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8 Appraising and Managing Performance

Learning objectives
• Discuss the relationship between strategy, performance management and performance appraisal.
• Understand the objectives of performance appraisal.
• Identify the sources of error in performance appraisal.
• Discuss the major types of performance appraisal systems.
• Understand the importance of goal setting in performance improvement.
• Appreciate the impact of EEO on performance appraisal.

Chapter outline
This chapter is divided into six sections. The first three sections introduce the topic of performance appraisal 
and its relationship to business strategy and various HRM activities. The third section then offers a detailed 
overview of the types of performance appraisal systems used by organisations and their associated problems. 
The remaining sections in this chapter discuss the key characteristics of an effective appraisal system and the 
importance of ensuring that the appraisal system satisfies all EEO requirements.

Strategy, performance management and performance appraisal
Organisations need ever-improving performance to survive and prosper in today’s competitive world:
individual and organisational performance improvement are the keys to competitive advantage. The
evaluation of organisational and employee performance permits managers to check that strategic business
objectives are valid, are being successfully communicated throughout the organisation and are being
achieved.

Performance appraisal, by providing a dynamic link to employee recruitment, selection, training and
development, career planning, compensation and benefits, safety and health and industrial relations, is a vital
tool for strategy execution. It signals to managers and employees what is really important; it provides ways
to measure what is important; it fixes accountability for behaviour and results; and it helps to improve
performance.

Performance management
Organisational interest in performance management has increased as a result of competitive pressures, the
influence of HRM and the individualisation of the employment relationship. The key elements of
performance management are:

• the creation of a shared vision of the organisation’s strategic objectives


• the establishment of performance objectives for each function, group and individual to ensure that
their performance is aligned with the needs of the business
• the use of a formal review process to evaluate functional, group and individual progress towards goal
achievement
• the linking of performance evaluation and employee development and rewards to motivate and
reinforce desired behaviour.

Performance appraisal
Performance appraisal may be viewed as an overall measure of organisational effectiveness: organisational
objectives are met through the effort of individual employees. If employee performance is improved, the
organisation will lift its performance. However, it should be noted that some experts do not accept these
assumptions. Nevertheless, appraisal of employee performance remains a critical and ongoing management
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activity. This is because managers are continually observing and judging their employees. This evaluation
process may be formal or informal. Either way, it has a direct impact on the employees’ salary increases,
promotions, demotions, terminations, training and career development.

Performance appraisal objectives
Discrimination
A manager must be able to objectively discriminate between those who are contributing to the achievement
of the organisation’s strategic business objectives and those who are not. Those who are underperforming
should be given the opportunity and assistance to improve. Leaving non-performers in the organisation
sends the wrong signals to other employees who are performing well. Employees who achieve want to be
recognised and rewarded for their efforts.

REWARD — To encourage performance it must be rewarded. Employees who have contributed the most to 
the achievement of the organisation’s strategic business objectives should receive the greatest 
rewards. 

DEVELOPMENT   —  Employee   development   is   the   third   aim   of   performance   appraisal.   Performance 


improvement   comes   about   by   building   on   strengths   and   overcoming   weaknesses.   It   is   the 
manager’s job to remove blocks to employee performance and to help each employee to grow 
and develop. 

FEEDBACK—­ Managers are responsible for evaluating the performance of their people and for accurately 
communicating   that   assessment.   This   requires   the   manager   to   identify   the   employee’s 
deficiencies and determine how they can be overcome; to know what specialised training and 
development   are   needed;   and   to   ensure   that   opportunities   are   created   for   any   new   job 
experiences required. Communicating clear, specific expectations and giving both positive and 
negative feedback are essential parts of the performance appraisal process. 

Rater of employee performance


The evaluation of employee performance is done by the immediate supervisor in most organisations.
However, performance appraisal can be done by anyone who:

• is familiar with the job’s responsibilities and performance objectives


• has sufficient opportunity to observe the employee’s job performance
• has the know-how to distinguish between behaviours which produce effective or ineffective job
performance.

SUPERVISOR   EVALUATION   —  Overwhelmingly,   performance   appraisals   are   the   responsibility   of   the 


immediate supervisor. 

PEER   EVALUATION   —   Organisations   employing   total   quality   management   concepts   and   teams   are 
increasingly using peer evaluations. 

