Topic 1 X Introduction to

Performance
Appraisal
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define the importance of performance appraisal;
2. Differentiate between performance appraisal and performance
management;
3. Identify three important purpose of performance appraisal;
4. Describe four uses of performance appraisal; and
5. Elaborate on the benefits of having performance appraisal for various
groups of individuals and organisations.

X INTRODUCTION
This topic will introduce learners to the concept and the importance of
performance appraisal to employees and organisations. Performance appraisal
systems require a coordinated effort between an organisationÊs human resource
department and managers who are responsible for conducting the performance
appraisals. The responsibilities of managers in performance appraisals are to
evaluate the performance of employees and to try to improve the employeesÊ
performance in the future. In fact, there are many benefits that managers,
employees and organisations can gain from performance appraisals. These will
be highlighted in this topic. In addition, several definitions from several authors
are included to give learners a better understanding of the actual meaning of
performance appraisal. At the end of the topic, a brief summary of the overall
uses, purpose and benefits of performance appraisal will be provided to enhance
learnersÊ understanding of the areas discussed.
2 X TOPIC 1 INTRODUCTION TO PERFORMANCE APPRAISAL

1.1 INTRODUCTION TO PERFORMANCE

APPRAISAL
A critical factor related to an organisationÊs longăterm success is its ability to
measure how well employees perform, and then use that information to ensure
that performance meets present standards and improves over time.

It is a complex task that is difficult to be carried out, and it is not done well by
most organisations. However, when performance appraisal is properly
conducted, it is not only to let employees know how well they are performing
but also influences their motivation, acceptance and future level of effort and task
direction.

Efforts should be upgraded to ensure that employees are clear of the task that
they need to perform. The task of the employee should be clarified through the
establishment of a plan for improvement. Performance appraisal is in a way
considered as a management tool which is helpful in motivating and utilising
human resources capabilities effectively. Assessing human potential is not an
easy task, no matter how well designed and appropriate the performance
 TOPIC 1 INTRODUCTION TO PERFORMANCE APPRAISAL W 3

planning and appraisal system are, but if it is not done carefully, it can reduce
employeesÊ satisfaction and trust towards the appraisal system.

Every year, most employees experience being evaluated on their past

performance. The evaluation may be in the form of 10-minutes informal
discussion between employees and their supervisors, or in a more elaborate
situation, several weeks of formal appraisal process involving many specific
steps and activities.

ACTIVITY 1.1

In your own words, define performance appraisal and what are some
of the uses and benefits of having it?

1.1.1 Importance of Performance Appraisals

Performance appraisal is claimed to be one of the most important functions of
human resource management because it is a prerequisite to effectively establish
other human resource functions. The definition of performance appraisal is not
limited to one-on-one situations, where a supervisor discusses with an employee
about the areas deserving recognition and areas where improvement is needed.
A performance appraisal will be related to any personnel decision that affects the
status of employees regarding their retention, termination, promotion, demotion,
transfer, salary increase or decrease, or admission into a training programme.

A properly developed appraisal instrument serves as a contract between the

organisation and an employee in that it makes explicit what is required of that
individual. Appraising performance is necessary because it serves as an audit for
the organisation about the effectiveness of each employee. Such a control system,
based on key behaviours that serve as standards, enables a manager to specify
what the employee must start doing, continue doing or stop doing.

Thus, performance appraisal is vital to improve the productivity of

employees because it is through an appraisal that each individualÊs
productivity and performance is evaluated. It serves as the basis for
counselling and developing an individual to maintain or increase
productivity and for management to make personnel decisions.
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ACTIVITY 1.2

Find out some examples of how performance appraisal is

implemented in some organisations in Malaysia.

1.1.2 Formal versus Informal Appraisals

(a) Informal and Ongoing Appraisal
Informal appraisals tend to take place on an ongoing basis within the
organisation as supervisors evaluate their subordinatesÊ work and as
subordinates appraise each other and their supervisors on a daily basis.
Informal and ongoing appraisals are necessary but they are insufficient.
Informal appraisals seldom leave any documentation of either good or poor
performance.

