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Performance Management

Third Edition

Herman Aguinis

Kelley School of Business

Indiana University

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Copyright © 2013, 2009, 2007 by Pearson Education, Inc., publishing as Prentice Hall. All rights reserved.

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Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax your

request to 201-236-3290. Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps. Library of Congress Cataloging-in-Publication Data

Aguinis, Herman

Performance management / Herman Aguinis. - 3rd ed. p. cm.

ISBN-13: 978-0-13-255638-5 (alk. paper)

ISBN-10: 0-13-255638-3 (alk. paper)

1. Employees-Rating of. 2. Performance-Management. I. Title.

HF5549.5.R3A38 2013

658.3"125-dc23

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10987654321

CONTENTS

Preface viii

Acknowledgments xiii

Dedication xiv

About the Author xiv

PART IStrategic and General Considerations 1

Chapter 1Performance Management and Reward Systems in Context 1

1.1 Definition of Performance Management (PM) 2

1.2 The Performance Management Contribution 4

1.3 Disadvantages/Dangers of Poorly Implemented PM Systems 8

1.4 Definition of Reward Systems 10

1.4.1 Base Pay 10

1.4.2 Cost-of-Living Adjustments and Contingent Pay 11

1.4.3 Short-Term Incentives 11

1.4.4 Long-Term Incentives 11

1.4.5 Income Protection 12

1.4.6 Work/Life Focus 13

1.4.7 Allowances 13

1.4.8 Relational Returns 13

1.5 Aims and Role of PM Systems 14

1.5.1 Strategic Purpose 15

1.5.2 Administrative Purpose 16

1.5.3 Informational Purpose 16

1.5.4 Developmental Purpose 16

1.5.5 Organizational Maintenance Purpose 16

1.5.6 Documentational Purpose 17

1.6 Characteristics of an Ideal PM System 18

1.7 Integration with Other Human Resources and Development

Activities 23

1.8 Performance Management Around the World 24

?CASE STUDY 1-1:Reality Check: Ideal Versus Actual Performance

Management System 28

?CASE STUDY 1-2:Performance Management at Network Solutions, Inc. 31 ?CASE STUDY 1-3:Distinguishing Performance Management Systems from

Performance Appraisal Systems 32

Chapter 2Performance Management Process 37

2.1 Prerequisites 38

2.2 Performance Planning 46

2.2.1 Results 46

2.2.2 Behaviors 46

2.2.3 Development Plan 47

iii ivContents

2.3 Performance Execution 48

2.4 Performance Assessment 49

2.5 Performance Review 50

2.6 Performance Renewal and Recontracting 52

?CASE STUDY 2-1:Job Analysis Exercise 55 ?CASE STUDY 2-2:Disrupted Links in the Performance Management Process at "Omega, Inc." 55 ?CASE STUDY 2-3:Performance Management at the University of Ghana 56 Chapter 3Performance Management and Strategic Planning 59

3.1 Definition and Purposes of Strategic Planning 60

3.2 Process of Linking Performance Management to the Strategic

Plan 61

3.2.1 Strategic Planning 65

3.2.2 Developing Strategic Plans at the Unit Level 74

3.2.3 Job Descriptions 76

3.2.4 Individual and Team Performance 77

3.3 Building Support 79

?CASE STUDY 3-1:Evaluating Vision and Mission

Statements at Pepsico 82

?CASE STUDY 3-2:Dilbert"s Mission Statement Generator 83 ?CASE STUDY 3-3:Linking Individual with Unit and Organizational

Priorities 84

?CASE STUDY 3-4:Linking Performance Management to Strategy at

Procter & Gamble 84

PART IISystem Implementation 87

Chapter 4Defining Performance and Choosing a Measurement Approach 87

4.1 Defining Performance 88

4.2 Determinants of Performance 89

4.2.1 Implications for Addressing Performance Problems 90

4.2.2 Factors Influencing Determinants of Performance 91

4.3 Performance Dimensions 91

4.4 Approaches to Measuring Performance 95

4.4.1 Behavior Approach 95

4.4.2 Results Approach 96

4.4.3 Trait Approach 99

?CASE STUDY 4-1:Diagnosing the Causes of Poor Performance 101 ?CASE STUDY 4-2:Differentiating Task from Contextual Performance 102 ?CASE STUDY 4-3:Choosing a Performance Measurement Approach at

