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8 STUDY GUIDE FOR MODULE NO. ___

APPRAISING & MANAGING PERFORMANCE

MODULE OVERVIEW

“Having a right and continuous performance management system helps an organization to convert, monitor,
provide feedback and course correct, strategize the long-term objectives and its execution.”
– Srinivas Chunduru, Founder and CEO, VANS

Performance means degree of accomplishment of the tasks involved in a job. It depends upon ability
and efforts. Performance evaluation or performance appraisal is theprocess of assessing the performance
and progress of an employee or of a group of employees on a given job and his potential for future
development. It consists of all formal procedures used in working organizations to evaluate personalities,
contributions and potentials of employees.

Furthermore, it is a process of evaluating an employee’s performance of a job in terms of its

requirements. The process of evaluating the performance of employees, sharing that information with them
and searching for ways to improve their performance, coaching for improved performance and distribution of
economic rewards.

Performance appraisal is the step where the management finds out how effective it has been at hiring
and placing employees. If any problems are identified, steps are taken to communicate with employees and to
remedy them.It is a continuous process to secure information necessary for making correct and objective
decisions on employees as well as the process of obtaining, analyzing and recording information about the
relative worth of an employee.

This module encompasses performance appraisal as a formal, structured system of measuring,

evaluating job related behaviors and outcomes to discover reasons of performance and how to perform
effectively in future so that employee, organization and society all benefits. Thus, it is the assessment of
individual’s performance in a systematic way and a developmental tool used for all round development of the
employee and the organization.

MODULE LEARNING OBJECTIVES

At the end of this Module, you should be able to:

1. Define and discuss performance appraisal and its purposes.

2. Describe the basic considerations in creating performance criteria.
3. List and compare the various performance appraisal method.
4. Identify the positive and negative points of the appraisal methods.
5. Differentiate and discuss the various performance evaluation errors.
6. Summarize the positive and negative points of appraisal methods.

LEARNING CONTENTS (Nature of Performance Appraisal)

Employee Performance Appraisal is a staple part of the human resource management function by which the
past or current job of an employee is reviewed, evaluated, and eventually kept on file as evidence to support
management’s future actions and decisions. It consists of regular reviews of employee job performance and
productivity in relation to certain pre-established criteria and organizational goals.

Performance appraisal has been defined by different scholars in various ways.

Some of the important definitions are as follows:

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According to Dale S. Beach, "Performance appraisal is systematic evaluation of the individual with respect to
his or her performance on the job and his or her potential for development".

According to Randall S. Schuler, "Performance appraisal is a formal, structured system of measuring and
evaluating an employee’s job, related behavior and outcomes to discover how and why the employee is
presently performing on the job and how the employee can perform more effectively in the future so that the
employee, organization, and society all benefit."

And according to Heyel, "It is the process of evaluating the performance and qualifications of the employees
in terms of the requirements of the job for which he is employed, for purposes of administration including
placement, selection for promotions, providing financial rewards and other actions which require differential
treatment among the members of a group as distinguished from actions affecting all members equally."

Typically, performance appraisal is conducted annually or every six months or maybe every quarter, or in a
shorter cycle such as weekly or bi-weekly.It all depends upon the nature or size of the organization, and
sometimes necessity of the managers decides the period of performance appraisal of their employees. This
involves the following:

1. Establishing job criteria

2. Comparing and measuring actual performance vs. job criteria
3. Communicating results to employees

Most of organizations are insisting employee appraisal should be a continuous process and should not be
limited to a formal review once a year. The frequency of formal appraisals will depend on the nature of the
organization and on the objectives of the system.

Adobe Systems, U.S based software company has abolished annual performance appraisal system of its
employees. Instead company management has introduced regular feedback method for reviewing regular
performance of its employees rather than waiting till year ending for performance review. Company managers
feel regular feedback will improve the performance of employees as they come to know their regular
performance, further managers are considering these regular feedbacks in the matter of salary hikes and
promotions.

