Chapter 8 Performance AppraisalEPT OF PEREGRMANCEAPPRAISAL al 1 the by monitoring and managing n organization ae ali ‘The objectives and goals ual employees 1 ed on the objectives and goals of the determines _ of an organization 1s a culmination of ssful pert wns, Performance Appraisal Management is a pect of organizational management. ‘ds and punishments in ional connected to rewar st cn ganization. 1n nile a system of PE the cpr has gained POPU T's organizational context, the problems in be_very effective and, PrOdUe and implementation. It can therefore be said alae related na a applemented performance appraisal system adds value apr well-designed and a well tothe organiza ' jecti formance appraisal, the il study cept and objectives of perfor PP! : Ini cape et ed the different appraisal metheds. Then, ws ad apeasal ers ae is t0 be conducted and the pitfalls that wal andestan Y ‘Finally, we shall study the benefits of if an oO ne performance Of 7 > formance of the individ salto the. organization and to the employees. _ iw We should-tve avoided in the appraisal proces’ performance-apprais torn appraisal canbe defined a ccording to ce. appraisal is a formal assessment ani Tating “of individuals by manages usually fvanmual review meeting. S] ‘Péffotmance can be defined as the degite of accomplishment of tasks by an émployee in his job. In some organizations, it is a measure of the results acltieved and targets accomplished whereas in others, it is a measure of employee-efforts and behavior. However, most organizations use a combination of-both group, ignoring the differences in their performance, The second disadvantage is that the difference in point allocation might not reflect the differences in performances across groups: For example, the best performer in one group might get a score of 30, while the best performer in another group might get only 25. In such a case, how do we compare the performances of the two individuals involved? Ranking Methods There are three commonly used methods of ranking, namely temation, paired comparis forced distribution, The first two methods are used when there are only a few employees to be ranked, whereas the forced distribution method is used in large companies like GE, Microsoft and Wipro, which have thousands of employees \in the first method, namely altemation, the appraiser all his employees from the \mnost valuable to the least valuable, ye eerie SY formance and contributions to the organization, In the paired comparison method, which is very similar to the alternation method, the appraiser Tanks the employees, based on paired coaigetion Every employee in the group is compared with every other employee in the pi wiTheemployee whd is rated better in each pair the maximum number of times, is the best employee in the group and the one rated better the least number of times, the Teast valuable, The employees are ranked based on the number of times they emerge the winner in each paired comparison. ‘Ui ast.snothod of rating, the forced distribution method, is a very popular method of performance appialsal. in gnany.big organizations. In this method the employees are categorized as “Top’, ‘Standard’ and ‘Bottom’ and placed under a forced-distribution Curve. A certain percentage of employees Inave tobe placed under each calégory. For example, GE has 20% of its employees in the ‘Top Performers’ group, 70% in the ‘Standard’ group and 10% in the ‘Non-performers’ group. This system of ranking helps the organization identify and get rid of the last group (i.e., the non-performers), which eventually improves overall productivity and performance levels in the organization. Checklist In this method, the rater Has to respond ‘Yes’ or ‘No’ assess the employee's performance and behavior Normally, weights are attached 19 .£ach of these questions based on.which the final appraisal score of the employee is Calculated. Even though the weights‘are not known to the appraiser. the positive or negative connotation is evident in the question and hence the response may be quite biased. Another disadvantage of this method is that different checklists may have to be designed for different jobs or job categories, which might make the whole exercise ‘very cumbersome and complex. .¥ Behaviorally Anchored Rating Scale (BARS) \BARS concenaes on the behavioral traits demonstrated by the employees instead of iS actual performance).Some of the othier methods like graphic rating scale and checklist also measure the behavior, based on the assumption that desirable behavior. results in effective performance. ‘There are three steps in implementing a BARS system. They are: ~ Determination of felevantjob dimensions By the manager and the employee {7 Wentfcation of behavioral anchors by the manager and thé employee for each job dimerision, "3 of the scale values to be used and grouping of anchors for each scale value, based on consensus. . ‘An example of a BARS system is given in Table 84, ‘The main advantage o! i This, increases the relevance of the system to eacl jot so improves its acceptance by employees, However, one drawback of this system is that it is cumbersome and needs considerable time and commitment to develop. 