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Organizational Behavior

8.1 Performance Appraisal Systems

Organizational Behavior8.1 Performance Appraisal Systems
  1. Preface
  2. 1 Management and Organizational Behavior
    1. Introduction
    2. 1.1 The Nature of Work
    3. 1.2 The Changing Workplace
    4. 1.3 The Nature of Management
    5. 1.4 A Model of Organizational Behavior and Management
    6. Key Terms
    7. Summary of Learning Outcomes
    8. Chapter Review Questions
    9. Critical Thinking Case
  3. 2 Individual and Cultural Differences
    1. Introduction
    2. 2.1 Individual and Cultural Factors in Employee Performance
    3. 2.2 Employee Abilities and Skills
    4. 2.3 Personality: An Introduction
    5. 2.4 Personality and Work Behavior
    6. 2.5 Personality and Organization: A Basic Conflict?
    7. 2.6 Personal Values and Ethics
    8. 2.7 Cultural Differences
    9. Key Terms
    10. Summary of Learning Outcomes
    11. Chapter Review Questions
    12. Management Skills Application Exercises
    13. Managerial Decision Exercises
    14. Critical Thinking Case
  4. 3 Perception and Job Attitudes
    1. Introduction
    2. 3.1 The Perceptual Process
    3. 3.2 Barriers to Accurate Social Perception
    4. 3.3 Attributions: Interpreting the Causes of Behavior
    5. 3.4 Attitudes and Behavior
    6. 3.5 Work-Related Attitudes
    7. Key Terms
    8. Summary of Learning Outcomes
    9. Chapter Review Questions
    10. Management Skills Application Exercises
    11. Managerial Decision Exercises
    12. Critical Thinking Case
  5. 4 Learning and Reinforcement
    1. Introduction
    2. 4.1 Basic Models of Learning
    3. 4.2 Reinforcement and Behavioral Change
    4. 4.3 Behavior Modification in Organizations
    5. 4.4 Behavioral Self-Management
    6. Key Terms
    7. Summary of Learning Outcomes
    8. Chapter Review Questions
    9. Management Skills Application Exercises
    10. Managerial Decision Exercises
    11. Critical Thinking Case
  6. 5 Diversity in Organizations
    1. Introduction
    2. 5.1 An Introduction to Workplace Diversity
    3. 5.2 Diversity and the Workforce
    4. 5.3 Diversity and Its Impact on Companies
    5. 5.4 Challenges of Diversity
    6. 5.5 Key Diversity Theories
    7. 5.6 Benefits and Challenges of Workplace Diversity
    8. 5.7 Recommendations for Managing Diversity
    9. Key Terms
    10. Summary of Learning Outcomes
    11. Chapter Review Questions
    12. Management Skills Application Exercises
    13. Managerial Decision Exercises
    14. Critical Thinking Case
  7. 6 Perception and Managerial Decision Making
    1. Introduction
    2. 6.1 Overview of Managerial Decision-Making
    3. 6.2 How the Brain Processes Information to Make Decisions: Reflective and Reactive Systems
    4. 6.3 Programmed and Nonprogrammed Decisions
    5. 6.4 Barriers to Effective Decision-Making
    6. 6.5 Improving the Quality of Decision-Making
    7. 6.6 Group Decision-Making
    8. Key Terms
    9. Summary of Learning Outcomes
    10. Chapter Review Questions
    11. Management Skills Application Exercises
    12. Managerial Decision Exercises
    13. Critical Thinking Case
  8. 7 Work Motivation for Performance
    1. Introduction
    2. 7.1 Motivation: Direction and Intensity
    3. 7.2 Content Theories of Motivation
