Performance Appraisal PDF

# Chapter 22: Performance Appraisal ## Meaning Performance appraisal is a formal exercise where organizations evaluate their employees in terms of their contributions towards achieving organizational objectives. It evaluates their strengths and weaknesses in terms of attributes and behaviors for me...

# Chapter 22: Performance Appraisal ## Meaning Performance appraisal is a formal exercise where organizations evaluate their employees in terms of their contributions towards achieving organizational objectives. It evaluates their strengths and weaknesses in terms of attributes and behaviors for meeting organizational objectives. To assess employee performance on a continuous or intermittent basis and provide feedback is called **performance appraisal**. "Performance appraisal is the process of defining expectations for employee performance; measuring, evaluating and recording employee performance relative to those expectations; and providing feedback to the employee." Every manager performs the task of appraising and evaluating his employees informally. Informal evaluation, however, is not enough to arrive at a realistic and accurate assessment of an employee’s worth in absolute or relative terms. The ultimate goal of an evaluation program is to make the employee more valuable to the company. A proper evaluation and appraisal system can be valuable for the company. To do this, the performance evaluation program should involve the study of the employee (his habits, aptitude and skills) and his work record (his efforts and accomplishments). Evaluating employees is a complex task because they perform a variety of activities and different work situations require different skills. They also have different personal qualities which they exhibit in different work areas. It is, therefore, important that organizations have a sound monitoring system and develop a performance appraisal system to evaluate their work performance. A performance appraisal system involves setting performance standards and comparing actual performance with the standards. Comparing actual performance against standards enables managers to know whether or not employees have contributed towards corporate profits. ## It also helps in the following areas: - Developing inter-personal relationships between manager and his team. - Motivating employees to achieve their targets. - Identifying the need for training the workforce. - Improving use of working tools like demonstration, material working documents etc. - Determining and re-allocating employees' territories and work assignments. - Determining sound compensation and incentives plans for the employees. ## Objectives of Appraisals Performance appraisal has the following objectives: 1. **Appraisal is a judgment which requires definite standards.** Actual performance is compared with standards and goals. Such standards should be worked out by organizations and conveyed to all the employees. If it is not known, judgment will be one way only. In a sound appraisal system, goal setting must be high; and accordingly high performance is expected. Goal setting must be a mutual process and appraisal system should be transparent and known to employees. If there is no system of appraisal superiors will waste time in making decisions. Also, in absence of specific knowledge, they will depend upon chance. Such a thing should not happen and, therefore, there should be high goals and high performance appraisal system. 2. **To judge means to apply a set of values.** Value judgments without clear, sharp and public standards are irrational and arbitrary. Such judgment or appraisal will demotivate the manager and subordinates. It should, thus, be based on sound and objective appraisal standards. 3. **Performance appraisal depends on "Merit Rating".** Merit rating refers to what the employee **is**. Performance appraisal refers to what the employee **does**. Appraisal records what is done by the employee. Merit rating gives information about "Potential", "Personality" and "Promise" but appraisal tells about performance. 4. **Standards consider what work was assigned, what resources were granted and what promises were given regarding salary/rewards.** They, thus, provide a measure of evaluation. 5. **One can only build in strength. One can only achieve by doing.** One cannot achieve anything with what one does not do. Appraisal must, therefore, aim in bringing out what a man can do. Only when a man's strengths are known and understood, it makes some sense. Weaknesses, by themselves, are of no interest. Appraisal should refer to knowing more, doing better and behaving differently. If these three things are accomplished, then only the manager will be better, stronger and effective. 6. **Appraisal should be an integral part of the system of managing.** It is an essential element in the whole system of managing and in the sub-system of managerial staffing. Knowing how well a manager plans, organises, staffs, directs, leads and controls his managerial staff is only the way to assure that those occupying managerial positions are actually managing effectively. If a business is to reach its goals effectively and efficiently, there should be ways of accurately measuring and implementing management performance. 7. **It is human tendency to recall only the latest events or achievements.