Tomas Del Rosario College

Capitol Drive, San Jose, Balanga City

Tel No: (047) 237-3115; Tel No: (047) 791-6082

LESSON 8
PERFORMANCE MANAGEMENT

I. LEARNING OUTCOMES

 Define performance
 Differentiate between objective and subjective performance
 Recall common bias to avoid when evaluating performance
 Discuss the elements included in the evaluation of employee performance

II. INTRODUCTION:

The employee performance appraisal process is crucial for organizations to boost employee
productivity and improve their outcomes. Performance appraisals are an annual process where an
employee’s performance and productivity is evaluated against a predetermined set of objectives.
Performance management is super important, not only because it is the determining factor in an
employee’s wage rise and promotion but also because it can evaluate an employee’s skills,
strengths, and shortcomings accurately.
However, the performance appraisal is rarely put to good use since existing performance appraisal
methods fail to internalize employee performance results. To prevent performance appraisals from
becoming nothing more than empty buzzwords, HR managers need to revamp their existing process
and try implementing the modern performance appraisal methods.
Performance management isn’t an easy field to navigate. It’s constantly evolving. New perfor-
mance management trends emerge every year and all too often, human resource departments get it
wrong. Employees are left feeling deflated, unmotivated and unengaged and managers are frustrat-
ed at the poor levels of team and individual employee performance. Thankfully, more and more
companies are waking up to the importance (and resulting benefits) of effective performance man-
agement systems.

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III. CONTENT:

PERFORMANCE
Performance Appraisal is defined as a systematic process, in which the personality and performance
of an employee is assessed by the supervisor or manager, against predefined standards, such as
knowledge of the job, quality and quantity of output, leadership abilities, attitude towards work,
attendance, cooperation, judgment, versatility, health, initiative and so forth.
The accomplishment of a given task measured against preset known standards of accuracy,
completeness, cost, and speed. In a contract, performance deemed to be the fulfillment of an
obligation, in a manner that releases the performer from all liabilities under the contract.
In work place, performance or job performance means good ranking with the hypothesized
conception of requirements of a role.
There are two types of job performances: contextual and task.
Task performance is related to cognitive ability while contextual performance is dependent upon
personality. Task performance are behavioral roles that are recognized in job descriptions and by
remuneration systems, they are directly related to organizational performance.
Contextual performance are value based and additional behavioral roles that are not recognized in
job descriptions and covered by compensation; they are extra roles that are indirectly related to
organizational performance.

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

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

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 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.
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.

PERFORMANCE APPRAISAL METHODS

There are various methods that are used by managers and employers to evaluate the performance of
the employees, but they can be put into two categories:
 Traditional Methods
 Modern Methods

COMPONENTS OF PERFORMANCE APPRAISAL

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Performance Appraisal Process
1. Setting performance standards
2. Set up measurable goals
3. Measure actual performance
4. Compare with preset standards and goals
5. Discuss with the employee – met the expectations, did not meet the expectations, exceeded
the expectations
6. Take corrective actions
7. Set standards for next cycle

Advantages of Performance Appraisal

1. A systematic appraisal system helps the managers to properly identify the performance of
employees in a systematic manner and their areas of talent and areas where they are lacking.
2. It helps the management to place the right employees for the perfect jobs depending on their skills
in particular areas.
3. It helps employees identify the areas in which they need to improve. The managers can also use
this information to provide constructive criticism of the way employees perform their work.
4. Potential employees are often given promotions on the basis of or the results of performance
appraisals. People who have high ratings get promotions. They can also transfer or demote
employees if they not performing up to the expectations of the managers.
5. An appraisal is also useful in determining the effectiveness and results of training programs. It
can show managers how much employees have improved after taking the training programs. This
will give managers data on how to change and evolve the training programs.
6. It creates healthy competition among employees as they will try to improve their performance
and score better than their colleagues.
7. Managers use appraisal programs to identify the grievances of employees and act upon them.
8. Keeping extensive records of performance appraisal will give managers a very good idea of
which employees have the highest growth rate and are which ones have a declining rate of
performance.

DISADVANTAGES OF PERFORMANCE APPRAISAL

1. If the factors being used in the performance appraisal are incorrect or not relevant, the appraisal
will fail to provide any useful or effective data.
2. Sometimes, equal weightage is not given to important factors when performing an appraisal.
3. Some objective factors are very vague and difficult to gauge like attitude and initiative. There is
no scientific method to measure these factors.
4. Managers are sometimes not qualified enough to correctly assess the employees and their
abilities. Thus, these mistakes can be very detrimental to the growth of the company.

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PURPOSE OF PERFORMANCE APPRAISAL
1. Evaluation
The major purpose of performance appraisal is to evaluate how well employees have conducted
their duty. Performance appraisal helps to keep a record of each employee’s job performance,
including what efforts they have made and what have they achieved. Evaluation differentiates
employees on the basis of their job performance, along with other factors like personality,
behavior, etc.
2. Provide continuous feedback
It is essential for the employers to know what performance and achievements have been made
by their employees. But, it is also equally important for an employee to know where they stand,
where they are going and how they are going to get there. Thus, giving feedback to employees
is also a major purpose of performance appraisal.
3. Measure performance accurately
Every company has to set mutually acceptable criteria or performance standards so that it could
compare employee’s performance with it. This helps in accurate measurement of employee’s job
performance which is necessary for the company to know where it is heading towards.