    4. 7.3 Process Theories of Motivation
    5. 7.4 Recent Research on Motivation Theories
    6. Key Terms
    7. Summary of Learning Outcomes
    8. Chapter Review Questions
    9. Management Skills Application Exercises
    10. Managerial Decision Exercises
    11. Critical Thinking Case
  9. 8 Performance Appraisal and Rewards
    1. Introduction
    2. 8.1 Performance Appraisal Systems
    3. 8.2 Techniques of Performance Appraisal
    4. 8.3 Feedback
    5. 8.4 Reward Systems in Organizations
    6. 8.5 Individual and Group Incentive Plans
    7. Key Terms
    8. Summary of Learning Outcomes
    9. Chapter Review Questions
    10. Management Skills Application Exercises
    11. Managerial Decision Exercises
    12. Critical Thinking Case
  10. 9 Group and Intergroup Relations
    1. Introduction
    2. 9.1 Work Groups: Basic Considerations
    3. 9.2 Work Group Structure
    4. 9.3 Managing Effective Work Groups
    5. 9.4 Intergroup Behavior and Performance
    6. Key Terms
    7. Summary of Learning Outcomes
    8. Chapter Review Questions
    9. Management Skills Application Exercises
    10. Managerial Decision Exercises
    11. Critical Thinking Case
  11. 10 Understanding and Managing Work Teams
    1. Introduction
    2. 10.1 Teamwork in the Workplace
    3. 10.2 Team Development Over Time
    4. 10.3 Things to Consider When Managing Teams
    5. 10.4 Opportunities and Challenges to Team Building
    6. 10.5 Team Diversity
    7. 10.6 Multicultural Teams
    8. Key Terms
    9. Summary of Learning Outcomes
    10. Chapter Review Questions
    11. Management Skills Application Exercises
    12. Managerial Decision Exercises
    13. Critical Thinking Case
  12. 11 Communication
    1. Introduction
    2. 11.1 The Process of Managerial Communication
    3. 11.2 Types of Communications in Organizations
    4. 11.3 Factors Affecting Communications and the Roles of Managers
    5. 11.4 Managerial Communication and Corporate Reputation
    6. 11.5 The Major Channels of Management Communication Are Talking, Listening, Reading, and Writing
    7. Key Terms
    8. Summary of Learning Outcomes
    9. Chapter Review Questions
    10. Management Skills Application Exercises
    11. Managerial Decision Exercises
    12. Critical Thinking Case
  13. 12 Leadership
    1. Introduction
    2. 12.1 The Nature of Leadership
    3. 12.2 The Leadership Process
    4. 12.3 Leader Emergence
    5. 12.4 The Trait Approach to Leadership
    6. 12.5 Behavioral Approaches to Leadership
    7. 12.6 Situational (Contingency) Approaches to Leadership
    8. 12.7 Substitutes for and Neutralizers of Leadership
    9. 12.8 Transformational, Visionary, and Charismatic Leadership
    10. 12.9 Leadership Needs in the 21st Century
    11. Key Terms
    12. Summary of Learning Outcomes
    13. Chapter Review Questions
    14. Management Skills Application Exercises
    15. Managerial Decision Exercises
    16. Critical Thinking Case
  14. 13 Organizational Power and Politics
    1. Introduction
    2. 13.1 Power in Interpersonal Relations
    3. 13.2 Uses of Power
    4. 13.3 Political Behavior in Organizations
    5. 13.4 Limiting the Influence of Political Behavior
    6. Key Terms
    7. Summary of Learning Outcomes
    8. Chapter Review Questions
