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Performance appraisal Notes

Performance appraisal is defined by Wayne Cascio as “the systematic description of employee’s job
relevant, strength, weakness.

Performance appraisal may be conducted once in every 6 months or once in a year. The basic idea of
the appraisal is to evaluate the performance of the employee, giving him a feed back. Identify areas
where improvement is required so that training can be provided. Give incentives and bonus to
encourage employees etc.
Performance Appraisal

The meaning of the word “appraisal” is “to fix a price or value for something”. This is used in finance
in terms such as project appraisal or financial appraisal where a value is attached to a project.
Similarly performance appraisal is a process in which one values the employee contribution and worth
to the organization.

The meaning of the word "appraisal" is "to fix a price or value for something". This is used in finance
in terms such as project appraisal or financial appraisal where a value is attached to a project.
Similarly performance appraisal is a process in which one values the employee contribution and worth
to the organisation.

Employees across the entire organisation are appraised of their performance. This could be done
annually, twice a year, periodically depending the need of the organisation

A performance appraisal is a formal review of employee performance. At a performance appraisal,

objectives or targets are agreed between manager and employee. At each subsequent appraisal, current
and past performance
is compared and targets are reviewed. It is a prescribed system with a meeting arranged after a set
period to review
the targets set by the previous appraisal. This may be six-monthly or annually, depending on your
organization.
Nonetheless, the performance appraisal is not only a means to review performance standards and
specific targets. It is a means to:

⇒ Identify current job performance levels

⇒ Identify individual employee strengths and weaknesses

⇒ Motivate and encourage the individual employee

⇒ Reward employees for their contribution to organizational objectives

⇒ Identify training and development needs

⇒ Identify potential performance standards

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⇒ Plan future development of the individual

⇒ Discuss salary, promotion and training

The objectives of performance appraisal are:

1. To help better current performances

2. To help in development of the employee.

3. To determine training and development needs.

4. To give employee feedback and counsel them

5. To review performance for salary purposes.

Method of performance appraisal

Companies use different methods of appraisal for identifying and appraising the skills and qualities of
their employees. The different methods used can be explained with the help of following diagram.

Methods of performance appraisal

Traditional method Modern method

1. Check list method
2. Confidential report
3. Critical incident method
4. Ranking method
5. Graphic rating scale
6. Narrated essay
7. 360* Appraisal

Traditional method

Traditional method of performance appraisal has been used by companies for very long time. A
common feature of these methods is they are all relatively simple and involve appraisal by one senior.

1. Check list method: -

In this method the senior, the boss is given a list of questions about the junior. These questions are
followed by check boxes. The superior has to put a tick mark in any one of the boxes.This method can
be explained with the following eg.
1. Does the employee have leadership qualities?
YN
2. Is the employee capable of group efforts?
YN

As seen in the above eg. A questioner containing questions is given to the senior. This method is an
extremely simple method and does not involve a lot of time. The same set of questioners can be given
foe every employee so that there is uniformity in selecting employee.

2. Confidential report: -
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This method is very popular in government departments to appraise IAS officers and other high level
officials. In this method the senior or the boss writes a report about the junior giving him details about
the performance about the employee. The +ve and – ve traits, responsibilities handled on the job and
recommendations for future incentives or promotions. The report is kept highly confidential and
access to the report is limited.

3. Critical incident method:-

In this method critical or important incidents which have taken place on this job are noted down along
with employee’s behavior and reaction in all these situations. Both +ve and –ve incidents are
mentioned. This is followed by an analysis of the person, his abilities and talent, recommendations for
the future incentives and promotions.

