Performance Appraisal

Performance Appraisal is the systematic evaluation of the performance of employees and to

understand the abilities of a person for further growth and development. Performance
appraisal is generally done in systematic ways which are as follows:

1. The supervisors measure the pay of employees and compare it with targets and
plans.
2. The supervisor analyses the factors behind work performances of employees.
3. The employers are in position to guide the employees for a better performance.

Objectives of Performance Appraisal

Performance Appraisal can be done with following objectives in mind:

1. To maintain records in order to determine compensation packages, wage structure, salaries

raises, etc.
2. To identify the strengths and weaknesses of employees to place right men on right job.
3. To maintain and assess the potential present in a person for further growth and development.
4. To provide a feedback to employees regarding their performance and related status.
5. To provide a feedback to employees regarding their performance and related status.
6. It serves as a basis for influencing working habits of the employees.
7. To review and retain the promotional and other training programmes.

Advantages of Performance Appraisal

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

1. Promotion: Performance Appraisal helps the supervisors to chalk out the promotion
programmes for efficient employees. In this regards, inefficient workers can be dismissed or
demoted in case.
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 a 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.
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 jobs can be designed for efficient employees. It also helps
in framing future development programmes.
 4. Selection Validation: Performance Appraisal helps the supervisors 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 labour management relationship.
d. It develops the spirit of 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. This very well
motivates a person for better job and helps him to improve his performance in the future.

Relationship of Performance Appraisal and Job Analysis

Performance Appraisal relates to job analysis, in the sense that job analysis establishes job
requirement, which converts the analysis into standard, on which performance is judged, and
results in defining the basis for performance appraisal.

Performance Appraisal Process

The figure shown above is a standard performance appraisal process that takes place in an organization,
wherein each step is important and arranged in a systematic manner.  The process is conducted
periodically, usually twice a year, i.e. semi-annually and annually called as mid-term review and annual
review respectively.

Traditional Methods of Performance Appraisal

Definition: The Performance Appraisal is a periodic evaluation or the assessment of the
employee’s job performance against the pre-established standards such as quality and quantity of
output, job knowledge, versatility, supervision, leadership abilities, etc.
1. Rating Scales: The numerical scale is prepared that represents the job evaluation criterion such as
the output, initiative, attendance, attitude, dependability, etc. and ranges from excellent to poor.
Thus, each employee is given the rating based on his performance against each set criteria and then
the consolidated score is computed accordingly. The rating scales are one of the easiest traditional
methods of performance appraisal and can be applied to any job.

2. Checklist: A checklist of employee traits in the form of statement is prepared where the rater put a
tick mark in “Yes” or “No” column against the trait checked for each employee.Once the checklist
gets completed the rater forwards the list to the HR department for the final evaluation of the
employee.

3. Forced Choice Method: Under this method, the rater is forced to answer the ready-made
statements as given in the blocks of two or more, about the employees in terms of true or
false.Once he is done with the list, it is forwarded to the HR department for the final assessment of
the employee.

4. Forced Distribution Method: This method of performance appraisal is based on the assumption that
employee’s job performance conforms to the normal distribution curve i.e. a bell shaped
curve.Hence, the rater is compelled to put employees on each point on the scale. It is seen that
cluster of employees is placed at the highest point on a rating scale.

5. Critical Incidents Method: Under this method, the critical behavior of each employee that make a
difference in the effective or non-effective performance is recorded by the supervisor and is taken
into consideration while evaluating his performance.
6. Behaviorally Anchored Rating Scale: The descriptive statements about employees’ behavior, both
effective and ineffective are put on the scale points, and the rater is asked to indicate which
behavioral point describes the employee behavior the best.

7. Field Review Method: Under this method, the performance evaluation of an employee is done by
someone who does not belong to his department or is usually from the corporate office or the HR
department.The outsider reviews the performance of an employee through his records and holds
interviews with the assessee and his superiors.

