Performance management

Definition:

“A process that consolidates Goal setting, Performance Appraisal, Development of a common

system the aim of which is to ensure that employee performance is supporting the company's
strategic aims.”

Performance management (PM) includes activities that ensure that goals are consistently being
met in an effective and efficient manner. Performance management can focus on the
performance of an organization, a department, employee, or even the processes to build a
product or service, as well as many other areas.

The field of performance management can comprise two separate types of management. In one
aspect of performance management, an analyst may view the performance of a company as a
whole, and also evaluate the effectiveness of the managers and heads of companies in reaching
goals. In another sense, performance management may be a system of evaluating employees to
help them reach reasonable goals and thus ensure that the company performs better. This
discussion will focus on the latter definition.

Performance management of individual employees differs. It generally includes the following:

planning work, setting goals, offering feedback and reviews, offering opportunities to learn more
in one’s field, and rewarding employees who perform well.

What is performance?

Performance is essentially what an employee does or does not do common elements to

performance Quality of output, Quantity of output, Timeliness of output, Presence at work,
Cooperativeness

Performance Appraisal handouts Page 1

Factors That Influence Employee Performance

A number of factors can influence your employees' performance in the workplace. Employees
may feel negatively influenced because of micromanaging by their supervisors or miserly budget
restrictions. Conversely, employees will most likely feel inspired and otherwise positively
influenced by top quality equipment and a supervisor's approachable management style.
Regardless of the field or industry in which they work, the factors influencing employee
performance and morale are very much the same.

It has often been said that a corporation is only as good as its employees. That might explain why
research by talent management firm Bersin & Associates reveals that 40 percent of United
States-based corporations claim that driving a performance-based culture is one of their top three
talent strategies. Several factors impact employee motivation and performance, and they
encompass much more than the numbers on a paycheck.

Following are the few factors which influence employee performance:

Equipment & Supplies

The quality and quantity of your workplace equipment and supplies can have a direct influence
on employee performance. Not all companies can afford top-of-the-line computers, copiers,
printers and expensive Internet-ready phones, but keeping equipment and software up-to-date
goes a long way in positive employee influence. And making sure employees have all the office
supplies they need to do their jobs efficiently is a necessity.

Work Environment
Your office space must have quality lighting, good temperature controls and proper ventilation
not only for employee morale but also for their health. Broken or malfunctioning light fixtures
are not only annoying, but poor lighting can also damage employee eye health. Poor climate
controls can also cause employees to become too chilled or deal with a heat-related illness. And
proper ventilation is perhaps the most critical piece of the office environment as poor ventilation
not only can make employees ill, it could also break local ordinances, as most municipalities
have some sort of environmental laws regarding proper ventilation.

Performance Appraisal handouts Page 2

Important Projects
Every employee wants to know his work matters. Always pawning off the tedious or menial jobs
on the same person day in and day out will certainly not help the person's performance or morale.
Allow everyone in your office to work on a project involving teamwork with interesting research
and hands-on display or materials assembly. Assigning special projects gives your employees a
nice change of pace, a great sense of accomplishment, and a renewed sense of purpose in the
knowledge that you trust them with critical work.

Supportive Boss
While few bosses could live up to the image of the perfect boss, a boss who is supportive and
gives positive feedback helps influence employee morale in positive ways. "Entrepreneur"
magazine reports that in a poll of 30 administrative professionals, the top characteristics they
want in a boss are "supportive" at the #1 spot, followed by (in descending order) understanding,
flexible, honest/ethical, motivating and fair. These professionals defined a supportive boss as one
who looks for solutions rather than scapegoats when the team encounters a problem. And when
things go well, the supportive boss is quick to recognize a job well done. An understanding boss
recognizes when his staff is overworked and makes himself available,
occasionally even socializing with the staff outside work hours. 

Perhaps the most positively influenced employees are those who know
their bosses wouldn't ask them to do anything the boss wouldn't be
willing to do himself.

Non-monetary Incentives

Receiving recognition for a job well done can do wonders for an employee's self-esteem and
satisfaction at work. Even in the absence of monetary rewards, knowing that high performance
will result in a title promotion, praise from colleagues or recognition at a team meeting can keep
motivation and performance levels high.

