PERFORMANCE APPRAISAL METHODS IN MANUFACTURING INDUSTRY

Abstract: The objective of this paper is to review common performance appraisal

methods and identify the best approach for manufacturing industries. Different
conventional performance appraisal methods and rapid appraisal methods are
discussed first. A hierarchical structure for performance appraisal is then
developed based on the three conventional existing methods.

INTRODUCTION

Performance appraisal may be defined as an organized formal interaction between a

subordinate and supervisor, that usually takes the form of a periodic interview, in which the
work performance of the subordinate is examined and discussed, for identifying weaknesses
and strengths as well as opportunities for improvement and skills development (Archer North,
2002). In other words, Performance appraisal is a formal system of measuring, evaluating, and
influencing an employee’s job-related attributes, behaviors and outcomes to determine how
productive an employee is, and to determine if an employee’s productivity can be improved
(Konobear, 2002).
Appraisal results are used in many organizations, either directly or indirectly, to help
identifying the better performing employees who should get the majority of available merit
pay increases, bonuses, and promotions. There are various appraisal methods are in usage
today. Broadly, we can classify them as comparative appraisals (ranking, paired comparisons,
and forced distribution), behavioral appraisals (graphic rating scales, checklist, critical
incidents, essays, and behaviorally anchored rating scales), and output based appraisals. Also
there are rapid appraisal methods for quick, low cost ways to gather data for manager’s
information needs.
All of the appraisal methods have been discussed and their advantages and
disadvantages are mentioned. In this paper a new appraisal method has been proposed using
the existing methods. This new method is developed by taking the advantages of the three
common methods including comparative, behavioral and output based mThe advantages and
disadvantages of this new method are also discussed. A hierarchical structure discussed in this
paper uses all the appraisal methods accordingly at appropriate levels of the company.

ISSUES IN PERFORMANCE APPRAISAL

Evaluation system and feedback system are two basic systems in an effective performance
appraisal. The main aim of the evaluation system is to identify the performance gap, and the
shortfall that occurs when performance does not meet the standard set by the organization as
acceptable. The main aim of the feedback system is to inform the employee about the quality
of his/her performance. The information flow is not exclusively one way.
The appraisers also receive feedback from the employee about job problems. Looking at
performance appraisal from the different viewpoints of the main stakeholders, the employee
and the organization is one of the best ways to appreciate the purposes of performance
appraisal. From the employee viewpoint, the purpose of performance appraisal is four-fold:
Tell me what you want me to do, Tell me how well I have done it, Help me improve my
performance, and Reward me for doing well. From the organization's viewpoint, one of the
most important reasons for having a system of performance appraisal is to establish and
uphold the principle of accountability. The performance appraisal process typically consists of
four inter-related steps as follows:
 Establish a common understanding between the manager (evaluator) and employee
(evaluatee) regarding work expectations, mainly, the work to be accomplished and
how that work is to be evaluated.
 Ongoing assessment of performance and the progress against work expectation.
Provisions should be made for the regular feedback of information to clarify and
modify the goals and expectations, to correct unacceptable performance before it
was too late, and to reward superior performance with proper praise and
recognition.
 Formal documentation of performance through the completion of a performance
and development appraisal form appropriate to the job family.
 The formal performance and development appraisal discussion, based on the
completed appraisal form and ending in the construction of a development plan
(Hansen, 2002).
Timing of appraisals is important. Systematic appraisals typically are conducted once or
twice a year. For new employees, an appraisal 90 days after employment, again at six months,
and annually thereafter is common timing. Expectations of a manager in doing a performance
appraisal are:
  Translate organizational goals into individual job objective.
 Communicate management's expectations regarding employee performance.
 Provide feedback to the employee about job performance in light of management's
objectives
 Coach the employee on how to achieve job objectives/requirements
 Diagnose the employee's strengths and weaknesses.
 Determine what kind of development activities might help the employee better
utilize his or her skills improve performance on the current job.
Performance appraisal can be done by anyone familiar with a person's performance
including the following: supervisors, subordinates, peers, customers and self-appraisal. They
are discussed below:
 Supervisor rating of subordinates: Rating of employees by supervisors is based on
the assumption that the manager is the most qualified person to evaluate the
employee's performance realistically, objectively and fairly. Drawbacks: First, the
superior may have an ethical bias against 'playing God'. Second, the superior may not
have the necessary interpersonal skills to give good feedback. And, lastly, the
superior - having reward and punishment power - may make the employee feel
threatened and alienated.
 Employee rating of superiors: The concept of having superiors rated by subordinates
is being used in a number of organizations today, to make their organizations less
hierarchical, and to develop better managers. While subordinates often do not have
access to information about all dimensions of supervisory performance, they do have
access to information about supervisor-subordinate interactions. Drawback:
subordinates may not always evaluate performance objectively or honestly -
particularly, if subordinates feel threatened.
 Peer ratings: Peer ratings are especially useful when supervisors do not have the
opportunity to observe each employee's performance, but other work group
members do. Common performance dimensions on which team members have
evaluation expertise include attendance and timeliness, interpersonal skills, group
supportiveness, and planning and coordination. Drawback: peer evaluations have not
been widely used however- with the exception of TQM organizations- because usually
team members resist evaluating colleagues since this can damage relationships. Thus,
it may be that peer evaluations are best used for developmental purposes rather than
for administrative purposes.
 Appraisal by Customers: For salespeople and other service jobs, customers/clients
may provide the only really clear view of certain behaviors. The information that
customers provide can serve as useful input for employment decisions, such as those
regarding promotion, transfer, and need for training. It can also be used to assess the
impact of training, or as a basis for self-development.
 Self-Appraisal: Self-appraisal is a self-development tool that forces employees to think
about their strengths and weaknesses and set goals for improvement. Thus if an
employee possesses a unique skill, the employee may be the only one qualified to rate
 his/her own behavior. Yet, employees may not rate themselves as supervisors would
rate them, using quite different standards. (Schuler, 1995).
There are many possible sources of error in the performance appraisal process. One of
the major sources is a mistake made by the rater. There is no simple way to eliminate these
errors, but making raters aware of them is helpful. The most common errors committed in
performance appraisal include: the halo effect; leniency; strictness; the central tendency error,
and the contrast error.

