Ateneo de Manila University Graduate School of Business

18 September 2010 MBAH Batch 8

PERFORMANCE MANAGEMENT
andal aranzamendez untalan villarin

Don Rebs Andal Ricky Aranzamendez Tong Untalan Ding Villarin

OBJECTIVES

Identify major determinants of individual performance Discuss the three general purposes of performance management Identify the five criteria for effective performance management system Discuss the four approaches to performance management, specific techniques used in each approach, & the way these approaches compare with criteria for effective performance management system

OBJECTIVES

Choose the most effective approach to performance measurement for a given situation Discuss the advantages & disadvantages of the different sources of performance information Choose the most effective source/s for performance information for any situation Distinguish types of errors & explain how to minimize each in a performance evaluation Identify the cause of a performance problem

What is Performance Management?

Means through which managers ensure that employees activities and outputs are congruent with the organizations goals.

Parts of Performance Management System

1. Job Analysis ( Define ) - specifies which aspect of performance are relevant to the organization 2. Performance Appraisal ( Measure ) - measures aspect of performance, how well an employee is doing his job

Parts of Performance Management System

3. Performance Feedback - provides feedback to employee, tying rewards to performance through compensation system - employees effectiveness

Major Determinants of Individual Performance

Organization al Strategy Long and short term goals and values
Objective Results

Individual Attributes (e.g. Skills and abilities )

Individual Behaviors Situational Constraints Organizational culture Economic conditions

Purposes of Performance Management

1. Strategic Purpose
- link employee activities with organizations goals the results, behavior, employee characteristics developing measurement and feedback mechanism

2. Administrative Purpose - administrative decisions: salary administration, promotions, retentions, layoffs, and recognition

Purposes of Performance Management

3. Developmental Purpose - develop employees who are effective - identifies deficient aspects of employees performance and its causes

Five Criteria for Effective Performance Management

1. Strategic Congruence - extent to which the performance management system elicits job performance that is consistent with the organizations strategy, goals and culture - guide employees in contributing to the organizations success 2. Validity - assesses all the relevant and only the relevant aspects of job performance

Five Criteria for Effective Performance Management

Content Validity

Job performance measure

Actual, or true job performance

Contamination

Validity

Deficiency

Five Criteria for Effective Performance Management

3. Reliability - consistency of a performance measure, free from random error - interrater reliability - internal consistency reliability - test - retest reliability: reliable over time

Five Criteria for Effective Performance Management

4. Acceptability - satisfactory or adequate by those who use it - 3 categories of perceived fairness: > procedural > interpersonal > outcome fairness 5. Specificity - detailed guidance to employees about what is expected and how they can meet these expectation

Approaches to Measuring Performance

Rebs Andal, MD

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Approaches to Measuring Performance

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Approaches to Measuring performance

We can manage performance by focusing on: Employee attributes Behaviors Results Addition:

Overall comparisons among individuals performance Emphasis on Quality

Learning Objective:

Approaches to Measuring performance

Explore various approaches to measuring and managing performance Discuss techniques associated with each approach Evaluate the approached based on criteria
Strategic congruence, validity, reliability, acceptability and specificity

1. COMPARATIVE Approach

Requires the rater to COMPARE an individuals performance with that of others Uses overall assessment of an individuals performance Develop some RANKING of the individuals within the group

1. COMPARATIVE Approach

Three Techniques
Ranking Forced distribution Paired comparison

1. COMPARATIVE Approach RANKING

Simple ranking

Rank employees within their department from hishest to poorest performer BEST TO WORST

Alternation Ranking
List of employees, cross the best and worst employee

1. COMPARATIVE Approach RANKING

Caution!
Received attention in the courts
Validation of the selection system using employee rankings as the measure of performance Criteria of job performance may vary from one supervisor to another

A focused and stable body of criteria is warranted

1. COMPARATIVE Approach FORCED DISTRIBUTION

Also uses ranking format

Employees ranked in groups

Employees put in predetermined categories

Best workers, in between, worst workers Bottom 10%

No bonuses and can be terminated

1. COMPARATIVE Approach FORCED DISTRIBUTION

Forces manager to categorize employees

Based on distribution rules not on performance

Advantage
Identifies high potential employees Identifies poorest performers Provides mechanism to help align company performance and employee performance and compensation

1. COMPARATIVE Approach FORCED DISTRIBUTION

See table 8.4 page 357

1. COMPARATIVE Approach FORCED DISTRIBUTION

Disadvantages
This practice is arbitrary May be Illegal Cause poor morale
Ex. 20 70 10 distribution

