Introduction

Organizations are run and steered by people. It is through people that goals are set and objectives realized. The performance of an organization is, thus, dependent upon the sum total of the performance of its members. According to Peter Drucker, an organization is like a tune. It is not constituted by individual sounds but by their synthesis. The success of an organization, therefore, depends on its ability to accurately measure the performance of its members and use it objectively to optimize them as vital resources. The performance of an employee is his resultant behaviour on task which can be observed and evaluated. It refers to the contribution made by an individual in theaccomplishment of organizational obj ectives Performance can be measured bycombining quantity, quality, time and cost. People do not learn unless they are given feedback on the results of their actions. For learning to take place, feedback should be provided regularly and it should register both successes and failures. It should also follow soon after the relevant action or actions. Performance appraisal system provides management an opportunity to recall as well as give feedback to people. This feedback is pertaining the performance of the worker. This helps them to correct their mistakes and acquire new skills. Performance appraisal (PA) refers to all those procedures that are used to evaluate the personality, the performance and the potential of its group members. Evaluation is different from judgment. The former is concerned with performance and the latter is concerned with the individual. While evaluation deals with achievement of goals, a judgment has an undercurrent of personal attack and is likely to evokeresistance. Performance appraisal could be informal or formal. Informal performance appraisal is a continuous process of feeding back information to the subordinates about how well they are doing their work in the organization. The informal appraisal is conducted on a day-today basis. For example, the manager spontaneously mentions that a particular piece of work was well performed or poorly performed. It is due to the close connection between the behavior and the feedback on it the informal appraisal quickly encourages desirable performance and discourages undesirable performance.

Objectives of Performance Appraisal

Performance Appraisal can be done with following objectives in mind: 1. To maintain records in order to determine compensation packages, wage structure, salaries raises, etc. 2. To identify the strengths and weaknesses of employees to place right men on right job. 3. To maintain and assess the potential present in a person for further growth and development. 4. To provide a feedback to employees regarding their performance and related status. 5. To provide a feedback to employees regarding their performance and related status. 6. It serves as a basis for influencing working habits of the employees. 7. To review and retain the promotional and other training programmes.

Goals of Performance Appraisals

General Goals Developmental Use Specific Goals Individual needs Performance feedback Transfers and Placements Strengths and Development needs Administrative Decisions / Uses Salary Promotion Retention / Termination Recognition Lay offs Poor Performers identification Organizational Maintenance HR Planning Training Needs Organizational Goal achievements

Goal Identification HR Systems Evaluation Reinforcement of organizational needs Documentation Validation Research For HR Decisions Legal Requirements

Performance Appraisal Process

ESTABLISHING PERFORMANCE STANDARDS

The first step in the process of performance appraisal is the setting up of the standards which will be used to as the base to compare the actual performance of the employees. This step requires setting the criteria to judge the performance of the employees as

successful or unsuccessful and the degrees of their contribution to the organizational goals and objectives. The standards set should be clear, easily understandable and in measurable terms. In case the performance of the employee cannot be measured, great care should be taken to describe the standards.

COMMUNICATING THE STANDARDS Once set, it is the responsibility of the management to communicate the standards to all the employees of the organization.

The employees should be informed and the standards should be clearly explained to the. This will help them to understand their roles and to know what exactly is expected from them. The standards should also be communicated to the appraisers or the evaluators and if required, the standards can also be modified at this stage itself according to the relevant feedback from the employees or the evaluators.

MEASURING THE ACTUAL PERFORMANCE

The most difficult part of the Performance appraisal process is measuring the actual performance of the employees that is the work done by the employees during the specified period of time. It is a continuous process which involves monitoring the performance throughout the year. This stage requires the careful selection of the appropriate techniques of measurement, taking care that personal bias does not affect the outcome of the process and providing assistance rather than interfering in an employees work.

COMPARING THE ACTUAL WITH THE DESIRED PERFORMANCE

The actual performance is compared with the desired or the standard performance. The comparison tells the deviations in the performance of the employees from the standards set. The result can show the actual performance being more than the desired performance or, the actual performance being less than the desired performance depicting a negative deviation in the organizational performance. It includes recalling, evaluating and analysis of data related to the employees performance.
4

DISCUSSING RESULTS

The result of the appraisal is communicated and discussed with the employees on one-toone basis. The focus of this discussion is on communication and listening. The results, the problems and the possible solutions are discussed with the aim of problem solving and reaching consensus. The feedback should be given with a positive attitude as this can have an effect on the employees future performance. The purpose of the meeting should be to solve the problems faced and motivate the employees to perform better.

