Introduction:

The history of performance appraisal is quite brief. Its roots in the early 20th century
and can be traced to Taylor's pioneering Time and Motion studies. But this is not very
helpful, for the same may be said about almost everything in the field of modern human
resources management. As a distinct and formal management procedure used in the
evaluation of work performance, appraisal really dates from the time of the Second World
War - not more than 60 years ago. Yet in a broader sense, the practice of appraisal is a very
ancient art. In the scale of things historical, it might well lay claim to being the world's
second oldest profession.
People differ in their abilities and their aptitudes. There is always some difference
between the quality and quantity of the same work on the same job being done by two
different people. Therefore, performance management and performance appraisal is
necessary to understand each employees abilities, competencies and relative merit and worth
for the organization. Performance appraisal rates the employees in terms of their
performance.
Performance appraisals are widely used in the society. The history of performance
appraisal can be dated back to the 20th century and then to the second world war when the
merit rating was used for the first time. An employer evaluating their employees is a very old
concept. Performance appraisals are an indispensable part of performance measurement.
Performance appraisal is necessary to measure the performance of the employees and the
organization to check the progress towards the desired goals and aims.
The latest mantra being followed by organizations across the world being get paid
according to what you contribute the focus of the organizations is turning to performance
management and specifically to individual performance. Performance appraisal helps to rate
the performance of the employees and evaluate their contribution towards the organizational
goals. If the process of performance appraisals is formal and properly structured, it helps the
employees to clearly understand their roles and responsibilities and give direction to the
individuals performance. It helps to align the individual performances with the
organizational goals and also review their performance.

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Objectives of Performance Appraisal:

To review the performance of the employees over a given period of time.

To judge the gap between the actual and the desired performance.

To help the management in exercising organizational control.

Helps to strengthen the relationship and communication between superior

subordinates and management employees.

To diagnose the strengths and weaknesses of the individuals so as to identify the

training and development needs of the future.

To provide feedback to the employees regarding their past performance.

Provide information to assist in the other personal decisions in the organization.

Provide clarity of the expectations and responsibilities of the functions to be

performed by the employees.

To judge the effectiveness of the other human resource functions of the organization
such as recruitment, selection, training and development.

To reduce the grievances of the employees

Characteristics/Features of Performance Appraisal:

Performance appraisal cannot be implemented successfully unless it is accepted by

all concerned. There should be a common and clear understanding of the distinction between
evaluation and appraisal. As Patten (1982) argues, evaluation aims at 'objective'
measurement, while appraisal includes both objective and subjective assessment of how well
an employee has performed during the period under review. Thus performance appraisal aims
at 'feedback, development and assessment.' The process of performance appraisal should
concentrate on the job of an employee, the environment of the organization, and the
employee him- or herself. These three factors are inter-related and inter-dependent.
Therefore, in order to be effective, the appraisal system should be individualized, subjective,
qualitative and oriented towards problem-solving. It should be based on clearly specified and
measurable standards and indicators of performance. Since what is being appraised is
performance and not personality, personality traits which are not relevant to job performance
should be excluded from the appraisal framework.

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Some of the important characteristics of

