Performance Appraisal

Flow of Presentation
Introduction Features of Performance Appraisal Objective of Performance Appraisal Performance Appraisal Process Performance Appraisal Methods 360 degree Feedback Prerequisites for solid Performance Appraisal Pros & Cons of Performance Appraisal 4 types of bias in Performance Appraisal Contribution to firms competitive Advantages Conclusion

Introduction
Performance Appraisal is the systematic evaluation of the performance of employees and to understand the abilities of a person for further growth and development.

Features of Performance Appraisal

It is a systematic process involving three step
Setting work standards Assessing employee actual performance relative to these standards Offering feedback to the employees to eliminate deficiencies and improve performance in course of time.

Appraisal is carried out periodically according to defined plan of action.

 Performance appraisal is not a past oriented activity Performance appraisal is not job evaluation Performance appraisal is not limited to calling the fouls. Performance appraisal may be formal or informal.

Objectives of Performance Appraisal

Performance appraisal could be taken either for evaluating the performance of employee or developing them. Appraisal of employee serve several useful purposes Compensation decisions: It can serve as a basis for pay raises Promotion decisions: It can serve as useful basis for job change or promotion Training and Development Programmes: It can serve as a guide for formulating suitable training and development programmes Feedback: Performance appraisal enables the employee to know how well is doing on the job Personal Development : Performance appraisal can help reveal the causes of good and poor employee performance.

The performance appraisal process

1. Establish performance standards: this process serves as a benchmarks against which performance is measured. 2. Communicate the standards: This process includes two parties Appraiser: who does the appraisal Appraisee: whose performance is to be evaluated. 3. Measure actual performance: It is done by Personal observation Statistical reports Oral reports Written Reports 4. Compare actual performance with standards and discuss the appraisals. 5. Taking corrective actions, if necessary: Corrective actions are of two types Immediate action set things right and get things back. Basic corrective actions gets the source of deviations and seeks to adjust the differences permanently.

PERFORMANCE APPRAISAL METHODS

Individual evaluation methods: 1. Graphic rating scale 2. Behaviorally anchored rating scales 3 . Critical incident Method 4. Checklists and observation scales 5. Mixed standard rating scales 6. Management by objectives (MBO):

Multiple person evaluation methods: 1.Forced Ranking/ distribution 2. Paired Comparison 3. Ranking Method 4. Field Review Method

The graphic rating scale method gives employees a numerical score on job-relevant traits and/or behaviors Definition
One of the most popular forms of PA. Lists desirable traits and managers rate employees on each trait. Scale typically involves scores that range from unsatisfactory to outstanding. Individual scores are aggregated into an overall performance score. Traditionally used for assessing traits (e.g. reliable, hardworking), but is now commonly used to assess job-related behaviors and duties.

Graphic rating scales: easy to develop, but are light in detail and the results are not easy to explain

Pros

Easy to develop. Easy to use. Provides a numerical rating for each employee. Easy to customize based on different job descriptions.

Cons

When used to assess traits, graphic rating scales focus on personal characteristics rather than job-related behaviors. Can be subjective and ambiguous without an explanation of the score and, therefore, less legally defensible. Can be subject to rater bias. If there is not a lot of time to create a performance appraisal program. If a quick and informal approach is required for easy start-up. If numerical ratings are needed to rank or score employees to inform salary, promotion, or termination decisions.

When to draw from it

Behaviorally anchored rating scales allow managers to rate employee performance based on detailed descriptions
Definition (BARS)
Identifies a range of ineffective to excellent behaviors that can be displayed by employees. performing each task. Employees are rated on each performance dimension on a behavioral scale ranging from ineffective to excellent performance. Allows for a total profile of job performance to be created for each employee, which covers various dimensions of work. Greater validity is ensured when jobholders are involved in identifying tasks and behaviors.

BARS: provides in-depth descriptions of employee performance, but is time consuming to develop
Pros
Evaluation criteria are clearly defined in behavioral terms . Criteria are based on feedback from employees which improves acceptance levels from managers and employees. Gives concrete examples of work that will improve performance. Are legally defensible due to the detailed descriptions of behavior. Usually well accepted by employees. Can be time-consuming to develop. Hard to keep the information current as job expectations can change over time. Does not necessarily give more accurate ratings than graphic rating scales that incorporate good behavioral descriptions. Does not provide a numerical score, which makes comparisons difficult. If clearly outlined job descriptions exist that can be turned into concrete behavioral anchors. If there is time to develop specific behavioral descriptions that outline different levels of performance. If a numerical score is not important and the appraisal will be used for ongoing feedback and coaching. If job expectations dont tend to change frequently.

