MA 105

WHAT IS PERFORMANCE MANAGEMENT?

A systematic organizational process that aligns employee performance

with business goals through:

 Continuous feedback
 Goal-setting
 Development planning
 Performance evaluation

PERFORMANCE MANAGEMENT GOALS

‣ Organizational Alignment

‣ Employee Development

‣ Performance Evaluation

‣ Specific and Measurable

‣ Continuous Feedback

‣ Adaptability

‣ Employee Engagement

Performance Management and Reward Systems in Context

PERFORMANCE MANAGEMENT

- Continuous process of identifying, measuring, and developing

employee performance.

- Aligns individual goals with organizational objectives.

REWARD SYSTEMS

- Bonuses, profit-sharing, recognition, and career development

Connection of performance management and reward systems in
context of:

A. Integration with Other Human Resources and Development

Activities
o Talent acquisition and retention
o Learning and development
o Succession planning
o Employee engagement and well-being

This integration guarantees that all HR services collaborate to help

employees develop and achieve organizational goals.

1. TRAINING AND DEVELOPMENT

Performance management provides valuable insights into
employee development needs. By identifying areas of
improvement, organizations can direct training resources
effectively, ensuring that employees are equipped with the skills
they require.

a. Identifying Skill Gaps: Identifying areas where employees require

enhancement.

b. Linking Training to Performance: Employees can understand the

direct impact of their learning on their job performance

c. Evaluating Training Effectiveness: Assess whether employees

improved their abilities and used what they had learned.

2. RECRUITMENT AND SELECTION

Work Planning: Performance data provides a comprehensive
talent inventory, allowing organizations to forecast future needs
and make informed decisions regarding recruitment, hiring, and
skill development. This data informs talent management
strategies and helps organizations optimize their workforce.

a. Defining Competencies: Help identify the skills and competences

required for various roles.
 b. Onboarding: Helps new employees understand their roles and
what is expected of them from the start.

3. COMPENSATION AND REWARDS

a. Performance-Based Pay: Structures that reward outstanding

performance.

b. Recognition Programs: System that acknowledge and appreciate

employees' efforts.

c. Performance Management's Impact on Compensation

 Fairness - A robust performance management system

ensures that compensation decisions are based on
objective performance data, promoting fairness and
transparency in rewarding employees.

 Alignment - By linking compensation to performance,

organizations can motivate employees to strive for
excellence and align individual goals with organizational
objectives.

4. EMPLOYEE ENGAGEMENT RETENTION

a. Regular Feedback: Reviews and feedback sessions.

b. Career Development: Assisting employees in setting goals and

understanding the measures necessary to attain them.

5. WORKFORCE PLANNING

a. Identifying High Potentials: Identify employees who are prepared

for advancing.

• Aligning Talent with Strategy: Necessary talent in place to achieve

their strategic goals.

B. Performance Management Around the World

o Emerging markets
o Multinational organizations
North America (U.S. & Canada)

• Focus: Goal setting, employee development, and performance-

based rewards

• U.S.: Goal-driven, using KPIs, OKRs, and regular feedback.

Integrated with compensation strategies (bonuses, promotions).

• Canada: Similar practices with a focus on employee well-being in

performance reviews.

• Mexico: Performance management in Mexico is influenced by

U.S. practices, with a strong emphasis on results measurement.

Europe

• Focus: Employee engagement, work-life balance, and

developmental feedback

• Scandinavia: Participative management, innovation, and open

feedback on strengths and weaknesses.

• U.K.: Structured appraisals, emphasizing feedback and

collaboration. Performance management in the UK emphasizes
cost-effectiveness and development, contributing to its rising
significance within the talent management and rewards
landscape.

• Germany: Systematic, detail-oriented performance systems

focusing on precision and efficiency. Performance management
in Germany emphasizes long-term goals due to the prevalence of
long-term employment relationships, setting it apart from
systems with a shorter-term focus.

• France: Legal requirements for employee training and

development, alongside the need for individual accountability,
are key considerations in French performance management
systems.
Asia

• Focus: Hierarchy, collectivism, and loyalty

• Japan: Continuous improvement (Kaizen), group feedback,

teamwork-focused. While traditionally emphasizing lifetime
employment and seniority, Japanese firms are increasingly
incorporating new knowledge acquisition through competency
modeling. Performance management in Japan tends to prioritize
behaviors over results.