** Similarly, latest failures are remembered. Appraisals should cover some specific period during which an employee was involved fully, or even in his absence, how the deputy was doing what extent there was delegation of authority and responsibility. It should reflect a whole picture so that corrective measures can be taken. ## Importance of Appraisals Evaluating employees is a complex task as he has to perform a variety of activities. Different situations demand different types of skills. There is also difference in degree of personal qualities. Performance evaluation consists of setting performance standards, both qualitative and quantitative to measure actual performance and judge the employees in terms of their contribution to the objectives. The key concept is productivity which means contribution to profits and sales. Productivity should be greater than the cost incurred by the company on his work efforts Managers should “make the events happen” and not “let the events happen”. Every management activity has to be planned, otherwise it will be left to chance. Managers cannot rely on chance element. The following reasons explain the need for making appraisals: 1. **To know the quality of managers:** Every organization sets high goals and objectives for which it needs competent managers. When an employee is recruited, he appears to be very promising and enthusiastic. He is called “a potential candidate”. This potential has to be converted into performance. Just to have potential is theory, but converting it into performance is practice. If a candidate is theoretically strong but weak in execution, the organization may not get a competent manager. Hence, the foremost advantage of appraisals is that the organization gets to know the level of competence of managers. It enables the managers to know ‘where we are’ and ‘where we would like to go’. If an executive has proved his potential, then the organization can focus on it and encash his best merit points. 2. **To put right man on the right job:** Every position has a job design or description. There should be a man to fit the position. There must be right man for the right job. This is possible by an appraisal method. What will happen if the organization gets a wrong man? For example, in the design department, there is a wonderful design engineer. He is expert in making designs, and is well versed with his work. Over a period, he has gained specialisation in his work. He is now senior most in the department. The organization is in need of a very dynamic person to head the design department. This design engineer does not possess managerial skills. However, he is a competent engineer. If he is promoted as Head of design department, when he is not competent, what will be the result? The organization will miss a good designer and get a bad manager to head the department. Hence, appraisal helps in getting a right man for the right job. 3. **To re-structure the organisation:** Basic advantage of appraisals is to know the innermost merit point of every employee. With the help of appraisal system, it is possible to rotate executives in a scientific way. The advantage of job rotation is that the organization gets a good General Manager. Every organization has a chart. There are some slots available in organization which should be filled by the most competent person. When this is known, it would be possible to re-structure the organization. Organizations today are flexible and dynamic. There is need to re-structure the organizations and have changing roles for the managers. This is possible only through competent appraisal systems. 4. **To give feedback to employees:** Appraisal is a good tool for communication purpose. When managers talk to employees about their achievements or failures, they take help of appraisals. Managers to convince employees and give them feedback on inputs and outputs. In some organizations, appraisals are signed by both boss and subordinates so that it is easy to give feedback to employees especially on weak areas. 5. **To develop employees:** A progressive organisation is concerned about employee development. Organisations have long-term objectives and plans. To get success, they groom people to shoulder future responsibilities of the organisation. This is called development process. To achieve development, organisations develop Executive Development Programme with the help of appraisals. There are different methods by which employees can be developed and a sound appraisal system helps in making best use of time and money which employees can be developed. 6. **To recommend rewards/transfers:** Appraisals are most powerful motivating force towards the employees. Appraisal system helps in motivating when they are tied with requirements. Such decisions need sufficient data and cases. This is possible because of the strong motivating factors is promotion. There can also be extra increments and cash awards. There can also be requirements of transfers on employee’s request or organization requirement. Such decisions need sufficient data and cases. This is possible because of appraisals. For a good performance appraisal method, it is important to have a judicious mix of quantitative and qualitative standards against which performance of employees can be compared. Many companies use quantitative standards. However, the tendency of using quantity as the only yardstick of performance is no longer prevalent. In present times, the manager selects a combination of qualitative and quantitative standards to appraise and assess different situations. ## Approaches to Performance Appraisal There are two approaches to measure the performance of employees: 1. Informal Approach 2. Formal Approach 1. **Informal Approach**: This approach of performance appraisal measures the work performance of employees on a continuous basis. It continuously informs them about how well they are doing. Managers inform the subordinates of the desirable and undesirable attributes of their work activities or the subordinates themselves go and ask the manager about it. This helps in immediate detection and rectification of mistakes. 