HRM (LW2312)

MODULE - 5
PERFORMANCE APPRAISAL

What is Performance Appraisal

Performance Appraisal is the systematic evaluation of the performance of employees and to

understand the abilities of a person for further growth and development

Why Performance Appraisal Is Essential

Regular performance appraisals help create a corporate culture that promotes personal success,
along with collaboration. Individual employees need the reinforcement of knowing that their
contributions are valued by upper management. The appraisal process offers several benefits
organizationally, generating an atmosphere of excellence. Performance appraisals allow
management personnel to establish guidelines for compensation increases; track employee
strengths and weaknesses; identify the best candidates for promotion; offer feedback for
improvements; and promote training programs.

1. Establishing compensation guidelines

Employee compensation should be directly tied to performance. Employees that go above and
beyond the call of duty normally receive higher annual increases than employees that do the bare
minimum. Compensation is the single best way to reward exemplary job performance. The only
way to consistently track exception performance is through an appraisal process. Regular, one-
on-one, discussions about an employees execution of job responsibilities helps when assessing
the year for those in different raise brackets.

2. Track strengths and weaknesses

No one person determines an organizations success. Different workers bring their experience
and strengths to the table, allowing projects to succeed with minimal delays. Identifying the
right candidates for the right teams is a crucial part of successful management. The best way to
ensure the right workers come together is to track individual strength and weaknesses.
Consistent performance appraisals make that information easily accessible when it is time to
hand out new assignments.

3. Identifying promotion candidates

Hiring from within an organization keeps organizational memory strong, allowing for continuity
of management styles. Unfortunately, not every applicant has the skill set needed to make the
transition to a higher position. Quarterly, or even annual, appraisals allow hiring managers to
look back over the applicant’s entire work history and find the best internal candidates for a
promotion.

4. Offer feedback

Constructive criticism provides employees with the necessary information to improve their on-
the-job performance. Good managers give feedback that motivates employees to strive for
improvement. Employees informed about performance expectations are better able to meet the
challenges of excellence. By giving employees feedback about their performance on a regular
basis, managers open up the lines of communication, enabling a good working relationship and
encouraging a spirit of collaboration. Employees and managers work together to tackle the
roadblocks to success.

5. Introducing training programs

Performance reviews offer an excellent time to discuss additional training and continuing
education requirements. Professionals need to stay up-to-date on industry best practices. The
only way to ensure this happens, is to track training and offer programs internally. Not only do
training programs help keep employees current on new policies and procedures, they also help
keep employees on the cutting edge of technology. Office software, project management
solutions and even management philosophies change as businesses adapt to changes in the
marketplace. The success of an organization depends on every member, making training an
integral part of continued success.

The give and take of a formalized performance review system allows employees to feel
comfortable during their daily work activities. They receive positive reinforcement for a job
well done and corrections when necessary to correct bad work habits. It is important for
employees to know where they stand in their workplace. Work environments bring enough
stress, without the added worry about performance. Communication forms the foundation for all
lucrative business interactions. Formalized policies detailing how an employee’s performance is
graded lower stress levels, allowing employees to reach their full potential. The summarized
information gathered during reviews also helps streamline many management activities. Hiring,
firing, compensation determinations and training schedules all become part of the review
process, minimizing the necessary oversight for these tasks. Implement regular performance
reviews and see immediate benefits to productivity and job satisfaction.
METHODS OF PERFORMANCE APPRAISAL

Numerous methods have been devised to measure the quantity and quality of performance
appraisals. Each of the methods is effective for some purposes for some organizations only.
None should be dismissed or accepted as appropriate except as they relate to the particular needs
of the organization or an employee.

Broadly all methods of appraisals can be divided into two different categories.

 Past Oriented Methods

 Future Oriented Methods

Past Oriented 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
scales 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
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. Advantages – Eliminates Disadvantages –
Assumption of normal distribution, unrealistic, errors of central tendency.

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 – Outsider is 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 employee, 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
collection of different methods that compare performance with that of other co-workers. The
usual techniques used may be ranking methods and paired comparison method.
  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 explanation.

 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)

Future Oriented 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 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 his performance. This approach is slow and costly and may be useful for bright young
members who may have considerable potential. However quality of these appraisals largely
depend upon the skills of psychologists who perform the evaluation.

3. Assessment Centers: This technique was first developed in 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 same attributes for successful performance in actual
job. The characteristics assessed in 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 inter-personal 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 inter-personal 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.

