Performance Appraisal

The term “performance appraisal” refers to the 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.

How Performance Appraisals Work

Performance appraisals are usually designed by human resources

(HR) departments as a way for employees to develop in their careers. They provide
individuals with feedback on their job performance, ensuring that employees are
managing and meeting the goals expected of them and giving them guidance on how
to reach those goals if they fall short.

Because companies have a limited pool of funds from which to award

incentives, such as 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 that 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 ways that the employee can improve and move
forward in their career.

DEFINITIONS:
 “Performance appraisal is a systematic periodic and impartial rating of
employee’s excellence in matters pertaining to his present job and to his
potentialities for a better job.” (Flippo)

Performance appraisal is a method of acquiring and processing the

information needed to improve an individual employee’s performance and
accomplishments. – (Douglass)

Objectives of Performance Appraisal Performance Appraisal

1. Promotion Decisions
Performance appraisal is a tool which helps managers to take promotion or demotion
decisions. This method assesses the performance level of employees. Efficient
workers can be promoted to a higher level whereas inefficient one can be demoted.

2. Provides Feedback
This process provides feedback to workers regarding their performance. Performance
appraisal identifies the strengths and weaknesses of employees and suggests ways for
enhancing their efficiency.

3. Development Of Employees
Performance appraisal helps in designing the training and development programmes
as per the requirements of employees. It by diagnosing the performance level enables
supervisors in identifying what kind of training should be provided for developing
the skills of peoples.

4. Motivates Employees
Motivation of employees towards their role is must for attaining desired goals. This
method by checking the efficiency of workers and awarding them accordingly
motivates them for better performance.

5. Compensation Decisions
It plays an effective role in deciding various compensation decisions for employees.
Decisions like a hike in employees’ pay or incentives are taken by managers by
judging their performance level.
 6. Improve Employer-Employee Relations
Performance appraisal facilitates communication between employers and employees
within the organization. Employers regularly check performances of employees and
provide them feedback on their work. They suggest ways to their subordinates for
overcoming their deficiencies. Employees also communicate with their employers
for clearing their doubts and issues while focusing on their roles.

PERFORMANCE APPRAISAL PROCESS

Step 1: Establish performance standards

Performance standards are set to ensure achievement of departmental goals and

objectives and the organization’s overall strategy and objectives. Standards are based
on the position, rather than an individual. In order to be clearly understood and
perceived as objective, standards should adhere to the same rules that apply to goal-
setting; that is, they should be “SMART:” specific, measurable, achievable, relevant
and timebound.

Indiana University’s Human Resource department explains that “while a list of major
job duties tells the employee what is to be done, performance standards provide the
employee with specific performance expectations for each major
duty.”[1] Performance standards include both observable behaviors—the how—and
the expected results that comprise satisfactory job performance.

Step 2: Communicate performance standards

In order to be effective, performance standards must be clearly communicated and

understood to be expectations. Performance standards assume that an individual is
competent, so initial and corrective training should be factored into the performance
management process. If there is a specific training period after which an employee is
assumed to be competent and performing to standards, that should be communicated
as well.

Step 3: Measure performance

Performance that is expressed in numeric terms—for example, cost, quantity, quality,

timeliness—is relatively easy to measure. Performance in the area of soft skills—for
example, communication, customer service and leadership—is more difficult to
evaluate. DeCenzo, Robbins and Verhulst recommend using a variety of sources of
information including personal observation, oral reports and written reports. They
note, however, that what is measured is probably more critical than how an aspect is
measured.[2] The focus should be on measuring what matters rather than measuring
what’s easy to measure.

Step 4: Compare actual performance to performance standards

In this step of the appraisal process, actual performance is compared to the

performance standards. Documentation should highlight actions and results. For
example, “Amir left confidential documents on the printer even after he had been
warned to maintain control of confidential information.” Or “Amir’s process
improvement recommendations saved the department $3,500.”

Indiana University’s Human Resource department identifies the following

characteristics of effective documentation:[3]

 Accurate
 Specific
 Consistent (covering the entire review period)
 Factual (not based on conjecture)
 Balanced, including instances of both positive and unsatisfactory performance
 In writing

Step 5: Discuss the appraisal with the employee

This is generally the step in the process that is the most difficult for managers and
employees alike and it can be a challenge to manage emotions and expectations.
Even when performance is strong, there can be differences of opinion on the next
action. A significant difference of opinion regarding performance can create an
emotionally-charged situation. If the manager is providing feedback and coaching on
a regular basis, this shouldn’t be the case. Related point: If an employee has
consistently poor performance, the issue should be addressed—corrective action
taken—in a timely manner and not deferred to an annual review. To identify and
prepare for differences of opinion, management can ask employees to complete and
submit a self-evaluation prior to the appraisal meeting. A key point to keep in mind
is that the manager’s ability to remain calm and civil will have a significant impact
on the employee’s confidence, motivation and future performance.