METHODS FOR APPRAISING PERFORMANCE

Performance actually can be appraised by a wide variety of methods and techniques. The most
commonly used performance appraisal methods can be distinguished into three major
categories: comparative appraisals, behavioral appraisals, and output-based appraisals.

Comparative Appraisals

Managers directly compare the performance of their subordinates against one another in
comparative appraisals. For example, a data- entry operator's performance would be
compared with that of other data-entry operators by the computing supervisor. Comparative
techniques include ranking, paired comparisons, and forced distribution.
Ranking: In this method, the supervisor lists all subordinates in order, from the highest
to the lowest in performance. Rankings such as this are appropriate only in small companies.
As the number of employees increases, it becomes gradually more difficult to discern
differences in their performance. Drawbacks: the primary drawback of the ranking method is
that the size of differences among individuals is not well defined. For example, there may be
little difference between individuals ranked second and third, but a big difference in
performance between those ranked third and fourth. This drawback can be overcome to some
extent by assigning points to indicate the size of the gaps existing among employees.
Paired Comparisons: The paired comparison method involves comparing each
employee to every other employee in the rating group, one at a time, to determine the better.
A rank order is obtained by counting the number of times each individual is
selected as being the better of a pair. Drawback: if the number of employees to be ranked is
large, the number of comparisons that have to be made may be unmanageable.
Forced Distribution: In forced distribution, the supervisor must assign only a certain
proportion of his/her subordinates to each of several categories on each evaluative factor. A
common forced distribution scale is divided into five categories. A fixed percentage of all
subordinates in the group fall within each of these categories. Typically, the distribution
follows a normal distribution.
For example, if a supervisor had to appraise the performance of 50 subordinates using
the forced distribution method, he/she should have to rate: 5 employees [10 percent] as
'unsatisfactory'; 10 employees [20 percent] as 'below average'; 20 subordinates [40 percent]
as 'average'; 10 individuals [20 percent] as 'good'; and 5 people [10 percent] as 'excellent’.
Drawback: a group of subordinates may not conform to the fixed percentage. Another
drawback of forced distribution is that a supervisor may resist placing any individual in the
lowest, or the highest, category. In fact, generally, the distribution of performance appraisal
ratings does not approximate the normal distribution of the bell-shaped curve, since it is
common for 60% to 70% of the organization’s workforce to be rated in the top two
performance levels.