Prone to discrimination
Age, minority, women

Subjective Potential negative side effects on morale, teamwork, recruiting, and shareholder perceptions

1. COMPARATIVE Approach PAIRED COMPARISON

Compare every employee with every other employee

1 point for every higher performance Total score obtained

TIME CONSUMING

1. COMPARATIVE Approach EVALUATION

Effective in differentiating employee performance Easy to develop and easy to use Common failure to be linked to the strategic goal of the organization Subjective dependent on raters Lack specificity for feedback
How can the individual improve his ranking

2. ATTRIBUTE Approach

Focuses on extent to which individuals have certain attributes

Characteristic or trait

Define a set of traits for evaluation

Initiative, leadership, and competitiveness

2. ATTRIBUTE Approach Graphic Rating Scales

List of traits evaluated by a five point rating scale See table 8.5 p 360

2. ATTRIBUTE Approach Graphic Rating Scales

List of traits evaluated by a five point rating scale Legal defensibility:

Subjective Criticized appraisals should demonstrate that rating is objectively related to actual work behavior

2. ATTRIBUTE Approach Mixed Standard Scales

improved version Relevant performance dimensions

Statements representing good, average and poor performance See table 8.6 p360

2. ATTRIBUTE Approach Mixed Standard Scales

improved version Relevant performance dimensions

Statements representing good, average and poor performance

Originally developed as traitoriented scales

Instrument using behavioral statements as a means of reducing rating errors in performance appraisal

2. ATTRIBUTE Approach EVALUATION

Most popular method in organizations Easy to develop and generalizable

Across any organization and strategy

Little congruence between techniques and the companys strategy Vague performance standards
Open to different interpretation

2. ATTRIBUTE Approach EVALUATION

Vague performance standards

Different raters may provide extremely different ratings and rankings Validity and reliability are low

These technique does not provide any specific guidance on how an employee can support the companys goal or correct performance deficiencies

3. BEHAVIORAL Approach

Attempts to define the behaviors an employee must exhibit to be effective in the job Behaviors are defined and managers assess the extent to which employees exhibit them

3. BEHAVIORAL Approach Critical Incidents

Requires managers to keep record of specific examples of effective and ineffective performance Provides specific feedback to employees - what they do well and what they do poorly Can be tied to the companys strategy Individual approach not being compared to others

3. BEHAVIORAL Approach

Behaviorally Anchored Rating Scale (BARS)

Builds on the critical incidents approach

Please check figure 8.4 p.63

3. BEHAVIORAL Approach

Behaviorally Anchored Rating Scale (BARS)

Builds on the critical incidents approach

Identify critical incidents that represent effective and ineffective performance Experts agree on behavioral anchors that will serve as guide to raters Anchors will serve as guide to managers Rating becomes the employees score

Bias on information recall

3. BEHAVIORAL Approach
Behavioral Observation Scale (BOS)

Variation of a BARS Developed from critical incidents

Uses many behaviors to necessary for effective performance Requires managers to rate the frequency with which the employee has exhibited each behavior during the rating period

Ratings are then averaged to compute an overall performance rating

3. BEHAVIORAL Approach
Behavioral Observation Scale (BOS)

Drawback
May require more information that most managers can process or remember

A BOS can have 80 or more behaviors Evaluation can be annual/ bi annual

3. BEHAVIORAL Approach
Behavioral Observation Scale (BOS)

Compared to BARS and graphic rating scales

BOS is preferred for differentiating good from poor performers Maintains objectivity, providing feedback, suggesting training needs and being easy to use

3. BEHAVIORAL Approach

Organizational Behavioral Modification (OBM)

Entails managing the behavior of employees through a formal system of behavioral feedback and reinforcement

Components
1. Define a set of key behaviors necessary for job performance 2. Use of measurement system to assess whether these behaviors are exhibited 3. Manager informs employees of these behaviors 4. Feedback and reinforcement Figure 8.5 p 366

3. BEHAVIORAL Approach
Assessment Centers

Individuals usually perform a number of simulated tasks

Leaderless group discussions In-basket management Role playing

Assessors observe the individuals behavior and evaluate their skill or potential as managers

3. BEHAVIORAL Approach
Assessment Centers

Advantage
Provide objective measure of an individuals performance at managerial task. Allow specific performance feedback Individualized developmental plan can be planned/designed Ex: Assessment center for certifications middle manager certificate after OJT and developmental experiences

3. BEHAVIORAL Approach
Evaluation

Strengths

Can be very effective Can link the companys strategy to the specific behavior necessary for implementing strategy Provides specific guidance and feedback Behaviors identified are valid Acceptability is high Techniques are reasonably reliable