Goal: The job description and the performance goals should be structured, mutually
decided and accepted by both management and employees.
Reliable and Consistent: Appraisal should include both objective and subjective
ratings to produce reliable and consistent measurement of performance.
Practical and simple format: The appraisal format should be practical, simple and
aim at fulfilling its basic functions. Long and complicated formats are time consuming,
difficult to understand, and do not elicit much useful information.
Regular and routine: While an appraisal system is expected to be formal in a
structured manner, informal contacts and interactions can also be used for providing
feedback to employees.
Participatory and Open: An effective appraisal system should necessarily involve the
employee's participation, usually through an appraisal interview with the supervisor,
for feedback and future planning. During this interview, past performance should be
discussed frankly and future goals established. A strategy for accomplishing these
goals as well as for improving future performance should be evolved jointly by the
supervisor and the employee being appraised. Such participation imparts a feeling of
involvement and creates a sense of belonging.
Rewards: Rewards - both positive and negative - should be part of the performance
appraisal system. Otherwise, the process lacks impact.
Feedback should be timely: Unless feedback is timely, it loses its utility and may
have only limited influence on performance.
Impersonal feedback: Feedback must be impersonal if it is to have the desired effect.
Personal feedback is usually rejected with contempt, and eventually de-motivates the
employee.
Feedback must be noticeable: The staff member being appraised must be made
aware of the information used in the appraisal process. An open appraisal process
creates credibility.
Relevance and responsiveness: Planning and appraisal of performance and
consequent rewards or punishments should be oriented towards the objectives of the
program in which the employee has been assigned a role. For example, if the
objectives of a program are directed towards a particular client group, then the
appraisal system has to be designed with that orientation.
Commitment: Responsibility for the appraisal system should be located at a senior
level in the organization so as to ensure commitment and involvement throughout the
management hierarchy.

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Performance Management
Performance appraisal is considered as a most significant and indispensable tool for
an organization as it provides highly useful information in making various decisions
regarding various aspects such as promotions, training and development, retirements,
transfer, salary administration, etc. it also provides basis for judging the effectiveness of the
employees. Accurate information collected through performance appraisal plays a vital role
in an organization as a whole. Hence, performance appraisal should be done accurately
following an objective method of judging the relative worth or abilities or performance of an
individual employee in performing the tasks entrusted to him. The effectiveness of
performance appraisal, to a large extent, depends upon how well the organization has
prepared itself for doing it. It is a basic function of performance management. Performance
management is nothing but managing the performance appraisals of the employees
periodically and systematically and covers basically the following areas or steps.
1. Setting of proper standards for the purpose of appraising the performance.
2. Measuring actual performance of employees by adopting suitable method/ methods.
3. Comparing it with standards.
4. Finding out measures for deviations from standards.
5. Taking corrective actions to eliminate these reasons.
6. Revising of performance stands and adopting suitable method of performance
appraisal according to the needs or changing circumstances or requirement.
All the above mentioned important tasks which are required to be performed by the
performance management, it is the important function of the performance management to
lay down a well and neatly designed performance appraisal process or plan. Following
points make clear the utility of such plan.
It unifies the appraisal procedure:
The procedure of performance appraisal is basically dependent upon the purpose
or purposes of appraisal. Once the procedure is laid down, in the same manner,
the performances of all the employees should be evaluated or judged. Then it
becomes possible to compare the performance of the employees properly by
finding out their weaknesses and strength.
It provides useful information:
Management has to take many decisions relating to training, transfers,
promotions, increments, discharge, retirement, salary adjustments, etc. they all
are related to the performance appraisals of the employee. Such decisions can be
taken properly on the basis of information by the appraisal plan.
It facilitates creation of records:
Firstly, for the purpose of performance appraisal, necessary information is
required to the collected on the basis of which the performance appraisal is done.
After it is done the results of the performance appraisals are stored in the form of
records. All such records can be used as evidence for different purposes e.g.
while handling grievances related to the decisions based on such appraisals.

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 It weeds out inefficiencies:

When inefficient, incapable, undisciplined, lethargically employees are
identified; chances to improve them can be given to them. But, after giving those
chances, if they do not improve, they can be weeded out on the basis of
performance appraisals.
It keeps superior more alert:
A performance appraisal is considered as a development technique in the hands
of the management. It aims at calling attention of superiors to subordinates
behavior flows in order to improve their performances. It makes superior more
alert as it is their responsibility as appraise the subordinates.
Performance Management vs. Performance Appraisal
The terms 'performance management' and 'performance appraisal' are sometimes used
synonymously, but they are different. Performance management is a comprehensive,
continuous and flexible approach to the management of organizations, teams and individuals
which involves the maximum amount of dialogue between those concerned. Performance
appraisal is a more limited approach which involves managers making top-down assessments
and rating the performance of their subordinates at an annual performance appraisal meeting.
Performance appraisal

