Chapter 2

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Performance Management

Think It Over
1 Giving salespeople awards for the most sales can provide them with a strong incentive to sell the companys financial services. This method is likely to constitute a strong motivational force and consequently lead to increased sales revenues for the company. The performance appraisal method used could be a factor that causes customer complaints. This is because salespeople might focus solely on their performance in generating sales revenue and thus overlook what customers really want. To meet performance requirements, salespeople might focus on doing business. Consequently, they might mislead customers or withhold important information from them. The following are ways to improve the companys existing performance appraisal method: The performance appraisal should take into account if customers have frequently complained about a salesperson. The performance appraisal should consider to what extent a salesperson has complied with the companys codes of conduct, which governs the selling of financial services to the public. The performance appraisal should consider whether customers are satisfied with the salespersons service. The company can obtain customers feedback via telephone interview or questionnaire. (Any two of the above) (Any other reasonable answers)

Teachers Guide
This case demonstrates the importance of adopting an appropriate performance appraisal method. How an employee is evaluated will have a significant effect on his work behaviour and attitude. Consequently, the quality of customer service will be affected. In this case, relying solely on sales revenues may simply encourage salespeople into giving customers a hard sell. The products may not meet the real needs of their customers. This sales approach may result in misrepresentations by salespeople, withholding important product information, etc. All of these are sources of customer complaints and will damage the companys image in the long run. p.43

Teachers Guide
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Highlight the major differences between performance appraisal and performance management.

p.44

Additional Information
Performance management is aimed at ensuring that the employees performance supports the companys strategic direction.

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Check Your Progress

Q1 Performance appraisal refers to the process of evaluating employees performance based on pre-set performance standards. Performance management refers to a series of activities performed by managers in order to measure, evaluate and reward their employees performance. Performance appraisal is a component of performance management. Q2 Tasks involved in performance management include: defining specific goals for employees to achieve developing employees capabilities evaluating employees performance (performance appraisal) rewarding employees performance (Any three of the above)

p.47

Check Your Progress

Q3 (a) For the customer service officer who is performing poorly, the bank manager may: terminate the staffs employment. give the staff a warning letter. provide the staff with training in customer services. transfer the staff to another department. For the customer service officer who is performing very well, the bank manager may: promote the staff.

(b)

reward (e.g., bonus, salary increase, etc) the staff. compliment or provide other non-monetary awards to the staff (e.g., staff award).

p.48

Additional Information
Managers should determine whether an existing job description is still accurate. The review of a job
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description is aimed at:

clarifying the subordinates duties and responsibilities. knowing what the subordinate does daily. highlighting areas of the job that need special attention (e.g., inadequate protection for dangerous duties, insufficient administrative support, etc.).

Additional Information
The discussion should include:

how the subordinate wishes to be recognised for good performance. how the subordinate prefers to receive feedback when there is a performance problem. how the subordinate can make comments about the appraisal system.

Additional Information
The meeting can also help identify what knowledge and skills the subordinate needs to acquire or improve in order to meet the companys performance standards.

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Check Your Progress

Q4 A manager can coach his subordinates in informal conservations and formal meetings as well as through written documentation. Coaching may include the following activities: providing instructions

providing encouragement correcting poor performance recognising excellent performance listening to subordinates concerns and comments removing barriers to performance

Q5 For example, a sales manager at an insurance company may find from a performance appraisal that one of his sales representatives is performing poorly. The subordinate cannot meet the monthly sales quota. After detailed discussion, the sales manager then finds that the sales representative lacks sufficient product knowledge to give appropriate information to customers. Based on this, the sales manager then provides the sales representative with proper training to improve his product knowledge. (Any other reasonable answers)

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Teachers Guide
The various methods for appraising performance have different costs and time limitations. Determining the best method depends on many factors, e.g., the nature of the job, size of the company, etc. There is no one best method for appraising performance. Teachers should emphasise that the right method for appraising performance often depends on the situation.

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Check Your Progress

Q6 The simple ranking method involves ranking all employees from the best to the worst on each major performance dimension. Such a ranking enables the manager to identify the relative performance of his employees. The graphic rating scale method requires the manager to list a number of performance dimensions that are related to optimum performance for a given job. He then needs to assign a score on each of these dimensions to evaluate his employees. Therefore, this method enables the manager to identify the relative performance of his employees by comparing their corresponding scores. He can give the same rating to his employees if they perform similarly. By summing up the performance scores for each employee, the manager can compare the overall performance of all of the employees. It is difficult to perform this function by the simple ranking method. Q7 The graphic rating scale method is more appropriate for large companies because of the difficulty involved in ranking (as in the case of simple ranking method) a large number of employees. The latter is also time-consuming and puts an increased burden on managers as they need to rank a large number of employees. In addition, by summing up all the performance scores of each employee by the graphic rating scale method, the manager can further compare the overall performance of all of the employees.

