Unit 7

The Performance Management

System

Overview

Organisations which seek to gain a competitive advantage through their

workers must be able to manage the behaviour and results of all their employ-
ees. One of the most important challenges managers in the Caribbean and
elsewhere face is managing the performance of their subordinates. Tradition-
ally, Human Resources managers have viewed the formal appraisal system as
the basic means of managing employee performance. However, given the
work place challenges and changes a new view has had to be adopted which
takes into consideration that performance management is the means through
which managers ensure that the activities carried out by employees and the
outputs which result are “in sync” with the company’s goals. Therefore,
performance management is critical to the company gaining a competitive
advantage.

In this Unit we examine some approaches to performance management. We

will define performance and examine the purposes of the systems and then
discuss the specific approaches to performance management mentioning the
strengths and weakness of each approach. We will also discuss the various
sources of performance information and look at the various types of errors
which can result from subjective assessment of performance. Effective compo-
nents of the feedback mechanism will also be examined.

The Unit is divided into sessions as follows:

Session 7.1 Defining the Performance Management System

Session 7.2 Methods of Performance Appraisal
Session 7.3 The Appraisal Interview
Session 7.4 Problems in Performance Appraisal

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 Learning Objectives

On completion of this unit, you should be able to:

1. Explain why effective performance appraisal is important to performance

standards in a company

2. List at least five performance appraisal methods, and their strengths and
weaknesses

3. Discuss the major problems attendant on performance appraisal

4. Identify the important determinants of individual performance

5. Discuss the three general purposes of performance management

6. Identify the five criteria for effective performance management systems

7. Distinguish different types of rating errors and explain how to minimise

each in a performance evaluation

Reading

David A. Waldman, Leanne Atwater, and David Antonioni, “Has 360-Degree

Feedback Gone Amok?” Academy of Management Executive, vol. 12, no. 2,
1998.

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Session 7.1
Defining the Performance Management Process

Traditionally, human resource managers focused on performance appraisal as

a measurement technique. The goal of these performance appraisal systems
was to measure individual employee performance reliably and validly, thus,
some very important influences on the organisation’s performance manage-
ment process were ignored. In this unit, we will therefore look at the major
processes in the organisation’s performance management process to better
understand how the individual’s behaviour relates to the overall performance
and goal achievement.

The diagram below shows the relationship between the individual and the
organisational strategy, long and short term goals, as well as the organisa-
tion’s culture and the economic conditions.

Figure 7.1: A Model of Performance Management

Organisational Strategy
Long and Short Term
Goals and Values

Individual Attributes Individual Objective

Skills and Abilities Behaviour Results

Situational Constraints
Organisational Culture
Economic Conditions

We will now look at the organisation’s performance management system and

see how it ties in with the goals, strategy, culture and economic conditions.

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 The Organisation’s Performance Management System
As figure 7.1 explains, individuals bring to the organisation the raw materials
of performance in the form of their knowledge, skills, and abilities. These raw
materials are transformed into objective results through the type of behaviour
displayed by the worker and the methods used by the organisation in garner-
ing and guiding these skills for achieving its goals. The objective results are
the measurable, tangible outputs of the work, which are a consequence of the
worker’s behaviour.

The organisation’s strategy is another important component of the perform-

ance management system. There is often a tendency not to recognise the link
between the organisation’s goals and strategies and its performance manage-
ment; but we must be reminded that companies do pursue some type of
strategy to attain their revenue, profit and market share. Therefore, divisions,
departments, work groups and individuals must align their activities with the
firm’s strategies and goals.

The link is made in the firm by the firm’s top management which specifies
what is to be accomplished and the types of behaviour needed for the firm’s
strategy to be implemented. Greater recognition is being placed on this link
through the increasing popularity of the performance planning and evalua-
tion systems being utilised in firms today. The performance planning and
evaluation systems ensure that the formal performance appraisal process is
linked into the firm’s strategies by specifying at the beginning of the evalua-
tion period the types and levels of performance required to achieve the
strategy. At the end of the evaluation period, individuals and groups are
evaluated based on their actual performance against set performance plans
and targets.

By now, you will have realised that our discussion has basically focused on
the ideal situation. However, one must take into consideration the fact that
there are always situational constraints at work in the performance manage-
ment system. For example, there are instances where the employee has the
relevant knowledge, skills and abilities required to do an effective job, but he
or she does not display or exhibit the necessary behaviours. In other cases,
the organisational culture can prohibit or discourage employees from doing
things which could be effective. You do remember of course, that work group
norms dictate the behaviours and results its members produce. There can be
instances, too, in which workers are displaying effective behaviour but still do
not get the right results. Similarly, individuals could be performing effective
behaviours but the environment is not conducive to getting the required results.

