Unit 5

PERFORMANCE APPRAISAL
INTRODUCTION

A performance appraisal(PA) is also referred as a performance review, performance evaluation

(career) development discussion or employee appraisal is a method by which the job performance of
an employee is documented and evaluated. Performance appraisal are a part of career development
and consist of regular reviews of employee performance within organisation.

MEANING

Performance appraisal is the systematic evaluation of the performance of employees and to

understand the abilities of a person for further growth and development.

Performance appraisal is the step where the management finds out how effective it has been at hiring
and placing employees.

Performance appraisal process of evaluating an employees performance of a job in terms of in

requirements.

DEFINITION

According to NEWSTROM, ”Performance appraisal is the process of evaluating the performance of

employees, sharing that information with them and searching for ways to improve their
performance”.

Performance appraisal is generally done in systematic ways which are as follows ;

 The supervisor measure the pay of employees and compare it with targets and plans.

 The supervisor analyses the factors behind work performance of employees.

 The employers are in position to guide the employees for a better performance.

Steps Involved in Process of Performance Appraisal

The six steps involved in process of performance appraisal are as follows: 1. Establish Performance
Standards 2. Communicate Performance Expectation to Employee 3. Measure Actual Performance
4. Compare Actual Performance with Standards 5. Discuss the Appraisal with the Employee 6.
Initiate Corrective Actions.
1. Establish Performance Standards:
The appraisal process begins with the establishment of performance standards. The managers
must determine what outputs, accomplishments and skills will be evaluated. These standards
should have evolved out of job analysis and job descriptions.
These performance standards should also be clear and objective to be understood and measured.
Standards should not be expressed in an articulated or vague manner such as “a good job” or “a
full day’s work” as these vague phrases tells nothing.
2. Communicate Performance Expectations to Employees:

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 Once the performance standards are established, this need to be communicated to the respective
employees so that they come to know what is expected of them. Past experience indicates that
not communicating standards to the employees compounds the appraisal problem.
Here, it must be noted that mere transference of information (relating to performance standards,
for example) from the manager to the employees is not communication It becomes
communication only when the transference of information has taken place and has been received
and understood by the employees’.
The feedback from the employees on the standards communicated to them must be obtained. If
required, the standards may be modified or revised in the light of feedback obtained from the
employees. It is important to note that communication is a two-way street.
3. Measure Actual Performance:
This is the third step involved in the appraisal process. In this stage, the actual performance of the
employee is measured on the basis of information available from various sources such as personal
observation, statistical reports, oral reports, and written reports.
Needless to mention, the evaluator’s feelings should not influence the performance measurement
of the employee. Measurement must be objective based on facts and findings. This is because
what we measure is more critical and important to the evaluation process than how we measure.
4. Compare Actual Performance with Standards:
In this stage, the actual performance is compared with the predetermined standards. Such a
comparison may reveal the deviation between standard performance and actual performance and
will enable the evaluator to proceed to the fifth step in the process, i.e., the discussion of the
appraisal with the concerned employees.
5. Discuss the Appraisal with the Employee:
The fifth step in the appraisal process is to communicate to and discuss with the employees the
results of the appraisal. This is, in fact, one of the most challenging tasks the manager’s face to
present an accurate appraisal to the employees and then make them accept the appraisal in a
constructive manner.
A discussion on appraisal enables employees to know their strengths and weaknesses. This has, in
turn, impact on their future performance. Yes, the impact may be positive or negative depending
upon how the appraisal is presented and discussed with the employees.
6. Initiate Corrective Action:
The final step in the appraisal process is the initiation of corrective action when it is necessary.
The areas needing improvement are identified and then, the measures to correct or improve the
performance are identified and initiated.

METHODS OF PERFORMANCE APPRAISAL

1. Traditional/past oriented methods
1. Graphic rating scale

It is also known as linear or simple rating scale presents with a list of traits which are necessary to
successful job performance. A five or seven point rating scale accompanies each trait. Numbers
indicate the level of performance define the points along the scale. Midpoint of scale usually
represents average or satisfactory.

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2. Straight ranking method

This is simplest and oldest method. With this approach, all employees are ranked from best to
worst on the basis of comparative overall performance. Since it involves rank ordering ‘it necessarily
combats intentional assessment errors particularly central tendency and leniency error

3. Paired comparison method

This method provide a systematic procedure for determining the relative ranks of the people. It is
also called man to man assessment. Under this method appraiser compares each employee with every
employee one at a time.

