- Meaning of Performance Appraisal
- Need and Importance of Performance Appraisal
- Objectives of Performance Appraisal
- Techniques of Performance Appraisal
- New Trends In Appraisal System
In a broad sense, performance appraisal is as old as humanity. Individual performance appraisal began in China during the Wei dynasty (AD. 261-265) when an Imperial Rater appraised the performance of the official family. Shortly before World War I, the New York City Civil Service in the United States instituted an official appraisal program in 1883. However, official evaluation of employee performance is thought to have begun for the first time during the First World War, when the US Army, at the request of Walter Dill Scott, adopted the “Man-to-man” rating system for evaluating personnel. It is necessary to review the employee’s performance in the organization in order to be fair and unbiased when judging the employee.
Most countries now follow a systematic approach to this. Performance appraisal is the evaluation of an individual’s performance in an organization.
The performance appraisal system requires management to implement a promotion policy within the organization. It also motivates employees who are efficient and capable of doing their jobs well. Only when everyone in the organization works hard can the organization’s goals be met. How can you tell if an employee has given his or her best effort on a given job?
The solution is performance appraisal.
Meaning of Performance Appraisal
Performance appraisal system has been defined in many ways. The easiest way to understand the meaning
of performance appraisal is as follows:
It is the systematic evaluation of an individual with regard to his or her job performance and potential for advancement in that job. Thus, performance appraisal is a systematic and objective method of assessing an employee’s relative worth or ability to perform his job. The two most important aspects of performance appraisal are systematic and objective. A systematic appraisal is one that evaluates all performances, in the same way, using the same approach, so that appraisals of different people are comparable. Such an evaluation is performed on a regular basis; it is not left to chance.
As a result, both raters and ratees are familiar with the performance appraisal system and its timing. The appraisal is also objective. The important aspect is that it tries to remove human biases and prejudices in order to achieve precise measurement.
According to Flippo, a prominent personality in the field of Human resources, “performance appraisal is the systematic, periodic and an impartial rating of an employee’s excellence in the matters pertaining to his present job and his potential for a better job.”
Need and Importance of Performance Appraisal
Performance is always measured in terms of outcome and not effort. Performance Appraisal is needed in
most of the organizations in order:
(1) To give information about the performance of employees on the job and give ranks on the basis of
which decisions regarding salary fixation, demotion, promotion, transfer, and confirmation are
(2) To provide information about the amount of achievement and behavior of subordinates in their job.
This kind of information helps to evaluate the performance of the subordinate, by correcting
loopholes in performances and to set new standards of work, if required.
(3) To provide information about an employee’s job-relevant strengths and & weaknesses.
(4) To provide information so as to identify shortages in employees regarding ability, awareness and
find out training and developmental needs.
(5) To avoid grievances and disciplinary activities in the organization.
(6) It is an ongoing process in every large-scale organization.
Performance appraisals in an organization allow employees and managers to converse about the areas in which employees excel and those in which they need to improve. Performance evaluations should be conducted on a regular basis, and they do not have to be directly related to promotion opportunities. It is significant for several reasons, including
Objectives of Performance Appraisal
In any organization, performance appraisal is carried out to achieve specific goals, which may include salary increases, promotions, recognizing training and development needs, providing feedback to employees, and putting pressure on employees to perform better.
An employee in an organization may believe that performance appraisal is primarily used by the organization to punish employees and implement corrective measures. An employee may believe that performance appraisal is being implemented in an organization to punish them; in such a case, well-planned performance appraisal may result in failure. If the goals are more positive, problems may arise because they may not all be met, resulting in conflict.
For example, an employee who is about to be appraised will never disclose his flaws because it will jeopardize his appraisal. As a result, the goal of performance appraisal should be clear and specific. Incorporating objectives into the evaluation system may thus draw attention to areas for improvement, new directions, and opportunities.
Performance appraisal plays an important role in making decisions about increases in salary. An increase in the salary of an employee depends on how he is performing his job. Evaluation of an employee takes place on a continuous basis which may be formal or informal. In large as well as in small organizations performance appraisal takes place but it may be in a formal or informal way. It shows how well an employee is performing and to what extent a hike in salary
would take place in comparison to his performance
A performance appraisal provides information about how an employee is performing in his current position, as well as his strengths and weaknesses. It is decided whether he can be promoted to the next higher position based on his strengths and weaknesses. What additional training is required if any? It could also be used for demotion, employee discharge, and transfer.
