19 Performance Appraisal

Garima Jain

1. Learning Outcome

After completing this module the students will be able to:

Understand the meaning and definition of performance appraisal.
Know the process of performance appraisal.
Know the meaning of performance management.
Understand the Objectives and importance of performance appraisal.

2. Introduction

Performance is about how things are done as well as what is done. Performance is the degree of accomplishment of the tasks of a particular job. It reflects how much and how the requirements of the job have been fulfilled. Performance is measured in terms of results.

It is the achievement of quantified objectives. It also includes appropriate behavior and the effective use of the required knowledge, skills and competencies.

_{Source: https://media.licdn.com/mpr/mpr/AAEAAQAAAAAAAAI7AAAAJDc2YTllZmIwLTM4YTktNGE0Ny05YWZlLTQ5ZGRiYmQ5NjFkMg.jpg}

Performance in a given situation is the outcome of interrelationships between effort, abilities and role perception. “Effort” is the amount of energy used by an employee or how much he is motivated to do the job. “Abilities” are personal characteristics needed to perform the job. “Role perception” is the direction in which employees channelize their efforts. Activities and behavior which are necessary to perform the job define their role perception. Certain level of proficiency and a minimum level of all the three determinants of performance are needed to do a job.

If an employee puts tremendous efforts and has excellent abilities but lacks good understanding of his role, performance will not be as high as possible. Similarly, if an employee puts in a lot of effort and understands his or her job but lacks the ability, his performance will not be considered good. Same way if he or she has good ability understands his role but hardly puts effort, performance will not be good. Weakness in one area can be overcome to a certain extent by the strength of other areas, but a combination of all the determinants at a higher level could result in a higher level of performance.

Performance Appraisal is an objective assessment of an individual’s performance against well defined benchmarks. The performance is measured against factors like job knowledge, quality and quantity of output, initiative, leadership abilities, supervision, cooperation, versatility, health and many other factors. Assessment should not be confined to the past performance. The potential of the employee must also be assessed. The other terms used for performance appraisal are employee assessment, performance rating, performance evaluation, merit rating.

_{Source: http://content.wisestep.com/wp-content/uploads/2016/05/Performance-Appraisal-Methods-Process.jpg}

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

2.2. According to Dale Yoder, “Personnel appraisals refer to the formal procedures used in working organizations to evaluate the personalities and contributions and potential of group members.”

3. Characteristics of Performance appraisal

3.1. It is the systematic evaluation of an employee’s strengths and weaknesses in terms of job requirements.

3.2. It is a scientific study. Formal procedures and actual data are used in this study.

3.3. It is a continuous process wherein the evaluations are made periodically according to a definite plan.

3.4. The main objective of performance appraisal is to provide timely and accurate evaluations of the capabilities of the employees with a forward look towards future needs.

3.5. It is a means of self control, judgment and evaluating “potentiality”.

4. Objectives of Performance appraisal

4.1. Performance Appraisal gives the opportunity to employees to know where they stand so far as to their performance is concerned and also guide them and assist them for their further development.

4.2. Performance Appraisal improves the communication by helping employees to have a dialogue between superior and subordinate.

4.3. Performance appraisal is used to determine the effectiveness of HR initiatives such as selection, training and transfers.

4.4. It helps in confirming the completion of probationary period of new entrants in the organisation.

4.5. It helps in promoting the employees based on their competence and performance.

5. Competitive advantage by Performance appraisal

Performance appraisal leads to competitive advantage to an organisation by improving performance, making correct decisions, ensuring legal compliance, minimizing job dissatisfaction and employee turnover and ensuring consistency between organizational strategy and behavior.

_{Figure-1 : Contribution of Performance appraisal to firm’s competitive advantage}

5.1. Improving performance

An effective appraisal system can contribute to competitive advantage by improving employee job performance in two ways-by directing employee behavior towards organizational goals and by monitoring the behavior to ensure that the goals are met.

5.2. Making Correct decisions

Performance appraisal is very useful in making decisions on issues like pay raise, promotion, transfer, training, discharges etc. right decisions in each of these can give competitive strength to a firm for example if promotion is done on the basis of performance then the employee is motivated and enhances his performance further.

5.3. Ensuring legal compliance

If promotions are based on factors other than performance it might be a problem for an organisation as they might have to fight some legal battle. So the companies can minimize this by giving fair and accurate results.

5.4. Minimizing job dissatisfaction and employee turnover

Employees become frustrated if they come to know that the ratings are inaccurate and unfair. Due to this, job dissatisfaction sets in and more and more employees leave the job.

5.5. Values and Behavior

An organisation needs a strategy in which there is a consistency between values and behavior. Employees always tend to behave in a manner that they feel will be rewarded. The performance appraisal system helps to elicit feedback on the consistency of the values behavior link.

5.6. Strategy and behavior

The performance appraisal system serves many organizational objectives and goals. Whatever be the strategy of an organisation performance appraisal has definite roles in all of them.

6. Process of Performance appraisal

6.1. Setting Standards

The process of performance appraisal begins with the establishment of performance standards. At the time of designing a job and formulating a job description, performance standards are developed for the position. These standards must be clear and not vague and must be objective enough to be understood and measured. These standards should be discussed with the supervisor to find out which different factors are to be incorporated and weights to be given to each factor and later on used for appraising the performance of employees.

6.2. Communicating Standards

The next step is to communicate these standards to the employees. To make communication effective, feedback is necessary from the subordinate to the supervisor. Satisfactory feedback ensures that the information communicated by the manager has been received and understood in the way it was intended.

