Chapter 7 - Implementing a Performance Management System

Learning Objectives

7.1 Understand that there are crucial steps that must be taken before the performance management system is launched, including implementing a communication plan, establishing an appeals process, running training programs for raters, and pilot testing the system to fix any glitches.

7.2 Design a communication plan that answers the key critical questions, such as: what is performance management, where does performance management fit in the organization’s strategy, how does everyone benefit from the system, how does the performance management system work, what are employees’ and supervisors’ key roles and responsibilities in implementing the system, and how is performance management related to other key organizational initiatives?

7.3 Design a communication plan that will include features aimed at reducing the effect of cognitive biases on how the performance management system is perceived and help minimize the impact of intentional rating errors.

7.4 Be aware of cognitive biases that affect how people take in, use, and recall information, including selective exposure, selective perception, and selective retention.

7.5 Understand that setting up an appeals process helps gain support for the performance management system.

7.6 Design an appeals process including two levels:  Level 1, which involves the HR Department in the role of mediator, and Level 2, which involves a panel of managers and peers and, possibly, a senior level manager in the role of arbitrator and final decision maker.

7.7 Describe unintentional and intentional types of errors raters are likely to make in evaluating performance.

7.8 Implement training programs such as Rater Error, Frame of Reference, and Behavior Observation that will minimize the impact of unintentional rating errors.

7.9 Implement a Self-leadership training program that will allow supervisors to increase confidence in their skills to manage the performance management process and, consequently, allow them to minimize rating errors.

7.10 Understand the importance of conducting a pilot test before the performance system is implemented organization-wide.

7.11 Conduct a pilot test of the performance management system using a selected group of employees and managers from the organization.

7.12 Once the performance management system is in place, collect various measurements that will provide information regarding the system’s effectiveness and the extent to which it is working the way it should and whether it is producing the expected results.

Chapter Outline

Implementing a Performance Management System

Overview
1. Preparation
2. Communication Plan
3. Appeals Process
4. Training Programs
5. Pilot Testing
6. Ongoing Monitoring and Evaluation

1. Preparation
• Need to gain system buy-in through:
o Communication plan regarding Performance Management system
  - Including appeals process
o Training programs for raters
o Pilot testing system
• Ongoing monitoring and evaluation to show benefits

2. Communication Plan
Communication Plan answers:
• What is Performance Management (PM)?
• How does Performance Management fit in our strategy?
• What’s in it for me – tangible benefits for all parties?
• How does it work – various steps in process?
• What are our roles and responsibilities?
• How is Performance Management related to other initiatives?

 How well did the US Department of Justice SES Communication Plan handle these questions?

Cognitive biases that affect communications effectiveness
• Selective exposure
• Selective perception
• Selective retention

To minimize effects of cognitive biases:
A. Consider employees
• Involve employees in system design
• Show how employee needs are met

B. Emphasize the positive
• Use credible communicators
• Strike first – create positive attitude
• Provide facts and conclusions

C. Repeat, document, be consistent
• Put it in writing
• Use multiple channels of communication
• Say it, then say it again

 What did the US Department of Justice do to minimize the effects of cognitive biases in its communications?

3. Appeals Process
• Promote employee buy-in to PM system
o Amicable/non-retaliatory
o Resolution of disagreements
• Employees can question two types of issues:
o Judgmental
- (validity of evaluation)
o Administrative
- (whether policies and procedures were followed)

Recommended Appeals Process
• Level 1
o HR reviews facts, policies, procedures
o HR reports to supervisor/employee
o HR attempts to negotiate settlement
• Level 2
o Arbitrator (panel of peers and managers) and/or
o High-level manager – final decision

 How does the appeal process at the University of North Carolina match the processes discussed here?

