CHAPTER 10 - PERFORMANCE MANAGEMENT

1. CHAPTER 10 - PERFORMANCE MANAGEMENT

2. KEY CONCEPTS AND SKILLS Performance appraisal and the appraisal process Difference between performance appraisal and performance management What are key performance indicators and the role of Balanced Scorecard in performance management Key points for a successful performance appraisal interview Some common performance appraisal errors Process of counselling employees with performance problems

3. CHAPTER OUTLINE What is performance appraisal? What is performance management? Ensuring fairness in performance appraisals Performance appraisal systems Selection of factors The appraisal interview The appraisal programme Training of appraisers Common errors in appraisals Managing performance When performance does not meet standards Performance improvement plan Correcting performance problems through counselling

4. PERFORMANCE MANAGEMENT Two aspects of performance management – evaluative and developmental Performance appraisal is evaluative Performance management includes performance appraisal but involves more comprehensive process

5. WHAT IS PERFORMANCE APPRAISAL? A formal system of periodic review of an employee’s job performance Process of describing an employee’s job-related strengths and weaknesses An exercise in observation and judgement, and a feedback process

6. PERFORMANCE APPRAISAL For performance appraisal to succeed there should be performance standards set If no standards set, then appraisal process very subjective Process also requires dependable performance measures Measures are observations or other data collection methods to measure actual performance Last aspect of performance appraisal is actual appraisal This is comparison between what has actually happened (obtained through performance measures) and what should have happened (standards)

7. WHAT IS PERFORMANCE MANAGEMENT? Management aimed at improving performance Begins with setting of objectives or KPIs Then managing performance through both rewards and reinforcements for performance above expectations and coaching, counselling or disciplining for performance below expectations Should be face-to-face session where employee is provided with feedback and at same time given opportunity to express his feelings and how he feels he has performed. Performance management is continual and ongoing whereas performance appraisal is periodic.

8. Model of Performance Management Above Expectations Reinforce Below Expectations Coach/ Counsel/ Discipline Plan Manage Appraise

9. ENSURING FAIRNESS IN PERFORMANCE APPRAISALS System should be based on job analysis and factors appraised should be developed from analysis of job duties, providing content validation Should be clear performance standards linked to job being appraised Appraisal instrument is behaviour-oriented rather than trait-oriented Appraisers should be provided adequate training Results of performance appraisal are communicated to employee and should be provision for appeal to higher authorities in event of disagreement

10. Relationship of Performance Standards to Performance Appraisal Job Performance Performance Analysis Standards Appraisal JD Translate JD Compares and into levels actual JS of acceptable performance levels of of individual performance with standards

11. PERFORMANCE APPRAISAL SYSTEMS Rating Scales A method of performance appraisal which rates employees based on established scales for a number of defined factors. A widely used method Judgements recorded on a scale usually divided into five or seven categories Selection of factors is crucial part of rating scales method Factors chosen typically of two types: characteristics and contributions

12. PERFORMANCE APPRAISAL SYSTEMS Grading A system of performance appraisal where certain grades of performance are established in advance and carefully defined and employee performance is then compared with these grade definitions. Person allocated to grade that best describes his performance. Some organisations modify grading system into forced-distribution system, in which pre-determined percentages are established for each grade

13. PERFORMANCE APPRAISAL SYSTEMS Key Performance Indicators (KPI) or Management by Objectives (MBO) KPI is a refinement of MBO Method first mentioned by Peter Drucker in 1954 and developed further by Douglas McGregor. Heart of system is that both appraisee and appraiser jointly establish performance goals or objectives for future Should ideally be mutually agreed upon and objectively measured Appraisee should be given periodic feedback on a regular basis so that he can make adjustments as required.

