CHAPTER 6

Performance Appraisal (PA)

Once the employee has been selected, trained and motivated, then they appraised for their
performance. A “performance appraisal” is a process of evaluating an employee’s performance
of a job in terms of its requirements.
 Performance appraisal or employee appraisal is the systematic process of measuring and
evaluating employees with respect to their performance on the jobs and their potential for
development.
 Performance appraisal is the process of evaluating how well employees perform their
jobs when compared to a set of standards and then communicating that information to
those employees. Such appraisal also has been called employee rating, employee
evaluation, performance review, performance evaluation and results appraisal.
 Performance appraisal is a method of evaluating the behavior of the employees in the
work spot, normally including both the quantitative and qualitative aspects of job
performance. It is a systematic and objective way of evaluating both work-related
behavior and potential of employees.
 Performance appraisal is also defined as a formal system of periodic review and
evaluation of employee’s job performance against agreed upon standards.

Purpose of Performance Appraisal

The evaluation has two functions: one, telling the employees where they stand, second, using the
data for personnel decisions concerning to pay, promotions etc.
Some of the importance of PA is
A. Feedback: Good or bad performance throughout the organization indicates how well the
human resource function is performing. Performance Appraisal enables the employee to
know how well he/she is doing on the job. It tells him/her what he/she can do to improve his
present performance and go up the organizational ladder.
B. Compensation Decisions/adjustment: It can serve as a basis for pay raises. Managers need
performance appraisal to identify employees who are performing at or above expected
levels. This approach to compensation is at the heart of the idea that raises should be given

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 for merit rather than for seniority. Under merit systems, employee receives raises based on
performance.
C. Performance improvement: Performance feedback allows the employee, the manager, and
personnel specialists to intervene with appropriate actions to improve performance.
D. Training and Development programs: It can serve as a guide for formulating a suitable
training and development program. Performance appraisal can inform employees about their
progress and tell them what skills they need to develop to become eligible for pay raises or
promotions or both. Poor performance may indicate a need for retraining. Likewise, good
performance may indicate untapped/untouched potential that should be developed.
E. Informational inaccuracies: Poor performance may indicate errors in job analysis
information, human resource plans, or other parts of the personnel management information
system. Reliance on inaccurate information may have led to inappropriate hiring, training, or
counseling decision.
F. Job-design errors: Poor performance may be a symptom of ill-conceived job designs.
Appraisals help diagnose these errors.
G. Placement decisions: Promotion, transfer and demotion are usually based on past or
anticipated performance. Often promotions are a reward for past performance etc.

Performance Appraisal process

Performance Appraisal is planned, developed and implemented through a series of steps.
1. Establish Performance Standards: Appraisal systems require performance standards,
which serve as benchmarks against which performance is measured. A standard is a value
or specific criterion against which actual performance can be compared. Employee job
performance standards are established based on the job description. Employees are
expected to effectively perform the duties stated in the job description. Therefore, job
descriptions form the broad criteria against which employee’s performance is measured. To
avoid embarrassments/awkward of any kind, performance standards must be clear to both
the appraiser and the appraisee. The performance standards or goals must be developed
after a thorough analysis of the job. For the appraisal system to be effective, the employees
must actively participate in the design and development of performance standards.
2. Communicate the Standards: Performance appraisal involves at least two parties; the
appraiser who does the appraisal and the appraisee whose performance is being evaluated.

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 For the appraisal system to attain its purposes, the employees must understand the criteria
against which their performance is measured. As Werther and Davis (1996), stated to hold
employees accountable, a written record of the standards should exist and employees
should be advised of those standards before the evaluation occurs.
Providing the opportunity for employees to clearly understand the performance standards
will enhance their motivation and commitment towards their jobs.
3. Measure actual Performance (comparison of actual performance with the standard):
After the performance standards are set and accepted, the next step is to measure the actual
performance. This requires the use of dependable performance measures, the ratings used
to evaluate performance. Four common sources of information which are generally used by
managers regarding how to measure actual performance are personal behavior, statistical
reports, oral reports and written reports. Performance measures may be objective or
subjective. Objective performance measures are indications of job performance that can be
verified by others and are usually quantitative. Objective criteria include quality of
production, degree of training needed and accidents in a given period, absenteeism, length
of service etc. Subjective performance measures are ratings that are based on the personal
judgment or opinions of those doing the evaluation and are not verifiable by others.
Subjective criteria include ratings by superiors, knowledge of overall goals, and socio-
cultural values of the environment. The aim of performance measure is to detect departure
from expected performance level. The aim of performance measure is to detect departure
from expected performance level. Actual performance may be better than expected and
sometimes it may go off the track.
4. Discussing Appraisal with Employees
Employees must understand it, must feel it is fair, and must be work oriented enough to
care about the results (Glueck, 1978). After the evaluation, the rater must describe work-
related progress in a manner that is mutually understandable. According to Baird et.al.
(1990), feedback is the foundation upon which learning and job improvement are based in
an organization. The rater must provide appraisal feedback on the results that the employee
achieved that unmeet, meet or exceed performance expectations.
As Glueck (1978) noted, reaction to positive and negative feedback varied depending on a
series of variables such as:
 The importance of the task and the motivation to perform it