Cons

When to draw from it

The critical incident method requires that managers keep a log of jobrelevant behaviors to create performance appraisals
Definition
Manager keeps an ongoing log of events that represent outstanding or poor behavior. At the end of the rating period, the recorded critical incidents are used to evaluate performance. Often used to supplement another method such as graphic rating scale. For example, if an employee is rated as failing to meet expectations, specific examples can be given as to why performance was unsatisfactory.

Critical incident: provides detailed examples of employee behavior, but should not be used in isolation

Pros

Provides concrete examples to explain performance appraisal. Avoids recency bias as it forces managers to compile an ongoing log of events, as opposed to focusing solely on the most recent behavior.

Cons

Negative incidents may be more noticeable than positive incidents. May result in very close supervision which is difficult for some employees. The recording of incidents may be seen as a chore by the manager, and if creating the log is forgotten the recency bias will be apparent. It is difficult to compare employees to each other because no numerical score is given. Use this approach to supplement other approaches (combine with graphic rating scale to make a numerical score more concrete). If managers have time to regularly log events. This approach can be used on its own if the managers primary focus is to give ongoing feedback and coaching as opposed to giving a numerical score. It should not be used to compare employees for salary decisions.

When to draw from it

Checklists and observation scales: can also be used to incorporate behavioral examples into the performance appraisal

Behavioral Checklist
Predefined behaviors are listed and checked off as an employee demonstrates the behavior.

Behavioral Observation Scale

Identifies key tasks and evaluates how frequently an employee exhibits the behavior required for high performance.

Pros
Focus on descriptions of behavior and results. Use absolute standards. May meet with less resistance from employees.

Pros
Gives employees a numerical score that is tied to the frequency of the specific job-related behaviors.

Cons
A lot of time and money must be invested to construct the checklist because they will be different for each role.

Cons
Frequency does not always equate to successful (or unsuccessful) job performance.

Mixed standard rating scales require managers to rate employees as equal to, above, or below performance standards
Definition
Contain statements representing good, average and poor performance for each dimension the employee is being evaluated on. The evaluator indicates whether an employee fits the statement (=), is better than the statement (+) or is worse than the statement (-). The statements are randomly mixed in an attempt to make it less obvious which reflect good or bad performance. There are many algorithms that exist to create numeric scores for each dimension.

Mixed standard rating scales: reduce bias, but make it difficult to give constructive feedback
Pros
Uses specific behavioral examples to identify good, average and poor performance. Keeps raters relatively blind to which behaviors are reflective of which level of performance, which helps to minimize potential biases.

Cons

The fact that the rater is unaware of which items reflect which levels of performance makes it difficult for the rater to give constructive feedback. For example, if an employee asks why he/she received a low score on a particular dimension, the rater may not be able to tell them why.

When to draw from it

If it is very important that raters are blind to which behaviors represent which levels of performance. If there is time to create good, average, and poor behavioral statements for each dimension on which the employee is being evaluated.

Management by objectives (MBO): links organizational goals to employee performance targets

Definition (MBO)
Sets organization-wide goals, and links these to employee specific goals. The objectives must meet five criteria. They must be:
1. 2. 3. 4. 5. Arranged in order of importance. Expressed quantitatively where possible. Realistic. Consistent with policy. Compatible with one another.

Managers periodically discuss employee progress towards departmental goals, as well as how the employee is contributing to organization-wide goals.
This process aims to serve as a basis for:
Greater efficiency through systematic procedures. Greater employee motivation and commitment through participation in the planning process. Planning for results instead of planning just for work. Specific objectives being determined jointly by managers and employees and end results attributed to rewards.

Management by objectives makes employees feel connected to organizational objectives, but is high maintenance
Pros

Provides clear goals for employees to work towards and objective standards upon which to evaluate employees. Helps employees feel they are part of meeting organization-wide goals.

