END TERM EXAMINATION

FIRST SEMESTER [MBA] NOVEMBER- DECEMBER 2017

Paper Code: MS 231 Subject: Performance Appraisal &
Management
Time: 3 Hours Maximum Marks: 75
Note: Attempt any five questions.

Q1. Describe the multiple purposes that a performance management system can serve and
highlight the importance of a performance management system for the various stakeholders
in the organization.

Q 2 Explain the major features in an ideal performance management system. Briefly state,
if in your opinion it is possible to always implement all these features.

Q 3 Explain the various factors that determine the performance of employees and describe
the two major dimensions of performance that must be considered in performance
management system. Use a suitable example to illustrate your answer.

Q4. Describe the various elements that must be present in defining a competency. Identify
any two competencies and use them to illustrate your answer.

Q5. Describe any 5 rater errors that performance management systems can suffer from and
suggest steps that can be taken to minimize these errors.

Q6. Discuss the benefits and drawbacks of 360-degree appraisal programmes and make and
make a set of recommendations regarding what can be done to make these programmes work
effectively.

Q7. Distinguish between potential and performance appraisal and critically evaluate any
three methods that are used for potential appraisal.

Q8. Write short notes on any two:

(a) Performance Related Pay
(b) Ethical And Legal Issues in Performance Management
(c) Role of HR Personnel in Performance Management
 SOLUTION SET
PERFORMANCE APPRAISAL & MANAGEMENT
MS 231

Q1. Describe the multiple purposes that a performance management system can serve and
highlight the importance of a performance management system for the various stakeholders
in the organization.

Ans.1 Performance is defined as the behaviors or actions that are relevant to the goals of the
organization. It may be viewed as behavior that leads to results. Management is an art of getting
the things done through others and with others. Performance Management is the continuous cycle
of improving job performance by integrating the activities of goal setting, feedback and coaching,
providing rewards and positive reinforcement.

PRIMARY PURPOSES OF PERFORMANCE MANAGEMENT:

Clarity in the job definition and criteria: The job of the person being appraised may be clarified
and defined more clearly. In other words, employees gain a better understanding of the behaviors
and results required of their specific position. Employees also gain a better understanding of what
it takes to be a successful performer (i.e., which criteria define job success).

Providing clear organizational goal: The goals of the unit and the organization are made clear, and
the employee understands the link between what he or she does and organizational success. This
is a contribution to the communication of what the unit and the organization are all about and how
organizational goals cascade down to the unit and the individual employee. Performance
management systems can help improve employee acceptance of these wider goals (i.e.,
organizational and unit level).
Having better and timelier differentiation between good and poor performers: Performance
management systems allow for a quicker identification of good and poor performers. Also, they
force supervisors to face up to and address performance problems on a timely basis (i.e., before
the problem is too costly and cannot be remedied).
Increase in Motivation to perform: Receiving feedback about one’s performance increases the
motivation for future performance. Knowledge about how one is doing and recognition of one’s
past successes provide the fuel for future accomplishments.
Providing insight about subordinates: Direct supervisors and other managers in charge of the
appraisal gain new insights into the person being appraised. The importance of knowing your
employees is highlighted by the fact that the Management Standards Centre has recognized that
developing productive relationships with colleagues is a key competency for managers. Gaining
new insights into a person’s performance and personality will help the manager build a relationship
with that person. Also, supervisors gain a better understanding of everyone’s contribution to the
organization. This can be useful for direct supervisors as well as for supervisors once removed.

Enhancement in Self-insight and development: The participants in the system are likely to develop
a better understanding of themselves and of the kind of development activities of value to them as
they progress through the organization. Participants in the system also gain a better understanding
of their strengths and weaknesses, which can help them better define future career paths.

THE IMPORTANCE OF A PERFORMANCE MANAGEMENT SYSTEM:

Performance management is an ongoing process of communication between a supervisor and an
employee that occurs throughout the year, in support of accomplishing the strategic objectives of
the organization. The communication process includes clarifying expectations, setting objectives,
identifying goals, providing feedback, and reviewing results.

 Developing clear job descriptions and employee performance plans which includes the key
result areas (KRA') and performance indicators.
 Selection of right set of people by implementing an appropriate selection process.
 Negotiating requirements and performance standards for measuring the outcome and
overall productivity against the predefined benchmarks.
 Providing continuous coaching and feedback during the period of delivery of performance.
 Identifying the training and development needs by measuring the outcomes achieved
against the set standards and implementing effective development programs for
improvement.
 Holding quarterly performance development discussions and evaluating employee
performance based on performance plans.
 Designing effective compensation and reward systems for recognizing those employees
who excel in their jobs by achieving the set standards in accordance with the performance
plans or rather exceed the performance benchmarks.
 Providing promotional/career development support and guidance to the employees.
 Performing exit interviews for understanding the cause of employee discontentment and
thereafter exit from an organization.
MODEL OF PERFORMANCE MANAGEMENT –

Q 2: Explain the major features in an ideal performance management system. Briefly state,
if in your opinion it is possible to always implement all these features.

Ans.2
THE MAJOR FEATURES OF AN IDEAL PERFORMANCE MANAGEMENT SYSTEM:

Reliability and validity: Appraisal system should provide consistent, reliable and valid information
and data, which can be used to defend the organization – even in legal challenges. If two appraisers
are equally qualified and competent to appraise an employee with the help of same appraisal
technique, their ratings should agree with each other. Then the technique satisfies the conditions
of inter-rater reliability. Appraisals must also satisfy the condition of validity by measuring what
they are supposed to measure. For example, if appraisal is made for potential of an employee for
promotion, it should supply the information and data relating to potentialities of the employee to
take up higher responsibilities and carry on activities at higher level.

Job relatedness: The appraisal technique should measure the performance and provide information
in job related activities/areas.

Standardization: Appraisal forms, procedures, administration of techniques, ratings, etc., should

be standardized as appraisal decisions affect all employees of the group.

Practical viability: The techniques should be practically viable to administer, possible to

implement and economical to undertake continuously.
Legal sanction: Appraisals must meet the laws of the land. They must comply with provisions of
various acts relating to labor.