The Purposes of Performance Appraisal

A central reason for the utilization of performance appraisal is measuring, correcting, and improving work
performance. It can also be a basis for employment decisions such as promotion, termination, transfers, and
demotion. However, there are two basic reasons for the use of a performance appraisal that are favorable to
both organizations and employees:

1. As an administrative tool
2. As a development-oriented tool

There are also fundamental points to consider in creating performance criteria:

1. Relevance to company strategic goals

2. Failure to include an important aspect of a performance standard
3. Inclusion of a “should have not been there” criterion
4. Reliability

Let us now move on to the evaluation of employee performance.

Evaluations are typically done by managers and departmental heads, self, peers, and subordinates, and at
times, through a 360-degree feedback.

Uses of performance appraisal system

 Human resource planning
 Recruitment and selection

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 Training and development

 Career planning and development
 Compensation programs
 Internal employee relations
 Assessment of employee potential

Objectives of performance appraisal system

A performance appraisal furnishes information for a variety of organizational and individual purpose:

1. To assist managers in overseeing subordinates closely and instruct them appropriately and
effectively.

2. To help in motivating employees by providing performance feedback.

3. To achieve better results and improve the performance at work.

4. To identify developmental needs that are employed while selecting training and development
programs.

5. To achieve success by focusing on the objectives effectively and efficiently.

6. To facilitate research in human resource management.

TECHNIQUES / METHODS OF PERFORMANCE APPRAISALS

Numerous methods have been devised to measure the quantity and quality of performance appraisals. Each
of the methods is effective for some purposes for some organizations only. None should be dismissed or
accepted as appropriate except as they relate to the particular needs of the organization or an employee.

Broadly, all methods of appraisals can be divided into two different categories.

a. Past Oriented Methods

b. Future Oriented Methods

Past Oriented Methods

1. Rating Scales: Rating scales consists of several numerical scales representing job related performance
criterions such as dependability, initiative, output, attendance, attitude etc. Each scales ranges from excellent
to poor. The total numerical scores are computed and final conclusions are derived.

 Advantages – Adaptability, easy to use, low cost, every type of job can be evaluated, large
number of employees covered, no formal training required.
 Disadvantages – Rater’s biases

2. Checklist: Under this method, checklist of statements of traits of employee in the form of Yes or No based
questions is prepared. Here, the rater only does the reporting or checking and HR department does the actual
evaluation.

 Advantages – economy, ease of administration, limited training required, standardization.

 Disadvantages – Raters biases, use of improper weighs by HR, does not allow rater to give relative
ratings

3. Forced Choice Method: The series of statements arranged in the blocks of two or more are given and the
rater indicates which statement is true or false. The rater is forced to make a choice. HR department does
actual assessment.

 Advantages – Absence of personal biases because of forced choice.

 Disadvantages – Statements may be wrongly framed.

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4. Forced Distribution Method: Here, employees are clustered around a high point on a rating scale. Rater is
compelled to distribute the employees on all points on the scale. It is assumed that the performance is
conformed to normal distribution.

5. Critical Incidents Method: The approach is focused on certain critical behaviors of employee that makes
all the difference in the performance. Supervisors as and when they occur record such incidents.

 Advantages – Evaluations are based on actual job behaviors, ratings are supported by descriptions,
feedback is easy, reduces recency biases, chances of subordinate improvement are high.
 Disadvantages – Negative incidents can be prioritized, forgetting incidents, overly close supervision;
feedback may be too much and may appear to be punishment.

6. Behaviorally Anchored Rating Scales: statements of effective and ineffective behaviors determine the
points. They are said to be behaviorally anchored. The rater is supposed to say, which behavior describes the
employee performance.

 Advantages – helps overcome rating errors.

 Disadvantages – Suffers from distortions inherent in most rating techniques.

7. Field Review Method: This is an appraisal done by someone outside employee’s own department usually
from corporate or HR department.

 Advantages – Useful for managerial level promotions, when comparable information is needed,
Disadvantages – Outsider is generally not familiar with employees work environment, Observation of
actual behaviors not possible.

