Ch. 8: Performance Management

Learning outcomes

After this chapter you should be able to: define the reasons for a formal performance evaluation system; explain how to develop a performance review system; explain performance management models and methods; discuss the value and best practices of performance review planning; explain the types of performance issues and their internal and external causes; develop a process for handling performance issues; and discuss considerations for layoffs or downsizing.

8.1 Performance management systems

To manage performance, HR first finds out who does what and how well. That data feeds other systems such as compensation, employee development and employee records. Performance data is the "bloodline of HR": it flows through every HR process. Examples: judging whether a job design is efficient, validating a new interview protocol (do high scorers become superior employees?), and basing a training needs analysis on appraisal data.

The paradox: some researchers call appraisal one of the most important parts of the organization, others say it is doomed and should be abolished. It is important but widely disliked: people do not like being judged and managers avoid it because it can strain relationships. In a SHRM survey (2014) HR professionals almost unanimously called performance management a top priority, yet more than half graded their own system only "C+ to B". Success is possible, but requires careful design and implementation.

8.2 Managing performance: three uses

8.3 Designing a performance management system

Every system has limitations, but good planning minimizes them.

Defining performance. The first step is to define the performance to be measured; this definition stems from job analysis.

Feedback frequency. Managers should give feedback constantly; the appraisal is the formal, scheduled process. Once a year versus twice (or more): more frequent reviews give more feedback and development, but cost time (several hours per employee if done well). The deciding factor is the span of control (number of people a manager supervises): with 5 to 10 reports, more than one review a year is feasible; with 20 or more, once a year is more realistic, while ongoing informal feedback continues.

Evaluators. Usually the direct manager, but also subordinates, clients, other managers and others with regular work contact, plus a self-evaluation. Using a variety of sources gives the best results.

Reliability and validity.

Capturing the whole spectrum of performance is an ideal; HR minimizes contamination and deficiency through good design of the appraisal tool and training in its use.

8.4 Steps in the performance evaluation process

This section is framed around project teams, but the steps apply generally:

1. Develop an evaluation form that is fair, objective and standardized. It should cover KSAs (knowledge, skills, abilities), work quality and quantity, work habits and work behaviours.
2. Identify the performance measures: standard measures that let HR evaluate objectively; sometimes the job description serves as the measurement tool.
3. Define guidelines for feedback: discuss strengths and weaknesses, offer support for improvement, acknowledge pride in success and contribution (important for esteem and confidence), let the team member give feedback too; encourage open dialogue and mutual understanding.
4. Create reward and disciplinary steps: explain any bonus and how and when it is paid; agree on discipline before the project starts (verbal warning, written warning, termination if no improvement); at the end, discuss any disciplinary actions, consequences and improvement plans.
5. Establish a schedule: set the form, measures and feedback guidelines before the project starts and explain them to the team so they can monitor themselves. Schedule regular check-ins: short projects may only have a post evaluation, longer ones 2 to 3 evaluations; the post evaluation brings closure. The whole process must be structured, formal and fair, promote growth and acknowledge contributions.

8.5 Popular performance appraisal models

The model has evolved with empowerment, the wish for evaluations beyond annual reporting and a competitive job market; it is malleable, and digital workforces would need dedicated software. Benefits:

1. Reveals where a worker's view of themselves differs from the view of others, which raises self-awareness.
2. Motivates: goals are discussed and workers are evaluated by employers, themselves and peers.
3. Focuses on methods over outcomes, so workers improve the quality of their work rather than only the result.
4. Gives insight into productivity and the methods workers use.
5. Gives managers insight into how employees view themselves and their work.

Its results can feed reports in any area, for example on workplace sustainability, supporting organizational culture.

Five steps of MBO:

1. Senior management discusses business goals for a period and lists objectives based on them.
2. Management announces the objectives; employees review them, recommend amendments and make a plan to reach their objectives.
3. Management monitors progress and assists where needed.
4. At the end of the cycle, management and employees evaluate how well objectives were met, comparing results with the initial performance agreement.
5. Employees are recognized and rewarded (raises, bonuses, promotions, new responsibilities).

MBO focuses on rewards rather than punishment and needs unwavering management support; if results fall short, managers take corrective action and modify objectives. Objectives must be SMART.

MBO and project management. Despite criticism, MBO is a foundation of modern project management: it moves decisions away from management alone, involves the whole organization in planning, keeps focus on the bigger picture and improves communication and collaboration on obtainable objectives.

Role of HR in MBO: facilitate setting company objectives and strategies with management and employees; convey the strategy and how success is measured; help identify company culture; train managers and employees in MBO; design goal-setting and evaluation forms; help set goals; monitor and evaluate progress (with management or independently); and apply the same steps to projects by training project managers and teams.

