Performance Management and Measurement Topic: Methods of Performance Appraisal Submitted to: Dr. B.R.Patil Submitted by: Team 3 HRM Performance Management and Performance Appraisal Performance management is the integration of performance appraisal systems with broader human resource systems as a means of aligning employees’ work behaviors with the organization’s goals. It should be an ongoing interaction process designed to enhance employee capability and facilitate productivity. However, most systems of performance management have several parts: 1. Defining performance: It is desirable to carefully define performance so that it supports the organization’s strategic goals. Setting clear goals for individual employees is a critical component of performance management. 2. Appraisal process: It is important to conceptualize as appraisal process that will be steady across the organization and consistent with the culture of the organization. 3. Measuring 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 for midcourse corrections. 4. Feedback and coaching: To improve performance, employees need information about their performance, along with the guidance in reaching the next level of results. Performance Appraisal is a feature of all organized activities – governmental, industrial, and church educational, military and also family. People living/ working together cannot avoid forming and acting on judgments reached about their associates and what they do. In the contemporary context we may define performance appraisal as “a structured formal interaction between a subordinate and his supervisor that usually takes the form of a periodic interview (annual or biannual) in which the work performance of the subordinate is examined and discussed with a view to identifying weaknesses and strengths as well as opportunities for improvement and skills development”. Deciding What Types Of Performance to Measure. There are three basic categories of performance information: 1. Trait based systems: it assess the abilities or other personal characteristics of an employee. There might be certain jobs where the appearance of the employee is required to be pleasant and congenial. 2. Behavior-based systems: it measures the extent to which an employee engages in specific, relatively well-defined behaviors while on the job. It might be important that an employee be a positive contributor to a team. 3. Results-based systems: it measures the “bottom line” associated with an employee’s work: Did the job get done? Were the financial results positive? For example, in a performance management system, a store manager’s goal might be to reduce returns to 3 percent sales. Raters of Employee Performance 1. Self – evaluation: employees are sometimes asked to evaluate themselves. It seems logical that individuals would be the best judges of their own performance, particularly if supervisors cannot observe them on a regular basis. If employees are asked to evaluate themselves, they may respond by becoming more motivated and involved in the evaluation process. 2. Peer evaluation: compared with supervisory ratings, peer or coworker evaluations are more stable over time, can tap more dimensions of performance, are better able to distinguish effort from performance, and can focus more on task-relevant abilities. Peer evaluations can be particularly useful when supervisors do not have the opportunity to observe an individual’s performance but fellow employees do. 3. Subordinate evaluation: evaluation by subordinates may be provided valuable information. Subordinates know how well a supervisor performs with respect to leading, organizing, planning, delegating, and communicating. In fact, evaluating the boss is becoming a popular mechanism in many organizations. Complete anonymity is essential if this technique is to provide valid ratings. 4. Customer evaluation: another source of assessment information comes from the customers or clients. Such assessments are popular in the context of service delivery where there is a high degree of client involvement and the service employee is relatively removed from other employees or supervisors. Customers can be internal or external to the organization. 5. 360-degree feedback: in this case performance ratings are collected simultaneously from subordinates, peers, supervisors, and employees themselves. The focus on development assures those participating that the 360-degree assessment is being done to improve all involved and is not part of the competitive win-lose scenario that so often accompanies salary and promotion decisions. It is believed to have a number of advantages over traditional assessment systems. Methods of Performance Appraisal The methods used to measure and asses the performance of the employees can be classified into four groups: 1. Comparative Methods, 2. Absolute Methods, 3. Results Oriented Methods, and 4. New Approaches. The choice of a method or methods depends on the organizational ethos, objectives, size, product technology, and the purpose for which PA is undertaken by the organization. Comparative Methods This group of methods requires that the managers directly compare the performance of their employees against each other. For e.g. the performance of a machinist would be compared to other machinists by their manager. The comparative methods used by different organizations are: a) Ranking Method: The objective of this method is to prepare a sequential order of employees – from highest to lowest or vice versa along some dimensions usually in terms of overall performance. The sub-methods of ranking include: i) Straight ranking: Under this method an evaluator is required to assess the performance And work behavior of the employees in a department or section and identify the best among them, rank that employee at number 1 and repeat the process to identify the second best, the third best, and so on till the last employee is brought in. This is a natural process since all of us do this kind of ranking in our daily life. The primary drawback of this method is that the size of the difference between individuals is not well defined. Further, ranking may be affected by the rater bias or by varying performance standards. ii) Alternate ranking: In this method the evaluator is given the list of employees to be ranked. He is asked to identify the very best and the poorest employees among those listed. The two names are then removed from the list and set separately in a fresh list. The evaluator is then asked to repeat the process for others. The process is repeated till the middle placed employees remain in the list. To rank these employees is difficult