(Continued from front flap) SERIES Smither Performance...

Professional PracticeS E R I E S

T H E

James W. Smither Manuel LondonEDITORS

Putting Research into Action

A Publication of the Society for Industrial and Organizational Psychology

Performance Management

Performance ManagementPutting Research into Action

The typical performance appraisal process puts

the emphasis on an annual evaluation of employee

performance. Performance management shifts the

focus to an ongoing process that includes setting and

aligning goals, coaching and developing employees,

providing informal feedback, formally evaluating

performance, and linking performance to recognition

and rewards.

Performance Managementa volume in the SIOP

Professional Practice Seriesoffers a compendium

of the most current thinking, strategies, and best

practices in performance management written by

leading academics, practitioners, consultants, and

researchers in the fi eld. The books seventeen chapters

include an introduction of the concepts and issues, a

review of theory and research, evidence-based best

practices, dozens of illustrative examples as well as

information on future directions, opportunities, and

challenges.

Written for human resource managers, consultants,

and line managers, this important resource contains

a wealth of information for implementing an effective

performance management system. The book includes

information on the:

14 features that help defi ne a successful

performance management system

7 drivers of alignment including the relationship

between alignment and fi nancial performance

5 factors that affect the impact of goal setting

11 steps to maximize the value of external

coaches

CEO and board performance management

process

The Editors

James W. Smither, Ph.D., is a consultant and scholar,

with years of corporate HR experience. He is a

professor in the Management Department at LaSalle

University. A prolifi c writer, he is also the editor of the

popular Performance Appraisal: State-of-the-Art in

Practice (from Jossey-Bass).

Manuel London, Ph.D., is associate dean and director

of the Center for Human Resource Management at the

College of Business at the State University of New York

at Stony Brook. He also has 12 years of corporate HR

experience. He is the co-author with Marilyn London

of First Time Leaders of Small Groups: How to Create

High-Performing Committees, Task Forces, Clubs, and

Boards from Jossey-Bass.

The Society for Industrial and Organizational

Psychology (SIOP) is a 3,000-member Division

within APA. The Professional Practice Series provides

practitioners and students with guidance, insights,

and advice on how to apply the concepts, fi ndings,

methods, and tools from I/O psychology to solve

human-related organizational problems.

www.josseybass.comJoin Us atJosseybass.com

Register at www.josseybass.com/emailfor more information on our publications,authors, and to receive special offers.

ORGANIZATIONAL DEVELOPMENT


SmitherLondoneditors

8 dimensions of national culture that shape

performance management processes

Role of technology in developing and using a

performance management system

6 assessment points that can be embedded in a

comprehensive performance management system

And much more

The contributors offer HR professionals a

comprehensive jargon-free understanding of the most

recent research, proven practices, and lessons learned

on performance management.

In this comprehensive and timely volume, Smither and London assemble

an exceptional collection of chapters on topics spanning the entire

performance management process. Written by leading researchers and

practitioners in the fi eld, these chapters draw on years of research and

offer a blueprint for implementing effective performance management

systems in organizations. This volume is a must-read for all those

interested in performance management.

John W. Fleenor, Ph.D., research director, Center for Creative

Leadership

The quintessential tool for the scientist-practitioner working on improving

the performance management system in their organization.

Sandy Lionetti, Ph.D., director, Talent Management, Leadership and

Organizational Development, GlaxoSmithKline Consumer Healthcare

Finally, a book that brings together the latest research fi ndings on a

very important process that needs to be executed with the greatest

effectiveness and effi ciency. The information is presented in a way that

an HR practitioner, like myself, can readily apply.

Gale H. Varma, executive vice president, Human Resources, Charming

Shoppes, Inc.

Praise for Performance Management

A new volume in the SIOP Professional Practice Series, Performance

Management provides a comprehensive resource of the most current

thinking, strategies, and best practices in performance management.

(Continued from front flap)

Cover images iStock

(Continued on back flap)

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ffirs.indd iffirs.indd i 7/1/09 11:19:33 AM7/1/09 11:19:33 AM

The Professional Practice Series

The Professional Practice Series is sponsored by The Society for Industrial and Organizational Psychology, Inc. (SIOP). The series was launched in 1988 to provide industrial and organizational psychologists, organizational scientists and practitioners, human resources professionals, managers, executives and those interested in organizational behavior and performance with volumes that are insightful, current, informative and relevant to organizational practice. The volumes in the Professional Practice Series are guided by fi ve tenets designed to enhance future organizational practice:

1. Focus on practice, but grounded in science 2. Translate organizational science into practice by generating guide-

lines, principles, and lessons learned that can shape and guide practice

3. Showcase the application of industrial and organizational psychol-ogy to solve problems

4. Document and demonstrate best industrial and organizational-based practices

5. Stimulate research needed to guide future organizational practice

The volumes seek to inform those interested in practice with guidance, insights, and advice on how to apply the concepts, fi ndings, methods, and tools derived from industrial and organizational psychology to solve human-related organizational problems.

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Previous Professional Practice Series volumes include:

Published by Jossey-Bass

Customer Service DeliveryLawrence Fogli, Editor

Employment Discrimination LitigationFrank J. Landy, Editor

The Brave New World of eHRHal G. Gueutal, Dianna L. Stone, Editors

Improving Learning Transfer in OrganizationsElwood F. Holton III, Timothy T. Baldwin, Editors

Resizing the OrganizationKenneth P. De Meuse, Mitchell Lee Marks, Editors

Implementing Organizational InterventionsJerry W. Hedge, Elaine D. Pulakos, Editors

Organization DevelopmentJanine Waclawski, Allan H. Church, Editors

Creating, Implementing, and Managing Effective Training and DevelopmentKurt Kraiger, Editor

The 21st Century ExecutiveRob Silzer, Editor

Managing Selection in Changing OrganizationsJerard F. Kehoe, Editor

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Evolving Practices in Human Resource ManagementAllen I. Kraut, Abraham K. Korman, Editors

Individual Psychological AssessmentRichard Jeanneret, Rob Silzer, Editors

Performance AppraisalJames W. Smither, Editor

Organizational SurveysAllen I. Kraut, Editor

Employees, Careers, and Job CreatingManuel London, Editor

Published by Guilford Press

Diagnosis for Organizational ChangeAnn Howard and Associates

Human Dilemmas in Work OrganizationsAbraham K. Korman and Associates

Diversity in the WorkplaceSusan E. Jackson and Associates

Working with Organizations and Their PeopleDouglas W. Bray and Associates

ffirs.indd ivffirs.indd iv 7/1/09 11:19:34 AM7/1/09 11:19:34 AM


Join Us atJosseybass.comJo

Register at www.josseybass.com/email for more information on our publications,authors, and to receive special offers.

ffirs.indd vffirs.indd v 7/1/09 11:19:34 AM7/1/09 11:19:34 AM

ffirs.indd viffirs.indd vi 7/1/09 11:19:34 AM7/1/09 11:19:34 AM

Performance ManagementPutting Research into Action

James W. Smither and

Manuel London, Editors

ffirs.indd viiffirs.indd vii 7/1/09 11:19:34 AM7/1/09 11:19:34 AM

Copyright 2009 by John Wiley & Sons, Inc. All rights reserved.

Published by Jossey-BassA Wiley Imprint989 Market Street, San Francisco, CA 94103-1741www.josseybass.com

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the Web at www.copyright.com. Requests to the publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, or online at www.wiley.com/go/permissions.

Readers should be aware that Internet Web sites offered as citations and/or sources for further information may have changed or disappeared between the time this was written and when it is read.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifi cally disclaim any implied warranties of merchantability or fi tness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profi t or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Jossey-Bass books and products are available through most bookstores. To contact Jossey-Bass directly call our Customer Care Department within the U.S. at 800-956-7739, outside the U.S. at 317-572-3986, or fax 317-572-4002.

Jossey-Bass also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books.