Training to appraisers: Because appraisal is important and sometimes difficult, it would be useful
to provide training to appraisers viz., some insights and ideas on rating, documenting appraisals
and conducting appraisal interviews. Familiarity with rating errors can improve rater's
performance and this may inject the needed confidence in appraisers to look into performance
ratings more objectively.

Open communication: Most employees want to know how well they are performing the job. A
good appraisal system provides the needed feedback on a continuing basis. The appraisal
interviews should permit both parties to learn about the gaps and prepare themselves for future.
To this end, managers should clearly explain their performance expectations to their subordinates
in advance of the appraisals period. Once this is known, it becomes easy for employees to learn
about the yardsticks and, if possible, try to improve their performance in future.

Employee access to results: Employees should know the rules of the game. They should receive
adequate feedback on their performance. If performance appraisals are meant for improving
employee performance, then withholding appraisal result would not serve any purpose. Employees
simply cannot perform better without having access to this information. Permitting employees to
review the results of their appraisal allows them to detect any errors that may have been made. If
they disagree with the evaluation, they can even challenge the same through formal channels.

Due process: It follows then that formal procedures should be developed to enable employees who
disagree with appraisal results (which are inaccurate or unfair). They must have the means for
pursuing their grievances and having them addressed objectively.

Q 3 Explain the various factors that determine the performance of employees and describe
the two major dimensions of performance that must be considered in performance
management system. Use a suitable example to illustrate your answer.

Ans.3 FACTORS AFFECTING PERFROMANCE OF EMPLOYEES:

An effective employee is a combination of a good skill set and a productive work environment.
Many factors affect employee performance that managers need to be aware of and should work to
improve always. To get the maximum performance from employees, there is a need to provide
them with the tools they need to succeed.
Managerial Standards
Managerial standards can be a factor in motivating or de-motivating employees. Managerial
standards should be in line with the job duties outlined in the job description outlined by human
resources. The background of the employee, including their educational history, is also outlined in
a job description. Managers should keep their expectations in line with the duties assigned to the
employee. By expecting more from an employee than they were hired for, or than their background
has prepared them for, can diminish employee performance.

Motivation
To get the best performance from employees, there needs to be some sort of motivation beyond
the weekly paycheck. Motivation can come in the form of financial incentives, the opportunity to
get involved in company projects, a career path that leads to management and direct involvement
from management into the daily tasks. Effective motivation can create a productive work force,
but a lack of motivating factors can leave employees searching for reasons to give their maximum
effort.

Commitment
Employees that feel as though the company has made a commitment to employee success tend to
perform better. Commitment means offering a competitive rate of pay and benefits package,
offering assistance in paying for employee's higher education costs, developing a regular training
schedule that keeps employees updated on company changes and gives pertinent information for
employees to do their jobs and upgrading equipment to make sure that employees have the most
efficient technology available to do their work. Commitment shown by the company is returned in
the form of commitment from employees.

Employee Evaluations
An effective employee evaluation is an interactive process where the manager gives his input on
the employee's performance, and the employee gets the chance to point out what she has learned
throughout the year. Managers create a plan along with the employee for the coming year on how
the employee can develop and improve their performance. Comprehensive employee evaluations
are important to the ongoing performance of employees.

APPROACHES IN PERFORMANCE MANAGEMENT

The various approaches in performance management are as follows:

 Competencies or trait-based approach
 Behavior based approach
 Tasks based approach
 Results or outcomes based approach
Competencies or trait-based approach
 Emphasizes rating of employees on relatively stable competencies possessed by them.
 Diff. weightage is given to diff. competencies based on the level of employees being
evaluated.
 Linkages between competencies and desired work-related behaviors.
 Focus on defining performance in terms of competencies while the task based approach
would focus on the tasks.

Behavior based approach

 This approach carries out the assessment of individuals in terms of behaviors that are
oriented towards the organizational goals.
 Used to reinforce certain responses and in some cases to discourage certain behaviors
among the employee.

Task based approach

 Focuses on what tasks are required to be done and to what extent the same have been
carried out to the degree of professionalism that is desired by the organization.
 Proves suitable when the links between the tasks and the outcomes either come with a lag
or there are other factors beyond the control of the employee that influence the outcomes.

Results or outcome based approach

 Emphasizes on outcomes or results that are produced.
 Focus is more on achieving the goals rather than on behaviors or tasks.

DIMENSIONS IN PERFORMANCE THAT MUST BE CONSIDERED IN PERFORMANCE

MANAGEMENT

1. Quantity of work i.e. the quantity or amount of work produced or the sheer volume of work
completed by employees – recognizes hard-working employees
2. Timeliness of work i.e. timely delivery of work in terms of schedules, meeting deadlines,
etc. – recognizes employees who produce work on-time and meet deadlines
3. Quality of work i.e. the quality of work produced in terms of standards, errors, waste and
rework – recognizes employees who produce quality work, work which meets standards
and work with few errors or mistakes.
4. Use of Resources/Efficiency i.e. produces work in an efficient way in terms of using time,
money, materials and other people’s time well – recognizes employees who come in on
budget with efficient use of time, materials and people.
 5. Customer (External & Internal) Impact/Value Add i.e. work produced meets the
expectations of customers (external or internal) – recognizes employees who do work that
meets/exceeds internal or external customer standards and expectations.
6. Self-Reliance i.e. recognizes employees who produce work without the need for extensive
supervision – requires a reasonable level of support.
7. Department Contribution – the employee is helpful to others in the department in getting
work done and sets a tone of co-operation.
8. Productive Work Habits – the employee has an overall work style which is effective and
productive in terms of time management, setting priorities and following-up on
commitments.
9. Adding Skills & Capabilities – the employee is continuously adding new capabilities in
terms of skills, knowledge, and attitude to get work done in new/better ways and building
for the future.
10. Alignment & Compliance – the employee behaves in a way that is aligned with the values,
culture and mission of the organization as well as common organizational practices and
procedures.

