Session 9-10

Performance Management
and Appraisal
 Why Measure Performance ?

Because
➢What you cannot measure you cannot improve.

➢ If you cannot improve you cannot grow.

➢ Measurement helps in objectively differentiating

between performers and nonperformers.

➢Pay for performance is possible only through

metrics.

2
 Performance Management
Performance management definition
The continuous process of:
o Identifying
o Measuring
o Developing performance
of individuals and teams
o Aligning performance with the
organization’s goals
Performance Management Systems
Performance management systems have
three main purposes:

1. Two-way feedback – performance measures

mutually set between employee and employer

2. Development – identify areas in which

employees have deficiencies or weaknesses

3. Documentation - to meet legal requirements

 Performance Management
Six Elements

• Direction sharing
• Goal alignment
• Ongoing performance monitoring
• Ongoing feedback
• Coaching and developmental support
• Recognition and rewards
 Performance Appraisal
Introduction
➢Employees see performance evaluations as having a direct
effect on their work lives

➢Questions regarding the performance appraisal process:

Why evaluate?
Who benefits from the evaluation?
What format should be used?
What problems might arise?
 Performance Appraisal

Five reasons:
1. Used for pay, promotion, and retention decisions
2. Links performance to company goals
3. The manager can correct deficiencies and reinforce
strengths
4. With appraisals employee’s can review career plans
5. Training needs are identified, Teamwork and change
 The Basics of Performance
Appraisal
• The performance appraisal process steps
1. Sets work standards
2. Assesses performance
3. Provides feedback to the employee
o evaluation survey
 Defining the Employee’s Goals
and Performance Standards
• Manager assess:
o Attaining numerical goals
o Meeting quality and quantity criteria

• Managers goals are SMART:

o Specific
o Measurable
o Attainable
o Relevant
o Timely
Who Should Do the Appraising?

• Peer appraisals
• Rating committees
• Self-ratings
• Appraisal by subordinates
• Appraisal by supervisor
• 360-degree feedback
 The Appraisal Process
1
Establish performance standards with employees

2
Communicate expectations and set goals

3
Measure actual performance

4
Compare actual performance with standards

5
Discuss the appraisal with the employee

6
If necessary, initiate corrective action
 The Appraisal Process
1. Establish performance
Standards

➢Derived from company’s strategic goals

➢Based on job analysis and job description

2. Communicate
Expectations

➢Goals must be articulated from supervisor to employee

and from employee to supervisor
 The Appraisal Process
3. Measure actual
Performance

• Measurement of performance using information from:

Personal observation Oral reports
Written reports Statistical reports

4. Compare performance
With standards

➢Explanation of different levels of performance and their

degree of acceptability against the performance standard
 The Appraisal Process
5. Discuss appraisal
With employee

➢ Feedback employees receive has strong impact

On self-esteem and subsequent performance

6. Initiate
Corrective action

• Immediate action deals with symptoms

• Basic corrective action deals with causes

 The Appraisal Process
Five common mistakes managers can make in
giving a performance review:

1
Waiting for the performance appraisal to give feedback

2
Overemphasizing recent performances

3
Being too positive or negative

4
Being critical without being constructive

5
Talking not listening
 Appraisal Methods
The Three Appraisal Approaches

Absolute standards

Relative standards

Achieved outcomes

no single approach is best; each has its strengths and weaknesses

 Appraisal Methods

Absolute Standards

• Employee’s performance is measured against

established standards

• Evaluation is independent of any other employee

 Appraisal Methods
Absolute standards
• Critical incident Method: based on key behavior anecdotes
illustrating effective or ineffective job performance
• Checklist Method : appraiser checks off behaviors that apply to the
employee
• Graphic rating scale Method : appraiser rates employee on a
number of job-related factors; avoids abstract categories
• Forced-choice Method : appraisers consider sets of statements that
appear to be equally favorable, then choose the statement that best
describes the employee
• Behaviorally anchored rating scales (BARS): appraiser rates
employee on factors that are defined by behavioral descriptions
illustrating various dimensions along each rating scale
•Alternation Ranking Method ranks employees from best to worst on
a specific trait, choosing highest, then lowest, until all are ranked.
 Appraisal Methods
Relative standards

•Group order ranking: employees are placed in a classification

reflecting their relative performance, such as “top one-fifth”
•Individual ranking: employees are ranked from highest to lowest
•Paired comparison: each individual is compared to every other
final ranking is based on number of times the individual is preferred
member in a pair
• Narrative Forms method: It involves rating the employee’s
performance for each performance factor needed on the job. Written
examples and an improvement plan is provided. The process then
aids the employee in understanding where his/her performance
was good or bad focusing on problem solving.
 Appraisal Methods
Achieved outcomes

Management by objectives (MBO)

– Includes mutual objective-setting and evaluation based on the
attainment of the specific objectives
– Firms overall objectives translate into specific objectives at the
divisional/departmental/ individual levels
➢ Common elements in an MBO program are:
• 1. Goal specific
• 2. Participative decision making
• 3 a specific time period
• 4. Performance feedback
– Effectively increases employee performance and organizational
productivity, especially when goals are difficult enough to
require stretching
• Computerized and web-based performance appraisal

• Electronic performance monitoring (EPM)

