PERFORMANCE APPRAISAL

 MEANING

                   A performance appraisal is a regular review of an employee's job performance and overall contribution to a company. Also known as an annual review, performance review or evaluation, or employee appraisal, a performance appraisal evaluates an employee’s skills, achievements, and growth--or lack thereof. Companies use performance appraisals to give employees big-picture feedback on their work and to justify pay increases and bonuses, as well as termination decisions. They can be conducted at any given time but tend to be annual, semi-annual, or quarterly.

DEFINITION

                   Randall S. Schuler, "Performance appraisal is a formal, structured system of measuring and evaluating an employee’s job, related behavior and outcomes to discover how and why the employee is presently performing on the job and how the employee can perform more effectively in the future so that the employee, organization, and society all benefit."

FEATURES OF PERFORMANCE APPRAISAL:

v Systematic process of evaluation of an employee.

v Analysis of the strengths and weaknesses of an employee.

v To find out how well an employee is performing the job.

v Appraisal is done periodically.

v It is based on a definite plan.

v Performance appraisal is different from job evaluation.

v Performance appraisal is a continuous process that is accepted by every organization.

 

 

 

OBJECTIVES OF PERFORMANCE APPRAISAL

o   Performance Appraisal can be done with following objectives in mind:

o   To maintain records in order to determine compensation packages, wage structure, salaries raises, etc.

o   To identify the strengths and weaknesses of employees to place right men on right job.

o   To maintain and assess the potential present in a person for further growth and development.

o   To provide a feedback to employees regarding their performance and related status.

o   To provide a feedback to employees regarding their performance and related status.

o   It serves as a basis for influencing working habits of the employees.

o   To review and retain the promotional and other training programs.

METHODS OF PERFORMANCE APPRAISAL

1. Management by Objectives (MBO):

The term Management by Objectives was first termed by management guru Peter Drucker in his 1954 book, The Practice of Management. This method focuses on improving the performances of the organization by defining clear objectives that are both agreed 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 believes that it helps in employee motivation and commitment. It also build healthy communications between the management and employees.

Steps in MBO (Also called MBO Process Cycle)

1.     In the first step, MBO emphasizes on goals that are measurable, tangible and achievable 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 plan their own 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.

 2. Psychological Appraisals:

This is one of the most interesting 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 his/her performance. This method suits the best for the workforce today. Employees now are quite vulnerable and often fall in the pit while balancing their work and personal life. This method understands that aspect and allows employees to shine in the future.

3. 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.

4. Assessment Centre Method:

In this method, employees are assessed to participate in activities like in-basket exercises, role-playing, discussions, computer simulations, etc. Where they are evaluated in terms of their persuasive ability, confidence, sensitivity to the feelings of others, 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 who finally evaluates the employee’s performance.

 

5. 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 compare an individual’s performance against specific examples of behavior that are anchored to numerical ratings.

It compares an individual’s performance against specific examples of behavior that are tied to numerical ratings of 5 to 9. Behaviorally Anchored Rating Scale is usually represented as a vertical rating graph. These behavioral anchor points are collected using Critical Incident Techniques (CIT), which are procedures used for documenting human behavior that is of significance in a particular arena.

6. 720 Degree Method:

In this method, wherein the assessment is done not only by the stakeholders within the company but also from the groups outside the organization. These external groups who assess the employee’s performance are customers, investors, suppliers and other financial institutions.

It is one of the most crucial modern methods of performance appraisal because this is the only group that determines the success of the organization as a whole.
Nowadays, companies use the modern methods of performance appraisal which have a broader scope than the traditional methods and provides a more accurate and comprehensive evaluation of an individual.

7. Cost Accounting Method:

Some may find this method a little harsh and for others, it may be a very practical appraisal method.

This method evaluates the employees’ performance from the monetary output an organization yields from their input. This is ascertained by analyzing the cost involved in retaining the employees with the benefits an organization yields from his her input.