EXAMPLE

Example of Performance Standards for Technical Support Provider:

 Provides technical support to computer users:
o identifies and resolves problems such that the user feels that the problem is resolved
o installs hardware and software in a timely manner and with minimum interruption
to the user
o conducts all interactions with the user in a customer friendly manner
 Makes recommendations as to system needs:
o makes recommendations consistent with customer needs
o recommendations are consistent with departmental budget guidelines
 Serves as resource on technical questions:
o keeps updated on latest in the field and attends all training offered
o researches answers when not immediately knowledgeable
o responds in a timely manner
o answers question and deals with all customers with respect and understanding
o always interacts with customers from a customer service perspective
Q4. Describe the various elements that must be present in defining a competency. Identify
any two competencies and use them to illustrate your answer.

Ans.4 Competencies are the measurable or observable knowledge, skills, abilities, and behaviors
(KSABs) critical to successful job performance. Choosing the right competencies allows
employers to:

 Plan how they will organize and develop their workforce.

 Determine which job classes best fit their business needs.
 Recruit and select the best employees.
 Manage and train employees effectively.
 Develop staff to fill future vacancies.

COMPETENCY TYPES

 Knowledge Competencies - practical or theoretical understanding of subjects.

 Skill and Ability Competencies - natural or learned capacities to perform acts.
 Behavioral Competencies - patterns of action or conduct.

A competency framework defines the knowledge, skills, and attributes needed for people within
an organization. Each individual role will have its own set of competencies needed to perform the
job effectively. To develop this framework, one needs to have an in-depth understanding of the
roles within the business. To do this, one can take a few different approaches:

 Use a pre-set list of common, standard competencies, and then customize it to the specific
needs of the organization.
 Use outside consultants to develop the framework.
 Create a general organizational framework, and use it as the basis for other frameworks as
needed.
Developing a competency framework can take considerable effort. To make sure the framework
is actually used as needed, it's important to make it relevant to the people who'll be using it – and
so they can take ownership of it.

The following three principles are critical when designing a competency framework:

1. Involve the people doing the work – These frameworks should not be developed solely by HR
people, who don't always know what each job actually involves. Nor should they be left to
managers, who don't always understand exactly what each member of their staff does every
day. To understand a role fully, you have to go to the source – the person doing the job – as
well as getting a variety of other inputs into what makes someone successful in that job.
2. Communicate – People tend to get nervous about performance issues. Let them know the need
for developing the framework, how it will be created, and how they will use it. The more
awareness is communicated, it will be implemented more easily.
3. Use relevant competencies – Ensure that the competencies that are included apply to all roles
covered by the framework. If the irrelevant competencies are included, people will probably
have a hard time relating to the framework in general. For example, if a framework is created
to cover the whole organization, then financial management would not be included unless every
worker had to demonstrate that skill. However, a framework covering management roles would
almost certainly involve the financial management competency.

DEVELOPING THE FRAMEWORK

There are four main steps in the competency framework development process. Each step has key
actions that will encourage people to accept and use the final product.

Step One: Prepare

 Define the purpose – Before starting job analysis, and figuring out what each role needs for
success, make sure the purpose for creating the framework is very much clear. How you plan
to use it will impact whom you involve in preparing it, and how you determine its scope. For
example, a framework for filling a job vacancy will be very specific, whereas a framework for
evaluating compensation will need to cover a wide range of roles.
 Create a competency framework team – Include people from all areas of your business that will
use the framework. Where possible, aim to represent the diversity of the organization. It's also
important to think about long-term needs, so that they can keep the framework updated and
relevant.

Step Two: Collect Information

This is the main part of the framework. Generally, the better the data is collected, the more accurate
the framework will be. For this reason, it's a good idea to consider which techniques are to be used
to collect information about the roles, and the work involved in each one.

 Observe – Watch people while they're performing their roles. This is especially useful for jobs
that involve hands-on labor that they can physically observe.
 Interview people – Talk to every person individually, choose a sample of people to interview,
or conduct a group interview. They may also want to interview the supervisor of the job being
 assessed. This helps to learn what a wide variety of people believe is needed for the role's
success.
 Create a questionnaire – A survey is an efficient way to gather data. Spend time making sure
you ask the right questions, and consider the issues of reliability and validity. If you prefer,
there are standardized job analysis questionnaires you can buy, rather than attempting to create
your own.
 Analyze the work – Which behaviors are used to perform the jobs covered by the framework?
The following are to be considered:
 Business plans, strategies, and objectives.
 Organizational principles.
 Job descriptions.
 Regulatory or other compliance issues.
 Predictions for the future of the organization or industry.
 Customer and supplier requirements.

Job analysis that includes a variety of techniques and considerations will give the most
comprehensive and accurate results. If a framework is created for the entire organization, make
sure to use a sample of roles from across the company. This will help to capture the widest
range of competencies that are still relevant to the whole business.

 As the information is gathered about each role, record what is learnt in separate behavioral
statements. For example, if it is observed that Paul from accounting is involved in bookkeeping,
it might break that down into these behavioral statements: handles petty cash, maintains floats,
pays vendors according to policy, and analyzes cash books each month. It can be depicted that
other roles also have similar tasks – and therefore bookkeeping will be a competency within
that framework.
 Moving on to Step Three, one'll be organizing the information into larger competencies, so it
can help to analyze and group the raw data effectively.

Step Three: Build the Framework

This stage involves grouping all of the behaviors and skill sets into competencies. Follow these
steps:

 Group the statements – Ask the team members to read through the behavior statements, and
group them into piles. The goal is to have three or four piles at first – for instance, manual
skills, decision-making and judgment skills, and interpersonal skills.
 Create subgroups – Break down each of the larger piles into subcategories of related behaviors.
Typically, there will be three or four subgroupings for each larger category. This provides the
basic structure of the competency framework.
 Refine the subgroups – For each of the larger categories, define the subgroups even further.
Ask why and how the behaviors relate, or don't relate, to one another, and revise the groupings
as necessary.
 Identify and name the competencies – Ask the team to identify a specific competency to
represent each of the smaller subgroups of behaviors. Then they can also name the larger
category.
 Here's an example of groupings and subgroupings for general management competencies:

 Supervising and leading teams.

 Provide ongoing direction and support to staff.

