Chapter 5

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Chapter five

5. Performance Management and Performance Appraisal


Performance management is a systematic process for improving organizational performance by
developing the performance of individuals and teams. It is a means of getting better results by
understanding and managing performance within an agreed framework of planned goals, standards
and competency requirements.
Performance management is: ‘A process for establishing a shared understanding about what is to
be achieved and how it is to be achieved, and an approach to managing people that increases the
probability of achieving success.
Performance management is based on the principle of management by agreement or contract
rather than management by command. It emphasizes development and the initiation of self-
managed learning plans as well as the integration of individual and corporate objectives. It can, in
fact, play a major role in providing for an integrated and coherent range of human resource
management processes that are mutually supportive and contribute as a whole to improving
organizational effectiveness.
When we compare with performance appraisal, performance management is a continuous and
much wider, more comprehensive and more natural process of management that clarifies mutual
expectations, emphasizes the support role of managers who are expected to act as coaches rather
than judges and focuses on the future.
5.1 Objectives of performance management
The overall objective of performance management is to develop the capacity of people to meet
and exceed expectations and to achieve their full potential to the benefit of themselves and the
organization. Specifically:
-Align individual and organizational objectives.
-Improve organizational performance.
-Improve individual performance.
-Provide the basis for personal development.
-Develop a performance culture.
-Inform contribution/performance pay decisions.
Performance appraisal can be defined as a human resource activity that is used to determine the
extent to which an employee is performing his/her job effectively. Performance appraisal is the

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process of determining and communicating to an employee how he or she is performing the job
and, ideally, establishing plan of improvement. It can be also defined as the formal assessment and
rating of individuals by their managers at or after a review meeting. Performance is said to be a
result of employee’s efforts abilities and role perception.
-Effort is an action people put in to their jobs.
-Ability individual characteristics such as intelligence, knowledge, skills.
-Role perception is what individuals want to do or think they are required to do.
Other terms of performance appraisal include: performance review, personnel rating, behavioral
assessment, staff assessment, merit rating, performance evaluation, and employee appraisal and
employee evaluation.
5.3Purposes of performance appraisal
1. To provide information towards strength and weakness of employees in their job
performance.
2. To provide data for management for judging future job assignments, promotions and
compensation.
3. To provide information to help maintain an equitable and competitive pay structure.
4. To supply general information on training needs for the organization or departments.
5. To improve motivation by increased understanding of goals, the means of attaining the
goals and the rewards associated with achievement.
6. To improve performance by developing strength and dealing with weakness.
7. To provide legally defensible reason for promotions, transfer, reward and discharges.

5.4Performance appraisal process (steps)


Performance evaluation involves:
1. Establishing performance standards for each position and the criteria for evaluation:
The manager must determine what output, accomplishments and skills will be evaluated.
These standards should have evolved out of job analysis information.
2. Communicate performance expectation to employees: once the performance standards
are established, these needs to be communicated to the respective employees so that they
come to know what is expected from them.
3. Measure actual performance/extent of accomplishment: the actual performance of the

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employee is measured on the basis of information available from various sources such as
personal observation, statistical reports, oral and written reports.
4. Compare actual performance with the standard: in this step the actual performance is
compared with the predetermined standards. Such a comparison may yield the deviation
between stated performance and actual performance and will enable the evaluator to
proceed to the fifth step in the process.
5. Discuss the appraisal with the employees: this phase is the most challenging task for
mangers because employees not always willingly accept their feedback/performance
result. A discussion on appraisal enables employees to know their strengths and
weaknesses. It has also its own impact on their future performance depend upon the
appraisals result. i. e. positive or negative.
6. Initiate corrective action: in this step the areas needing for improvement are identified
and then, the measures to correct or improve performance are identified and initiated. The
actions may be training need, promotion or pay increase.

5.5Who appraises employee performance?


