23 Performance Appraisal

Dr.Shafali Nagpal

25.1 Learning Objective

25.2 Introduction

25.3 Concept of Performance

25.4 Meaning of Appraisal

25.5 Why Performance Appraisal

25.6 Methods of performance Appraisal

25.7 Advantages

25.8 Summary

Learning Objectives

1. To understand about performance appraisal
2. To discuss and understand methods of performance appraisal
3. To know the implications of performance appraisal

Introduction

Its roots in the early 20th century can be traced to Taylor’s pioneering Time and Motion studies. But this is not very helpful, for the same may be said about almost everything in the field of modern human resources management.

As a distinct and formal management procedure used in the evaluation of work performance, appraisal really dates from the time of the Second World War, about seventy years ago. Yet in a broader sense, the practice of performance appraisal is an ancient art. In the scale of things historical, it might well lay claim to being the world’s second oldest profession. There is, says Dulewicz (1989), “a basic human tendency to make judgments about those one is working with, as well as about oneself.” Appraisal, it seems, is both inevitable and universal. In the absence of a structured system, people will tend to judge the work performance of others, including subordinates, informally and arbitrarily.

The hardwired human inclination to judge can cause big problems in the workplace. Without a structured system of appraisal, there is little if any chance of ensuring that such judgments will be accurate, fair and useful. Performance appraisal began as an attempt to rationally correlate rewards and outcomes. That is, appraisal was used to decide whether or not the salary or wage of an individual employee was justified. The process was firmly linked to material outcomes. If an employee’s performance was found to be less than ideal, a cut in pay would follow. On the other hand, if their performance was better than the supervisor expected, a pay rise was in order.

Concept

Performance appraisal is a process of summarizing, assessing and developing the work performance of an employee. In order to be effective and constructive, the performance manager should make every effort to obtain as much objective information about the employee’s performance as possible. Performance Appraisal is a review and discussion of an employee’s performance of assigned duties and responsibilities based on results obtained by the employee in their job, not on the employee’s personality characteristics. Personality should be considered only when it relates to performance of assigned duties and responsibilities. It is a structured formal interaction between a subordinate and supervisor, that usually takes the form of a periodic interview (annual or semi-annual), in which the work performance of the subordinate is examined and discussed, with a view to identifying weaknesses and strengths as well as opportunities for improvement and skills development. In many organizations – but not all – appraisal results are used, either directly or indirectly, to help determine reward outcomes. That is, the appraisal results are used to identify the better performing employees who should get the majority of available merit pay increases, bonuses, and promotions.

Definition

Performance appraisal has been defined by different scholars in various ways. Some of the important definitions are as follows:

Dale S. Beach, “Performance appraisal is systematic evaluation of the individual with respect to his or her performance on the job and his or her potential for development”.

Randall S. Schuler, “Performance appraisal is a formal, structured system of measuring and evaluating an employees job, related behaviour and outcomes to discover how and why the employee is presently perfuming on the job and how the employee can perform more effectively in the future so that the employee, organisation, and society all benefit.”

Heyel, “It is the process of evaluating the performance and qualifications of the employees in terms of the requirements of the job for which he is employed, for purposes of administration including placement, selection for promotions, providing financial rewards and other actions which require differential treatment among the members of a group as distinguished from actions affecting all members equally.”

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

What is Performance?

What does the term performance actually mean? Employees are performing well when they are productive. Productivity implies both concern for effectiveness and efficiency, effectiveness refers to goal accomplishment. However it does not speak of the costs incurred in reaching the goal. That is where efficiency comes in. Efficiency evaluates the ratio of inputs consumed to outputs achieved. The greater the output for a given input, the greater the efficiency. It is not desirable to have objective measures of productivity such as hard data on effectiveness, number of units produced, or percent of crimes solved etc and hard data on efficiency (average cost per unit or ratio of sales volume to number of calls made etc.).

In addition to productivity as measured in terms of effectiveness and efficiency, performance also includes personnel data such as measures of accidents, turnover, absences, and tardiness. That is a good employee is one who not only performs well in terms of productivity but also minimizes problems for the organisation by being to work on time, by not missing days, and by minimizing the number of work-related accidents.

What is Appraisal?