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Additional Information
Managers and employees first need to develop detailed descriptions of good or poor behaviours and corresponding scale values for a number of performance dimensions for a given job. When evaluating an employee, managers need to read the descriptions for each performance dimension and then identify the one that best describes this employees job behaviour. This process is used to evaluate the employees performance in all aspects of the job. A total evaluation score for this
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employee can be obtained by adding up the scale values awarded to him across all job dimensions.

Additional Information
A behaviourally anchored rating scale is usually developed through a series of meetings between raters (managers) and ratees (subordinates). The meetings are aimed at: identifying the relevant performance dimensions of the job. preparing detailed descriptions for each performance dimension. agreeing on the scale values to be used, and the corresponding anchors used to describe each scale value. Since ratees are most familiar with their own jobs, their active involvement can help develop a more accurate performance standard.

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Try This Activity

A1 Behaviourally Anchored Rating Scale Position: Salesperson Performance dimension: Sales performance 7 6 5 4 3 2 1 Excellent performance: Able to meet sales target beyond expectations; very active about approaching customers Good performance: Able to generate sales higher than target; always takes the initiative to communicate with customers Satisfactory performance: Able to meet sales target; answers customers enquiries as required Marginally acceptable performance: Slightly below sales target with some evidence of sales effort Unsatisfactory performance: Often cannot meet sales target; shows limited involvement in sales activity and is complained about by dissatisfied customers Poor performance: Unable to meet sales target; inactive in customer communication; occasional inventory loss is reported Very poor performance: Sales generated are far below standard; does not take the initiative to serve customers; unable to answer customers enquiries; frequent inventory loss is reported (Any other reasonable answers)

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p.56

Discussion Questions
1 Jimmy needs to rank 15 staff on a number of performance dimensions, which is time consuming and difficult. It also seems difficult to avoid subjectivity when ranking employees. The advantages in applying the BARS method over the simple ranking method in Jimmys evaluation of his subordinates are: As employees are involved in determining the evaluation criteria, they will be less resistant to this evaluation method.

The evaluation criteria are more detailed and comprehensive as concrete descriptions are used to guide the evaluation. Therefore, the evaluation results are regarded as fairer and more objective. If some employees have similar levels of performance, BARS appears to better reflect this. Jimmy is not forced to rank them. He can give the same rating to more than one employee. Jimmy can provide his employees with specific feedback concerning the latters job performance. This allows the employees to continuously improve. This method helps identify important job dimensions and prepare performance descriptions for each of these dimensions.

(Any three of the above)

Teachers Guide
Remind students of the concept of MBO in Chapter 6 of Business Environment and Introduction to Management.

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Discussion Questions
1 To apply MBO in the company, all managers (including Tai Wai) need to set specific measurable goals with each employee. They then have to periodically review how much progress the employee has made to achieve these goals. The advantages for Tai Wai in introducing MBO are: Tai Wai can ensure that individual employees goals and performance are linked to the

organisations overall goals. Tai Wais subordinates can have a better understanding of their role in the companys performance as they are involved in setting the goals and objectives. With MBO, specific and measurable targets can be formulated to guide an individual employees performance. Subordinates can receive feedback and support from managers on a regular basis.
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(Any two of the above) 3 The problems that Tai Wai will encounter include: The process in jointly setting the goals is time consuming. Tai Wai and his employees will have to devote a lot of time to implementing MBO. Tai Wai and other managers workload will increase as they are required to play an active and important role in the entire MBO process. Tai Wai and other managers will have conflicts with their subordinates as managers tend to push for high performance targets and subordinates tend to push for lower ones. This can involve lengthy bargaining. (Any two of the above) 4 Since the companys employees lack direction and do not have a performance target, MBO can provide them with specific, measurable performance targets to guide their performance. Employees involvement in setting goals also enhances their acceptance. Hence, they will have a higher commitment to objectives set by themselves. The likelihood of accomplishing these goals will be higher.

