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Performance Appraisal System

Performance Appraisal System

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Published by: Hardik Shukla on Sep 22, 2012
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Sr. Topic Page No No. . 1. Performance Appraisal System 3  Introduction  Definition 2. Why Performance Appraisal is Necessary? 4  Objectives of Performance Appraisal 3. Appraisal Philosophy 5 4. Steps involved in Performance Appraisal 5 5. Performance Appraisal Plan 6 6. Performance Management Cycle 7 7. What should one evaluate? 8 8. Who should appraise? 8 9. Methods of Performance Appraisal 9 10. Problems faced during Performance 12 Appraisal 11. How to avoid Problems 13 12. Appraisal Interviews 14 13. Features of successful Performance 14 Management Process 14. 360-degree Performance Appraisal 14 15. Potential Appraisal System 16  Introduction  Definition 16. Why Potential Appraisal is necessary? 17 17. Steps involved in a good Potential Appraisal 18 System. 18. Linkages with other systems 21 19. Performance Appraisal V/S Potential 21 Appraisal System 20. Glossary 24 21. Bibliography 26


and an impartial rating of an employee’s excellence in matters pertaining to his present job and of his potentialities for a better job”. sharing that information with them. reward administration. It is very essential for the management to monitor these individual and department level performances to ensure that the individuals and the team members and the organization at large are moving towards the right direction of achieving the organizational goals and objectives.Performance Appraisal System Every organization has its own set of vision. Machinery. qualified appraisers/raters is applied objectively throughout the organization can be shown to be non-discriminatory as defined by law 3 . Organizations require consistent levels of high performance from their employees in order to survive in a highly competitive environment. These Ms are the basic resources of any organization without which it cannot function effectively. Performance appraisal has traditionally been used as a mechanism of controlling employees. To achieve these goals and objectives it is very necessary for the organization to look after the Five-M’s of the organization viz. The performance appraisal system can prove to be a handy tool to gauge the performance of the members of the organization. DEFINITION: “It is the process of evaluating the performance of employees. Further. and Materials. and searching for ways to improve their performance “. periodic. and management. Also. promotions and disciplinary action. the performance appraisal system can be defined as:  It  It  It  It  It  It  It  It is an organizational necessity is based on well-defined objective criteria is based on careful job analysis uses only job-related criteria is supported by adequate studies is applied by trained. Performance appraisal plays a key role in effecting reward systems. through salary administration. it formulates certain basic strategies to fulfill these goals and objectives. (By Flippo) Broadly. goals and objectives. mission. Manpower. the organizational goals are broken into departmental goals and they are further split into individual goals and tasks. // OR // “Performance appraisal is the systematic. Money.

are necessary for proper management and for employee development. The Objectives of Performance Appraisal: The objectives of the Performance Appraisal are as shown in the following diagram: Objectives of Performance Appraisal Allocate Resources Motivate and reward employees Give employee feedback Maintain fairness Train & Develop Employees Comply with equal Employment Opportunity regulations 4 .WHY PERFORMANCE APPRAISAL IS NECESSARY? Performance Appraisal is necessary in order to:     Allocate resources in a dynamic environment Motivate and reward employees Give employees feedback about their work Comply with regulation and to enforce disciplinary action Performance Appraisal system is also a formal opportunity to do what should be done much more frequently in organizations – express appreciation for employee contributions. Appraisal systems. therefore.

