Chapter Six

Performance
Appraisal
 Definitions
 It is the systematic assessment of an individual with
respect to his or her performance on the job and his
or her potential for development in that job.

 Performance appraisal is a systematic and objective

way of evaluating the relative worth or ability of an
employee in performing his job.

 The two aspects of performance appraisal

considered to be important are: systematic and
objective.

 The appraisal is said to be systematic when it

evaluates all performances in the same manner, by
applying the same approach, so that appraisal of
different persons are comparable.
 Purpose of Performance Appraisal

 Performance is always measured in terms of outcome

and not efforts.

 Performance Appraisal is needed in most of the

organizations in order:
1. To give information about the performance of
employees on the job and give ranks on the basis
of which decisions regarding salary fixation,
demotion, promotion, transfer and confirmation
are taken.

2. To provide information about amount of

achievement and behavior of subordinate in their
job.
 Cont'd
3. To provide information about an employee’s job-
relevant strengths and weaknesses.

4. To provide information so as to identify shortage

in employee regarding ability, awareness and find
out training and developmental needs.

5. To avoid grievances and in disciplinary activities in

the organization.

 Performance appraisals should be conducted on a

frequent basis, and they need not be directly attached
to promotion opportunities only.
 It is important because of several reason such as:
 Cont'd
1. Personal Attention: Performance appraisal
evaluation, gives employee to draw personal
concern from supervisor and talk about their own
strengths and weaknesses.

2. Feedback: Employees on a regular basis get

feedback of their performances and issues in
which they lack, which needs to be resolved on a
regular basis.

3. Career Path: It allows employees and supervisors

to converse goals that must be met to grow within
the company. This may encompass recognizing
 Cont'd
4. Employee Accountability: Employees are acquainted

that their evaluation will take place on a regular basis

and therefore they are accountable for their job

pperformance.

5. Communicate Divisional and Company Goals: It not

only communicates employees’ individual goals but
provides an opportunity for managers to explain
organizational goals and in the manner in which
employees can contribute in the achievement of those
goals.
 Performance Appraisal
Steps
 The performance appraisal system of one
organization may vary from other organizations,
though some of the specific steps that an
organization may follow are as follows:

1. Establish Performance Standards:

 It begins by establishing performance standards i.e.
what they expect from their employee in terms of
outputs, accomplishments and skills that they will
evaluate with the passage of time.

2. Communicating the Standards Set for an

Employee:
 Once the standards for performance are set it should
be communicated to the concerned employee, about
what it expected from them in terms of performance.
 Cont'd
3. Measuring of the Actual Performances:
 It is one of the most crucial steps of performance
appraisal process

 It is very important to know as how the performance

will be measured and what should be measured.

 Thus four important sources frequently used by

managers are personal observation, statistical
reports, oral reports, and written reports.

 However, combination of all these sources gives more

reliable information.
 Cont'd
4. Comparing Actual Performance with
Standards Set in the Beginning:
In this step of performance appraisal the actual
performance is compared with the expected or desired
standard set.

A comparison between actual or desired standard may

disclose the deviation between standard performance and
actual performance and will allow the evaluator to carry
on with the discussion of the appraisal with the
concerned employees.
 Cont'd
5. Discussion with the Concerned
Employee:
 In this step performance of the employee is
communicated and discussed.
 It gives an idea to the employee regarding their
strengths and weaknesses.
 The impact of this discussion may be positive or
negative.

6.Initiate Corrective Action:

 Corrective action can be of two types;
 one is instant and deals primarily with
symptoms.
 The other is basic and deals with the causes.
 Problems Associated With Performance
Appraisals
 Performance appraisal technique is very beneficial
for an organization for taking decisions regarding
salary fixation, demotion, promotion, transfer and
confirmation etc.
 But, it is not freed from problem and some of these
problems are as follows:

1. Biasness in rating employee:

 It is the problem with subjective measure i.e. the
rating which will not be verified by others.
 Biasness of rater may include:

A. Halo Effect:
 It is the propensity of the raters to rate on the
basis of one trait or behavioral consideration in
 Cont'd
B. The Central Tendency Error:
 It is the error when rater tries to rate each and every
person on the middle point of the rating scale and
tries not to rate the people on both ends of the scale
that is rating too high or too low.

