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EFFECTIVEPRACTICEGUIDELINESPerformanceManagementA roadmap for developing,implementing and evaluatingperformance management systemsElaine D. Pulakos

EFFECTIVEPRACTICEGUIDELINESPerformanceManagementA roadmap for developing,implementing and evaluatingperformance management systemsElaine D. Pulakos

This publication is designed to provide accurate and authoritative information regarding the subject matter covered.Neither the publisher nor the author is engaged in rendering legal or other professional service. If legal advice or otherexpert assistance is required, the services of a competent, licensed professional should be sought. Any federal and statelaws discussed in this book are subject to frequent revision and interpretation by amendments or judicial revisions thatmay significantly affect employer or employee rights and obligations. Readers are encouraged to seek legal counselregarding specific policies and practices in their organizations.This book is published by the SHRM Foundation, an affiliate of the Society for Human Resource Management(SHRM ). The interpretations, conclusions and recommendations in this book are those of the author and do notnecessarily represent those of the SHRM Foundation. 2004 SHRM Foundation. All rights reserved. Printed in the United States of America.This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, in any formor by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permissionof the SHRM Foundation, 1800 Duke Street, Alexandria, VA 22314.The SHRM Foundation is the 501(c)(3) nonprofit affiliate of the Society for Human Resource Management(SHRM). The SHRM Foundation advances the human resource management profession and increases theeffectiveness of HR professionals through research, innovation and research-based knowledge. The Foundation isgoverned by a volunteer board of directors, comprised of distinguished HR academic and practice leaders.Contributions to the SHRM Foundation are tax-deductible.For more information, please contact the SHRM Foundation at 703-535-6020. Online at www.shrm.org/foundation.

Table of ContentsForward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vAcknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viiAbout the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ixEffective Practice Guidelines for Performance Management . . . . . . . . . . . . . . . . . . . . . 1Methodology for Developing Practice Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . 2Overview of the Performance Management Process . . . . . . . . . . . . . . . . . . . . . . . . 2Performance Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Ongoing Feedback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Employee Input . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Performance Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Performance Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Ensure Alignment with Other HR Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Get Organizational Members on Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Communicate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Automate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Pilot Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Train Employees and Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Evaluate and Improve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Legal Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Summary and Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Sources and Suggested Readings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31iii

ForwardThe SHRM Foundation Board of Directors appreciates how difficult it is for HRpractitioners to access current research findings and incorporate them into their ownhuman resource practices.Human resource professionals juggle multiple responsibilities and do not have time toread long research reports, no matter how beneficial. Realistically, most HR practitioners will seek guidance from research findings only if they are presented in a clear, concise and usable format.To make research more accessible, the SHRM Foundation has created a new seriesentitled Effective Practice Guidelines. The Foundation will publish new reports on different HR topics each year. You are now reading the first report in the series:Performance Management.Here is the series concept: A subject matter expert with both research and practitionerexperience is selected to prepare the guidelines and the author distills the research findings and expert opinion into specific advice on how to conduct effective HR practice.We believe this new product presents relevant research-based knowledge in an easy-touse format. We look forward to your feedback to let us know if we’ve achieved that goal.The author of Performance Management is Dr. Elaine Pulakos, executive vice presidentand director of the Personnel Decisions Research Institutes (PDRI) Washington, D.C.office. Dr. Pulakos is one of the country’s leading experts in performance management,both as a researcher and a consultant, and she has provided the very best guidanceavailable on this topic.The Foundation board recently created a new vision for the organization: “TheSHRM Foundation maximizes the impact of the HR profession on organizationaldecision-making and performance, by promoting innovation, research and the use ofresearch-based knowledge.”We are confident that this new series of Effective Practice Guidelines takes us one stepcloser to making that vision a reality.Herbert G. Heneman III, Ph.D.Director of Research, SHRM Foundation BoardProfessor, School of Business, University of Wisconsin-Madisonv

AcknowledgmentsThe SHRM Foundation wishes to thank the following individuals for reviewing thisreport, providing feedback and helping to shape the finished product:Wayne F. Cascio, Ph.D., Professor of ManagementGraduate School of Business AdministrationUniversity of Colorado at DenverDebra Cohen, Ph.D., SPHRChief Knowledge Development OfficerSociety for Human Resource ManagementHank Hennessey Jr., Ph.D., SPHR, Professor of ManagementCollege of Business and EconomicsUniversity of Hawaii at HiloMark A. Huselid, Ph.D., Associate ProfessorSchool of Management and Labor RelationsRutgers UniversityKathleen McComber, SPHRSr. Director of Human Resources and Org. DevelopmentUniversity of Arkansas for Medical SciencesJames W. Smither, Ph.D., Professor of ManagementSchool of Business AdministrationLaSalle UniversityPatrick M. Wright, Ph.D., DirectorCenter for Advanced Human Resource Studies (CAHRS)Cornell UniversityThis work could not have been completed without the generous support of theSociety for Human Resource Management (SHRM) and the Human ResourceCertification Institute (HRCI).vii

