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Sr. # Particular Pg. #

Performance Management & Appraisal Terms &
1 1
Definitions & Glossary
2 Introduction 2

3 Purpose Of Performance Appraisals 3

4 Benefits Of Performance Appraisals 4

5 Challenges Of Performance Appraisals 6

6 Process Of Performance Appraisals 7

7 Traditional Methods Of Performance Appraisals 9

8 Modern Methods Of Performance Appraisals 10

9 360 Degrees Performance Appraisals 11

10 Management By Objectives 13

11 Assessment Centres 14

12 Conclusion 15

13 Bibliography 16

It's important to understand the various terms and methods used in performance management and
appraisals. Most of these aren't difficult to understand, but people often get confused about the meanings.

Documentation: The process of creating a paper trail to record data such as discussions had with
employee, results of those discussions, both supervisor and employee comments, agreements between the

Objectives or Results: Statements of what an employee is supposed to achieve.

Ongoing Performance Communication : Communication between manager and employee all

throughout the year to ensure that problems are identified early, and so there are NO SUPRPRISES
during the performance appraisal.

Performance Review : Usually refers to a meeting to review and evaluate performance, involving
supervisor and employee. Often done once a year, but to be effective performance reviews, or at least
informal meetings to discuss performance should be undertaken at least every few months.

Performance Appraisal : The regular (usual annual) process where an employees performance for the
year is assessed by manager and/or employee. It is only one part of the performance management
approach. Usually means the same as "performance review".

Performance Diagnosis : Often performance problems are a result of a number of factors, not just the
fault of the employee.

Performance Management : The larger process of defining what employees should be doing, ongoing
communication during the year, linking of individual performance to organization needs, and the
evaluating of appraising of performance.

Performance Planning : The process of communication between manager and employee that results in
MUTUAL UNDERSTANDING of what the employee is to be doing during the next period of time.
Often includes setting objectives and standards of performance.

Progressive Discipline : The process of addressing performance difficulties by first trying to help, then
setting up increasingly strong consequences for failure to reach the desired levels of performance.

Ranking Scales : A way of evaluating staff by comparing them to each other, so there is a best, a second
best, and so on. This is REAL SERIOUS TROUBLE, and almost always destructive.

Standards of Performance : Mutually agreed upon criteria used to describe how WELL an
employee must perform, written to reduce subjective judgement.

Managing employee performance is an integral part of the work that all managers and rating
officials perform throughout the year. It is as important as managing financial resources and
program outcomes because employee performance or the lack thereof, has a profound effect on both
the financial and program components of any organization.

The Department of the Interior’s performance management policy is designed to document the
expectations of individual and organizational performance, provide a meaningful process by
which employees can be rewarded for noteworthy contributions to the organization, and provide a
mechanism to improve individual/organizational performance as necessary.

To accomplish these objectives, managers need to identify organizational goals to be

accomplished, communicate individual and organizational goals to employees that support the
overall strategic mission and goals of the Department, monitor and evaluate employee
performance, and use performance as a basis for appropriate personnel actions, including
rewarding noteworthy performance and taking action to improve less than successful

The Office of Personnel Management defines performance management as the systematic process

1 • planning work and setting expectations

2 • continually monitoring performance
3 • developing the capacity to perform
4 • periodically rating performance in a summary fashion; and
5 • rewarding good performance

Performance Appraisal is being practiced in 90% of the organisations worldwide. Self-appraisal and
potential appraisal also form a part of the performance appraisal processes.
• To review the performance of the employees over a given period of time.
• To judge the gap between the actual and the desired performance.
• To help the management in exercising organizational control.
• Helps to strengthen the relationship and communication between superior – subordinates and
management – employees.
• To diagnose the strengths and weaknesses of the individuals so as to identify the training and
development needs of the future.
• To provide feedback to the employees regarding their past performance.
• Provide information to assist in the other personal decisions in the organization.
• Provide clarity of the expectations and responsibilities of the functions to be performed by the
• To judge the effectiveness of the other human resource functions of the organization such as
recruitment, selection, training and development.
• To reduce the grievances of the employees.

The most significant reasons of using Performance appraisal are:

• Making payroll and compensation decisions – 80%
• Training and development needs – 71%
• Identifying the gaps in desired and actual performance and its cause – 76%
• Deciding future goals and course of action – 42%
• Promotions, demotions and transfers – 49%
• Other purposes – 6% (including job analysis and providing superior support, assistance and
Perhaps the most significant benefit of appraisal is that, in the rush and bustle of daily working life, it
offers a rare chance for a supervisor and subordinate to have "time out" for a one-on-one discussion of
important work issues that might not otherwise be addressed. Almost universally, where performance
appraisal is conducted properly, both supervisors and subordinates have reported the experience as
beneficial and positive.