SELF­EVALUATION   —   This   occurs   where   the   employee   evaluates   their   own   performance.   Some 
organisations use self­appraisals as a supplement to supervisor and/or peer evaluations. 
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SUBORDINATE   EVALUATION   —   Sometimes   called   upward   performance   appraisals   involves   the 


subordinate evaluating the performance of their superior. 

MULTISOURCE   EVALUATIONS   —   Multi­source   or   360   degree   evaluations   are   gaining   increasing 


popularity. It seeks performance feedback on employees from their colleagues, superiors, customers and 
subordinates. 

TEAM BASE EVALUATIONS — Are appraisals that are specially designed to evaluate how well a team has
performed.

Sources of error in performance appraisal


Research evidence indicates that managers can clearly discriminate between performing and non­performing 
employees.   However,   their   ratings   will   not   necessarily   reflect   their   actual   judgements.   This   is   because 
managers often distort their evaluations when completing performance appraisal forms. Typical rater errors 
that occur are halo effect, central tendency, prejudice, recency effect, relationship effect, leniency/strictness 
bias, and emphasis on subjective performance criteria.

Major types of performance appraisal systems
When choosing an employee performance appraisal system to introduce, managers must consider the
strategic business objectives of the organisation as well as specific performance evaluation purposes.

RANKING — compares each person’s performance, with the manager ranking all subordinates from ‘best’ 
to ‘worst’. 
GRADING — compares the employee’s performance with the grade definitions, then the employee is placed 
in the grade that best describes his or her performance.
GRAPHIC   SCALES   —   Rating   scale   that   evaluates   employee   performance   using   specific   employee 
behaviour or characteristics.
CRITICAL   INCIDENTS   —   requires   the   manager   to   record   those   occurrences   or   critical   incidents   of 
employee job behaviour which highlight good or bad job performance. 
BEHAVIOURALLY ANCHORED RATING SCALES — a method that combines elements of the
traditional rating scale and critical incidents method.
BEHAVIOUR OBSERVATION SCALES — A behaviour observation scale (BOS) uses critical incidents to
develop a list of the desired behaviours needed to successfully perform a specific job.
ESSAY DESCRIPTION — A manager may be asked to describe, in his or her own words, the employee’s 
performance   (covering   the   quantity   and   quality   of   work   performed,   job   know­how,   human 
relations skills, strengths and weaknesses and so on). 
MANAGEMENT   BY   OBJECTIVES  (MBO)  —  Management  by  objectives  is  a  technique   whereby   the 
manager and  the subordinate mutually identify common goals, define the subordinate’s major 
areas of responsibility in terms of expected results, and use these as measures in assessing the 
subordinate’s performance. 
ASSESSMENT   CENTRES   —   The   primary   purpose   of   an   assessment   centre   is   typically   to   identify 
promotable or high­potential employees. Assessment centres are rarely used for performance 
appraisal purposes because they are costly and time consuming. 
WORKPLACE SURVEILLANCE — The introduction of workplace surveillance equipment to monitor
employee performance and behaviour is rapidly becoming matter of considerable controversy.
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Static and dynamic performance appraisals


For effective performance management, performance appraisal should be dynamic. It should emphasise
employee growth and development and the setting of new goals, not just judgemental decisions about
performance.  The characteristic feature of static appraisal programs is that they look back. They focus on 
the past, not the future. In contrast, a dynamic performance appraisal program helps employees know where 
they are going, how they are going to get there, and when they will get there. 

Characteristics of a dynamic performance appraisal program
Dynamic performance appraisal programs are characterised by three key qualities:

• goal establishment
• performance feedback
• performance improvement.

Importance of goal setting in performance improvement
Employee motivation and performance are improved if the employee clearly understands and is challenged
by what is to be achieved. ‘If performance appraisal is to have a developmental purpose,’ says Kearney, ‘it
must concentrate on the process of getting results. That process must be examined in terms of the job related
behaviours over which the individual has control.’

Performance appraisal record


The performance appraisal record is the document that is used to record the ratings and comments for an
employee. Properly designed, it is a valuable tool for:

• defining performance levels


• facilitating job performance review discussion
• identifying training and development needs
• identifying low- and high-potential employees
• rewarding performance.