 Take initiative to provide direction.
 Communicate direction to staff.
 Monitor performance of staff.
 Motivate staff.
 Develop succession plan.
 Ensure that company standards are met.
 Recruiting and staffing.

 Prepare job descriptions and role specifications.

 Participate in selection interviews.
 Identify individuals' training needs.
 Implement disciplinary and grievance procedures.
 Ensure that legal obligations are met.
 Develop staff contracts.
 Develop salary scales and compensation packages.
 Develop personnel management procedures.
 Make sure staff resources meet organizational needs.
 Training and development.

 Deliver training to junior staff.

 Deliver training to senior staff.
 Identify training needs.
 Support personal development.
 Develop training materials and methodology.
 Managing projects/programs

 Prepare detailed operational plans.

 Manage financial and human resources.
 Monitor overall performance against objectives.
 Write reports, project proposals, and amendments.
 Understand external funding environment.
  Develop project/program strategy.

Validate and revise the competencies as necessary – For each item, ask these questions:

 Is this behavior demonstrated by people who perform the work most effectively? In other
words, are people who don't demonstrate this behavior ineffective in the role?
 Is this behavior relevant and necessary for effective work performance?
These questions are often asked in the form of a survey. It's important to look for consensus
among the people doing the job, as well as areas where there's little agreement. Also, look for
possible issues with language, or the way the competencies are described, and refine those as
well.

Step Four: Implement

At the roll out of the finalized competency framework, remember the principle of communication.
To help get buy-in from members of staff at all levels of the organization, it's important to explain
to them why the framework was developed, and how they would like it to be used. Discuss how it
will be updated, and which procedures they've put in place to accommodate changes.

Here are some tips for implementing the framework:

 Link to business objectives – Make connections between individual competencies and

organizational goals and values as much as possible.
 Reward the competencies – Check that the policies and practices support and reward the
competencies identified.
 Provide coaching and training – Make sure there's adequate coaching and training available.
People need to know that their efforts will be supported.
 Keep it simple – Make the framework as simple as possible.
 Communicate –The more open and honest one is throughout the process, the better the end
result – and the better the chances of the project achieving the objectives.

Q5. Describe any 5 rater errors that performance management systems can suffer from and
suggest steps that can be taken to minimize these errors.

Ans.5

• Performance management systems are subject to a wide variety of inaccuracies and biases
referred to as rating errors.
• These errors occur during performance appraisals in the rater’s observations, judgement and
information processing and can seriously affect assessment results.

COMMON RATER ERRORS

1. HALO EFFECT ERROR

• This error occurs when an employee is seen by the supervisor as highly competent in
one or more areas and as a result is rated highly in other areas.
• Example: -
If an employee is a good record keeper but is occasionally late, the supervisor might
overlook the tardiness when preparing the appraisal because the positive work habit
overshadows the problem behavior.
• Hence, halo effect error occurs when a manager/rater really likes an employee and
allows his personal feelings to influence the performance ratings (usually high) of the
employee.

2. HORN EFFECT ERROR

• This error occurs when the employee is seen as weak in one or more areas and is rated
low in other areas based on that weakness.
• Example:-
An employee’s poor customer service skill negatively influences the evaluation of other
relevant skills or causes the rater to overlook the employee’s superior skills when
preparing the appraisal.
• Horn effect error usually results in low performance ratings of the employees.

3. CENTRAL TENDENCY ERROR

• This error occurs when employees are incorrectly rated near the average or middle of
the scale.
• Some raters dislike being too strict with anyone by giving them an extremely low rating
and they may believe that no one deserves to get the highest possible rating. The result
of this type of attitude is that everyone is rated around average.
• In other words, the attitude of the rater is to play safe which stems from certain doubts
and anxieties which the raters have while assembling the ratees.
 4. SPILLOVER EFFECT ERROR

• This error pertains to a rater judging the current performance of an employee by using
past performance ratings as a reference point
• As a result, the employee’s recent performance reviews will likely not be accurate.
• Example: -
If some employee was once kept on performance improvement, then it is assumed that
he is still performing low.

5. RECENCY EFFECT ERROR

• Recency effect error is the rater’s tendency to allow more recent incidents (either
effective or ineffective) of employee behavior to carry too much weight in evaluation
of performance over an entire rating period.
• Example:-
If a salesperson captures an important contract/sale just before the completion of the
appraisal, the timing of the incident may inflate his or her standing, even though the
overall performance of the sales-person may not have been encouraging.
• This can be extreme on both ends of the spectrum. Either an employee just finishing a
major project successfully or an employee may have had a negative incident right
before the performance appraisal process and it is on the forefront of the manager’s
thoughts about that employee.

STEPS TO MINIMIZE RATER ERRORS

1. Training and awareness building: Before each performance evaluation cycle, managers should
be subjected to a short training and learning courses which should cover the importance of the
performance management process, the best way to evaluate performance, how to provide
employees with constructive feedback throughout the evaluation process and how to avoid
biases.
2. Clear definition of employee objectives and performance expectations: If both the manager
and the employee have a clear understanding of what is expected on the job, the entire
performance evaluation process becomes effective.
3. Enhancing the performance appraisal tool: It is necessary so that both the employees and
managers can keep an online journal of key events throughout the year. Also written notes,
regularly updated, can serve as a source of specific information for coaching and counseling
and as required documentation for progressive discipline cases.
4. Evaluation questionnaire: An evaluation questionnaire can be developed to ensure that the
responses (to those questions) give enough information for managers to identify if their
judgement is biased.
5. Year-round Journaling and feedback: If managers provide timely feedback, then the accuracy
of that feedback is going to be much better than if they wait until an annual review and
inadvertently refer to past performance results. Having a performance management system that
allows the attachment of files and notes is a great way for employees to ensure that their actual
accomplishments are being considered when managers complete their appraisal.
6. 360° Reviews: The best way to get an accurate look at an employee’s performance is to ask
several parties for their input and then use the results to gauge overall performance. 360° multi-
rater reviews are a great way to eliminate rater errors as it ‘averages out’ the ratings and reviews
of several parties.
7. Benchmarking & Calibration: Many organizations are finding it useful to have managers and
supervisors meet to discuss how and why they rate performance the way they do. This ensures
rating consistency across departments.
8. Adjusted rating scales: If rating scales are vague and rely on manager judgements instead of
observable milestones, then chances of rating errors are increased. For instance, managers are
more likely to cause rating errors if they are using a traditional ‘Exceeds Expectations, Meets
Expectations etc.…’ rating scale as opposed to a ‘Goal Completed, Goal Started’ rating scale.
9. Appraisal policies: An organization needs to have in place performance appraisal policies and
procedures that assure anonymity during rating and appraisal. Performance appraisal should
be done in anonymity to reduce the errors in scoring, cronyism, and improve confidentiality in
the appraisal.
10. Rater accountability: The rater should be held accountable for causing rating errors by
reviewing their scoring and asking them to explain the rationale behind their scoring. This can
be done especially for the lowest and highest scores and even for the skewed ratings.
11. Monitor: An automated performance management system, such as emPerform, can give up-to-
the minute status reports such as ratings by manager and monitor them. Any anomalies will
stand out like a sore thumb and one can catch up with that manager about his or her rating
styles.