4. Ranking method: -
In this method ranks are given to employees based on their performance. There are different methods
of ranking employees.

a. Simple ranking method

b. Alternate ranking method
c. Paired comparison method

a. Simple ranking method: -

Simple ranking method refers to ranks in serial order from the best employee eg. If we have to rank
10 best employees we start with the first best employee and give him the first rank this is followed by
the 2nd best and so on until all 10 have been given ranks.

b. Alternate ranking: -
In this method the serial alternates between the best and the worst employee. The best employee is
given rank 1 and then we move to the worst employee and give him rank 10 again to 2nd best
employee and give him rank 2 and so on.

c. Paired comparison: -
In this method each and every person is the group, department or team is compared with every other
person in the team/group/department. The comparison is made on certain criteria and finally ranks are
given. This method is superior because it compares each and every person on certain qualities and
provides a ranking on that basis.

5. Graphic rating scale: -

Graphic rating scale refers to using specific factors to appraise people. The entire appraisal is
presented in the form of a chart. The chart contains certain columns which indicate qualities which are
being appraised and other columns which specify the rank to be given.

E.g. Employee(A)quality of work Quantity of work Intelligence

a. Excellent
b. Very good
c. good
d. satisfactory
e. poor

The senior has to put a tick mark for a particular quality along with the ranking. Such charts are
prepared for every employee. According to the department in which they work. Sometimes the
qualities which are judged may change depending upon the department.

6. Narrated essay: -
In this method the senior or the boss is supposed to write a narrative essay describing the qualities of
his junior. He may describe the employees strength and weakness, analytical abilities etc. the narrative
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essay ends with a recommendation for future promotion or for future incentives.

Modern methods

Modern methods of appraisal are being increasingly used by companies. Now days one of the striving
feature that appraisal involves is, the opinion of many people about the employee and in some cases
psychological test are used to analyze the ability of employee. These methods are as follows

1. Role analysis: -
In this method of appraisal the person who is being apprised is called the focal point and the members
of his group who are appraising him are called role set members.
These role set members identify key result areas (KRA 2 marks) (areas where you want improvement
are called KRA) which have to be achieved by the employee. The KRA and their improvement will
determine the amount of incentives and benefits which the employee will receive in future. The
appraisal depends upon what role set members have to say about the employee.

2. Assessment centers :-
Assessment centers (AC) are places where the employee’s are assessed on certain qualities talents and
skills which they possess. This method is used for selection as well as for appraisal. The people who
attend assessment centers are given management games, psychological test, puzzles, questioners
about different management related situations etc. based on their performance in these test an games
appraisal is done.

3. Management by objective: -
This method was given by Petter Druckard in 1974. It was intended to be a method of group decision
making. It can be use for performance appraisal also. In this method all members of the of the
department starting from the lowest level employee to the highest level employee together discus, fix
target goals to be achieved, plan for achieving these goals and work together to achieve them. The
seniors in the department get an opportunity to observe their junior- group efforts, communication
skills, knowledge levels, interest levels etc. based on this appraisal is done.

4. Behavioral anchored rating scale: -

In this method the appraisal is done to test the attitude of the employee towards his job. Normally
people with +ve approach or attitude view and perform their job differently as compared to people
with a –ve approach.

5. Psychological testing: -
In this method clinically approved psychological test are conducted to identify and appraise the
employee. A feedback is given to the employee and areas of improvement are identified.

6. Human resource audit/accounting: -

In this method the expenditure on the employee is compared with the income received due to the
efforts of the employee. A comparison is made to find out the utility of the employee to the
organization. The appraisal informs the employee about his contribution to the company and what is
expected in future.

7. 360* appraisal: -
In this method of appraisal and all round approach is adopted. Feedback about the employee is taken
from the employee himself, his superiors, his juniors, his colleagues, customers he deals with,
financial institutions and other people he deals with etc. Based on all these observations an appraisal
is made and feedback is given. This is one of the most popular methods.

Process of performance appraisal

Process of performance appraisal followed by different companies is different. A general procedure

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is explained below with the help of a diagram.

Process of performance appraisal

1. Setting performance standards

2. Communicating standards set to the employee
3. Measuring performance
4. Comparing performance with standard
5. Discussing result
6. Collective action
7. Implementation and review

1. Setting performance standards:-

In this very first step in performance appraisal the HR department decides the standards of
performance i.e. they decide what exactly is expected from the employee for each and every
job. Sometimes certain marking scheme may be adopted eg. A score 90/100 = excellent
performance, a score os 80/100 = good. And so on.

