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UNIT-V

Performance Appraisal: its Meaning and Definition


Meaning:
Performance appraisal is the process of evaluation of an employee at higher levels. In order to
know whether the selection of an employee is right or wrong, performance appraisal is resorted
to. Promotion, transfer, salary increase etc. are some of the matters that are dependent upon the
evaluation of the performance of an employee.
Appraisal of an employee reveals as to how efficiently the subordinate is performing his job and
also to know his aptitudes and other qualities necessary for performing the job assigned to him.
The qualities of employees that are apprised through performance appraisal are ability to do
work, spirit of co-operation, managerial ability, self-confidence, initiative, intelligence etc.
Performance Appraisal is regarded as a most significant tool for the success of any concern. The
main objective of performance appraisal is to improve the efficiency of a concern by mobilising
the best possible efforts from individuals employed in it.

Definition:
Performance appraisal is a systematic, periodic and so far as humanly possible, the impartial
rating of an employees excellence in matters pertaining to his present job and to his
potentialities for a better job.
Edwin B, Flippo
It is the evaluation or appraisal of the relative worth to the company of a mans services on his
jobs. A1 ford & Beatty
Performance appraisal is a process of evaluating an employees performance of a job in terms of
its requirements.
Scot, Clotheir & Spriegel
From the above definition, it is clear that performance appraisal is a systematic and orderly
process to evaluate the performance of personnel in terms of the requirements of the job.

Performance Appraisal: Objectives, Methods


A merit rating, performance appraisal, employee appraisal, performance review, or (career)
development discussion is a method by which the job performance of an employee is evaluated
(generally in terms of quality, quantity, cost, and time) by the superior manager or supervisor.
A performance appraisal is a systematic and objective method of judging the quality of an
employee in performing his job and a part of guiding and managing career development. It is the
process to obtain, analyze, and record the information about the relative worth of an employee to
the organization. Performance appraisal is an analysis of an employees recent successes and
failures, personal strengths and weaknesses, and his/her suitability for promotion or further
training.
It is also the judgment of an employees performance in a job based on considerations other than
productivity alone.
Performance appraisal is done periodically, but on a continuous basis. It is a part of a larger
performance management system and includes both managerial and non-managerial employees
in its scope.
Objectives of Performance Appraisal:

a. To provide employees feedback on their performance.


b. Identify employee training needs.
c. Document criteria used to allocate organisational rewards.
d. A basis for decisions relating to salary increases, promotions, disciplinary actions, bonuses,
etc.
e. Provide the opportunity for organisational diagnosis and development.
f. Facilitate communication between employee and employer.
g. Validate selection techniques and human resource policies to meet regulatory requirements.
h. To improve performance through counselling, coaching and development.
i. To motivate employees through recognition and support.
Methods:

There are numerous methods in use to appraise employee performance depending upon the size
and nature of the organizations. A common approach to assess performance is to use a numerical
or scalar rating system whereby managers are asked to score an individual against a number of
objectives/attributes.
In some companies, employees receive assessments from their manager, peers, subordinates, and
customers, while also performing a self assessment. The most popular methods used in the
performance appraisal process can be divided in two categories:
These methods include Ranking methods, Graphic Rating Scale method, Critical Incidents
Method, Checklist Methods, Essay Method and Field Review Method.
Modern Appraisal methods include Management by Objectives, 360 Degree Feedback
Appraisal, Behaviourally Anchored Rating Scales, Assessment Genre, Human Resource
Accounting, and Balanced Scorecard.
Traditional Trait Appraisal Methods:
1. Ranking Methods:
Ranking can be based on the followings:
() Straight Ranking Method:
This is one of the oldest and simplest techniques of performance appraisal. In this method, the
appraiser or evaluator ranks the employees from the best to the poorest on the basis of their
overall performance. It is very useful for a comparative evaluation.
(b) Paired Comparison Method:
It is a better way of comparison than the straight ranking method. In this method each employee
is compared with all others on a one- to-one basis, and then ranked.
(c) Forced Distribution Method:
It is a method of appraising employees on the basis of a predetermined distribution scale. The
evaluator is asked to rank 10% employees in the best category, 20% in the next category, 40% in
the middle category, 20% in before the low, and 10% in the lowest brackets.
2. Graphic Rating Scale Method:
In this method, an employees quality and quantity of work is assessed in a graphic scale
indicating different degrees of a particular trait, i.e., behaviour or characteristics as they relate to
work performance.

