Chapter 8 - Performance Management

Chapter 8 - Performance Management

1. Definition

   • Performance management
     • the process through which managers ensure that employees’ activities & outputs are congruent with the organization’s goals
       • defining performance
       • measuring performance
         • performance appraisal
       • feeding back performance info.
         • performance feedback

2. Process

3. 3 purposes

   • Strategic purpose
     • Strategies are implemented through
       • defining
         • results
         • behaviors
         • employee characteristics that are necessary for carrying out those strategies
       • developing
         • measurement systems
         • feedback systems
         • in order to...
           • maximize the extent to which employees exhibit the characteristics, engage in the behaviors, & produce the results
     • Critical to execute talent management strategy by
       • identify employees’ strengths & weaknesses
       • drive employee engagement
       • link employees to appropriate training & development activity
       • reward good performance with pay & other incentives
     • Positively relate to financial success
   • Administrative purpose
     • Performance info. is used in making administrative decisions
       • pay raises
       • promotions
       • retention-termination, layoffs
       • recognition of individual performance
     • managers' dilemma
       • Uncomfortable evaluating others & feeding those evaluations back to employees
         • leniency
   • Developmental purpose
     • Seek to improve employees' performance
       • by identifying...
         • skill deficiency
         • motivational problem
         • obstacle holding employee back
     • Help good performers get the training & other opportunities needed to enhance skills & advance careers
     • managers' dilemma
       • Uncomfortable confronting employees with their performance weaknesses
         • overrating

4. 5 criteria commonly being measured

   • Strategic congruence
     • The extent to which a performance management system elicits job performance that is congruent with the organization’s strategy, goals, and culture
       • measured via...
         • critical success factors (CSFs)
           • factors in the business strategy that give competitive edge
         • key performance indicators (KPIs)
         • how to measure nonfinancial performance areas: customer loyalty, employee satisfaction, etc.
   • Validity
     • The extent to which a performance measure assesses all the relevant—& only the relevant—aspects of performance
       • content validity
   • Reliability
     • The consistency of a performance measure
       • interrater reliability
       • internal consistency reliability
         • low reliability
       • test-retest reliability
   • Acceptability
     • Whether the people who use a performance measure accept it
       • affected by perceived fairness
   • Specificity
     • The extent to which a performance measure tells employees what is expected of them & how they can meet these expectations
     • relevant to...
       • strategic purpose
       • developmental purpose

