10.

2 CONCEPT ANDNATURE OF PERFORMANCEAPPRAISAL

Performance appraisal is the process of assessing the performance and
progress of an employee or of a group of employees on a given job and
potential for future development. According to Flippo, "Performance
appraisal is the systematic, periodic and an impartial rating of an
employee's excellence in matters pertaining, to his present job and his
potential for a better job." Pertormance appraisal and merit rating are
 iRTAppraisal 10.5

onymously. But strictly speaking, performance appraisal is a

termthan merit-rating. In merit-rating, the focus is on judging
wier
calibre of an employeeso as toto decide salary increment. On the
e
therhand, performance appraisal focuses on the performance and
ture potentialofithe employee. Its aim is not simply to decide salary
TeTIents but to develop a rational basis for per,sonnel decisions.
verit-rating measures what the person is (traits) whereas performance
appraisal measures what the person does (performance).
The main characteristics of performance appraisal are as follows:
(9) Performance appraisal is aprocess consisting of aseries of steps.
These steps are described later.
() It is the systematic examination of an employee's strengths and
weaknesses in terms of the job.
(i) Performance appraisal is a scientific or objectivestudy. Formal
procedures are used in this study. The same approach is adopted
for all jobholders so that the results are comparable.
") It is an ongoing or continuous process wherein the evaluations
are arranged periodically according to adefinite plan.
The main purpose of performance appraisal is to secure
Information necessary for making objective and correct
decisions on employees.
10.3 OBJECTIVES OF PERFORMANCE APPRAISAL
The main Purposes of performance appraisal are as follows:
that they come to know
) to provide feedback to employees so pertormance;
job
where they stand and can improve their
personnel decisions cooncerning
(ii) to provide a valid database for punishment, etc.;
placement,pay, promotion, transfer,
strengths and weaknesses of individuals so as to
s
(iii) to diagnose the
needs;
identify further training
counselling,,career planning and motivation
(iv) provide coaching,
to subordinates;
to

develop positivesuperior- subordinate relations and thereby

to
(v) reduce grievances;
Performance Appraisal
10.5

used synonymously. But strictly speaking, performance appraisal

wider ternm than merit-rating. In merit-rating, the focus is on
the calibreof an employee so as to decide salary judging
increment. On the
other hand, performance appraisal focuses on the performance and
future potential of the employee. Its aim is not simply todecide salary
increments but to develop a rational basis for per,sonnel decisions.
Merit-rating measures what the person is (traits) whereas performance
appraisal measures what the person does (performance).
The main characteristics of performance appraisal are as follows:
(i) Performance appraisal is a process consisting of a series of steps.
These steps are described later.
(ii) It is the systematicexamination of an employee's strengths and
weaknesses in terms of the job.
(ii) Performance appraisal is a scientificor objective study. Formal
procedures are used in this study. The same approach is adopted
for all jobholders so that the results are comparable.
(iv) Itis an ongoing or continuous process wherein the evaluations
are arranged periodically according to adefinite plan.
(v) The main purpose of performance appraisal is to secure
information necessary for making objective and correct
decisions on employees.
10.3 OBJECTIVES OF PERFORMANCE APPRAISAL

Themain purposes of performance appraisal are as follows:

(i) to provide feedback to employees so that they come to know
where they stand and can improve their job perfornmance;
(ii) to provide avalid database for personnel decisiens concerning
placement, pay, promotion, transfer, punishment, etc.;
(iii) todiagnose the strengths and weaknesses of individuals so as to
identify further training needs;
(iv) toprovide coaching, counselling, career planning and motivation
to subordinates;