4. Critical incident methods

This method involved identifying and describing specific events where the employee did
something that need improvements. It is based on the description of event and does not rely on
assignment of rate or ranks

5. Confidential report

It is a descriptive report prepared generally at the end of every year, by the employee's
immediate superior. This report highlights the strength and weakness of the subordinate. The
impressions of the superior about the subordinate are merely recorded here.

6. Group appraisal method

This method is based on evaluation of performance by a group of people having knowledge of the job
and performance standards. The evaluator gives the necessary briefing about his employees to the
group members. The group then discusses the standard of performance for the job and actual
performance by the employees.

7. Checklist

A series of question about an employee to his behavior. The rater then checks to indicate if the answer
to a question about employee is positive or negative. Generally questions are yes/no pattern.

8. Forced distribution method

This method is developed to overcome the problems by compelling the rater to distribute the
rates on all points on rating scale. This method operates under the assumption that the employee
performance level confirms to a normal statistical distibution.generally it is assumed that employee
performance levels conform to a bell shaped curve.

9. Essay method

Under this method, rater must describe the employee performance in following form

 Overall impression of the employees performance

 Promotability of employee

 Jobs that the employee is now able to perform

 Strength and weakness of employee and required training and development

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2. Modern Methods
1. Assessment centers

an assessment centre is a centre where managers may come together to have their participation
in job related exercise evaluated by trained observers. here assess are requested to participate in
some activities which is actually required for actual job. after recording observation of the rate
behaviors the raters meet to discuss these observations.

2. 360 Degree Performance Appraisal

It can be defined as systematic collection and feedback of performance data on an individual or

group derived from a number of the stakeholder in their performance. This method measures the
behavior and competencies shown by individual or group in achieving the goals. It is also called multi
rater assessment and feedback system, full circle appraisal, group performance review etc

3. Behaviourally Anchored Rating Scales(BARS)

It is also called behavioral expectation scales. They are rating scales whose scale points are
determined by statement of effectiveness and ineffective behaviors. The scales represents range of
descriptive statement of behavior varying from the least to most effective. A rater must indicate which
behavior on each scale best describes an employee performance

4. Management by Objective

It was Peter F Drucker who first gave the concept of MBO in 1954.MBO is process of defining
objectives within an organization so that management and employees agree to the objectives and
understand what they are in organization. MBO includes ongoing tracking and feedback in the process
to reach objectives.

5. Human Resource Accounting

This method attaches money estimates in the value of manpower of an organisation. In other
words, it is a process of identifying and reporting investments made in the human resource of an
organisation.

6. Psychological appraisal
Large organizations employ full time psychologists. This appraisal normally consisting in depth
interview, psychological tests, discussion with supervisors and a review of other evaluators. The
psychologist writes the evaluation that suggests individual potential and may predict the future
performance.

7. Balance scorecard

Robert Kalpan and David Norton contributed this method in 1990. It is a framework that they
have established both financial and strategic controls to assess the performance. It is applies both
individual as well as organizational level.

Uses of Performance Appraisals

1. PERFORMANCE IMPROVEMENT
Performance feedback allows the employee, manager and personnel specialists to intervene
with appropriate actions to improve performance.

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 2. COMPENSATION ADJUSTMENTS
Performance evaluations help decision makers determine who should receive pay raises.
Many firms grant part or all of their pay increases and bonuses based upon merit, which is
determined mostly through performance appraisals.
3. PLACEMENT DECISIONS
Promotions, transfers and demotions are usually based on past or anticipated performance.
Often promotions are a reward for past performance.
4. TRAINING AND DEVELOPMENT NEEDS
Poor performance may indicate the need for retraining. Likewise, good performance may
indicate untapped potential that should be developed.
5. CAREER PLANNING AND DEVELOPMENT
Performance feedback guides career decisions about specific career paths one should
investigate.
6. STAFFING PROCESS DEFICIENCIES
Good or bad performance implies strengths or weakness in the personnel department’s
staffing procedures.
7. INFORMATIONAL INACCURACIES
Poor performance may indicate errors in job analysis information, human resources plans or
other parts of the personnel management information system. Reliance on inaccurate
information may have led to inappropriate hiring, training or counseling decisions.
8. JOB DESIGN ERRORS
Poor performance may be a symptom of ill-conceived job designs. Appraisals help diagnose
these errors.