Performance review discussion


Research shows that three factors are important in producing effective performance appraisal interviews:

1. the manager’s knowledge of the employee’s job and performance


2. the manager’s support of the employee
3. the manager’s involvement of the employee in the discussion.

The absence of any of these factors will have a negative impact on the quality of the performance appraisal
interview and on its ultimate value. The performance appraisal interview should be a positive experience for
the manager and the employee. The appraisal interview is often the weakest part of the whole appraisal
process. Instead of generating an improvement in performance, it produces a demotivated and angry
employee and results in performance decline.

Preparation required for the performance review discussion


Good, solid preparation leads to a successful performance review discussion. Before meeting an employee,
the manager should undertake the following tasks.
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• Review the employee’s job description to ensure that it is still accurate and that nothing has been
overlooked.
• Read the employee’s last performance appraisal report to refresh his or her memory on key points
and to identify areas of improvement and areas still requiring emphasis.
• Check the employee’s actual performance against the mutually agreed goals.
• Consult with other managers who have contact with the employee in the performance of the job.
• Alert the employee well in advance about the forthcoming performance review discussion so he or
she can undertake the necessary preparation.
• List all key points to be discussed in the interview.
• Ensure   that   there   is   sufficient   time   available   for   the   appraisal   discussion   and   that   there   are   no 
interruptions. 

Conduct of the performance review discussion


In an effective performance review discussion

• Problems should be discussed as problems and not as criticisms.


• The performance appraisal review should not be used as a vehicle to attack the employee’s
personality.
• The employee should be encouraged to talk
• Specific performance improvement objectives should be set.
• Discuss only those things which can be changed.
• The manager should avoid using positional authority.

Performance appraisal and EEO
Performance appraisals must satisfy EEO requirements. For example, ‘Transfer or promotion must be based
on a fair assessment of an employee’s potential, ability and work record. Ideally the work record should
reflect an objective assessment of the employee’s performance’.

Summary
Appraising and managing performance involves evaluating performance, communicating that evaluation to
the employee and establishing a plan for improvement. Performance appraisal is a dynamic process with the
emphasis on self-development, the establishment of performance standards and the giving and receiving of
feedback. Performance appraisal is a management program; it is not just an HR department responsibility. It
is also an important motivator and employee development tool. Finally, the HR manager, in searching for
performance improvement, has a responsibility to ensure that management understands that an
organisation’s strategic business objectives are better achieved through satisfying individual goals, and that
the process of performance appraisal strongly affects how employees feel about the organisation and
themselves.

Terms to identify
Assessment centre performance appraisal record
behaviour observation scales (BOS) performance management
behaviourally anchored rating scales (BARS) performance review discussion
central tendency prejudice
critical incidents ranking
essay description rater errors
goal setting recency effect
grading relationship effect
graphic scales self-evaluation
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halo effect social loafing


management by objectives (MBO) strictness bias
multisource evaluations subordinate evaluation
performance appraisal team appraisals
360-degree appraisals

REVIEW QUESTIONS

Questions in bold print are recommended as exam questions

1. How often should performance reviews be conducted?

There is no ideal frequency for performance reviews.   Normally, formal reviews are conducted every 12 
months.  Some performance goals lend themselves to a longer time frame, and some to a shorter time frame. 

2. Should salary increases and promotions be discussed during an appraisal interview?

There   is   some   argument   that   performance   review   should   be   divorced   from   remuneration   discussion. 
Remuneration is an emotive issue, and discussion of it encourages defensiveness from employees.   As a 
result, proper performance review and goal­setting is affected.   On the other hand, for performance to be 
encouraged, it is obvious that it must be rewarded. Consequently, most organisations claim that they do just 
that.   Employees who have contributed the most to the achievement of the organisation's objectives must 
receive the greatest rewards.

The   big   question   is:   'If   no   objective   measure   of   performance   exists   within   the   organisation,   how   does 
management know what is being rewarded?'  Embarrassingly, often what is rewarded is seniority, a servile 
demeanour or some other factor that has little or nothing to do with the achievement of the organisation's 
objectives.   Some employees who flatter and fawn on their supervisors receive better salary increases and 
promotions   than   their   counterparts.     The   result   can   be   the   over­rewarding   of   incompetence   and   the 
under­rewarding   of   superior   performance.     In   reality,   there   is   little   evidence   to   suggest   that   Australian 
organisations really reward performance.  The key factor in determining rewards in Australian organisations 
is   simply   membership.     Membership­based   rewards   include   'across­the­board'   increases,   cost­of­living 
increases,   seniority   payments   and   so   on.     Performance­based   rewards   include   piecework   payments, 
commissions, incentives, bonuses or other forms of merit pay plans.  Performance­based rewards are 'at risk' 
rewards.  

