Performance Appraisal & Performance

Management
Introduction:

Performance Appraisal is defined as an assessment of employees by the manager, in which

the managers evaluate the overall contribution made by the employee towards organizational
goals. It is a systematic and logical review, conducted by the organization annually to judge
his potential in performing a task. It helps to analyse the skills and abilities of an employee
for their future growth that increases the productivity of employees. It helps to identify the
employee who performs their task well and those who are not, along with the reasons for the
same.

It is an structured way of evaluating employee performance, inn which a comparison is made

between actual performance and the pre-set standards. The results of the performance
appraisal are documented. The reviews are shared with the employee and feedback given to
them regarding the area in which they need improvements.

Performance Appraisal can be done with following objectives in mind:

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

raise, 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.

Whereas, Performance Management System (PMS) is defined as ‘a strategic and integrated

approach of conveying continued success to institutions by developing the people in a way
that improves group and personal performance’ (Armstrong and Baron, 1998).

Performance management aims at building a high-performance culture for both the individual
and the team so that the business processes are improved on a continuous basis and at the
same time raising the performance bar by upgrading their skills. The emphasis should be on
goal clarity so that the employee do the right things in the right time. It may be said that the
main objective of a PMS is to attain the optimum efficiency level of an employee in favour
of the organizational goal, by defining the expectations in terms of roles, responsibilities, and
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accountabilities, required competencies and the expected behaviours. The main aim of PMS
is to ensure that the organization work as a system and its subsystems work together in an
cohesive fashion to accomplish the optimum results or outcomes.

It provides a continuous and integrated approach for managing and rewarding performance.
As the traditional appraisal systems were inadequate to deliver the results corresponding to
the expectations of management, an growing number of organizations are turning towards
PMS to accomplish their organisational goals.

Performance management has its inherent importance as it is extremely critical to any

organisation’s accomplishment and for human resource development. With the intensifying
competition in the market, organisation need to develop and retain highly skilled employees
for survival and for competitive advantage. Broadly speaking, Performance Management
(PM) can be defined as “identifying, measuring, and developing the performance of
individuals and teams and aligning performance with the strategic goals of the organization”
(Anguinis, 2013, pp. 2-3).

Beer and Ruh first coined the phrase performance management in 1976.This term was
formally established as a distinct approach in mid 1980s. The main reasons for the
development of this system is that the managers recognized the fact that there is a need of a
more continuous and integrated methodology to manage and reward performance. Moreover,
already developed and implemented performance related pay and appraisal systems were
inadequate to deliver the results in line with the organisational expectation.

Determination of Organisation
Strategy & Goals

Performance
Planning

Performance Ongoing
Review Feedback

Performance Employee
Evaluation Input

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 [Fig I: Typical PMS System]

Most organisation follow variations of the typical PMS system depicted in Fig I. Each of the
stages has been described below:

Performance Planning:

At the beginning of the performance management cycle, it is imperative to review the

performance expectations with the employees, including the behaviours employees are
expected to exhibit and the results they are expected to accomplish during the rating cycle.
Behaviour is crucial because they indicate how an employee goes about getting the job done
—how a specific employee encourages the team, communicates, mentor others. We are all
familiar with employees who may achieve exceptional results but, is extremely difficult to
work with. On the other hand, an employee can be extremely supportive, thoughtful, and
interpersonally efficient, yet never achieve any key goals.

Behavioural and result expectations should be tied to the organization’s strategic direction
and corporate objectives. In fact, if developed and implemented properly, PMS drive
employees to engage in behaviour and achieve results that enable to meet organizational
objectives. For example, if improving customer service is determined to be crucial to an
organization’s future success, including customer service-related expectations, rewards in the
PMS will not only communicate its significance but also boost behaviours and outcomes
related to this parameter. Also, if effective teamwork with strategic associates is a key
organizational importance, the PMS make the employees accountable for its implementation.

Ongoing Feedback:

Performance in both behavioural and work-related expectations should be discussed, and

feedback provided in continuous basis throughout the rating period. In adjunct to providing
feedback whenever futile performance is observed, providing periodic feedback about day-to-
day accomplishments and contributions is also important. Sadly, this does not happen to the
extent that it should be in organizations because many managers are not trained in providing
feedback. For the feedback process to work out well, experts have backed the fact that it must
be a two-way communication and a joint responsibility of managers and employees.

