How to
ascertain whether an employee has shown his or her best performance on a given job? The
answer is performance appraisal. It is one of the fundamental jobs of HRM
To quote Dale Yoder, “Performance appraisal includes all formal procedures used to
evaluate personalities and contributions and potential of group members in a working
organization. It is a continuous process to secure information necessary for making correct
and objective decisions on employees.” The comparison of performance with job requirements
helps in finding out the merit of individual employees in a work group.
According to Flippo, “Performance Appraisal is the systematic, periodic and an important
rating of an employee’s excellence in matters pertaining to his present job and his potential
for a better job.” Performance appraisal can be either formal or informal. Usage of
former systems schedule regular sessions in which to discuss an employee’s performance. Informal
appraisals are unplanned, often just chance statements made in passing about an employee’s performance.
Most organizations use a formal appraisal system. Some organizations use more than one appraisal system
for different types of employees or for different appraisal purposes. Organizations need to measure
employee performance to determine whether acceptable standards of performance are being maintained.
The six primary criteria on which the value of performance may be assessed are: quality, quantity, time,
cost effectiveness, need for supervision, and interpersonal impact.
Objectives
Data relating to performance assessment of employees are recorded, stored, and used for seven
purposes. The main purposes of employee assessment are:
• Developmental uses,
• Administrative uses/decisions,
• Organizational maintenance/objectives, and
• Documentation purposes.
Performance feedback
development needs
Promotion
Retention or termination
Lay-offs
achievement
Evaluation of HR systems
Reinforcement of organizational
development needs
Characteristics
Before any performance appraisal program is initiated, it is essential to determine its objectives.
The objective of the appraisal program may either to appraise the actual performance of the
individuals on their present jobs or to determine the potential of individuals to do higher jobs or
both. Sometimes, performance appraisal programs are associated with specific objectives like
training and development, transfer and promotion, increase in pay,etc.
Generally, the appraiser is the immediate superior of the man to be appraised. He is most familiar
with the employee’s work and is in contact with him and so he is considered to be able to
appraise him well. But there are certain limitations of appraisal by one person. That is why some
organizations try to obtain two or more ratings on each employee. But again the difficulty may
arise because the second rater may not have the necessary contact with the individual who is to be
rated. The possibility is the constitution of a rating committee which may consist of a number of
supervisors and specialists from personnel department and a representative of the workers. The
committee will rate each individual collectively. Some people feel that employees should be
allowed to rate themselves. When this is done their ratings may be offered in conjunction with
ratings by their immediate superiors.
Frequency of Appraisal
The frequency of appraisals differs from organization to organization and with the nature of
duties performed. There are spot appraisals, monthly, quarterly, half yearly or yearly appraisals.
But most of the organizations conduct yearly or half yearly appraisals because more frequent
appraisals besides taking away time of the appraiser or raters, may create a sense of fear amongst
the rates. Idea frequency is one which fits into the objectives of the appraisal. However, new
employees should be rated more frequently than the older ones.
Designing of Forms
This is an important step in performance appraisal to design the rating forms to be utilized in the
program. The forms should be related to job families such as clerical, mechanical, sales, technical
and supervisory. All require a different evaluation form. Performance forms may be classified as
those involving comparative ranking and others involving the comparison of each employee’s
actual performance with predetermined standards. The first category of forms is designed to
evaluate employee performance for the purpose of making wage adjustments, layoffs,
promotions, etc. and the second category of forms is used to improve the performance of workers
on their present jobs.
Process
Figure below outlines the performance- appraisal process. Each step in the process is crucial and
is arranged logically. The process as shown in Figure below is somewhat idea1ised. Many
organizations make every effort to approximate the ideal process, resulting in first-rate appraisal
systems. Unfortunately, many others fail to consider one or more of the steps and, therefore, have
less-effective appraisal system.
Establishing Performance Standards
The first step in the process of performance appraisal is the setting up of the standards which
will be used to as the base to compare the actual performance of the employees. This step
requires setting the criteria to judge the performance of the employees as successful or
unsuccessful and the degrees of their contribution to the organizational goals and objectives. The
standards set should be clear, easily understandable and in measurable terms. In case the
performance of the employee cannot be measured, great care should be taken to describe the
standards.
Once set, it is the responsibility of the management to communicate the standards to all the
employees of the organization. The employees should be informed and the standards should be
clearly explained to the. This will help them to understand their roles and to know what exactly is
expected from them. The standards should also be communicated to the appraisers or the
evaluators and if required, the standards can also be modified at this stage itself according to the
relevant feedback from the employees or the evaluators.
The most difficult part of the performance appraisal process is measuring the actual
performance of the employees that is the work done by the employees during the specified period
of time. It is a continuous process which involves monitoring the performance throughout the
year. This stage requires the careful selection of the appropriate techniques of measurement,
taking care that personal bias does not affect the outcome of the process and providing assistance
rather than interfering in an employees work.