Library of Congress Cataloging-in-Publication Data Performance management : putting research into action / James W. Smither and Manuel London, editors. p. cm.(The professional practice series) Includes index. ISBN 978-0-470-19232-0 (cloth) 1. Career development. 2. Employee motivation. I. Smither, James W. II. London, Manuel. HF5549.5.C35P45 2009 658.3'128dc22

2009013926

Printed in the United States of Americafi rst editionHB Printing 10 9 8 7 6 5 4 3 2 1

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The Professional Practice Series

SERIES EDITORS

Allan H. ChurchPepsiCo Inc.

Janine WaclawskiPepsi-Cola North America

EDITORIAL BOARD

Timothy T. BaldwinIndiana University, Bloomington

Wayne F. CascioUniversity of Colorado

Kenneth P. De MeuseUniversity of Wisconsin, Eau Claire

Jerry W. HedgePersonnel Decisions Research Institute, Inc.

Catherine HiggsAllstate Insurance Company

Kenneth PearlmanLucent Technologies

James W. SmitherLaSalle University

Scott I. TannenbaumState University of New York, Albany

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To Robin, Amy, Sean, and my parentsJWS

To Marilyn, David, JaredML

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xi

Contents

Foreword xiii

Introduction xv

The Authors xxi

1 An Expanded View of Performance Management 1Herman Aguinis

2 Aligning Performance Management with Organizational Strategy, Values, and Goals 45William A. Schiemann

3 Practical Applications of Goal-Setting Theory to Performance Management 89Peter A. Heslin, Jay B. Carson, and Don VandeWalle

4 Coaching and Performance Management: How Can Organizations Get the Greatest Value? 115David B. Peterson

5 The Role of On-the-Job and Informal Development in Performance Management 157Paul Squires

6 Managing Team Performance in Complex Settings: Research-Based Best Practices 197Eduardo Salas, Sallie J. Weaver, Michael A. Rosen, and Kimberly A. Smith-Jentsch

7 CEO Performance Management 233Edward M. Mone

8 Performance Management in Multi-National Companies 271David V. Day and Gary J. Greguras

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9 Managing Contextual Performance 297Richard R. Reilly and Zvi H. Aronson

10 Using Performance Management As a Learning Tool 329Valerie I. Sessa, Christopher Pingor, and Jennifer Bragger

11 Diagnosing, Understanding, and Dealing with Counterproductive Work Behavior 359Leanne Atwater and Teri Elkins

12 Forced Rankings: Pros, Cons, and Practices 411Peter G. Dominick

13 Technology and Performance Management: What Role Does Technology Play in Performance Management? 445Autumn D. Krauss and Lori Anderson Snyder

14 Authentic Performance: The Valuation of Behavior as a Negotiated Business Outcome 491Thomas Diamante

15 Assessing Performance Management Programs and Policies 527Stanley B. Silverman and Wendy M. Muller

16 Performance Management of the Future 555Nancy T. Tippins and Susan H. Coverdale

17 Best Practices in Performance Management 585James W. Smither and Manuel London

Name Index 627

Subject Index 645

The Editors 667

xii Contents

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xiii

ForewordPerformance management is one of the cornerstones of Human Resource practice in organizations. No matter where you work, how big or small your organization or how simple or complex the business model, effective performance management is a key requirement if you have any number of employees. It all begins with performance management. Specifi cally, what are the jobs we need our employees to do, how do we measure their perfor-mance in these jobs, and how do we design and implement sys-tems to reinforce performance standards that have been set?

So, before an organization can even begin to think about the more lofty practice areas like individual assessment, talent man-agement, or succession planning it must be able to nail the basics of measuring day-to-day performance. Organizations who set their sights on hiring the best and the brightest and building a diverse work force must fi rst have a crystal clear understanding of what they are hiring people to do and how the will be deemed successful or not. Companies desiring to offer the very best train-ing and development or organization development programs must fi rst be able to assess the requirements of the jobs for which they are training and developing their leaders and managers.

That is why this topic and this volume are so critical to HR, I/O and OD practitioners alike. It is also one of the reasons why Janine and I reached out to Jim and Manny to commission this edition for the SIOP Professional Practice series. Both are excel-lent researchers, professionals, authors, and editors. Moreover, Jim's prior SIOP Professional Practice edition on performance appraisal from 1998 was very popular and we wanted them to take the discussion to the next level. With this volume we feel that they certainly have accomplished this mission. Whether its very current issues such as the Sarbanes-Oxley Act (SOX), CEO performance management and the role of the Board of Directors

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in that process, to the potential benefi ts and costs of instituting a forced ranking system, the content here should be of great ben-efi t to practitioners and managers alike. In addition, Jim and Manny have approached this edition with a very balanced scien-tist-practitioner perspective, so not only do the chapters cover the current state of the art of performance management, but there is also insight for academics into where future research might be most benefi cially directed.

Having evolved from performance appraisal to performance management over the last 10 years the fi eld has indeed shifted in its orientation. This volume displays the very latest thinking from an I/O psychology perspective regarding how you quantify, mea-sure and track performance in organizations. We hope that both practitioners and academics alike fi nd it useful in their work. Our sincerest thanks to Jim and Manny for taking the fi eld to the next level.

May 2009Allan H. Church Janine WaclawskiSeries Editors

xiv Foreword

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xv

Introduction Over the past decade or so, the term performance manage-ment has come to replace the phrase performance appraisal in many organizations. Whereas performance appraisal emphasized the (usually annual) evaluation of an employee s performance, performance management refers to an ongoing process that includes setting (and aligning) goals, coaching and developing employees, providing informal feedback, formally evaluating per-formance, and linking performance to recognition and rewards. The goal of this ongoing process is to enhance the employee s performance (as well as job satisfaction and commitment to the organization) and the performance of the organization.

This book contains seventeen chapters. Each offers useful guidelines for practitioners to enhance the quality of performance management systems and processes. The authors offer dozens of real - world examples to illustrate how performance management systems can be effectively designed and implemented. Unlike many pop management books, which are often fi lled merely with personal opinion, the chapters in this book draw on years of empirical research in industrial and organizational psychology. Doing so allows the authors to present evidence - based best prac-tices in performance management.

Some of the authors in this book are full - time practitioners who work for leading consulting fi rms that have collectively provided performance management support to hundreds of organizations. In addition to their strong hands - on experience, our practitio-ner authors are especially valued because they have all published their work in leading peer - refereed journals. Other authors in this book are located at universities where they have spent years conducting and publishing research related to performance man-agement. But nearly all of our academic authors bring years of consulting or corporate experience to their writing.

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xvi Introduction

In sum, this is a book written by scientist - practitioners and we hope it exemplifi es the scientist - practitioner model at its best.

The central goal of this book is to distill lessons from research that are of value to practitioners (including human resource managers, consultants, and line managers who are at the heart of the performance management process). The authors have tried to provide the reader with a brief and non - technical understand-ing of what research studies have learned about performance management and the implications of this research for practi-tioners. The result includes what we believe are evidence - based suggestions that can guide the reader s efforts to design and implement performance management systems and processes.

Overview of Chapters Herman Aguinis ( An Expanded View of Performance Management ) provides a broad overview of performance man-agement. He describes the many purposes that can be served by performance management systems, presents a six - stage perfor-mance management process, and identifi es fourteen features associated with effective performance management systems.

William Schiemann ( Aligning Performance Management with Organizational Strategy, Values, and Goals ) describes the importance of alignment for large and small companies (includ-ing the relationship between alignment and fi nancial perfor-mance). He reviews seven drivers of alignment while emphasizing the pivotal role played by a company s culture. He also provides a detailed case study that illustrates the process of linking orga-nizational vision, strategy, and goals to behaviors. He concludes by describing four core elements that distinguish organizations with effective performance management systems from other organizations.

Peter Heslin, Jay Carson, and Don VandeWalle ( Practical Applications of Goal - Setting Theory to Performance Management ) note that the results from goal setting depend on fi ve factors: goal commitment, task complexity, goal framing, team goals, and feed-back. They describe recent research developments and present straightforward guidelines to help practitioners manage each of these fi ve factors to enhance performance management.

