INTRODUCTION

THE PERFORMANCE APPRAISAL

In a knowledge economy, organizations rely heavily on their intangible assets to build value. Organizations use
performance appraisal as a critical process to evaluate the performance of their employees (Andy Houghton,
2010). It involves a systematic review of employee performance, including their strengths, weaknesses and
growth. This process can significantly impact the employees performance and career development as well as the
organisation overall success.

Performance appraisal is defined as the process that systematically measures an employee’s personality and
performance, usually by managers or immediate supervisors against predefined attributes like skillset,
knowledge about the role, technical know-how, attitude and punctuality. According to Edwin Flippo (1984),
“Performance appraisal is the systematic, periodic and an impartial rating of an employee‘s excellence in
matters pertaining to his present job and his potential for a better job”. Performance appraisal is a formal system
of review and evaluation of individual or team task performance. Performance appraisal is especially critical to
the success of performance management. An effective appraisal system evaluates accomplishments and initiates
plans for development, goals, and objectives.

THE PERFORMANCE APPRAISAL PROCESS

The performance appraisal process is a key part of how an organization manages the performance and growth of
its employees. It entails assessing an employee’s job performance and providing feedback on their strengths and
weaknesses in order to improve performance and achieve organizational goals (Thomas S. Clausen, Keith T.
Jones, and Jay S. Rich, 2008). The following diagram shows the process of performance appraisal.

Figure: Performance Appraisal Process

The starting point for the Performance Appraisal process is identifying specific performance goals. An appraisal
system probably cannot effectively serve every desired purpose, so management should select the specific goals
it believes to be most important and realistically achievable. For example, an organization may want to stress
employee development, whereas other organizations may want to focus on pay adjustments. Too many
Performance Appraisal systems fail because management expects too much from one method and does not
determine specifically what it wants the system to accomplish. The next step in this ongoing cycle continues
with establishing performance criteria (standards) and communicating these performance expectations to those
concerned. The standards should be very clear and objective enough to be understood and measured. These
standards should be communicated to the concerned employees. Then the work is performed and the supervisor
appraises the performance. At the end of the appraisal period, the appraiser and the employee together review
work performance and evaluate it against established performance standards. This review helps determine how
well employees have met these standards, determines reasons for deficiencies, and develops a plan to correct the
problems. At this meeting, goals are set for the next evaluation period, and the cycle repeats.

THE USE OF PERFORMANCE APPRAISAL IN THE ORGANISAZTION.

For many organizations, the primary goal of an appraisal system is to improve individual and organizational
performance (Iris Randall, 1995). There may be other goals, however. A potential problem with PA, and a
possible cause of much dissatisfaction, is expecting too much from one appraisal plan. For example, a plan that
is effective for developing employees may not be the best for determining pay increases. Yet, a properly
designed system can help achieve organizational objectives and enhance employee performance. In fact,
Performance appraisal data are potentially valuable for virtually every human resource functional area.

1. Human Resource Planning: In assessing a firm’s human resources, data must be available to identify
those who have the potential to be promoted or for any area of internal employee relations. Through
performance appraisal it may be discovered that there is an insufficient number of workers who are
prepared to enter management. Plans can then be made for greater emphasis on management
development. A well-designed appraisal system provides a profile of the organization’s human resource
strengths and weaknesses to support this effort.

2. Recruitment and Selection: Performance evaluation ratings may be helpful in predicting the
performance of job applicants. For example, it may be determined that an organizations successful
employees (identified through performance evaluations) exhibit certain behaviours when performing
key tasks. These data may then provide benchmarks for evaluating applicant responses obtained through
behavioural interviews. Also, in validating selection tests, employee ratings may be used as the variable
against which test scores are compared. In this instance, determination of the selection test’s validity
would depend on the accuracy of appraisal results.

3. Training and Development: Performance appraisal should point out an employee’s specific needs for
training and development. For instance, in an organization, if some employee’s job requires skill in
technical writing and their evaluation reveals a deficiency in this factor, they may need additional
training in written communication. Furthermore, if the organization finds that a number of first-line
 supervisors are having difficulty in administering disciplinary action, training sessions addressing this
problem may be appropriate. By identifying deficiencies that adversely affect performance, training and
development programs can be developed that permit individuals to build on their strengths and
minimize their deficiencies. An appraisal system does not guarantee properly trained and developed
employees. However, determining training and development needs is more precise when appraisal data
are available.

4. Career Planning and Development: career planning is an ongoing process whereby an individual sets
career goals and identifies the means to achieve them. On the other hand, career development is a
formal approach used by the organization to ensure that people with the proper qualifications and
experiences are available when needed. Performance appraisal data is essential in assessing an
employee’s strengths and weaknesses and in determining the person’s potential. Managers may use such
information to counsel subordinates and assist them in developing and implementing their career plans.

