Chapter six

Performance Appraisal

6.1. Performance Appraisal

Performance appraisal is a system of review and evaluation of an individual or team’s job
performance. An effective system assesses accomplishments and evolves plans for development.
Performance management is a process that significantly affects organizational success by having
managers and employees work together to set expectations, review results, and reward performance.
Its goal is to provide an accurate picture of past and / or future employee performance. To achieve
this, performance standards are established.

6.2. Process of performance appraisal

The six steps involved in process of performance appraisal are as follows:

1. Establish Performance Standards

2. Communicate Performance Expectation to Employee
3. Measure Actual Performance
4. Compare Actual Performance with Standards
5. Discuss the Appraisal with the Employee
6. Initiate Corrective Actions.

step1. Establish 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 managers must determine what
outputs, accomplishments and skills will be evaluated. These standards should have evolved out of
job analysis and job descriptions. The standards set should be clear, easily understandable and in
measurable terms. Standards should not be expressed in an articulated or vague manner such as “a
good job” or “a full day’s work” as these vague phrases tells nothing. In case the performance of the
employee cannot be measured, great care should be taken to describe the standards.

Step 2. Communicate Performance Expectations to Employees:

Once the performance standards are established, this need to be communicated to the respective
employees so that they come to know what is expected of them. The employees should be informed
and the standards should be clearly explained to the employees. 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.

Here, it must be noted that mere transference of information (relating to performance standards, for
example) from the manager to the employees is not communication It becomes communication only
when the transference of information has taken place and has been received and understood by the
employees’.

The feedback from the employees on the standards communicated to them must be obtained. If
required, the standards may be modified or revised in the light of feedback obtained from the
employees. It is important to note that communication is a two-way street.

What to Evaluate

What aspect of a person’s performance should an organization evaluate? In practice, the most
common sets of appraisal criteria are traits, behaviors, and task outcomes.

 Traits—Many employees in organizations are evaluated on the basis of certain traits such as
attitude, appearance, initiative, etc.
 Behaviors—When an individual’s task outcome is difficult to determine, it is common to
evaluate the person’s task-related behavior.
 Task Outcomes—If ends are considered more important than means, task outcomes become
the most appropriate factor to evaluate.
 Improvement Potential—Some attention must be given to the future and the behaviors and
outcomes that are needed to not only develop the employee, but also to achieve the firm’s
goals. This involves an assessment of the employee’s potential.

Step 3. Measure 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. In this
stage, the actual performance of the employee is measured on the basis of information available from
various sources such as personal observation, statistical reports, oral reports, and written reports.
Needless to mention, the evaluator’s feelings should not influence the performance measurement of
the employee. Measurement must be objective based on facts and findings. This is because what we
measure is more critical and important to the evaluation process than how we measure. 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.

PERFORMANCE APPRAISAL METHODS

The type of performance appraisal system utilized depends on its purpose. If the major emphasis is
on selecting people for promotion, training, and merit pay increases, a traditional method such as
rating scales may be most appropriate. Collaborative methods are designed to assist employees in
developing and becoming more effective.

TECHNIQUES / METHODS OF PERFORMANCE APPRAISALS

A. 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 andfinal
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 –
Rater’s biases
B. 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
C. 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.
D. 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.
E. 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, reducesrecency 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.
F. 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.
G. 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, promote ability 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.
H. 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.
I. 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.
J. 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.
K. 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 eachsubordinate

 Setting performance standards

Comparison of actual goals with goals attained by theemployee

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 short-
term goals rather than important and long-term goals etc.

L. 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 assessee’s 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.

M. 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.
N. The Appraisal Interview The appraisal interview is the Achilles’ heel of the entire evaluation
process.
 Scheduling the Interview—Supervisors usually conduct a formal appraisal interview at the
end of an employee’s appraisal period.
 Interview Structure—A successful appraisal interview should be structured in a way that
allows both the supervisor and the subordinate to view it as a problem solving rather than a
faultfinding session.
 Use of Praise and Criticism—Praise should be provided when warranted, but it can have
only limited value if not clearly deserved. Criticism, even if warranted, is especially difficult
to give.
  Employees’ Role—Two weeks or so before the review, they should go through their diary or
files and make a note of every project worked on, regardless of whether they were successful
or not.
 Use of Software—Computer software is available for recording the appraisal data.
 Concluding the Interview—Ideally, employees will leave the interview with positive
feelings about management, the company, the job, and themselves.
RESPONSIBILITY FOR APPRAISAL

In most organizations, the human resource department is responsible for coordinating the design and
implementation of performance appraisal programs. However, it is essential that line managers play
a key role from beginning to end.

