PERFORMANCE APPRAISAL

Performance Appraisal is defined as a systematic process, in which the personality

and performance of an employee is assessed by the supervisor or manager, against
predefined standards, such as knowledge of the job, quality and quantity of output,
leadership abilities, attitude towards work, attendance, cooperation, judgment,
versatility, health, initiative and so forth.

It is also known as performance rating, performance evaluation, employee assessment,

performance review, merit rating, etc.

Performance Appraisal is carried out to identify the abilities and competencies of an

employee for future growth and development. It is aimed at ascertaining the worth of the
employee to the organization, in which he/she works.

Relationship of Performance Appraisal and Job Analysis

Performance Appraisal relates to job analysis, in the sense that job analysis establishes
job requirement, which converts the analysis into standard, on which performance is
judged, and results in defining the basis for performance appraisal.

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Objectives of Performance Appraisal
 To promote the employees, on the basis of performance and competence.
 To identify the requirement for training and development of employees.
 To provide confirmation to those employees who are hired as probationary
employees, upon completion of the term.
 To take a decision regarding the hike in employees pay, incentives etc.
 To facilitate communication between superior and subordinate.
 To help employees in understanding where they stand in terms of performance.
Data obtained from the appraisal of performance, are documented and used for
different organizational purposes.

Advantages of Performance Appraisal

It is said that performance appraisal is an investment for the company which can be
justified by following advantages:

1. Promotion: Performance Appraisal helps the supervisors to chalk out the

promotion programmes for efficient employees. In this regards, inefficient
workers can be dismissed or demoted in case.
2. Compensation: Performance Appraisal helps in chalking out compensation
packages for employees. Merit rating is possible through performance appraisal.
Performance Appraisal tries to give worth to a performance. A compensation
package which includes bonus, high salary rates, extra benefits, allowances and
pre-requisites are dependent on performance appraisal. The criteria should be
merit rather than seniority.
3. Employees Development: The systematic procedure of performance appraisal
helps the supervisors to frame training policies and programmes. It helps to
analyse strengths and weaknesses of employees so that new jobs can be
designed for efficient employees. It also helps in framing future development
programmes.
4. Selection Validation: Performance Appraisal helps the supervisors to
understand the validity and importance of the selection procedure. The
supervisors come to know the validity and thereby the strengths and weaknesses
of selection procedure. Future changes in selection methods can be made in this
regard.
5. Communication: For an organization, effective communication between
employees and employers is very important. Through performance appraisal,
communication can be sought for in the following ways:
a. Through performance appraisal, the employers can understand and
accept skills of subordinates.

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 b. The subordinates can also understand and create a trust and confidence
in superiors.
c. It also helps in maintaining cordial and congenial labour management
relationship.
d. It develops the spirit of work and boosts the morale of employees.

All the above factors ensure effective communication.

6. Motivation: Performance appraisal serves as a motivation tool. Through

evaluating performance of employees, a person’s efficiency can be determined if
the targets are achieved. This very well motivates a person for better job and
helps him to improve his performance in the future.

Performance Appraisal Process

The figure shown above is a standard performance appraisal process that takes place
in an organization, wherein each step is important and arranged in a systematic
manner. The process is conducted periodically, usually twice a year, i.e. semi-annually
and annually called as mid-term review and annual review respectively.

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Method of Performance Appraisal
In the process of designing performance appraisal process, it is important to identify the
best method for assessment. There are a number of methods introduced to gauge the
quantity and quality of work performed by an individual. These methods are broadly
classified into two categories:

 Past-oriented Methods (Also known as Traditional Methods of Performance

Appraisal)
o Rating Scales
o Checklists
o Forced Choice
o Forced Distribution
o Critical Incident
o Performance test and observation
o Field review
o Confidential Record
o Essay method
o Comparative Evaluation Approaches
o Cost Accounting Method
o Behaviourally Anchored Rating Scales

 Future Oriented Methods (Also known as Modern Methods of Performance

Appraisal)
o Management by objectives
o Psychological Appraisal
o Assessment Centres
o 360-Degree Feedback
o 720-Degree Feedback

Performance Appraisal is a part of performance management. It helps in gaining the

competitive edge, by improving the performance level of the employees working in the
organization, making rational decisions regarding hike in salaries, promotions, transfers,
discharge of the employees, reducing job dissatisfaction and employee turnover.

