“Aleksandër Moisiu” University of Durrës

Business Faculty
Department of Finance and Accounting

Human Resources

Research on
Performance Appraisal process and improvements in
corporates towards this process.

Submitted by: Kristjan PUSHI

Xhanersa BILALI

Submitted to: PhD Valbona MEHMETI

Abstract
Performance appraisal is a process that involves setting clear, quantifiable goals and objectives
and assessing individual performance. It evaluates the employee's performance and productivity.
Without a structured appraisal system, there is little chance of ensuring that the judgements made
will be lawful and accurate. The purpose of this performance appraisal process determine the
employees' wage raise and promotion. Performance management systems, which typically
include performance appraisal and employee development, are the “Achilles’ heel” of human
resources management. They suffer flaws in many organizations, with employees and managers
regularly bemoaning their ineffectiveness. An appraisal system should have a clear sense of
direction, honest and meaningful feedback. Measurable performance standards should be easy to
understand and simple to track. This enables your employees to know that they are being treated
fairly with respect to quantified metrics of their performance. A continuous performance
appraisal system is far easier to achieve by leveraging performance appraisal tools.

Contents
What's Performance Appraisal?.............................................................................................................2
What is the purpose of performance appraisal?.....................................................................................2
History & evolution...............................................................................................................................3
Methods of Performance Appraisal.......................................................................................................4
Effectiveness of Performance Appraisal................................................................................................6
Reaction to feedback and its effect on the employee.............................................................................7
Flaws in the process of Performance Appraisal.....................................................................................7
Why Employees Dislike Performance Appraisals.................................................................................9
Negative results of performance appraisal...........................................................................................11
Suggested improvements towards Performance Appraisal..................................................................11
Ways to improve the Performance Appraisal process and increase employees’ performances..........12
Bibliography........................................................................................................................................14
Evolution of Performance Appraisal

What's Performance Appraisal?

Performance appraisal is a process that involves setting clear, quantifiable goals and
objectives and assessing individual performance. It evaluates the employee's performance and
productivity against the pre-determined set of objectives for that year. It is used to gauge the
amount of value added by an employee in terms of increased business revenue compared to
industry standards. It also helps to evaluate employee's skills, strengths, and shortcomings, and
motivation.
The results of this performance appraisal process determine the employees' wage raise
and promotion. Moreover, as a whole it has a positive impact on your performance management
efforts in the long run.

What is the purpose of performance appraisal?

 Periodic performance appraisal is an employee’s report card from his/her manager that
acknowledges the work he/she has done in a specific time and the scope for
improvement.
 An employer can provide consistent feedback on an employee’s strengths and strive for
improvement in the areas that the employees need to work on.
 It is an integrated platform for both the employee and employer to attain common ground
on what both think is befitting a quality performance. This helps in improving
communication, which usually leads to better and more accurate team metrics and, thus,
improved performance results.
 The goal of this entire performance appraisal process is to improve how a team or an
organization function, to achieve higher levels of customer satisfaction.
 A manager should evaluate his/her team member regularly and not just once a year. This
way, the team can avert new and unexpected problems with constant work being done to
improve competence and efficiency.
 An organization’s management can conduct frequent employee training and skill
development sessions based on the development areas recognized after a performance
appraisal session.
 The management can effectively manage the team and conduct productive resource
allocation after evaluating the goals and preset standards of performance.
 Regular performance appraisal evaluation can help determine the scope of growth in an
employee’s career and the level of motivation with which he/she contributes to an
organization’s success.
 Performance appraisal lets an employee understand where does he/she stands as
compared to others in the organization.
History & evolution

The history of performance appraisal is quite brief. Its roots in the early 20th century can
be traced to Taylor's pioneering Time and Motion studies. But this is not very helpful, for the
same may be said about almost everything in the field of modern human resources management.
As a distinct and formal management procedure used in the evaluation of work performance,
appraisal really dates from the time of the Second World War - not more than 60 years ago. Yet
in a broader sense, the practice of appraisal is a very ancient art.
Without a structured appraisal system, there is little chance of ensuring that the
judgements made will be lawful and accurate. Performance appraisal systems began as simple
methods of income justification. That is, appraisal was used to decide whether or not the salary
or wage of an individual employee was justified. The process was firmly linked to material
outcomes. If an employee's performance was found to be less than ideal, a cut in pay would
follow.
On the other hand, if their performance was better than the supervisor expected, a pay
rise was in order. Little consideration, if any, was given to the developmental possibilities of
appraisal. If was felt that a cut in pay, or a rise, should provide the only required impetus for an
employee to either improve or continue to perform well. Sometimes this basic system succeeded
in getting the results that were intended; but more often than not, it failed.
The traditional emphasis on reward outcomes was progressively rejected. In the 1950s in
the United States, the potential usefulness of appraisal as tool for motivation and development
was gradually recognized. The general model of performance appraisal, as it is known today,
began from that time.

