CHAPTER 6

Performance
management

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 Chapter Outline
6.1 Introduction
6.2 Performance Management Process
6.3 Performance Management Purposes
6.4 Performance Measures Criteria
6.5 Approaches to Measure Performance
6.6 Source of Performance Information
6.7 Special Issues

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 6.1 Introduction
• Performance appraisal received a list of flaws:
• lack of consistency of use across the company
• unable to differentiate among performance levels
• unable to help building skills and competencies
• excessive time burdens on managers
• limited to only once or twice a year
• affect employee satisfaction.

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 6.1 Introduction
• Performance management as the process
through which managers ensure that
employees’ activities and outputs are
congruent with the organization’s goals.
• Performance management is central to gaining
competitive advantage.

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 6.1 Introduction
• Defining performance: specifies which aspects
of performance are relevant to the
organization, primarily through job analysis
• Performance appraisal: organization gets
information on how well an employee is doing
his or her job
• Performance feedback: provide employees
information on their performance
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 6.2 Performance Management Process

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 6.2 Performance Management Process
Step 1: define performance outcomes
• Understand and identify important performance
outcomes or results.
• Align goals and behaviours to organization’s strategies
and goals.

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 6.2 Performance Management Process
Step 2: develop goals, behaviour and actions of
employees
• Understand the process (or how) to achieve the goals
established in the first step
• Identifying measurable goals, behaviours, and activities that
will help employees achieve the performance results.
• Make these part of the employees’ job descriptions.

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 6.2 Performance Management Process
Step 3: provide support and ongoing discussion
• Focus on accomplishments as well as issues and
challenges influencing performance.
• Provide employees with training, necessary resources
and tools, and frequent feedback

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 6.2 Performance Management Process
Step 4: evaluate performance
• The manager and the employee discuss and compare
the targeted performance goals and support
behaviours with the actual results
• Annual or biannual formal performance review

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 6.2 Performance Management Process
Step 5: identify improvement needed
• Identify what the employee can do to capitalize on
performance strengths and address weaknesses

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 6.2 Performance Management Process
Step 6: provide consequences
• Provide consequences for achieving (or failing to
achieve) performance outcomes.

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 6.3 Performance Management Purposes
Strategic Purpose
• Performance management system should link
employee activities with the organization’s goals.
• Define the results, behaviours, and employee
characteristics that are necessary for carrying out those
strategies, and then
• Develop measurement and feedback systems.

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 6.3 Performance Management Purposes
Administrative Purpose
• Performance management information used for
salary decisions, promotions, retention-
termination, layoffs, and recognition of individual
performance.
• Managers tend to be uncomfortable rating
employees.

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 6.3 Performance Management Purposes
Developmental Purpose
• Improve the performance of employees
• Includes deficiencies and the causes of deficiencies
• Helps good performers get training and
opportunities.

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 6.4 Performance Measures Criteria
Strategic Congruence
• Emphasizes the need for the performance
management system to guide employees in
contributing to the organization’s success
• Must be flexible to adapt to change.

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 6.4 Performance Measures Criteria
Validity
• Must not be deficient or contaminated
• It is deficient if it does not measure all aspects of
performance.
• It is contaminated if it evaluates irrelevant aspects of
performance or aspects that are not job related.
• Concerned with maximizing the overlap between
actual job performance and the measure of job
performance.

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 6.4 Performance Measures Criteria
Validity

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 6.4 Performance Measures Criteria
Reliability
• Refers to the consistency of a performance measure
• Interrater reliability
• The consistency among the individuals who evaluate the
employee’s performance
• Test-retest reliability
• Should be reliable over time.

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 6.4 Performance Measures Criteria
Acceptability
• Refers to whether the people who use a performance
measure accept it.
• Is affected by the perceived fairness: management
system’s development, use, and outcomes.

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 6.4 Performance Measures Criteria
Specificity
• Relevant to both strategic and developmental
purposes.
• Must measure what an employee must do to achieve
company’s goals.
• Must point out employee’s performance problems.

