Performance Appraisal

What is Performance Appraisal?

Performance Appraisal is a formal structured system of measuring and evaluating an employee’s job-related behaviors and outcomes to discover how & why the employee is presently performing on the job and how the employee can perform more effectively in the future so that the employee, organization, and society all benefit.


Methods of Performance Appraisal

Methods of Performance Appraisal are:

  1. Rating Scale
  2. Checklists
  3. Forced choice Method
  4. Critical Incident Method
  5. Behaviorally Anchored Rating Scales
  6. Field Review Method
  7. Performance Test
  8. Annual Confidential Report
  9. Cost Accounting Approach
  10. Comparative Evaluation Approach
  11. Management by Objective
  12. Psychological Appraisal
  13. Assessment Centers Notes
  14. 360-degree Feedback

Past-oriented Scale:

  1. Rating Scale: The typical rating scale system consists of several numerical scales, each representing a job-related performance criterion such as dependability, initiative, output, attendance, attitude, cooperation etc., each scale ranges from excellent to poor.


  2. Checklists: Under this method, a checklist of statements on statements on the traits of the employee and his or her job is prepared in two columns i.e., ‘YES’ column and ‘NO’ column.


    All that the rater is to do is to tick the ‘YES’ if the answer is positive and tick ‘NO’ if the answer is ‘NO’. The HR dept. gives a point for every “YES’ when points are allotted the technique becomes a weighted checklist.


    The advantages are economy, ease of administration, limited training of rater & standardization. The disadvantage includes improper weights by the HR department.


  3. Forced choice Method: The rater is given a series of statements about the employee these are arranged in the blocks of two or more, and the rater indicates which statement is most or least descriptive of the employee.


  4. Critical Incident Method: It focuses on certain critical behaviors of an employee that make all the difference between the effective and non-effective performance of a job. Such incidents are recorded by the superiors as and when they occur.


    One of the advantages of this is that the evaluation is based on actual job-behaviour. It also increases the chance that the subordinate will improve because they learn more precisely what is expected of them.

    As a disadvantage, negative incidents are generally more noticeable than positive ones.


  5. Behaviorally Anchored Rating Scales: In this, the scale represents a range of descriptive statements of behavior varying from the least to the most effective. A rater must indicate which behavior on each scale best describes an employee’s performance.


  6. Field Review Method: This is an appraisal by someone outside the assessor’s own dept., usually someone from the corporate office or HR dept. Two disadvantage of this are:
    • An outsider is not familiar with conditions in an employee’s work environment.
    • He does not have an opportunity to observe employee behavior of performance over a period of time.


  7. Performance Test: With a limited number of jobs, employee assessment may be based upon a test of knowledge and skills. The test may be paper & pencil or an actual demonstration of skills the test must be reliable & validated to be useful.

    Practically it may suffer if the costs of test development or administration are high.


  8. Annual Confidential Report: ACR is mostly used in government departments, for example ITI, military organizations, etc., it has 12 items namely – attendance, self-expression, ability to work with others, leadership, initiative, technical ability, ability to reason, name, to a few.


    Twelve of these are filled on a four-point grade scale (excellent, good, fair, poor). Justification is required for outstanding or poor ratings. Overall rating on a five-point scale was separately given (Outstanding, Very good, Good, Average, Poor). A recommendation for performance was also given.


  9. Cost Accounting Approach: This method evaluates performance from the monetary returns the employee yields to his or her organization. The performance of the employee is evaluated based on the established relationship between the cost and the benefit.


  10. Comparative Evaluation Approach: These are a collection of different methods that compare one worker’s performance with that of his/her co-workers.


    They are useful in deciding merit-pay increases, promotions and organizational rewards. The usual comparative forms are ranking method and the paired comparison method.

Future-oriented Appraisal:

  1. Management by Objective :

    It was Peter F Drucker who gave the concept of MBO way back in 1954 when his The Practice of Management was first published. There are four steps:

    • In some organizations, superior and subordinates work together to establish goals. These goals can then be used to evaluate employee performance.

    • It involves setting the performance standard for the subordinates in a previously arranged time period. As subordinates perform, they know fairly well what there is to do, what has been done, and what remains to be done.

    • The actual level of goal attainment is compared with the goals agreed upon. This step helps determine possible training needs.

    • It involves establishing new goals and possibly, new strategies for goals not previously attained. The process is repeated.


      The disadvantage is that it is not applicable to all jobs in all organizations. Jobs with little or no flexibility, such as assembly-line work, are not compatible with MBO.


  2. Psychological Appraisal: The appraisal normally consists of in-depth interviews, psychological tests, discussions with supervisors and a review of other evaluations.

    The psychologist then writes about employee’s intellectual, emotional, motivational and other- related characteristics that suggest individual potential and may predict future performance.


    Since the quality of the appraisal depends largely on the skills of the psychologists, some employees object to this type of evaluation, especially if cross-cultural differences exist.


  3. Assessment Centers Notes: This method of appraising was first applied in the German Army in 1930. In fact, it is a system or organization, where the assessment of several individuals is done by various experts using various techniques.

    These techniques include in-basket, role-playing, case studies, and simulation exercise, transactional analysis.


    In this individuals are brought together to spend two or three days working on an individual or group assignment similar to the ones they would be handling when promoted.

    Observers rank the performance of each and every participant in order of merit. All assesses get an equal opportunity to show their talents and capabilities and secure promotion based on merit.


  4. 360-degree Feedback: Where multiple raters are involved in evaluating performance, the technique is called 360-degree appraisal. The 360- degree technique is understood as a systematic collection of performance data on an individual or group, derived from a number of stakeholders include immediate supervisors, team members, customers, peers, and self.