Paychex, Inc. 102

?CASE STUDY 4-4:Deliberate Practice Makes Perfect 103

Chapter 5Measuring Results and Behaviors 106

5.1 Measuring Results 107

5.1.1 Determining Accountabilities 107

Contentsv

5.1.2 Determining Objectives 109

5.1.3 Determining Performance Standards 111

5.2 Measuring Behaviors 112

5.2.1 Comparative Systems 115

5.2.2 Absolute Systems 118

?CASE STUDY 5-1:Accountabilities, Objectives, and Standards 126 ?CASE STUDY 5-2:Evaluating Objectives and Standards 126 ?CASE STUDY 5-3:Measuring Competencies at the Department of

Transportation 127

?CASE STUDY 5-4:Creating BARS-Based Graphic Rating Scales for Evaluating Business Student Performance in Team Projects 128

Chapter 6Gathering Performance Information 130

6.1 Appraisal Forms 131

6.2 Characteristics of Appraisal Forms 137

6.3 Determining Overall Rating 140

6.4 Appraisal Period and Number of Meetings 143

6.5 Who Should Provide Performance Information? 146

6.5.1 Supervisors 146

6.5.2 Peers 146

6.5.3 Subordinates 147

6.5.4 Self 148

6.5.5 Customers 149

6.5.6 Disagreement Across Sources: Is This a Problem? 149

6.6 A Model of Rater Motivation 150

6.7 Preventing Rating Distortion Through Rater Training

Programs 153

?CASE STUDY 6-1:Evaluating an Appraisal Form Used in Higher Education 157 ?CASE STUDY 6-2:Judgmental and Mechanical Methods of Assigning

Overall Performance Score at

The Daily Planet162

?CASE STUDY 6-3:Minimizing Intentional and Unintentional Rating Errors 164 ?CASE STUDY 6-4:Minimizing Biases in Performance Evaluation at Expert

Engineering, Inc. 165

Chapter 7Implementing a Performance Management System 168

7.1 Preparation: Communication, Appeals Process, Training

Programs, and Pilot Testing 169

7.2 Communication Plan 170

7.3 Appeals Process 174

7.4 Training Programs for the Acquisition of Required Skills 176

7.4.1 Rater Error Training 177

7.4.2 Frame of Reference Training 180

7.4.3 Behavioral Observation Training 181

7.4.4 Self-Leadership Training 182

7.5 Pilot Testing 184

7.6 Ongoing Monitoring and Evaluation 185

viContents

7.7 Online Implementation 188

?CASE STUDY 7-1:Implementing a Performance Management

Communication Plan at Accounting, Inc. 192

?CASE STUDY 7-2:Implementing an Appeals Process at Accounting, Inc. 192 ?CASE STUDY 7-3:Evaluation of Performance Management System at

Accounting, Inc. 192

?CASE STUDY 7-4:Training the Raters at Big Quality Care 193

PART IIIEmployee Development 195

Chapter 8Performance Management and Employee Development 195

8.1 Personal Developmental Plans 196

8.1.1 Developmental Plan Objectives 197

8.1.2 Content of Developmental Plan 199

8.1.3 Developmental Activities 200

8.2 Direct Supervisor"s Role 203

8.3 360-Degree Feedback Systems 206

8.3.1 Advantages of 360-Degree Feedback Systems 213

8.3.2 Risks of Implementing 360-Degree Feedback Systems 215

8.3.3 Characteristics of a Good System 215

?CASE STUDY 8-1:Developmental Plan Form at Old Dominion University 220 ?CASE STUDY 8-2:Evaluation of a 360-Degree Feedback System Demo 220 ?CASE STUDY 8-3:Implementation of 360-Degree Feedback System at Ridge