Q6. Discuss the benefits and drawbacks of 360 degree appraisal programmes and make and
make a set of recommendations regarding what can be done to make these programmes work
effectively.
Ans.6
• 360 degree performance appraisal is a method and a tool that provides each employee the
opportunity to receive performance feedback from his or her supervisor, peers, subordinates
and customers. Most 360 degree appraisal tools are also responded to by each individual in a
self-assessment.
• People who are chosen as raters or feedback providers, usually are selected in a shared process
by both the organization and employee. These are people who generally interact routinely with
the person receiving feedback.
• The purpose of the 360 degree performance appraisal is to assist each individual to understand
his strengths and weaknesses and to contribute insights into aspects of his work needing
professional development.

BENEFITS OF 360 DEGREE APPRAISAL PROGRAMMES

1. Improved Feedback from More Sources: This method provides well-rounded feedback from
peers, subordinates, customers and supervisors and can be a definite improvement over
feedback from a single individual. 360 feedback can also save managers’ time in that they can
spend less energy providing feedback as more people participate in the process. Coworker
perception is important and the process helps people understand how other employees view
their work.
2. Team Development: This performance appraisal approach helps team members learn to work
more effectively together. Multi-rater feedback makes team members more accountable to
each other as they share the knowledge that they will provide input on each member’s
performance. A well-planned process can improve communication and team development.
3. Personal and Organizational Performance Development: 360 degree performance appraisal is
one of the best methods for understanding personal and organizational developmental needs in
the organization.
4. Responsibility for Career Development: Multi-rater appraisal can provide excellent
information to an individual about what he needs to do to enhance his career. Additionally,
many employees feel 360 degree appraisal is more accurate, more reflective of their
performance, and more validating than feedback from a supervisor alone. This makes the
information more useful for both career and personal development.
5. Reduced Discrimination Risk: When feedback comes from a number of individuals in various
job functions, discrimination because of race, age, gender, and so forth is reduced. The "horns
and halo" effect, in which a supervisor rates performance based on her most recent interactions
with the employee, is also minimized.
6. Improved Customer Service: Each person receives valuable feedback about the quality of his
product or services, especially in feedback processes that involve the internal or external
customer. This feedback enables the employee to improve the quality, reliability, promptness,
and comprehensiveness of these products and services.
7. Training Needs Assessment: 360 degree performance appraisal provides comprehensive
information about organization training needs and thus allows planning for classes,
crossfunctional responsibilities, and cross-training.
 DRAWBACKS OF 360 DEGREE APPRAISAL PROGRAMMES

1. Exceptional Expectations for the Process: 360 degree appraisal is not the same as a
performance management system. It is merely a part of the feedback and development that a
performance management system offers within an organization. Additionally, proponents may
lead participants to expect too much from this feedback system in their efforts to obtain
organizational support for its implementation.
2. Participation of the immediate superior is limited: Since 360 degree performance appraisal
system involves feedback from multiple levels in the company, the immediate superior does
not get much involved.
3. Design Process Downfalls: Often, a 360 degree appraisal programme arrives as a
recommendation from the HR department or is shepherded in by an executive who learned
about the process at a seminar or in a book. Just as an organization implements any planned
change, the implementation of 360 degree appraisal should follow effective change
management guidelines. A cross-section of the people who will have to live with and utilize
the process should explore and develop the process for the organization.
4. Compromising confidentiality: Multi-rater appraisal is based on the idea that people can feel
safe providing anonymous feedback. It can be a death knell if confidentiality or anonymity is
compromised or if there’s the perception that it has been compromised.
5. Failure to Connect the Process: For a 360 appraisal programme to work, it must be connected
with the overall strategic aims of the organization. If you have identified competencies or have
comprehensive job descriptions, give people feedback on their performance of the expected
competencies and job duties. The system will fail if it is an add-on rather than a supporter of
the organization’s fundamental direction and requirements.
6. Insufficient Information: Since 360 degree feedback processes are currently usually
anonymous, people receiving feedback have no recourse if they want to further understand the
feedback. They have no one to ask for clarification about unclear comments or for more
information about particular ratings and their basis.
7. Rater Inexperience and Ineffectiveness: Due to insufficient training, raters may inflate ratings
to make an employee look good. They may deflate ratings to make an individual look bad.
They may informally band together to make the system artificially inflate everyone’s
performance. Checks and balances must exist to prevent these pitfalls.