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  How highly the employee rates the evaluator
 The extent to which the employee has a positive self-image, and
 The expectancies the employee had prior to the evaluation; for example, did the
employee expect a good evaluation or a bad one?
In sum, it is important that employees should be fully aware that the ultimate purpose
of performance appraisal system is to improve employee performance, so as to enhance
both organizational goal achievement and the employee's satisfaction.
5. Initiating Action
The last step of the performance appraisal is taking action. The management has several
alternatives after appraising performance and identifying causes of deviation from job-related
standards. If the performance appraisal result shows deviation/nonconformity the following
alternatives actions will be taken:
a) Take no action: If problems identified are insignificant, it may be wise for the
management to do nothing.
b) Correct the deviation: On the other hand, if there are significant problems, the
management must analyze and identify the reasons why standards were not met. This
would help to determine what corrective action should be taken. For example, the cause
for weak performance can range from the employee job misplacement to poor pay. If the
cause is poor pay, corrective action would mean compensation policy reviews. If the
cause is employee job misplacement, corrective action would mean assign employee to a
job related to his/her work experience and qualification.
c) Review the standard: Finally, it is also important to revise the performance standard.
For example, the major duties stated in the job description and the qualification required
to do the job may not match. In this case corrective action would mean to conduct job
analysis to effectively determine the job description and job specification. Hence, the
evaluator would have a proper guide i.e., performance standards that make explicit the
quality and/or quantity of performance expected in basic tasks indicated in the job
description (Chatterjee, 1995).
Performance appraisals methods
There are different performance appraisal methods practiced by different private and government
organizations. The most commonly used performance appraisal methods are:

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 Traditional methods 4. Check list method
5. Narrative methods
1. Ranking method
6. Field review method
2. Grading method
7. Confidential report
3. Rating scale method (Graphic)
Modern methods
1. Assessment Centre method
2. Appraisal by Results or MBO.
3. BARS (Behaviorally Anchored Rating Scales.)
4. 360 degree feedback method (Multi-Rater Assessment method)
1. Ranking Methods
Ranking methods are methods of performance appraisal in which the performance of an
employee is ranked relative to the performance of others. Ranking method differs from the other
methods in that one employee’s performance evaluation is a function of the performance of other
employees in the job.
Ranking techniques include alternation ranking, paired comparison, and forced distribution.
a) Alternation Ranking Method is ranking employees from best to worst on a particular
trait. First, lists all employees to be rated, and then cross out the names of any not known
well enough to rank. Then indicate the employee who is the highest on the characteristic
being measured and also the one who is the lowest. Then choose the next highest and the
next lowest, alternating between highest and lowest until all employees have been ranked.
The primary drawback of this method is that the size of the performance differences
among individuals is not well defined. It would not indicate the performance level of an
individual.
b) Paired Comparison Method is ranking employees by comparing each employee with
every other employee in the rating group at a time. This method helps make the ranking
method more precise. For every trait, every employee is paired with and compared to
every other employee. For example, suppose a rater is to appraise six employees. The
names of these individuals are listed on the left side of a sheet of paper. The rater then
compares the first employee with the second employee on a chosen trait, such as quantity
of work. If rater believes the first employee has produced more work than the second
employee, a check mark is placed by the first employee’s name. The rater continues to
compare the first employee to the third, fourth, and fifth employee on the same
performance trait, placing a check mark by the name of the employee who performed