2. Communication standard set to the employee:-

Standards of performance appraisal decided in 1st step are now conveyed to the employee so
that the employee will know what is expected from him and will be able to improve his
performance.

3. Measuring performance:-
The performance of the employee is now measure by the HR department, different methods
can be used to measure performance i.e. traditional and modern method. The method used
depends upon the company’s convenience.

4. Comparing performance with standard:-

The performance of the employee is now judged against the standard. To understand the score
achieved by him. Accordingly we come to know which category of performance the
employee falls into i.e. excellent, very good, good, satisfactory etc.

5. Discussing result:-
The results obtained by the employee after performance appraisal are informed or conveyed
to him by the HR department. A feedback is given to the employee asking him to change
certain aspects of his performance and improve them.

6. Collective action:-
The employee is given a chance or opportunity to improve himself in the areas specified by
the HR department. The HR department constantly receives or keeps a check on the
employee’s performance and notes down improvements in performance.

7. Implementation and review:-

The performance appraisal policy is to be implemented on a regular basis. A review must be
done from time to time to check whether any change in policy is required. Necessary changes
are made from time to time.

Limitations of performance appraisal

The following are the limitations of performance appraisal

1. Halo effect: -
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In this case the superior appraises the person on certain positive qualities only. The negative
traits are not considered. Such an appraisal will no give a true picture about the employee.
And in some cases employees who do not deserve promotions may get it.

2. Horn effect: -
In this case only the negative qualities of the employee are considered and based on this
appraisal is done. This again will not help the organization because such appraisal may not
present a true picture about the employee.

3. Central tendency: -
In this case the superior gives an appraisal by giving central values. This prevents a really
talented employee from getting promotions he deserves and some employees who do not
deserve anything may get promotion.

4. Kindness and strictness:-

Some bosses are lenient in grading their employees while some are very strict. Employee who
really deserves promotions may lose the opportunity due to strict bosses while those who may
not deserve may get benefits due to lenient boss.

5. Spillover effect:-
In this case the employee is judged +vely or –vely by the boss depending upon the past
performance. Therefore although the employee may have improved performance, he may still
not get the benefit.

6. Fear of losing subordinates and spoiling relations:-

Many bosses do not wish to spoil their relations with their subordinates. Therefore when they
appraise the employee they may end up giving higher grades which are not required. This is a
n injustice to really deserving employees.

7. Goodwill and techniques to be used:-

Sometimes a very strict appraisal may affect the goodwill between senior and junior.
Similarly when different departments in the same company use different methods of appraisal
it becomes very difficult to compare employees.

8. Paper work and personal biased:-

Appraisal involves a lot of paper work. Due to this the work load of HR department increases.
Personal bias and prejudice result in bosses favoring certain people and not favoring others.

Advantages/needs/importance/use/purpose of performance appraisal

Performance appraisal is defined by Wayne Cascio as “the systematic description of

employee’s job relevant, strength, weakness.

1. Feedback to the employee:-

Performance appraisal is beneficial because it provides feedback to the employee about his
performance. It identifies the areas for improvement so that employee can improve itself.

2. Training and development:-

Due to performance appraisal it is easy to understand what type of training is required for
each employee to improve himself accordingly training programs can be arranged.

3. Helps to decide promotion:-

Performance appraisal provides a report about the employee. Based on this report future
promotions are decided, incentives, salary increase is decided.
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4. Validation of selection process:-

Through performance appraisal the HR department can identify whether any changes are
required in the selection process of the company normally a sound selection process results in
better performance and positive appraisal.

5. Deciding transfers and lay off of the worker:-

Employee with specific talent can be transferred to places where their talents are utilized
properly; similarly decisions regarding termination of employees depend upon performance
appraisal reports.