 Immediate Supervisor—An employee’s immediate supervisor traditionally has been the

most common choice for evaluating performance.
 Subordinates—Some managers have concluded that evaluation of managers by subordinates
is feasible.
 Peers—Peer appraisal has long had proponents who believed that such an approach is
reliable if the work group is stable over a reasonably long period of time and performs tasks
that require considerable interaction.
 Self-Appraisal—If individuals understand the objectives they are expected to achieve and
the standards by which they are to be evaluated, they are—to a great extent—in the best
position to appraise their own performance.
 Customer Appraisal—The behavior of customers determines the degree of success a firm
achieves. Therefore, some organizations believe it is important to obtain performance input
from this critical source.
PROBLEMS IN PERFORMANCE APPRAISAL

Many performance appraisal methods have been severely criticized. Many of the problems
commonly mentioned are not inherent in the method but, rather, reflect improper usage.

 Lack of Objectivity— A potential weakness of traditional methods of performance appraisal

is that they lack objectivity. Some subjectivity will always exist in appraisal methods.
However, the use of job-related factors does increase objectivity.
 Halo Error—Occurs when the evaluator perceives one factor as being of paramount
importance and gives a good or bad overall rating to an employee based on this factor.
 Leniency/Strictness—The giving of undeserved high or low ratings.
 Central Tendency—Occurs when employees are incorrectly rated near the average or
middle of the scale.
 Recent Behavior Bias—It is only natural to remember recent behavior more clearly than
actions from the more distant past. However, performance appraisals generally cover a
specified period of time, and an individual’s performance should be considered for the entire
period.
 Personal Bias—Supervisors doing performance appraisals may have biases related to their
employees’ personal characteristics such as race, religion, gender, disability, or age group.
 Manipulating the Evaluation—In some instances, supervisors control virtually every aspect
of the appraisal process and are therefore in a position to manipulate the system.
Step 4. Compare Actual Performance with Standards:
In this stage, the actual performance is compared with the predetermined standards. Such a comparison may
reveal the deviation between standard performance and actual performance, 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 will enable the evaluator to
proceed to the fifth step in the process, i.e., the discussion of the appraisal with the concerned employees.

Step 5. Discuss the Appraisal results [Feedback] with the Employee:

The fifth step in the appraisal process is to communicate to and discuss with the employees the results of the
appraisal. This is, in fact, one of the most challenging tasks the manager’s face to present an accurate
appraisal to the employees and then make them accept the appraisal in a constructive manner. The result of
the appraisal is communicated and discussed with the employees on one-to- one basis. A discussion on
appraisal enables employees to know their strengths and weaknesses. This has, in turn, impact on their future
performance. Yes, the impact may be positive or negative depending upon how the appraisal is presented and
discussed with the employees.

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. Performance appraisal feedback by managers should be in such way helpful
to correct mistakes done by the employees and help them to motivate for better performance but not to
demotivate. Performance feedback task should be handled very carefully as it may leads to emotional outburst
if it is not handing properly. Sometimes employees should be prepared before giving them feedback as it may
be received positively or negatively depending upon the nature and attitude of employees.

Step 6. Initiate Corrective Action:/ Decision-making

The final step in the appraisal process is the initiation of corrective action when it is necessary. The areas
needing improvement are identified and then, the measures to correct or improve the performance are
identified and initiated.

Decision-making The purpose of conducting employee performance appraisal is for making decisions about
employees without any bias by the HR manager. Decision-making by HR managers about employees
rewarding, promotions, demotions, transfers and sometimes suspensions/dismissal of employees are depended
upon the employee performance appraisal. The decision taken by HR manager should match exactly with
performance appraisal results of employees to avoid grievance or disturbances in between them, as they
affects overall performance of the organization.