The actual performance is compared with the desired or the standard performance. The
comparison tells the deviations in the performance of the employees from the standards set. The
result can show the actual performance being more than the desired performance or, the actual
performance being less than the desired performance depicting a negative deviation in the
organizational performance. It includes recalling, evaluating and analysis of data related to the
employees’ performance.
Discussing Results
The result of the appraisal is communicated and discussed with the employees on one-to-one
basis. The focus of this discussion is on communication and listening. The results, the problems
and the possible solutions are discussed with the aim of problem solving and reaching consensus.
The feedback should be given with a positive attitude as this can have an effect on the
employees’ future performance. The purpose of the meeting should be to solve the problems
faced and motivate the employees to perform better.
Decision
The last step of the process is to take decisions which can be taken either to improve the
performance of the employees, take the required corrective actions, or the related HR decision
like rewards, promotions, demotions, transfers etc.
Benefits
Perhaps the most significant benefit of appraisal is that, in the rush and bustle of daily working
life, it offers a rare chance for a supervisor and subordinate to have "time out" for a one-on-one
discussion of important work issues that might not otherwise be addressed. Almost universally,
where performance appraisal is conducted properly, both supervisors and subordinates have
reported the experience as beneficial and positive.
Appraisal offers a valuable opportunity to focus on work activities and goals, to identify and correct
existing problems, and to encourage better future performance. Thus the performance of the whole
organization is enhanced.
Limitations
Performance appraisal may not yield the desired results because of the following deficiencies:
1. If the factors included in the assessment are irrelevant, the result of merit rating will not
be accurate.
2. Different qualities to be rated may not be given proper weightage certain in cases.
3. Some of the factors are highly subjective like initiative and personality of the employees;
so the actual rating may not be on scientific lines.
4. Supervisors often do not have critical ability in assessing the staff. Sometimes, they are
guided by their personal emotions and likes. So the ratings are likely to be biased.
Making
Ensuring
Values
Strategy
Minimizing
Competitive
correct
and
Improvingand
Legal
dissatisfaction
Behaviors
Compliance
decisions
Behavior
Advantageand
Performance
turnover
Improving Performance
Promotions made on factors other than performance might land up a firm in a legal battle, thus
diverting its focus on non-productive areas, as it happened to Williamson Magar. Organizations
can minimize costly performance-related litigation by using appraisal systems that give fair and
accurate ratings.
Employees tend to become emotional and frustrated if they perceive that the ratings they get are
unfair and inaccurate. Such employees find that the efforts they had put in became futile and
obviously get de-motivated.
Dissatisfaction in the job sets in and one of the outcomes of job dissatisfaction is increased
turnover. Fair and accurate appraisal results in high motivation and increased job satisfaction. An
organization having satisfied and motivated employees will have an edge over its competitors.
An organization needs a strategy consistent with the behavior of its employees if it were to
realize its goals. A truism of organizational life is that people engage themselves in behaviors that
they perceive will be rewarded. As employees want to be rewarded, they tend to occupy
themselves more with those activities on which the organization emphasizes. For example, if the
focus is on service, employees will behave in ways that will help them in gaining rewards
associated with service delivery. If the focus is on cost control, employees will seek to control
cost and thus be recognized and rewarded. If the focus is on rewarding productivity, employees
will strive for productivity.
The mechanisms that could be used for potential appraisal are discussed below:
i. Rating by superior.
The potential of a candidate could be rated by the immediate supervisor who is acquainted
with the candidate’s work and also his technical capabilities.
ii. Psychological tests.
Managerial and behavioural dimensions can be measured through a battery of
psychological tests.
iii. Games.
Stimulation games and exercises( assessment centre, in basket, role play,etc.) could be
used to uncover the potential of the candidate.
iv. Performance records.
Performance records and ratings of the candidate on his previous jobs could be examined
carefully on various dimensions such as initiative, creativity, risk taking ability, etc.,
which might play a key role in discharging his duties in a new job.
Philip model
More and more number of organizations are trying to assess potential of their employees,
particularly at the managerial level. Cadbury India, Sandoz, Pfizer, Mafatlal, Philips,
National Organic Chemical Industries, Glaxo and P&G are a few of the companies which
seek to top managerial potential.
At Philips a 2 by 2 matrix is used to assess performance and potential to perform. The
vertical axis measures potential while the horizontal, actual performance. Both are further
subdivided into parameters – high and low – resulting in 4 quadrants of classification.
High Potential-Low Performance: these are the problem children. In order to help them
improve their performance, these employees are shifted to new locations to work and are
closely monitored. If performance levels do not improve, these employees are reclassified
as question marks and the separation process initiated.
High Potential-High Performance: these are the star performers. They have to be kept
engaged with complex assignments all the time and groomed to take up the top positions.
Otherwise, they might leave.
Low Potential-High Performance: these are called as solid citizens and constitute 70 to
75 % of the total number of employees in any organization. They have skills but lack the
potential to grow beyond their current job-profile. The organization has to constantly
recognize their limitations and take care of their needs.
In order to assess employee potential, Philips has adopted the system that prevails at
Philips NV, Holland. The system at Philips NV uses 4 broad attributes