Chapter – III

CONCEPTS
OF
PERFORMANCE
A P P R A IS A L S Y S T E M

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 PERFORMANCE APPRAISAL

History

The history of formal performance appraisal system can be traced back to as

early as the third century when the emperors of the Wei dynasty (A.Dd.221-
265) APPOINTED AN Imperial Raters to evaluate the performance of official
family members. Researches have reported that performance appraisal for
industrial workers was first introduced in 1800’s in Robert Qwen’s Cotton Mills
in Scotland.

Widespread use of formal appraisal systems in military and government

origination in the western world in the latter part of the nineteenth century.
This became necessary because of the large numbers of people employed in
these organizations and the need for uniformity of standards as well as the
need for documentation, which is a normal requirement in governmental
administrative systems. The purpose of the system was to make
administrative decision such as promotion on an equitable basis of evaluation
of people by certain common standards.

Public enterprises which were set up after independence had a confidential

reporting system almost from their very inception and this was an extension of
the government practice in respect of civil servants. The system of managerial
appraisal also were typically personality trait oriented. The purpose was only
to decide about salary progress and promotion in the private sector, and
promotion in the public sector.

The Importance Of Performance Appraisal

Performance Appraisal is an essential and inescapable managerial activity.

Appraisal is necessary for all importance decisions relating to people, such as

placement and promotion, remuneration and reward, training and
development, as well as long term manpower planning and organization
development. In recent years, efforts have been made to use appraisal

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systems for motivation, for more effective communication, for strengthening
superior subordinate relationship for goal-setting and work planning and for
improving the total performance of the organization. But in spite of its
importance uneasiness about appraisal has been a long standing feature of
management. There is no doubt that during the past there decades, many
developments have taken place and many innovations, have been made in
managerial appraisal systems. Still many issues remains unresolved.
Available literature on the subject reveals that even in the western countries,
where systematic appraisals have been widely pratised over a much longer
period than in India and where a fair amount of empirical as well as theoretical
research on the relevant issues has been conducted.

Performance Appraisal is an important tool of Personnel Management.

Definition of Performance Appraisal

Performance Appraisal is a formal structured system of measuring and

evaluating an employees job. Related behaviours 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.

Performance appraisal is a systematic, evaluation of personal by superiors or

other familiar with their performance. Performance appraisal is also described
as merit rating in which one individual ranked as better or worse in
comparison to others. The basic purpose in this merit rating is to findout an
employee’s eligibility for promotion. Performance Appraisal is use extends
beyond ascertaining eligibility for promotion. This activities may be :-

 Training and Development

 Salary Increases

 Transfer

 Discharge etc.

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According to Flippo, “Performance Appraisal is the systematic, periodic, and
an impartial rating of an employee’s excellence in matters pertaining to his
present job and his potential for a better job.

According to Beach, “Performance Appraisal is the systematic evaluation of

the individual with regard to his or her performance on the job and his
potential for development.

Objective of Performance Appraisal System :

The Evaluation Objective :

 Provision of feedback to subordinates to know where they stand.

 Developing valid data for decisions – Concerning placement, pay,

promotion and punishment.

The Development Objective :

 Diagnosing individual and organizational strengths and weakness.

 Counselling, Coaching, Career Planning and Motivation of

Subordinates.

 Developing positive superior – subordinates relations.

Other objectives of Performance Appraisal are :-

1. Salary increase

2. Promotion

3. Training and Development

4. Feedback

5. Pressure on employees.

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 1. Salary Increase

Performance Appraisal System plays a role in making decision about

salary increase. Salary increase at an employee depends on how he is
performing his job. There is continuous evaluation at his performance in two
ways:

Formally

Informally

 In small organization, performance

appraisal can be in normal process.

 In large organisatioon, performance

appraisal can be formal process. This may
disclose how well an employee is
performing and how much he should be
compensated by way at salary increase.

2. Promotion

Performance appraisal plays significant role where promotion is based

on merit. It can serve as a useful basis for job change or promotion. Most of
the organization often use a combination of merit and seniority for promotion.
Performance appraisal discloses how an employee is working in his present
job and what are his strong and weak points. Performance appraisal can be
used for transfer, demotion and discharge of an employee.