6.3. Measuring performance

In this step performance is measured. Four sources of information are used for measuring performance: personal observation, statistical reports, oral reports, and written reports. As for measuring actual performance information is needed.

6.4. Comparing performance with standards

In this step gaps are identified between actual performance and standards. The employee is evaluated and judged of his potential for growth and development.

6.5. Discussing results with the employees

The results are discussed with the employees. The strengths and weaknesses of employees are discussed so that their performance is improved.

6.6. Taking corrective actions

Coaching, counseling and training may be imparted for taking corrective action. Special assignments and projects may be given to the employees in order that their performance is improved.

7. Importance of Performance appraisal

7.1. Human Resource Planning

When the assessment of the human resource is made then there should be proper information available that can explain the potential & effectiveness of all of the employees of the organization, especially the top executives.

7.2. Recruitment & Selection

The future performance of job applicants can be predicted through the performance evaluation.

7.3. Training & Development

The requirements for the training & development of an employee can be accessed through performance appraisal. The deficiencies regarding the performance of employee is identified which helps the management to design certain training & development programs that assist the relative employee to cover their deficiencies.

7.4. Career Planning & Development

The career planning & development can be analyzed from both the individual as well as organizational perspectives.

7.5. Compensation programs

The decisions about the increment in the pay are based on the results of the performance appraisal.

7.6. Internal Employee Relation

The decision making in the fields of internal employee relations is supported by the data of performance appraisal like promotion, demotion, motivation, termination, transfer, layoff etc.

7.7. Assessment of Potential of Employee

With the help of performance appraisal, the potential of the employee can be assessed.

8. Performance Management

Performance management is a strategic and integrated approach to ensure sustained success to organizations by improving the performance of people who work for them and by developing the capabilities of teams and individual contributors. Performance management is a systematic process for improving organizational performance by developing the performance of individuals and teams. It is a means of getting better results by understanding and managing performance within an agreed framework of planned goals standards and competency requirements. It focuses people on doing the right things by clarifying their goals.

_{Source: http://www.cornellglobal.com/wp-content/uploads/2013/10/john-chart.jpg}

The aims of Performance management are:

Define and document job responsibilities.
Define expectations.
Provide guidelines and framework for employees and supervisors.
Ensure that people are motivated to perform effectively and increase the commitment of employees.
A continuous dialogue must be there between managers and subordinates.
Align individual performance expectations with organizational goals and provide opportunities to the individuals to express their aspirations and expectations about their work.

_{Table 1 : A comparison of Performance appraisal and Performance management}

_{Source :https://image.slidesharecdn.com/challengesinimplementingperformancemanagement-karim-150527051820-lva1-app6891/95/challenges-in-implementing-performance-management-system-presentation-karim-virani-3-638.jpg?cb=1432711616}

9. Balance Scorecard

The Balance Scorecard (BSC) is a strategic performance management tool, a semi standard structured report, supported by design methods and automation tools that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

“The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.”

The critical characteristics that define a balanced scorecard are:

It focuses on the strategic agenda of the organization concerned.
The selection of a small number of data items to monitor.
A mix of financial and non-financial data items.

_{Source:http://bi-insider.com/wp-content/uploads/2012/05/Balanced-Scorecard-Four-Perspectives.png}

The characteristics of the balanced scorecard and its derivatives is the presentation of a mixture of financial and non-financial measures each compared to a ‘target’ value within a single concise report. The report is not meant to be a replacement for traditional financial or operational reports but a succinct summary that captures the information most relevant to those reading it. It is the method by which this ‘most relevant’ information is determined (i.e., the design processes used to select the content) that most differentiates the various versions of the tool in circulation.

Case Study: Balance score card at Tata Consultancy Services in India

TCS conducts two appraisals- At the end of year and at the end of project Appraisals are based on Balance Scorecard, which tracks the achievement of employees on the basis of targets at four levels- financial, customer, internal, learning & growth.

Financial perspective quantifies the employee’s contribution in terms of revenue growth, cost reduction, improved asset utilization and so on;
Customer perspective looks at differentiating value proposition offered by the employee.
The internal perspective refers to the employee’s contribution in creating and sustaining value.
The learning and growth refers to the development of employee.

Based on their individual achievement, employees are rated on a scale of one to five. (Five = “Superstar”). If employee gets a low rating (less than two) in two consecutive appraisals, the warning flag goes up. If the poor performer continues getting low scores then the exit options may be considered.

Over the years, TCS has found the pattern that leads to the maximum decline in performance – boredom. If employees work for more than two years in the same project, typically either their performance dips or they leave the organisation. To avoid that, TCS shuffles its employees between projects every 18 month or so. TCS believes “performance drops if motivation drops.”

_{Source: http://2.bp.blogspot.com/-QS7vMIXaJj4/TmD-UwPgNvI/AAAAAAAACws/LcfYdVSI7OE/s400/6a00d8341ca4d953ef0134804ade8c970c-800wi.jpg}

10. Summary

Performance is the degree of accomplishment of the tasks of a particular job. It reflects how much and how the requirements of the job have been fulfilled. Performance is measured in terms of results.

Performance management is a systematic process for improving organizational performance by developing the performance of individuals and teams. It is a means of managing performance within an agreed framework of planned goals standards and competency requirements.

The Balance Scorecard is a strategic performance management tool that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.

you can view video on Performance Appraisal

Books and References

Aswathappa, K. Human Resource Management. Tata McGraw-Hill.
Dessler, Varkkey. Human Resource Management. Pearson.
Steve Fleetwood ., Anthony Hesketh, Explaining the Performance of Human Resource Management, Cambridge University Press
Brian E. Becker .The HR Scorecard : Linking people, Strategy and Performance