Training & Development:
Performance appraisal provides information about an employee’s strengths and weaknesses in his current job. It provides an idea of the training required by an employee to overcome the limitations that an employee has in order to perform better in the future.
Performance appraisal informs each employee of where they are, how they are working, and how they are contributing to the achievement of organizational goals. Feed operates in two ways. First, the individual receives feedback on his performance, and he may attempt to overcome his weaknesses, which may lead to improved performance. Second, the individual is satisfied after relating his work to organizational goals. It gives him the impression that he is doing meaningful work and that he can contribute more effectively.
Pressure on Employees:
Performance appraisal puts a sort of stress on employees for better performance. If the employees are aware that they are been appraised in comparison to their performance and they will have positive and acceptable behavior in this respect.
Techniques of Performance Appraisal
- Traditional Methods:
These are the old methods of performance appraisal based on personal qualities like knowledge, capacity, judgment, initiative, attitude, loyalty, leadership, and judgment, etc.
The following are the traditional methods of performance appraisal:
- Unstructured Method of Performance Appraisal:
This is a simple method of performance appraisal. It is highly subjective in nature. Under this method, the appraiser has to describe his impressions about the employee under appraisal in an unstructured manner. Sometimes rater has to list his comments specifically on qualities, abilities, attitude, aptitude, and other personal traits of the employees. This makes the method highly subjective. Personal bias reflects through the impressions of the rater in his report.
- Straight Ranking Method:
It is quite a simple and old method of performance appraisal. Under this method, the employee and his performance are considered as an entity. All the employees are evaluated by the appraiser considering their performance on the job as a base and ranks are given.
The order of rating ranges from best to worst. This method is also highly subjective and lacks fairness in assessing the real worth of an employee. It becomes a difficult task when the performances of a pretty large number of employees are to be assessed. It lacks a systematic procedure for performance appraisal. The next method of paired comparison is an improvement over this method.
- Paired Comparison Method:
This method is an attempt to improve upon the simple ranking method. Under this method employees of a group are compared with one another at one time. If there is a group of five employees A, B, C, D, and E then A’s performance is compared with that of B’s, and a decision is taken as to whose performance is better.
Similarly, A’s performance is compared with C, D, and E, and decisions regarding comparatively better performances are taken. The following diagram illustrates this fact. The same technique is followed for other employees. Under this paired comparison method ten decisions are arrived at as only two employees are involved at the time of arriving at a decision.
The number of decisions is determined by using the formula, n(n – 1)/2 where “n” represents the number of employees to be compared. The results are tabulated and every employee is ranked. The paired comparison method is more reliable but the method is not suitable when large numbers of employees are to be evaluated.
- Man To Man Comparison Method:
This method was used during World War I by the American Army. Under this method, certain factors are selected for analysis. The factors include leadership qualities, initiative,.etc. The appraiser develops a scale for each factor. Personnel is compared to key men as regards one factor at a time. This method is also known as the factor comparison method. The defect of this method is that developing a scale is quite a tough and complicated task.
- Grading Method:
Under this technique of performance evaluation, certain categories of worth are determined in advance and they are carefully defined. These selected and well-defined categories include grades ‘A’ for outstanding, ‘B’ for very good, ‘C’ for average, ‘D’ for poor, .etc. These grades are based on certain selected features of employees such as knowledge, judgment, analytical ability, leadership qualities, self-expression, etc The actual performance of employees is compared with the above grades and employees are allotted grades that speak for their performance.
- Graphic Rating Scale:
This is one of the most widely used performance evaluation techniques. The evaluator is asked to rate employees on the basis of job-related characteristics and knowledge of the job. These can broadly be grouped as employee characteristics and employee contribution.
The evaluator is given printed forms. The employee characteristics include leadership qualities, initiative, industriousness, attitude, cooperation, interest, creativity, loyalty, decision-making ability, analytical ability, and dependability, etc The employee contribution includes responsibility, quality of work, achievement of targets, versatility, relations with fellow employees and superiors, etc The performance is evaluated on the basis of these traits on a continuous scale.
