Human Resource Management

Chapter Six : Performance Appraisal

Performance appraisal (PA) is defined as a human resource activity that is used to determine the
extent to which an employee is performing the job effectively. It is the process of evaluating how
well employees do their job compared with a set of standards and communicating that
information to those employee’s.

Performance appraisal is the process of evaluating employee's performance according to the job
standards. It is a formal structured system designed to measure the actual job performance of an
employee with designed performance standards.

6.1. Purpose of performance appraisal

Performance appraisal has many purposes, among these the following are the major uses in
human resource management decisions.

a) Administrative Purpose
One of the most common uses of performance appraisals is for making administrative decisions
relating to promotions, transfers, demotions, firings, layoffs, and compensation (merit pay
increases). However, relying on performance appraisal information for promoting an employee
does not guarantee in selecting suitable employees of the higher position. Because, performance
appraisal data only show the current job performance of an employee but do provide some
predictive information.

b) Development Purpose
Performance appraisal information can also provide needed input for determining training and
development needs. Most organizations use performance appraisal information to determine
employees’ needs for training and development which is essential for providing training and
development to employees.

c) Motivation Purpose
Performance appraisal can be used to determine employees’ recognition, reward, bonus etc. To
improve the employees’ performance and achieve their target goals, organizations use pay-for-
performance programs (e.g., merit pay, incentives, bonus rewards).

d) Feedback Purpose
Performance appraisal is used to encourage performance improvements of an employee. In this
regard, performance appraisals are used as a means of communicating to employees how they
are doing and suggesting needed changes in behaviors, attitude, skills, or knowledge. This type
of feedback clarifies for employees the job expectations held by the manager.

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6.2. Performance appraisal steps

In order to realize the purpose of performance appraisal organizations should carefully plan
appraisal systems and follow a sequence of steps as illustrated in the figure below:

Establish Communic Measure Compare Discuss Initiate

1. Performanc ate Actual actual Apprais Correcti
e Standard Standards Performa Performa al with ve
Establish to nce nce with Employ Action
Performance Employees Standards Standards ees

The first step in appraising performance is to identify performance standard. A standard is a

value or specific criterion against which actual performance can be compared (Baird, et.al,
1990). Employee job performance standards are established based on the job description.
Employees are expected to effectively perform the duties stated in the job description.
Therefore, job descriptions form the broad criteria against which employee’s performance is
measured.

2. Communicate Standards to Employees

Inform these standards to all the employees. For the appraisal system to attain its purposes, the
employees must understand the criteria against which their performance is measured. As
Werther and Davis (1996), stated to hold employees accountable, a written record of the
standards should exist and employees should be advised of those standards before the evaluation
occurs. Providing the opportunity for employees to clearly understand the performance
standards will enhance their motivation and commitment towards their jobs.

3. Measure Actual Performance

The third step is the ‘measurement of performance.’ To determine what actual performance is, it
is necessary to acquire information about it. We should be concerned with how we measure and
what we measure. Observations, interviews, questionnaires, records and written reports are
sources of information that frequently used to measure actual performance:

4. Compare Actual Performance with Standard

After measuring employee's job performance it is necessary to compare it with the set standard to
know whether there is deviation or not. When one compare performance with the standard either
performance match standards or performance does not match standards.

5. Discuss Appraisal with Employees

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In this step is discuss they conclusion about the employee overall performance. They conclusion
and overall evaluations of performance based on the degree of achievement of standards
described in the performance plan. This is very challenging steps in the appraisal process as in
involves presenting accurate appraisal to the employees and has the person accept the appraisal
in a constructive manner.

6. Initiate Corrective Action

The last step of the performance appraisal is taking corrective action if necessary. The
management has several alternatives after appraising performance and identifying causes of
deviation from job-related standards. The alternatives are; 1) take no action, 2) correct the
deviation, or 3) review the standard. If problems identified are insignificant, it may be wise for
the management to do nothing. On the other hand, if there are significant problems, the
management must analyze and identify the reasons why standards were not met. This would
help to determine what corrective action should be taken. For example, the cause for weak
performance can range from the employee job misplacement to poor pay. If the cause is poor
pay, corrective action would mean compensation policy reviews. If the cause is employee job
misplacement, corrective action would mean assign employee to a job related to his/her work
experience and qualification. Finally, it is also important to revise the performance standard.
For example, the major duties stated in the job description and the qualification required to do
the job may not match. In this case corrective action would mean to conduct job analysis to
effectively determine the job description and job specification.