14. PERFORMANCE APPRAISAL SYSTEMS Key Performance Indicators (KPI) or Management by Objectives (MBO) Individual objectives should focus on key-result areas and measurements which have the highest priority Some criteria for objectives are: SPECIFIC MEASURABLE ACTIONS RESOURCES REQUIRED TIMED

15. PERFORMANCE APPRAISAL SYSTEMS Key Performance Indicators (KPI) or Management by Objectives (MBO) Limitations Emphasis on individual goals sometimes are achieved at expense of group or organisational goals Difficulty of applying to many non-managerial jobs Makes comparison of individual employees rather difficult Employees tempted to set non-challenging or easily-attainable goals

16. PERFORMANCE APPRAISAL SYSTEMS The Balanced Scorecard Concept developed by Robert Kaplan and David Norton They believed using only financial measures of performance was ineffective for modern organisations Felt the need for performance measures that can capture activities throughout organisation.

17. PERFORMANCE APPRAISAL SYSTEMS The Balanced Scorecard Balanced Scorecard settled on four key perspectives which could ensure organisation achieves it mission, vision and strategies. Perspectives are: Customer issues (Customer) Internal business processes Employee activities (Learning and Growth) Shareholders concerns (Financial)

18. The Balanced Scorecard Perspectives CUSTOMER VISION INTERNAL FINANCIAL MISSION BUSINESS STRATEGY PROCESSES LEARNING AND GROWTH

19. PERFORMANCE APPRAISAL SYSTEMS Peer Review Appraisal of an individual employee’s performance by his co-workers Belief is that peers often have greatest contact with and understanding of the employee at work, and are most affected by the employee's work behaviours. Peer review useful when a supervisor is not able to properly observe or evaluate work performance of subordinates

20. PERFORMANCE APPRAISAL SYSTEMS Upward Appraisal A performance appraisal process for managers that includes subordinates’ evaluations Involves subordinates providing both positive and negative feedback to their superiors Each employee asked to complete a confidential questionnaire regarding his superior Completed questionnaires then sealed and sent to an independent third party for analysis Once analysed, third party provides feedback to the superior and at no time is feedback related to an individual employee.

21. PERFORMANCE APPRAISAL SYSTEMS 360-degree appraisal A performance appraisal process that includes evaluations from a wide range of persons who interact with the manager, including self-evaluation as well as evaluations from the person’s immediate superior, subordinates, peers, and even customers.

22. PERFORMANCE APPRAISAL SYSTEMS Self appraisal A system of appraisal where employees rate their own performance and then this is compared to the ratings by the superior. Caution should be exercised in deciding to use self appraisals as problems could arise if the gap between what superior rates and employee’s self appraisal is too large Could lead to more frustrations on part of employee

23. SELECTION OF FACTORS Where rating scales used, then factors should be carefully selected Should be meaningful and job-related Separate factors should be used for different categories of employees. The use of ratings assumes that the human observer is reasonably objective and accurate. Because we know that this is not always the case, organisations are advised to have more objective than subjective factors to be appraised.

24. THE APPRAISAL INTERVIEW Essential part of performance appraisal process and one of the most important elements of MBO programme Recommended atmosphere is one characterised by empathy, mutual respect, equality, and supportive informational contributions An atmosphere that encourages discussion

25. THE APPRAISAL INTERVIEW Sequence of interview phases: 1. Subordinate made to feel at ease. 2. Subordinate asked to take lead in discussion of accomplishments and failures. Superior participates through questions and comments. Reasons for non-accomplishment examined 3. Superior takes lead in establishing goals for next period. Subordinate proposes new set of goals 4. Both superior and subordinate equally involved in establishing performance standards 5. Last stage devoted to discussions about subordinate’s future and mutually agreeing on personal development goals

26. THE APPRAISAL INTERVIEW Key points for a successful performance appraisal interview: 1. high level of participation by the appraisee 2. helpful and constructive attitude by superior 3. help from superior in solving job problems hampering subordinate’s performance 4. mutual setting of goals, with agreement of the subordinate.