(b) Formal and Systematic Appraisal

However, systematic and formal appraisal of an individual employee is
likely to occur at certain intervals throughout that personÊs history of
employment. For example, a personÊs performance may be appraised with
proper documentation during the first six months, quarterly or annually.
With formal, systematic feedback, the personnel department can identify
good and poor performers. It can also identify specific training or career
development needs. Feedback helps evaluate recruitment, selection,
orientation and placement procedures. Even decisions about future
promotions, compensation and other personnel actions depend on
systematic and documented performance appraisal information.

Nevertheless, whether it is formal or informal evaluation, these will have some

direct effect on employeesÊ work lives. The evaluation may result in employees
getting an increase in pay, a promotion, lucrative bonuses, relevant training and
better career growth and vice versa. Thus, any evaluation of employeesÊ work
can be very sensitive and can create emotionally charged events. Therefore, a
properly developed and implemented performance appraisal can motivate and
develop employeesÊ potential and help an organisation achieve its goals.

SELF CHECK 1.1

1. Why is performance appraisal important to an organisation?

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1.1.3 Strategic Importance of Performance Appraisals

Strategically, it is hard to imagine a more important HR system than
performance appraisal. Organisations strive to do the following at all levels, as
shown in Figure 1.1.

Figure 1.1: How organisations diffuse their strategic goals

It is this sequence that allows organisations to diffuse their strategic goals

throughout the organisation. Within this context, the evaluation of performance
is the control mechanism that provides not only feedback to individuals but also
an organisational assessment flow of how things are progressing. Without
performance information, managers of an organisation can only guess as to
whether employees are working towards the right goals, in the correct way and
to the desired standard.
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1.2 BASIC CONCEPTS IN PERFORMANCE

APPRAISALS AND PERFORMANCE
MANAGEMENT
Virtually all companies have some formal or informal means of appraising their
employeesÊ performance. Performance appraisal means evaluating an employeeÊs
current and/or past performance relative to his or her performance standards.
While „appraising performance‰ usually brings to mind specific appraisal tools,
the actual forms are only part of the appraisal process. Performance appraisal
also always assumes that the employee understands what his performance
standards are and that the supervisor provides the employee with the feedback,
development and incentives required to help him eliminate performance
deficiencies or continue to perform above par. The aim should be to improve
performance.

While the idea that appraisals should improve an employeeÊs performance is

nothing new, many managers take the integrated nature of that process ă of
setting goals, training employees and then appraising and rewarding them ă
more seriously today than they have in the past. They call the total, integrated
process performance management. We may define performance management as
a process that consolidates goal setting, performance appraisal and development
into a single, common system, the aim of which is to ensure that the employeeÊs
performance is supporting the companyÊs strategic aims. Performance
management includes the practices through which the manager defines the
employeeÊs goals and work, develops the employeeÊs capabilities and evaluates
and rewards the personÊs efforts, all within the framework of how the employeeÊs
performance should be contributing to achieving the companyÊs goals.

Therefore, when properly designed, performance management never just entails

meeting with a subordinate once or twice a year to „review your performance.‰
It means setting goals that make sense of the companyÊs strategic needs. It means
daily or weekly interactions to ensure continuous improvement in the
employeeÊs capacity and performance. It also involves continuous assurance that
the employee has the training and development he/she needs to perform the job.

1.3 DEFINITIONS

There are various definitions of performance appraisal. Several definitions of

performance appraisal are worth considering to have a better understanding and
comprehension of its overall meaning.