5 . as the saying goes. The Theory Y (McGregor Douglas theory of motivation) assumption is that people want to satisfy some of their needs through work and that they will do so if management will provide them with a supportive environment. and continue personal growth. appraisals programs tended to emphasize employees’ traits. share in setting their objectives.APPRAISAL PHILOSOPHY: A generation ago. These are then compared with the pre-decided standard level of performance. This refers to setting yardsticks or benchmarks of performance in relation to various jobs in the organization. These levels of standard performance should be communicated to the job-doers well in advance. “If you know where you want to go. you are more likely to get there. STEPS INVOLVED IN PERFOMANCE APPRAISAL:  Define Job  Appraise Performance  Feedback Define Job: This is a very primary and essential step in performance appraisal system. but modern appraisal philosophy emphasizes present performance and future goals.  Focus on goals or objectives: Employees need to have a clear idea of what they are supposed to be doing and the priorities among their tasks. Among their desires are to perform a worthwhile task.  Extensive feedback systems – employees can fine-tune their performance better if they know how they are doing in the eyes of the organizations. Thus. in terms of job description. and abilities. Appraise Performance: The next step is to lay down the standard of performance for the job to be appraised. The tasks and the responsibilities attached to the job should be clearly chalked out well in advance. These actual levels of performance of the employees are then measured.”  Mutual goal setting between supervisor and employee – this is the belief that people will work harder for goals or objectives that they have participated in setting. and knowledge of results. Modern philosophy also stresses employee participation in mutually setting goals with the supervisor. deficiencies. share in the rewards of their efforts. that effort must result in the attainment of desired outcomes (product or services). the hallmarks of modern appraisal philosophy are as follows:  Performance Orientation: It is not enough for employees to put forth effort. share in a group effort. It is very necessary to define the job first. job breadth and job specifications.

the Performance Appraisal steps broadly include:  Measure performance. This is generally done through Appraisal Interviews in which the appraiser and the appraisee sit together to discuss the appraisee’s performance. Feedback is given for the improvement of the present performance and to excel in one’s work. In a nutshell.Feedback: Feedback is given to the appraisee on basis of the discrepancy observed between the actual and standard performance.  Give Feedback  Make efforts to Improve performance THE PERFORMANCE APPRAISAL PLAN: The Performance Appraisal plan includes: SET ORGANIZATIONAL GOALS SET DEPARTMENTAL GOALS DISCUSS DEPARTMENTAL GOALS AND SET STANDARDS OF PERFORMANCE SET INDIVIDUAL GOALS REVIEW PERFORMANCE PROVIDE FEEDBACK 6 .

CAREER DEVELOPMENT. They are:  Planning performance  Managing performance  Reviewing performance  Rewarding performance This cycle can be understood through the following diagram: STRATEGIC OBJECTIVES PERFORMANCE PLANNING REWARDING PERFORMANCE MANAGING PERFORMANCE REVIEWING PERFORMANCE TRAINING.THE PERFORMANCE MANAGEMENT CYCLE: The performance management cycle includes four main steps. REWARD DISTRIBUTION. 7 . DISCIPLINARY ACTION ETC.

“reliability” etc. Peer Appraisals: The appraisal of an employee by her/his peers or colleagues can be effective in predicting future management success. but the contribution of each member may be difficult to identify. These are people who are constantly in touch with the appraisee and interact with her/him at a formal and informal level. Getting a supervisor’s appraisal is relatively easy and also makes a great deal of sense.WHAT SHOULD ONE EVALUATE? The criteria that management chooses for evaluation while appraising the performance will have a major influence on what employees do. This helps to appraise the employee on the basis of the results that are accrued through his efforts. Traits such as “good attitude”. Traits: Using individual traits is one of the weakest criteria because this may or may not be highly correlated with positive task outcome. The supervisor should be – and usually is in the best position to observe and evaluate her/his subordinate’s performance and is responsible for that person’s performance. In such cases. Rating Committees: Many employers use rating committees to evaluate employees. the management can evaluate the employees’ behavior. These committees are usually composed of the immediate boss/supervisor of the appraisee and three or four other supervisors. the results or the outcomes of the individual performance are assessed. both. “confidence”. So they can definitely give some useful inputs about the appraisee. Self Appraisals: Self-appraisals of performance are used usually in conjunction with the supervisor’s ratings. Behavior: In many cases when employees work in groups. Self-appraisals are generally done to know what the 8 . The three most popular sets of criteria that management often chooses are as below: Individual Task Outcomes: Here. can be used for evaluation. WHO SHOULD APPRAISE? The Immediate Supervisor: The immediate boss or Supervisor’s rating skill is the heart of most of the appraisal systems. it is easy to evaluate the group’s performance.

person feels about his own performance. Graphical Rating Method: In this method the attributes to be measured are to be evaluated on basis of pre-decided scales of assessment. without differentiating the performance dimensions. One major problem faced by selfappraisal method is that people generally tend to rate them high on all attributes without being critical in evaluating their performance. and take corrective actions with individual managers as required. When conducted through out the organization. a process many call Upward Feedback. METHODS OF PERFORMANCE APPRAISAL: The various methods available for appraising performance are as below:        Narrative or Essay method Graphical Rating method Alternation Ranking method Paired Comparision method Forced Distribution method Critical Incident method Management by Objectives (MBO) Narrative or Essay Method: Here. which actually can be achieved by the process of job analysis. identify potential people problems. the process help top managers diagnose their management styles. Always Punctual: Reliable: Responsible: Often Occasionally Seldom Never 9 . the appraiser provides an overall estimate of performance in form of a summary. Appraisal by Subordinates: More firms today let subordinates anonymously evaluate their supervisors’ performance. For instance.