In designing an appraisal system, another significant factor worthy of consideration is the
appraiser. Who should actively make the appraisal? The individual and group of individuals who
usually do the appraisal include the immediate supervisor, employee’s peers, employees
themselves (self- appraisal), and subordinates.
A. Immediate Supervisor - Appraisal of employees’ performance by their supervisors is the
traditional and most frequently used approach. In fact, this is one of the major
responsibilities of all managers. This approach is used because it is assumed that the
supervisor has greatest opportunity to observe the subordinate’s behavior. It is also assumed
that the supervisor is able to interpreter and analyzes the employee’s performance in light of
the organization performance objectives. In most organizations, the employee’s supervisor is
responsible for making reward decisions such as pay and promotion. If the immediate
supervisor appraises the employee, the supervisor can possibly link effective performance
with rewards. Supervisors are also in the best position to know the job requirements, to
observe employees at work and to make the best judgment.
B. Employee’s peers - In an organizational setting, a peer is a person working with and at the

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same level of an employee. The peer appraisal is frequently called “mutual rating system “.
In effect, each employee apprises each of the other members of the work group. Employee’s
peers represent a credible source of performance data not only because of their frequent
contacts to each other but also because of their interdependence to accomplish common
assignments and common objectives. Performance feedback from peers, based on
observational data, provides employees with a view of their level of performance.
C. Employee self-appraisal - In many organizations self – appraisal is used for developmental
purpose. It is getting acceptance that comprehensive self-appraisal may serve as a vehicle of
professional improvement, ensuring lasting change and development of employee’s
competence and quality of performance. Self –appraisal helps an employee to analyze his or
her actual current level of performance in the light of desired performance competence. It is
also generating performance data on weakness, strength and potential of the employee,
which the appraiser, in the time of appraisal program, might not ascertain. But it has its own
drawbacks when the purpose of appraisal is for promotion, salary incensement or training,
they become dishonest.
D. Subordinate appraisal - Some organizations are now using subordinate appraisals, where
by employees appraise their superiors. This is useful in trying to develop better superior-
subordinate relationship, and in improving the human relationship of managers. But this
system also not free from limitations, because managers mostly unlikely to accept their
weaknesses from their subordinates and their future relationship also inquisition. Finally,
two or more approaches may be used in combination to appraise the performance of
employees. This approach not only helps to make appraisal results more objective but also to
get the cooperation and commitment of employees to the system of performance appraisal.

5.6Performance appraisal methods


A. Graphic rating scale method - This method is the simplest and the most popular technique of
appraising performance. A graphic rating scale lists traits (factors) such as quality of work,
job knowledge, attendance, accuracy of work and cooperativeness. And a range of
performance values from unsatisfactory to outstanding is obtained for each factor. You rate
each subordinate by circling o checking the score that best describes his/her performance for
each factor. You then total the assigned values for the traits.

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B. Alternation ranking method - This method involves ranking employees from best to worst
on a factor or factors traits. Since it is usually easier to distinguish between the worst and
best employees, an alternation ranking method is most popular. First, list all subordinates to
be rated, and then cross out the names of any not well enough to rank. Then indicate the
employee who is the highest on the characteristics being measured and also the one who is the
lowest. Chose the next highest and the next lowest till all employees have been ranked.
C. Mixed standard scale method - An approach to performance appraisal similar to other scale
methods but based on comparison with (better than, equal to, or worse than) a standard.
D. Forced choice method – it contains a series of group of statements, and a rater rates how
effectively a statement describes each individual being evaluated. This method contains two
statements two statements, both negative and positive.
E. Paired comparison method - This method helps to make the ranking more precise. For every
factor (quality of work, quantity of work etc.), you pair and compare every subordinate with
every other subordinate. Example, suppose a rater is to evaluate six employees. The name of
these employees is listed on the left side of a sheet of paper. The evaluator then compares the
first employee with the second employee on a chosen performance criterion, such as quality of
work. If he/she 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 then compares the first
employee with the third, fourth, fifth and sixth employee on the same performance criteria,
placing a check mark by the name of the employee who produced the highest result in each
paired comparison. The process is repeated until each employee has been compared to every
other employee on all of the chosen performance criteria. The employee with the most check
mark is considered to be the best performer. Likewise, the employee with the fewest check
marks is taken as the least performer. One major problem with the paired comparison method
is that it becomes too wide especially when comparing more than five or six employees.
F. Critical incident method - With this method the supervisor keeps a log of positive and
negative examples (critical incidents) of a subordinate work-related behavior. Every six
months or so, supervisors and subordinates meet to discuss the latter’s performance, using the
incidents as examples.
G. Management by objective (MBO - MBO requires the manager and workers set specific
measurable goals and then periodically discuss the employees’ progress towards these goals