Types of bias in Performance Appraisal

Employee performance is tricky to measure, but one strategy used by millions of domestic and
international companies is performance rating. What better way to determine employee abilities
than to ask their supervisors, subordinates, and peers who work with them every day?

Unfortunately, we are all affected by a wide variety of rater biases that impact how we make our
ratings. These biases might skew employee ratings too high or too low. Ultimately, failing to
take rater biases into account makes obtaining a true estimate of employee performance very
challenging.

Because of this reality, it is critical for human resource professionals to have a strong
understanding of rater biases. Understanding them can prevent decision making errors, which
strengthens a company’s ability to use performance rating to its full potential.

Keep these 8 rater biases in mind when reviewing employee rating data.

1) The Halo Effect

The human mind is primed to focus on single attributes that stand out. If that attribute is
positive, researchers have found that it will actually affect ratings of other attributes. That’s the
halo effect in action. The halo effect is the tendency for a single positive rating to cause raters to
inflate all other ratings. It’s almost like the rater is thinking, “If she’s good at this, then she’s
probably good at that, too.”
Nobody is perfect; HR professionals know that all employees have unique strengths and
weaknesses. Positive ratings across the board aren’t particularly helpful when making decisions.
That’s why it is important to watch carefully for evidence of the halo effect in employee rating
data.

2) The Horns Effect

If the halo affects makes you think of coworkers as perfect angels, the horns effect makes you
think of them as devils. The horns effect is the tendency for a single negative attribute to cause
raters to mark everything on the low end of the scale. One bad attribute seems to spoil the bunch.

Like the halo effect, the horns effect makes decision making challenging. Universal negative
scores might lead to unfair sanctions or inappropriate employee dismissal. Those are land mines
every HR department wants to avoid. For that reason, keep the horns effect in mind when
reviewing employee ratings.

3) The Central Tendency Bias

Scores can be high. Scores can be low. And scores can be right in the middle. Some raters
apparently think only the latter is an option. The central tendency bias causes some raters to
score every question on a scale near the center. A rating of “3” on a 5 point scale for every
question is a clear example of the central tendency bias at play.

4) The Leniency Bias

The leniency bias is exactly what it sounds like – it means the rater is lenient and is going “too
easy” on the person they are rating. That means all scores will be very high. Like the halo effect,
the leniency bias makes it challenging to know an employee’s true pattern of strengths and
weaknesses.

5) The Strictness Bias

The strictness bias is the opposite of the leniency bias. As you’d expect, it means the rater is
going “too hard” on the person they are rating, causing all scores to be very low. This creates an
unfair negative representation of the person being rated. Like the horns effect, inaccurate,
negative scores can have serious implications for employees and for HR decision making.
Monitor performance reviews carefully to search for the strictness biases – if one person is rating
someone very low on everything, while others are rating them normally, the strictness bias may
be the culprit.

6) The Contrast Effect

Comparisons can be helpful when making ratings. But the contrast effect is too much of this
particular good thing – it causes raters to overuse comparisons when making their scores.
 Take Mike for example. Mike is very detail oriented, but slightly less detail oriented than his
coworker Sharon. The contrast effect might cause Mike’s boss to rate him low because the boss
can’t help comparing him to Sharon. The contrast effect can lead to overestimates or
underestimates of a person’s abilities.

7) The Recency Bias

Often, performance reviews are made with a particular time frame in mind. Perhaps a supervisor
is asked to think about the last quarter or the past fiscal year when making their rankings.
The recency bias creeps in when a recent event clouds memory of previous performance. The
recency bias leads to overestimates if the person being rated had a recent “good streak.” On the
other hand, it will lead to underestimates if the person being rated had a recent “bad streak.”
Either way, it leads to inaccurate ratings, which ultimately makes decision making difficult.

8) The Similar-to-Me Effect

The similar-to-me effect is an interesting concept, but we see it in both nature and in the
workplace. Birds of a feather flock together – and people are prone to favor someone who is
similar to them. Men rate men higher than women. Women rate women higher than men. Older
employees rate their contemporaries higher than younger employees. The list of possible
similarities is huge. Similarity in age, gender, race, and experience all affect ratings. Even similar
work habits, similar attitudes, or similar personalities lead to inflated ratings. The similar-to-me
effect is everywhere – it shows up when rating supervisors, rating subordinates, and rating peers.

