Chapter-3

Theoretical aspects

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3.1 Management:

".A set of activities (including planning, organizing, leading, controlling) directed at an

organizational resources (human, financial, physical and informational) with the aim of
achieving organizational goals in an effective and efficient manner.

Henri Fayol "Management is to forecast, to plan, to organized, to command, to

coordinate and control activities of others

3.2 Human resource management:

Human resource management is the set of organizational activities directed at attracting,

developing and maintaining an effective workforce.

Edwin Flippo defines- HRM as "planning, organizing, directing, controlling of

procurement, development, compensation, integration, maintenance and separation
of human resources to the end that individual, organizational and social objectives are
achieved".

3.3 Principles of HRM:

 Principle of scientific selection

 Principle of employee development
 Principle of labor management co-operation
 Principle of free flow of communication
 Principle of fair remuneration
 Principle of incentive
 Principle of dignity of labor
 Principle of participation
 Principle of team spirit
 Principle of contribution

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3.4 HR responsibilities:

The core responsibilities of HR include transactional and functional activities, such as-

 Establishing compensation structure

 Addressing employee relations matters
 recruiting qualified applicants
 selecting the right people
 Maintaining workplace, safety
 Employee training and development
 Scheduling appointments
 Conducting orientation
 Maintaining record and information

3.5 Functions of HRM:

There are four basic function of HRM -

a) Acquisition Function: There are two steps involved in acquisition process:

Recruitment: Recruitment is a process by which organizations locate and attract

individuals to fill job vacancies.

Selection: Selection is a process of measurements, decision, making and evaluation.

b) Training & Development: After selecting and recruiting individuals in the right
position of the organization the next function is to train and develop them, so that they
can become efficient employees and work toward the achievement of the organization
goal.

c) Motivation: The motivation function is one of the most important functions. After
training and developing the employees the HR manager should stimulate them to work
well. For motivation purpose the HR manager have to give the employees some
compensation and benefit package.

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d) Maintenance: The last phase of the HRM function is called the maintenance
function. For maintaining the people HRM should go for some method of providing a
safe and healthy work place, labor relation & collective bargaining.

3.6 Performance appraisal:

Performance appraisal means evaluating on employee’s current or past performance

relative to his/her performance standard. Performance appraisal is a formal system of
review and evaluation of individual or team task performance.

According to Dale S. Beach- "performance appraisal is systematic evaluation of the

individual with respect to his or her performance on the job and his or her potential for
development.

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3.6.1 Importance of performance appraisal for employees:

1. Feedback: This provides a structured format for the discussion of performance issues
on a regular basis.

2. Motivating superior performance: Performance appraisal helps to motivate people

to deliver superior performance in several ways.

3. Setting& measuring goals: Goal setting has consistently been demonstrated as a

management process that generates superior performance.

4. Counseling poor performance: Not everyone meets the organization's standards.

Performance appraisal forces managers to confront those whose performance is not
meeting the company's expectations.

5. Determining compensation changes: performance appraisal provides the mechanism

to make sure that those who do better work receive more pay.

6. Encouraging coaching & mentoring: Performance appraisal identifies the areas

where coaching is necessary and encourages managers to take an active coaching role.

7. Supporting manpower planning: Well-managed organizations regularly assess their

bench strength to make sure that they have the talent that they will need for the future.

8. Determining individual Training & Development needs: If the performance

appraisal procedure includes a requirement that individual development plans be
determined and discussed, individuals can then make good decisions about the skills and
competencies they need to acquire to make good decisions about the skills and
competencies they need to acquire to make a greater contribution to the company. As a
result they increase their chances of promotion and lower their adds of layoff.

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3.6.2 Key elements of performance appraisal system:

Goal Setting

Collaboration, Feedback,
Teamwork, Review,
Communication Appraisal

Reward&
Development
Recognition

Figure: Elements of performance appraisal

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3.6.3 Employees feedback in performance appraisal:

Feedback is given a lot of importance in the performance appraisal process. This is the
stage in which the employee acquires awareness from the appraiser about the areas of
improvements and also information on whether the employee is contributing the
expected levels of performance or not.

The employee receives an open and a very transparent feedback and along with this the
training and development needs of the employee meets the expected outcomes for an
organization through effective personal counseling and guidance, mentoring and
representing the employees and training programs which develop the competencies and
improve the overall productivity.

1. Self-appraisal: Self-appraisal gives a chance to the employees to look at

his/her strengths and weaknesses, achievement and judge his/her own
performance.

2. Superior's appraisal: For superior's appraisal, superior must communicate to

the employee in clear way what the organization plans for the employee.

3. Subordinate's appraisal: Subordinates appraisal gives a chance to judge the

employee on the parameters like communicate and motivating abilities, superior's
ability to delegate the work, leadership qualities etc.

4. Peer appraisal: For peer appraisal, members of a group evaluate and appraise
the performance of their fellow group members.

