6 Performance Appraisal

Performance appraisal means the systematic evaluation of the performance of an employee by his/her superiors. It is a tool for discovering, analyzing and classifying the differences among workers in relation to job standards. It refers to the formal system of appraisal, in which the individual is compared with others and ranked or rated. Generally, appraisal is made by the supervisor or manager once or twice in a year.

6.1 Purpose of Performance Appraisal

Performance appraisal is an important tool of HR management, and is used for a variety of purposes.

  • It is used to appraise the quality of performance of different employees. It includes knowledge of the work, ability to do the work efficiently, spirit of coordination, dependability, punctuality, enthusiasm, self-confidence, leadership qualities etc.
  • Through this method, the appraisal procedure is standardized so that the management may rate all the employees on the same qualities by the same method of measurement.
  • It may be used for training of employees.
  • It is also useful in deciding the type and nature of training programmes for employees. It helps in the placement of employees properly and also in finding out the ‘misfit’ who may be transferred to the right place.
  • It forms an unbiased and systematic basis for any increase in the wages of employees.
  • It helps in identifying employees who may be considered for promotion.

6.2 Importance of Performance Appraisal

Performance appraisal has been considered as the most significant tool for an organization. It provides information which is highly useful in making decisions regarding various aspects such as promotions and merit rating. It is helpful in preventing grievances because it is a definite aid to management in promoting fairness to employees. It provides accurate information which plays a vital role in the organization as a whole. If valid performance data are available, i.e. timely, accurate, objective, standardized and relevant, management can maintain consistent promotion and compensation policies throughout the total system.

6.3 Steps in Appraisal

The process of performance appraisal follows a set pattern, viz., an employee’s performance is periodically appraised by his superiors. The following usually form the main steps of an appraisal programme:

  • Step-1: Establish performance standards: At the time of designing a job and formulating a job description, performance standards are usually developed for a position. These standards should be clear, and objective enough to be understood and measured. Weights and points are to be given to each factor of these standards and should be indicated on the appraisal form. These are used for appraising the performance of the employees.
  • Step-2: Communicate performance expectation to employees: It is difficult for employees to guess what is expected of them. Hence the standards of performance should be communicated to the employees. To make communication effective, ‘feedback’ is necessary from the subordinates to the manager. Satisfactory feedback ensures that the information communicated by the manager has been received and understood in the way it was intended.
  • Step-3: Measure actual performance: To determine what actual performance is, it is necessary to acquire information about it. We should be concerned with how we measure and what we measure. Four sources of information are frequently used to measure actual performance: personal observation, statistical reports, oral reports and written reports.
  • Step-4: Compare actual performance with standards: The employee’s appraisal is done and he/she is judged in terms of potential for growth and advancement. Attempts are made to note the deviations between ‘standard performance’ and ‘actual performance.’
  • Step-5: Discuss the appraisal with the employee: The results of the appraisal are discussed periodically with the employees where strong points, weak points, and difficulties are indicated and discussed so that performance is improved. The information that the subordinate receives about his/her assessment has a great impact on his subsequent performance. Conveying good news is easy for both manager and subordinate but it is considerably difficult when performance has been below expectation.
  • Step-6: Initiate corrective action, if necessary: Corrective action can be of two types. One is immediate and deals mainly with symptoms. The other is basic and looks deep into the causes. Immediate corrective action is often described as “putting out fires,” whereas basic corrective action gets to the source of deviation and seeks to adjust the difference permanently. Counseling may be done or special assignments may be set, people may be deputed for formal training courses, and decision-making responsibility and authority may be delegated to the subordinates. Attempts may also be made to recommend for salary increases or promotion, if it is required in the light of appraisals.

3327.jpgProcess of Performance Appraisal

6.4 Methods, techniques and tools

Several methods and techniques are available for measuring the performance of an employee. The methods and scales differ for various reasons. First, they differ in the sources of traits or qualities to be appraised. The qualities may differ because of difference in job requirements, statistical requirements and the opinion of the management. Second, they differ because of the different kinds of workers, viz., factory workers, executives or salespeople. Third, the variations may be caused by the degree of precision attempted in evaluation. Finally, they may differ because of the methods used to obtain weight for various traits.

The traditional methods of performance appraisal lay emphasis on the rating of the individual’s personality traits, such as initiative, dependability, drive, responsibility, creativity, integrity, leadership potential, intelligence, judgment, organizing ability etc. On the other hand, modern methods lay more emphasis on the evaluation of work results – job achievements – than on personality traits. Result-oriented appraisals tend to be more objective and worthwhile, especially for counseling and development purposes.

