Performance Management

and Appraisal
Performance Management & Appraisal
Performance Management
Performance management is a corporate
management tool that helps managers monitor and
evaluate employees' work. Performance
management's goal is to create an environment where
people can perform to the best of their abilities to
produce the highest-quality work most efficiently and
effectively.
Performance management is defined as the process
of continuous communication and feedback between
a manager and employee towards the achievement
of organizational objectives.
The Performance Management Cycle
1. Planning
This stage entails setting employees’ goals and
communicating these goals with them. While these
goals should be disclosed in the job description to
attract quality candidates, they should be
communicated once again when the candidate
becomes a new hire.
2. Monitoring
In this phase, managers are required to monitor the
employees performance on the goal. This is where
continuous performance management comes into the
picture.
3. Developing
This phase includes using the data obtained during the
monitoring phase to improve the performance of
employees. It may require suggesting refresher
courses, providing an assignment that helps them
improve their knowledge and performance on the job,
or altering the course of employee development to
enhance performance or sustain excellence.
4. Rating
Each employees performance must be rated
periodically and then at the time of the performance
appraisal. Ratings are essential to identify the state of
employee performance and implement changes
accordingly. Both peers and managers can provide
these ratings for 360-degree feedback.
5. Rewarding
Recognizing and rewarding good performance is
essential to the performance management process, as
well as an important part of employee engagement.
Objectives of Performance Appraisal

1. Provide Feedback:
Appraisals are an effective way to give feedback to
employees Also, managers communicate clearly
regarding employee objectives and expectations. An
employee can learn about what he/she can do to
improve their future performance.
In addition, Some tips for employee feedback
1. Performance Outcome
2. Quarterly Reviews
3. Give feedback on a 1-2-1 basis
2. Downsize or Right-Size:
At times, appraisals are a way to make sure that the
most productive and talented individuals can be
retained in a company. It is also an effective way to
know which employees are non-performers.
3. Promote The Right Person:
Appraisals give an organization objective and data-
driven tools to make good promotion decisions Also, It
helps the most talented individuals retain the position
of the highest importance.
4. Set Goals & Measure Goals:
The annual appraisals are also an effective way to set
future goals for the employees. This ensures maximum
productivity and superior performance.

5. Improve Work Performance:

An employee can only improve if he knows how to do
so. Objectives of a good appraisal include highlighting
the specific area of improvement for every employee.
Some tips improve performance:
1. Keep your eyes on the deadline
2. Also, Improve project evaluation skills
3. Set Goals as well as Personal Benchmarks
6. Determine Compensation Changes:
An appraisal system works as a determining factor in
increasing compensation, pay raises, etc. Also, It
ensures that people who work harder get paid better.
7. Encourage Coaching & Mentoring:
Managers are usually expected to coach their team
members Also, appraisals help the managers to
identify the areas where mentoring is required.
8. Employee Training and Development:
Individual skills are evaluated during an appraisal.
Also, this helps employees to identify if they need to
acquire more skills and competencies to contribute to
the company. It also helps an organization to plan the
up-skilling training for their employees.
9. Provide a Legal Defense For Personal
Decisions:
A company can be held accountable for any decision
that they take, even firing or promoting an employee.
Therefore, conducting a performance appraisal will
help the company prove a point if their decisions are
ever challenged.
10. Encouraging Coaching & Mentoring:
Teaching and coaching are part of managing
employees. It is part of being a good manager.
Performance appraisals will help them understand
where an employee is lacking therefore where they
can train and help employees to do better.
11. Improving Overall Organization’s
Performance:
Last but not least, performance appraisals will help the
company to learn more about the employees and their
requirements. It will help the employees to
understand where they are lacking and where they are
doing well. This will help them learn and grow quickly.
Process of Performance Appraisal
Methods of Performance Appraisal:
Traditional Methods
1. Rating Scales: Rating scales consists of several
numerical scales representing job related performance
criterions such as dependability, initiative, output,
attendance, attitude etc. Each scale ranges from excellent
to poor. The total numerical scores are computed and final
conclusions are derived.

Advantages – Adaptability, easy to use, low cost, every

type of job can be evaluated, large number of employees
covered, no formal training required.
Disadvantages – Rater’s biases
2. Checklist: Under this method, checklist of
statements of traits of employee in the form of Yes or
No based questions is prepared. Here the rater only
does the reporting or checking and the HR department
does the actual evaluation.
Advantages – economy, ease of administration,
limited training required, standardization.
Disadvantages – Raters biases, use of improper
weighs by HR, does not allow rater to give relative
ratings
3. Forced Choice Method: The series of statements
arranged in the blocks of two or more are given and
the rater indicates which statement is true or false.
The rater is forced to make a choice. HR department
does actual assessment.
Advantages – Absence of personal biases because of
forced choice. Disadvantages – Statements may be
wrongly framed.
4. Forced Distribution Method: here employees are
clustered around a high point on a rating scale. Rater
is compelled to distribute the employees on all points
on the scale. It is assumed that the performance is
conformed to normal distribution.