Behavioral Appraisals

In contrast with comparative appraisals, behavioral appraisals allow supervisors to evaluate

each person's performance independent of other employees but relative to important job-
related behaviors, which when exhibited can lead to job success. For example, a salesperson
that can exhibit the behavior of 'verbal persuasion' appropriately has satisfied a behavior-
based criterion. The simplest methods for appraising job performance using behavioral criteria
to mark an employee's level of performance in a specific form, namely: the graphic rating scale
and checklist. Some managers are required to provide written appraisal information - in a
narrative form. These records describe an employee's actions rather than indicating an actual
rating. Among the most common narrative appraisal methods are included: the critical
incident method and the essay.
Graphic Rating Scale: The graphic rating scale allows the rater to mark an employee's
job performance on a five-point or seven-point scale. This method identifies certain subjective
character traits, such as 'pleasant personality', 'initiative' or 'creativity' to be used as basic job
performance criteria. Because of its simplicity, the graphic rating scale is the most frequently
used performance appraisal method. Drawbacks: the traits used for performance evaluation
may be unrelated to the job itself. Such traits often tend to be ambiguous and too vague to be
used as the basis for employee performance appraisal. Another drawback is that the
descriptive terms used in such scales may have different meanings to different raters. Factors
such as 'initiative' and 'cooperation' are subject to many interpretations, especially in
conjunction with words such as 'outstanding', 'average', or 'poor'.
 Checklist: The checklist uses a list of statements or words that are checked by raters.
Raters check statements most representative of the characteristics and performance of an
employee. Typical checklist statements are: can be expected to finish work in time, seldom
agrees to work overtime, is cooperative and helpful, accepts criticism, and strives for self-
improvement. The checklist can be modified so that varying weights are assigned to the
statements or words. The results can then be quantified. Usually, the results are not known by
the rater and are tabulated by someone else, such as a member of the HR unit. Drawbacks: as
with the graphic rating scale, the words or statements used may have different meanings to
different raters, thus causing severe practical problems to the effective evaluation of
employees.
Critical Incidents: In the critical incident method, the manager keeps a written record of
the highly favorable and unfavorable actions in an employee's performance. When something
happens [a 'critical incident' involving a particular employee] the manager writes it down.
Thus, a list of critical incidents is kept during the entire rating period for each employee. The
critical incident method can be used with other methods to document the reasons why an
employee was rated in a certain way. Drawbacks: what constitutes a critical incident is not
defined in the same way by all supervisors. And producing daily or weekly written reports
about each employee's performance may be extremely time-consuming. Also, employees may
become overly concerned about what the supervisor writes and begin to feel 'threatened'.
Essays: The essay (free-form) appraisal method requires the manager to write a short
essay describing each employee's performance during the rating period. The rater usually is
given a few general headings under which to categorize comments. The intent is to allow the
rater more flexibility than other methods do. As a result, the method is often combined with
other methods.
Behaviorally Anchored Rating Scales (BARS): BARS utilize critical incidents to focus
appraisal on employee behaviors that can be changed. Thus, a BARS system describes
examples of 'good' or 'bad' behavior. These examples are 'anchored', or measured, against a
scale of performance levels. An example of BARS that rates a university professor's attitude
toward students is sited here. Construction of BARS begins with the identification of important
job dimensions. The dimensions are the most important performance factors in an employee's
description. Assume the major job dimensions associated with teaching are: course
organization, attitude toward students, fair treatment, and competence in subject area. Short
statements, similar to critical incidents, are developed that describe both desirable and
undesirable behaviors. Then they are 'retranslated' or assigned to one of the job dimensions.
This task is usually a group project and assignment to a dimension usually requires the
agreement of 60% to 70% of the group. The group, consisting of people familiar with the job,
then assigns each 'anchor' a number, which represents how 'good' or 'bad' the behavior is.
When numbered, these anchors are fitted to a scale. The drawbacks are: behaviorally
anchored rating scales require
extensive time and effort to develop and maintain. Also, separate BARS forms are necessary to
accommodate different types of jobs in an organization.

Output-based Appraisals

While the methods described above focus on job behaviors or processes, output-based
appraisals focus on job products as the primary criteria. The most commonly used output-
based appraisal is Management-by-Objectives (MBO). MBO specifies the performance goals
that an individual hopes to attain within an appropriate length of time. The objectives that
each manager sets are derived from the overall goals and objectives of the organization.
Implementing an MBO appraisal system comprised four basic stages.
 Job Review and Agreement: In the first phase the employee and the supervisor
review the job description and the key activities that comprise the employee's job.
The idea is to agree on the exact makeup of the employee's job.
 Development of Performance Standards: Specific standards of performance must be
mutually developed. This phase specifies a satisfactory level of performance that is
specific and measurable.
 Guided Objective Setting: Objectives are established by the employee in conjunction
with, and guided by, the supervisor. Objectives should be realistically attainable and
may be different from the set performance standard.
 Continuing Performance Discussions: The employee and the supervisor use the
objectives as bases for continuing discussions about the employee's performance.
Although a formal review session may be scheduled, the employee and the manager
do not necessarily wait until the appointed time for performance discussion. Objectives
are modified mutually, and progress is discussed during the period.
Drawbacks include no management tool is perfect and MBO is not appropriate for jobs
with little or no flexibility. Therefore, the MBO process seems to be most useful with
managerial personnel and employees who have a fairly wide range of flexibility and control
over their jobs.