6.3. Problems associated with performance appraisals

Problems of performance appraisal are associated with the rater, rate and appraisal systems. One
of the major sources is the raters. Some of the problems seen in performance appraisal include:

Varying standards: when appraising employees, a manger should avoid applying different
standards and expectation to employees performing the same or similar jobs. Such problems
often result from the use of ambiguous criteria and subjective weighting by supervisors.

Recency and primacy effects: the recency effect occurs when a rater gives treated weight to
recent events when appraising an individual performance. Recency occurs when evaluations are
based on the employee’s recent behaviors or work performed most recently. This may not be a
representative of the overall performance of the employee throughout the evaluation period. This
problem makes it difficult to differentiate the good performers from the poor performers. The
opposite of a recency effect is the primacy effect. Primacy effect which occurs when a rater
gives greater weight to information received first when appraising an individual’s performance.

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Central tendency: is a tendency to rate all employees the same way, such as rating them all
average.

Leniency: occurs when the rater has a tendency to rate all employees as high performers. It is
the grouping of ratings of all employees at the positive end instead of spreading them throughout
the performance scale.

Strictness: occurs when the rater has a tendency to rate all employees as low performers. It is the
grouping of ratings of all employees at the negative end instead of spreading them throughout the
performance scale.

Halo and horns effect: the halo effect occurs when a rater scores an employee high on all job
criteria because of performance in one area. The halo error occurs when one aspect of the
subordinate’s performance affects the rater’s evaluation of other performance dimensions. For
example, if a worker has few absences, the supervisor might give the worker a high rating in all
other areas of work. The opposite is the horns effect. Horns effect occurs when a low rating on
one characteristic leads to an overall low rating.

Contrast: this is the tendency to rate people relative to one another rather than against
performance standards.

Similar to-me/different-from-me: sometimes, raters are influenced by whether people show

characteristics that are the same as or different from their own.

Stereotyping: Stereotyping is a mental picture that an individual holds about a person because of
that person’s sex, age, religion, race, caste, etc., by generalizing behavior on the basis such
blurred images, the rater grossly overestimates or underestimates a persons’ performance. For
example, employees from rural areas might be rated poorly by raters having a sophisticated
urban background if they view rural background negatively.

6.4. Performance appraisals methods

There are different performance appraisal methods practiced by different private and government
organizations.

The most commonly used performance appraisal methods are:

i) Graphic rating scale

The graphic rating scale is the simplest and most popular method for appraising performance.
Graphic rating scale consists of a list of general personal traits (job-related) and a range of
performance for each of the traits. The employee is then rated by identifying the score that best
describes his or her level of performance for each trait. The list of traits might include such

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factors as quantity and quality of work, job knowledge, initiative, cooperativeness, attendance,
accuracy of work, etc.

Instead of appraising generic traits or factors (such as quality and quantity), many firms specify
the duties to be appraised. In this case the job’s main sets of duties have been taken from the job
description and prioritized. Importance ratings are thus indicated as percentages at the top of
each main category. Example of graphic rating scale as follows;

S.No. FACTOR RATING (Degrees)

1. Skill Excellent -- V. Good -- Good -- Satisfactory -- Poor --

2. Knowledge Excellent -- V. Good -- Good -- Satisfactory -- Poor --

3. Dependability No Direction -- Minimum Direction -- Centre counted on --

Frequent Direction -- Constant Direction --

Advantages

 It is less time consuming to develop and administer.

 It permits quantitative analysis and comparison.
Drawbacks/disadvantages

 It is subjective -the descriptive words used in the scales may have different
meaning for different raters.
 It is low reliable
ii) Checklist Method
The rater uses a list of behavioral descriptions required to do a job and put a check mark against
those behaviors that apply to the employee. In a simple checklist method, the rater makes yes-or-
no responses to a serious of questions concerning the employee’s behavior. For example,

Sr.N Check List Yes No

o.

1. Is he punctual? .. ..

2. Is he helpful to other colleagues? .. ..

3. Does he usually volunteer good ideas? .. ..

Normally the scoring key for the checklist method is kept by the human resource department;
the evaluator is generally not aware of the weights associated with each question.