5. Compensation Programs: Performance appraisal results provide a basis for rational decisions
regarding pay adjustments. Most managers believe that you should reward outstanding job performance
tangibly with pay increases. They believe that the behaviours you reward are the behaviours you get.
Rewarding behaviours necessary for accomplishing organizational objectives is at the heart of an
organizations strategic plan. To encourage good performance, the organization should design and
implement a reliable performance appraisal system and then reward the most productive workers and
teams accordingly.

6. Internal Employee Relations: Performance appraisal data are also used for decisions in several areas
of internal employee relations, including promotion, demotion, termination, layoff, and transfer. For
example, an employee’s performance in one job may be useful in determining his or her ability to
perform another job on the same level, as is required in the consideration of transfers. When the
performance level is unacceptable, demotion or even termination may be appropriate.

7. Assessment of Employee Potential: Some organizations attempt to assess an employee’s potential as

they appraise his or her job performance. Although past behaviours may be a good predictor of future
behaviours in some jobs, an employee’s past performance may not accurately indicate future
performance in other jobs. The best salesperson in the organization may not have what it takes to
become a successful district sales manager, where the tasks are distinctly different. Similarly, the best
systems analyst may, if promoted, be a disaster as an information technology manager.
Overemphasizing technical skills and ignoring other equally important skills is a common error in
 promoting employees into management jobs. Recognition of this problem has led some firms to
separate the appraisal of performance, which focuses on past behaviour, from the assessment of
potential, which is future-oriented.

COMMON PROBLEMS WITH THE PERFORMANCE APPRASAIL PROCESS IN AN

ORGANIZATION

1. Bias: Bias is simply a personality-based tendency, either toward or against something. In the case of
performance assessment, bias is toward or against an individual employee. All human beings have
biases, but supervisors especially cannot afford to allow their biases to enter into their evaluation of
subordinates in the firm. This is very easy to say, but very difficult to do. Biases make the evaluation
process subjective rather than objective, and certainly provide the opportunity for a lack of consistency
in effect on different groups of employees. So to overcome the bias problem, we need to be objective
and not let our feelings of liking or disliking the individual influence our assessment.

2. Stereotyping: This is mentally classifying a person into an affinity group, and then identifying the
person as having the same assumed characteristics as the group. These are factors such as gender, race,
or age, not only is this problem detrimental to employee morale, but it is blatantly illegal and can result
in costly litigation. Therefore, organization can avoid stereotyping by getting to know each employee as
an individual and objectively evaluating individual employees based on their actual performance.

3. Halo error: This error occurs when the evaluator has a generally positive or negative impression of an
individual, and the evaluator then artificially extends that general impression too many individual
categories of performance to create an overall evaluation of the individual that is either positive or
negative. In other words, if employees are judged by their supervisor to be generally “good” employees,
and the supervisor then evaluates each of the areas of their performance as good, regardless of any
behaviours or results to the contrary, the supervisor is guilty of halo error. Organizations can avoid halo
error by remembering that employees are often strong in some areas and weaker in others, and we need
to objectively evaluate individual employees based on their actual performance for each and every item
of assessment.

4. Distributional errors: These errors occur in three forms: severity or strictness, central tendency, and
leniency. In severity or strictness error, the rater evaluates everyone, or nearly everyone, as below
average. Central tendency error occurs when raters evaluate everyone under their control as average—
nobody is either really good or really bad. Finally, leniency error occurs when the rater evaluates all
others as above average. Leniency error, therefore, is basically a form of grade inflation. Organizations
 can avoid distributional errors by giving a range of evaluations. The distribution is often based on the
ranking method of evaluation and forced distribution.

5. Similarity error: This error occurs when raters evaluate subordinates that they consider more similar to
themselves as better employees, and subordinates that they consider different from themselves as poorer
employees. We all have a tendency to feel more comfortable with people who we feel are more similar
to ourselves, and if we are not careful, we can allow this feeling of comfort with similar individuals to
be reflected in the performance appraisal process. organizations can avoid similarity error by embracing
diversity and objectively evaluating individual employees based on their actual performance, even if
they are different from us and don’t do things the same way that we do.

6. Proximity error: This error states that similar marks may be given to items that are near (proximate to)
each other on the performance appraisal form, regardless of differences in performance on those
measures. Organizations can avoid proximity error by objectively evaluating employees’ actual
performance on each and every item on the assessment form.

7. Recency error: This error occurs when raters use only the last few weeks or month of a rating period as
evidence of their ratings of others. Organizations can avoid the recency error by evaluating the employee
based on the entire assessment period, commonly 6–12 months. Using the critical incidents method
really helps our recall and assessment of the entire period more objectively.