Performance management

Top-down assessment

Joint process through dialogue

Annual appraisal meeting

Continuous review with one or

more formal reviews

Use of ratings

Ratings less common

Monolithic system

Flexible process

Focus on quantified objectives

Focus on values and behaviors as

well as objectives

Often linked to pay

Less likely to be directly linked to

pay

Bureaucratic
paperwork

complex Documentation kept to a minimum

Owned by the HR department

Owned by line managers

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Performance Appraisal Process:

ESTABLISHING PERFORMANCE STANDARDS

The first step in the process of performance appraisal is the setting up of the standards which
will be used to as the base to compare the actual performance of the employees. This step
requires setting the criteria to judge the performance of the employees as successful or
unsuccessful and the degrees of their contribution to the organizational goals and objectives.
The standards set should be clear, easily understandable and in measurable terms. In case the
performance of the employee cannot be measured, great care should be taken to describe the
standards.
COMMUNICATING THE STANDARDS
Once set, it is the responsibility of the management to communicate the standards to all the
employees of the organization. The employees should be informed and the standards should
be clearly explained to them. This will help them to understand their roles and to know what
exactly is expected from them. The standards should also be communicated to the appraisers
or the evaluators and if required, the standards can also be modified at this stage itself
according to the relevant feedback from the employees or the evaluators.

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 MEASURING THE ACTUAL PERFORMANCE

The most difficult part of the Performance appraisal process is measuring the actual
performance of the employees that is the work done by the employees during the specified
period of time. It is a continuous process which involves monitoring the performance
throughout the year. This stage requires the careful selection of the appropriate techniques of
measurement, taking care that personal bias does not affect the outcome of the process and
providing assistance rather than interfering in an employees work.
COMPARING THE ACTUALS
The actual performance is compared with the desired or the standard performance. The
comparison tells the deviations in the performance of the employees from the standards set.
The result can show the actual performance being more than the desired performance or, the
actual performance being less than the desired performance depicting a negative deviation in
the organizational performance. It includes recalling, evaluating and analysis of data related
to the employees performance.
DISCUSSING RESULTS
The result of the appraisal is communicated and discussed with the employees on one-to-one
basis. The focus of this discussion is on communication and listening. The results, the
problems and the possible solutions are discussed with the aim of problem solving and
reaching consensus. The feedback should be given with a positive attitude as this can have an
effect on the employees future performance. The purpose of the meeting should be to solve
the problems faced and motivate the employees to perform better.
DECISION MAKING
The last step of the process is to take decisions which can be taken either to improve the
performance of the employees, take the required corrective actions, or the related HR
decisions like rewards, promotions, demotions, transfers etc.

Uses of Appraisal system:

help each employee understand more about their role and become clear about their
functions;
Be instrumental in helping employees to better understand their strengths and
weaknesses with respect to their role and functions in the organization;
help in identifying the developmental needs of employees, given their role and
function;
Increase mutuality between employees and their supervisors so that every employee
feels happy to work with their supervisor and thereby contributes their maximum to
the organization;
Act as a mechanism for increasing communication between employees and their
supervisors. In this way, each employee gets to know the expectations of their
superior, and each superior also gets to know the difficulties of their subordinates and
can try to solve them. Together, they can thus better accomplish their tasks;
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 Provide an opportunity to each employee for self-reflection and individual goalsetting, so that individually planned and monitored development takes place;
help employees internalize the culture, norms and values of the organization, thus
developing an identity and commitment throughout the organization;
help prepare employees for higher responsibilities in the future by continuously
reinforcing the development of the behavior and qualities required for higher-level
positions in the organization;
Be instrumental in creating a positive and healthy climate in the organization that
drives employees to give their best while enjoying doing so;
Assist in a variety of personnel decisions by periodically generating data regarding
each employee.