9. Equal Employment Opportunity

Accurate performance appraisals that actually measure job-related performance ensure that
internal placement decisions are not discriminatory
10. External Challenges
Sometimes, performance is influenced by factors outside the work environment, such as
family, financial, health or other personal matters. If uncovered through appraisals, the
human resources department may be able to provide assistance.
11. Feedback to Human Resources
Good/bad performance throughout the organization indicates how well the human resources
function is performing.

Remedial measures to overcome problem of performance appraisal

1. Turn the confrontation into discussion:

In most cases when an employee received poor rating, then it is obvious that he will
be a bit agitated. However, if you keep on giving him feedback on his performance from time to time,
then he will be aware of his performance as per company standards.

2. Link between the salary and performance:

If you perform well, then your salary will be increased accordingly. It is a fact that we
all are aware of, but the appraisal discussion is not all about salary, instead it is about how the
employee has performed and how much he has developed since the last time.

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3. The appraisal must link to the job:

This is one of the most important things in the appraisal procedure. The performance
rating must directly relate to the job of the employee, nothing else matters

4. Development plans put into place:

In order to achieve a result or enhance performance, a proper plan is very important.

You must include development of skills in your plan along with the long term action and short term
action plan with specific objectives and
goals.

5. Keep a note:

Note down the performance of the employee all throughout the year. This way you
will be able to discuss the shortcomings and the achievement
of the employee during the appraisal discussion.

Objectives of Compensation Planning

What is Compensation Planning? Compensation Planning is an objective way of rewarding high-
performing employees and retaining valuable employees. Compensation Planning focuses on how
your company allocates salary, bonus, stocks and one time lump sum disbursements.

The most important objective of any pay system is fairness and equity. The term equity has three
dimensions:

Internal equity: This refers to the pay corresponding to difficulty level of the job assigned to an
employee. More difficult jobs should be paid more.

External equity: External equity ensures that an employee is compensated equally in comparison to
similar jobs in the labor market.

Individual equity: Individual equity highlights equal pay for equal jobs, i.e. each individual pay is fair
in comparison to others doing the same/similar job.

Some of the Objectives of are sought to be achieved through effective compensation planning
like:

 Entice the employees: Compensation should be high enough to attract the best talent in an
organization. If an organization wants the service of a competent employee, then the salaries
must be high enough to motivate them to apply and join you.
 Retain the best talent: An employee would leave an organization if compensation levels fall.
So, it is essential to have a proper compensation panning to retain the best talents.
 Ensure equity: Pay should always be equal the worth of the job of an employee. Employees
doing similar jobs should be paid equally and likewise, more qualified employees should be
paid better.
 Reward new ideas and behaviors: Pay should reward an employee’s loyalty, commitment
towards work, his experience, the amount of risk the job holds and the initiatives taken. When
companies fail to reward such contributions, employees will fall apart.

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  Cost control: Hiring cost should never be too high. The compensation planning should ensure
that workers are neither overpaid nor underpaid.
 Compliance: The compensation planning and management should invariably satisfy
governmental compliance of minimum wages, bonus, allowances, benefits etc.

JOB EVALUATION
Meaning of Job Evaluation
A job evaluation is a systematic way of determining the value/worth of a job in relation to other jobs
in an organization. It tries to make a systematic comparison between jobs to assess their relative worth
for the purpose of establishing a rational pay structure.

Objectives of Job Evaluation:

(i) To determine equitable wage differentials between different jobs in the organisation.

(ii) To eliminate wage inequities.

(iii) To develop a consistent wage policy.

(iv) To establish a rational basis for incentive and bonus schemes.

(v) To provide a frame work for periodic review and revision of wage rates.

(vi) To provide a basis for wage negotiation with Trade Unions.

(vii) To minimize wage discrimination on the basis of age, sex, caste, region etc.

viii) To enable management to gauge and control the pay roll costs.

Principles of Job Evaluation:

The principles of job evaluation are as follows:

(a) Job evaluation must attempt to rate the job and not the man.

(b) Elements of job selected for the job must be common to most of the jobs, few in number and
simple to identify and easy to understand.

(c) Clean definition of elements and consistency of degrees of such elements, improve accuracy of job
evaluation.

(d) Secure willing co-operation and support of supervisors on job evaluation. This is obtained by selling
this idea among them and obtains this participation in the process.