Performance Appraisal handouts Page 3

Corporate Culture
According to the Super Performance website, the quality of an employee's workplace
environment most impacts their level of motivation and subsequent performance. A corporate
culture that involves employees in setting their own performance goals, that regularly gives them
feedback, that provides them with workplace skills education and training and that promotes
from within will encourage superior performance from workers. Employees also appreciate a
workplace that allows them to work flexible hours and to telecommute when necessary.

Personal Distractions
Employees experiencing problems in their personal life might have a hard time concentrating
while at work, causing a dip in performance. Some common issues include having a sick family
member, abusing alcohol or drugs, and consistently not getting enough sleep.

Compensation
Although many other factors contribute to employee satisfaction, money does come into play to
some degree. If employees feel underpaid for their services, they are less motivated to perform at
a consistently high level. Compensation needs to be competitive among all companies operating
in a specific market in order for employees to feel that they are receiving an appropriate amount.

Bonuses/Raises/Incentives
The economy has made it tough for employers to give bonuses and raises to top employees, but
according to a report from Employee Benefit News, employers are starting to re-institute pay
raises and bonus plans in order to retain the best employees. Until employers are able to reward
employees with salary increases and bonuses, however, incentives like restaurant gift cards,
comp time or other inexpensive rewards, when given with praise, are good alternatives for
boosting employee morale.one more important thing to be kept in mind is that incentives should
be competitive.

Performance Appraisal handouts Page 4

Psychological factors

There are many psychological factors that can influence performance; some of these are
shown below.

Performance Appraisal handouts Page 5

Three main psychological factors that can influence performance:

STRESS     ANXIETY     SELF-CONFIDENCE

The relationship between these and performance is unfortunately not simple, and at times it
can be hard to understand.

What are stress & anxiety?

Stress has become a popular topic. The media often attribute unusual behavior or illness in
people to burn out from stress or a nervous breakdown resulting from stress. For example,
when a celebrity attempts suicide, it is often said that he or she was burnt out from the
pressures of public life. In their daily lives at school, students often talk about each other's
levels of stress. "I'm so stressed out!" is a common claim. But what is stress?

In general terms, stress occurs when people are faced with events they perceive as
endangering their physical or psychological well-being.

We can cope with low levels of stress because they cause us become psychologically
activated. A so-called activation pattern is set up which enables you to cope with the stress
by personality "pushing back", as it were. However, too much stress feels threatening: near
the limits of your activation range you will no longer feel stimulated, instead you are likely
to become anxious and to start worrying about your ability to cope.

Performance Appraisal handouts Page 6

Purpose of performance management

Performance Management links people to performance and profit. It starts by understanding

what success looks like for an organization, and then ensures that everyone in an organization
works effectively to achieve that success.

1. Strategic purpose/Driving Results

The Purpose to drive improvement in business results through individual, group, enterprise goal
alignment, measurement, performance coaching and performance information sharing.

A performance management process intended to drive the achievement of key business

results is typically designed to ensure that individual, group and enterprise goals and
expectations are clearly defined, focused on key priorities, and well connected to the drivers of
results.

Formal and informal processes are used for identifying and communicating performance
expectations and goals and ensuring goal alignment across group performance goals and
measures are developed at several levels in the organization. This is usually done with some
balance between financial, operational and customer-based metrics.

2. Development purpose

Many employees may express interest in growing in their current positions or in furthering their
careers. Supervisors shall work with them to identify strengths and weaknesses and, if
appropriate, to help them prepare an individual development plan. Individual development plans
may specify how employees can more fully apply their strengths in their current positions, build
up areas of weakness, enhance their performance in their current positions, or develop the skills
and experience they will need for possible future assignments. Following two are the
developmental purposes of performance management:

Performance Appraisal handouts Page 7

  Building Capability

Its purpose is to drive organization and individual capability development by clarifying role-
specific goals and competencies, establishing an environment of constructive feedback, and
using formal developmental coaching/mentoring.

A performance management process intended to drive capability development is typically

designed to help employees understand what they need to learn and how they need to learn it.

Employees are expected to be in a constant growth and learning mode, demonstrating

organization and/or role-specific competencies; the bundles of skills, behaviors and knowledge
that are critical to the organization’s ability to execute its business strategy. 

Coaching and mentoring programs and processes are used on a formal basis to provide
employees with ongoing support as they develop and apply new competencies.

 Growing Talent

 To motivate and retain high performers by providing career development programs
encompassing motivational and reward strategies, challenging work assignments and other on-
the-job learning initiatives that will lead to career advancement and ongoing job satisfaction.