Factors That Can Distort Appraisals

Inappropriate
Leniency Error
Substitutes

Inflationary Distortions Halo Error

Pressures

Central
Similarity Error
Tendency
 Factors That Can Distort
Appraisals
➢Leniency error : each evaluator has his/her own value
system; some evaluate high (positive leniency) and others,
low (negative leniency)
➢Halo error : evaluator lets an assessment of an individual
on one trait influence evaluation on all traits
➢Similarity error: evaluator rates others in the same way
that the evaluator perceives him or herself
➢ Low appraiser motivation: evaluators may be reluctant
to be accurate if important rewards for the employee
depend on the results
➢Recency effects : involve letting what the employee has
done recently blind the manager to the employee’s
performance over the entire year.
 Factors That Can Distort Appraisals
➢ Central tendency: the reluctance to use the extremes of a rating
scale and to adequately distinguish among employees being rated

➢ Inappropriate substitutes for performance: effort, enthusiasm,

appearance, etc., are less relevant for some jobs than others

➢Attribution theory: evaluations are affected based on whether

someone’s performance is due to: internal factors they can control
external factors they cannot control

➢Bias is a tendency to allow individual differences such as

age, race, and Gender affect employee appraisal ratings.
 Guideline to create better
performance management systems
•Use behavior-based measures, which are more job-
related and elicit more inter-rater agreement than traits
such as “loyalty” or “friendliness”

• Combine absolute and relative standards: absolute

standards tend to be positively lenient; relative
standards suffer when there is little variability

• Provide ongoing feedback: expectations and

disappointments should be shared with employees on a
frequent basis
 Guideline to create better performance
management systems
➢ Use multiple raters: the more used, the more reliable and valid the
results (peer evaluations, upward and 360-degree appraisals)

➢ Rate selectively: appraisers should evaluate only in areas about which

they have sufficient knowledge, they should be organizationally close the
individual being evaluated, and should be an effective rater
➢ Train appraisers because poor appraisals can demoralize employees and
increase legal liabilities
• Know the problems
• Use the right tool
• Keep a diary
• Get agreement on a plan
• Ensure fairness
 Creating More Effective Performance
Management Systems
For an effective performance appraisal meeting:

1. Prepare/schedule meeting in advance

2. Create supportive aura about meeting
3. Describe appraisal’s purpose
4. Involve employee in appraisal discussion
5. Focus on behaviors, not employee
6. Cite specific examples
7. Give positive and negative feedback
8. Ensure employee understood appraisal
9. Generate a development plan
 What is a Key Result Area ?

➢A key result area (KRA) is a strategic factor either

internal to the organization or external, where strong
positive results must be realized for the organization to
achieve its strategic goal(s), and therefore, move toward
realizing the organization’s longer-term vision of
success. Key result areas are sometimes referred to
“critical success factors” or “key drivers of success.”

27
 What is a Key Performance
Indicator?
Key: A major contributor to success or failure
Performance: Measurable, quantifiable, adjustable, and
controllable elements
Indicator: Reasonable representation of present and
future performance

KPIs are high level measures or metrics, for one

particular objective and represent a set of measures
focusing on those aspects of individual, group or
organizational performance that are the most critical for
the current and future success.

28
 Characteristics of Good of KPIs
1. Balanced and linked- KPIs should balance and reinforce each other,
not undermine each other and sub optimize processes.
2. Trigger changes - The act of measuring a KPI should trigger a chain
reaction of positive changes in the organization.
3. Standardized- KPIs are based on standard definitions, rules, and
calculations so they can be integrated across dashboards throughout
the organization.
4. Context driven- KPIs put performance in context by applying targets
and thresholds to performance so users can gauge their progress over
time.
5. Reinforced with incentives- Organizations can magnify the impact
of KPIs by attaching compensation or incentives to them. However,
they should do this cautiously, applying incentives only to well-
understood and stable KPIs.
6. Relevant- KPIs gradually lose their impact over time, so they must be
periodically reviewed and refreshed.
29
 Characteristics of Good of KPIs

7. Aligned - KPIs are always aligned with corporate strategy

and objectives.
8. Owned- Every KPI is “owned” by an individual or group
on the business side who is accountable for its outcome.
9. Predictive- KPIs measure drivers of business value. Thus,
they are “leading” indicators of performance desired by the
organization.
10. Actionable- KPIs are populated with timely, actionable data
so users can intervene to improve performance before it is
too late.
11. Few in number- KPIs should focus users on a few high-
value tasks, not scatter their attention and energy on too
many things.
12. Easy to understand- KPIs should be straightforward and
easy to understand, not based on complex indexes that
users do not know how to influence directly..

30
 Types of Key KPIs

Process KPIs - measure the efficiency or productivity of a business process.

Examples - Days to deliver an order.
Input KPIs - measure assets and resources invested in or used to generate
business results. Examples - Dollars spent on research and
development, Funding for employee training, Quality of raw
materials.
Output KPIs - measure the financial and nonfinancial results of business
activities. Examples - Revenues, Number of new customers acquired.
Leading KPI - measure activities that have a significant effect on future
performance. Drive the performance of the outcome measure, being
predictor of success or failure.
Lagging KPI - is a type of indicator that reflect the success or failure after
an event has been consumed. Such as most financial KPIs, measure the
output of past activity.

31
32
33
34
35
36
37
Thank You !