“A Study on Effectiveness of Performance Appraisal in Managerial Employees

of Bank”

Research Project Report

Submitted to

Dr. A. P. J. Technical University, Lucknow

In partial fulfillment of the requirements of the degree of

Master of Business Administration

Prepared by: Training Supervisor:

Meera Pandey Dr. Neetu Singh
MBA 3rd Semester Lecturer
Roll Number: Name of Organization
Enrollment No.

2017-18

Department of Business Administration

Technical Education & Research Institute
Post-Graduate College, Ghazipur – 233001 (U.P.)
 Performance appraisal

Performance appraisal is a universal phenomenon in which the organization is making judgment

about one is working with and about oneself. It serves as a basic element of effective work

performance. Performance appraisal is essential for the effective management and evaluation of

staff. It aims to improve the organizational performance as well as individual development.

The history of performance appraisal is quite brief. Its roots in the early 20th century can be

traced to Taylor's pioneering Time and Motion studies. As a distinct and formal management

procedure used in the evaluation of work performance, appraisal really dates from the time of the

Second World War - not more than 60 years ago. Performance appraisals have been increasingly

implemented by most modern organization as a tool for employee assessment.

Performance is an employee's accomplishment of assigned work as specified in the critical

elements and as measured against standards of the employee's position. The term “Performance

Appraisal” is concerned with the process of valuing a person’s worth to an organization with a

view to increasing it.

Traditional Appraisal system; Performance appraisal is developed as a simple method of

income justification. Appraisal used to decide whether the salary of an individual was justified or

not. The decrease or increase in pay depends upon employee’s performance.

Modern Appraisal System: Performance appraisal is defined as a structured formal interaction

between a subordinate and a supervisor that usually takes the form of a periodic interview, in

which the work performance of the subordinate is examined and discussed with a view to

identify weakness, strength and opportunities for improvement and skills development.
Performance-Based Actions are the reduction in grade or removal of an employee based solely

on performance at the unacceptable level.

Performance Plans are the documentation of performance expectations communicated to

employees from supervisors. Plans define the critical elements and the performance standards by

which an employee's performance will be evaluated.

Performance Standards are statements of the expectations or requirements established by

management for a critical element at a particular rating level. A performance standard may

include, but is not limited to, factors such as quality, quantity, timeliness, and manner of

performance

Performance Award is a one-time cash payment to recognize the contributions of an employee

and is based on the rating of record. A performance award does not increase basic pay.

Performance Improvement Plans (PIP) are developed for employees at any point in the

appraisal cycle when performance becomes Level 1 (unacceptable) in one or more critical

elements. This plan affords an employee the opportunity to demonstrate acceptable performance

and it is developed with specific guidance provided by a servicing human resources office.

Performance Management is the integrated process by which an agency involves its employees

in improving organizational effectiveness in the accomplishment of agency mission and strategic

goals. Performance Management consists of: performance planning, monitoring employee

performance, employee development, evaluating employee performance, and recognition.

Performance appraisal system describes how agency will identify performance standards and

core competencies and communicate them to employees. Periodical appraisal helps the company

to compare employee’s performance and to take apt decisions for further improvement. A

structured business planning depends on the performance of the employee and it will be

successful only when the employees are analyzing their work performance individually. The

formal performance appraisal in a company is conducted annually for all staff and each staff

member is appraised by their line manager. Generally employees are appraised based on the

structure of the company

Annual performance appraisals evaluate the role of the employee in the organizational

development and also monitoring the standard, expectations, objectives, efficiency in handling

task and responsibilities in a period of time. Appraisal also helps to analyze the individual

training needs of the employee and planning of future job allocation. It also help to adopt

appropriate strategy based on organizational training needs. Performance appraisal analyzes

employee’s performance and which utilize to review the grades and modify the annual pay. It

generally reviews each individual performance against the objectives and standard of the

organization. Performance management creating a work environment and it is enabling the

employees to perform best of their abilities. Through performance management companies are

hiring efficient people .Then the company building up their skills and talents through employee

development programmes. The tools like performance appraisal, performance review, and

appraisal forms create the process of nurturing employee developments.

Effective appraisal considering increase in staff productivity, knowledge and contribution.