• China: Shift from hierarchical to merit-based evaluations, focus

on group targets. Performance management in China has evolved
from a focus on attendance and skills to encompass broader
behaviors and integrate with other organizational systems, taking
into account the importance of respect for seniority and social
harmony.

• India: Adopts Western-style appraisals, balancing results with

development, complemented by informal feedback. India's
economic growth has shifted traditional values in the workplace,
moving towards a more individualistic and short-term approach.
Performance management systems face challenges in balancing
traditional paternalistic values with a more coaching-oriented
supervisor role.

• Turkey: Performance management is a relatively new concept in

Turkey, but its implementation faces challenges due to the
importance of personal relationships in Turkish culture. Systems
must ensure valid, reliable, and fair performance measurement.

• South Korea: South Korea's hierarchical work relationships

emphasize group over individual. The transition to a merit-based
system presents a challenge in reconciling this approach with
traditional cultural values.
Middle East

• Focus: Blending traditional practices with modern systems

• Approach: Hierarchical structures combined with employee

development programs and annual appraisals (e.g., UAE, Saudi
Arabia).

Africa

• Focus: Addressing skills gaps and empowering employees

• Approach: Varies by country; in South Africa, formalized systems

aligned with global standards focusing on development and
succession planning.

Latin America

• Focus: Relationship-building and cultural sensitivity

• Approach: Informal and relational performance elements. Brazil

and Mexico blend global standards with a focus on personal
relationships and employee satisfaction.

Performance Management in Australia

Economic Shift

Australia's economic transition from manufacturing to service has

significantly impacted the workforce. Performance management systems
need to adapt to these changes.

Demographics

Demographic shifts, including an increased presence of women and

ethnic minorities, require performance management systems to embrace
diversity and equal opportunity.

Legal Framework

Australia's legal framework, similar to that of the US and UK, influences

performance management systems by emphasizing documentation,
equal opportunity, and due process.
AIMS AND ROLE OF PM SYSTEMS

AIMS

To establish a good culture in which individuals and teams take

responsibility for the improvement of their own skills and their own
organizations.

To develop the abilities of individuals to meet the expectations of the

organization

1. Goal Setting

2. Setting Expectations

3. Improved Communication

4. Set performance standards

5. Determine individual training and performance plans

ROLES

1. Aligning Individual and Organizational Goals

2. Continuous Performance Monitoring and Feedback

3. Identifying Employee Development and Training Needs

4. Enhancing Communication and Engagement

5. Informing Decisions on Rewards and Promotions

6. Supporting Organizational Change and Adaptability

Or also

1. Setting and defining goals to fulfill organizational objectives

2. Setting the right expectations for managers and employees
3. Effective communication between individuals and teams
4. Set performance standards
5. Determining individual training and performance plans

CHARACTERISTICS OF AN IDEAL PM SYSTEM

An ideal performance management system aligns individual and

organizational goals, evaluates all employees comprehensively, provides
specific guidance, ensures fairness, and incorporates ongoing feedback,
while also adhering to ethical standards

The following characteristics are likely to allow a performance

management system to be successful:

1. Strategic Congruence - An effective performance management

system must align individual goals with the broader objectives of
the unit and organization.
2. Thoroughness - A comprehensive performance management
system evaluates all employees, including managers, and covers
all major job responsibilities.
3. Practicality - The assessment should concentrate on functions
within the employee's control.
4. Meaningfulness - Evaluations must occur at regular intervals and
should facilitate the ongoing skill development of evaluators.
5. Specificity - A good performance management system provides
clear, detailed guidance to employees regarding expectations.
6. Effective and Ineffective Performance - Performance
management should be able to differentiate between effective
and ineffective performance, which helps in decision making
relating to training requirements, promotion, transfer etc.
7. Reliability - Performance measures should be consistent and free
from errors.
8. Validity - Context validity ensures that the measures used in
performance evaluations include all relevant facets of
performance while excluding irrelevant information.
9. Acceptability and Fairness - An ideal performance management
system is perceived as fair by all participants. Fairness is
subjective, and organizations should actively seek feedback on
various aspects of justice:
 Distributive Justice: Perceptions of the evaluation
relative to the work performed and rewards received.
 Procedural Justice: Perceptions of the procedures used
to determine ratings and link them to rewards.
 Interpersonal Justice: The quality of interactions during
the evaluation process
 Informational Justice: Fairness in the communication of
performance expectations, feedback, and justifications
for administrative decisions.
10. Inclusiveness - Incorporating feedback from multiple sources is
essential.
11. Openness - A robust performance evaluation system provides
continuous feedback through a two-way exchange.
12. Correctability - Establishing an appeals process allows employees
to challenge decisions they perceive as unjust.
13. Standardization and Ethicality - Standardization ensures that
performance evaluations are consistent across individuals and
time. Ongoing training for those responsible for appraisals is
necessary to achieve this goal.