Methods of Performance Appraisal

How it is divided
Performance appraisal methods are categories into two types, Traditional and Modern
methods. However, each class has its strengths and weaknesses. But there is no single appraisal
method that is universally used in the performance appraisal process. Since one method may be
suitable for one organization and non-suitable for others.
Traditional methods emphasize rating the individual's personality traits, such as initiative,
dependability, drive, creativity, integrity, intelligence, leadership potential, etc. On the other
hand, Modern methods are more inclined towards job achievement and evaluation of work
results. Modern methods best suit the organizations faced with pacing and rely on performance,
results, and employee productivity.
Management by Objectives (MBO)
This method focuses on improving the organization’s performances by defining clear
objectives both agreed upon by the employees and the managers. The objectives set should be
challenging yet achievable. Both managers and employees should review past performance and
pinpoint the problems. The information acquired then should be used to address organizational
goals and needs. The practitioners of MBO believe that it helps in employee motivation and
commitment. It also builds healthy communication between the management and employees.
Steps in MBO (also called MBO Process Cycle)
1. MBO emphasizes measurable, tangible, and achievable goals in the first step, keeping the
organizational mission in mind.
2. The second step is to translate these objectives into the employees.
3. In the third step, the employees are allowed to plan their objectives.
4. In the fourth step, the progress of the employees is monitored.
5. The fifth step is to evaluate and reward employees. Honest feedback is given, and also
new strategies for goals not achieved are established.
360-Degree Feedback

360-degree feedback is a systematic

collection and feedback of performance
data for employees collected from all
his/her peers, supervisors, and even
customers.
This is one of the most widely used
appraisal methods. Since the participation
of the managers, peers, customers are
involved, this method gives an overview of
the performance reviews collectively. This
helps in the performance appraisal process
to have a diverse outlook. It also allows
organizations to form high performing
teams that can effectively achieve the goals
and targets.

Behaviorally Anchored Rating Scale

(BARS)
Behaviorally Anchored Rating Scales are designed to bring the benefits of both
qualitative and quantitative data to the employee appraisal process. BARS compares an
individual's performance against specific examples of behavior anchored to numerical ratings.
It compares an individual's performance against specific examples of behavior tied to
numerical ratings of 5 to 9. The Behaviorally Anchored Rating Scale is usually represented as a
vertical rating graph.
Psychological appraisal
A psychological appraisal is one of the most exciting and intuitive appraisal methods.
This method assesses the employees' potential for future performance rather than their past one.
It focuses on employees' emotional, intellectual, and other personal characteristics affecting their
performance.
This method suits the best for the workforce today. Employees now are pretty vulnerable
and often fall into the pit while balancing their work and personal life. This method understands
that aspect and allows employees to shine in the future.
Assessment Center Method
In this method, employees are
assessed to participate in activities like in-
basket exercises, role-playing, discussions,
computer simulations, etc. They are
evaluated in terms of their persuasive
ability, communication skills, confidence,
sensitivity to others’ feelings, mental
alertness, administrative ability, etc.
This entire exercise is done under the
trainer, who observes the employee
behavior and then discusses it with the
rater, which evaluates the employee's
performance.

Effectiveness of Performance Appraisal

To talk about the effectiveness of performance appraisal we must look at specific

methods of it. One of the most popular methods, that of the 360 Degree Feedback is very
effective on its functionality.
This popularity is based on the perceptions of organizational leader’s that 360-degree
reviews establish a culture for continuous learning and provide more global feedback for
employees, which leads to improved performance. According to Human Resource Consultant,
William M. Mercer, forty percent of American companies used 360-degree feedback in1995; by
2000 this number had jumped to sixty-five percent. In 2002, 90% of Fortune 500 companies
were using a 360-degree performance review process. (Linman, 2006)
Conducting performance reviews in general, provides a number of valuable functions for
organizations. They allow an organization to:
• Translate department/organization’s mission into specific achievable goals
• Manage performance rather than react to it
• Reduce overlap of job duties and ineffective, inefficient use of employee skills
• Provide written acknowledgment of completed work
• Gain new information and ideas from staff
• Discuss skill and career development
• Protect organization from unfounded charges of discrimination
• Reduce stress for the supervisor -- managing rather than reacting
• Reduce stress for the employee -- what is expected is made clear
Reaction to feedback and its effect on the employee