4. Rater Training Programs

Overview
• Content areas to include
o Information
o Identifying, observing, recording, evaluating
o How to interact with employees
• Choices of training programs to implement
o RET (Rater Error Training)
o FOR (Frame of Reference)
o BO (Behavioral Observation)
o SL (Self-Leadership)

Content Areas to be Included in Rater Training Programs
A. Information - how the system works
• Reasons for implementing the performance management system
• Information
o the appraisal form
o system mechanics

B. Identifying, observing, recording, and evaluating performance
• How to identify and rank job activities
• How to observe, record, measure performance
• How to minimize rating errors

C. How to interact with employees when they receive performance information
• How to conduct an appraisal interview
• How to train, counsel, and coach

Choices of Training Programs to Implement
• Rater Error Training (RET)
• Frame of Reference Training (FOR)
• Behavioral Observation Training (BO)
• Self-leadership Training (SL)

Rater Error Training (RET)
• Goals of Rater Error Training (RET)
o Make raters aware of types of rating errors they are likely to make
o Help raters minimize errors
o Increase rating accuracy

Intentional rating errors
•   Leniency (inflation)
•   Severity (deflation)
•   Central tendency

 How can supervisors be helped to avoid these kinds of errors?

Unintentional rating errors
• Similar to me
• Halo
• Primacy  
• First impression
• Contrast
• Stereotype
• Negativity
• Recency
•   Spillover

 Give examples of each kind of error and how supervisors tend to make them.  How might such unintentional errors be avoided?

Possible Solutions for Types of Rating Errors
• Intentional
o Focus on motivation
o Demonstrate benefits of providing accurate ratings
• Unintentional
o Alert raters to different errors and their causes

Frame of Reference Training (FOR)
• Goal of Frame of Reference Training (FOR)*
o Raters develop common frame of reference
   - Observing performance
 - Evaluating performance
*Most appropriate when PM appraisal system focuses on behaviors

• Expected Results of Frame of Reference (FOR) Training
o Raters provide consistent, more accurate ratings
o Raters help employees design effective development plans

  How does the Canadian military use FOR training?

Behavioral Observation Training (BO)
• Goals of Behavioral Observation Training (BO)
o Minimize unintentional rating errors
o Improve rater skills by focusing on how raters:
- Observe performance
- Store information about performance
- Recall information about performance
- Use information about performance

 How does the Canadian military use BO training?
 Why do they use both FOR and BO training? Is this a good use of time and money? Why or why not?

Self-leadership Training (SL)
• Goals of Self-leadership Training (SL)
o Improve rater confidence in ability to manage performance
o Enhance mental processes
o Increase self-efficacy

5. Pilot Testing

• Pilot Testing before system is implemented
o Provides ability to
- Discover potential problems
- Fix problems

 How did the Washington State Patrol pilot test the revision of their PM system? 

• Pilot Testing - benefits
o Gain information from potential participants
o Learn about potential difficulties/obstacles
o Collect recommendations on how to improve system
o Understand personal reactions
o Get early buy-in from some participants
o Get higher rate of acceptance

• Implementing a Pilot Test
o Roll out test version with sample group
- Staff and jobs generalized to organization
o Fully implement planned system
- All participants keep records of issues encountered
- Do not record appraisal scores
- Collect input from all participants

6. Ongoing Monitoring and Evaluation
• When system is implemented, decide:
o How to evaluate system effectiveness
o How to measure implementation
o How to measure results

• Evaluation data to collect:
o Reactions to the system
o Assessments of requirements
- Operational
- Technical
o Effectiveness of performance ratings

 How does the Washington State Patrol monitor its PM system?  What data does it collect?

• Indicators to consider
o Number of individuals evaluated
o Distribution of performance ratings
o Quality of information
o Quality of performance discussion meetings
o System satisfaction
o Cost/benefit ratio
o Unit-level and organization-level performance

 What indicators does the Washington State Patrol use?  What might they add for more effective monitoring?

Implementing a Performance Management System: Summary
• Preparation
• Communication Plan
• Appeals Process
• Training Programs
• Pilot Testing
• Ongoing Monitoring and Evaluation

Worked Solutions for End-of-Chapter Cases

Case Study 7.1 Implementing a Performance Management Communication Plan at Accounting, Inc.
(Suggested Points: 5, [7.2])

The communication plan used by Accounting, Inc. seems to address all of the key questions with the exception of one: “What is Performance Management?” A consequence of not dealing with this issue directly is that employees may be reluctant to buy into a system that they do not fully understand.  After the establishment of the core competencies, it would be helpful to deliver a training session targeting all employees covering the basics of performance management, why the performance management system was changed, and the goals they hope to accomplish with the new system. 