2. **Formal Approach**: Rather than assessing employees' performance on a continuous basis, formal approach conducts performance appraisal at regular intervals to rank the employees on the basis of their merit. This helps managers find candidates suitable for promotion. Those who are not performing upto the mark may be transferred to other departments. ## Persons Responsible for Carrying out Performance Appraisal There are different approaches to the responsibility of conducting a formal performance appraisal: 1. **Performance appraisal by superior:** Performance appraisal in most cases is done by immediate superiors. 2. **Performance appraisal by a group of superiors:** A committee is formed consisting of some of superiors but not by a group of bosses, the immediate boss is generally not biased against the employees. This is a time consuming approach of performance appraisal. It is more scientific and reliable than the performance appraisal by immediate superior. 3. **Performance appraisal by the peer group:** Though not much in use, some organizations follow the practice of performance appraisal by the peer group or co-workers. They evaluate performance of employees working at the same level. This enables managers to find a suitable candidate for promotion from employees working at the same level. This enables employees themselves. This approach is accepted by employees as those who are not selected for promotion feel satisfied. Rather, they work hard to get promotions in future. 4. **Performance appraisal by subordinates:** Very few organisations follow the approach of evaluating managers' performance by their subordinates. Some educational institutions follow this approach where students evaluate the performance of their teachers on the basis of certain pre-determined criteria. ## Methods of Performance Appraisal The methods of performance appraisal fall into two major categories: 1. Performance results-oriented methods 2. Employee behaviour-oriented methods 1. **Performance results-oriented methods**: These methods measure actual performance of employees and bring it in conformity with the pre-determined standards. (a) **Graphic Scales**: These scales "list a number of rating factors, including general behaviours and characteristics; on which an employee is rated by the supervisor." Depending on the factors that need to be rated like quality or quantity of work, supervisors prepare a graphic scale with different grades and employees are rated on the basis of their performance on that scale. The usual dimensions of a graphic scale are: - Grade A = Outstanding - Grade B = Above average - Grade C = Average - Grade D = Below average - Grade E = Unsatisfactory The advantage of this scale is that grading of employee on the scale highlights the need for improvement in his abilities to perform the job. If an employee is placed at Grade D, it shows that his performance is below average and he needs to improve upon it. The drawback of this method is that every manager does not follow the same method of rating people at a particular grade. An employee who is assigned Grade A by one manager may be assigned Grade B or C by another manager. This method is, thus, sensitive to errors. Different types of rating errors are: - **Halo effect:** This is a presumption by managers that a person doing well in one area will be doing well in other areas also. This is not always the case. A person good at sales may not be good in production or vice versa. - **Horns effect:** It is the opposite of halo effect. Managers presume that employees who do not perform well in one area are poor performers in other areas too. They tend to give such employees a low grade if they have performed badly on one job while they may have actually performed better on other jobs. - **Contrast error:** Managers rate the subordinates by comparing their individual performances rather than measuring their performance against the standards. When two sub-standard employees are rated on this basis, the manager will give Grade A to one and B to another while both of them may actually fall in Grade E. - **Recency error:** The employees are rated on the basis of their latest or recent performance. The earlier performance is ignored. An outstanding employee who for some reason, has not been able to do well in the latest assignment, shall be placed in Grade D or E. This is not a satisfactory method of rating. - **Leniency error:** Supervisors give lenient rating to all the employees without measuring their actual performance. The results are, thus, likely to be biased. - **Severity error:** This is the opposite of leniency error. The supervisor gives bad rating to all the employees, without once again appraising their actual performance. The results would, therefore, be again