It lists qualities such as reliability.(sample format of graphical rating scale) The graphic rating scale is the simplest and most popular technique for appraising performance. responsibility and a range of performance values from ‘always’ to ‘never’ for each trait. 10 . The supervisor rates each subordinate by giving appropriate response to the column that best describes the appraisee’s performance for each trait. The above figure shows a typical rating scale. punctuality.

the employees are ranked on the basis of their performance on single criteria or attribute.Alternation Ranking Method: In this method. first the employee who is highest on a particular characteristic is measured and simultaneously the employee who is the lowest on the same is also measured. the performance of employee A is done in comparision to that of employee B for an attribute XXX. 11 . Then the second best employee performance and the second worst performance is ranked and in this way a rank is assigned to all the employee performance on a specific attribute. In the ranking. all the employees are assigned a rank.e. ranks are first given to the best employee performance and to the worst employee performance. on a given criteria or attribute. Paired Comparision Method: The paired comparision method helps to make the ranking method more precise. it is called paired comparision method i. Then the next highest and the next lowest is measured. In this method. In this method the performance of the individuals is evaluated in comparision to other individuals. So. In this way by alternating ranks between highest and lowest performance.

in this way we can limit the number of employees that will be rated as excellent or good or poor. Such events are referred to as Critical Incidents.e. The appraisal plan can force the appraiser to put only a certain number of appraisees in the following categories :      10 % 25 % 40 % 15 % 10 % as as as as as ‘excellent’ ‘very good’ ‘average’ ‘fair’ ‘poor’ So. In the forced choice method the appraiser is a given a limit which he cannot exceed while appraising performance i. the forced choice method is used. the positive and negative behavioral events that might have occurred during a given performance period are reviewed while appraising the performance. To avoid this.Forced Choice Method: While appraising performance. Critical Incident Method: In this method. 12 . it happens many times that the appraiser may rate most of the appraisees as ‘excellent’ or ‘very good’ or ‘very poor’.

With the critical incident method. It is a combination of critical incident method and graphical rating scale method Developing a BARS: Generate critical incidents Develop performance dimensions Reallocate incidents Scale the incidents Develop a final instrument Advantages of using a BARS A more accurate gauge Clearer standards Feedback Independent dimensions Consistency Example of a BARS: 13 . This method can be very helpful to discuss the actual performance of the employees and also to help them rectify their deficiencies. the supervisor keeps a list of desirable or undesirable examples or incidents of each subordinate’s work-related behavior. the rating via this method does not only reflect the recent performance of the employee. since these incidents are collected over a span of time. Also. This method can always be used to supplement another appraisal technique. Behaviorally anchored rating scale (BARS) (IMPORTANT) An appraisal method that uses quantified scale with specific narrative examples of good and poor performance. and in that role it has several advantages. A. If production increases from 20 % to 40 % in a given time frame due to the timely interventions of Mr. The supervisor while appraising the subordinates uses these incidents. It provides a database of specific hard facts about the actual performance of the apppraisees. A then this incident can be taken into consideration during evaluating the performance of Mr. This method becomes subjective since the criteria of differentiating incidents important to job performance will differ from person to person. For instance.

MBO is a cyclical process that often consists of four steps as a way to attain a desired performance.Management by Objectives (MBO): Management by Objectives requires the manager to set specific measurable objectives with each employee with a specific time frame. it can also refer to a comprehensive organization-wide goal setting and appraisal programme. MBO programme includes joint setting of goals and their periodic evaluation to provide feedback. So. These steps are:  Objective Setting  Action Planning  Periodic Reviews 14 . However. which is then periodically evaluated with respect to the progress.