For example a trait like Job knowledge may be judged on the range of average, above average,
outstanding or unsatisfactory or on the basis of numbers (1,2,3,4, 5, and so on). The list of
factors to be appraised is dependent upon the company requirements.
3. Critical Incidents Methods:
In this method, the evaluator rates the employee on the basis of critical events and how the
employee behaved during those incidents. It includes both negative and positive points. The
negative point incident might be damage to machinery because of not following safety measures.
Positive point incident may be staying beyond working hours to repair a machine. The drawback
of this method is that the supervisor has to note down the critical incidents and the employee
behaviour as and when they occur.
4. Checklist Methods:
The appraiser is given a checklist of several behaviours, traits, or job characteristics of the
employees on job. The checklist contains a list of statements on the basis of which the evaluator
describes the on the job performance of the employees. If the rater believes that employee does
have a particular listed trait it is marked as positive check, otherwise the item is left blank.
The company has a choice to choose either Weighted Checklist Method or Forced Checklist
Method.
5. Essay Appraisal Method:
It is also known as Free Form Method. It involves a description of the performance in a
number of broad performance criteria of an individual employee by his superior based on the
facts and often supported by examples and evidences. A major drawback of the method is how to
keep the bias of the evaluator away.
6. Field Review Method:
In this method, a representative of the HR department or a training officer discusses and
interviews the supervisors to evaluate and rate their respective subordinates. This method is very
time consuming method. However, this method helps to reduce the superiors personal bias.
At this stage it would not be out of context to mention some of the limitations associated with
trait-based methods of performance evaluation. First, the trait-based methods are based upon
traits (like integrity and consciousness) which may not be directly related to successful job
performance. An employee can change behaviour, but not personality.
An employee who is dishonest, may stop stealing, but is likely to involve the moment he feels
the threat of being caught is gone. Second, trait-based methods are easily influenced by office
politics and is thus, less reliable.

Modern Appraisal Methods:


These methods are described as under:
1. Management by Objectives:
The concept of Management by Objectives (MBO) was given by Peter F. Drucker in 1954. It
can be expressed as a process whereby the employees and the superiors come together to identify
common goals the organizational goals as well as individual goals, the standards to be taken as
the criteria for measurement of their performance and contribution and deciding the course of
action to be followed.
Thus, the essence of MBO is participative goal setting, choosing course of actions and decision
making. Ideally, when employees themselves have been involved with the goal setting and the
choosing the course of action to achieve them, they are more committed.

2. 360 -Degree Feedback Appraisal Method:


360-degree feedback, also known as multi-rater feedback, is the most comprehensive appraisal
where the feedback about the employees performance comes from all the sources that come in
contact with the employee on his job.
These sources include superiors, subordinates, peers, team members, customers, and suppliers
apart from the employee himself (see Figure 18.10), who can provide feedback on the
employees job performance.

Self appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his
achievements, and judge his own performance (in University of Delhis Masters in International
Business, faculty member is not only evaluated by the head of department but also by students).
Subordinates (part of internal customers) evaluation gives an opportunity to rate the employee on
the parameters like communication and motivating abilities, superiors ability to delegate the
work, leadership qualities etc.
Evaluation by peers can help to find employees abilities to work in a team, cooperation and
sensitivity towards others. Thus an evaluation by one and all is a 360-degree review and the
feedback is considered to be one of the most credible. Some of the organisations using this
method include Wipro, Infosys, and Reliance Industries etc.
3. Behaviourally Anchored Rating Scales:
Behaviourally Anchored Rating Scales (BARS) is a modern technique which is a combination of
the graphic rating scale and critical incidents method. It comprises predetermined critical areas of
job performance or sets of behavioural statements describing important job performance qualities
as good or bad (like the qualities such as inter-personal relationships, adaptability and reliability,
job knowledge etc.).
The typical BARS includes seven or eight performance behaviours each one measured by a
seven-or-nine point scale. These statements are developed from critical incidents.
In this method, an employees actual job behaviour is judged against the desired behaviour
through recording and comparing the behaviour with BARS. Developing and practicing BARS
needs expert knowledge.
4. Assessment Centres:

Assessment centres are a contribution of German psychologists. The main feature of assessment
centres is that they process. Assessment Centres consist of many multiples.
a. Multiple competencies to be evaluated for in a candidate.
b. Multiple observers to eliminate the subjectivity and increase objectivity involved in the
process.
c. Multiple participants: 18 21 in case of TMTC (Tata Management Training Centre).
d. Multiple exercises: Exercises like role plays, case analysis, presentations, group discussions
etc.
e. Multiple simulations: These could be creative, crisis or exploitative type of simulations.
f. Multiple observations: Each observation is observed at least twice. There are five main ways in
which evaluation is made. A group of participants takes part in a variety of exercises observed by
a team of trained assessors who evaluate each participant against a number of predetermined, job
related behaviours. Decisions are then made by pooling.
5. Human Resource Accounting Method:
Human resources are valuable assets for every organization. Human resource accounting method
values the relative worth of these assets in the terms of money. In this method the valuation of
the employees is calculated in terms of cost and contribution to the employers.
The cost of employees includes all the expenses incurred on them , viz., their compensation,
recruitment and selection costs, induction and training costs etc., whereas their contribution
includes the total value added (in monetary terms).
The difference between the cost and the contribution will be the performance of the employees.
Ideally, the contribution of the employees should be greater than the cost incurred on them.
6. Balanced Score Card:
It was developed by Robert Kaplan and David Norton in 1990s. The purpose of balanced
scorecard is to evaluate the organizational and employee performance in performance appraisal
management processes. The conventional approach measures the performance only on a few
parameters like the action processes, results achieved or the financial measures etc.
The Balanced scorecard provides a framework of different measures to ensure the complete and
balanced view of the performance of the employees. Balanced scorecard focuses on the measures
that drive performance.
The balanced scorecard has two basic characteristics a balanced set of measures based on four
measures (financial profits, market share, ROI; customer perspective about organization

loyalty to firm, acquisition of new customers; internal business measures infrastructure,


organisational processes and systems, human resources; and the innovation and learning
perspective ability to learn, innovate and improve) and linking these measures to employee
performance. Senior managers are allocated rewards based on their success at meeting or
exceeding the performance measures.

The Performance Appraisal Process


The performance appraisal system of one organization may vary from other organizations,
though some of the specific steps that an organization may follow are as follows:
1. Establish Performance Standards: It begins by establishing performance standards i.e. what
they expect from their employee in terms of outputs, accomplishments and skills that they will
evaluate with the passage of time. The standards set should be clear and objective enough to be
understood and measured. The standards which are set are evolved out of job analysis and job
descriptions. Standards set should be clear and not the vague one. The expectation of the
manager from his employee should be clear so that it could be communicated to the subordinates
that they will be appraised against the standards set for them.
2. Communicating the Standards Set for an Employee: Once the standards for performance
are set it should be communicated to the concerned employee, about what it expected from them
in terms of performance. It should not be part of the employees job to estimate what they are
expected do. Communication is said to be two ways street, mere passing of information to
subordinate does not mean that the work is done. Communication only takes place when the
information given has taken place and has been received and understood by subordinate. If
necessary, the standards may be tailored or revised in the light of feedback obtained from the
employees.
3. Measuring of the Actual Performances: It is one of the most crucial steps of performance
appraisal process. It is very important to know as how the performance will be measured and
what should be measured, thus four important sources frequently used by managers are personal
observation, statistical reports, oral reports, and written reports. However, combination of all
these resources gives more reliable information. What we measure is probably more critical to
the evaluation process than how we measure. The selection of the incorrect criteria can result in
serious consequences. What we measure gives an idea about what people in an organization will
attempt to achieve. The criteria which are considered must represent performance as stated in the
first two steps of the appraisal process.
4. Comparing Actual Performance with Standards Set in the Beginning: In this step of
performance appraisal the actual performance is compared with the expected or desired standard
set. A comparison between actual or desired standard may disclose the deviation between

