Chapter Six

PERFORMANCE APPRAISAL
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 Performance Appraisal (PA)

Performance appraisal (PA) - is a tool organizations can use

to maintain and enhance their productivity and facilitate progress

toward their strategic goals.

PA- the result of an annual or biannual process in which a

manager evaluates an employee’s performance relative to the
requirements.

 Uses the information to show the person where improvements

are needed and why.

PA – is the formal assessment and rating of individuals. 2

 PURPOSE OF PERFORMANCE APPRAISAL

 To give information about the performance of employees on the job

and give ranks on the basis of which decisions regarding salary
fixation, demotion, promotion, …

 To provide information about amount of achievement and behavior

of subordinate.

To provide information about an employee’s job-relevant strengths

and weaknesses.

 To provide information so as to identify shortage in employee

regarding ability, awareness and find out training and developmental
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 PERFORMANCE APPRAISAL STEPS
1. Establish Performance Standards: Expectations from employee in terms of
outputs, should be clear/not vague and objective enough, are evolved out of job
analysis and job descriptions.

2. Communicating the Standards Set for an Employee: It should be

communicated to the concerned employee about what it expected from them in
terms of performance.

3. Measuring of the Actual Performances: It is very important to know as how

the performance will be measured and what should be measured.

• Four important sources frequently used by managers are personal observation,

statistical reports, oral reports, and written reports. However, combination of all these
resources gives more reliable information.
 PERFORMANCE APPRAISAL STEPS……
4. Comparing Actual Performance with Standards Set in the Beginning: The
actual performance is compared with the expected or desired standard set.

5. Discussion with the Concerned Employee: In this step performance of the

employee is communicated and discussed. It gives an idea to the employee regarding
their strengths and weaknesses.

6. Initiate Corrective Action: Corrective action can be of two types; one is instant
and deals primarily with symptoms. The other is basic and deals with the causes.

• Basic gets to the source from where deviation has taken place and seeks to adjust
the differences permanently. Instant action corrects something right at a particular
point and gets things back on track.

• Basic action asks have the time to take basic corrective action and thus may go for
THE PERFORMANCE APPRAISAL
STEPS …..

Establish Discuss
Take corrective Appraisal
Performance
actions With
standard Employees

Communicate Compare
Measure
Standards Performance
Actual
To With
Performance
Employees Standard

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 THE BASIC ELEMENTS OF
PERFORMANCE STANDARD
there are four basic elements that must be considered when
establishing performance standards:

1. Strategic relevance-refers to the extent to which the

standards of an appraisal relate to the strategic objectives
of the organization in which they are applied.
 THE BASIC ELEMENTS OF
PERFORMANCE STANDARD
2. Avoid criterion deficiency-a performance Standard will have

criterion deficiency when it only focus on a single criterion

(e.g., Increased sales volume to the exclusion of other
important performance dimensions such as, increased
customer experience.

A good performance standard captures the entire range of

an employee’s responsibilities.
 THE BASIC ELEMENTS OF
PERFORMANCE STANDARD
3. Avoid Criterion contamination- a performance standard will be

contaminated when it contains elements that affect the appraisal

measures that are not part of the actual performance. i.e., a good

performance standard contains criteria's that jobholder can

influence.

4. Reliability - refers to the stability or consistency of a standard.

 WHO SHOULD APPRAISE AN
EMPLOYEE’S PERFORMANCE
1. Manager and/or supervisor appraisal - a performance
appraisal done by an employee’s manager.

2. Self-appraisal- a performance appraisal done by the

employee being evaluated, generally on an appraisal form
completed by the employee prior to the performance
discussion session.
 WHO SHOULD APPRAISE AN
EMPLOYEE’S PERFORMANCE
3. Subordinate appraisal- a performance appraisal of a
superior by an employee.
 WHO SHOULD APPRAISE AN
EMPLOYEE’S PERFORMANCE
4. peer appraisal- a performance appraisal of an employee
done by co-workers, generally on forms that are compiled
into a single form for use in the performance review
discussion conducted by the employee’s manager.
For peer appraisal to be effective:-
 The peer must trust each other
 work group needs to be stable over a long period of time
 co-workers must know the performance level of the
employee being evaluated
 WHO SHOULD APPRAISE AN
EMPLOYEE’S PERFORMANCE
5. Customer appraisal- a performance appraisal includes
evaluation from both a firm’s external and internal
customers.