It is a standardized, quantitative method of performance appraisal. It is simple to understand and use. The scores are tabulated indicating the relative worth of each employee. This method has certain demerits. It is arbitrary and highly subjective in nature. It assumes all characteristics are of equal importance for the performance of all jobs. It is charged that a high score on one factor may compensate low score on another. A supervisor may favor his subordinates unnecessarily. The evaluation cluster is on the high side.
- Forced Choice Method:
This method was developed during World War II for evaluating the performance of American army personnel. The evaluators have the tendency to rate the performance as high, moderate, or low and escape the important responsibility assigned to them. This method requires a more objective and least subjective assessment of the performance.
The rating elements are predetermined statements divided equally into negative and positive relating to efficiency and personal traits. The rationale is the statements are grouped having equal importance. The evaluator is forced to select from each group of statements (normally two).
The Statements May Be The Following:
1. Good work organizer
2. Shows patience with slow learners.
3. Dishonest or disloyal
4. Careful and regular
5. Avoid work
7. Cooperates with fellow workers
8. Does not take interest in work.
From the above list of statements, favorable statements are marked plus and unfavorable statements are marked zero. Under this method, the subjectivity evaluator is eliminated if not completely.
- Check List:
It is the simplest form of evaluation method. Under this method, a list of statements describing the job-related behavior of the employees is given to the evaluator. If the evaluator perceives that the employee possesses a particular trait, the statement is checked, i.e, ticked and if he feels that the employee does not possess that quality he leaves it blank. He then submits it to the human resource department where counting of the checks is carried out and performance is assessed.
The checklist provided to the evaluator contained statements relating to work-related behavior and asked to check them if found within the employees. In this list weightage to the items is not given. Under the weighted checklist, the items having significant importance for organizational effectiveness are given weightage. The evaluator notes these checks and submits them to the authority or correct evaluation of the performance.
An example of the checklist is given below:
1. Is the employee punctual”
2. Is he interested in his job?
3. Does he keep cool while working?
4. Does he respect his superiors?
5. Does he treat his subordinates well?
6. Does he maintain machines in order?
7. Does he follow orders without delay?
The method has some demerits. It suffers from the evaluator’s bias. A separate checklist is required for each job which increases the cost. It is also difficult to provide due weightage to the particular characteristic of the employee.
9. Free Essay Method:
Under this method, no quantitative approach is undertaken. It is an open-ended appraisal of employees. Evaluator describes in his own words what he perceives about the employees’ performances. He includes in his descriptions the knowledge, skill, interpersonal relations, temperament, quality and cost control aspects, and needs for future development. Etc of the employees.
He tries his level best to describe the facts as correctly as possible. The report on the evaluation of performance is submitted in essay form. The supervisor can reveal more about the employee and while doing he hides his weaknesses or strong points. This method is the most subjective. Some lack in ability to describe properly. An evaluator may favor his supporter with the best qualities even though the employee lacks in many aspects.
10. Critical Incidents Method:
Under this method the performance of the worker is rated on the basis of certain events that occur during the performance of the job, i.e, the evaluation is based on key incidents. An emphasis is laid on the behavior of the worker on the job. His behavior is observed as to whether he becomes upset over work, resists, cooperates with a fellow worker, suggests an improvement in the method of work, etc. Various such behavior is recorded by the supervisor.
The method requires that the behavior of employees in all significant incidents be recorded the effectively and ineffective behavior in a specifically designed notebook. The notebook contains various categories of characteristics about the employees.
An evaluator or supervisor here should refrain from passing his own judgments but should discuss the facts as he observes. Like other methods, this method is also with limitations. A negative incident is more easily noticeable than the positive one to the supervisor. If the recording of the incident is put off for some time supervisor may forget the same and fails to record it later. It requires very close supervision which is generally not liked by the employees.
11. Field Review Method:
Under this method, a supervisor is interviewed by a human resource expert from the human resource department. The evaluator is equipped with test questions usually memorized by him which asks the supervisor. The supervisor is expected to give his opinion about the subordinates such as about his weakness and strength, outstanding ability, willingness to cooperate, etc. The evaluator records the details which are approved by the supervisor and these are kept in the personal file of the employee.
To make the method more effective evaluator must be well-versed and competent in his job. This method is useful for a large organization where lots of employees are working. It is not suitable for small organizations. It is a costly method and keeps two managerial staff busy with a single work hence costly.