A performance management process for identifying and rewarding talent is typically designed to
yield a performance assessment that can easily be used to make decisions involving
compensation, work assignments, career advancement and/or recognition.

The way in which measures and goals are developed lends itself to differentiating individuals
and/or groups.

Performance Appraisal handouts Page 8

Performance Appraisal

A performance, appraisal, employee appraisal, performance review, or (career)

development discussion is a method by which the job performance of
an employee is evaluated (generally in terms of quality, quantity, cost, and time) typically by the
corresponding manager or supervisor. A performance appraisal is a part of guiding and
managing career development. It is the process of obtaining, analyzing, and recording
information about the relative worth of an employee to the organization. Performance appraisal
is an analysis of an employee's recent successes and failures, personal strengths and weaknesses,
and suitability for promotion or further training. It is also the judgment of an employee's
performance in a job based on considerations other than productivity alone.

In the toolbox of performance management system training, performance appraisals are simply
one of the tools. Performance appraisals give opportunity to evaluate the staff, praise their
positive efforts, discuss areas of improvement, and set goals for reaching higher levels of
performance. The appraisal, or evaluation, focuses on key objectives that have been set within
the organization. When supervisor meet with an employee to discuss his performance, he should
keep these objectives in mind. How is he helping the company reach its ultimate goals? What
behaviors has he displayed that need correcting? Which of his personal strengths will become
better with more training? A detailed analysis of each employee gives the starting point for
further development.

Suitability of the employees is normally gauged through annual evaluation report initiated by
supervisors and endorsed by senior managers.

Annual evaluation report is an important tool available to managers for reporting upon
performance of personnel placed under their control. It is the most effective means of appraisal
promising many dividends at various levels. However, many managers, not realizing its
importance, handle the annual reporting just half-heartedly. As natural corollary, wrong reporting
leads to wrong decisions that adversely affect efficiency of the organization in the long run.

Performance Appraisal handouts Page 9

Aims of performance appraisal
Generally, the aims of a performance appraisal are to:

 Give employees feedback on performance

 Identify employee training needs
 Document criteria used to allocate organizational rewards
 Form a basis for personnel decisions: salary increases, promotions, disciplinary actions,
bonuses, etc.
 Provide the opportunity for organizational diagnosis and development
 Facilitate communication between employee and administration
 Validate selection techniques and human resource policies to meet federal Equal
Employment Opportunity requirements.
 To improve performance through counseling, coaching and development.

Equal Employment Opportunity

Title VII of the Civil Rights Act of 1964 was the first federal law designed to protect most U.S
employees from employment discrimination based upon that employee's (or applicant's) race,
color, religion, sex, or national origin (Public Law 88-352, July 2, 1964, 78 Stat. 253, 42 U.S.C.
Sec. 2000e et. seq.).The Title also established the U.S. Equal Employment Opportunity
Commission to assist in the protection of U.S. employees from discrimination.

Equal employment opportunity was further enhanced when President Lyndon B.

Johnson signed Executive Order 11246 on September 24, 1965, created to prohibit federal
contractors from discriminating against employees on the basis of race, sex, creed, religion,
color, or national origin.

Performance Appraisal handouts Page 10

Standards for performance appraisal

The performance standards are expressions of the performance threshold(s), requirement(s), or

expectation(s) that must be met for each element at a particular level of performance. They must
be focused on results and include credible measures such as:

 QUALITY, addresses how well the employee or work unit is expected to perform the
work and/or the accuracy or effectiveness of the final product. It refers to accuracy,
appearance, usefulness, or effectiveness. Measures can include error rates (such as the
number or percentage of errors allowable per unit of work) and customer satisfaction
rates (determined through a customer survey/feedback).
 QUANTITY addresses how much work the employee or work unit is expected to
produce. Measures are expressed as a number of products or services expected, or as a
general result to achieve.
 TIMELINESS addresses how quickly, when, or by what date the employee or work unit
is expected to produce the work.
 COST-EFFECTIVENES addresses cost control. These should address cost-
effectiveness on specific resource levels (money, personnel, or time) that can generally be
documented and measured. Cost-effectiveness measures may include such aspects of
performance as maintaining or reducing unit costs, reducing the time it takes to produce
or provide a product or service, or reducing waste.