Periodic reviews refer to joint assessment of progress toward objectives by manager and employee. Action Planning refers to participative or independent planning by the employee as to how to reach these objectives. performed informally and sometimes spontaneously. So. the actual performance is measured and is compared with the standard level of performance. coupled with a renewal of the planning cycle. MAJOR PROBLEMS FACED IN PERFORMANCE APPRAISAL SYSTEM: Some of the common and major problems faced by the performance appraisal system are listed below:  Unclear and Unrealistic standards  Halo Effect  Central Tendency Effect  Leniency / Strictness  Individual biases  Similarity error  Single criteria error Unclear and Unrealistic standards can reduce the effectiveness of the performance appraisal system. if the appraiser has a positive impression about the appraisee on a single criteria 15 . Annual Evaluation refers to a more formal assessment of success in achieving the employee’s annual objectives. MBO can be used to tie rewards for employees to the level of results attained. Halo Effect: It is a tendency in which the appriaser tends to rate the appraisee on the basis of his impression about the appraisee on one single criterion. If this standard level of performance is unclear or unrealistic. Annual Evaluation Objective Setting refers to joint determination of the manager and the subordinate about the appropriate levels of performance. within the context of the overall unit goals and resources. In the Performance Appraisal system. the realistic appraisal of performance is not possible.

Leniency / Strictness: The lenient or strict approach of the appraiser can also many times render the Performance Appraisal system ineffective. especially where successful performance on a particular job requires good performance on number of criteria. If the appraiser becomes too lenient in appraising or becomes too strict in appraising her/ his subordinates then it can lead to subjective results which may not be true indicators of employee performance.then he will tend to rate him positively (high) on all other aspects also. Central Tendency: Here. the appraiser tends to rate everybody at the medium or average level. more criteria will be required to be identified and evaluated. they are making a similarity error. i. it is advisable that she/he is not appraised on one single criterion. HOW TO AVOID PERFORMANCE APPRAISAL PROBLEMS: There are many ways to minimize the impact of appraisal problems. But first the appraiser should be familiar with the problems and second the right appraisal tools should be used. Some other things that can be done to overcome most problems can be listed as below: Use Multiple Criteria: All the critical activities that lead to high or low performance in the given job need to be evaluated. Single Criteria Error: An employee’s job is made up of a number of different tasks. the appraiser will rate everybody as ‘average’ rather than giving ‘excellent’ or ‘very good’ ratings. an aggressive appraiser may give more weightage to the quality of aggressiveness in the appraisees. Emphasize Behavior rather than Traits: 16 . Similarity Error: When evaluators rate other people giving special consideration to those qualities that they perceive in themselves. and vice versa. Individual biases and Partiality: Individual biases and resorting to partiality can also adversely effect the veracity of performance appraisal results. So. For instance. The more complex the job. If the appraiser submits to favouritism and nepotism while appraising performance then it can lead to the ineffectiveness of the entire performance appraisal system.e. This effect is called central tendency problem.

Many appraisal systems point towards both historical performances and the individual’s potential for growth and advancement. i. but the question is whether employees with these traits are better performers. and general attitude. Another weakness of trait evaluation is the judgement itself. FEATURES OF A MANAGEMENT PROCESS: SUCCESSFUL PERFORMANCE A performance management process that is operating effectively should produce the following results:  Clear objectives for the organization and a sound process for identifying developing. Thus. discusses any problems that have arisen. Examples of these three dimensions include quality of work and quantity of output. meaning of ‘loyalty’ or ‘reliability’ is not same for all. behavior. the assessment is then communicated to the employee in an Appraisal Interview. both of them mutually set objectives for the next time period. courage. and initiative. and self-expression are desirable characteristics in employees. For e. The performances can be appraised through any of the previously mentioned methods.: Traits like loyalty. the probability of attaining more accurate information increases. reliability. Train the Appraisers: Training the appraisers can make them effective raters. Regardless. measuring and reviewing them. This is a session in which the supervisor provides feedback to the employee on past performance.g. But the effects of training appear to diminish over a period of time. or personal traits. and invites a response. initiative. so refresher sessions should be held from time to time.Many traits often considered to be related to good performance may in fact have little or no performance relationship. Then.e. all these are major hurdles in the path of an effective performance appraisal system. 17 . Use Multiple Evaluators: As the number of evaluators increases. The appraisal interview also provides a rich opportunity to motivate the employee. attendance. APPRAISAL INTERVIEWS: Most organizational appraisal systems require supervisors to assess employees on various aspects of their productivity (results). of the system used.