8. Performance Tests & Observations: This is based on the test of knowledge or skills. The tests may be
written or an actual presentation of skills. Tests must be reliable and validated to be useful.

 Advantage – Tests may be apt to measure potential more than actual performance.
 Disadvantages – Tests may suffer if costs of test development or administration are high.

9. Confidential Records: Mostly used by government departments, however its application in industry is not
ruled out. Here the report is given in the form of Annual Confidentiality Report (ACR) and may record ratings
with respect to following items; attendance, self-expression, team work, leadership, initiative, technical ability,
reasoning ability, originality and resourcefulness etc. The system is highly secretive and confidential.
Feedback to the assessee is given only in case of an adverse entry. Disadvantage is that it is highly
subjective and ratings can be manipulated because the evaluations are linked to HR actions like promotions,
etc.

10. Essay Method: In this method, the rater writes down the employee description in detail within a number of
broad categories like, overall impression of performance, promotion ability of employee, existing capabilities
and qualifications of performing jobs, strengths and weaknesses and training needs of the employee.

 Advantage – It is extremely useful in filing information gaps about the employees that often occur in a
better-structured checklist.
 Disadvantages – It its highly dependent upon the writing skills of rater and most of them are not good
writers. They may get confused success depends on the memory power of raters.

11. Cost Accounting Method: Here performance is evaluated from the monetary returns yields to his or her
organization. Cost to keep employee, and benefit the organization derives is ascertained. Hence, it is more
dependent upon cost and benefit analysis.

12. Comparative Evaluation Method (Ranking & Paired Comparisons): These are collection of different
methods that compare performance with that of other co-workers. The usual techniques used may be ranking
methods and paired comparison method.

 Ranking Methods: Superior ranks his worker based on merit, from best to worst.

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 Paired Comparison Methods: In this method, each employee is rated with another employee in the
form of pairs.

The employee performance appraisal process is crucial for organizations to boost employee productivity and
improve their outcomes.

In addition to the methods of performance appraisal,here’s a close look at the six most-used modern
performance methods:

Six Modern Performance Appraisal Methods

With the right performance appraisal method, organizations can enhance employee performance within the
organization. A good employee performance review method can make the whole experience effective and
rewarding.

1. Management by Objectives (MBO)

Management by objectives (MBO) is the appraisal method where managers and employees together identify,
plan, organize, and communicate objectives to focus on during a specific appraisal period. After setting clear
goals, managers and subordinates periodically discuss the progress made to control and debate on the
feasibility of achieving those set objectives.

This performance appraisal method is used to match the overarching organizational goals with objectives of
employees effectively while validating objectives using the SMART method to see if the set objective is
specific, measurable, achievable, realistic, and time-sensitive.

Incorporating MBO into your performance management process

To ensure success, the MBO process needs to be embedded in the organizational-wide goal setting and
appraisal process. By incorporating MBO into the performance management process, businesses can
improve employee’s commitment, amplify chances for goal accomplishment, and enable employees to think
futuristically.

2. 360-Degree Feedback

360-degree feedback is a multidimensional performance appraisal method that evaluates an employee using
feedback collected from the employee’s circle of influence namely managers, peers, customers, and direct
reports. This method will not only eliminate bias in performance reviews but also offer a clear understanding of
an individual’s competence.

This appraisal method has five integral components like:

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a. Self-appraisals

Self-appraisals offer employees a chance to look back at their performance and understand their strengths
and weaknesses. However, if self-appraisals are performed without structured forms or formal procedures, it
can become lenient, fickle, and biased.

b. Managerial reviews

Performance reviews done by managers are a part of the traditional and basic form of appraisals. These
reviews must include individual employee ratings awarded by supervisors as well as the evaluation of a team
or program done by senior managers.

c. Peer reviews

As hierarchies move out of the organizational picture, coworkers get a unique perspective on the employee’s
performance making them the most relevant evaluator. These reviews help determine an employee’s ability to
work well with the team, take up initiatives, and be a reliable contributor. However, friendship or animosity
between peers may end up distorting the final evaluation results.

d. Subordinates Appraising manager (SAM)

This upward appraisal component of the 360-degree feedback is a delicate and significant step. Reportees
tend to have the most unique perspective from a managerial point of view. However, reluctance or fear of
retribution can skew appraisal results.

e. Customer or client reviews

The client component of this phase can include either internal customers such as users of product within the
organization or external customers who are not a part of the company but interact with this specific employee
on a regular basis.

