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CHAPTER 8
MANAGING EMPLOYEES’ PERFORMANCE
Chapter Summary
This chapter examines a variety of approaches to performance management. It begins by describing the activities involved in managing performance and then discusses the purpose of carrying out this process. Next, the chapter identifies specific approaches to performance management, including the strengths and weaknesses of each approach. It also looks at various sources of performance information. The next section of the chapter explores the kinds of errors that commonly occur during the assessment of performance as well as ways to reduce those errors. Then, the chapter describes ways of giving performance feedback effectively and intervening when performance must improve. Finally, it summarizes legal and ethical issues affecting performance management.
Learning Objectives
After studying this chapter, the student should be able to:
1. Identify the activities involved in performance management.
2. Discuss the purposes of performance management systems.
3. Define five criteria for measuring the effectiveness of a performance management system.
4. Compare the major methods for measuring performance.
5. Describe major sources of performance information in terms of their advantages and disadvantages.
6. Define types of rating errors and explain how to minimize them.
7. Explain how to provide performance feedback effectively.
8. Summarize ways to produce improvement in unsatisfactory performance.
9. Discuss legal and ethical issues that effect performance management.
Extended Chapter Outline
Note: Key terms are boldface and are listed in the “Chapter Vocabulary” section.
I. Introduction
1. Performance management is the process through which managers ensure that employees’ activities and outputs contribute to the organization’s goals.
2. The process of performance management requires knowing what activities and outputs are desired, observing whether they occur, and providing feedback to help employees meet expectations.
3. In the course of providing feedback, managers and employees may identify performance problems and establish ways to resolve those problems.
II. The Process of Performance Management
1. Traditional approaches to management have viewed performance appraisal - the measurement of specified areas of an employee’s performance - as the primary means of performance management.
2. In the traditional approaches, the human resource department is responsible for setting up and managing a performance appraisal system. Managers conduct performance appraisals as one of their administrative duties. The managers tend to view appraisals as a yearly ritual. These appraisals include negative information so they tend to be uncomfortable for managers and employees alike. Often, managers feel they do not know how to evaluate performance effectively and employees feel they are excluded from the process and that their contributions are not recognized.
3. Table 8.1 lists some of the criticisms that have been leveled against this style of performance management. It also identifies how these problems can be solved through a more effective approach to performance management.
4. Appraising performance need not cause the problems identified in Table 8.1. If done correctly, the process can provide valuable benefits to employees and the organization alike. Performance management should extend beyond mere appraisals to include several activities.
5. Figure 8.1, Stages of the Performance Management Process, identifies the stages of the performance management process. These include:
a. Defining performance
b. Measuring performance
c. Providing feedback on performance
6. Using this type of performance management process in place of the traditional performance appraisal routine helps managers and employees focus on the organization’s goals.
7. Computer software is available to help managers at various stages of performance management. Software can help managers in the following ways:
a. Customize performance measurement forms
b. Diagnose performance problems
III. Purposes of Performance Management
1. Organizations establish performance management systems to meet three broad purposes. These purposes include:
a. Strategic purposes – helps the organization achieve its business objectives
b. Administrative purposes – the ways in which the organization uses the system to provide information for day-to-day decisions about salary, benefits, and recognition programs
c. Developmental purposes – serves as a basis for developing employees’ knowledge and skills
IV. Criteria for Effective Performance Management
1. For performance management to achieve its goals, its methods for measuring performance must be good enough. There are several ways to measure the performance of an employee. Selecting these measures is a critical part of planning a performance management system.
2. Figure 8.2, Criteria for Effective Performance Measures, summarizes the criteria that determine effectiveness of performance measures. These criteria include: (1) each measure’s fit with the organizational strategy, (2) its validity, (3) its reliability, (4) the degree to which it is acceptable to the organization, and (5) the extent to which it gives employees specific feedback.
3. A performance management system should aim at achieving employee behavior and attitudes that support the organization’s strategy, goals, and culture.
4. In the case of performance appraisal, validity refers to whether the appraisal measures all the relevant aspects of performance and omits irrelevant aspects of performance.
5. Figure 8.3, Contamination and Deficiency of a Job Performance Measure, shows two sets of information that can be found in a job performance appraisal. Contamination refers to information that is gathered but irrelevant. Deficiency refers to information that is not gathered but is relevant.
6. With regards to a performance measure, reliability describes the consistency of the results that the performance measure will deliver. Interrater reliability is consistency of results when more than one person measures performance. Test-retest reliability refers to consistency of results over time.
7. Whether or not a measure is valid and reliable, it must meet the practical standard of being acceptable to the people who use it.
8. A performance measure should specifically tell employees what is expected of them and how they can meet those expectations.
V. Methods for Measuring Performance
1. Organizations have developed a wide variety of methods for measuring performance.
2. Table 8.2 compares these methods in terms of criteria for effective performance management.
A. Making Comparisons
1. The performance appraisal method may require the rater to compare one individual’s performance with that of others. The usual techniques for making comparisons are: simple ranking, forced distribution, and paired comparison.
2. Simple ranking requires managers to rank employees in their group from the highest performer to the poorest performer. Alternation ranking is a variation of this approach. With alternation ranking, the manager works from a list of employees. The major downside to ranking involves validity. Ranking also raises questions about fairness.
3. Another way to compare employees’ performance is with the forced-distribution method. This type of performance measurement assigns a certain percentage of employees to each category in a set of categories. A forced-distribution approach works best if the members of a group really do vary in terms of their performance. It overcomes the temptation to rate everyone high in order to avoid conflict.
4. Another variation on rankings is the paired comparison method. This approach involves comparing each employee with each other employee to establish rankings. This method is time consuming especially if there are several employees. For instance, for a group of 15, the manager must make 105 comparisons.