(v) to develop positive superior-subordinate relations and thereby

reduce grievances;
10.6 esource Management
research in human resource
(vi) tofacilitate
ofof recruitment.
management;
(vii) to test the effectiveness
and induction programmes;
selection, placement
Thus, performance appraisal
aims at both judgmental
and
mental efforts. The first two objectives are judgmental whereas the
attention on
remaining are developmental. By focussing performance,
performance appraisal reflects management's interest in the nror
of employees.
10,4 USES ORIMPORTANCE OF PERFORMANCE APPRAISAI
Performance appraisal is a significant element of the information and
controlsystem in organisation. It can be put to several uses concerning
the entire spectrum of human resource management functions. Some
common applications of performance appraisal are given here:
(i) Performance appraisal provides valuable information for
personnel decisions such as pay increases, promotions,
demotions, transfers and terminations. Thus, performance
appraisal serves as the basis of suitable personnel policies.
(ii) It helps to judge the effectiveness of
recruitment, selection,
placement and orientation systems of the organisation.
(ii) It is useful in analysing training and
needs can be assessed because development needs. These
people who require further training performance appraisal reveals
It also identifies to renmove their weaknesses.
individuals with high potential who can be
groomed up for higher
(iv) Performance
positions.
appraisal can be used to improve
through appropriate performance
feedback and counselling to employees.
servesas a means of tellinga It
suggesting subordinate how one is doing and
attitudes. necessary changes in knowledge,
behaviour and
(v) Performance appraisalfacilitates
planning and succession planning.human resource planing, career
(vi) It promotes a positive work
productivity. environment which contributes to
When achievements are
recognised and rewarded on
the basis
PerformanceApp 10.7

of objective performance measures, there is improvement in

work environment.
(v) ACompetitive spirit is created and employees are motivated to
improve their performance. Systematic appraisal provides
management an opportunity to properly size up the employees.
(vi) Systematic appraisal of performance helps to develop confidence
from
among employees. Appraisal records protect management
union leaders.
charges of discrimination levelled by trade
Employee grievances can be reduced.
performance appraisals.
lable 10.2 shows the uses of
Anpraisals
 performance.
10.6 PROBLEMSIN PERFORMANCE APPRAISAL
(LIMITATIONS OF PERFORMANCE
APPRAISAL)
are as Gan
Themain problems involved in pertormance appraisal
(1) Errors in Rating: Performance appraisal may not be valid
indicator of performance and potential of employees due to
following types of errors:
(a) Halo Effect: It is the tendency to rate an emplovee
consistently high or low on the basis of overall impresson
One trait of the employee influences the rater's appraisa|
onall other traits. For example, an employee may be rated
high on performance just because he/she sits on the job
late in the evening. Similarly, a person who does not shave
regularly may be considered lazy at work and may be
underrated. This error mav be minimised by rating all the
employeeson one trait before taking up another trait.
(b) Stereotyping: This implies forming amental picture ot a
person on the basis of the age, sex, caste or religion. It results
in an over-simplified view and blurs the
performance. assessment of joD
(c)Central Tendency: It means
the employees in order assigningto avoid average ratings toall
involvement. This is adopted commitment o
justify or clarify the average because the rater has not to
are clustered around the ratings. As a result, the rating
(d) Constant Error: Some midpoint.
evaluators tend to be lenient while
others are strict in assessing
performance is overrated performance. In the first case.
second type it is underrated (leniency error) while in the
(strictness error). This tendency
 Theimpact may be positive or negative ource Management
appraisalfeedback is presented and I
depending
discussed withthe how the
(6) Taking Corrective Actions:
employees, the steps
Through mutual employe .
required to improve discussion
identified and initiated.
are examples of
Training,
corrective
coaching, per for m ance are
helpcounstoel ing, etc.
actions that
performance.
improve
10.6 PROBLEMS IN PERFORMANCE APPRAISAL
(LIMITATIONS OF PERFORMANCE APPRAISAL)
The main problems involved in performance appraisal are as
followe:
(1) Errors in Rating: Performance appraisal may not be
valid
indicator of performance and potential of employees due to the
following types of errors:
(a) Halo Effect: It is the tendency to rate an
employee
consistently high or lowon the basis of overall impression.
One trait of the employee influences the rater's
on allother traits. For example, an appraisal
high on performance just becauseemployee may be rated
he/she sits on the job
late in the evening. Similarly, aperson who does not shave
regularly may be considered lazy at work and may be
underrated. This error may be minimised by ratingall the
employees on one trait before taking up another trait.
(b) Stereotyping: This
implies forming a
person onthe basis of the age, picture of a
mental
sex,
inan over-simplified view and caste or religion. It results
blurs the assessment of joo
performance.
(c) Central Tendency: It means
the employees in order assigning to avoidaverage ratings
toall
involvement. This is adopted because thecommitment or
justify or clarity the average ratings. As a rater has not to
are clustered around the
midpoint. result, the ratings
(d) Constant Error: Some
evaluators tend to be lenient while
others are strict in assessing
performance is overrated performance. In the first case,
(leniency
second typeit is underrated (strictness error) while in the
error). This tendency
PertormanceAppraisal
10.11