Difference between the performance management and performance appraisal

 Comparing performance appraisal verses performance management, performance

appraisal sets job standards and evaluates past performance based on such set standards
whereas performance management aims at managing performance real-time to ensure
performance reaches the desired levels.
 Performance appraisal is but only one part of the bigger process of performance
management.

Performance Appraisal handouts Page 11

  Performance management training focuses on hiring the right type of individual for your
organization and developing your existing workforce to their full potential. Performance
appraisals are a key element of the training process. Knowing how your employees
currently perform helps you determine what changes can be made for them to perform to
your expectations.

Methods of Performance Appraisal

A common approach to assessing performance is to use a numerical or scalar rating system

whereby managers are asked to score an individual against a number of objectives/attributes. In
some companies, employees receive assessments from their manager, peers, subordinates,
and customers, while also performing a self-assessment. This is known as a 360-degree
appraisal and forms good communication patterns.

The most popular methods used in the performance appraisal process include the following:

 Management by objectives

Management by Objectives (MBO) is a process of defining objectives within an organization

so that management and employees agree to the objectives and understand what they are in the
organization.

The term "management by objectives" was first popularized by Peter Drucker in his 1954 book
'The Practice of Management'.

The essence of MBO is participative goal setting, choosing course of actions and decision
making. An important part of the MBO is the measurement and the comparison of the
employee’s actual performance with the standards set. Ideally, when employees themselves have
been involved with the goal setting and choosing the course of action to be followed by them,
they are more likely to fulfill their responsibilities.

Performance Appraisal handouts Page 12

Unique features and advantages of the MBO process

The basic principle behind Management by Objectives (MBO) is for employees to have a clear
understanding of the roles and responsibilities expected of them. They can then understand how
their activities relate to the achievement of the organization's goal. MBO also places importance
on fulfilling the personal goals of each employee.

Some of the important features and advantages of MBO are:

1. Motivation – Involving employees in the whole process of goal setting and increasing
employee empowerment. This increases employee job satisfaction and commitment.
2. Better communication and Coordination – Frequent reviews and interactions between
superiors and subordinates help to maintain harmonious relationships within the
organization and also to solve many problems.
3. Clarity of goals
4. Subordinates tend to have a higher commitment to objectives they set for themselves than
those imposed on them by another person.
5. Managers can ensure that objectives of the subordinates are linked to the organization's
objectives.

 360-degree appraisal

In human resources or industrial/organizational psychology, 360-degree feedback, also known

as multi-rater feedback, multisource feedback, or multisource assessment, is feedback that
comes from all around an employee. "360" refers to the 360 degrees in a circle, with an
individual figuratively in the center of the circle. Feedback is provided by subordinates, peers,
and supervisors. It also includes a self-assessment and, in some cases, feedback from external
sources such as customers and suppliers or other interested stakeholders. It may be contrasted
with "upward feedback," where managers are given feedback by their direct reports, or a
"traditional performance appraisal," where the employees are most often reviewed only by their
managers.

Performance Appraisal handouts Page 13

The results from 360-degree feedback are often used by the person receiving the feedback to
plan training and development. Results are also used by some organizations in making
administrative decisions, such as pay or promotion. When this is the case, the 360 assessment is
for evaluation purposes, and is sometimes called a "360-degree review." However, there is a
great deal of controversy as to whether 360-degree feedback should be used exclusively for
development purposes, or should be used for appraisal purposes as well (Waldman et al., 1998).
There is also controversy regarding whether 360-degree feedback improves employee
performance, and it has even been suggested that it may decrease shareholder value (Pfau &
Kay, 2002).

 Absolute standards
1. Essay Appraisal

In the essay method approach, the appraiser prepares a written statement about the
employee being appraised. The statement usually concentrates on describing specific
strengths and weaknesses in job performance. It also suggests courses of action to remedy
the identified problem areas. The statement may be written and edited by the appraiser
alone, or it be composed in collaboration with the appraisee.

Advantages 

The essay method is far less structured and confining than the rating scale method. It
permits the appraiser to examine almost any relevant issue or attribute of performance.
This contrasts sharply with methods where the appraisal criteria are rigidly defined.

Appraisers may place whatever degree of emphasis on issues or attributes that they feel
appropriate. Thus the process is open-ended and very flexible. The appraiser is not locked
into an appraisal system the limits expression or assumes that employee traits can be
neatly dissected and scaled.