Cons

Time consuming and fairly rigid it can take several hours per employee per year to set objectives, measure progress, and give feedback. Can result in a push-pull situation where the manager keeps trying to set higher goals while the employee wants expectations to be lower.

When to draw from it

If the organization is relatively mature and has clear organization-wide goals that can be linked to departmental activities. If there is time to set employee goals, and continually measure goals and provide feedback.

In summary:

Formal Methods
Graphic Rating Scale

Appropriate for use when:

The organization requires a quick and easy solution that results in a numerical rating. The organization places importance on behavioral examples, and clear job descriptions allow for a description of detailed behavioral objectives. Numerical scores are not necessary and managers are diligent with recording both positive and negative events. Detailed descriptions of excellent, average, and poor behavior would be easy to develop, and the organization places importance on avoiding bias. The organization has clear goals that are appropriately delegated to departments, and actionable objectives that are clearly described.

BARS

Critical Incident Mixed Standard Rating Scale Management by Objectives

Multiple person evaluation methods

1. Forced ranking (forced distribution) In this style of performance appraisal, employees are ranked in terms of forced allocations. For instance, it is vital that the proportions be shared in the way that 10 or 20 % will be the highest levels of performances, while 70 or 80% will be in the middle level and the rest will be in the lowest one. 2. Paired comparison method This form of performance appraisal is a good way to make full use of the methods of options. There will be a list of relevant options. Each option is in comparison with the others in the list. The results will be calculated and then such option with highest score will be mostly chosen.

3. Ranking method
Employee

Rank 2 1 3 5 4

A B C D E

Forced Distribution method

No. of employees

10% poor

20%
Below average

40% average

20% good

10% Excellent

Force distribution curve

Forced ranking should be used to enhance friendly competition, but not when all employees are star performers

In summary:
Force rank when the culture permits it: If employees compete individually. If criteria to be measured is subjective. If employees perform at various levels (average, vital and star). A hybrid approach of forced ranking and forced distribution is a great way to identify star performers, assign bonuses, or determine layoffs. Force ranking can be used at any time if an appropriate level of privacy is applied: Full disclosure of rank if the criteria is objective and there are not teams. Discussion of rank between manager and employee if areas for improvement are identified. Keep rank between managers if bonuses, salaries or dismissals are determined by rank.

Get data from all around an employee to identify skill gaps

360-degree feedback is best used to assess training and development needs and to provide competence-related information for succession planning. It is also sometimes inappropriately used to inform promotion or pay decisions.
360-degree Feedback is also known as MultiSource, MultiRater (MSMR) Feedback

Watch InfoTechs Video: 360-Degree Feedback.

360 Feedback

Supervisors

Subordinates

External Clients

Internal Customers

Self

Peers

360-degree feedback gives a well rounded view of employee performance, but is not appropriate to inform all decisions
Pros
Provides a well-rounded view of each employee, as opposed to relying only on one managers perspective. Useful for managers who cannot be involved in employees daily activities. Can enhance an employees perception of fairness. Research shows that when 360-degree feedback is used for development purposes, it can bring positive changes in employee behavior that tend to be immediate and dramatic. Can be time consuming to collect and interpret data from multiple sources for each employee. Employees submitting feedback may be reluctant to provide constructive criticism, particularly when they have to provide feedback to those who outrank them or they are being used to inform promotion or disciplinary decisions.. Multiple sources do not necessarily yield better feedback. Individual employees have their own biases and judgments, and may sometimes confuse individual issues with organizational problems. In departments where employees work in teams, and managers are not heavily involved in daily activities. If professional development is a priority and managers have enough time to engage in professional development activities with employees. In between formal appraisal sessions and after project completions.

Cons

Use:

360-degree feedback should be used when employees work in teams but should not influence monetary decisions
In summary:
360-degree feedback involves gathering evaluations from those who work closely with an employee. This is a great method for managers to create a holistic view of an employees performance, especially if monitoring daily activities is not possible. When 360-degree feedback is used for development purposes, employees respond in drastic and positive ways. 360-degree feedback should never inform salary, promotion or disciplinary decisions. Attaching the evaluations to these decisions will garner dishonest and inaccurate feedback.