5. Ranking employees offers some benefits such as: (1) counteracts the tendency to avoid controversy by rating everyone favorably or near the center of the scale, (2) can erase the tendency of evaluating too strictly or too leniently from performance scores, and (3) some ranking systems are easy to use.
6. Drawbacks of ranking systems include: (1) often are not linked to organizational goals, and (2) a simple ranking system leaves the basis for the ranking open to interpretation.
B. Rating Individuals
1. Performance can look at each employee’s performance relative to a uniform set of standards.
2. The measurement may evaluate employees in terms of attributes – characteristics believed desirable- or the measurements might identify whether employees have behaved in desirable ways. For both approaches, the performance management system must identify the desired attributes or behaviors, then provide a form on which the manager can rate the employee in terms of those attributes or behaviors. Typically, the form includes a rating scale.
3. Rating Attributes: The most widely used method for rating attributes is the graphic rating scale. This method lists traits and provides a rating scale for each trait. Figure 8.4, Example of a Graphic Rating Scale, shows an example of a graphic rating scale that uses a set of ratings from 1 to 5.
4. A drawback to the graphic rating scale approach is that it leaves to the manager the decisions about what is “excellent knowledge” or “commendable judgment” or “poor interpersonal skills.” The result is low reliability because one manager is likely to arrive at different judgments than another manager.
5. To get around such problems, some organizations use mixed-standard scales, which use several statements describing each trait to produce a final score for that trait. Figure 8.5, Example of a Mixed-Standard Scale, provides an example of this type of instrument.
6. Rating attributes is the most popular way to measure performance in organizations. In general, attribute-based performance methods are easy to develop and can be applied to a wide variety of jobs and organizations. If the organization is careful to identify which attributes are associated with high performance and to define them carefully on the appraisal form, these methods can be reliable and valid. However, appraisal forms often fail to meet this standard.
7. Rating Behaviors: One way to overcome the drawbacks of rating attributes is to measure employees’ behavior. To rate behaviors, the organization begins by defining what behaviors are associated with success on the job.
8. One way to rate behaviors is with the critical-incident method. This approach requires managers to keep a record of specific examples of the employee acting in ways that are either effective or ineffective.
9. Advantages of this method include: (1) evaluating performance in this specific way gives employees feedback about what they do well and what they do poorly, and (2) the manager can relate the incidents to how the employee is helping the company achieve its goals. Disadvantages include: (1) keeping a daily or weekly log of critical incidents requires significant effort and managers may resist this requirement, and (2) critical incidents may be unique so they may not support comparisons among employees.
10. A behaviorally anchored rating scale (BARS) builds on the critical-incidents approach. The BARS method is intended to define performance dimensions specifically, using statements of behavior that describe different levels of performance. The statements are anchors of the performance levels.
11. Figure 8.6, Task-BARS Rating Dimension: Patrol Officer, shows various performance levels for the behavior of “preparing for duty.”
12. Although BARS can improve interrater reliability, this method can bias the manager’s memory.
13. A behavioral observation scale (BOS) is a variation of a BARS. It is developed from critical incidents. A BOS uses many examples to define all behaviors necessary for effective performance. Also a BOS asks the manager to rate the frequency with which the employee has exhibited the behavior during the rating period.
14. Figure 8.7, Example of a Behavioral Observation Scale, provides a simplified example of a BOS for measuring the behavior “overcoming resistance to change.”
15. A major drawback of this method is the amount of information required. Even so, compared to BARS and graphic rating scales, managers and employees have said they prefer BOS for ease of use, providing feedback, maintaining objectivity, and suggesting training needs.
16. Another approach to assessment builds directly on a branch of psychology called behaviorism, which holds that individuals’ future behavior is determined by their past experiences, specifically, the ways in which past behaviors have been reinforced.
17. Applied to behavior in organizations, organizational behavior modification (OBM) is a plan for managing the behavior of employees through a formal system of feedback and reinforcement. Specific OBM techniques vary, but most have four components:
a. Define a set of key behaviors necessary for job performance
b. Use a measurement system to assess whether the employee exhibits the key behaviors
c. Inform employees of the key behaviors
d. Provide feedback and reinforcement based on employees’ behavior
18. OBM techniques have been used in a variety of settings.
19. Behavioral approaches such as organizational behavior modification and rating scales can be very effective. Thee methods can link the company’s goals to the specific behavior required to achieve those goals. Behavioral methods also can generate specific feedback along with guidance in areas requiring improvements. As a result these methods tend to be valid. When raters are well trained, reliability also tends to be high. However, behavioral methods do not work well for complex jobs where it is difficult to see a link between behavior and results or where there is more than one good way to achieve success.
C. Measuring Results
1. Performance measurement can focus on managing the objective, measurable results of a job or work group. Two of the most popular methods for measuring results are measurement of productivity and management by objectives.
2. Productivity is an important measure of success because getting more done with a smaller amount of resources increases the company’s profits. This type of performance measurement can be time-consuming to set up, but research suggests it can improve productivity.
3. Management by objectives is a system in which people at each level of the organization set goals in a process that flows from top to bottom so that employees at all levels are contributing to the organization’s overall goals. These goals become the standards for evaluating each employee’s performance. An MBO system has three components:
a. Goals are specific, difficult, and objective
b. Managers and their employees work together to set the goals
c. The manager gives objective feedback through the rating period to monitor progress toward the goals
4. Table 8.3 provides an example of MBO for a banking institution.
5. MBO can have a very positive effect on an organization’s performance. In general, evaluation of results can be less subjective than other kinds of performance measurement.
D. Total Quality Management