Performance Appraisal handouts Page 14

 Disadvantages 

Essay methods are time-consuming and difficult to administer. Appraisers often find the
essay technique more demanding than methods such as rating scales.

The techniques greatest advantage - freedom of expression - is also its greatest handicap.
The varying writing skills of appraisers can upset and distort the whole process. The
process is subjective and, in consequence, it is difficult to compare and contrast the
results of individuals or to draw any broad conclusions about organizational needs.

2. Critical Incident Appraisal

The critical incident for performance appraisal is a method in which the manager
writes down positive and negative performance behavior of employees throughout
the performance period. Each employee will be evaluated as such and
one’s performance appraisal will be based on the logs that are put in
the evaluation form. The manager maintains logs on each employee, whereby he
periodically records critical incidents of the workers behavior. At the end of the
rating period, these recorded critical incidents are used in the evaluation of the
workers’ performance. The critical incidents file of performance appraisal is a
form of documentation that reflects all data about employee performances.

Disadvantages of critical Incident

This method suffers however from the following limitations:
1. Critical incidents technique of evaluation is applied to evaluate the performance
of superiors rather than of peers of subordinates.
2. Negative incidents may be more noticeable than positive incidents.
3. It results in very close supervision which may not be liked by the employee.
4. The recording of incidents may be a chore for the manager concerned, who may
be too busy or forget to do it.
5. The supervisors have a tendency to unload a series of complaints about incidents
during an annual performance review session.

Performance Appraisal handouts Page 15

 3. Checklist Appraisal
A behavioral checklist is a rating form containing statements describing both effective
and ineffective job behaviors. These behaviors relate to a number of behavioral
dimensions determined to be relevant to the job.

Example:
Items from a behavioral checklist for a salesperson's job 

Instructions: Please check those statements descriptive of an employee's behavior.

6. Calls on customers immediately after hearing of any complaints.
7. Discusses complaints with customer.
8. Gathers facts relevant to customers' complaints.
9. Transmits information about complaints back to customers and resolves problems
to their satisfaction.
10. Plans each day's activities ahead of time.
11. Lays out broad sales plans for one month ahead.
12. Gathers sales information from customers, other salesmen, trade journals, and
other relevant sources.
Behavioral checklists are well suited to employee development because they focus on
behaviors and results, and use absolute rather comparative standards. An advantage of
behavioral checklists is that evaluators are asked to describe rather than evaluate a
subordinate's behavior. For this reason, behavioral checklists may meet with less
evaluator resistance than some other methods. An obvious disadvantage of behavioral
checklists is that much time and money must be invested to construct the instrument.

4. Graphic/Adjective Rating Scales

Graphic rating scales are one of the most common methods of performance appraisal.
Graphic rating scales require an evaluator to indicate on a scale the degree to which
an employee demonstrates a particular trait, behavior, or performance result. Rating

Performance Appraisal handouts Page 16

 forms are composed of a number of scales, each relating to a certain job or
performance-related dimension, such as job knowledge, responsibility, or quality of
work. Each scale is a continuum of scale points, or anchors, which range from high to
low, from good to poor, from most to least effective, and so forth. Scales typically
have from five to seven points, though they can have more or less. Graphic rating
scales may or may not define their scale points.

Acceptable rating scales should have the following characteristics:

1. Performance dimensions should be clearly defined. 

2. Scales should be behaviorally based so that a rater is able to support all
ratings with objective, observable evidence.
3. Abstract trait names such as "loyalty," "honesty," and "integrity" should be
avoided unless they can be defined in terms of observable behaviors.
4. Points, or anchors, on each scaled dimension should be brief,
unambiguous, and relevant to the dimension being rated. For example, in
rating a person's flow of words, it is preferable to use anchors such as
"fluent," "easy," "unimpeded," "hesitant," and "labored," rather than
"excellent," "very good," "average," "below average," and "poor."

Carefully constructed graphic rating scales have a number of advantages:

 Standardization of content permitting comparison of employees.

 Ease of development use and relatively low development and usage cost.
 Reasonably high rater and ratees acceptance.