Check Your Progress

Q8 The bank manager can use MBO to conduct the appraisal using the following steps: Step 1 Set goals and objectives The bank manager should first discuss with his subordinates how the department can contribute to the companys goal of providing excellent customer services to customers. Step 2 Define performance targets and develop an action plan They can then determine a measurable goal to provide quality hotline services for customers. (e.g., set the number of complaints, an acceptable waiting time for customers, etc.). The manager should also establish a set of performance guidelines for the departments staff. Step 3 Implement the plan The action plan should be carried out by the subordinates. The bank manager and his subordinates need to meet and discuss any problems encountered. Step 4 Review performance and provide feedback The bank manager should periodically review the employees performance based on the pre-set goals. He should also discuss his subordinates performance with them and find out the reasons if objectives have not been met.

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p. 61

Additional Information
Some companies make use of rating committees to conduct performance appraisals on their employees. A rating committee is a committee formed to evaluate an employees job performance. This committee usually includes the employees immediate supervisor and three to four other departmental supervisors. The advantages and disadvantage of using rating committee are as follows: Advantages 1 The use of more than one evaluators can cancel out personal bias and the halo effects. This method is usually regarded as more reliable and fair. Different evaluators can observe an employees performance from different perspectives. Disadvantage It is time-consuming and burdensome to gather feedback from many evaluators.

2 3

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Check Your Progress

Q9 Workmates may not know or understand the job nature and functions of the appraisee and hence the evaluation result may be unfair and biased. A personal relationship between the appraiser and appraisee (e.g., good friends) may also bias the evaluation. Q10 The parties involved in appraising the performance of a technician working in a factory may include: The technician himself (self-assessment) Staff members from his own department Staff members from other departments The technicians immediate supervisor HR manager (Any three of the above)

Additional Information
Supervisors or managers should collect adequate data about the appraisee and study his job responsibilities and performance ratings thoroughly before conducting the interview. This helps provides the appraisee with accurate comments and clear guidance for further development and
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improvement.

Additional Information
Supervisors or managers should give employees at least one week to prepare for the appraisal interview. This enables the employees to review their jobs and analyse their job-related problems. They can then prepare comments and questions to share with the appraiser during the appraisal interview.

Additional Information
Since an appraisal interview involves private information, supervisors or managers should choose an appropriate time and venue to conduct the interview. This minimises the chance of being interrupted by phone calls and visitors. This also shows respect to the appraisee and ensures effective communication between the two parties.

Additional Information
Supervisors or managers should base their evaluation on objective performance data (e.g., absenteeism, sales quota achieved, average number of units produced) when commenting on employees performance. This increases the employees acceptance and improves the credibility of the entire evaluation process.

Additional Information
The aim of an appraisal interview is two-way communication. Therefore, it is important to encourage appraisees to air their views about their work performance and performance ratings. This helps the supervisor better understand the difficulties faced by the appraisees, and consequently come up with solutions to solve these problems.

Additional Information
It is important for supervisors or managers to provide concrete comments about an employees performance. This helps the employee better understand his current performance level. They should also give the employee concrete suggestions for improvement.

ASSESSMENT

Short Questions
2.1 A performance appraisal refers to the process of evaluating employees performance by pre-set performance standards. This helps employees improve their work performance.
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For instance, a sales manager can evaluate salespeoples performance based on sales revenues they generate within a specified period of time (e.g., one month). (Any other reasonable answers) 2.2 The marketing manager must bear in mind the following: Avoid personal/subjective judgements and have discussions based on objective job-related data (e.g., the amount of sales revenue generated, the number of customer complaints received, etc).

Encourage the salesperson to express his concerns or difficulties in performing his selling task. Give concrete rather than vague comments to help the salesperson improve his sales performance (e.g., advise the salesperson to take the initiative in approaching customers).

2.3

The graphic rating scale method is more suitable than the simple ranking method. This is because it is hard to determine the rankings of employees who perform similarly (i.e., they actually should receive the same ranking). On the other hand, the graphic rating scale method explicitly allows the appraiser to give the same rating to appraisees with similar job performance.

2.4

An appraisal interview is a meeting which allows a manager to communicate the evaluation result to his subordinates. Managers conduct an appraisal interview with their subordinates because this can help the subordinates formulate plans to remedy weaknesses and reinforce strengths. This also helps the manager better understand the difficulties faced by subordinates when performing their duties.