360 Degree Performance Appraisal’ — — (\;. 7 JA . ‘A 360 degree appraisal System aims at a comprehensive and objective appraisal of employee performance, Inl's'360 degree appraisal system, the employee's performance is evaluated by his Supetvisos; his’ peers, his internal/external ‘customers, - his internal/external suppliers and’his subordinates. This system reduces the subjectivity of a traditional supervisor .appraisal. It is also more comprehensive because the feedback is given by the peers, customers, suppliers and subordinates of the employee, who are more directly affected by his behavior and performance, apart from the boss, 132Source: ICFAI Center for Management Research More and more organizations are trying to implement this system of appraisal in India, However, the Indian culture, which advocates a strong hierarchical divide, may find ita litle hard to accept this novel concept where even the subordinates evaluate this system of appraisal, Exhibit 85 explains the 360 degree feedback system at Wipro. Team Appraisals Inthe new economy era, where teamwork is essential for any venture to succeed, team appraisals have emerged as one of the’best tools for performance management. In the {cam appraisal method, the individual team members evaluate their colleagues in the ‘cam and provide feedback. This helps in synergizing individual efforts and taking the group performance to higher levels, Digital Equipment Corporation uses this kind of a Participatory performance appraisal system, Balanced Scorecard (the balanced scorecard asa method of can measuring performance channelises the efforts of people tO achieve ofganizationar goal implementation of balanced scorecard invotves ‘formulating a strategy, ding what each employee needs to do to achieve the objectives based on the strategy. The HR Scorecard is a part of the balanced scorecard. Individual responsibilities are assigned based on the strategy. This assigning of responsibilities t6 individuals and tracking for achievement of objectives iscalled HR scorecard ee Each individual in his role will be assigned a set of initiatives and activities, which are his responsibility. These activities'if done well, will contribute to the successful implementation of the company's strategy. The HR scorecard secks to give online 133ent. You have to Se GNGHR at India ty introduce the 360 degree yellpinsfiationalized. According to create as-mnany, oul pte Bate eatin ‘Wipro. says. they. were: Pratik Kumar, GM-HR, Wipro Technologies, on www.people- Adapted from an interview with ‘one.com feedback to the employees as to how they are faring. In some cases, their salaries could be linked to their performance. : ‘The balanced scorecard can be used to evaluate the alignment of compensation and benefit plans with the strategic needs of employers and employees. Many top Indian companies like Infosys, i2 Technologies, Godrej Consumer Products, GTL, ITC Ltd. and Mahindra & Mahindra are using this method of performance management. Exhibit 8.6 explains the balanced scorecard method at i2 Technologies. assessment is based of employees cha certain level a reanisation. raisals form part of ry curYe Of ai c ‘he or she receives Adapted from Abhinav Singh “i2: Committed to Shaping Careers” ExpressComputer, 25" August, 2003 THE APPRAISAL INTERVIEW , The appraisal interview plays a prominent role in thé’ success of s a perfor appraisal a A well-designed appraisal. system also needs to be implemented : s been discussed earlier in the chapter, the appraisal procedure in most modem or; starts with the employee himself, HePerformance Appraisal nesses. Thi Ip him identify the areas that need waining or develbpment inpats, Then fe dias This appraisal form with his supervison he oe pas and the two together finally reach an agreement on the future ace of ocuon However, some organizations still follow the traditional method of appraisal where the supervisor evaluates the performance of his subordinates during the appraisal period. This is then conveyed to the employee. The supervisor and the employee together discuss the appraisal, identify the training and development needs of the employee and draw up an action plan: in both the cases descril Challenges of Appraisal Interview ‘An appraisal interview is usually not a pleasant experience for the appraiser or the appraisee. The appraisee is apprehensive about receiving any negative feedback, while the appraiser is wary of giving such feedback. Therefore, the atmosphere in an appraisal interview is usually quite tense and not very comfortable. Some of the main challenges of an appraisal interview are: ‘The organizational culture — Absence of the right kind of organizational culture can lead to an ineffective process of performance appraisal. If the exercise is not valued by thé management.and not taken seriously by its employees, then it loses its sanctity and credibility. ‘ : . The The general relationship between the employee