Chapter Seven

1. Performance Management
1.1. Definition of Performance Management

Performance management supports a company’s organizations overall business

goals by linking the work of each individual employee or manager to the overall
mission of the work unit. Generally this is accomplished by established individual
goals and objectives that are tied directly to the organizations purpose or direction.
An effective performance management process generally starts with identifying
clear goals, which are used as the foundation for ongoing coaching and
performance review.

All employees, therefore, play a key role in the success of their company or
organization how well you manage the performance of your employees directly
affects not only the performance of the individual employee and you work but also
the performance of the entire company. When employees are clear about what is
expected of them and have the necessary support to contribute to an organization
efficiently and productively their sense of purpose self-worth and motivation will
increase.

Companies that seek competitive advantage through employees must be able to

manage the behavior and results of all employees. Traditionally, the formal
performance appraisal system was viewed as the primary means for managing
employees performance. Performance appraisal was an administrative duty
performed by managers and was primarily the responsibility of human resource
function and managers now view performance appraisal as an annual ritual.

Performance appraisal must not be seen an end by itself but rather as the means to
influence performance management, if performance management is properly
designed and communicated it can help achieve organizational objective and
enhance employee performance.

1.2. Performance Measurement Criteria

Once the company has determined, through job analysis and design, what kind of
performance it expects from its employees, it needs to develop ways to measure
that performance. Although people differ about criteria to use to evaluate
performance management system, we believe that five stand out: five stand out:
strategic congruence, validity, reliability, acceptability, and specificity.

1. Strategic congruence
Is the extent to which a performance management system elicits job performance
that is congruent with the organization’s strategy, goals, and culture. If a company
emphasizes customer service, then its performance management system should
assess how well its employees are serving the company’s customers. Strategic
congruence emphasis the need for the performance management system to guide
employees in contributing to the organization’s success. This requires systems
flexible enough to adapt to changes in the company’s strategic posture.

2. Validity
Validity is the extent to which a performance measure assesses all the relevant and
only the relevant aspects of job performance. This is often referred to as “content
validity”. For a performance measure to be valid, it must not be deficient or
contaminated. On the other hand, companies must use some measure of
performance, such as a supervisory rating of performance on a set of dimensions or
measures of the objective results on the job. Validity is concerned with maximizing
the overlap between actual job performance and the measure of job performance.

3. Reliability
Reliability refers to the consistency of a performance measure. One important type
of reliability is interrater reliability: the consistency among the individuals who
evaluate the employee’s performance. A performance measure has interrater
reliability if two give the same (or close to the same) evaluations of a person’s job
performance. Evidence seems to indicate that most subjective supervisory
measures of job performance exhibit low reliability. With some measures, the
extent to which all the items rated are internally consistent is important (internal
consistency reliability).

4. Acceptability
Acceptability refers to whether the people who use a performance measure accept
it. Many elaborate performance measures are extremely valid and reliable, but they
consume so much of managers’ time that they refuse to use it. Alternatively, those
being evaluated by a measure may not accept it. Acceptability is affected by the
extent to which employees believe the performance management system is fair.

5. Specificity
Specificity is the extent to which a performance measure gives detailed guidance to
employees about what is expected of them and how they can meet these
expectations. Specificity is relevant to both the strategic and developmental
purposes of performance management. If a measure does not specify what an
employee must do to help the company achieve its strategic goals, it does not
achieve its strategic purpose. Additionally, if the measure fails to point out
employees’ performance problem, it is almost impossible for the employees to
correct their performance.

1.3. Approaches to Measuring Performance

The model of performance management shows that we can manage performance

by focusing on employee attributes, behaviors, or results. In addition, we can
measure performance in a relative way, making overall comparisons among
individuals’ performance. Finally we can develop a performance measurement
system that incorporates some variety of the preceding measures, as evidenced by
the quality approach to measuring performance. Various techniques combine these
approaches. In this section we explore these approaches to measuring and
managing performance, discussing the techniques that are associated with each
approach and evaluating these approaches against the criteria of strategic
congruence, validity, acceptability, reliability, and specificity.