The Purpose of the Performance Management System

Having thus far outlined the performance management system we can now
turn our attention to the purposes of performance management systems. The
main purpose is to make sure that employee goals, employee behaviours used

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to achieve these goals, and feedback information about employee perform-
ance are all linked to the corporate strategy. However, there is no one way to
manage performance. Whatever system is adopted needs to be congruent
with the culture and principles that pervade the organisation. Nevertheless,
most systems of performance management have several common elements.
They all seek to:

1. Define performance
It is desirable to carefully define performance so that it supports the organisa-
tion’s strategic goals. The setting of clear goals for individual employees is a
critical component of performance management.

2. Measure performance

Measuring performance does not need to be narrowly conceived but can

bring together multiple types of performance measured in various ways; the
key is to measure often and use the information to correct performance where
necessary.

3. Give feedback and coaching

In order to improve performance, employees need information; that is, they

need feedback about their performance along with guidance as to how to
reach the next level of results. Without frequent feedback employees are
unlikely to know that their behaviour is out of synchronization with relevant
organizational goals, or what to do about it.

Seen from another perspective, the performance management system has

three purposes – strategic, administrative and developmental.

1. The Strategic Purpose – Defining Performance

One of the ways in which strategies are implemented is by management

defining the desired results, behaviours and employee characteristics neces-
sary for carrying out strategy, then developing measurement and feedback
mechanisms which will show how effectively results are being achieved and
what to do to produce results. The organisation can achieve this strategic
purpose if it is flexible and amenable to changes in goals and strategies which
can occur, and also to recognise that if such changes do occur, then there
needs to be a change in the results, behaviours and characteristics of the
employees, which must of necessity change to correspond with such organi-
sational changes.

In the Caribbean it is not commonplace for organisations to use performance

appraisal systems to communicate company objectives to employees. Thus,
the performance management system would not in all cases achieve this
strategic purpose. It is more commonly found that firms focus more on
administrative and developmental purposes.

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 2. The Administrative Purpose – Measuring Performance

Performance appraisal/performance management information is one of the

main instruments used by organisations for making administrative decisions,
for example, salary administration in terms of pay raises; promotions; reten-
tion or termination; layoffs; incentive rewards; recognition of individual
performance; and identification of poor performance. Although managers are
the source of this very important performance management information,
many view the appraisal process as the part of the job they could really do
without. It is just a necessary evil they go through to fulfil their job require-
ments. Some managers are very uncomfortable evaluating employees and
giving the feedback to the employees, so they either rate every employee
highly or give everyone the same rating; in which case, the performance
appraisal information becomes useless.

3. The Developmental Purpose – Feedback and Coaching

This aspect of performance management seeks to develop further, employees

who are good at their jobs. In instances where employees are not performing
up to standard, performance management also seeks to improve their per-
formance. The feedback from the performance evaluation process indicates or
identifies the areas of strengths and weaknesses in the employee performance.
For example, there may be a skill deficiency or demotivation problem, or
difficulties in their interpersonal work relationships. Therefore giving the
worker a high rating in the performance appraisal process when a deficiency
exists is counterproductive to the developmental purpose. It must be borne in
mind by the manager that the purposes of an effective performance manage-
ment system are to link the workers’ activities with the firm’s strategic goals,
to furnish valid and useful information for making administrative decisions,
and to provide the workers with useful developmental feedback.

It is critical to businesses in the Caribbean that they recognise and fulfil the
purpose of an effective performance management system as this is central to
gaining a competitive advantage through the management of human re-
sources. They also need to develop the measures by which performance can
be evaluated. We will now explore the steps in performance appraisal.

Steps in Performance Appraisal

The function of performance appraisal is usually carried out by the supervisor
who should be familiar with basic appraisal techniques, and should under-
stand and be able to avoid problems which can cause the appraisal to fail; he
or she must also ensure that the appraisal process is fair.

There are three steps involved in appraising employees’ performance. They

are as follows:

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1. Defining the Job

The supervisor must ensure that there is a common understanding between

himself or herself and the employee about the duties to be carried out and the
set standards to follow; there must be an agreement on these before an ap-
praisal of performance can be effected.

2. Appraising Performance

This involves comparing the employee’s actual performance against set

standards and involves the use of some type of rating form.

3. Feedback Sessions

These feedback sessions refer to the situation in which the supervisor dis-
cusses with the employee his or her performance and progress. Plans are also
made for developmental requirements to be met; that is, if there are deficien-
cies, plans will be made to improve on these.