and his boss is a big determinant of the nature of the interview. If they share a cordial and friendly relationship, the interview is more likely to proceed smoothly. The maturity level ofthe individuals) The maturity level of the individuals involved and their professional attitude play a major role in the conduct of an appraisal interview. If the supervisor gives a feedback saying that the employee needs to improve in a few areas, an immature or unprofessional individual might react in a defensive way, leading to unpleasantness ‘An apprehensive employee An apprehensive employee can change the mood of the interview by being very limpid and uncooperative. This might put off the appraiser and the whole process may tum into an unpleasant experience for both. This can happen for any appraiser- appraisee combination, irrespective of hierarchical levels. An appraiser might not be very comfortable with the idea of judging and commenting on his colleague’s performance. This 3 effect is more prominent in raisals and subordinate appraisals. The ay raiser, is can make the whole exercise futile. A biased appraiser In some cases, the appraiser might be biased in favor of or against the area a various reasons (some of these reasons aré- discussed in the next section) “a lead to a completely positive or completely negative feedback, which again renders the exercise futile. isMU ee bee TTS Snexperience In appris individual o “& or lack of any previous exposure to the process of performance "result in an ineffective and cursor i exercise which mi it the wr the organization vu eee How do we face the challenges? + The oryanizasion hss to develop the culture wherein the process:of apprail is view ntributor to th oranization as well as the individual employees. os A should be of ‘two types - ompetcy appraisal and SERRE oeaa-vich ee nacre ‘Attaching development to competency appraisals and pay to performance appraisa and i praisals might be an effective way of “omni Of the inkiereaa problems ine appease pros ae Setting speci, Measurable ls at the beginning of the appraisal period helps. The employes knows where he is heading and the appraiser knows what should AY, 0 , Training on how w would be useful for those employees who are unfamiliar with the process ¥. The appralie and the appraiser should both ‘onetioaiy ive cach other Ahianige t ‘and respond on. every debatable aspect. iit . PITFALLS IN PERFORMANCE APPRAISAL ? 136 billy of the management in general and th: human resource function in lar 10 take corrective actions and avoid these pitfalls. Some of the factors that ippraisal process at an individual level are: ‘The appraiser allows a single characteristic of the appraise to dominate of the employee performance. This can result in either a positive report or a negative report on the performance of the employee. For example, an appraiser hiolds the appraisee in high regard for his communication skills. This might influence the appraiser to rate the employee high on other, unrelated factors such as job knowledge or leadership skills. Or, an employee who is disliked by his appraiser for his shoddy dressing may be rated poor on other factors like attendance and reliability. Leniency effect: This refers to the situation where the appraiser tends to give high ratings and only positive feedback to the appraisee, irrespective of his actual performance. The main reason for leniency could be the appraiser's desire to maintain 4 cordial relationship with the appraisee. Subconsciously, he might feel that any low rating, or negative feed-back would create unpleasantness, which he tries to avoid. Such lemeney is the most common reason for most of the appraisal errors. Striygency effect: This is just the opposite of the leniency effect. An appraiser who Pai the rules and standards of the organization are not strict enough, tries to be ‘very strict in rating his appraisees, This might lead to dissatisfaction among his appraisees as they would feel that the evaluation is biased and unfair. Keceghs effect: ‘This occurs when the recent performance of the appraisce dominates the“Aappraisal, The appraiser tends to get influenced by the performance of the ployee over the last 2-3 months ‘of the appraisal period as it is still fresh in his ‘memory An employee who has performed well for the preceding, nine months but failed to maintain the sagne level of performance in the last three months preceding the appraisal, might get the same rating as, or an inferior one than, someone who performed well only in the last 2-3 months of the appraisal period. This is due to the recency effect serwnrnvrrnreroronnrnrnnane nnn ggecegngngeEege QO Ogngangaaananreé year, "performance jince reviews" at the end of the year. re the focis’ is only on “performance ng: things before they really go as and. when it happens and it provides a OH naturally, it goes a and multiply it by vadds'to:its credibility Adapted from www. people-one.com Pri effect: The performance of the appraise at the beginning of the appraisal iod dominates the evaluation. The appraiser tends