RAISING CAPITAL

When raising capital, options include bootstrapping (using personal

savings), friends and family loans, angel investors, venture capital,
bank loans, and crowdfunding. Factors to consider include the cost of
capital, dilution of ownership, and investor expectations.

FINANCIAL ANALYSIS AND RATIOS

Financial Analysis and Ratios evaluate a company's financial health,

identify strengths and weaknesses, and compare performance to
 industry benchmarks. Key ratios include liquidity ratios, profitability
ratios, efficiency ratios, and leverage ratios.

TAX PLANNING AND COMPLIANCE

Tax Planning and Compliance minimizes tax liabilities legally, avoids

penalties and fines, and ensures compliance with tax laws. Strategies
include maintaining accurate records, utilizing tax deductions and
credits, and consulting a tax professional.

STAGES OF PM SYSTEMS

1. PLANNING ‣ Set clear performance expectations and SMART

goals through manager-employee collaboration.
2. MONITORING ‣ Track document ongoing performance while
providing continuous feedback.
3. REVIEWING ‣ Conduct formal evaluations through structured
performance conversations and assessment.
4. DEVELOPING ‣ Create and implement targeted development
plans to enhance employee capabilities.
5. REWARDING ‣ Recognize and reward employee achievements
through formal and informal means.
6. IMPROVEMENT ‣ Address performance gaps through structured
improvement plans with clear support mechanisms.
7. RENEWAL ‣ Review overall effectiveness and reset goals for the
next performance cycle.

PERFORMANCE MANAGEMENT CONTRIBUTIONS

1. INCREASED MOTIVATION ‣ Feedback boosts motivation for

future performance by acknowledging past successes.
2. IMPROVED SELF-ESTEEM ‣ Performance feedback fulfills the
need for appreciation and increases self-worth.
3. MANAGERIAL INSIGHT ‣ Performance reviews provide managers
with valuable insights into employee performance and
personality, strengthening relationships and understanding
contributions.
4. JOB CLARITY ‣ Performance reviews clarity job expectations,
defining required behaviors and success criteria.
 5. ENHANCED SELF-AWARENESS ‣ Employees gain better self-
understanding and identify valuable development opportunities,
clarifying strengths and weaknesses for career planning.
6. FAIRER PERSONNEL DECISIONS ‣ Performance data ensures fair
and credible decisions regarding raises, promotions, transfers,
and terminations.
7. CLEAR ORGANIZATION GOALS ‣ Employees understand the
connection between their work and organizational success,
improving acceptance of broader goals.
8. INCREASED EMPLOYEE ‣ Performance management improves
employee performance and provides a framework for
development plans.
9. LEGAL PROTECTION ‣ Documented performance data helps
ensure compliance with regulations and reduces the risk of
lawsuits.
10. FASTER PERFORMANCE DIFFERENTIATION ‣ Performance
management systems quickly identify high and low performers,
allowing for prompt addressing of performance issues.
11. CLEAR COMMUNICATION OF PERFORMANCE ‣ Managers can
clearly communicate their performance judgments to
subordinates, increasing accountability and providing useful
feedback.
12. FACILITATED ORGANIZATIONAL CHANGE ‣ Performance
management systems can align employee behavior with
organizational change initiatives, providing tools and motivation
for improvement.

Disadvantages/Dangers of Poorly Implemented Performance

Management Systems

1. Lack of Employee Engagement

Unclear performance plans and perceived unfairness can lead to

disengagement, lower motivation, and higher turnover especially
among talented employees.

Employees may feel undervalued if the system is perceived as

unfair or inconsistent.
2. Biased Performance Ratings

Fragmented PM System can introduce unintentional biases,

leading to unfair reviews and overlooked performance issues.

Subjectivity can lead to unfair evaluations.

3. Low Employee Self-Esteem

Unstructured performance systems and unfair evaluations can

harm employee confidence, leading to resentment and
decreased motivation.

It is also a failure to connect employees' contributions with the

organizational goals.