Appraisal offers a valuable opportunity to focus on work activities and goals, to identify and correct
existing problems, and to encourage better future performance. Thus the performance of the whole
organization is enhanced.

For many employees, an "official" appraisal interview may be the only time they get to have exclusive,
uninterrupted access to their supervisor. Said one employee of a large organization after his first formal
performance appraisal, "In twenty years of work, that's the first time anyone has ever bothered to sit
down and tell me how I'm doing."

The value of this intense and purposeful interaction between a supervisors and subordinate should not be


Performance appraisal can have a profound effect on levels of employee motivation and satisfaction - for
better as well as for worse.

Performance appraisal provides employees with recognition for their work efforts. The power of social
recognition as an incentive has been long noted. In fact, there is evidence that human beings will even
prefer negative recognition in preference to no recognition at all.

If nothing else, the existence of an appraisal program indicates to an employee that the organization is
genuinely interested in their individual performance and development. This alone can have a positive
influence on the individual's sense of worth, commitment and belonging.

The strength and prevalence of this natural human desire for individual recognition should not be
overlooked. Absenteeism and turnover rates in some organizations might be greatly reduced if more
attention were paid to it. Regular performance appraisal, at least, is a good start.


Performance appraisal offers an excellent opportunity - perhaps the best that will ever occur - for a
supervisor and subordinate to recognize and agree upon individual training and development needs.

During the discussion of an employee's work performance, the presence or absence of work skills can
become very obvious - even to those who habitually reject the idea of training for them!

Performance appraisal can make the need for training more pressing and relevant by linking it clearly to
performance outcomes and future career aspirations.

From the point of view of the organization as a whole, consolidated appraisal data can form a picture of
the overall demand for training. This data may be analysed by variables such as sex, department, etc. In
this respect, performance appraisal can provide a regular and efficient training needs audit for the entire
Appraisal data can be used to monitor the success of the organization's recruitment and induction
practices. For example, how well are the employees performing who were hired in the past two years?

Appraisal data can also be used to monitor the effectiveness of changes in recruitment strategies. By
following the yearly data related to new hires (and given sufficient numbers on which to base the
analysis) it is possible to assess whether the general quality of the workforce is improving, staying steady,
or declining.

Though often understated or even denied, evaluation is a legitimate and major objective of performance

But the need to evaluate (i.e., to judge) is also an ongoing source of tension, since evaluative and
developmental priorities appear to frequently clash. Yet at its most basic level, performance appraisal is
the process of examining and evaluating the performance of an individual.

Though organizations have a clear right - some would say a duty - to conduct such evaluations of
performance, many still recoil from the idea. To them, the explicit process of judgement can be
dehumanizing and demoralizing and a source of anxiety and distress to employees.

It is been said by some that appraisal cannot serve the needs of evaluation and development at the same
time; it must be one or the other.

But there may be an acceptable middle ground, where the need to evaluate employees objectively, and
the need to encourage and develop them, can be balanced.

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In order to make a performance appraisal system effective and successful, an organization comes across
various challenges and problems. The main challenges involved in the performance appraisal process are:
Identification of the appraisal criteria is one of the biggest problems faced by the top management. The
performance data to be considered for evaluation should be carefully selected. For the purpose of
evaluation, the criteria selected should be in quantifiable or measurable terms


The purpose of the Performance appraisal process is to judge the performance of the employees rather
than the employee. The focus of the system should be on the development of the employees of the

Top management should choose the raters or the evaluators carefully. They should have the required
expertise and the knowledge to decide the criteria accurately. They should have the experience and the
necessary training to carry out the appraisal process objectively.


Many errors based on the personal bias like stereotyping, halo effect (i.e. one trait influencing the
evaluator’s rating for all other traits) etc. may creep in the appraisal process. Therefore the rater should
exercise objectivity and fairness in evaluating and rating the performance of the employees

The appraisal process may face resistance from the employees and the trade unions for the fear of
negative ratings. Therefore, the employees should be communicated and clearly explained the purpose as
well the process of appraisal. The standards should be clearly communicated and every employee should
be made aware that what exactly is expected from him/her.


The first step in the process of performance appraisal is the setting up of the standards which will be used
to as the base to compare the actual performance of the employees. This step requires setting the criteria
to judge the performance of the employees as successful or unsuccessful and the degrees of their
contribution to the organizational goals and objectives. The standards set should be clear, easily
understandable and in measurable terms. In case the performance of the employee cannot be measured,
great care should be taken to describe the standards.


Once set, it is the responsibility of the management to communicate the standards to all the employees of
the organization. The employees should be informed and the standards should be clearly explained to the.
This will help them to understand their roles and to know what exactly is expected from them. The
standards should also be communicated to the appraisers or the evaluators and if required, the standards
can also be modified at this stage itself according to the relevant feedback from the employees or the
The most difficult part of the Performance appraisal process is measuring the actual performance of the
employees that is the work done by the employees during the specified period of time. It is a continuous
process which involves monitoring the performance throughout the year. This stage requires the careful
selection of the appropriate techniques of measurement, taking care that personal bias does not affect the
outcome of the process and providing assistance rather than interfering in an employees work.


