Chapter 2 : Performance Appraisal

What is Performance Appraisals?

Performance Appraisals may be defined as any procedure that
involves:
 Setting work standards
 Assessing the employee’s actual performance relative to these
standards
 Providing feedback to the employee with the aim of motivating that
person to eliminate performance deficiencies or to continue to
perform above par.
PMS v/s Performance Appraisals
 Objectives of Performance Appraisals

Objectives of PA

Development decisions Administrative decision

PD Personnel decision
Development of skills and Removal of deficiencies
competencies Job re-design
Self-analysis
Self-development planning
Process of Performance Appraisals

Performance Performance
Prerequisites
Planning Execution

Performance
Performance Performance
Renewal &
Review Assessment
Recontracting
Step 1:Prerequisites

 Knowledge of the organization’s mission and

strategic goals
 Knowledge of the job in question
Step 2: Performance Planning

 Results
 Key accountabilities
 Objectives
 Performance standards

 Behaviors
 Development Plan
 Step 3: Performance Execution
Employee
 Commitment to goals achievement
 Ongoing performance feedback and coaching
 Communication with supervisor
 Collecting and sharing performance data
 Preparing for performance reviews
Supervisor
 Observation and documentation
 Updates
 Feedback
 Resources
 Reinforcement
Step 4: Performance Assessment

 In the assessment phase, both the employee and

the manager are responsible for evaluating the
extent to which the desired behaviors have been
displayed, and whether the desired results have
been achieved.
Step 5:Performance Review

 The review stage involves the meeting between the

employee and the manager to review their
assessments.
Step 6:Performance Renewal & Recontracting

 The final stage in the performance process is renewal and

recontracting. Essentially, this is identical to the
performance planning component.
 The main difference is that the renewal and recontracting
Stages uses the insights and information gained from the
other phases.
 Advantages of PA
 Performance improvement
 Development of employees
 Corrective actions
 Career planning
 Promotions
 Motivation
 Other benefits: salary increases, transfers, promotions, and demotions
regarding the employees
 Disadvantages of PA
 The major disadvantage of a performance appraisal is that they’re inherently
subjective.
 A good employee appraisal takes time to prepare and execute, and often the results
don’t give you a return on your investment.
 They can be unpleasant affairs—particularly for employees who don’t get the
feedback or training they need to turn their weaknesses into strengths.
 An organization should choose a method of appraisal and stick to it. If the methods
change every few years, you’ll lose continuity and consistency. If the management
hasn’t done this, it’s hard to know what to expect or how to prepare.
 There are advantages and disadvantages of performance appraisals no matter what the
chosen method. If they’re too infrequent, they lose their relevance. If they’re too
frequent, they can become a burden on both employee and manager.
 Most performance appraisal systems give management teams a way to measure the
ability, skills and productivity of their employees. But if two managers do similar
comparisons, they may not come up with the same results.
Different Methods of Performance
Appraisals
MBO (management by objectives)
Management by objectives (MBO) is a strategic management model
that aims to improve organizational performance by clearly defining
objectives that are agreed to by both management and employees.
 This philosophy originated sometime in the early 1970s.
 In other words, MBO involves focusing more on results rather
than the activities involved.
 The top management is essentially negotiating a contract of goals
with their subordinates without dictating a detailed roadmap for
implementation
 The MBO method is supposed to enhance organizational
effectiveness by getting the organization to become more result
focused.
 It is also supposed to encourage independence and entrepreneurism
amongst line managers.
 360 Degree Feedback

 360-degree feedback is a multidimensional performance

appraisal method that evaluates an employee using feedback
collected from the employee’s circle of influence namely
managers, peers, customers, and direct reports.
This appraisal method has five integral components like:
1. Self-appraisals
2. Managerial reviews
3. Peer reviews
4. Subordinates Appraising manager (SAM)
5. Customer or client reviews
 Assessment Centre Method
 This technique was first developed in USA and UK in 1943.
 An assessment center is a central location where managers may come together to have their
participation in job related exercises evaluated by trained observers.
 It is more focused on observation of behaviors across a series of select exercises or
work samples.
 Assesses are requested to participate in in-basket exercises, work groups, computer
simulations, role playing and other similar activities which require same attributes for
successful performance in actual job.
 The characteristics assessed in assessment center can be assertiveness, persuasive ability,
communicating ability, planning and organizational ability, self confidence, resistance to
stress, energy level, decision making, sensitivity to feelings, administrative ability, creativity
and mental alertness etc.
 Disadvantages – Costs of employees traveling and lodging, psychologists, ratings strongly
influenced by assessee’s inter-personal skills. Solid performers may feel suffocated in
simulated situations. Those who are not selected for this also may get affected.
Behaviorally Anchored Rating Scale (BARS)
 This method combines elements of the traditional rating
scales and critical incidents methods.
 BARS, Job behaviors from critical incidents- effective and
ineffective behaviors are described more objectively.
 In this method, services and expertise of those individuals
are used who are familiar with a particular job to identify
its major components so that they may rank and validate
specific behaviors for each of the components.
Psychological Appraisals

