Performance Appraisal System

Performance Appraisal System

Performance appraisal is also known as employee evaluation, performance evaluation, merit rating, and employee assessment, etc. It is a systematic process of appraising employees’ present and past performances relative to their performance parameters. The employees’ performance are to be based on organizational expectations and employees’ actual performance. The idea that performance evaluation improves employees’ performance is not a new one but it is seen in the roots of development of mankind. People are motivated when they are told about their actual performance and accept what were their previous mistakes. Performance appraisal process can be held annually or monthly as needed.

Performance is not a unidirectional but a two-way interactional process, whereby organizational equilibrium is secured by the management balancing inducements and contribution on the part of employees. Offering an economic analogy, it has been stated in a study that ‘equilibrium’ as attained at a level where negative (contributions through effort put in organizational work) and positive balance (inducements received) with respect to individual employees equalizes. Organization has to strategize effectively to ‘doctor’ such balance. To that end, organization has to reinforce positive behaviour on the part of employees by way of rewards, welfare measures, and employee benefit schemes to secure sustained and willing cooperation towards organizational purpose and restore internal equilibrium in case of any divergence.

Performance appraisal can be defined as a structured formal interaction between an employee and a manager, which normally takes the form of a periodic interview (normally annual or semi-annual), in which the work performance of the employee is examined and discussed, with a view to identify the weaknesses and strengths as well as opportunities for improvement and skills development.

Performance appraisal is more than mere work assessment. It is a management development activity, and is understood as a process, which facilitates development of the organizational climate of mutuality, openness, and collaboration towards achievement of individual as well as organizational goals. It is the process of evaluating the performance and qualifications of the employees in terms of the requirements of the job for which they are employed, for the purpose of administration which includes placement, selection for promotion, providing financial rewards and other actions which need differential treatment among the members of a group as distinguished from actions affecting all members equally. The primary purpose of performance appraisal is to help individual employees to handle their work better.

Key elements of performance appraisal care (i) linking individual goals with the organizational goals, (ii) regular review of job descriptions to keep jobs in tune with changing requirements (iii) organizational development (OD), (iv) performance development plan, (v) continuous monitoring and review, and (vi) establishing causal link between performance and reward.

Performance appraisal has three functions namely (i) it seeks to provide adequate feedback to individuals for their performance, (ii) it purports to serve as a basis for improving or changing behaviour toward some more effective working habits, and (iii) it aims at providing data to managers with which they can judge future job assignments and compensation. Hence, a performance appraisal system is used to evaluate the traits or qualities of the employees systematically at regular intervals. Adequate and ample opportunities are provided to the employees to enable them to achieve the maximum utilization of their strong qualities.

Majority of the employees normally want to know how they are performing. A good performance appraisal system / programme provides this information in a form which can normally be communicated to the employee. Performance appraisal system provides management an opportunity to recall as well as provide feedback to the employees as to how they are doing, so that they can correct their mistakes and acquire new skills in their field. Performance appraisal plays an important role in human resource management. It simply means the way / process of evaluating the performance or contribution of the organizational employees.

Performance appraisal plays a central role in managing human resource in the organization. The term performance appraisal refers to the methods and processes used by organizations to assess the level of performance of their employees. This process normally includes measuring employees’ performance and providing them with feedback regarding the level and quality of their performance. There are several requirements of performance appraisal which are described below.

Employees are to be apprised of expected standards and level of performance articulated specifically, both quantitatively and qualitatively, in terms of goals, targets, and behaviour, etc., expected at their particular levels. This helps them match personal contributions to expected output.
Personal equation of trust and compatibility is important for good informal interface between the management and the employees. There is also to be broad agreement over criteria to be adopted for appraisal.
Employees are to be encouraged to express themselves freely about performance reports.
The organization is to ensure that the appraisal system is job-related, performance-based, uniform, consistent, fair, just and equitable and that appraisers are honest, rational, and objective in their approach and judgment and have the desirable behavioural orientation for ethical judgment.
Managers responsible for performance appraisal are to be well trained in the art and science of performance appraisal to ensure uniformity, consistency, and reliability of the process. Success of the evaluation ultimately depends on the evaluator and not on any system, however perfect a support it provides.
Performance appraisal reports are to be examined meticulously, before any action, positive or negative, is proposed to be initiated,
For promoting consistency and uniformity regarding performance standards, co-ordination between management and employees is important.
There is to be provision for appeals against appraisals to ensure confidence of the employees.
Performance appraisal is a continuous activity which also evolves over time. Hence, continuous study and review are necessary.
If an appraisal system is to achieve objectives academically delineated ‘ideal,’ the content is to include both work- related and trait- related components. It is to highlight noteworthy achievements or any special traits shown at work with due emphasis on ethical behaviour as well as spirit of humanism and enquiry, demonstrated learning capability and enthusiasm for work shown by the employee. There is to be an equal emphasis on the process of performance appraisal.