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Methods of Performance Appraisal:

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Traditional methods

1. ESSAY APPRAISAL METHOD

This traditional form of appraisal, also known as Free Form method involves a description
of the performance of an employee by his superior. The description is an evaluation of the
performance of any individual based on the facts and often includes examples and evidences
to support the information. A major drawback of the method is the inseparability of the bias
of the evaluator.

2. STRAIGHT RANKING METHOD

This is one of the oldest and simplest techniques of performance appraisal. In this method,
the appraiser ranks the employees from the best to the poorest on the basis of their overall
performance. It is quite useful for a comparative evaluation.

3. PAIRED COMPARISON
A better technique of comparison than the straight ranking method, this method compares
each employee with all others in the group, one at a time. After all the comparisons on the
basis of the overall comparisons, the employees are given the final rankings.

4. CRITICAL INCIDENTS METHODS

In this method of Performance appraisal, the evaluator rates the employee on the basis of
critical events and how the employee behaved during those incidents. It includes both
negative and positive points. The drawback of this method is that the supervisor has to note
down the critical incidents and the employee behavior as and when they occur.

5. FIELD REVIEW
In this method, a senior member of the HR department or a training officer discusses and
interviews the supervisors to evaluate and rate their respective subordinates. A major
drawback of this method is that it is a very time consuming method. But this method helps to
reduce the superiors personal bias.

6. CHECKLIST METHOD
The Rater is given a checklist of the descriptions of the behavior of the employees on job.
The checklist contains a list of statements on the basis of which the rater describes the on the
job performance of the employees.

7. GRAPHIC RATING SCALE

In this method, an employees quality and quantity of work is assessed in a graphic scale
indicating different degrees of a particular trait. The factors taken into consideration include
both the personal characteristics and characteristics related to the on-the-job performance of
the employees. For example a trait like Job Knowledge may be judged on the range of
average, above average, outstanding or unsatisfactory.

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8. FORCED DISTRIBUTION
To eliminate the element of bias from the raters ratings, the evaluator is asked to distribute
the employees in some fixed categories of ratings like on a normal distribution curve. The
rater chooses the appropriate fit for the categories on his own discretion.

Modern methods
1. MANAGEMENT BY OBJECTIVE (MBO)
The concept of Management by Objectives (MBO) was first given by Peter
Drucker in 1954. It can be defined as a process whereby the employees and the
superiors come together to identify common goals, the employees set their goals to be
achieved, the standards to be taken as the criteria for measurement of their performance
and contribution and deciding the course of action to be followed.
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 employees actual performance with the standards set. Ideally, when
employees themselves have been involved with the goal setting and the choosing the
course of action to be followed by them, they are more likely to fulfill their
responsibilities.

MBO PROCESS:

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UNIQUE FEATURES AND ADVANTAGES OF MBO:

The principle behind Management by Objectives (MBO) is to create empowered

employees who have clarity of the roles and responsibilities expected from them, understand
their objectives to be achieved and thus help in the achievement of organizational as well as
personal goals.
Some of the important features and advantages of MBO are:

Clarity of goals With MBO, came the concept of SMART goals i.e. goals that are:
Specific, Measurable, Achievable, Realistic, Time bound.
The goals thus set are clear, motivating and there is a linkage between organizational
goals and performance targets of the employees.

The focus is on future rather than on past. Goals and standards are set for the
performance for the future with periodic reviews and feedback.

Motivation Involving employees in the whole process of goal setting and increasing
employee empowerment increases employee job satisfaction and commitment.

Better communication and Coordination Frequent reviews and interactions between

superiors and subordinates helps to maintain harmonious relationships within the
enterprise and also solve many problems faced during the period.

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2. 360-DEGREE APPRAISAL
360 degree feedback, also known as 'multi-rater feedback', is the most comprehensive
appraisal where the feedback about the employees performance comes from all the sources
that come in contact with the employee on his job.
360 degree respondents for an employee can be his/her peers, managers (i.e. superior),
subordinates, team members, customers, suppliers/ vendors - anyone who comes into contact
with the employee and can provide valuable insights and information or feedback regarding
the on-the-job performance of the employee.
360-degree has four integral components:
1.
2.
3.
4.

