Performance Appraisal in HRM

Performance appraisal is the process where a company checks how well an employee is doing their
job. It helps give feedback, improve performance, and make decisions like promotions, transfers,
or training needs.

Definition

In HRM, performance appraisal means evaluating an employee’s work, skills, and contribution to
the company. It helps decide rewards, promotions, or other job changes. It also motivates
employees to do better.

How Does Performance Appraisal Work?

Different companies use different methods to review employee performance:

• Annual, Half-Yearly, or Quarterly Reviews – These are formal reviews done once or a
few times a year to check how well employees are working.
• One-on-One Check-Ins – These are regular, informal meetings where managers give
feedback and help employees improve. They're useful for ongoing projects and fast-paced
teams.
• Project-Based Appraisals – Some companies review performance based on specific
projects an employee is working on.

Each company chooses the method that works best for its goals and work style.

Process of Performance Appraisal in HRM

• Performance Standards
Set clear expectations for how employees should perform their job.
• Set Up Measurable Goals
Create goals that can be tracked and measured (like deadlines or targets).

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 • Communicate About Performance
Let employees know what is expected and how their work will be judged.
• Measure Actual Performance
Observe and record how well the employee is actually doing.
• Discuss Appraisal with Employee
Talk with the employee about their performance – what went well and what didn’t.
• Corrective Actions
If needed, suggest ways the employee can improve or fix issues.
• Feedback
Give positive or constructive feedback to help the employee grow.

Modern Methods & Types/Techniques of Performance Appraisal

Here are some popular methods:

1. Graphic Rating Scale

Employees are rated (e.g., from 1 to 10) on things like teamwork, communication, and
quality of work.
2. Ranking Method
Employees are ranked from best to worst based on their performance.
3. Checklist Method
A list of yes/no questions is used to rate employees.
4. Management by Objectives (MBO)
Employees are given clear goals. At appraisal time, their performance is checked against
these goals.
5. 360-Degree Feedback
Feedback is collected from co-workers, subordinates, and managers for a full view.
6. General Appraisal
Regular meetings between manager and employee to set and review goals.
7. Technological Appraisal
Focuses on how well an employee uses and adapts to technology.

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8. Sales Appraisal
Used for salespeople; they’re judged based on the revenue they generate.

Objectives of Performance Appraisal

1. Provide Feedback
Performance appraisals help managers tell employees how they are doing at work. It shows
what they are doing well and what they need to improve.

Tips for good feedback:

o Review performance results

o Do regular (quarterly) reviews
o Give feedback one-on-one
2. Downsize or Right-size
If a company needs to reduce staff, appraisals help choose who should stay based on their
work performance.
3. Promote the Right Person
Appraisals help managers decide who should get a promotion based on talent and hard work.
4. Set Goals & Measure Goals
They help in setting clear goals for employees and checking if those goals are being
achieved.
5. Improve work performance
By showing employees where they need to improve, appraisals help them do better in the
future.

Tips to improve performance:

o Focus on deadlines
o Get better at reviewing your work
o Set personal goals

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6. Determine compensation changes
Performance appraisals help in deciding pay raises, bonuses, or other benefits for employees
who work hard.
7. Encourage Coaching and Mentoring
They help managers find out who needs help and what kind of support they need to do better.
8. Employee Training and Development
Appraisals help identify what skills employees need to learn. This helps in planning training
programs.
9. Provide a Legal defense for personal decisions
If a company is questioned for firing or promoting someone, appraisal records can support
the decision.
10. Encourage coaching & mentoring
Appraisal’s guide managers in teaching and helping employees in areas they are struggling
with.
11. Improving overall organization’s Performance
By understanding how each employee is doing, the company can make better decisions, grow
faster, and succeed more.

Characteristics of a Good Performance Appraisal System

1. Clear objective
The reason for doing appraisals should be clear. Everyone should understand what the
company wants to achieve with it.
2. Well Defined Performance Criteria
Employees need to know exactly what they’re being judged on. A fair system uses different
standards based on the role or experience level of each employee.
3. Accuracy and Reliability in Results
Appraisal results must be honest, clear, and based on real data. This helps the company make
smart decisions and builds employee trust.
4. Post Appraisal Interview
After the review, managers should talk with the employee. These talks help explain the
results, fix problems, and suggest training if needed.