4. Wasted Time and Money (Resources)

Ineffective performance management system waste time and

resources, with managers spending excessive hours on reviews
without delivering meaningful results.

Drain time and money without meaningful results.

5. Damage Manager-Employee Relationship

Weak PM System can damage Manager-Employee Relationship,

leaving employees demoralized and disengaged.

Also called “Negative Workplace Culture” where poor

implementation can lead to mistrust and dissatisfaction.

6. Increased Legal Risk

Unsubstantiated negative evaluations raise legal risks, as

employees may pursue costly litigation if they feel unfairly
treated.

Inaccurate or discriminatory assessments can result in lawsuits.

 7. Unclear Reward System

Poor communication around performance and rewards can leave

employees confused about how their efforts translate into
tangible benefits, thus reducing motivation.

PERFORMANCE ASSESSMENT - evaluates an employee's observable

behaviors, task, and attitudes to determine how well they are performing
in their jobs. GOAL: to help employees and managers identify areas for
improvement and create a plan to develop those skills.

5 Important points of Performance Assessment

1. Productivity
2. Quality of Work
3. Initiative
4. Teamwork
5. Problem-Solving

Once the performance is assessed, the employee and manager work

together to;

 Assess progress made toward meeting performance objectives.

 Identify barriers that may prevent an employee from
accomplishing performance objectives and what can be done to
overcome them
 Share feedback on progress relative to the goals
 Identify changes in the work plan
 Determine if any extra support is required

PERFORMANCE REVIEW

 Formal assessment in which a manager evaluates an employee’s

work performance.
  Purpose: to learn more about their strengths and weaknesses,
offer constructive feedback for skill development in the future,
and assist with goalsetting.

Measuring Success: 5 essential Tactics for Evaluating Performance

Management Success (from “primalogik” website)

1. Assess the clarity of goals -Thoroughly review goals for clarity

and make sure they’re broken into appropriate steps.
2. Assess employees’ individual growth -Providing continuous flow
of feedback to employees showing their strengths and areas for
improvement.
3. Survey employees and managers -A survey with a thoughtful
questions can help the organization understand how employees
and managers cope with the performance management.
4. Evaluate Fairness -Confirm whether managers are evaluating
people consistently. Work to pinpoint and address any biases.
5. Compare self-evaluations against manager evaluations -
Compare individual employees’ self-evaluations against the
written evaluations from their manager

Key Components

Advances in Performance Management System by Smith

 Collaborative discussions between employees and managers.

 Highlight achievements and areas for improvement.
 Align future goals with organizational priorities.

Impact:

 Boosts employee engagement, motivation, and retention.

 Provides a platform for recognition and career growth.
 Addresses challenges and aligns efforts with organizational goals.

Practices

 Conduct Regular Check-Ins

  Use Objective and Measurable Metrics
 Emphasize Two-way Communication
 Incorporate 360-Degree Feedback
 Focus on Strengths and Development
 Use Technology to Streamline the Process
 Train Managers for Effective Reviews

PERFORMANCE RENEWAL AND RECONTRACTING

PERFORMANCE RENEWAL

 Self-Assessment
 Supervisor/Manager Evaluation
 Peer Reviews (360-Degree Feedback)
 Client/Customer Feedback
 Objective Metrics

PERFORMANCE DISCUSSION

 Achievements
 Areas for Improvement
 Development Plan
 Documentation
 Goal Setting

RENEWAL DISCUSSION

Based on the performance review, a decision is made

 To renew or not to renew?

 Probationary Period
 Non-Renewal

RECONTRACTING

Negotiating and finalizing a new employment agreement after a

successful performance review and renewal decision.

 Compensation
 Clarifying roles, responsibilities
 Contract Duration
  Benefits
 Confidentiality Agreements

CONTRACT FINALIZATION

 Legal Review
 Agreement and Signing

REWARD SYSTEMS

A MONETARY NON-MONETARY

• bonuses • fringe benefits

• salary increases • public recognition

• commissions • paid leaves

• profit sharing • professional

development
• gift cards

reward system is a program that

provides incentives to employees for their work to motivate them to
perform better. In other words, a reward system encompasses all forms
of compensation such as monetary and non-monetary that an
organization offers its employees in return for their contributions and
efforts.

Reward System are structured incentives frameworks designed to provide

for desired behaviors. They can be intrinsic, such as personal satisfaction,
or extrinsic, like bonuses and promotions. Understanding these systems
helps organizations align employee goals with overall business objectives.