this system had a lot of scope to nourish personal grudges and biases and also it was very subjective in nature. the appraisal is done at several levels. These levels are as listed below:  Self assessment  Assessment by the subordinates  Assessment by the co-workers  Assessment by superiors  Assessment by an external agent (Say: Customer/Client) These different levels of assessment complete a full circle of appraisal and also helps to reduce biases and errors in assessment to a great extent. functioning such as conforming to standard 360 DEGREE PERFORMANCE APPRAISAL SYSTEM: All appraisal systems are built on the assumption that employees need feedback about their performance. It is the latest approach to performance appraisal. But.  Greater clarity about the organization’s aspirations and objectives. 18 . Feedback helps them to know what to do and how well they are meeting their goals. Depending upon this assessment.  The development of a ‘performance culture’ in which results are given a greater priority than the more cosmetic aspects of organizational procedures.  The establishment of a continuing dialogue between management and employees and a consequently greater emphasis on individual development needs. In a 360-degree performance appraisal system. It provides performance feedback from the full circle of daily contacts that an employee might have. To avoid this the concept of 360-degree performance appraisal system was brought in. the confidential report about the performance was prepared which would then decide the future of the subordinates in terms of rewards. ranging from the customers to peers to supervisors to subordinates. Till now.  The development of a more open and learning environment in which ideas and solutions are put forward and discussed in a nonjudgemental way and with the consequent development of a learning culture. promotions. An integration of organisational objectives set by senior management with the aims of individual employees. or disciplinary actions. it was a general trend that the immediate boss or their superiors assessed the subordinates.

promotions. Seeking employees’ participation in the appraisal process can enhance performance. The employee should be given an opportunity to explain and also present her/his ideas and feelings. Hence. If the performance evaluation process emphasizes wrong criteria or appraises the job performance inaccurately then the employees will be over or under estimated. Training of the appraisers and emphasizing on behavior than traits can help in making effective performance evaluation. Hence. performance appraisal. Needless to say. if done properly can yield rich benefits to the organization.Supervisor Peers Self Customers Subordinates 360-degree feedback system SUMMARY: We have seen that a major goal of performance evaluation is to assess accurately individual contributions as a basis for reward allocation. providing performance feedback via appraisal interviews is important. 19 . it is necessary to avoid such problems by having multiple criteria and appraisers for appraising employees. disciplinary actions etc.

Not only do potential appraisals help in catching the hi-fliers early. But ask any manager what his biggest problem is. and be they the bottom line workers or the highly qualified professionals. We frequently forget the returns that investment in people post: the more you invest in people. Although. But the fact is that as far as work is concerned.POTENTIAL APPRAISAL SYSTEM INTRODUCTION: People are something India has plenty of. It is hidden below the surface. good management is placing the right people in the right jobs. Liberalization and globalization have exploded the economy into a paroxysm of activity. A large part – attributes needed to perform excellently in a future job is not immediately visible. both profit and non-profit. The organization needs to explore these wealth that lies within its employees and try to exploit it positively to bring out the best out of them which is beneficial for the organization as well as the employees in the longer run. potential appraisal has tremendous potential. Potential Appraisal helps to identify the right kind of people and put them in the right job. Performance Appraisal is one of the most widely used subsystems of HRD to evaluate the employees. This makes managing people an imperative today. 20 . HRD with its various subsystems have enabled the organizations to take specific and accurate measures to ensure people development. but also critical for the survival of the organizations. But measuring an employee’s potential is the stiffest challenge ever posed to the science of performance appraisal. This may sound paradoxical. they also help to create a snapshot of the talent the managers are breeding. This has made Human Resource Management play a vital role in the contemporary management drama. there simply aren’t enough trained people around. One of these subsystems of HRD is Potential Appraisal. Potential Appraisal is measuring an employee’s potential in order to gauge today what he could achieve tomorrow. the competition for people is proving to be twice as intense as the battle for customers. People are like icebergs. Like good writing is simply putting the right words in the right place. the exponentially greater your rewards are. and the chances are that he will say it is getting the right people. Uncovering the iceberg may be difficult. What you see above the surface (performance) is only a small part. it is a tough practice.

