Defining and analysis of Performance Appraisal

Performance appraisal can be defined as 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 Bowles and Coates (1993), “organisations use PA for a wide range of different purposes. Surveys commonly report the use of PA for clarifying and defining performance expectations; identifying training and development needs; providing career counselling; succession planning; improving individual, team and corporate performance; facilitating communications and involvement; allocating financial rewards; determining promotion, motivating and controlling employees’ and achieving cultural change.”

Edwin B. Flippo (1984), a prominent personality in the Human Resource field said “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”. PA is thus a systematic way of reviewing and assessing the performance of an employee during a given period of time and planning for his future.

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.

PA is one of the most important components in the rational and systematic process of Human Resource Management (HRM). The information obtained through PA provides foundations for the recruitment and selection of new staff, the training and development of existing ones and motivating and maintaining a quality workforce by adequately and properly rewarding their performance. Without a reliable PA system, the HRM system may fall apart resulting in the total waste of the valuable human assets the organisation has.

3.2 History of Performance Appraisal

Performance appraisal has its roots in the beginning of civilization where the most powerful used to appraise the less powerful ones in order to reward them. It can be said that even slaves were being appraised though it was not a formal appraisal system.

Grint (1993) claims that the first historical acknowledgement of the PA system dates back to the Wei Dynasty in China during the third century AD.

Randell (1989) however identifies the first use of PA in the Robert Owen’s textile mills via the ‘silent monitor” .

In the early 20th century it can be traced up to Taylor’s pioneering Time and Motion studies(1911). But as a really distinct and formal management procedure used in the evaluation of work performance, appraisal really dates from the time of the Second World War that is not more than 60 years ago.

The human inclination to judge can create serious motivational, ethical and legal problems in the workplace. PA systems began as simple methods of income justification, that is, appraisal was used to decide whether or not the salary or wages of employee were justified. The process was firmly linked to material outcomes. If an employee’s performance was found to be less than ideal, a cut in pay would follow and on the other hand, if their performances were better than expected, a pay rise was in order.

Pay rates were important but there were other issues such as morale and self esteem were found to have an impact on employee performance. As a result, the traditional emphasis on reward outcomes was progressively rejected. In the 1950’s in the United States, the potential usefulness of appraisal as a toll for motivation and development was gradually recognised and the general model of PA as it is known today began from that time.

3.3 Practice of Performance Appraisal

PA is much widespread in the western countries. Locher and Teel (1988) have concluded that in the mid 1970’s, 89% of organisations used PA and in it has increased to 94% in the mid 1980’s. After twenty years, the number of organisations using PA has surely risen up to more than 95% depending on the countries and industries the organisations are.

PA is also becoming increasingly popular in other non western countries like China (Chow, 1994); Hong Kong (Snape et al.; 1998); Japan in the form of Satei (Endo, 1994); Africa (Arthur et al.; 1995) and India (Lawler et al.; 1995).

PA is can however a “double-edge sword” as many people and organisations dislike it. This can be confirmed by Carroll and Scheier’s research (1982) which found out that is PA is ranked among the top most disliked managerial activity. Some people hate it so much that they even said they would prefer to go for a dental appointment rather that conducting a PA!

3.4 Process of Performance Appraisal

PA can be said to be a process where it assesses individual performance against the set targets. Below is a diagram showing the PA process.

Figure 1: The Performance Appraisal Process (Cole 2002)

Appraisal form completed

Appraisal interview conducted

Action Agreed

Job improvement plan

Promotion or transfer

Salary Review

Source: Cole (2002)

Some of the above mentioned steps are further explained below:

The first step in the PA process consists of setting up the standards which will be used to as the base to compare the actual performance of employees. This step requires setting the criteria to judge the performance of the employees as successful and unsuccessful. The standards set should be clear, specific, easily understandable and in measurable terms.

Once set, it is the responsibility of the management to communicate the standards to all the employees of the organisation- the appraisers and evaluators. The employees should be informed and the standards clearly explained to them as this will help them understand their roles and know what exactly is expected from them.

This can be said to be the most difficult part of the PA process that is measuring the work done by the employees during the appraisal period. It is a continuous process which involves constant monitoring. This stage also requires careful selection of the appropriate techniques of measurement and personal bias of evaluators should be avoided at this particular stage.

The actual performance is compared with the desired and expected performance previously agreed on. The comparison tells the deviations in the performance of the employees from the standards set. It can show the actual performance being more or less than the desired performance.

The result of the appraisal should be communicated and discussed with the employees if possible on a one-to-one basis. The focus of this stage is on communication and listening. The results, the problems encountered and the possible solutions are discussed with the aim of solving problems if any and finding possible solutions. The feedback should be given in a positive attitude as this can have an effect on the employee’s future performance.

The last step of the process is to take decisions which can be either to improve the performance of employees, take corrective actions or any other related HR decisions like rewards, promotion, demotions and transfers among others.

3.5 Basic Purpose of Performance Appraisal

PA systems are designed to serve the company’s and employee’s interests. They are used to inventory the abilities and resources of employees and to let an employee know where he stands so that he will be stimulated to improve his performance. The most important purpose of PA can undoubtedly be said is to improve performance of employees in the future.

According to Cole (2002), the reasons why PA is carried out in organisations can be summarised as follows:

To identify an individual’s current level of job performance

To identify the employee strengths and weaknesses

To enable employees to improve their performance

To provide a basis for rewarding employees in relation to their contribution to organisational goals

To motivate individuals

To identify training and development needs

To identify potential performance

To provide information for succession planning

Writers such as Beardwell and Holden (2001) have seen that the purpose of PA is mainly

To improve current performance

Provide feedback

Increase motivation

Identify training needs

Identify employees’ potential

A way to let employees know what is expected of them

Career development focus

Salary increases and the solving of job related problems

Objective setting

Career succession

On the other hand, Bowles and Coates (1993) have argued that some of the purpose of PA are

Clarification and definition of performance expectations

Identifying training and development needs

Provide career counselling

Succession planning

Improving individual, team and corporate performance

Facilitating communication and involvement

Allocation of rewards and promotion

Motivation and control of employees

Achievement of cultural change

The main findings of the above mentioned authors are detailed below:

3.5.1 Identifying training needs

Conducting employee training can be a disconcerting and fearful task, especially when the staffs are with a diverse set of skills, knowledge and capabilities. It is a waste of the company’s time and money to provide training in areas where employees are already performing to standard. So it is best to firstly identify the specific employee training needs by conducting a job task analysis of the employees in question.

3.5.2 Monitoring

Effective and timely feedback during the PA period addressing employee performance on elements and standards is essential. Employees need to know in a timely manner how well they are performing or if there are areas needing improvement. The feedback can come from many sources available. Part of the monitoring process must also include conducting at least one formal progress review during each appraisal method at approximately mid-way through the rating cycle.

3.5.3 Employee Development

Employee development is a joint, on-going effort on the part of an employee and the organization for which he o she works to upgrade the employee’s knowledge, skills and abilities. Successful employee development requires a balance between and individual’s career needs and goals and the organization’s needs to get work done.

Employee development programs make positive contribution to organizational effectiveness. A more highly skilled workforce can accomplish more and a supervisor’s group can accomplish more as employees gain in experience and knowledge.

3.5.5 Career Development

There is an increasing need for individuals to take charge of the development of their own learning and career for a variety of reasons. There is an increasing rate of change of organizations and in the knowledge and skills employees need to perform their jobs. Career ladders are rapidly shrinking or disappearing as reorganizations lead to flatter structures. There is an ever-increasing need for employees to keep learning to keep up with the rapid growth in knowledge and the rate of change of our workplace environments.

3.5.6 Succession planning

Succession planning is a key process by which successors are identified for key positions throughout the organisation including vital roles in each department of the organization. It should take into account the strategic vision and objectives of the organization. With good succession planning in place, employees are ready for the new leadership roles so when someone leaves the company, another is skilled and ready to step-up to that position. Succession planning can also help develop a diverse workforce, by enabling senior management to look at the future goals of the organization as a whole.

3.5.7 Accountability

A number of organisations often face problems with employees who have low morale and self esteem resulting to them not meeting the demands of the organizations in terms of output. An innovative and effective way of eliminating these problems is through creating greater accountability in the workplace. Creating greater accountability provides a clear designation and definition of goals by making employees more responsible and therefore prevents everyone from blaming each other because of certain tasks that have not been accomplished or were poorly accomplished.

3.6 Benefits of Performance Appraisal

Appraisals offer a valuable opportunity to focus on work activities and goals, to identify and correct existing problems and to encourage better future performance. Almost universally where performance appraisal is conducted properly, both supervisors and subordinates have reported the experience as beneficial and positive, thus enhancing the performance of the whole organisation. Some other advantages are

3.6.1 Motivation and satisfaction

According to Beardwell and Holden (2001), PA can have a profound effect on levels of employee motivation and satisfaction and that can be for the better as well as for the worse!

Performance appraisal provides employees with recognition for their work efforts. The power of social recognition as an incentive has long been noted. There is even evidence of human beings will prefer negative recognition than no recognition at all.

The existence of performance appraisal programs also indicates to an employee that the organization is genuinely interested in their individual performance and development. This alone can have a positive influence on the individual’s sense of worth, commitment and belonging.

3.6.2 Training and development

Bowles and Coates (1993) think that performance appraisals offer an excellent opportunity for supervisors and subordinates to recognize and agree upon individual training and development needs. It can also make the need for training more pressing and relevant by linking it clearly to performance outcomes and future career aspirations.

3.6.3 Recruitment and induction

Appraisal data can be used to monitor the success of the organisation’s recruitment and induction practices. For example, how well are the employees performing who were hired in the past two years?

The data can also be used to monitor the effectiveness of changes in the recruitment strategies. By following the yearly data related to new hires, it is possible to assess whether the general quality of the workforce is improving, staying steady of declining.

3.6.4 Compensation and rewards

For Bowles and Coates (1993), a well administered appraisal program gives credibility to assigning the proper salary increases and bonuses to employees. It allows the supervisor to reward the right employees and the company to budget properly.

Poor performers

Just as important as rewarding good work, a platform exists to deal with employees who need improvement. The documentation sets the stage for performance improvement plans and any other actions that may follow.

3.6.5 Documentation

These valuable records can be used in any legal proceedings to explain why certain actions were taken, like for examples in case of firing of employees.

They are also proof that company policies and employee and company rights have been adhered to.

3.6.6 Alignment of organizational and individual objectives

According to Cole (2002), organizations that align employee goals and objectives with organizational strategy have a much higher probability of successfully executing their business plans. Workforce alignment empowers employees and creates ownership in the organization’s success, resulting in more satisfied employees, lower turnover increased retention.

3.6.7 Better communication

Often in organizations, the communication process is one way or the communication is ineffective because of the many barriers to communication. Bowles and Coates (1993) believe that PA is a way to get rid of those barriers to communication as the subordinates and supervisors must always be in touch with each other to know what is happening or not in the performance appraisal period. It thus improves communication from top level management to lower level workers and vice versa thus installing a good and healthy working environment in the organization which is essential for good performance.

3.6.8 Employee Evaluation

Performance appraisal is the best way to know how the employee is performing. Cole (2002) believes that his past performance results may be compared to the actual ones to know if his performance is static, increasing or decreasing. He will then be guided or coached in areas where his performance is poor and asked to keep up the desired level where he is performing well. This is also a way for the employee to know where he can perform best and thus encouraged by his supervisor to perform better.

3.7 Approaches to Performance Appraisal

There are a number of methods to performance appraisal. No single method can be considered ideal in all circumstances. The methods of performance appraisal can be broadly classified into two categories:

Traditional or overall approach

Modern or developmental approach

3.7.1 Traditonal approach

Traditionally, performance appraisal has been used just a method for determining and justifying salaries of the employees. Then it began to be used as a tool for determining rewards and punishments for the past performance of employees. These methods are based on studying the personal qualities of employees. These may include knowledge, initiative, loyalty, leadership and judgement.

This approach was a past oriented approach which focused mainly on the past performance of the employees during a specific period of time and it did not consider the developmental aspects of the employee performance.

Essay Appraisal Method

This traditional form of appraisal, also known as the “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 evidences to support the information.

It is the most simple and acceptable approach but it depends heavily on the rater’s writing ability and comparing essay evaluation might be difficult since no common criteria exists.

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.

This method is quite useful for a comparative evaluation as is it easy to select the best and the worst employee but this model however suffers from subjectivity and the selection of employees who are mediocre is difficult.

Paired Comparison Method

This method is a good way of weighing up the relative importance of opinions. A range of plausible options is listed and each option is compared against each of the other options. The results are the tallied and the option with the highest score is the preferred option.

This method is useful where priorities are not clear and where you do not have objective data to base this on. It helps to set priorities where there are conflicting demands and makes it easy to choose the most important problem to solve or select the solution with the greatest advantage. Major drawbacks of this method is that it can become an extremely time consuming method as the number of people to compare increases and also it does not provide clear standards for judging the performance of employees.

Critical Incidents Method

In this method of performance appraisal, the evaluator rates the employee on the basis of critical events such as accidents or major lapses and how the employee behaved during those incidents. It includes both negative and positive points.

The advantage of this method is that it covers the entire evaluation period and not only focus on the last weeks but 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, an HR specialist conducts the appraisal by asking a series of questions about the employee to the superior. After the session is over, the specialist makes notes based on his interaction with the superiors and these notes are approved by the specialist and placed in the employee’s file.

A major drawback of this method is that it is a very time consuming method but this method helps to reduce superiors’ personal bias.

Checklist Method

The rater is given a checklist of the descriptions of the employees on the job. The checklist contains a list of statements on the basis of which the ratter describes the on the job performance of the employees and most of the time, the answers are ‘yes’ and ‘no’.

The difficulty in this method lies in constructing such a checklist where the answers should only be ‘yes’ and ‘no’.

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.

Carefully constructed graphic rating scales have a number of advantages such as standardization of content permitting comparison of employees, ease of development use and relatively low developmental and usage costs and it is usually a method highly accepted by both the rater and the rate.

A disadvantage of such rating scale is that they are susceptible to rating errors which result in inaccurate appraisals. Possible rating errors include halo effect, central tendency, severity and leniency.

Forced Distribution Method

To eliminate the element of bias from the ratter’s ratings, the evaluator is asked to distribute the employees in some fixed categories of ratings like on a normal distribution curve. The ratter chooses the appropriate fit for the categories on his own discretion. Examples of these categories can be Grade ‘A’ for an outstanding performance, Grade ‘B’ for an excellent performance, Grade ‘C’ can be for average and Grade ‘D’ for poor performance.

Forced distribution method is one which can be applied to several rather than only one component of job performance and can eliminate problems rating errors like leniency and central tendency but the method can itself cause rating errors.

Confidential Method

This method involves the preparation of a confidential report by the superior on the employee’s performance.

The main disadvantage of this method is the obvious subjectivity and secrecy which results in low credibility of this method.

Behavioural Anchored Rating Scales (BARS)

BARS is a technique which combines the Graphic Rating Scale and Critical Incidents method. According to Armstrong (1999) it consists of predetermined critical areas of job performance qualities as good or bad, for example, the qualities like interpersonal relationships, adaptability and reliability and job knowledge. In this method, an employee’s actual job behaviour is judged against the desired behaviour by recording and comparing the behaviour with BARS.

The development of BARS is a time consuming process which requires expert knowledge but the benefits it generates make it worthwhile like for example it assesses performance in terms of specific behaviours that are critical to the job rather in terms of general traits or abstract constructs, eliminates the use of potentially misleading numerical and volume measures that are not readily interpretable and also reduce the evaluators’ impreciseness, subjectivity and bias.

Individual Ranking Method

In individual ranking method, the supervisor lists employees from highest to lowest. The difference between the too two employees is assumed equivalent to the difference between the bottom two employees.

This method works well for small groups of employees but becomes increasingly difficult as the size of the group increases.

3.7.2 Modern Approach

The modern approach to performance development has made the performance appraisal process more formal and structured. They were devised to improve upon the traditional methods and attempt to remove the short comings of the old methods such as subjectivity and bias.

Assessment Centres

An assessment centre typically involves the use of methods like social and 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 the employees as they perform the assigned jobs and are evalued on job related characteristics.

The major competencies that are judged in assessment centres are interpersonal skills, intellectual capability, planning and organizing capabilities, motivation and career orientation among some. Assessment centres are also an effective way to determine the training and developmental needs of the targeted employees.

Some benefits of assessment centres is that is not only help the organization in placing the right candidate for the right job/ assignment but also helps in developing the participants and it can be customised for the different kinds of jobs, competencies and organizational requirements. Its negative aspects however are they are very costly, time consuming and it requires highly skilled observers as the observers may bring in their own perceptions and biases while evaluating.

Human Resource Accounting Method (HRAM)

In this method the performance appraisal of 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 and induction and training costs amongst others, where as their contribution includes the total value added (in monetary terms). The difference between the cost and the contribution will be the performance of employees. Ideally, the contribution of the employees should be greater than the cost incurred on them.

Some reasons why HRAM can be used in organisations are because firstly, it furnishes cost value information for making management decisions about acquiring, allocating, developing and maintaining human resources in order to attain cost- effectiveness, secondly it allows management personnel to monitor effectively the use of human resources and finally, it provides a sound and effective basis of human asset control, that is, whether the asset is appreciating, depreciating or staying stable.

Its use can be discouraged because of reasons such as there is no proper clear-cut and specific procedure or guidelines for finding cost and value of human resources in an organisation, the period of existence of human resource is uncertain and thus valuing them under uncertainty in future seems unrealistic and finally, there is a fear that HRAM may dehumanise and manipulate employees.

Psychological Appraisals

These appraisals involve assessment of the intellectual abilities, emotional stability, reason and analytical skills and sociability just to name a few. These methods can be useful when taking decisions about placement of employees, development and training.

The information obtained in psychological assessments is often used to benefit both individuals and organisations.

360 Degree Feedback

The 360 Degree Feedback, also known as the ‘multi-rater feedback’ and it can define as an assessment tool that provides employees with feedback about their performance. Supervisors, peers, subordinates and where appropriate customers answer questions about the employee’s skills and attributes.

Results of these confidential surveys are tabulated and shared with the employee, usually by his manager. Interpretations of the results, trends and themes are discussed as part of the feedback.

From this feedback, the worker is able to set goals for self- development which will advance their career and benefit the organization. With the 360 degree feedback, the worker is central to the evaluation process and the ultimate goal is to improve individual performance within the organisation.

Some of its advantages are that it is a more comprehensive method which increases the credibility of the appraisal result, enhance staff development and it is a way for the staff to complain to their superiors without following the normal complaint procedures. Its disadvantages are that it is a time consuming process and more complex for the administration, there is a risk of confidentiality and it may generate an environment of suspicion and cynicism in case where the employee has been negatively appraised.

Management by Objective Method (MBO)

The concept of 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 principle behind MBO is to create empowered employees who have the clarity of 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 advantages of MBO are that need to clarify objectives is stressed and suggestions for improvement are obtained from all levels of management, all the managers have a clear idea of the important areas of their work and the standards required and it makes the individual more aware of organizational goals which results in greater participation which helps in improving morale and communication in the organisation.

Some disadvantages can be the fact that this approach fails to give any clear-cut guidelines and goal-setters for the phase of implementation as well as the phase of strategizing and also, the goals which are designed through MBO are usually short term rather than long-term.

3.8 Limitations of Performance Appraisals

For many, the term “performance appraisal” embodies the major difficulties associated with the approaches. A PA system suggests a tightly controlled, formal, procedure which limits the scope of the discussion and activities of the manager and employee. Consequently, both parties tend to view the process as time consuming which involves lots of paperwork and view it the same way people feel about the dentist, that is, fear, avoidance, apprehension and running in the other direction as fast as they can! Some other major limitations of performance appraisals are summarized in the table below:

Table 1 : Limitations of Performance Appraisals.

LIMITATIONS

EXPLANATIONS

The Halo Effect

This type of error occurs when the rater allows one aspect of an employee’s character or performance to influence his entire evaluation.

The Central Tendency Error

The raters have a tendency to allocate average ratings to all employees.

The Leniency and Strictness Error

This crops up when some raters have a tendency to be liberal in their rating and assign either consistently high or low rates.

Similarity Error

This happens when evaluators rate other people in a way that gives special considerations to the qualities that the evaluators perceive in them.

Primacy and Recency Error

This occurs when the rater evaluates the employee on the basis of only their initial performance or recent performance rather than their performance over the evaluation period.

Different Schemes for Different Employees

Different PA systems are often introduced because there is the need to measure different factors and rewards in different ways which risk being divisive and cause resentment among employees.

Lack of Competence

The evaluators are most of the time chosen randomly and having an evaluator without the required and appropriate skills, knowledge, experience, training and qualification about the job will guarantee the appraisal process to be a failure.

Miscellaneous Biases

There may be biases on different grounds such as sex, age, race, colour, religion and marital status.

Resistance and Outcomes are ignored

Employees and trade unions may not want to be appraised fearing negative ratings and punishment. Some times, the findings of the process are left in a drawer without taking the necessary remedial actions thus rendering the whole process futile and useless.

3.9 How To Overcome Limitations of Performance Appraisals

Done properly, PA’s are very beneficial to the whole organization. But as discussed in the previous sub section, performance appraisals can have many limitations which can hinder to its successful and effective use. So, some ways to overcome the above mentioned limitations are summarised below:

Communication

Ongoing Feedback

Personal Bias and Appraiser Credibility

Practical and Simple Format of PA

Evaluation Technique

Documentation

Set Performance Goals