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

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

The last step of the process is to take decisions which can be taken either to improve the performance of
the employees, take the required corrective actions, or the related HR decisions like rewards, promotions,
demotions, transfers etc.
This traditional form of appraisal, also known as “Free Form method” involves a description of the
performance of an employee by his superior. The description is an evaluation of the performance of any
individual based on the facts and often includes examples and evidences to support the information. A
major drawback of the method is the inseparability of the bias of the evaluator.


This is one of the oldest and simplest techniques of performance appraisal. In this method, the appraiser
ranks the employees from the best to the poorest on the basis of their overall performance. It is quite
useful for a comparative evaluation.

A better technique of comparison than the straight ranking method, this method compares each employee
with all others in the group, one at a time. After all the comparisons on the basis of the overall
comparisons, the employees are given the final rankings.


In this method of Performance appraisal, 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
drawback of this method is that the supervisor has to note down the critical incidents and the employee
behaviour as and when they occur.

In this method, a senior member of the HR department or a training officer discusses and interviews the
supervisors to evaluate and rate their respective subordinates. A major drawback of this method is that it
is a very time consuming method. But this method helps to reduce the superiors’ personal bias.

The rater is given a checklist of the descriptions of the behaviour of the employees on job. The checklist
contains a list of statements on the basis of which the rater describes the on the job performance of the


In this method, an employee’s quality and quantity of work is assessed in a graphic scale indicating
different degrees of a particular trait. The factors taken into consideration include both the personal
characteristics and characteristics related to the on-the-job performance of the employees. For example a
trait like Job Knowledge may be judged on the range of average, above average, outstanding or

To eliminate the element of bias from the rater’s ratings, the evaluator is asked to distribute the
employees in some fixed categories of ratings like on a normal distribution curve. The rater chooses the
appropriate fit for the categories on his own discretion.

An assessment centre typically involves the use of methods like social/informal events, tests and
exercises, assignments being given to a group of employees to assess their competencies to take higher
responsibilities in the future. Generally, employees are given an assignment similar to the job they would
be expected to perform if promoted. The trained evaluators observe and evaluate employees as they
perform the assigned jobs and are evaluated on job related characteristics.

The major competencies that are judged in assessment centres are interpersonal skills, intellectual
capability, planning and organizing capabilities, motivation, career orientation etc. assessment centres are
also an effective way to determine the training and development needs of the targeted employees.


Behaviorally Anchored Rating Scales (BARS) is a relatively new technique which combines the graphic
rating scale and critical incidents method. It consists of predetermined critical areas of job performance or
sets of behavioral statements describing important job performance qualities as good or bad (for eg. the
qualities like inter-personal relationships, adaptability and reliability, job knowledge etc). These
statements are developed from critical incidents.

In this method, an employee’s actual job behaviour is judged against the desired behaviour by recording
and comparing the behaviour with BARS. Developing and practicing BARS requires expert knowledge.


Human resources are valuable assets for every organization. Human resource accounting method tries to
find the relative worth of these assets in the terms of money. In this method the Performance appraisal of
the employees is judged in terms of cost and contribution of the employees. The cost of employees
include all the expenses incurred on them like 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.
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.
360 degree respondents for an employee can be his/her peers, managers (i.e. superior), subordinates, team
members, customers, suppliers/ vendors - anyone who comes into contact with the employee and can
provide valuable insights and information or feedback regarding the “on-the-job” performance of the

360 degree appraisal has four integral components:

1. Self appraisal
2. Superior’s appraisal
3. Subordinate’s appraisal
4. Peer appraisal

Self appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his
achievements, and judge his own performance. Superior’s appraisal forms the traditional part of the 360
degree appraisal where the employees’ responsibilities and actual performance is rated by the superior.

Subordinates appraisal gives a chance to judge the employee on the parameters like communication and
motivating abilities, superior’s ability to delegate the work, leadership qualities etc. Also known as
internal customers, the correct feedback given by peers can help to find employees’ abilities to work in a
team, co-operation and sensitivity towards others.

Self assessment is an indispensable part of 360 degree appraisals and therefore 360 degree Performance
appraisal have high employee involvement and also have the strongest impact on behavior and
performance. It provides a "360-degree review" of the employees’ performance and is considered to be
one of the most credible performance appraisal methods.

