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Why performance appraisal is important

Paper Type: Free Essay Subject: Business
Wordcount: 4313 words Published: 27th Apr 2017

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The aims of the performance appraisal are to provide the employees with the feedback on their performance. Performance appraisal also helps in identifying the training needs of the employees. The performance helps the organization provide the proper rewards and recognition to the deserving employees. It also provides the opportunity to the organization for the diagnosis and development. It also helps the organization to better the communication between the employees and the administration. (Thomas F. Patterson,1987).

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There are various methods that are employed to measure and evaluate the performance and appraise the employees. The appraisal system of the organization may have the common practice of measuring the performance of the organization in the form of the numerical or the scaling system. (Armstrong, Michael,2006). The managers are asked to assess the individuals on the scale on the various objectives and attributes. In many companies employees may receive the assessment from their peers, managers, subordinates and customers which is also known as the 360 degree performance appraisal. (Smit, Martin E.J.H.,2006).

Tuckman and Oliver, 1968 : This study illustrate how feedback is the efficient tool which valued the most for crucial decision making process. Receiver will be benefit from the various people surrounding him by feedback system if the sources have ample of knowledge about task & performance of the recipient. According to study conducted student versus supervisor feedback to teachers proved that students were more effective & efficient to improve the performance of the teacher rather than the supervisor. In explanation the author says that teacher spend more time with the students rather than the supervisor. Along with that multiple feedback system correctly shows the potential of the person by reducing biasness or malice practice which is usually part of the corporate. Seniors or supervisor generally or constantly focus on the scope of the improvement, underestimating the achievement.

DeNissi and Mitchell, 1978: According to him middle & upper management spend a huge amount of time with their peers. Hence the peers have maximum opportunity to know about attributes, qualities rather than supervisor or the boss. Hence it’s more important who spend the maximum time as well as who observe the concern person in many different dimension of work behavior & that person’s opinion is quite important.

Mintzberg (1973) : This literature review gives us details about how manager use the opinion of the staff, supervisor or peers as effective tool to evaluate or appraise of the employee which is completely unbiased in the nature. According his study middle level manager, peers and subordinates are more qualified to evaluate the performance rather than supervisor because the they have more information about the working style, working environment rather than the supervisor. It helps to enhance the supervisory behavior.

Hegarty, 1973: Many experimental studies already proved that multiple feedback not only improve the supervisory quality but also brought transparency in the complete appraisal system. According to him top level people think that peers were at best position to evaluate the personal traits as well as personal achievement. Implementation of 360 degree employee assessment is fair practice which help to reduce the discrimination & biasness help to motivate the the employee to perform better & productive. Implementation of multiple feedback system helps to improve to qualities in individual level as well as professional level.

Bernardin (1986) : Though peers & subordinates were in the best position to evaluate the performance but major challenge is the problem of anonymity. Its very difficult to share the correct information about the peers with whom you have a good rapport. Hence some time the multiple feedback system become ineffective & biased.

The Essence and Functions of Performance Appraisal Systems by Newman, Warren & McGiIl, 1987: Job performance evaluation is an integral part of an any organization. It is basically management decision to control the organizations which consist of the control standards, measurement, and corrective actions. Control Standard is the first & foremost thing which based primarily upon the mission of the organization or individual short term goal of the every department. It indicates the crucial contribution of the performance appraisal system in the organization. Measurement which is a quantitative analysis or process depends upon many steps like appraisal criteria/ technique consist of the attributes or parameters, appraisal timing. The appraisal criteria are predefined by the organization which varies from organization to organization. The appraisal method or technique plays a crucial role in this process. Generally appraisal depends upon the performance of the candidate along with lot of qualities like team skill, soft skill, analytical skill, domain knowledge and so forth. Feedback is most crucial & essential part of the appraisal process which cannot ignore any time. Corrective measures are taken after feedback receive from the different sources. The appropriate corrective action should be taken to if there is any discrepancy between actual performance and performance standard. It not only a check guard for an employee to attain certain standard or level but also help to motivate the employee to perform better and productive manner. It built or reinforces trust among the team members or employees. According to this study it creates a value which help to motivate the employees to perform better.

Ilgen, Barnes-Farrell, and McKellin (1993): According to authors four important aspects should be considered to appraise the performance of the individual, those are purpose of the performance appraisal, characteristics of the rates, nature of the scale used for the rating purpose and the impact of influence of this appraisal on the organization as whole.