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 best in each paired comparison. The process is repeated until each employee has been
compared to every other employee on all of the chosen performance traits. The employee
with the most check marks is considered to be the best performer. Likewise, the
employee with the fewest check marks is the lowest performer.
Let us assume that there are five employees to be rated-Aberash, Fisiha, Gebre, Gutema
and Bargecho. The name of the ratees will be listed on the left hand side of a sheet of
paper or a form designed for this purpose. The supervisor then compares Aberash with
Fisha on the criterion chosen, say meeting deadlines or working under stressing
conditions. If Fisha is found to be better than Aberash, the rater put a tally beside Fisha’s
name. The rater then compares Fisha with Gebray, with Gutema and Bargecho. The
process is repeated for each individual. The employee with the most tallies is the most
preferred one at least in the eye of the rater. The employee with no talies or very few
tallies may be considered as poor performer.
 Aberash://  Gutema:////
 Fisiha: /  Bargecho:
 Gebray: ///
In the above example, Gutema excelled all as he was tallied four times. Bargicho has a
zero tally and considered as the poorest of all. One can easily pass judgment on the
others- Aberash, Fisha and Gebray. The number of comparison can be calculated with the
help of the following formula.

Frequency of compare = N (N-1)/2

Where, N stands for the number of employees to be compared.

Using the above example of 5 employees, the number of comparison to be made is 10,
that is
FC=5(5-1)/2 = 10.
Drawback: Difficult to implement when the number of employees to be rated is large.

c) Forced distribution requires raters to compare the performance of employees and place
a certain percentage of employees at various performance levels. It assumes the
performance level in a group of employees will be distributed according to normal curve.

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 For example, the rater decides to distribute employees as follows:
 10%............................................ High performers ,
 20%.............................................Above Average performers
 40%........................................... Average performers
 20%............................................Below Average performers
 10%.............................................Low performer

Drawback: May not be applicable in small groups of employees.

2. Grading method
Under this system, the rater considers certain features and marks them accordingly to a scale.
The selected features may be analytical ability, cooperativeness, dependability, job knowledge,
organizing ability etc. They may be: A-outstanding, B-very good C-good or average D-poor etc.
The actual performance of an employee is then compared with these grade definitions
3. Graphic/rating scale/method
Graphic rating scale consists of a list of general personal traits (job-related) and a range of
performance for each of the traits. The employee is then rated by identifying the score that best
describes his or her level of performance for each trait. The list of traits might include such
factors as quantity and quality of work, job knowledge, initiative, cooperativeness, attendance,
accuracy of work, etc. The scale typically features a Likert scale from 1-3, 1-5, and so on.
Instead of appraising generic traits or factors (such as quality and quantity), many firms specify
the duties to be appraised. In this case the job’s main sets of duties have been taken from the job
description and prioritized. Importance ratings are thus indicated as percentages at the top of
each main category.
Advantages
 It is less time consuming to develop and administer.
 It permits quantitative analysis and comparison.

Drawbacks
 It is subjective - the descriptive words used in the scales may have different
meaning for different raters.
 It is less reliable

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4. Checklist Method
The rater uses a list of behavioral descriptions required to do a job and put a check mark against
those behaviors that apply to the employee. In a simple checklist method, the rater makes yes-or-
no responses to a serious of questions concerning the employee’s behavior.
Look at the following example
Traits Yes No
Can be expected to finish work on time?
Is cooperative and helpful?
Seldom agree to work overtime?
Normally the scoring key for the checklist method is kept by the human resource department;
the evaluator is generally not aware of the weights associated with each question.
It is possible to use a weighted checklist method that attaches a weight to each item and can
develop a more accurate rating score.
Advantages
 It permits quantitative analysis and comparison.
Drawbacks
 It is subjective -the checklist questions can have different meanings for different
raters.
 Because raters can see the positive or negative connotation of each question, bias
can be introduced.
 It is time-consuming to assemble the questions for each category
5. Narrative Methods
Some raters use written appraisal method to evaluate the performance of employees. These
records describe an employee’s action rather than showing an actual rating.
a) Critical-Incident: Critical Incident Appraisal is a performance appraisal technique,
where the employer keeps a log of negative and positive behavior (critical incidents) of
his/her subordinates. After a specific period, say every 6 months, superiors and
subordinates meet to discuss the subordinate’s behavior and performance using the
recorded incidents as examples. It takes into account the qualitative behavior of an
employee.
Some managers ask their employees to record their own critical behaviors. This makes the
employers’ job easy as he doesn’t have to be present everywhere. After compiling these