to be influenced by the behavior or outcomes exhibited in the early stages of the appraisal period and this leads to a distorted evaluation. Central tendency effect: Central tendency is the tendency of the appraiser to rate most of the appraisees in the middle: of the Performance scale, The appraiser gives neither igh or ow rags an els oe na seas ae appraisees. This is one of the most common errors in employee performance rating, Culture : In some cases, the culture of the organization or the country can influence the appraiser to rate the appraise in a Particular way. For example, in the Indian context, a young appraiser who has to evaluate the performance of his elder colleague, ‘may Tend’ to give him higher ratings than his performance warrants, In this case, the Indian culture which advocates Tespect for elders subconsciously influences the young appraiser, Stereotyping: Stereotyping is a potential error in personality analysis that can distort ice appraisal. It involves judging someone based on the group he belongs to \ the appraiser's perception of the group. For example, an appraiser who believes that women make good managers would tend to rate his female appraisees better than his male appraisees. Perceptual set: This is the tendency of the appraisers to have an expectation of the Performance level, which might distort the perception and judgement of actual performance. For example, when a perceived low performer exceeds the expectations of his appraiser, his performance is judged higher than it deserves to be. The opposite will be true for a perceived high performer disappointing his appraiser. He could be rated lower than he should have been.and setting. tar objective and Holistic in it train senior Fundamental attribution error: An employee's performance might have been affected due to some extemal factors outside his contsol. The appraiser might however <_ teeta the infuence of external factors ‘and overestimate the influerice of ‘ternal factors while judging the behavior/performance of the employee Many other behavioral and perception errors distort the appraisal system and reduce its effectiveness. If these errors are taken care of in a suitable and well-cxecuted appraisal system, it can add immense valuc to the organization. Exhibit 8.7 explains how Hughes Software Systems tries to minimize errors in its performance appraisal system, Adapted from www.Intinfotech.com USES OF PERFORMANCE APPRAISAL 138 Apart from evaluating the performance. of the employees for rewards/punishments and development, a good. performance appraisal system has.many. other uses. Some of these are listed below- ij Training and development needs of the employees can be determined © Organizational effectiveness. can be improved by improving the individual performances of,the employees * The performance appraisal system forms the basis for compensation management in the organization, in addition to other methods like market surveys. + Can be used as basis for transfers, promotions and other career planning activities of individual employees + An effective performance appraisal system also helps in succession planning in the organization . + Cross-functional transfers and job enrichment exercises etc. can be taken up, based on inputs tet tHe appraisal system, 1 dine © Human resources of the firm can be evaluated based on the competency and skill set and potential of the workforce. This provides the base for human resource planning,© An assessment of the value of the human resources helps in organizational planning, . mance appraisal system also helps in evaluating and auditing the eee ame eens and systems in the organization. Exhibit 8.8 explains the appraisal system at L&T and its uses. is to happen, it is essential that the performance appraisal system fats be ee aainal culture and is in alignment with the other HR systems like training and development, compensation, career and succession planning, etc. It is also important that the employees have. faith and confidence in the appraisal system and its effectiveness. If the system fails to win the confidence of the employees, it fails to serve its purpose, however good it might be. Ethics of Performance Appraisal Every performance management system needs the support of the top management and the acceptance of the workforce for its success. Without these, any system will be a failure. The employees of the organization have to be convinced about the effectiveness and importance of the’ appraisal system. ‘They. should have trust in the process of implementation of the system. Performance appraisals systems tum out to be ineffective due to implementation errors, rather than design defects. According to surveys, most of the errors of performance appraisal committed by the appraisers are ‘intentional’ errors such as leniency. Unintentional errors can be rectified by appraiser training. However, as far as the intentional errors are concerned, more organizational level steps have to be taken. Some of them are: . + Making the ratings more measurable and quantifiable Reducing