Unit _4

Performance Appraisal
Performance Appraisal is the systematic evaluation of the performance of employees and to
understand the abilities of a person for further growth and development. Performance appraisal is
generally done in systematic ways which are as follows:
1. The supervisors measure the pay of employees and compare it with targets and plans.
2. The supervisor analyses the factors behind work performances of employees.
3. The employers are in position to guide the employees for a better performance.
Objectives of Performance Appraisal
Performance Appraisal can be done with following objectives in mind:
To maintain records in order to determine compensation packages, wage structure, salaries
raises, etc.
1. To identify the strengths and weaknesses of employees to place right men on right job.
2. To maintain and assess the potential present in a person for further growth and
development.
3. To provide a feedback to employees regarding their performance and related status.
4. To provide a feedback to employees regarding their performance and related status.
5. It serves as a basis for influencing working habits of the employees.
6. To review and retain the promotional and other training programmes.
Benefits of Performance Appraisal
It is said that performance appraisal is an investment for the company which can be justified by
following advantages:
1. Promotion: Performance Appraisal helps the supervisors to chalk out the promotion
programmes for efficient employees. In this regards, inefficient workers can be dismissed or
demoted in case.
2. Compensation: Performance Appraisal helps in chalking out compensation packages for
employees. Merit rating is possible through performance appraisal. Performance Appraisal
tries to give worth to a performance. Compensation packages which includes bonus, high
salary rates, extra benefits, allowances and pre-requisites are dependent on performance
appraisal. The criteria should be merit rather than seniority.
3. Employees Development: The systematic procedure of performance appraisal helps the
supervisors to frame training policies and programmes. It helps to analyse strengths and
weaknesses of employees so that new jobs can be designed for efficient employees. It also
helps in framing future development programmes.
4. Selection Validation: Performance Appraisal helps the supervisors to understand the validity
and importance of the selection procedure. The supervisors come to know the validity and
thereby the strengths and weaknesses of selection procedure. Future changes in selection
methods can be made in this regard.
5. Communication: For an organization, effective communication between employees and
employers is very important. Through performance appraisal, communication can be sought
for in the following ways:
 Through performance appraisal, the employers can understand and accept skills of
subordinates.
 The subordinates can also understand and create a trust and confidence in superiors.
 It also helps in maintaining cordial and congenial labour management relationship.
 It develops the spirit of work and boosts the morale of employees.
 All the above factors ensure effective communication.

6. Motivation: Performance appraisal serves as a motivation tool. Through evaluating

performance of employees, a person’s efficiency can be determined if the targets are
achieved. This very well motivates a person for better job and helps him to improve his
performance in the future.

Process of Performance appraisal

1. Setting the Performance Standards:

The first step in the performance appraisal process is the setting of standards of performance
expected from the employees. The standards set should be the line with the objectives and
the mission of the organisation.
Further the standard set must be realistic and attainable. If unrealistic and unattainable
standards are set, it will demotivate and demoralise the employee. Hence care should be
taken while setting the standards.
2. Communicating the Performance Standard to the Employees:
It is not enough if just the standards are fixed. The expected level of performance should be
communicated to the employees so that they are all well aware of what is expected of them.
3. Measuring the Actual Performance:
This is a crucial step in the performance appraisal process. Here the actual performances are
measured. There are various methods of measuring the performance.
4. Comparing the Actual With the Standard Performance:
Once the standard levels of performance are set and the actual performances are measured,
the next step will be the comparison of the actual with the standard performance. This
comparison will enable the determination of the gap between the actual and the expected
performance; such gaps can be bridged through training and development.
5. Providing Feedback:
The performance appraisal process does not end with mere evaluation of the performance. It
is essential to provide feedback to the employees on their performance. This will help the
 employees to identify the weak areas and initiate actions to overcome them. Such feedback
motivates them to perform better in future by avoiding the repetition of the same mistakes.
6. Initiating Corrective Actions:
When a gap is found between the actual and the expected level of performance, corrective
actions should be undertaken. By analyzing the reason for a gap, proper action should be
taken so that the gap is bridged. When the actual and the standard performance match there
is no need for any corrective action.

Criteria of Performance appraisal

There are a number of criteria which can be used to appraise the performance of different classes
of employees in an organisation. Some of the important criteria are as follows:

(1) Production—Where a worker is engaged on a production job, the number of units produced
in a given time would accurately represent his proficiency. The amount of output should be
adjusted for variation in quality to make it directly comparable with the output of other workers.