DECISION MAKING

The last step of the process is to take decisions which can be taken either to improve the performance of the employees, take the required corrective actions, or the related HR decisions like rewards, promotions, demotions, transfers etc.

Difference between Traditional and Modern (Systems) approach to Appraisals

Traditional Appraisals Categories Guiding Values Individualistic, Control oriented, Documentary Modern, Systems Appraisals Systematic, Developmental, Problem solving Facilitative, Coaching Frequent Low Grouped, Organizational

Leadership Styles Frequency Formalities Rewards

Directional, Evaluative Occasional High Individualistic

TECHNIQUES / METHODS OF PERFORMANCE APPRAISALS

Numerous methods have been devised to measure the quantity and quality of performance appraisals. Each of the methods is effective for some purposes for some organizations only. None should be dismissed or accepted as appropriate except as they relate to the particular needs of the organization or an employee. Broadly all methods of appraisals can be divided into two different categories.

Past Oriented Methods Future Oriented Methods Past Oriented Methods

1. Rating Scales: Rating scales consists of several numerical scales representing job related performance criterions such as dependability, initiative, output, attendance, attitude etc. Each scales ranges from excellent to poor. The total numerical scores are computed and final conclusions are derived. Advantages Adaptability, easy to use, low cost, every type of job can be evaluated, large number of employees covered, no formal training required. Disadvantages Raters biases.

2. Checklist: Under this method, checklist of statements of traits of employee in the form of Yes or No based questions is prepared. Here the rater only does the reporting or checking and HR department does the actual evaluation. Advantages economy, ease of administration, limited training required, standardization. Disadvantages Raters biases, use of improper weighs by HR, does not allow rater to give relative ratings.

3. Forced Choice Method: The series of statements arranged in the blocks of two or more are given and the rater indicates which statement is true or false. The rater is forced to make a choice. HR department does actual assessment. Advantages Absence of personal biases because of forced choice. Disadvantages Statements may be wrongly framed.

4. Forced Distribution Method: here employees are clustered around a high point on a rating scale. Rater is compelled to distribute the employees on all points on the scale. It is assumed that the performance is conformed to normal distribution. Advantages Eliminates Disadvantages Assumption of normal distribution, unrealistic, errors of central tendency.

5. Critical Incidents Method: The approach is focused on certain critical behaviors of employee that makes all the difference in the performance. Supervisors as and when they occur record such incidents. Advantages Evaluations are based on actual job behaviors, ratings are supported by descriptions, feedback is easy, reduces recency biases, chances of subordinate improvement are high. Disadvantages Negative incidents can be prioritized, forgetting incidents, overly close supervision; feedback may be too much and may appear to be punishment.

6. Behaviorally Anchored Rating Scales: statements of effective and ineffective behaviors determine the points. They are said to be behaviorally anchored. The rater is supposed to say, which behavior describes the employee performance. Advantages helps overcome rating errors. Disadvantages Suffers from distortions inherent in most rating techniques.

7. Field Review Method: This is an appraisal done by someone outside employees own department usually from corporate or HR department. Advantages Useful for managerial level promotions, when comparable information is needed. Disadvantages Outsider is generally not familiar with employees work environment, Observation of actual behaviors not possible.

8. Performance Tests & Observations: This is based on the test of knowledge or skills. The tests may be written or an actual presentation of skills. Tests must be reliable and validated to be useful. Advantage Tests may be apt to measure potential more than actual performance. Disadvantages Tests may suffer if costs of test development or administration are high.

9. Confidential Records: Mostly used by government departments, however its application in industry is not ruled out. Here the report is given in the form of Annual Confidentiality Report (ACR) and may record ratings with respect to following items; attendance, self expression, team work, leadership, initiative, technical ability, reasoning ability, originality and resourcefulness etc. The system is highly secretive and confidential. Feedback to the assessee is given only in case of an adverse entry. Disadvantage is that it is highly subjective and ratings can be manipulated because the evaluations are linked to HR actions like promotions etc.