Appraisals are judgments of the characteristics, traits and performance of others. On the basis of these judgments we assess the worth or value of others and identify what is good or bad. In industry performance appraisal is a systematic evaluation of employees by supervisors. Employees also wish to know their position in the organization. Appraisals are essential for making many administrative decisions: selection, training, promotion, transfer, wage and salary administration etc. Besides they aid in personnel research. Performance Appraisal thus is a systematic and objective way of judging the relative worth of ability of an employee in performing his task. Performance appraisal helps to identify those who are performing their assigned tasks well and those who are not and the reasons for such performance.

Performance appraisal is a term applied to a variety of processes that involve the assessment and development of an individual and their performance at work. In the United Kingdom, performance appraisal has been with us for the best part of a century. While it is to a large extent about evaluating a person’s performance at work, three key issues are worth bearing in mind:

1. Performance appraisal is a two-way process. As much as the employer wishes to measure and understand an employee’s performance, the employee wishes to gain something from the process.
2. The appraisal process is about the development of staff as well as about assessing their performance; it is about exploring the appraisee’s potential for development in terms of their career;
3. In appraisal there is an important issue about the extent to which one looks at the overall picture of the individual and what they bring to the workplace beyond doing the basic job tasks and activities (e.g. to what extent do they help their team to function more effectively?).

Some of the terminology can be confusing with regard to performance appraisal. In this unit we use performance appraisal to describe the process of collecting and using data about employee performance. It does not just refer to the performance appraisal interview (although that is an important part of it). You might see other terms used in the literature such as performance review, or performance management. These are slightly broader terms than performance appraisal (e.g. they consider issues such as aligning individual performance goals with organisational strategy, and may include employee counselling and personal development.

Need/objectives of Performance Appraisal or Performance Assessment

Objectives of performance appraisals although are many, we can classify all of them into three easy categories:

1. Performance Appraisals serve as a yardstick to plan promotions, salary revisions, promotions, empowerments, training and development, and also demotions and terminations.
2. They also help superiors to narrate an employee about his performance and suggesting or guiding needed changes in his behaviour, attitude, skills, knowledge, and dedication.
3. Performance Assessment reports are always provide a basis for the coaching and counseling of individuals by the organization, and also they act as a self-monitoring tool.

Performance appraisal in any organisation will be done at a specific period, like annually or half yearly or quarterly or maybe regularly. It all depends upon the nature or size of the organisation, and sometimes necessity of the managers decide the period of performance appraisal of their employees. Most of organisations are insisting employee appraisal should be a continuous process and should not be limited to a formal review once in a year. The frequency of formal appraisals will depend on the nature of the organization and on the objectives of the system. For example, in a high technology organisation objectives may be changing quickly so that formal appraisals may need to be carried out more than once a year. In an environment which is less subject to change, annual appraisals may be sufficient. Most employees receive a formal appraisal annually, although more frequent appraisals are often needed for new employees, for longer serving staff who have moved to new posts or for those who are below acceptable performance standards.

Advantage of Performance Appraisal in industries

It is said that performance appraisal is an investment for the company which can be justified by following advantages:

1.  A Basis for Promotion and Demotion: Performance Appraisal helps the supervisors to chalk out the promotion programmes for efficient employees. As well as the demotion programs for inefficient workers they can be dismissed or demoted as the case may be.
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 employee performance.Compensation packages which includes bonus, high salary rates, extra benefits, allowances and pre-requisites are dependent on performance appraisal. The criteria should be merit rather than seniority if the individual performance evaluation is possible.
3. Employees Development: The systematic procedure of performance appraisal helps the supervisors to frame training policies and programmes. It helps to analyse strengths and weaknesses of employees so that new higher jobs can be designed for efficient employees. It also helps in framing future development programmes.
4. To check Selection criteria: Performance Appraisal helps the supervisory Board to understand the validity and importance of the selection procedure. The 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 employee management relationship.

d. It develops the spirit of team 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. The employees shall feel motivated and if the targets are not achieved we may show their legging part to improve their efficiency and motivate them for better job and helps him to improve his performance in the future.

Methods of Performance Appraisal

Numerous methods have been devised to measure the quantity and quality of performance appraisals

• Each of the methods is effective for some purposes for some organizations only. None should be dismissed or accepted as appropriate except as they relate to the particular needs of the organization or an employee.

Broadly all methods of appraisals can be divided into two different categories.