C. The Leniency and Strictness Biases:

 The leniency biasness exists when some raters have a
tendency to be generous in their rating by assigning
higher rates constantly.

D. Personal prejudice:
 If the raters do not like any employee or any group, in
such circumstances he may rate him on the lower side
of the scale, the very purpose of rating is distorted
which might affect the career of employees also.
 Cont`d
2.The superiors may be unsuccessful in conducting performance
appraisal of employees and post performance appraisal
interviews.
3.The performance appraisal is mostly based on subjective
assessment.
4. The performance appraisal techniques have a low reliability
and validity in terms of result.
5. Ratings an employee on the negative side may disturb
interpersonal relations and industrial relations system.
6. Appraisers’ opinion on the performance of the employee may
lead to setback on production.
7. An organization may give emphasis to punishment if an
employee has not done a good job rather than providing training.
8. Few ratings are based on guess work.
 Cont'd

 Various other problems of performance

appraisal are:
 There was a significant relationship between rating
by superior and performance after promotions.
 Appraisal reports were completed within a short
period of time.
 The circumstances were very unpleasant in
feedback interview.
 The Subordinates were not given suggestion in a
manner which may be helpful to them.
 Performance Appraisals Methods
 Performance appraisal methods are categorized in
two ways traditional and modern methods.

 Each organization adopts a different method of

performance appraisal according to the need of
organization.

 In small organization, it may be on an informal

basis where personal opinion of a superior about
his subordinates may consider for appraisal.
A. Traditional Methods
1.Ranking Method:
It is the oldest and simplest method of
performance appraisal in which employees’
are ranked on certain criteria such as trait or
 Cont'd
2. Paired Comparison:
 This method is comparatively simpler as
compared to ranking method.

 In this method, the evaluator ranks employees by

comparing one employee with all other employees
in the group.
3. Grading Method:
 In this method, certain categories are defined well
in advance and employees are put in particular
category depending on their traits and
characteristics.

 Such categories may be defined as outstanding,

good, average, poor, very poor, or may be in terms
of alphabet like A, B, C, D, etc. where A may indicate
 Cont'd
4. Forced Distribution Method:
 This method was evolved to abolish the trend of rating
most of the employees at a higher end of the scale.

 It is simple and easy method to appraise employees.

 It becomes difficult when the rater has to explain why

an employee is placed in a particular grouping as
compared to others.
 Cont'd
5. Forced-choice Method:
 This method contains a sequence of question in a
statement form with which the rater checks how
effectively the statement describes each
individual being evaluated in the organization.

For example, a rater may be given the following

two statements:
(i) The employee is hard working.
 (ii) The employee gives clear instructions to
his subordinates.

 Though both of them describe the characteristics

of an employee, the rater is forced to tick only
one which appears to be more descriptive of the
employee.
 Cont'd
6. Check-list Method:
 The main reason for using this method is to reduce
the burden of evaluator.
 In this method of evaluation the evaluator is
provided with the appraisal report which consist of
series of questions which is related to the appraise.
 Such questions are prepared in a manner that
reflects the behavior of the concerned appraise.
 Every question has two alternatives, yes or no, as
given below:
Is he/she respected by his/her subordinates?
Yes/No
Is he/she ready to help other employees? Yes/No
Does her behavior remain same for everyone in
the organization? Yes/No
 Cont'd
 The concerned rater/evaluator has to tick appropriate
answers relevant to the appraises.

 When the check-list is finished, it is sent to the

personnel department to prepare the final scores for
all appraises based on all questions based on yes/no.

 This method is considered to be easy if questions are

framed properly for different categories of employees.

 Disadvantages of the check-list method

 It is very difficult to accumulate, analyze and evaluate

a number of statements about employee
characteristics and contributions.
 Cont'd
7. Critical Incidents Method:
 This method is very useful for finding out those
employees who have the highest potential to work
in a critical situation.

 In this method, only the case of sudden trouble and

behavior associated with these incidents or trouble
are taken for evaluation.
This method is categorized in three
steps.
First, a list of notable (good or bad) on-the-job
behavior of specific incidents or sudden trouble is
prepared.
 Cont'd
 Second, selected experts would then assign
weightage or score to these incidents according to
how serious a particular incident is and their
degree of willingness to perform a job.