8. Performance Tests and Observations: The test either written or oral is conducted to test the
knowledge and the skills of employees. Sometimes the employee is asked to demonstrate his skills
in the given situation and then he is evaluated on that basis.

9. Confidential Reports: The confidential reports are mostly prepared by the government
departments, wherein the employee is evaluated on some of the following parameters:

 Attendance
 Leadership
 Self-expression
 Ability to work with others
 Initiative
 Technical ability
 Integrity
 Responsibility, etc.

10. Essay Method: Under this method, the detailed description of the employee performance is written
by the rater. The performance of an employee, his relations with other Co-workers, requirements of
training and development programs, strengths and weaknesses of the employee, etc. are some of the
points that are included in the essay.The efficiency of this traditional method of performance appraisal
depends on the writing skills of the rater.

11.Cost Accounting Method: In this method, the employee’s performance is evaluated in monetary
terms, i.e. how much cost company is incurring on keeping the employee and how much he is
contributing to the firm in terms of his output.

12.Comparative Evaluation Approaches: Under this method, several comparative analysis are
done, wherein the performance of one employee is compared with that of another Co-worker,
and the rating is determined accordingly.The Ranking Method and the Paired Comparison
Method are the usual comparative forms used in this approach.

 Ranking Method: In the Ranking Method, superiors give the rank from best to worst, to
their subordinates on the basis of their merits. Here, the detailed description of why best
or why the worst is not given.
 Paired Comparison Method: Under this method, the performance of each employee is
compared with the other employee and then the decision on whose performance is better
is made.
 Modern Methods of Performance Appraisal
Definition: The Performance Appraisal is the assessment of the employee’s job performance
against the benchmark previously set for the categories such as output, leadership, teamwork,
versatility, supervision, etc.

Management by Objectives: This concept was given by Peter.F.Drucker, according to him, the
performance of an employee can be assessed on the basis of the targets achieved by him as set by
the management of an organization.Firstly, the management sets the goals and communicate the
same to the employees, and then the performance of an employee is compared against these set
goals and is evaluated on this basis.

Psychological Appraisals: This is one of the most frequently used modern methods of
performance appraisal, wherein the psychologist assesses the employee’s potential for the future
performance rather than the past one. Under this method, the psychologist conducts the in-depth
interviews, psychological tests, discussions with the supervisors and the reviews of other
evaluations.

Assessment Centres: The assessment center is the central location where the managers come
and perform the job exercises. Here the assessee is requested to participate in in-basket exercises,
role playing, discussions, computer simulations, etc. Where they are evaluated in term of their
persuasive ability, communication skills, confidence, sensitivity to the feelings of others, mental
alertness, administrative ability, etc.

 360-Degree Feedback: It is a feedback method wherein the details of an employee’s

performance is gathered from other stakeholders such as superiors, peers, team members and
self. In this method, the employee is asked about himself, i.e. what he feels about his
performance, and then accordingly he can realize his strengths and weaknesses.

Also, the peers or team members are asked about assessee’s performance through which the
employee knows about what others feel about him and can overcome his disbeliefs if any. Thus,
this method is used to have a detailed evaluation of an employee from all the perspectives.

 720-Degree Feedback: This is an another feedback method, wherein the assessment is done
not only by the stakeholders within the company but also from the groups outside the
organization. These external groups who assesses the employee’s performance are customers,
investors, suppliers and other financial institutions.

It is one of the most crucial modern methods of performance appraisal because this is the only
group that determines the success of the organization as a whole.
Performance Appraisal Tools and Techniques
Following are the tools used by the organizations for Performance Appraisals of their employees.

1. Ranking
2. Paired Comparison
3. Forced Distribution
4. Confidential Report
5. Essay Evaluation
6. Critical Incident
7. Checklists
8. Graphic Rating Scale
9. BARS
10. Forced Choice Method
11. MBO
12. Field Review Technique
13. Performance Test

We will be discussing the important performance appraisal tools and techniques in detail.

