CHAPTER – 4

PERFORMANCE APPRAISAL
4.1 PERFORMANCE APPRAISAL DEFINITION:

Performance appraisal or performance review is a systematic process in which

employee performance at work is evaluated in relation to the projects on which
employee has worked and his contribution to the organisation. It is also known as an
annual review or performance review.

According to Edwin B Flippo – “Performance Appraisal is a systematic, periodic and

so for as humanly possible, an impartial rating of an employee’s excellence in
matters pertaining to his parent job potentialities for his current job.”

4.1.1 PERFORMANCE APPRAISAL:

The basic purpose of performance appraisal is to identify employees worth and

contribution to the company. Important factors include – attendance, efficiency,
attitude, quality of work, amount of work are just a few important factors.

The physical or objective factors like attendance, amount of work, efficiency can be
easily measured by the records maintained by the Human Resource Department
Manager.

However, it gets a bit risky, when it comes to measuring subjective factors like
attitude, behavior, friendliness etc. But to properly evaluate an individual’s
performance, appraisal of both subjective and objective factors needs to be done.

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As Dale Yoder said, “Performance appraisal includes all formal procedures used to
evaluate personalities and contributions and potential of group members in a working
organisation. It is a continuous process to secure information necessary for making
correct and objective decisions on employees.

Performance Appraisal Process

1. Setting performance standards

2. Set up measurable goals

3. Measure actual performance

4. Compare with preset standards and goals

5. Discuss with the employee – met the expectations, did not meet the
expectations, exceeded the expectations

6. Take corrective actions

7. Set standards for next cycle

Objectives of Performance Appraisal

Performance Appraisal can be done with following objectives in mind:

1. To maintain records in order to determine compensation packages, wage

structure, salaries raises, etc.
2. To identify the strengths and weaknesses of employees to place right men on
right job.
3. To maintain and assess the potential present in a person for further growth
and development.

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 4. To provide a feedback to employees regarding their performance and related
status.
5. To provide a feedback to employees regarding their performance and related
status.
6. It serves as a basis for influencing working habits of the employees.
7. To review and retain the promotional and other training programmes.

Advantages 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 include 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 analyze 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

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 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:
a. Through performance appraisal, the employers can understand and
accept skills of subordinates.
b. The subordinates can also understand and create a trust and
confidence in superiors.
c. It also helps in maintaining cordial and congenial labor management
relationship.
d. 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.

Disadvantages of Performance Appraisal

1. If the factors being used in the performance appraisal are incorrect or not
relevant, the appraisal will fail to provide any useful or effective data.

2. Sometimes, equal weightage is not given to important factors when performing

an appraisal.

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3. Some objective factors are very vague and difficult to gauge like attitude and
initiative. There is no scientific method to measure these factors.

4. Managers are sometimes not qualified enough to correctly assess the employees
and their abilities. Thus, these mistakes can be very detrimental to the growth of
the company.

Three ways performance appraisal helps an organisation mention as follows:

 A systematic performance appraisal system helps the managers to properly

identify the performance of employees in a systematic manner and their areas
of talent and areas where they are lacking.

 Performance appraisal helps employees identify the areas in which they need to
improve. Furthermore, the managers can also use this information to provide
constructive criticism of the way employees perform their work.

 It helps the management to place the right employees for the perfect jobs
depending on their skills in particular areas.
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.
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 Methods of Performance Appraisal:

(1) Traditional Methods

(2) Modern Methods.

Traditional performance appraisal methods like appraisal templates, ranking,

checklists, critical incidents, and more take a goal-oriented approach and evaluate
work results. Modern methods focus on individual’s personality
traits (creativity, integrity, goal-oriented approach, leadership qualities) and tend
to be more objective.

1. TRADITIONAL METHODS:

Following are the tools used by the organizations for Performance Appraisals of
their employees.