RECOMMENDATIONS FOR AN EFFECTIVE 360 DEGREE APPRAISAL PROGRAMME

1. Establish Purpose: It is important to determine the purpose and goals of the 360-degree
appraisal process, the need for its implementation and the results that are expected out of it.
2. Determine Competencies: The core competencies, values and behaviours that are to be
evaluated in the 360-degree appraisal review are determined. It is always best to incorporate
organization set competencies and also competencies applicable to the position. There may
also be specific leadership competencies that can be evaluated, such as strategic thinking,
problem solving, creativity & innovating thinking, change management, accountability &
dependability, etc.
3. Establish Management Support: Key stakeholders and managers should be involved not only
in designing the process, but also in implementing it. Management also plays a critical role in
communicating the process and gaining buy-in from employees.
4. Maintain Confidentiality: It is important to ensure confidentiality and make it a top priority in
the process. Raters tend to provide the most constructive feedback when they’re assured the
data will remain confidential.
5. Who Should Participate: It should be decided carefully who all should be considered or
involved to gather the feedback on, such as managers or employees. After that, decide who the
best feedback providers are for those participants: managers, peers, subordinates, etc. It is very
important to set the expectations for participants and raters at the beginning of the process.
6. Clear Communication: Clearly communicate to the reviewee the purpose and scope of the
review, the constraints that are involved in the process, the methods of gathering feedback and
proper process of analysis of the results. It is important to drill home the fact that the process
is being used for development purposes and not to make any participant feel badly about their
performance.
7. Develop a Feedback Delivery Plan: It is important to determine the ways to deliver the
feedback to participants and in continuation share the ways the organizations will provide the
development sessions and opportunities to the participants to improve upon their performances
to yield better results.
8. Develop A Pilot Process: If the 360-review process is entirely new to the organization, it’s best
to conduct a pilot project. Performing a 360-degree appraisal process pilot with a small group
will allow determining the impact and effectiveness. This will help in eliminating the
roadblocks or issues that are experienced while conducting the review process.

Q7. Distinguish between potential and performance appraisal and critically evaluate any
three methods that are used for potential appraisal.

Ans.7

• Performance appraisal is defined as a systematic evaluation of the employee with respect

to his performance on the job and his potential for development.
• Potential appraisal is defined as a process of determining an employee’s strengths and
weaknesses to assume higher potential and responsibilities in the organizational hierarchy.

PERFORMANCE APPRAISAL POTENTIAL APPRAISAL

Backward looking process Forward looking process

Judges the performance of an employee over Judges the capabilities of the employee to
a given period of time. handle higher level jobs.

Objectives include: Objectives include:

 Workforce planning  Advise employees on
 Career development future prospects
 Promotion and compensation  Identify training needs
decisions  Help organization chalk out
 Communication succession plans

Indication of how an employee performed in Indication of an employee’s performance in

the past but may necessarily not be an
indication of his performance in the future.
Depending on the past performance, an
employee is rewarded with an appropriate
incentive or bonus.
the future.
It is enhanced with giving the employee
specific training and development or
assigning him a mentor.

It gives proof regarding whether the It might not judge the worse/sensible results
employee is versatile or not for new and of performance appraisal of an employee.
higher level operating conditions.

METHODS OF POTENTIAL APPRAISAL

1. MANAGEMENT BY OBJECTIVES (MBO)

• MBO methods of appraisal are results-oriented. That is, they seek to measure employee
performance by examining the extent to which predetermined work objectives have been met.
• Usually the objectives are established jointly by the supervisor and subordinate.

• Once an objective is agreed, the employee is usually expected to self-audit; that is, to identify
the skills needed to achieve the objective. Typically they do not rely on others to locate and
specify their strengths and weaknesses. They are expected to monitor their own development
and progress.

ADVANTAGES

• The MBO approach overcomes some of the problems that arise as a result of assuming that the
employee traits needed for job success can be reliably identified and measured.
• Instead of assuming traits, the MBO method concentrates on actual outcomes.
• If the employee meets or exceeds the set objectives, then he or she has demonstrated an
acceptable level of job performance. Employees are judged according to real outcomes, and
not on their potential for success, or on someone's subjective opinion of their abilities.
• The guiding principle of the MBO approach is that direct results can be observed, whereas the
traits and attributes of employees (which may or may not contribute to performance) must be
guessed at or inferred.
• The MBO method recognizes the fact that it is difficult to neatly dissect all the complex and
varied elements that go to make up employee performance.
• MBO advocates claim that the performance of employees cannot be broken up into so many
constituent parts - as one might take apart an engine to study it. But put all the parts together
and the performance may be directly observed and measured.

DISADVANTAGES

• MBO methods of appraisal can give employees a satisfying sense of autonomy and
achievement. But on the downside, they can lead to unrealistic expectations about what can
and cannot be reasonably accomplished.
• Supervisors and subordinates must have very good "reality checking" skills to use MBO
appraisal methods. They will need these skills during the initial stage of objective setting, and
for the purposes of self-auditing and self-monitoring.
• Human beings tend to lack the skills needed to do their own "reality checking". Nor are these
skills easily conveyed by training. Reality itself is an intensely personal experience, prone to
all forms of perceptual bias.
• One of the strengths of the MBO method is the clarity of purpose that flows from a set of well-
articulated objectives. But this can be a source of weakness also. It has become very apparent
 that the modern organization must be flexible to survive. Objectives, by their very nature, tend
to impose certain rigidity.
• Of course, the obvious answer is to make the objectives more fluid and yielding. But the
penalty for fluidity is loss of clarity. Variable objectives may cause employee confusion. It is
also possible that fluid objectives may be distorted to disguise or justify failures in
performance.

2. SELF APPRAISAL

• The employee self appraisal is one of the best methods to engage employees in the process
of looking at performance and setting both job and career goals.
• The employee self-evaluation encourages employees to think about and plan for their future
with your organization. They can target their next opportunity, possible promotions, different
jobs they'd like to try, and cross-training they'd like to obtain.
• The employee is prompted to think about all of the components of performance, from the job
description to goals accomplished and to include professional development in the mix. This
structured approach to performance management and planning helps the employee take a
look at his current and desired level of contribution.

ADVANTAGES

• Employee self-appraisals can function as a cheat sheet for the manager when completing the
overall performance evaluation form.
• This process puts ownership on the employee to recall and document the work he/she has
performed throughout the course of the year and highlight major accomplishments.
• The self-evaluation can be tailored to fit your organization’s values, to highlight the specific
roles of the individual, and to call out specific performance measures that your organization
would like to focus on for the particular evaluation cycle.
• Instead of having to dig through e-mails, time sheets, and attempt to recall all of the projects
that the employee worked on, the manager can focus on common themes of high and/or poor
performance throughout the year.