8.6 Performance appraisal methods

Many organizations combine methods.

8.7 Value of performance appraisals

Post-project evaluation of each team member and the project manager encourages changes in conduct, supports career growth and continuous learning. Criteria, expectations and standards are set before the project, and organizational support is put in place.

Why appraisals can fail. According to Mackenzie, Wehner and Correll (2019, Harvard Business Review), assessments are frequently biased, and even a standard form leaves room for implicit bias. Reasons: ambiguous standards, rater bias, time consumption, wrong criteria and an unclear process. Projects add their own problems: a project manager without evaluation skills does the review; a direct supervisor who was not involved in the project does it; or the project is judged only on scope, cost, time and deliverables while team performance is ignored.

Functions of appraisals: identify strengths and weaknesses and improvement strategies; assess performance on the project; support decisions on salary increases or decreases (pay for performance), promotions and bonuses; identify training and development needs; document support for future assignments, discipline, promotions or terminations; and serve as recognition that builds esteem. Overall they align people with the organization and support a culture of working together.

8.8 Individual, team and manager performance reviews

Individual performance reviews. The HR specialist prepares: gathers all information on the employee's project work, prepares notes, sets the agenda, schedules a convenient time and sets expectations. Meeting the project manager beforehand can reveal useful information but can also create rater bias, so HR weighs the pros and cons. Non-judgmental, coaching-style questions include: which accomplishments are you proud of; what obstacles stood in your way; what impact did your contribution have on the team, project and organization; how did HR support you; what development goals do you have; how can the organization and HR support them.

• Sharing questions in advance lets the employee reflect, feel more comfortable and speeds up the review; questions should be written out beforehand.
• Be a good listener; end with agreed next steps.
• A structured self-evaluation avoids surprises, allows discussion of differing conclusions and feels fairer.
• Offer praise, tell the employee they are valued, be supportive; ask "What can I do to help?"

Team performance reviews extend the individual review. Individual contributions cannot always be separated, but members can share their achievements and how they contributed. Team reviews break down barriers and make evaluation a joint effort. HR organizes a group workshop, sends questions in advance, links individual work to outcomes and to team goals, and ensures equal participation. Recognizing team goals levels the playing field for those who contributed less, while individual goals recognize extra effort. Typical questions: were deadlines and budget met; was the customer satisfied; what did you enjoy or not enjoy about the team; did the team communicate effectively; how did you help, ask for help, motivate each other and share ideas. The project manager participates, which may stop members speaking up, so HR creates a safe space. High performers are recognized, but not at the expense of others.

Project manager performance review. More stakeholders can join, such as a regional project manager, executives with a stake in the project, the customer and HR. HR draws up the criteria and questions, invites the participants and normally leads the session. What sets it apart is the emphasis on leadership and management: budgets, deadlines, process improvement, relationships and communication, risk management and customer satisfaction.

8.9 Completing and conducting the appraisal

After deciding frequency and the link to pay, HR clarifies the goals of the evaluation (e.g. improving performance and identifying people for succession planning), determines the sources and creates criteria and rating scales tied to the job description. Success then depends on how HR implements and communicates the system.

Best practices:

• Direct relationship to the job; specific criteria per job based on specifications and description.
• Involve managers in development for buy-in.
• Consider employee self-evaluation.
• Use a variety of rating methods.
• Avoid bias by standardizing the system for each job.
• Give feedback throughout the year.
• Tie evaluation goals to organizational and department goals, and appraisal criteria to organizational goals (strategic HRM).
• Review the evaluation per job title often, since jobs change.

Performance review system (cycle): (1) goal setting with the employee (share criteria in advance or develop MBOs together so the employee knows the expectations); (2) constant monitoring, feedback and coaching (informal); (3) the formal performance evaluation (criteria, rating scale, source); (4) improvement plans if needed and rewards for excellent performance; then the cycle restarts with new goals.

Training managers and employees. HR educates managers and employees on the standards for completing forms, the criteria and ratings, writing improvement plans and conducting the appraisal interview. Show the value of the system (or involve managers in designing it) so it does not feel like "just one more thing".

Ground rules for managers filling in evaluations (for accuracy and less bias):

• Use only factual information, not opinion or perception.
• At least two sentences per section, with examples of behaviour.
• Complete and share the review with the employee before the deadline.
• Clear and direct messages.
• Focus on observable behaviours.

Six preparation steps for managers:

1. Review the last evaluation and its goals.
2. Review the employee's file and talk to other managers who work with the person (gather data).
3. Fill out the forms and note areas to address in the interview.
4. If pay is linked, know the increase you can offer.
5. Write improvement plans if needed.
6. Schedule a time and date with the employee.