Performance appraisal is a management tool which is helpful in motivating and effectively utilizing organizational human resource. Assessment of human potential is difficult, no matter how well designed and appropriate the performance planning and appraisal system is. The performance appraisal system is to be (i) correlated with the organizational mission, philosophy, and value system, (ii) cover assessment of performance as well as potential for development, (iii) take care of organizational as well as individual needs, and (iv) help in creating a clean environment by linking rewards with achievements, generating information for the growth of the employee as well as of the organization, and suggesting appropriate person-task matching with the career plans.

Feedback is an important component of performance appraisal. While positive feedback is easily accepted, negative feedback frequently meets with resistance unless it is objective, based on a credible source, and given in a skillful manner.

Employees in the organization like to know from a performance appraisal system (i) concrete and tangible particulars about their work, and (ii) assessment of their performance. This includes how they (i) did, (ii) can do better in future, (iii) can get a larger share of rewards, and (iv) can achieve their life goals through their position. Hence, employees desire that the appraisal system is required to aim at (i) their personal development, (ii) their work satisfaction, and (iii) their involvement in the organization.

From the point of view of the organization, performance appraisal serves the purpose of (i) providing information about human resources and their development, (ii) measuring the efficiency with which human resources are being used and improved, (iii) providing compensation packages to employees, and (iv) maintaining organizational control.

Performance appraisal is also to aim at the mutual goals of the employees and the organization. This is necessary since employees can develop only when the organization’s interests are fulfilled. The organization’s main resource is its employees, and their interest cannot be neglected. Mutual goals simultaneously provide for growth and development of the organization as well as of the human resource. They increase harmony and enhance effectiveness of human resource in the organization.

The objectives of performance appraisal system in the organization include (i) maintenance of the records in order to determine compensation package, wage structure, and salary increments etc., (ii) identification of the strengths and weaknesses of employees to place right person on the right job, (iii) maintenance and assessment of the potential present in individual employees for their growth and development, (iv) providing of a feedback to employees regarding their performance and related status, (v) serving as a basis for influencing the work habits of the employees, and (vi) determining the training and management development needs.

In several studies on the objectives of performance appraisal systems, while there are differences in semantics, there is general consensus on the objectives on which the performance appraisal systems are to be designed to achieve. Well-functioning performance appraisal systems are required to achieve four primary objectives namely (i) communicating management goals and objectives to employees, (ii) motivating employees to improve performance, (iii) equitably distributing organizational rewards such as salary increases and promotions, and (iv) providing management with insights which can be used to improve employees’ productivity and job satisfaction.

The objectives of the performance appraisal system can be achieved through three possible mechanisms namely (i) the information provided by the performance appraisal can be used for administrative decisions linking the evaluated performance to the organizational rewards or punishments such as a pay raise, promotion, or discharge, (ii) the performance appraisal process involves providing performance feedback (i.e., information regarding the level of performance) to the employees who were evaluated, allowing them to adjust their performance strategies to match the desired performance, and (iii) the performance appraisal is a process which raises employees’ awareness to the fact that they are being measured. As has been shown in several studies and is expressed in the saying ‘what gets measured gets done’, the mere fact of knowing that one is being observed or measured increases performance and fosters cooperative behaviour.

Performance appraisal has different objectives for management and for the employees. Employees are interested in having an assessment of their work from the viewpoint of personal development, work satisfaction and involvement in the organization. Management assesses the performance of employees to maintain organizational control and disburse rewards and punishments to further organizational goals. Hence, a spirit of mutuality is essential in an effective performance appraisal system. For employees, it can impart a better understanding of their job, skills and limitations, and provides an opportunity for self-reflection. It can help identify development needs. It can increase mutuality and strengthen communication between employees and management. Performance appraisal system is the principal medium through which human talent in organizations is most effectively utilized. Its multifarious objectives need to be clearly classified under different heads. Fig 1 shows objectives of performance appraisal system.