may be avoided by holding meetings so that the raters

understand what is required of them.
(e) Personal Bias: Performance appraisal may
e)

become invalid
bocause the rater dislikes an employee. Such bias or prejudice
may arise on the basis of regional or religious beliefs and habits
or interpersonal conflicts. Bias may also be the result of time.
Recent experience or first impression of the rater may affect
the evaluation.
(n Spill Over Efect: This arises when past performance affects
assessment of present performance. For instance, recent
behaviour or performance of an employee may be used to judge
him. This is called recency.
2. Lack of Reliability: Reliability implies stability and consistency
in the measurement. Lack of consistency over time and among
different raters may reduce the reliability of performance
appraisal. Inconsistent use of measuring standards and lack of
training in appraisal techniques may also reduce reliability.
Different qualities may not be given proper weightage. Factors
likeinitiative are highly subjective and cannot be quantified.
evaluate performance
3, Incompetence: Raters may fail to
accurately due to lack of knowledge and experience. Post
handled ineffectively.
appraisal interview is often
Approach: Performance appraisal loses most of its
2. Negative of management is on punishment rather
value when the focus
employees.
than on development of confusedl due totoo man
Objectives: Raters may get
5. Multiple
unclear objectives of pertormance appraisal.
objectives or resist performance appraisal on
Resistance: Trade unions may
6.
itinvolves discrimination among its members.
that relations and industrial
the ground ratings mayaffecttinterpersonal
Negative particularly when employees/unions do not have faith
of performance appraisal.
relations
system
in the
Knowledge: The statf appraising performance of
of might nottbe trained and experienced enough to make
7. Lack
employees
correctappraisal.
PerformanceAppraisal
10.15

10.8 METHODSSANDTECHNIQUESOF PERFORMANCEAPPRAISAL

Several methods and techniques are used for evaluating employee
nerformance. They may be classified into, two broad categories as
shown in Figure 10.2.

Performance Appraisal

Traditional Methods Modern Methods

1. Confidential Report
11. Assessment Centre
2. Free Form or
Essay 12. Human Resource Accounting
3. Straight Ranking 13. Behaviourally Anchored
4. Paired Comparison Rating Scales
5. Forced Distribution
14. Appraisal through MBO
6. Graphic Rating Scales 15. 360 Degree Appraisal
7. Checklist Method
8. Critical Incidents
9. Group Appraisal
10. Field Review

Figure l0.2: Methods or Techniques of Performance Appraisal

10 8 METHODS ANDTECHNIQUES OF PERFORMANCE APPRAISAL
Several methods and techniques are used for evaluating employee
nerformance. They may be classified into, two broad categories as
shown in Figure 10.2.