5. 5 meauring approaches

   • Comparative approach
     • require the rater to compare an individual’s performance with that of others
     • 3 techniques
       • Ranking
         • simple ranking
           • require managers to rank employees within their departments from best to worst
         • alternation ranking
           • manager looking at a list of employees, deciding who is the best employee, & crossing that person’s name off the list
             • from the remaining names, the manager decides who the worst employee is & crosses that name off the list
         • low validation
           • have no idea on the criteria managers use
       • Forced distribution
         • employees are ranked in groups, then arranged into predetermined categories
           • mostly effective in first several years
       • Paired comparison
         • require managers to compare every employee with every other employee in the work group, giving an employee a score of 1 every time he or she is considered the higher performer
           • employee's performance score = number of times each employee received the favorable decision
             • time-consuming
     • Evaluations
       • Pros
         • virtually eliminates problems of leniency, central tendency, strictness
         • relatively easy to develop
       • Cons
         • failure to be linked to the strategic goals of the organization
         • subjective ratings => modest validity & reliability
         • lack specificity for feedback purposes
         • low acceptablity
   • Attribute approach
     • focus on the extent to which individuals have certain attributes (characteristics or traits) believed desirable for the company’s success
       • define a set of traits (e.g. initiative, leadership, competitiveness)
       • evaluate individuals on those traits
     • 2 techniques
       • graphic rating scales
         • a list of traits is evaluated by a 5-point (or some other number) rating scale
         • manager considers one employee at a time, circling the number that signifies how much of that trait the individual has
         • 2 formats
           • a number of different points (discrete scale)
           • a continuum to check mark (continuous scale)
       • mixed-standard scales
         • define the relevant performance dimensions
         • develop statements representing good, average, & poor performance along each dimension
     • Evaluations
       • Pros
         • quite easy to develop
         • generalizable across a variety of jobs, strategies, & organizations
         • can be highly reliable and valid if substantial attention is paid on identifying & defining critical attributes to job performance
       • Cons
         • little congruence between the techniques & the company’s strategy
         • vague performance standards that are open to different interpretations by different raters
           • low validity & reliability
         • no specific guidance on how an employee can support the company’s goals or correct performance deficiencies
         • employees may elicit defensiveness
   • Behavioral approach
     • define the behaviors an employee must exhibit to be effective in the job
       • require managers to assess the extent to which employees exhibit them
     • 3 techniques
       • behaviorally anchored rating scales (BARS)
         • specifically define performance dimensions by developing behavioral anchors associated with different levels of performance
         • pros
           • increase interrater reliability
         • cons
           • bias info. recall (behavior that closely approximates the anchor is more easily recalled than other behavior)
       • behavioral observation scales (BOS)
         • similar to BARS except 2 points
         • use many of behaviors that exemplify in/effective performance to more specifically define all the behaviors that are necessary for in/effective performance
           • instead of using 4 behaviors to define 4 levels of performance on a particular dimension, a BOS may use 15 behaviors
         • require managers to rate the frequency with which the employee has exhibited each behavior during the rating period rather than choosing the closest performance statement
         • cons
           • may require more info. than most managers can process or remember
         • pros
           • differentiating good from poor performers
           • maintaining objectivity
           • providing feedback
           • suggesting training needs
           • being easy to use
       • graphic rating scales
       • competency models
         • competencies = sets of KSAOa that enable employees to successfully perform their jobs
         • identify & provide descriptions of competencies that are common for an entire occupation, organization, job family, or a specific job
         • to be effective...
           • up-to-date
           • drive business performance
           • job related (valid)
           • relevant (customized) for all units
           • provide sufficient detail
     • Evaluations
       • Pros
         • link the company’s strategy to the specific behavior necessary
         • provide specific guidance & feedback for employees about the performance expected of them
         • rely on in-depth job analysis => valid
         • those who will use the system develop the measures => high acceptability
         • substantial investment in training raters => reliable
       • Cons
         • behaviors & measures must be continually monitored & revised to ensure that they are still linked to the strategic focus
         • not suited to complex jobs (where there are multiple ways, or behaviors, to achieve success)
   • Results approach
     • focus on managing the objective, measurable results of a job or work group
     • subjectivity can be eliminated from the measurement process
     • results are the closest indicator of one’s contribution to organizational effectiveness
     • 3 techniques
       • use of objectives
         • SMART, MBO
       • balanced scorecard
         • measure 4 perspectives
           • financial
             • focus on creating sustainable growth in shareholder value
           • customer
             • define value for customers
           • internal / operations
             • focus on processes that influence customer satisfaction
           • learning & growth
             • focus on the company’s capacity to innovate & continuously improve
       • productivity measurement and evaluation system (ProMES)
         • main goal
           • to motivate employees to improve team or company-level productivity
         • 4 steps
           • people in an organization identify the products, or the set of activities or objectives, the organization expects to accomplish
           • staff defines indicators of the products
           • staff establishes the contingencies between the amount of the indicators & the level of evaluation associated with that amount
           • feedback system is developed that provides employees & work groups with info. about their specific level of performance on each of the indicators
     • Evaluations
       • Pros
         • minimize subjectivity, relying on objective, quantifiable indicators of performance => highly acceptable
         • link an individual’s results with the organization’s strategies & goals
       • Cons
         • objective measures can be contaminated (affected by things that are not under the employee’s control) & deficient (not all the important aspects are amenable)
         • individuals may focus only on aspects of their performance that are measured, neglecting those that are not
         • may not help employees learn how they need to change their behavior to increase their performance
   • Quality approach
     • fundamental characteristics
       • customer orientation
       • prevention of error
       • continuous improvement
     • primary goal
       • improve customer satisfaction
     • 2 types of feedback
       • subjective feedback from managers, peers, customers
       • objective feedback using statistical control methods
     • Evaluations
       • Pros
         • adopt a systems-oriented focus, rather than individual
       • Cons
         • many companies may be unwilling to completely abandon their traditional performance management system because it serves as the basis for personnel selection validation, identification of training needs, or compensation decisions
         • advocate evaluation of personal traits => difficult to relate to job performance
     • attribute approach + results approach

6. Sources of Performance Info.

   • managers
   • peers
   • direct reports
   • self
   • customers

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