If these three steps are not clearly defined and administered correctly, serious
performance appraisal problems can result. We will discuss this in greater
detail later in this unit.

ACTIVITY 7.1

1. How important is performance management for organisations? Why?

2. In organisations with which you are familiar, what purposes have per-
formance management served?

Share your thoughts and insights with your colleagues.

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Session 7.2
Methods of Performance Appraisal

We will now discuss some methods used in conducting a performance ap-

praisal. Many writers have pointed to different methods which can be used in
conducting a performance appraisal. These techniques are usually adminis-
tered with the aid of a predetermined and formal method. Here are seven
methods which can be used when conducting a performance appraisal.

The Graphic Rating Scale Method

This is a scale that lists a number of traits and a range of performances reached.
The employee is then rated by identifying the score that best describes his or
her level of performance for each trait. The graphic rating scale is very popu-
lar because of its simplicity and this technique for appraising performance is
widely used. It lists traits such as quality and reliability and a range of per-
formance values from unsatisfactory to outstanding on each trait. The super-
visor rates each subordinate by circling or checking the score that best de-
scribes his or her performance for each trait. The assigned values for the traits
are then totaled.

Figure 7.2 Sample Graphic Rating Scale

Courtesy of UWI Personnel Department, Mona Campus.

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 Alternation Ranking Method
This involves ranking employees from best to worst on a particular trait. This
method owes its popularity to the fact that it is quite easy to distinguish
between the worst and best employees then to rank them. These are the steps.
First, the rater makes a list of all employees to be rated. Second, he or she
crosses out the name of anyone who is not known well enough to be ranked.
Third, he or she indicates on a form the employee who is highest on the
characteristic which is being measured and the one who is lowest. Fourth, he
or she chooses the next highest and next lowest on the list, alternating
between highest and lowest until all the employees to be rated have been ranked.

The Paired Comparison Method

This method ranks employees by making a chart of all possible pairs of em-
ployees for each trait and indicating which is the better of the two. This
method is quite precise in that for every trait, such as quantity of work and
quality of work or work completed, every worker is paired with and compared
to every other worker in the unit, the worker who is rated better a greater
number of times over the others is the one who is ranked highest.

Figure 7.3 Ranking Employees by the Paired Comparison Method

FOR THE TRAIT “QUANTITY OF WORK” FOR THE TRAIT “RELIABILITY”

EMPLOYEE RATED: EMPLOYEE RATED:
As As
pared A
com B C D E pared A
com B C D E
to Chupsi Betty Mufti Rufti Raffi to Chupsi Betty Mufti Rufti Raffi

A A
Chupsi
+ + – – Chupsi
– – – –

B B
Betty
– – – – Betty
+ – + +

C C
Mufti
– + + – Mufti
+ + – +

D D
Rufti
+ + – + Rufti
+ – + –

E E
Raffi
+ + + – Raffi
+ – – – +

Betty ranks highest here Chupsi ranks highest here

The Forced Distribution Method

This is very similar to grading on a curve. This means that predetermined
percentages of ratees are placed in various performance categories. Dessler
(1997, p. 350) gives an example of forced distribution. The supervisor may
decide to distribute the workers in this way – 15% are high performers; 20%
are high to average performers, 30% are average performers, 20% are low to
average performers; and 15% are low performers.

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One practical way to do this forced distribution method of performance
appraisal is to write the name of each employee in your department on a
separate index card, then place the worker’s card in one of the appropriate
performance categories for each trait that is being appraised. The trait cat-
egory may be creativity, quality of work or punctuality.

Critical Incident Method

This involves keeping a log of desirable or undesirable examples or incidents
of an employees work-related behaviours. Both the supervisor and the em-
ployee agree to meet and discuss these behaviours at a convenient time. This
appraisal method has many advantages, one of which is that it provides hard
and specific facts which form the basis for a review at varying intervals.
Second, it ensures consistency in the rating process as the facts accumulate
over a period of time and the employee is not rated on his most recent per-
formance. Third, this record of critical incidents provides solid examples of
what the employee can do to eliminate performance deficiencies. The critical
incident method is often used to supplement a ranking technique. It is very
useful for identifying specific examples of good and poor performance, point-
ing out also how deficiencies may be corrected. One noted weakness of this
method is its inability to be used by itself for comparing workers. Another is
that it is not good for making salary decisions.

The Behaviorally Anchored Rated Skills (BARS)

This appraisal method aims to combine the benefits of a narrative critical
incident and quantified ratings by anchoring a quantified scale with specific
narrative examples of strong and weak performance. There are four steps
involved if the appraiser decides to use this method.

(a) First, he or she has to generate a critical incident of effective and

ineffective perormance.

