What is the method called for appraising performance involving setting specific measurable goals with each employee and then periodically reviewing the progress made?

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Chapter 14 / Exercise EX14-6

Managerial Accounting

Warren/Tayler

CHAPTER 9: PERFORMANCE MANAGEMENT AND APPRAISAL

Comparing Performance Appraisal and Performance Management:

ØPerformance appraisal

–Evaluating an employee’s current and/or past performance relative to his or her performance standards.

ØPerformance management

–The process employers use to make sure employees are working toward organizational goals.

Why Performance Management?

ØIncreasing use by employers of performance management reflects:

–The popularity of the total quality management (TQM) concepts.

–The belief that traditional performance appraisals are often not just useless but counterproductive.

–The necessity in today’s globally competitive industrial environment for every employee’s efforts to focus on helping the company to achieve its strategic goals.

ØWhy appraise performance?

–Appraisals play an integral role in the employer’s performance management process.

–Appraisals help in planning for correcting deficiencies and reinforce things done correctly.

–Appraisals, in identifying employee strengths and weaknesses, are useful for career planning

–Appraisals affect the employer’s salary raise decisions.

Realistic Appraisals

ØMotivations for soft (less-than-candid) appraisals

–The fear of having to hire and train someone new

–The unpleasant reaction of the appraisee

–A company appraisal process that’s not conducive to candor

ØHazards of giving soft appraisals

–Employee loses the chance to improve before being forced to change jobs.

–Lawsuits arising from dismissals involving inaccurate performance appraisals.

Continuous improvement

ØA management philosophy that requires employers to continuously set and relentlessly meet ever-higher quality, cost, delivery, and availability goals by:

–Eradicating the seven wastes:

•overproduction, defective products, and unnecessary downtime, transportation, processing costs, motion, and inventory.

–Requiring each employee to continuously improve his or her own personal performance, from one appraisal period to the next.

The Components of an Effective Performance Management Process:

ØDirection sharing

ØRole clarification

ØGoal alignment

ØDevelopmental goal setting

ØOngoing performance monitoring

ØOngoing feedback

ØCoaching and support

ØPerformance assessment (appraisal)

ØRewards, recognition, and compensation

ØWorkflow and process control and return

Defining Goals and Work Efforts

ØGuidelines for effective goals

–Assign specific goals

–Assign measurable goals

–Assign challenging but doable goals

–Encourage participation

ØSMART goals are:

–Specific, and clearly state the desired results.

–Measurable in answering “how much.”

–Attainable, and not too tough or too easy.

–Relevant to what’s to be achieved.

–Timely in reflecting deadlines and milestones.

Performance Appraisal Roles:

ØSupervisors

–Usually do the actual appraising.

–Must be familiar with basic appraisal techniques.

–Must understand and avoid problems that can cripple appraisals.

–Must know how to conduct appraisals fairly.

ØHR department

–Serves a policy-making and advisory role.

–Provides advice and assistance regarding the appraisal tool to use.

–Prepares forms and procedures and insists that all departments use them.

–Responsible for training supervisors to improve their appraisal skills.

–Responsible for monitoring the system to ensure that appraisal formats and criteria comply with EEO laws and are up to date.

Steps in Appraising Performance:

ØDefining the job

–Making sure that you and your subordinate agree on his or her duties and job standards.

ØAppraising performance

–Comparing your subordinate’s actual performance to the standards that have been set; this usually involves some type of rating form.

ØProviding feedback

–Discussing the subordinate’s performance and progress, and making plans for any development required.

Designing the Appraisal Tool:

ØWhat to measure?

–Work output (quality and quantity)

–Personal competencies

–Goal (objective) achievement

ØHow to measure?

–Graphic rating scales

–Alternation ranking method

–MBO

Performance Appraisal Methods:

ØGraphic rating scale

–A scale that lists a number of traits and a range of performance for each that is used to identify the score that best describes an employee’s level of performance for each trait.

ØAlternation ranking method

–Ranking employees from best to worst on a particular trait, choosing highest, then lowest, until all are ranked.

ØPaired comparison method

–Ranking employees by making a chart of all possible pairs of the employees for each trait and indicating which is the better employee of the pair.