About the AuthorElaine D. Pulakos, Ph.D.Elaine Pulakos is executive vice president and director of theWashington, D.C. office of Personnel Decisions Research Institute(PDRI). PDRI is a premier consulting firm in the field of industrial and organizational psychology. A recognized expert andresearcher in the areas of selection and performance appraisal, Dr.Pulakos has over 15 years experience conducting large-scale jobanalysis, selection, performance appraisal and career developmentprojects.A Fellow of the American Psychological Association (APA) and the Society forIndustrial and Organizational Psychology (SIOP), Dr. Pulakos is a successful authorand has written on the topics of staffing and performance management. She is a pastpresident of SIOP. In addition to authoring numerous publications, Dr. Pulakosrecently co-edited two books: The Changing Nature of Performance: Implications forStaffing, Motivation, and Development with Daniel Ilgen, and ImplementingOrganizational Interventions: Steps, Processes, and Best Practices with Jerry Hedge.Dr. Pulakos has spent her career conducting applied research in public and private sector organizations, where she has designed, developed, and successfully implementednumerous HR systems including staffing, performance management, and career development and training systems. Dr. Pulakos has also been extensively involved in providing expert advice on EEO-related legal matters, serving as an expert witness andadvisor to the Department of Justice, among others. Elaine received her Ph.D. inindustrial and organizational psychology from Michigan State University.ix

Effective Practice Guidelines forPerformance ManagementPerformance management systems, which typically include performance appraisal andemployee development, are the “Achilles’ heel” of human resources management. Theysuffer flaws in many organizations, with employees and managers regularly bemoaningtheir ineffectiveness. A recent survey by Watson Wyatt showed that only three out of10 workers agree that their company’s performance management system helps improveperformance. Less than 40 percent of employees said their systems established clearperformance goals, generated honest feedback or used technology to streamline theprocess. While these results suggest that there may be poorly designed performancemanagement systems in many organizations, it is typically not poorly developed toolsand processes that cause difficulties with performance management. Rather, difficultiesarise because, at its core, performance management is a highly personal and oftenthreatening process for both managers and employees.Managers are reluctant to provide candid feedback and have honest discussions withemployees for fear of reprisal or damaging relationships with the very individuals theycount on to get work done. Employees feel that their managers are unskilled at discussing their performance and ineffective at coaching them on how to develop theirskills. Many complain that performance management systems are cumbersome,bureaucratic and too time consuming for the value added. This leads both managersand employees to treat performance management as a necessary evil of work life thatshould be minimized rather than an important process that achieves key individualand organizational outcomes.Possible Outcomes from Effective Performance ManagementQClarifying job responsibilities and expectations.QEnhancing individual and group productivity.QDeveloping employee capabilities to their fullest extent through effective feedbackand coaching.QDriving behavior to align with the organization’s core values, goals and strategy.QProviding a basis for making operational human capital decisions (e.g., pay).QImproving communication between employees and managers.In spite of the difficulties, performance management is an essential tool for high performing organizations, and it is one of a manager’s most important responsibilities,1

2 Q Performance Managementif not the most important responsibility. Furthermore, done correctly, performancemanagement can result in numerous important outcomes for an organization, itsmanagers and employees. The goal of this booklet is to provide human resource(HR) professionals with useful guidelines for developing and implementing effectiveperformance management systems.Methodology for Developing Practice GuidelinesThe guidelines presented here draw upon the best of the academic research literatureon performance management, the writings of leading performance managementexperts and the experience of highly seasoned practitioners who have successfully ledthe development and implementation of state-of-art performance management systemsin their organizations. A total of 15 professionals from public and private sector organizations were interviewed to learn about the characteristics of the performance management systems they implemented, what factors were most important for success andwhat difficulties were encountered. Information from the research literature, best practice publications and the interviews was melded together to provide a roadmap fordeveloping, implementing and evaluating performance management systems thatreflect demonstrably effective and proven practices.Throughout the paper, many of the guidelines are discussed as being based on eitherresearch or practice. Research-based guidelines are those that can be supported by rigorous and systematic research studies that have been published in peer-reviewed academic journals. Practice-based guidelines are those that reflect a consensus of opinionbased on benchmarking, best practices and the guidance of leading professionals whohave had extensive experience in the field of performance management. The selectionof the references on which this booklet is based was a collaborative effort between theauthor and members of the SHRM editorial board who guided and reviewed thispaper. The citations are not included in the text, but rather appear in the section on“Sources and Suggested Readings” at the end of the paper.Overview of the Performance Management ProcessWhile research and experienced practitioners have identified several characteristics thatare prerequisites