Fig 1 Objectives of performance appraisal

Though performance appraisal is indispensable in the organization, it has its difficulties also. Performance appraisal is to be a continuous process and is not to be a onetime affair. The effort for continuous appraisal can make it laborious. Some managers can have bias. Personal attitudes can harm the appraisal. It can lead to a prejudice, wrong doings etc. Some managers can use different standards for different individuals. There can be errors in rating (halo effect, stereotyping, central tendency, and personal bias etc.). Lack of reliability, incompetence, negative approach, multiple objectives, lack of knowledge are some of the problems which can arise the performance appraisal system. For overcoming these problems for making the performance appraisal system to be effective, the performance appraisal system is to ensure mutual trust, to have clear objectives, training, and employee relations etc.

The work-related objectives include (i) provision for controlling over work, (ii) improvement of work efficiency, (iii) scientific assignment of work as per specializations and expressed productivity of personnel, (iv) planning further organizational expansion and diversification as per internal manpower planning, and (v) Job evaluation for compensation administration.

The career development objectives of the performance appraisal include (i) identifying strong and weak points of personnel and aiding remedial measures for perceived weaknesses through need based training, (ii) encouraging, motivating, controlling organizational behaviour, identifying training and development needs, and rewarding, correcting or punishing employees, (iii) determining career potential of the employees with respect to their area of specialization and aptitude and chart future course accordingly, and (iv) planning performance development activities for total improved organizational performance.

The communication objectives of the performance appraisal include (i) providing of timely feedback on performance, and facilitating informal communication, (ii) clearly establishing goals in terms of what is expected of an employee, possible job enrichment for the future, and mutual setting of goals for better interaction through hierarchic tiers, (iii) providing counseling and job satisfaction, through open and free discussion regarding performance, and (iv) aiding self-assessment of employees in terms of where they stand in the organization, by comparing expected and actual performance.

The administrative objectives of the performance appraisal include (i) serving as a basis for promotions, rewards, and penalties, (ii) serving as a basis for incentive administration (iii) serving as a basis for transfer and placement policy with regards to suitability of individual employees as discovered through their performance appraisal, and (iv) serving as a basis for termination in case of imminent employee reduction due to cost considerations.

Procedural justice is a recognized factor in job satisfaction at the work place. The process is to stimulate two-way communication of appraisal content between the managers and employees, emphasize on institution of feedback and follow-up action, and ensure that appraisal results are taken into account in administrative decision-making relating to placements, career planning and development. Also, appraisal system is to be evaluated from time to time to ensure desired stipulations (both theoretical and practical) are duly properly followed in practice every time.

Performance appraisal is carried out to understand the potential of the employee for further growth and development. It is a formal, structured system of measuring, evaluating job related behaviours and outcomes to discover reasons of performance and how to perform effectively in future so that both the employee and the organization get benefitted. Performance appraisal is a management tool which is used for effective utilization of the employees as well as for planning their career development and consists of regular review of employee performance within the organization.

An effective performance appraisal system has characteristics such as (i) it correlates with the organizational mission, objectives, and value system, (ii) it covers the assessment of performance as well as potential for development, (iii) it takes care of organizational as well as individual needs, and (iv) it helps in creating a clean environment by linking rewards with achievements, generating information for the growth of the employee as well as of the organization, and suggesting appropriate employee task matching and career plans.

Although the interest in the use of performance appraisal has increased over the last thirty to forty years, the practice of formally evaluating employees has existed for centuries. The performance appraisal system has undergone a lot of changes over the years. During 1900s it was subjective appraisal, during 1940s it has increased psychometric sophistication, during 1950s, ‘management by objectives’ (MBO) was used, during 1960s ‘behaviourally anchored rating scale (BARS)’ was used, while during 1970 to 1990, hybrid system and approach has been used.

Performance appraisal is an old system which, over time, has seen an upward trend, in the sense of broadening the assessment methods, of attempts to objectify the performance quantification, of reducing measurement errors and even restructuring the philosophy behind the assessment systems. Performance is determined by a specific organizational behaviour. In the past, employee performance appraisal systems were based solely on job analysis and were only incidentally related to the objectives or profitability of the organization. These days, performance appraisals have become popular not only for their contribution to the development of professional performance and the benefits to the organization, but also for a much wider applicability they have within the organization. Fig 2 shows the main component of a performance appraisal system.

Fig 1 Component of performance appraisal system

Performance appraisal systems can have immediate and limited purpose, but also it can have consequences on a medium term (e.g., employee evaluation for ranking purposes and the establishment of salary scales), or even long-term consequences (e.g., employee assessment as part of the ongoing and integrated human resource management, career management, and employee development). Effective performance appraisal systems are based on achieving success on three main dimensions namely (i) controlling the system (e.g., training raters, linking the process to employee development), (ii) monitoring the system (e.g., metrics to ensure the system is working effectively), and (iii) providing feedback to those who use the system (e.g., raters and employees). While assessing past performance is important, performance appraisal systems are also to present employees with a plan for performance improvement. Further, effective performance appraisal systems help to create a motivated and committed workforce.