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Introduction xvii

David Peterson ( Coaching and Performance Management: How Can Organizations Get the Greatest Value? ) begins by pre-senting a continuum of organizational approaches to coaching that evolves from completely unstructured and ad hoc to rela-tively strategic and systemic. He then describes the Development Pipeline, a model of the fi ve necessary and suffi cient conditions for any type of systematic development, and its application to coaching. He then illustrates the differences in conversations when coaching is primarily forward - looking and developmen-tal in nature from those in which the person being coached is underperforming or not meeting important expectations. He also reviews the pros and cons of using internal versus external coaches and offers an eleven - step approach to maximize the value of external coaches.

Paul Squires ( The Role of On - the - Job and Informal Development in Performance Management ) begins by defi ning informal learning (where on - the - job training is considered a spe-cifi c instance of informal learning). He then describes character-istics of the workplace and the worker that lead to more effective informal learning. He concludes with practical recommendations (and two real - world examples) to facilitate informal learning.

Eduardo Salas, Sallie Weaver, Michael Rosen, and Kimberly Smith - Jentsch ( Managing Team Performance in Complex Settings: Research - Based Best Practices ) describe four capacities ( adaptive capacity, leadership capacity, management capacity, and technical capacity) required for team effectiveness and use these capacities as a framework that can guide the performance management process in team settings. They present a set of best practices drawn from their practical experience as well as the team, performance man-agement, project management, and human resources literature.

Edward Mone ( CEO Performance Management ) reviews events of the last ten to fi fteen years that have shaped the business landscape, executive compensation, and the evaluation of CEOs. He uses a detailed, real - world example to describe the CEO per-formance management process (including goal setting, feedback, CEO appraisal, and compensation) and then compares this process to best practices in this area. He also offers guidelines to increase the effectiveness of the board of directors (including the composition of the board and compensation of its members).

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xviii Introduction

David Day and Gary Greguras ( Performance Management in Multi-National Companies ) address the challenge faced by multi-national companies in dealing with national culture as they design and implement performance management processes. Using Project GLOBE as a framework, they briefl y review and describe the performance management implications of eight dimensions (performance orientation, future orientation, gender egalitarianism, assertiveness, individualism and collectivism, power distance, humane orientation, and uncertainty avoidance) that can be used to describe national culture. They note the danger of taking generalizations based on cultural dimensions too far and discuss the role of organizational culture versus national cul-ture in shaping performance management practices. They con-clude with eleven recommendations for practice.

Richard Reilly and Zvi Aronson ( Managing Contextual Performance ) begin by defi ning contextual performance (distin-guishing it from task performance) and then review the anteced-ents and outcomes of contextual performance. Next, they describe issues associated with managing contextual performance, includ-ing appraising contextual performance, recognizing and rewarding contextual performance, the effect of the feedback environment on contextual performance, whether contextual performance does (or should) infl uence career development and advancement, and legal considerations.

Valerie Sessa, Christopher Pingor, and Jennifer Bragger ( Using Performance Management As a learning Tool ) pres-ent a case that illustrates how performance management can be used to transform an organization s culture to a performance and learning culture in which adaptive, generative, and transfor-mative employee learning occurs. They describe how a self - learn-ing component can be added to a performance management system.

Leanne Atwater and Teri Elkins ( Diagnosing, Understanding, and Dealing with Counterproductive Work Behavior ) begin by describing the nature, prevalence, and consequences of counter-productive work behavior (CWB), including abuse against others (such as incivility, workplace violence, and sexual harassment) and production deviance (including poor performance, sabotage, theft, and withdrawal behaviors). Next they address the issue of

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Introduction xix

diagnosing the causes of CWB (including a variety of individual and job - context factors). They also review a variety of approaches to dealing with CWB and offer recommendations for best practice.

Peter Dominick ( Forced Rankings: Pros, Cons, and Practices ) describes in detail the potential advantages and risks associated with forced ranking systems. For organizations that elect to imple-ment such a system, he presents important questions and issues related to their design and implementation.

Autumn Krauss and Lori Anderson Snyder ( Technology and Performance Management: What Role Does Technology Play in Performance Management? ) describe the role that technology can play when developing and using a performance management system. They begin by reviewing electronic performance monitor-ing and performance management of telecommuting workers. They then illustrate how technology can support various purposes of performance management, including strategic, administrative, informational, developmental, organizational maintenance, and documentation. Next they describe how technology can help com-municate the organization s mission and priorities and ensure that priorities are in alignment across the organization, as well as facilitate performance planning, execution, and assessment. They address issues and complications (such as information overload, overexposure, time requirements, overreliance on automation, miscommunication, technology literacy) that can accompany the use of technology and conclude with recommendations for imple-menting a technology - based performance management system.

Thomas Diamante ( Authentic Performance: The Valuation of Behavior as a Negotiated Business Outcome ) describes per-formance negotiation as the ongoing process by which a supervi-sor and employee arrive at an agreement about the value of an employee s contribution to business. He fi rst presents a systemic model of the components of performance negotiation. Next, he describes a fi ve - step approach to valuing employee performance and concludes with a case study that illustrates the process.

Stanley Silverman and Wendy Muller ( Assessing Performance Management Programs and Policies ) present a model of six assessment points that can be embedded in a comprehensive performance management system, and they illustrate the appli-cation of their assessment model using the case of a hypothetical

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xx Introduction

manufacturing company. Throughout the chapter, they provide detailed guidance for organizations that seek to assess the impact of their performance management system.

Nancy Tippins and Susan Coverdale ( Performance Management of the Future ) review current worker and workplace trends that are likely to have an effect on performance management programs of the future and describe sixteen ways that performance manage-ment programs will need to be adapted to remain effective.

We ( Jim Smither and Manny London, Best Practices in Performance Management ) conclude by drawing on the insights and recommendations of the authors who contributed chapters to this book, as well as other research, to develop a sketch of best practices in performance management.

Acknowledgments This book refl ects the efforts and talents of many people. We thank Allan H. Church and Janine Waclawski, editors of the Professional Practice Series, for giving us the opportunity to edit this volume. We are also grateful to the Society for Industrial and Organizational Psychology for sponsoring this series and volume. Most importantly, we are deeply indebted to the thirty - one authors who contributed to this book. Each contributed an enormous amount of time, energy, and expertise. This is really their book, not ours. Finally, we thank our families, friends, and colleagues for their patience and support.

Jim Smither and Manny London

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xxi

The Authors Herman Aguinis is a professor of organizational behavior and human resources and dean s research professor at Indiana University s Kelley School of Business. His research is interdisci-plinary and addresses organizational behavior, human resource management, and research methods and analysis. He is the author of Performance Management (2nd ed.), Applied Psychology in Human Resource Management (6th ed.) with W. F. Cascio, and Regression Analysis for Categorical Moderators . He has edited two addi-tional books: Opening the Black Box of Editorship (with Y. Baruch, A. M. Konrad, and W. H. Starbuck) and Test - Score Banding in Human Resource Selection . In addition, he has written about seventy refereed journal articles in JAP, PPsych, AMR, AMJ, OBHDP, and else-where. He is a Fellow of the American Psychological Association, the Association for Psychological Science, and the Society for Industrial and Organizational Psychology and is past editor - in - chief of Organizational Research Methods .

Zvi H. Aronson is a senior lecturer at Stevens Institute of Technology, where he teaches courses in applied psychology. He has two main research interests: the role of personality in project leader and team performance and the role that culture plays in project success. His work has appeared in the International Journal of Selection and Assessment, the Journal of Engineering and Technology Management , and in several book chapters. Zvi serves as a reviewer for the Journal of Engineering and Technology Management . Earlier work experiences in applied psychology at Bakara Ltd., Israel, included training and selection. He also serves as the head of the Institute Review Board at Stevens Institute of Technology. Dr. Aronson earned his B.A. in behavioral sciences from Ben - Gurion University in Israel and his Ph.D. in applied psychology from Stevens Institute of Technology.