3. Training and Development

Performance appraisal tries to identify the strengths and weaknesses

of an employees on his present job. By identifying the strengths and
weaknesses and it serves as a guide for formulating a suitable and
development programme to improve his quality of performance.

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 4. Feedback

Performance appraisal provides feedback to employees about their

performance. It tells them where they stand.

This works in two ways:-

 The persons get feedback about his performance and he may

try to overcome his deficiencies which will lead to better performance.

 When the person gets feedback about his performances, he can

relate his work to the organizations objectives.

5. Pressure on Employees

Performance appraisal puts a sort of pressure an employees for better

performance. If the employees are conscious that they are being appraised in
respect of contain factors and their future largely depends on such appraisal,
they tend to have positive and acceptable behaviours in this respect.

Thus, appraisal can work automatically as control device.

Issues of Performance Appraisal :

Why Purpose Developmental

 Training

 Job Rotation

 Career Development

Administrative

 Promotion

 Increments

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  Placements / Transfers

What Criteria Evaluation of Traits and characteristics

 Evaluation of Actual Performance

 Evaluation of Training Needs

When Periodicity  Informal Evaluation is Continuous

 Formal Evaluation is Annual or Six monthly.

Who Levels  All but varies between organizations to

organization.

How Approach Formats Varies

 Personality Treats

 Job Responsibility

 Training

There are basically three people involve in the appraisal process :-

1. Appraise 2. Appraiser 3. Reviewer

Benefits of Performance appraisal system :

For the Appraise

 Better understanding of his role in the organization – what is expected

Vs. Needs to be done.

 Clear understanding of his strength and weaknesses so as to develop

himself into a better performer.

 Increased motivation, job satisfaction and self-esteem.

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 Improved work relationships with the superiors.

 Opportunity to discuss work related problems with solutions.

For the Management

 Identification of performers and non performers and “P D P”

(Performance, Development and Plans)

 Prepare employees to assume higher responsibilities.

 Identification of Training and Development needs.

 Generation of Ideas for new improvement.

For the Organisation

 Improved performance throughout the organization

 Creation of a culture of continuous improvement and success.

 Conveying the message that “PEOPLE ARE VALUED”.

To ensure Performance Appraisal to be Effective :

 Establish Performance Standards for each position.

 Establish Performance Evaluation Policies, Frequency of Evaluation,

Evaluation Criteria and Tools.

 Have Raters to gather information data on employees performance.

 Set measurable and Achievable goals with employee.

 Have Dialogue Sessions (formal and informal)

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 Discuss evaluation with employees.

 Decide on action to be taken on evaluation reports.

Why Performance Appraisal Fails ?

Performance appraisal fails because

 Managers do not see the benefit of the system.

 Performance standards are not clearly defines.

 Managers avoid confrontation of appraisal feedback.

 Incapability of Manager to handle the system.

 Fear of judgemental role resulting to conflicts.

 Employees are not aware of Performance Appraisal System.

 Employees are not work oriented.

 Evaluation may be below employees expectations.

Who will Appraise ?

1. The immediate managers or supervisors

2. The employees peers

3. The employee himself

4. The employee’s subordinates

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Appraisal may also done by :

1. Other managers familiar with the employee’s work

2. 4 higher – level manager

3. Personnel department specialist

METHOD OF PERFORMANCE APPRAISAL

A number of different performance appraisal methods or techniques are

available for evaluating the performance of the employees. These methods try
to explain how management can establish standards of performance and
devise ways and means to measure and evaluate the performance of the
employees.

The methods can be divided into :

Traditional Method Modern Methods

1. Ranking Method 1. BARS method

2. Paired Comparison Method 2. MBO Method

3. Forced Choice Method 3. Assessment Centre Method

4. Critical incident Method 4. Human Resource Accounting

Method

5. Graphic Scale Method 5. 3600 appraisal method

TRADITIONAL METHODS

1. Ranking Method

Ranking is the oldest and simplest method of appraisal in which a

person is ranked against others on the basis of traits and
characteristics. This is very simple method when the no. of persons to
be ranked is small because ranking has to by given on the basis of

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 traits which are not easily determinable not like marks in an exam. This
method has limited value for performance appraisal.

2. Paired Comparison Method

Paired comparison method is a slight variation of ranking system

designed to increase its value for use in the large groups. In this
method, each person is compared with other persons taking only one
at a time.