DISADVANTAGES

• It’s important to remind managers that employees often have a perception of stronger
performance than he/she actually exuded throughout the year.
• Just because an employee is responsible for the initial documentation, managers still will need
to take ownership for monitoring performance, documenting performance concerns and/or
highlights, and make efforts to correct poor performance throughout the year.
• If the employee’s self-evaluation is not an accurate reflection of performance, his/her manager
needs to be prepared to provide clear reasoning for the differences in ratings.
• If employees fail to submit their self-evaluations in a timely manner then follow on processes
may be negatively impacted.

3. PEER APPRAISAL

• They are employee assessments conducted by colleagues in the immediate working

environment i.e. the people the employee interacts with regularly. Peer appraisal processes
exclude superiors and underlings.
• Peers of an individual give feedback for the individual which gives an unique perspective to
the work and goal achievement of an individual.
• While managers and other appraisal systems tend to provide a perspective on targets and goals
achieved by an individual, peer appraisal tends to give an perspective on the interpersonal skills
of an individual and his interaction base with the customer and team in which he is working.

ADVANTAGES

• Managers can use peer reviews as part of a formal review to give them a better picture of an
employee's true strengths and weaknesses. This, in turn, can help managers develop a training
and development program that can include the specific skills that each employee needs to
improve.
• Peer reviews can also help managers discover hidden talent — the quiet performers who
routinely produce exceptional work without recognition.
• Since most employees want to know how they are doing and where they need to improve, the
feedback from the reviews can help them grow.

DISADVANTAGES

• Employees have a tendency to form cliques or relationships in the workplace. They may feel
uncomfortable saying anything negative about co-workers they consider friends. They may
also fear that the reviews may be biased in favor of the most popular employees rather than the
most competent.
• Furthermore, they may worry that their own reviews could be tainted by a co-worker who holds
a grudge. As stress levels in the workplace are already high, the idea of peer reviews may
increase feelings of job pressure and demoralize employees.
Q8. Write short notes on any two:

(a) PERFORMANCE RELATED PAY

• Performance-related pay is a way of managing pay by linking salary progression to an

assessment of individual performance, usually measured against pre-agreed objectives.
• This initiative rewards hardworking employees by providing them with payments based on
what they produce for the firm. It is also called an incentive pay program. The ultimate goal is
to inspire some type of positive action in each employee, such as manufacturing more products
or selling more items in the same period of time as before.
• It is a way of rewarding employees for higher performance. There are a number of reasons why
the employer might introduce this type of pay scheme. They may:
• Whilst the detail of real performance-related schemes varies from business to business, there
are several common features:

o Individual performance is reviewed regularly (usually once per year) against agreed
objectives or performance standards. This is the performance appraisal
o At the end of the appraisal, employees are categorized into performance groups – which
determine what the reward will be
o The method of reward will vary, but traditionally it involves a cash bonus and/or increase
in wage rate or salary

TYPES OF PERFORMANCE RELATED PAY

• Merit-based

o Merit-based systems simply involve the immediate supervisor undertaking an appraisal of

each subordinate’s work performance during the previous year.
o The person being appraised will then be scored on their achievement over the year and this
will correspond to a level of pay that they will be awarded. Unfortunately, this system is not
very efficient as the focus can be on recent achievement, not on the entire year.
o For example, if an employee works exceptionally hard and to a high standard for the first two
thirds of a year, yet suffers an event in his personal life that causes his work level to diminish,
the appraiser may focus more on the recent performance as opposed to the hard work that
was performed earlier in the year.
 Goal-based

Here the supervisor and subordinate meet at the start of the appraisal period and agree between
them a list of objectives which the appraisee will seek to meet during the coming months.)
o The employee is then scored by whether they achieved this objective, and this score is then
linked to a pay level. A possible downside to this approach is that the employee may focus
solely on what he/she believes will allow them to achieve this goal, thus neglecting other
areas of their work.
o One major benefit of goal-based of this method is that any organizational aims/goals will
become the priority of the individual. This allows companies to communicate their strategy
in a way that makes it clearer what an individual has to do to adhere to it.

BENEFITS

• Boost motivation and morale: One of the main benefits of pay for performance is that it helps
increase motivation among workers. It may also boost morale, which is the overall sentiment
of workers toward the company. Enacting this type of program indicates to employees that the
company cares and wants to reward good behavior.
• Productivity connected: Because a pay-for-performance initiative is directly connected to the
productivity of employees, it is usually cost-efficient. The more the workers produce, the more
money the company makes. Therefore the company management can rest assured that when
they spend money on employees it directly benefits the firm. A pay-for performance program
can also help the company identify which employees are capable of the highest performance
when given incentives.

DRAWBACKS

• Employee deficiencies: The major downside of a pay-for-performance plan is that if employees

don’t have the proper knowledge, training and experience to perform at higher levels, it may
not work; one has to invest money in getting them the training and resources they need. In this
case, starting a pay-for-performance program can become a cumbersome and expensive
endeavor.
• Hard to change: Another downside of starting a pay-for-performance program is that it is
difficult to change or end this program in the future. If employees get used to this program and
enjoy the benefits, it can negatively affect their morale if certain changes are made to it. It is
also hard to get the terms of an incentive pay program just right.
(b) ETHICAL AND LEGAL ISSUES IN PERFORMANCE MANAGEMENT

ETHICAL ISSUES IN PERFORMANCE MANAGEMENT

• Ethics is a process of rational thinking aimed at establishing “What values to hold and when
to hold them”.
• A Moral principle or a set of moral Values held by an individual or group o Ethical- of or
Based on a system of moral beliefs about right and wrong, in accordance with principles of
professional Conduct.
Managerial Ethics: Standards and Moral Judgment managers use in their Business.
• Ethical issues in performance management include:

1. MANAGERIAL MALPRACTICES: Organizations that are guilty of management

malpractice are ones who hire, retain, and support managers/supervisors who do not have
the interpersonal and people management skills needed to improve organizational
performance through their people. In other words it includes:

o Selecting new managers based on arbitrary systems such as seniority, technical

competence, and personal bias
o Hiring new managers without regard for their people skills o Retaining managers who
are unskilled at getting results through people o Allowing managers to behave
unprofessionally despite countless complaints made by their employees.