To achieve this, both managers and employees are to be apprised about their roles and
responsibilities. Managers’ responsibilities include providing feedback in a productive,
candid and timely manner. Employees’ responsibilities include seeking feedback to ensure
they understand how they are performing and responding well to the feedback they receive.
An effective conversation between managers and employees is probably the single most
important factor in determining whether the adopted PMS will achieve its goal or not.

Employee Input:

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Employee input has been used successfully in many companies. The most common input the
self-appraisal filled by the employee. It ask employees to prepare statements of their key
achievements.

Performance Evaluation:

Competency models helps in understanding the knowledge, skills, abilities and other
characteristics that are considered to be most instrumental in achieving organizational goals.

Performance Review:

After the continuous feedback, a formal performance review session is planned to decide the
outcome of the rating period. In other words, there should be no shockers in the review
meeting. During this meeting, managers should discuss with employees their ratings,
narratives, and rationale for the evaluation. It is also a good time to plan developmental
activities with employees If all current job standards are being met, employees and managers
can consider the next level of performance standards to recognize requirements and
developmental areas to pursue in preparation for advancement.

Implementation:

Experts agree that having effective tools and processes is necessary but are not sufficient for
having an effective PMS. This is for the reason that the factors that really matters in any PMS
is how successfully it is used and how seriously managers and employees take it. Therefore,
the most challenging and important part of developing an effective PMS is successful
execution. There are several aspects to execution, but at its core is providing a user-friendly,
value-added system that both managers and employees can and will use effectively.

Factors that should be kept in mind for successful implementation of PMS are mentioned
below:

1. Ensure alignment with other HR systems.

2. Get organizational members on board.

3. Communicate.

4. Automate

5. Pilot test.

6. Train employees and managers.

7. Evaluate and improve.

In today’s global environment where the market is evolving at a very fast pace, it is crucial
for an organization to understand the benefits of performance management. Therefore,
managing employee’s performance is the ultimate need of an organization. The employees
are considered as an asset by the organization. The performance management system serves
various benefits to the organization, which are as follows:

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 1. Provides data to find the skills and knowledge gaps of employees in order to
improvise them through trainings, coaching and mentoring systems.

2. Motivates employees to take new challenges and innovate through structure process.

3. Provide new opportunities to employees for their growth and development in their
professional careers.

4. It defuses grievances and conflicts among team members through proper performance
evaluation system.

5. It assesses the employee’s performance fairly and accurately against the performance
targets and standards.

6. Employees are able to provide better results because of clarity on their performance
targets.

7. Performance management system provides the platform to discuss, develop and

design the individual and department goals thorough discussion among manager and
their subordinates.

8. The under performer can be identified through performance reviews and can raise
their skills levels objectively. It quantifies the learning needs through individual
development plans or performance improvement plans as well.

Despite the potential of PMS to positively support the organization and enhance both
employee and organizational performance, companies were facing many difficulties in proper
implementation of PMS. PMS will be rendered ineffective if the focus is not on the
behavioural analysis of the employees’ actions & managers acting as role model accordingly.
Effectiveness of PMS depends upon the behavioural factors of the employees and manager,
and as how the managers beguiled the employees towards PMS. With this we can say that
there are a variety of behavioural, psychological, and managerial factors that are involved in
the effectiveness and efficiency of a PMS.

Perhaps because of this, a significant shift in PM practices has been witnessed more recently
with calls made to make PM more comprehensive, holistic, and ultimately more
“developmental” in nature. For example, large companies, like Adobe, Deliotte, and GE, has
changed their PM systems away from PA ratings, annual performance goals, and forced
rankings which traditionally pit employee against employee, toward the use of short-term
goals which emphasize ongoing discussions between employees and their managers. The
underlying reasons for this shift include the changing nature of work, the need for increased
teamwork than competition, and, perhaps most significantly, the need to attract, develop, and
retain talent through more frequent feedback which was seen to facilitate engagement and
development. This trend, as we describe below, represents a shift from PM systems,
characterized with an emphasis on annual performance assessment toward a more
developmental PM model.
Effective performance management systems have a well-articulated process for
accomplishing evaluation activities, with defined roles and timelines for both managers and
employees. Especially in organizations that use performance management as a basis for pay

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and other HR decisions, it is important to ensure that all employees are treated in a fair and
equitable manner.