ØForced distribution method

–Similar to grading on a curve; predetermined percentages of ratees are placed in various performance categories.

–Example:

•15% high performers

•20% high-average performers

•30% average performers

•20% low-average performers

•15% low performers

ØNarrative Forms

ØBehaviorally anchored rating scale (BARS)

–An appraisal method that uses quantified scale with specific narrative examples of good and poor performance.

ØDeveloping a BARS:

–Generate critical incidents

–Develop performance dimensions

–Reallocate incidents

–Scale the incidents

–Develop a final instrument

ØAdvantages of using a BARS

–A more accurate gauge

–Clearer standards

–Feedback

–Independent dimensions

–Consistency

Management by Objectives (MBO)

ØInvolves setting specific measurable goals with each employee and then periodically reviewing the progress made.

–Set the organization’s goals.

–Set departmental goals.

–Discuss departmental goals.

–Define expected results (set individual goals).

–Performance reviews.

–Provide feedback.

Computerized and Web-Based Performance Appraisal

ØPerformance appraisal software programs

–Keep notes on subordinates during the year.

–Electronically rate employees on a series of performance traits.

–Generate written text to support each part of the appraisal.

ØElectronic performance monitoring (EPM)

–Having supervisors electronically monitor the amount of computerized data an employee is processing per day, and thereby his or her performance.

Potential Rating Scale Appraisal Problems:

ØUnclear standards

–An appraisal that is too open to interpretation.

ØHalo effect

–Occurs when a supervisor’s rating of a subordinate on one trait biases the rating of that person on other traits.

ØCentral tendency

–A tendency to rate all employees the same way, such as rating them all average.

ØStrictness/leniency

–The problem that occurs when a supervisor has a tendency to rate all subordinates either high or low.

ØBias

–The tendency to allow individual differences such as age, race, and sex to affect the appraisal ratings employees receive.

How to Avoid Appraisal Problems

ØLearn and understand the potential problems, and the solutions for each.

ØUse the right appraisal tool. Each tool has its own pros and cons.

ØTrain supervisors to reduce rating errors such as halo, leniency, and central tendency.

ØHave raters compile positive and negative critical incidents as they occur.

Who Should Do the Appraising?

ØThe immediate supervisor

ØPeers

ØRating committees

ØSelf-ratings

ØSubordinates

Ø360-Degree feedback

The Appraisal Interview

ØTypes of appraisal interviews

–Satisfactory—Promotable

–Satisfactory—Not promotable

–Unsatisfactory—Correctable

–Unsatisfactory—Uncorrectable

ØHow to  conduct the appraisal interview

–Talk in terms of objective work data.

–Don’t get personal.

–Encourage the person to talk.

–Don’t tiptoe around.

ØHow to handle a defensive subordinate

–Recognize that defensive behavior is normal.

–Never attack a person’s defenses.

–Postpone action.

–Recognize your own limitations.

ØHow to criticize a subordinate

–Do it in a manner that lets the person maintain his or her dignity and sense of worth.

–Criticize in private, and do it constructively.

–Avoid once-a-year “critical broadsides” by giving feedback on a daily basis, so that the  formal review contains no surprises.

–Never say the person is “always” wrong

–Criticism should be objective and free of any personal biases on your part.

ØHow to ensure the interview leads to improved performance

–Don’t make the subordinate feel threatened during the interview.

–Give the subordinate the opportunity to present his or her ideas and feelings and to influence the course of the interview.

–Have a helpful and constructive supervisor conduct the interview.

–Offer the subordinate the necessary support for development and change.

ØHow to handle a formal written warning

–Purposes of the written warning

•To shake your employee out of bad habits.

•Help you defend your rating, both to your own boss and (if needed) to the courts.

–Written warnings should:

•Identify standards by which employee is judged.

•Make clear that employee was aware of the standard.

•Specify deficiencies relative to the standard.

•Indicates employee’s prior opportunity for correction.

Management Process

Ø“What is our strategy and what are our goals?”

Ø“What does this mean for the goals we set for our employees, and for how we train, appraise, promote, and reward them?”

ØWhat will be the technological support requirements?