The following table summarizes which questions are addressed by the communication plan. An “X” means the question is addressed by the communication plan implemented at Accounting, Inc.

  What is Performance Management?  Answering this question involves providing general information about performance management, how performance management systems are implemented in other organizations, and the general goals of performance management systems. 
X

  How does Performance Management Fit in Our Strategy?  To answer this question, we should provide information on the relationship between performance management and strategic planning.  Specifically, information is provided on how the performance management system will help accomplish strategic goals.
X
 What’s in It for Me? A good communication plan describes the benefits of implementing performance management for all those involved.
X

 How Does it Work?  Answering this question entails giving a detailed description of the performance management process and timeline.  For example, when meetings will take place, what are the purposes of each meeting, when decisions about rewards will be made, and so forth.
X

 What Are My Responsibilities? The communication plan should include information on the role and responsibilities of each person involved at each stage of the process.  For example, it includes a description of the employees’ and supervisors’ main responsibilities in the performance management process.

X

 How is Performance Management Related to Other Initiatives?  The communication plan should include information on the relationship between performance management and other initiatives and systems such as training, promotion, succession planning, and so forth.

Answers for Case Study 7.2
(Suggested Points: 10, [7.6])

(Note to Grader:  The following is a sample response – any response will suffice as long as it covers all of the points in Learning Objective 7.6 and provides an implementation of the appeals process, rather than a simple description.)

Proposed Performance Management Appeals Process for Accounting, Inc.

General Provisions
Under company policy neither party in the Appeals Process may be represented by an attorney.  Company policy provides that the Director of Human Resources’ decision on an appeal is final and cannot be appealed further.
The Appeals Process has jurisdiction over the following issues only:
 the overall evaluation received as part of the Annual Review
 the rating on one or more principal functions
 the explanatory remarks included in the evaluation
Depending on the actions taken by supervisors regarding salary increases related to the performance evaluation process, the following issues also may be appealed:
 failure to receive a performance increase and/or performance bonus when eligible
 the amount of the increase or bonus received
An employee is limited to one appeal for any work cycle, regardless of the number of issues involved. The employee should describe the complete remedy desired should the appeal be decided in his/her favor. For example, an employee who appeals the overall evaluation should specify the overall evaluation requested. If such an overall evaluation would result in eligibility for a performance increase, an increased percentage should be stated as part of the remedy requested in the appeal.
By request (and with management approval) an employee may be granted a maximum of 12 hours off from regular duties for processing an appeal under this Appeals Process without any loss of pay and without charge to leave.

(continued on next page)
 
Performance Management Review Board
The Director of Human Resources appoints the Chair of the Performance Management Review Board (Board Chair) and the other members of the Review Board. When a Level B appeal is received, the Board Chair selects a three-member Panel and appoints a Panel Leader. The Board Chair notifies the employee of the name, job title, and department of each proposed Panel member. The employee has the right to disqualify up to two proposed members by notifying the Board Chair before the date stated in the letter of notification.
Each panel will have one member with supervisory responsibility and two members with no supervisory responsibility. No member of the Panel will be from the employee's own department. Any member may be designated as Panel Leader. The Panel determines what information is needed. The involved parties must provide the information requested by the Panel.
The Panel Leader notifies the employee and the department head in writing of the hearing date and location. Every effort must be made to arrange for a timely hearing. The Level B hearing is confidential. It is not open to the media or other persons whose attendance is not approved in advance by the Panel Leader. The employee, the department head, and supervisors involved in the performance review are allowed to appear in person at the hearing.  However, any party may elect not to appear and to have the Panel's Level B recommendation based only on documentation presented to the Panel. The chair must receive advance notification if anyone other than the employee and department head are to provide information to the Review Board. The employee and management must request approval in advance for witnesses to address the Panel. Only witnesses approved in advance may appear at the hearing.
After the hearing, the Panel decides whether additional information is needed. Any information requested and received after the hearing is shared with the employee and the department head. After considering all of the information presented, the Panel makes its recommendation by majority vote and submits its written recommendation through the Board Chair to the Director of Human Resources. The Director of Human Resources either accepts, modifies, or rejects the Panel's recommendation and issues the company decision within 15 calendar days of receiving the Panel recommendation. If the Director of Human Resources rejects the Panel recommendation, the written decision will state the reason(s) for rejection.  The Director of Human Resources sends the written decision to the employee.