Step 6: Implement personnel action

The final step in the appraisal process is the discussion and/or implementation of any
next steps: a reward of some sort—a raise, promotion or coveted development
opportunity—or corrective action—a performance plan or termination. Note,
however, that corrective action that might help an employee achieve expectations
shouldn’t be tabled until the next formal appraisal. As performance gaps are
identified, supervisors and managers should take the time to identify why
performance is not meeting expectations and determine whether the employee can
meet expectations with additional training and/or coaching. As mentioned above, if
performance is such that termination is warranted, that action should be taken in a
timely manner as well.

Performance appraisal methodss

1. Management by Objectives(MBO): This method was developed by Peter

Drucker. In this method, certain tasks(objectives) based on their job role are
given to the employees and a team is assigned to monitor the tasks.

 This will help the organization to know the skill gap of the employees.
 This will help the organization to plan the training modules.
 The setting of objectives to determine the true potential of the employees is
a difficult and time-consuming task.

2. 360-degree appraisal: In this method, an employee is appraised by the

supervisors, the clients, the subordinates, the customers, including themselves.

 This will help the organization to know about the strong and weak areas of
the employees.
 The employees can freely express their views and suggest any changes in
the training methods.
3. Assessment centres: In this method, a group of employees are selected and are
asked to perform a few tasks individually and a few tasks in teams.

 These tasks are mainly aimed to check the teamwork, leadership qualities
and skill set of the employees.
 The tasks are mostly related to their job responsibilities.
 This method is used to decide whether an employee is to be promoted or
trained.

4. Behaviourally Anchored Rating Scales (BARS): In this method, all the critical
incidents are identified and are divided into different groups based on their
departments.

 The employees are rated on their behaviour towards the incidents rather
than on the traits.
 This will enable the organization to know the involvement of the
employees.

Traditional methods

The traditional methods of performance appraisal are as follows:

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1. Ranking method: In this method, the employees are ranked by taking their
performance levels and other characteristics into consideration.

 Very useful to divide a good and an average performer.

 Can be used easily for a small set of employees.
 The ranking becomes difficult when a large set of employees have similar
characteristics.

2. Grading method: In this method, different grades are given to the

employees based on their contribution to the organization.

 Grades may be in the form of alphabets (A, B, C, D, E, F..) or in words like

excellent, very good, moderate, bad, very bad, worst or excellent, good, bad.
  Based on the grades given, promotions, hikes, training, etc. are planned.

3. Paired comparison method: In this method, the appraiser compares two

employees and marks the better performer. The process is continued until all the
employees are compared with one another in this manner.

 After the entire process is completed, ranking is given to all the employees
based on the number of times that the employee has been marked as a better
performer.
 This method is very difficult for an organization that has a large number of
employees.

4. Forced choice method: In this method, the appraiser is given a set of

statements and asked to select one statement which defines the employee.

 Let us consider the following three statements,

o He/ She is a team player.
o He/ She needs to be trained to improve the skill set.
o He/ She completes the assigned tasks in time.
 The appraiser has to select one statement as a part of the evaluation process.
 This is a time-consuming method.

5. Graphical rating method: In this method, different characteristics of the

employees are rated. The appraiser rates the employees on each characteristic in the
form of points like 1, 2, 3, 4, 5, 6, 7 or in the form of excellent or average or bad, etc.

 Let us consider two characteristics like efficiency and training. If an

employee performs very well in the training sessions, then that employee will be
given the rating as 6 or 7 on 7 point scale.
 If the same employee performs poorly on the project related tasks, then that
employee will be given 2 points or 1 point for efficiency.

6. Forced distribution method: In this method, the appraiser has to distribute the
employees into five levels like excellent, very good, average, very bad and worst
performers.
  For example, if there are 1000 employees, the appraiser has to distribute the
employees into various categories as per their performance levels.
 If there are 200 excellent performers, they fall into the excellent category. If the
performance levels of another 200 employees are not up to the mark, then they
fall into the very bad category. This method is continued until every employee is
distributed into some category.

7. Checklist method: In this method, all the characteristics in the question form are
written in order and two options yes and no is given to the appraiser for every
question. The appraiser has to tick the yes box when the given characteristic is
found and no box when it is not.

 All the responses are counted, and a final rating is obtained.

 It is a time taking process and not accurate.

8. Essay method: In this method, the appraiser writes about the characteristics of the
employee in his own words in the form of an essay.

 With this, the strong and weak points can be easily known.
 But the essay depends on the writing skills of the appraiser. Sometimes, there
may be a chance of weak areas getting more highlighted than the strong
areas of an employee. This may demotivate the employee.

9. Critical incidents method: In this method, the performance of the employees

during critical incidents is taken into consideration.

 All the critical tasks performed by each employee are written and are
compared with each other by the appraisal team.
 The rating is done based on the severity of the critical incident.

10. Field review method: In this method, the appraiser takes the help of subordinates
and supervisors to rate an employee.

 This method is mostly used during the promotions and increments.

 It is a time-consuming process.