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3.6.4 People who conduct 360 degree performance appraisal in
organization:

Superiors

Customers customers

peers Employee peers

Suppliers Suppliers

Subordinates

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3.6.5 Performance appraisal process:

Establishing Performance Standards

Communicating The Standards

Measuring The Actual Performance

Comparing With Standards

Discussing Results [Providing feedback]

Discussing Making-Taking Corrective Actions

1. Establishing 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 organization.

2. Communicating the standards:

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.

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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 performance with desired 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. Discussing results(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. Decision making:

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.

3.7 Aspects of value(What should be measured):

The terms for expressing performance standards are outlined below:

 Quantity: Specifies how much work must be completed within a certain period
of time.
 Quality: Describes how well the work must be accomplished. Specifies
accuracy, precision, appearance or effectiveness.

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  Timeliness: Answers the questions, by when?, How soon?, Or within that
period?
 Effective use of resources: Used when performance can be assessed in terms of
utilization of resources: money saved, waste reduced.
 Effects of effort: Addresses the ultimate effect to be obtained; expands
statements of effectiveness by using phrases such as: so that, in order to, or as
shown by.
 Manner of performance: Describes condition in which an individual's personal
behavior has an effect in performance.
 Method of performing assignments: Describes requirements; used when only
the officially prescribed policy, procedure, or rule for accomplishing the work is
acceptable.

3.8 Types of performance appraisal methods:

Broadly all methods of appraisals can be divided into two different categories:

 Past oriented methods

 Future oriented method

a) Past oriented methods:

1. Ranking Method: It is the oldest and simplest method of performance appraisal in

which employees’ are ranked on certain criteria such as trait or characteristic. The

employee is ranked from highest to lowest or from worst to best in an organization. Thus

if there are seven employees to be ranked then there will be seven ranks from 1 to 7.

2. Paired Comparison: In method is comparatively simpler as compared to ranking

method. In this method, the evaluator ranks employees by comparing one employee with
all other employees in the group. The rater is given slips where, each slip has a pair of
names, the rater puts a tick mark next those employee whom he considers to be the better
of the two. This employee is compared number of times so as to determine the final
ranking.

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3. Grading Method: In this method, certain categories are defined well in advance and
employees are put in particular category depending on their traits and characteristics.
Such categories may be defined as outstanding, good, average, poor, very poor, or may
be in terms of alphabet like A, B, C, D, etc. where A may indicate the best and D
indicating the worst. This type of grading method is applied during Semester pattern of
examinations. One of the major limitations of this method is that the rater may rate many
employees on the better side of their performance.

4. Forced Distribution Method: This method was evolved to abolish the trend of rating
most of the employees at a higher end of the scale. The fundamental assumption in this
method is that employees’ performance level conforms to a normal statistical
distribution.

5. Rating Scales: This is the simplest and most popular technique for appraising
employee performance. The typical rating-scale system consists of several numerical
scales, each representing a job-related performance criterion such as dependability,
initiative, output, attendance, attitude, co-operation, and the like. Each scale ranges from
excellent to poor. Rating scales offer the advantages of adaptability, relatively easy use
and low cost.

6. Checklist: Under this method, a checklist of statements on the traits of the employee
in the form of yes or no based questions is prepared. Here rater only does the reporting or
checking and HR department does the actual evaluation.

7. Forced Choice Method: In this, the rater is given a series of statements about an
employee. These statements are arranged in blocks of two or more, and the rater
indicates which statement is most or least descriptive of the employee. HR department
does actual assessment.

8. Critical Incidents Method: The critical incidents method of employee assessment

has generated a lot of interest these days. The approach focuses on certain critical
behaviors of an employee that make all the difference between effective and non-
effective performance of a job. Such incidents are recorded by the superiors as and when
they occur.

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9. Performance Test and Observations: With a limited number of jobs, employee
assessment may be based upon a test of knowledge or skills. The test may be of the
paper-and-pencil variety or an actual demonstration of skills. The test must be reliable
and validated to be useful. Even then, performance tests are apt to measure potential
more than actual performance. In order for the test to be job related, observations should
be made under circumstances likely to be encountered. Practicality may suffer if costs of
test development or administration are high.

b) Future oriented methods:

1. Management by objectives(MBO): It means management by objectives and the

performance is rated against the achievement of objectives stated by the
management.MBO process hoes as under-

 Establish goals and desired outcomes for each subordinate

 Setting performance standards
 comparison of actual goals with goals attained by the employee
 Establish new goals and new strategies for goals not achieved in previous year

2. Assessment Centers: Mainly used for executive hiring, assessment centers are now
being used for evaluating executive or supervisory potential. An assessment centre is a
central location where managers may come together to have their participation in job-
related exercises evaluated by trained observers. The principal idea is to evaluate
managers over a period of time, say one to three days, by observing (and later
evaluating) their behavior across a series of select exercises or work samples.
3. 360-Degree Feedback: As said above, where multiple raters are involves in
evaluating performance, the technique is called 360-degree appraisal. The 360-degree
technique is understood as systematic collection of performance data on an individual or
group, derived from a number of stakeholders- the stakeholders being the immediate
supervisors, team members, customers, peers and self. In fact, anyone who has useful
information on ‘how an employee does the job’ may be one of the appraisers.

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