Importance of Providing Effective Feedback in Performance Appraisal

Giving feedback to employees is not always an easy thing to do. Negative feedback may not
always be well received. These realities are counterbalanced by the necessity of honesty.
Without accurate feedback employees will not know what they need to improve and the
workplace suffers. How then, can we give accurate, candid feedback without damaging work
relationships or hurting those we are trying to help? Here are several points to consider:

1. Ensure the employee understands the process of the appraisal and criteria under
evaluation.

One way to improve employee acceptance of an appraisal process is to involve them in the
appraisal process. Explaining clearly and completely what will be done, the behaviors that are
expected of them, as well as the criteria on which they will be evaluated can increase
employee buy in. If employees have limited understanding of the purpose, or the process, they
will have more difficulty accepting the outcomes- clear, open communication can aid in
eliminating this barrier. Having employees complete a self-appraisal can also be a helpful tool.
2. Continuous feedback ensures open communication and awareness.
Another important precursor to acceptance of appraisal feedback is the frequency of feedback
outside the appraisal process. An employee may feel "blindsided" by information that could
have been shared with them previously, but was held back. By sharing tips or suggestions
throughout the year, not just at appraisal time can reduce surprises, and increase acceptance of
appraisal ratings.
3. Fair procedures and communication can make up for negative outcomes.
Explaining thoroughly the process and giving examples of the reasons for the appraisal rating
can create less friction for the employee, letting them know that the appraisal process was
approached the same for everyone. Interpersonal communication makes a huge difference in
accepting a negative rating. You're not just softening the blow; you're helping them gain
insight into how you can help them improve for the future.

4. Giving the employee a voice, even when it will not change the rating it will help with
acceptance.

Allow the employee to express their views. Always remember that they have a right to their
opinion, even when it differs from yours. Let them know that you understand their feelings
and that you want to be helpful to them. The rating cannot be changed until their performance
changes. The purpose of the appraisal is to give them information for improvement and listen
to them, not to punish. Another important outcome of giving employees a voice is the
likelihood of uncovering misunderstandings. If an employee believes they are doing well and
are unaware anything is wrong, they will not know a change in performance is needed.

5. Ensure consistent standards are used to evaluate job relevant behaviors.

This may seem obvious, but is important for employees to understand what is being evaluated.
It is their job performance and job relevant factors that affect the workplace. This feature is
one of the most important for employees. Be sure to communicate this when giving feedback
and outline the connections between their behavior and workplace effectiveness.

6. Remember you are working to improve employees and help UNI put students first.
Remember, the appraisal process is nothing to fear, it's just another way to ensure that
employees are on a continuous improvement path. Your assistance in their development will
be improved more by your relaxed demeanor and interpersonal courtesy. The appraisal
feedback process is not always easy, but your commitment to your employees demands that
you share the information in such a way to increase their acceptance. This is the best way to
ensure their improvement in the future.
Remember, nobody is perfect so there is always room for improvement. Creating and
maintaining a relationship of respect will help make any information you must share easier to
learn from.
Inadequacies of appraisal systems
It is widely recognized that there are many things inherently wrong with most of the performance
appraisal systems in use. The most obvious drawbacks are:
 No matter how well defined the dimensions for appraising performance on quantitative
goals are, judgments on performance are usually subjective and impressionistic.

 Because appraisals provide inadequate information about the subtleties of performance,

managers using them to compare employees for the purposes of determining salary
increases often make arbitrary judgments.

 Ratings by different managers, and especially those in different units, are usually
incomparable. What is excellent work in one unit may be unacceptable in another in the
same company.

 When salary increases are allocated on the basis of a curve of normal distribution, which
is in turn based on rating of results rather than on behavior, competent employees may
not only be denied increases, but may also become demotivated.2

 Trying to base promotion and layoff decisions on appraisal data leaves the decisions open
to acrimonious debate. When employees who have been retired early have complained to
federal authorities of age discrimination, defendant companies have discovered that there
were inadequate data to support the layoff decisions.

 Although managers are urged to give feedback freely and often, there are no built-in
mechanisms for ensuring that they do so. Delay in feedback creates both frustration,
when good performance is not quickly recognized, and anger, when judgment is rendered
for inadequacies long past.

 There are few effective established mechanisms to cope with either the sense of
inadequacy managers have about appraising subordinates, or the paralysis and
procrastination that result from guilt about playing God.