inaccurate. - **Central tendency error:** An average rating or grade is given to everyone disregarding their actual performance. ## How to make rating effective The graphic scale method is a simple and effective method to rank employees' performance against standards but it is highly sensitive to a wide range of errors. Steps must, therefore, be taken to make this programme effective. The rater training programmes are organised by many companies which have proved to be successful in training the raters who hold biased opinion about rating their subordinates. These programmes develop general consensus among the raters to rate the subordinates according to a common standard and improve their perceptions about rating their performance. (b) **Behaviourally anchored rating scales:** This method of performance appraisal is an extension of graphic scale method. These rating scales are used in situations where number of employees are performing similar work and high degree of precision is required in their job behaviours. Rather than assessing the performance as above average or below average, a range of levels of performance, from very high to very low is specified on the rating scale. Unsatisfactory performance, for example, can further be labelled as very unsatisfactory or marginally unsatisfactory. Above average can also be ranked as slightly above average or much above average. Five grades in the graphic scale can be developed as: - Grade A : Outstanding - 10 Extremely good performance - 9 Very good performance - Grade B : Above average - 8 Much above average - 7 Slightly above average - Grade C : Average - 6 Though average but more towards good - 5 Neither very good nor very bad - Grade D : Below average - 4 Slightly below average - 3 Much below average - Grade E : Unsatisfactory - 2 Marginally unsatisfactory - 1 Highly unsatisfactory A wide range of performance is specified on the graphic scale and the raters are much less sensitive to be biased by the range of errors that inhibit their capacity on the graphic scale. ## Performance Appraisal Though this method is more accurate and scientific than the graphic scale, it is more time consuming and expensive also. It also needs high precision on the part of raters to rate the subordinates as different rating levels form part of the same offer. Therefore, often seek assistance of experts to assist them in preparing this scale. **Essay evaluation:** As the employees perform their jobs, the evaluators or raters keep a record of their performance and note their positive and negative job attributes. At the end of the period, they analyse all these points and give a brief description of their performance. This method has the merit of rating the employees purely on the basis of their actual performance. It reduces personal bias of the raters. ## Employee behaviour-oriented methods These methods are also known as comparative methods of evaluation. They compare performance of employees against each other and rank them accordingly: (a) **Straight ranking:** This is the simplest method of ranking where employees are rated as Rank 1, 2, 3, 4 or 5. Where an employer, therefore, has to consider one of his subordinates for promotion to a higher job; he would simply see each person’s performance in the respective area of operation, say production, and the one having produced the maximum number of units would be given rank 1 followed by rank 2 through 5, and accordingly, considered for promotion. (b) **Alternation ranking:** Rather than ranking the employees in ascending order of performance, the raters first pick up the best and give him rank 1, then the worst and rank him 5, then they pick up workers to be ranked as 2 and 4 and proceed this way until all the employees are ranked. This method is similar to straight ranking method with the difference in the approach towards picking up different ranks. (c) **Forced-distribution method:** One employee is not given one rank; but a group of employees are placed in one rank. For example, the manager might place 5% of his employees in rank 1, 10% in rank 2, 20% in rank 3, 30% in rank 4 and remaining 35% in rank 5. In case of ranking 100 employees, therefore, 5 employees will be placed in rank 1 and 35 in rank 5. This method is suitable where one supervisor has to rank a large number of employees and individual ranking is not possible. (d) **Forced choice method:** The method of permutation and combination is applied to rank different employees. In case comparison has to be drawn between the performance of five employees, the performance of worker 1 is judged against that of 2, 3, 4 and 5. Similarly, performance of worker 2 is judged against that of 3, 4 and 5. The best worker is, thus, chosen by making different combinations and ranks are assigned accordingly. ## Essentials of a Good Appraisal System Depending on the need to carry out performance appraisal of employees, i.e., whether work performance has to be evaluated or behaviour is to be evaluated or inter-employee comparisons have to be made, the appropriate method of performance appraisal should be selected. Whatever method is adopted, it must have the following features: 1. It is easily understandable. 2. It is fit for organization's existing operations. 3. It takes care of needs of the organization and its work force. 4. It should adapt to the size of the organization. 5. It defines the responsibility of the manager and the work force.