Customer reviews can evaluate the output of an employee better, however, these external users often do not
see the impact of processes or policies on an employee’s output.

Advantages of using 360-degree feedback:

Increase the individual’s awareness of how they perform and the impact it has on other stakeholders
Serve as a key to initiate coaching, counselling, and career development activities
Encourage employees to invest in self-development and embrace change management
Integrate performance feedback with work culture and promote engagement

3. Assessment Center Method

The concept of assessment center was introduced way back in 1930 by the German Army but it has been
polished and tailored to fit today’s environment. The assessment center method enables employees to get a
clear picture of how others observe them and the impact it has on their performance. The main advantage of
this method is that it will not only assess the existing performance of an individual but also predict future job
performance.

During the assessment, employees are asked to take part in social-simulation exercises like in-basket
exercises, informal discussions, fact-finding exercises, decision-making problems, role-play, and other
exercises that ensure success in a role. The major drawback of this approach is that it is a time and cost
intensive process that is difficult to manage.

Advantages of the assessment centre method:

 Enhance a participant’s knowledge, boost his/her thought process, and improve employee efficiency
 Can be tailored to fit different roles, competencies, and business needs

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 Offer an insight of the employee’s personality (ethics, tolerance, problem-solving skill,

introversion/extroversion, adaptability, etc.)

This is ideal for manufacturing organizations, service-based companies, educational institutions, and
consulting firms to identify future organizational leaders and managers.

Did you know?

Microsoft, Philips, and several other organizations use the assessment center practice to identify future
leaders in their workforce.

4. Behaviorally Anchored Rating Scale (BARS)

Behaviorally anchored rating scales (BARS) bring out both the qualitative and quantitative benefits in a
performance appraisal process. BARS compares employee performance with specific behavioral examples
that are anchored to numerical ratings.
Each performance level on a BAR scale is anchored by multiple BARS statements which describe common
behaviors that an employee routinely exhibits. These statements act as a yardstick to measure an individual’s
performance against predetermined standards that are applicable to their role and job level.

The first step in BARS creation is generation of critical incidents that depict typical workplace behavior. The
next step is editing these critical incidents into a common format and removing any redundancy. After
normalization, the critical instances are randomized and assessed for effectiveness. Remaining critical
incidents are used to create BARS and evaluate employee performance.

Advantages of using BARS:

 Enjoy clear standards, improved feedback, accurate performance analysis, and consistent evaluation
 Eliminate construct-irrelevant variance in performance appraisal ratings by emphasis more on
specific, concrete, and observable behaviors
 Decrease any chance for bias and ensure fairness throughout the appraisal process

This method is ideal for businesses of all sizes and industries to assess the performance of their entire
workforce from the entry level agent to executives.

Common drawbacks of BARS:

 High chance for subjectivity in evaluations

 Hard to make compensation and promotion decisions
 Time-consuming to create and implement
 Demands more from managers and senior executives

5. Psychological Appraisals

Psychological appraisals come in handy to determine the hidden potential of employees. This method focuses
on analyzing an employee’s future performance rather than their past work. These appraisals are used to
analyze seven major components of an employee’s performance such as interpersonal skills, cognitive
abilities, intellectual traits, leadership skills, personality traits, emotional quotient, and other related skills.

Qualified psychologists conduct a variety of tests (in-depth interviews, psychological tests, discussions, and
more) to assess an employee effectively. However, it is a rather slow and complex process and the quality of
results is highly dependent on the psychologist who administers the procedure.

Specific scenarios are taken into account while performing psychological appraisal. For instance, the way in
which an employee deals with an aggressive customer can be used to appraise his/her persuasion skills,
behavioral response, emotional response, and more.