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xxii The Authors

Leanne Atwater is professor of management and chair of the management department in the C.T. Bauer College of Business at the University of Houston. She received her Ph.D. from Claremont Graduate School. Her areas of research include lead-ership, feedback processes, and employee discipline. She has published over fi fty scholarly articles in journals such as Journal of Applied Psychology, Personnel Psychology, Journal of Management, Leadership Quarterly, Journal of Organizational Behavior, Human Resource Management Journal , and Journal of Organizational and Occupational Psychology. She has co - authored two scholarly books entitled The Power of 360 Degree Feedback and Leadership, Feedback, and the Open Communication Gap, as well as many book chapters. Dr. Atwater serves on the editorial boards of Leadership Quarterly, Military Psychology, and Group and Organization Management. Dr. Atwater is a Fellow in the Society for Industrial and Organizational Psychology and a member of the Academy of Management.

Jennifer Bragger is an associate professor of industrial and orga-nizational psychology at Montclair State University. She received her Ph.D. in social and organizational psychology from Temple University. She has also taught at The College of New Jersey and worked at the Institute for Survey Research at Temple University. Dr. Bragger has done consulting in the areas of sta-tistical analysis, personnel selection and validation, assessment center rating, and organizational health and safety for Cigna, Prudential, MetLife, and Schering Plough. Her research activi-ties include bias in selection and performance appraisal, the job interview, stereotype threat in organizational settings, work-fam-ily confl ict, and escalation of commitment. Her recent publica-tions have appeared in the Journal of Applied Psychology, Journal of Applied Social Psychology, Journal of Organizational Behavior, Journal of Business and Psychology, Public Personnel Management, and the Academy of Management Review.

Jay B. Carson ([email protected]) is an assistant professor of management and organizations at the Edwin L. Cox School of Business, Southern Methodist University. He received his Ph.D. in organizational behavior with a minor in human resource man-agement and strategy from the Robert H. Smith School of Business, University of Maryland. He teaches courses in organizational

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The Authors xxiii

behavior, management, and teams to undergraduates, MBAs, and executives. His research has been published in the Academy of Management Journal and in book chapters. His primary research interests are in teams, leadership, and cross-cultural issues, with a current focus on shared leadership, internal team leadership, ethi-cal leadership, and team goal alignment.

Susan H. Coverdale is a principal in the Selection Practice Group at Valtera. Her primary responsibilities include develop-ment and validation of employee selection systems as well as man-agerial and executive level assessment. Before joining Valtera, she worked as an independent consultant providing human resources consulting services in the areas of employee selection, performance evaluation, training program development and facilitation, employee surveys, executive assessment and coach-ing, succession planning, and management development. Prior to establishing her own consulting business, Dr. Coverdale pro-vided a wide range of consulting services through her associa-tion with HReasy and Lopez and Associates, Inc. She began her career as the coordinator of career development for Conoco, Inc. Dr. Coverdale received her Ph.D. in industrial and organiza-tional psychology from the University of Houston. She is a mem-ber of the American Psychological Association and the Society for Industrial and Organizational Psychology.

David V. Day is the Woodside Professor of Leadership and Management in the School of Business at the University of Western Australia. Since 1999 he has also held the position of adjunct research scientist with the Center for Creative Leadership. Dr. Day serves as an associate editor of the Journal of Applied Psychology , Leadership Quarterly, and Human Resource Management Review and is a consulting editor for several other journals in the fi elds of management and industrial - organizational psychology. Dr. Day is a member of the Academy of Management, American Psychological Society, International Leadership Association, International Association of Applied Psychology, Society of Organizational Behavior, and Fellow of the American Psychological Association and the Society for Industrial and Organizational Psychology. He received his Ph.D. in industrial - organizational psy-chology in 1989 from the University of Akron.

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xxiv The Authors

Thomas Diamante is senior vice president at Corporate Counseling Associates, a human capital consulting fi rm. His practice is focused on executive development, talent management, selection and advancement planning, performance management, and organiza-tional change management. He is formerly of Merrill Lynch, where he was vice president, corporate strategy and development, in Global Securities Research and Economics. Prior to Merrill Lynch, Dr. Diamante was a senior manager and lead change consultant for KPMG Consulting. Earlier in his career he was national manager, human resources and professional development, at Philip Morris Companies (Altria). Dr. Diamante holds a Ph.D. in industrial and organizational psychology from The Graduate Center, City University of New York, as well as the M. Phil. from the same insti-tution. His B.A. in psychology is from Stony Brook University. He is a New York State licensed psychologist and complemented his industrial degree with post - doctoral training in clinical psychology at the Institute for Behavior Therapy in New York. He is a member of the Associate s Council, Children s Aid Society, and serves on the board of directors for ENACT, Inc., a non - profi t focused on social, emotional, and intellectual development of at - risk New York City schoolchildren.

Peter G. Dominick is a faculty member at Stevens Institute of Technology, where he is coordinator of leadership development education within the W.J. Howe School s Executive MBA, Project Management, and Undergraduate Business and Technology pro-grams. His consulting work includes executive coaching, team building, and process consultation. He has also developed selec-tion, assessment, and skill - building programs for a variety of civil, corporate, and educational organizations. Leadership and behav-ioral skills development are major themes in his writing and research. Other research interests include project leadership and virtual team effectiveness. Dr. Dominick received his Ph.D. in applied psychology from Stevens, earned his M.A. in organiza-tional psychology from Columbia University, and completed his undergraduate studies in industrial and labor relations at Cornell University. In 2005, he received the Howe School s Outstanding Teacher Award and in 2007 was the recipient of the Harvey N. Davis Award for Distinguished Teaching.

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The Authors xxv

Teri Elkins is an associate professor of management and the fac-ulty and staff ombudsperson at the University of Houston, where she joined the faculty in 1997. Dr. Elkins received her undergrad-uate degree from Baylor University and a Ph.D. and J.D. from the C.T. Bauer College of Business, University of Houston. She teaches in the areas of business law, employment law, managerial communication, human resource management, confl ict manage-ment, and organizational behavior and coordinates an internship program with the Equal Employment Opportunity Commission. Dr. Elkins has published scholarly articles on the topics of employment discrimination, sexual harassment, employee selection practices, affi rmative action plans, leadership, and academic internship programs. Her articles have appeared in the Journal of Applied Psychology, Journal of Applied Social Psychology , Leadership Quarterly, Sex Roles , SAM Advanced Management Journal , International Journal of Innovation and Technology Management , Journal of Managerial Issues , and the Journal of Occupational Health Psychology . Dr. Elkins is a member of the Academy of Management, International Ombudsman Association, and the Association, for Confl ict Resolution.

Gary J. Greguras is an associate professor of organizational behavior and human resources in the Lee Kong Chian School of Business at Singapore Management University. He received his Ph.D. in industrial-organizational psychology in 1998 from Bowling Green State University. His research interests include performance measurement and development, personality, and job attitudes. He currently serves on the editorial boards of the Journal of Applied Psychology, Journal of Management, and Human Performance.

Peter A. Heslin is an assistant professor of management at the Cox School of Business, Southern Methodist University, Dallas, Texas. He has two main research interests: the nature of career success in different contexts and how managers implicit assump-tions affect their performance appraisals, coaching, and justice. He teaches graduate courses in organization behavior, lead-ing organizational change, and managing across cultures. Dr. Heslin has consulted in these areas to corporations, including

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xxvi The Authors

Autumn D. Krauss is a senior scientist at Kronos Talent Management, responsible for the development of technology - enabled talent management solutions. One of her research and practice focuses is the identifi cation of relevant behavioral compe-tencies that can support talent management practices (for example, selection, performance appraisal) and how these competency - based processes can be supported through technology. She has served as the principal investigator and co - principal investigator on grant projects funded by the Centers for Disease Control and Prevention and the National Institute for Occupational Safety and Health. Dr. Krauss earned her master s and doctorate degrees in industrial/organizational psychology from Colorado State University, and a bachelor of arts degree in psychology and busi-ness administration from La Salle University in Philadelphia.