 
 TOPIC 1 INTRODUCTION TO PERFORMANCE APPRAISAL W 7

Mondy and Noe (1996) defined performance appraisal as „a formal system

of periodic review and evaluation of an individualÊs or teamÊs performance.‰

Dessler (2005) defined performance appraisal as „a procedure that involves

setting work standards, assessing employeesÊ actual performance relative to
the set standards and providing feedback to the employees to eliminate
performance deficiency.‰

Kozo Ochiai (1987) stated that performance appraisal is „a process in which

bosses evaluate and report on the performance, attainments, abilities,
potential for future development and other qualities of their subordinates.‰  

Ivancevich (1997) described performance appraisal as „an activity used to

determine the extent to which an employee performs work effectively.‰

The definitions provided were derived from various sources. Based on these, it
can be concluded that performance appraisal is as follows:
• process of evaluating employeesÊ past performance by appraisers;
• employeesÊ overall past performance will be measured against a certain set of
job-related standards and criteria; and
• employeesÊ overall past performance will later be used by the organisation to
determine their level of effectiveness in performing the assigned work.

Performance appraisal system is set up by an organisation to regularly and

systematically evaluate employeesÊ performance. The employeeÊs total score or
performance appraisal results will later be used by the organisation to make
administrative and developmental decisions.
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1.4 UNDERSTANDING PERFORMANCE

Performance refers to the degree of accomplishment of the tasks that make up an
employeeÊs job. It reflects how well an employee fulfils the requirements of a
job. Often confused with effort, which refers to energy expended, performance
is measured in terms of results. For example, a learner may exert a great deal of
effort in preparing for an examination and still obtain a poor grade. In such a
case, the effort expended was high, yet the performance was low.

1.4.1 Determinants of Performance

Job performance is the net effect of an employeeÊs effort as modified by abilities
and role (or task) perceptions. Thus, performance in a given situation can be
viewed as a result from the interrelationships among effort, abilities and role
perceptions.
(a) Effort, which results from being motivated, refers to the amount of energy
(physical and/or mental) an individual uses in performing a task.
(b) Abilities are personal characteristics used in performing a job. Abilities
usually do not fluctuate widely over short periods of time.
(c) Role (task) perceptions refer to the direction(s) in which individuals believe
they should channel their efforts on their jobs. The activities and behaviours
people believe are necessary in the performance of their jobs define their
role perceptions.

To attain an acceptable level of performance, a minimum level of proficiency

must exist in each of the performance components. Similarly, the level of
proficiency in any one performance component can place an upper boundary on
performance.
• If employees put forth tremendous effort and have excellent abilities but lack
a clear understanding of their roles, their performance will probably not be
good in the eyes of their managers. Much work will be produced but it will
be misdirected.
• Likewise, an employee who puts forth a high degree of effort and
understands the job but lacks ability will probably be rated low on
performance.
• A final possibility is the employee who has a good ability and understanding
of the role but is lazy and expends little effort. This employeeÊs performance
will likely be low.

Of course, an employee can compensate up to a point for a weakness in one area

by being above average in one or more of other areas.
 TOPIC 1 INTRODUCTION TO PERFORMANCE APPRAISAL W 9

SELF CHECK 1.2

1. What makes performance appraisal not so successful in some

organisations?

2. Explain the difference between performance management and

performance appraisal

1.4.2 Environmental Factors as Performance Obstacles

Other factors beyond the control of the employee can also stifle performance.
Although such obstacles are sometimes used merely as excuses, they are often
very real and should be recognised.

Some of the more common potential performance obstacles include a lack or of

conflicting demands on the employeeÊs time, inadequate work facilities and
equipment, restrictive policies that affect the job, lack of cooperation from others,
types of supervision, temperature, lighting, noise, machine or equipment pacing,
shifts and even fate.

Environmental factors should be viewed not as direct determinants of individual

performance but as modifying the effects of effort, ability and direction. For
example, poor ventilation or worn-out equipment may affect the effort an
individual expends. Unclear policies or poor supervision can also produce
misdirected effort. Similarly, a lack of training can result in underutilised
abilities. One of managementÊs greatest responsibilities is to provide employees
with adequate working conditions and a supportive environment to eliminate or
minimise performance obstacles.