(b) He or she must develop performance dimensions, that is, clustering the
incidents into a smaller set of performance dimensions and then defining
each cluster in say five or ten, then reallocating the incidents. What this
means is that the group of persons who know the job will reallocate the
original critical incidents. They are given the definitions of the clusters
along with the critical incidents and are asked to reassign each incident to
the cluster they think it fits best. The critical incident will be retained if
some member of the group assigns it to the cluster to which it was as-
signed earlier.
(c) Scale the incident. This is where the second group of raters are asked to
rate the behaviour described in the incident as to its effectiveness or
ineffectiveness in the performance of the appropriate dimension. Seven or
nine point scales are usually used.

(d) Develop the final instrument. This is where a subset of the incidents, may
be six or seven per cluster, is used as behavioural anchors for each dimension.

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 The advantages of using BARS outweigh the disadvantages. The disadvantage
is that to develop BARS is very time consuming. The advantages are:

• It is a more accurate gauge of performance, as it is done by people

who know the job and its requirements better than others.
• There are clearer standards in that the critical incidents along the
scale help to clarify what is meant by excellent performance and
average performance.
• The critical incidents are very useful in providing feedback to the
appraisees.
• Systematically clustering the critical incidents into five or six perform-
ance dimensions, for example, knowledge and judgment, help to
make the dimensions more independent of each other.
• BARS evaluations are relatively consistent and reliable in that different
raters’ appraisal of the same employee tend to be similar.

Management by Objectives (MBO)

Everyone has heard about management by objectives or MBO. This simply
means that the manager sets specific, measurable goals with each employee
and then periodically reviews their progress. There are at least three main
problems which the manager faces in using this method and they are as
follows:
• The setting of unclear goals, or unmeasurable objectives, for example,
“We will do a better job of training next year” is really a useless
objective. On the other hand, “We will train five employees next
year” is measurable.
• MBO is time consuming
• Setting objectives can be difficult and tedious, with the manager
setting higher quotas and the employee pushing for
lower quotas.

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Session 7.3
The Appraisal Interview

The appraisal interview is an interview in which the supervisor and subordi-

nate review the appraisal and make plans to remedy deficiencies and reinforce
strengths. There are many types of appraisal interviews each with its own
objectives. Here we highlight some, and they are as follows:

Type of Performance Objective

1. Satisfactory – employee Make development plans

is promotable

2. Satisfactory – not promotable Maintain performance

3. Unsatisfactory – correctable Plan correction

If the employee is unsatisfactory and the situation uncorrectable there is

really no need for any appraisal interview because the person’s performance is
not correctable, therefore this person should be dismissed.

There are also three other types of appraisal interviews in which the cause
and effect relationships have been analyzed; they are: the Tell and Sell Inter-
view, Tell and Listen Interview, and the Problem Solving Interview.

The Tell and Sell Interview: The manager will require special skills to conduct
this kind of interview. These special skills would include the ability to
persuade an employee to change in a prescribed manner which in some cases
may require the development of new behaviours on the part of the employee,
and skillful use of motivational incentives on the part of the supervisor/
appraiser.

The Tell and Listen Interview: For the Tell and Listen interview the appraiser/
manager needs to have skills such as the ability to communicate the strong
and weak points of the employee’s performance during the first part of the
interview. During the second part of the interview, the appraiser tries to
explore the employee’s feelings about the appraisal interview. Although the
supervisor is still in the role of appraiser he or she is required to listen to
disagreements and cope with defensive behaviours without attempting to

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 refute any of the statements. The Tell and Listen interview method assumes
that the opportunity to release frustrated feelings will help to reduce or
remove those feelings.

The Problem Solving Interview: Those skills associated with this method are
consistent with the non-directive procedures of the tell and listen method
because listening, accepting, and responding to feelings are essential. But the
problem solving method goes further than an interest in the employee’s
feelings; it seeks to stimulate growth and development in the employee when
problems, needs, innovations, satisfactions and dissatisfactions experienced
on the job are discussed.

Managers should not assume that only one type of appraisal interview is
appropriate for all review sessions. Instead, they should be able to use one or
more of the interview types, depending on the topic being discussed or on
the behaviour of the employee being appraised. Any employee performance
appraisal interview should require a flexible approach.

Who Should Do the Appraisal?

First of all, the performance appraisal of the employee should be done by the
immediate supervisor. Supervisors’ ratings are still at the heart of most ap-
praisal systems and getting a supervisor’s appraisal is relatively easy and also
makes a great deal of sense. The supervisor is really the one in the best posi-
tion to observe and evaluate his or her subordinates’ performance and he or
she is responsible for that person’s performance.

