Chapter 11

Management By Objectives (MBO). Management by objectives is both a planning and an appraisal tool
that has many different variations across firms. 27 As a first step, organization objectives are identified
from the strategic plan of the company

A review of firms using MBO indicates generally positive improvements in performance both for
individuals and for the organization. This performance increase is accompanied by managerial attitudes
toward MBO that become more positive over time, particularly when the system is revised periodically
to reflect feedback of participants.

Performance Metrics Huge advances in the development of metrics have been made over the past 15
years. Most of these, though, are in metrics for measuring performance of HR departments (e.g.,
percentage hired from validated test, percentage whose merit pay or incentives are tied to
performance).

A balanced scorecard approach is a way to look at what contributes value in an organization. Too often
we just look at the bottom line, as measured by financial goals

Types of Formats

Evaluation formats can be divided into two general categories: ranking and rating. Ranking formats
require that the rater compare employees against each other to determine the relative ordering of the
group on some performance measure (usually some measure of overall performance).

• The straight ranking procedure is just that: employees are ranked relative to each other.

• Alternation ranking recognizes that raters are better at ranking people at extreme ends of the
distribution. Raters are asked to indicate the best employee and then the worst employee. Working at
the two extremes permits a rater to get more practice prior to making the harder distinctions in the vast
middle ground of employees.

• The paired-comparison ranking method simplifies the ranking process by forcing raters to make
ranking judgments about discrete pairs of people. Each individual is compared separately with all others
in the work group. The person who “wins” the most paired comparisons is ranked top in the group, and
so on. Unfortunately, when the size of the work group goes above 10 to 15 employees, the number of
paired comparisons becomes unmanageable.

The various rating formats have two elements in common. First, in contrast to ranking formats, rating
formats require raters to evaluate employees on some absolute
standard rather than relative to other employees. Second, each performance standard is measured on a
scale whereby appraisers can check the point that best represents the employee’s performance. In this
way, performance variation is described along a continuum from good to bad. It is the types of
descriptors used in anchoring this continuum that provide the major difference in rating scales. These
descriptors may be adjectives, behaviors, or outcomes. When adjectives are used as anchors, the format
is called a standard rating scale. Exhibit 11.2 shows a typical rating scale with adjectives as anchors
(“well above average” to “well below average”). Switching to behaviors as anchors, Behaviorally
Anchored Rating Scales (BARS) seem to be the most common format using behaviors as descriptors. By
anchoring scales with concrete behaviors, firms adopting a BARS format hope to make evaluations less
subjective

Evaluating Performance Appraisal Formats

What makes for a good appraisal format? Good ones score well on five dimensions:

(1) employee development potential (amount of feedback about performance that the format offers),

(2) administrative ease,

(3) personnel research potential,

(4) cost, and

(5) validity. Admittedly, different organizations will attach different weights to these dimensions.

1. Employee development criterion: Does the method communicate the goals and objectives of the
organization? Is feedback to employees a natural outgrowth of the evaluation format, so that employee
developmental needs are identified and can be attended to readily? We know that feedback has a
positive impact on job performance.

2. Administrative criterion: How easily can evaluation results be used for administrative decisions
concerning wage increases, promotions, demotions, terminations, and transfers? Comparisons among
individuals for personnel action require some common denominator. Typically this is a numerical rating
of performance. Evaluation forms that do not produce numerical ratings cause administrative
headaches.

3. Personnel research criterion: Does the instrument lend itself well to validating employment tests?
Can applicants predicted to perform well be monitored through performance evaluation? Similarly, can
the success of various employees and organizational development programs be traced to impacts on
employee performance? As with the administrative criterion, evaluations typically need to be
quantitative to permit the statistical tests so common in personnel research.

4. Cost criterion: Does the evaluation form initially require a long time to be developed? Is it time-
consuming for supervisors to use the form in rating their employees? Is it expensive to use? All of these
factors increase the format cost. 5. Validity criterion: By far the most research on formats in recent years
has focused on reducing error and improving accuracy. Success in this pursuit would mean that decisions
based on performance ratings (e.g., promotions, merit increases) could be made with increased
confidence.
Supervisors as Raters Who rates employees? Some estimates indicate that more than 80 percent of the
input for performance ratings comes from supervisors. There are good reasons why supervisors play
such a dominant role. Supervisors assign (or jointly determine) what work employees are to perform.
This makes a supervisor knowledgeable about the job and the dimensions to be rated.

Peers as Raters One of the major strengths of using peers as raters is that they work more closely with
the ratee and probably have an undistorted perspective of typical performance, particularly in group
assignments (as opposed to what a supervisor might observe in a casual stroll around the work area).
Balanced against this positive are at least two powerful negatives.

Self as Rater Some organizations have experimented with self-ratings. Obviously self-ratings are done by
someone who has the most complete knowledge about the ratee’s performance. Unfortunately, though,
self-ratings are generally more lenient and possibly more unreliable than ratings from other sources.

Customer as Rater This is the era of the customer. The drive for quality means more companies are
recognizing the importance of customers. One logical outcome of this increased interest is ratings from
customers. For example, McDonald’s surveys its customers, sets up 800 numbers to get feedback, and
hires mystery customers to order food and report back on the service and treatment they receive.

Subordinate as Rater The notion of subordinates as raters is appealing since most superiors want to be
successful with the people who report to them. Hearing how they are viewed by their subordinates gives
them the chance to both see their strengths and their weaknesses as a leader and to modify their
behavior.