ADVANTAGES OF PERFORMANCE APPRAISAL

It is said that performance appraisal is an investment for the company which can be justified by following advantages:

o   Promotion: Performance Appraisal helps the supervisors to chalk out the promotion programs for efficient employees. In this regards, inefficient workers can be dismissed or demoted in case.

o   Compensation: Performance Appraisal helps in chalking out compensation packages for employees. Merit rating is possible through performance appraisal. Performance Appraisal tries to give worth to a performance. Compensation packages which includes bonus, high salary rates, extra benefits, allowances and pre-requisites are dependent on performance appraisal. The criteria should be merit rather than seniority.

o   Employees Development: The systematic procedure of performance appraisal helps the supervisors to frame training policies and programs. It helps to analyses strengths and weaknesses of employees so that new jobs can be designed for efficient employees. It also helps in framing future development programs.

o   Selection Validation: Performance Appraisal helps the supervisors to understand the validity and importance of the selection procedure. The supervisors come to know the validity and thereby the strengths and weaknesses of selection procedure. Future changes in selection methods can be made in this regard.

o   Communication: For an organization, effective communication between employees and employers is very important. Through performance appraisal, communication can be sought for in the following ways:

o   Through performance appraisal, the employers can understand and accept skills of subordinates.

o   The subordinates can also understand and create a trust and confidence in superiors.

o   It also helps in maintaining cordial and congenial labour management relationship.

o   It develops the spirit of work and boosts the morale of employees.

o   All the above factors ensure effective communication.

o   Motivation: Performance appraisal serves as a motivation tool. Through evaluating performance of employees, a person’s efficiency can be determined if the targets are achieved. This very well motivates a person for better job and helps him to improve his performance in the future.

LIMITATIONS OF PERFORMANCE APPRAISAL:

1. Halo effect:- 

                             In this case the superior appraises the person on certain positive qualities only. The negative traits are not considered. Such an appraisal will not give a true picture about the employee. And in some cases employees who do not deserve promotions may get it.

 

2. Horn effect:- 

In this case only the negative qualities of the employee are considered and based on this appraisal is done. This again will not help the organization because such appraisal may not present a true picture about the employee.

 

3. Central tendency:- 

In this case the superior gives an appraisal by giving central values. This prevents a really talented employee from getting promotions he deserves and some employees who do not deserve anything may get promotion.

 

4. Leniency and strictness:-

Some bosses are lenient in grading their employees while some are very strict. Employee who really deserves promotions may lose the opportunity due to strict bosses while those who may not deserve may get benefits due to lenient boss. 

 

5. Spillover effect:-

In this case the employee is judged +very or –very by the boss depending upon the past performance. Therefore although the employee may have improved performance, he may still not get the benefit.

 

6. Fear of losing subordinates and spoiling relations:-

Many bosses do not wish to spoil their relations with their subordinates. Therefore when they appraise the employee they may end up giving higher grades which are not required. This is an injustice to really deserving employees. 

 

7. Goodwill and techniques to be used:-

Sometimes a very strict appraisal may affect the goodwill between senior and junior. Similarly when different departments in the same company use different methods of appraisal it becomes very difficult to compare employees.

 

8. Lack of Clarity:-

 

The objective of performance appraisal is to evaluate and develop employees. An organization should avoid using one appraisal system to achieve both objectives. The particular system of the appraisal system should clarify before it is designed and should be discussed with all managers and employees to gain their commitment. Any performance appraisal system, however good the design, is unlikely to succeed if the managers and employees are suspicious of its objectives. 

 

It is extremely difficult if not impossible to device a system that will be able to satisfy both performance and reward. It happens because employees are likely to resist negative feedback and tend to be defensive when weakness in current performance is identified. It is because of this type of overlap in purposes that the appraisal loses it’s practically and increases the conflict between the manager and the employees.

9. Appraisal Errors:-

 

These are as follows; Halo, Regency, Contrast effects: the Halo effect occurs when a manager rates an employee high or low on all teams, because of one characteristic. For instance; if an employee has few absences, his manager might give him high rates in all other area of work. 

 

The regency effect happens when a rater gives greater weight to recent occurrence when appraising an employee’s performance. This sort of effect is an understandable rater’s error. It may not be easy for the manager to remember all events that happened like for instance; six months ago.

 

Contrast error occurs when employees are rated relatively to other employees rather than to performance standards. For example; if everyone else in a group is doing mediocre job, an employee performing somewhat better may be rated as excellent because of the contrast effect.

 

10. Unequal Performance:-

 

    Unequal Performance Standards People differ from each other in the way they perceive things. What is good for some may be bad for others. Therefore managers have different judgments in appraising their employees. Managers’ attitudes to their employees differ, so different managers will appraise the same people quite differently which could make appraisal system subjective and manipulative.