Critically assess the effectiveness of performance appraisal systems for

both the employer and employee.

Today’s corporate landscape is constantly changing and brutally competitive.

In such an era where geographical limits to competition have been abolished
and the world has transformed into a global village, employees have to
contribute incessantly to reinforce their organization’s position and standing
by achieving the desired goals. Organizations are constantly being tested and
challenged to cope up with changes occurring in the corporate panorama.
These changes necessitate that there is a continuous review mechanism in
place for assessing the situations and adapting accordingly. One such
mechanism which most of the organizations have put in place is performance
appraisal. The system of performance appraisal, which is in place in one or
the other form in most of the organizations, helps the management to take
relevant strategic decisions pertaining to the human asset base of the
organization.

All employees within an organization are responsible for performing a set of

tasks that are associated with the role that they have been assigned. It is
difficult for the employees to themselves correctly assess whether or not their
performance is satisfactory or outstanding or needs improvement. The
performance appraisal mechanism attempts to periodically evaluate how well
one performs the tasks that have been assigned to him or her and based on
this analysis future course of action is defined.

Cascio (1982) defined that, ‘‘Performance appraisal is the systematic

description of the job-relevant strength and weakness of an individual or
group.”

A more detailed description has been presented by Sison (1982), who defines
performance appraisal as “the method by which, through observation by the
appraiser, the individual worker’s efficiency in performing his duties and
responsibilities during a given period is evaluated on the basis of
predetermined performance standards or established goals mutually set by
the employee and his supervisor.”

Introduction of performance appraisal as a human resource tool has not been

a very old concept. Drawing upon the literature available, performance
appraisal is viewed as an important tool of human resources management,
which can benefit the employer and the employee in multiple ways (Cascio,
1982). This tool not only helps in evaluating the employees but also help to
motivate the workforce and helps increase productivity (Archer North &
Associates). However another school of thought challenges the effectiveness
of performance appraisals by attributing multiple faults in the process of
performance appraisal (Coens & Jenkins, 2002).

The appraisal process involves establishment of task standards, evaluation of

an employees performance in comparison to the standards earlier defined
and provision of feedback to the employee. It is supposed to be an ongoing
process with an aim to improve performance and eliminate inadequacies.
Organizations use performance appraisal for not only reviewing the
performance but also use it for taking critical decisions with respect to
promotions, transfers, increments and terminations. It is from these appraisals
that training and development needs are also identified.

Although performance appraisal systems are today widely used by most of

the organizations, however the methods that are selected differ from one
company to another. There isn’t any ideal method which can be
recommended for performance appraisal. Each have their own merits and
demerits and depending on what fits best in a particular organizational culture
any of these can be preferred over another.

Traditionally the appraisal systems focus remained on the historic

performance of the employees. Such systems concentrated largely on
evaluation of employees based on their personal traits. These traits generally
included employee’s knowledge base, personal initiative, commitment to work
etc.

There exists a whole range of different types of traditionally used appraisal

systems which are quite subjective and based on judgment of the appraiser.
This raised numerous questions on the effectiveness of the performance
appraisal systems and their worth to both the employer and the employee.
Deming (2000 ed.) declared performance appraisal as one of the Seven
Deadly Diseases of management: “evaluation by performance, merit rating or
annual review of performance”. He further said that appraisal "nourishes
short-term performance, annihilates long-term planning, builds fear,
demolishes teamwork, and nourishes rivalry and politics".

Reviewing the multiple performance appraisal systems it is obvious that most

of these systems are qualitative. It is extremely difficult to assess all
employees on same traits. Not only each employee differs as an individual but
the demands from him or her also differ based on the role and nature of job
he or she has (Keeley, M., 1978). Thus the most crucial element is to know on
what parameters the employee has to be graded. The grading and the straight
ranking methods of performance appraisals require the supervisor to
categorize and rate employees on set criteria, which if not differentiated would
result in a meaningless result.