Objectives of Performance Appraisal

Objectives of Performance Appraisal are mentioned below:

  1. Compensation Decision: It can serve as a basis for pay raises. This approach to compensation is at the heart of the idea that raises should be given for merit rather than for seniority.

  2. Promotion Decision: It can serve as a guide for a job change or promotion.

  3. Training and Development Program: PA can inform employees about their progress and tell them what skills they need to develop to become eligible for pay raises or promotions or both.

  4. Feedback: It can tell an employee what he can do to improve his present performance and go up the organizational ladder.

  5. Personal Development: It can help reveal the causes of good and poor employee performance.

Performance Management System

Performance management system is a process for setting goals and monitoring progress toward achieving those goals. It is just like other systems where achieved results are continually measured and compared with the desired goals or outputs.

Any discrepancy or gap is recognized and fed back into changing the inputs of the process, so as to achieve the desired goals.

Simply put, performance management includes activities to ensure that goals are consistently being met in an effective and efficient manner.

Performance management focuses on the performance of the organization, a department, processes to build a product or service, employees, etc.

The performance management system comprises:

  • Identifying and stating the parameters of performance
  • Setting performance standards
  • Planning in participation with employees
  • Identifying competencies and competency gaps that contribute hinder to performance
  • Planning performance development activities.

Limitations of Performance Appraisal

Limitations of Performance Appraisal are:

  1. Judgment Errors
    • Primacy Effect
    • Halo
    • Horn effect
    • Leniency
    • Central tendency
    • Stereotyping
    • Recency effect
  2. Poor Appraisal Forms
  3. Lack of Rater Preparedness
  4. Ineffective Organizational Policies and Practices

Judgment Errors

People commit mistakes while evaluating people and their performance. Biases and judgment errors of various kinds may spoil the show. The bias here refers to the distortion of a measurement.

These are of various types:

  1. Primacy Effect: The appraiser’s first impression of a candidate may color his evaluation of all subsequent behavior. In the case of a negative primacy effect, the employee may seem to do nothing right; in the case of a positive primacy effect, the employee can do no wrong (Harris, p.192).

  2. Halo: The Halo error occurs when one aspect of the subordinate’s performance affects the rater’s evaluation of other performance dimensions. If a worker has few absences, his supervisor might give the worker a high rating in all other areas of work. Similarly, an employee might be rated high on performance simply because he has a good dress sense and comes to the office punctually!

  3. Horn effect: The rater’s bias is in the other direction, where one negative quality of the employee is being rated harshly. For example, the rates rarely smile, so he cannot get along with people!

  4. Leniency: Depending on the rater’s own mental make-up at the time of appraisal, raters may be rated very strictly or very leniently. Appraisers generally find evaluating others difficult, especially where negative ratings have to be given.


    A professor might hesitate to fail a candidate when all other students have cleared the examination. The leniency error can render an appraisal system ineffective. If everyone is to be rated high, the system has not done anything to differentiate among employees.

  5. Central tendency: An alternative to the leniency effect is the central tendency, which occurs when appraisers rate all employees as average performers. For example, a professor, with a view to playing it safe, might give class grades nearly equal to B, regardless of the differences in individual performance.

  6. Stereotyping: Stereotyping is a mental picture that an individual holds about a person because of that person’s sex, age, religion, caste, etc. By generalizing behavior on the basis of such blurred images, the rater grossly overestimates or underestimates a person’s performance.


    For example, employees from rural areas might be rated poorly by raters having a sophisticated urban background, if they view rural background negatively.

  7. Recency effect: In this case, the rater gives greater weightage to recent occurrences than earlier performance.


    For example, an excellent performance that maybe six or seven months old is conveniently forgotten while giving a poor rating to an employee’s performance which is not so good in recent weeks.


    Alternatively, the appraisal process may suffer due to a ‘spillover effect’ which takes place when past performance influences present ratings.

Poor Appraisal Forms:

The appraisal process might also be influenced by the following factors relating to the forms that are used by raters:

  1. The rating scale may be quite vague and unclear.
  2. The rating form may ignore important aspects of job performance.
  3. The rating form may contain additional, irrelevant performance dimensions.
  4. The forms may be too long and complex.

Lack of Rater Preparedness

The raters may not be adequately trained to carry out performance management activities. This becomes a serious limitation when the technical competence of a rate is going to be evaluated by a rater who has limited functional specialization in that area.

Ineffective Organizational Policies and Practices

If the sincere appraisal effort put in by a rater is not suitably rewarded, the motivation to do the job thoroughly finishes off. Sometimes, low ratings given by raters are viewed negatively by management – as a sign of failure on the part of the rater or as an indication of employee discontent.


If the sincere appraisal effort put in by a rater is not suitably rewarded, the motivation to do the job thoroughly finishes off. Sometimes, low ratings given by raters are viewed negatively by management – as a sign of failure on the part of the rater or as an indication of employee discontent.


So, most employees receive satisfactory ratings, despite poor performance. Normally, the rater’s immediate supervisor must approve the ratings. However, in actual practice, this does not happen. As a result, the rater ‘goes off the hook’ and causes considerable damage to the rating process.


Challenges of Performance Appraisal

In present-day organizations, the twin principles of motivating employees are common at all levels: acknowledge unique contributions and alleviate personal concerns that impact professional performance.

To get the best out of people, the CEOs should:

  • Create a culture of excellence that motivates employees at all levels.

  • Match organizational objectives with individual aspirations.

  • Equip people with requisite skills to discharge their duties well.

  • Clear growth paths for talented employees.

  • Provide new challenges to rejuvenate flattening corners.

  • Empower employees to make decisions without fear of failing.

  • Encourage teamwork and team spirit and open communication.

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