Rapid Appraisals

Rapid appraisal methods are quick, low-cost ways to gather data systematically in support of
managers' information needs, especially questions about performance. Rapid appraisal
methods fall on a continuum between very informal methods, such as casual conversations or
short site visits, and highly formal methods, such as censuses, surveys, or experiments.
Strengths of rapid appraisal methods are they are relatively low-cost, can be quickly
completed, are good at providing in-depth understanding, and they provide flexibility.
Limitations are they have limited reliability and validity, lack quantitative data from which
generalizations can be made for a whole population, and credibility with decision-makers may
be low. Choosing between informal, rapid appraisal, and formal methods of data collection
should depend on balancing several potentially conflicting factors like purpose of the study
(importance and nature of the decision hinging on it), level of confidence in results needed
(accuracy, reliability, validity), time frame within which it is needed (when decision must be
made), resource constraints (budget, expertise), and nature of information required.
Regarding the last factor-nature of the information required-rapid appraisal methods are
especially useful and appropriate. Common rapid appraisal methods are discussed below.
Key informant interview: Involves interviews with 15 to 35 individuals selected for their
knowledge and to reflect diverse views. Interviews are qualitative, in-depth and semi
structured. Interview guides listing topics are used, but questions are framed during the
interviews, using subtle probing techniques.
Focus groups: Several homogeneous groups of 8 to 12 participants each discuss issues
and experiences among themselves. A moderator introduces the topic, stimulates and focuses
the discussion, and prevents domination of discussion by a few.
Community interviews: These take place at public meetings open to all community
members. Interaction is between the participants and the interviewer, who presides over the
meeting and asks questions following a carefully prepared interview guide.
Direct observation: Teams of observers record what they see and hear at a program site,
using a detailed observation form.
Observation may be of physical surroundings or of ongoing activities, processes or discussions.
Mini surveys: Involves interviews with 25 to 50 individuals, usually selected using non-
probability sampling techniques. Structured questionnaires are used that focus on a limited
number of closed-ended questions. Generates quantitative data that can often be collected
and analyzed quickly (USAID Center for Development Information and Evaluation, 2002).

PROPOSED PERFORMANCE APPRAISAL APPROACH

The performance appraisal approach proposed in this paper uses the existing appraisal
methods: graphic rating scales, checklist, critical incidents and management by objectives. Like
the graphic rating scales, the rater marks an employee’s performance on a continuum – that is
on a five point or seven point scale (See Figure 1). But the character traits mentioned here are
based on the checklist. Unlike in checklist, here the checklist statements are on five-point or
seven-point scale like graphical rating scales. Also the
goals that have to be attained by the employees/managers/top management in the next week
or for the next appraisal time are taken into consideration. The goal achievement is being
rated on a scale too. The rater finally quantifies these points and evaluates the performance of
the employee with others. Besides this the critical incidents are noted for the varying
behaviors of the employee. Critical incidents easily go with the other appraisal methods.
This method has the advantage of graphic rating scales that is its simple to use. Second
advantage is that the checklist can be modified so that varying weights are assigned to the
statements are words. Finally, the MBO part specifies the performance goals that an individual
hopes to attain within an appropriate length of time. The main drawback of this method is that
the words or statements used may have different meanings to different raters, thus causing
severe practical problems to the effective evaluation of employees. Secondly, as no
management has perfect flexibility and control over their jobs, it is practically difficult to
achieve the goals predetermined. Finally, when it comes to critical incidents, the critical
incident may not be defined in the same way by all supervisors and it is time consuming noting
the incidents for each employee every now and then.