8. Contrast error: The rater compares and contrasts performance between two employees, rather than
using absolute measures of performance to measure each employee. For example, the rater may contrast
a good performer with an outstanding performer, and as a result of the significant contrast, the good
performer may seem to be below average. Organizations can avoid contrast error by objectively
evaluating individual employees based on their actual performance. Organizations must use the ranking
method correctly; first assess each individual based on the items on the assessment form—then rank the
individuals based on their assessments.

9. Attribution error: attribution is a process where an individual assumes reasons or motivations (such as
attitudes, values, or beliefs) for an observed behaviour. So, attribution error in performance appraisal
might occur when the rater observes an employee action—such as an argumentative answer to a
question—and assumes that the individual has a negative attitude toward the job and is a poor performer.
This may not be true, and in such a case the rater would be guilty of an attribution error. Organizations
need to avoid attribution error because it is based on our subjective conclusion.
HOW TO REDUCE THE PROBLEMS ASSOCIATED WITH THE PERFORMANCE APPRASAIL
SYSTEM IN THE ORGANIZATION?

There are a significant number of ways that performance appraisals can fail to provide an accurate assessment
of the capabilities and the behaviours of individual employees (Jeffrey Russell and Linda Russell, 2010). How
can organizations reduce these problems of performance appraisal process? The following are some of the ways
which an organization can undertake to mitigate these problems;

1. Develop Accurate Performance Measures

If the performance appraisal methods and forms are not accurate measures, the entire performance appraisal
process will have problems (Subba Rao.P, 2007). Therefore, the organization should have its own Human
Resource specialist or hire consultants to develop the assessment process and measures. The human Resource
(or specialist) should perform three things to help ensure accurate measures.

i. Use multiple criteria: The organisation should ensure that it uses more than one or two criteria to
evaluate an individual’s performance over time. The organization should have at least one evaluation
criterion for each major function within an individual job. By evaluating multiple criteria, the
organization will have the ability to lower the incidence of halo, recency, contrast, and attribution errors,
and may even be able to affect bias and stereotyping, because many criteria, not just one or two, are
being analysed.

ii. Minimize the use of trait-based evaluations: Even if organizations have the ability to evaluate, trait-
based evaluations tend to be more subjective than behaviour- or results-based evaluations and as a result
should generally not be used unless there is a specific reason why the particular trait must be exhibited
in order to be successful in a job. Only when we have specific reason for trait-based evaluations should
those traits be measured and evaluated in the appraisal process. In addition, because of their subjectivity,
trait-based evaluations are much more diffcult to defend in cases where the organization used the
evaluation process for later disciplinary action with an individual employee. By minimizing the
evaluation of traits, organizations lower the incidence of bias, stereotyping, similarity error, and
potentially attribution error. So, minimizing trait evaluations lowers the ability of the rater to make some
of the most significant mistakes that can occur in the appraisal process.

iii. Give the measures the OUCH and Blanchard tests: These two tests are so important to successful
accurate measures. The OUCH test, measure objective, uniform in application, and consistent in effect,
and does it have job relatedness? The Blanchard test, does everyone understand why they are assessed
 at a specific level (evaluation) and what it takes to get a higher rating (development)?

2. Train Evaluators

Train evaluator is the second step that organization should do to help overcome some of the issues with the
appraisal process concerning the common errors and problems that occur and how to use the methods and
forms.

i. Train evaluators to overcome the common problems of assessment: Simply through the process of
training, many of the common problems are mitigated, if not eliminated. Once evaluators become aware
that the common errors occur with some regularity, they almost immediately begin to evaluate such
errors and guard against them. Even the bias and stereotyping errors may be mitigated through the rater
training process. So, rater training provides them with knowledge of these errors and allows them the
opportunity to correct them.

ii. Train evaluators to use the measurement methods and forms: Evaluators should also be trained to
use the various performance assessment methods and forms. Because the critical incidents method is not
commonly used as a formal assessment method, evaluators should be taught to use it to help overcome
recency error. Evaluators need training to effectively use management by objective (MBO) and to write
a good narrative. When a rating scale is used, some training should be given to better understand the
differences between the word descriptors along the continuum (excellent, good, etc.). Behaviourally
anchored rating scales (BARS) and ranking forms are fairly straightforward, but when they are used,
some training can help overcome problems.

3. Use Multiple Raters

The use of multiple evaluators limit the ability of one individual appraiser to provide a biased opinion
concerning an employee’s performance, as well as limiting the ability for stereotyping in the appraisal process.
In addition, halo, similarity, contrast, and attribution errors become less likely, and distributional errors tend to
even out among multiple raters. It is for these reasons that 360° evaluations have gained favour in many
organizations over the past 20 years because of the use of multiple raters.