Types of Reward Systems

There are two main types of reward systems: monetary and non-
monetary. Monetary rewards include salaries and bonuses, while non-
monetary rewards can involve recognition, career development, and
work-life balance. Both types play a crucial role in employee engagement

Benefits of Reward Systems

Implementing effective reward system can lead to increased employee
satisfaction, improved performance, and reduced turnover rates. They
foster a culture of appreciation and motivate individuals to strive for
excellence, ultimately benefiting the organization as a whole.

 Improve employee’s engagement

 Reduced turnover rates
 Enhanced employee branding
 Positive work environment
 Improved customer service

Challenges in Reward Systems

Despite their benefits, reward systems can present challenges, such as

inequity and misalignment with organizational values. It's crucial to
regularly assess and adjust these systems to ensure they remain effective
and inclusive, catering to diverse employee needs.

VIDEO

Performance Management at its core encompasses two fundamental

activities that intertwine to create a symphony of growth:
1. Evaluating employee performance against established standards
and,
2. Guiding employees in developing action plans to enhance their
performance.

The harmonious Fusion of these activities cultivates a dynamic

ecosystem where individuals and organizations thrive in unison.

Performance Management framework individuals are provided with a

roadmap to navigate the intricate terrain of their roles and
responsibilities by clarifying job responsibilities and setting clear
expectations organizations instill a sense of purpose and Direction
paving the way for remarkable achievements.

When employees understand the essence of their roles, they can focus
their energy and talents on tasks that truly matter contributing to the
collective success.

It identifies areas of improvement and provides targeted feedback to

help employees amplify their strengths and overcome challenges.

Alignment is the golden thread that weaves together the diverse

strands of an organization's fabric by aligning employee Behavior with
the core values goals and strategies of the organization Performance
Management establishes a shared purpose fueling a collective sense of
belonging and commitment.

It serves as the compass that guides the ship of human resource

decisions as organizations navigate the vast ocean of talent
management. Acts as a reliable navigational tool informing decisions
such as promotions transfers and training opportunities it empowers
decision makers to identify high potential individuals nurture emerging
leaders and optimize Workforce capabilities

Performance Management creates a safe space for meaningful

dialogues Foster and understanding trust and collaboration. When lines
of communication remain open, ideas flow freely, conflicts are resolve
and Innovation flourishes.
Tool to measure employee performance

1. Performance appraisal form , the North Star guiding the evaluation

process. Crafting an effective appraisal form requires careful
consideration and a Sprinkle of innovation by conducting thorough
research and drawing inspiration from evaluation forms used by
similar organizations or those that share a similar Performance
Management philosophy organizations can tailor appraisal forms
that resonate with their unique needs.
2. Competency-based performance appraisals, the maestros of
Performance Management. These appraisals establish a direct
connection between employee behaviors, knowledge, skills,
abilities and the overarching Mission, Vision and values of the
organization by evaluating competencies that align with
organizational objectives.

Key components

1. Demographic Information - a canvas that captures the essence of

each employee ensuring accurate record keeping.
2. Standardized Rating Scale Emerges - akin to a musical scale that
harmonizes evaluation criteria. A clear and concise rating scale
typically employing a five-point system paints a vivid picture of
performance levels facilitating meaningful discussions and
decision making.
3. Assessment of job-related performance - This assessment
unveils a comprehensive evaluation of an employee's
performance by examining performance through the lens of
objective criteria organizations Foster fairness and provide a solid
foundation for growth.
4. Employees’ self-evaluation - embracing the power of self-
reflection the fourth element encourages employees to
accurately participate in the performance management process.
Self-evaluation becomes a mirror that reflects personal
achievements strengths and areas for improvement through self-
reflection employees become co-authors of their growth Journey
 taking ownership of their development and unlocking hidden
potential.
5. Employee development - this element sets the stage for an
interactive process where training and growth opportunities are
unveiled providing employees with a transformative experience.
Organizations that prioritize employee development Foster a
culture of continuous learning positioning themselves as beacons
of growth innovation

Feedback - the lifeblood of Performance Management nourishes growth

and cultivates excellence. Feedback takes Center Stage serving as the
virtuoso that empowers individuals to fine-tune their performances

