What is Performance Appraisal?

Performance appraisal is an annual process that involves setting clear, quantifiable

goals and objectives and assessing individual performance. It evaluates the employee’s

performance and productivity against the pre-determined set of objectives for that year.

It also helps to evaluate employee’s skills, strengths, and shortcomings, and motivation.

The results of this performance appraisal process determine the employees' wage raise

and promotion.

Main Objectives of Performance Appraisal

 Promotions

 Confirmations

 Training and Development

 Compensation Reviews

 Competency Building

 Improve Communication

 Evaluation of HR Programs

 Feedback and Grievances

Performance Appraisal Methods: Traditional and Modern

Methods

Performance appraisal methods are categories into two types, Traditional and Modern

methods. However, each category has its own strengths and weaknesses. But there is
 no single appraisal method that is universally used in the performance appraisal

process.

Since one method may be suitable for one organization and non-suitable for others.

Traditional Methods of Performance Appraisal

Definition: The Performance Appraisal is a periodic evaluation or the assessment of the
employee’s job performance against the pre-established standards such as quality and quantity of
output, job knowledge, versatility, supervision, leadership abilities, etc.

Traditional Methods emphasizes the rating of the individual’s personality traits, such as initiative,
dependability, drive, creativity, integrity, intelligence, leadership potential, etc. On the other hand,
Modern Methods are more inclined towards job achievement and evaluation of work results. Modern
methods best suit the organizations faced with pacing and rely on performance, results, and employee
productivity.

Traditional Methods of Performance Appraisal

1. Rating Scales: The numerical scale is prepared that represents the job evaluation
criterion such as the output, initiative, attendance, attitude, dependability, etc. and ranges from
excellent to poor. Thus, each employee is given the rating based on his performance against each
 set criteria and then the consolidated score is computed accordingly. The rating scales are one of
the easiest traditional methods of performance appraisal and can be applied to any job.
2. Checklist: A checklist of employee traits in the form of statement is prepared where the
rater put a tick mark in “Yes” or “No” column against the trait checked for each employee.Once
the checklist gets completed the rater forwards the list to the HR department for the final
evaluation of the employee.
3. Forced Choice Method: Under this method, the rater is forced to answer the ready-made
statements as given in the blocks of two or more, about the employees in terms of true or
false.Once he is done with the list, it is forwarded to the HR department for the final assessment
of the employee.
4. Forced Distribution Method: This method of performance appraisal is based on the
assumption that employee’s job performance conforms to the normal distribution curve i.e. a bell
shaped curve.Hence, the rater is compelled to put employees on each point on the scale. It is seen
that cluster of employees is placed at the highest point on a rating scale.
5. Critical Incidents Method: Under this method, the critical behavior of each employee
that make a difference in the effective or non-effective performance is recorded by the supervisor
and is taken into consideration while evaluating his performance.
6. Behaviorally Anchored Rating Scale: The descriptive statements about employees’
behavior, both effective and ineffective are put on the scale points, and the rater is asked to
indicate which behavioral point describes the employee behavior the best.
7. Field Review Method: Under this method, the performance evaluation of an employee is
done by someone who does not belong to his department or is usually from the corporate office
or the HR department.The outsider reviews the performance of an employee through his records
and holds interviews with the assessee and his superiors.
8. Performance Tests and Observations: The test either written or oral is conducted to
test the knowledge and the skills of employees. Sometimes the employee is asked to demonstrate
his skills in the given situation and then he is evaluated on that basis.
9. Confidential Reports: The confidential reports are mostly prepared by the government
departments, wherein the employee is evaluated on some of the following parameters:

o Attendance
o Leadership
o Self-expression
o Ability to work with others
o Initiative
o Technical ability
o Integrity
o Responsibility, etc.
 Essay Method: Under this method, the detailed description of the employee
performance is written by the rater. The performance of an employee, his relations with other
Co-workers, requirements of training and development programs, strengths and weaknesses of
 the employee, etc. are some of the points that are included in the essay.The efficiency of this
traditional method of performance appraisal depends on the writing skills of the rater.
 Cost Accounting Method: In this method, the employee’s performance is
evaluated in monetary terms, i.e. how much cost company is incurring on keeping the employee
and how much he is contributing to the firm in terms of his output.
 Comparative Evaluation Approaches: Under this method, several comparative
analysis are done, wherein the performance of one employee is compared with that of another
Co-worker, and the rating is determined accordingly.The Ranking Method and the Paired
Comparison Method are the usual comparative forms used in this approach.
o Ranking Method: In the Ranking Method, superiors give the rank from best to
worst, to their subordinates on the basis of their merits. Here, the detailed description of why
best or why the worst is not given.
o Paired Comparison Method: Under this method, the performance of each
employee is compared with the other employee and then the decision on whose performance
is better is made.
Thus, the performance of an individual can be evaluated using either of the methods that best
measures the behavior of an employee and gives the exact evaluation of worker’s doings.