Another approach you could also use is peer appraisals. The appraisal of an
employee by his or her peers can be effective in predicting future manage-
ment success. One potential problem however is log rolling; that is, all the
peers simply get together to rate each other highly.

Then there is the rating committee which is usually composed of the employ-
ee’s immediate supervisors and three or four other supervisors. This is a useful
and advantageous form of rating as while there may be discrepancies in the
ratings made by individual supervisors, the composite ratings tend to be more
reliable, fair and valid. Another advantage is that several raters can cancel out
problems like bias and the halo effect on the part of the individual rater.

With the self-rating system employees rate their own performance. The basic
problem with this is that employees usually rate themselves higher than they
are rated by their supervisors or their peers.

There is also the other form of appraisal which is appraisal by subordinates,

otherwise known as upward feedback. That is the situation where subordinates
are anonymously asked to evaluate their supervisor’s performance. When this
type of appraisal is conducted throughout the firm it really helps the top

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managers to diagnose management styles, identify potential people problems
and take corrective action with individual mangers as required.

Appraisals may also be conducted through performance feedback from all the
persons with whom an employee has to interact – his or her supervisors,
subordinates, peers and internal or external customers. This is described as
the 360-degree feedback method. Many firms have expanded the idea of upward
feedback into what they call 360-degree feedback. The feedback is generally
used for training and development rather than for pay increases.

Having examined the question of who should conduct the employee ap-
praisal interview it is now necessary to look at how to conduct this interview.

How to Conduct the Appraisal Interview

If you are a young manager and this is your first job and you have to conduct
employee performance interviews, then you really should be properly pre-
pared for it. Now there are three things to do in preparation for the interview:

1. Assemble the data, study the person’s job description, compare the em-
ployee’s performance to the standards, and review the files of the
employee’s previous appraisals

2. Prepare the employee. Give your employees at least a week’s notice to

review their work, read over there job description, analyze problems and
gather their questions and comments

3. Choose the time and place. Find a mutually agreeable time for the inter-
view and allow enough time for the entire interview

Interviews with lower-level personnel like clerical workers and maintenance

staff should take no more than an hour. In appraising management employ-
ees this often takes two to three hours. Therefore, be sure the interview is
done in a private place where you won’t be interrupted by phone calls or
visitors.

Having prepared for your interview this is how you should conduct it. There
are four things that you need to bear in mind:

1. Be direct and specific. Talk in terms of objective work data. Use examples
such as absences, tardiness, quality records, inspection reports, scrap or
waste, orders processed, productivity records, material used or consumed,
timeliness of tasks or projects, control or reduction of cost, number of
errors, cost compared to budgets, customers’ comments, product returns,
order processing time, inventory level and accuracy, and accident reports.

2. Do not get personal. Do not say you are too slow in producing those
reports. Instead, try to compare the person’s performance to a standard.
Similarly don’t compare the person’s performance to that of other people.

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 3. Encourage the person to talk. Stop and listen to what the person is
saying. Ask open-ended questions such as “What do you think we can do
to improve the situation?” Use a command “Go on” or “Tell me”. Restate
the person’s last point as a question; for example, “You do not think you
can get the job done?”

4. Do not tiptoe around. That is, do not get personal, but do make sure the
person leaves knowing specifically what he or she is doing right and what
he or she is doing wrong. Give specific examples. Make sure the person
understands, and get agreement before he or she leaves on how things
will be improved and by when. Develop an action plan showing steps and
expected results.

Figure 7.4 Sample Action Plan

For: Joe Lewis, Assistant Plant Manager

Problem: Parts Inventory Too High
Objective: Reduce Plant Parts Inventory by 10% in June

Action Steps When/Time Expected Results

• Determine average monthly 02/06 • Establish base from which
parts inventory to measure progress

• Review ordering quantities 15/06 • Identify overstock items

and parts usage

• Ship excess parts to regional 20/06 • Clear stock space in

warehouse and scrap plant
obsolete parts

• Set new ordering quantities 25/06 • Avoid future overstock

for all plants

• Check records to measure 01/07 • To see how close we are

where we are now to objectives

ACTIVITY 7.2

Based on this example, develop an action plan for the following objectives:
• Make a decision within a month regarding my financial status
• Reduce my monthly expenses by 15% in two months
• Increase my weekly income by 20% in six months

Discuss your answers in your tutorial session.

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How to Handle Employees Who Become Defensive
In conducting performance appraisal interviews, it is possible for the manager
to encounter workers who are defensive. So we will now look at ways of
handling defensive employees. In situations like this the manager will have to
delicately handle the interviewing process and ensure that the interview does
not become sour and the interviewee hostile.