(e) Secure co-operation and participation from employees.

(f) Minimise number of wage rate within each grade.

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PROCEDURES OF JOB EVALUATION
The procedures of job evaluations are:

1. Analysis and prepare job description

Job evaluation is the outcome of job analysis. Job description provides the information necessary for
appearing jobs like skills, knowledge, ability, and aptitude.

2. Select and prepare job Evaluation plan:

Job should be divided into detailed tasks and positions. It also includes selection of factors, elements,
needed for the performance of the jobs determining the money values of each factor and elements
and writing instructions for evaluation.

3. Classify Jobs:

Classify the jobs in a sequential order based on their significance and contribution to the organisation.
This includes assigning money values to each clause.

4. Install the Programme :

Educate the employees, win their confidence and then put the programme into operation.

5. Maintain the programme :

This step involves updating the job evaluation programme , bring modifications based on
the changes in the conditions and situations. Make sure from time to time that the programme runs
perfectly and smoothly .

Problems of Job Evaluation

1 Job evaluation is not exactly scientific .

2 The factors taken by the programme not exhaustive .

3 There may be wide fluctuation in compensable factors in view of changes in technology , values and
aspirations of the employer etc .

4 Job evaluation is one several factors in determining wage level .

5 Job evaluation programme once structured may not be useful for the next time .

COMPENSATION OF PAY STRUCTURE IN INDIA

 Meaning of Compensation :

Employee compensation refers to the benefits (cash, vacation etc) that an employee receives
in exchange for the service they provide to their employer.

Employee compensation or remuneration is the payment an employee receives in return for

his or her contribution to the organisation . Employee compensation is generally one of the largest
costs or expenses for any organisation .

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Compensation Pay Structure in India
1. Basic wage :

Basic wage is used as a bench mark for the determination of the various wage components such
as allowances , bonuses , premiums etc . The amount of basic pay is also determined by two main
parameters , seniority and rank . Basic pay is thus based on two parameters the employees age
or his years of service , and the individual skills that determine his internal promotions and his
hierarchical statute .

2. Incentives :

Incentives is something which is given in addition to wages . Incentives are the inducements that
are offered by employers to employees as a stimulus to greater action .

3. Bonus :

The meaning of the word Bonus is “something to the good” , especially extra dividend to the
shareholders of a company , distribution of profit to insurance policy holders etc , or gratuity to
workmen beyond their wages . Payment of bonus is extra and is not a part of basic pay .

4. Employee Benefits:

Employee benefit are various non-wage compensation provided to employees in addition to their
normal wages or salaries.

5. Provident Fund:

Provident fund is a fund into which the employer and the employee both pay money regularly, so
that when the employee retires or leaves the company, he or she receives a sum of money . The
interest earned out of this contribution is also credited to his account itself. The provident fund
was originally set up in a bid to provide monetary security to employees when they retire.

6. Overtime pay:

Overtime is the amount of time someone works beyond normal working hours . Overtime pay
represents the payment of extra hours worked. A worker is paid at a higher rate for extra hour
worked as compared to normal wage.

7. Allowances:

Allowances are monetary payment made by an employer to his employer to his employee. It is
fixed, pre-determined and given regularly in addition to salary in connection with the services
rendered by the employee.

The various types of allowances are follows:

a) Dearness Allowance (D.A) :-

Dearness allowance is a part of the total compensation a person receives for having performed
his or her job.

b) House Rent Allowance :-

House rent allowance is given by the employer to the employee to meet the expenses in
connection with rent of the accommodation which the employee might have to take .

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c) Conveyance allowance :-

Any allowance which is granted to meet the expenditure on conveyance in performance of duties
of an office is termed as conveyance allowance .

d) Leave Travel allowance :-

These allowance are provided to retain the best talent in the organisation .The employees are
given allowances to visit any place they wish with their families. The allowances are scaled as per
the position of employee in the organisation .

e) Medical allowance :-

It is paid regularly at fixed rate irrespective of the actual expenditure on medical treatment.

f) Telephone /mobile allowance :-

This is an allowance given to employees so that they can maintain a telephone.

g) Education Allowance :-

Any allowance which granted to an employee to meet the cost of education of his children .

h) Hostel Allowance :-

Any allowance granted to an employee to meet the hostel expenditure incurred by him where
his children are completing their studies in a hostel.

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