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 incidents, the superior can provide examples of good or bad behavior and rate his
subordinates accordingly. This helps the supervisor appraise his subordinates based on
concrete examples of his performance. It also takes into account the behavior of a particular
employee throughout the year and not just the recent performance.
It also helps the employees know about their behavior and they can work on the
deficiencies to improve their overall performance.
Drawbacks
 It can be burdensome and time consuming, because it requires continuous and
close supervision to record critical events on the employee’s performance
 “Critical incident” is unclear and may be interpreted differently by different
people.
 It may also lead to friction between the manager and employees when the
employees believe the manager is keeping a “ book” on them
b) Essay Appraisal Method/free form method/requires that evaluation describe an
employee’s performance in written narrative form. It focuses on issues such as
strengths and weakness, job knowledge, communication skills, quantity and quality of
work, potentials of the employee for promotion, training, etc.
Drawbacks
 The length of the appraisal and their content can vary depending on the rater.
 It is difficult to make comparison to compare employees’ performance.
 It can also be affected by the writing skill of the appraiser.
6. Field Review method
Under this method, a trainer employee from the personnel department interviews line supervisors
to evaluate their respective subordinates. The supervisor is required to give his opinion about the
progress of his subordinates, the level of performance of each subordinate, his weaknesses, good
points etc. The appraiser takes detailed note of the answers, which are then approved by the
supervisor and placed in the employee’s personal file.

7. Confidential report
A confidential report by the immediate supervisor is still a major determinant of a subordinate’s
promotion or transfer. The format and pattern of this report varies with each organization. In

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 this method each employee is rated confidentially by one or more senior officers for his
performance. The superiors who appraise their subordinate’s performance, behavior and other
key issues will be kept in the form of writing on paper, which is called as confidential report.
Confidential report should not be sent openly on a paper, it must be kept in a sealed cover to send
it to decision-making authorities. Only authorized persons are allowed to open the sealed covers
which consist of confidential reports. Confidential reports shall not be handed over in loose
sheets to the subordinates.
Key factors assessed in Confidential Report writing
 Character and conduct of an employee
 Absenteeism of an employee
 Knowledge of an employee
 His/her nature and quality of work
 Punctuality of employee
 Unauthorized absenteeism or leave without permission
 Behavior of an employee with colleagues, superiors and with public
 Ability of supervision and controlling
 His/her integrity and honesty
 If any complaints against employee
8. Assessment centre method
The purpose of this method is to test candidates in a social situation, using a number of
accessories and a variety of procedures. The most important feature of the assessment center is
job related simulations. The evaluators observe and evaluate participants as they perform
activities commonly found in higher level jobs.
Under this method, many evaluators join together to judge employee performance in several
situations with the use of a variety of criteria. It is used mostly to help select employees for the
first level supervisory positions. Assessments are made to determine employee potential for
purposes of promotion.
9. Management By Objective (MBO)
Management by Objectives (MBO) or management by result is a performance appraisal method
that calls for a comparison between specific, quantifiable target goals and the actual results
achieved by an employee.

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 MBO is the most popular method of managerial appraisal. It also refers to a process in which
managers/raters set specific and measurable goals with each individual employee on a regular
basis. The employee is then responsible for achieving his/her goal within a certain time.
With MBO, the measurable, quantitative goals are usually mutually agreed upon by the
employee and supervisor at the beginning of the appraisal period.
During the review period, progress towards the goals is monitored. At the end of the review
period, the employee and supervisor meet to evaluate whether the goals were achieved and to
decide on new goals. The goals or objectives are usually set for individual employees or units
and usually differ across employees (or units) depending on the circumstances of the job. For this
reason, MBO has been shown to be useful for defining “individual” or unit performance in the
context of strategic plans.
The important steps involved in MBO:
1) Establish an organization-wide plan and also set the organization’s goals,
2) Set departmental goals
3) Discuss with the departmental goals through the involvement of employees.
4) Set individual employee’s goals (define expected results)
5) Measure the actual results (performance reviews)
6) Provide feedback: managers hold periodic performance review meetings with employees to
discuss in achieving the expected results.

Requirements for the successful application of MBO appraisal method:

 The objectives to be set should be quantifiable and measureable
 Objectives should also be challenging yet achievable, and they should be expressed in
writing and in clear, concise, unambiguous language.
 Employees should be participated in the objective-setting process.
 Objectives and action plans must serve as a basis for regular discussions between the
manager and the employee concerning the employee’s performance.
10. Behaviorally Anchored Rating Scale (BARS)
This is a new appraisal technique which has recently been developed. It provides better, more
equitable appraisals as compared to other techniques. This method is based on critical incidents
and is analyzed by rating these incidents on a 7 or a 9 point scale.