SELF CHECK 1.3

1. Identify some obstacles that might affect performance appraisal.

2. Differentiate between formal and informal appraisal.

1.5 BENEFITS OF PERFORMANCE APPRAISAL

A performance appraisal can help to improve employeesÊ job performance by
identifying their strengths and weaknesses and determining how their strengths
can be best utilised within the organisation and how their weaknesses can be
overcome. Appraisals can help to reveal problems which may be restricting the
employeesÊ progress and causing inefficient work practices.
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Some supervisors may talk to their subordinates regularly about their problems
and performance at work and may not therefore see the need for a formal
appraisal system. This type of regular discussion between supervisors and their
subordinates about work performance should be encouraged by the organisation.
However, not many supervisors are willing to do this due to their other
commitments and busy schedules. Thus, a formal appraisal system can develop
a greater degree of consistency by ensuring that supervisors and subordinates
meet formally and regularly to discuss performance and potential. Research has
shown that this can encourage better performance from employees.

An appraisal can also provide information for human resource planning to assist
in succession planning and to determine the suitability of employees for
promotion, for specific types of work and training. In addition, they can improve
supervisor-subordinate relationship and communication by giving employees an
opportunity to talk about their ideas and expectations and to be told how they
are progressing. This situation can help improve the quality of work life by
increasing mutual understanding between supervisors and subordinates.
Almost universally, where performance appraisal is conducted properly, both
supervisors and subordinates have reported the experience as beneficial and
positive.

Performance appraisal can have a profound effect on the level of employee

motivation and satisfaction. It provides employees with recognition for their
work efforts. The existence of an appraisal programme will indicate to employees
that the organisation is genuinely interested in their individual performance and
development. This alone can have a positive influence on the individualÊs sense
of worth, commitment and belonging.

Appraisal data can be very helpful to monitor the success of an organisationÊs

recruitment and induction practices in terms of how well the employees are
performing, especially those who have been hired recently. Appraisal data can be
used to monitor the effectiveness of changes in recruitment strategies. By
following the yearly data related to new hires, it is possible to assess whether the
general quality of the workforce is improving, staying steady or declining.

In summary, performance appraisal can provide benefits to the organisation,

supervisor and the employee. The benefits to these group of people can be
summed up as shown in Figure 1.2:
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Figure 1.2: Benefits of performance appraisal to various groups

1.5.1 For the Organisation

(a) Help improve performance throughout the organisation through more
effective communication of the organisationÊs objectives and values;
(b) Identification of ideas for improvement;
(c) Training and development needs identified more clearly;
(d) Employees with potential can be identified and career development plans
formulated to cater to the requirements of future staff;
(e) The message is conveyed that people are valued; and
(f) A culture of continuous improvement and success can be created and
maintained.

1.5.2 For the Supervisor

(a) Identification of ideas for improvements;
(b) Increased job satisfaction;
(c) The opportunity to clarify expectations;
(d) A means of forming a more productive relationship with staff based on
mutual trust and understanding; and
(e) The opportunity to link team and individual objectives and targets with
departmental and organisational objectives.

1.5.3 For the Employee

(a) Increased job satisfaction;
(b) Increased motivation;
(c) Increased sense of personal value and self confidence;
12 X TOPIC 1 INTRODUCTION TO PERFORMANCE APPRAISAL

(d) A clear understanding of what is expected and what needs to be done to

meet expectations;
(e) The opportunity to discuss work problems and how they can be overcome;
and
(f) Improve working relationship with the manager.

ACTIVITY 1.3

State other possible benefits of performance appraisal to organisations,

supervisors and employees.

1.6 IMPORTANT USES OF APPRAISAL

Performance appraisal has a few general uses and its roles are often potentially in
conflict. The main uses of an appraisal system are usually for development,
administrative, motivation and communication.

