SEA - Practical Application of Science

Volume III, Issue 1 (7) / 2015

Maria HERMEL-STĂNESCU
Doctoral School – Entrepreneurship, Business Engineering & Management
University “Politehnica” of Bucharest, Romania

THE ROLE OF Literature

review
PERFORMANCE APPRAISAL
IN THE CONTEXT OF
PERFORMANCE
MANAGEMENT SYSTEMS

Keywords
Performance appraisal
Performance management
Evaluation
Management
Business performance

JEL Classification
M10

Abstract

Performance management is a complex concept that integrates all business activities and
creates a continuous system for improvement. One of the key ingredients in an efficient
performance management system is a well-designed performance appraisal that integrates
the individual goals with the team and organization goals. When designing a performance
appraisal system one has to consider the many existing techniques, tools and sources of
error. Also, when defining the expected results and KPI’s for measurement, it is important to
know the difference between output and outcome. The present paper aims to synthetize,
through a literature review, the main aspects of performance appraisal in the context of
performance management, pointing out its advantages and disadvantages.

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Introduction Performance management cycle

The concept of evaluation or performance appraisal Performance management focuses on actions
is not a new one to the business market, and is still regarding the future planning, improvement, and
subject of many debates. There are people that will personal development more that appraising past
encourage it and people against it, there are groups performance. This is a continuous and evolutionary
of people that will suggest other methods instead of process through which performance improves over
it, and there are people that will suggest several time. This cycle is presented in Figure. 1.
ways to do it, for there are many concepts and The above mentioned cycle is carried out after a
recipes for it. But at the end of the day, the fact that sequence adapted after Armstrong M. (2009)
still remains is that: one cannot improve something illustrated in Figure 2.
that wasn’t measured first. How will one know that This sequence points out a logic, linear and
the company goes towards the desired goals? How unlikely to happen in reality picture. It represents a
will one know that his or his employees’ results design that provides the guide lines for an ideal
improved over time, or following a specific management performance sequence, and underlines
training? Or how will one manager know that his the key performance management activities:
team needs to access one particular training over Performance and development planning:
the other? These are several and few of the This sequence involves the agreement between the
questions that performance appraisal can help find manager and the individual regarding how the latter
an answer to. is expected to perform in terms of results and
When speaking of business performance one thinks behavior. This agreement represents the framework
of several areas where performance takes shape: of performance management. Within this stage the
company’s performance, management manager and individual define the role profile in
performance, employees’ performance. This is terms of key result areas, they define what people
because all are interconnected and codependent. need to know and be able to do, to understand the
The concept of performance management then necessary behavioral competencies, for the role and
arises, and includes all the above mentioned areas. also to define the core values.
This is a complex concept, continuous and useful to Performance measures:
the business. Armstrong M. (2009) states that measuring
According to Armsrong M. (2009) performance performance is relatively easy for employees
management concentrates over organizational responsible for achieving quantified targets, such as
performance as well as individual performance. sales, but it is more difficult for knowledge
The individual performance improvement plans workers. This difficulty is alleviated by the
will not always lead to an organizational distinction between two forms of results – outputs
performance improvement; this is why there is and outcomes.(Armstrong M., 2009) “An output is
necessary a strategic approach through which the a result that can be measured quantifiably, while an
performance management strategy lines up with the outcome is a visible effect that is the result of effort
company’s business strategy. So, Armstrong M. but cannot necessarily be measured in quantified
(2009) defines the management performance as terms.” (Armstrong M., 2009, pg. 69).
being “a process for establishing shared Risher H. (2003) points out that when assessing
understanding about what is to be achieved and performance it is also necessarily to consider also
how it is to be achieved, and an approach to the inputs in the shape of the degree of knowledge
managing and developing people that improves and skill attained and behavior that is demonstrably
individual, team and organizational performance.” in line with the competency framework, statements
(Armstrong M., 2009, pg. 55). Performance doesn’t and core values.
refer only to what is achieved but also how it is Classification of output and outcome measures
achieved. “Performance management is essentially adapted after Armstrong M. (2009)
a developmental process that aims to improve the Output measures include:
performance and potential of people through their  Financial measures – income, shareholder
own effort and with the help of their managers and value, added value, rates of return, costs;
the organization.” (Armstrong M., 2009, pg. 56).  Units produced or processed, throughput;
Leech C. (2007) states that the organizations that level of take-up of service;
own an efficient performance management system  Sales, new accounts;
support its employees to reach the organizational  Time measures – speed of response or
objectives. Stanciu D.R. (2013) specifies that turnaround, achievements compared with
performance management becomes one of the main time-tables, amount of backlog, time to
tools for business management regarding the market, delivery times.
impact this one has over the individual behavior Outcome measures include:
and in directing this towards reaching the  Attainment of a standard quality, level of
organizational strategic goals. service etc);
 Changes in behavior;