Performance appraisal system refers to all those procedures which are used to evaluate the personality, the performance, and the potential of the employees. It is the process of getting, analyzing and recording information about the relative worth of the employees.

Effective utilization of all resources depends on the utilization of the human resource which is required to be evaluated periodically for which an appraisal system is indispensable. Appraisal serves as a basis for improving the quality and quantity of the performance of the employees. It also works as an indicator of the strengths and weakness of individual employees. Appraisal of employees by managers at regular intervals is an important aspect of the managerial job

Performance appraisal provides a clear understanding to the manager about the employees’ contribution and the capability or potentiality to contribute. It serves as a basis for improving the quality and quantity of performance of the employees in their present work. It helps to identify the strengths and weaknesses and to introduce methods to make the best use of the strengths and to overcome weaknesses. It enables to locate the problems, which can stand on the way of performance so that corrective action can be taken to improve the performance. It enables the concerned employees to know where they stand, and to know their worth. It provides the basis for the manager to direct the employees to accomplish performance, while it enables the employees to understand the expectations of the manager. It provides basis for promotion, basis for fixing compensation grade, and incentives. It enables the employees to make a reassurance of their future in the organization. It provides adequate information to the managers to give appropriate recognition to their employees. It provides basis for setting realistic standards. Because of these, performance appraisal has become a very common in the organizations. In fact, there is a constant effort on the part of the managers to evaluate the performance of the employees. Particularly, measured appraisals are not rare.

There are a number of types of systems for measuring the employees’ performance. These are ranking, person-to-person comparison, grading, graphic scales, checklists, forced-choice description, and behaviorally anchored rating scales (expectation scales, and observation scales).

360-degree performance appraisal is a new concept, where the feedback is collected from all around such as the employee, the manager, the subordinates, the peer group, and the customers. Different techniques used are team building, performance management, self-development, and individual counseling etc. Some others are ‘behaviourally anchored rating scale’, self-appraisal evaluation by rate, upward appraisal – evaluation by the employees, and ‘management by objectives’ etc. Majority of the traditional / common casual methods of performance appraisals are subject to the aggressive judgements of the raters.

The ‘management by objectives’ is not only a method of performance appraisal, but it is also viewed by the practicing managers and instructors as a philosophy of managerial practice since it is method by which managers and employees plan, organize, communicate, control, and debate. In the performance appraisal through the ‘management by objectives’, the main steps involved are (i) setting organization goal, (ii) defining the targets, (iii) performance review, and (iv) feedback. The ‘management by objectives’ has its own special features rather than other performance appraisal systems by providing clear objectives about the organization such as by defining the target to be achieved both by the employees as well as manager, by creating harmony between them, creating close link between overall goals and individual goals etc.

Performance appraisal can either be formal or informal. A study conducted by the National Industrial Conference of USA has revealed that 67 % of the organizations make use of formal appraisal programmes. These days, formal appraisal methods are more popular than informal appraisal methods. A formal position description, normally prepared by the employee groups, spells out the responsibilities of the job, determines the limits of authority, and hence provides individual employees with a clear picture of what they are supposed to do. Day-by-day direction and control by the manager are within the limits of the formal position description. The manager assigns tasks, supervises the performance, provides recognition for good performance, criticizes poor performance, correct mistakes, and resolves difficulties in the day-to-day operation.

A periodic, formal summary of the employees’ performance is carried out by the manager, using some kind of a standardized rating form. A session in which the manager communicates the assessments to the individual employees, discusses the reason for them, and advises the individual employees on the ways in which they need to improve. The formal appraisal is then for the subsequent use by others in the human resource department. It is always appropriate to have a mutual interaction between the appraiser and the appraised. In the process, the employee is to be given adequate opportunity to speak out why the performance fell short, and how the employee is to attempt to improve the performance to cope with the standards. The appraising manager is also to be in a position to suggest ways and means for the individual employees to overcome their difficulties. It is, perhaps, more important for the appraising manager to avoid bias, if any, so that the evaluation is unambiguous.

A formal performance appraisal system can provide a framework within which appraisers and appraisees can operate. A performance appraisal system can be developed through a programme comprising several stages. The overall approach to performance appraisal is to be first determined. The decisions on the overall approach to introduce performance appraisal is to cover (i) the objectives of introducing performance appraisal, (ii) the features of the performance appraisal, and (iii) the benefits expected from the performance appraisal.