subjectivity by using multi-rater feedback. Using instruments/methods which have hidden weights or keys attached to them Having the feedback evaluated by a third party like the HR department ‘Training appraisers on how to provide negative feedback Assuring and maintaining the confidentiality of the appraisal is a major responsibility of the HR function, An employee who has received an unfavorable appraisal would not like the details to be made public. In contrast, any appreciation of employee performance has to be in public, in the form of rewards, special incentives etc. ‘Therefore, the HR department has a major role to play in the successful implementation of a performance appraisal system. The organizational culture has to be open and transparent, and support the employees in delivering a better performance. Attaching pay and rewards to performance management has to be handled with care, as it isa very sensitive issue. Therefore, itis better to have ‘potential’ component linked to training and development and the ‘performance? component linked to pay. If the performance is measured through quantifiable targets and goals, unhealthy competition and some of the related problems can be eliminated SUMMARY Performance appraisal measures the qualitative and quantitative aspects a ee performance. An appraisal evaluates not only the employee's performance but ase i potential for development. The primary objectives of an appraisal are yectves nd performance, to identify training: needs, to set ‘and agree on future obj standards, and to facilitate the achievement of these goals: 139140 is to be rated. In many situations, the appraiser is the supervisor of the a eae ances (360 However, companies may also use multiple raters to evaluat pe raamatet degree appraisal) Peer and self-evaluations are on the increase, as Ae ee client evaluations, Some appraisal systems use subordinate or reve PI team rating techniques. Different methods are used for appraising performance. In the straight eae method, employees are ranked from the best to the worst on tie basis o a performance. Management by Objectives involves an agreement between a superior and his employee on the employee's performance objectives for a specified peri A a periodic review of the extent to which the employee is able to accomplish thu: objectives. Under the graphic rating scale method, an employee's performance is rated on a scale ranging from high to low. In the checklist approach, the rater is given a set of positive or negative descriptive statements that best describe employee performance and characteristics. When weights are assigned to cach of the items on the checklist, depending on the importance of each item, it is known as a weightec checklist. In the essay method of appraisal, the appraiser writes an essay describing an employee’s past performance, strengths, weaknesses, potential and provides suggestions for future development. Under the critical incident method, the appraiser evaluates performance on the basis of a record of unusually favorable or unfavorable instances of the employee's performance. The forced choice method is a kind of checklist, which requires the appraiser to rank the statements from the one that best describes the employee to the one that describes him least well. Weights (which are unknown to the appraiser) are attached to these statements, which help in evaluation. Under the point allocation method, the rater has to allocate a fixed number of points among all the employees in a group. This method brings out the relative differences in the performance of employees. Each employee is compared with all the other employees in the same group in the paired comparison method. Among the modem methods, BARS or the Behaviorally Anchored Rating Scale has scale values attached to a group of anchors under each dimension and the employee is rated on the scale. This system demands active participation of both the appraiser and the appraisee. The 360 degree appraisal method reduces subjectivity in that the individual is appraised by his peers, customers/clients and subordinates apart from the supervisor. The balanced scorecard method, which is being adopted by more and more corporates, helps align individual efforts to organizational goals and objectives. The team appraisal system involves. the appraisal of each team member by every other member of the team, to imprové, the overall effectiveness of the team. The appraisal interview is characterized by performance-related feedback which is intended to improve employee performance and promote development. Some rater biases that impede objective evaluation are the halo effect, the error of central tendency, leniency and strictness biases, cultural bias, stereotyping, perceptual set; the recency and primacy effects. Such biases can be reduced by Providing suitable training and feedback to rates, and through proper selection of performance appraisal techniques. A performance appraisal system also acts as an audit and hel Ips in revamy processes and systems for improved performance, Ps ping HR