An important component of an organization’s function
People differ in their abilities and their aptitudes. There is always some difference between the quality and quantity of the same work on the same job being done by two different people. Performance appraisals of Employees are necessary to understand each employee’s abilities, competencies and relative merit and worth for the organization. Performance appraisal rates the employees in terms of their performance.
Performance appraisals are widely used in the society. The history of performance appraisal can be dated back to the 20th century and then to the second world war when the merit rating was used for the first time. An employer evaluating their employees is a very old concept. Performance appraisals are an indispensable part of performance measurement.
Performance appraisal is necessary to measure the performance of the employees and the organization to check the progress towards the desired goals and aims.
The latest mantra being followed by organizations across the world being – "get paid according to what you contribute" – the focus of the organizations is turning to performance management and specifically to individual performance. Performance appraisal helps to rate the performance of the employees and evaluate their contribution towards the organizational goals. If the process of performance appraisals is formal and properly structured, it helps the employees to clearly understand their roles and responsibilities and give direction to the individual’s performance. It helps to align the individual performances with the organizational goals and also review their performance.
Performance appraisal takes into account the past performance of the employees and focuses on the improvement of the future performance of the employees. Here at naukrihub, we attempt to provide an insight into the concept of performance appraisal, the methods and approaches of performance appraisal, sample performance appraisal forms and the appraisal softwares available etc. An attempt has been made to study the current GLOBAL TRENDS in performance appraisal.
To evaluate the organisational and employee performance in performance appraisal management processes, the conventional approach measures the performance only on a few parameters like the action processes, results achieved or the financial measures etc. The Balanced scorecard – an approach given by Kaplan and Norton provides a framework of various measures to ensure the complete and balanced view of the performance of the employees. Balanced scorecard focuses on the measures that drive performance.
The balanced scorecard provides a list of measures that balance the organizations internal and process measures with results, achievements and financial measures.
The two basic features of the balanced scorecard are:
• A balanced set of measures based on. the four perspectives of balanced scorecard
• Linking the measures to employeeperformance
The four Perspectives recommended by Kaplan and Norton for the managers to collect information are:
• The financial measures – The financial measures include the results like profits, increase in the market share, return on investments and other economic measures as a result of the actions taken.
• The customers’ measures - These measures help to get on customer satisfaction, the customer’s perspective about the organisation, customer loyalty, acquiring new customers. The data can be collected from the frequency and number of customer complaints, the time taken to deliver the products and services, improvement in quality etc.
• The internal business measures – These are the measures related to the organization’s internal processes which help to achieve the customer satisfaction. It includes the infrastructure, the long term and short term goals and objectives, organisational processes and procedures, systems and the human resources.
• The innovation and learning perspective - The innovation and learning measures cover the organisation’s ability to learn, innovate and improve. They can be judged by employee skills matrix, key competencies, value added and the revenue per employee.
The balanced scorecard focuses on the measures that drive the employee performance. The balanced scorecard provides a list of measures that balance the organizations internal and process measures with results, achievements and financial measures. The two basic features of the balanced scorecard are:
• A balanced set of measures based on. the four perspectives of balanced scorecard
• Linking the measures to Employee Performance
A balanced set of measures
Instead of relying on just one instrument or measure, using a balanced set of measures ensures that all the aspects of the employees’ performance are covered and provide relevant support for the decisions taken.
Therefore, it is necessary that the manager should be capable of observe and note the several instruments and measures simultaneously. The four perspectives given by Kaplan and Norton are the financial measures, the customer’s perspective, the internal business perspectives and the innovation and learning perspectives.
For each perspective of the following things are measured:
• Objectives: the goals and the targets to be achieved
• Measures: the standards which will be used to measure the actual performance and the progress.
• Action plans: the initiatives taken and the course of action to be followed to achieve the objectives
Tie-In to Employee Performance
The balanced scorecard approach can be used and applied at both the individual and the organisational level. It provides a balanced approach to evaluate the employees’ performance (for the purpose of performance appraisal) in a comprehensive manner rather than a partial view. In most of the organisations, the common practice of measuring the employee performance refers to only the comparison of their action plans and behaviours with the standards set i.e. without actually measuring the results of their actions like profits and increase in market share. This conventional practice can lead to the appraisal of most of the employees without any or little progress towards achieving the goals and objectives of the organisation. Thus, the balanced scorecard gives the complete view of the employees and the organisational performance and helps to align the employee performance/action plans with the organisational goals.
BENEFITS OF BALANCED SCORECARD
The benefits of the balanced scorecard approach in measuring performance are:
• Gives the complete picture of the employee as well as organizational performance.
• It guides users in determining the critical success factors and performance indicators.
• Strategic review or analysis of the organisational capabilities and performance.
