from the evaluator.

Spillover error

A rater error that occurs when a rater allows an employee’s past ratings or performance from a previous evaluation period to influence their current performance rating.

Unclear standards error

A performance appraisal error that occurs when performance appraisal standards are vague or poorly defined, causing raters to define performance levels inconsistently.

Appraisal discussion

A meeting to review and discuss the employee’s performance appraisal. Evaluators should prepare, be specific, develop a future plan, and reinforce successes, but should not talk too much, berate the employee, or compare them to others.