(2) Work-Sample Tests-When accurate output records of workers cannot be obtained for one
reason or the other, work sample tests can serve as a measure of proficiency. In a work sample
test the employee performs exactly the same work as that involved on the job.

(3) Length of Service—In many situations the longer a worker has remained on a job, the more
successful he is considered. His long stay on the job reflects his ability to adjust to the working
conditions, his ability to cooperate with his fellow workers satisfaction with the job etc.

(4) Training—When the training period is expensive to the organisation, training time can be
used as a measure of worker's proficiency. The worker who needs a longer time to learn is
considered inferior to one who learns in a relatively short time.

(5) Ratings of Supervisors-Ratings are qualitative statements of opinion of foremen, managers

and others in supervisory authority on such characteristics of a worker as job knowledge,
cooperativeness, dependability, attendance, regard for safety, ability to deal with people etc.

Some of the major limitations of performance appraisal are:

1. Bias of Appraiser
2. Ambiguity in Standards
3. Insufficient Evidence
4. Several Qualities Remain Without Appraisal
5. Leniency or Strictness Tenancy 6. Average Rating Problem
7. Influence of Man’s Job and
8. Similarity Error.

1. Bias of Appraiser:
The presence of ‘Halo Effect’ in evaluation of employees is the biggest weakness of this method.
A high rate is given to favoured employees whereas unfriendly employees are rated low.
2. Ambiguity in Standards:
If the standards are not clear, the supervisors may follow different standards for different
employees.
3. Insufficient Evidence:
An employee who can impress the boss may get a positive evaluation though his impression in
his own department may be very poor. In such cases, the performance appraisal will be
superfluous.
4. Several Qualities Remain Without Appraisal:
Through performance appraisal, only few qualities of employees can be measured. All
individuals differ from each other in terms of background, values and behaviour.
5. Leniency or Strictness Tenancy:
Every evaluator has his own valuation procedure which is regarded as his own standard for
evaluation. For example, some teachers are strict in evaluation of answer books whereas others
are lenient. The lenient tendency is known as ‘Positive Leniency Error’ whereas strict tendency
is called as ‘Negative Leniency Error’. The rating may be high or low depending upon the nature
of evaluators.
6. Average Rating Problem:
In order to give very low or very high rating, the top managers are required to give reasons to
justify the rating. The most common error committed in performance appraisal is to give average
rating to all employees. Moreover, low rating antagonizes the subordinates.
7. Influence of Man’s Job:
There is a tendency to give a high rating to highly paid jobs. So a senior employee may get a
higher rating than a junior employee.
8. Similarity Error:
The evaluator tries to look those qualities in subordinates which he himself possesses. Those
who show the similar characteristics are rated high.

360 Degree Appraisal System

It is a system in which employees will get feedback from all the people they work with. There
are about 7 to 12 people who will fill out a form which is usually a feedback form. The contents
of the form may vary from broad range competencies to work environment. The employee who
receives the feedback will also be required to fill out a self assessment which again might consist
of the same components. This system is used to get an improved understanding of every one’s
strengths and weaknesses.
There are three general reasons as to why an organization would go in for a 360 degree appraisal.
 To get a better view of the performance and prospective of future leaders.
 To have a broad insight of developmental needs of manpower.
 To collect more feedback so as to ensure justice to the job performed by the employees.
In 360 degree appraisal system, the feedback is collected from managers, peers, subordinates,
customers, team members etc. A survey is conducted to get close understanding of-on the job
performance of the employees. A 360 degree appraisal has four stages in it:
 Self Appraisal
 Superior’s Appraisal
 Sub-ordinates Appraisal
 Peer Appraisal
It is not an easy task to implement 360 degree appraisal. For this appraisal to be effective one
needs to bear in mind the following:
1. Right skills to be assessed are determined.
2. Appraiser should be selected properly.
3. He should be well aware of the system, if proper training on the appraisal system is not
given.
4. Elucidate the intention of this kind of appraisal system.
5. Ensure the process to be simple.
6. Follow up.

Promotion
Promotion is advancement of an employee to a better job- better in terms of grater
responsibility, more prestige or status, greater skills and especially increased rate of pay or
salary.”
“The upward reassignment of an individual in an organizational hierarchy, accompanied by
increased responsibilities, enhanced status and usually with increased income though not always
so.”
Promotion is the reassignment of a higher level job to an internal employee with delegation of
responsibilities and authority required to perform that higher job and normally with higher pay.
Thus, the main conditions of promotion are:-
1) Reassignment of higher level job to an employee than what he is presently performing.
2) The employee will naturally be delegated with greater responsibility and authority than
what he has had earlier.
3) Promotion normally accompanies higher pay.
Promotion may be temporary or permanent depending upon the organizational needs and
employee performance.