To reduce nerves, show the written evaluation beforehand; have the employee fill in the same form and compare answers in the interview. Be clear and direct about strengths and weaknesses, discuss goals, pay increases or improvement plans, and prepare for questions and explanations.

Organizing the appraisal process (HR develops and manages, managers deliver):

• Give each manager the job description of each employee as the basis for review.
• Provide criteria and rating sheets per job description.
• Provide instructions and ground rules.
• If pay is linked, work with the manager on increases: give the total pay increase budget and target percentage per rating range.
• Coach on objectives and improvement plans where needed.
• Give timelines for each review; HR often tracks employees, managers and deadlines in a spreadsheet.

Software can manage goals, track progress, store critical incident notes, run 360 reviews and send reminders. Setup and training take time, but many organizations find it worthwhile. However managed, the process must be continually developed toward the goal of employee development.

Performance appraisal interviews. A well-designed process fails if the meeting goes badly.

Tips for feedback:

1. Be direct and specific with examples ("The expectation is zero accidents, and you have had none this year").
2. Do not be personal; compare with the standard ("The expectation is ten units per hour; you are at eight" instead of "You are too slow").
3. It is a development opportunity: encourage the employee to talk about strengths and needed improvements.
4. Thank the employee and avoid criticism: thank for what goes well and build action plans together as a team effort.

Possible outcomes of an evaluation: written documented feedback for the employee; documentation of low performance in case of dismissal; eligibility for a raise; possible promotion; an improvement plan; or dismissal when earlier warnings and plans did not work. Plan in advance so all information is available. Example: an employee praised for excellent work but told no promotion opportunities exist may lose motivation; evaluations should serve as a development tool.

8.10 Managing performance issues

Hiring and training is a large investment, so HR needs processes for employees who are not working out.

Some issues need only a warning, others immediate dismissal; HR develops policies and procedures for them.

Internal causes stress the importance of hiring the right person; external causes can often be fixed easily. Either way, issues must be handled promptly.

8.11 Disciplinary processes for performance issues

Guidelines for rules and policies:

1. Put all rules and procedures in writing.
2. Relate rules to safety and productivity.
3. Write rules clearly so managers do not interpret them differently.
4. Communicate rules in orientation, training and other channels.
5. Revise rules periodically as needs change.

Written rules exist for consistency. Example: a rigid operations manager fires a late employee after three write-ups while a laissez-faire marketing manager ignores the same behaviour; the fired employee could sue for wrongful termination (firing or laying off for illegal reasons, such as violating discrimination laws or oral or written agreements).

Role of the performance appraisal in discipline. Each job also has its own rules. The appraisal (at least annual) plus general rules measure overall performance; breaking rules or missing appraisal expectations triggers the performance issue model.

Performance issue model (for fair, consistent policies):

Drug or alcohol issues need care because dependency can be considered a disability.

8.12 Investigation of performance issues

HR often investigates, starting with training managers to document issues properly, which is needed if termination follows. Documentation contains:

1. Date of incident
2. Time of incident
3. Location (if applicable)
4. Description of the issue
5. Notes on the discussion with the employee
6. An improvement plan, if needed
7. Next steps if the infraction is repeated
8. Signatures of manager and employee

Next comes an investigative interview, a meeting to ensure the employee fully understands the discipline issue and can tell his or her side of the story. It always takes place in private. Where there is a union, the employee may bring union representation to this interview; the book refers to this as interest-based bargaining and connects it to the US Weingarten rights (from a 1975 Supreme Court case, recently confirmed again by the National Labor Relations Board).

Options for handling performance issues: progressive discipline. A sequence of corrective steps for problems that do not justify instant dismissal (theft, for instance, would). Each step has to be documented, and the approach must be used for every employee who commits the same offence.

After diagnosing the cause, actions include training, a change of job or department, help defining goals and expectations, or employee assistance supports. The PIP has the same six components as the improvement plan (define the problem, behaviours to modify, strategies, long- and short-term goals, timeline, check-in dates). It is developed and signed by employee, HR specialist and possibly supervisor; check-ins are honoured, corrective action taken and improvement praised. At the end they review whether the goals were met; if so the PIP is complete, if not further action may follow.

Structure of a typical PIP (book example): employee information (name, position, department, supervisor, start and end date, typically 30, 60 or 90 days); performance issues (e.g. missed sales targets, negative client feedback, inaccurate reports); performance objectives; action plan (e.g. weekly strategy meetings, customer service training, peer review of reports); support provided (coaching, online course, peer mentor); monitoring (weekly review of figures, client feedback, accuracy checks); consequences of not meeting objectives (further discipline up to termination); and employee acknowledgement with signatures.

Benefits of PIPs: promote a positive company culture (employees feel supported); employees feel cared for; save time and resources compared with hiring and onboarding a replacement.