Performance Appraisal

Traditional Methods Modern Methods

1. Confidential Report 11. Assessment Centre

2. Free Form or Essay 12. Human Resource Accounting
3. Straight Ranking 13. Behaviourally Anchored
4. Paired Comparison Rating Scales
5. Forced Distribution 14. Appraisal through MBO
6. Graphic Rating Scales 15. 360 Degree Appraisal
7. Checklist Method
8. Critical Incidents
9. Group Appraisal
10. Field Review

Figure 10.2: Methods or Techniques of Performance Appraisal

(1) Confidential Report: This is a traditional form of appraisal used
in most government organisations. A confidential report is a
report prepared by the employee's immediate superior. It covers
the strengths and weaknesses, main achievements and failure,
personality and behaviour of the employee. It is descriptive
appraisal used for promotions anc transfers ofemployees. Butit
involves a lot of subjectivity because appraisal is based on
impressions rather than on data. No feedback is provided to the
employee being appraised and, therefore, its credibility is very
low. The method focusses on evaluating rather than developing
the employee. The employee who is appraised never knows his
weaknesses and the opportunities available for overcoming
them.
(2) Free Form or Essay Method: Under this method, the evaluator
writes a short essay on the enmployee's performance on the basis
of overall impression. The description is expected to be as factual
and concrete as possible. An essay can provide a good deal of
10.16 Human Resource Managemen
information about the employee especially if
examples of each one of his
the evalutor is
asked to give
method suffers from several
drawbacks
First, it judgements. But this
evaluation is not based on specific pertormance dimen as
related to the job. Secondly.tthe quality of appraisal
involvesbias
the writing ability of the evaluator rather than on on depends
performance. Thirdly, it is a very time consuming empl oyeeof
method
appraisal. Fourthiy, it is not possible to compare two
appraisals due to variations in their length and contente essay
(3) Straight Ranking Method: In this technique, the evaluato
assigns relative ranks to all the employees in the same work
unit doing the same job. Employees are ranked from the best to
the poorest on the basis of overall performance.
For instance, if five persons A, B, C, D and E are to be ranked,
theranking may be as follows:
Employee Rank
A 2
B 1

5
D 4
E 3

Straight ranking is one of the oldest and simplest methods. ItS

time saving and acomparative evaluation
But there are several technique of apprasa
weaknesses this method. First, it involves
bias and snap judgement because
in
appraisal is not based on
specifically defined measures of job-related
Secondly, ranking of individuals performance
behaviour
patterns or traits is difficult having varying number
persons are to be rated. especially when alarge of
a person stands in relationThirdly,
to
the method only indicates how
tell how much
better or worse others in the group but does not
he is than
(4) Paired Comparisons Method: This is a
another.
ranking. Herein, each employee is modified formmof straight
in pairs one at a time. The numbercompared with
of times an all the
others
judged better than the other
determines his rank. employee is
Comparison
irMne praisal
10.17
js made on the basis of overall performance. The number of
to be made can be decided on the basis of
followingformula: the