    9. Management Skills Application Exercises
    10. Managerial Decision Exercises
    11. Critical Thinking Case
  15. 14 Conflict and Negotiations
    1. Introduction
    2. 14.1 Conflict in Organizations: Basic Considerations
    3. 14.2 Causes of Conflict in Organizations
    4. 14.3 Resolving Conflict in Organizations
    5. 14.4 Negotiation Behavior
    6. Key Terms
    7. Summary of Learning Outcomes
    8. Chapter Review Questions
    9. Management Skills Application Exercises
    10. Managerial Decision Exercises
    11. Critical Thinking Case
  16. 15 External and Internal Organizational Environments and Corporate Culture
    1. Introduction
    2. 15.1 The Organization's External Environment
    3. 15.2 External Environments and Industries
    4. 15.3 Organizational Designs and Structures
    5. 15.4 The Internal Organization and External Environments
    6. 15.5 Corporate Cultures
    7. 15.6 Organizing for Change in the 21st Century
    8. Key Terms
    9. Summary of Learning Outcomes
    10. Chapter Review Questions
    11. Management Skills Application Exercises
    12. Managerial Decision Exercises
    13. Critical Thinking Case
  17. 16 Organizational Structure and Change
    1. Introduction
    2. 16.1 Organizational Structures and Design
    3. 16.2 Organizational Change
    4. 16.3 Managing Change
    5. Key Terms
    6. Summary of Learning Outcomes
    7. Chapter Review Questions
    8. Management Skills Application Exercises
    9. Managerial Decision Exercises
    10. Critical Thinking Case
  18. 17 Human Resource Management
    1. Introduction
    2. 17.1 An Introduction to Human Resource Management
    3. 17.2 Human Resource Management and Compliance
    4. 17.3 Performance Management
    5. 17.4 Influencing Employee Performance and Motivation
    6. 17.5 Building an Organization for the Future
    7. 17.6 Talent Development and Succession Planning
    8. Key Terms
    9. Summary of Learning Outcomes
    10. Chapter Review Questions
    11. Management Skills Application Exercises
    12. Managerial Decision Exercises
    13. Critical Thinking Case
  19. 18 Stress and Well Being
    1. Introduction
    2. 18.1 Problems of Work Adjustment
    3. 18.2 Organizational Influences on Stress
    4. 18.3 Buffering Effects of Work related Stress
    5. 18.4 Coping with Work related Stress
    6. Key Terms
    7. Summary of Learning Outcomes
    8. Chapter Review Questions
    9. Management Skills Application Exercises
    10. Critical Thinking Case
  20. 19 Entrepreneurship
    1. Introduction
    2. 19.1 Overview of Entrepreneurship
    3. 19.2 Characteristics of Successful Entrepreneurs
    4. 19.3 Business Model Canvas
    5. 19.4 New Venture Financing
    6. 19.5 Design Thinking
    7. 19.6 Optimal Support for Entrepreneurship
    8. Key Terms
    9. Summary of Learning Outcomes
    10. Chapter Review Questions
    11. Management Skills Application Exercises
    12. Managerial Decision Exercises
    13. Critical Thinking Case
  21. A | Scientific Method in Organizational Research
  22. B | Scoring Keys for Self-Assessment Exercises
  23. References
  24. Index
  1. How do organizations effectively use performance appraisals to improve individual job performance, and what are the limitations inherent in the use of various appraisal systems?