Edward M. Mone has more than twenty - fi ve years of experience in career, leadership, and organization change and development. He is currently vice president for organization development at CA, Inc., where he is responsible for such functions as manage-ment and leadership training and development, succession plan-ning, the company - wide employee opinion survey and employee research, and performance management and career develop-ment systems. He was previously vice president for organization development at Cablevision and director of people processes and systems at Booz Allen Hamilton, Inc. He was HR division man-ager for strategic planning and development at AT & T. Before that, he was a partner in an outplacement and career manage-ment fi rm. He is an adjunct faculty member at the College of Business, State University of New York at Stony Brook. He holds an M.A. in counseling psychology and has completed doctoral

Citibank, IBM, Zurich Insurance, KPMG, and Procter & Gamble. He has authored or co-authored over a dozen articles in journals such as the Journal of Applied Psychology, Journal of Organizational Behavior, and Personnel Psychology. He serves on fi ve editorial boards, including Applied Psychology: An International Review, Journal of Occupational and Organizational Behavior, and the Journal of Organizational Behavior. Dr. Heslin received his Ph.D. in orga-nizational behavior and human resource management from the Rotman School of Management, University of Toronto.

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The Authors xxvii

coursework at Teachers College, Columbia University. He has co - authored and co - edited books, book chapters, and articles in the areas of human resources and organization development, including HR to the Rescue: Case Studies of HR Solutions to Business Challenges and Fundamentals of Performance Management . He is president of Edward M. Mone & Associates, a fi rm specializing in organization and leadership development.

Wendy M. Muller is currently a doctoral candidate in industrial/organizational psychology at The University of Akron. Her research interests include performance management, emotional labor, and motivation.

David B. Peterson, senior vice president and practice leader for Personnel Decisions International s worldwide coaching services, is an internationally recognized expert on coaching and execu-tive development. His expertise is particularly helpful to orga-nizations in creating strategic advantage through learning and development. He is the author of groundbreaking research show-ing that coaching produces signifi cant and lasting changes as rated by the individuals themselves and their bosses at a mag-nitude three times greater than conventional training programs. Dr. Peterson joined PDI in 1985 and became practice leader for coaching services in 1990. With colleague Mary Dee Hicks, he has authored two best - selling books: Development FIRST: Strategies for Self - Development and Leader As Coach: Strategies for Coaching and Developing Others . In demand as a speaker, Dr. Peterson has been quoted in publications, including The Wall Street Journal, Fortune, Time, Harvard Business School Newsletter, Investor s Business Daily, CFO, Training, The Washington Post, and USA Today. He received his Ph.D. in industrial/organizational and counseling psychology from the University of Minnesota.

Christopher Pingor is a student at Montclair State University and is currently working on his thesis in the area of readiness to learn. His current areas of interest include employee motivation and life stages, organizational learning, job interviews, performance man-agement, grounding and communication among couples, and the psychology of magic. He currently works as an account executive at The Essex Companies in New York City. He completed his B.A.

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xxviii The Authors

in psychology from Montclair State University and is currently completing a master s degree in psychology with a concentration in industrial and organizational psychology.

Richard R. Reilly is emeritus professor of technology manage-ment at Stevens Institute of Technology, where he headed Ph.D. programs in applied psychology and technology management. He has been a research psychologist for Bell Laboratories, AT&T, and Educational Testing Service, as well as a consultant to gov-ernment and industry in areas such as assessment, innovation, and organizational performance. He has published over sev-enty articles in journals and has authored several books, includ-ing Blockbusters: The Five Keys to Developing Great New Products with Gary Lynn and Uniting the Virtual Workforce: Transforming Leadership and Innovation in the Globally Integrated Enterprise with Karen Sobel Lojeski. He is on the advisory board of the Institute of Innovation and Information Productivity and is an advisor to the National Board of Medical Examiners on physician behavior. Dr. Reilly is certifi ed with the American Board of Professional Psychology and is on the editorial board of Personnel Psychology and the International Journal of E - Collaboration . He is a Fellow of the American Psychological Association and the American Psychological Society. Dr. Reilly earned his bachelor of science from Fordham University and his Ph.D. in organizational psy-chology from the University of Tennessee.

Michael A. Rosen is a doctoral candidate in the Applied Experimental and Human Factors Psychology Program at the University of Central Florida and has been a senior graduate research associate at the Institute for Simulation and Training since the fall of 2004, where he won the student researcher of the year in 2006. He is currently a MURI - SUMMIT gradu-ate research fellow and focuses on developing theory, meth-ods, and tools for understanding and measuring cognitive and social processes in team problem solving. His research interests include individual and team decision making and problem solv-ing, human - computer interaction, performance measurement, and simulation - based training in high - stress, high - stakes domains such as healthcare and the military. He has co - authored over

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The Authors xxix

twenty peer - reviewed journal articles and book chapters related to these interests, as well as numerous proceedings papers and presentations at national and international conferences.

Eduardo Salas is a trustee chair and Pegasus Professor of Psychology at the University of Central Florida. He has co - authored more than three hundred journal articles and book chapters, has edited eighteen books, has served or is on fi fteen edito-rial boards, is past editor of Human Factors journal and current associate editor of the Journal of Applied Psychology . His expertise includes assisting organizations in fostering teamwork, designing and implementing team training strategies, facilitating training effectiveness, managing decision making under stress, and devel-oping performance measurement tools.

William A. Schiemann is founder and CEO of Metrus Group, an organizational and research advisory fi rm headquartered in Somerville, New Jersey. Metrus Group specializes in strategy devel-opment, performance measurement, and employee alignment. For the past twenty - fi ve years, Dr. Schiemann and his colleagues have consulted extensively on the development and implementa-tion of business strategies and balanced scorecards, employee and customer surveys, performance management and measurement, productivity and quality improvement, and mergers and acquisi-tions. Dr. Schiemann speaks internationally before a wide number of public and private audiences and is author of Reinventing Talent Management: How to Maximize Performance in the New Marketplace and co - author of Bullseye! Hitting Your Strategic Targets Through High - Impact Measurement . He has also written extensively for many man-agement and professional publications. Dr. Schiemann received a Ph.D. in organizational psychology from the University of Illinois and is the recipient of the prestigious Distinguished Alumnus Award from the University of Illinois.

Valerie I. Sessa is an associate professor of industrial and organi-zational psychology at Montclair State University in New Jersey. Previously, she was a research scientist and director at the Center for Creative Leadership in Greensboro, North Carolina. Dr. Sessa has also worked as a consultant in a variety of areas, most recently

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xxx The Authors

assessing middle and high - potential managers using instruments, behavioral assessment centers, and feedback. Consulting activi-ties include Bellevue Medical Center, Ciba - Geigy Pharmaceuticals, Citibank, New York Hospital System, and Xerox. Her research interests include continuous learning at the individual, group, and organizational levels, managing team effectiveness, and exec-utive assessment and selection. Dr. Sessa is the author of Executive Selection: Strategies for Success (with Jodi Taylor), Continuous Learning in Organizations: Individual, Group, and Organizational Perspectives , and Work Group Learning: Understanding, Improving, and Assessing How Groups Learn in Organizations (both with Manny London). Her research publications have appeared in Consulting Psychology Journal, Industrial and Commercial Training, Human Resource Development Review, Journal of Applied Behavioral Science, Journal of Applied Psychology, Journal of Management Development, and The Psychologist Manager Journal . Her work has also appeared in such periodicals as BusinessWeek, Fast Company , and The Harvard Business Review . Dr. Sessa received her B.A. in psychology from the University of Pennsylvania and her masters and doctoral degrees in industrial and organizational psychology from New York University.

Stanley B. Silverman is currently dean of Summit College and professor of social science at The University of Akron. He has advised some of the largest organizations in the world and is co - author of the book, Working Scared: Achieving Success in Trying Times. His work has been published in major journals and he has been a guest on the Today Show discussing workplace issues. In addition to performance management, his current research focuses on arrogance in the workplace.