N(N -1)
2

where Nis the number of persons to be compared. This method

is illustrated as follows:
A B D Final Rank

A + 3

B + 2

C + + + + 1

D 4

Herein, plus (+) sign implies the employee is considered better

and minus (-) sign means worse than the other employee in
therefore, his
the pair. C gets the highest number of plus signs,
rank is the highest and so on.
the ranking
Paired comparison method is easier and simpler thannot based on
is
method. But it is subjective because appraisal becomes very
Secondly, it
Specific job related performance.employees to be rated is large.
cumbersomewhen the number of
Distribution Method: In this technique, the rater is
(5) Forced ratings in the torm of a normal
required to distribute his
l0.3. The purpose is
distribution asshown in Figuretendency.
frequency central Here also
rater's bias of
to eliminate the method is highly simple to
technique is used. This
Secondly, it helps to reduce bias
ranking easy to apply.
understand and
and paired comparisons. But in this
involved in straight ranking
are placedi in a certain category and not
method employees category. lThe method is based on the
within a
ranked
questionable assumption that all groups of
enmployees have the
distribution of good and poor pertormances. The rater
same
explain why an employee is placed in a particular
does not
category. Specificjobrelated performance criteria is not used in
(7) Checklist Method: A checklist is a list of statements that describe
the characteristics and performance of employees on the job.
The rater checks to indicate if the behaviour of an employee is
positive or negative to each statement. The performance of an
employee is rated on the basis of number of positive checks.
There are three types of checklists that can be used: (i) Simple
checklist (Table 10.4)wherein equal importance is given to each
statement, (ii) Weighted checklist (Table 10.5) in which weights
different statements to indicate their relative
are assigned to
Forced choice checklist (Table 10.6) wherein
importance, and (ii) descriptive
statements are given for each trait, two most
five and one neutral
statements,two least descriptive statements
rater is required to check one statement each
statement. The aim is
and least descriptive ones. The
from the most descriptive
bias.
tominimise the rater's personal
Checklist
Table 10.4: Simple
Yes/ No
1. Is the employee regular onthe job? Yes / No
subordinates?
the employee respected by his
3. Is the always willingto help his peers?
Yes / No
employee Yes / No
Does the employee follow instructions properly?
4.
Yes / No
5. order
es the employee keep the equipment in
1. Always regular least
2. Informs in advance for absenceldelay
3. Never regular
4. Remains absent

5. Neither regular nor irregular

Table 10.6: Weighted Checklist
Traits Weights Performance Ratings
(Scale I to5)
1. Attendance 0.5

Knowledge of the job 1.0

2.
Quantity of work 1.0
3.
4. Qualityof work 1.5

5. Dependability 1.5

6. Interpersonal relations 2.0

7. Organisational loyalty 1.5

8. Leadership potential 1.5

and it provides
Checklist method isis aa descriptive technique
: time-consumingand
concrete examples of evaluation. But it issa
expensive method as a different checklist must be developed
assemble,analyse
for each job category. Secondly, it is difficult to related
job
and weight several statements that properly describeinterpreted
behaviour and performance. The statements may beknOw which
differently by different raters. The rater may not Trained
statement çontributes successful performance.
 Table 10.5 : Forced Choice Block ce Management
Regularity on the Job
1. Always regular
Most
2. Informs in advance for absence/delay Least
3. Never regular
4. Remains absent
5. Neither regular nor irregular
Table 10.6: Weighted Checklist
Traits
Weights

1. Attendance
(Scale I to 5)
0.5
Performance Ratings
2. Knowledge of the job 1.0
3. Quantity of work 1.0
4. Quality of work 1.5
5. Dependability 1.5
6. Interpersonal relations 2.0
7. Organisational loyalty 1.5
8. Leadership potential
1.5

Checklist method is a descriptive technique and it

concrete examples of evaluation. But it is a provides
expensive method as a time-consuming and
different checklist must be developed
for each job category.
and weight several Secondly,that difficult to assemble, analyse
it is
statements properly describe job related
behaviour and performance.
differently by different raters.TheThestatements may be interpreteu
rater may not know which
statement contributes most to successful
raters are required. performance. Trained
(8) Critical Incidents Method: In this
written record of critical events and method, the supervisor keeps a
behaved during such events. The ratinghow different
of an employee employees
on his
positive/negative
critical incidents behaviours during these events.depends
are identified These
after thorough
discussion with the stat. For example, a fire, astudy the job and
of
of machinery, a serious accident, etc.
may be
sudden breakdown
identified
as critical
ormanceAppraisal 10.21

incidents for the working of a factory. Table 10.7 illustrates the

hehaviour of fiveworkers during machine breakdown.
Table 10.7:Critical Incident Score
Worker Reaction Score

