Development and application of a new method for assessing job performance in behavioral/economic terms.

Abstract

Bell Communications ResearchThis article describes a 4-year research effort to develop and apply a "user-friendly" method for estimating the standard deviation of job performance in dollars that might permit wider application of utility analysis to personnel activities. The method builds on traditional industrial psychological principles of job analysis and performance measurement, and it allows translation of behaviorally based performance rating data into economic terms. It was applied in a field study of 602 first-level managers, promoted either via a panel selection/interview process or via an assessment center (a) to investigate differences in the mean and variability of dollar-valued job performance and (b) as one input to a comparative utility analysis of the two procedures. Results indicated that the method is feasible, practical, and simple to use. The comparative utility analysis results indicated a significant payoff in terms of improved performance per person per year for the assessment center.Reviews of historical developments in utility analysis (Cascio, 1982;Landy, Farr, & Jacobs, 1982;Schmidt, Hunter, McKenzie, & Muldrow, 1979) have emphasized consistently that the major stumbling block to more widespread use of continuous variable utility analysis (Brogden, 1949;Cronbach & Gleser, 1965) is an inability to develop workable, defensible methods for estimating the dollar value of job performance. It is the variability in job performance that is essential, because if all applicants have roughly the same predicted absolute level of productivity, the development and use of costly, incrementally valid selection procedures are unnecessary. It is important to point out, however, that if the selection ratio and the standard deviation of job performance in dollars are held constant, then utility is a function of validity (Brogden, 1946). Typically there is considerable variability in performance, and, therefore, the benefits of more valid, and perhaps more costly, selection procedures may far outweigh their costs. The purpose of the present study is to report the results of a 4-year research effort to develop and apply a new method for estimating the variability of job performance in dollars that might permit widespread application of utility analysis to personnel activities.Originally we planned simply to tap a sophisticated accounting system that was already in place in order to calculate, for each manager, the cost to the company of having his or her services and the dollar benefits of the output produced. The difference between benefits and costs would yield a net dollar benefit (or loss) to the firm. Over all managers in the study, a mean and The authors would like to express their deep appreciation to two anonymous, hard-working reviewers who provided expert criticism and guidance throughout all sections of this article. We also would like to acknowledge the support and helpful comments, from the very inception of this research, of Joseph L. Moses of AT&T.

The utility estimate as a communication device: Practical questions and research directions

“…A second commonly researched method involves multiplying the average salary in a job by some proportion (e.g., 40%) to derive the SDy estimate for that job . Finally, Cascio and Ramos (1986) developed a method, referred to as CREPID (i.e., Cascio-Ramos estimate of performance in dollars), which involves breaking the job down into elements through job analysis, assigning relative value to these elements, estimatifig the performance of employees on these elements, and deriving an SDy value for the job. 1…”

Choosing How to Choose: Institutional Pressures Affecting the Adoption of Personnel Selection Procedures

“…Long-term economic fitness is a major objective of most non-charitable organizations. The dollar criterion, which applies a monetary cost-accounting criterion to estimate the usefulness of a personnel selection approach (Brogden & Taylor, 1950), and utility analysis (Cascio & Ramos, 1986;Schmidt et al, 1986;Schuler, Funke, Moser, & Donat, 1995) provide estimates for the long-term financial gains resulting from the adoption of valid selection procedures.…”

Estimating the economic impact of personnel selection tools on counterproductive work behaviors

“…Indeed, several of the SMEs found it very difficult to accurately estimate global SD y values, raising possible concerns for the reliability of such a measure. Towards a possible solution, future research may attempt to breakdown SD y estimates into specific behaviors, in a similar approach to that proposed by Cascio and Ramos (1986). Furthermore, a direct investigation of the effects that Paretian distributions of CWB may have on Gaussian-based utility estimates is certainly in order.…”