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throughout the implementation process the term MBO generally refers to a compressive,
organization wide goal setting and appraisal program and it has its own steps:
- Setting goals/it may be departmental or organizational goals.
- Discuss the goals with the workers, then
- Reviewing current performance
- Comparing actual performance with the standard
- Providing feedback.
But, sometimes this method is not free from weaknesses:
- Setting immeasurable objectives. E.g. you will do a better job training.
(Immeasurable). We will have for subordinates promoted during the year.
(Measurable).
H. Essay appraisal - It is performance evaluation method in which the rater prepares a written
statement describing the individual’s strength, weakness and past performance. It is simple
because it doesn’t require a complex format. There are also criticisms about the accuracy and
relevance of this method. The quality of appraisal depends on the rater skill and experience. It
only provides qualitative information about the employees.
I. Checklist method - This is performance evaluation method in which the rater answers with a
yes or no, a series of questions about the behavior of the employee being rated.
J. Work standards - It is a method, which involves setting a standard or an expected level of
output and then comparing each employee’s level of performance to the standard. This
approach is most frequently used for production employees.
K. Multi-rater assessment (or 360-degree feedback) - This is one of most recently popular
method of evaluation. With this method managers, peers, customers, supplies or collogues are
asked to complete questionnaires about the employee being assessed. The person under
evaluation also completes a questionnaire. The HR department provides the result to the
employee, who intern gets to see how his/her opinion differs from those of the group
participating in the assessment.

5.7Problems of Appraising performance


Regardless of which technique or system is used there are many problems which may encounter
in the process of using them. None of the techniques is perfect; they all have limitations. Some of

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these limitations are common to all of the techniques while others are more frequently
encountered with some ones. The problems generally include:
1. Unclear standards of evaluation - Problems with evaluation standards arise because of
perceptual differences in the meanings of the words used to evaluate employees. Thus good,
adequate, satisfactory and excellent may mean different things to different evaluators. This
difficulty arises most often in graphic rating scales but may also appear with essays, critical
incidents and checklists. There are several ways to minimize this problem. The best way is to
develop and include descriptive phrases that define the meaning of each dimension or factor
and training raters to apply all ratings consistently which will at least reduce the potential
rating problems.
2. Hello effect - It is a problem, which arises in performance evaluation when a supervisor’s
ratings of a subordinate on one trait bias the ratings of the person on other traits. Hello error
can be either negative or positive, meaning that the initial impression can cause the ratings to
be either too low or too high. Being aware of this problem is a major step towards avoiding it.
Supervisory training can also alleviate the problem. Besides allowing the rater to evaluate all
subordinates on one dimension before proceeding to another dimension can reduce this type
of error.
3. Central Tendency - occurs when a rater avoids using high or low ratings and assigns average
ratings. For example, if the rating scale ranges from 1 to 7, they tend to avoid the highs (6 and
7) and lows (1 and 2) and rate most of their people between 3 and 5. This type of “average”
rating is almost useless-it fails to discriminate between subordinates. Thus, it offers little
information for making HRM decisions-regarding compensation, promotion, training, or what
should be feedback to rates. Raters must be made aware of the importance of discriminating
across rates and the use of evaluations. This sometimes stimulates raters to use less central
(average) ratings. Rankings employees instead of using graphic rating scale can reduce this
problem, since ranking means you cannot rate them all average.
4. Leniency or harshness error - This problem occurs when a supervisor has a tendency to rate
all subordinates either high or low. Some raters see everything as good- these are lenient
raters. Others-raters see everything as bad these are harsh raters. This strictness or leniency
problem is especially severe with graphic rating scales, when firms do not tell their
supervisors to avoid giving all their employees high or low ratings. One mechanism used to