The rating scales that have been commonly used also present another
problem in which the appraiser starts giving an average rating. Neither high
nor low rating again makes performance appraisal far from reality. The raters
also have a tendency to let the rating of one aspect influence that of another.
This halo effect results in an inaccurate overall assessment and
dissatisfaction of employees .

It is of utmost importance that who is going to do the appraisal. The

personality of the appraiser also impacts the effectiveness of the appraisal.
The impact of appraiser’s quality and psychology becomes extremely
important when the performance appraisal system in use is either
unstructured, requires to write a confidential report of performance or free
essay for employee assessment. Unless and until the appraiser is extremely
trained the outcome of appraisal can be biased. Moreover based on
personality of the rater the degree of strictness or leniency demonstrated
during the appraisal also impacts the appraisal’s effectiveness. It maybe that
one employee gets a lenient rating from his or her boss who does not reflect
accurately the actual performance and another employee whose boss might
be a perfectionist does not get a good rating even if his performance actually
was better than the earlier employee. These types of biases lead to unfair
treatment eventually. (Kane, Jeffrey S., Bernardin, H. John., Villanova, Peter.,
Peyrefitte, Joseph., 1995)

The employee and the employer are prone to multiple severe impacts from
the implementation of ineffective performance appraisal systems. The
supervisors are not properly trained for giving the performance appraisal
feedbacks. In absence of this training they tend to adopt mostly an intuitive
approach which can demoralize the employees thereby impacting the overall
organizational productivity. Moreover the involvement of politics is also
perceived by employees in the performance appraisal feedback which
reduces the job satisfaction and they start thinking to quit the job (Poon,
2002).

Due to human judgment involvement it is not realistic to expect that the

administration of performance appraisal in absence of a structured approach
will result in a precise evaluation. Infact, the criticisms made on the
effectiveness of traditional performance appraisal systems that typically
involve reviewing past performance lead to a development of more
sophisticated appraisal systems.

Designing and implementing an effective mechanism of appraisal is a tedious

task. In absence of a structured process the workplace is prone to serious
motivational issues due to assessments made based on human judgment
(Dulewicz, 1989).

An organization needs to see performance appraisal as a progressive tool

which does not only assess performance but if effectively implemented will
also help in multiple other aspects. Both the employer (organization) as well
the employees can derive benefits from having an effective performance
appraisal system in place.

Once effectively implemented in an organization, performance appraisals tend

to help employees figuring out what is expected from them. The tasks or the
goals communicated to an individual and their relative importance helps the
employee to not only adopt a focused working style but also gives them a toll
for prioritizing each task or goal assigned. The employer also gets the benefit
that the employee after gaining this awareness stays on a focused track and
this approach would lead to achievement of organizational goals.

Upon accomplishment of tasks and goals the employee gains a sense of

accomplishment and can clearly associate with the success. On the other
hand incase of a failure to achieve the same the employee can devise an
improvement plan to overcome the hurdles that came in process. The
employer based on successful achievement can accordingly distinguish the
critical successes and recognize and reward the employee.

Performance appraisal provides the employer a tool to objectively take

decisions on increments and promotions as well as re-designations and
dismissals.

Performance appraisals help the employees in analyzing their own abilities

and skills and overcome their weaknesses. Upon regular reviews the
employees know where they stand and can use this information to improve
their competence. Similarly the appraisals help the employer to know what the
development needs of a certain employee are. A development plan can be
quite easily chalked out by the employer to eradicate the weaknesses
assessed which hinder performance. The trainings provided later on based on
the appraisal help the employee for their long term career development and
the implementation of the skills through these trainings and development
programs eventually benefit the employer/organization in achieving the
organizational goals.

The employer after a round of effective appraisal can come to a conclusion on

who are the key human assets for the organization and how can their careers
be planned in a mutually beneficial way. It helps the organization to efficiently
conduct succession planning and prepare the key human assets for the next
positions in the hierarchy. The competence levels required for the next step
are identified for the employees giving both the employee and the employer to
further build on these for achievement of the next level personal and
organizational goals.