The next step is to decide where and how performance appraisal system is to be introduced and whom are to be covered. Performance appraisal is best introduced on an organization-wide basis starting at the top. At one time, majority of the schemes were restricted to managers but performance appraisal is now being extended to all the employees in the organization. Next decision is to be taken whether the same approach is to be adopted at each level. In most cases, the essence of the approach is the same for all levels, though performance measures used vary for different levels. Setting up of project team consisting of managers and other employees and facilitated by a member of the human resource department and / or an outside consultant are a valuable means of getting involvement and ownership.

The role of human resource department is to be determined. The role of human resource department in developing and implementing performance appraisal system is to convince top management that its introduction makes a substantial impact on the organizational performance. The project team needs to pay attention to each point against a background of an understanding of the objectives to be attained and the culture and structure of the organization. Particular attention is needed to be given to the development of rating plans and document design.

The next stage is to test the performance appraisal system. The complete performance appraisal system cannot be pilot tested since the cycle lasts normally for 12 months. Some aspects of performance appraisal like drawing up performance agreements, objective setting, document completion, etc. can however be tested. Based on the experience gained, the system can be fine-tuned.

The next step is the planning of the implementation programme. The implementation programme is to cover date of introducing performance appraisal in the whole or different parts of the organization, procedure for evaluating the process, and briefing / training programme.

Performance appraisal is an important process in the organization. In some organization, performance appraisal is more formally structured and is organized as a separate department. In others, it is less formal and is coordinated by others, or it is less formal and is coordinated by human resource department. During its implementation, if any issue is arising, then improvement in the performance appraisal system is to be carried out depending on its design and implementation. In recent years, the performance appraisal process has changed considerably. At one time, it was a subjective function controlled primarily with input from the employees’ immediate manager. It is now more objective and uses specific, established measurable targets which are frequently based on a variety of inputs.

Performance appraisal comprises several steps namely (i) to select performance factors (based on job description) to be evaluated and to set the standards to be achieved, (ii) to set the performance review period, (iii) to measure actual performance, (iv) to compare performance with set standards and to rate it with a suitable scale, (v) to communicate the rating to the appraisee, and (vi) to use the performance appraisal for the desired purpose.

Uses of an appraisal system

A properly designed performance appraisal system can (i) help employees understand more about their role and become clear about their functions, (ii) be instrumental in helping employees to better understand their strengths and weaknesses with respect to their role and functions in the organization, (iii) help in identifying the developmental needs of the employees, given their role and function, (iv) increase mutuality between employees and their manager so that employees feel happy to work with their manager and thereby contributes their maximum to the organization, (v) provide an opportunity to each employee for self-reflection and individual goal-setting, so that individually planned and monitored development takes place, (vi) help employees internalize the culture, norms and values of the organization, hence developing an identity and commitment throughout the organization, (vii) help prepare employees for higher responsibilities in the future by continuously reinforcing the development of the behaviour and qualities required for higher-level positions in the organization, (viii) be instrumental in creating a positive and healthy climate in the organization which drives employees to give their best while enjoying doing so, (ix) assist in a variety of human resource decisions by periodically generating data regarding each employee, and (x) act as a mechanism for increasing communication between employees and their managers. In this way, individual employees get to know the expectations of their manager, and each manager also gets to know the difficulties of their employees and can try to solve them. Together, they can thus better accomplish their tasks.

Characteristics of an appraisal system

Performance appraisal cannot be implemented successfully unless it is accepted by all concerned. There is to be a common and clear understanding of the distinction between evaluation and appraisal. Evaluation aims at ‘objective’ measurement, while appraisal includes both objective and subjective assessment of how well an employee has performed during the period under review. Hence, performance appraisal aims at ‘feedback, development, and assessment’.

The process of performance appraisal is to concentrate on the work of the employees, the environment of the organization, and the employees themselves. These three factors are inter-related and inter-dependent. Hence, in order to be effective, the appraisal system is to be individualized, subjective, qualitative, and oriented towards problem-solving. It is to be based on clearly specified and measurable standards and indicators of performance. Since what is being appraised is performance and not personality, personality traits which are not relevant to work performance is to be excluded from the appraisal framework.

