PERFORMANCE APPRAISAL

Performance Appraisal (PA) refers to all those procedures that are used to evaluate the personality, the
performance, and the potential of its group members. Evaluation is different from judgement - the former
being concerned with performance, the latter with person.

Informal performance appraisal is a continuous process of feeding back information to the subordinates
about how well they are doing their work in the organization. The informal appraisal is conducted on a
day-to-day basis. Informal appraisal quickly encourages desirable performance and discourages
undesirable performance. On the other hand Formal performance appraisal occurs usually annually on a
formalized basis and involves appraisee and appraiser in finding answers certain questions.

Distinction between Performance and Potential

Performance is the resultant behaviour of the subordinate on the task which can be observed or evaluated.
Potential, on the other hand, refers to an employee’s abilities to fit into future role. Many managers default
in assuming that a person with abilities to perform well in one job will automatically perform well in a
more responsible position. They are often promoted to positions in which they didn’t perform adequately.

Objectives of Performance Appraisal: Performance Appraisal has basically three purposes:

i) Remedial purpose, ii) Maintenance purpose, and iii) Development of employees

Major objectives are:

1. Providing a basis for promotion/transfer/termination by identifying those employees who
deserve promotion or transfer or termination and can be used for career planning.
2. Enhancing employee’s effectiveness by identifying his strengths & weaknesses and informing him what
is expected from him. The feedback reinforces good performance and discourages poor performance.
3. Identifying employee’s training & development needs to prepare them for meeting challenges in
their current & future employment. It also helps in designing training and development programmes.
4. Performance appraisal helps in creating a positive and healthy climate in the organization.
5. Interpersonal relationship between superior-subordinate can be improved.
6. Aiding wage administration: Performance appraisal can help in development of scientific basis for
reward allocation, wage fixation, raises, incentives, etc.
7. Performance appraisal provides a mechanism for communication between superior & subordinates.

Benefits of Performance Appraisal

A. For the Appraisee
i. Better understanding of his role in the organization-what is expected and what needs to be done.
ii. Clear understanding of his strengths and weaknesses.
iii. Increased motivation, job satisfaction, and self-esteem
iv. Opportunity to discuss work problems and how they can be over come
v. Opportunity to discuss aspirations and any guidance, support or training needed.
vi. Improved working relationships with the superiors.

B. For the Management

i. Identification of performers and non-performers and their development towards better performance
ii. Opportunity to prepare employees for assuming higher responsibilities
iii. Opportunity to improve communication between the employees and the management
 iv. Identification of training and development needs
v. Generation of ideas for improvements

Process of Performance Appraisal: Performance appraisal comprises the following steps:

 Select performance factors to be evaluated and set the standards to be achieved
 Set the performance review period
 Measure actual performance
 Compare performance with set standards and rate it with a suitable scale
 Communicate the rating to the appraisee
 Use the performance appraisal for the desired purpose

Pitfalls in performance appraisal

1. Shifting Standards: Performance appraisal should be based on uniform and fair standards. For
example, last year, quality was the criteria for performance evaluation but the boss decides to judge
them this year on the basis of quantity.
2. Different Rater’s Patterns: Managers differ in rating style-some rate harshly whereas others are
quite lenient. This can be reduced by precise definition on the appraisal form.
3. Central Tendency: Many appraisal forms require the appraiser to justify outstanding or poor
assessments. So many raters may prefer an easier path of rating most people as ‘average’.
4. First impression: Some raters may form an overall impression based on some specific qualities or
features of the ratee in the first meeting itself and carry it forward.
5. Latest Behaviour: At times, the appraisal is influenced by the most recent behaviour, ignoring the
most commonly engendered behaviour during the entire period.
6. Halo Effect: Some raters have a tendency to rate high/low on all performance measures based on
one of their characteristics. For example, an average work performer is very good in cricket and
plays Ranji trophy may be given high overall rating. One who does not shave regularly may be
assessed, as lazy.
7. Horn Effect: Highly critical bosses have a tendency to compare performance of their subordinates
with ‘what they did’. This is not correct because the performance also depends upon the situation.
For Ex, salesman now operates in a ‘buyer’s market’ as against the ‘seller’s market’ of yesteryears.

Methods of performance appraisal could be classified into two categories:

A. Traditional Methods
i) Rating by superiors: In this system, supervisors appraise the performance of subordinates without
involving the latter. This method is most commonly used in government organizations. However, it
suffers from the prejudiced approach and the ability of the superiors.

ii) Ranking Method: It is the oldest and simplest method of performance appraisal in which one
employee is compared with all others for the purpose of placing them in a simple rank order of worth. The
employees are ranked from the highest to the lowest or from the best to the worst.

iii) Paired Comparison Method: In this method each employee is compared with the other employees on
one-to-one basis, usually based on one trait only. The rater is provided with a bunch of slips each
containing a pair of names, the rater puts a tick mark against the employee whom he considers the better
of the two. The number of times the employee is compared as better with others determines his or final
ranking. The number of possible pairs for a given number of employees is ascertained by the formula:
N*(N-1)/2 Where N is the total number of employees to be evaluated.