Employees are not stupid. They quickly learn to exhibit the behaviour that they know will be recognised and 
rewarded by management.   An objective performance appraisal system thus is essential for encouraging 
performance­oriented   behaviour.     It   links   employee   contributions   and   rewards   and   ensures   that   the 
organisation gets maximum value for its compensation dollar.

3. How can an organisation increase its chances of having objective appraisals?
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Reducing the sources of error in performance appraisals will increase an organisation's chances of having 
objective appraisals.  Research evidence indicates that managers can clearly discriminate between good and 
bad performing employees.  It does not follow however that their ratings will reflect their actual judgments. 
This  is  because  managers often distort their evaluations when  completing performance appraisal  forms. 
Managers   need   to   recognise   this   when   considering   the   validity   and   accuracy   of   their   organisations 
performance  appraisal  system.   Some  of   the  main sources  of  error  in  appraisals, and  which should  be 
minimised, are:

Management Attitude
Where management is committed to performance appraisal it will work. However, if performance appraisal 
is seen by managers as something imposed on them by the human resource department, lacking the genuine 
support of senior management, it simply becomes a cosmetic process to be treated with indifference. 

Rater Errors
Most managers and employees are aware of the types of problems that arise in performance appraisal. 'Easy' 
and 'tough' managers, and managers who play favourites, create situations that result in unfair and inaccurate 
ratings. 

Halo Effect
When the manager gives an employee the same rating on all factors, through generalising from one specific 
factor, this causes a 'halo effect' error. 

Central Tendency
This is a problem caused by a manager giving everyone an average or acceptable rating, regardless of actual 
performance. 

Leniency/Strictness Bias
This error occurs when managers rate their employees either consistently high or low. 

Prejudice
When   the   manager   has   a   negative   or   positive   attitude   towards   an   individual   or   group,   this   causes   a 
rater­generated error. 

Recency Effect
When the manager overemphasises the employee's most recent behaviour, this results in a 'recency effect' 
error. 

Other rater­related errors are produced when the manager is subjected to political influences, or varies the 
ratings for a specific purpose such as obtaining a salary increase or promotion for a subordinate.

Emphasis On Subjective Factors
An examination of many traditional performance appraisal systems reveals an emphasis on the measuring of 
subjective  traits, such as personality, loyalty and initiative.   Appraisal systems such as these are  vague, 
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subjective and open to charges of discrimination, and they should be avoided.  Research indicates, moreover, 
that employees assessed under an objective appraisal system are significantly more satisfied with the way 
they were evaluated.  

Some examples of personal­ and performance­based criteria are:

Personal­ based Performance­ based


Initiative Work quantity
Dependability Sales volume
Leadership ability Earnings or profit generated
Attitude towards safety Costs incurred
Willingness to cooperate Number of clients
Verbal communication skill Number of rejects
Enthusiasm for job Amount of scrap produced
Ability to work under stress Attendance record

4. Can performance appraisals conflict with EEO requirements?

They   sure   can.     Today   performance   appraisals   must   satisfy   equal   employment   opportunity   (EEO) 
requirements.   For example, transfer or promotion must be based on a fair assessment of an employee's 
potential, ability and work record.   Ideally the work record should reflect an objective assessment of the 
employee's performance.  In addition, it is desirable for employees to include progress in EEO as part of the 
performance assessment of managers.

Although   Australia   lags   behind   the   USA   in   EEO,   Australian   managers   ultimately   will   have   their 
performance evaluations subjected to public scrutiny.  American managers, for example, have been involved 
in several court cases focusing on performance appraisal and there seems little doubt that Australian EEO 
authorities will refer to US legislation and court decisions for guidance.

The US Equal Employment Opportunity Commission's guidelines make it clear that performance appraisals 
must be job related and non­discriminatory.   A review of US legal cases indicates the following practices 
should   be   utilised   if   an   organisation   is   to   be   successful   in   defending   its   appraisal   system   as   being 
non­discriminatory:

• Job analysis must be used to develop the system.
• The performance appraisal scheme must be behaviour­oriented rather than trait­oriented.
• Managers must be given definite instructions and training on how to make appraisals.
• Results must be communicated to employees.
• There must be a provision for appeal in the case of disagreement.