Some of the important considerations in designing a performance appraisal system are (i) the job description and the performance goals are to be structured, mutually decided and accepted both by the management and the employees, (ii) appraisal is to include both objective and subjective ratings to produce reliable and consistent measurement of performance, (iii) the appraisal format is to be practical, simple and, aim at fulfilling its basic functions since long and complicated formats are time consuming, difficult to understand, and do not elicit much useful information (iv) while an appraisal system is expected to be formal in a structured manner, informal contacts and interactions can also be used for providing feedback to employees, (v) both positive and negative rewards are to be part of the performance appraisal system, since the process lacks impact if the rewards are not there, (vi) feedback is to be timely since otherwise it loses its utility and can have only limited influence on performance, (vii) feedback is to be impersonal if it is to have the desired effect.as personal feedback is normally rejected with contempt, and eventually de-motivates the employees, (viii) feedback is to be noticeable and the employees being appraised are to be made aware of the information used in the appraisal process since an open appraisal process creates credibility, (ix) planning and appraisal of performance and consequent positive or negative rewards are to be oriented towards the objectives of the programme in which the employees have been assigned a role (x) responsibility for the appraisal system is to be located at a senior level in the organization so as to ensure commitment and involvement throughout the management hierarchy, and (xi) an effective appraisal system is necessarily to involve the employees’ participation, normally through an appraisal interview with the manager, for feedback and future planning. During this interview, past performance is to be discussed frankly and future goals are to be established. A strategy for accomplishing these goals as well as for improving future performance is to be evolved jointly by the manager and the employee being appraised. Such participation imparts a feeling of involvement and creates a sense of belonging.

Process of the performance appraisal system

Performance appraisal involves an evaluation of actual against desired performance. It also helps in reviewing various factors which influence performance. Managers are to plan performance development strategies in a structured manner for each employee. In doing so, they are to keep the goal and objectives of the organization in mind and aim at optimal utilization of all available resources, including financial. Performance appraisal is a multi-stage process in which communication plays an important role. An eight-stage process as given below is normally followed for the performance appraisal.

The first stage is to identify and establish measures which differentiates between successful and unsuccessful performances. These measures are to be under the control of the employees being appraised. The methods for assessing performance are to be decided next. Basically, management wants to (i) know the behaviour and personal characteristics of individual employees, (ii) assess their performance and achievement in the job. There are several methods available for assessing results, behaviour, and the personal characteristics of the employees. These methods can be used according to the particular circumstances and requirements.

The second stage in the appraisal process is communicating to employees the measures and standards which are to be used in the appraisal process. Such communication is to clarify expectations and create a feeling of involvement.

In the third stage, the manager plans for the realization of performance expectations, arranging for the resources to be available which are needed for attaining the goals set. This is an enabling role.

The fourth stage consists of the monitoring of the performance. Performance appraisal is a continuous process, involving ongoing feedback. Even though performance is appraised annually, it has to be managed ‘each day, all year long’. Monitoring is a key part of the performance appraisal process. It involves providing assistance as necessary and removing obstacles rather than interfering. The best way to effectively monitor is to walk around, hence creating continuous contacts, providing first-hand information, and identifying problems, which can then be solved promptly.

The fifth stage is appraising. This stage involves documenting performance through observing, recalling, evaluating, written communication, judgment, and analysis of data. This is like putting together an appraisal record.

The sixth stage is feedback. After the formal appraisal stage, a feedback session is desirable. This session involves verbal communication, listening, problem solving, negotiating, compromising, conflict resolution, and reaching consensus.

The seventh stage is decision making. On the basis of appraisal and feedback results, various decisions can be made about giving rewards (e.g., promotion, incentives, etc.) and negative rewards (e.g., demotion). The outcome of an appraisal system is also to be used for the career development.The eight and the last stage of the performance appraisal is ‘development of performance’, or professional development, by providing opportunities for upgrading skills and professional interactions. This can be done by supporting participation in professional conferences or by providing opportunities for further study. Such opportunities can also act as incentives or rewards to employees.

It is obvious that communication is at the core of an appraisal system. Communication can be either upward or downward. Downward communication is from upper management levels to lower levels, and passes on a judgement of how the employees are doing and how they might do even better. As the information flows downward, it becomes more individualized and detailed. Upward communication is from lower level to higher level. Through this process, employees communicate their needs, aspirations, and goals. As information flows upward, it has to become brief and precise because of the channels through which it has to pass.

Approaches and techniques in performance appraisal

Performance appraisal involves several activities, which can be administered using a variety of approaches. Some of these approaches are described below.

Intuitive approach – In this approach, managers judge the employees based on their perception of the employees’ behaviour.

Self-appraisal approach – In this approach, employees evaluate their own performance using a common format.

Group approach – In group approach, the employees are evaluated by a group of people.

Trait approach – It is the conventional approach. In this approach managers evaluate the employees on the basis of observable dimensions of personality, such as integrity, honesty, dependability, and punctuality, etc.

