What Is a Performance Appraisal?

A performance appraisal is a regular review of an employee's job performance

and overall contribution to a company. Also known as an annual review,
performance review or evaluation, or employee appraisal, a performance
appraisal evaluates an employee’s skills, achievements, and growth--or lack
thereof.

Companies use performance appraisals to give employees big-picture

feedback on their work and to justify pay increases and bonuses, as well
as termination decisions. They can be conducted at any given time but tend to
be annual, semi-annual, or quarterly.

KEY TAKEAWAYS

 A performance appraisal is a regular review of an employee's job

performance and contribution to a company.
 Companies use performance appraisals to determine which employees
have contributed the most to the company’s growth, review progress,
and reward high-achieving workers.
 While there are many different kinds of performance reviews, the most
common is a top-down review in which a manager reviews his or her
direct report.
How Performance Appraisals Work
Because companies have a limited pool of funds from which to award raises
and bonuses, performance appraisals help determine how to allocate those
funds. They provide a way for companies to determine which employees have
contributed the most to the company’s growth so companies can reward their
top-performing employees accordingly.

Performance appraisals also help employees and their managers create a

plan for employee development through additional training and increased
responsibilities, as well as to identify shortcomings the employee could work
to resolve.

Ideally, the performance appraisal is not the only time during the year that
managers and employees communicate about the employee’s contributions.
More frequent conversations help keep everyone on the same page,
develop stronger relationships between employees and managers, and make
annual reviews less stressful.

Performance Appraisal Types

Most performance appraisals are top-down, meaning supervisors evaluate
their staff with no input from the subject. But there are other types:

 Self assessment: Individuals rate their job performance and behavior.

  Peer assessment: An individual's workgroup or coworkers rate their
performance.
 360-degree feedback assessment: Includes input from an individual,
supervisor, and peers.
 Negotiated appraisal: A newer trend that utilizes a mediator and
attempts to moderate the adversarial nature of performance evaluations
by allowing the subject to present first. Also focuses on what the
individual is doing right before any criticism is given. This structure
tends to be useful during conflicts between subordinates
and supervisors.

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

There are various methods involved in performance

appraisal. Some methods measure absolute standards, some
measure relative standards, and others measure standards in
relation to objectives. Further, in the last 30 years, the
appraisal process has undergone a lot of changes, and in line
with its importance, new methods have also resulted. Hence,
we examine the methods under two headings- traditional
methods and modern methods.

I. Traditional Methods:

The traditional methods of performance appraisal have

been briefly discussed below:
1. Graphic Rating Scales:

This is the oldest and most commonly used method. It is also

known as the linear rating scale or simple rating scale. In this
method, a printed form is used to evaluate the performance of
each employee. A variety of traits such as employee
initiative, leadership, attitude, loyalty, creativity, cooperation,
quality and quantity of work done, goals achieved,
coordination towards co-workers and supervisors, etc. are
included.

These traits are then evaluated on a rating scale by the rater

according to the employee performance. The advantage of
this method is that it is easy to use, easy to understand, and
many employees can be evaluated quickly. The drawback is
its low reliability, subjectivity, and the descriptive words
used in such scales, which may have different meaning to
different raters.

2. Ranking Method:

This is a relatively easy method. In this method, each person

in the group is assigned a rank in comparison with others in
the group. Normally, the ranking is done based on the
performance of the employees. The top performer is usually
assigned rank 1 and the ranks decline as the performance
levels decrease.

Even though ranking is done, it is difficult to evaluate and

assign ranks to average employees. The method also has its
limitations. Only a relative ranking of the employee is
obtained but not the degree of difference in proficiency.
Another limitation is only the work-related aspects are
compared and no other behavioural aspects. This method is
not practicable for a large group.

3. Paired Comparison Method:

Paired comparison method is a systematic method where
each employee is compared with all other employees in the
group, for each trait, one at a time.

4. Forced Distribution Method:

In this, the system rater appraises the employee on two

dimensions- job performance and other factors of
promotability. A five-point performance scale is used to
describe and classify the employees. The extreme ends
denote good and bad performances.

For example, employees with outstanding performance may

be placed among the top ten per cent of the scale. An
advantage of this method is it brings about uniformity among
the rates. Since performance depends on many factors,
employees who have been classified as low performers may
experience low morale.

5. Checklist Methods:

It is a simple rating method in which the rater is given a list

of statements and is asked to check the statements
representing the characteristics and performance of each
employee. There are three types of checklist methods—
simple checklist, weighted checklist, and forced-choice
method.

i. Simple Checklist Method:

It consists of a large number of statements concerning

employee behaviour. The rater’s task is simply to check if the
behaviour of an employee is positive or negative to each
statement. Employee performance is rated on the basis of the
number of positive checks, negative checks are not
considered.

ii. Weighted Checklist Method:

The weighted checklist method involves weighting the
different statements about an individual to indicate that some
are more important than others. The rater is expected to look
into the questions which relate to the employee’s behaviour
and tick such statements that closely describe the behavior of
employee.