• Past Oriented Methods
• Future Oriented Methods

Past Oriented Methods

1. Rating Scales: This is the simplest and the most popular technique for appraising all employee performance. The typical rating scales system consists of several numerical scales, each representing job related performance criterion such as dependability initiative output, attendance attitude, co – operation and the like. Each scale ranges from a excellent to a poor. The number of points scored may be linked to salary increases where by so many points equal to a rise of some %. Advantages – Adaptability, easy to use, low cost, every type of job can be evaluated, large number of employees covered, no formal training required. Disadvantages – there is fear of Rater’s biases.
2. Checklist: A checklist appraisal format lists down various employee traits which would be ticked off in ‘Yes’ and ‘No’ check boxes. The rater has an easy task with a checklist appraisal format by ticking the preferred check box on the list based on personal perception before passing the checklist form to the HR department for compilation and reports.

Advantages of the Checklist format include:

• Low cost
• Easy to administer
• Little training required Standardized format

Disadvantages of the checklist format include:

• Rater’s bias
• Improper HR weighs
• Discrete rating values only

3. Forced Choice Method: This method was evolved by Tiffen to eliminate the central tendency of rating most of the employees at a higher end of the scale. The method assumes that employees’ performance level confirms to a normal statistical distribution i.e., 10,20,40,20 and 10 per cent. This is useful for rating a large number of employees’ job performance and promo ability. It tends to eliminate or reduce bias.

It is also highly simple to understand and easy to apply in appraising the performance of employees in organisations. It suffer from the drawback that improve similarly, no single grade would rise in a ratings.

Advantages – Absence of personal biases because of forced choice.

Disadvantages – Statements may be wrongly framed.

4. Forced Distribution Method: The forced-choice method is developed by J. P. Guilford. It contains a series of groups of statements, and rater rates how effectively a statement describes each individual being evaluated. Common method of forced-choice method contains two statements, both positive and negative.Here employees are clustered around a high point on a rating scale. Rater is compelled to distribute the employees on all points on the scale. It is assumed that the performance is conformed to normal distribution.

Disadvantages – Assumption of normal distribution, unrealistic, errors of central tendency.

5. Critical Incidents Method: In this method, the rater focuses his or her attention on those key or critical behaviours that make the difference between performing a job in a noteworthy manner (effectively or ineffectively).

Advantages – Evaluations are based on actual job behaviors, ratings are supported by descriptions, feedback is easy, reduces recency biases, chances of subordinate improvement are high.

Disadvantages – Negative incidents can be prioritized, forgetting incidents, overly close supervision; feedback may be too much and may appear to be punishment.

6. Behaviorally Anchored Rating Scales: Behaviourally anchored scales sometimes called behavioural expectation scales, are rating scales whose scale points are determined by statements of effective and ineffective behaviours. They are said to be behaviourally anchored in that the scales represent a range of descriptive statements of behaviour varying from the least to the most effective. A rater must indicate which behaviour on each scale best describes an employee’s performance.

Advantages – helps overcome rating errors.

Disadvantages – Suffers from distortions inherent in most rating techniques.

7. Field Review Method: When there is a reason to suspect rater’s biasedness or his or her rating appears to be quite higher than others, these are neutralised with the help of a review process. The review process is usually conducted by the personnel officer in the HR department.

Advantages – Useful for managerial level promotions, when comparable information is needed,

Disadvantages – Outsider is generally not familiar with employees work environment, Observation of actual behaviors not possible.

8. Performance Tests & Observations: This is based on the test of knowledge or skills. This appraisal technique tests knowledge and skills in written or actual forms. Reliable tests are required to be formulated and validated in order to be unbiased.

Advantages of this technique include:

• Formulated tests are focused to evaluate potential

Disadvantages of this technique include:

• High cost of test formulation and administration

9. 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.

Advantage –The system is highly secretive and confidential. Feedback to the employee 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.

10. 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.

Advantage – It is extremely useful in filing information gaps about the employees that often occur in a better-structured checklist.

Disadvantages – It is highly dependent upon the writing skills of rater and most of them are not good writers. They may get confused success depends on the memory power of raters.

11.    Cost Accounting Method: Here performance is evaluated from the monetary returns yields to his or her organization. Cost to keep employee, and benefit the organization derives is ascertained. Hence it is more dependent upon cost and benefit analysis.

12. Comparative Evaluation Method (Ranking & Paired Comparisons): These are collection of different methods that compare performance with that of other co-workers. The usual techniques used may be ranking methods and paired comparison method.