The effective interpretation and delivery of feedback is undoubtedly a specialized skill,

which explains the importance of the role a “feedback coach” plays in the 360 degree process.
An experienced feedback coach is familiar with many of the typical reactions to feedback and
can assist the learner with handling their reactions appropriately. A feedback coach can assist
with the interpretation of the feedback Schmidt Labor Research Center Seminar Research Series
5 through open dialogue with the employee over a period of time. These coaching sessions
usually focus on encouraging the learner to; look within themselves to examine the behaviors
that might be triggering the feedback; reflect on their interactions with others; examine their own
performance level; be honest with themselves about the development needed. Additionally, the
coach points out common themes or messages the raters are passing to the learner in order to
reinforce those intended messages. Empirical analysis has shown the positive effect combining
360-degree feedback with coaching aimed at enhancing self-awareness can have on an
individual’s performance. (Luthans, Peterson 2003)
The study of human nature and the science of psychology can explain the various
reactions people have to feedback. Interpersonal feedback in its purest form is one human being
communicating their feelings and thoughts about another human being. It may sound
uncomplicated, but receiving feedback often times invokes as much fear in individuals as does
the idea of public speaking.

Flaws in the process of Performance Appraisal

Ideal of the performance appraisal approach is that the desired outcome effectively enable
the employee to meet their own performance targets to the organization meet their own
performance targets through motivated self-learning. Unfortunately, some are done so poorly
that they are not only designed to fail, but also to create a negative experience for both the
manager as well as the employee. Performance management systems, which typically
include performance appraisal and employee development, are the “Achilles’ heel” of human
resources management. They suffer flaws in many organizations, with employees and managers
regularly bemoaning their ineffectiveness.
A survey by Watson Wyatt (2004) showed that only three out of 10 workers agree that
their company’s performance management system helps improve performance. Less than 40 per
cent of employees said their systems established clear performance goals, generated honest
feedback, or used technology to streamline the process. While these results suggest that there
may be poorly designed performance management systems in many organizations, it is typically
not poorly developed tools and processes that cause difficulties with performance management.
Rather, difficulties arise because, at its core, performance management is a highly personal and
often threatening process for both managers and employees.
Rating Errors
In conducting performance appraisals, managers must be careful to avoid making rating
errors. Four of the more common rating errors are strictness or leniency, central tendency,
halo effect, and recency of events (Deblieux, 2003; Rothwell, 2012).
Strictness or Leniency
Some supervisors tend to rate all their subordinates consistently low or high. These are
referred to as strictness and leniency errors. The strict rater gives ratings lower than the
subordinate deserves. This strictness error penalizes superior subordinates. The lenient rater
tends to giver higher ratings than the subordinate deserves. Just as the strictness error punishes
exceptional subordinates, so does the leniency error. Strictness-leniency bias presents less of a
problem when absolute standards and results-oriented approaches to performance appraisal are
used.
Central Tendency
Some raters are reluctant to rate subordinates as very high or very low. They dislike being
too strict with anyone by giving them an extremely low rating, and they may believe that no one
ever deserves to get the highest possible rating. The result of this type of attitude is that everyone
is rated around average.
Halo Effect
When a single positive or negative dimension of a subordinate’s performance is allowed
to influence the supervisor’s rating of that subordinate on other dimensions, a halo effect is
operating. For example, the supervisor likes Tom because he is so cooperative. The halo effect
leads Tom’s supervisor to automatically rate him high on all appraisal dimensions, including
leadership, management, personnel administration, administrative teaming, and even budgeting.
The result is that subordinates are rated consistently high, medium, or low on all performance
appraisal dimensions.
Recency of Events
Ideally, performance appraisals should be based on data collected about a subordinate’s
performance over an entire evaluation period (usually six months to a year). However, as is often
the case, the supervisor is likely to consider recent performance more strongly than performance
behaviors that occurred earlier. This is called the recency of events error. Failure to include all
performance behaviors in the performance appraisal of a subordinate can bias the ratings.
Strictness or leniency, central tendency, halo effect, and recency of events all result in inaccurate
performance appraisals of employees. The absolute standards and results-oriented approaches to
performance appraisal, particularly BARS and goal setting, attempt to minimize such rating
errors.
Why Employees Dislike Performance Appraisals