Defenses are a very important and familiar part of our daily lives and as
supervisors, we must know that when someone is accused of poor perform-
ance the first reaction will be denial. This is the reaction that surfaces first
and by denying the fault the employee avoids having to question his or her
own competence. In other instances when employees are accused of poor
performance, in addition to a reaction of denial, they may also become angry
and aggressive. What this really does is helps the individual to blow off
steam, and actually postpones confronting the immediate problem until he or
she is able to cope with it. In other situations, the person being criticised may
react by retreating into a shell.

The know how, understanding of, and ability to deal with defensive
behaviour is therefore a very valuable tool of the trade for the supervisor who
must conduct employee performance appraisals. Dessler (1997, p. 370) refers
to the suggestions of the psychologist Mortimer Feinberg:

1. Recognise that defensive behaviour is normal

2. Never attack a person’s defenses but try to concentrate on the act itself.
For example, say “sales are down” rather than say to the person “you are
not selling enough”

3. Postpone action. There are times when the supervisor should do nothing
at all because people have the tendency to react to some threats by in-
stinctively hiding behind a mask. They should be given sufficient time
and they will become more rational in their behaviour

4. Recognise your own limitations. The supervisor can never solve every
problem that surfaces, especially the human ones. He can only offer to
listen and understand

How to Handle Criticisms of the Employee

There are times when the employee’s actions has to be criticised. If this
situation occurs and the worker has to be criticised the supervisor must
remember to do so in a manner which will let the worker maintain his or her
dignity and sense of worth. Therefore criticisms must be done in private and
should be constructive. The manager or supervisor should provide examples
of critical incidents which had happened to affect the employee’s perform-
ance on the job, and make specific suggestions of what should be done to
correct them and why. The criticisms should be very objective and free of any
personal biases on the part of the supervisor.

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 Handling a Formal Written Warning
Let’s now look at how to handle a formal written warning. If an employee’s
performance on the job is very poor and coaching, facilitating and training
have failed then it is time for the supervisor to prepare a formal written
warning. This written warning will serve two purposes:

1. It may jolt the employee out of his or her bad habits or poor performance
status
2. It will help to defend the supervisor’s rating of the employee. So it is
necessary for these written warnings to identify the standards by which
the employee is appraised and indicate clearly that the employee knew
knew these standards. The warning should specify the violation(s) of
the standard, also indicating that the employee had the opportunity to
improve his or her performance.

ACTIVITY 7.3

In groups of four, and using the guidelines provided in this session, role play
the following situations:

(a) An appraisal interview

(b) A defensive employee
(c) Criticising an employee

Discuss in your tutorial session the insights gained from this experience.

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Session 7.4
Problems in Performance Appraisal

In this section we will deal with the problems of performance appraisal.

Conducting employee performance appraisals can be an awesome task for
managers. There have been situations in which managers become over-
whelmed by this task. Why is employee performance appraisal so dreaded?
The reason is that many factors are at work in this situation. First of all,
employees may be overly optimistic about what their ratings will be because a
lot depends on the rating; for example, pay increases, career progress, train-
ing, promotion and even peace of mind. In addition to the enthusiasms of
the employees the manager has to deal with numerous structural problems
which can cast doubts on the fairness of the performance appraisal process.
With these in mind we will now deal with some of the main performance
appraisal problems and make suggestions as to how to resolve them.

Unclear Performance Standards

An unclear performance standard is a situation where an appraisal scale is too
open to interpretation. The manager should include descriptive phrases that
define each trait, and what is meant by standards, like “good” or “unsatisfac-
tory.” So, for example, although the graphic rating scale which we talked
about in Session 7.2 , seems to be objective it would probably result in unfair
appraisals because the traits and degrees of merit are open to interpretation.
For example, different supervisors would probable define good performance,
failed performance and average performance quite differently, based on their
understanding of those terms. There are several ways in which one could
rectify this problem but the best way is to develop and include descriptive
phrases that define each trait. To avoid or reduce this problem one could
assign numbers to the qualities; for example, excellent could be rated as 100,
and good could be rated as 80, fair could be rated as 50 and poor as 40. This
would help the appraisal in that it would be more consistent and more easily
explained.

Rater Errors
There may also be rater errors that may be of several types. If you are able to
recognise these errors, then this is the first step towards avoiding them. We
shall note here, however, that these are more likely to show up when a
graphic rating scale is used for appraisal. We will now explain how these
errors can occur.