According   to   some   experts,   without   a   valid   system   of   performance   management,   organisations   risk   an 
eventuality where even unintentional discrimination may consume large amounts of time and money on 
employee   complaints,   grievances   and   suits.     The   impact   on   public   relations,   managerial   confidence   in 
personnel decisions, and employee morale may be even more devastating.   Thus, like it or not, managers 
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increasingly   will   find   their   performance   appraisals   subject   to   challenge   and   external   review.     Human 
resource managers must not only stress this to their management but also provide the know­how within the 
organisation that ensures performance appraisals are objective and non­discriminatory.

5. Do you agree with the following statement? ‘Performance appraisal is simply a management 
technique operating under a scientific veneer to control employees by reinforcing behavioural 
norms that the organisation considers desirable.’ Explain your answer.

Appraising   and   managing   performance   are   critical   management   responsibilities   and   a   vital   part   of   the 
organisation’s strategic management process.  However, many performance appraisal systems in practice are 
short term and divorced from the organisation’s strategic business objectives.  Moreover, highly unionised, 
university and public sector organisations often have cultures that promote strong opposition to any form of 
performance evaluation (despite ineffective control and performance monitoring systems being an important 
factor in the poor performance of the public sector).  Unions, for example, see performance appraisal and pay 
for performance as focusing on the individual, thus creating a competitive culture, coercing higher output 
and promoting management by control.  While in the public sector, the cultural preference for collaboration 
rather than competition means that peer competitiveness can be seen as a strong negative factor in employee 
job satisfaction.   One academic claims, ‘As professionals, as colleagues, as scholars, and as members of 
national and international discipline and research communities, performance management is not appropriate 
for us’.   Similarly, a University of Western Australian academic argues that performance appraisal is an 
attack on academic freedom because it could be used to monitor and control staff and prevent the pursuit of 
unpopular research or public discussion of questions not supported by the university.  Disagreeing, one pro­
vice   chancellor   states,   ‘Unions   have   carefully   confused   egalitarian   principles,   a   feature   of   university 
philosophy, to obfuscate accountability and productivity…. academics are required to teach four to 12 hours 
a week for 30 weeks a year, prepare study materials and undertake research, often in excess of 60 hours a 
week all year. Other academics teach four to 12 hours for only 30 weeks and have the same salary privileges 
and rights as their active scholarly colleagues.’

Despite the importance of performance management, many organisations do not have any systematic method 
of appraisal or use a system that lacks congruence with the organisation’s culture and strategic business 
objectives. Not surprisingly, in a recent survey, more than half of the responding companies reported that 
their performance appraisal system offered little or no value to the organisation.  Similarly, after a review of 
the literature, Newton and Findlay concluded that appraisal schemes rarely work as their formal procedures 
suggest because in practice they are predominantly concerned with surveillance, accountability and control. 
Thus, HR managers have a critical and challenging role in educating their organisation’s management and 
staff   on   the   significance   and   use   of   performance   appraisal   in   employee   development,   performance 
improvement and achievement of the organisation’s strategic business objectives.

Performance appraisals are a powerful vehicle for supervisors to monitor and direct employee behaviour and 
to reinforce their formal authority and control. Disadvantages of this approach include the subjectivity of the 
supervisor (particularly if there is a personality conflict or the supervisor perceives the employee as a threat), 
manipulation of ratings to justify pay increases or promotions, discrimination and supervisor incompetence. 
To check such problems, organisations usually subject the supervisor’s evaluation to management review 
and/or provide a mechanism for employee appeal.
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6. Should performance appraisals be conducted only by HRM specialists?