Rating bias
Employees dislike performance appraisal because managers do not always rate them on
objective criteria. Experts call this problem rater bias. When managers include non-performance
factors like race, gender, hair color, etc. into an appraisal, the contaminated appraisal ratings
produce fruit of perceived and genuine unfairness in the rating process and its outcomes.
Employees react with reduced job satisfaction and turnover. These various forms of appraisal
bias serve as a major source of EEO complaints and court cases.
Recent research suggests other well-known sources of bias include the negative affect of
employee and rater impression management. Managers often feel resentment toward the
pandering employee, affecting their ability to rate fairly.
Another factor confirmed by research is the influence of mood on performance appraisal
ratings. When the manager or supervisor is in a bad mood, he or she is a much more
conscientious performance rater and more attuned to employee mistakes and problems. When in
a good mood, the manager is more likely to overlook poor employee performance. Given that
the manager’s frame of mind is often beyond the employee’s control, it adds another frustrating
uncertainty to the appraisal process.
Hypocrisy
When managers do not follow stated policies and procedures – when they don’t practice
what is preached in the organization – the visible contradiction generates disappointment,
distrust and cynicism among their subordinates. It reduces the employee motivation and
organizational citizenship behaviours that contribute to vibrant, productive and healthy work
environments.
The most problematic situation occurs when raters manipulate feedback to game the
performance appraisal process to support their favourite employees (in-group) and punish the
least favoured (out-group). This managerial hypocrisy occurs frequently among least favoured
employees contributing to higher levels of appraisal unfairness.
Poor informal feedback
In general, employees like to receive feedback; they want to know how they are doing.
Quality performance feedback on an ongoing basis is the lifeblood of the performance appraisal
process. Research and practice demonstrate a consistent disconnect between employee and
manager perspectives about the degree and nature of performance feedback. As servant leaders,
communication is the building block of trust. Employee surveys consistently show that
employees desire more frequent, specific and timely feedback than the typical manager provides.
In fact, research indicates a large number of employees do not believe that managers have the
requisite skills to provide appropriate feedback. More so, employees can be aggravated when
feedback sessions are superficial, rushed or even interrupted.
Poor communication during formal feedback sessions
With competing priorities, managers can be unprepared or insufficiently trained for the
inherent challenges to providing candid informal and formal performance feedback. For
example, employees are often victims of the report card syndrome. This occurs when managers
save up examples of poor performance for the performance appraisal interview and surprise
employees with poor ratings.
Conversely, the report card syndrome is the absence of performance documentation. When this
occurs, low performance ratings, unsupported by clear and specific performance evidence,
frustrates the employee and creates a perception of unfairness, a prime motivation for grievances
and lawsuits.
Rater errors
Employees often realize when managers are not giving them accurate ratings. Many
managers don’t want to deal with conflict, so they often give employees undeserved high ratings
(leniency tendency). Another mistake managers make is to give employees average ratings
(central tendency). Sometimes managers impose unreasonably high performance standards,
which can demoralize and discourage employees. So, while consistently high ratings rob
employees of the intrinsic achievement and satisfaction for a job well done, harsh ratings reduce
motivation by setting impossible performance standards. The major cause of these rater errors is
a lack of training. Untrained raters are more likely to commit more performance appraisal
mistakes, thereby eroding employee confidence in the performance appraisal system.
Rater appraisal – self-appraisal mismatch
Before a manager sits down with an employee to discuss the performance appraisal, there
is a good chance that the employee has rated his or her own performance already. One of the
most damaging rating systems to employee morale is the forced distribution or grading on a
curve system. This approach requires managers to rate a percentage of their employees as below
average.
Research demonstrates that employees, on average, rate their comparative job
performance at the 78th percentile; that is, better than 78 percent of the other people in the office.
Therefore, an average performance rating conflicts with the supervisor’s assessment, creating a
serious discrepancy. When employees face a performance difference like this, most cope by
discounting or dismissing the feedback and its source (i.e., the manager). Others become
demoralized and withdrawn. In either case, grading on a curve lowers overall satisfaction with
the performance appraisal process.

Negative results of performance appraisal

The following are some of the main negative results of performance appraisal:
 The self-esteem of the person being appraised and the person doing the appraisal may be
damaged.
  A large amount of time may be wasted.
 The relationship among the individuals involved may be permanently worsened thereby
creating organizational conflicts.
 Performance motivation may be lowered for many reasons, including the feeling that
poor performance measurement means no rewards for performance (i.e. biased evaluation
including favouritism towards some employees).
 Money may be wasted on forms, training, and a host of support services.