1. Comparative approach
The comparative approach to performance measurement requires the rater to
compare an individual’s performance with that of others. This approach usually
uses some overall assessment of an individual’s performance or worth and seeks to
develop some ranking of the individuals within a work group. At least three
techniques fall under the comparative approach: ranking, forced distribution, and
paired comparison
 2. Attribute Approach
The attribute approach to performance management focuses on the extent to which
individuals have certain attributes (Characteristics or traits) believed desirable for
the company’s success. The techniques that use this approach define a set of traits-
such as initiative, leadership, and competitiveness and evaluate individuals on
them. Two techniques fall under this approach: Graphic Rating Scales and Mixed-
Standard Scales.

3. Behavioral Approach
The behavioral approach to performance management attempts to define the
behaviors an employee must exhibit to be effective in the job. The various
techniques define those behaviours and then require managers to assess the extent
to which employees exhibit them. We discuss five techniques that rely on the
behavioral approach: Critical Incidents, Behaviorally Anchored Rating Scales
(BARS), Behavioral Observation Sales (BOS), Organizational Behavior
Modification, and Assessment centers.

4. The results Approach

The results approach focuses on managing the objective, measurable results of a
job or work group. This approach assumes that subjectivity can be eliminated from
the measurement process and that results are the closet indicator of one’s
contribution to organizational effectiveness. We will examine two performance
management system that use results: management by objectives and the
productivity measurement and evaluation system.

5. Quality Approach
Thus far we have examined the traditional approaches to measuring and evaluating
employee performance. Two fundamental characteristics of the quality approach
are a customer orientation and a prevention approach to errors. Improving
customer satisfaction is the primary goal of the quality approach. Customers can be
internal or external to the organization. A performance management system
designed with a strong quality orientation can be expected to

 Emphasize an assessment of both person and system factors in the

measurement system
  Emphasize that managers and employees work together to solve
performance problems
 Involve both internal and external customers in setting standards
and measuring performance.
 Use multiple sources to evaluate person and system factors

1.4. Performance Appraisal

1.4.1. Meaning of Performance Appraisal

Performance appraisal can be defined as a human resource activity that is used to

determine the extent to which an employee is performing his job effectively.
Performance is said to be a result of employee’s efforts abilities and role
perception.

Performance appraisal is the process of determining and communicating to an

employee how he or she is performing the job and, ideally, establishing plan of
improvement. Other terms of performance appraisal include: personnel rating,
merit rating, performance evaluation, employee appraisal and employee evaluation.

1.4.2. Purposes of Performance Appraisal

1. To provide information towards strength and weakness of employees in their
job performance.
2. To provide data for management for judging future job assignment,
promotion, and compensation.
3. To provide information to help main an equitable and competitive pay
structure.
4. To supply general information on training needs of the organisation or
departments.
5. To improve motivation by increased understanding of goals, the means of
attaining the goals and the rewards associated with achievement.
6. To improve performance by developing strength and dealing with weakness.
7. To provide legally defensible reason for promotions, transfer, reward and
discharge.
 7.3.3. Who Appraises Employee Performance?

In designing an appraisal system, another significant factor worthy of consideration

is the appraiser. Who should actively make the appraisal? The individual and group
of individuals who usually do the appraisal include the immediate supervisor,
employee’s peers, employees themselves (self-appraisal), and subordinates.

I. Immediate supervisor

Appraisal of employees’ performance by their supervisors is the traditional and

most frequently used approach. In fact, this is one of the major responsibilities of
all managers. This approach is used because it is assumed that the supervisor has
greatest opportunity to observe the subordinate’s behaviour. It is also assumed that
the supervisor is able to interpreter and analyses the employee’s performance in
light of the organisation performance objectives. In most organisations, the
employee’s supervisor is responsible for making reward decisions such as pay and
promotion. If the immediate supervisor appraises the employee, the supervisor can
possibly link effective performance with rewards. Supervisors are also in the best
position to know the job requirements, to observe employees at work and to make
the best judgement.