iv) Forced Distribution Method: This method assumes that employee’s performance level confirms to a
normal statistical distribution i.e. 10, 20, 40, 20 and 10 percent. This is useful for rating a large number of
employees, It tends to reduce bias problem. The major drawback of this method is that if all the
distribution grades improve similarly, no single grade would rise in the ratings.

v) Critical Incident Method: In this method, the rater focuses his or her attention on those key or critical
behaviours that makes the difference between performing a job in an effective manner. There a re three
steps involved in appraising employees:
i) A list of good or bad on-the-job behaviour of specific incidents is prepared.
ii) A group of experts then assigns a weightage or score to these incidents.
iii) Finally a check list indicating incidents that describes workers as good or bad is constructed.
Then the checklist is then given to the rater for evaluating the workers.

vi) Graphic rating Scales Method: It is one of the most popular and simplest technique for appraising
performance. It is also known as linear rating scale. It uses a printed appraisal form, which list traits like
quality and reliability etc., and range of job performance characteristics for each trait. The rating is done
on the basis of five point scale and finally gets totaled. This method is good for measuring various job
behaviours of an employee.

vii) Field Review Technique: In this technique, the appraiser goes to the field (e.g. shop floor) and
obtains the information about work performance of the employee by way of questioning the said
individual, his peer group, and his superiors. The information received about ‘how he is performing’ helps
the appraiser in defining the profile of the employee.

viii) Rating by self and the Peer Group: In this method, the employee appraisal is done independently at
three levels (tiers) employee, peer group, and the superior. HR department analyzes these appraisal
reports and draws a profile based on common aspects.

B. Modern Methods
i) Management by Objective (MBO): Peter F. Drucker has propounded this method is actually a process
in which all the superior and subordinate of an organisation jointly identify its common goals, define each
individual’s major areas of responsibility being expected from him and use these measures as guide for
operating the unit and assessing the contributions of each individual in the organisation.
It requires the manager to get specific measurable goals with each employee and then periodically discuss
his or her progress towards these goals. It is a method by which managers and subordinates plan, organize,
communicate, control and debate over the performance. MBO programme consists of four main steps:
a) Goal Setting: Here superior and subordinate jointly establish goals, which each individual is to attain.
b) Performance Standards: Standards are set for the employees as per the previously arranged time
period. When the employees starts performing their jobs, they came to know what is to be done, what has
been done, and what remains to be done.
c) Comparison: In the third step, actual levels of goals attained are compared with the goals agreed upon.
This enables the evaluator to find out the reasons for variation between the actual and standard
performance of the employees.
d) Periodic Review: Finally corrective measure is initiated when actual performance deviates from the
standards established. Purpose of this review is not to degrade the performer, but to aid future
performance.
Limitations of MBO:
i) Setting of unclear & un-measurable objectives creates problem for both the employee to
perform and superior to evaluate the performances.
ii) Time consuming: Activities like goal setting and measuring performances involved the MBO
programme requires a greater time period to give realistic results.
iii) Tug of War: Sometimes setting objectives with the subordinate turns into tug of war in the
sense that the superior pushes for higher quotas and the subordinates push in lower quotas of
performances.
iv) Lack of Trust: MBO is likely to be ineffective in an environment where management has little
trust in its employees.

ii) Behaviourally Anchored Rating Scales (BARS): The problem of judgmental performance evaluation
led to the objective evaluation by developing a technique called Behaviourally Anchored Rating Scales
(BARS) by some organisations. BARS are descriptions of various degrees of behaviour with regards to a
specific performance dimension say “knowledge and judgement”. It combines the benefits of narratives,
critical incidents, and quantified ratings by anchoring a quantified scale with specific behavioural
examples of extremely good, good, slightly good or poor or extremely poor performance.

Steps involved in developing BARS are:

a) Generating Critical Incidents. b) Developing Performance Dimensions.
c) Reallocating Incidents. d) Scaling Incidents.
e) Developing Final BARS Instrument.
It offers better and more equitable appraisals than the other techniques. This method provides advantages
like more accurate gauge, clear standards, better feedback and consistency in evaluation.

iii) 360o Performance Appraisal: This method was first developed by General Electric Company of USA
in 1992. This is a new concept in performance appraisal, where the feedback is collected from all around-
the employee, the superior, the subordinates, the peer group, the clients and the customers. Thus an
employee is appraised by superior, subordinates, peers, clients and customers, with whom he interacts in
the course of his job performance.

The evaluation is very comprehensive in terms of the employee’s skills, abilities, styles, and job-related
competencies and is done by computerized software systems, which prepares individual reports. These
reports are then presented to the employee being rated. They then meet the some or any of the appraiser
and share information they feel as important and useful in developing a self improvement plan.

This system has the following advantages:

i. Higher validity and reliability of the evaluation
ii. Self evaluation by the employees gets compared with the perception of others
iii. Helps in maximizing employee potential in the face of challenges.
This method is more useful for training and development requirements, rather than for pay increase.
In India, companies like Reliance Industries, Wipro Corporation, Infosys Technologies, Thomas cook etc.
have been using this method of appraising the performance of the employees.

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