If there is a group of 5 employees A, B, C, D & E, then 4’s performance

is compared with that of B’s and decision is taken as to whose
performance is better. Similarly A’s performance is compared with C,
D, & E and decisions regarding comparatively better performance are
taken.
• Comparison is made on the basis of overall performance.

The no. of comparisons to be made can be decided on the basis of this

formula:

N (N – 1) where,
N N = No. of persons to be compared.

3. Forced Choice Method

This method was developed during world war (11) for evaluating the
performance of American army personnel’s. The Primary Purpose of
the forced choice method is no correct the tendency of a rarer to give
consistently high or low ratings to all the employees.

A rater may be given the following two statements :-

• The employee is hard working

• The employee gives clear instructions to his subordinates.

Out of the above two statements, only one statement is to be

considered in final rating, several sets at such statements. Both

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 positive and negative are given for rating. The final rating is done on
the basis of all sets of statements.

4. Critical Incident Method

In this method, only critical incidents and behaviour associated with

these incidents. This method involves three steps :-

• A test of not worthy on the job behaviour (good or bad) is

prepared.
• A group of experts then assigns scale values to them depending
on the degree of desirabiling for the job.
• A checklist of incidents which define good and bad employees is
prepared.
This method is very usual for discovering potential of employees
who can be useful in critical situation.
Advantages

• It measures behaviours which are critical to the effective

performance of the job.

• If provide real clue for judging the bit between the

employees and his job.

Limitations

• Negative incidents are more noticeable than positive ones.

• It requires very close supervision.

• The supervisors have a tendency to unload a series of

complaints about incidents during an annual performance review
session.

• If the recording of incident is put off for sometime supervisor

may forget the same and fails to record it late.

5. Graphic Scale Method

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 Graphic scale method is commonly used in performance appraisal. In
this method, a printed appraisal form is used for each appraise. The
form contains various employee characteristics and his job
performance various characteristics include :- initiative, leadership,
dependability, cooperativeness, enthusiasm, creative ability, analytical
ability, decisiveness, emotional maturity etc. depending on the level of
the employee.

The degree of quality is measured on a scale which can vary from

three points to several points. However, most common practice is to
have five-points scales. Degrees may be numbered. Thus, 5, 4, 3, 2,
and 1 in the order can be good - bad on so on. These numbers can be
expressed in terms of descriptions like :-

• Excellent

• Very – Good

• Good

• Average

• Poor

Each dimension, as “conscientiousness”.

Reallocate Incidents

Another group of people who also know the job then reallocate the original
critical incidents. They yet the cluster definition and the critical incidents, and
must reassign each incident to the cluster they think it fits hest.

Scale the Incidents

This second group rates the behaviour described by the incident and now
effectively or ineffectively it represents performance on the dimension.

Develop a final instrument

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The result of arranging various scales for different dimensions of the job
produces a vertical scale for each dimension. This scale is used for
performance appraisal.

Advantages

• The ratings are likely to be accurate because these are done by

experts.

• BARS typically require considerable employee participation;

therefore, its acceptance by both superiors and their subordinates may
be greater.

• BARS is a system differentiates among behaviour, performance

and results and consequently is able to provide a basis for setting
development as goals for the employee.

Advantages

• Easy to understand

• Easy to uses

• Permits a statistical tabulation of scores of employees.

Limitations

• It is arbitrary and highly subjective in nature.

• It assumes all characteristics are at equal importance for

performance of all jobs.

• It is charged that high score on one factor may compensate low

score on another.

Modern Method

1. Behaviorally Anchored Rating Scales (BARS)

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 A BARS combines the benefits of narratives, critical incidents, and
quantified scales, by anchoring a rating scale with specific behaviour
as example of good or poor performance.

Developing a BARS required five steps :

(i) Generate Critical Incidents : Ask persons who know

the job to describe specific illustrations of effective and
ineffective performance.

(ii) Develop Performance Dimensions : Have these

people cluster the incidents onto a smaller set of performance
dimensions and define

• It is more reliable and valid method for

performance appraisal.

• This method provides a basis for setting

developmental goals for employees as it differentiates between
behaviour performance and results.

Limitations

 It is very time consuming and expensive to

develop BARS for every job.