Performance appraisals are one of the most important and often one of the most mishandled aspects of management. Typically, we think of performance appraisals as involving a boss evaluating a subordinate. However, performance appraisals increasingly involve subordinates appraising bosses through a feedback process known as 360 feedback,1 customers appraising providers, and peers evaluating coworkers.

Whether appraisals are done by subordinates, peers, customers, or superiors, the process itself is vital to the lifeblood of the organization. Performance appraisal systems provide a means of systematically evaluating employees across various performance dimensions to ensure that organizations are getting what they pay for. They provide valuable feedback to employees and managers, and they assist in identifying promotable people as well as problems. However, such appraisals are meaningless unless they are accompanied by an effective feedback system that ensures that the employee gets the right messages concerning performance.

Reward systems represent a powerful motivational force in organizations, but this is true only when the system is fair and tied to performance. Because a variety of approaches to appraising performance exists, managers should be aware of the advantages and disadvantages of each. In turn, an understanding of reward systems will help managers select the system best suited to the needs and goals of the organization.

Performance appraisal systems serve a variety of functions of central importance to employees. Appraisal techniques practiced today are not without problems, though. Managers should keep abreast of recent developments in compensation and reward systems so they can modify existing systems when more appropriate alternatives become available.

A key management responsibility has always been to oversee and develop subordinates. In fact, it has been said that every manager is a human resource manager. Nowhere is this truer than with regard to evaluating and rewarding subordinates. Managers are consistently involved with employee training and development, monitoring employee performance, providing job-related feedback, and administering rewards.

In this chapter, we examine three interrelated aspects of the performance appraisal and reward process. As Exhibit 8.2 shows, this process moves from evaluating employee performance to providing adequate and constructive feedback to determining discretionary rewards. Where effort and performance are properly evaluated and rewarded, we would expect to see more stable and consistent job performance. On the other hand, where such performance is only evaluated intermittently or where the appraisal and review process is poorly done, we would generally see less consistent performance. We begin our discussion with a look at the nature of appraisals.

We begin by examining three aspects of performance appraisal systems: (1) the uses of performance appraisals, (2) problems found in performance appraisals, and (3) methods for reducing errors in the appraisal system. This overview will provide a foundation for studying specific techniques of performance appraisal. Those interested in more detailed information on performance appraisal systems may wish to consult books on personnel administration or compensation.

A diagram illustrates the positive and negative consequences of performance appraisal and reward process.
Exhibit 8.2 The Performance Appraisal and Reward Process (Attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

Uses of Performance Appraisals

In most work organizations, performance appraisals are used for a variety of reasons. These reasons range from improving employee productivity to developing the employees themselves. This diversity of uses is well documented in a study of why companies use performance appraisals.2 Traditionally, compensation and performance feedback have been the most prominent reasons organizations use performance appraisals.

Feedback to employees. Performance appraisals provide feedback to employees about quantity and quality of job performance. Without this information, employees have little knowledge of how well they are doing their jobs and how they might improve their work.

Self-development. Performance appraisals can also serve as an aid to employee self-development. Individuals learn about their strengths and weaknesses as seen by others and can initiate self-improvement programs (see discussion on behavioral self-management programs).

Reward systems. In addition, appraisals may form the bases of organizational reward systems—particularly merit-based compensation plans.

Personnel decisions. Performance appraisals serve personnel-related functions as well. In making personnel decisions, such as those relating to promotions, transfers, and terminations, they can be quite useful. Employers can make choices on the basis of information about individual talents and shortcomings. In addition, appraisal systems help management evaluate the effectiveness of its selection and placement functions. If newly hired employees generally perform poorly, managers should consider whether the right kind of people are being hired in the first place.

Training and development. Finally, appraisals can help managers identify areas in which employees lack critical skills for either immediate or future performance. In these situations, new or revised training programs can be established to further develop the company’s human resources.

It is apparent that performance appraisal systems serve a variety of functions in organizations. In light of the importance of these functions, it is imperative that the accuracy and fairness of the appraisal be paramount considerations in the evaluation of a system. Many performance appraisal systems exist. It is the manager’s job to select the technique or combination of techniques that best serves the particular needs (and constraints) of the organization. Before considering these various techniques, let us look at some of the more prominent problems and sources of error that are common to several of them.

Problems with Performance Appraisals

A number of problems can be identified that pose a threat to the value of appraisal techniques. Most of these problems deal with the related issues of the validity and reliability of the instruments or techniques themselves. Validity is the extent to which an instrument actually measures what it intends to measure, whereas reliability is the extent to which the instrument consistently yields the same results each time it is used. Ideally, a good performance appraisal system will exhibit high levels of both validity and reliability. If not, serious questions must be raised concerning the utility (and possibly the legality) of the system.

It is possible to identify several common sources of error in performance appraisal systems. These include: (1) central tendency error, (2) strictness or leniency error, (3) halo effect, (4) recency error, and (5) personal biases.

Central Tendency Error. It has often been found that supervisors rate most of their employees within a narrow range. Regardless of how people actually perform, the rater fails to distinguish significant differences among group members and lumps everyone together in an “average” category. This is called central tendency error and is shown in Exhibit 8.3. In short, the central tendency error is the failure to recognize either very good or very poor performers.