2 facets of feedback

1. Positive feedback - fill the air showering employees with

recognition and appreciation. Frequent acknowledgment of
contributions and achievements uplift Spirits igniting a flame of
motivation that propels individuals forward by recognizing
specific behaviors and articulating their impact on the team the
organization and the individual positive feedback becomes a
beacon of inspiration it paints a picture of success encouraging
the continuation of positive behaviors while clearly outlining
expectations for the future.
2. Constructive feedback - this path though challenging holds
immense potential for growth constructive feedback when
delivered skillfully becomes the compass that guides individuals
towards Improvement. When providing constructive feedback
promptness is of the essence addressing issues as soon as they
arise prevents the potential for further detriments selecting a
private setting and scheduling a dedicated time for the
conversation sets the stage for a constructed dialogue by being
well prepared armed with facts and job-related examples
organizations can deliver feedback that is fair objective and
actionable. Focusing on specific behaviors rather than personal
traits maintains the Integrity of the feedback process inviting
individuals to reflect on their actions.
The importance of documentation a symphony's written score. Strong
documentation plays a pivotal role in Performance Management serving
as both a protective shield and a testament to an organization's
commitment to employee success. Effective documentation safeguards
the employer's interests while demonstrating the steps taken to support
employees Journey

 knowing the intended audience, decision makers agencies

lawyers and potential adjudicators form the symphony's
Audience by understanding their perspectives organizations can
tailor their documentation to resonate with each group.
 factual and objective documentation paints a clear picture
answering the questions of who what where when and why
describing expectations in precise terms eliminates ambiguity
laying a solid foundation for understanding.
 Avoiding judgments and steering clear of vague phrases protects
against discrimination claims ensuring fairness and integrity
including both sides of the story the employee's perspective adds
depth to the documentation promoting transparency and
authenticity.

ACTION PLAN
•Outlining clear deadlines for improvement
•Follow up on expectations and deadlines
•Consequence of poor performance is enforced.

Performance appraisal is the process of determining how well employees

to do their jobs relative to a standard and communicating that
information to them. This tool is a key part of performance management
because it helps employees improve their job performance.

Several terms can be used when referring to performance appraisals

these include employee rating, employee evaluation, performance
review, performance evaluation and results appraisal. Performance
appraisals are widely used for administering wages and salaries and
identifying individual employee strengths and weaknesses.
Performance criteria

1. Quantity of output
2. Quality of output
3. Timeliness of output
4. Presence and attendance on the job
5. Efficiency of work completed
6. Effectiveness of work completed

Type of Performance Information

1. Trait based information identifies a character trait of an

employee such as attitude initiative or creativity that may or may
not be job-related.
2. Behavior based information focuses on specific behaviors that
lead to job success. Behavioral information can specify the
behaviors management expects employees to exhibit a Potential
problem arises when any of several behaviors can lead the
successful performance and employees rely on different
behaviors to complete work.
3. Results based information considers employee accomplishments
for jobs in which measurement is easy and obvious the results
based approach works.

Performance measures

 Objective measures can be observed.

 Subjective measures require judgment in the part of the
evaluator and are more difficult to determine. Subjective
measures should be used carefully and only when adequate
support and/or documentation can be presented to support
such evaluations

Performance standards define the expected levels of employee

performance. Should be established before work is performed because
they define the level of satisfactory job performance. Well-defined
standards ensure that everyone involved knows the performance
expectations
Calibrating is often a group review conducted by managers to discuss the
reasons behind each employees rating. Ratings can be adjusted up or
down by the group to ensure that they reflect similar performance
standards. This process can increase interrelated reliability.

Performance appraisal is the process of determining how well employees

do their jobs relative to a standard and communicating that information
to them.

Two uses of Performance appraisals

1. Making pay and other administrative decisions about employees

(manager acts as a judge)
2. Focus on the development of individuals (manager acts as a
councilor)

Three administrative uses of performance appraisal impact managers and

employees the most:

1. Determining pay adjustments

2. Making job placement decisions
3. Choosing employee disciplinary actions

A. Performance-based compensation – In pay for performance

compensation Systems managers evaluate the performance of
individuals and make compensation Recommendations. If any
part of the appraisal process fails better performing employees
may not receive larger pay Increases and that can result in
perceived inequities in compensation.

Performance appraisals can occur in two ways

1. Informal Approach
a. Conducts whenever necessary
b. Day-to-day evaluation of performance
c. Various conversations on the job or on-the-spot
discussions of specific occurrences
d. It should not replace a formal performance appraisal
 e. Frequent informal feedback to employees can prevent
surprises
2. Systematic appraisal
Systematic appraisals feature a regular time interval which
distinguishes them from Informal appraisals both employees and
managers know that performance will be reviewed on a regular
basis and they can plan for performance discussions.