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We will be discussing the most common and important performance appraisal
methods, tools and techniques in detail.

1. Ranking Method
The ranking system requires the rater to rank his subordinates on overall
performance. This consists in simply putting a man in a rank order. Under this
method, the ranking of an employee in a work group is done against that of
another employee. The relative position of each employee is tested in terms of
his numerical rank. It may also be done by ranking a person on his job
performance against another member of the competitive group.

Advantages of Ranking Method

i. Employees are ranked according to their performance levels.

ii. It is easier to rank the best and the worst employee.

Limitations of Ranking Method

iii. The “whole man” is compared with another “whole man” in this method. In
practice, it is very difficult to compare individuals possessing various
individual traits.
iv. This method speaks only of the position where an employee stands in his
group. It does not test anything about how much better or how much
worse an employee is when compared to another employee.
v. When a large number of employees are working, ranking of individuals
become a difficult issue.
vi. There is no systematic procedure for ranking individuals in the
organization. The ranking system does not eliminate the possibility of snap
judgements.

2. Forced Distribution method

This is a ranking technique where raters are required to allocate a certain
percentage of rates to certain categories (eg: superior, above average, average)
or percentiles (eg: top 10 percent, bottom 20 percent etc). Both the number of
categories and percentage of employees to be allotted to each category are a
function of performance appraisal design and format. The workers of outstanding
merit may be placed at top 10 percent of the scale; the rest may be placed as 20
% good, 40 % outstanding, 20 % fair and 10 % fair.

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 Advantages of Forced Distribution

i. This method tends to eliminate raters bias

ii. By forcing the distribution according to pre-determined percentages, the
problem of making use of different raters with different scales is avoided.

Limitations of Forced Distribution

iii. The limitation of using this method in salary administration, however, is

that it may lead low morale, low productivity and high absenteeism.

Employees who feel that they are productive, but find themselves in lower
grade (than expected) feel frustrated and exhibit over a period of time
reluctance to work.

3. Critical Incident Techniques

Under this method, the manager prepares lists of statements of very effective
and ineffective behaviour of an employee. These critical incidents or events
represent the outstanding or poor behaviour of employees or the job. The
manager maintains logs of each employee, whereby he periodically records
critical incidents of the workers behaviour. At the end of the rating period, these
recorded critical incidents are used in the evaluation of the worker’s performance.
Example of a good critical incident of a Customer Relations Officer is: March 12 -
The Officer patiently attended to a customer’s complaint. He was very polite and
prompts in attending the customer’s problem.

Advantages of Critical Incident techniques

i. This method provides an objective basis for conducting a thorough

discussion of an employee’s performance.
ii. This method avoids recency bias (most recent incidents are too much
emphasized)

Limitations of Critical Incident techniques

iii. Negative incidents may be more noticeable than positive incidents.

iv. The supervisors have a tendency to unload a series of complaints about
the incidents during an annual performance review sessions.
v. It results in very close supervision which may not be liked by an employee.
vi. The recording of incidents may be a chore for the manager concerned,
who may be too busy or may forget to do it.

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 4. Checklists and Weighted Checklists
In this system, a large number of statements that describe a specific job are
given. Each statement has a weight or scale value attached to it. While rating an
employee the supervisor checks all those statements that most closely describe
the behaviour of the individual under assessment. The rating sheet is then
scored by averaging the weights of all the statements checked by the rater. A
checklist is constructed for each job by having persons who are quite familiar
with the jobs. These statements are then categorized by the judges and weights
are assigned to the statements in accordance with the value attached by the
judges.

Advantages of Checklists and Weighted Checklists

i. Most frequently used method in evaluation of the employee’s

performance.

Limitations of Checklists and Weighted Checklists

ii. This method is very expensive and time consuming

iii. Rater may be biased in distinguishing the positive and negative questions.
iv. It becomes difficult for the manager to assemble, analyse and weigh a
number of statements about the employee’s characteristics, contributions
and behaviours.

SUBMITTED BY:

MICHAEL JOHN M. SUMILE

II-BSBA (OM) – Student

SUBMITTED TO:

MR. JHONNY FLOYD CASTAÑARES

Instructor

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