Formal management procedure used the evaluation of work performance. Effective appraisal

helps the employer in providing increased productivity, knowledge and contribution from the
staff. These resources increase the ability to do performance consulting, measure performance

improvement, and provide resultant training using internal staff, which increases self-sufficiency

in performance consulting and improvement. Providing feed back about employee’s job

performance and the contribution of reward for their work is very essential in the smooth

functioning of an organization.
 Review literature

The study of performance appraisal and training programmes has attracted many of the

researchers and practitioners. There has been continuous research in the field of sugar industries

and its methods, appraisal time, appraisal meeting, training programmes and their benefits in the

industry. Though there is no dearth of document any evidence in the field of sugar industries,

studies, particularly in Performance Appraisal and Training Programmes are rare. It is a field in

the preschooler stage in India, when compared to other countries in the west. However, the

available contributions from the following authors and researchers have been reviewed and a

brief account of the review is given in this chapter.

Cummings (1973)1 in an article titled, “A Field Experimental Study of the Effects of Two

Performance Appraisal Systems”, reported the results of a field experiment designed to test the

effects of manipulating several elements of an operative level performance appraisal system.

First, the multipurpose nature of appraisal in formal organizations is discussed. This is followed

by a brief overview of the literature on performance appraisal. The design and results of the

study at hand are then discussed. Patton (1973)2 in his paper on “Does performance appraisal

work?” states that performance appraisal can be a powerful force for performance improvement

at both the individual and the corporate level, but few companies in the US and even fewer in

Europe have learned to tap its full potential. Examining the differences between European and

US performance appraisal practices, the author finds that some European companies have more

than caught up with their American counterparts. He offers guidelines to overcome some

difficulties prevalent on both sides of the Atlantic.

Randell (1973)3 in his paper titled ““Performance appraisal: purposes, practices and conflicts”,

discusses the collection of information from and about people at work. It attempts to structure the

field, define key problems, expose sources of conflict and point the way to resolving major

difficulties.

Taylor and Wilsted (1974)4 in their article titled “Capturing Judgment Policies: A Field Study

of Performance Appraisal” used mathematical models of judgment policy for evaluating 625

performance reports during a single rating cycle. Linear and nonlinear analyses are used to

describe the cues most important in determining the overall ratings. In addition, performance

rating policy is compared with stated policy for each of the 40 raters.

Bedeian (1976)5 in his paper titled “Rater Characteristics Affecting the Validity of

Performance Appraisals” states that the task of developing effective performance appraisal

systems is one of the most preferred contemporary problems of personnel administration. An

abundance of literature is available detailing the problems and difficulties inherent in subordinate

appraisals. Numerous studies have made suggestions for rating format and content changes.

Some have even suggested the elimination of appraisal. More recently, an identifiable body of

knowledge which seriously casts doubt on the use of supervisor’s judgment in evaluating

employee performance has begun to emerge. The purpose of this paper is to explore this

emerging body of knowledge and to examine its ramifications for performance appraisal.

Allinson (1977) in his paper describes a study of the effects of a training course on performance

appraisal interviewing. Managers who had attended the course were asked, by means of a postal

questionnaire, to compare their pre-training and post-training interviewing performances. There

were three important findings. First, that the trainees had improved on almost every aspect of
appraisal interviewing; secondly, it is not just the skill of interviewing which is important, but

also an understanding of the role of performance appraisal; and finally, managers in mid-career

may have the most to gain from training of this type.

Decotiis and Petit (1978) in their article titled, “The Performance Appraisal Process: A Model

and Some Testable Propositions”, present a literature-based model of the determinants of the

accuracy of performance ratings. The model indicates that the major determinants of accuracy

are: (a) rater motivation; (b) rater ability; and (c) availability of appropriate judgmental norms.

Several propositions and suggestions for further research are derived from the components of the

model.

Wilsted and Taylor (1978) in their article titled, “Identifying Criteria for Performance Appraisal

Decisions” states that appraising employee performance has long been regarded as an important

part of the management function, for purposes of salary administration and recognizing future

management potential. More recently performance appraisal has been recognized for its value as

one of the several tools available to organizations for employee motivation. Central to such

programmes as 'Management by Objectives,' for example, is the motivational value of

participatively developed goals, clearly communicated and supported with a clear and accurate

perception by the subordinates regarding the criteria to be applied in appraising his/her

performance against those goals. Indeed, what is perceived by individuals is often more

important than 'reality' in influencing behaviour. Selective filtration by superiors and

subordinates depends on the trust established, and serves to set expectations for performance in

the work environment. Individuals function on the basis of perceptions. Accurate perceptions of

the performance appraisal criteria by those being evaluated are essential to the motivational
objectives of appraisal. Yet, even in the most formal rating programmes, the ratee's perception of

appraisal criteria often varies widely from that actually employed.

Kleiman and Durham (1981)9 in their article titled, “Performance Appraisal, Promotion and

the Courts: A Critical Review”, reviewed twentythree Title VII court cases in order to determine

the standards set by the courts in their assessment of performance appraisal systems when used

as the basis for promotion decisions. The topics covered were adverse impact determination, the

courts' adjudication strategy, and the evidence needed to justify the performance appraisal

procedures. Among the major findings were the courts': (1) failure to adhere to the “applicant

flow technique” of adverse impact determination, (2) interest in assessing performance appraisal

systems regardless of their adverse impact, (3) ignorance regarding acceptable validation

procedures, and (4) focus on objectivity in lieu of validity. The discussion offered suggestions to

employers for developing a professionally sound and legally defensible appraisal system.

Cederblom (1982)10 in his article titled, “The performance appraisal interview: a review,

implications and suggestions” reviewed the research on performance appraisal interview in the

context of recent performance appraisal models. Three factors seem consistently useful for

producing effective interviews: superior's knowledge of the subordinate's job and performance,

superior's support of the subordinate, and welcoming the subordinate's participation. The

appropriate function, frequency, and format of the interview, as well as goal setting and actual

subordinate participation, depend on the characteristics of the employee and job.

Davis and Mount (1984)11 in their study evaluated the effectiveness of performance appraisal

training in an organizational setting. Four hundred and two middle level managers were

randomly assigned to one of the three conditions: no training, computer assisted instruction only

(CAI), or CAI training plus a behavior modeling workshop (CAIW). Training effectiveness was
assessed on two categories of dependent variables, managerial learning and managerial job

performance. As predicted trained managers were found to be more knowledgeable of

performance appraisal than untrained managers. Also as predicted, managers in the CAIW group

conducted appraisal discussions which were perceived by employees as more satisfying than

employees of managers in the no training group. Only partial support was obtained for the

hypothesis that trained managers would be more effective in completing performance appraisal

forms. Lee (1985)12 in his article titled, “Increasing Performance Appraisal Effectiveness:

Matching Task Types, Appraisal Process, and Rater Training” states that the search for one best

performance appraisal format ignores differences among jobs. A performance appraisal system

tailored to fit ratee task characteristics is proposed. This approach, which involves systems

designed to deal with tasks where both availability of reliable and valid performance measures

and knowledge of the transformation process may be either high or low, is expected to increase

the relationship between observational accuracy and accuracy in rating performance, as well as

to improve ratees' future performance.

Ilgen and Favero (1985)13 in their article titled, “Limits in Generalization from Psychological

Research to Performance Appraisal Processes” states that most attempts to understand the

performance appraisal process have been borrowed from social psychology. It is argued here that

the experimental methods of social psychological research may not be well suited to the study of

particular issues in performance appraisal. Several of the methods used in the basic literature are

outlined, and the relevance of these methods in the study of performance appraisal is discussed

Employee performance appraisal is an effective tool or vehicle for assessment of employee

performance and implementation of strategic initiatives for the improvement of employee

performance (Lawler and McDermott, 2003). However, a considerable literature stream also
suggests that there exist dissatisfaction in employees regarding performance appraisal system

(Mercer, 2002; Roberson and Stewart, 2006; Moullakis, 2005). For instance, Morgan (2006)

noticed that performance appraisal in many organizations has not met expectations of employees.

In the same vein, prior findings by Smither and London (2009) have elucidated that 80-90%

managers reflect that performance appraisal has not been effective in improving employee and

organization‟s performance. Performance appraisal has been regarded as the most critical human

resource function within organizations by which assessors or supervisors analyse and assess

performance of their subordinates (Keeping and Levy, 2000). the outcomes of performance

appraisal assists mangers to select specific pay rates, promotional decisions, development and

training needs and motivational factors for employees (Zapata-Phelan et al., 2009). In this

regard, performance appraisal system has been widely researched within organizational

psychology to assess employee performance. However, despite of resources applied and

attention made to this particular topic, prior researchers have found continuing dissatisfaction

among employers and employees about outcomes of performance appraisal systems in terms of

unfair, inaccurate and political outcomes (Rao, 2004; DeNisi and Pritchard, 2006). Therefore, it

is important to study the factors affecting outcomes of performance appraisal system. Literature

has identified several indicators that affect the outcomes of performance appraisal system. In this

regard, one critical factor is the appraisal source. This factor suggests that employee performance

can be evaluated through multiple sources such as supervisors, managers, self, peers and even

customers (Wood and Marshall, 2008). Another important characteristic of performance

appraisal is the purpose for which performance has been appraised or evaluated (Thurston,

2001), and typically, performance appraisal systems are utilized for multiple purposes ranging

from developmental and administrative purposes. Feedback richness is also an effective indicator
that may affect the outcomes of performance appraisal. Feedback richness elaborates the specific

appraisal environment by which frequent, specific and timely feedback is provided by employees

to employers regarding job (Kinicki et al., 2004). Perceived accuracy of performance appraisal

has been regarded as an important aspect to evaluate the satisfaction and motivation in

employees in relation to performance appraisal (Wood and Marshall, 2008; and Selvarajan and

Cloninger, 2009). In this regard, prior studies suggest that if employee perceive that appraisal

outcomes are accurate, they are more likely to recognize these results and act on them (Roberson

and Stewart, 2006). On the other hand, employee perception of fairness also measures

effectiveness of performance appraisal outcomes (Youngcourt et al., 2007). In this respect,

previous studies have suggested that justice or fairness of performance appraisal can be

evaluated into three dimensions. These are distributive, interactional fairness and procedural

(Colquitt et al. 2001). In this regard, distributive fairness represents the extent to which outcomes

of appraisal are distributed fairly (Smither and London¸2009). In the appraisal context, the

distributive context relates with the ratings of performance appraisal gained by employees. On

the other hand, procedural fairness aims at the extent to which procedures deployed by

organization for appraisal are fair in deriving outcomes of appraisal (ZapataPhelan et al., 2009).

Contrary to this, the concept of interactional fairness represents the extent to which employees

receive treatment of peers and supervisors during the process of appraising performance

(Roberson and Stewart¸ 2006). Prior studies about meta-analysis of performance appraisal and

perceptions of justice suggest that it enhances performance and satisfaction of employees

(Roberson and Stewart¸ 2006). On the contrary, appraisal satisfaction represents the contentment

of employees with the results of appraisal system. Levy and Williams (2004) suggest that

analyzing employee satisfaction is important as it determines reactions of employees towards

appraisal. Contrary to this, motivation represents the degree to which employees are willing to

make improvements in their performance (Roberson and Stewart, 2006). Some authors suggest

that perceptions about fairness hold a critical importance within organizations because it avoids

negative outcomes such as disruptive behaviors and employee turnover and also enhance positive

outcomes of organizations such positive citizenship, commitment and satisfaction with the job

(Selvarajan and Cloninger, 2009). Thurston (2001) has addressed the specific aspects related

with performance appraisal and also reveal that effectiveness and success of appraisal system

depends on reactions and feedback of employees. This suggests that employee feedback is

critical factor in assessing effectiveness of appraisal system. This feedback can be positive or

negative regarding outcomes of appraisal system. Prior studies have revealed that positive

feedback is more likely to be accepted whereas employees often hesitate to accept negative

outcomes of appraisal system (Rao¸ 2004). On the other hand, Roberson and Stewart (2006)

suggest that if negative feedback is delivered in an effective and persuasive manner, employees

will take it seriously and will focus on eliminating the negative aspects in their performance.

Prior literature has suggested that performance appraisal is an effective system for attaining

different objectives. In this regard, Selvarajan and Cloninger (2009) have revealed that effective

performance appraisal system results in improving performance of employees and motivating

them. In this regard, it can be identified who are the weak performers and who strong performers

within organizations are. In the same line of thought, prior studies have identified five major

outcomes of effective performance appraisal (Rao¸ 2004). These are: 1) using results of

performance appraisal to improve employee performance, 2) enhancing motivation, 3) reducing

employee turnover, 4) associating rewards and employee performance and 5) establishing equity

among employees (Rao¸ 2004; Selvarajan and Cloninger, 2009). Nurse (2005) has also discussed
the impact of appraisal on employees and organizations. He specifically suggested that results of

appraisal provide information to managers to take further steps about promotions and

development of employees. On the contrary, Rao (2004) suggests that weak areas of

performance are identified through effective performance appraisal system. In this way,

managers can take decisions regarding training of employees to improve those weak areas.

Moving further, Teratanavat, Raitano and Kleiner (2006) suggest that effective performance

appraisal results in reducing stress level of employees. In this way, performance appraisal system

interlinks current, past and future performance of employees.

 Scope of the study

1. It helps to supply crucial information to managers regarding the employees.

2. To keep an update record of leaves, lockouts, transfers, turnover, etc. of the employees.

3. It helps the managers in framing various training and development programmes on the

basis of present scenario.

4. It helps the government organizations to gather data in respect to rate of turnover, rate of

absenteeism and other personnel matters.

5. It helps the managers to make salary revisions, allowances and other benefits related to

salaries.

6. It also helps the researchers to carry in- depth study with respect to industrial relations

and goodwill of the firm in the market.

 Scope of the study

 To understand the concept of HR in special reference of “Performance Appraisal”

 To understand the application of “Performance Appraisal” in banking sector

 To understand the practical aspect of “Performance Appraisal” in banking scenario

 To understand the modern trends emerging in “Performance Appraisal”

 To understand the management approach towards “Performance Appraisal”

 To understand the banking scenario of India

 To gain the knowledge of the practical process of the “Performance

 Appraisal”

 To view the aspect of “Performance Appraisal” from managerial perspective

 To highlight the effectiveness of “Performance Appraisal” in banking sector

 To understand the need of “Performance Appraisal” for banking industry

 Scope of the study
Following aspects are covered under this study:

 A brief overview of the nature of the subject

 An introduction to the HR as a managerial function in special reference with

““Performance Appraisal””

 New dimensions, techniques, approaches and thoughts in ““Performance Appraisal””.

 Practical aspect of ““Performance Appraisal”” in ICICI bank

 Modern techniques emerging in ““Performance Appraisal””.

 Need and importance of “Performance Appraisal” in banking industry

 brief introduction of Indian banking industry

 Introduction to ICICI bank

 Role of “Performance Appraisal” as managerial decision in banking sector in policy

making and organizational success

 Practical challenges, opportunities in banking sector to implement the effective

performance management system

 Limitations of the study
1. The “whole man” is compared with another “whole man” in this method. In practice, it is

very difficult to compare individuals possessing various individual traits.

2. This method speaks only of the position where an employee stands in his group. It does

not test anything about how much better or how much worse an employee is when

compared to another employee.

3. When a large number of employees are working, ranking of individuals become a

difficult issue.

4. There is no systematic procedure for ranking individuals in the organization. The ranking

system does not eliminate the possibility of snap judgments.

 Research Methodology

This section contains the methodological issues in research. It focuses primarily on providing

help with the tools and techniques used in the research. These tools and techniques differ from

discipline to discipline. Researchers also have specific blazes. Some will prefer Qualitative to

Quantitative approaches or vice-versa. Generally speaking, an integrated approach is advisable.

A study that contains only qualitative data or solely quantitative data messes the rich texture of

interpretation that an integrated approach makes possible. While this section may be organized in

a way that suggests a defined process, this is not the intention.

Research methodology is a way to systematically solve the research problem. It may be

understood as a science of studying how research is done scientifically. In it we study the various

steps that are generally adopted by a researcher in studying his research problem along with the

logic behind them. It is necessary for the researcher to know not only the research

methods/techniques but also the methodology. Researchers not only need to know how to

develop certain indices or tests, how to calculate the mean, the mode, the median or the standard

deviation or chi-square, how to apply particular research techniques, but they also need to know

which of these methods or techniques, are relevant and which are not, and what would they mean

and indicate and why.

Research Design:-
A research design is defined, as the specification of methods and procedures for acquiring the

Information needed. Mainly there are are two types of Research Design.

1-Exploratory Research

2-Descriptive Research

3-Causative Research

1. Exploratory research:-

The major purposes of exploratory studies are the identification of problems, the more precise

Formulation of problems and the formulations of new alternative courses of action. The design

of exploratory studies is characterized by a great amount of flexibility and ad-hoc veracity.

Mode of Data Collection

 Secondary data: -

The secondary data are those which have been already collected by someone else and which

have already been passed through the statistical tool. "Secondary data are statistics not gathered

for the immediate study at hand but for some other purposes."

The sources of secondary data were internet, books and newspaper articles.

Secondary data can be classified into:-

1) Internal Secondary Data:

“Data that are originated within the firm for which the research is being conducted are internal

data. If they were collected for some other purposes, they are internal secondary data."

2) External Secondary Data:

The second form of secondary data is external sources, which are generally published and are

available in different form and different sources.

Tools of secondary data collection:

Various books, management literature, magazines. Journals, company files and records and

websites have been used as a means to collect secondary data.

Tools & Techniques of Analysis:

Data has been tabulated using a number of statistical tools like average, percentage and so on.

Finally it has been represented pictorially using Pie-charts.

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