Drawbacks of Traditional Method of Performance Appraisal:
These methods are criticized for being subjective in nature. Under these methods, the performance appraisal is based on the personal judgment of the appraiser who is not free from personal prejudice and bias. The evaluator has not received adequate training on the job and hence he is unable to evaluate the performance of other properly.
There are several weaknesses in these methods of performance appraisal which can be counted as follows:
1.) Halo Effect
The error is committed when the evaluator allows one strong personal trait to influence his evaluation. This is the halo effect tendency. The evaluator assigns the same ratings to all aspects irrespective of employee performance. This defect gets detected on a factor scale. The halo effect can be minimized if the evaluator judges the performance of all the employees on one aspect and then all the employees on the second aspect and so on.
2.) Leniency and Strictness:
The appraisers differ in their tendencies towards rating. Some are quite lenient and others are stricter. These tendencies of the evaluator shadow their evaluation of employees. The lenient evaluator assigns high scores to the evaluations while the stricter assigns comparatively low scores to the evaluations for their performance.
3.) Central Tendency:
When the evaluator has insufficient information regarding the employee and his performance and has no time to pay sufficient attention to the process of performance appraisal he may play safe and evaluate the performance of all the employees as average. This tendency is a serious distortion in the performance appraisal system.
4.) Miscellaneous Biases:
Showing bias against employees by the evaluator on the basis of sex, religion, caste, race, and position is very common. This deters objective evaluation. The evaluator gets influenced by the seniority of the member and evaluates him highly. Some of the superiors want that their subordinates should not be rated high to surpass them.
B.) Modern Methods of Performance Appraisal:
Modern methods are an improvement over traditional methods. Modern methods are an attempt to remove defects from old methods. Modern methods of judging the performance of employees are developed. These modern methods are discussed below:
1.) Target Setting Approach of Management by Objectives(MBO):
Peter Drucker developed this method of performance appraisal. It is a powerful method of managing and of evaluating performance. It attempts to keep external controls to a minimum and internal motivation to a maximum. It sets the goal jointly for superiors and subordinates increasing subordinates’ own control of their work.
It advocates strongly the active participation of subordinates in decision-making that affect subordinates. Management by objectives is a systematic approach to management. Under this method, a target is fixed for performance and is rated on the basis of the achievement of the target. It is a method of measuring performance against results.
The target of the goal is fixed with the agreement between the supervisor and worker. They also discuss the contents of the job and key areas of results, reasonable objectives are then fixed for a year. This approach is based on clear and time-bound objectives or targets.
It minimizes the controlling efforts as the workers are self-motivated as the target is set with their consultation. This method is applicable only when setting targets is possible. There are three main bases of MBO, goal setting, taking feedback, and participation. These bases enhance performance
This Method Also Has the Following Limitations.
MBO is not a panacea, a cure for all organizational problems. As with other methods, it also suffers from some limitations as cataloged below:
1.) Setting Un-measurable Objectives:
One of the problems MBO suffers from is unclear and un-measurable objectives set for attainment. An objective such as “will do a better job of training” is useless as it is un-measurable. Instead, “we’ll have four subordinates promoted during the year” is a clear and measurable objective.
The activities involved in an MBO program such as setting goals, measuring progress, and providing feedback can take a great deal of time.
3.) Tug of War:
Setting objectives with the subordinates sometimes turns into a tug of war in the sense that the manager pushes for higher quotas and the subordinates push for lower ones. As such, goals so set are likely to be unrealistic.
4.) Lack of Trust:
MBO is likely to be ineffective in an environment where management has little trust in its employees. Or say, management marks decisions autocratically and relies heavily on external controls.
Behaviourally Anchored Rating Scales (BARS):
It is a recently developed method of rating in behavioral terms. The exponents of BARS claim that it is a more reliable and advantageous method of performance appraisal. It is designed to identify critical areas of performance of a job. Under this method, the behaviourally anchored ratings scales are outlined to recognize the critical areas of effective and ineffective performance behavior for getting results.
The evaluator is required to observe the behavior of the employee while performing the job. He then compares these behavioral observations with the behaviorally anchored rating scales.