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 The focus of BARS is not on performance of outcomes but on functional behaviors demonstrated
on the job. The assumption is that these functional behaviors will result in effective job
performance.
Most BARSs use the term job dimension to mean those broad categories of duties and
responsibilities that make up the job. Each job is likely to have several job dimensions, and
separate scales must be developed for each.
Appraising performance using BARS requires the rater to read the list of anchors on each scale
to find the group of anchors that best describe the employee’s job behavior during the period
being reviewed. The scale value opposite the group of anchors is then checked. A total
evaluation is obtained by combining the scale values checked for all job dimensions.
The three steps to develop BARS:
 Managers and job incumbents identify the relevant job dimensions for the job.
 Managers and job incumbents write behavioral anchors for each job dimension. As many
anchors as possible should be written for each job dimension.
 Managers and job incumbents reach a consensus concerning the scale values to be used
and the grouping of anchor statements for each scale value.
11. Multi-Rater Assessment (or 360-Degree Feedback)

It is modern method of appraisal and nowadays popularly used in modern organizations. With
this method; managers, peer, customers, suppliers, and subordinates are involved in appraising
an employee. These parties complete questionnaires on the individual employee job
performance. The person assessed also completes a questionnaire. The human resource
department provides the results to the employee, who in turn gets to see how his/her opinion
differs from those of the parties doing the assessment.
360-degree performance appraisal method can give a more rounded view of a person’s
performance than a straight-forward appraisal, which is often carried out by a line manager.

Problems associated with performance appraisals

Problems of performance appraisal are associated with the rater, ratee and appraisal systems.
Some of the problems seen in performance appraisal include:
A. Lack of objectivity (unclear performance standards): Unclear performance standards are
an appraisal scale that is too open to misinterpretation by including standards like “good” or

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 “unsatisfactory”, instead of including descriptive phrases that define each trait. Some traits
used for evaluating performance are difficult to measure and thus lack objectivity.
B. Halo and horn effect: Halo effect is the performance problem that occurs when a
supervisor’s rating of an employee on one trait biases. When we meet someone, and the first
impression of him is very positive, then we tend to ignore the negative characteristics in the
person and concentrate only on the positive characteristics during appraisal. The “halo
effect” captures what happens when a person who is judged positively based on one aspect is
automatically judged positively on several others without much evidence. This problem
occurs with employees who are especially friendly (unfriendly) toward the supervisor. For
example, unfriendly employee will often be rated unsatisfactorily for all traits rather than just
for the trait. This often results in the employee receiving approximately the same rating on
every trait. Horn error: Manager generalizes one negative performance feature or incident
to all aspects of employee performance, resulting in lower rating. If our first impression
about a person is negative, we tend to ignore his positive characteristics and concentrate only
on the negative ones. Clearly it is the opposite of halo effect.
C. Leniency: Leniency is the problem that occurs when the rater has a tendency to rate all
employees as high performers. It is the grouping of ratings of all employees at the positive
end instead of spreading them throughout the performance scale. This leniency problem is
especially serious with graphic rating scale since raters aren’t necessarily required to avoid
giving their employees high ratings. This problem makes it difficult to differentiate the good
performers from the poor performers.
D. Strictness: Strictness is the problem that occurs when the rater has a tendency to rate all
employees as low performers. It is the grouping of ratings of all employees at the negative
end instead of spreading them throughout the performance scale. This strictness problem is
especially serious with graphic rating scale since raters aren’t necessarily required to avoid
giving their employees low ratings. This problem makes it difficult to differentiate the good
performers from the poor performers.
E. Central tendency: Central tendency is a tendency to rate all employees the same way, such
as rating them all average. This problem occurs when appraisal statistics indicate that most
employees are appraised as being near the middle of the performance level. In such cases, it
would be very difficult to differentiate good performers from poor performers.

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F. Recent behavior bias: This occurs when evaluations are based on the employee’s recent
behaviors or work performed most recently. This may not be a representative of the overall
performance of the employee throughout the evaluation period. This problem makes it
difficult to differentiate the good performers from the poor performers.
Personal preferences, prejudices, and biases can also cause errors in performance appraisals.
Appearance, social status, dress, race, and sex have influenced many performance appraisals.
G. Similarity error: Evaluator rates others in the same way that the evaluator perceives himself
or herself.
H. Low appraiser motivation: Evaluators may be reluctant to be accurate if important rewards
for the employee depend on the results.
I. Inflationary pressures: Pressures for equality and fear of retribution/revenge for low ratings
leads to less differentiation among rated employees.
J. Anxiety: Evaluation process may create anxiety for appraised employee opportunities for
promotion, better work assignments, and increased compensation may hinge on results
K. Personal bias (stereotyping): Managers allow individual differences such as gender, race,
or age to affect ratings. Effects of cultural bias, or stereotyping, can influence appraisals.

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