II. Employee’s Peers (Co-workers)

In an organisational setting, a peer is a person working with and at the same level
of an employee. The peer appraisal is frequently called “mutual rating system”. In
effect, each employee apprises each of the other members of the work group.
Employee’s peers represent a credible source of performance data not only because
of their frequent contacts to each other but also because of their interdependence to
accomplish common assignments and common objectives. Performance feedback
from peers, based on observational data, provides employees with a view of their
level of performance.

III. Employee self appraisal

In many organisations self-appraisal is used for developmental purpose. It is

getting acceptance that comprehensive self-appraisal may serve as a vehicle of
professional improvement, ensuring lasting change development of employee’s
competence and quality of performance. Self-appraisal helps an employee to
analyse his or her current level of performance in the light of desired performance
competence. It is also generates performance data on weakness, strength and
potential of the employee, which the appraiser, in the time of appraisal program,
might not ascertain.

IV. Subordinate Appraisal

Some organisations are now using subordinate appraisals, where by employees

appraise their superiors. This is use full in trying to develop better superior-
subordinate relationship, and in improving the human relationship of managers.
Finally, two or more approaches may be used in combination to appraise the
performance of employees. That is supervisor’s appraisal may be supported by self
appraisal or peer appraisal. Such approach may help to offset bias and favouritism
that may be realized when appraisal is conducted only by a single designated
appraiser. This approach not only helps to make appraisal results more objective
but also to get the cooperation and commitment of employees to the system of
performance appraisal.

7.4. Performance appraisal Process (steps)

Performance evaluation involves:

1. Establishing performance standards for each position and the criteria for
evaluation.
2. Establishing evaluation policies on when to rate, how to rate and who should
rate.
3. Have ratters gather data on employees performance
4. Have ratters (and employees in some systems) evaluate employee’s
performance.
5. Discuss the evaluation with the employee
6. Make decisions and file the evaluation.

7.5. Performance Appraisal Methods

1. Graphic rating scale method

This method is the simplest and the most popular technique of appraising
performance. A graphic rating scale lists traits (factors) such as quality of work,
job knowledge, attendance, accuracy of work and cooperativeness. And a range of
performance values actual from unsatisfactory to outstanding is obtained for each
factor. You rate each subordinate by circling 0 checking the score that best
describes his/her performance for each factor. You then total the assigned values
for the traits.

2. Alternation ranking method

This method involves ranking employees form best to worst on a factor or factors
traits. Since it is usually easier to distinguish between the worst and best
employees, an alternation ranking method is most popular. First, list all
subordinates to be rated, and then cross out the names of any not well enough to
rank. Then indicate the employee who is the highest on the characteristics being
measured and also the one who is the lowest. Chose the next highest and the next
lowest till all employees have been ranked.

3. Paired comparison method

This method helps to make the ranking more precise. For every factor (quality of
work, quantity of work etc.), you pair and compare every subordinate with every
other subordinate.

Example, suppose a ratter is to evaluate six employees. The name of these

employees listed on the left side of a sheet of paper. The evaluator then compares
the first employee with the second on a chosen performance criterion, such as
quality of work. If he/she believes the first employee has produced more work than
the second employee a check mark is placed by the first employee’s name. The
ratter then compares the first employee with the third, fourth, firth, and sixth
employee on the same performance criteria, placing a check mark by the name of
the employee who produced the highest result in each paired comparison. The
process is repeated until each employee has been compared to every other
employee on all of the chosen performance criteria. The employee with most check
mark is considered to be the best performer. Likewise, the employee with the
fewest check marks is taken as the least performer. One major problem with the
paired comparison method is that it becomes too wired especially when comparing
more than five or six employees.
 4. Critical Incident Method

With this method the supervisor keeps a log of positive and negative
examples(critical incidents) of a subordinates work related behaviour. Every six
months or so, supervisors and subordinates meet to discuss the latter’s
performance, using the incidents as examples.