2. MORAL MAZES: In business ethics, a moral maze is an issue in which there are many
ethical and moral dilemmas and in which a manager can go wrong even if they are not
trying to be unethical.
The "moral mazes of management" include the numerous ethical problems that managers
must deal with on a daily basis, such as potential conflicts of interest, wrongful use of
resources, mismanagement of contracts and agreements, and misuse of power and
influence.

3. VALUE CONFLICT: It involves incompatibility of preferences, principles and practices

that people believe in such as religion, ethics or politics.

4. EVALUATION ERRORS: These are errors that are occurring when a manager conducts
the process of management appraisal in a flawed manner. These can be done in several
ways as shown below:
 o Establishment of an arbitrary and unilateral performance standards or goals. This is
because the application of false values means that the manager does not effectively
communicate with his or her employers.
o Lack of future orientation and lack of knowledge on how to measure success.
o Lack of interactive spirit, meaning that such managers do not consider the ideas of
others in the organization.
o Lack of the required management attributes required. This results to a lot of conflicts
in the organization.

5. FAIRNESS ISSUES: For a management appraisal to reflect the true values and output of
the employees and the organization in general there must exist several fairness issues that
should be unbiased in the form of application. These are:

o RATING BIAS: A manager should practice true integral values, and practice no bias
in terms of the amount of credit that he or she awards to all the individuals who are
employees, irrespective of physical attributes or hierarchical position in the
organization.
o HYPOCRISY: Management authorities ought to avoid hypocrisy in conducting the
management evaluation task. They are all expected to reflect their true characteristics
and attributes under the performance evaluation’s presence as they always do in other
instances. Hypocrisy ought to be avoided as it reflects a false perception of the image
of the organization, both from an internal or external view.

LEGAL ISSUES IN PERFORMANCE MANAGEMENT

• Such issues are caused by the influence of the employee’s evaluation process by factors that
are from outside the control of a manager. They can also, however, be caused by the abuse of
power by the management levels in the firm.
• As a result of this abuse of power by some management personnel, the evaluations conducted
is not free and fair, leading to the discrimination of some employees, mostly from lower ranks
in terms of the hierarchical systems of employment.
• Some legal issues in performance management include:

1. DISCRIMINATION: This refers to the unfair act of favoring the interests of some
employees at the expense of others. While carrying out performance evaluations, the
employees who rank at a junior level might be subjected to this unethical discriminatory
practice. In most cases, the output of such employees is highly affected. This is because
they feel as though not appreciated enough by the firm in which they work. Moreover,
employees’ motivation is substantially reduced by such practices.
 2. PUBLIC POLICY ISSUES: These refer to the administrative policies that a firm’s
authority (e.g. Top board of governors) provides as a guide to the action of the management
and administrative processes in the firm. These are essential as they provide for the fair
conduct of a performance evaluation process in a company. These provide for the rights
and freedoms that employees have. Public policies also provide for the actions that act as
a penalty in case any of the rights and freedoms of the employees are breached.

3. CONTRACTUAL ISSUES: A contract refers to a legal agreement between two or more

parties who agree voluntarily, and in which the crucial element is the completion of the
offer and acceptance agreed. Some employees in firms are employed on a contractual basis.
This face ought to be carefully considered by the management bodies when conducting
performance evaluations.

4. TORT LIABILITY ISSUES: A tort refers to a civil wrong. In most employing authorities,
the junior employees are viewed as having tort liability, meaning that the top-level
management in these companies view them as having no power and authority to express
any form of tort subjected towards them. Though a tort might not necessarily amount to an
illegal act, the employees, under the existing laws, have a right to report any form of tort.
Moreover, the law provides that any person(s) who suffers a tort, has a right to
compensation; in terms of money or as payment of damages suffered by the plaintiff. Hence
the management evaluation process should consider the freedom of the employees,
irrespective of the hierarchical position.

(c) ROLE OF HR PERSONNEL IN PERFORMANCE MANAGEMENT

Ans:
HR Professionals have to ensure that performance management is:

• Consistent with organization’s mission, objectives and strategy

• Beneficial as a strategic and developmental tool
• Useful as an administrative tool
• Legally defensible and role based and
• Viewed as generally fair and enabling by employees
HR Professionals have to:
• Become competency builder
• Link work goals to performance expectations
• Become change agent
• Organizational rejuvenation initiator
• Customer relationship management trainer
• Effective communication facilitator
• Talent farmer
• Strategic recruiter
• Strategic outsourcer
• Ethics custodian and • Internal Systems Critic
Other roles of HR Professionals in Performance Management
• HR Professional should be able to pre-empt performance problems in advance and ensure its
speedy and reliable rectification
• HR Professional shall act as Performance Counselor
• HR Professional‘s Entrepreneurship Skills shall be critical to improve organizational
performance o Effective strategic role for HR Professionals:

• Creating an information sharing culture

• Training managers to conduct performance management effectively
• Training employees to participate effectively in the performance management system
• Acting as Internal Consultant‘ for managers and employees when the inevitable problems
occur

Also, HR personnel is expected to do the following:

• Design a best practice performance management process.

• Set reasonable deadlines for completing each step in the process.
• Provide training to all executives, managers and employees on the process, the steps involved,
their responsibilities, and the benefits to be gained by all, addressing each group's (executives,
managers, employees) particular needs.
• Clearly explain your performance rating scale, the difference between the different levels of
performance, and how you expect ratings to be used (e.g. what rating is used for good
performance and given to most employees, what additional actions need to be taken when
performance is judged to be above and below expectations, etc).
• Provide managers with regular training on how to give feedback as well as on how to coach
and develop their employees.
• Launch and manage your performance management process.
• Analyze and review the results of your process, identifying things like:
 Participation rates
 Problems with rating calibration
 Areas of organizational, divisional and departmental strength
 Areas of organizational, divisional and departmental weakness
 Areas where performance ratings have improved since the last process
 Areas where performance ratings have worsened since the last process
  Organizational, divisional, departmental and individual development needs

Areas where your process and forms can be improved

• Communicate the strategic results of your performance management process and any
actions being taken as a result, to the entire organization.