Performance appraisal is widely used for administering wages and salaries,

giving performance feedback and identifying employeeÊs strengths and
weaknesses. Most US employers use performance appraisal systems for office,
professional, technical, supervisory, middle management and non-union
production workers. Globally, these systems provide benefits in a variety of work
situations. However, despite their widespread use, not everyone enthusiastically
endorses performance appraisals. Criticisms revolve around the way they are
done and the results. These criticisms include:
• With todayÊs emphasis on teamwork, appraisals focus too much on the
individual and do too little to develop employees to perform better.
• Most employees who receive reviews and supervisors who give them
generally rate the process as a resounding failure.
• Most appraisals are inconsistent, short-term oriented, subjective and valuable
only for identifying employees performing extremely well or poorly.

Poorly done performance appraisals lead to disappointing results for all

concerned. But to have no formal performance appraisal done may limit an
employerÊs options regarding discipline and dismissal. Performance appraisals
can answer questions on whether the employer acted fairly or how the employer
actually knew that the employeeÊs performance did not meet standards. Even
though an employer technically may not need a reason to terminate an
 TOPIC 1 INTRODUCTION TO PERFORMANCE APPRAISAL W 13

employeeÊs services, as a practical matter, appraisals can provide justification for

such actions should they become necessary. Employees also benefit if appraisals
help them to know where they need to improve, even after a positive appraisal.

Organisations generally use performance appraisals in two potentially conflicting

roles:
• One role is to measure performance for the purpose of making pay or other
administrative decisions about employees. Promotions or terminations might
hinge on these ratings, often creating stress for managers doing the
appraisals.
• The other role focuses on the development of individuals. In that role, the
manager acts more as a counsellor than as a judge, which may change the
atmosphere of the relationship. The developmental type of performance
appraisal emphasises the identification of potential and the planning of
employeesÊ growth opportunities and direction.

Figure 1.3: Uses of performance appraisal

1.6.1 Development
Performance appraisal can be used in several ways to encourage development. It
plays a role in reinforcing and improving performance and in determining career
paths and training needs.
14 X TOPIC 1 INTRODUCTION TO PERFORMANCE APPRAISAL

(a) Reinforcing and Sustaining Performance.

Using performance appraisal as an employee development tool can place
the supervisor in the role of reinforcing and sustaining performance. By
providing feedback on past performance, a supervisor can encourage
employees to continue on a positive trajectory. Praise can augment any
financial rewards that the employee may receive. Virtually all employees
like to be told when they are doing a good job.

(b) Improving Performance

The supervisor can use performance appraisal to suggest ways in which
employees might perform better in the future. The supervisor can point out
strengths and weaknesses and help employees to identify more effective
ways to accomplish important tasks. Additionally, the supervisor can
discuss work goals with the employee and agree upon a timetable for
achieving these goals.

(c) Determining Career Progression Goals

The performance appraisal session gives the supervisor and employee an
opportunity to discuss the employeeÊs long-term career goals and plans.
The supervisor can advise the employee on the steps that should be taken
to reach these goals. On the basis of past performances, the supervisor can
give the employee short-term, specific suggestions on how to improve his
performance in ways that will help the employee achieve longer-term
career goals. As a result, the employee may become more highly motivated
to perform well in his present position since it is easier as a necessary step
towards an ultimate goal.

(d) Determining Training Needs

Performance appraisal can determine the training needs of individual
employees. If particular employees are not performing up to expectations,
a training programme may enable them to correct any skill or knowledge
deficiencies. Employees who are performing well above the requirements
of the position can be placed in a development programme that will
prepare them for promotion to a higher-level job. Performance appraisal
also supplies information useful in developing training programmes that
will fit the needs of most employees. For example, if employeesÊ
communication skills are rated uniformly low, the company can develop a
programme to address this need.

1.6.2 Administrative Uses

Performance appraisal helps the organisation to determine and make decisions
on who should be given salary increments, bonuses, promotions, transfers or
even demotion and termination. All these decisions are based on how effective
 TOPIC 1 INTRODUCTION TO PERFORMANCE APPRAISAL W 15

employees are in performing the assigned task and is reflected in performance

appraisal.