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 Completion of work/project; Further on, the objective appreciation will be

 Acquisition and effective use of additional passed on to work efficiency and some
knowledge and skills; administrative decisions.
 Reaction – judgment by others. According to Guion R.M. (1998) a proper
Goals evaluation should take into account at least three
Setting the goals represents the key chapter in things:
planning the performance and agreement stage, and 1. A source of information, preferably
represents a process on its own. Latham and Locke the result of an observation or a
(2006) state that people will perform better when recording of the events subject to
they have set specific, challenging and attainable appraisal;
objectives. Acceptance of goals will be achieved 2. Organizing and remembering
when: information useful to the appraisal;
 People perceive the goals as reasonable 3. Quantitative evaluation of the
and fair and trust their managers; remembered items based on well set
 There are arrangements for individuals to rules.
participate in goal setting; The appraisal is a complex process and there are
 Support is provided by the supervisor. multitudes of ways to do it and to present it to the
manager and employee, and each way has its
 People are provided with the resources
advantages and disadvantages. So, when designing
required to achieve their goals;
an evaluation system one should pick the best
 Success is achieved in reaching goals that
suited way for its purposes and best adapted to its
reinforces acceptance of future goals
organization. In the following list the author
Latham and Locke (2006) state that specific and
presents a classification of performance appraisal
challenging objectives lead much better to
methods, adapted after Pitariu H. (2000):
performance than general objectives. Also, the
 Evaluation scales: graphic scales,
employees that take part in setting their own goals
are more likely to set more difficult goals than evaluation scales with multiple steps,
standardized scales; scale with points;
would others set for them, and also this process
increases the acceptance of such goals. Besides  Individual comparing systems:
advantages there are also some disadvantages in classification system based on the order of
setting goals, and these are presented in table 1. merit, pairwise comparison system, forced
Integrating goals distribution system; groups comparison
Integrating or line up the individual objectives with system;
the organization goals represents that all the focus  Behavioral descriptions: appraisal scales
is oriented in the right direction. This process is with behavioral anchors, standard mixed
called cascading the objectives. Armstrong evaluation scales, behavior observation
M.(2009) states that this process should not be only scales, summarized behavior scales;
a top- down process, and the people from all levels  Other types: forced picked evaluation,
should have the opportunity to indicate how they critic incidents technique, lists of
can contribute to the attainment of team and responsibilities, binary rating, Zapan
departmental objectives. method, 360 degrees Feedback, self-
Integration is achieved if everyone is aware of efficacy, visual methods.
corporate, functional, and team goals, and the All the above mentioned methods has its
objectives they agree for themselves are consistent advantages and are also subject to errors. One has
with those goals and will contribute in specified to take into account that each appraisal system
ways to their achievement. This process in refers to the efficiency of humans working with
illustrated in Figure 3. humans and from this starting point one can
Leech C. (2007) presents that cascading the classify the error sources:
objectives, is that which leads the performance  Errors that belong to the assessor and
management process. The final result should be, reflect the appraisal distortions caused by
regardless of the size of the company, that each it;
individual has its own objectives that can be  Errors caused by psychometric
followed all the way to the strategic company construction deficiencies of the evaluation
objectives. system;
 Measurement precision errors;
Classification of appraisal techniques and
sources of errors Conclusions:
Pitariu H. (2000) states that evaluating the human The role of the appraisal in the performance
potential of a particular work team, means, firstly, management system is essential, and this provides
to know with scientific methods each individual, the necessary data for the decision factors. If it is a
and to objectively appreciate its competency. well-constructed and efficient appraisal system