 Behaviours used are more activity oriented

than result – orientated.

 A specific deficiency is that the behaviours

used are activity oriented rather than result oriented.

2. Management by objectives (MBO).

The MBO methods are based on the concrete performance targets, which are
usually established by superior and subordinates jointly.

MBO was provided by peter Drucker (1954) and by Dauglas McGregor

(1960). Drucker pointed to the importance at manager having clear objectives
that support the purposes of those in higher positions in the organization.

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 MCGregor argues that by establishing performance goals for employees after
reaching agreement with superiors, the problems of appraisal of performance
are minimized.

MBO is a process “whereby the superior and subordinate managers of an

organization jointly identify its common goals, define each individual’s major
areas of responsibility in terms of the results expected of him and use these
measures as guides for operating the unit and assessing the contribution of
each of its members”.

MBC Process

a) Set Organisational Goals : Establish an organization wide plan for

next year and set company goals.

b) Set Dept. Goals : Next, dept. heads take these company goals and
with their superiors, jointly set goals for their departments.

c) Discuss departmental Goals : Department heads discuss the

department’s goals with all subordinates, often at a departmenwide meeting.

d) Performance review : Department heads compare each employee’s

actual and targeted performance.

e) Expected results : Dept heads and their sub ordinates set short-term
individual performance targets.

f) Provide Feedback : Department heads and employees discuss and

evaluate the letters progress.

3. Assessment Centre Method :

This method of appraising was first applied in the German Army in 1930. It is
a system where assessment of several individuals is done by various experts
by using various techniques.

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In this approach, individuals from various departments are brought together to
spend two or three days working on an individual or group assignment similar
to the ones they would be handling when promoted. Evaluators observe and
rank the performance of all the participants. Assessment are done generally
to determine employee potential for promotion.

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 Process of Appraisal by Assessment
Centres

Establishing goals
Establishing goals
for programmes
for programmes

Establishing goals
Establishing goals for programmes
for programmes

Establishing goals Establishing goals

for programmes for programmes

Establishing goals
for programmes

Establishing goals
for programmes

Establishing goals
for programmes

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 Advantages

 MBO provides a way for measuring objectively the performance of

subordinates.

 Co-ordinates individual performance with company goals.

 Clarifies the job to be done and defines expectations of job

accomplishment.

 Improves superior, subordinate relationship through a dialogue that

takes place regularly.

 Active participation of subordinate in goal setting and performance

reviews.

 Continuous feedback and opportunities.

 Stimulates self-motivation, self-discipline and self-control.

Limitations

 Lacks the support and commitment of top management.

 Objectives are difficult to establish.

 MBO programme involves considerable time, energy and expenditure.

 MBO can be self-defeating.

 MBO fails due to lack at knowledge about the philosophy and process
of MBO.

 Failure to carefully monitor the system is also a problem.

(MBO is ok in theory but not good in practice)

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 4. Human Resource Accounting Method

Human resource are a valuable asset of any organization. This asset can be
valued in terms of money.

Human Resource Accounting deals with cost of and contribution of human

resources to the organization cost of the employee includes cost of :-

 Manpower Planning
 Recruitment
 Selection
 Induction
 Placement
 Training
 Development
 Wages and benefits
Difference between cost and contribution will reflect the performance of the
employees.
[Human Resource Accounting Method is still in the transition stage]

5. 3600 Appraisal Method

It is a method of appraisal in which people receive performance feedback

from those on all sides of them in the organization – their boss, their collegues
and peers and their own subordinates. Thus, the feedback comes from all
around them. So, t is called 3600 feedback.

This method is first developed my General Electric Company of USA in 1992.

In India, companies like Reliance Industries, Wipro Corporation, Infosys
Technologies etc. are using this method effectively.

3600 appraisal is a process of systematically gathering data on a person’s

skills, abilities and behaviours from a variety of sources – the manager, sub-
ordinates and even customers and clients. In 3600 appraisal, appraisal of an
employee is done by his superior, his peers, his subordinates and clients or
outsiders with whom he interacts in the course of his job performance. The
feedback provides insight about the skills and behaviours desired in the
organization to accomplish the mission, vision and goals and live the values.

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The feedback is firmly planted in behabiours needed to exceed customer
expectations.

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