(a) Linking Rewards to Performance

Performance appraisals are part of the reward and punishment system of
an organisation. Employees who receive a favourable evaluation tend to
receive organisational rewards, such as merit pay increases and bonuses,
whereas those with unfavourable evaluations receive organisation
sanctions, including demotions or discharge. Other personnel decisions
commonly linked to performance appraisals include promotions, layoffs,
transfers and disciplinary decisions.

The goal in linking pay to performance and to other personnel decisions is

to motivate employees to perform better. Unfortunately, matching
performance and reward is much easier said than done. The performance
of individuals must be accurately assessed, the rewards provided must
truly be of value to employees and the organisation must develop a
performance-based reward system that employees perceive as being fairly
administered. The system will fail if employees believe managers and
supervisors distribute rewards on the basis of favouritism or political
considerations.

(b) Evaluation of HRM Policies and Programmes

Performance appraisal data can also be used to evaluate the effectiveness of
HRM programmes. Appraisals can be performed before and after an
intervention to measure the amount of change that has occurred.
Interventions that might be evaluated with performance appraisal data
include training programmes, job enrichment or redesign, quality circles
and the like. The empirical validation of selection devices requires scores
on a job performance criterion. This information is usually collected
through some method of performance appraisal.

1.6.3 Motivation
Appraisal is also said to help encourage initiative, drive, develop a sense of
responsibility, and stimulate employeesÊ efforts to perform at their maximum
with accurate assessment and fair rewards, it will motivate employees to perform
better.

1.6.4 Communications
Another usage of performance appraisal is that it serves as a basis for ongoing
discussion between subordinates and superiors about job-related matters.
Through their interaction, both parties would be able to establish good
16 X TOPIC 1 INTRODUCTION TO PERFORMANCE APPRAISAL

understanding and a good relationship with regard to their needs and

expectations.

ACTIVITY 1.4
In your opinion, why do some organisations focus only on the
administrative uses rather than the developmental, motivation or
communication uses of performance appraisals?

SELF CHECK 1.4

1. Why do we need to understand the uses of performance appraisal?

2. How does a performance appraisal help to motivate employees?

The following are the important points made in the topic:

• Performance appraisal is a process of evaluating employeesÊ past

performance by the rater(s).

• A properly developed and implemented performance appraisal system can

help an organisation to motivate and improve employeesÊ performance and
productivity and enable the organisation to achieve its goals.

• Performance appraisal is a management tool which is used for various

purposes. The uses of performance appraisal include:
(i) developmental
(ii) administrative
(iii) motivation
(iv) communication

• Performance appraisal provides benefits to various groups of individuals and

organisations such as employees, supervisors and managers.

• Most companies have some formal and informal means of appraising their
employeesÊ performance.
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Administrative Uses Motivation

Development Uses Performance Appraisal
Formal Appraisal Performance Feedback
Informal Appraisal Performance Obstacles

1. Define performance appraisal.

2. What is the purpose of having performance appraisal in an organisation?

3. What are some of the benefits that can be obtained by organisation,

employees, and managers from performance appraisal?

4. Discuss the circumstances in which appraisals can have negative effects on

EmployeeÊs morale, and circumstances in which appraisals can have
positive effects on morale.

5. In what ways can PA assist an organisation in assuring congruence

between strategic goals and the behaviour of employees?

6. Explain how you can convince the management that performance appraisal
can help achieve the organisationÊs objectives?
18 X TOPIC 1 INTRODUCTION TO PERFORMANCE APPRAISAL

1. Describe the advantages of having performance appraisal in an

organisation.

2. Discuss how performance appraisal purposes contradict with one another.

3. Describe some of the reasons why some companies are reluctant to

implement performance appraisal in their organisation?

4. How should the evaluation of teams differ from the evaluation of

individual?

5. Discuss the differences between formal and informal performance

appraisal.

6. Explain how you can convince the employees that performance appraisal is
important for their career development?