Ranking Methods: Superior ranks his worker based on merit, from best to worst. However how best and why best are not elaborated in this method. It is easy to administer and explanation.

Paired Comparison Methods: In this method each employee is rated with another employee in the form of pairs. The number of comparisons may be calculated with the help of a formula as under.

N x (N-1) / 2

Future Oriented Methods

1. Management By Objectives: It means management by objectives and the performance is rated against the achievement of objectives stated by the management. MBO process goes as under.

• Establish goals and desired outcomes for each subordinate
• Setting performance standards
• Comparison of actual goals with goals attained by the employee
• Establish new goals and new strategies for goals not achieved in previous year.

Advantage – It is more useful for managerial positions.

Disadvantages – Not applicable to all jobs, allocation of merit pay may result in setting short-term goals rather than important and long-term goals etc.

2. Psychological Appraisals: These appraisals are more directed to assess employees potential for future performance rather than the past one. It is done in the form of in-depth interviews, psychological tests, and discussion with supervisors and review of other evaluations. It is more focused on employees emotional, intellectual, and motivational and other personal characteristics affecting his performance. This approach is slow and costly and may be useful for bright young members who may have considerable potential. However quality of these appraisals largely depend upon the skills of psychologists who perform the evaluation.

3.  Assessment Centers: This technique was first developed in USA and UK in 1943. An assessment center is a central location where managers may come together to have their participation in job related exercises evaluated by trained observers. It is more focused on observation of behaviors across a series of select exercises or work samples. Assessees are requested to participate in in-basket exercises, work groups, computer simulations, role playing and other similar activities which require same attributes for successful performance in actual job. The characteristics assessed in assessment center can be assertiveness, persuasive ability, communicating ability, planning and organizational ability, self confidence, resistance to stress, energy level, decision making, sensitivity to feelings, administrative ability, creativity and mental alertness etc. Disadvantages – Costs of employees traveling and lodging, psychologists, ratings strongly influenced by assessee’s inter-personal skills. Solid performers may feel suffocated in simulated situations. Those who are not selected for this also may get affected.

Advantages – well-conducted assessment center can achieve better forecasts of future performance and progress than other methods of appraisals. Also reliability, content validity and predictive ability are said to be high in assessment centers. The tests also make sure that the wrong people are not hired or promoted. Finally it clearly defines the criteria for selection and promotion.

4. 360-Degree Feedback: It is a technique which is systematic collection of performance data on an individual group, derived from a number of stakeholders like immediate supervisors, team members, customers, peers and self. In fact anyone who has useful information on how an employee does a job may be one of the appraisers. This technique is highly useful in terms of broader perspective, greater self-development and multi-source feedback is useful. 360-degree appraisals are useful to measure inter-personal skills, customer satisfaction and team building skills. However on the negative side, receiving feedback from multiple sources can be intimidating, threatening etc. Multiple raters may be less adept at providing balanced and objective feedback.

Use of Performance Appraisals

1. Promotions
2. Confirmations
3. Training and Development
4. Compensation reviews
5. Competency building
6. Improve communication
7. Evaluation of HR Programs
8. Feedback & Grievances

Summary

In this module, we have studied the meaning of performance Appraisal. It is a process of summarizing, assessing and developing the work performance of an employee which is reviewed on the basis of employee’s performance of assigned duties and responsibilities and based on results obtained by the employee in their job.

References

• Cooper, D. R., & Emory, C. W. (1995). Business research methods (5th Ed.). Irwin, USA: c-Graw Hills Companies Inc.
• Deluca, M. J. (1993). Handbook of compensation management. Englewood Cliffs: Prentice Hall.
• Dobbins, G. H., Cardy, R. L., & Platz-Vieno, S. J. (1990, September). A contingency approach  to  appraisal  satisfaction:  an  initial  investigation  of  the  joint  effects  of organizational variables and appraisal characteristics. Journal of Management, 16(3), 619
• Fink, A. (1995a). How to analyze survey data. London: Sage Publications.
• Kootnz & O’Donnell, Principles of Management.
• J.S. Chandan, Management Concepts and Strategies.
• Stephen P Robbins, David A Decanzo, Fundamentals of Management, 3rd Edition, Pearson Education, 2002.
• Kotler, P. (1991). Marketing Management. 7th ed. Prentice-Hall
• David, F.R. (2009). Strategic Management: Concepts and Cases. 12th ed. FT Prentice Hall.