Advantages of psychological appraisals:

 Extract measurable, objective data about not just an employee’s performance but also potential

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 Can be deployed easily when compared with other performance appraisal methods
 Offer introverted or shy employees a platform to shine and prove their potential

This method is suited for large enterprises can use psychological appraisals for an array of reasons including
development of leadership pipeline, team building, conflict resolutions, and more.

Common reasons for failure:

Absence of proper training, lack of trained professionals to administer reviews, and nervousness or anxiety of
candidates can skew results.

Did you know?

Ford motors, Exxon Mobil, Procter & Gamble use psychological appraisals to test the personality and
performance of their employees.

6. Human-Resource (Cost) Accounting Method

Human resource (cost) accounting method analyses an employee’s performance through the monetary
benefits he/she yields to the company. It is obtained by comparing the cost of retaining an employee (cost to
company) and the monetary benefits (contributions) an organization has ascertained from that specific
employee.

When an employee’s performance is evaluated based on cost accounting methods, factors like unit-wise
average service value, quality, overhead cost, interpersonal relationships, and more are taken into account.
Its high-dependency on the cost and benefit analysis and the memory power of the reviewer is the drawback
of human resources accounting method.

Advantages of the human cost accounting method:

 Effectively measure the cost and value that an employee brings to the organization
 Help identify the financial implications that an employee’s performance has on the organization’s
bottom line

This is ideal for startups and small businesses where the performance of one employee can make or break
the organization’s success.

Implementation of human resource cost accounting method:

 Identify the gap between the market and the current package of an employee
 Determine the monetary and non-monetary value that an employee brings to the table
 List down the things that an employee achieved in the review period (increase in the subscriber count,
improvement in revenue, number of new deals won, etc.

Each method of performance appraisal has its strengths and weaknesses may be suitable for one
organization and non-suitable for another one. As such, there is no single appraisal method accepted and
used by all organizations to measure their employees’ performance.

Appraisal feedback is one of the most important parts of performance evaluation procedure. It gives the
supervisor/manager the chance to talk about an employee’s work accomplishments and to further look into
probable areas for upgrading and enhancing performance.

Choosing the right performance appraisal method is more critical than ever since it reflects what you think of
your employees and how much you care about employee morale. Once you’ve found an ideal performance
review method for your needs, the next step is implementing it properly to eliminate critical performance gaps
and address pressing issues that impact ROI.

PERFORMANCE EVALUATION ERRORS

In evaluating performance, it is important to always compare actual performance to the performance

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standards as determined during the Performance Planning stage. To be fair and objective, a performance
evaluation must be based on the employee’s job-related behavior, not on the employee’s personal traits or
other factors not related to the job. It is also important to make sure the evaluation is submitted complete with
all required signatures and supporting documentation.

Let us now discuss the Nine Common Errors in Performance Appraisals.

Both managers and employees often dread performance appraisals. This is partly because many reviews are
ineffective and unhelpful due to issues such as unconscious bias, failure to use a baseline when crafting a
review, placing unnecessary emphasis on personality characteristics, and not providing an employee with
guidelines or support for improvement.

1. No Baseline

It's impossible to fairly assess an employee's performance without a baseline of what can reasonably be
expected. Make use of the employee's job description and stated goals during the review. Be careful not to
compare the employee to other workers with different job roles. Assess the employee in light of the job, not
the work of others in different positions.

2. Overemphasis on Attitude

Agreeable, friendly employees who get along well with others are an asset to any business. Still, many good
workers are less winsome and enthusiastic. If an employee's attitude or lack of social skills is creating tension
in the workplace, address it, but don't risk losing a competent worker just because the employee isn't a
cheerleader or everybody's friend.

3. Influence of Halo Effect Bias

Halo effect is a particular bias that can skew your assessments to be more positive than they ought to be.
With the halo effect, the employee has a particular characteristic or area of performance that you find
particularly appealing, which affects the way you perceive every aspect of the worker's performance.

For example, if you have an employee who is an excellent researcher who develops reports that contain
accurate and timely information, you may be inclined to look more favorably on the employee's performance
in other areas, even though the facts show that the skill sets in these other areas are not as strong.