though the list is short, which in fact facilitates the evaluator to rank them. iii) Paired comparison: Under this method an evaluator is asked to consider two individuals or employees at a time and decide which of them is better. Then another pair of names is presented to the evaluator for another evaluation. This process continues until each individual in the group has been paired with very member of the group. iv) Forced distribution methods: This method compares subordinat4s and, at the same time, overcomes the drawbacks involved in the paired comparison, viz. large number of comparisons. Under this method a supervisor ranks his subordinates along a scale, placing as certain percentage of employees at various performance levels. This method assumes that the widely known bell-shape curve or normal distribution of performance exists in a given group – 10 % excellent, 15 % good, 50 % average, 15 % below average, and 10 % poor. Drawbacks: 1) A supervisor may resist placing any individual in the lowest/highest group. Difficulties may arise when the rater must explain to the employee why he or she was placed in one group and others were placed in higher groupings. 2) With small groups there may be no reason to assume that normal distribution of performance really exists. 3) In some cases the manager may feel forced to make distinction among the employees that may not exist. Absolute methods Category Rating Methods: The simplest methods of appraising the performance of employees are those that require a manager to indicate how an employee rates on a form by making a level of performance. The graphic rating scale, the checklist, and forced choice methods are common category rating methods. i) Graphic Rating Scales: Graphic rating scales appear in numerous forms and are used to evaluate many different characteristics including both performances related and personality related characteristics. Two steps are involved in developing graphic rating scales: (a) selecting the characteristics and (b) scaling the characteristics. The selection of characteristics should be determined primarily on the basis of the characteristics that are related to organizational effectiveness - intuitively or empirically. The critical incidents technique is one of the basic methods for selecting the most appropriate characteristics. ii) Checklist: The checklist is a simple rating method in which the manager is given a list of statements or words. He is asked to check the statements representing the characteristics and performance of the employees. The checklist can be modified so that varying weights are assigned to the statements or words. The results can be quantified. Usually the weights are not known by the rating supervisor, but are tabulated by someone in the HR department or by an industrial psychologist. iii) Weighted Checklist: A weighted checklist can be developed by obtaining a number of statements about employee performance from the critical incident descriptions. After a comprehensive list of statements has been obtained, a group of judges – either supervisors or job incumbents – evaluate each statement on a zero to ten scale regarding its favorability and contribution to organizational effectiveness. When the judges do not agree on the favorability of a statement it is eliminated. The items on which the judges agree are then weighted on the basis of average score assigned by the judges. iv) Forced Choice Method: The rating form consists of a number of statements arranged in pairs. For each pair the evaluator must check the one statement that is most descriptive of the performance of the employee, or for negative statements, the statement that is least descriptive. The pairs of statements are so designed that both the statements appear equally favorable (or equally unfavorable), but one statement is actually more descriptive of an outstanding or poor performer. In other words, the statements in each pair have equal social desirability but unequal discrimination. v) Written Methods: This third group of methods requires a manager or HR specialist to provide written appraisal information. Documentation and description are the essence of these methods, viz. confidential report, critical incidents method, the essay method, and the field review. vi) Confidential Report: This is the most traditional method, and is still in use in a number of Indian undertakings, particularly in the Government and public sector. The supervisor makes an evaluation of such characteristics of his subordinates as intelligence, loyalty, attendance, conduct, character, quality of work, result orientation, ability to mange work, etc. The assumption is that since the immediate supervisor is one who has maximum contact with the employee hence he would be the best person to evaluate him. The reporting officer can affect the evaluation to any extent. vii) Critical Incidents Method: Critical incidents are simply the descriptions by qualified observers of behaviors that are especially effective or ineffective. Such incidents are actual behavioral accounts accorded as stories or anecdotes by peers or anyone close to the job being studied. Sometimes supervisors are asked to take time at the end of each week to briefly describe the behaviors of their subordinates, particularly noting any favorable or unfavorable incidents. viii) Essays: This method requires the manager to write a short essay describing each employee’s performance during the rating period. The rater usually is given a few general headings under which to categorize comments. The intent of this method is to avoid restricting the rater as other methods do. ix) Field Review: Under this method, the HR Department becomes an active partner in the rating process. A member of the HR Department interviews the manager about each employee’s performance. The HR manager then compiles the notes of each interview into a rating for each employee. Then the rating is reviewed by the supervisor for needed changes. This method assumes that the representative of the HR department knows enough about the job setting to help supervisors give more accurate and thorough appraisal. Result-oriented Methods These methods concentrate on the outcomes of the performance of the employees. They include the following ones: 1) Goal setting and performance, 2) Management by Objectives: The MBO approach overcomes some of the problems that arise as a result of assuming that the employee traits needed for job success can be reliably identified and measured. Instead of assuming traits, the MBO method concentrates on actual outcomes. If the employee meets or exceeds the set objectives, then he or she has demonstrated an acceptable level of job performance. The employees are judged according to real outcomes, and not on their potential for success, or someone’s subjective opinion of their abilities. 