Employee performance appraisal is critical for any organization. It helps the

management to track employee performance, which is directly linked to organizational

growth. It helps in boosting employees’ motivation, productivity, and commitment to the

organization.

Here are the 7 Most Effective Modern Methods of

Performance Appraisal

1. Management by Objectives (MBO):

The term Management by Objectives was first termed by management guru Peter

Drucker in his 1954 book, The Practice of Management

This method focuses on improving the organization’s performances by defining clear

objectives both agreed by the employees and the managers. The objectives set should
 be challenging yet achievable. Both managers and employees should review past

performance and pinpoint the problems. The information acquired then should be used

to address organizational goals and needs.

The practitioners of MBO believes that it helps in employee motivation and commitment.

It also builds healthy communication between the management and employees.

Steps in MBO (Also called MBO Process Cycle)

1. In the first step, MBO emphasizes measurable, tangible, and achievable goals,
keeping the organizational mission in mind.

2. The second step is to translate these objectives into the employees.

3. In the third step, the employees are allowed to plan their objectives.

4. In the fourth step, the progress of the employees is monitored.

5. The fifth step is to evaluate and reward employees. Honest feedback is given,

and also new strategies for goals not achieved are established.

Related: Management By Objectives, Its Nature And Advantages

2. Psychological Appraisals

Psychological appraisal is one of the most exciting and intuitive appraisal methods. This

method assesses the employees’ potential for future performance rather than their past

one. It focuses on employees' emotional, intellectual, and other personal characteristics

affecting their performance.

This method suits the best for the workforce today. Employees now are quite vulnerable

and often fall into the pit while balancing their work and personal life. This method

understands that aspect and allows employees to shine in the future.

3. 360 Degree Feedback

360-degree feedback is a systematic collection and feedback of performance data for

employees collected from all his/her peers, supervisors and even customers.

This is one of the most widely used appraisal methods. Since, the participation of the

managers, peers, customers are involved, this method gives an overview of the

performance reviews collectively. This helps in the performance appraisal process to

have a diverse outlook.

Related: 360 Degree Feedback: A Practical Guide To An Effective Feedback Process

4. Assessment Centre Method

In this method, employees are assessed to participate in activities like in-basket

exercises, role-playing, discussions, computer simulations, etc. They are evaluated in

terms of their persuasive ability, communication skills, confidence, sensitivity to others’

feelings, mental alertness, administrative ability, etc.

This entire exercise is done under the trainer, who observes the employee behavior and

then discusses it with the rater, which evaluates the employee’s performance.

5. Behaviorally Anchored Rating Scale (BARS)

Behaviourally Anchored Rating Scales are designed to bring the benefits of both

qualitative and quantitative data to the employee appraisal process. BARS compare an

individual’s performance against specific examples of behavior anchored to numerical

ratings.
It compares an individual’s performance against specific examples of behavior that are

tied to numerical ratings of 5 to 9. Behaviorally Anchored Rating Scale is usually

represented as a vertical rating graph. These behavioral anchor points are collected

using Critical Incident Techniques (CIT), which are procedures used for documenting

human behavior that is of significance in a particular arena.

6. 720 Degree Method

In this method, the assessment is done not only by the stakeholders within the company

but also from the groups outside the organization. These external groups who assess

the employee’s performance are customers, investors, suppliers, and other financial

institutions.

It is one of the most crucial modern methods of performance appraisal because this is

the only group that determines the organization’s success as a whole.

Nowadays, companies use the modern methods of performance appraisal, which have

a broader scope than the traditional methods and provides a more accurate and

comprehensive evaluation of an individual.

7. Cost Accounting Method

Some may find this method a little harsh, and it may be a convenient appraisal method

for others.

This method evaluates the employees’ performance from the monetary output an

organization yields from their input. This is ascertained by analyzing the cost involved in

retaining the employees with the benefits an organization yields from their inputs.