A graph plots strictness, central tendency, and leniency as parabolic curves.
Exhibit 8.3 Examples of Strictness, Central Tendency, and Leniency Errors (Attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

Strictness or Leniency Error. A related rating problem exists when a supervisor is overly strict or overly lenient in evaluations (see Exhibit 8.3). In college classrooms, we hear of professors who are “tough graders” or, conversely, “easy A’s.” Similar situations exist in the workplace, where some supervisors see most subordinates as not measuring up to their high standards, whereas other supervisors see most subordinates as deserving of a high rating. As with central tendency error, strictness error and leniency error fail to distinguish adequately between good and bad performers and instead relegate almost everyone to the same or related categories.

Halo Effect. The halo effect exists where a supervisor assigns the same rating to each factor being evaluated for an individual. For example, an employee rated above average on quantity of performance may also be rated above average on quality of performance, interpersonal competence, attendance, and promotion readiness. In other words, the supervisor cannot effectively differentiate between relatively discrete categories and instead gives a global rating.

These types of bias are based on our perceptions of others. The halo effect occurs when managers have an overly positive view of a particular employee. This can impact the objectivity of reviews, with managers consistently giving an employee high ratings and failing to recognize areas for improvement. 

Whether positive or negative, we also have a natural tendency to confirm our preconceived beliefs about people in the way we interpret or recall performance, which is known as confirmatory bias.

For example, a manager may have a preconception that her male report is more assertive. This could cause her to recall instances more easily in which her report asserted his position during a meeting. On the other hand, she may perceive her female report to be less assertive, predisposing her to forget when the report suggested an effective strategy or was successful in a tough negotiation. 

The halo effect is often a consequence of people having a similarity bias for certain types of people. We naturally tend to favor and trust people who are similar to us. Whether it’s people who also have a penchant for golf or people who remind us of a younger version of ourselves, favoritism that results from a similarity bias can give certain employees an unfair advantage over others. This can impact a team to the point that those employees may receive more coaching, better reviews and, as a result, more opportunities for advancement.3

Recency Error. Oftentimes evaluators focus on an employee’s most recent behavior in the evaluation process. This is known as the recency error. That is, in an annual evaluation, a supervisor may give undue emphasis to performance during the past months—or even weeks—and ignore performance levels prior to this. This practice, if known to employees, leads to a situation where employees may “float” for the initial months of the evaluation period and then overexert themselves in the last few months or weeks prior to evaluation. This practice leads to uneven performance and contributes to the attitude of “playing the game.”

Personal Biases. Finally, it is not uncommon to find situations in which supervisors allow their own personal biases to influence their appraisals. Such biases include like or dislike for someone, as well as racial and sexual biases. Personal biases can interfere with the fairness and accuracy of an evaluation and are illegal in many situations.

Reducing Errors in Performance Appraisals

A number of suggestions have been advanced recently to minimize the effects of various biases and errors on the performance appraisal process.4 When errors are reduced, more accurate information is available for personnel decisions and personal development. These methods for reducing error include

  • ensuring that each dimension or factor on a performance appraisal form represents a single job activity instead of a group of job activities.
  • avoiding terms such as average, because different evaluators define the term differently.
  • ensuring that raters observe subordinates on a regular basis throughout the evaluation period. It is even helpful if the rater takes notes for future reference.
  • keeping the number of persons evaluated by one rater to a reasonable number. When one person must evaluate many subordinates, it becomes difficult to discriminate. Rating fatigue increases with the number of ratees.
  • ensuring that the dimensions used are clearly stated, meaningful, and relevant to good job performance.
  • training raters so they can recognize various sources of error and understand the rationale underlying the evaluation process.

Using mechanisms like these, better employee ratings that can have greater meaning both for the individual employee and the organization will result.

Concept Check

  1. What are performance appraisals, and how are they used in organizations?
  2. How are performance appraisals used as a reward system, and what problems can they cause?
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