3342.jpgMethods of Performance Appraisal

6.4.1 Traditional Methods

  • Straight Ranking method: It is the oldest and simplest method of performance appraisal by which an employee and his performance are considered as an entity by the evaluator. The relative position of each employee is tested in terms of his/her numerical rank. It may also be done by ranking a person on his/her job performance against that of another member of a competitive group by placing him/her as number one or two or three in the total group i.e. persons are tested in order of merit and placed in simple grouping. But this method has its limitations. Firstly, it is very difficult to compare a single individual with human beings having varying behaviour traits. Secondly, this method only tells us how a person stands in relation to the others in the group, but does not indicate how much better or worse he/she is than another. Thirdly, the task of ranking is difficult when a large number of persons are rated. Fourthly, the ranking system does not eliminate snap judgments, nor does it provide us with a systematic procedure for determining the relative ranks of subordinates.
  • Person-to-person Comparison Method: By this method certain factors are selected for the purpose of analysis (such as leadership, dependability and initiative) and scale is designed by the rater for each factor. A scale of a person is also created for each selected factor. Then each person to be rated is compared with the person in the scale, and certain scores for each factor are awarded to him/her. This method is not of much use because the designing of scales is a complicated task.
  • Grading Method: Under this system, the rater considers features and marks them accordingly to a scale. Certain categories of worth are first established and carefully defined. The selected features may be analytical ability, cooperativeness, dependability, self-expression, job knowledge, judgment, leadership and organizing ability etc. The rating scale may be: A Outstanding; B – Very Good; C – Good or Average; D – Fair; E – Poor. The actual performance of an employee is then compared with these grade definitions and he/she is allotted the grade which best describes his/her performance. Such type of grading is usually done in the selection of candidates by the Public Service Commissions.
  • Graphic or Linear Rating Scale: This is the most commonly used method of performance appraisal. A printed form is used for each person to be rated. The factors to be rated are: employee characteristics and employee contribution. In employee characteristics are included qualities such as initiative, leadership, cooperativeness, dependability, industriousness, attitude, enthusiasm, loyalty, creative ability, decisiveness, analytical ability, emotional ability and coordination. In employee contribution are included the quantity and quality of work, the responsibility assumed, specific goals achieved, regularity of attendance, leadership offered, attitude towards superiors and associates, versatility etc. These traits are then evaluated on a continuous scale wherein the rater places a mark somewhere along a continuum.






However, this method suffers from serious disadvantage for it is arbitrary and the rating is generally subjective. Another limitation is that it assumes that each characteristic is equally important for all jobs.

  • Forced Choice Description Method: Under this method, the rating elements are several sets of pair phrases or adjectives (usually sets of 4 phrases, two of which are positive, two negative) relating to job proficiency or personal qualifications. The evaluator is asked to indicate which of the four phrases is the most and least descriptive of the employee.

The following statements are illustrative of the type of statements that are used:

  1. a) Organizes work well.
  2. b) Lacks the ability to make people feel at ease.
  3. c) Makes little effort.
  4. d) Has a cool, even temperament.
  5. e) Is dishonest and disloyal.
  6. f) Is over-bearing and disinterested in work.
  7. g) Is a hard worker and cooperative.

Two of the above phrases are favourable terms while two are unfavourable. The others are further examples. The favourable terms earn a credit, while unfavourable terms get no credit. The employee also gets plus credit if one of the negative phrases is checked as being the least characteristic.

However, the results of evaluation do not prove useful for counseling and training purposes because the evaluator is ignorant of how he/she is evaluating the individual.

  • Forced Distribution Method: This method requires the rater to appraise an employee according to a pre-determined distribution scale. It is assumed that it is possible and desirable to rate only two factors, viz., job performance and chances for promotion. For this purpose, a 5-point performance scale is used without any descriptive statement. Employees are placed between the two extremes of ‘good’ and ‘bad’ job performances.

For example:

Top 10% – Outstanding

Next 20% – Above Average

Next 40% – Average/Good

Next 20% – Fair

Next 10% – Below Average/Poor

In addition to job performance, employees are rated for chances of promotion. A 3-point scale is often used for this purpose:

  1. a) Very likely promotional material.
  2. b) May or may not be promotional material.
  3. c) Very unlikely to be promotional material.

Though this method is very simple to understand and very easy to apply in an organization, its use in wage administration leads to low morale and low productivity.

  • Check List: Under this method, the evaluator does not evaluate employee performance. He/she supplies reports about it and the final rating is done by the HR department. A series of questions are presented concerning an employee’s behaviour. The rater then checks to indicate if the answer to a question about an employee is positive or negative. The value of each question may be weighted equally or certain questions may be weighted more heavily than others. An example of check list is given below:

(1) Is the employee really interested in his/her job?Yes/No

(2) Is he/she regular in job?Yes/No

(3) Is he/she respected by his/her subordinates?Yes/No

(4) Does he/she show uniform behaviour to all?Yes/No

(5) Does he/she keep his temper?Yes/No

(6) Is he/she always willing to help other employees?Yes/No

(7) Does he/she follow instructions properly?Yes/No

(8) Is the equipment maintained in order?Yes/No

(9) Does he/she ever make mistakes?Yes/No

This method suffers from bias on the part of the evaluator because rating can be influenced by his own concern for good or bad. Secondly, a separate checklist must be developed for different classes of jobs. This process can be expensive and time consuming. Thirdly, it is difficult to assemble, analyze and weigh a number of statements about an employee’s characteristics and contributions.