[Fig II: Effective PMS System, Courtesy:www.synergita.com/blog/different-types-of-

performance-appraisal-system]

In essence, Performance Appraisal is an annual evaluation exercise, whereas Performance

Appraisal is an ongoing and continuous activity that focuses on defining, assessing, and
developing performance in a manner that aligns with strategic goals. PMS is a multifaceted,
multi-purpose process involving multiple stakeholders throughout the organization. The basic
purpose of performance management is to encourage and improve employee’s efficiency and
effectiveness. In this process, both the employees and the managers participate in setting the
objectives, assessing the performance or progress, providing training and feedback to the
employees at regular intervals for improvement, implementing development programs for
employees and rewarding them for their achievements.

Performance management is about what you are going to do to help an employee continue in
their development to become increasingly better in their performance, for the organization.
Performance appraisal is how you evaluate the progress being made by assessing or
measuring the employee’s actual performance on a regular basis over time.

PMS is used for decision-making, the appraisal information is used as a basis for pay
increases, promotions, transfers, assignments, reductions in force or other administrative HR
actions. PMS is used for development, whereas the appraisal system is used to guide the
training, job experiences, mentoring and other developmental activities.

Although it is theoretically possible to have a performance management system that serves

both decision-making and development purposes well, this can be difficult to achieve in

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practice. In addition, research has shown that the purpose of the rating (decision-making
versus development) affects the ratings that are observed. Ratings used for decision-making
tend to be lenient, with most employees receiving ratings on the high end of the scale.
Ratings for developmental purposes tend to be more variable, reflecting both employee
strengths and development needs.

Another way to think of the difference between the two is that performance appraisal is about
the past, meaning how the employee performed in the immediate past period being reviewed
during the appraisal process. Performance management, meanwhile, is focused on
the present and the future. In the present, you’re doing things in real-time to help make sure
the employee’s performance reaches the desired level. With an eye on the future, you are also
planning what can be done to further develop that employee’s capabilities for periods to
come.

When you think about it, another way to distinguish between the two is to say that
performance appraisal is reactive process while performance management is
a proactive process.

In many cases, it is useful to see performance appraisal as an essential process that goes along
well with performance management. Some would even argue that performance appraisal is
just one piece of the larger puzzle of performance management.

Performance appraisal has been around a long time. After all, how else do we know whether
an employee deserves a raise, bonus or promotion? What performance management does is
take that process up several notches to proactively manage employee performance so that it
aligns with and accomplishes the overall vision, mission, goals, objectives, and strategies of
the organization. Performance appraisal is all about an individual and how they have
performed in the past while performance management more takes that information and
explicitly evaluates it relationship to what is important to the organization.
Here is a table that gets at some of the and important differences between performance
management and performance appraisal:

Performance Appraisal Performance Management

Operational Strategic
Top-down assessment More likely to involve dialog
Retrospective for corrections Future-oriented for growth
Typically once or twice per year Ongoing or continuous review, interspersed with
formal reviews
Often uses ratings or rankings Less likely to involve ratings
Rigid structure/system Flexible process
Not linked to business needs Linked to business needs
Usually takes a quantitative approach Combines quantitative and qualitative
approaches
Individual Collective
Often linked to compensation Not usually linked to compensation
Often very bureaucratic with a focus on Less concerned with documentation
paperwork/documents
Usually housed in HR department Conducted by managers and supervisors
 

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We tend to use the terms performance management and performance appraisal
interchangeably, but in today’s time, a more nuanced approach to these related but distinct
concepts is required. By keeping them too muddled together, many organizations have failed
to realize the full benefits that can come from building a top-notch performance management
system that includes robust performance appraisals.

[Fig III: Integrated Performance Appraisal & Performance Management System]

The manager, who is closely tied with the employee, observes and assesses his/her work
throughout the year and provides necessary feedback, guidance, and forward-looking path
during the appraisal period. The manager holds formal discussions with the employee
recollecting his/her achievements, performance, and areas for improvement. The manager
also identifies opportunities for the employee to grow professionally.

The primary purpose of a performance appraisal system is to encourage and guide the
employee to improve his/her performance. It helps organizations identify and categorize
employees based on how they work. This classification helps organizations motivate the high
performers and also recommend appropriate development plans and training programs for the
below average performers.
Following are some types of performance appraisal system.

General Appraisal:

It is an ongoing communication between the manager and the employee throughout the year.
At the end of the year, the manager and the employee will hold a meeting and determine if
the pre-set goals and objectives were met. Then, the manager provides feedback and sets new
goals. The managers can also recommend development plans and training programs to the
employees to help them improve their skills.