• Focusing the whole organisation on the few key things needed to create breakthrough performance.
• Integrating and directing the performance and efforts from the lowest levels in the organisation to achieve excellent overall performance.
is the process of obtaining, analyzing and recording information about the relative worth of an employee. The focus of the performance appraisal is measuring and improving the actual performance of the employee and also the future potential of the employee. Its aim is to measure what an employee does.
According to Flippo, a prominent personality in the field of Human resources, "performance appraisal is the systematic, periodic and an impartial rating of an employee’s excellence in the matters pertaining to his present job and his potential for a better job." Performance appraisal is a systematic way of reviewing and assessing the performance of an employee during a given period of time and planning for his future.
It is a powerful tool to calibrate, refine and reward the performance of the employee. It helps to analyze his achievements and evaluate his contribution towards the achievements of the overall organizational goals.
By focusing the attention on performance, performance appraisal goes to the heart of personnel management and reflects the management's interest in the progress of the employees.
Objectives Of Performance appraisal:
• To review the performance of the employees over a given period of time.
• To judge the gap between the actual and the desired performance.
• To help the management in exercising organizational control.
• Helps to strengthen the relationship and communication between superior – subordinates and management – employees.
• To diagnose the strengths and weaknesses of the individuals so as to identify the training and development needs of the future.
• To provide feedback to the employees regarding their past performance.
• Provide information to assist in the other personal decisions in the organization.
• Provide clarity of the expectations and responsibilities of the functions to be performed by the employees.
• To judge the effectiveness of the other human resource functions of the organization such as recruitment, selection, training and development.
• To reduce the grievances of the employees.
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.
COMMUNICATING 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.
MEASURING THE ACTUAL PERFORMANCE
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.
COMPARING THE ACTUAL WITH THE DESIRED PERFORMANCE
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 MAKING
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 decisions like rewards, promotions, demotions, transfers etc.
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.
MEASURING THE ACTUAL PERFORMANCE
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.
COMPARING THE ACTUAL WITH THE DESIRED PERFORMANCE
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 MAKING
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 decisions like rewards, promotions, demotions, transfers etc.
The essentials of an effective performance system are as follows:
• Documentation – means continuous noting and documenting the performance. It also helps the evaluators to give a proof and the basis of their ratings.
• Standards / Goals – the standards set should be clear, easy to understand, achievable, motivating, time bound and measurable.
• Practical and simple format - The appraisal format should be simple, clear, fair and objective. Long and complicated formats are time consuming, difficult to understand, and do not elicit much useful information.
• Evaluation technique – An appropriate evaluation technique should be selected; the appraisal system should be performance based and uniform. The criteria for evaluation should be based on observable and measurable characteristics of the behavior of the employee.
• Communication – Communication is an indispensable part of the Performance appraisal process. The desired behavior or the expected results should be communicated to the employees as well as the evaluators. Communication also plays an important role in the review or feedback meeting. Open communication system motivates the employees to actively participate in the appraisal process.
• Feedback – The purpose of the feedback should be developmental rather than judgmental. To maintain its utility, timely feedback should be provided to the employees and the manner of giving feedback should be such that it should have a motivating effect on the employees’ future performance.
• Personal Bias – Interpersonal relationships can influence the evaluation and the decisions in the performance appraisal process. Therefore, the evaluators should be trained to carry out the processes of appraisals without personal bias and effectively.
An organization comes across various problems and challenges Of Performance Appraisal in order to make a performance appraisal system effective and successful. The main Performance Appraisal challenges involved in the performance appraisal process are:
• Determining the evaluation criteria
Identification of the appraisal criteria is one of the biggest problems faced by the top management. The performance data to be considered for evaluation should be carefully selected. For the purpose of evaluation, the criteria selected should be in quantifiable or measurable terms
• Create a rating instrument
The purpose of the performance appraisal process is to judge the performance of the employees rather than the employee. The focus
of the system should be on the development of the employees of the organization.
• Lack of competence
Top management should choose the raters or the evaluators carefully. They should have the required expertise and the knowledge to decide the criteria accurately. They should have the experience and the necessary training to carry out the appraisal process objectively.
• Errors in rating and evaluation
Many errors based on the personal bias like stereotyping, halo effect (i.e. one trait influencing the evaluator’s rating for all other traits) etc. may creep in the appraisal process. Therefore the rater should exercise objectivity and fairness in evaluating and rating the performance of the employees.
• Resistance
The appraisal process may face resistance from the employees and the trade unions for the fear of negative ratings. Therefore, the employees should be communicated and clearly explained the purpose as well the process of appraisal. The standards should be clearly communicated and every employee should be made aware that what exactly is expected from him/her.
Performance Appraisal is being practiced in 90% of the organisations worldwide. Self appraisal and potential appraisal also form a part of the performance appraisal processes.
