Unit 2, Lecture 4: Performance Appraisal PERFORMANCE

1
Performance Appraisal Concepts

• Prof. John Kammeyer-Mueller
• MGT 4301

2
Where we are, where were going

• Where we are
• Understand the basics of training and development
• Where we want to be
• Why measure performance?
• How can you measure performance?
• How well know how were doing
• Identify the four ways performance can be
  measured
• Identify and describe three major dimensions of
  performance
• Results-oriented performance appraisal
• Behaviorally Anchored Rating Scales (BARS)
• Comparative approach to performance appraisal
• Team-based approach to performance appraisal

3
How could you establish a pay-for-performance
plan?

• How would you establish pay for performance for
  the following jobs
• College football coach
• A physician in a large hospital
• Waiter or waitress
• A person who manufactures computer motherboards
• A call center operator
• What are the advantages and disadvantages of pay
  for performance in these jobs?

4
What Will I Measure?

• What is incentive compensation?
• Providing rewards for specific behaviors
• Linking compensation to some indicator of
  employee competence
• What are the expected effects of incentives?
• Task performance
• Organizational citizenship
• Deviant behavior
• Turnover

5
Three Major Questions to Ask in Performance
Management

• How will I administer the program?
• What will I measure?
• How often will I measure?
• What rewards am I going to offer?
• Cash?
• Non-cash benefits?
• Recognition?
• At what level will the reward be offered?
• Individual?
• Group?
• Whole organization?

6
Legal issues with performance appraisal

• Performance appraisals are reflected in,
  compensation, terms, conditions, or privileges
  of employment they are covered by discrimination
  laws
• Legal precedents
• Albemarle paper company v. Moody
• Evaluating performance based on which employees
  were better than others is too subjective
• Hopkins v. Price Waterhouse
• Evaluations containing discriminatory language
  (Ms. Hopkins was told to act less macho and to
  walk, talk, and dress more like a woman) provide
  evidence of disparate treatment

7
Monitoring and Incentives

• Incentives are difficult to administer
• Performance cant always be monitored cheaply
• Lock in to old standards
• If you define a specific objective its difficult
  to change incentives
• Need to change production programs can slow
  things down as incentives are recalibrated

8
Choosing Measurement Methods
9
What do we measure in performance appraisal?

• Describe a great co-worker at your current job
• List three ways youd describe the behavior of
  the best people you see on the job.
• List three ways youd describe the behavior of
  the worst people you see on the job.

10
Rotundo Sackett Relative Importance of Task,
Citizenship Counterproductive Performance

• Performance
• Behaviors under the control of the individual
  that contribute to organizational outcomes
• Effects of behavior are not performance because
  they are not necessarily under individual
  control, and therefore will be difficult to
  predict with selection tools
• They want to find a generic group of behaviors
  that is comparable across organizations
• Generally, it is best if the behaviors are linked
  to a job analysis so that job relatedness can be
  demonstrated

11
Rotundo Sackett Relative Importance of Task,
Citizenship Counterproductive Performance

• Key concepts
• Task performance
• Behaviors that contribute to the production of
  goods and services
• Need not be part of a formal job description
• Citizenship
• Behavior that contributes to the social and
  psychological environment of the organization
• Counterproductivity
• Behavior that actively damages the organization

12
Which dimensions of productivity matter most?

• Supervisors rated the performance of hypothetical
  employees, with levels of task, citizenship, and
  counter-productivity manipulated
• While task performance dominates, the non-task
  elements, when added together, are nearly as
  important as task performance
• (Rotundo Sackett, 2002)

13
What Difference Does This Dimensions Stuff Make?

• Many organizations primarily measure task
  performance and forget other aspects
• Failing to measure citizenship can discourage
  employees from helping one another
• There are many examples of a person who is
  outstanding at his or her job but made everyone
  else hate showing up to work
• There is increasing focus from managers on
  bullying/harassing employees

14
What is Preferred by Employers

• Our theory of compensation says we most desire to
  have a system that
• creates maximum effort
• makes employees part owners in outcomes
• Therefore, economic theory basically suggests
  that individual output based pay is optimal
• Think about why you might not want to have all of
  your compensation based entirely on your own
  individual outputs in some jobs

15
The results approach

• Management by objectives
• Sales goals
• Objective increase sales 10 during 2002
• Performance increased sales 8 during 2002
• Injury/accident rates
• Objective decrease from 5 to 2 accidents per
  year
• Performance decreased to 1 accidents
• Management goals
• Objective decrease turnover rate to 5 this year
• Performance increased turnover of 10 this year
• A class analogy is test performance