A disadvantage of such rating scales is that they are susceptible to rating errors which result in
inaccurate appraisals. Possible rating errors include halo effect, central tendency, severity, and
leniency. The halo effect occurs when a rating on one dimension of an appraisal instrument
substantially influences the ratings on other dimensions for the same employee. As a result of the
halo effect, an employee is rated about the same across all performance dimensions. Central
tendency is a lack of variation or difference among ratings of different subordinates, wherein
most employees tend to be rated as average. Leniency refers to an evaluator's tendency to rate

Performance Appraisal handouts Page 17

most employees very highly across performance dimensions, whereas severity refers to the
tendency to rate most employees quite harshly

5. Behaviorally Anchored Rating Scales

Behaviorally anchored rating scales (BARS) are rating scales whose scale points are
defined by statements of effective and ineffective behaviors. They are said to be
behaviorally anchored in that the scales represent a continuum of descriptive statements
of behaviors ranging from least to most effective. An evaluator must indicate which
behavior on each scale best describes an employee's performance.

BARS differ from other rating scales in that scale points are specifically defined
behaviors. Also, BARS are constructed by the evaluators who will use them. There are
four steps in the BARS construction process:

1. Listing of all the important dimensions of performance for a job or jobs 

2. Collection of critical incidents of effective and ineffective behavior 
3. Classification of effective and ineffective behaviors to appropriate performance
dimensions 
4. Assignment of numerical values to each behavior within each dimension (i.e., scaling
of behavioral anchors)
Sample of BARS

INTERPERSONAL SKILL DESCRIPTION: Develops and maintains a friendly

rapport with others; demonstrates sensitivity to their feelings; respects the dignity of
others and responds with empathy to their own sense of self-worth.
Ratings 1 and 2:
Demonstrates the ability to get along well with subordinates, managers, and peers; strives
to achieve work group objectives. Can express own ideas, thoughts, and feelings and
considers the needs, ideas, and feelings of others.

Performance Appraisal handouts Page 18

 Ratings 3 and 4:
Demonstrates the ability to apply factors of effective listening, on a one-to-one basis,
such as displaying interest, not interrupting when another is speaking, and withholding
judgments. Consistently provides honest (both positive and negative) feedback and
provides constructive criticism when appropriate.

Ratings 5 and 6:
Demonstrates the ability to consistently consider and respond to the needs and ideas of
others which encourages and stimulates further communication. Effectively listens in
group or one-to-one situations involving distractions, stress, complex information, or
when the person speaking is emotional/distraught. Creates/maintains a positive work
environment that encourages expression of thoughts, ideas, and feelings.

6. Forced distribution

Forced distribution is a form of comparative evaluation in which an evaluator rates

subordinates according to a specified distribution. Unlike ranking methods, forced
distribution is frequently applied to several rather than only one component of job
performance.

Use of the forced distribution method is demonstrated by a manager who is told that
he or she must rate subordinates according to the following distribution: 10 percent
low; 20 percent below average; 40 percent average; 20 percent above average; and 10
percent high. In a group of 20 employees, two would have to be placed in the low
category, four in the below-average category, eight in the average, four above
average, and two would be placed in the highest category. The proportions of forced
distribution can vary. For example, a supervisor could be required to place employees
into top, middle, and bottom thirds of a distribution.

Forced distribution is primarily used to eliminate rating errors such as leniency and
central tendency, but the method itself can cause rating errors because it forces

Performance Appraisal handouts Page 19

 discriminations between employees even where job performance is quite similar. For
example, even if all employees in a unit are doing a good job, the forced distribution
approach dictates that a certain number be placed at the bottom of a graded
continuum. For this reason, raters and ratees do not readily accept this method,
especially in small groups or when group members are all of high ability.

 Relative standards
Appraisal systems based on relative standards involve comparing the performance of an
employee to the performance of other employees doing the same job.
As these appraisals can result in a ranking from best to worst, they are useful in deciding merit
pay increases, promotions, and allocation of organizational rewards

 Individual Ranking

Each individual is compared to every other. Final ranking is based on number of times the
individual is preferred member in a pair.

 Group ranking

Employees are placed in a classification reflecting their relative performance, such as “top
one-fifth.” Supervisor places employees into a particular classification – e.g. "top one-fifth"
and "second one-fifth". If a supervisor has ten employees, only two could be in the top fifth,
and two must be signed to the bottom fifth.

Performance Appraisal handouts Page 20

 The main advantage of this method is that it’s avoid the problems of inflating performance in
average column but sometimes when dealing to a small group times excellent performer may
be forced to keep in low category

 Paired Comparison

In paired comparison method for every traits (quality of work, quantity of work, creativity
etc) you pair and compare very subordinate. This method becomes unwieldy when large
numbers are being compared.

