This solution set will assist you in sifting through the mess and understanding the basics of performance appraisal, recognizing the various formal methods that are out there and determining what components you need to build a performance appraisal program that meets the goals of your organization.
The information in this report will provide:
•The benefits and challenges of performance appraisal methods, when to draw from them and how to overcome the limitations of rater biases.
•Advice on the contested use of forced ranking and 360-degree feedback.
•Short term activities that will get you started on effective performance appraisal practices.
Use this knowledge to prepare yourself in order to create an effective performance appraisal program.
4. Info-Tech Research Group Find your Fit PA Methods To Rank or Not to Rank? When and How to Use 360 Feedback Understand PA Benefits The Current State of Performance Appraisals PA Challenges Next Steps Summary of Recommendations Get Ready to Build
5. Info-Tech Research Group Understand PA Benefits The Current State of Performance Appraisals PA Challenges Effect on the Bottom Line Benefits for: Executives, Managers, Employees and HR
6. Effective performance appraisal programs positively impact the bottom line through the effective management of talent 0 Organizations that set goals for employees and monitor progress towards these goals significantly outperform organizations that do not have this type of performance-enhancing culture. 49% Return on Assets 27% Return on Equity 22% Profit Margins 15% Earnings Source: Hackett Group , through T he Society for Human Resource Management (SHRM). Including performance appraisal processes in management systems result in significant financial gains. Info-Tech Research Group You can’t manage what you can’t measure – evaluations of employees will help you manage intangible assets. VP of HR, Public Utility “ ” Measuring employee performance has become more and more important as intangible assets , such as key knowledge, skills, and services, are increasingly driving organizational value.
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8. Info-Tech Research Group Understand PA Benefits The Current State of Performance Appraisals PA Challenges Definition: Performance Appraisal Opposing Opinions What Makes a Solid Program
9. Performance appraisal is a key component of effective performance management programs P This research report focuses specifically on performance appraisal . Other aspects of performance management will be covered in future reports. Info-Tech Research Group Performance management encompasses all activities related to increasing employee effectiveness, productivity, performance and engagement. This can include things like: Planning Evaluating Rewarding Monitoring Developing A key aspect of performance management is the performance appraisal process. Performance appraisals are used to measure and analyze an employee’s work performance and inform actions that should be taken to enhance, maintain, or improve it. Source: U.S. Office of Personnel Management
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14. Add the components of formal PA methods to the foundation to design a solid performance appraisal program Info-Tech Research Group Tracking Method Formal Appraisal Informal Feedback Components of formal methods: Graphic Rating Scale Behaviorally Anchored Rating Scale (BARS) Critical Incident Mixed Standard Rating Scale Management by Objectives (MBO) Foundation:
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16. Info-Tech Research Group Understand PA Benefits The Current State of Performance Appraisals PA Challenges Description of Five Challenges
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18. The results of appraisal are muddied by external influences and are rarely an accurate representation of true performance Performance Appraisal Result Info-Tech Research Group Rater influences (biases, judgments) Context (organizational culture, goals, strategy) Biases cannot be avoided; we are only human. The person doing the evaluation is not a passive observer who can provide an objective rating. The rater has biases and goals around the person they are appraising which are shaped by organizational context. Appraisals are never objective. The cultural norms, goals and strategy of an organization can influence how honest and accurate performance appraisal results will be. Strong ideals held by senior management may influence how and when employees are promoted or terminated. Performance appraisals are not all about actual performance. Actual performance Actual performance is only part of the appraisal result. The appraisal is infused with the opinions of the rater and the values of the organization.
19. Develop an awareness of four types of bias that can infiltrate even the most well-intentioned performance appraisal Recency Effect Info-Tech Research Group Tip to Overcome Tip to Overcome Tip to Overcome Tip to Overcome Having an awareness of this type of bias is the most effective step toward overcoming it. Ranking employees from best to worst (even as a private exercise) can help managers differentiate between employees. Awareness of this bias is an important step towards overcoming it. Engaging in ongoing coaching and having employees send regular e-mail updates can serve to remind managers what employees are up to.