This text suggests that the manager should conduct the performance appraisal.  The person responsible for 
ensuring   that   the   appraisal   is   conducted   satisfactorily   is   the   person   responsible   for   the   employee's 
performance.   Some may conclude that the employee is responsible for the employee's own performance. 
This is true, but self­conduct of an objective appraisal is clearly not valid.  Generally then, the people who 
should  conduct  performance appraisals are 'managers'.   However, information for  the appraisal  can  and 
should come from several sources, only one of who is the manager of the employee whose performance is 
being   appraised.       Those   sources   can   include:   the   manager,   the   employee,   customers   or   clients   of   the 
employee, customers or clients of the employee's work group, peers, other managers, subordinates of the 
employee, other employees, objective organisational data that cannot be traced to any particular stakeholder. 
The HRM specialist has an important role in advising on the process, and monitoring it to see that it is 
conducted validly.    Human resource managers  thus  have a critical role in educating their organisation's 
management and staff on the significance and use of performance appraisal in performance improvement 
and the achievement of corporate objectives.

7. Should an organisation show its employees their completed performance appraisal records or should 
these records be kept secret?

If   only   to   avoid   conflict   with   EEO   principles,   the   appraisal   record   should   be   mutually   owned   by   the 
employee and by the organisation.  Moreover, Freedom of Information (FOI) legislation in Australia ensures 
that employees can have access to the appraisal record if they want it.  This cannot be avoided.   This chapter 
stresses the mutuality of the determination of the appraisal document.  It also stresses the importance of the 
appraisal for the development of the employee.   Because of this, it is logical that the employee has free 
access to the appraisal documentation, to monitor their own development.  

8. Why might a manager not want to discuss a performance appraisal with an employee?

If the appraisal is not conducted correctly, and is subject to the sources of error identified in this chapter.  If 
the appraisal is not favourable to the employee.  If the appraisal will breach national security, or is outside 
FOI (freedom of information legislation) access guidelines.  

9. What are the benefits to an organisation of having a good performance appraisal system?

Performance appraisal has a dynamic link to employee recruitment, selection, training and development, 
career planning, compensation and benefits, safety and health and employee relations.   It can be a vital tool 
for strategy execution by signalling what is really important, providing ways to measure what is important, 
fixing accountability for behaviour and results and helping to improve performance.  In total, performance 
appraisal is a measure of organisational effectiveness.  It is through the effort of individual employees that 
organisation objectives are met.  If employee performance is improved, the organisation in turn will lift its 
performance.     Appraisal   of   employee   performance   is   thus   a   critical   and   ongoing   human   resource 
management activity.
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Performance  appraisal helps management to discriminate between high  and low  performing  people.    A 


manager must be able to objectively discriminate between those who are contributing to the achievement of 
the organisation's objectives and those who are not.  

Employees who achieve want to be recognised and rewarded for their efforts.   To motivate performance, 
outstanding performers must be identified and rewarded accordingly.   Performance appraisal can achieve 
this.  

Discrimination on the basis of performance is an organisational necessity.  It is part of the managerial role 
that cannot be avoided.  If an organisation is to survive and grow, and retain and motivate its top performers, 
effective performance appraisal is a must.

Performance appraisal helps to ensure that employees are rewarded properly.  

Another benefit to the organisation is that of employee development. Performance improvement comes about 
by building on strengths and overcoming weaknesses.  It is the manager's job to remove blocks to employee 
performance and to help the employee to grow and develop.  Performance appraisal must be a positive and 
dynamic process to achieve this. 

Employee communication is an essential part of the performance appraisal process, and it is a benefit to the 
organisation. 

10. If you were an employee, which appraisal method would you want to be evaluated by? Why?

The answer to this question is determined by personal preference, and by the type of work that one might be 
doing.     Students   should   be   able   to   discriminate   between   the   different   types   of   performance   appraisal 
systems.  They are

Ranking
This is the oldest and simplest form of rating. It compares each person's performance, with the manager 
ranking all subordinates from 'best' to 'worst'. 

Grading
In   the   grading   system,   specific   performance   levels   are   described,   such   as   superior,   good,   acceptable, 
marginal,   unsatisfactory.   The   employee's   performance   is   compared   with   the   grade   definitions,   then   the 
employee is placed in the grade that best describes his performance.

Graphic Scales
This is the most common method of performance appraisal. Typically, the manager can choose one of five 
degrees for each specific factor. The selection of factors to be measured can be centred on subjective factors 
such as initiative and dependability, and/or on objective factors such as quality and quantity of work. 

Critical Incidents 
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Here the manager records actual occurrences or critical incidents of employee job behaviour which highlight 
good or bad job performance.  Incidents typically take the form of a story or anecdote and are recorded as 
soon as possible after they occur. 