SIX MODERN PERFORMANCE APPRAISAL METHODS

With the right performance appraisal method, organizations can enhance employee performance
within the organization. A good employee performance review method can make the whole
experience effective and rewarding.

1. MANAGEMENT BY OBJECTIVES(MBO)
Management by objectives (MBO) is the appraisal method where managers and employees
together identify, plan, organize, and communicate objectives to focus on during a specific
appraisal period.
After setting clear goals, managers and subordinates periodically discuss the progress made to
control and debate on the feasibility of achieving those set objectives. This performance appraisal
method is used to match the overarching organizational goals with objectives of employees
effectively while validating objectives using the SMART method to see if the set objective is
specific, measurable, achievable, realistic, and time-sensitive.
At the end of the review period (quarterly, half-yearly, or annual), employees are judged by their
results. Success is rewarded with promotion and a salary hike whereas failure is dealt with transfer
or further training.
This process usually lays more stress on tangible goals and intangible aspects like interpersonal
skills, commitment, etc. are often brushed under the rug.

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 Incorporating MBO into your performance management process
To ensure success, the MBO process needs to be embedded in the organizational-wide goal setting
and appraisal process. By incorporating MBO into the performance management process,
businesses can improve employee’s commitment, amplify chances for goal accomplishment, and
enable employees to think futuristically.
Ideal for:
Measuring the quantitative and qualitative output of senior management like managers, directors,
and executive (business of any size)
Common reason for failure:
Incomplete MBO program, inadequate corporate objectives, lack of top management involvement
Steps to implement a successful MBO program:
1. Every manager must have 5-10 goals expressed in specific, measurable terms
2. Manager can propose their goals in writing, which will be finalized after review
3. Each goal needs to include a description and a clear plan (list of tasks) to accomplish it
4. Determine how progress will be measured and how frequently (minimum quarterly)
5. List down corrective actions that will be taken if progress is not in accordance with plans
6. Ensure that goals at each level are related to the organizational objectives and levels
above/below
Did you know?
Retail giant Walmart, uses an extensive MBO participatory approach to manage the performance
of its top, middle, and first-line managers.

2. 360-DEGREE FEEDBACK
A multidimensional performance appraisal method that evaluates an employee using feedback
collected from the employee’s circle of influence namely managers, peers, customers, and direct
reports. This method will not only eliminate bias in performance reviews but also offer a clear
understanding of an individual’s competence.

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This appraisal method has five integral components like:
1. Self-appraisals
Self-appraisals offer employees a chance to look back at their performance and understand their
strengths and weaknesses. However, if self-appraisals are performed without structured forms
or formal procedures, it can become lenient, fickle, and biased.
2. Managerial reviews
Performance reviews done by managers are a part of the traditional and basic form of appraisals.
These reviews must include individual employee ratings awarded by supervisors as well as the
evaluation of a team or program done by senior managers.
3. Peer reviews
As hierarchies move out of the organizational picture, coworkers get a unique perspective on
the employee’s performance making them the most relevant evaluator. These reviews help
determine an employee’s ability to work well with the team, take up initiatives, and be a reliable
contributor. However, friendship or animosity between peers may end up distorting the final
evaluation results.
4. Subordinates Appraising manager (SAM)
This upward appraisal component of the 360-degree feedback is a delicate and significant step.
Reportees tend to have the most unique perspective from a managerial point of view. However,
reluctance or fear of retribution can skew appraisal results.
5. Customer or client reviews
The client component of this phase can include either internal customers such as users of product
within the organization or external customers who are not a part of the company but interact
with this specific employee on a regular basis.
Customer reviews can evaluate the output of an employee better, however, these external users
often do not see the impact of processes or policies on an employee’s output.

Advantages of using 360-degree feedback:

 Increase the individual’s awareness of how they perform and the impact it has on other
stakeholders
 Serve as a key to initiate coaching, counselling, and career development activities
 Encourage employees to invest in self-development and embrace change management
 Integrate performance feedback with work culture and promote engagement
Ideal for:
Private sector organizations than public sector organizations as peer reviews at public sector
organizations are more lenient.
Common reason for failure:
Leniency in review, cultural differences, competitiveness, ineffective planning, and misguided
feedback
Did you know?
Top private organizations like RBS, Sainsbury’s, and G4S are using 360-degree, multi-rater
performance feedback to measure employee performance.

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3. ASSESSMENT CENTRE METHOD
The concept of assessment center was introduced way back in 1930 by the German Army but it
has been polished and tailored to fit today’s environment. The assessment center method enables
employees to get a clear picture of how others observe them and the impact it has on their
performance. The main advantage of this method is that it will not only assess the existing
performance of an individual but also predict future job performance.