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It is possible to use a weighted checklist method that attaches a weight to each item and can
develop a more accurate rating score.

Advantages

 It permits quantitative analysis and comparison.

Drawbacks/disadvantages

 It is subjective -the checklist questions can have different meanings for different
raters.
 Because raters can see the positive or negative connotation of each question, bias
can be introduced.
 It is time-consuming to assemble the questions for each category
iii) Behaviorally Anchored Rating Scale (BARS)
It is one of the performance appraisal methods which is designed to assess behaviors required to
successfully perform a job. The focus of BARS is not on performance of outcomes but on
functional behaviors demonstrated on the job. The assumption is that these functional behaviors
will result in effective job performance.
Appraising performance using BARS requires the rater to read the list of anchors on each scale
to find the group of anchors that best describe the employee’s job behavior during the period
being reviewed. The scale value opposite the group of anchors is then checked. A total
evaluation is obtained by combining the scale values checked for all job dimensions.
For example of BARS for Machines Shop Inspector;

Grade Poor Satisfactory Good Very Good Excellent

Points 1 2 3 4 5

Behavior Poor Defects not Defective are Capable of Able to

inspection often detected. identified in identifying identity
Descripti nd rd
majority of Requires 2 /3 attempt. defectives. defective lots
on
lots assistance in Majority of lot Accepted lot in first attempt.
accepted by accepting lot. accepted are not seldom returned. Accepted lot
him got 50% rejection rejected in field. Requires never returned.
rejected in in the field. assistance in Capable of
the field. adjusting adjusting
machine. machine
independently.

Advantages

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 BARSs are developed through the participation of both managers and job incumbents;
this increases the likelihood that the method will be accepted.
 The anchors are developed from observations and experiences of employees who
actually perform the job. The result should therefore be a good measure of performance
on the job.
 BARSs can be used to provide specific feedback concerning an employee’s job
performance.
Drawbacks
 Time consuming to develop BARS
 Separate forms must be developed for different jobs/tasks.
iv) Ranking Methods
Ranking methods are methods of performance appraisal in which the performance of an
employee is ranked relative to the performance of others. Ranking method differs from the other
methods in that one employee’s performance evaluation is a function of the performance of other
employees in the job. Ranking techniques include alternation ranking, paired comparison, and
forced distribution.

a) Alternation Ranking Method is ranking employees from best to worst on a particular trait.
First, lists all employees to be rated, and then cross out the names of any not known well enough
to rank. Then indicate the employee who is the highest on the characteristic being measured and
also the one who is the lowest. Then choose the next highest and the next lowest, alternating
between highest and lowest until all employees have been ranked.
The primary drawback of this method is that the size of the performance differences among
individuals is not well defined. It would not indicate the performance level of an individual.
b) Paired Comparison Method is ranking employees by comparing each employee with every
other employee in the rating group at a time. This method helps make the ranking method more
precise. For every trait, every employee is paired with and compared to every other employee.
For example, suppose a rater is to appraise sex employees. The names of these individuals are
listed on the left side of a sheet of paper. The rater then compares the first employee with the
second employee on a chosen trait, such as quantity of work. If she/he 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 continues to compare the first employee to the third, fourth, fifth,
and sixth employee on the same performance trait, placing a check mark by the name of the
employee who performed best in each paired comparison. The process is repeated until each
employee has been compared to every other employee on all of the chosen performance traits.
The employee with the most check marks is considered to be the best performer. Likewise, the
employee with the fewest check marks is the lowest performer.
Drawback
 Difficult to implement when the number of employees to be rated is large.
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c) Forced distribution requires raters to compare the performance of employees and place a
certain percentage of employees at various performance levels. It assumes the performance level
in a group of employees will be distributed according to normal curve.
For example, the rater decides to distribute employees as follows:
 10%............................................ High performers ,
 20%.............................................Above Average performers
 40%........................................... Average performers
 20%............................................Below Average performers
 10%.............................................Low performer

Drawback
 May not be applicable in small groups of employees.
v) Narrative Methods
Some raters use written appraisal method to evaluate the performance of employees.
Documentation and description are the essence of the critical incident and essay methods.
These records describe an employee’s action rather than showing an actual rating.