1. Ranking
2. Paired Comparison
3. Forced Distribution
4. Confidential Report
5. Essay Evaluation
6. Critical Incident
7. Checklists
8. Graphic Rating Scale
9. Forced Choice Method
10.Field Review Technique
11.Performance Test

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1. Ranking Method

The ranking system requires the rater to rank his subordinates on overall
performance. This consists in simply putting a man in a rank order. Under
this method, the ranking of an employee in a work group is done against that
of another employee. The relative position of each employee is tested in
terms of his numerical rank. It may also be done by ranking a person on his
job performance against another member of the competitive group.

Advantages of Ranking Method

i. Employees are ranked according to their performance levels.

ii. It is easier to rank the best and the worst employee.

Limitations of Ranking Method

iii. The “whole man” is compared with another “whole man” in this
method. In practice, it is very difficult to compare individuals
possessing various individual traits.
iv. This method speaks only of the position where an employee stands in
his group. It does not test anything about how much better or how
much worse an employee is when compared to another employee.
v. When a large number of employees are working, ranking of
individuals become a difficult issue.
vi. There is no systematic procedure for ranking individuals in the
organization. The ranking system does not eliminate the possibility of
snap judgments.
2. Paired comparison analysis: This form of performance appraisal is a good
way to make full use of the methods of options. There will be a list of

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 relevant options. Each option is in comparison with the others in the list. The
results will be calculated and then such option with highest score will be
mostly chosen.
Steps to conduct paired comparison analysis:
 List the options you will compare (elements as A, B, C, D, E for example).
 Create table 6 rows and 7 columns.
 Write down option to column and row; A to row second, cell first from left
and A to row first, cell second from left; B to row third, cell first from left
and B to row first, cell third from left etc; column seventh is total point.
 Identify importance from 0 (no difference) to 3 (major difference).
 Compare element “A” to B, C, D, E and place “point” at each cell.
 Finally, consolidate the results by adding up the total of all the values for
each of the options. You may want to convert these values into a percentage
of the total score.
3. Forced Distribution method

This is a ranking technique where raters are required to allocate a certain

percentage of rates to certain categories (eg: superior, above average,
average) or percentiles (eg: top 10 percent, bottom 20 percent etc). Both the
number of categories and percentage of employees to be allotted to each
category are a function of performance appraisal design and format. The
workers of outstanding merit may be placed at top 10 percent of the scale,
the rest may be placed as 20 % good, 40 % outstanding, 20 % fair and 10 %
fair.

Advantages of Forced Distribution

i. This method tends to eliminate raters bias

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 ii. By forcing the distribution according to pre-determined percentages,
the problem of making use of different raters with different scales is
avoided.

Limitations of Forced Distribution

iii. The limitation of using this method in salary administration, however,

is that it may lead low morale, low productivity and high
absenteeism.
Employees who feel that they are productive, but find themselves in
lower grade (than expected) feel frustrated and exhibit over a period
of time reluctance to work.
4. Confidential Records: Mostly used by government departments, however
its application in industry is not ruled out. Here the report is given in the
form of Annual Confidentiality Report (ACR) and may record ratings with
respect to following items; attendance, self expression, team work,
leadership, initiative, technical ability, reasoning ability, originality and
resourcefulness etc. The system is highly secretive and confidential.
Feedback to the assesses is given only in case of an adverse entry.
Disadvantage is that it is highly subjective and ratings can be manipulated
because the evaluations are linked to HR actions like promotions etc.
5. Essay Method: In this method the rater writes down the employee
description in detail within a number of broad categories like, overall
impression of performance, promote ability of employee, existing
capabilities and qualifications of performing jobs, strengths and weaknesses
and training needs of the employee. In this style of performance appraisal,
managers/ supervisors are required to figure out the strong and weak points
of staff’s behaviors. Essay evaluation method is a non-quantitative
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 technique. It is often mixed with the method the graphic rating scale. The
essay method involves an evaluator's written report appraising an employee's
performance, usually in terms of job behaviors and/or results. The subject of
an essay appraisal is often justification of pay, promotion, or termination
decisions, but essays can be used for developmental purposes as well The
assessor writes a brief essay providing an assessment of the strengths,
weaknesses and potential of the subject. In order to do so objectively, it is
necessary that the assessor knows the subject well and should have
interacted with them. Since the length and contents of the essay vary
between assessors, essay ratings are difficult to compare.
6. Critical Incident techniques