A Informed the supervisor immediately

Became anxious of loss of output 4
B
Tried to repair the machine 3
C
2
D Complained of poor maintenance
Was happy to get forced rest

incidents method helps to avoid vague impressions and

Critical actual records of
rating is based on
general remarks as the from actual events can
behaviour/performance. The feedback
employee to allow improvements. The
be discussed with the ratings on the basis of his record. But
rater can fully defend his several problems. First, it is very time
from
this method sufferscumbersome for the superior to maintain
consuming and
employee during every major event.
each
written record forincidents after considerable time lapse may
Secondly quoting subjective
emotions from employees. Thirdly, critical incidents
evoke negative involved in. deciding
ofsupervisoris
judgement toan event.vent. Fourthly, the supervisor
desirable' response behaviours of different
and in recording
commit errors duration event. Fifthly, criticalrec
lincidents
may short continuous
employeesduringa and therefore, a
infrequently
occur might not be available. Lastly, the employees are
performance concerned w with what the supervisor records
become routine.
likelyto daily job
with
rather than of
aisal Method: Under this method, a group
 it is Ment
evaluators personal bias is minimised. But
But it is a
consuming process.
very time-
method. a
(10) FieldReview Method: In this training
officer
the human resource department interviews linne from
to evaluate their respective subordinates. The The interviewer supervisors
prepares in advance the questions to be asked. By
these questions a supervisor gives his opinions about the level answering
of performance of his subordinate, the subordinate's work
progress, his strengths and weaknesses, promotion potential.
etc. The evaluator takes detailed notes of the answer which
are then approved by theconcerned supervisor. These are then
placedin the employee's personal service file.
This system relieves the supervisor of the need for filling in
appraisal forms. The supervisor's personal bias is reduced due
to the active involvement of the human resource officer.
The
ratings are usually classified into three categories, i.e.,
outstanding, satisfactory and unsatisfactory. This is, however, a
time-consuming method. The success of this method depends
upon the competence and sincerity of the interviewer.
The traditional methods given here all focus
more on the traits of an
employee than on his job performance. In the absence of
predecided
performance criteria or standards, the personal bias or subjectivity
evaluator affects the ratings.' of the
One study' of appraisal in General
Electric Co., USA revealed that the
traditional approach to performance appraisal
responses: caused the following
(i) The very nature of the
(iij) Criticism appraisal system led to criticism.
exercised negative impact on goal
a
(ii) Criticism increased antagonism and attainment.
resulting ininferior performance. defensiveness among employees
(iv) Praise had little effect one
way or theother.
The traditional systems of
supervisor.
appraisal are based on judgement role of the
(11) Assessment Centre Method: An assessment centreis a group of
employees drawn from different work units. These employees
work together on an assignment similar to the one they would
be handling when promoted. Evaluators observe and rank the
performanceof allthe participants.Experienced managers with
proven ability serve as evaluators. This group evaluates all
employees both individually and collectivelyby using simulation
techniques like role playing, business games and in basket
Employees are evaluated on job-related characteristics
exercises.
evaluators observe
considered important for job success. The are
as they perform jobs. Assessments
and evaluate employees tor promotion.
determine employee potential
done generally to summary report and feedback is
Theevaluators prepare a basis to the emplovees who ask
administeredon a face-to-face
for it. sessment
Assessment centres are used for the following purposes :
and
(i) To measure potential for first level supervision, sales
management positions; and also for higher levels of
upper
management for development purposes;
individual training and development needs
(ii) To determine
of employees;
college students for entry level positions;
(iil). To select recent
more accurate human resource planning
(iv) To provide
information;

an early determination of potential;

(u) To make
(vi) Toassist in
implementing atfirmative action goals.
a summary of assessment centre programme activities.
ble 10.9 gives
(12) Human Resource Accounting Method: Human resources are a
valuable asset of any organisation. This asset can be valued in
terms of money.
When competent, and well-trained employees leave an
organisation the human asset is decreased and vice versa. Under
this method, performance is judged in terms of costs and
contributions of employees. Costs of human resources consist
of expenditure on human resource planning, recruitment
selection, induction, training, compensation, etc. Contribution
of human resources is the money value of labour productivity
or value added by human resources. Difference between cost
andcontribution will reflect the performance of employees.