2.5

In 360-degree feedback, evaluation ratings are usually collected from a wide range of sources. To evaluate a branch manager at a large local bank, the bank can collect information from the subordinates of this particular manager, his clients, other branch managers and his immediate supervisor. The information collected allows the bank to have a better understanding of the quality of management and operations of the branch. Feedback from customers will also enhance understanding of the service quality at the branch.

Essay Questions
2.6 The computer manufacturing company should first establish its organisational goals (i.e., sales revenues generated). Managers can then implement the MBO method through discussion with
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each of their subordinates in establishing individual goals and objectives. The production manager can discuss with the production supervisors the performance target (i.e., number of units produced per month) for achieving the companys goal. They then come up with an action plan (e.g., recruit more workers, buy more machines) in order to achieve the target. Production supervisors should also set a performance target and an action plan with each of their subordinates. The production manager should then refer to the supervisors output record to see if the agreed performance target has been met. He can then evaluate the supervisors performance. Similarly, each supervisor also needs to do the same with his subordinates to evaluate their performance. (Any other reasonable answers) 2.7 Factors affecting the accuracy of a performance appraisal include: Unclear evaluation standards As different evaluators may have a different background and personality, they may interpret satisfactory performance, fair performance, and so on differently. Therefore, if the standards of evaluation are unclear, different evaluators may use their own standards to evaluate their subordinates performance. All these may lead to biased appraisal results.

Central tendency Central tendency refers to the tendency to rate all employees as average. Halo effect The halo effect means that an evaluators rating of an emplo yee on one job dimension biases his rating of the same employee on other dimensions. As a result, he may give similar ratings for all the dimensions.

Personal preferences or biases Personal preferences or biases can lead to inaccuracy in performance appraisal. For example, some evaluators may tend to judge employees with certain demographic characteristics more favourably. Different degree of leniency or strictness among evaluators

Different evaluators may have a different degree of leniency or strictness. Therefore, if an employee is appraised by a lenient evaluator, his performance rating will likely be better than another employee who is appraised by a strict evaluator. (Any three of the above) 2.8 The objectives of performance management include:
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Evaluate employees performance Managers at the bank may use performance management to measure the performance of various kinds of bank staff such as customer service officers, tellers, etc. This provides managers with important inputs in making various important HRM decisions (e.g., promotions, transfers, termination of employment and salary increases, etc). Managers can also arrange jobs and utilise human resources effectively by considering employees potential, skills and knowledge. The bank can thus ensure that it has the right employees performing the right tasks.

Allow employees to understand the companys objectives As performance standards are often set according to the companys overall objectives, performance management thus allows the banks employees to better understand the banks goals and how they can contribute to the banks success. Employees can then work towards the banks goals. For example, if the bank wants to improve its customer service quality, it will probably refer to the number of complaints as one of the evaluation criteria. As this criterion and the rationale behind it will be conveyed to the banks employees, they can better realise the banks goal. This helps improve the banks overall productivity and performance.

Develop employees capabilities Performance management can let managers at the bank better understand the strengths and weaknesses of their subordinates. This helps managers decide on the training that should be provided to their subordinates. For example, a manager may learn from the performance appraisal that a particular customer service officer is weak in interpersonal and communication skills. Based on the evaluation, he can determine the appropriate training for this officer.

2.9

The performance management process involved is described as follows: Step 1 Identifying and formulating clear and measurable performance goals The manager and the insurance agent first communicate to agree upon performance standards and establish clear, specific and measurable performance goals (e.g., sales generated per month). They will engage in a performance management planning discussion at least once a year to: 1 review the job description of the insurance agent; 2 establish performance standards (e.g., sales generated per year) for the insurance agent; 3 decide on how to communicate to the insurance agent his performance; and

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4 discuss what training and development the agent needs in order to improve his performance. Step 2 Measuring performance (performance appraisal) and monitoring goal achievement The manager measures the insurance agents performance according to the pre-determined performance goals. He may use the graphic rating scale method to measure the insurance agents overall performance so that the information obtained is more reliable. The manager may also refer to various sources to supplement the evaluation. These sources may include: 1 A self-evaluating report from the insurance agent; 2 Views from the insurance agents peers; and 3 Views from the insurance agents clients. Step 3 Providing feedback and coaching on performance results The manager then coaches the insurance agent by offering feedback on his performance as follows: 1 providing instructions for further improvement; 2 3 4 5 6 providing encouragement; correcting poor performance; recognising excellent performance; listening to the insurance agents concerns and comments; and removing barriers to performance (e.g., providing appropriate training to enhance his product knowledge and selling skills). Making HRM decisions based on performance appraisal