Self Appraisals.
Superior Appraisals.
Subordinates Appraisals.
Peer Appraisals.

Self appraisal gives a chance to the employee to look at his/her strengths and weaknesses,
his achievements, and judge his own performance. Superiors appraisal forms the
traditional part of the 360 degree appraisal where the employees responsibilities and
actual performance
Subordinates appraisal gives a chance to judge the employee on the parameters like
communication and motivating abilities, superiors ability to delegate the work,
leadership qualities etc. Also known as internal customers, the correct feedback given by
peers can help to find employees abilities to work in a team, co-operation and sensitivity
towards others.
Self assessment is an indispensable part of 360 degree appraisals and therefore
360 degree. Performance Appraisal has high employee involvement and also has the
strongest impact on behavior and performance. It provides a "360-degree review" of the
employees performance and is considered to be one of the most credible performance
appraisal methods.

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3. ASSESSMENT CENTRES
Assessment centre refers to a method to objectively observe and assess the people in
action by experts or HR professionals with the help of various assessment tools and
instruments.
An assessment centre typically involves the use of methods like social/informal events,
tests and exercises, assignments being given to a group of employees to assess their
competencies and on-the-job behavior and potential to take higher responsibilities in the
future. Generally, employees are given an assignment similar to the job they would be
expected to perform if promoted. The trained evaluators observe and evaluate employees as
they perform the assigned jobs and are evaluated on job related characteristics.
An assessment centre for Performance appraisal of an employee typically includes:

Social/Informal Events An assessment centre has a group of participants and also a

few assessors which gives a chance to the employees to socialize with a variety of
people and also to share information and know more about the organization.

Information Sessions information sessions are also a part of the assessment

centers. They provide information to the employees about the organization, their roles
and responsibilities, the activities and the procedures etc.

Assignments- assignments in assessment centers include various tests and exercises

which are specially designed to assess the competencies and the potential of the
employees. These include various interviews, psychometric tests, management games
etc. all these are focused at the target job.

The following are the common features of all assessment centers:

The final results is based on the pass/fail criteria

All the activities are carried out to fill the targeted job.

Each session lasts from 1 to 5 days.

The results are based on the assessment of the assessors with less emphasis on selfassessment.

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4. BEHAVIORALLY ANCHORED RATING SCALES

Development of BARS evaluations requires an in-depth understanding of each positions
key tasks, along with an understanding of the full range of behaviors displayed by
individuals in carrying out such tasks. You rate these behaviors for each employee; then
you anchor each behavior to points on a rating scale, which indicates whether the
behavior is exceptional, excellent, fully competent, or unsatisfactory. The result is a rating
scale for each task.
For example, in a hypothetical position of human resources coordinator, one of the
job holders responsibilities is to complete status change notices, which update the
personnel system regarding changes in employee pay, position, title, supervisor, and
personal data. The BARS method for this specific task in this specific job could read
as follows:
5 Exceptional performance: Accurately completes and submits all status change
notices within an hour of request.
4 Excellent performance: Verifies all status change notice information with
requesting manager before submitting.
3 Fully competent performance: Completes status change notice forms by the end
of the workday.
2 Marginal performance: Argues when asked to complete a status change notice.
1 unsatisfactory performance: Says status change notice forms have been
submitted when they havent.

5. HUMAN RESOURCE ACCOUNTING METHOD

Human resources are valuable assets for every organization. Human resource accounting
method tries to find the relative worth of these assets in the terms of money. In this
method the Performance appraisal of the employees is judged in terms of cost and
contribution of the employees. The cost of employees include all the expenses incurred on
them like their compensation, recruitment and selection costs, induction and training costs
etc whereas their contribution includes the total value added (in monetary terms). The
difference between the cost and the contribution will be the performance of the
employees. Ideally, the contribution of the employees should be greater than the cost
incurred on them.