Typically, Performance Appraisal is aimed at:
• To review the performance of the employees over a given period of time.
• To judge the gap between the actual and the desired performance.
• To help the management in exercising organizational control.
• To diagnose the training and development needs of the future.
• Provide information to assist in the HR decisions like promotions, transfers etc.
• Provide clarity of the expectations and responsibilities of the functions to be performed by the employees.
• To judge the effectiveness of the other human resource functions of the organization such as recruitment, selection, training and development.
• To reduce the grievances of the employees.
• Helps to strengthen the relationship and communication between superior – subordinates and management – employees.
According to a recent survey, the percentage of organisations (out of the total organisations surveyed i.e. 50) using performance appraisal for the various purposes are as shown in the diagram below:
• Provide information to assist in the HR decisions like promotions, transfers etc.
• Provide clarity of the expectations and responsibilities of the functions to be performed by the employees.
• To judge the effectiveness of the other human resource functions of the organization such as recruitment, selection, training and development.
• To reduce the grievances of the employees.
• Helps to strengthen the relationship and communication between superior – subordinates and management – employees.
According to a recent survey, the percentage of organisations (out of the total organisations surveyed i.e. 50) using performance appraisal for the various purposes are as shown in the diagram below:
The most significant reasons of using performance appraisal are:
• Making payroll and compensation decisions – 80%
• Training and development needs – 71%
• Identifying the gaps in desired and actual performance and its cause – 76%
• Deciding future goals and course of action – 42%
• Promotions, demotions and transfers – 49%
• Other purposes – 6% (including job analysis and providing superior support, assistance and counseling)
Performance appraisal is a part of career development. The latest mantra being followed by organizations across the world being – "get paid according to what you contribute" – the focus of the organizations is turning to performance management and specifically to individual performance. Performance appraisal helps to rate the performance of the employees and evaluate their contribution towards the organizational goals. Performance appraisal as Career Development leads to the recognition of the work done by the employees, many a times by the means of rewards and appreciation etc. It plays the role of the link between the organization and the employees’ personal career goals.
Potential appraisal, a part of performance appraisal l, helps to identify the hidden talents and potential of the individuals. Identifying these potential talents can help in preparing the individuals for higher responsibilities and positions in the future. The performance appraisal process in itself is developmental in nature.
Performance appraisal is also closely linked to other HR processes like helps to identify the training and development needs, promotions, demotions, changes in the compensation etc. A feedback communicated in a positive manner goes a long way to motivate the employees and helps to identify individual career developmental plans. Based on the evaluation, employees can develop their career goals, achieve new levels of competencies and chart their career progression. Performance appraisal encourages employees to reinforce their strengths and overcome their weaknesses.
Traditional Methods of Performance Appraisal
ESSAY APPRAISAL METHOD
This traditional form of appraisal, also known as "Free Form method" involves a description of the performance of an employee by his superior. The description is an evaluation of the performance of any individual based on the facts and often includes examples and evidences to support the information. A major drawback of the method is the inseparability of the bias of the evaluator.
STRAIGHT RANKING METHOD
This is one of the oldest and simplest techniques of performance appraisal. In this method, the appraiser ranks the employees from the best to the poorest on the basis of their overall performance. It is quite useful for a comparative evaluation.
PAIRED COMPARISON
A better technique of comparison than the straight ranking method, this method compares each employee with all others in the group, one at a time. After all the comparisons on the basis of the overall comparisons, the employees are given the final rankings.
CRITICAL INCIDENTS METHODS
In this method of performance appraisal, the evaluator rates the employee on the basis of critical events and how the employee behaved during those incidents. It includes both negative and positive points. The drawback of this method is that the supervisor has to note down the critical incidents and the employee behaviour as and when they occur.
FIELD REVIEW
In this method, a senior member of the HR department or a training officer discusses and interviews the supervisors to evaluate and rate their respective subordinates. A major drawback of this method is that it is a very time consuming method. But this method helps to reduce the superiors’ personal bias.
CHECKLIST METHOD
The rater is given a checklist of the descriptions of the behaviour of the employees on job. The checklist contains a list of statements on the basis of which the rater describes the on the job performance of the employees.
GRAPHIC RATING SCALE
In this method, an employee’s quality and quantity of work is assessed in a graphic scale indicating different degrees of a particular trait. The factors taken into consideration include both the personal characteristics and characteristics related to the on the job performance of the employees. For example a trait like Job Knowledge may be judged on the range of average, above average, outstanding or unsatisfactory.
FORCED DISTRIBUTION
To eliminate the element of bias from the rater’s ratings, the evaluator is asked to distribute the employees in some fixed categories of ratings like on a normal distribution curve. The rater chooses the appropriate fit for the categories on his own discretion.