Chu (2002): Though his study compare performance appraisal system in two industries i.e. manufacturing and service industry but it widely applicable to all the industry. According to him comprehensive framework of the performance appraisal include six category which are purpose of appraisal, personnel whom to appraise, criteria or attribute for the appraisal, methods involve for that, appraisal timing, & feedback of the appraisal.

Cleveland, Murphy and Williams (1989): According his study there is a positive correlation exist between the organization characteristics and the performance appraisal. Organization culture and structure are two ingredients of the performance measurement system. When organization more leans towards to the decentralization, performance standard more concentrates towards the results, where organization is centralized one it more leans towards process of management functions.

Jobber, Hooley & Shipley (1993): According to them, a large organization and small organization adapt different methods for performance evaluation. Pre determined performance standards which are more formalized and quantitative in nature adopted by the large or multinational organization where as small organization generally follow qualitative and informal appraisal methods. According to this study, the performance appraisal system differ from industry type to industry type but still there is a relation between organization characteristics and function of performance appraisal system.

Ouchi (1981): The study carried out the performance appraisal system in region wise rather than industry type wise. According to his study American organizations are more focused about individual performance, while Japanese organizations are more focused about group or team performance.

2.2 The Performance Appraisal Process

Performance appraisal is planned, developed and implemented through a series of steps,

Establish performance standards: Appraisal systems require performance standards, which serve as benchmarks against which performance is measured. To be useful, standards should relate to the desired results of each job. In situations pertaining to embarrassment, performance standards must be clear to both the appraiser and the appraisee. The performance standards or goals must be developed after a thorough analysis of the job. Goals must be written down. They must be measurable within certain time and cost considerations.

Communicate the standards: performance appraisal involves at least two parties; the appraiser who does the appraisal and the appraisee whose performance is being evaluated. Both are expected to do certain things. The appraiser should prepare job description clearly; help the appriasee set his goals and targets; analyse results objectively; offer coaching and guidance to the appraisee whenever required and reward good results. The appraisee should be very clear about what he is doing and why he is doing it. For this purpose, performance standards must be communicated to appraisees and their reactions should be noted down right away. If necessary, these standards must be reviesed or modified. As pointed out by De Cenzo and Robbins, “too many jobs have vague performance standards and the problem is compounded when these standards are set in isolation and do not involve the employee”.

Measure actual performance: After the performance standards are set and accepted, the next step is to measure actual performance. This requires the use of dependable performance measures, the ratings used to evaluate performance. Performance measures-to be helpful-must be easy to use, reliable, and report on the critical behaviours that determine performance. Four common sources of information which are generally used by managers regarding how to measure actual performance are personal observation, statistical reports, oral reports and written reports. Performance measures may be objective or subjective. Objective performance measures are indications of job performance that can be verified by others and are usually quantitative. Subjective performance measures are ratings that are based on the personal standards or opinions of those doing the evaluation, and are not verifiable by others. Subjective criteria include ratings by superiors, overall goals, and socio-cultural values of the environment.

Compare actual performance with standards and discuss the appraisal: actual performance may be better than expected and sometimes it may go off the track. Whatever be the consequences, there is a way to communicate and discuss the final outcome. The assessment of another person’s contribution and ability is not an easy task. It has serious emotional overtones as it affects the self-esteem of the appraisee. Any appraisal based o subjective criteria is likely to be questioned by the appraise and leave him quite dejected and unhappy when the appraisal turns out be negative.

Taking corrective action, if necessary: Corrective action is of two types: one puts out the fires immediately, while the other destroys the root of the problem permanently. Immediate action sets things right and get things back on track whereas the basic corrective action gets to the source of deviations and seeks to adjust the difference permanently. Basic corrective steps seek to adjust the difference permanently. Basic corrective steps seek to find out how and why performance deviates.


2.3.1Confidential System

In most of the organizations confidential reports are considered to be confidential documents. The individual is communicated if there are any adverse ratings or remarks in C.R for a particular year. Communication aspect does not work well in most of organizations due to reluctance on part of assessor to communicate to employee about what he thinks of him. The greatest advantage of the confidential system is that it fails to honor the right if the individual to be heard in matter in which he has very high stakes.

2.3.2Open System

The open system suggests that all aspects of assessment should be processed with the full knowledge of assesses. This will help him to understand his deficiencies and he will be able to appreciate what the organization is doing for his development.

Whatever system suits the organization depends on culture and social conditions of the organization. In times to come, the confidential system will gradually give the way to open system.