5. Management by Objective(MBO)

MBO requires the manager and workers set specific measurable goals and then
periodically discuss the employees’ progress towards these goals throughout the
implementation process the term MBO generally refers to a compressive,
organisation wide goal setting and appraisal program consisting of six steps, which
include:

♥ Set organisational goals

♥ Set departmental goals
♥ Discuss the gaols with the workers
♥ Define expected results
♥ Performance review
♥ Provide feedback

6. Essay appraisal

It is performance evaluation method in which the ratter prepares a written

statement describing the individual’s strength, weakness and past performance.
There are criticisms about the accuracy and relevance of this method. This is
mainly because comparing essays written by the same or different ratters is
difficult since skilled writers can paint better picture of an employee than unskilled
writers.

7. Checklist method

This is performance evaluation method in which the ratter answer with a yes or no,
a series of questions about the behaviour of the employee being rated.

8. Work standards
It is a method, which involves setting a standard or an expected level of output and
then comparing each employee’s level of performance to the standard. This
approach is most frequently used for production employees.

9. Multi-ratter Assessment (360 degree feedback)

This is one of most recently popular method of evaluation. With this method
manager, peers, customers, supplies, or colleagues are asked to complete
questionnaires about the employee being assessed. The person under evaluation
also completes a questionnaire. The HR department provides the result to the
employee, who intern gets to see how his/her opinion differs from those of the
group participating in the assessment.

10.Computerized and Web based Performance Evaluation

Nowadays several relatively inexpensive performance appraisal software programs

are on the market. These programs generally enable managers to keep notes on
subordinates during the year and then to electronically rate employees on a series
of performance factors, the programs finally generate written test to support each
part of the evaluation.

7.6. Appraising performance: Problems and Solutions

Regardless of which technique or system is used there are many problems which
may encounter in the process of using them. None of the techniques is perfect; they
all have limitations. Some of these limitations are common to all of the techniques
while others are more frequently encountered with some ones. The problems
generally include:

I. Unclear standards of evaluation

Problems with evaluation standards arise because of perceptual differences in the

meanings of the words used to evaluate employees. Thus good, adequate,
satisfactory and excellent may mean different things to different evaluators. This
difficulty arises most often in graphic rating scales but may also appear with
essays, critical incidents and checklist. There are several ways to minimise this
problem. The best way is to develop and include descriptive phrases that define the
meaning of each dimension or factor and training ratters to apply all ratings
consistently which will at least reduce the potential rating problems.

II. Hello effect

It is a problem, which arises in performance evaluation when a supervisor’s ratings

of a subordinate on one trait bias the ratings of the person on other traits. Hello
error can be either negative or positive, meaning that the initial impression can
cause the ratings to e either too low or too high. Being aware of this problem is a
major step towards avoiding it supervisory training can also alleviate the problem.
Besides allowing the ratter to evaluate all subordinates on one dimension before
proceeding to another dimension can reduce this type of error.

III. Central tendency

A central tendency error occurs when a ratter avoids using high or low rating and
assigns average rating. For example, if the rating scale ranges from 1 to 7, they
tend to avoid the highs (6and 7) and lows (1 and 2) and rate most of their people
between 3 and 5. This type of “average” rating is almost useless-it fails to
discriminate between subordinates. Thus, it offers little information for making
HRM decisions-regarding compensation, promotion, training, or what should be
feedback to rates. Ratters must be made aware of the importance of discriminating
across rates and the use of evaluations. This sometimes stimulates ratters to use
less central (average) ratings. Ranking employees instead of using graphic rating
scale using reduce this problem, since ranking means you cannot rate them all
average.

IV. Leniency or Harshness error

This problem occurs when a supervisor has a tendency to rate all subordinates
either high or low. Some ratters see everything as good... These are lenient ratters.
Others-ratters see everything as bad these are harsh ratters. This strictness or
leniency problem is especially severe with graphic rating scales. When firms do
not tell their supervisors to avoid gibing all their employees high or lows rating.
One mechanism used to reduce harsh and lenient rating is to ask ratters to
distribute ratings-forcing a normal distribution. For example, 10 percent of
subordinates will be rated as excellent, 20 percent rated as good, 40 percent rated
as fair, 20 percent rated below fair, and 10 percent rated as poor.