4. Single Deficiency Focus

Overfocusing on a deficiency is the opposite of the halo effect. Some employees may struggle in one
particular area, even though their performance of other tasks is good or even excellent. Don't overlook
behaviors or skills that need improvement but don't let your frustration cause you to ignore or minimize
everything that the employee does correctly.

5. Ignoring the Entire Timeline

Performance reviews typically focus on a specific period, usually the past year. Unfortunately, some
managers tend to focus on the most recent weeks and months, ignoring performance throughout the year.
Another mistake is to overfocus on a single situation or project rather than to examine the employee's entire
performance record.

6. Unawareness of Negative Biases

Everyone has biases, and many of these can be unconscious. Employers and managers need to keep biases
in check when completing performance reviews. Typically, biases develop based on race, gender, sexual
orientation, religion, or aspects of the employee's appearance.

Before offering a review that can have a serious impact on an employee's career trajectory, the person
providing a review should engage in self-reflection to examine any possible biases. Would the same report be
given to an employee who has different personal characteristics than the employee under consideration?

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7. Lack of Professional Development Plan

Most employees strive to improve their skills and move forward into more challenging positions that offer
higher compensation. Sometimes, though, managers focus entirely on performance within the employee's
current position, leading to a missed opportunity. The employee misses out on opportunities for professional
growth, and the employer fails to tap the worker's potential.

8. Failure to Listen

An annual performance review is not an opportunity for managerial catharsis. While it is the employee who is
under review, the manager has to take some responsibility for the worker's performance. Managers need to
listen closely and acknowledge an employee's explanations, concerns and feedback.

9. No Action/review taken

A good review reports the past and offers direction for the future. Employer and employee should use the
review as an opportunity to establish goals for the year and to plan for the employee to acquire and improve
skills.

You may also access Performance Appraisallecture notes on these sites:

https://www.yourarticlelibrary.com/performance-appraisal/performance-appraisal-methods-traditional-and-
modern-methods-with-example/35492
https://corehr.wordpress.com/performance-management/performance-appraisal-methods/
https://www.assignmentpoint.com/business/human-resource-management/performance-appraisal.html

LEARNING ACTIVITY 8

1. Answer the following questions and type in A4 size bond paper.

a. Identify and discuss the objectives of performance appraisal.
b. In your opinion, why do some performance systems fail?
2. Answer the case exercises, page 73 of Lauron, D.
3. This activity is worth 30 points and is due on November 12, 2020 and will be assessed using the
appropriate rubric.
4. Submit your activity properly labeled as follows: (Last Name_First Name_Mod8_LA8) and send thru
email: reyesjosephine@psu.edu.ph

SUMMARY

 Performance appraisal is a process of evaluating an employee’s performance of a job in terms of its

requirements. It is the process of evaluating the performance of employees, sharing that information
with them and searching for ways to improve their performance, coaching for improved performance
and distribution of economic rewards.
 Each method of performance appraisal has its strengths and weaknesses may be suitable for one
organization and non-suitable for another one. As such, there is no single appraisal method accepted
and used by all organizations to measure their employees’ performance.
 Performance appraisal is conducted annually or every six months or maybe every quarter, or in a
shorter cycle such as weekly or bi-weekly. It all depends upon the nature or size of the organization,
and sometimes necessity of the managers decides the period of performance appraisal of their
employees.
 A central reason for the utilization of performance appraisal is measuring, correcting, and improving
work performance. It can also be a basis for employment decisions such as promotion, termination,
transfers, and demotion.
 Appraisal methods have been designed to gauge the quality of employee performance. However,
some methods maybe effective to some companies only, and may not applicable to others. Therefore,

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there is no one best way of appraising performance except as it applies to the specific needs of the
organization or an employee.
 Appraisal feedback is one of the most important parts of performance evaluation procedure. It gives
the supervisor/manager the chance to talk about an employee’s work accomplishments and to further
look into probable areas for upgrading and enhancing performance.

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