The need for involving assesses in the process of appraisal can be seen from different angles. One is the need to allow participation by the employee in the process of evaluation.

Another need is involving him in setting his goals or targets. Whether the individual should be given an opportunity for self-appraisal as part of reporting process or whether this opportunity should be given to him through an appraisal interview is matter of policy for an organization. What is that opportunity should be given to have a say as to what he himself thinks about his own performance.

The chances of getting a good report or bad report are same, as there is no guarantee that the assessment reports would be written on basis of real performance. Often a reporting officer who wants to give a good report about a poor performer would

Emphasize the potential aspect of the individual while a very potential may get an adverse report based on his performance. However, a person who is initially connected with day-to-day work of employee concerned should do performance appraisal. This immediate superior should have an important say in evaluating his performance. Self-appraisal should not form the sole basis for any final decision. Self-appraisal should only form part of a sound appraisal system.


The performance appraisal methods may be classified into two categories, namely the Traditional and Modern methods,


Graphic Rating Scales 1. Behaviorally Anchored

Ranking Method Rating Scales

Paired Comparison Method 2. Assessment Centre

Forced Distribution Method 3. Human Resource Accounting

Checklist Method 4. Management by Objectives

Critical Incident Method 5. 360 degrees appraisal

Grading Method

Forced Choice Method


Graphic Rating Scales method is a printed form which is used to evaluate the performance of the employee. A variety of traits may be used in these types of rating devices the most common being the quantity and quality of work. The rating scales can also be adapted by including traits that the company considers important for effectiveness on the job. From the graphic rating scales excerpts can be obtained about the performance standards of employees. The rating scale method is the most common method of evaluation of an employee’s performance today. The graphic rating scale may however, suffer from a long standing disadvantage, i.e., it may be arbitrary and the rating may be subjective.

In Ranking Method: the ranking of an employee in a work group is done against that of another employee. The relative position of each employee is expressed in terms of his numerical rank. It may also be done by ranking a person on his job performance against another member of the competitive group. The quintessence of this method is that employees are ranked according to their relative levels of performance. While using this method, the evaluator is asked rate employees from highest to lowest on some overall criterion. Though it is relatively easier to rank the best and the worst employees, it is difficult to rank the average employees.

Under Paired Comparison Method the appraiser ranks the employees by comparing on employee with all other employees in the group, one at a time. This method results in each employee being given a positive comparison total and a certain percentage of the total positive evaluation.

Forced Distribution Method is developed to prevent the raters from rating too high or too low. Under this method, the rater after assigning the points to the

Performance of each employee has to distribute his ratings in a pattern to confirm to frequency distribution.

Check list Method consists of a list with a number if statements about the worker and his behavior. Each statement of this list is assigned value depending upon its importance. Both statements and their values are derived from preliminary research in which the pooled judgments of persons familiar with the job are used. No restrictions are put on the rater as to the number of statements he should mark. The workers final rating is taken as the average of the scale values of all statements that his superior has checked in rating him.

Under Critical Incidents Method, the supervisor continuously records the critical incidents of the employee performance or behavior relating to all characters (both positive & negative) in a specially designed notebook. The supervisor rates the performance of his subordinates on the basis of notes taken by him.

Grading Method, this method certain well-defined grades are established in advance. Generally; three different grades are used i.e., out standing, satisfactory and unsatisfactory. Employee performance is compared with the defined grades and each employee is allotted a grade that best describes his/her performances. The main limitation of this method is that the rater may rate most of the employers on the higher side of their performance.

Forced Choice Method, J.P Guilford developed this method. This method contains a series of statements and the rater rates how effectively a statement describes each

Individual being evaluated. The main limitation of this method is that it takes a lot of time and effort to construct several evaluating statements.

Under Group Appraisal Method, an employee is appraised by a group of appraisers. This group consists of the immediate supervisor of the employee, other supervisors who have close contact with the employee’s work, manager or head of the department and consultants. The head of the department or manager may be the chairman of the group and the immediate supervisor may act as the coordinator for the group activities.

In Confidential Reports Method, superior appraises the performance of his subordinates based on his observations, judgments and intuitions. The superior keeps his judgment and report confidentially.


Behaviorally Anchored Rating scales (BARS) method combines elements of the traditional rating scales and critical incidents methods. BARS are a sophisticated method of evaluating employee performance based on employee behavior rather than attitudes or assumptions about motivation or potential. BARS are numerical scale that is anchored by specific narrative example of behaviors that range from very negative to very positive descriptions of performance. BARS are difficult and time-consuming scale to develop. Each job must be analyzed and a list of critical incidents developed by the experts in the job. Once the critical incidents are developed, they are then scaled from effective to ineffective performance.

The BARS technique offers high degree of inter rater reliability and objectivity because of its emphasis on behavior.

In the Assessment Centre Method, individuals from various departments are brought together to spend two or three days working on an individual or group assignment similar to ones they would be handling when prompted. Observers rank the performance of each and every participant in order of merit.

The Human Resource Accounting, deals with cost and contribution of human resources to the organization. Cost of human resources may be taken as standard. Employee performance can be measured in terms of employee contribution to the organization. This technique has developed and still it is in the transitory stage.

The concept of Management by Objectives, requires the management to set specific, measurable goals with each employee and then periodically discuss the latter’s progress towards these goals. This technique emphasizes participatively set goals that are tangible, verifiable and measurable. MBO focuses attention on what must be accomplished rather than how it is to be accomplished. It is, thus a kind of goal setting and appraisal programme involving six steps:

Set the organisation’s goals

Set department goals

Discuss departmental goals

Define expected results

Performance reviews

Provide feedback

Under 360 degrees Appraisal, The 360 degrees appraisal method was first developed and used by General Electric Company of USA in1992. Today, the Indian companies like Wipro corporations, Infosys, Reliance Industries follow this method.

In this method, his superiors, subordinates, peers and customers with whom he interacts in the course of his performance appraise an employee. All these appraisers provide feedback on employee by completing survey questionnaire designed for this purpose. And then reports are prepared, and then presented to the employees being rated.


Performance appraisal system should be effective as a number of crucial decisions are made on the basis of score or rating given by the appraiser, which in turn, is heavily based on the appraisal system.

An effective appraisal system should possess the following essential characteristics:

Reliability and validity

Job relatedness


Practical viability

Training the appraisers

Open communication

Employee access to results


Recent trends in organizational behavior and the structural changes of organizations have facilitated an increase in the use of teams (Fisher, Schoenfeldt, & Shaw, 2003). As traditional bureaucratic hierarchies have been replaced by flatter structures, teams have become commonplace in most organizations (Cascio, 1998). As with individual performance appraisal, performance rating in team settings is complicated by a host of issues regarding the most appropriate method for measuring it, including the appropriateness of rating sources. Team performance appraisal is further complicated through working with others as a necessity for the successful completion of work. The performance dimensions relevant to team performance differ from the task-specific performance typically evaluated in individual performance appraisal. In general, interpersonal aspects of contextual performance become more relevant, if not necessary, for successful team performance (Levy & Steelman, 1997). Most conceptualizations of team performance integrate contextual performance dimensions into formal appraisal.

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Across the literature, a lack of agreement exists regarding what the specific targets should be in team performance appraisal and how the ratings should be applied. Although the team’s effectiveness is the ultimate goal, the performance of individuals and the team as a whole should be evaluated. Levy and Steelman (1997) argue that the traditional supervisor-rated methods of performance appraisal are not appropriate for team settings. Ratings should instead come from all sources in cases where they have adequate opportunity to observe the team’s behaviors.

Aside from opportunity to observe, the rater’s relationship with the team may influence his or her perspective; in other words, whether the rater is a team member, team supervisor, customer, etc. Regarding the effectiveness of each rating source, each has advantages and disadvantages. The criteria evaluated by the majority of the literature were inter-rater agreement, agreement with hard criteria, and rating acceptance.

From the literature reviewed, the majority of research on rater effectiveness in team settings evaluates rater congruence. This may not even be an appropriate measure of effectiveness, since multi-source appraisal generally proposes that each source affords a unique perspective for evaluating the target’s performance. Therefore, rating sources may not agree and still be accurate (Murphy & Cleveland, 1995). Overall, the effectiveness of multi-source ratings in team performance appraisal has yet to be definitively answered through empirical research.

Of the various theoretical models and empirical studies, one common area of agreement is that team performance should be appraised using multiple raters. Still, a lack of research exists regarding the effectiveness of each rating source. In general, the practice of team based performance appraisal has far outpaced empirical research (Jones, 1997). Research in the domain of team performance appraisal is filled with questions and characterized by a lack of agreement on many fronts. Overall, team performance management is a research area with a great demand for future development.


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