 These appraisals are more directed to assess employee’s

potential for future performance rather than the past one.
 It is done in the form of in-depth interviews, psychological
tests, and discussion with supervisors and review of other
evaluations.
 It is more focused on employees emotional, intellectual,
and motivational and other personal characteristics
affecting his performance.
 This approach is slow and costly and may be useful for
bright young members who may have considerable
potential.
 Human-Resource (Cost) Accounting Method
 Human resource accounting is accounting for people as an
organizational resource. It involves measuring the costs incurred by
business firms and other organizations to recruit, select, hire, train
and develop human assets. It also involves measuring the economic
value of people to the organization.
 Human resource accounting is the process of identifying and measuring
data about human resource and communicating this information to
interested parties.
The more specific objectives of human resource accounting are as follows:
 To provide cost value date for managerial decisions regarding acquiring,
developing, allocating and maintaining human resource so as to attain cost
effective organizational objectives.
 To provide information for effectiveness of human resource utilization.
 To provide information for determining the status of human asset whether it
is conserved properly; it is appreciating or depleting.
 To assist in the development of effective human resource Management
practices by classifying the financial consequences of these practices.
Traditional Methods
 Ranking Method: It is the oldest and simplest formal systematic method of
performance appraisal in which employee is compared with all others for the purpose of
placing order of worth. The employees are ranked from the highest to the lowest or from the
best to the worst.
 Paired comparison:The paired comparison method bases evaluations on an employee's
performance relative to his or her peers in selected job skill categories. . An employee's
evaluation would be the sum of their pluses and would be the basis of a relative ranking.
 Grading Method: In this method, certain categories of worth are established in advance and
carefully defined. There can be three categories established for employees: outstanding,
satisfactory and unsatisfactory. The employee is, then, allocated to the grade that best
describes his or her performance.
 Forced distribution : is a method of employee performance appraisal that many
companies use. We also call it the forced distribution method, stacked ranking, or bell-curve
rating. ... Managers must evaluate each employee, usually into one of three categories, i.e.,
poor, good, or excellent.
 Forced choice: It is a method of performance appraisal in which the rater has to make a
forced choice between the available characteristics, about the employees. It is in the form
of a survey questionnaire. ... The raters are given a set of multiple choice questions, from
which they are to select one option and rate the employees
 Checklist Method: With a checklist scale A performance evaluation method in which a
series of questions is asked and the manager simply responds yes or no to the questions., a
series of questions is asked and the manager simply responds yes or no to the questions,
which can fall into either the behavioral or the trait method, or both.
 Critical incident method: or critical incident technique is a performance appraisal tool in
which analyses the behavior of employee in certain events in which either he performed
very well and the ones in which he could have done better. Critical incident technique is
used to collect data using a set of procedures.
 A graphic rating scale (sometimes called a Likert scale): is a performance appraisal
method that lists desired traits and behaviors for each role, then rates workers on each
of those on a numbered scale. ... On a scale of 1-5, a score of 1 would usually signify that
the behavior is non-existent in the employee.
 Essay Method: In the essay method approach, the appraiser prepares a
written statement about the employee being appraised. The statement
usually concentrates on describing specific strengths and weaknesses in
job performance. It also suggests courses of action to remedy the
identified problem areas.
 Field Review Method: In this method, an employee is not appraised by
his direct superior but by another person usually from the HR
department. This is an appraisal by someone outside the assessee's own
department, usually someone from the corporate office or the HR
department.
 Confidential report system is well known method of performance
appraisal system mostly being used by the Government organizations and
in the Indian Judiciary. In this method of appraising system, subordinate
is observed by his superiors regarding his performance in the job and on
his duties done.