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 6.5 Approaches to Measure Performance
• Comparative Approach
• Attribute Approach
• Behavioural Approach
• Results Approach
• Quality Approach

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 6.5 Approaches to Measure Performance
A. The Comparative Approach:
• Requires the rater to compare an individual’s
performance with that of others.
• Uses some overall assessment of an individual’s
performance or worth and seeks to develop some
ranking of the individuals within a work group.

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 6.5 Approaches to Measure Performance
A. Comparative: Ranking
• Requires managers to rank employees within their
departments from highest performer to poorest
performer (or best to worst).
• Avoid giving high score to every employees.
• Concern about validity.

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 6.5 Approaches to Measure Performance
A. Comparative: Forced distribution
• Assigns a certain percentage of employees to each
category in a set of categories.
• Exceptional-5% • Exceeds standards-25%
• Meets standards-55% • Room for improvement-10%
• Not acceptable-5%
• Helps managers tailor development activities to
employees based on their performance.
• Concern about bias.

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 6.5 Approaches to Measure Performance
A. Comparative : paired-comparison method
• Compare every employee with every other employee
in the work group, giving an employee a score of 1
every time he or she is considered the higher
performer.
• Tends to be time consuming.

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 6.5 Approaches to Measure Performance
B. The Attribute Approach
• Focuses on the extent to which individuals have
certain attributes (characteristics or traits) believed
desirable for the company’s success.
• Define a set of traits and evaluate individuals on them.

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 6.5 Approaches to Measure Performance
B. Attribute: Graphic Rating Scales
• Evaluate performance based on a list of traits on a
five-point scale.

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 6.5 Approaches to Measure Performance
B. Attribute: Graphic Rating Scales
• Low reliability as raters have different judgments
about “distinguished”, excellent”, …

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 6.5 Approaches to Measure Performance
B. Attribute: Mixed-Standard Scales
• An example of good, average, and poor behaviour is
identified for each of the key elements of a job.
• Supervisors are then asked to rate the performance in
terms of whether it is better than, equal to, or worse
than each identified behaviours.
• A total score is derived from these responses.

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 6.5 Approaches to Measure Performance

B. Attribute:
Mixed-Standard
Scales

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 6.5 Approaches to Measure Performance
B. Attribute: Mixed-Standard Scales

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 6.5 Approaches to Measure Performance
B. Attribute: Mixed-Standard Scales

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 6.5 Approaches to Measure Performance
B. Attribute: Mixed-Standard Scales

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 6.5 Approaches to Measure Performance
B. The Attribute Approach
+ Easy to develop and - Little congruence
generalizable; between techniques
+ Can apply for a wide and strategy;
variety of jobs and - Employees are
organizations. defensive about
receiving a mere
numerical rating.

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 6.5 Approaches to Measure Performance
C. The Behavior Approach:
• Attempts to define the behaviors an employee must
exhibit to be effective in the job.

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 6.5 Approaches to Measure Performance
C. Behavior: Behaviorally anchored rating scales
(BARS)
• Is designed to specifically define performance
dimensions by developing behavioural anchors
associated with different levels of performance.

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 6.5 Approaches to Measure Performance

C. Behavior:
Behaviorally
anchored rating
scales (BARS)

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 6.5 Approaches to Measure Performance
C. Behavior: Behavioral Observation Scales BOS
• BOS uses many of statement to more specifically
define all the behaviours that are necessary for
effective performance.
• May require more information than most managers
can process or remember.
• Focus on frequency.

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 6.5 Approaches to Measure Performance
C. Behavior: Behavioral Observation Scales BOS

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 6.5 Approaches to Measure Performance
C. Behavior: Competency Models
• Sets of skills, knowledge, abilities, and personal
characteristics that enable employees to successfully
perform their jobs.
•A competency model identifies and provides
descriptions of competencies that are common for an
entire occupation, organization, or a specific job.
• Useful for a variety of HR practices.

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 6.5 Approaches to Measure Performance
C. Behavior: Competency Models

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 6.5 Approaches to Measure Performance
C. The Behavior Approach
+ Linked with company’s - Behaviors and
strategy; measures must be
+ Provides guidance and continually monitored
feedback for and revised;
employees; - Assumes that there is
+ High level of “one best way” to do
acceptability and the job.
reliability.