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integrated in a working performance management that reflects a more cold attitude between the
system, this has the potential to further increase the employer and employee.
performance through proper motivation of the Longenecker C. and Ludvig D. (1990) mediate for
individuals. management discretion when evaluation the
Pulakos E.D., Mueller-Hanson R.A. and O’Leary subordinates and point out that manager should
R.S.(2008) state that appraisals for taking decisions develop and communicate clear standards through
(eg: payment according to performance) tend to be which they judge the performance of their
higher than the ones for development that are employees, before the evaluation period. They also
usually variable, reflecting the individual’s strong point out the necessity for managers to
points as well as the areas for development. They continuously offer feedback, integrated in the
also state that there should be considered a performance management system as a continuous
difference in use of the numeric ratings for systems process. The appraisal interview should be
that target the decision making and the descriptive carefully prepared as any other business meeting,
ratings that should be taken into consideration for and should provide the employee with the
development systems, offering a much wider range opportunity to renegotiate his future objectives and
of information. also his development path.
Armstorng M. (2009) has pointed out a series of As one can easily see the appraisal has a crucial
advantages and disadvantages that should be role in the development and improvement of
considered about appraisals. He mentioned as performance, and should be carefully constructed
arguments: according to the organization’s needs. It is
 It satisfies the individual’s need to know recommended that throughout the process, starting
where it stands on a particular scale; with the design stage all employees to the involved
 It offers a convenient mode to summarize and the process to be transparent. All appraisers
judgments so that the high or low should go through training programs regarding the
performances to be easily identified; appraisal procedure and to be clearly informed
 It motivates the people through something about the error factors in the process of evaluation
to fight for in the shape of greater results; that they are directly responsible of, and the impact
 It is impossible to have a merit pay system that a false evaluation might have over the
without a general evaluation; performance of the organization.
 It offers a base for identifying the high
performers for the talent management Acknowledgement
program. This study is co-funded by the European Social
The main disadvantages pointed out by Armstrong Fund grant POSDRU / ID 132397 – ExcelDOC
M. (2009) it would be the subjectivity of the offered by the Romanian Ministry of Education
process, and the fact that this makes it difficult to (2007-2013).
obtain consistence between appraisals by two
different managers. Due to the ambiguity of the Reference list
notion of performance the subjectivity may [1] Armstrong, M., 2009. Armstrong’s handbook of
increase. Campbell D.J., Campbell K.M. and Chia performance management, 4th Edition,. Kogan
H (1998), point out two problems of the appraisals. Page.
The first issue would be the inaccuracy of the [2] Boswell W.R. and Boudreau J.W, 2000,
performance measurement systems, the second Employee Satisfaction with Performance
would be the interrelated performance, where the Appraisals and Appraisers: The Role of
performance of one is dependent on the Perceived Appraisal Use, Human Resource
performance of another, or the work task is carried Development Quarterly, vol. 11, nr. 3, pg. 283-
out by more than one individual. 299.
Observing all the issues regarding the [3] Campbell D.J., Campbell K.M and Chia H.,
disadvantages of the appraisal system, the 1998, Marit pay, performance appraisal, and
organization has to ensure a good and transparent individual motivation: an analysis ande
communication on all its levels regarding the alternatie, Human Resource Management, vol.
purpose and the procedure for the appraisal. The 37, nr. 2, pg: 131-146.
management has to involve all individuals in [4] Guion R.M., 1998, Assesment, measurement,
setting their own and team objectives, and to ensure and prediction for personnel decisions, New
that each has the opportunity to state its opinion. Jersy, London: Lawrence Erlbaum Associates,
The study made by Boswell W.R. and Boudreau Publishers.
J.W. (2000) shows that the performance appraisal [5] Latham G.P. and Locke E.A., 2006, Enhancing
targeting the individual development, reflects in the the benefits and avoiding the pitfalls of goal
employee a positive attitude regarding the setting, Organizational Dynamics, 35 (4), pg.
employer and appraiser, as opposed to when the 332- C340.
evaluation system is used for evaluation purposes

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[6] Leech C., 2007, Managing performance –

learning made simple, Butterworth-Heinemann,
USA
[7] Longenecker C.O. and Fink L.S., 1999,
Creating effective perfromance appraisals,
Industrial Management, Vol. 41, nr. 5, pag. 18
[8] Pitariu H., 2000, Managementul resurselor
umane. Evaluarea performanţelor profesionale,
Bucureşti, editura All Beck.
[9] Pulakos E.D., Mueller-Hanson R.A. and
O’Leary R.S. (2008), Performance management
in the U.S., in Performance Management
Systems: A global perspective, ed A Varma,
Routledge, Abingdon.
[10] Risher H., 2003, Re-focusing performance
management for high performance,
Compensation & Benefits Review, October, pg.
20-30.
[11] Stanciu D.R., 2013, Creşterea Competitivităţii
IMM-urilor din România prin implementarea
sistemelor de management al performanţei,
Academia Română.

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Table No 1
Benefits and problems of goal setting adapted after Latham and Locke. (2006)
Benefits Potential problems
Gives a sense of purpose; Lack of sufficient knowledge for goal attainment;
Provides an unambiguous basis for judjing success; Goal conflict among group members;
Increases performance; Fear of risk-taking;
Is a means for self –management; Ignoring non-goal dimensions of performance;
Increases subjective well-being Demoralization because, following success,
management may set higher, impossible goals.

Figure No.1 Performance mangemet cycle adapted after Armstrong. M (2009)

Figure No.2. The performance management sequence (adapted after Armstrong M., 2009, pg. 63)

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Figure No.3. Integration of goals (adapted after Armstrong M., 2009, pg. 102)

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