3. BEHAVIORAL Approach Evaluation

Weaknesses

Behaviors and measures must be constantly monitored and revised

Ensure linkage with strategic focus

Assumption of one best way to do the job

Suited for less complex jobs Least suited for complex job Requires multiple ways and behaviors

4. RESULTS Approach

Focuses on managing the objective, measurable results of a job or work group Results are the closest indicator of ones contribution to organizational effectiveness

Management by objectives Productivity Measurement and Evaluation System

4. RESULTS Approach Management by Objectives

Popular in both private and public organizations Top management team first defines the companys strategic goals

Goals are passed on to the next layer of management Goal setting process cascades down These goals are used as the standards by which an individuals performance is evaluated

4. RESULTS Approach Management by Objectives

Components of the Goal

Specific Difficult Objective Table 8.8 p 367

4. RESULTS Approach Management by Objectives

Effectiveness
Usually increases productivity Productivity gains tend to be highest when top management is committed

Effectively links individuals performance with firms strategy Firm Department Individual Rewards

4. RESULTS Approach

Productivity Measurement and Evaluation System (ProMES)

Goal
Motivate employees to higher levels of productivity Measure and feedback productivity information to personnel

4. RESULTS Approach

1.

Productivity Measurement and Evaluation System (ProMES)

STEPS
Identify what (product) the organization expects to accomplish Staff defines indicators of the product Staff establishes the contingencies between the amount of indicators and the level of evaluation associated with that amount Feedback

2. 3.

4.

4. RESULTS Approach EVALUATION

Advantages Minimizes subjectivity Relies on Objective, quantifiable Indicators of performance Highly acceptable

Managers and employees

Links individuals results with the organizations strategies and goals

4. RESULTS Approach EVALUATION

Weaknesses Contaminated

Affected by things beyond the employees control (ex. economic recession)

Deficient
Not all aspects of the job are amenable to objective measurement

May focus only on aspects of their performance that are measurable Feedback lacks behavioral aspect

5. QUALITY Approach

Fundamental characteristics
Customer orientation Prevention approach to errors

Goal
Improving customer satisfaction

5. QUALITY Approach

Expectations
Emphasize an assessment of both person and system Emphasize that managers and employees work together to solve performance problems Involve both internal and external customers in setting standards and measuring performance Use multiple sources to evaluate person and system factors

5. QUALITY Approach

Techniques
Process flow analysis
Identify cause of delay/redundancy in the process

Cause and Effect diagram

Identify cause/event that result in undesirable outcomes

Pareto Chart
Highlight most important cause of a problem

Control Charts
Collecting data at multiple points in time

Histogram Scattergrams

5. QUALITY Approach EVALUATION

Relies primarily on combination of attributes and results approaches Adopts a system-oriented focus rather than individual employee performance

Weakness Many companies are unwilling to abandon their traditional performance management

Performance Information

V.
Most effective approach to Performance management for a given situation VI. Advantages & Disadvantages of the different sources of performance information VII. Most effective source/s for performance information in any situation

VII. Most effective source/s for performance information in any situation

1. 2. 3. 4. 5.

Managers Peers Subordinates Self Customers

Sources of Performance Information 1. Managers

Most frequently used Have the ability to rate employees Feedback from MANAGERS is strongly related to performance

Sources of Performance Information 1. Managers

PROBLEMS: Some managers cant observe employees work with.. Supervisor bias (favoritism) should not entirely rely from MANAGERS

Sources of Performance Information 2. Peers

Co-workers

Expert knowledege of job requirement Observe employee daily! Bring a different perspective in the evaluation process - provide extremely valid assessment of performance

Useful esp if supervisor does not always observe employee (eg.law enforcement)

Sources of Performance Information 2. Peers

PROBLEMS: Bias due to friendship although no empirical basis Being both a rater & a ratee is uncomfortable esp if administrative decisions are evaluated

Sources of Performance Information 3. Subordinates

Evaluation of managers UPWARD FEEDBACK

Sources of Performance Information 3. Subordinates

PROBLEMS: Manager evaluation give power to subordinates

Sources of Performance Information 4. Self

Not often used Observe own behavior employees are given responsibility to contribute to corporate decisions Useful if used as a prelude to a performance feedback session

Sources of Performance Information 4. Self

PROBLEMS Tendency toward self inflated assessments (esp for administrative decisions eg. Pay raises) Employees attribute poor performance to co-workers

Sources of Performance Information 5. Customers

Often the only best person to observe employee performance BEST source of information

USEFUL

Customer evaluation sheet Random mail surveys Telephone survey

When employee gives Direct service to the customer When company needs info on what the customer wants

Sources of Performance Information 5. Customers

PROBLEM Expense

Printing Postage Telephone labor

Sources of Performance Information

360o Degree Appraisal

Multiple rater (boss, peers, subordinates, customers)

Rater Errors in Performance Measurement

What are the types of Rating Errors? Preventive Measures? What is Appraisal Politics?