3) Work Plan - perform – review: This is a third method in the group that also makes use of the goal setting concept. Under this method both the employee and his supervisor sit together to plan the work for the period, reach an agreement on the work to be done. Then the employee is required to perform according to the Plan. At the end of the period the performance is reviewed and planning for the next period takes place. 4) Behavior Oriented Methods: The special appraisal systems that attempt to overcome some of the difficulties associated with appraisal are: i) Behaviorally Anchored Rating Scales (BARS): The BARS approach relies on the use of critical incidents to serve as “anchor” statements on a scale. It is designed to overcome the problems of category methods by describing the examples of good or bad behavior. These examples are “anchored” or measured against scale of performance levels. ii) Behavioral Observation Scale (BOS): the BOS uses the critical incident technique to identify a series of behaviors covering the domain of the job. A major difference between BARS and BOS is that instead of identifying those behaviors exhibited by the ratee during a rating period, the rater indicates on a scale how often the ratee was actually observed engaging in the specific behaviors identified in the BOS. iii) Mixed Standard Scales (MSS): Blanz and Giselli proposed the Mixed Standard Scale format to minimize the halo and leniency errors common in traditional BARS. The MSS, like any BARS, provides, for each rating dimension, three rating choices (in general low, medium and high) for the rater. In other respects, however, the MSS differs from traditional BARS. For example, in the MSS all the items are presented in a random order and raters must respond without knowing whether a low, medium or high rating for a particular item has a positive, neutral or negative correlation to the performance. BARS seem to hold promise for situations in which many people are doing the same job, while MBO is useful for management appraisals. New Approaches Mostly used in high-tech organizations. These involve more raters and also the ratee himself in the process. The factors contributing to the new approaches are: 1. Changes in organization structure, 2. Managerial practices, 3. The customer approach to managing people in the organization, 4. The customer feedback in manufacturing, and 5. The technological changes. The New approaches are: the upward appraisal or Upward Feedback Program (UFP), Peer appraisal, Multi-rater appraisal, and the 360-degree appraisal or feedback. i) Upward Appraisal: Those who work for a manager have a unique perspective of that person, and of some aspects of that person’s work performance and contribution to the organization. Therefore, some organizations are showing an interest in subordinate assessment as part of the appraisal process. The process of subordinate assessing the performance of the manager is known as upward appraisal. In upward appraisal managers and subordinates are reversing their roles. ii) Peer Appraisal: Commonly found in professional organizations. The major strengths of peer review are introducing a perspective different from that of line managers. Obtaining a number of independent judgments. Obtaining the views of the users of a person’s contribution and performance, if they happen to be peers. iii) Multi-Rater Appraisal: The limitations of conventional performance appraisal in placing considerable, and sometimes total, emphasis on the judgment of the employee’s manager, have led to evolving alternate methods. One such alternate method is the MULTI-RATER analysis. This overcomes a number of deficiencies of the conventional, manager-oriented appraisal. This method is based on the concept of Job Network, that is, those individuals at more senior, more junior or the same level in the line - reporting relationship – on which the performance of the appraise has principal impact. iv) 360-Degree Appraisal/ Feedback System: This system serves to evaluate and provide feedback on the performance of individuals in an organization from an all round perspective such as superiors, peers, subordinates, and sometimes even customers. In this context, it is a drastic change from the traditional superior to subordinate appraisal. The 360-degree appraisal system is currently being used by many of the Fortune 500 companies in the US like Intel and Hewlett-Packard. It seems that the success rate and feedback received so far has been excellent and companies in the US, which are using this system, say it boosts productivity by giving workers a more accurate sense of their personal strengths and weaknesses. Paradoxes of the System The system, however, suffers from the following paradoxes: Multiple Constituencies Paradox: Involvement of multiple constituents in 360-Degree feedback process broadens the scope of information provided to the receiver. However, more information does not necessarily yield better feedback. Anonymous Rating Paradox: Anonymous ratings are more honest than signed ratings. However, honest ratings may not necessarily be more valid. Structured Feedback Paradox: Quantitative and structured feedback based on generic behaviors is easy to acquire, score, and disseminate. However, such data may not have much relevance to a particular workplace and may even yield misleading results. A host of administrative challenges arises when the decision is made to adopt the 360-Degree feedback. A critical issue is who should gather, process, and have custody of the feedback data. A paradox relating to this issues encountered is: Managerial Involvement Paradox: Managerial involvement in gathering and processing 360-Degree feedback is legitimate and inevitable. However, involving persons in authority may taint the process and reduce its credibility. While recognizing the legitimacy of managerial involvement in 360-Degree administrations, it is also important to recognize that such programs may cause fear. They invite judgments on individual performance by a wide range of participants and violations of confidentiality cannot be maintained. Some Measures to Increase its Effectiveness 1. Anonymity of the source of feedback. 2. Employees banding together in giving feedback. 3. Let me not hurt a friend syndrome. Quickness in completing the process. 4. Mixing pay hikes and bonuses with the results of the feedback. 5. Educating the employees in the feedback process.