  • Free Essay Method: Under this method, the supervisor makes a free form, open-ended appraisal of an employee in his/her own words and puts down his/her impressions about the employee. He/she usually takes notes of factors such as:
  1. a) Job knowledge and potential;
  2. b) Employee characteristics and attitude;
  3. c) Production, quality and cost control;
  4. d) Relation with other colleagues;
  5. e) Understanding and application of company policies and procedures;
  6. f) Development needs for future.

These applications will give specific information about the employee, and can reveal even more about the supervisor. But this method is extremely time-consuming particularly in larger organizations.

  • Critical Incident Method: This method attempts to measure employee performance in terms of certain ‘events’ that occur in the performance of the employee’s job. These events are known as ‘critical incidents.’ The basis of this method is the principle that “there are certain significant acts in each employee’s behaviour and performance which make all the difference between success and failure on the job.”

The supervisor keeps a written record of the events (either good or bad) that can easily be recalled and used in the course of a periodical appraisal. For example, a Materials Manager may look for the following critical incidents in a purchasing agent’s performance:

  1. 1) He treated the salesman in a discourteous fashion.
  2. 2) He helped a buyer to prepare an unusually difficult purchase order.
  3. 3) He persuaded a local vendor to stock a particularly important material needed by the company.
  4. 4) He rejected a bid that was excessively over-priced.
  5. 5) He failed to return an important phone call.

While this method provides an objective basis for conducting discussion of an individual’s performance, it has limitations. Firstly, negative incidents are generally more noticeable than positive ones. Secondly, the recording of incidents is a chore to the supervisor and may be put off and easily forgotten. Thirdly, managers may unload a series of complaints about incidents during an annual performance review session, while they may not be aware of the ‘good’ incidents.

  • Group Appraisal Method: Employees are rated by an Appraisal Group consisting of their supervisor and 3 or 4 other supervisors who have some knowledge of their performance. The supervisor explains to the group the nature of his subordinates’ duties. The group then discusses the standards of performance for that job, the actual performance of the job-holder and the causes of their particular level of performance, and offers suggestions for future improvements, if any. The advantage of this method is that it is thorough, very simple and is devoid of any bias, for it involves multiple judges. But it is very time consuming.
  • Field Review Method: A staff member from the HR department interviews line supervisors to evaluate their respective subordinates. The questions are asked verbally and answered. The supervisor is required to give his opinion about the progress of his subordinates, the level of performance of each subordinate, his weaknesses, strong points, chances for promotion and the possible plans of action in case requiring further consideration. The appraiser takes detailed notes of the answers, which are then approved by the supervisor, and files the information in the employee’s personnel folder. The overall ratings are obtained by largely using a three-way categorization, viz., Outstanding, Satisfactory, and Unsatisfactory. This is useful for large organizations.

6.4.2 Modern Methods of Appraisal

Most traditional methods emphasize either on the task or the employee’s personality, while making an appraisal. In order to bring about a balance between these two, modern methods have been developed. Of such methods the prominent one is Appraisal by Results or Management by Objective (MBO). This method has been evolved by Peter Drucker. It seeks to minimize external controls and maximize internal motivation through joint goal setting between the manager and the subordinate, and increasing the subordinate’s own control of his work. It strongly reinforces the importance of allowing the subordinate to participate in the decisions that affect him directly.

  • Objectives of MBO: The objective is to change the behaviour and attitudes towards getting the job done. In other words, it is result-oriented. It is performance that counts. It is a management system and philosophy that stresses goals rather than methods. It provides responsibility and accountability and recognizes that employees have need for achievement and self-fulfillment. It meets these needs by providing opportunities for participation in the goal setting process.
  • Benefits of MBO programme: It has the following benefits:
  • It increases employee motivation.
  • Since MBO aims at providing clear targets and their order or priority, it reduces role conflict and ambiguity.
  • It provides more objective appraisal criteria.
  • It identifies problems better and early. Frequent performance review sessions make this possible.
  • It identifies performance deficiencies and enables the management and employees to set individualized self-improvement goals and thus proves effective in training and development of people.
  • It helps the individual manager to develop personal leadership, especially the skills of listening, planning, counseling, motivating and evaluating.
  • Drawbacks of MBO: It has the following drawbacks:
  • It takes a great deal of time, energy and form-completing on the part of the managers.
  • Executives find it hard to think about the result of work rather than the work itself. They tend to overemphasize goals that are easy to quantify, sometimes forgetting that workers behave almost like children at play. When the game is no longer challenging, interest is soon lost.
  • In many areas such as subordinate development, appraising performance can be problematic.
  • There is sometimes a “tug of war” in which the subordinates try to set the lowest targets possible and the manager/supervisor the higher.
  • However, MBO can be an effective technique for performance appraisal and for motivating subordinates by developing effective communication at all levels.