Behaviourally Anchored Rating Scales (BARS)
The BARS method of performance appraisal is designed to evaluate behaviour demonstrated in performing a 
job.   Descriptions   of   what   makes   for   good   and   bad   performance   in   a   particular   job   are   collected   from 
supervisors   and/or   people   familiar   with   the   work.   These   examples   are   then   grouped   into   various   job 
dimensions such as job knowledge, customer relations and safety. Next, specific examples of job behaviour 
are placed by a scale, which is usually graded from one to seven. 

Essay Description
Some organisations use an essay description to try to determine performance levels. For example, a manager 
might be asked to describe in his or her own words the employee's performance, covering the quantity and 
quality of work performed, job know­how, human relations skills, strengths and weaknesses and so on. 

Management By Objectives (MBO)
Management by objectives involves the manager and the subordinate mutually identifying common goals; 
defining the subordinate's major areas of responsibility in terms of expected results, and using these as 
measures in assessing the subordinate's performance. 

Assessment Centres
The   primary   purpose   on   an   assessment   centre   is   typically   to   identify   promotable   or   high   potential 
employees. 

Performance appraisal should be dynamic and not static.   It should be used to emphasise the growth and 
development of the employee, and not just to make a judgmental decision about performance.

DIAGNOSTIC MODEL

1. Identify and discuss the factors from the diagnostic model (figure 1.11) that have significance for 
performance appraisal.

Performance improvement is a national necessity.   It must become an integral part of corporate strategy. 
Performance appraisal is a vital part of an organisation's strategic planning and can be used as a means of 
achieving corporate objectives.  Many performance appraisal systems, however, are not linked to an overall 
strategic plan.  Worse, many organisations (particularly those which are highly unionised and/or in the public 
sector) face strong resistance to the very concept of performance appraisal.  
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2. Explain the impact of performance appraisal on the acquisition, development, reward, maintenance 
and departure of an organisation’s human resources.

Performance appraisal has a dynamic link to employee recruitment, selection, training and development, 
career   planning,   compensation   and   benefits,   safety   and   health   and   employee   relations.       According   to 
Schneier, Shaw and Beatty, it can be a vital tool for strategy execution by signalling what is really important, 
providing ways to measure what is important, fixing accountability for behaviour and results and helping to 
improve performance

Performance appraisal objectives are

Discrimination ­ A manager must be able to objectively discriminate between those who are contributing to 
the   achievement   of   the   organisation's   objectives   and   those   who   are   not.   In   a   performance­oriented 
organisation, there is no room for egalitarianism. Inadequate performance cannot be tolerated. Those that are 
under­performing   should be given the opportunity and assistance to improve. Where the employee   still 
cannot make the grade, corrective action such as transfer, demotion or termination should be taken..  

Reward  ­ For performance to be encouraged, it is obvious that it must be rewarded. Consequently, most 
organisations claim that they do just that.  Employees who have contributed the most to the achievement of 
the organisation's objectives must receive the greatest rewards. If not, how are employees to be motivated to 
perform?

Development  ­ The third aim of the performance appraisal (and one which is often overlooked) is that of 
employee development.   Performance improvement comes about by building on strengths and overcoming 
weaknesses.  It is the manager's job to remove blocks to employee performance and to help the employee to 
grow and develop.   Performance appraisal must be a positive and dynamic process to achieve this.   The 
research evidence is clear: the higher the level of employee participation, the greater the satisfaction with the 
appraiser and the appraisal process.

3. Discuss   the   impact   that   performance   appraisal   may   have   on   commitment,   competence,   cost 
effectiveness, congruence, adaptability, performance, job satisfaction and employee motivation.

Students   should   examine   the   link   between   development   of   human   resources   and   the   outcomes   like 
commitment, etc.  
Commitment can be gained through a mutual determination of developmental activities.
Competence can be enhanced by the determination of developmental activities at appraisal time.
Cost effectiveness and congruence are enhanced through the closer match between the person and the job.
Performance is the criterion of appraisal.   If performance is the subject of attention, then performance is 
most likely to be influenced.  
Students should also note that these outcomes should be assessed from the organisational perspective as well 
as the individual perspective.   If all the individuals are more committed, competent, etc., then the whole 
organisation will be committed and competent.
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Soapbox
There are seldom clear answers to these questions.  The idea is to stimulate debate as much as to determine 
an answer. 