27. THE APPRAISAL INTERVIEW The “Sandwich” Technique To sandwich unfavourable comments between favourable comments Helpful guide to entire appraisal discussion Appraisers start discussion off with a compliment Discussion then focuses on areas that need to be improved Finally discussion ends by finding something else good to say about employee’s work.

28. CONDUCTING SUCCESSFUL APPRAISALS Key to successful appraisal is focusing on work results, not personality of employee Appraisals are achieve work objectives, not to express personal feelings or to exchange accusations A businesslike and non-threatening approach gives superior more control When focus is on specific facts rather than personality traits and actual work results rather than personal characteristics, then employee is more relaxed, receptive and encouraged to offer comments and suggestions.

29. THE APPRAISAL PROGRAMME Who Is To Rate In most organisations appraiser is immediate superior Management maintains control of appraisal process by reviewing and approving all appraisals In some organisations, group ratings undertaken for more participation and fairness Raters can be superiors, peers, and subordinates Another possibility is to allow subordinates to rate themselves

30. THE APPRAISAL PROGRAMME When to Rate Most organisations have annual performance appraisal Semi-annual schedules also practised Also organisations that have three separate appraisals, for performance, salary, and potential Another basis is one formal performance appraisal for salary increments and promotions, and three quarterly reviews aimed at improving performance and remedying weaknesses. No best frequency for appraisals

31. TRAINING OF APPRAISERS Three major aspects of appraiser training: Initial training to be familiar with philosophy and nature of organisation’s performance appraisal system including an analysis of the factors and factor scales used Be aware of common errors in ratings How to conduct appraisal interview

32. COMMON ERRORS IN APPRAISALS The Halo Error Recent Error The Error of Central Tendency Constant Errors Similar-To-Me Error Contrast Error Position Error Biases of Sex, Race, Religion, and Nationality

33. MANAGING PERFORMANCE To ensure good performance, managers should follow these guidelines: Communicating Standards Showing Appreciation for Good Work Not Failing to Discipline when Necessary

34. REINFORCING DESIRED PERFORMANCE Desired performance must be reinforced if employees expected to continue to perform Good performance can be rewarded through rewards including promotions, merit increments, bonuses, development opportunities, and even extra fringe benefits. Besides extrinsic rewards, wide variety of ways to recognise good performance, to reinforce it, and to encourage its repetition Managers can also add value to work through other rewards like committee appointment, career counselling, showing personal concern, and providing more freedom to the employee.

35. WHEN PERFORMANCE DOES NOT MEET STANDARDS Need to find out why If reason is lack of skills or knowledge, then coaching or training A performance improvement plan can be carried out. Where poor performance not due to a lack of skills or knowledge, then counselling or disciplining need to be carried out

36. PERFORMANCE IMPROVEMENT PLAN (PIP) A formal process resulting from the annual performance appraisal intended to improve performance and correct deficiencies detected during the appraisal interview. PIP usually for six months with some organisations granting extension up to three months if necessary Process of guiding and monitoring employee’s performance towards improving job or behavioural performance through a planned improvement plan agreed upon by the employee and immediate superior

37. CORRECTING PERFORMANCE PROBLEMS THROUGH COUNSELLING Counselling A form of communication between superior and subordinate where a problem is discussed with the general objective of helping the subordinate to cope with it so that he can become more effective as an employee.

38. CORRECTING PERFORMANCE PROBLEMS THROUGH COUNSELLING Eight steps in counselling process: 1. State the problem 2. Get agreement on the problem 3. Listen actively 4. Consider mitigating circumstances 5. Be prepared to refer elsewhere 6. Find a desirable solution 7. Design an action plan 8. Follow up

39. Documentation in Counselling Record-keeping plays critical role in work-life of manager Counselling sessions and verbal warnings must be recorded with details like time, date, nature of offence, and action plan agreed upon. If no improvements shown by employee, then steps taken to issue warning letters with ultimate aim of terminating employee if he does not improve Becoming more difficult to terminate services of an employee unless can be proven that sufficient attempts have been made to give employee opportunities to perform a satisfactory job