Answers for Case Study 7.3 
(Suggested points: 5, [7.12])

While user satisfaction and distribution of ratings are important, Accounting, Inc. should also ensure that all employees are being measured, especially because pay is linked to the performance review.  Furthermore, Accounting, Inc. should also measure the cost/benefit ratio of the system.  360-degree feedback instruments are costly, so the company needs to decide if the feedback received is worth the cost of the instruments.  Finally, Accounting, Inc. should measure whether the new system is helping the company meets its goals and objectives.  Sample measures may include financial improvements and customer service measures.
 
Additional Cases and Worked-Solutions

Case Study:  St. Jessica’s Urban Medical Center

Based on your performance in helping the Board of Directors at St. Jessica’s Urban Medical Center to establish a performance measurement approach, the Board has asked you to stay on as a consultant to help them implement their new performance management program.  You understand that this is not the first time that St. Jessica’s Urban Medical Center has attempted to implement a performance management program.  From your conversations with various managers and employees, you have heard that many people expect this program to be a dismal failure, just as past programs have been.  The scuttlebutt is that those past programs were unfair.  You have a sense that employees at various levels had no idea what the goals of the program were and you have an uneasy feeling that, unless a number of activities precede implementation of the new program, it is destined for failure, too.

Write a memo to the Board describing what actions must be taken before the program can be effectively implemented.  Discuss the primary goal of each of these interventions and explain how you will know that these goals have been met.
(Suggested points: 10, .2[7.1], .1[7.2], .1[7.3], .1[7.5], .1[7.6], .1[7.8], .1[7.9], .2[7.10])

Answer:
(Note to Grader:  The following is a sample response – any response will suffice as long as it covers all of the Learning Objectives covered in “Suggested Points” above.  This is primarily a test of knowledge.)

Thank you for your confidence in hiring me to help you implement the new performance management program.  The purpose of this memo is to caution you that immediate implementation of the program we have designed may lead to the kinds of problems you have experienced in the past with other programs.  Without some preliminary steps, many employees may feel that this is a repeat of old situations which they had determined were not in their best interests.  Motivation could be lowered and there will probably be a basic lack of trust and enthusiasm for the program.  I would like to recommend taking the following steps before we actually implement our program:

 Implement a communication plan which answers the following key questions for every employee:
 What is performance management?
 How does performance management fit in our organizational strategy?
 What’s in it for me? For everyone else?
 How does the system work?
 What are my responsibilities? Other people’s responsibilities?
 How is performance management related to other organizational initiatives?

 In addition, the plan should include features that reduce various cognitive biases that will affect how people perceive the program.  Some ways of doing this would include:
 Employee involvement
 Employee needs
 Strike first – create a positive attitude toward the new PM system before any negative attitudes and rumors are created
 Provide facts and consequences
 Put it in writing
 Use multiple channels of communication
 Use credible communicators
 Say it, then say it again

 Another step that we will need to take will be the development of an appeals process (preferably two-level), so that employees can trust that any concerns or disagreements about the system and its implementation will be handled fairly and without retaliation.

 Since raters can make a variety of intentional and unintentional errors when they rate employee performance, it will be important to conduct training to both teach them about the performance management process and to alert them to the possibility of such errors, so that they can avoid making them.  They will need to learn
 how to use the forms
 how to identify and rank job activities
 how to observe, record, and measure performance
 how to minimize rating errors
 how to conduct an appraisal interview
 how to train, counsel, and coach their employees

We will need to discuss the various kinds of training (such as Rater Error, Frame of Reference, and Behavior Observation) and Self-leadership programs that might be implemented.

 Finally, it will be very important to pilot-test the program we have developed, to identify any glitches and fix them.  There are several advantages to conducting such a pilot program, as well:
 We’ll gain information from potential participants
 We’ll learn about possible difficulties and obstacles
 We’ll collect information from the participants on how to improve the system
 We’ll understand personal reactions to the system
 We’ll get early buy-in from some participants
 This will lead to a higher rate of acceptance when we roll out our new and improved program!