standard performance and actual performance and will allow the evaluator to carry on with the
discussion of the appraisal with the concerned employees.
5. Discussion with the Concerned Employee: In this step performance of the employee is
communicated and discussed. It gives an idea to the employee regarding their strengths and
weaknesses. The impact of this discussion may be positive or negative. The impression that
subordinates receive from their assessment has a very strong impact on their self esteem and, is
very important, for their future performances.
6. Initiate Corrective Action: Corrective action can be of two types; one is instant and deals
primarily with symptoms. The other is basic and deals with the causes. Instant corrective action
is often described as putting out fires, where as basic corrective action gets to the source from
where deviation has taken place and seeks to adjust the differences permanently. Instant action
corrects something right at a particular point and gets things back on track. Basic action asks
how and why performance deviated. In some instances, managers may feel that they do not have
the time to take basic corrective action and thus may go for perpetually put out fires.

Thus the appraisal system of each organization may differ as per the requirement of that
Organization.

Advantages and Disadvantages of Performance Appraisal of Employees!


Advantages of Performance Appraisal:
1. Performance improvement:
Appraisal systems always aim at improving the performance of employees. It helps to analyse
and evaluate opportunity factors such as technology and social process.
2. Development of employees:
Appraisal systems determine which employee needs more training and becomes primary source
of information regarding the strengths and potentialities of the employees.
3. Corrective actions:
Any deficiency of employees can be detected and corrective steps can be taken through appraisal
system.
4. Career planning:

Performance appraisal serves as a valuable tool in the case of career planning to the employees,
since it helps in preparing SWOT analysis of every employee.
5. Promotions:
Performance appraisal also helps the management in deciding about the promotions, transfers
and rewards of the employee.

6. Motivation:
It is a tool for motivating employees towards higher performance.
7. Other benefits:
a. Performance appraisal plans help the management provide systematic judgments to back up
salary increases, transfers, promotions, and demotions regarding the employees.
b. Superiors can guide the subordinates by making them aware of where they stand.
c. Performance appraisal becomes the bare for coaching and counselling of individual employees
by the superiors.
Disadvantages of Performance Appraisal:
1. The Halo effect:
Halo effect is defined as the influence of a raters general impression on ratings of specific rate
qualities. It tends to occur when an evaluation rates an employee high on all jobs criteria, even if
he has performed well only in one area.
2. Contrast error:
The rating is always based on performance standards. The contrast error occurs when employee
is rated without taking into account the performance standard. This can also occur if a rater
compares an employees present performance with their past performance.
3. Rater bias:
The raters prejudices and biasness can also influence rating. For example, a supervisor can
underrate an employee based on race, sex, religion, appearance and favouritism.
4. Central tendency error:
When the supervisor rates all the employees within a narrow range, thinking all employees are of
average level, this type of error occurs.

5. Leniency or severity:
Performance appraisal demands that the rater should objectively draw a conclusion about
employees performance.
6. Sampling error:
If the rater uses a very small sample of the employees work, it may be subject to sampling error.

7. Primary and regency errors:


Behaviour of an employee at the initial stage of rating and at the end of appraisal can affect the
rating. For example, a salesmans performance may be very low for some part of the year.