Kimberly Smith - Jentsch is an assistant professor in the Department of Psychology at the University of Central Florida and the director of the Team and Workforce Development Laboratory. She has authored numerous articles in the Journal of Applied Psychology, Personnel Psychology , and the Journal of Organizational Behavior , as well as in ten book chapters and over fi fty conference presentations. Additionally, her research has produced a num-ber of applied products and numerous performance and shared cognition metrics that have been used by Navy, law enforcement, and FAA air traffi c control personnel. Dr. Smith - Jentsch has been

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The Authors xxxi

honored as a NAVAIR Senior Scientist, awarded the Dr. Arthur E. Bisson award for Naval Technology Achievement, and the M. Scott Meyers award for applied research in the workplace by the Society for Industrial and Organizational Psychology.

Lori Anderson Snyder is an assistant professor in the Department of Psychology at the University of Oklahoma. Dr. Snyder received her master s and doctorate degrees in industrial/organizational psychology from Colorado State University. Her research interests include occupational health, diversity and discrimination, and developmental performance feedback. She has recently pub-lished research on these topics in Research in Personnel and Human Resource Management, Journal of Applied Social Psychology, and Research in Organizational Stress and Well - Being. She is part of a research team that was awarded the Douglas W. Bray and Ann Howard Award from the Society for Industrial and Organizational Psychology in 2005 for assessment center research focused on leadership development and is currently funded by the National Science Foundation to promote recruitment, retention, and leadership of women at the University of Oklahoma.

Paul Squires is president of Applied Skills & Knowledge, Inc. He is an industrial psychologist with twenty - fi ve years of expe-rience with organizational assessment and design, process improvement, training development, performance management, assessment development and validation, computer - based train-ing, and project management. Prior to starting AS & K in 1999, he was vice president and practice manager for Assessment Solutions Inc. Training and Development Services. Dr. Squires client list includes PricewaterhouseCoopers, KPMG, Merrill Lynch, Bristol - Myers - Squibb, IRS, Siemens, the U.S. Department of Labor, Motorola, Hewlett - Packard, Avon, and Novartis, to name a few. Prior to his consulting career, Dr. Squires held senior positions at AT & T Corporate Human Resources, with primary responsibility for selection, testing, employment and staffi ng, internal staffi ng systems, and employee development. He was director of Lucent Technologies Microelectronics International University, respon-sible for developing a single world - wide training organization providing support to eighteen thousand employees. He holds a Ph.D. in educational psychology from Fordham University.

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xxxii The Authors

Nancy T. Tippins is a senior vice president and managing principal of Valtera Corporation, where she is responsible for the devel-opment and execution of fi rm strategies related to employee selection and assessment. She has extensive experience in the development and validation of selection tests and other forms of assessment, including performance appraisals for all levels of management and hourly employees as well as in designing per-formance management programs and leadership development programs. Prior to joining Valtera, Dr. Tippins worked as an internal consultant in large Fortune 100 companies (Exxon, Bell Atlantic, GTE) developing and validating selection and assess-ment tools. Dr. Tippins is active in professional affairs and is a past president of SIOP. She is a Fellow of the Society for Industrial and Organizational Psychology (SIOP), the American Psychological Association (APA), and the American Psychological Society (APS). Dr. Tippins received M.S. and Ph.D. degrees in industrial and orga-nizational psychology from the Georgia Institute of Technology.

Don VandeWalle ([email protected]) is the chair of the Management and Organizations Department at the Cox School of Business at Southern Methodist University. His research interests include goal orientation, feedback-seeking behav-ior, self-regulation, and the infl uence of implicit theory beliefs on leadership behavior. Dr. VandeWalles published research includes articles in the Journal of Applied Psychology, the Journal of Management, Personnel Psychology, and the Journal of Organizational Behavior. He currently serves on the editorial boards of the Journal of Applied Psychology and Organizational Behavior and Human Decision Processes. Dr. VandeWalle earned his Ph.D. in organi-zational behavior and strategic management from the Carlson School of Management at the University of Minnesota.

Sallie J. Weaver is a doctoral student in the industrial/organizational psychology program at the University of Central Florida (UCF). She earned her B.S. from Florida State University with a concen-tration in performance management and her M.S. from UCF. As a graduate research associate at the Institute for Simulation and Training, she is a lead student on multiple applied organiza-tional training and evaluation projects. Her research interests include individual and team training, simulation, organizational culture, aging in the workforce, and metric development.

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1

CHAPTER 1

AN EXPANDED VIEW OF PERFORMANCE MANAGEMENT * Herman Aguinis

An Expanded View of Performance Management The purpose of this chapter is to provide an expanded view of the performance management process that subsumes the traditional I/O psychology performance appraisal literature. It is an expanded view in relation to the traditional I/O psychology treatment of the topic in fi ve different ways. First, it goes beyond an almost exclusive emphasis, some would say almost an obsession, on the measurement of performance and includes a consideration of what happens before and after performance is measured (that is, the role of time and context). Second, although the I/O

*This research was conducted in part while Herman Aguinis held the Mehalchin Term Professorship in Management at the University of Colorado Denver and visiting appointments at the University of Salamanca (Spain) and University of Puerto Rico. I thank Charles A. Pierce, Manuel London, and Jim W. Smither for comments on previous drafts. This chapter includes material from and is based on the following book: Aguinis, H. (2009). Performance management (2nd ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

Address correspondence to Herman Aguinis, Professor of Organizational Behavior and Human Resources and Deans Research Professor, Kelley School of Business, Indiana University (email: [email protected]).

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2 Performance Management

psychology literature treats the topic as being almost exclusively in the industrial psychology domain, this chapter places perfor-mance management equally in the industrial psychology and orga-nizational psychology domains (cf. Aguinis & Pierce, 2008 ). Third, the chapter goes beyond an almost exclusive emphasis on the individual level of analysis by considering unit - and organizational - level strategic goals and team performance. Fourth, it goes beyond the traditional performance appraisal literature and considers the explicit link between performance assessment and administrative decisions (for example, allocation of rewards, promotions). Fifth, it is an expanded view because it relies on research produced by other fi elds such as communication, education, information sys-tems, international business, marketing, organizational behavior, public administration, social psychology, sociology, and business strategy. My hope is that this chapter s expanded view of the per-formance management process will make a contribution toward the closing of the science - practice gap in the area of performance management.

The Science - Practice Divide and Performance Management There is a documented gap between research conducted by human resource management (HRM) and industrial and orga-nizational (I/O) psychology academics and the practice of HRM and I/O psychology in organizations. For the most part, academics conduct research on topics only tangentially relevant to practi-tioners and, on the other side of the divide, practitioners imple-ment practices that do not seem to be based on rigorous research (Cascio & Aguinis, 2008a; Rynes, Colbert, & Brown, 2002 ; Rynes, Giluk, & Brown, 2007 ). Muchinsky ( 2004 ) noted that, unfortu-nately, researchers, in general, are not necessarily concerned about how their theories, principles, and methods are put into practice outside of academic study. In fact, Latham ( 2007 ) recently issued a severe warning that We, as applied scientists, exist largely for the purpose of communicating knowledge to one another. One might shudder if this were also true of another applied science, medi-cine (p. 1,031). On the other hand, Muchinsky ( 2004 ) noted that practitioners, in general, are deeply concerned with matters of

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An Expanded View of Performance Management 3

implementation. This increasing science - practice schism is partic-ularly puzzling in the case of I/O psychology because the fi eld was created and seems to be predicated fundamentally on the prin-ciples of the scientist - practitioner model (Bass, 1974 ; Dunnette, 1990 ; McHenry, 2007 ; Murphy & Saal, 1990 ; Rupp & Beal, 2007 ).