V. Recency of events error

This rating error occurs when a manager evaluates employees on work

performance most recently, usually one or two months prior to evaluation. Ratters
forget more about past behaviour than current behaviour. Thus many workers are
evaluated more on the results of the past several weeks than on six months average
behaviour. Some employees are well aware of this difficulty. If they know the date
of the evaluation, they make their works to be visible and noticed in many positive
ways for several weeks in advance.

This problem can be mitigated by using techniques such as critical incident or

MBO or by conducting irregularly scheduled evaluations.

VI. Contrast effects

In individual evaluation techniques each employee is supposed to be rated without

any regard to another employee’s performance. Some evidences however show
that supervisors have very difficult time doing this. If the supervisor lets an
employee’s performance is rated based on the ratings that are given to someone
else, it is said that a contrast effect has occurred. Supervisors who rate their
employees should take the greatest care in evaluating workers separately based on
independent performance.

VII. Personal bias error

A personal bias rating error is an error related to a personal bias held by a

supervisor. There are several kinds of personal bias errors; some can be conscious
such as discrimination against someone because of the appraiser’s personal
characteristics like age, sex, and race. Some supervisors might try to “play
favourites” and rate the people they like better than people they do not like. Other
personal bias errors occur when a ratter gives a higher rate because the worker has
qualities or characteristics similar to the ratter.

VIII. Problem with the appraised

For a system of performance appraisal to function well, it is important that
employees regard it as potentially valuable to improve their competence and to
achieve organisational goals successfully. However, most efforts of performance
evaluation are narrowly focused and oversimplified that they give little regards to
the favourable perception of employees.

A substantial amount of employee’s negative attitude towards appraisal results

from their doubt about the validity and reliability, and performance feedback or
ratings presented by their appraisers. Employees often question appraisers’
competence in appraisal, and consequently tend to lose trust and confidence in
their appraisers and often resist accepting performance ratings.

Another appraisal problem often realized is employees’ reaction to appraisal result

of low ratings. Most employees have difficulty in facing appraisal results involving
negative feedback often develops in employees a sense of tension, friction,
insecurity, embarrassment, frustration, anger, resentment, and anti-feelings and
action.

Performance appraisal may be less effective than expected if the employee is not
work-oriented and if he sees work only as a means of personal satisfaction. Such
an employee may see an appraisal program as only a system of paper work, unless
the appraisal results is so negative that the employee fears termination of his
employment.

In s, for performance appraisal to work well, the employee must understand it,
must feel that it is fair, and must be work oriented. One way to foster this
understanding is for the employees to participate in the design and operation of the
system and to train them to some extent in performance appraisal.

In general, there are problems with performance appraisal: with the appraisers, and
with the employees. It is, however, believed that the suggestions presented
hereunder may improve the system of performance appraisal.

How to Avoid Appraisal Problems

I. Improving validity and reliability of performance criteria

Validity problem- performance criteria are intended to accurately or objectively
measure the performance and potential of employees. When more subjective
criteria are used, the appraisal becomes less valid for decision making and career
guidance. The most common validity errors are caused due to the hallo effect, the
recent behaviour bias, the central tendency and the similar to me errors.

II. Adopting multiple appraisal and different timing

Because of bias and hello effects, it may be more useful to adopt multiple rather
than single appraisal techniques. While the ratings of one appraisal may not be
valid, the overall pattern of several ratings provides an indication of over all
performance and potential for development. Appraisal can be improved by being
done several times a year rather just once. This overcomes the bias of regency.

III. Providing better feedback

The result of the appraisal, along with suggestions for improvement, should be
communicated to the appraised as soon as possible, the skill with which the
appraiser handles the appraisal feedback is the factor in determining whether the
appraisal program is effective in changing employee behaviour or not.

Review Questions:

1. Explain concept of performance management?

2. What is the difference between performance appraisal and performance
management?
3. State the importance of 360 degree method performance appraisal?
4. Discuss how significance self appraisal method of employee?
5. List and discuss two problems of performance appraisal?
6. Which is more broad performance management and performance appraisal?
7.