 Third, finally a check-list indicating incidents that

illustrate workers as good or “bad” is formed.

 The strong point of critical incident method is that it

focuses on behaviors and, thus, judge’s performance
rather than personalities.

 Its drawbacks are that too frequently they need to

write down the critical incidents which is very time
consuming and burdensome for evaluators, i.e.,
managers.
 B. Modern Methods
1. Management by Objectives (MBO):
is a process where the employees and the superiors
come together to identify some goals which are
common to them, the employees set their own goals to
be achieved, the benchmark is taken as the criteria for
measuring their performances and their involvement is
there in deciding the course of action to be followed.

2. Behaviorally Anchored Rating Scales:
 is a combination of traditional rating scales and
critical incidents methods.

 It consists of preset critical areas of job

performance or sets of behavioral statements
which describes the important job performance
qualities as good or bad.
 Cont'd
E.g. the qualities like inter personal relationships,
flexibility and consistency, job knowledge etc).
These statements are developed from critical
incidents.

 This method has following advantages:

a) It reduces rating errors
b) Behavior is assessed over traits.
c) It gives an idea about the behavior to the employee
and the rater about which behaviors bring good
Performance and which bring bad performance.
 Cont'd
3. Assessment Centers:
 it is a system of assessment where individual
employee is assessed by many experts by using
different technique of performance appraisal.

 In this method employees from different departments

are brought together for an assignment which they
are supposed to perform in a group, as if they are
working for a higher post or promoted.

 Each employee is ranked by the observer on the basis

of merit .

 The basic purpose behind assessment is to recognize

whether a particular employee can be promoted, or is
there any need for training or development.
 Cont'd
 Advadvantages
 It helps the observer in making correct decision in
terms of which employee has the capability of
getting promoted, but it has certain

 Disadvantages
 it is costly and time consuming, discourages the
poor performers etc.
 Cont'd
4. 360 Degree Performance Appraisals:
 is also known as ‘multi-rater feedback’, it is the
appraisal in a wider perspective where the comment
about the employees’ performance comes from all the
possible sources that are directly or indirectly related
with the employee on his job.
 The four major component of 360 degree
performance appraisal are
i. Employees Self Appraisal
ii. Appraisal by Superior
iii. Appraisal by Subordinate
iv. Peer Appraisal.
 Cont'd
5. Cost Accounting Method:
 In this method performance of an employee is
evaluated on the basis of monetary returns the
employee gives to his or her organization.

 A relationship is recognized between the cost

included in keeping the employee in an
organization and the benefit the organization
gets from him or her.

 The evaluation is based on the established

relationship between the cost and the benefit.
 Cont'd
 The following factors are considered while
evaluating an employee’s performance:
i. Interpersonal relationship with others.
ii. Quality of product produced or service given
to the organization.
iii.Wastage, damage, accidents caused by the
eemployee
iv.Average value of production or service by an
employee.

v. Overhead cost incurred.

 Benefits of Performance Appraisal
 An effective performance appraisal system can benefit
three parties i.e organization, appraiser and appraisee.

1) For the Organizations:

 It leads to better performance throughout the
organization, due to successful communication
of the objectives and values of the
organizations.

 Overall improvement in the duties performed by

each employee of the organization.

 Due to performance appraisal of employee new

ideas for improvement in their work is
generated.
 Cont'd

Long-term plans can be generated.

 The need for training and development can be

identified more clearly.

 A traditions of nonstop improvement and

success in the organization can be formed and
maintained.

 Career development plans can be chalked out

for capable employee to enhance their
performance in future.
 2. Benefits for the
appraiser
 It gives an opportunity to the appraiser to develop
a general idea of individual jobs and departments.

For every new or difficult situation new idea is

generated for improvement or for overcoming that
problem.

It gives an opportunity to integrate team and

individual objectives and targets with departmental
and organizational objectives.

It gives an opportunity to explain the amount of

work expected by manager from teams and
individuals.
 3. Benefits for the
Appraisee
 Increased motivation and job ssatisfaction

 Increased sense of personal value.

 Increase in morale of an employee.

 It gives an opportunity to know their strength and

weaknesses.
 It gives an idea about areas of their improvement.

 There will be a chance to subordinate to express his

views even after performance appraisal.

 An employee should express his emotional needs and

his value system which is considered to be important
today.