Ethical dilemma The sick employee

1. If you were HR manager of Techgan, how would you handle this situation? What advice would you 
give to Jennifer? What would you do about James?

James needs some formal counselling to determine the cause of his lowered performance. The organisation 
needs to find out what it can do to assist him in improving that level of performance.  

2. What ethical issues, if any, are raised in this case?

A manager must be able to objectively discriminate between those who are contributing to the achievement 
of   the   organisation’s   strategic   business   objectives   and   those   who   are   not.     A   performance­oriented 
organisation has no room for egalitarianism: inadequate performance cannot be tolerated. Those who are 
underperforming should be given the opportunity and assistance to improve. If an employee still cannot 
make the grade, corrective action such as transfer, demotion or termination should be taken. Ian Gow, former 
Ten Network Chief, says, ‘You don’t do anybody any favours by tolerating failure or incompetence. All you 
really do is put a lot of other people’s jobs at risk’.   Leaving nonperformers in the organisation sends the 
wrong signals to other employees who are performing well.   Leniency leading to inaccurate performance 
appraisals is a long­standing problem.  A recent survey, for example, indicated that 20 per cent of academics 
had not published anything in five years despite having the same research time and sabbaticals as their more 
productive   colleagues.     The   Commander   of   the   New   South   Wales   Police   Service’s   Professional 
Responsibility Branch states, ‘One of the problems that the Police Service has always had is that we have 
never   been   able   to   get   rid   of   those   officers   who   are   simply   lazy,   have   poor   attitudes   or   are   simply 
incompetent’.  ‘The only way to make a business live up to its potential,’ according to one expert, ‘is to get 
tough.’   Former legendary Port Adelaide Football Club coach, Foster Williams, graphically illustrated this 
when he said, ‘Any club worth its salt will clear out its no hopers from the doorman to the head trainer to the 
captain. Keeping no hopers in these positions is a mark of a non­successful club. You have to weed out the 
people who breed an atmosphere of non­professionalism. They are there for the bloody joke, the social life, 
the prestige. They are not there to win’.  Yet in a recent survey, 61 per cent of Australian employees felt their 
companies were too lenient with poorly performing employees.  According to the National Commission of 
Audit,   for   example,   the   extraordinary   complexity   of   the   Public   Service   personnel   system   protects 
inefficiency   because   the   delays   in   proceedings,   the   manipulation   of   rights   of   appeal   and   the   frequent 
recourse to generous redundancy payouts make it difficult to dismiss inefficient public servants.  Thus, the 
rigidities and lack of accountability in dealing with underperforming staff is one of the toughest issues 
facing public sector managers.

Discrimination on the basis of performance is an organisational necessity. It is part of the managerial role 
that cannot be avoided. If an organisation is to survive and grow, and retain and motivate its top performers, 
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effective performance management is a must.   However, employees are not stupid. They quickly learn to 
exhibit   the   behaviour   that   they   know   will   be   recognised   and   rewarded   by   management.     An   objective 
performance appraisal system in which high performers receive higher rewards and low performers receive 
lower   rewards   is   essential   for   encouraging   performance­oriented   behaviour   and   a   performance­oriented 
culture. Linking employee contributions and rewards also ensures that the organisation gets maximum value 
for its compensation dollar.

Case study  The quiet industrial relations manager

This would be a good case for examination purposes.

1. What has brought about this situation? How could it have been avoided?

Mary should have counselled John for his apparent lowered performance.   Rating him low after the event 
does not improve future performance.  Also, Mary needed data from a range of sources before determining 
whether or not to pass John over for performance increases and merit increases.  The poor communication 
has come from Mary.     She should have communicated the decision to John before announcing it on the 
notice board. 

2. If you were Mary, how would you have handled the situation? If you were Anna, what would you 
have done?

Mary should have acted in accordance with the advice in question 1.  Anna is very much the meat in the 
sandwich.   The problems are very much of Mary’s making.   However, Anna needs now to do some goal 
setting, and look to the future.  

3. What key elements in the appraisal process are missing in this case? What is the impact of their 
absence?

Missing are:
reward
development
self­evaluation
peer evaluation
subordinate evaluation
elimination of rater bias
goal/objective setting

Impact:
ineffective appraisal
lack of performance management
poor employee attitude and performance
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