Step 4

Lastly, the manager can make HRM decisions based on the performance appraisal results. These decisions may include granting a bonus, salary increase, promotion, transfer and provision of further training and development, etc. 2.10 A BARS for store managers at Circle-K may look as follows: Behaviourally Anchored Rating Scale Position: Store manager Performance dimension: Store operation management 7 Able to manage the stores operation in a systematic manner, provides excellent training and guidance to subordinates, always maintains an attractive shelf display and always keeps updated financial and inventory records Able to manage the stores operations responsibly with clear financial and inventory records. Provides good training and guidance to subordinates
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5 4 3 2

Able to perform in-store management tasks as required with few mistakes, and provides satisfactory training and guidance to subordinates Hardworking and able to perform daily store operations in an acceptable manner. Provides adequate training and guidance to subordinates. Often makes mistakes and is frequently complained about by customers. Chaos in the store is reported. Makes serious mistakes and does not help customers. Provides inadequate training and guidance to subordinates. Unable to keep an updated financial record. Occasional inventory loss is reported. Unable to maintain tidiness and cleanliness at the store. Store is often in a state of chaos. Does not provide training and guidance to subordinates. Frequent inventory loss is reported. Financial records are incomplete.

(Any other reasonable answers)

Case Analysis
2.11 (a) The simple ranking method involves ranking all employees from the best to the worst on each major performance dimension. Many employees may think that no matter how hard they try, they will still not be regarded as excellent (i.e., one of the top three). Indeed, these employees may think that their performance has already met the acceptable level. However, John may still regard such performance as not good when compared with other outstanding performers. Since only the top three outstanding employees can get the reward, most of the average performers remain unmotivated. The BARS method is designed to evaluate the behaviours required to successfully perform a given job. Manager can evaluate his subordinates by choosing among detailed descriptions of good or poor behaviours and the corresponding scale values for a number of performance dimensions that best describes the subordinates job behaviour. The BARS method can solve the problem of low motivation at Johns company because: With the BARS method, John can assign the same ratings to a number of employees if their performance is similar. The average performer may think that they have a chance to be rated as an outstanding employee if they can perform at an average level on every performance dimension. As John and his employees will take part in developing a BARS, employees will feel that their opinion is valued by management. They are likely to have greater commitment to their work. The detailed descriptions corresponding to each scale value state clearly what
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(b)

(c)

(d)

NSS BAFS: Human Resources Management Answers to textbook exercises

accounts for superior performance, average performance, and so forth. The employees will thus regard their evaluation results as fairer and more objective. They will be motivated to perform better. John can provide employees with specific feedback concerning their job performance when using the BARS method. This allows employees to continuously improve and will encourage them to be more committed to their work. (Any two of the above) 2.12 (a) Introducing a formal appraisal system should be able to ease employees concerns over the unfair bonus system. This is because a well-designed formal appraisal can enable Ken to understand the respective performance level of the eight employees. Based on this understanding, he can then allocate bonuses accordingly. If the performance is tied to rewards, employees (especially those who perform well) will feel that they are being fairly treated. Employees who did not work hard previously will also be motivated to work harder in order to receive a bonus. As a result, the overall performance and productivity of the restaurant can be enhanced. The performance appraisal system also allows Ken to identify staff who are performing poorly. He can then decide on how to improve their performance (e.g., through proper training and development). (c) Ken can make use of the appraisal result to make many human resources decisions. If it is found from the appraisal result that some staff who perform poorly are really not suitable for their present positions, Ken may consider transferring them to other positions or even terminating their employment. By the same token, Ken can consider increasing the pay of those who perform well or even promoting them. (d) Ken may use the management by objectives method (MBO) to appraise his staff. This is because it ensures that all employees are jointly working for the benefit of the restaurant (i.e., achieving its strategic objectives). This method also allows flexibility in setting individual goals in line with different job natures involved in the restaurant operations as each employee has his own objectives. Advantages of applying the MBO method are: The individuals goals and objectives are linked to the companys overall goals. Employees can better understand how their performance can contribute to the organisations overall performance. Specific and measurable standards can be used in guiding individual employees performance.
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(b)

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Regular feedback provided by managers to subordinates can motivate them to

perform better. (Any two of the above)

Teachers Guide
Students may propose other methods for appraising performance such as the graphic rating scale method, simple ranking method, and behaviourally anchored rating scale method. All of these are acceptable answers as long as a reason is given and advantages are cited for the method they suggest.

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