6. Combination of the above appraisal approaches which is

called 360 appraisal.
 PERFORMANCE APPRAISAL METHODS

1. Graphic Rating Scale method- each trait or

characteristic to be rated is represented by a scale on
which a rater indicates the degree to which an employee
possesses that trait or characteristic.
 PERFORMANCE APPRAISAL METHODS

2. forced-choice method - a trait approach to performance

appraisal that requires the rater to choose from statements
designed to distinguish between successful and
unsuccessful performance.
Example:-
 a) Works slowly b) Works quickly
 a) Produces poor quality b) Produce high quality
 PERFORMANCE APPRAISAL METHODS

3. Essay method- requires the rater to write a brief narrative

description of employee's performance and characteristics.

Essay method requires the appraiser to describe the strength,

weakness and to make recommendations for his or her
development.
 PERFORMANCE APPRAISAL METHODS

4. Critical incident method- an unusual event that denotes

superior or inferior employee performance in some part of
the job.

Critical incident occurs when employee behavior results in

unusual success or unusual failure in some part of the job.

Critical incident method requires manager to keep a log or

diary to note specific critical incidents for each employee
throughout the appraisal period.
 PERFORMANCE APPRAISAL METHODS
An example of a favorable critical incident:

a janitor observes that a file cabinet containing classified

documents has been left unlocked at the close of business
and calls the firm’s security officer to correct the problem.
An example of an unfavorable incident:

occurs when a mail clerk fails to deliver urgent Mail package

immediately, instead putting it in with regular mail to be
routed two hours later.
 PERFORMANCE APPRAISAL METHODS
5. management by objectives (MBO)- a philosophy of
management that rates performance on the basis of
employee achievement of goals set by mutual agreement
of employee and manager.
 PERFORMANCE APPRAISAL METHODS
Steps of management by objectives(MBO)-
1. Objectives and measurements are established for the
organization
2. Objectives and measurements are established for the
department
3. Both the supervisor and the employee propose goals and
measurements and they will discuss to reach on mutual
agreement.
4. Periodically assessment of progress
5. Final review
6. Review of the connection between the employees’
 PROBLEMS ASSOCIATED WITH PERFORMANCE
APPRAISALS

Rating errors;

1. Error of central tendency- a performance rating error in which all

employees are rated about average.

• Raters who are reluctant to assign either extremely high or extremely low
ratings commit the error of central tendency.

To reduce this error:

• Raters need to recognize its normal to expect significant difference

among employees in terms of productivity ,behavior and other
characteristics.
 RATING ERRORS….

2. leniency or strictness error- a performance rating error in

which the appraiser tends to give employees either unusually
high or unusually low ratings.

To reduce this error:

Defining clearly Measurement criteria is important.
 RATING ERRORS….

3. Forced distribution- a performance appraisal ranking

system whereby raters are required to place a certain
percentage of employees into various performance
categories.

• E.g., 15% high performers, 20% high-average performers,

30% average performers, 20% low-average performers &15%
low performers.
To reduce this error:

Defining clearly Measurement criteria is important.

 RATING ERRORS….

4. Recency error – a performance rating error in which the

appraisal is based largely on the employee’s most recent
behavior rather than on behavior throughout the appraisal period.

To reduce this error:

• Documenting employee accomplishments and failures throughout

the whole appraisal period can minimize the recency error.
 RATING ERRORS….

5. Contrast error - a performance rating error in which an

employee’s evaluation is biased either upward or downward
because of comparison with another employee just previously
evaluated.

To reduce this error:

Using objective standards or measurement criteria is important.
 RATING ERRORS….

6. Similar to me error – occurs when appraisers inflate the evaluations

of people with whom they have something in common.

7. Halo effect- refers to the tendency to generalize one positive or

negative aspect of a person to the person’s entire performance,
resulting in either a higher or lower rating than the employee deserves.

To reduce this error:

Training raters on purpose of performance appraisal is important to reduce

the error.
 BENEFITS OF PERFORMANCE APPRAISAL

Reading Assignment: Read the benefits of performance appraisal

for organizations, appraiser, and appraisee/employees.