Most organizations require managers to conduct appraisals once or twice

a year. Most often annually Employees commonly receive an appraisal 60
to 90 days after being hired again at six months and annually thereafter

Self appraisal can be effective in many situations as a self development

tool. It requires employees to think about their strengths and weaknesses
and to set goals for improvement. Employees working in isolation or
possessing unique skills may be Particularly suited for self ratings because
they are the only ones qualified to rate themselves.

Strong performance appraisal helps to improve employee and

organizational performance.

Multi-source feedback recognized is that for many jobs employee

performance is multi-dimensional and crosses departmental
organizational and even national boundaries. Therefore information is
needed from many sources to adequately and fairly evaluate an
incumbents job performance. The major purpose of 360 degree feedback
is not to increase uniformity by soliciting like-minded views instead It is
designed to capture evaluations of the employees different roles to
provide richer feedback during an evaluation.

Organizations should consider using multi source feedback primarily as a

developmental tool to enhance future job performance.

Rating scales are used in performance management systems to indicate

an employee's level of performance or achievement. The graphic rating
scale allows the rater to mark an employee's performance on a
continuum indicating low to high levels of a particular characteristic.
Because of the straightforwardness of the process graphic rating scales
are common in performance evaluations. Three aspects of performance
can be appraised using graphic rating scales

1. Descriptive categories: quantity of work attendance and

dependability
2. Job duties taken from the job description
3. Behavioral dimension: decision-making employee development
and communication effectiveness

Possible drawbacks:

o Rater error as the form might not reflect the job

o Focus should be on the job duties
o Separate factors are grouped, one box to check
o Descriptive words may have different meanings

Behavioral rating scales

Designed to assess individual actions instead of personal attributes and

characteristics different approaches are use.

Comparative methods require that managers directly compare the

performance levels of their employees against one another and these
comparisons can provide useful information for managing performance
The ranking method lists employees being rated from highest to lowest
based on their performance levels and relative contributions. One
disadvantage of this process is that the sizes of performance differences
between employees are often not clearly indicated?

Force distribution is a technique for distributing ratings that are

generated with any of the other appraisal methods and Comparing the
ratings of people in a work group with the force distribution method The
ratings of employee performance levels are distributed along a bell-
shaped curve similar to grading on a curve in school settings. The use of a
force distribution system forces managers to identify high average and
low performers. Thus high performers can be rewarded and developed
while low performers can be encouraged to improve or leave.

The critical incident method the manager keeps a written record of both
favorable and unfavorable Actions performed by an employee during the
entire rating period when a critical incident involving an employee occurs,
the manager writes it down

The essay method requires a manager to write a short essay describing

each employees performance during the rating period some freeform
Essays are written without guidelines others are more structured with
prepared questions that must be answered. The rater usually categorizes
comments under a few general headings The essay method allows the
rater more flexibility than other methods do but sometimes too much as
a result appraisals often combine essays with other methods the
effectiveness of the essay approach often depends on a supervisors
writing and observation skills.

Time related Issue

The recency effect occurs when a Raider gives greater weight to recent
events when appraising in the individuals performance.

The primary effect which occurs when a Raider gives greater weight to
information received first when appraising an individual's performance

Central tendency errors occurs when the Raider gives all employees a
score with a narrow range in the middle of the scale.

Leniency error occurs when ratings of all employees fall at the high end
of the scale

Strictness error occurs when a manager uses only the lower end of the
scale to rate employees

Rater Bias when a raters values or prejudice distort the rating rate or bias
occurs such bias may be unconscious or quite intentional

The halo effect occurs when a Raider scores an employee high and all job
criteria because of performance in one area of assigned work
Responsibilities. For example if a worker has few absences the supervisor
might give the worker a high rating in all other areas of work including
quantity and quality of output Without really thinking about the
employees other characteristics separately

The opposite is the horns effect which occurs when a low rating in one
characteristic leads to a low overall rating.

Contrast error - the tendency to rate people Relative to others rather

than against performance standards.

Sometimes raters are influenced by whether people possess

characteristics that are the same or different from their own qualities. It's
known as similar to me or different from me errors.

If the rater has seen only a small sample of a person's work an appraisal
may be subject to the sampling error.

Many performance appraisal problems are caused by a number of

different rater errors.