Some of the major limitations of performance appraisal are:


1. Bias of Appraiser
2. Ambiguity in Standards
3. Insufficient Evidence
4. Several Qualities Remain Without Appraisal
5. Leniency or Strictness Tenancy
6. Average Rating Problem
7. Influence of Mans Job and
8. Similarity Error.
1. Bias of Appraiser:
The presence of Halo Effect in evaluation of employees is the biggest weakness of this method.
A high rate is given to favoured employees whereas unfriendly employees are rated low.
2. Ambiguity in Standards:
If the standards are not clear, the supervisors may follow different standards for different
employees.

3. Insufficient Evidence:
An employee who can impress the boss may get a positive evaluation though his impression in
his own department may be very poor. In such cases, the performance appraisal will be
superfluous.
4. Several Qualities Remain Without Appraisal:
Through performance appraisal, only few qualities of employees can be measured. All
individuals differ from each other in terms of background, values and behaviour.
5. Leniency or Strictness Tenancy:
Every evaluator has his own valuation procedure which is regarded as his own standard for
evaluation. For example, some teachers are strict in evaluation of answer books whereas others
are lenient. The lenient tendency is known as Positive Leniency Error whereas strict tendency
is called as Negative Leniency Error. The rating may be high or low depending upon the nature
of evaluators.
6. Average Rating Problem:
In order to give very low or very high rating, the top managers are required to give reasons to
justify the rating. The most common error committed in performance appraisal is to give average
rating to all employees. Moreover, low rating antagonizes the subordinates.
7. Influence of Mans Job:
There is a tendency to give a high rating to highly paid jobs. So a senior employee may get a
higher rating than a junior employee.
8. Similarity Error:
The evaluator tries to look those qualities in subordinates which he himself possesses. Those who
show the similar characteristics are rated high.

Errors in Performance Appraisal


1. Leniency error
Each evaluator has his own value system which acts as a standard against which appraisals are
made. Relative to the true performance an individual exhibits, some evaluators mark high and
others low.

The former is referred to as positive leniency error and the latter as negative leniency error.
When evaluators are positively lenient in their appraisal an individuals performance is
overstated while in the opposite case leniency error understates performance.
If all individuals in an organisation were appraised by the same person, there would be no
problem. The difficulty arises when we have different raters with different leniency errors
making judgments.
2. Halo error
Halo error or halo effect is a tendency to rate high or low on all factors due to the impression of a
high or low rating on some specific factor. As an example, if an employee tends to be
dependable, we might become biased towards him to the extent that we will rate him high on
many desirable attributes.
3. Similarity error
When evaluators rate other people in the same way that the evaluators perceive themselves, they
are making a similarity error. Due to this perception that evaluators have of themselves, they
project those perceptions onto others.
For example, the evaluator who perceives himself as aggressive may evaluate others by looking
for aggressiveness. Those who demonstrate this characteristic tend to benefit, while others are
penalised.
4. Low appraiser motivation
If the evaluator knows that a poor appraisal could hurt the employees future, say, opportunities
for promotion, the evaluator may be reluctant to give a realistic appraisal.
5. Central tendency
Raters who are prone to the central tendency error are those who continually rate all employees
as average. For example, if a manager rates all subordinates as 2 on a scale of 1 to 4 then no
differentiation among the subordinates exists. Failures to rate subordinates as 4, for those who
deserve that rating, will only create problems if this information is used for pay increase.
6. Inappropriate substitutes for performance
In many jobs it is difficult to get consensus on what is a good job and it is still more difficult to
get agreement on what criteria will determine performance. For a salesman the criterion may be
the money value of sales in his territory but even this criterion is affected by factors beyond the
salesmans control, such as action of competitors.

As a result, the appraisal is frequently made by using substitutes for performance, such as criteria
that closely approximate performance and act in its place. Many of these substitutes are well
chosen and give a good approximation of actual performance.
However, the substitutes chosen are not always appropriate. Organisations use criteria such as
enthusiasm, conscientiousness and a positive attitude as substitutes for performance.
In some jobs one or more of the criteria listed above are part of performance. Enthusiasm does
enhance the effectiveness of a teacher. But enthusiasm may not be relevant to effective
performance for many accountants or watch repairers. So what may be an appropriate substitute
for performance in one job may be totally inappropriate in another.

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