Intellectual 221

?CASE STUDY 8-4:Personal Developmental Plan at Brainstorm, Inc.-Part I 221 ?CASE STUDY 8-5:Personal Developmental Plan at Brainstorm, Inc.-

Part II 222

Chapter 9Performance Management Skills 226

9.1 Coaching 227

9.2 Coaching Styles 233

9.3 Coaching Process 233

9.3.1 Observation and Documentation of Developmental Behavior

and Outcomes 235

9.3.2 Giving Feedback 239

9.3.3 Disciplinary Process and Termination 245

9.4 Performance Review Meetings 248

?CASE STUDY 9-1:Was Robert Eaton a Good Coach? 256 ?CASE STUDY 9-2:What Is Your Coaching Style? 257 ?CASE STUDY 9-3:Preventing Defensiveness 259 ?CASE STUDY 9-4:Recommendations for Documentation 260

PART IVReward Systems, Legal Issues, and Team

Performance Management 263

Chapter 10Reward Systems and Legal Issues 263

10.1 Traditional and Contingent Pay Plans 264

10.2 Reasons for Introducing Contingent Pay Plans 265

Contentsvii

10.3 Possible Problems Associated with Contingent Pay Plans 268

10.4 Selecting a Contingent Pay Plan 270

10.5 Putting Pay in Context 272

10.6 Pay Structures 276

10.6.1 Job Evaluation 277

10.6.2 Broad Banding 279

10.7 Performance Management and the Law 280

10.8 Some Legal Principles Affecting Performance

Management 281

10.9 Laws Affecting Performance Management 284

?CASE STUDY 10-1:Making the Case for a CP Plan at Architects, Inc. 289 ?CASE STUDY 10-2:Selecting a CP Plan at Dow AgroSciences 289 ?CASE STUDY 10-3:Contingency Pay Plan at Altenergy LLC 290 ?CASE STUDY 10-4:Possible Illegal Discrimination at Tractors, Inc. 291

Chapter 11Managing Team Performance 294

11.1 Definition and Importance of Teams 295

11.2 Types of Teams and Implications for Performance

Management 296

11.3 Purposes and Challenges of Team Performance

Management 298

11.4 Including Team Performance in the Performance Management

System 299

11.4.1 Prerequisites 300

11.4.2 Performance Planning 302

11.4.3 Performance Execution 303

11.4.4 Performance Assessment 304

11.4.5 Performance Review 305

11.4.6 Performance Renewal and Recontracting 306

11.5 Rewarding Team Performance 307

?CASE STUDY 11-1:Not All Teams Are Created Equal 309 ?CASE STUDY 11-2:Team Performance Management at Duke University

Health Systems 310

?CASE STUDY 11-3:Team-Based Rewards for the State of Georgia 312 ?CASE STUDY 11-4:Team Performance Management at Bose 313

Index 315

1 Generating buzz: Idaho Power takes on performance management to prepare for workforce aging. (2006, June). Power Engineering. Retrieved November 26, 2010 from http://www.powergenworldwide.com/index/ 2 Workforce performance is top HR priority. (2005). T+D, 59(7),16.

PREFACE AND INTRODUCTION

In today"s globalized world, it is relatively easy to gain access to the competition"s technology and

products. Thanks to the Internet and the accompanying high speed of communications, technolog- ical and product differentiation is no longer a key competitive advantage in most industries. For example, most banks offer the same types of products (e.g., various types of savings accounts and investment opportunities). If a particular bank decides to offer a new product or service

(e.g., online banking), it will not be long until the competitors offer precisely the same product. As

noted by James Kelley, performance management project leader at Idaho Power, "technology is a facilitator, but not a guarantor, of effectiveness or efficiency of a company"s workforce." 1 So, what makes some businesses more successful than others? What is today"s key compet-quotesdbs_dbs29.pdfusesText_35

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