In presence of an effective appraisal mechanism the inequity and the biased

decisions that are associated with supervisor’s subjective judgment are
minimized. This leads to a good working environment where dialogue is
encouraged thereby keeping the employees motivated and committed to their
jobs which eventually facilitates the employer (organization). In such a culture
job satisfaction of an employee increases and as a result employee feels
contented and demonstrates more commitment towards the job. The interest
shown by an organization during performance appraisal motivates the
employees. The time spent during the appraisal and the money invested in
training and development gives an employee an indication that the
organization is genuinely interested in progression and development of the
employees. Motivation and commitment in turn leads to reduction in turnover
rates and promotes loyalty towards the employer (organization).
In absence of an effective performance appraisal system it would become
challenging to handle the demotivation caused by low performance appraisal
feedbacks resulting in diluting the interests of employee in their job and
shifting of their focus on other jobs (Brown & Hyatt, 2007).

Effective performance appraisal system gives the employer documentary

evidences incase of any legal proceeding on promotion policies and
discrimination claims. With a documented performance appraisal of past
reviews the employer (organization) can prepare reference for defense.

The conclusion drawn after reading and correlating the impacts that has been
put forth in several resources is that performance appraisal system is a
complex realm and its effective implementation is even a further challenging
domain. Selecting which performance appraisal system would best suit an
organization depending on its organizational culture is quite difficult. There is
no standardization for the performance appraisal system and it all depends on
how the organization utilizes it and which method of performance appraisal
suits them best. As per the needs many organizations tend to use
combination of different types of performance appraisal systems to effectively
evaluate the employees. The performance appraisal systems can prove to be
an extremely beneficial mechanism for both the employee and the employer if
effectively implemented with a focus on using it as a progressive tool. It can
then enhances the competency level of the employees and help to achieve
the organizational goal set by the employer. On the contrary, incase of poor
implementation it just acts as a liability. It will then create an environment of
mistrust, nervousness, de-motivation and low employee participation in the
organization thereby affecting the productivity and harm the organization.
Performance appraisal systems can prove to be a double edge sword and
extreme vigilance is required when handling this tool of human resource
management.

Cascio, W. J. Applied Psychology in Personnel Management, (2nd Ed.). Reston, VA: Reston
Publishing, 1982.

• Archer North & Associatiates, Introduction to Performance Appraisal,

• http://www.performance-appraisal.com/intro.htm
• http://www.performance-appraisal.com/benefits.htm
• Sison, Perfecto S. Personnel and Human Resources Management, 1982.

Tom Coens , Mary Jenkins , Abolishing Performance Appraisals - Why They Backfire and What to Do
Instead, Publishing 2002

Deming, W. Edwards, Out of the crisis , Publishing 1982

http://www.allbusiness.com/management/584817-1.html

Current trends in performance appraisal: an examination of managerial practice.

By Shirmeyer, Roslyn
Publication: SAM Advanced Management Journal
Date: Saturday, June 22 1996
Gabris, G. T. & K. Mitchell, 1988, The Impact of Merit Raise Scores
on Employee Attitudes:
The Matthew Effect of Performance Appraisal, Public Personnel
Management, 17(4): 369–89.

A Contingency Framework for Performance Evaluation Author(s): Michael Keeley Source:

The Academy of Management Review, Vol. 3, No. 3 (Jul., 1978), pp. 428-438

Stability of Rater Leniency: Three Studies Author(s): Jeffrey S. Kane, H. John Bernardin,
Peter Villanova, Joseph Peyrefitte Source: The Academy of Management Journal, Vol. 38,
No. 4 (Aug., 1995), pp. 1036-1051

Stephen P. Robbins, Organizational behaviour 9th edition 2007, pp 490-491