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 The Halo Effect
Now we want to look at the halo effect. In performance appraisal the halo
effect is that problem which occurs when a supervisor’s rating of a subordi-
nate on one trait biases the rating of that person on other traits. So that if an
employee appears to be more socially adjusted and friendly he or she may be
rated higher than another employee who is considered to be less sociable. If
the supervisor understands the meaning of the halo effect he or she will try to
avoid it when conducting performance appraisals.

Horns
Horn errors work in the opposite direction from halo errors. One negative
error causes the rater to assign low ratings to all other aspects. Both halo and
horn errors are a problem in that they preclude making the necessary distinc-
tions between strong and weak performance. Halo errors lead to employees
believing that no aspect of their performance needs improvement, while horn
errors often lead to employees becoming frustrated and defensive.

Central Tendency
The third problem which can arise when conducting employee performance
appraisals is the central tendency, which is the tendency of the rater to rate
all employees the same way such as rating them all as average. It is really a
restriction that can distort the evaluations and make them less useful for
promotion, salary or counseling purposes. Therefore, ranking each employees
instead of using a graphic rating scale can avoid this central tendency prob-
lem because all employees must be ranked and thus cannot all be rated
average.

Strictness or Leniency
Now we are examining the problem of strictness or leniency – the problem
that occurs when a supervisor has a tendency to rate all subordinates either
high or low. Some supervisors tend to rate all their subordinates consistently
high or consistently low. The leniency or strictness problem is very serious
especially when it occurs in graphic rating scales because supervisors are not
required to avoid giving high or low ratings. The leniency or strictness is not
a problem with the ranking or forced distribution approach to performance
appraisal.

Bias
We now look at bias. This problem is the tendency to allow individual differ-
ences such as age, race and sex to affect the appraisal rates of employees. It is
very important that the rater performs his or her rating process objectively.
He or she should try to block out factors such as previous performance, age or
race.

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Similar-to-Me
Similar-to-Me is the error we make when we judge those who are similar to us
more highly than those who are not. Most of us tend to think of ourselves as
effective, and so if others are like us in race, gender, background, attitude or
beliefs we assume that they too are effective. Thus we find that when similar-
ity is based on demographic characteristics such as race or sex, it can result in
discriminatory decisions. As raters we should try to avoid these.

Contrast Errors
These occur when we compare individuals with one another instead of
against an objective standard.

Poor Measures of Performance

Objectivity and comparison require that any progress towards the standards
must bemeasurable. Examples of measurable standards include:
(a) Quantifiable measures, such as 8 rejects per 1000 units or 10 sales per
100 calls
(b) Qualitative measures, such as projects completed or not completed

Poor Feedback to Employee

In order for the performance evaluation to be effective the standards and or
ratings must be communicated to the employee.

Negative Communications
The evaluation process is hindered by negative communication or negative
attitudes such as inflexibility, defensiveness and a non-developmental ap-
proach.

Failure to Apply Evaluation Data

Failure to use evaluations in personnel decision making and personnel devel-
opment negates the primary purpose of performance evaluations. The use and
weighting of multiple criteria as well as the frequency of evaluation also
present problems.

Distributional Errors
Distributional errors are the result of a rater’s tendency to use only one part of
the rating scale. Leniency occurs when a rater applies high ratings to all
employees. Strictness occurs when a manager gives low ratings to all employ-
ees. Central tendency reflects that a manager rates all employees in the
middle of the scale. These errors cause two problems:

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 1. They make it difficult to distinguish among employees rated by the same
rater
2. They create problems in comparing the performance of individuals rated
by different raters

If one rater is lenient and the other is strict the employees of the strict rater
will receive significantly fewer rewards than those rated by the lenient rater.

Avoiding Appraisal Problems

We have looked at some of the problems that can occur and we would like to
move on by looking at how these can be avoided. Now there at least three
ways to minimise the impact of appraisal problems such as bias and central
tendency. The first thing to do is to be familiar with the problems and if you
are familiar with these problems then you are on your way to avoiding them.

The second point is to choose the right appraisal tool because each tool, for
example, the graphic rating scale or critical incident method, has its own
advantages and disadvantages. For example, the ranking method avoids
central tendency but can cause ill feelings when employees’ performances are
in fact all ranked high.

The third point we want to make about how to avoid appraisal problems is
that of training supervisors to eliminate rating errors such as the halo effect,
leniency and central tendency, and help them to avoid these problems. To
train raters in doing a better job at performance appraisal is really no panacea
for reducing rating errors or improving appraisal accuracy. In practice, how-
ever, several factors, including the extent to which pay is tied to performance
ratings, union pressure, employee turnover, time constraints and the need to
justify ratings, may be more important than training. What this means is that
improving appraisal accuracy calls for not just training, but also reducing
outside factors such as union pressure and time constraints.