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reduce harsh and lenient rating is to ask raters to distribute ratings- forcing a normal
distribution. For example, 10 percent of subordinates will be rated as excellent, 20 percent
rated as good, 40 percent rated as fair, 20 percent rated below fair, and 10 percent rated as
poor.
5. Recency of Events Error - This rating error occurs when a manager evaluates employees on
work performance most recently, usually one or two months prior to evaluation. Raters forget
more about past behavior than current behavior. Thus, many workers are evaluated more on
the results of the past several weeks than on six months average behavior. Some employees
are well aware of this difficulty. If they know the date of the evaluation, they make their
works to be visible and noticed in many positive ways for several weeks in advance. This
problem can be mitigated by using techniques such as critical incident or MBO or by
conducting irregularly scheduled evaluations.
6. Contrast effects - In individual evaluation techniques each employee is supposed to be rated
without any regard to another employee’s performance. Some evidences however show that
supervisors have very difficult time doing this. If the supervisor lets an employee’s
performance is rated based on the ratings that are given to someone else, it is said that a
contrast effect has occurred. Supervisors who rate their employees should take the greatest
care in evaluating workers separately based on independent performance.
7. Personal bias error - A personal bias rating error is an error related to a personal bias held by
a supervisor. There are several kinds of personal bias errors; some can be conscious such as
discrimination against someone because of the appraiser’s personal characteristics like age,
sex and race. Some supervisors might try to “play favorites” and rate the people they like
better than people they do not like. Other personal bias errors occur when a rater gives a
higher rate because the worker has qualities or characteristics similar to the rater.
8. Similar-to-Me Error - An error in which an appraiser inflates the evaluation of an employee
because of a mutual personal connection.
9. Problem with the appraised - For a system of performance appraisal to function well, it is
important that employees regard it as potentially valuable to improve their competence and to
achieve organizational goals successfully. However, most efforts of performance evaluation
are narrowly focused and oversimplified that they give little regards to the favorable
perception of employees.

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A substantial amount of employee’s negative attitude towards appraisal results from their doubt
about the validity and reliability, and performance feedback or ratings presented by their
appraisers. Employees often question appraisers’ competence in appraisal, and consequently tend
to lose trust and confidence in their appraisers and often resist accepting performance ratings.
Another appraisal problem often realized is employees’ reaction to appraisal result of low ratings.
Most employees have difficulty in facing appraisal results involving negative feedback about their
performance. Such a feedback often develops in employees a sense of tension, friction, insecurity,
embarrassment, frustration, anger, resentment, and anti- feelings and action.
Performance appraisal may be less effective than expected if the employee is not work- oriented
and if he sees work only as a means of personal satisfaction. Such an employee may see an
appraisal program as only a system of paper work, unless the appraisal results is so negative that
the employee fears termination of his employment.
In sum, for performance appraisal to work well, the employee must understand it, must feel that it
is fair, and must be work oriented. One way to foster this understanding is for the employees to
participate in the design and operation of the system and to train them to some extent in
performance appraisal.
In general, there are problems with performance appraisal: with the appraisers, and with the
employees. It is, however, believed that the suggestions presented hereunder may improve the
system of performance appraisal.

5.8Ways of avoiding appraisal problems


1. Improving validity and reliability of performance criteria
Validity problem – performance criteria are intended to accurately or objectively measure the
performance and potential of employees. When more subjective criteria are used, the appraisal
becomes less valid for decision making and career guidance. The most common validity errors are
caused due to the hallo effect, the recent behavior bias, the central tendency and the similar to me
errors.
Reliability problems: Appraisals may lack reliability because of the inconsistent use of differing
standards and lack of training in appraisal techniques.
2. Adopting multiple appraisal and different timing

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Because of bias and hello effects, it may be more useful to adopt multiple rather than single
appraisal techniques and also the appraisers who rate employees’ performance. While the ratings
of one appraisal may not be valid, the overall pattern of several ratings provides an indication of
overall performance and potential for development. Appraisal can be improved by being done
several times a year rather just once.
3. Providing better feedback
The result of the appraisal, along with suggestions for improvement, should be communicated to
the appraised as soon as possible. The skill with which the appraiser handles the appraisal
feedback is the factor in determining whether the appraisal program is effective in changing
employee behavior or not.

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