STRATEGIES FOR IMPROVING PERFORMANCE:

If performance appraisal process indicates the poor performance of the employees than the following
strategies can be used to improve the performance of the employees and even for good performance
these strategies can be used to keep on the trend. These strategies are as under:

 Positive Reinforcement: Applying a valued consequence that increases the likelihood that
the person will repeat the behavior that led to it is termed as positive reinforcement.
Examples of positive reinforcement include compliments, letters of recommendations,
 favorable performance appraisal, and pay raises. Equally important, Jobs can be positively
reinforcing.
 Punishment: Punishment means administering an aversive consequence. Examples include
criticizing or shouting at an employee, assigning an unappealing task, and sending a worker
home without pay. Punishment strategy canbe used to improve the performance of
employees.
 Self Management: Many companies empower their employees to take responsibility for the
day to day functions in their areas. Accordingly, these employees may now work without
direct supervision and take on the administrative responsibilities that were once performed by
their supervisor.
 Employee Assistance Programs (EAPs): Specific programs designed to help employees
with personal problems. No matter what kind of organization one works in, one thing is
certain. Whether that problem is job stress, legal, marital, financial, or health related, one
commonality exists: if an employee experiences a personal problem, sooner or later it will
manifest itself at the work place in terms of lowered productivity, increased absenteeism, or
turnover.
 To help employees deal with these personal problems, more and more companies are
implementing employee assistance programs.

6.3. Role of HRM Department in Performance Appraisal:

HRM department performs the following functions during performance appraisal process.

 Develop the appraisal system: HRM department plays important role in formulating the
performance appraisal systems, it facilitated different departments in setting performance
standards and acquiring appropriate appraisal performance method according to the
requirements of particular department it also provides monitoring in appraising the
performance of employees and hence are necessary for developing effective performance
appraisal systems.
 Provide rater training: Evidence indicates that the training of appraisers can make them
more accurate raters. The raters are bothered to be trained because, a poor appraisal is worse
than no appraisal at all. Training can help raters to avoid and eliminate the basic appraisal
errors. Raters are provided with the training opportunity through HRM department.
 Monitor and evaluate the appraisal system: Any system to be run and implemented
effectively requires continuous monitoring. Performance appraisal is very important in any
kind of organization both for employee as well as employer because many decisions are
supposed to be made on data and result provided by the performance appraisal like,
promotions, demotions and some times termination etc . To achieve more authentic and fair
results through performance appraisal systems it requires monitoring and supervision which
is performed by the HRM department.

6.4. Characteristics of An Effective Appraisal System

(Designing an Appraisal System) Validation studies of an appraisal system may be the most
direct and certain approach to determining whether the system is satisfactory. It is unlikely that any
appraisal system will be totally immune to legal challenge. However, systems that possess certain
characteristics may be more legally defensible.
  Job-Related Criteria—The criteria used for appraising employee performance must be job
related. The Uniform Guidelines and court decisions are quite clear on this point.
 Performance Expectations—Managers must clearly explain their performance expectations
to their subordinates in advance of the appraisal period.
 Standardization—Employees in the same job categories under a given supervisor should be
appraised using the same evaluation instrument.
 Trained Appraisers—Responsibility for evaluating employee performance should be
assigned to the individual(s) who have an opportunity to directly observe a representative
sample of job performance. In order to ensure consistency, appraisers must be well trained.
 Open Communication—A good appraisal system provides highly desired feedback on a
continuing basis.
 Employee Access To Results—Employees will not trust a system they do not understand.
 Due Process—A formal procedure should be developed—if one does not exist—to permit
employees the means for appealing appraisal

6.5. Uses of Performance Appraisal

Performance appraisal serves two types of the objectives one is to make the evaluation decisions and
other is to provide the need assessment source for the training and development if there is a gap
between actual and expected performance. For many organizations, the primary goal of an appraisal
system is to improve performance. A system that is properly designed and communicated can help
achieve organizational objectives and enhance employee performance. In fact, PA data are
potentially valuable for use in numerous human resource functional areas.

 Human Resource Planning—In assessing a firm’s human resources, data must be available
that describe the promotability and potential of all employees, especially key executives.
 Recruitment and Selection—Performance evaluation ratings may be helpful in predicting
the future performance of job applicants.
 Training and Development—A performance appraisal should point out an employee’s
specific needs for training and development. By identifying deficiencies that adversely affect
performance, human resource and line managers are able to develop T&D programs that
permit individuals to build on their strengths and minimize their deficiencies.
 Career Planning And Development—Career planning and development may be viewed
from either an individual or organizational viewpoint.
 Compensation Programs—Performance appraisal results provide the basis for decisions
regarding pay increases.
 Internal Employee Relations—Performance appraisal data are also frequently used for
decisions in areas of internal employee relations including motivation, promotion, demotion,
termination, layoff, and transfer.
 Assessment Of Employee Potential—Some organizations attempt to assess employee
potential as they appraise job performance.