ACTIVITY 7.4

1. Fischer, Schoenfeldt and Shaw (1996) suggest that rating errors occur
through unintentional and intentional processes and believe that rating
errors may be examined using an approach called cognitive information
processing (CIP).
Use the internet, perhaps at your Centre, or any other resource, to
conduct some research on CIP, and assess Fisher et al.’s view of CIP.
Discuss your responses in your tutorial session.

2. List three reasons why a supervisor may intentionally rate an employee

inaccurately. What effect could this have? Discuss this with your peers.

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3. Supervisors also sometimes inflate or deflate ratings. Perhaps you have
experiened this. Why would a supervisor behave in either of these ways?
Discuss this with your tutor in your next session. You should have a lively
discussion around the question and the points raised.

UNIT REVIEW
1. The employee in any organisation wants to know how well he or she
is performing and so performance appraisal provides the opportunity
for the manager or supervisor to give them that kind of feedback. The
expectations and standards of the level of performance from the
employee should be clearly stated by the supervisor who has many
kinds of performance appraisal tools at his disposal to assess the
employees’ performance. For example, there is the graphic rating
scale, alternation ranking method, the forced distribution method,
the BARS, MBO, and the critical incidents method.

2. While all these methods of appraisal can be used in the situations

best suited for anyone, the supervisor should bear in mind that each
method has its own advantages and disadvantages. Also that there
are problems attendant on each performance appraisal such as
unclear standards, central tendency, leniency or strictness problems,
halo effect and bias. All of these occur on the part of the appraiser.

3. Because workers want a feedback as to their performance, it is

important for the manager to have a record of positive or negative
critical incidents com piled which will be useful in the appraisal
process. The worker should perceive the appraisal as being fair and
then the manager can:

(a) Evaluate the worker’s performance regularly

(b) Be familiar with the worker’s performance and there must be a
shared mutual agreement between the supervisor and the worker
concerning his or her duties.

(c) Try to help the worker to develop plans which will serve to formulate
plans for eliminating performance weaknesses.

There are many types of performance appraisal interviews. One is applied

when the performance is unsatisfactory but correctable; then the objective
is to develop an action plan for correcting the performance. The second is
for employees whose performance is satisfactory but for whom promotion
is not possible, the objective would be to maintain the satisfactory
performance.

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 And finally, the satisfactory promotable interview is the one in which the
main objective is to discuss the workers’ career plans and develop a
specific action plan for the educational and professional development he
or she needs to move on to the next job.

The supervisor needs to prepare for the performance interview by

assembling all relevant data, prepare the worker and choose a private
place and convenient time. If there is need for a change of the employee’s
behaviour, then the supervisor needs to encourage the worker to talk more
in the interviewing session. The supervisor should talk less, ask open-ended
questions, address problems rather than attacking the person. Always
restate the worker’s last point as a question, and never be judgmental or
get involved in ridicule and sarcasm.

In handling a defensive employee in the performance appraisal interview,

the supervisor should remember not to attack the person’s defenses as
defensive behaviour is normal. Instead, the supervisor should proceed very
carefully, recognising his or her own limitations, and if it becomes
necessary, should postpone all actions against the worker.

The supervisor must remember at all times that the performance appraisal
should serve the purpose of managing the performance role and also
providing a concrete basis for an analysis of the employee’s work-related
performance.

KEY TERMS
• Graphic rating scale • Critical incident
• Alternation ranking method • Halo effect
• Paired comparison method • Central tendency
• Forced distribution method • Strictness/leniency
• Behaviorally anchored rating scale (Bars) • Management by
objectives MBO)

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 DISCUSSION QUESTIONS

1. Explain the problems to be avoided when conducting a performance

appraisal.

2. Discuss the advantages and disadvantages of at least three of the per-

formance appraisal tools.

3. Explain how you would conduct a performance appraisal.

4. Explain how you as the interviewer would get the interviewee to talk
during a performance appraisal interview.

5. Develop a graphic rating scale for the posts of the following:

Receptionist
Attendant
Driver

References

Dessler, Gary. Human Resources Management, 7th ed. New Jersey: Prentice Hall,
1997.

Fisher, Shoenfeldt, and Shaw. Human Resource Management, 3rd ed. Boston:
Houghton Mifflin Co., 1996.

Kleiman, L. S. Human Resource Management: A Tool for Competitive Advantage.

St. Paul, MN: West Publishing Company, 1997.

Sherman, Bohlander, and Snell. Managing Human Resources, 11th ed. Ohio:
South Western College Publishing, 1998.

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