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Supervisors Role in the Performance Management Process:

Planning:
Explain to the employee how s/he helps the department attain its goals.
Work with the employee to define key result areas, goals, and
performance standards. Make sure s/he understands the job duties and
expectations.
Explain the competencies; what is expected from the employee and why.
Let the employee know they are responsible for taking an active role in
managing and assessing his/her performance throughout the year.

Coaching:

Provide frequent informal coaching. Point out the good work that the
employee is doing. Help employees with performance deficiencies to meet
expectations.
employee to create development plans. Ask the employee for suggestions, in
order to encourage taking an active role.
employees work. Indentify observable actions that the employee should take
job, follows through on development plans, or has problems doing so. These
notes will help the supervisor with Periodic Reviews and the completion of the
performance management process.

Keep track of praise or complaints from customers regarding an

employees work.

Review

Put together all saved notes or documents about the employees

performance and assess their performance on job duties and behaviors.
Ask the employee for feedback about how s/he performed during the
year. Comments from the employee may remind the supervisor of particular
instances of good or poor performance, as well as any extenuating factors.
Complete performance appraisal, then discuss ratings and comments with
the employee.

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5 (Five) guidelines for holding Effective Appraisals

1) Employee and Supervisor discuss the scores in the evaluation interview and add
comments as appropriate. Each signs the form. [If Employee chooses, he/she may type a
response to appraisal and give to Supervisor within a reasonable time frame.
2) If Employee refuses to sign appraisal, Supervisor indicates that fact on the appraisal.
3) Supervisor provides Employee with signed copy of the form if he/she wants a copy.
4) Supervisor sends appraisal to Supervisors supervisor for signature.
5) Supervisor sends original copies of both Supervisor and Employee portions of the
appraisal to HR for personnel file. Supervisor keeps copy for his/her file.

Limitations/Challenges faced in Performance Appraisal

In order to make a performance appraisal system effective and successful, an
organization comes across various challenges and problems. The main challenges involved in
the performance appraisal process are:

Determining the evaluation criteria

Identification of the appraisal criteria is one of the biggest problems faced by

the top management. The performance data to be considered for evaluation
should be carefully selected. For the purpose of evaluation, the criteria
selected should be in quantifiable or measurable terms
Create a rating instrument
The purpose of the Performance appraisal process is to judge the performance
of the employees rather than the employee. The focus of the system should be
on the development of the employees of the organization.
Lack of competence
Top management should choose the raters or the evaluators carefully. They
should have the required expertise and the knowledge to decide the criteria
accurately. They should have the experience and the necessary training to
carry out the appraisal process objectively.
Errors in rating and evaluation
Many errors based on the personal bias like stereotyping, halo effect (i.e. one
trait influencing the evaluators rating for all other traits) etc. may creep in the
appraisal process. Therefore the rater should exercise objectivity and fairness
in evaluating and rating the performance of the employees
Resistance
The appraisal process may face resistance from the employees and the trade
unions for the fear of negative ratings. Therefore, the employees should be
communicated and clearly explained the purpose as well the process of
appraisal. The standards should be clearly communicated and every employee
should be made aware that what exactly is expected from him/her.

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Conclusion
Organizations need some means of ensuring performance standards are being achieved and
objectives are being met. They also need to plan for the future by setting organizational
objectives. These should be achieved through personal objectives agreed at the appraisal.
This is vital for all employees in order to maintain a competitive position, and it is important
that the method for doing this is successful. All the material in the Skills of Appraisal and
Performance Review resource is dedicated to that end. However, underlying the methods,
practices and techniques there must be crucial managerial thoughts, attitudes and activities.
As an introduction to the training activity, the participants work in groups to discuss what an
effective performance review scheme needs. Their suggestions for a successful scheme are
discussed and they are then given a list of requirements for comparison and discussion. Next,
the participants review what an appraiser should do to make sure a performance review
scheme is successful. The training activity closes with a review of key learning points and a
final observation of performance review appraisal.

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