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5. Time-saving
A good system doesn’t take too much time or money. It should be easy to manage so HR and
managers can focus on other tasks too.
6. Continuous Feedback
Instead of just once a year, feedback should be given regularly. This helps employees
improve before problems grow bigger.
7. Focusing on what matters
While things like attitude and behavior matter, the most important part of an appraisal should
be the employee’s job performance and skills.
8. Match your goals
Every company is different, so the appraisal system should match how the company works.
For example, if you use 360-degree feedback, it should come from people who actually work
with that employee.

Uses of Performance Appraisal

1. Feedback – Helps employees know their strengths and weaknesses.

2. Promotions – Identifies who deserves a higher role.
3. Salary Decisions – Used to decide pay raises or bonuses.
4. Training Needs – Shows where skill improvement is needed.
5. Job Placement – Helps in transfers or better role matching.
6. Goal Setting – Sets clear work targets for employees.
7. Problem Detection – Finds performance issues early.
8. Legal Evidence – Supports HR decisions if challenged.
9. Better Communication – Encourages open dialogue between staff and managers.
10. Employee Motivation – Rewards and recognition boost morale.
11. Workforce Planning – Helps plan future staffing needs.

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Advantages of Performance Appraisal

1. Finds Employee Strengths & Weaknesses

It helps managers see what an employee is good at and where they need improvement.
This helps in assigning the right job to the right person.
2. Helps Employees Grow
When employees get feedback on their work, they understand what to improve. This
helps them grow and perform better.
3. Boosts Motivation
Good feedback can make employees feel encouraged and more confident. Even knowing
their weak points can push them to do better.
4. Better Training Programs
It shows where most employees are lacking. HR can then plan useful training based on
real needs.
5. Improves Manager-Employee Relationship
It creates a chance for open conversations. Employees can talk about their problems and
feel heard by their managers.
6. Fair Promotions & Transfers
Appraisals provide clear performance data, making promotion or transfer decisions fair
and based on performance, not favoritism.
7. Better Mentoring from Managers
Good managers use appraisal feedback to guide employees. They help them improve by
highlighting both strengths and weaknesses.

Disadvantages of Performance Appraisal

1. Takes Time and Money

Appraisals need forms, meetings, and analysis. It takes a lot of time, effort, and
sometimes money, especially if experts are hired.
2. Unfair Ratings or Bias
Some managers may give the same rating to everyone or show favoritism. This can lead
to unfair results and hurt employee morale.

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 3. Halo and Horn Effect
If a manager only focuses on one good or bad behavior, it can affect the whole review.
For example, coming late might overshadow good work.
4. Spillover Effect
Managers may judge employees based on past performance, not what they are doing
now, which can be unfair.
5. Evaluator’s Mood and Attitude
If the manager is in a bad mood or expects too much, they might rate employees unfairly.
This can harm team motivation.

Criterion Issues

Criteria are the standards or measures used to judge performance. Good criteria must be:

• Relevant – Match job duties.

o Example: Don’t use “sales closed” to evaluate an IT technician.
• Reliable – Consistent over time.
• Valid – Measures what it’s supposed to.
• Specific – Clearly defined.
• Fair – Free from bias or favoritism.
• Acceptable – Employees must agree with the process.

Problems with criteria:

• Halo effect: One good trait overshadows all others.

• Recency bias: Only recent work is considered.
• Leniency/strictness: Some raters are too soft or too harsh.

Associated Legal Issues

Performance management can lead to legal problems if it’s unfair or discriminatory.

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Key Legal Concerns:

1. Discrimination
o Under EEO laws, performance ratings must not be based on race, gender,
religion, age, or disability.
o Example: Giving poor ratings to older employees to push them out = age
discrimination.
2. Wrongful Termination
o If an employee is fired without fair performance review or due process, they can
sue.
3. Inconsistent Application
o Same policies must apply to all employees. Favoritism may lead to lawsuits.
4. Lack of Documentation
o If managers don’t record performance issues properly, companies lose in court.

Best Practice:

• Use clear, job-related criteria.

• Train managers on how to evaluate fairly.
• Keep proper records of evaluations and feedback.

Real-World Example

In Griggs v. Duke Power Co. (1971), the U.S. Supreme Court ruled that employment practices
must be job-related and not have discriminatory impact.
Even neutral-sounding performance rules can be illegal if they unfairly hurt protected groups.