10. Essay Method: In this method the rater writes down the employee description in detail within a number of broad categories like, overall impression of performance, promoteability of employee, existing capabilities and qualifications of performing jobs, strengths and weaknesses and training needs of the employee. Advantage It is extremely useful in filing information gaps about the employees that often occur in a better-structured checklist. Disadvantages It its highly dependent upon the writing skills of rater and most of them are not good writers. They may get confused success depends on the memory power of raters.

11. Cost Accounting Method: Here performance is evaluated from the monetary returns yields to his or her organization. Cost to keep employee, and benefit the organization derives is ascertained. Hence it is more dependent upon cost and benefit analysis.

12. Comparative Evaluation Method (Ranking & Paired Comparisons): These are collection of different methods that compare performance with that of other co-workers. The usual techniques used may be ranking methods and paired comparison method.

Ranking Methods: Superior ranks his worker based on merit, from best to worst. However how best and why best are not elaborated in this method. It is easy to administer and explanation.

Paired Comparison Methods: In this method each employee is rated with another employee in the form of pairs. The number of comparisons may be calculated with the help of a formula as under. N x (N-1) / 2 Future Oriented Methods

1.

Management By Objectives: It means management by objectives and the performance

is rated against the achievement of objectives stated by the management. MBO process goes as under.

Establish goals and desired outcomes for each subordinate Setting performance standards Comparison of actual goals with goals attained by the employee Establish new goals and new strategies for goals not achieved in previous year. Advantage It is more useful for managerial positions. Disadvantages Not applicable to all jobs, allocation of merit pay may result in setting shortterm goals rather than important and long-term goals etc. 2. Psychological Appraisals: These appraisals are more directed to assess employees

potential for future performance rather than the past one. It is done in the form of in-depth interviews, psychological tests, and discussion with supervisors and review of other evaluations. It is more focused on employees emotional, intellectual, and motivational and other personal characteristics affecting his performance. This approach is slow and costly and may be useful for bright young members who may have considerable potential. However quality of these appraisals largely depend upon the skills of psychologists who perform the evaluation.

3.

Assessment Centers: This technique was first developed in USA and UK in 1943. An

assessment center is a central location where managers may come together to have their participation in job related exercises evaluated by trained observers. It is more focused on observation of behaviors across a series of select exercises or work samples. Assessees are requested to participate in in-basket exercises, work groups, computer simulations, role playing and other similar activities which require same attributes for successful performance in actual job. The characteristics assessed in assessment center can be assertiveness, persuasive ability, communicating ability, planning and organizational ability, self confidence, resistance to stress, energy level, decision making, sensitivity to feelings, administrative ability, creativity and mental alertness etc. Disadvantages Costs of employees traveling and lodging, psychologists, ratings strongly influenced by assessees inter-personal skills. Solid performers may feel suffocated in simulated situations. Those who are not selected for this also may get affected. Advantages well-conducted assessment center can achieve better forecasts of future performance and progress than other methods of appraisals. Also reliability, content validity and predictive ability are said to be high in assessment centers. The tests also make sure that the wrong people are not hired or promoted. Finally it clearly defines the criteria for selection and promotion.

4.

360-Degree Feedback: It is a technique which is systematic collection of performance

data on an individual group, derived from a number of stakeholders like immediate supervisors, team members, customers, peers and self. In fact anyone who has useful information on how an employee does a job may be one of the appraisers. This technique is highly useful in terms of broader perspective, greater self-development and multi-source feedback is useful. 360-degree appraisals are useful to measure inter-personal skills, customer satisfaction and team building skills. However on the negative side, receiving feedback from multiple sources can be intimidating, threatening etc. Multiple raters may be less adept at providing balanced and objective feedback.

5.

Human Resource Accounting (HRA): HRA deals with cost of and contribution of human

resources to the organisation. The cost of employee includes cost of recruitment, selection, induction, training, compensation, etc. Employee contribution is the money value of employee service which can be measured by labour productivity or value added by human

10

resources. Employee performance can be taken as positive when contribution is more than the cost and vice versa.

Need and importance of performance appraisal

1. Performance feedback Most employees are very interested in knowing how well they are doing at present and how they can do better in a future. They want this information to improve their performance in order to get promotions and merit pay. Proper performance feedback can improve the employee's future performance. It also gives him satisfaction and motivation.