360 degree appraisal is also a powerful developmental tool because when conducted at regular intervals
(say yearly) it helps to keep a track of the changes others’ perceptions about the employees. A 360 degree
appraisal is generally found more suitable for the managers as it helps to assess their leadership and
managing styles. This technique is being effectively used across the globe for performance appraisals.
Some of the organizations following it are Wipro, Infosys, and Reliance Industries etc.
Arguments Against 360 Degree Performance Appraisal

Despite the fact that 360 degree appraisals are being widely used throughout the world for appraising the
performance of the employees at all levels, many HR experts and professionals argument against using
the technique of 360 degree appraisals. The main arguments are:

• 360 performance rating system is not a validated or corroborated technique

for Performance appraisal.
• With the increase in the number of raters from one to five (commonly), it
become difficult to separate, calculate and eliminate personal biasness and differences.
• It is often time consuming and difficult to analyze the information gathered.
• The results can be manipulated by the employees towards their desired
ratings with the help of the raters.
• The 360 degree appraisal mechanism can have a adversely effect the
motivation and the performance of the employees.
• 360 degree feedback – as a process- requires commitment of top
management and the HR, resources(time, financial resources etc), planned implementation and
• 360 degree feedback can be adversely affected by the customers’
perception of the organisation and their incomplete knowledge about the process and the clarity o
f the process.
• Often, the process suffers because of the lack of knowledge on the part of
the participants or the raters.
The concept of ‘Management by Objectives’ (MBO) was first given by Peter Drucker in 1954. It can be
defined as a process whereby the employees and the superiors come together to identify common goals,
the employees set their goals to be achieved, the standards to be taken as the criteria for measurement of
their performance and contribution and deciding the course of action to be followed.

The essence of MBO is participative goal setting, choosing course of actions and decision making. An
important part of the MBO is the measurement and the comparison of the employee’s actual
performance with the standards set. Ideally, when employees themselves have been involved with the
goal setting and the choosing the course of action to be followed by them, they are more likely to fulfill
their responsibilities.


The principle behind Management by Objectives (MBO) is to create empowered employees who have
clarity of the roles and responsibilities expected from them, understand their objectives to be achieved
and thus help in the achievement of organizational as well as personal goals.

Some of the important features and advantages of MBO are:

• Clarity of goals – With MBO, came the concept of SMART goals i.e. goals that are:

Realistic, and
Time bound.

The goals thus set are clear, motivating and there is a linkage between organizational goals and
performance targets of the employees.

• The focus is on future rather than on past. Goals and standards are set for the performance for
the future with periodic reviews and feedback.

• Motivation – Involving employees in the whole process of goal setting and increasing
employee empowerment increases employee job satisfaction and commitment.

• Better communication and Coordination – Frequent reviews and interactions between

superiors and subordinates helps to maintain harmonious relationships within the enterprise and also
solve many problems faced during the period.
Assessment centre refers to a method to objectively observe and assess the people in action by experts or
HR professionals with the help of various assessment tools and instruments. Assessment centers simulate
the employee’s on-the-job environment and facilitate the assessment of their on-the-job performance.

An assessment centre typically involves the use of methods like social/informal events, tests and
exercises, assignments being given to a group of employees to assess their competencies and on-the-job
behaviour and potential to take higher responsibilities in the future. Generally, employees are given an
assignment similar to the job they would be expected to perform if promoted. The trained evaluators
observe and evaluate employees as they perform the assigned jobs and are evaluated on job related

An assessment centre for Performance appraisal of an employee typically includes:

Social/Informal Events – An assessment centre has a group of participants and also a few assessors
which gives a chance to the employees to socialize with a variety of people and also to share information
and know more about the organisation.

Information Sessions – information sessions are also a part of the assessment centres. They provide
information to the employees about the organisation, their roles and responsibilities, the activities and the
procedures etc.

Assignments- assignments in assessment centres include various tests and exercises which are specially
designed to assess the competencies and the potential of the employees. These include various interviews,
psychometric tests, management games etc. all these assignments are focused at the target job.

The following are the common features of all assessment centres:

• The final results is based on the pass/fail criteria
• All the activities are carried out to fill the targeted job.
• Each session lasts from 1 to 5 days.
• The results are based on the assessment of the assessors with less emphasis on self-assessment
• immediate review or feedback are not provided to the employees.

An organization’s human resources can be a vital competitive advantage and assessment centre helps in
getting the right people in right places. The major competencies that are judged in assessment centres are
interpersonal skills, intellectual capability, planning and organizing capabilities, motivation, career
orientation etc. assessment centres are also an effective way to determine the training and development
needs of the targeted employees.

People differ in their abilities and their aptitudes. There is always some difference between the

quality and quantity of the same work on the same job being done by two different people.

Therefore, performance management and performance appraisal is necessary to understand each

employee’s abilities, competencies and relative merit and worth for the organization. Performance

appraisal rates the employees in terms of their performance.

Performance appraisal takes into account the past performance of the employees and focuses on the

improvement of the future performance of the employees.

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1. Performance Appraisal Handbook for US Department Of the Interior (ebook)




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