During the assessment, employees are asked to take part in social-simulation exercises like in-
basket exercises, informal discussions, fact-finding exercises, decision-making problems, role-
play, and other exercises that ensure success in a role. The major drawback of this approach is that
it is a time and cost intensive process that is difficult to manage.
Advantages of the assessment centre method:
 Enhance a participant’s knowledge, boost his/her thought process, and improve employee
efficiency
 Can be tailored to fit different roles, competencies, and business needs
 Offer an insight of the employee’s personality (ethics, tolerance, problem-solving skill,
introversion/extroversion, adaptability, etc.)
Ideal for:
Manufacturing organizations, service-based companies, educational institutions, and
consulting firms to identify future organizational leaders and managers.
Guidelines to implement assessment centre practice:
1. Use job analysis to determine the components of effective performance
2. Identify performance metrics that can be measured using this assessment center
3. Classify meaningful and relevant candidate behavior in the assessment process
4. Find assessment techniques that can ideally elicit ideal behavioral information
5. Spot assessors and assessee’s excluding immediate supervisors
6. Provide thorough training to assessors and reviewers
7. Maintain a system of performance records for each candidate

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 8. Review records and reward employee or provide training accordingly
Did you know?
Microsoft, Philips, and several other organizations use the assessment centre practice to identify
future leaders in their workforce.

4. BEHAVIORALLY ANCHORED RATING SCALE (BARS)

Behaviorally anchored rating scales (BARS) bring out both the qualitative and quantitative
benefits in a performance appraisal process. BARS compares employee performance with
specific behavioural examples that are anchored to numerical ratings.
Each performance level on a BAR scale is anchored by multiple BARS statements which describe
common behaviors that an employee routinely exhibits. These statements act as a yardstick to
measure an individual’s performance against predetermined standards that are applicable to their
role and job level.
The first step in BARS creation is generation of critical incidents that depict typical workplace
behavior. The next step is editing these critical incidents into a common format and removing any
redundancy. After normalization, the critical instances are randomized and assessed for
effectiveness. Remaining critical incidents are used to create BARS and evaluate employee
performance.
Advantages of using BARS:
 Enjoy clear standards, improved feedback, accurate performance analysis, and consistent
evaluation
 Eliminate construct-irrelevant variance in performance appraisal ratings by emphasis more on
specific, concrete, and observable behaviors
 Decrease any chance for bias and ensure fairness throughout the appraisal process
Ideal for:
Businesses of all sizes and industries can use BARS to assess the performance of their entire
workforce from the entry level agent to c-suite executives
Common drawbacks of BARS:
1. High chance for subjectivity in evaluations
2. Hard to make compensation and promotion decisions
3. Time-consuming to create and implement
4. Demands more from managers and senior executives

5. PSYCHOLOGICAL APPRAISALS
Psychological appraisals come in handy to determine the hidden potential of employees. This
method focuses on analyzing an employee’s future performance rather than their past work. These
appraisals are used to analyze seven major components of an employee’s performance such as
interpersonal skills, cognitive abilities, intellectual traits, leadership skills, personality traits,
emotional quotient, and other related skills.
Qualified psychologists conduct a variety of tests (in-depth interviews, psychological tests,
discussions, and more) to assess an employee effectively. However, it is a rather slow and complex

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 process and the quality of results is highly dependent on the psychologist who administers the
procedure.
Specific scenarios are taken into account while performing psychological appraisal. For instance,
the way in which an employee deals with an aggressive customer can be used to appraise his/her
persuasion skills, behavioral response, emotional response, and more.
Advantages of psychological appraisals:
1. Extract measurable, objective data about not just an employee’s performance but also potential
2. Can be deployed easily when compared with other performance appraisal methods
3. Offer introverted or shy employees a platform to shine and prove their potential
Ideal for:
Large enterprises can use psychological appraisals for an array of reasons including development
of leadership pipeline, team building, conflict resolutions, and more.
Common reasons for failure:
Absence of proper training, lack of trained professionals to administer reviews, and nervousness or
anxiety of candidates can skew results.
Did you know?
Ford motors, Exxon Mobil, Procter & Gamble use psychological appraisals to test the personality
and performance of their employees.

6. HUMAN-RESOURCE (COST) ACCOUNTING METHOD

Human resource (cost) accounting method analyses an employee’s performance through the
monetary benefits he/she yields to the company. It is obtained by comparing the cost of retaining
an employee (cost to company) and the monetary benefits (contributions) an organization has
ascertained from that specific employee.
When an employee’s performance is evaluated based on cost accounting methods, factors like unit-
wise average service value, quality, overhead cost, interpersonal relationships, and more are taken
into account. Its high-dependency on the cost and benefit analysis and the memory power of the
reviewer is the drawback of human resources accounting method.
Advantages of the human cost accounting method:
 Effectively measure the cost and value that an employee brings to the organization
 Help identify the financial implications that an employee’s performance has on the
organization’s bottom line
Ideal for:
Start-ups and small businesses where the performance of one employee can make or break the
organization’s success.
Implementation of human resource cost accounting method:
1. Identify the gap between the market and the current package of an employee
2. Determine the monetary and non-monetary value that an employee brings to the table
3. List down the things that an employee achieved in the review period (increase in the
subscriber count, improvement in revenue, number of new deals won, etc.,)

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