Chapter 8 - Performance Management
The Strategic Importance of Performance Management
Performance management is a process encompassing all activities related to improving employee performance,
productivity, and effectiveness, including goal setting, pay for performance, training and development, career
management, and disciplinary action.
The foundation of performance management is the performance appraisal process
o The purpose is to instill in them the desire for continuous improvement
Performance management is a largely untapped opportunity to improve profitability; more productive employees
means using a minimal number of employees.
The Performance Management Process
1. Defining performance expectations and goals to make sure that job duties and standards are clear to all.
2. Providing ongoing feedback and coaching though open two-way communication.
3. Conducting performance appraisal and evaluation discussions at specific intervals.
4. Determining performance rewards/consequences such as promotions, salary increases, and bonuses.
5. Conducting development and career opportunities discussions in order to review each employee’s career plans.
Step 1: DEFINING PERFORMANCE EXPECTATIONS
should be linked to current strategic objectives and implementation plans
job description often insufficient to clarify performance expectations
measurable standards related to strategic objectives should be developed for each position
employees should always know ahead of time how and on what basis they will be appraised
Step 2: PROVIDING ONGOING COACHING AND FEEDBACK
important to have open two-way communication
both the employee and the manager need to check in frequently throughout the performance management
process to talk about progression toward goals
Step 3: PERFORMANCE APPRAISAL AND EVALUATION DISCUSSION
The appraisal itself is generally conducted with the aid of a predetermined and formal method.
Formal Appraisal Methods
graphic rating scale: a scale that lists a number of traits and a range of performance for each. The employee is
then rated by identifying the score that best describes his or her level of performance for each trait; simplest and
most popular technique, instead of generic traits firms specify duties to be appraised.
alternation ranking method: ranking employees from best to worst on a particular trait. Highest-ranking
employee is ranked first, then lowest ranking, then second highest, then second lowest, until each employee is
ranked; b/c it’s usually easier to distinguish between the worst and best employees, this method is popular.
paired comparison method: ranking employees by making a chart of all possible pairs of employees for each
trait and indicating the better employee of the pair with a positive and negative sign and summing the positives
for the highest ranking; more precise, every employee is paired with and compared with every other employee.
forced distribution method: predetermined percentages of ratees are placed in various performance
categories, for example, it may be decided to distribute employees as follows:
o 15 percent high performers
o 20 percent high-average performers
o 30 percent average performers
o 20 percent low-average performers
o 15 percent low performers
*One’s performance is always rated relative to that one’s colleague, can be demotivating.
critical incident method: keeping a record of uncommonly good or undesirable examples of an employee’s
work-related behaviour and reviewing the list with the employee at predetermined times; used as a supplement
to other methods of appraisal and provides hard examples of performance; it also makes sure that the rating isn’t
based on most recent activity.
narrative forms: identifies a performance issue and presents a performance improvement plan
behaviourally anchored rating scales: an appraisal method that aims to combine the benefits of narratives,
critical incidents, and quantified ratings by anchoring a quantified scale with specific narrative examples of good
and poor performance. Five steps in developing a BARS:
o generate critical incidents: job experts specify effective and ineffective performance
o develop performance dimensions: cluster the incidents into a smaller set of performance dimensions
o reallocate incidents: different experts group incidents into same clusters and retain incidents similarly
o scale the incidents: rate the behaviour described in the incident as to how effectively or ineffectively it
o develop the final instrument: a subset of the incidents is used as behavioural anchors for each
Advantages: more accurate measure; clearer standards; assists feedback; independent dimensions; consistency
Disadvantage: time consuming
management by objectives (MBO): involves setting specific measureable goals with each employee and then
periodically reviewing the progress made through 6 main steps:
o set the organization’s goals
o set departmental goals
o discuss departmental goals
o define expected results (individual goals)
o performance reviews: measure the results
o provide feedback
Disadvantages: time consuming; setting unclear, unmeasurable objectives; tug of war between supervisor and
computerized and web based performance appraisal: enables managers to keep computerized notes on
employees, combine these with ratings on several performance traits, and then generate written text to support
each part of the appraisal
o most web-based performance management systems provide advanced reporting capabilities, which
allow managers to track the status of performance management initiatives easily
o electronic performance monitoring (EPM) refers to having supervisors electronically monitor the
amount of computerized data an employee is processing per day and thereby his or her performance
Performance Appraisal Problems
validity and reliability – appraisal systems must be based on performance criteria that are valid for the position
being rated and must be reliable, in that their application must produce consistent ratings for the same
performance. Must be:
o relevant to the job being appraised
o broad enough to cover all aspects of the job requirements
rating scale problems: