Effects of Performance Appraisal on Employees

Human Resource Management

Term paper
On

Effects of Performance Appraisal

On Employees

Submitted by:
Sabin Thapa
MBA-III, Section-B
Ace Institute of Management

Submitted to:
Gurulakshmi Hait
Faculty
Ace Institute of Management
Kathmandu, Nepal

December 20, 2020

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 Effects of Performance Appraisal on Employees

Introduction

A performance appraisal is a regular review of an employee's job performance and overall

contribution to a company. Also known as an annual review, performance review or evaluation,

or employee appraisal, a performance appraisal evaluates an employee’s skills, achievements,

and growth-or lack thereof. Performance appraisals are comprised of preset standards which are

used to measure employees’ work behavior and the results are provided as feedback for the

employee. Companies use performance appraisals to give employees big-picture feedback on

their work and to justify pay increases and bonuses, as well as termination decisions. They can

be conducted at any given time but tend to be annual, semi-annual, or quarterly.

Successful businesses understand the value of investing in a robust performance appraisal

system. That’s because they reap the benefits of employees who have regular and fruitful

performance conversations with their line manager, understand their strengths and opportunities

for improvement, and are more effective and motivated in their roles. Performance appraisals

also help employees and their managers create a plan for employee development through

additional training and increased responsibilities, as well as to identify shortcomings the

employee could work to resolve.

Performance appraisal methods are categories into two types, Traditional and Modern methods.

Traditional Methods emphasizes the rating of the individual’s personality traits, such as

initiative, dependability, drive, creativity, integrity, intelligence, leadership potential, etc. On the

other hand, Modern Methods are more inclined towards job achievement and evaluation of work

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 Effects of Performance Appraisal on Employees

results. Modern methods best suit the organizations faced with pacing and rely on performance,

results, and employee productivity.

Increasingly, organizations are understanding that their management systems must be brought

into the 21st century if they are going to be competitive in the current market. Studies show that

employees do best with feedback on a monthly or quarterly basis, with regular check-ins serving

as a zone to problem solving, adjust goals as necessary, and to refresh their focus on the goal. In

fact, companies where employees meet to review goals quarterly or more frequently are almost

50% more likely to have above-average financial performance.

For example, Facebook has a performance management process that puts a heavy emphasis on

peer-to-peer feedback. In semi-annual reviews, they are able to use that feedback to see how well

teams are performing and understand where collaboration is happening - and where it is not.

They also have developed internal software to provide continuous, real-time feedback. This helps

employees solve issues before they become problems.

The key is to hold performance appraisals frequently and make them part of the company

culture. Employees should have a say in their evaluation and provide their own feedback to the

company as part of the process. Using ideas and insight from employees can help the company

build more effective and productive processes and systems.

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 Effects of Performance Appraisal on Employees

Conceptual review and analysis

The success of a business often depends on its employees. If they are highly motivated to

succeed and are productive in their tasks, the company has a better chance of reaching its goals.

Managers and business leaders need to provide constructive feedback to employees on their

performance so that they know where they stand and which areas they need to improve.

Performance appraisals have a number of positive effects on employees and the entire business.

The effects of performance appraisal system are as follows:

1) Gaining clarity on role and job description:

The performance appraisal typically includes the employee's job description, and managers

evaluate how the employee's performance ranks in relation to the tasks they are assigned to do.

Without frequent performance appraisals, employees may only have a chance to review their job

descriptions when they are first hired. Through the performance appraisal process, employees

can also advise management on whether any part of their job description has changed.

2) Understanding goals and targets:

Performance appraisals provide employees a chance to understand how their individual goals and

objectives fit into the broader vision and mission of the company, according to The Undercover

Recruiter. When employees understand how their roles fits into the company, they are more

likely to take ownership of their objectives and work hard to meet them. If it appears that the

employee will not be able to hit their target, managers may provide suggestions or additional

resources the employee can use.

3) Increasing merit-based compensation:

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 Effects of Performance Appraisal on Employees

Performance appraisals are an excellent opportunity for employees to get raises, bonuses and

other increases in merit-based compensation, according to the business software developers at

KPI. Having a good compensation package is a way to attract top talent at organizations.

Employees are motivated and driven to meet their goals when they know there is an opportunity

to be rewarded for their performance.

4) Boosting company morale:

Managers can use performance appraisals to improve company morale, according to Wisestep,

by highlighting the milestones the employee has hit, where they have excelled, and the accolades

they have earned. Performance appraisals show employees that the business is invested in their

success. This tool is a way to help employees understand where their weaknesses lie and where

they can make improvements. However, it's also a way to remind employees where they shine.

5) Continuing employee development:

While a performance appraisal evaluates an employee's current position, it also helps determine

the next steps in the employee's career journey. In some cases, the results of the performance

appraisal may show that the employee is ready to be promoted or take on more responsibility.

The business can then determine the training, development and continuing education the

employee needs to meet their professional goals.

With legal and economic pressure growing, organization are increasingly turning their attention

toward the measurement and upgrading employee performance. [CITATION ORe80 \l 1033 ] suggest

that feedback regarding job performance is one prevalent and extremely important form of

communication in organizations, allowing an individual to adjust future behaviors and efforts in

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 Effects of Performance Appraisal on Employees

order to improve performance. The implementation of a well-developed appraisal system is a

preventive measure to avoid lawsuits as well as to increase the likelihood that productive people

will be retained, motivated to work, and eventually promoted.[CITATION lat81 \l 1033 ].

Among performance management practices, a performance appraisal system is one way to

promote better organizational performance by reviewing individual task accomplishments

[ CITATION Rob03 \l 1033 ]. Some critics argue that performance appraisal does not guarantee the

accuracy of measurement for a public employee's work performance, and it may lead to

unintended consequences such as incurring unnecessary competition and undermining work

cooperation among public employees[ CITATION Thi02 \l 1033 ]. However, the proponents of

performance appraisal system advocate for its usefulness. They argue that managers can

overcome the negative effects of performance appraisals by ensuring employees' participation

and feedback in the appraisal process[ CITATION Mur \l 1033 ]

The performance appraisal system of any organization is a process designed to encourage and

reward the true performer. Though an unbiased and sound appraisal system helps the firm in

bringing up true leaders, most of the time in many organizations it is manipulated politically. The

politically maneuvered appraisal systems not only affect employs performance but also instigate

their performance by lowering their commitment to the organization[CITATION Ros \l 1033 ].

[ CITATION Adn \l 1033 ] analyzed the Performance Appraisals Impact on Attitudinal Outcomes

and Organizational Performance, Pakistan. They recommended that a better PA system

integrated with better HR practices will enhance performance appraisal satisfaction and also

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 Effects of Performance Appraisal on Employees

increase employee job satisfaction and reduce turnover intentions to bring effectiveness in the

organizations.

[ CITATION Zhe12 \l 1033 ] examined how performance appraisal process is associated with

organizational citizenship behavior, under the light of social exchange theory and impression

management theory, using affective commitment as a mediator and rating-reward linkage as a

moderator. They found that the relationship between performance appraisal process and

organizational citizenship behavior was partially mediated by affective commitment, and

perceived rating reward linkage strengthened the direct association between appraisal process

and organizational citizenship behavior whereas it weakened the relationship between appraisal

process and affective commitment.

[ CITATION Low12 \l 1033 ] examined how job, work environment, management and organizational

factors influence levels of engagement among healthcare employees. He found that a high level

of employee engagement is related to retention, patient centered care, patient safety culture and

employees' positive assessments of the quality of care or services provided by their team. He

concluded that hospital employees provide a unique opportunity to explore the dynamics of

employee engagement in healthcare.

[ CITATION Evr09 \l 1033 ] analyzed whether appraisal system leads to improve in productivity.

They pointed out that most of the teachers always or often fulfill their responsibilities in terms of

teaching and professionalism although few teachers had received low means. They suggested

that Administration, Heads of Program and Coordinators always and often take their

responsibilities in terms of planning, organization, communication, collaboration, professional

competence, leadership and duties, whereas TDU and TMDU sometimes and rarely fulfill

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 Effects of Performance Appraisal on Employees

responsibilities. They concluded that in terms of the administration, the appraisal system helped

define roles and responsibilities more clearly, review and determine job descriptions,

organizational goals and objectives, and led to continuous learning, team building and improved

productivity.

Practical application perspectives

The old evaluation methods were meant to be used in an environment where many people in

business performed identical tasks. Today's workplace tasks are much more diversified and new

evaluation methods need to be considered. Companies need to be careful when selecting which

style of performance appraisals, they use. Performance appraisals need to provide value to both

the company and the employees as they are ultimately a tool for improving performance and

providing growth opportunities.

In 2019, a survey states that only 28% of employees reckon that their managers focus on

delivering real-time feedback than just filling out forms. In 2020, the managers will not fill in the

appraisal forms for the sake of filling it, and it is not going to happen once in a year. Continuous

feedback will be encouraged to identify and bridge the gaps in the performance of employees.

For example, Adobe abolished stack ranking and annual performance reviews in 2012 and

started using a frequent check-in system that system allows managers and employees to discuss

their goals and review their performance on a regular basis. Since Adobe has adopted Check-in,

they have claimed to see better results.

Google has always been a trendsetter, and their performance appraisal process is one that relies

on data and analysis, as well as making sure that their managers are well trained. They use a

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 Effects of Performance Appraisal on Employees

system of setting goals that have caught on across multiple industries. Using their Objectives and

Key Results (OKRs) system, they reframe the goal-setting process, with great results.

Another tech trendsetter, Facebook has a performance management process that puts a heavy

emphasis on peer-to-peer feedback. In semi-annual reviews, they are able to use that feedback to

see how well teams are performing and understand where collaboration is happening - and where

it is not. They also have developed an internal software to provide continuous, real-time

feedback. This helps employees solve issues before they become problems.

Key Issues/Problems and their Implications

Performance appraisals, although very widely used, have well-recognized shortcomings and

deficiencies. Measuring performance is a difficult-task. Giving someone else an honest candid

evaluation based on that measurement is a stressful experience for most evaluators. Defensive

behavior on the part of the person being evaluated is common. This is especially true if salary,

promotion, or just keeping one’s job is at stake. In turn, this can lead to defensive behavior on

the part of the evaluator if the rating must be defended.

 It is not the concept but the management of performance appraisals that is the problem and

current approaches to managing performance appraisals are largely lacking in integrity and

validity.[ CITATION Coo95 \l 1033 ]. The keys issues and problems associated with performance

appraisal system are briefly discussed below:

1) Halo effects:

It is the tendency of the raters to defend excessively on the rating of one trait or

behavioral consideration in rating all other traits or behavioral considerations. One way

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 Effects of Performance Appraisal on Employees

of minimizing the halo effect is appraising all the employees by one trait, before going to

rate on the basis of another trait.

2) The error of central tendency:

Some raters follow play safe policy in rating by rating all the employees around the

middle point of the rating scale and they avoid rating the people at both the extremes of

the scale. They follow play safe policy because of answerability to management or lack

of knowledge about the job and person he is rating or least interest in his job.

3) The leniency and strictness:

The leniency bias crops when some raters have a tendency to be liberal in their rating by

assigning higher rates consistently. Such ratings do not serve any purpose. Equally

damaging one is assigning consistently low rates.

4) The Recency Effect:

The raters generally remember the recent actions of the employee at the time of rating

and rate on the basis of these recent actions — favorable or unfavorable — rather than on

the whole activities.

5) Lack of objectivity:

Some human characteristics or factors such as appearance, attitude, and personality

cannot be measured as these are subjective in nature. Moreover, they have little to do

with the performance of an employee. The subjectivity poses problem to the appraisal

method, though it cannot be totally avoided.

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 Effects of Performance Appraisal on Employees

Recommendations for improvement in practices

Performance appraisal plays a vital role in assisting employees in meeting job-related objectives.

Its success is dependent, to a large extent, on communications. Informal discussions take place

on a day-to-day basis and provide immediate performance feedback. Formal appraisals provide

opportunities for management and employees to review prior performance, communicate

expectations and make plans for future development.

Every manager can take the performance appraisal system they’ve been given to use and turn the

performance appraisal process into a positive, rewarding, beneficial process for both themselves

and the employees who report to them. Following are the key recommendation for improvement

of performance appraisal system:

1) Use the Appraisal Document as a Discussion Starter:

Use the performance appraisal document periodically, at least quarterly preferably weekly,

throughout the year to assess employee progress. The performance appraisal document is a

useful discussion starter. It consolidates employee performance information in one spot.

2) Provide Regular Employee Feedback:

Provide feedback to employees regularly—not just in the annual performance appraisal.

Employees want and like regular feedback (particularly millennial employees) and effective

managers take time every day to provide employee feedback. In a survey by "Betterworks," they

found that continuous performance management practices, such as frequent employee feedback,

produced better results for the company. In fact, they reported that organizations using these

practices outperformed their competition by 24%.1.

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 Effects of Performance Appraisal on Employees

3) Make the Discussion Two-Way:

Engage the employees in a two-way discussion whenever their performance is the topic. You can

improve performance appraisals by involving the employee in the discussion all year long. Then

the official performance appraisal day is just an extension of the normal performance discussion.

4) Use Employee Self-Appraisals to Set the Stage:

Improve performance appraisals by using an employee self-appraisal prior to the performance

appraisal. Far too many managers give employees a copy of the actual form before the

performance appraisal meeting. Use these sample questions to develop an effective self-

evaluation form.

5) Avoiding unequal performance standards:

Effective performance appraisal requires equal standards against which employees are assessed.

In the absence of equal standards, employees are assessed with subjectivity, which may destroy

the process of appraisal and leave it as a body without soul. The problem of unequal standards

can be minimized by ensuring that the appraisal criteria are job-oriented, communicating

performance expectations to the employees before the appraisal review.

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 Effects of Performance Appraisal on Employees

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O'Reilly, C., & Anderson, J. (1980). Trust and the communication of performance appraisal information:
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