Suggested improvements towards Performance Appraisal

The following are the recommendations from the survey (Nass Construction Company, 2012)
 Proper feedbacks should be done with proper documentation.
 Employees should be involved in the formulation of appraisal tool.
 Give appropriate rewards to employees who have shown an exemplary performance.
 Employees should be evaluated on the basis of the requirements of their job, their duties
and responsibilities
An appraisal system should have a clear sense of direction, honest and meaningful feedback.
There should be immediate and honest reinforcement and it should give an opportunity for
employees to participate in setting the goals and standards for performance. The aim of every
appraisal system must be to allow for continuous communication between management and
teachers about job performance and should be geared for the total improvement of the
organization as a whole. It is important that the appraisal system be consistent and that appraisal
results be assessed, analyzed and reviewed to classify competencies and development needs
across all departments.

Ways to improve the Performance Appraisal process and increase employees’

performances

Create transparency
Measurable performance standards should be easy to understand and simple to track. This
enables your employees to know that they are being treated fairly with respect to quantified
metrics of their performance. Management is able to compare ratings with actual performance
and ensure that employees know how the system is being applied to them. To broaden this from
the individual level, management’s actions should be transparent. Everyone’s performance
should be publicly viewable, even with anonymity retained. This allows employees to see how
they are doing relative to other co-workers while also offering them access to the same level of
information as management. This reiterates the fair treatment of employees and encourages them
to work harder to rise through the ranks of top performers.
 Performance appraisal platforms can make keeping track of measurable data a lot
easier. Performance review soft wares can offer a transparent performance appraisal system and
ensure that all of your performance metrics are accurately tracked over a specific time period.
Performance can also be monitored in real-time as well as the performance review software can
automatically update information without having to rely on manual methodologies.
Broaden information sources
Performance appraisal systems that rely on a singular source of information are often
unreliable as data can be misrepresented or distorted from actual performance. Broadening your
information sources is far more effective, so performance is evaluated and confirmed through
multiple parameters. One way of doing this is to use a 360-degree methodology. In this system,
performance appraisal of a single employee is done by collecting anonymous feedback from
several co-workers from different hierarchies within the enterprise. This allows for a more
unbiased reflection of an employee’s performance. It involves more people in the performance
appraisal system and facilitates collaboration and synergy between teams due to anonymity.
Continuous performance evaluation
Historically, performance evaluation occurred on an annual basis. The drawback of this is
that performance appraisal is quickly executed and forgotten. A continuous performance
appraisal system is far easier to achieve by leveraging performance appraisal tools that can
automatically create and set reminders for appraisals. Sensitive information is protected by the
security of your performance review software, and employees can comfortably participate with
the functionality of your performance review platform.
Provide Training and Workshops
To truly leverage a performance appraisal system, you should follow up on areas of
improvement with custom training for your employees. Set clear expectations for
supervisors. Supervisors should know both the time frames for completing evaluations, and the
standards against which their evaluations will be judged. Include expectations such as:
• Prepare. Identify key issues/themes that need to be discussed. Give employees a draft
evaluation with enough time to review and come prepared to the evaluation conference.
• Avoid surprises. The evaluation conference shouldn’t be the first time an employee hears
about a performance problem or receives recognition for an accomplishment.
• Be specific. Clearly explain accomplishments and failures. Refer to the deliverables in the
performance plan. Describe the impact of achievements or performance issues.
• Be balanced. Document both good and bad performance. Capture specific awards and
commendation, as well as corrective or disciplinary action and performance improvement
plans. Make sure to evaluate the entire year, and avoid the ‘halo/horn effect’ of
evaluating only the most recent performance.
• Be succinct. Focus on the key deliverables and issues. Avoid details that don’t pertain to
the employee’s performance.
 • Be constructive. Focus on what the employee needs to do next to either develop
knowledge and skills, or improve performance.
Listen To Your Employees
At many companies, leaders make decisions—and employees only hear about them after
the fact when they cannot contribute to the process. When big decisions are made that affect the
workforce without their input, employees tend to feel left out and forgotten. This, in turn, leads
to overall unhappiness and a lack of motivation.
Instead, consider taking employees’ suggestions and feedback into consideration. Involve
your employees in the decision-making process early on, especially if the decision will impact
them. These gestures will indicate to your staff that you value their input and their opinions—and
it makes them feel heard!
Learn More About Your Employees
Work isn’t all fun and games—but who says you can’t play a few games? Some
managers may scoff at the thought of setting aside time during the workday to do something fun,
but taking the time to get to know your employees outside of work can be valuable. Plus,
organizing time during work to celebrate holidays or play games is a great way to boost
employee happiness.
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