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What are the types of Rating Errors?

1. SIMILAR to ME !

- I am effective, so if you are like me? You must be too

What are the types of Rating Errors?

2. CONTRAST Error when we compare individuals with one another instead of an objective standard

What are the types of Rating Errors?

3. Distributional Errors -are the result of a raters tendency to use only one part of the rating scale -Leniency -Strictness -Central Tendency

4.
4.

HALO and HORNS

- these errors refer to a failure to distinguish among different aspects of performance - either all positive or all negative ratings - cant make the necessary distinctions between strong and weak performance

5.

6.

PREVENTIVE MEASURES
1.

Rater Error Training

1.

-make managers aware of rating errors and how to minimize it.

2.

Rater Accuracy Training- frame of reference training

2.

3.

-emphasizes the multidimensional nature of performance -familiarizes raters with various performance dimensions.

APPRAISAL POLITICS
APPRAISAL POLITICS - refers to evaluators purposefully distorting a rating to achieve personal or company goals.

APPRAISAL POLITICS
Appraisal Politics occur because;
- raters are accountable to the employee being rated. - there are competing rating goals. - a direct link between bet performance appraisal and desirable awards. - top executives tolerate distortion - distortion is part of company folklore

PERFORMANCE FEEDBACK
1. Expected performance defined 2. Employees performances measured 3. Performance Feedback

PERFORMANCE FEEDBACK

Recommendations;

- Feedback Frequently > 1/year - Create the Right Context for Discussion - Ask the Employee to Rate Himself First - Encourage the Subordinate to Participate in the Session Recognize Effective Performance through Praise

PERFORMANCE FEEDBACK

Recommendations

-Focus on Solving Problems. - Focus Feedback on Behaviour or Results, Not on the Person. - Minimize Criticisms - Agree to Specific Goals and Set a Date to Review Progress

How to Identify the cause of a Performance Problem?

I N P U T

Employee Knows/Understands what to do? Job Flow and Procedures Logical? Resources for activity Available? Interference from other Job Demands?

How to Identify the cause of a Performance Problem?

E M P L O Y E E
Employee With Necessary Skills and Knowledge?

Knows why the desired level of performance is important?

Is the employee mentally, physically and emotionally able to perform at the expected level?

How to Identify the cause of a Performance Problem?

F E E D B A C K
Has the employee been informed about his performance?

Is Performance Feedback relevant, timely, accurate, specific and understandable?

How to Identify the cause of a Performance Problem?

P E R F O R M A N C E
Do Performance Standards Exists? Does the Employee know the desired level of expected Performance? Does the Employee Believe he can reach the Performance Standard?

How to Identify the cause of a Performance Problem?

C O N S E Q U E N C E S
Are there rewards/incentives for good performance?

Are rewards/incentives valuable to the employee?

Are they given in a timely Manner?

Do work groups or team norms encourage employees not to meet performance standards?

WAYS TO MANAGE EMPLOYEES PERFORMANCE

Ability

HIGH

M O T I V A T I O N

SOLID PERFORMERS -Reward good performance -Identify development opportunities' -Provide honest, direct feedback

MISDIRECTED EFFORT -Coaching --frequent performance feedback -- Goal setting --Training -- Restructured Job DEADWOOD -Withholding Pay Increases -- Demotion -- Outplacement -- Firing -- Specific, direct Feedback on Performance Problems

UNDERUTILIZERS -give, honest and direct feedback -Counselling, team building -- Give rewards -- Training -- Mange stress levels

Don Rebs Andal Ricky Aranzamendez Tong Untalan Ding Villarin

OBJECTIVES

Identify major determinants of individual performance Discuss the three general purposes of performance management Identify the five criteria for effective performance management system Discuss the four approaches to performance management, specific techniques used in each approach, & the way these approaches compare with criteria for effective performance management system

OBJECTIVES

Choose the most effective approach to performance measurement for a given situation Discuss the advantages & disadvantages of the different sources of performance information Choose the most effective source/s for performance information for any situation Distinguish types of errors & explain how to minimize each in a performance evaluation Identify the cause of a performance problem

Ateneo de Manila University Graduate School of Business

18 September 2010 MBAH Batch 8

PERFORMANCE MANAGEMENT
andal aranzamendez untalan villarin