Under this method, the manager prepares lists of statements of very effective
and ineffective behavior of an employee. These critical incidents or events
represent the outstanding or poor behavior of employees or the job. The
manager maintains logs of each employee, whereby he periodically records
critical incidents of the workers behavior. At the end of the rating period,
these recorded critical incidents are used in the evaluation of the worker’s
performance. Example of a good critical incident of a Customer Relations
Officer is: March 12 - The Officer patiently attended to a customer’s
complaint. He was very polite and prompts in attending the customer’s
problem.

Advantages of Critical Incident Techniques

i. This method provides an objective basis for conducting a thorough

discussion of an employee’s performance.

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 ii. This method avoids decency bias (most recent incidents are too much
emphasized)

Limitations of Critical Incident Techniques

iii. Negative incidents may be more noticeable than positive incidents.

iv. The supervisors have a tendency to unload a series of complaints
about the incidents during an annual performance review sessions.
v. It results in very close supervision which may not be liked by an
employee.
vi. The recording of incidents may be a chore for the manager concerned,
who may be too busy or may forget to do it.
7. Checklists and Weighted Checklists

In this system, a large number of statements that describe a specific job are
given. Each statement has a weight or scale value attached to it. While rating
an employee the supervisor checks all those statements that most closely
describe the behavior of the individual under assessment. The rating sheet is
then scored by averaging the weights of all the statements checked by the
rater. A checklist is constructed for each job by having persons who are
quite familiar with the jobs. These statements are then categorized by the
judges and weights are assigned to the statements in accordance with the
value attached by the judges.

Advantages of Checklists and Weighted Checklists

i. Most frequently used method in evaluation of the employee’s

performance.

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 Limitations of Checklists and Weighted Checklists

ii. This method is very expensive and time consuming

iii. Rater may be biased in distinguishing the positive and negative
questions.
iv. It becomes difficult for the manager to assemble, analyze and weigh a
number of statements about the employees’ characteristics,
contributions and behaviors.

2. MODERN METHODS:

Six modern performance appraisal methods

With the right performance appraisal method, organizations can enhance employee
performance within the organization. A good employee performance review
method can make the whole experience effective and rewarding. Now that the
drawbacks of traditional methods are clear.

Here’s a close look at the six most-used modern performance methods:

1. Management by Objectives (MBO)

Management by objectives (MBO) is the appraisal method where managers and
employees together identify, plan, organize, and communicate goals. After setting
clear goals, managers and subordinates periodically discuss the progress made to
control and debate on the feasibility.

This process usually lays more stress on tangible work or career-oriented goals. So,
intangible aspects like interpersonal skills, job commitment, etc. are often brushed
under the rug. This method is slightly expensive and time-intensive.

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2. 360-Degree Feedback:
Once-in-a-year performance appraisals are lackadaisical and don’t work. Workers
need ongoing communication with team leaders and managers. A continuous
process, like 360-degree feedback, can help employees stay motivated. This is one
of the most widely used appraisal methods.

In 360-degree feedback, every employee in an organization appraises his/her

managers, peers, customers, suppliers, and also does a self-evaluation. This method
ensures effective performance analysis and Total Employee Involved (TEI). If not
handled properly, this method can also suffer from the subjectivity of the appraiser.

3. Assessment Centre Method

The assessment centre method tests employees in a social-related situation. This
concept was introduced way back in 1930 by the German Army but it has been
polished and tailored to fit today’s environment. Employees are asked to take part
in situation exercises like in-basket exercises, work groups, simulations, and role-
playing exercises that ensure success in a role.

While it gives an insight of the employee’s personality (ethics, tolerance, problem-

solving skill, introversion/extroversion, adaptability, etc.), it can also breed
unhealthy competition among the workers and bears adverse effects on low
performers.