16
What is Preferred by Employers

• Some practical problems with individual output
  based pay
• Output is difficult to measure for most jobs,
  especially managerial jobs or for collaborate
  work
• May lead to perverse incentives (e.g., computer
  programmers paid by the line write too much code,
  doctors who emphasize number of patients over
  quality of care)

17
Another take on results oriented performance
appraisal
18
Behavioral MeasuresEvaluative Ratings Scale

• Like open-ended essays or papers

19
Behavioral observation system

• More like multiple choice exams

20
Behaviorally anchored rating scales

• Most BARS have 20-30 questions for a job
• Developed by watching a high performing employee
  and rating if employees do as well as him or her

21
Evidence Regarding Potential Bias in Performance
Appraisals

• Interrater reliability for performance appraisals
  is not very good
• More variance is due to the person doing the
  rating than to the person being rated
• This means that any biased manager can create a
  legal problem for an organization
• Ecological fallacy note although most evidence
  shows limited support for major systematic
  discrimination in performance appraisal, that
  doesnt mean that there arent cases where it
  occurs

22
Cognitive Problems with Perceiving Performance

• Primacy effects
• People tend to remember the first things on a
  list
• First impressions
• Recency effects
• People tend to remember the last things on a list
• People reconstruct their memories for events
  based on whats happened lately
• Contrast effects
• People notice differences across candidates
• Individuals are invariably compared to others

23
Social Problems with Perceiving Performance

• Similarity-attraction
• People see others who are like themselves as more
  varied, unique, individual
• People tend to see those who are similar to
  themselves as better on dimensions like morals
  and values
• Supported by research on liking and performance
  appraisal
• Often termed similar-to-me bias

24
Social Problems with Perceiving Performance

• Influence tactics
• Flattering the boss
• Doing personal favors not related to work, etc.
• Illegal favors and sexual harassment?
• Giving bad ratings to employees who have good
  ideas that conflict with the boss

• Political manipulation of consequences
• Good ratings so people will like you
• Good ratings for favors later on
• Good ratings to people you dont like so they get
  promoted away from you

25
This is probably how performance is distributed

• Few at the top
• Few at the bottom
• Lots in the middle
• Why?
• Abilities are normally distributed
• Random variance is normal as well

26
Leniency problems

• Lots of top performers
• Few poor performers
• Why would we see ratings like this?

27
Why measurement errors matter

• So what if there are social biases?
• Anything that makes evaluations arbitrary weakens
  their relevance in court
• Poorly done evaluations can be frustrating for
  employees
• So what if there are distributional errors?
• Hard to justify personnel decisions in court if
  ratings are the same
• Restriction of range hurts ability to validate
• Overpayment or underpayment if pay is determined
  by skewed ratings
• Can be very de-motivating (why try harder?)

28
Stauffer BuckleyRacial Bias in Supervisor
Ratings

• White supervisors tend to give the same ratings
  to white employees as black supervisors
• White supervisors tend to give lower ratings to
  black employees than do black supervisors
• The size of these effects is often very small

29
Behavior Based Examples for Class Performance

• Rating based on a standard for how a person
  should do a project
• is the project in the right format?
• is the project of the appropriate length?
• Ratings based on attendance, completion, and
  participation

30
Standards-Based Approaches

• Rewards provided for exceeding an absolute
  standard
• For example, all employees who receive superior
  ratings will receive bonuses
• Compensation is based on an absolute percentage
  of sales or output

31
Comparative approaches

• A simple ranking
• Best performers name________________
• Second best performers name_______________
• A forced distribution like a strict curve can be
  used

32
Which Approach is Better?

• Standards-based

• Comparative

• Performance is directly linked to rewards
• Cooperation can increase rewards
• Goals can be specific
• Difficult to control costs, especially with
  supervisor review

• Performance-reward relationship is based on the
  effort of others
• Cooperation usually hurts your own rewards
• Goals are not specific
• More control over budgeting
• Tournament theory

33
Wrap Up

• Where we are
• Understand the basics of training and development
• Where we want to be
• Why measure performance?
• How can you measure performance?
• How well know how were doing
• What four reasons do organizations have for doing
  performance appraisal?
• Identify and describe three major dimensions of
  performance
• Open-ended narrative performance appraisal
• Results-oriented performance appraisal
• Comparative approach to performance appraisal
• Behaviorally Anchored Rating Scales (BARS)