a) Critical-Incident: The critical-incident appraisal method requires the evaluator to keep a

written record of incidents as they occur. The incidents recorded should involve job behaviors
that illustrate both satisfactory and unsatisfactory performance of the employee being rated.
As they are recorded over time, the incidents provide a basis for evaluating performance and
providing feedback to the employee.
Advantages
 This method can always be used to supplement another appraisal method like ranking
method
 It provides raters with specific hard facts for explaining the appraisal.
 It reflects the employee’s accumulated performance.
Drawbacks
 It can be burdensome and time consuming, because it requires continuous and close
supervision to record critical events on the employee’s performance
 “Critical incident” is unclear and may be interpreted differently by different people.
 It may also lead to friction between the manager and employees when the employees
believe the manager is keeping a “ book” on them
b) Essay Appraisal Method requires that evaluation describe an employee’s performance in
written narrative form. It focuses on issues such as strengths and weakness, job knowledge,
communication skills, quantity and quality of work, potentials of the employee for promotion,
training, etc.
Drawbacks
 The length of the appraisal and their content can vary depending on the rater.

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 It is difficult to make comparison to compare employees’ performance.

 It can also be affected by the writing skill of the appraiser.
vi) Management By Objective (MBO)
Management by Objectives (MBO) is a performance appraisal method that calls for a
comparison between specific, quantifiable target goals and the actual results achieved by an
employee.
MBO is the most popular method of managerial appraisal. It also refers to a process in which
managers /raters set specific and measurable goals with each individual employee on a regular
basis. The employee is then responsible for achieving his/her goal within a certain time.
With MBO, the measurable, quantitative goals are usually mutually agreed upon by the
employee and supervisor at the beginning of the appraisal period.
MBO is also called management by results, performance management, results management, or
work planning and review program. Under MBO, employees are evaluated on the basis of what
they accomplish, not how they get the job done.
Requirements for the successful application of MBO appraisal method:

 The objectives to be set should be quantifiable and measureable

 Objectives should also be challenging yet achievable, and they should be expressed in
writing and in clear, concise, unambiguous language.
 Employees should be participated in the objective-setting process.
 Objectives and action plans must serve as a basis for regular discussions between the
manager and the employee concerning the employee’s performance.
vii) Multi-Rater Assessment (or 360-Degree performance appraisal)

It is modern method of appraisal and nowadays popularly used in modern organizations. With
this method, managers, peer, customers, suppliers, and subordinates are involved in appraising
an employee. These parties complete questionnaires on the individual employee job
performance. The person assessed also completes a questionnaire. The human resource
department provides the results to the employee, who in turn gets to see how his/her opinion
differs from those of the parties doing the assessment.

360-degree performance appraisal method can give a more rounded view of a person’s
performance than a straight-forward appraisal, which is often carried out by a line manager.

6.5 Who should do the appraising?

o Immediate supervisor

Supervisors’ ratings still are the heart of most appraisal systems. Getting a supervisor’s appraisal
is relatively easy and also makes a great deal of sense. The supervisor should be-and usually is-in

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the best position to observe and evaluate his/her employee’s performance and is responsible for
that person’s performance.

o Peers

The appraisal of an employee by his/her peers can be effective in predicting future management
success. Here all the peers simply get together to rate each other high. With more organizations
using self-managing teams, peer or team appraisals are becoming more popular.

o Rating committees

Organizations also use rating committees to evaluate employees. These committees are usually
composed of the employee’s supervisor and three or four other supervisors. Using multiple raters
can be advantageous. While there may be a discrepancy in the ratings made by individual
supervisors, the composite ratings tend to be more reliable, fair, and valid. Even when a
committee is not used, it is common to have the appraisal reviewed by the manger immediately
above the one who makes the appraisal.

o Self-ratings

Employees’ self-ratings of performance are also sometimes used (usually in conjunction with
supervisor’s ratings). The basic problem is employees usually rate themselves higher than they
are rated by supervisors or peers.

o Subordinates

More organizations today let subordinates evaluate their supervisors’ performance, a process
called upward feedback. When implemented throughout the organization, the process helps top
managers diagnose management styles, identify potential “people” problems, and take corrective
action with individual managers as required. E.g. Students appraise the teaching performance of
their instructors.

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