5. Critical Incidents Method: The approach is focused

on certain critical behaviors of employee that makes
all the difference in the performance. Supervisors as
and when they occur record such incidents.
Advantages – Evaluations are based on actual job
behaviors, ratings are supported by descriptions,
feedback is easy, reduces recency biases, chances of
subordinate improvement are high.
Disadvantages – Negative incidents can be prioritized,
forgetting incidents, overly close supervision; feedback
may be too much and may appear to be punishment.
6. Behaviorally Anchored Rating Scales: statements of
effective and ineffective behaviors determine the
points. They are said to be behaviorally anchored. The
rater is supposed to say, which behavior describes the
employee performance.
Advantages – helps overcome rating errors.
Disadvantages – Suffers from distortions inherent in
most rating techniques.
7. Field Review Method: This is an appraisal done by
someone outside employees’ own department usually
from corporate or HR department.
Advantages – Useful for managerial level promotions,
when comparable information is needed.
Disadvantages – Outsiders are generally not familiar
with employees' work environment, Observation of
actual behaviors not possible.
8. Performance Tests & Observations: This is based on
the test of knowledge or skills. The tests may be
written or an actual presentation of skills. Tests must
be reliable and validated to be useful.
Advantage – Tests may be apt to measure potential
more than actual performance.
Disadvantages – Tests may suffer if costs of test
development or administration are high.
9. Confidential Records: Mostly used by government
departments, however its application in industry is not ruled
out. Here the report is given in the form of Annual
Confidentiality Report (ACR) and may record ratings with
respect to following items; attendance, self expression,
team work, leadership, initiative, technical ability, reasoning
ability, originality and resourcefulness etc.
The system is highly secretive and confidential. Feedback to
the assessee is given only in case of an adverse entry.
Disadvantage is that it is highly subjective and ratings can be
manipulated because the evaluations are linked to HR
actions like promotions etc.
10. Essay Method: In this method the rater writes down
the employee description in detail within a number of
broad categories like, overall impression of performance,
promoteability of employee, existing capabilities and
qualifications of performing jobs, strengths and
weaknesses and training needs of the employee.
Advantage – It is extremely useful in filing information gaps
about the employees that often occur in a better-
structured checklist.
Disadvantages – It its highly dependent upon the writing
skills of rater and most of them are not good writers. They
may get confused success depends on the memory power
of raters.
11. Cost Accounting Method: Here performance is
evaluated from the monetary returns yields to his or
her organization. Cost to keep employees, and benefit
the organization derives is ascertained. Hence it is
more dependent upon cost and benefit analysis.
12. Comparative Evaluation Method (Ranking & Paired
Comparisons) These are collections of different methods that
compare performance with that of other co-workers. The usual
techniques used may be ranking methods and paired comparison
methods.
● Ranking Methods: Superior ranks his worker based on merit,
from best to worst. However, how best and why best are not
elaborated in this method. It is easy to administer and explain.
● Paired Comparison Methods: In this method each employee is
rated with another employee in the form of pairs. The number of
comparisons may be calculated with the help of a formula as
under.
● N x (N-1) / 2
Modern Methods
1. Management By Objectives: It means management by objectives
and the performance is rated against the achievement of objectives
stated by the management. MBO process goes as under.
● Establish goals and desired outcomes for each subordinate
● Setting performance standards
● Comparison of actual goals with goals attained by the employee
● Establish new goals and new strategies for goals not achieved in
the previous year.
Advantage – It is more useful for managerial positions.
Disadvantages – Not applicable to all jobs, allocation of merit pay
may result in setting short-term goals rather than important and
long-term goals etc.
2. Psychological Appraisals: These appraisals are more
directed to assess employees potential for future
performance rather than the past one. It is done in the form
of in-depth interviews, psychological tests, and discussion
with supervisors and review of other evaluations.
It is more focused on employees emotional, intellectual, and
motivational and other personal characteristics affecting
their performance. This approach is slow and costly and may
be useful for bright young members who may have
considerable potential. However, the quality of these
appraisals largely depend upon the skills of psychologists who
perform the evaluation.
3. Assessment Centers: This technique was first
developed in the USA and UK in 1943. An assessment
center is a central location where managers may come
together to have their participation in job related
exercises evaluated by trained observers. It is more
focused on observation of behaviors across a series of
select exercises or work samples.
Assessees are requested to participate in in-basket
exercises, work groups, computer simulations, role
playing and other similar activities which require the
same attributes for successful performance in actual job.
The characteristics assessed in the assessment center
can be assertiveness, persuasive ability, communicating
ability, planning and organizational ability, self
confidence, resistance to stress, energy level, decision
making, sensitivity to feelings, administrative ability,
creativity and mental alertness etc.
Disadvantages – Costs of employees traveling and
lodging, psychologists, ratings strongly influenced by
assessee’s interpersonal skills. Solid performers may
feel suffocated in simulated situations. Those who are
not selected for this also may get affected.
Advantages – well-conducted assessment center can
achieve better forecasts of future performance and
progress than other methods of appraisals. Also
reliability, content validity and predictive ability are
said to be high in assessment centers. The tests also
make sure that the wrong people are not hired or
promoted. Finally it clearly defines the criteria for
selection and promotion.
4. 360-Degree Feedback: It is a technique which is systematic
collection of performance data on an individual group,
derived from a number of stakeholders like immediate
supervisors, team members, customers, peers and self. In fact
anyone who has useful information on how an employee
does a job may be one of the appraisers. This technique is
highly useful in terms of broader perspective, greater self-
development and multi-source feedback is useful.
360-degree appraisals are useful to measure interpersonal
skills, customer satisfaction and team building skills. However
on the negative side, receiving feedback from multiple
sources can be intimidating, threatening etc. Multiple raters
may be less adept at providing balanced and objective
feedback.
5. Behaviourally Anchored Rating Scale (BARS)
The BARS (behaviourally anchored rating scale) is a scale
that assesses the performance of new employees or trainees
based on well-defined behavioural patterns. These patterns
are used to rate each individual employee.
A behaviourally anchored rating scale is an essential
component of any structured interview. It provides the
advantages of narratives, quantified ratings, and critical
incidents, as well as both qualitative and quantitative data. It
was created with the goal of reducing rating errors that are
common when using traditional rating scales.
Performance Appraisal Biases
Managers commit mistakes while evaluating
employees and their performance. Biases and
judgment errors of various kinds may spoil the
performance appraisal process. Bias here refers to
inaccurate distortion of a measurement.
These are:

1. First Impression (primacy effect): Raters form an

overall impression about the ratee on the basis of
some particular characteristics of the ratee identified
by them. The identified qualities and features may not
provide an adequate base for appraisal.
2. Halo Effect: The individual’s performance is
completely appraised on the basis of a perceived
positive quality, feature or trait. In other words this is
the tendency to rate a man uniformly high or low in
other traits if he is extraordinarily high or low in one
particular trait. If a worker has few absences, his
supervisor might give him a high rating in all other
areas of work.
3. Horn Effect: The individual’s performance is
completely appraised on the basis of a negative
quality or feature perceived. This results in an overall
lower rating than may be warranted. “He is not
formally dressed up in the office. He may be casual at
work too!”.
4. Excessive Stiffness or Lenience: Depending upon
the raters own standards, values and physical and
mental makeup at the time of appraisal, ratees may be
rated very strictly or leniently.
Some of the managers are likely to take the line of
least resistance and rate people high, whereas others,
by nature, believe in the tyranny of exact assessment,
considering more particularly the drawbacks of the
individual and thus making the assessment excessively
severe. The leniency error can render a system
ineffective. If everyone is to be rated high, the system
has not done anything to differentiate among the
employees.
5. Central Tendency: Appraisers rate all employees as
average performers. That is, it is an attitude to rate
people as neither high nor low and follow the middle
path. For example, a professor, with a view to play it
safe, might give a class grade near the equal to B,
regardless of the differences in individual
performances.
6. Personal Biases: The way a supervisor feels about
each of the individuals working under him - whether
he likes or dislikes them - has a tremendous effect on
the rating of their performances. Personal Bias can
stem from various sources as a result of information
obtained from colleagues, considerations of faith and
thinking, social and family background and so on.
7. Spillover Effect: The present performance is evaluated
much on the basis of past performance. “The person who
was a good performer in the distant past is assured to be
okay at present also”.
8. Recency Effect: Rating is influenced by the most recent
behaviour ignoring the commonly demonstrated
behaviours during the entire appraisal period.
9. Stereotyping: A stereotype is a generalized belief about
a particular category of people. It is an expectation that
people might have about every person of a particular
group.