1. Ranking Method

The ranking system requires the rater to rank his subordinates on overall performance.
This consists in simply putting a man in a rank order. Under this method, the ranking of
an employee in a work group is done against that of another employee. The relative
position of each employee is tested in terms of his numerical rank. It may also be done by
ranking a person on his job performance against another member of the competitive
group.

Advantages of Ranking Method

i. Employees are ranked according to their performance levels.

ii. It is easier to rank the best and the worst employee.

 Limitations of Ranking Method

i. The “whole man” is compared with another “whole man” in this method. In practice, it is very
difficult to compare individuals possessing various individual traits.
ii. This method speaks only of the position where an employee stands in his group. It does not test
anything about how much better or how much worse an employee is when compared to
another employee.
iii. When a large number of employees are working, ranking of individuals become a difficult issue.
iv. There is no systematic procedure for ranking individuals in the organization. The ranking system
does not eliminate the possibility of snap judgements.
 Forced Distribution method

This is a ranking technique where raters are required to allocate a certain percentage of rates to
certain categories (eg: superior, above average, average) or percentiles (eg: top 10 percent,
bottom 20 percent etc). Both the number of categories and percentage of employees to be allotted
to each category are a function of performance appraisal design and format. The workers of
outstanding merit may be placed at top 10 percent of the scale, the rest may be placed as 20 %
good, 40 % outstanding, 20 % fair and 10 % fair.

Advantages of Forced Distribution

i. This method tends to eliminate raters bias

ii. By forcing the distribution according to pre-determined percentages, the problem of making use
of different raters with different scales is avoided.

Limitations of Forced Distribution

i. The limitation of using this method in salary administration, however, is that it may lead low
morale, low productivity and high absenteeism.

Employees who feel that they are productive, but find themselves in lower grade(than expected)
feel frustrated and exhibit over a period of time reluctance to work.

 Critical Incident techniques

Under this method, the manager prepares lists of statements of very effective and ineffective
behaviour of an employee. These critical incidents or events represent the outstanding or poor
behaviour of employees or the job. The manager maintains logs of each employee, whereby he
periodically records critical incidents of the workers behaviour. At the end of the rating period,
these recorded critical incidents are used in the evaluation of the worker’s performance. Example
of a good critical incident of a Customer Relations Officer is : March 12 - The Officer patiently
attended to a customers complaint. He was very polite and prompt in attending the customers
problem.

Advantages of Critical Incident techniques

i. This method provides an objective basis for conducting a thorough discussion of an employees
performance.
ii. This method avoids recency bias (most recent incidents are too much emphasized)

Limitations of Critical Incident techniques

i. Negative incidents may be more noticeable than positive incidents.

ii. The supervisors have a tendency to unload a series of complaints about the incidents during an
annual performance review sessions.
iii. It results in very close supervision which may not be liked by an employee.
 iv. The recording of incidents may be a chore for the manager concerned, who may be too busy or
may forget to do it.

 Checklists and Weighted Checklists

In this system, a large number of statements that describe a specific job are given. Each
statement has a weight or scale value attached to it. While rating an employee the supervisor
checks all those statements that most closely describe the behaviour of the individual under
assessment. The rating sheet is then scored by averaging the weights of all the statements
checked by the rater. A checklist is constructed for each job by having persons who are quite
familiar with the jobs. These statements are then categorized by the judges and weights are
assigned to the statements in accordance with the value attached by the judges.

Advantages of Checklists and Weighted Checklists

i. Most frequently used method in evaluation of the employees performance.

Limitations of Checklists and Weighted Checklists

i. This method is very expensive and time consuming

ii. Rater may be biased in distinguishing the positive and negative questions.
iii. It becomes difficult for the manager to assemble, analyze and weigh a number of statements
about the employees characteristics, contributions and behaviours.