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360-Degree Appraisal:

360-degree appraisal allows peers, primary manager, cross-functional manager, direct

reports, and other internal and external stakeholders to share feedback on an employee’s
performance and team behaviour. This type helps an employee to learn his/her strengths and
weaknesses. The feedback is then reviewed by the manager during the appraisal process.

Technological Performance Appraisal:

It assesses technical expertise/capabilities of an employee. The technical expertise will be

given importance over other skills and competencies during the appraisal process to identify
how sound he/she is technically.

Employee Self-Assessment:

The employee assesses himself/herself and it is finally compared with the manager’s
completed assessment results. The self-assessment process is followed by discussions and if
there are differences, manager speaks to the employee about it.

Manager Performance Appraisal:

In this type, managers go through the appraisal process. It is the role of the manager that is
very crucial in handling both the team and the client. Manager must satisfy the clientele
without disrupting the team’s morale. Most often, manager appraisal process involves
feedback from the respective team members and sometimes from the client as well. The
feedback forms from employees can also be anonymous.

Project Evaluation Review:

This is one of the best ways to identify how good an employee is at work. Rather than to wait
to review an employee end of the year, it helps evaluating employees end of each project.
This review process increases the commitment of the workforce and keeps them engaged.

Sales Performance Appraisal:

A salesperson is judged by the goals he/she has set versus his/her results. Salesmen are
closely held to the financial goals of any organization. The manager and salesperson must
find out ways to achieve goals prior to which they must set realistic goals.

Structure of Review Form:

Business needs, organization structure and even work etiquette might differ depending on the
culture adapted within the organization. But what remains constant is the structure of the
review process.

1. Goal setting:
Every organization has standard goals to be achieved for every financial year.

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All the employees of the organization are apprised on the goals to work with. The end-result
is evaluated based on the achieved goals.

2. Technical Skills:
It is important for an employee to be proficient in his/her technical expertise before getting a
handle on work. Technical skills do not just pertain to a specific domain but spreads across
disciplines.

3. Soft Skills:
It is very essential for every employee to speak to clients/handle client calls, narrate the
product description, walk clients through the work flow, etc.

4. What went well?

It is an important question that should be appended to any review process as this figures out if
the goal associated with an employee is achieved or not, status of the goal, time spent on
goal, time elapsed on goal and has the work of employee been reviewed by the manager.

5. What could have gone better?

After getting a hold of what went well, the next step is to find out how things could have
gone better or how can it be made better in the future. It is a simple process that helps
employee understand what he/she is good at and areas where improvements are needed.

6. Any specific needs?

Based on the review provided by the manager, the employee can be put to training if he/she
lacks technical/soft skills. If the manager feels that an employee requires some form of
additional support, he can very well help employee through it.

The steppingstone of the Review form is the goal-setting and this is accomplished with the
help of KPAs (Key Performance Area) and KRAs (Key Result Areas).
KRAs are defined as general outcomes or outputs for which a department or team is
responsible. KPAs are areas within the KRAs for which an individual or group is primarily
responsible.

Performance Appraisal Form is the basic and most important requirement to start the
appraisal process. The form contains complete details of employee record, job role,
contribution, achievements, performance record, and special comments from reporting
person. It helps to evaluate the employee’s performance, leadership skills and technical skills.
The following considerations to be taken into account to put any template into action:

1. Two-way conversation.
Performance reviews should not be treated like performance evaluations but it should be an
interactive conversation, with both sides contributing.

2. Time for reflection.

Take time to look back on past accomplishments.

3. Coaching moment.
Managers need to act as coaches, not as judges.

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4. Leave the meeting with clear next steps.
Future course of action to be charted in alignment with the vision of the firm.

Post Appraisal follow-up:

After we have conducted and completed performance appraisal or evaluation sessions, it’s
time to shift our focus from their past performance to their future performance. These tips
will help you to manage your employees more effectively and ensure that they meet future
performance goals. Follow-up is to make sure employees perform consistently and achieve
company goals. We cannot expect employees to improve themselves without giving detailed
and clear instructions on areas in which they need improvements. Employees desire
continuous feedback of their progress and for prospective developmental prospects.

When we agree on goals and initiatives during your performance conversation, employees
want to know that if we are actively keeping track of their career path and not keeping it for
records only. Follow-up evaluations serves as an vital purpose in the employment
relationship as it assures them that the company is willing to invest in their accomplishment.
If any shortcomings is expected from the employer then it should be communicated clearly
and honestly to the employee.

This reflects that the organisation fulfils employees' expectations for effective leadership and
is concerned about their well-being.

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