Purposes:-
1) To utilize the employee’s skills, knowledge at the appropriate level in the organizational
hierarchy resulting in organizational effectiveness and employee satisfaction.
2) To develop competent spirit and inculcate the zeal in the employees to acquired the skills,
knowledge etc. required by higher level jobs.
3) To develop competent internal source of employees ready to take up jobs at higher level in
the changing environment.
4) To promote employee’s self development and make them await their turn of promotions. It
reduces labour turnover.
5) To promote a feeling of content with the existing conditions of the company and a sense of
belongingness.
6) To promote interest in training, development programmers and in team development areas.
7) To build loyalty and to boost morale.
8) To reward committed and loyal employees.
9) To get rid of the problems created by the leader of workers’ unions by promoting them to the
officer’ levels where they are less effective in creating problems.

Types of Promotion
As already noted, a promotion involves an increase in status, responsibilities and pay. But, in
certain cases, only the pay increases, and the other elements remain stagnant. In other cases, the
status only increases without a corresponding increase in pay or responsibilities. Depending on
which elements increase and which remain stagnant, promotions may be classified into the
following types:
1) Horizontal Promotion:-
This type of promotion involves an increase in responsibilities and pay, and a change in
designation. But the employee concerned does not transgress the job classification. For example,
a lower division clerk is promoted as an upper division clerk. This type of promotion is referred
to as upgrading’ the position of an employee.
2) Vertical Promotion:-
This type of promotion results in greater responsibility, prestige and pay, together with a change
in the nature of the job. A promotion is vertical when a canteen employee is promoted to an
unskilled job. The concerned employee naturally transgresses the job classification.
3) Dry Promotions:-
Dry promotions are sometimes given in lieu of increases in remuneration. Designations are
different but no change in responsibilities. The promotee may be given one or two annual
increments.

Performing.
1) The employee will naturally be delegated with greater responsibility and authority than
what he has had earlier.
2) Promotion normally accompanies higher pay.
3) Promotion may be temporary or permanent depending upon the organizational needs
and employee performance.

Transfer

Transfers of employees can be defined as a change in job within the organization where the new
job is substantially equal to the old in terms of pay, status and responsibilities. Transfers of
employees can possible from one department to another from one plant to another. Transfer may
be initiated by the organization or by the employees with the approval of the organization. It can
be also due to changes in organizational structure or change in volume of work, it is also
necessary due to variety of reasons. But broadly can be done either to suit the conveniences of
organization and to suit the convenience of employees.

Transfer are generally affected to build up a more satisfactory work team and to achieve
the following purposes:
1) To increase the effectiveness of the organization.
2) To increase the versatility and competency of key positions.
3) To deal with fluctuations in work requirements.
4) To correct incompatibilities in employee relations.
5) To correct, erroneous placement.
6) To relieve monotony.
7) To adjust workforce.
8) To punish employees.

Types of Transfers

1) Production Transfer: Such transfers are resorted to when there is a need of manpower in
one department and surplus manpower in other department. Such transfers are made to
meet the company requirements. The surplus employees in one department/section might
be observed in other place where there is a requirement.
2) Replacement Transfers: This takes place to replace a new employee who has been in the
organization for a long time and there by giving some relief to an old employee from the
heavy pressure of work.
3) Remedial Transfers: As the name suggest, these transfers are made to rectify the situation
caused by faulty selection and placement procedures. Such transfers are made to rectify
mistakes in placement and recruitments. If the initial placement of an individual is faulty or
has not adjusted to work/job, his transfer to a more appropriate job is desirable.
4) Versatility Transfer: Such transfers are made to increase versatility of the employees
from one job to another and one department to another department. Transfer (Job Rotation)
are the tool to train the employees. Each employee should provide a varied and broader job
experiences by moving from one department to another. This is for preparing the employee
for promotion, this will definitely help the employee to have job enrichment.