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 6.5 Approaches to Measure Performance
D. Results: The Use of Objectives
• A system in which people at each level of the
organization set goals in a process that flows from top
to bottom, so employees at all levels are contributing
to the organization’s overall goals.
• These goals become the standards for evaluating each
employee’s performance.

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 6.5 Approaches to Measure Performance
D. Results: The Use of Objectives
• Goals are specific, difficult, and objective.
• Managers and their employees work together to set
the goals.
• The manager gives objective feedback through the
rating period to monitor progress toward the goals.

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 6.5 Approaches to Measure Performance
D. Results: The Use of Objectives

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 6.5 Approaches to Measure Performance
D. The Result Approach
+ Minimises subjectivity; - Can be contaminated
+ Links an individual’s and deficient;
results with the - Focus on aspects of
organization’s measured performance;
strategies and goals. - Feedback are not
effective in changing the
employees’ behavior.

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 6.5 Approaches to Measure Performance
E. The Quality Approach
• The primary goal is to improve internal and external
customer satisfaction
• Customer orientation
• Prevention approach to errors
• Continuous improvement

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 6.5 Approaches to Measure Performance
E. The Quality Approach
• Most existing systems measure performance in terms
of quantity, not quality.
• Employees are held accountable for the results to
which they contribute but do not completely control.
• Companies do not share the financial rewards of
successes with employees according to how much
they have contributed to them.
• Rewards are not connected to business results.

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 6.5 Approaches to Measure Performance
E. The Quality Approach

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 6.6 Source of Performance Information
Supervisors:
• Most frequently used source of performance
information.
• Motivated to make accurate ratings.
• Feedback from supervisors is strongly related to
performance and to employee perceptions of the
accuracy of the appraisal.

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 6.6 Source of Performance Information
Peers:
• Have expert knowledge of job requirements.
• Often have the most opportunity to observe the
employee.
• Often in the best position to praise and recognize each
other’s performance on a daily basis in day-to-day
activities.
• Peers are not expected to provide feedback.

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 6.6 Source of Performance Information
Subordinates:
• Have best opportunity to evaluate how manager
treats employees.
• Upward feedback.
• Gives subordinates power over managers.
• Might lead to emphasis of employee satisfaction over
production.

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 6.6 Source of Performance Information
Customers:
• The customer is often the only person present to
observe the employee’s performance → the best
source of performance information.
• Service companies use customer evaluations.
• When the job requires direct service to the customer or
links the customer to other services within the company.
• To gather information about products and services
customer wants.

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 6.6 Source of Performance Information
Self-evaluation:
• Not often used as the sole source of performance
information, but can still be valuable.
• Tendency toward inflated assessments.

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 6.6 Source of Performance Information
360-Degree Appraisal
Self
Subordinates

Peers

Supervisors Customers
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 6.7 Special Issues
Measurement errors

Higher evaluation to people similar to reviewers

Reviewer compares employees against others

Use only the top of a rating scale to rate

Use only one low of a rating scale to rate

Rate employees near the middle of the scale

Emphasise one positive quality to evaluate

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Let one negative feature control the evaluation
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 6.7 Special Issues
Measurement errors
• Training
• How to avoid rating errors
• Understand the complex nature of performance.
• Data analytics
• Computers, wearable, analytic software.

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 6.7 Special Issues
Giving feedback
• Scheduling performance feedback regularly.
• Well prepare the formal feedback session.
• "tell-and-sell“ approach: managers tell the employees their
ratings and justify those ratings.
• "tell-and-listen" approach: managers tell employees their
ratings and let the employees explain their story.
• "problem-solving" approach: managers and employees
work together to solve performance problems.

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 6.7 Special Issues
Solutions

Misdirected Solid
effort performers

Motivation

Deadwood Under-utilizers

Ability
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 6.7 Special Issues
Solutions
• Misdirected effort (lack of ability): more training,
coaching, detailed feedback, restructure the job
• Under-utilizers (lack motivation): motivation with
better compensation, more praises
• Deadwood (lack ability and motivation): more
attention from managers or termination decision
• Solid performers (high ability and motivation):
development and promotion opportunity.

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