Appraisal based on achieved results – In this type of approach, appraisal is based on concrete, measurable work achievements which are judged against fixed targets or goals set mutually by the subject and the assessor.

Behavioural method – This method focuses on observed behaviour and observable critical incidents.

Appraisal techniques

There are several techniques of performance appraisal, each with some strong points as well as limitations. Some of the commonly used performance appraisal techniques are described below.

Essay appraisal method – In this method, the manager writes a brief essay providing an assessment of the strengths, weaknesses, and potential of the employees. In order to do so objectively, it is necessary that the manager knows the employees well and have interacted with them. Since the length and contents of the essay vary between manager to manager, essay ratings are difficult to compare.

Graphic rating scale – In this method, a graphic scale assesses employees on the quality of their work (unsatisfactory, average, above average, or outstanding). Assessment can also be trait centred and cover observable traits, such as reliability, adaptability, and communication skills, etc. Although graphic scales seem simplistic in construction, they have application in a wide variety of work responsibilities and are more consistent and reliable in comparison with essay appraisal. The utility of this technique can be improved by using it in conjunction with the essay appraisal technique.

Field review method – Since individual managers differ in their standards, they inadvertently introduce bias in their ratings. To overcome this manager-related bias, essay and graphic rating techniques can be combined in a systematic review process. In the field review method, a member of the human resource department meets a small group of managers to discuss each rating, and systematically identifying areas of inter-assessor disagreement. It can then be a mechanism to help each assessor to perceive the standards uniformly and hence match the other managers. Although field review assessment is considered valid and reliable, it is very time consuming.

Forced-choice rating method – Unlike the field review method, the forced-choice rating method does not involve discussion with managers. Although this technique has several variations, the most common method is to force the manager to choose the best and worst fit statements from a group of statements. These statements are weighed or scored in advance to assess the individual employees. The scores or weightage assigned to the individual statements are not revealed to the managers so that they cannot favour any individual employees. In this way, the manager’s bias is largely eliminated and comparable standards of performance evolved for an objective. However, this technique is of little value wherever performance appraisal interviews are conducted.

Critical incident appraisal method – In this method, a manager describes critical incidents, giving details of both positive and negative behaviour of the employee. These are then discussed with the employee. The discussion focuses on actual behaviour rather than on traits. While this technique is well suited for performance review interviews, it has the drawback that the manager has to note down the critical incidents as and when they occur. This can be impractical, and can delay the feedback to the employees. It makes little sense to wait six months or a year to discuss a misdeed, a mistake or good display of initiative.

Management by objectives – In this technique, employees are asked to set or help set their own performance goals. This avoids the feeling among employees that they are being judged by unfairly high standards. This method is presently being widely used, but not always in its true spirit. Even though the employees are consulted, in several cases, management ends up by imposing its standards and objectives. In some cases, employees do not like ‘self-direction or authority’. To avoid such problems, the work standard approach is used.

Work standard approach – In this technique, management establishes the objectives openly and sets targets against realistic output standards. These standards are incorporated into the organizational performance appraisal system. Hence, individual employees have a clear understanding of their duties and know well what is expected of them. Performance appraisal and interview comments are related to these duties. This makes the appraisal process objective and more accurate. However, it is difficult to compare individual ratings since standards for work can differ from job to job and from employee to employee. This limitation can be overcome by some form of ranking using pooled judgment.

Ranking methods – Some of the important forms of ranking for performance appraisal are described below.

Alteration ranking method– The individual with the best performance is chosen as the ideal employee. Other employees are then ranked against this employee in descending order of comparative performance on a scale of best to worst performance. The alteration ranking method normally involves rating by more than one manager. The ranks assigned by each manager are then averaged and a relative ranking of each member in the group is determined. While this is a simple method, it is impractical for large groups. In addition, there can be wide variations in ability between ranks for different positions.
Paired comparison – The paired comparison method systematizes ranking and enables better comparison among individuals to be rated. Every individual in the group is compared with all others in the group. The evaluations received by each employee in the group are counted and turned into percentage scores. The scores provide a fair idea as to how each employee in the group is judged by the manager.
Person-to-person rating– In the person-to-person rating scales, the names of the actual employees known to all the managers are used as a series of standards. These standards can be defined as lowest, low, middle, high, and highest performers. Individual employees in the group are then compared with the employees used as the standards, and rated for a standard where they match the best. The advantage of this rating scale is that the standards are concrete and are in terms of real employees. The disadvantage is that the standards set by different managers may not be consistent. Individual managers construct their own person-to-person scale which makes comparison of different ratings difficult.
Checklist method– The manager is furnished with a checklist of pre-scaled descriptions of behaviour, which are then used to evaluate the employees being rated. The scale values of the behaviour items are unknown to the managers, who have to check as many items as they believe describe the employee being assessed. A final rating is obtained by averaging the scale values of the items which have been marked.
Behaviourally anchored rating scales – This is a relatively new technique. It consists of sets of behavioural statements describing good or bad performance with respect to important qualities. These qualities can refer to inter-employee relationships, planning and organizing abilities, adaptability, and reliability. These statements are developed from critical incidents collected both from the manager and the individual employees.
Assessment centres– This technique is used to predict future performance of the employees, if they to be promoted. The individual employees whose potential are to be assessed have to work on individual as well as group assignments similar to those they are required to handle if they are promoted. The judgment of observers is pooled, and paired comparison or alteration ranking is sometimes used to arrive at a final assessment. The final assessment helps in making an order-of-merit ranking for each employee. It also involves subjective judgment by observers.