Transfer Policy

Every organization should have a fair and impartial transfer policy which should be known to
each employee. The responsibility for effecting transfers is generally entrusted to an executive
with power to prescribe the conditions under which requests for transferred are approved. Care
should be taken to ensure that frequent or large scale transfers are avoided by laying down
adequate selection and placement procedures for the purpose. A good transfer policy should:

 Specifically clarify the types of transfers and the conditions under which these will be
made.
 Locate the authority in some officer who may initiate and implement transfers.
 Indicate whether transfers, i.e., whether it will be based on seniority or on the skill and
competency or any other factor.
 Decide the rate of pay to be given to the transfere.
 Intimate the fact of the transfer to the person concerned well in advance.
 Be in writing and duly communicated to all concerned.
 Not be made frequently and for sake of transfer only.
A sound, just and impartial transfer policy should be evolved in the organization to govern all
types of transfers. This policy should be clearly specified so that the superiors cannot transfer
their subordinates arbitrarily and subordinates may not request for transfers even for the small
issues. The management must frame policy on transfers and apply it to all the transfers instead of
treating each case on its merit. Such a policy must be based on the following principles:
1. Transfer policy must be in writing and be made known to all the employees of the
organization.
2. The policy must very clearly specify the types and the circumstances under which company
initiated the transfer will be made.
3. Basis of the transfer should be clearly mentioned in the policy, whether it will be based
seniority or on the skill and the competency or any other factors.
4. It should indicate the executives who will be responsible for initiating and approving the
transfers.
5. The policy should specify the region or unit of the organization within which transfers will
be administered.
6. The effect of the transfer on the pay and seniority of the transferred employee may be clearly
evaluated.
7. It should be prescribed in the policy whether the training or retraining is required on the new
job.
8. Transfer should be clearly defined as temporary or permanent.
9. The interest of the organization are not to be forgotten in framing a policy of transfer.
10. Reasons for the mutual transfer of employees or reasons to be considered for the personal
transfers should be specified.
11. The fact of the transfer should be intimated to the person concerned well in advance.
12. Transfer should not be made frequent and not for the sake of transfer only.

Layoff
A layoff is the termination of the employment status of a hired worker. This is an action initiated
by the employer. The former employee may no longer perform work related services or collect
wages. In some instances, a layoff is only a temporary suspension of employment, and at other
times it is permanent. Layoffs are usually the result of economic downturns. A company may
choose to reduce the size of its workforce to reduce costs until the situation improves. Unlike
termination for misconduct, a layoff has fewer negative repercussions for the worker. The
employee remains eligible for rehire and often has positive work experience and references that
are useful during a job search. The former employee may also be eligible for unemployment
benefits, retraining, and other forms of support.

Resignation
Resignation is the formal act of giving up or quitting one's office or position. A resignation can
occur when a person holding a position gained by election or appointment steps down, but
leaving a position upon the expiration of a term, or choosing not to seek an additional term, is not
considered
The term resignation refers to the act of quitting a job, or stepping down from a public position,
before the individual’s contract or term is up.

Dismissal
Dismissal (referred to informally as firing or sacking) is the termination of employment by
an employer against the will of the employee. Though such a decision can be made by an
employer for a variety of reasons, ranging from an economic downturn to performance-related
problems on the part of the employee, being fired has a strong stigma in some cultures.

Retrenchment
Retrenchment in layman’s term is known as ‘reduction of workforce’ while in legal terms it is
regarded as “termination of contract’. The industrial court confined the usage of the term
‘retrenchment’ to mean a discharge of surplus labour. In HR term, ‘retrenchment’ is defined as
an activity to legally terminate any employment contract with the employee by offering a
compensation package. Such offer to retrench may come into as mutual acceptance or forced
upon by one party which of course would be the employer.

Voluntary retirement
Voluntary retirement scheme (VRS) is a method used by companies to reduce surplus staff. This
mode has come about in India as labour laws do not permit direct retrenchment of unionized
employees.

Description: VRS applies to an employee who has completed 10 years of service or is above 40
years of age. It should apply to all employees (by whatever name called), including workers and
executives of a company or of an authority or of a co-operative society, excepting directors of a
company or a co-operative society.
It has to result in an overall reduction in the existing strength of employees. The vacancy caused
by voluntary retirement is not to be filled up. The retiring employee shall not be employed in
another company or concern belonging to the same management. The amount receivable on
account of voluntary retirement of the employee does not exceed the amount equivalent to three
months' salary for each completed year of service, or salary at the time of retirement multiplied
by the balance months of service left before the date of retirement on superannuation of the
employee. It is the last salary drawn which is to form the basis for computing the amount of
payment.

Most large public and private sector companies have implemented VRS in recent years.
Retirement
Retirement is the withdrawal from one's position or occupation or from one's active working
life. A person may also semi-retire by reducing work hours. Nowadays, most developed
countries have systems to provide pensions on retirement in old age, which may be sponsored by
employers or the state. In many poorer countries, support for the old is still mainly provided
through the family. Today, retirement with a pension is considered a right of the worker in many
societies, and hard ideological, social, cultural and political battles have been fought over
whether this is a right. In many western countries this right is mentioned in
national constitutions.