Experimental studies of BARS have collected eight performance criteria namely knowledge and judgment, human relations skills, conscientiousness, skill in the operation of register, organizational ability, skill in a monetary transaction, and observational ability. This method is more valid and expected to give more reliable results as it minimizes errors in performance appraisal. It identifies measurable behavior therefore more scientific.
Developing BARS typically involves five steps:
1.) Generating Critical Incidents:
Critical incidents (or say behaviors) are those which are essential for the performance of the job effectively Persons who are knowledgeable of the job in question (jobholders and/or supervisors) are asked to describe specific critical incidents of effective and ineffective performance. These critical incidents may be described in a few short sentences or phrases using the terminology.
II.) Developing Performance Dimension:
The critical incidents are then clustered into a smaller set of performance dimensions, usually five to ten. Each cluster, or say, dimension is then defined.
III.) Reallocating Incidents:
Various critical incidents are reallocated dimensions by another group of people who also know the job in question. Various critical incidents so reallocated to original dimensions are clustered into various categories, with each cluster showing similar critical incidents. Those critical incidents have retained that meet 50 to 80% of agreement with the cluster as classified in step 2.
IV.) Scaling Incidents:
The same second group as in step 3 rates the behavior described in each incident in terms of effectiveness or ineffectiveness on the appropriate dimension by using a seven to nine points scale. Then, average effectiveness ratings for each incident are determined to decide which incidents will be included in the final anchored scales.
V.) Developing Final BARS Instrument:
A subset of the incidents (usually six or seven per cluster) is used as a behavioral anchor for the final performance dimensions. Finally, a BARS instrument with vertical scales is drawn to be used for performance appraisal.
3.) Assessment Centres:
The introduction of the concept of assessment centers as a method of performance appraisal is traced back to the 1930s in Germany used to appraise its army officers. The concept gradually spread to the US and the UK in the 1940s and to the Britain in 1960s.
The concept, then, traversed from the army to the business arena during the 1960s. The concept of an assessment center is, of course, of a recent origin in India. In India, Crompton Greaves, Eicher, Hindustan Lever, and Modi Xerox have adopted this technique of performance evaluation.
In the business field, assessment centers are mainly used for evaluating executive or supervisory potential. By definition, an assessment center is a central location where managers come together to participate in well-designed simulated exercises. They are assessed by senior managers supplemented by psychologists and HR specialists for 2-3 days.
Assessee is asked to participate in in-basket exercises, work groups, simulations, and role-playing which are essential for the successful performance of the actual job. Having recorded the assessee’s behavior the raters meet to discuss their pooled information and observations and, based on it, they give their assessment of the assessee.
At the end of the process, feedback in terms of strengths and weaknesses is also provided to the assessees.
The distinct advantages the assessment centers provide include more accurate evaluation, minimum biasedness, right selection and promotion of executives, and so on. Nonetheless, the technique of assessment centers is also plagued by certain limitations and problems. The technique is relatively costly and time-consuming, causes suffocation to the solid performers, discourages the poor performers (rejected), breeds unhealthy competition among the assessees, and bears adverse effects on those not selected for assessment.
4.) 360 – Degree Appraisal:
Yet, another method used for employee performance appraisal is 360 – degree appraisal. This method was first developed and formally used by General Electric Company of the USA in 1992. Then, it traveled to other countries including India. In India, companies like Reliance Industries, Wipro Corporation, Infosys Technologies, Thermax, Thomas Cook, etc. have used this method for appraising the performance of their employees. This feedback-based method is generally used for ascertaining training and development requirements, rather than for pay increases.
Under 360 – degree appraisal, performance information such as an employee’s skills, abilities, and behaviors, is collected “all around” an employee, i.e, from his/her supervisors, subordinates, peers, and even customers and clients.
In other words, in 360 – a degree feedback appraisal system, an employee is appraised by his supervisor, subordinates, peers, and customers with whom he interacts in the course of his job performance. All these appraisers provide information or feedback on an employee by completing survey questionnaires designed for this purpose.
All information so gathered is then compiled through the computerized system to prepare individualized reports. These reports are presented to me by employees being rated. They then meet me, an appraiser – be it one’s superior, subordinates or peers – and useful for developing a self-improvement plan.