Case Study: CRB, Inc.

At CRB, Inc. (a small car restoration business), you have been working with Al and Mary Brown to design a performance management system.  Al is excited about tying the employees’ quarterly bonuses to the system.  You caution him that, in order for his plan to be effective, he will need to explain the program to the employees in a fairly structured fashion so that they have a full understanding and acceptance of the program.  Since there are only six employees, Al plans to have individual meetings with each employee in his office so that the mechanic, painter, detailer, and body workers can ask questions about how the program will specifically impact his own employment, without worrying that other employees will tease him. 

Provide Al with a detailed outline of what should be covered in each of these meetings.  Give him specific examples relating to the mechanic’s job, so that he has some guidance in what to say and how to say it so that his employees will understand what they are getting involved with.
(Suggested points: 10, .5[7.2], .5[7.3])

Answer: (Anything that covers the same general material is appropriate.  The following is an example.)

Al, here are some things that you’ll need to cover with each and every employee in your meetings.  I’m going to give examples that relate to Adam Tyler’s job as a mechanic, so you have a sense of what to cover.  I think it would be a real good idea to give each guy a copy of the outline at the beginning of the meeting, so he can take notes on it and have it to talk to his wife at home.  In addition, I really do recommend that after a few days, you and Mary schedule a staff meeting at the Country Buffet restaurant over lunch so they can ask questions in a more relaxed atmosphere after they’ve had some time to think about it.  I know you hate to interrupt their work, which is why I’m suggesting lunch.  I also think it would be a good idea to give them something positive to associate with the program….like a free lunch!  You’ll get it back in productivity because they won’t be as likely to take work time to talk everything over behind your back, if they’re sure they all got the same story.

So, here’s the outline that I think you should hand out:

 What is performance management?
 It’s a way of identifying, measuring, and developing performance in the shop. 

 How does performance management fit the shop goals?
 When we get this system going, we ought to get more done, better, with less effort.

 What’s in it for me?
 We’ll all make more money and we ought to be a lot less frustrated.
 We’ll have a better definition of who is responsible for what…and when…so you’ll have supplies and parts when you need them.

 We’ll be able to tie your work to your pay.  In fact, I’m planning on developing a quarterly bonus system, so that you can get a bonus on top of your regular 40% commission when jobs go out early and/or when we don’t have any customer work to be re-done.
 For everyone else?  They’ll get the same kind of treatment related to their jobs.

 How does the system work?
 I’m going to be setting up regular meetings with each of you to let you know how you’re doing on the schedule.  We’ll agree on your schedule (as we have been doing) and then we’ll meet monthly to discuss how you’re doing in relation to what you planned.  We’ll have a quarterly review and your bonus will be directly tied to how the shop is doing and what you did to get us there.

 What are my responsibilities?
 You’ll need to make a good estimate of how long it will take you to do the work…and you’ll need to let me know in plenty of time when you’ll need parts and supplies so I can get them to you on time.  You should track your time and what you get done so that we can make sure you get credit for what you do.  You need to remember to ask for help when you need it and don’t try to tough everything out by yourself.
 Other people’s responsibilities? The foreman will track your hours and help you when things get tough.  I’ll buy your parts and supplies as long as you get the information to me in time.  I can’t drop what I’m doing for rush orders; give me a couple of days to get the order in…and don’t forget that some parts will take a while to get here!

 How is performance management related to other shop goals?
 We’re constantly looking for ways to make this shop a better place to work, more interesting for our customers, to be known in the public eye as “The Place to Restore Your Old Car”!  As we get more control over the basics of who’s responsible for what – and how you guys are rewarded for helping us meet our goals – we’ll look for more ways to help you meet your goals.  Is there any training you’ve wanted to get?  Some kind of certification?  As we become more profitable, we will want to help you get it. 

Do you have any questions?

Thanks for your time – we’ll be getting together with all the staff for a lunch break in about a week to go over any questions that you’ve thought of … or just come ask me.

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