4. Behaviorally Anchored Rating Scale (BARS)

Behaviorally anchored rating scales (BARS) bring out both the qualitative and
quantitative benefits in a performance appraisal process. BARS compare employee
performance with specific behavioral examples that are anchored to numerical
ratings.

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This performance appraisal method is said to be better than the traditional methods.
BARS provide clear standards, improved feedback, accurate performance
analysis, and consistent evaluation. However, when done manually it suffers
from the usual distortions that are inherent in most review methodologies.

5. Psychological Appraisals
Psychological appraisals come in handy to determine the hidden potential of
employees. This method focuses on analyzing an employee’s future
performance rather than their past work.

Qualified psychologists conduct a variety of tests (in-depth interviews,

psychological tests, discussions, and more) to identify an employee’s emotional,
intellectual, and other related traits. However, it is a rather slow and complex
process and the quality of results is highly dependent on the psychologist who
administers the procedure.

6. Human-Resource (Cost) Accounting Method

Human resource (cost) accounting method analyses an employee’s performance
through the monetary benefits he/she yields to the company. It is obtained by
comparing the cost of retaining an employee (cost to company) and the monetary
benefits (contributions) an organization has ascertained from that specific
employee.

When an employee’s performance is evaluated based on cost accounting methods,

factors like unit-wise average service value, quality, overhead cost, interpersonal
relationships, and more are taken into account. Its high-dependency on the cost and
benefit analysis and the memory power of the reviewer is the drawback of human
resources accounting method.

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PROBLEMS OF PERFORMANCE APPRAISAL:

1) Compare/contrast error:

When appraising employees, it is important never to compare their abilities and

using it to make a judgment.

Each employee is gifted in their unique way and thus has different strengths and
weaknesses. When you try to compare or contrast their abilities, it means that you
will not get a fair review because high performers will certainly make relatively
low performers for particular tasks to look below average, which on some
occasions is never the case.

2) Similarity error:

In every organization, some employees have a resemblance of different aspects

with the manager. Now some managers usually find it easy to reward such
employees. The appraisal process based on performance and results that they
provide and not primarily by similarity/dissimilarity that you have.

3) Bias:

Bias is also one of the problems with performance appraisal managers often
encounter. As a matter of fact, everyone has some biases towards someone or
something irrespective of how we portray them. However, as a manager, it is
imperative not to let the biases hinder the manner in which you approach
performance evaluation process.

If you do not like someone it will not be right to use that feeling in making review
judgment, it is unprofessional.
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4) Stereotyping:

Stereotyping is closely related to biases only that in this case, you tend to make
your judgment by your predetermined mindset towards a particular employee’s
race, gender, political affiliation, religious background, culture and other
characteristics.

Stereotyping is problematic when assessing employees’ performance because it

implies that you will only be able to provide judgment based on what you label the
group similar to one that the particular employee belongs to.

5) The Halo effect:

This is also known as the horns effect. It is a situation where you let your positive
or negative feelings towards an employee to influence your evaluation easily. It is
necessary to judge each criterion independently without compromising what you
feel for the employee.

6) Recency (Impression) effect:

This is majorly about carrying out an appraisal for a short period before it takes
place. As stated earlier, an appraisal is an activity that takes place continuously,
which means that the focus should not only be for the short period before it
happens but rather the entire time of the year.

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7) Attribution error:

This is one of the trickiest problems with performance appraisal. It involves

making your independent belief on possible causes of some behaviors’ or outcome
and letting that influence your judgment.

It is never a good idea to develop an assumption of what transpired or made the

employee behave in the manner that he or she did and later use it as a basis for
reviewing the appraisal process. Only be for the short period before it happens but
rather the entire time of the year.

8) Leniency and Severity tendencies:

These mistakes usually arise as a result of distribution errors, which imply that the
overall dissemination of appraisal does not stand firm to the classic bell. This
means that some managers are too lenient and will end up appraising all employees
above average, others will give average whereas others would provide below
average.

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