The general science - practice gap is particularly evident in the area of performance management. Practitioners are interested in several issues directly related to performance management, including talent management, leadership development, inten-sifi cation of work as employers try to increase productivity with fewer employees, and managing change (Fay, 2006 ; Schramm, 2006 ; Schwind, 2007 ). On the other hand, a review by Cascio and Aguinis ( 2008a ) showed that the fi ve most popular topics published in the Journal of Applied Psychology ( JAP) from 2003 to 2007 are (1) job satisfaction/attitudes/involvement/commit-ment; (2) work groups/teams; (3) performance appraisal/feed-back; (4) organizational cultures, climates, policies, citizenship; and (5) behavior, prediction of processes, and outcomes. That same review found that the fi ve most popular topics published in Personnel Psychology (PPsych) also between 2003 and 2007 are (1) behavior, prediction of processes and outcomes; (2) perfor-mance appraisal/feedback; (3) psychometrics/testing issues; (4) test validity/validation issues; and (5) work groups/teams (Cascio & Aguinis, 2008a).

Three conclusions can be drawn from this information. First, given that Cascio and Aguinis ( 2008a ) coded the articles pub-lished in JAP and PPsych using fi fty different categories, the con-gruence between the two lists of the top fi ve most popular topics is remarkable and suggests that these publication trends are sound indicators of common, underlying trends in the research produced in the fi eld of I/O psychology. Second, a comparison of the topics in which practitioners are interested with those in which academics are interested shows tangential overlap only. While the topic performance appraisal/feedback is included on the lists for both journals, the majority of articles address topics that are not suffi ciently broad to address practitioner concerns about talent management and leadership development, to men-tion just two. The third conclusion is that practitioners interested in implementing sound research - based performance management

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practices can rely on the research produced by HRM and I/O psychology (for example, performance appraisal). However, given the tangential overlap between practitioner interests and publica-tion trends in I/O psychology, there is a need to go beyond HRM and I/O psychology into additional fi elds of study.

The organization of the chapter is as follows. The fi rst section defi nes performance management and describes six key pur-poses served by performance management systems. The second section describes the performance management process. The third and fi nal section describes performance management best practices. For a more detailed discussion of each of the issues dis-cussed in this chapter, see Aguinis ( 2009 ).

What Is Performance Management? Consider the following situation (Aguinis, 2009 , p. 2):

Sally is a sales manager at a large pharmaceutical company. The fi scal year will end in one week. She is overwhelmed with end - of - the - year tasks, including reviewing the budget she is likely to be allocated for the following year, responding to customers phone calls, and supervising a group of ten salespeople. It s a very hectic time, probably the most hectic time of the year. She receives a phone call from the human resources (HR) department: Sally, we have not received your performance reviews for your ten employees; they are due by the end of the fi scal year. Sally thinks, Oh, those performance reviews. . . . What a waste of my time! From Sally s point of view, there is no value in fi lling out those seemingly meaningless forms. She does not see her subordinates in action because they are in the fi eld visiting customers most of the time. All that she knows about their performance is based on sales fi gures, which depend more on the products offered and geographic territory covered than the individual effort and motivation of each salesperson. And nothing happens in terms of rewards, regardless of her ratings. These are lean times in her organization, and salary adjustments are based on seniority rather than on merit. She has less than three days to turn in her forms. What will she do? She decides to follow the path of least resistance: to please her employees and give everyone the maximum possible rating. In this way, Sally believes the employees will be happy with their ratings and she will not have to deal with complaints

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or follow - up meetings. Sally fi lls out the forms in less than twenty minutes and gets back to her real job.

As is illustrated by this vignette, which describes a situation that is painfully familiar to many readers, performance manage-ment systems are often under - utilized and also misused. In fact, in many organizations, poorly implemented performance manage-ment systems can do more harm than good, as was demonstrated by a legal case in the construction industry (FMI Corporation, 2000 ). A female employee was promoted several times and suc-ceeded until she started working under the supervision of a new manager. She stated in her lawsuit that, once she was promoted and reported to the new manager, that boss ignored her and did not give her the same support or opportunities for training that her male colleagues received. After eight months of receiving no feedback from her manager, she was called into his offi ce, where the manager told her that she was failing, resulting in a demo-tion and a $ 20,000 reduction in her annual salary. When she won her sex - discrimination lawsuit, a jury awarded her $ 1.2 million in emotional distress and economic damages.

In addition to an increased risk of litigation, there are several other detrimental outcomes of poorly implemented systems, includ-ing employee burnout and job dissatisfaction, damaged relation-ships, and increased turnover (Brown & Benson, 2005 ; Gabris & Ihrke, 2001 ). In addition, there is a large opportunity cost because poorly implemented systems waste time and resources, including time and money.

Before designing a performance management system, there needs to be a clear defi nition of performance management. Per-formance management is a continuous process of identifying, measuring, and developing the performance of individuals and teams and aligning performance with the strategic goals of the organization (Aguinis, 2009 , p. 3). Note that the key compo-nents of this defi nition are that this is a continuous process and that there is an alignment with strategic goals. If a manager fi lls out a form once a year because this is a requirement of the HR cops, then this is certainly not a continuous process. Also, evalu-ating employee performance (that is, performance appraisal) without clear considerations of the extent to which an individual

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is contributing to unit and organizational performance and about how performance will improve in the future is also not consistent with this defi nition of performance management.

Why Implement a Performance Management System?

Performance management systems can serve six important pur-poses (cf. Cleveland & Murphy, 1989 ) (see Exhibit 1.1 for a summary).

Exhibit 1.1 Summary of Six Purposes of a Performance Management System.

Strategic: It links the organizations goals with individual goals, thereby reinforcing behaviors consistent with the attainment of organizational goals.

Administrative: It is a source of valid and useful information for making decisions about employees, including salary adjust-ments, promotions, employee retention or termination, recognition of superior performance, identifi cation of poor performers, layoffs, and merit increases.

Communication: It allows employees to be informed about how well they are doing, to receive information on specifi c areas that may need improvement, and to learn about the organizations and the supervisors expectations and what aspects of work the supervisor believes are most important.

Developmental: It includes feedback, which allows managers to coach employees and help them improve performance on an ongoing basis.

Organizational maintenance: It yields information about skills, abilities, promotional potential, and assignment histories of current employees to be used in workforce planning as well as assessing future training needs, evaluating performance achievements at the organizational level, and evaluating the effectiveness of human resource interventions (for example, whether employees perform at higher levels after participating in a training program).

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1. Strategic purpose. By linking the organization s goals with indi-vidual goals, the performance management system reinforces behaviors consistent with the attainment of organizational goals. Moreover, even if for some reason individual goals are not achieved, linking individual goals with organizational goals serves as a way to communicate what are the most cru-cial business strategic initiatives. As an illustration of how per formance management can serve a strategic purpose, con-sider the case of Sears Holdings Corporation, the third largest broad - line retailer in the United States ( $ 55 billion in annual revenues, about 3,900 retail stores in the United States and Canada) and the leading home appliance retailer as well as a leader in tools, lawn and garden products, home electron-ics, and automotive repair and maintenance (Berner, 2005 ). Following the merger of Kmart Corp. and Sears, Roebuck & Company, Aylwin B. Lewis was promoted to chief executive and tasked with a strategic culture change initiative in hopes of reinvigorating the struggling retail company. A strategic objective is to move from an inward focus to a customer ser-vice approach. A second key objective is to bring about an entrepreneurial spirit whereby store managers strive for fi nan-cial literacy and are challenged to identify opportunities for greater profi ts. Several aspects of the performance manage-ment system are now being used to achieve these strategic objectives. For example, employee duties and objectives are being revised so that employees will spend less time in back rooms and more time interacting with customers to facili-tate purchases and understand customer needs. In addition, leadership communication with employees and face - to - face interaction are being encouraged. Lewis spends three days per week in stores with employees and frequently quizzes manag-ers on their knowledge, such as asking about profi t margins for a given department. The greatest compliment employees

Documentation: It yields data that can be used to assess the predictive accuracy of newly proposed selection instruments as well as important administrative decisions. This information can be especially useful in the case of litigation.