WHY POTENTIAL APPRAISAL IS NECESSARY? In any organization. behavioral science indicates the every employee can be trained and developed to perform a higher role in an organization. on the basis of performance appraisals.” Potential Appraisal is generally done for succession planning and placing the right person at the right place (generally a higher position than his present one). promotions only on the basis of past performance are likely to create problems. “The system that identifies the potential of a given employee to occupy higher positions in the organizational hierarchy and to undertake higher responsibilities. An effective potential appraisal system attempts to generate data about employees and their potential for occupying higher responsibilities from a variety of sources and help the top management to make decisions about the suitability of a person for a higher job. In this case. most of the organizations are hierarchical in nature so the nature of their roles. Moreover. So. It is considered as an important area by most of the managers since it helps to identify the hi-fliers of the organization who are capable of taking higher responsibilities in the future.” // OR // “Potential Appraisal system is measuring an employee’s potential in order to gauge today what he could achieve tomorrow.Today. DEFINITION: Potential Appraisal System can be defined as.e. many of the organizations have turned towards this magic system of evaluating employees’ potential. it becomes imperative for the organization. It is also very critical in it that people are trained and groomed to take up higher responsibilities. it also helps the management to identify employees’ capabilities and the ways to enhance and 21 . The reason is that the capabilities required to perform a higher role may not be the same as those which is required by a person for his present job. Secondly. Therefore. keeping in view its own interest. past performance is not necessarily a good indicator of the suitability of an individual for a higher role. Now. But it is difficult for the organization to develop each and every individual. it is a normal practice to promote people on the basis of their past performance i. to gauge its employees for future higher roles. responsibilities and functions differ substantially from job to job and also at each level.

motivation or disciplinary action functions while the potential appraisal helps in the functions of promotions and manpower planning.develop them further say. by job rotation. training etc. we can classify the employees into four distinct categories viz.  Stars  Cash Cows  Problem child 22 . job enlargement. Unlike performance appraisal system. This can be understood from the following figure: HIGH LOW PERFORMANCE HIGH STARS CASH COWS LOW PROBLEM CHILD QUESTION MARKS POTENTIAL From the above diagram. The performance appraisal may cater to the needs of reward allocation. the potential appraisal system does not evaluate the past or present performance but it tries to measure the capabilities of a person to take up higher responsibilities in the coming future. Both these appraisal systems can be jointly used to identify the various kind of performers in any organization. POTENTIAL SYSTEM: APPRAISAL V/S PERFORMANCE APPRAISAL The basic and key difference between a performance appraisal system and a potential appraisal system is that while the former deals with the past/present the latter is futuristic in nature. job enrichment.

They can be given small-small responsibilities. Thus. They are low on both the counts of performance as well as potential. appraisal systems are very important in making key decisions in the field of human resource development. both the organisation and its employees can take decisions and make plans. which will boost their confidence. Thus. and have also been put through assessment methods that give them feedback about their skills and strengths. 23 . together can help in making key decisions in the field of human resource development. If used properly they can work wonders for the organisation. If the latter know what options are. Question Marks are burden on the shoulders of the organisation. Whichever approach to assessing is use. Cash Cows are those employees who inspite being low on potential are able to perform well. the potential and performance appraisal systems. Question marks Stars are those employees who have high potential and are also high performers. Later on they can be assigned higher responsibilities. they are in a much stronger position to direct their own careers. it remains essential that there is an attempt to identify the needs of the organisation in the coming years. The competencies or skill dimensions arrived at through such a process can be built into the appraisal of performance and potential. They are steady performers and they significantly contribute in achieving the departmental and organisational objectives. These are the individuals who can take the organisation to new heights. The organisation should look forward for planned separation for these employees. They should be given training on the themes of acquiring new skills. The management should see that they do not leave the organisation. and a clearer picture will emerge of the likely career opportunities and pathways. They should be given proper morale-building and confidence-boosting training to motivate them to perform as per their potential. They can take up challenges and higher responsibilities. They should be given proper training and motivation to perform steadily. the appraisal systems are mutually beneficial to the organisation as well as the employees. Hence. They should be given more responsibilities. Problem Child are employees who are high on potential but still are not able to perform up to the mark. With this information.

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