20. Avoid bias in the performance appraisal process through awareness, training, and accountability Despite the prevalence of bias in the performance appraisal process, there are three ways for managers to evaluate employees more accurately. Info-Tech Research Group
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24. Info-Tech Research Group Find your Fit PA Methods To Rank or Not to Rank? When and How to Use 360 Feedback Understand PA Benefits The Current State of Performance Appraisals PA Challenges Next Steps Summary of Recommendations Get Ready to Build
25. Info-Tech Research Group Find your Fit PA Methods To Rank or Not to Rank? When and How to Use 360 Feedback Overall Summary of Methods Details, Pros, Cons, Suggestions for use of each method Case Synopsis: Info-Tech Research Group Informal Coaching
26. Understand common PA methods to determine which combination is best for your organization’s needs Info-Tech Research Group * Detailed descriptions of methods on subsequent slides. Formal Methods* Graphic Rating Scale Mixed Standard Rating Scale BARS Critical Incident Management by Objectives Numeric Example Driven Measures Traits Measures Goals Measures Behaviors Can be Combined Fully meets objectives Partly meets objectives
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38. Info-Tech Research Group As can be seen, the performance appraisal space is a mess of opinions, formats, methods, and techniques
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40. No organization’s performance appraisal program should look identical to another because each organization has unique goals Info-Tech Research Group Individual templates and processes are organic in nature and combine components of several formal methods. Putting a formal name to the program is like putting a square peg in a round hole. Desired outcomes of performance appraisal program Organizational policies and objectives Your performance appraisal program MBO Graphic Rating Select components of formal methods
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43. Info-Tech’s project-based approach to research allows for frequent feedback that contributes to an overall score 0 Info-Tech Research Group Situation Action Result: Info-Tech implemented a performance appraisal program that combines two methods: management by objectives, and a unique weighting system. Appraisals are completed every 6 weeks, in conjunction with Info-Tech’s project cycle. Specific examples of exemplary behavior is described, and a rating is given for each area. Sections of the template are then summed and weighted accordingly, and an overall score is calculated. A section devoted to professional development is also attached to each section. The new performance appraisal program is a success for Info-Tech. Employees are now fully aware of their scores and the calculations are laid out clearly. The level of transparency has increased employee engagement; all scores have examples and reasoning behind them which is apparent to employees. The frequency of the appraisals has enabled employees to improve and develop very quickly, as structured feedback is provided every project cycle. The proof is in: employee survey results indicate that employees are engaged, satisfied and motivated. Until late 2009, the Info-Tech Research department received performance appraisals based on the number and quality of research notes that each analyst produced. Appraisals were delivered twice per year. 2010 marked the transformation of how information was delivered to Info-Tech’s clients – single notes were bundled into ‘solution-sets’ and distributed as a complete package. This change rendered the old performance appraisal program useless. Profile: Info-Tech Research Group Industry: Professional Services Employees: 120 Headquarters: London, Ontario Website: www.infotech.com
44. In addition to formal appraisals, provide informal coaching on an ongoing basis to keep communication channels open Info-Tech Research Group Performance appraisal isn’t just about doing formal quarterly or yearly evaluations. Managers should be meeting informally with employees on a regular basis to provide feedback and address issues. Helps managers provide relatively immediate feedback to employees, as opposed to employees having to wait for a formal review to hear how they are doing. Helps managers correct performance problems before formal evaluations. Helps reduce surprises at formal quarterly/annual reviews. In reality, employees should be able to predict their annual review score. Surprises at formal review time should be avoided. Forces managers to stay up to date with an employee’s regular activities, which can prevent managers from relying only on their most recent impression of the employee when creating annual performance appraisals. The benefits of informal coaching Informal coaching on a regular basis is required to keep employees performing at peak levels. - Manager, large publishing firm “ ”
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48. Info-Tech Research Group Find your Fit PA Methods To Rank or Not to Rank? When and How to Use 360 Feedback Definitions: Forced Ranking and Forced Distribution Case Synopsis: General Electric Levels of Privacy
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51. Forced ranking is acceptable when employees compete on an individual basis, but not when they work in teams Info-Tech Research Group I agree – Forced ranking forces managers to be diligent and critical when evaluating employees and lets employees know where they stand. - Manager, Mid-sized educational firm “ ” There is good evidence that this methodology works well in organizations that have a culture of individual competition. - Vice President, Medical/Diagnostic laboratory “ ” Numerical scoring is a good evaluation tool to establish any training needs. - Manager, Small educational firm “ ” [Forced ranking does not work] for a team environment where mixed teams have to cooperate intensely. - CEO, Mid-sized manufacturing firm “ ” I don’t believe in ranking employees by numerical score. It is not important that an individual is a ‘top’ performer, only that they are doing the best they can and improving. - Team lead, large water transportation firm “ ” [Forced ranking] needs to be balanced with understanding of strengths and weaknesses and that the diversity of the team as a whole is most important. - Supervisor, Mid-sized warehousing firm “ ” Forced Ranking works: Forced Ranking hurts:
52. GE’s “Rank-and-Yank” system is good for differentiating employees, but can be troublesome for HR 0 Info-Tech Research Group Situation Action Result: GE implemented forced ranking to identify their superstars (top 20%), vital workers (70%), and weakest links (10%). The ranking systematically eliminated the below average performers who are represented by the bottom 10% of the ranking if improvement was not made. GE has made forced ranking a part of their performance-based culture and uses it to continuously assess employees. Employees accept the program and are motivated to increase their rank through professional development. However, some organizations, such as Ford Motor Co., have extinguished forced ranking systems because of discrimination charges and lawsuits. Employees who are graded low often think this conclusion was drawn unfairly and may respond defensively. Jack Welch, former CEO and Chairman of General Electric, revolutionized the performance management program at GE by introducing the concept of forced ranking. He had the vision of a large company with the agility of a lean organization and a high-performing staff. This meant he had to recognize his superstars and show the weakest links the door. Superstars 20% Vital Performers 70% Weakest Links 10% Profile: General Electric Industry: diversified infrastructure, finance and media 2009 Earnings: $11.2 billion Employees: 300,000 Headquarters: Fairfield, Connecticut Website: www.ge.com
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54. Info-Tech Research Group Find your Fit PA Methods To Rank or Not to Rank? When and How to Use 360 Feedback Definition: 360-degree Feedback Pros, Cons, Use Tips for 360-degree Feedback
55. Get data from “all around” an employee to identify skill gaps Info-Tech Research Group 360-degree Feedback is also known as Multi-Source, Multi-Rater (MSMR) Feedback 360-degree feedback is best used to assess training and development needs and to provide competence-related information for succession planning. It is also sometimes inappropriately used to inform promotion or pay decisions. Watch Info-Tech’s Video: “ 360-Degree Feedback .” Internal Customers Supervisors Peers Subordinates External Clients Self 360 Feedback
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57. Get honest and accurate 360 feedback by using it appropriately, ensuring anonymity, and giving clear performance expectations Info-Tech Research Group 1 2 3 4 5 360-degree feedback should not be used to inform pay decisions. If employees know that their feedback will be used to influence salary, they will be less likely to provide honest and constructive criticism. 360-degree feedback should be used to inform professional development by identifying performance strengths, gaps, and training/coaching needs. Employees should be made aware that their feedback will be used only as a development tool, not as an evaluative component of the appraisal process. Keep the feedback anonymous to obtain more honest feedback. Allowing an impartial department such as HR to administer the process, as opposed to Line-of-Business managers, can also help employees feel more comfortable providing honest feedback. Give raters a description of the key competencies expected of the person they are rating. Having these in mind will tailor feedback to employee objectives. Train raters on the different types of rater bias that can exist when evaluating other employees. Making them aware biases exist if often enough to fix the problem.
58. Info-Tech Research Group Find your Fit PA Methods To Rank or Not to Rank? When and How to Use 360 Feedback Understand PA Benefits The Current State of Performance Appraisals PA Challenges Next Steps Summary of Recommendations Get Ready to Build
59. Performance Appraisals in general Methods of Performance Appraisal Informal Coaching Forced Ranking and Forced Distribution 360-Degree Feedback Info-Tech Research Group Next Steps Summary of Recommendations Get Ready to Build
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61. The formal methods of performance appraisal should be dissected and used in a way that fits an organization’s goals Formal Methods Info-Tech Research Group Graphic Rating Scale Mixed Standard Rating Scale BARS Critical Incident Management by Objectives Appropriate for use when: The organization requires a quick and easy solution that results in a numerical rating. The organization places importance on behavioral examples, and clear job descriptions allow for a description of detailed behavioral objectives. Numerical scores are not necessary and managers are diligent with recording both positive and negative events. Detailed descriptions of excellent, average, and poor behavior would be easy to develop, and the organization places importance on avoiding bias. The organization has clear goals that are appropriately delegated to departments, and actionable objectives that are clearly described. In summary:
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65. Five Short Term Activities Prepare for the Next Step: building an effective performance appraisal program Info-Tech Research Group Next Steps Summary of Recommendations Get Ready to Build
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72. Appendix III: Demographic Information 0 Info-Tech Research Group The following graphs describes the details of the responding firms that answered Info-Tech’s survey that was used to create this research report. Financial Services Healthcare Education 4% Trans/Utilities/Comms Primary Industry Government Business Services Wholesale/Retail Manufacturing 3% 1% 12% 13% 15% 21% 17% 15% Industry of Survey Respondents Source: Info-Tech Research Group N=78
73. Appendix III: Demographic Information continued 0 Info-Tech Research Group Number of Full time Employees 501 to 1000 51 to 100 251 to 500 101 to 250 1001 to 2500 1 to 50 14% 9% 10% 12% 5001 + 15% 2501 to 5000 18% 10% 12% Source: Info-Tech Research Group N=78
74. Appendix III: Demographic Information continued 0 Info-Tech Research Group 19% 12% 10% 9% 21% $100 Million to $500 Million $5 Million to $10 Million $0 to $1 Million $1 Million to $5 Million $500 Million to $1 Billion $1Billion + 4% $25 Million to $50 Million $10 Million to $25 Million $50 Million to $100 Million 14% 9% 3% Revenue Source: Info-Tech Research Group N=78
75. Appendix III: Demographic Information continued 0 Info-Tech Research Group 10% 1% 37% 13% 3% VP-Level C-Level Officer 21% Owner/President/CEO Consultant Team Member Manager Director-Level Team Lead/Supervisor 13% 3% Job Title Source: Info-Tech Research Group N=78