A performance appraisal system can be designed based on intuition, self-analysis, personality traits, behavioural methods and result-based techniques. Different approaches and techniques can be blended, depending on the goals of performance appraisal in the organization and the type of review. For example, management by objectives, goal-setting and work standard methods are effective for objective coaching, counselling and motivational purposes. Critical incident appraisal is best suited when manager’s personal assessment and criticism are essential. A carefully developed and validated forced-choice rating can provide valuable analysis of the individual when considering possible promotion to higher positions. Combined graphic and essay form is simple, effective in identifying training and development needs, and facilitates other management decisions.

Components of the appraisal format

Key performance areas, self-appraisal, performance analysis, performance ratings and counselling are the important components of a performance appraisal system oriented towards the development of human resources in the organization. The appraisal format is to be designed in consonance with the objectives of the performance appraisal system, and generate information on a number of important aspects, including the following.

Identification of key performance areas – The first step in an appraisal process is identifying key performance areas and setting targets for the next appraisal period. This can be done either through periodic discussions or at the beginning of the year.

Self-appraisal by the employee – At the end of the appraisal period, employees appraise their own performance against the key performance areas, targets and pre-identified behaviour. Information on these issues is provided in an appraisal format. The employees also write their self-evaluation reports and hand them to their managers.

Analysis – The manager reflects on the performance of the individual employees, and identifies the factors which facilitated or hindered the individual employees’ performance. The manager then calls the individual employees for a discussion to better understand their performance and provides counselling on further improvements. During this discussion, appraisal records (such as notes, observations, comments, etc.) are exchanged. The manager then gives a final rating and recommendations regarding the developmental needs of the individual employees. These are shown to the individual employees and their comments are recorded on the appraisal form. The appraisal form is then transmitted to the human resource department for the necessary administrative action. The human resource department uses these forms for identifying and allocating training, rewards, and other activities.

Identification of training needs – The use of a development-oriented performance appraisal system is based on a good understanding of the concept of human resource development. The need for developing employee capabilities, the nature of capabilities to be developed, and the conditions under which these capabilities can be developed have to be appreciated. During the discussion between the manager and the individual employees, the development needs of the employee are identified and goals set for the next period.

Identification of qualities – The manager can also identify the qualities needed for the present as well as the future tasks, and assess the employees’ potential and capabilities to perform jobs at higher responsibility levels in the organization.

Advantages and disadvantages of performance appraisal

The advantages of performance appraisal system include the following.

It helps the management to chalk out the methods for rewarding the efficient employees and negative rewarding the inefficient employees.
It helps in chalking out compensation packages for the employees. Merit rating is possible through performance appraisal. Performance appraisal tries to give worth to a performance. Compensation packages, which include salaries, bonus, benefits, allowances and pre-requisites, are dependent on performance appraisal.
The systematic procedure of performance appraisal helps the management to frame training policies and programmes. It helps to analyze strengths and weaknesses of employees so that new jobs can be designed for efficient employees. It also helps in framing future development programmes.
It helps management to understand the validity and importance of the selection procedure. The management 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.
For an organization, effective communication between employees and management is very important.
It serves as a motivation tool. Through evaluating performance of employees, the employees’ efficiency can be determined if the targets are to be achieved. This motivates the employees for better working and helps them to improve their performance in future.

The disadvantages of the performance appraisal system are as given below.

- Performance appraisal can create a negative effect on the employees’ motivation if not done properly.
- Performance appraisals are very time consuming and can be very tiring to managers controlling several employees.
- Performance appraisals are based on human assessment and are subject to human errors and biases.
- Performance appraisal can be a waste of time if not done appropriately.
- Performance appraisal can create a very stressful environment for everyone involved.

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