6. Human resource planning and career development:-

Companies can plan for future vacancies at higher levels based on performance appraisal
reports. Similarly career planning can be done for the employee on the performance appraisal
report.

360 Degree Appraisal

In 360-degree performance reviews, many different types of people are consulted about an employee's
performance. This includes customers, suppliers, peers and direct reports. In the case of a manager,
employees are often asked to give "upward feedback" on how well they are being managed. While the
benefits of multiple points of view are obvious, there are also some challenges to these types of
performance reviews. Employees almost never give "true" feedback about their managers (out of fear
that the manager finds out) and outside contacts may be simply too busy, or unqualified to effectively
rate a specific employee (customer satisfaction surveys may be a better way to gauge this type of
feedback). If 360-degree performance reviews are performed, a Human Resources manager should
coordinate the process; so that subordinate reviewers (i.e., employees) are assured that their
performance reviews are kept unidentified.

The 360-degree appraisal significantly differs from the traditional supervisor- subordinate
performance evaluation. Rather than having a single person play judge, a 360-degree appraisal acts
more like a jury. The people who actually deal with the employee each day create a pool of
information and viewpoints on which the supervisor may act. This group of individuals is made up of
both internal and external customers.
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Using 360-degree appraisals provides a broader view of the employee's performance. The most
obvious benefit of the 360-degree appraisal is its ability to hold a range of feedback. Because each
person offers a new, unique view, it produces a more complete picture of an employee's performance.
Unlike with supervisors, employees can't hide as easily in 360- degree appraisals because peers know
their behaviors best and insist on giving more valid ratings. In addition to providing broader
perspectives, the 360-degree appraisal facilitates greater employee self-development. It enables an
employee to compare his or her own perceptions with the perception of others on the employee's
skills, styles, and performance.

Peer-to-Peer Employee Performance Evaluations

Peer-to-peer employee performance evaluations require employees at the same level to review each
other. The thinking behind peer-to-peer employee performance evaluations is that nobody knows a
worker's ability better than
his or her co-workers. While this can be an effective review format for some groups of workers (for
example, a team of doctors working on a research project together, where specific content knowledge
is required), it can also cause controversy because of the way it affects future group dynamics. When
evaluating the use of these types of employee performance evaluations, consider the maturity level of
the employees involved and the long-term effects that could result from the source of negative
reviews getting back to the team members

Self-Assessment Performance Reviews

Self-Assessment performance reviews are effective when combined with any of the other three types
of performance reviews. With this type of review, employees are asked to rate themselves, often using
the same form that a manager will use to review them. Self-assessment performance reviews help
make the employees an active part of the process and provide a vehicle for them to reflect on their
own performance prior to the formal review. Studies have shown that employees are usually harder on
themselves in self- assessment performance reviews, than their managers and generally give
themselves lower ratings. Having employees do self assessment performance reviews prior to a
manager's review can set a positive tone for the meeting, as the manager will often have better things
to say than the employee has said about him or herself.

Down To Top Employee Performance Evaluations

Down-Top employee performance evaluations tend to be one of the most common and most effective
methods, because they involve the assessment of an employee by its subordinate. Down to top
employee performance evaluations are most useful when given by an employee's immediate
subordinate - someone who works with that employee everyday and knows his or her strengths and
weaknesses. The Down-Top employee performance evaluation becomes less effective when given by
a Human Resources manager who has only second-hand knowledge of an employee's performance.

Top-Down Employee Performance Evaluations

Top-down employee performance evaluations tend to be the most common and most effective,
because they involve the assessment of an employee by a direct manager. Top-down employee
performance evaluations are most useful when given by an employee's immediate supervisor -
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someone who works with that employee everyday and knows his or her strengths and weaknesses.
The top-down employee performance evaluation becomes less effective when given by a Human
Resources manager who has only second- hand knowledge of an employee's performance. One
offshoot of top-down employee performance evaluations is "matrix" employee performance
evaluations, where multiple managers rate the same employee. This is a good choice when the
employee works for multiple managers, or engages in various fixed-time length projects