APPRAISAL FORM
Date Department
Name Supervisor
Checklist Scale
1. Can be expected to finish 1 2 3 4 5
work in time
2. Seldom agrees to work 1 2 3 4 5
overtime
3. Is cooperative and helpful 1 2 3 4 5
4. Accepts criticism 1 2 3 4 5
5. Strives for self-improvement 1 2 3 4 5
Goals to be achieved
1. Number of products 1 2 3 4 5
2. Number of hours 1 2 3 4 5

Critical Incidents

1. Highly favorable action

2. Highly unfavorable action

Figure 1: Proposed Performance Appraisal Form

HIERARCHICAL STRUCTURE FOR APPRAISAL METHODS

The hierarchical structure for appraisal methods is actually a series of appraisal methods
happening at all levels of management in a company to achieve better results. The structure
uses different appraisal methods at different levels of management that suit accordingly. The
structure proposed slightly varies with the size of the company (small and large-scale
companies). A company has three levels of management, namely, Top level, Middle level, and
the Bottom level management.
Bottom level management: The bottom level management includes all the workers or
employees. Here, we use two kinds of appraisal methods. Peers Rating: Colleagues evaluate
the co-workers. This again deals with the behavior of the worker as it is concerned with the
feelings to the fellow employee. "Check list Method" with checklist statements representing
the characteristic and performance of an employee would be perfect for workers to rate their
co-workers. Again this is fairly possible in small companies. Supervisor Rating: The immediate
supervisor or manager will rate the employees. Here we choose comparative method to rate
the workers. For a small company, "Rating Method" would be perfect for small companies and
"Forced Distribution Method" is good for
the large companies with huge number of workers. Self-appraisals of employees can be done to
think about their strengths and weaknesses and set goals for improvement.
Middle level Management: Middle level Management consists of managers and
supervisors. The following are the appraisal methods used at this level. Superior Rating: Here,
the top-level management evaluates managers or supervisors on the basis of their
communicating with the employees and getting better results. For a small company, it is better
using "Graphic Rating Scales Method" allowing the superior to mark manager's performance
on a continuum - that is, on a five points or seven point scale. For the large companies, it's
better to go with "Critical Incidents" as the written record of only the highly favorable and
unfavorable actions of a manger or supervisor performance are taken into the consideration.
Employee Rating Supervisors: "Behaviorally Anchored Rating Scales" (BARS) is used by an
employee to rate the supervisor. The employee identifies the job dimensions like the attitude
toward employees, fair treatment, knowledge of the related work etc., and they are anchored.
Peers Rating: The manager evaluates the fellow manager through "Check List Method". The
Manager considers different checklist methods as helpfulness at the work, knowledge of the
work etc. Self-Appraisal: Self-Appraisal is very important at this stage. The managers use
"Management By Objectives" for this purpose. MBO specifies the performance goals that an
individual hopes to attain within an appropriate length of time.
Top Level management: The top-level management consists of Chief Executive Officer,
Managing Director, Vice President, and General Manager etc. The following are the appraisal
methods used at this level. Self-Appraisal: Self-Appraisal is very important at this stage. The
top-level management uses "Management By Objectives" for this purpose. MBO specifies the
performance goals that an individual hopes to attain within an appropriate length of time.
Managers Rating Supervisors: "Behaviorally Anchored Rating Scales" (BARS) is used by a
manager to rate the superior. The manager identifies (or given) the job dimensions like the
attitude toward managers, fair treatment, incentive/wages etc., and they are anchored. Peers
Rating: The Top-Level personnel evaluate the rest of the Top-level management through
"Check List Method". They consider different checklist methods as helpfulness at the work,
timely decisions, dealing the tough situations etc. A customer/client source of appraisal is also
requested for the better service.
Various rapid appraisal methods used at different levels:
 Key Informant Interviews: This can be used for various managers representing
different workforces on different work environments
 Focus Groups: Employees with small groups can be evaluated with this technique
with group leader being the moderator.
 Community Interviews: The middle/top level management can interview all
employees of different work groups. Suitable for small companies.
 Direct Observation: A manager in a group can use this to evaluate the employees.
Useful both in small and large companies.
 Mini Surveys: To interview the employees the middle or top-level management can
do mini-surveys. Useful for large companies.

CONCLUSIONS
In this paper, we have discussed the existing performance evaluation appraisal methods with
their advantages and disadvantages. We have also proposed and discussed a new appraisal
approach, which is based on three existing appraisal methods: graphic rating scales, checklist,
critical incidents and management by objectives. This approach has the benefit of all the three
methods employed in one.
We discussed about a hierarchical structure of implementing appraisal methods. At each
level of the management, the specific appraisal methods are suggested making no ambiguity.
These methods are appropriately allocated to the various raters at different levels of
management. With the fixed methods to each rater, the goals are set clear and no confusion
occurs.