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receive is to be referred to as commercial or someone who can identify opportunities for profi ts. All Sears headquarters employees are also required to spend a day working in a store, which many had never done before. Executive management has identifi ed fi ve hundred employees, considered potential leaders, who are given training and development opportu-nities specifi cally aimed at cultural and strategic changes. In sum, the performance management system at Sears is used as a strategic tool to change Sears culture because senior man-agement views encouraging key desired behaviors as critical to the company s success in the marketplace.

2. Administrative purpose . Performance management systems are a source of valid and useful information for making administra-tive decisions about employees. Such administrative decisions include salary adjustments, promotions, employee retention or termination, recognition of superior individual performance, identifi cation of poor performers, layoffs, and merit increases. In other words, the implementation of reward systems based on information provided by the performance management system falls within the administrative purpose. If an organiza-tion does not have a good performance management system in place, administrative decisions are more likely to be based on personal preferences, politics, and otherwise biased deci-sions. Having a good system in place is particularly relevant for the implementation of contingent pay (CP) plans, also called pay - for - performance . CP means that individuals are rewarded based on how well they perform on the job. Thus, employees receive increases in pay based wholly or partly on job perfor-mance. Originally, CP plans were used only for top manage-ment. Gradually, the use of CP plans has extended to sales jobs. Currently, CP plans are pervasive, and more than 70 percent of workers in the United States and the United Kingdom (Baty, 2006 ) are employed by organizations implementing some type of variable play plan. Many of these organizations tie variable pay (for example, bonus, commission, cash award, lump sum) directly to performance. CP plans are becoming popular worldwide (Milliman, Nason, Zhu, & De Cieri, 2002 ), which highlights the important administrative purpose of per-formance management systems.

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3. Communication purpose . A performance management system can be an excellent communication device . Employees are informed about how well they are doing and receive information on specifi c areas that may need to be improved. Also, related to the strategic purpose described above, performance manage-ment systems are a conduit to communicate the organization s and the supervisor s expectations and what aspects of work the supervisor believes are most important.

4. Developmental purpose . Feedback is an important component of a well - implemented performance management system. Managers can use feedback to coach employees and improve perfor-mance on an ongoing basis. This feedback allows for the iden-tifi cation of strengths and weaknesses as well as the causes for performance defi ciencies (which could be due to individual, group, or contextual factors). Of course, feedback is useful only to the extent that remedial action is taken and concrete steps are implemented to remedy any defi ciencies (Aguinis & Kraiger, 2009). Another aspect of the developmental purpose is that employees receive information about themselves that can help them individualize their career paths. Thus, the develop-mental purpose refers to both short - term and long - term aspects of development.

5. Organizational maintenance purpose . An important component of any workforce planning effort is the talent inventory, which is information on current resources (for example, skills, abili-ties, promotional potential, and assignment histories of cur-rent employees). Performance management systems are the primary means through which accurate talent inventories can be assembled. Other organizational maintenance purposes served by performance management systems include assess-ing future training needs, evaluating performance achieve-ments at the organizational level, and evaluating the effectiveness of HRM interventions (for example, whether employees perform at higher levels after participating in a training program). None of these activities can be conducted effectively in the absence of a good performance manage-ment system.

6. Documentation purpose . Performance data can be used to assess the predictive accuracy of newly proposed selection instruments

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(Cascio & Aguinis, 2008b ). For example, a newly developed test of computer literacy can be administered to all administrative personnel. Scores on the test can then be paired with scores collected through the performance management system. If scores on the test and on the performance measure are corre-lated, then the test can be used with future applicants for the administrative positions. Second, performance management systems allow for the documentation of important administra-tive decisions. This information can be especially useful in the case of litigation.

As noted earlier, many performance management systems are under - utilized and, hence, do not serve all of these six purposes. For example, results of a survey of industrial and organizational psychologists working in human resources departments in more than one hundred different organi-zations indicated that the two most frequent purposes are administrative (salary decisions) and developmental (to iden-tify employees weaknesses and strengths) (Cleveland & Murphy, 1989 ). There is much to gain if organizations are able to use their performance management systems for all six purposes. This would have an important impact on orga-nizations as well as possibly entire countries, given the per-vasiveness of performance management systems worldwide. For example, a recent survey of almost 1,000 HRM profes-sionals revealed that 96 percent of Australian companies cur-rently implement some type of performance management system (Nankervis & Compton, 2006 ). Similarly, results of a survey of 278 organizations, about two - thirds of which are multinational corporations, from fi fteen different countries, indicated that about 91 percent of organizations implement a formal performance management system (Cascio, 2006 ). Moreover, organizations with formal and systematic perfor-mance management systems are 51 percent more likely to perform better than the other organizations in the sample regarding fi nancial outcomes and 41 percent more likely to perform better than the other organizations in the sample regarding other outcomes, including customer satisfaction, employee retention, and other important metrics.

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Maximizing the Purposes Served by Performance Management: Illustration

There are numerous examples of organizations that implement performance management systems that allow them to accom-plish the multiple objectives described above. Consider the case of SELCO Credit Union in Eugene, Oregon, a not - for - profi t con-sumer cooperative that was established in 1936 (Fandray, 2001 ). SELCO s eight branches serve nearly eighty thousand mem-bers. SELCO offers many of the same services offered by other banks, including personal checking and savings accounts, loans, and credit cards. Recently, SELCO scrapped an old performance appraisal system and replaced it with a new multipurpose and more effective performance management system. First, the timing of the new system is now aligned with the business cycle, instead ofthe employee s date of hire, to ensure that business needs are aligned with individual goals. This alignment serves both strategic and informational purposes. Second, managers are given a pool of money that they can work with to award bonuses and raises as needed, which is more effective than the complex set of matrices that had been in place to calculate bonuses. This improved the way in which the system is used for allocating rewards and therefore serves an administrative purpose. Third, managers are required to have regular conversations with their employees about their performance and make note of any problems that arise. This gives the employees a clear sense of areas in which they need improvement and also provides documentation if disciplinary action is needed. This component serves both informational and documentation purposes. Finally, the time that was previously spent fi lling out complicated matrices and forms is now spent talking with the employees about how they can improve their per-formance, allowing for progress on an ongoing basis. This serves a developmental purpose.

Many organizations may have a so - called performance man-agement system, but this may be a performance appraisal at best and an administrative hurdle imposed by the HR department at worst. So it is not suffi cient to have any type of performance man-agement system, but one should have one that serves as many of

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the six purposes described above as possible. The next section addresses a performance management process that allows orga-nizations to maximize the benefi ts of their system.

Performance Management Process As noted earlier, performance management is a continuous process. However, when a system is fi rst implemented, the process follows the following stages (Aguinis, 2009 ; Grote, 1996 ): (1) pre - requisites, (2) performance planning, (3) performance execution, (4) perfor-mance assessment, (5) performance review, and (6) performance renewal and recontracting. Each of these stages is described next. The fl ow of the performance management process is depicted graphically in Figure 1.1 .

Stage 1: Prerequisites

There are two important prerequisites that are needed before a performance management system is implemented: (1) knowl-edge of the organization s mission and strategic goals and (2) knowledge of the job in question. If there is a lack of clarity regarding where the organization wants to go, or the relationship between the organization s mission and strategies and each of its unit s mission and strategies is not clear, there will be a lack of clarity regarding what each employee needs to do and achieve to help the organization get there. An organization s mission and strategic goals are a result of strategic planning, which allows an organization to clearly defi ne its purpose or reason for existing, where it wants to be in the future, the goals it wants to achieve, and the strategies it will use to attain these goals. Once the goals for the entire organization have been established, similar goals cas-cade downward, with departments setting objectives to support

Figure 1.1 Flow of the Performance Management Process.

Prerequisites PerformancePlanning

PerformanceExecution

PerformanceAssessment

PerformanceReview

PerformanceRenewal andRecontracting

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the organization s overall mission and objectives. The cascading continues downward until each employee has a set of goals com-patible with those of his or her unit and the organization.

As an example, Exhibit 1.2 shows how the Key Bank of Utah successfull

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