ASSESSMENT CENTRES -
An assessment centre typically involves the use of methods like social/informal events, tests and exercises, assignments being given to a group of employees to assess their competencies to take higher responsibilities in the future. Generally, employees are given an assignment similar to the job they would be expected to perform if promoted. The trained evaluators observe and evaluate employees as they perform the assigned jobs and are evaluated on job related characteristics.
The major competencies that are judged in assessment centres are interpersonal skills, intellectual capability, planning and organizing capabilities, motivation, career orientation etc. assessment centres are also an effective way to determine the training and development needs of the targeted employees.
BEHAVIORALLY ANCHORED RATING SCALES
Behaviorally Anchored Rating Scales (BARS)is a relatively new technique which combines the graphic rating scale and critical incidents method. It consists of predetermined critical areas of job performance or sets of behavioral statements describing important job performance qualities as good or bad (for eg. the qualities like inter personal relationships, adaptability and reliability, job knowledge etc). These statements are developed from critical incidents.
In this method, an employee’s actual job behaviour is judged against the desired behaviour by recording and comparing the behaviour with BARS. Developing and practicing BARS requires expert knowledge.
HUMAN RESOURCE ACCOUNTING METHOD
Human resources are valuable assets for every organization. Human resource accounting method tries to find the relative worth of these assets in the terms of money. In this method the performance appraisal of the employees is judged in terms of cost and contribution of the employees. The cost of employees include all the expenses incurred on them like their compensation, recruitment and selection costs, induction and training costs etc whereas their contribution includes the total value added (in monetary terms). The difference between the cost and the contribution will be the performance of the employees. Ideally, the contribution of the employees should be greater than the cost incurred on them.
360 degree feedback, also known as 'multi-rater feedback', is the most comprehensive appraisal where the feedback about the employees’ performance comes from all the sources that come in contact with the employee on his job.
360 degree respondents for an employee can be his/her peers, managers (i.e. superior), subordinates, team members, customers, suppliers/ vendors - anyone who comes into contact with the employee and can provide valuable insights and information or feedback regarding the "on-the-job" performance of the employee.
360 degree appraisal has four integral components:
1. Self appraisal
2. Superior’s appraisal
3. Subordinate’s appraisal
4. Peer appraisal.
Self appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his achievements, and judge his own performance. Superior’s appraisal forms the traditional part of the 360 degree performance appraisal where the employees’ responsibilities and actual performance is rated by the superior.
Subordinates appraisal gives a chance to judge the employee on the parameters like communication and motivating abilities, superior’s ability to delegate the work, leadership qualities etc. Also known as internal customers, the correct feedback given by peers can help to find employees’ abilities to work in a team, co-operation and sensitivity towards others.
Self assessment is an indispensable part of 360 degree appraisals and therefore 360 degree Performance appraisal have high employee involvement and also have the strongest impact on behavior and performance. It provides a "360-degree review" of the employees’ performance and is considered to be one of the most credible performance appraisal methods.
360 degree performance appraisal is also a powerful developmental tool because when conducted at regular intervals (say yearly) it helps to keep a track of the changes others’ perceptions about the employees. A 360 degree appraisal is generally found more suitable for the managers as it helps to assess their leadership and managing styles. This technique is being effectively used across the globe for performance appraisals. Some of the organizations following it are Wipro, Infosys, and Reliance Industries etc.
The concept of ‘Management by Objectives’ (MBO) was first given by Peter Drucker in 1954. It can be defined as a process whereby the employees and the superiors come together to identify common goals, the employees set their goals to be achieved, the standards to be taken as the criteria for measurement of their performance and contribution and deciding the course of action to be followed.
The essence of MBO is participative goal setting, choosing course of actions and decision making. An important part of the MBO is the measurement and the comparison of the employee’s actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and the choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities.
THE MBO PROCESS
UNIQUE FEATURES AND ADVANTAGES OF MBO
The principle behind Management by Objectives (MBO) is to create empowered employees who have clarity of the roles and responsibilities expected from them, understand their objectives to be achieved and thus help in the achievement of organizational as well as personal goals.
Some of the important features and advantages of MBO are:
Clarity of goals – With MBO, came the concept of SMART goals i.e. goals that are:
Specific
Measurable
Achievable
Realistic, and
Time bound.
The goals thus set are clear, motivating and there is a linkage between organizational goals and performance targets of the employees.
The focus is on future rather than on past. Goals and standards are set for the performance for the future with periodic reviews and feedback.
Motivation – Involving employees in the whole process of goal setting and increasing employee empowerment increases employee job satisfaction and commitment.
Better communication and Coordination – Frequent reviews and interactions between superiors and subordinates helps to maintain harmonious relationships within the enterprise and also solve many problems faced during the period.