Each individual is compared to every other. Final ranking is based on number of times the
individual is preferred member in a pair.

Key Performance Indicator 

A Performance Indicator or Key Performance Indicator (KPI) is an industry jargon term for

a type of Measure of Performance.  KPIs are commonly used by an organization to evaluate its
success or the success of a particular activity in which it is engaged. Sometimes success is
defined in terms of making progress toward strategic goals, but often, success is simply the
repeated achievement of some level of operational goal (zero defects, 10/10 customer
satisfaction etc.). Accordingly, choosing the right KPIs is reliant upon having a good
understanding of what is important to the organization. 'What is important' often depends on the
department measuring the performance - the KPIs useful to a Finance Team will be quite
different to the KPIs assigned to the sales force, for example. Because of the need to develop a
good understanding of what is important, performance indicator selection is often closely
associated with the use of various techniques to assess the present state of the business, and its
key activities. These assessments often lead to the identification of potential improvements; and
as a consequence, performance indicators are routinely associated with 'performance
improvement' initiatives. A very common method for choosing KPIs is to apply a management
framework such as the Balanced Scorecard.

Performance Appraisal handouts Page 21

Key performance indicators (KPIs) are ways to periodically assess the performances of
organizations, business units, and their division, departments and employees. Accordingly, KPIs
are most commonly defined in a way that is understandable, meaningful, and measurable. They
are rarely defined in such a way such that their fulfillment would be hampered by factors seen as
non-controllable by the organizations or individuals responsible. Such KPIs are usually ignored
by organizations. In order to be evaluated, KPIs are linked to target values, so that the value of
the measure can be assessed as meeting expectations or not.

Key Performance Indicators define a set of values used to measure against. These raw sets of
values, which are fed to systems in charge of summarizing the information, are
called indicators. Indicators identifiable as possible candidates for KPIs can be summarized into
the following sub-categories:

 Quantitative indicators which can be presented as a number.

 Practical indicators that interface with existing company processes.
 Directional indicators specifying whether an organization is getting better or not.
 Actionable indicators are sufficiently in an organization's control to effect change.
 Financial indicators used in performance measurement and when looking at
an operating index

Key Performance Indicators, in practical terms and for strategic development, are objectives to
be targeted that will add the most value to the business.  These are also referred to as Key
Success Indicators.

KPI’s Example

Marketing department KPI’s

Some examples are:

1. New customers acquired
2. Demographic analysis of individuals (potential customers) applying to become
customers, and the levels of approval, rejections, and pending numbers.

Performance Appraisal handouts Page 22

 3. Status of existing customers
4. Customer attrition
5. Turnover (i.e., Revenue) generated by segments of the customer population.
6. Outstanding balances held by segments of customers and terms of payment.
7. Collection of bad debts within customer relationships.
8. Profitability of customers by demographic segments and segmentation of customers by
profitability.

Many of these customer KPIs are developed and managed with customer relationship
management (CRM) software.

Faster availability of data is a competitive issue for most organizations. For example, businesses
which have higher operational/credit risk (involving for example credit cards or wealth
management) may want weekly or even daily availability of KPI analysis, facilitated by
appropriate IT systems and tools.

Manufacturing department KPI’s

Overall equipment effectiveness, or OEE, is a set of broadly accepted non-financial metrics
which reflect manufacturing success.

 Cycle Time

Cycle time is the total time from the beginning to the end of your process, as defined by you and
your customer. Cycle time includes process time, during which a unit is acted upon to bring it
closer to an output, and delay time, during which a unit of work is spent waiting to take the next
action.

 Cycle Time Ratio

CTR = Standard Cycle Time / Real Cycle Time

 Utilization
 Rejection rate

Performance Appraisal handouts Page 23

References

 http://en.wikipedia.org/wiki/Management_by_objectives
 http://www.performance-appraisal.com/essay.htm
 http://en.wikipedia.org/wiki/360-degree_feedback
 http://www.explorehr.org/articles/Performance_Appraisal/Performance_Appraisal_Me
thods.html
 http://www.pakspectator.com/performance-appraisals-in-organizations/
 http://www.mckpeople.com.au/content_common/pg-Purpose-of-Performance-
Management.seo
 http://en.wikipedia.org/wiki/Performance_appraisal

 http://www.ehow.com/list_6878597_factors-influence-employee-performance.html

Performance Appraisal handouts Page 24