In the weighted method, the performance ratings of the

employee are multiplied by the weights of the statements and
the coefficients are added up. This cumulative coefficient is
the weighted performance score of the employee, which, in
turn, is compared with the overall assessment standards in
order to find out the overall performance of the employee.
However, this method is expensive to design and time
consuming in nature.

iii. Critical Incident Method:

In the critical incident method, the rater or manager prepares

a list of statements on the basis of the effective and
ineffective behaviour of an employee. These incidents
represent the behaviour of employees on their job. The rater
periodically records the critical incidents and maintains it. At
the end of the rating period, these critical incidents are used
to evaluate the overall employee performance.

6. Essay-Form Appraisal:

In an essay-form appraisal the manager writes a short essay

describing the employee’s performance. This form, prepared
during the rating period, emphasizes the evaluation of the
overall performance on the basis of their
strengths/weaknesses. A major limitation of this method is
that the quality of ratings depends on the writing skills of the
manager, rather than the performance of an employee.

7. Group Appraisal:
In this method, an employee is appraised by a group of
appraisers. The group consists of the immediate supervisor of
the employee, manager or head of the department, and
consultants. The group may use one or multiple methods.

The group first appraises the performance of the employee,

compares the actual performance with the standards, finds
out the deviations, and discusses the reasons for it in order to
suggest ways for improving the performance of the
employee. The group also prepares a plan of action, studies
the need for change in job analysis and standards, and
recommends change. This method is used for the purpose of
promotion, demotion, and retrenchment appraisal.

8. Confidential Reports:

Under this method, the supervisor appraises the performance

of his subordinates on the basis of his observations,
judgement, and intuitions. This method is usually used in
government organizations and is prepared at the end of every
year. The report states the strengths, weaknesses, sincerity,
punctuality, attitude, knowledge, skills, conduct, and
character of the employees.

II. Modern Methods:

The modern methods of performance appraisal are

discussed below:

1. Behaviourally Anchored Rating Scales (BARS):

This is recently developed appraisal method. It is a

combination of the rating scale and critical incident method.

The five-step procedure for BARS is discussed below:

Step I- Collect Critical Incidents:

People with knowledge of the job to be appraised are asked
to describe specific illustrations of effective and ineffective
performance behaviour.

Step II- Identify Performance Dimensions:

These people then cluster the incidents into a smaller set (of
say, 5-10) of performance dimensions. Each cluster
(dimensions) is then defined.

Step III- Re-Classify the Incidents:

Another group of people, who have knowledge about the job,

re-classify the critical incidents. They are given the cluster
definitions and critical incidents, and asked to re-design each
incident to the dimension it best describes. Typically, a
critical incident is retained if some percentage (usually 50%
to 80%) of this group assigns it to the same cluster as the
previous group did.

Step IV- Rate the Incidents:

This second group is generally asked to rate (7 or 9-point

scales are typical) the behavior described in the incident in
terms of how effectively or ineffectively it represents
performance on the appropriate dimension.

Step V- Develop the Final Instrument:

A subset of incidents (usually 6 or 7 per cluster) is used as

‘behavior anchors’ for the performance dimensions.

2. Assessment Centre Method:

This method is used to test candidates in a social situation,

using a variety of procedures and a number of assessors. The
most important feature of the assessment centre is job-related
simulations. These simulations involve characteristics that
managers feel are important to job success.
The evaluators observe and evaluate participants (in several
situations) as they perform activities commonly found in
these higher-level jobs. Assessments are made to determine
employee potential for the purpose of promotions.

Assessment centres are used for the following purposes:

i. To measure the potential for first-level supervision, sales

and upper management positions, and also for higher levels
of management for development purposes.

ii. To determine the individual training and development

needs of employees.

iii. To select recent college students for entry-level positions.

iv. To provide more accurate human resource planning

information.

v. To make an early determination of potential.

vi. To assist in implementing affirmative action goals.

3. Human-Asset-Accounting Method:

Human-asset accounting is a sophisticated method which

deals with the cost and contribution of human resources to
the organization. Cost of employee includes cost of
manpower planning, recruitment, selection, induction,
placement, training development and benefits, etc.

Employee contribution is the employee’s service towards the

organization. Employee performance is positive if the
employee contribution is more than his/her cost to the
company.

4. Management by Objectives:

Management by objectives is described as ‘a process

whereby the superior and subordinate managers of an
organization jointly identify its common goals, define each
individual’s major areas of responsibility in terms of results
expected of him and use these measures as guides for
operating the unit and assessing the contributions of each of
its members’.

MBO is a modern method of evaluating the performance of

employees—it measures each employee’s contribution to the
success of the organization.

To establish objectives, the key people involved should

engage in the following three activities:

i. Meet to achieve the objectives within a given period of

time.

ii. Develop plans to accomplish the objectives.

iii. Agree on the ‘yardsticks’ for determining whether the

objectives have been met.

So, MBO is a complete system of planning, control, and

philosophy of management.

5. 360° Performance Appraisal:

The appraiser can be any person who has knowledge about

the job done, the contents to be appraised, the standards of
contents, and observes the employee while performing a job.
The comprehensive appraisals from the supervisors, peers,
subordinates, and the employee himself/herself are called
360° appraisal.

The appraiser should assess the performance without bias and

must also be capable of determining what is more important
and what is less important.