Alternative dispute resolution (ADR): an unbiased third party reviews the facts and helps the parties reach agreement; cheaper and more flexible than court.

8.13 Employee separations and terminations

Separation occurs through resignation (employee chooses to leave), termination (for performance issues) or absconding (leaving without resigning or following the normal process, e.g. simply stopping coming to work). Separations are costly.

Resignation. The employee gives written notice (letter or e-mail). HR schedules an exit interview, an informal confidential talk about why the person leaves; if the reason can be fixed, HR may discuss with the manager whether to accept the resignation. If accepted, a workload plan is made (leave right away or finish a project). Two weeks' notice is the norm.

Termination. Requires documentation from the progressive discipline process (appraisals, PIPs, warnings). Check the reliability and validity of appraisals first, as rater limitations can make them questionable. A termination for nonperformance should never be a surprise. Manager and HR deliver the news with compassion but directly. The employee may be entitled to a severance package (pay, benefits or other compensation on leaving, to support the job search). Considerations when designing one:

1. How it is paid (lump sum or equal instalments)
2. Which situations qualify (e.g. is severance paid after a sexual harassment violation?)
3. A formula (by work group, years of service, etc.)
4. Legal documents such as releases and noncompete agreements
5. Whether and how accrued vacation and sick leave are paid

Abscondment. First try hard to contact the person. If after three days there is no contact, it is prudent to stop payment and seek legal help to recover company property (laptops, parking passes).

Rightsizing and layoffs. Rightsizing is reducing the total number of employees to save costs; it means the same as downsizing but better describes the goal. Before laying off, consider: is the downturn temporary; have other expenses been cut; could temporary sabbaticals, voluntary retirement, part-time work or temporary pay cuts help? If layoffs are needed, HR ensures legal and ethical guidelines: articulate the reasons and a formal approach; develop criteria in advance for which jobs are cut (fairer, and stops managers "saving" favourites); decide with management who meets the criteria; decide severance before the layoffs, with employees signing a release of future claims; and have a communication plan (initial e-mail about impending layoffs, individual talks, then announcing eliminated positions). Preserve employees' dignity: they did nothing wrong.

Steps in processing separations. For resignations, Ontario has no law on how much notice an employee must give; two weeks is best practice. If the employer wants the employee to leave before the notice period ends (e.g. access to confidential information), it must pay the rest of the notice period in full, including outstanding vacation pay and commissions, and legislation requires extended health benefits to continue for that period.

Recommended dismissal process (for reasons other than resignation):

1. Review employment contracts and legal requirements (Ontario Employment Standards Act); consult an employment lawyer if unsure.
2. Review documentation showing all opportunities to improve were given (warnings, PIP, supervisor notes).
3. Plan the location and time, an exit that avoids an audience, deactivation of access, and supports afterwards (EAP, community resources).
4. Prepare documents, including a termination letter (reason, effective date, payouts of vacation and benefits).
5. Talk face to face somewhere private, either at the close of the working day or early in the morning, and avoid the middle of the day.
6. Keep it short, compassionate and professional; explain reason and date.
7. Thank the employee for their contribution.
8. Let them leave with dignity (pack their own things and say goodbye where appropriate, otherwise bring their belongings to them).
9. Disconnect access immediately after the meeting.
10. Communicate the departure to colleagues (usually by e-mail), keeping the reason confidential.
11. File the Record of Employment (ROE) with Service Canada on time and pay outstanding wages, vacation pay, commissions and severance per the ESA.

Terminations are emotionally draining; HR staff and others involved should take time for themselves afterwards.

Key terms at a glance

• Comparative methods compare employees with each other; results methods focus on objective accomplishments.
• Investigative interview: private meeting to make the employee aware of the discipline issue.
• Single incident / behaviour pattern / persistent pattern / mandated issue: levels of the performance issue model.
• Rightsizing, severance package, absconding, wrongful termination: see 8.11 and 8.13.

Summary

Performance management links employee goals to company goals and feeds compensation, development and records. A good system defines performance from job analysis, sets feedback frequency by span of control, uses several evaluators and guards reliability (measurable standards, SMART goals, calibration) and validity (avoid contamination and deficiency). The evaluation process runs from form design to scheduling. Models include 360 feedback and MBO; methods include trait, behavioural, comparative and results approaches such as graphic rating scales, essays, checklists, critical incidents, work standards and ranking. Appraisals can fail through bias and vague standards, but serve pay, development, documentation and recognition. Reviews can be individual, team or project manager based, and interviews tell and sell, tell and listen or problem-solving. Performance issues have internal and external causes and are handled with the performance issue model, investigation, progressive discipline, PIPs and ADR. Separations (resignation, termination, absconding, layoffs) require legal care, documentation and respect for the employee's dignity.