2. Employee Training and Development Decisions Performance Appraisal information is used to find out whether an employee requires additional training and development. Deficiencies in performance may be due to inadequate knowledge or skills. For e.g. A professor may improve his efficiency by attending workshops or seminars about his subject. Performance appraisal helps a manager to find out whether he needs additional training for improving his current job performance. Similarly, if the performance appraisal results show that he can perform well in a higher position, then he is given training for the higher level position.

3. Validation of Selection Process Performance appraisal is a means of validating both internal (promotions and transfers) and external (hiring new employees from outside) sources. Organisations spend a lot of time and money for recruiting and selecting employees. Various tools used in the selection process are application blanks, interviews, psychological tests, etc. These tools are used to predict (guess) the candidate's performance on the job. A proper performance appraisal finds out the validity of the various selection tools and so the company can follow suitable steps for selecting employees in future.

11

4. Promotions Performance appraisal is a way of finding out which employee should be given a promotion. Past appraisals, together with other background data, will enable management to select proper persons for promotion.

5. Transfers Performance appraisal is also useful for taking transfer decisions. Transfers often involve changes in job responsibilities, and it is important to find out the employees who can take these responsibilities. Such identification of employees who can be transferred is possible through the performance appraisal.

6. Layoff Decisions Performance appraisal is a good way of taking layoff decisions. Employees may be asked to lay off, if the need arises. The weakest performers are the first to be laid off. If there is no performance appraisal, then there are chances that the best men in the department may be laid off.

7. Compensation Decisions Performance appraisal can be used to compensate the employees by increasing their pay and other incentives. This is truer in the case of managerial jobs and also in the case of employees in non-unionized organisations. The better performances are rewarded with merit pay.

8. Human Resource Planning (HRP) The appraisal process helps in human resource planning (HRP). Accurate and current appraisal data regarding certain employees helps the management in talking decisions for future employment. Without the knowledge of who is capable of being promoted, demoted, transferred, laid off or terminated, management cannot make employment plans for the

12

future.

9. Career Development Performance appraisal also enables managers to coach and counsel employees in their career development.

13

SURVEY CONDUCTED AT EDELWEISS TOKIO LIFE INSURANCE CO. LTD ON PERFORMANCE APPRAISAL INTRODUCTION
Edelweiss Tokio Life Insurance is a new generation Insurance company, set up with a start up capital of INR 550 Crores, thereby showing our commitment to building a long term sustainable business focused on a consumer centric approach. The company is a joint venture between Edelweiss Financial Services, one of India's leading diversified financial services companies with business straddling across Credit, Capital Markets, Asset Management, Housing finance and Insurance and Tokio Marine Holdings Inc, one of the oldest and the biggest Insurance companies in Japan now with presence across 39 countries around the world. As a part of the companys corporate philosophy of customer centricity, our products have been developed based on our understanding of Indian customers diverse financial needs and help them through all their life stages.

Since its inception in 1996, Edelweiss has seamlessly grown into a large diversified financial services organization offering businesses ranging from Credit, Capital Market, Asset management, Housing Finance and Insurance. Currently, the groups networth is in excess of INR 2,800 Crores. Over the last decade, Edelweiss revenue has grown at a CAGR of 63% and net profit has grown at a CAGR of 76% (till the end of FY 11). Present across 308 offices in 140 cities, the group, with over 2800 employees, and services a client base of more than 3,50,000 (Sept 11).

14

The Groups core brand philosophy, Ideas Create, Values Protect is translated into an approach that is led by entrepreneurship and creativity, protected by intellectual rigour, research and analysis. Edelweiss has been recognized as a Business Super brand in the year 2011 by Super Brands India, testimony to the reputation enjoyed by the brand.

Tokio Marine Holdings Inc, the holding company for Tokio Marine group is one of the oldest and biggest Insurance companies in Japan; with interests in Life, Non-Life, and Re-Insurance, it has a presence in 427 cities across 39 countries around the world. The company has over 130 years of operational history in the Non-Life sector while it has been in Life Insurance since 1996. It has a presence in Japan, China, Singapore, Malaysia and Thailand. The Group has booked revenues of INR 1,77,650 Crore and Net Income of INR 3,884 Crore. In Life Insurance its Gross Written Premium (GWP) is over INR 31,834 Crore. A highly respected company around the world, Tokio Marine adheres to Japanese high standards of quality and a robust corporate governance and risk management framework. Tokio Marine has a successful track record of building business in developing and developed markets due to its superior capability of developing products based on research and consumer understanding.

15