In 360 – degree feedback, performance appraisal is based on feedback “all around”, an employee is likely to be more correct and realistic. Nonetheless, like other traditional methods, this method is also subject to suffer from subjectivity on the part of the appraiser. For example, while a supervisor may penalize the employee by providing negative feedback, a peer, being influenced by “give and take feeling’ may give a rave review on his/her colleague.
5.) Cost Accounting Method:
This method evaluates an employee’s performance from the momentary benefits the employee yields to his/her organization. This is ascertained by establishing a relationship between the costs involved in retaining the employee, and the benefits an organization derives from him/her.
While evaluating an employee’s performance under this method, the following factors are also taken into consideration:
The unit-wise average value of production or service.
Quality of product produced or service rendered.
The overhead cost incurred.
Accidents, damages, errors, spoilage, and wastage caused by unusual wear and tear.
The human relationships with others.
Cost of the time supervisor spent appraising the employee.
New Trends In Appraisal System
Traditionally, performance management focused on annual appraisals as the measure of your employee’s progress. Managers in each department completed performance appraisals when notified by human resources that an employee had reached his annual hire date. Computer software has changed the ways management measures employee performance. Along with annual performance measures, integrated systems allow you to use a wide range of assessment tools to ensure human resources are able to support the strategic goals of the organization.
Integrated human resource management supports the long-term goals of your company through hiring, retention, and improved employee appraisal activities. The integration of human resources data with your organization’s strategic planning activities will enable your company to reach its goals and objectives in a more efficient manner. As an example, if your company desires to expand its product offerings into a new marketplace, integrated processes allow company leaders to ensure necessary skilled employees will be in place in time to properly support the expansion.
In the 21st century, rapid access to up-to-date and accurate information may be the difference between your company succeeding or your company failing. Automated HR functions allow your company managers to receive accurate employment data in real-time, experience, reduced labor costs through accurate tracking of employee training, and facilitate the management of employee benefits. The true value of automated HR functions is improved employee satisfaction and better customer service. Employee inquiries can be answered quickly since managers have immediate access to information in personnel files, and managers can see exactly when key performance evaluations are due.
Integrated computerized human resources information systems allow your department managers to ensure each employee has met every training requirement through a variety of assessment methods allowing managers to gain a more complete understanding of an employee’s performance. The results from each type of assessment can be entered into the system on the same day the assessment was accomplished. Assessment methods can include oral or written examinations, observation of employees during job performance, and the results from employee training programs.
Strategic engagement happens when human resources managers have a part in the decisions company management makes about the future of the organization. Under the strategic approach, your human resource manager is an equal member of your company’s leadership team. Your organization’s senior leadership has the opportunity to develop a collaborative relationship with the HR department, allowing both sides to make sure the best-qualified personnel is always available for any product or service the company may decide to offer in the future.
In the organizational context, performance appraisal is an evaluation of personnel in a systematic way by superiors or others familiar with their performance. It is also described as merit rating in which one individual is ranked as better or worse in comparison to others. The basic purpose of this merit rating is to determine an employee’s eligibility for promotion.
However, performance appraisal is a broad term and it may be used to ascertain the need for training and development, salary increase, transfer, discharge, etc. besides promotion. It is the systematic assessment of an individual with respect to his or her performance on the job and his or her potential for development in that job.
Performance appraisals should be conducted on a frequent basis, and they need not be directly attached to promotion opportunities only. It is important because of several reasons such as Personal Attention, Feedback, Career Path, Employee Accountability, Communicate Divisional, and Company Goals. Thus, objectives in the appraisal system may draw attention to areas for improvement, new directions, and opportunities.
During times of layoffs and restructuring, performance appraisals create challenges for both employees and their superiors. Therefore, it is recommended that the dimension of creativity should be added to performance appraisal because it makes the process truly participative and paves the way to create new opportunities to benefit both company and the employees.
The methods of performance appraisal are categorized in two ways traditional and modern methods. Each organization adopts a different method of performance appraisal according to the need of the organization, with each method having its own advantages and drawbacks. Besides, employees may also work on certain psychological aspects to improve their performance reviews. The performance appraisal system of one organization may vary from other organizations; this may lead to few changes in the appraisal process. Some of the problems faced in appraising employees are biasness of rater which may include:
(a) halo effect,
(b) central tendency error,
(c) the leniency and strictness biases,
(d) personal prejudice, and
(e) the recent effect, etc.