Every solid PA program needs a method of tracking progress and a mix of formal and informal feedback
Build on the foundation
Unique mix of PA methods

Tracking method: a living document or file that houses all the information about an employees performance. Informal feedback: interactions with employees that generate short feedback sessions that do not result in a score.

Formal Appraisal

Tracking Method

Informal Feedback

Formal appraisal: deliberately scheduled evaluation sessions where goals, performance and development is discussed and scored. These three elements are needed to support the components that will make up the remainder of the PA program.

When done well, performance appraisals also provide significant benefits to executives, managers, employees, and HR
Benefits

Impact on Organization
Better organizational performance and increased revenue. Apparent opportunities for training and improvement. Identification of future leaders.

Executives

Improve employee performance. Measure departmental performance. Highlight top performers.

Managers

Improve employee morale and work quality. Catch performance issues early. Make well-informed decisions. Enable the achievement of departmental objectives.

Reduced turnover and absenteeism within a department. Manager awareness of progress. Develop a department through training, promotion, bonuses and terminations.

Employees

Satisfy employees desire to know how they are performing. Connect employees to organizational objectives. Clarify performance expectations. Increase engagement.

Opportunities to improve performance are identified. There is a desire to achieve goals. Established sense of fairness and clarity when performance is appraised. Increased productivity.

Human Resources

Reduce turnover and absenteeism. Provide a written record of performance. Identify training needs at a departmental level. Prepare for the future.

Focus on internal employee development as opposed to constant recruitment. Defend promotion and termination decisions. Deliver training. Succession planning.

Pros & Conss

Think performance appraisals will: Solve all performance issues. Increase employee satisfaction. Foster good relationships between Lineof-Business managers and subordinates. Encourage, motivate, and develop employees. Achieve financial improvements

Middle Ground
Most opinions fall between the extremes of love and hate when it comes to performance appraisals.

Think performance appraisals will: Take too much time. Be an artificial process with no real benefits. Be counterproductive. Likely backfire. Hinder creativity, innovation, and positive risk taking.

Employee performance feedback is very important as it contributes directly to the success of the employee. - Manager, Large property management firm

Formal performance evaluations are unnecessary and also often actively harmful to motivation and happiness at work. - Director, Small manufacturing firm

Lovers
Next Steps
Look for areas of improvement within the current PA program you use, and be aware of its limitations. Communicate with Line-ofBusiness managers that are not currently on-board. Be realistic about the issues that a PA can help with, and identify ones that it cannot.

Haters
No matter where a employee stand, understand how performance appraisals can enhance your organization and make you a better leader.
Next Steps
Be open to the benefits of performance appraisals when they are done well.

Talk to your employees to understand their professional development needs.

Reach out to peers who administer effective performance appraisals and look for tips to make yours work.

4 types of bias that can infiltrate even the most wellintentioned performance appraisal
Occurs when an employee performs particularly well (or poorly) in one area and is then rated correspondingly high or low in all other areas.

Personal Bias

Occurs when a manager tends to score all employees similarly by, for example, giving everyone high scores, low scores, or average scores. Tip to Overcome Ranking employees from best to worst (even as a private exercise) can help managers differentiate between employees.

Tip to Overcome Having an awareness of this type of bias is the most effective step toward overcoming it.

The more characteristics a manager shares with an employee, such as age, race, gender, work values, work experience, and personality, the more favorably the manager will tend to rate that employees performance. Tip to Overcome Awareness of this bias is an important step towards overcoming it.

Lack of Differentiation

Occurs when a manager weighs an employees recent performance too heavily, as opposed to assessing the employees average performance over the entire evaluation period.

Halo Effect

Recency Effect

Tip to Overcome Engaging in ongoing coaching and having employees send regular e-mail updates can serve to remind managers what employees are up to.

How PA contribute to firms competitive advantages

Improving performance
Values and behavior Making correct decision

Competitive Advantage
Minimizing dissatisfaction And turnover

Ensuring legal competence

Including performance appraisal processes in management systems result in significant financial gains.

Return on Assets

49%

Return on Equity

27%

Profit Margins

15%

Earnings

Increases

22%

PA Activity

Conclusion
Performance appraisals are a fact of life for most managers and HR departments. Instead of thinking of them as an administrative burden, understand the benefits of an effective performance appraisal program and how to get the most out of them with the least amount of effort: