Everything you need to learn about the methods of performance appraisal in human resource management. There are different methods of performance appraisal.
Each method of performance appraisal has its advantages and limitations. There is no single appraisal method accepted and used by all organizations to measure their employees’ performance.
Every organization chooses the method of performance appraisal that best suits them. There are some traditional methods of performance appraisal. Some modern methods of performance appraisal have evolved.
The methods of performance appraisal are classified into traditional methods and modern methods. These are further sub-classified under the following heads-
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A: Some of the Traditional Methods of Performance Appraisal are:-
1. Rating Scales 2. Confidential Report 3. Ranking Method 4. Paired Comparison Method 5. Grading System 6. Checklist Method 7. Forced Choice Method 8. Essay Method 9. Performance Tests and Observation 10. Forced Distribution Method and 11. Field Review Method.
B: Some of the Modern Methods of Performance Appraisal are:-
1. Assessment Centres 2. Human Resource Accounting 3. Behaviourally Anchored Rating Scale (BARS) 4. Management by Objectives (MBO) 5. 360 Degree Feedback 6. Psychological Appraisals and 7. Human-Asset-Accounting Method.
Methods of Performance Appraisal in HRM: Traditional and Modern Methods
Methods of Performance Appraisal – Traditional and Modern Methods of Performance Appraisal
Since the early years of their use, methods of evaluating personnel have evolved considerably. Old systems have been replaced by new methods that reflect technical improvements and are more consistent with the purposes of the appraisal. The methods of performance appraisal are classified into traditional methods and modern methods.
1. Traditional Methods:
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Traditional methods are also known as trait methods. Trait approaches to performance appraisal are designed to measure the extent to which an employee possesses certain characteristics such as dependability, creativity, initiative and leadership that are viewed as important and desirable for the job and the organisation in general. There may also be added work-related characteristics such as job knowledge, ability to complete an assignment, success in carrying out plans, etc.
As there are different methods of rating people on the basis of such dimensions, there are several methods based on this approach. The reason that trait methods are the most popular is largely due to the ease with which they are developed.
Some of these methods are as follows:
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I. Rating Scales:
In this method, each trait or characteristic to be rated is represented by the scale on which a rater indicates the degree to which an employee possesses that trait or characteristic. This is the simplest and most popular technique for appraising employee performance.
The typical rating scale system consists of several numerical scales, each representing a job-related performance criterion such as dependability, initiative, attendance, output, attitude and cooperation. Each scale ranges from excellent to poor. The rater checks the appropriate performance level on each criterion, and then computes the employee’s total numerical score.
Subjectivity bias is reduced somewhat when the dimensions on the scale and the scale points are defined as precisely as possible. This can be achieved by training raters and by including descriptive appraisal guidelines in a performance appraisal reference packet.
II. Confidential Report:
Confidential Reports are maintained mostly in government departments, though its application in the industry is not ruled out. These reports differ from department to department and from level to level. The confidential report is written for a unit for one year and relates to the performance, ability, and character of the employee during that year. The report is not data based but is subjective. No feedback is provided to the employee being appraised and therefore, its credibility is very low.
The approach called Annual Confidential Report (ACR), contains 14 items:
(i) Attendance
(ii) Self-expression
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(iii) Ability to work with others
(iv) Leadership
(v) Initiative
(vi) Technical ability
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(vii) Ability to understand new material
(viii) Ability to reason
(ix) Originality
(x) Areas of work that suit the person best
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(xi) Judgement
(xii) Integrity
(xiii) Responsibility
(xiv) Any defect.
III. Ranking Method:
In this, the superior ranks his or her subordinates in the order of their merit, starting from the best to the worst. It is the simplest and old method of merit rating. Every employee is judged as a whole without distinguishing the rates from his performance. All that the HR department knows is that A is better than B. The ‘how’ and ‘why’ are not questioned nor answered.
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No attempt is made to fractionalize what is being appraised into component elements. This method is subject to the halo and regency effects, although ranking by two or more raters is averaged to help reduce bias. Its advantages include ease of administration and explanation.
IV. Paired Comparison Method:
The paired comparison method is almost similar to ranking method. When variations are made in the ranking method so that it can easily be used in large groups, it becomes paired comparison method. In paired comparison method, every person is compared trait wise with the other persons one at a time. The number of times one person is compared with others is tallied on a piece of paper. With the help of these numbers, ranks are allotted to the employees.
Rater is provided with the bunch of slips, each containing a pair of names. The rater puts a tick mark against the person whom he considers better of the two, and the final ranking is determined by taking the total of number of times an employee is ranked better than another employee.
V. Grading System:
In this method, certain characteristics or abilities of performance are identified in advance and the employees are put into the category according to their behaviour and traits. Such categories are defined as outstanding, good, average, below average, and poor in terms of letters like A, B, C, D, E where A indicates the best, and E the poorest. This method is used for the promotions based on performance.
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VI. Checklist Method:
Under this method, a checklist of statements on the traits of the employees and his or her job is prepared in two columns – viz. a ‘Yes’ column and a ‘No’ column. It is a list of statements that indicate the performance of the employees on the job. All that the rater has to do is to tick ‘Yes’ column if the answer to the statement is positive and column ‘No’ if the answer is negative. The performance of the employee is rated on the basis of the number of positive checks.
These checklists are of three types:
(i) Simple Checklist:
In this method, the printed forms containing descriptive questions about the performance of the employees are provided to the supervisors. The supervisor has two options ‘Yes’ and ‘No’. He ticks the one according to the behaviour of the employee and sends the filled form to the personnel department for the final rating.
(ii) Weighted Checklist:
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In this method, the weights are allotted to the different statements to indicate their importance over the other statements. This method is used particularly with the objective of avoiding scope of personal prejudices.
(iii) Forced Choice Checklist:
Five statements for each trait are given in this checklist. These five statements include two most descriptive, two least descriptive, and one neutral statement. The rater has to tick on one statement. This checklist has greater objectivity as compared to the other methods.
VII. Forced Choice Method:
This method requires the rater to choose from statements, often in pairs, that appear equally favourable or equally unfavourable. The statements, however, are designed to distinguish between successful and unsuccessful performance. The rater selects one statement from the pair without knowing which statement correctly describes successful job behaviour.
Forced Choice pairs might include the following:
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(i) (a) Works Hard – (b) Works Quickly
(ii) (a) Shows Initiative – (b) Is less responsive to customers
(iii) (a) Produces Poor Quality – (b) Lacks good working habits
This approach is known as forced choice method because the rater is forced to select statements which are readymade. The advantage of this method is the absence of personal bias in rating. The disadvantage is that the statements may not be descriptive of the ratee’s trait.
VIII. Essay Method:
This method requires the appraiser to compose a statement that best describes the employee being appraised. The appraiser is usually instructed to describe the employee’s strengths and weaknesses and to make recommendations for his or her development. Essay method is often used in combination with some other rating method. Here, the supervisor continuously watches the subordinates and writes his assessment in the report.
The following factors are considered by the rater while writing the essay:
(i) Potential of the employee and his knowledge about the job.
(ii) Relationship of the employee with co-workers and supervisors.
(iii) Employee’s traits and attitudes.
(iv) Need for future development, etc.
The essay method provides an excellent opportunity to point out the unique characteristics of the employee being appraised. It is a non-quantitative technique of appraisal and provides a good deal of specific information about the employee and can reveal even more about the supervisor.
A major limitation of the essay method is that composing an essay that attempts to cover all the employee’s characteristics is a time-consuming task. This method may suffer from personal and human bias because of likings or dis-likings of the supervisor.
IX. Performance Tests and Observation:
With a limited number of jobs, employee assessment may be based upon his test of knowledge or skills. The test may be of the paper and pencil variety or an actual demonstration of skills. The test must be reliable and validated to be useful. Even then, the performance tests are apt to measure potential more than actual performance. In order for the test to be job related, observation should be made under circumstances likely to be encountered.
X. Forced Distribution Method:
Raters sometimes suffer from a constant error i.e., either they rate the employees as good, average, or poor. They do not evaluate the employees properly. This system minimises the rater’s bias so that all employees are not similarly rated. In this method, the appraiser is forced to appraise the appraisees according to the pattern of the normal curve. This system is based on the assumption that all employees can be divided in five categories i.e., outstanding, above average, average, below average, and poor.
XI. Field Review Method:
In this method, an employee is not appraised by his direct superior but by another person usually from the HR department. This is an appraisal by someone outside the assessee’s own department, usually someone from the corporate office or the HR department. The basic idea is that such a person may take a more objective view in the appraisal as he is not under the pressure as the superior of the employee may be.
The rater also conducts the interview with the employee and his superior for making a qualitative assessment of the employee. Field reviews are useful and are done when comparable information is needed from employees in different units or locations.
Two disadvantages of this method are:
(i) An outsider is usually not familiar with conditions in an employee’s work environment.
(ii) An outside reviewer does not have the opportunity to observe the employee behaviour or performance over a period of time and in a variety of situations.
2. Modern Methods of Performance Appraisal:
One of the potential drawbacks of a trait-oriented performance appraisal is that traits tend to be vague and subjective. One way to improve a rating scale is to have descriptions of behaviour along a scale, or continuum. These descriptions permit the rater to readily identify the point where a particular employee falls on the scale.
Modern methods have been developed to specifically describe which actions should be or should not be exhibited on the job. Modern methods are also called behavioural methods. They are frequently more useful for providing employees with developmental feedback.
Some of these methods are discussed as follows:
I. Assessment Centres:
In the 1930s, the concept of assessment centres was initially applied to military situations in the German army and the War Office Selection Board of the British Army in 1960s. The basic purpose of this method was to examine the candidates in the social situation, using the variety of procedures and a number of assessors. Earlier, assessment centres were being used for executive hiring but these days these centres are used for the purpose of evaluating supervisory or executive potential.
An assessment centre is a central location where the managers may come together to participate in job-related exercises, who are then evaluated by the trained observers.
An assessment centre evaluates the following:
(i) Communication skills
(ii) Interpersonal skills
(iii) Ability to plan and organise
(iv) Mental alertness
(v) Resistance to stress
(vi) Self-confidence, etc.
Objectives:
(i) To determine the training and development needs of the employees.
(ii) To provide the information for human resource planning.
(iii) To measure the potential of the employees for the different positions in the organisation.
(iv) To select the employees for entry level positions.
Advantages:
(i) Assessment centres help in determining the training and development needs of the employees.
(ii) They provide data for human resource planning.
(iii) It can be used for the selection of candidates for the entry level positions.
(iv) In this method, all the candidates get equal opportunity to prove their merit.
(v) Rater’s personal bias is reduced as the employees are evaluated by a team of trained evaluators under similar conditions.
(vi) The assessment is based on the direct observation of relatively large sample of the assesses behaviours which provides more accurate information about them.
Disadvantages:
(i) Assessment centre is a time-consuming and expensive method.
(ii) The ratings of this method are said to be strongly influenced by the participant’s interpersonal skills.
(iii) Raters tend to evaluate the quality of the individual’s social skills rather than the quality of decisions themselves.
(iv) The candidates who receive a negative report from the assessment centre may feel demoralised.
II. Human Resource Accounting:
From all the resources used in the business organisation, the most valuable resource is the human resource because the efficiency of all the resources depend upon it. Like other assets, these can also be measured in terms of money.
In human resource accounting, the money value is attached to the value of firm’s internal human resources and its external customer goodwill. In human resource accounting, the performance of the employees is judged in terms of cost incurred and contributions made by the employees.
Cost is measured in terms of:
(i) Expenditure on human resource planning,
(ii) Expenditure on recruitment and selection,
(iii) Expenditure on compensation,
(iv) Expenditure on training and development.
Contribution is measured in terms of:
(i) Money value of labour productivity,
(ii) Value added by human resources.
III. Behaviourally Anchored Rating Scale (BARS):
An approach that has received considerable attention by academics in past years involves BARS. This method uses critical incidents to serve as anchor statements on the scale. A BARS rating form, usually contains 6 to 10 specifically defined performance dimensions each with five or six critical incident anchors. The dimensions have both negative and positive job- related critical incidents. These scales combine major elements from the critical incident and adjective rating scale approaches.
The appraiser rates the employees based on items along a continuum, but the points are example of actual behaviour on the given job rather than general descriptions of traits. The enthusiasm surrounding BARS grew from the belief that the use of specific behaviour, derived for each job should produce relatively error-free and reliable ratings.
Although this promise has not been fulfilled, it has been argued that this may be partly due to departures from careful methodology in the development of specific scales themselves rather than to inadequacies in the concept. BARS, too, has also been found to be very time-consuming.
The research on BARS indicates that while it is far from perfect, it does tend to reduce rating errors. Possibly, its major advantage stems from the dimensions generated rather than from any particular superiority of behaviour over trait anchors.
The steps in developing BARS are as follows:
(i) Generating Critical Incidents – The job holders or supervisors are asked to illustrate some specific critical incidents of effective and ineffective performance. The critical behaviours are those which are essential for the effective performance of the job.
(ii) Development of Performance Dimensions – The critical incidents are then clustered into smaller set of performance dimensions by these people. Each cluster or dimension is then properly defined.
(iii) Reallocate Incidents – Another group of people, who are also aware of the concept of job, then reallocate the original critical incidents. They are given the cluster’s definitions and the critical incidents and are then asked to reallocate each incident to the cluster as they think fits best.
(iv) Scaling the Incidents – The critical behaviours are then assigned the scales usually in numbers with their description. The scale may range from 1 to 9 or from 1 to 7. This is generally done by the second group.
(v) Development of Final Instruments – The result for arranging scale for different dimensions of the job produces the vertical scale for each dimension. This scale is then used for the evaluation of the performance of the employees.
IV. Management by Objectives (MBO):
It was Peter F. Drucker who first gave the concept of MBO to the world way back in 1954 when his book The Practice of Management was first published. MBO is a philosophy of management in which employees establish objectives through consultation with their superiors and then these objectives are used as the basis for evaluation. MBO is a system involving a cycle that begins with setting the organisation’s common goals and objectives.
The management concept as was conceived by Drucker, reflects a management philosophy which values and utilises employee contributions. Application of MBO in the field of performance appraisal is a recent thinking. The MBO process seems to be most useful with managerial personnel and employees who have a fairly wide range of flexibility and self-control in their jobs.
Therefore, the Management by Objectives approach involves establishing performance goals jointly by the superior and subordinate. For this programme to be effective, both superior and subordinate must be actively involved in objective formulation and agree on the methods to be used to assess performance.
The MBO programme involves:
(i) Defining key tasks for the subordinate and setting a limited number of objectives;
(ii) Establishing criteria for evaluation of objectives;
(iii) Determining dates for review of progress and making modifications in original objectives during review, if necessary;
(iv) Having a final evaluation session for counselling and encouragement; and
(v) Setting objectives for the next cycle.
Problems:
(i) Too much paperwork is involved.
(ii) Setting too many objectives may create a problem of prioritisation.
(iii) May be difficult to establish measurable objectives for some jobs.
(iv) Too much emphasis on short-term performance and losing sight of long-term objectives.
(v) May be used by some supervisors as a control device that intimidates, rather than motivates subordinates.
V. 360 Degree Feedback:
In this method of performance appraisal, information is collected from all persons around the employees — superiors, subordinates, peers, and internal and external customers. Hence, the title 360 degree feedback. The feedback is usually used for determining training and development needs rather than the compensation revision. The appraiser, listed earlier, complete survey questionnaires on the individual.
Computerised systems then compile all the feedback into individualised reports. These are presented to then person being rated. Appraisers then meet with their supervisors and sometimes with their subordinates, to share pertinent information for the purposes of developing the self-improvement plans.
The most productive feature of this system is its ability to provide a diverse array of feedback. The use of multi raters also provides a way to compensate faulty assessments that are sometimes obtained from inexperienced and poorly performing executives.
Advantages:
(i) This system is more comprehensive as responses are gathered from multiple perspectives.
(ii) Quality of information received is better.
(iii) Level of biasness is also less since feedback is received from many persons.
(iv) Feedback from peers and others may increase employee self-development.
(i) The system is complex in combining all the responses.
(ii) If the employees feel that respondents have ganged up their feedback, it may cause resentment among them.
(iii) The system requires training to work effectively.
(iv) Appraisers may not be accountable if their evaluations are anonymous.
Methods of Performance Appraisal
There are different methods of performance appraisal. Each method of performance appraisal has its advantages and limitations. There is no single appraisal method accepted and used by all organizations to measure their employees’ performance. Every organization chooses the method of performance appraisal that best suits them. There are some traditional methods of performance appraisal. Some modern methods of performance appraisal have evolved.
1. Traditional Method:
i. Ranking Method:
Ranking method is the oldest and simplest formal systematic method of performance appraisal, where each employee is compared with all others and placed in simple rank order. In this method the employee are ranked on the basis of merit from best to the poorest or from most to least.
This method although simple, is not preferred because it is difficult to rank each employee when there are a large number of employees and it is very difficult to compare one individual with others having varying behavioural traits. There are also chances of biasness.
ii. Paired Comparison Method:
In this method, each employee is compared with other employees on one-on-one basis and on the basis of one trait only like leadership, knowledge, efficiency etc., at a time. A scale is prepared for each trait and the employee is positioned on the scale in comparison with another employee. The total rating that he secures on the basis of each trait forms the final ranking.
iii. Grading System:
In this method, certain categories are established in advance and pre-defined. The categories may be-outstanding, satisfactory and unsatisfactory. There may be more than three grades. Employee performance is compared with pre-defined grade definitions and allocated to the grade that best describes his or her performance.
iv. Graphic Rating Scale:
The graphic rating scale also known as linear rating scale is one of the most popular and simplest techniques for appraising performance. In this method, the printed appraisal form containing lists of traits such as quality of work and reliability, job related performance criterions such as dependability, initiative, output, attendance, attitude etc., are used to appraise each employee. Each trait is represented by the scale usually a five point scale that ranges from excellent to poor.
For example the ratings can include a scale of 1-10; excellent, average, or poor; or meets, exceeds, or doesn’t meet expectations. The evaluator estimates the degree to which each trait is present in the subordinate put the score for each trait. The total numerical scores are computed and final conclusions are derived.
v. Check List:
Under this method, a checklist of statements of traits of employee in the form of Yes or No based question is prepared. The check-list is, then, presented to the evaluator. He put a tick mark or Yes if it is applicable to the individual employee and keeps it blank or No if not applicable. Each question carries a weightage in relationship to their importance. When the check-list is completed, it is sent to the HR department to prepare the final scores for all appraises based on all questions.
vi. Forced Distribution:
In this method employees are appraised on the basis of pre-determined distribution scale.
The scale introduced as follows:
Low – 10% of the employees
Low average – 20% of the employees
Average – 40% of the employees
High Average – 20% of the employees
High – 10% of the employees
In order to avoid the tendency amongst the rater to rate most of the employees at a higher end of the scale or at the lower end of the scale, this method was developed. Here evaluator is compelled to distribute the employees on all points on the scale. It is assumed that the performance is conformed to normal distribution.
vii. Critical Incident Methods:
In this method workers are appraised on the basis of their ability to perform their jobs in critical situation. Normal situation people’s behavior, work performances are almost alike but how an employee behaves and performs in adverse critical situation is the concern of this method of appraisal. In this method supervisor records the critical and noteworthy behaviour of employee in certain critical events or situations in which either he has performed exceptionally very well or failed to do or could have done better.
The supervisor maintains a record of critical incident behaviour of each employee. This is used in evaluation of employee performance. This identifies the strength and weaknesses of each employee during critical situation which they can work upon to improve overall performance.
viii. Field Review:
The need for field review arises when there is a reason to suspect rater’s biasedness or his or her rating appears to be quite higher than others. In such a situation the review process is conducted by the person who does not belong to the employees’ department, usually by the personnel officer in the HR department.
ix. Confidential Report:
This method is mostly used for appraising employees mainly in the Government Departments. Here evaluation is made by the immediate boss or supervisor for giving effect to promotion and transfer. Usually a structured format is devised to collect information on employee’s strength and weakness, intelligence, attitude, character, attendance, discipline, self-expression, team work, leadership, initiative, technical ability, reasoning ability, originality and resourcefulness etc.
The report contains the record of ratings With respect to the above items relating to the employees strength and weaknesses and the report is highly secretive and confidential.
x. Free Essay Method:
This method is descriptive and provides only qualitative information about the employee. In this method the rater writes a narrative description on an employee’s strengths, weaknesses, past performance, potential, overall impression of performance, ability of employee to assume higher responsibility ,existing capabilities and qualifications of performing jobs, training needs of the employee and suggestions for improvement.
This method is simple to use and do not require complex formats and extensive training to execute it. However the absence of any prescribed structure, the essays vary widely in terms of length and content and quality of appraisal depends more upon rater’s writing skill than the appraiser’s actual level of performance.
2. Modern Method:
i. Management by Objectives (MBO):
Management by Objectives (MBO) was propounded by Peter F. Drucker in 1954 in his book “The Practice of management”. This is a process by which the superior and subordinate managers of an organization jointly identify the common organizational goals, define each individual’s major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing the contribution of each its members.
An MBO programme consists of four steps: goal setting, performance standard, comparison, and periodic review. In this process goals are established by the superior in consultation with the subordinate. The goals define the desired outcome that is expected of each individual employee. The performance standards are set for the employees. Adequate programme and policies are designed for successful attainment of objectives.
The next step involves comparison of actual performance with the goals and standard set. This helps the evaluator to identify the reasons for variation between the actual and standard performance of the employees. This evaluation of performance helps to devise training needs for increasing employees’ performance and suggest other remedial actions to improve employees’ performance.
ii. Behaviourally Anchored Rating Scales (BARS):
“Behaviourally Anchored Rating Scales (BARS)” an objective evaluation technique was developed around 1960s. BARS are descriptions of various degrees of behaviour with regard to a specific performance dimension and incorporate the benefits of narratives, critical incidents, and quantified ratings.
This method of performance appraisal involves the following steps:
a. Critical Behaviours Identification:
Critical behaviours which are essential for the performance of the job effectively and related to various critical incidents of the job are identified.
b. Identifying Performance Measures:
The supervisor, jobholders and HR personnel jointly identifies the performance measures i.e., the outcome of an effective job performance. The different important dimension of performance of the job i.e., the expected outcome of an effective job performance is identified.
c. Clustering of Critical Behavior:
This step involves clustering of those critical behaviors that best describes the job. Different critical behaviours are classified into clusters with each cluster having similar critical incidents. Those behaviours which are approved by majority of personnel are kept for further development and others are discarded.
d. Scaling of Critical Behaviours:
In this step, the critical behaviours which were included for the performance appraisal during the process of clustering are given scales usually in numbers with their description. The scales may range from 1 to 7 or from 1 to 9, with each point of a scale demonstrating perceived level of performance. The scale value is determined on the basis of estimates provided by various persons in the clustering process.
e. Development of BARS Instrument:
The result of arranging various scales for different dimensions of the job (known as behaviour anchors) produces a vertical scale for each dimension. This scale is used for performance appraisal.
iii. Assessment Centre:
This method of performance appraisal was introduced in Germany in 1930s in the Germany to appraise the army officers. The concept traversed from the army to business arena during 1960s.ln these method managers come together to participate in a well-designed simulated exercises at an assessment centre .They are assessed by senior managers supplemented by the psychologists and the HR specialists for 2-3 days.
The assesse participates in in-basket exercises, work groups, simulations, and role playing which are essential for successful performance of actual job. The assessee’s behaviour is recoded and the evaluators meet to discuss their pooled information and observations and, based on it, they give their assessment about the assessee. At the end of the process, feedback in terms of strengths and weaknesses are provided to the assesses.
iv. 360-Degree Feedback:
This method was first developed and formally used by General Electric Company of USA in 1992. This feedback based method is generally used for ascertaining training and development requirements, rather than for pay increases.
Under 360 – degree appraisal, performance information such as – employee’s skills, abilities and behaviours, is collected from his/her supervisors, subordinates, peers and even customers and clients. In this method an employee is appraised by his supervisor, subordinates, peers, and customers with whom he interacts in the course of his job performance. All these appraisers provide information or feedback on an employee by completing survey questionnaires designed for this purpose.
All information so gathered is then compiled through the computerized system to prepare individualized reports. These reports are presented to the employees being rated. They then meet the appraiser—be it one’s superior, subordinates or peers—and share the information they feel as pertinent and useful for developing a self-improvement plan.
Methods of Performance Appraisal – Used for Evaluating the Performance of the Employees
Different methods of performance appraisal are used for evaluating the performance of the employees. Some of these are traditional and have been used for years, while some others have come into use recently.
I. Traditional Methods:
1. Ranking:
This is one of the simplest and oldest methods of performance appraisal. In this method one person is compared with all other employees for the purpose of placing them in a simple rank order of worth. All the employees are placed in order of their relative worth.
This method separates the efficient from the inefficient but it suffers from following defects:
(i) It does not appear to be desirable to compare one person with another because different persons have different traits and qualities.
(ii) It simply tells us who is better than the other but it does not indicate how much better he is than the other.
(iii) This method may be used only in case of small organizations. If a company employs a large number of employees then it may not be possible to rank all of them in order of their worth.
(iv) This system is based on snap judgement and does not have any systematic procedure to determine the relative worth of an employee.
2. Paired-Comparison:
This method was developed to overcome the defects of ranking method. It compares the performance of each worker with that of every other worker in the group or section. At one time, comparisons are made between two people and a decision is made about which pair is superior. Suppose there are four employees in a firm.
Employee A’s performance is compared with B’s and a judgement is made regarding who is better performer. Then A is compared with C and D in the same manner. Similarly, the approach is used for other personnel.
3. Person to Person Comparison:
In this method, certain factors like initiative, faithfulness, leadership, dependability, creativity, etc. are selected for the purpose of analysis. After this, a scale is designed for each factor. Now, instead of defining varying degrees of each factor like leadership, dependability, etc. particular employees are used to represent these degrees.
For each factor the most efficient and least efficient person are selected. These two persons represent the two ends of the scale. Then an average person is selected to represent the medium point. After this, two points are marked one above and one below the average. In this way a scale of five points is ascertained.
Thus, a scale of persons for each factor is created. Now, instead of comparing whole people to whole people, personnel are compared to key persons, one factor at a time. The main limitation of this method is that the preparation of scales for each factor is largely complicated and difficult.
4. Grading:
In this method certain categories of worth are established well in advance. For example categories are defined as extraordinary, satisfactory, average, unsatisfactory, etc. After this, employee performance is compared with these grades and the person is allocated the suitable grade, i.e. the grade that best represents his performance.
5. Forced Distribution:
This is the modification of the grading system. In this system, certain percentages are established for each grade and the evaluator has to rate the subordinates according to the specified distribution.
A standard distribution looks like the following:
1. Best/Superior – 10%
2. Good – 20%
3. Average – 40%
4. Bad – 20%
5. Poor – 10%
This means that if there are 10 employees in the department, 1 will be graded as superior, 2 as good, 4 as average, 2 as bad and 1 as poor.
The main disadvantage of this technique is that it forces the rater to use predetermined rating categories that might not fairly represent that particular group of employees.
6. Graphic Rating Scales:
This approach is similar to person-to-person comparison but the difference is that the degrees on the factor scales are represented by definitions rather than by key people. These are the most commonly used methods of performance appraisal. The rater is asked to rate the employees on the basis of certain factors on a scale.
Generally two types of factors are considered, these are:
(i) Job-related characteristics such as dependability, cooperation, judgement, attendance, initiative, etc.
(ii) Contributions such as quality and quantity of work. The rater evaluates the performance on the basis of these traits on a continuous scale.
The advantages of the graphic rating scale are that they are easy to construct and use and also they attempt to reduce the personal bias.
7. Checklists:
This method is used to reduce the burden on the evaluator. Instead of evaluating employee performance the rater merely reports it. A checklist is prepared in which several questions in relation to a particular job are included. The rater has to simply mark the tick against the column of yes or no.
The questions may be weighted but the rater is not aware of the specific values attached to different questions. The main disadvantage of the checklist system is that it is difficult to assemble and weigh a number of statements (in question forms) about a person’s contribution and characteristics. Moreover, each department needs separate checklist due to difference in the nature of duties and responsibilities of different work.
8. Forced-Choice Distribution:
The main objective of this method is to reduce or eliminate the possibility of rater bias by forcing the rater to choose between descriptive statements of seemingly equal worth. The rater has to select one statement out of the pair that best describes an employee or is least applicable to that employee. The statements within each pair are designed to appear equally positive or equally negative.
For example, the rater may be asked to select one statement out of the following pair that best describes the worker:
(i) He is reliable.
(ii) He is agreeable.
Then, the rater may be asked to choose one statement out of the following pair that least describes the worker:
(i) He is uncooperative.
(ii) He is not interested in doing well.
One statement out of each pair is correct in identifying the better performance and this scoring key is kept secret and is not known to the rater. It is difficult for the rater to distinguish the items that represent desirable or undesirable characteristics. Thus, the chances of deliberately assigning favourable or unfavourable ratings are reduced very much.
9. Critical Incidents:
Critical incidents refer to certain key acts of behaviour that make the difference between success and failure on a job. The supervisor keeps the record of positive and negative acts/events of a subordinate’s work-related behaviour. All these acts are critical incidents. After a fixed time interval like six months or so, the supervisor and the subordinate meet to discuss the latter’s performance on the basis of the critical incidents.
For example, incidents in a purchasing agent’s job might be the following:
(i) Treated a salesperson in a markedly discourteous manner.
(ii) Rejected a bid that was excessively overpriced.
(iii) Persuaded a local vendor to stock an important item.
(iv) Failed to return an important phone call.
The main advantage of this method is that by keeping systematic record helps in backing up personnel decisions when challenged by the trade union, workers, courts, etc. as these are hard evidence.
10. Field Review:
In this method, the evaluator, usually HR specialist, interviews supervisors and asks questions about their subordinates. The evaluator gets the opinions of the supervisor regarding the subordinate’s work progress, performance, strengths, weakness, etc., and records it for future reference.
11. Confidential Report:
This is one of the traditional and most common methods of performance appraisal in most of the government organizations. An annual confidential report (ACR) of each subordinate is prepared by the immediate supervisor. This is descriptive in nature and is usually prepared at the end of every year.
An ACR highlights the strengths, weaknesses, performance, character, ability, etc. of the subordinate. The main disadvantage of this method is that it involves a lot of subjectivity. Also, no feedback is provided to the employee being appraised. So, its credibility is low.
12. Free Essay Method:
In this method, the evaluator, usually supervisor writes a report about employees’ performance.
The supervisor considers the following factors about an employee while preparing the essay:
(i) Job knowledge.
(ii) Relations with co-workers and superiors.
(iii) Attitudes and perceptions.
(iv) Understanding of organizational plans and policies.
(v) Training and development needs.
(vi) Strengths and weaknesses.
This is a non-quantitative technique of performance appraisal. However, the disadvantage of this method is that it is highly subjective.
13. Behaviourally Anchored Rating Scales (BARS):
It attempts to evaluate job performance in terms of key/ specific behaviours that are important to success or failure on the job. The critical-incident approach has been merged with the graphic rating concept to produce behaviourally anchored rating scales. In this method, the evaluator rates the critical employee behaviours.
There are two types of scales:
(i) Behaviour Expectation Scales (BES), where anchors are illustrations that help the rater to define as superior, average or below average the behaviour of the employee.
(ii) Behaviour Observation Scales (BOS), where the rater reports the frequency with which the employee engages in the behaviour specified in the anchor.
II. Modern Methods:
These methods are the improvements over the traditional methods. They attempt to remove the defects of the earlier methods.
1. Management by Objectives (MBO):
There is one thing common in all the traditional methods of performance appraisal that the superior sits in the chair of a judge for his or her employees’ performance. He evaluates and gives his judgement. However, this philosophy of performance appraisal has attracted a lot of criticism. To overcome this problem, a new concept of performance appraisal known by management by objectives (MBO) was given by Peter F. Drucker in 1954.
MBO refers to joint setting of specific measurable goals and periodical review of the progress made. MBO tends to emphasize a participative but joint determination of objectives followed by a participative but joint evaluation of success in periodic appraisal interviews.
The major steps involved in an MBO programme are the following:
(i) Establish the objectives/goals – The first step is the meeting of superior and subordinates with the aim to reach an agreement upon the key goals to be achieved by the subordinate. It is better if there are a limited number of goals.
(ii) Performance reviews – The second step is to compare each employee’s actual and targeted performance. Each employee’s achievement is compared with the agreed goals.
(iii) Provide the feedback – Finally, the superior discusses with the subordinate his progress towards the earlier set goals. The atmosphere of the discussion is of mutual respect and is supportive. Here, the superior does not sit in the capacity of a judge to pass judgement. Here, the approach is of two persons working on joint problems with joint goals.
However, there are few limitations of this method. Firstly, problems are encountered in the individual goal setting process. As all the activities in an organization are interdependent and interrelated, clear-cut setting of individual objectives is a complex task.
Secondly, this is a time-consuming process. Lot of time is taken in meeting, joint setting of objectives, measuring progress and conveying to the employee.
Thirdly, it is not applicable to all jobs in a firm. There is difficulty in applying this approach to non-managerial positions such as assembly-line work where there is very little or no flexibility to set performance standards as these are already determined. Moreover, comparative assessment of so many employees in an organization is a very difficult task to do.
2. 360° Feedback:
This method of performance appraisal is also known as multi-source assessment or multi-rater feedback. 360° feedback can be defined as the systematic collection and feedback of performance data on an individual or group derived from a number of the stakeholders on their performance. The stakeholders are immediate supervisors, peers, team members, customers (internal and external) and self.
The main objective of 360° appraisal method is that each employee gets his performance report/feedback from all angles in an organization (i.e. supervisor, peers, customers, etc.) and this makes him understand how effective he is as an employee, team member, co-worker, etc.
This provides an employee a broader perspective about his performance. This method of performance appraisal is mostly concentrated on the senior level employees, for example, managers, directors, senior executives, etc.
The main advantages of this method are the following:
(i) A broader perspective to the individual of how they are perceived by others.
(ii) Increased awareness of and relevance of competencies.
(iii) Increased awareness by senior management that they too have development needs.
(iv) More reliable feedback to senior managers about their performance.
(v) Gaining acceptance of the principle of multiple stakeholders as a measure of performance.
(vi) Encouraging more open feedback new insights.
(vii) Reinforcing the desired competencies of the business.
(viii) Provides a clear picture to senior management of individual’s real worth.
The main drawbacks of this system are the following:
(i) It is difficult to receive and organize feedback from different sources.
(ii) Employees remain under stress and there is threatening environment while receiving or giving feedback.
(iii) It is time-consuming. Lot of time is spent upon selection of raters, designing questionnaires, sending and receiving them, analyzing the data and providing feedback.
(iv) Sometimes, personal differences or biases come in the way of honest rating.
Development and Implementation of 360° Feedback:
The main steps involved are the following:
(i) Define objectives – Spell out clearly what 360° feedback is expected to achieve.
(ii) Decide on recipients – Who will be at the receiving end of feedback.
(iii) Decide on who will give the feedback – Means supervisor, peers, customers, etc. the stakeholders in the performance.
(iv) Areas of work – Decide on the areas of work and behaviour on which feedback will be given.
(v) Collecting the data – Decide on the method of collecting the data— questionnaire, etc.
(vi) Data analysis – Decide on data analysis and presentation—develop or purchase software.
(vii) Plan implementation programme – It is desirable to pilot the process, preferably at the top level or with all the managers in a function or department.
(viii) Outcomes – Analyze outcome of pilot scheme.
(ix) Plan and implement full programme – This should include briefing, communicating, training and support from HR and, possibly, the external consultants.
(x) Monitor and evaluate – This process can cause anxiety and stress or produce little practical gain in terms of development and improved performance for a lot of effort.
3. Psychological Appraisals:
Psychological appraisals are conducted to assess the future potential of the employees. In this method, the past and actual performance is not assessed. The focus is on the future potential. Big organizations generally employ full-time industrial psychologists for the purpose.
Usually, the appraisals consist of psychological tests, in-department interviews and discussions with the immediate supervisors. The areas covered about an employee are his or her emotional stability, reasoning abilities, sociability, intellectual abilities, ability to foresee the future and analytical abilities.
The psychologist prepares his report on the above-said characteristics of employees. The report may suggest or predict the employee’s future performance. This will help in taking decisions regarding employee’s career planning and development, training, placement, etc.
4. Assessment Centre:
This is a widely used technique of selecting and appraising the candidates. Earlier, it was called situational testing. It was developed by the German army in 1920s to select officer candidates of higher quality. Generally, an assessment centre involves 6 to 12 candidates at a time. These candidates will be evaluated with the help of a series of exercises over next several days (1 to 3 days).
These tests do not assess actual job behaviour but a variety of activities that are likely to encounter on the job. The candidates or managers participate in simulated job tasks such as in-basket tests, role-playing, leaderless group discussion, computer simulations, group problem solving, management or business games, interviewing, etc.
The raters, who are the trained observers, record the observations of participants and, these observations and finally give their decision regarding the performance of each participant.
5. Human Resource Accounting (HRA):
According to American Accounting Association, “HRA is the process of identifying and measuring data about human resources and communicating this information to interested parties.” HRA aims to quantify the economic value of people to the organization in order to provide input for managerial and financial decisions.
HRA evaluates the cost and contributions of human resources to the organization. Cost of human resources refers to all expenses incurred on human resource planning, recruitment, selection, induction, placement, training and development, salaries, benefits, etc. Contribution refers to revenue from employee services to the organization.
It provides information about the values of human capital to the organization. It facilitates the effective and efficient management of human resources by providing information about utility of cost reduction and budgeting control.
Methods of Performance Appraisal – Graphic Rating Scales, Ranking Method, Paired Comparison Method, MBO, 360° Performance Appraisal and a Few Other Methods
There are various methods involved in performance appraisal. Some methods measure absolute standards, some measure relative standards, and others measure standards in relation to objectives. Further, in the last 30 years, the appraisal process has undergone a lot of changes, and in line with its importance, new methods have also resulted. Hence, we examine the methods under two headings- traditional methods and modern methods.
I. Traditional Methods:
The traditional methods of performance appraisal have been briefly discussed below:
This is the oldest and most commonly used method. It is also known as the linear rating scale or simple rating scale. In this method, a printed form is used to evaluate the performance of each employee. A variety of traits such as employee initiative, leadership, attitude, loyalty, creativity, cooperation, quality and quantity of work done, goals achieved, coordination towards co-workers and supervisors, etc. are included.
These traits are then evaluated on a rating scale by the rater according to the employee performance. The advantage of this method is that it is easy to use, easy to understand, and many employees can be evaluated quickly. The drawback is its low reliability, subjectivity, and the descriptive words used in such scales, which may have different meaning to different raters.
This is a relatively easy method. In this method, each person in the group is assigned a rank in comparison with others in the group. Normally, the ranking is done based on the performance of the employees. The top performer is usually assigned rank 1 and the ranks decline as the performance levels decrease.
Even though ranking is done, it is difficult to evaluate and assign ranks to average employees. The method also has its limitations. Only a relative ranking of the employee is obtained but not the degree of difference in proficiency. Another limitation is only the work-related aspects are compared and no other behavioural aspects. This method is not practicable for a large group.
Paired comparison method is a systematic method where each employee is compared with all other employees in the group, for each trait, one at a time.
4. Forced Distribution Method:
In this, the system rater appraises the employee on two dimensions- job performance and other factors of promotability. A five-point performance scale is used to describe and classify the employees. The extreme ends denote good and bad performances.
For example, employees with outstanding performance may be placed among the top ten per cent of the scale. An advantage of this method is it brings about uniformity among the rates. Since performance depends on many factors, employees who have been classified as low performers may experience low morale.
It is a simple rating method in which the rater is given a list of statements and is asked to check the statements representing the characteristics and performance of each employee. There are three types of checklist methods— simple checklist, weighted checklist, and forced-choice method.
i. Simple Checklist Method:
It consists of a large number of statements concerning employee behaviour. The rater’s task is simply to check if the behaviour of an employee is positive or negative to each statement. Employee performance is rated on the basis of the number of positive checks, negative checks are not considered.
ii. Weighted Checklist Method:
The weighted checklist method involves weighting the different statements about an individual to indicate that some are more important than others. The rater is expected to look into the questions which relate to the employee’s behaviour and tick such statements that closely describe the behavior of employee.
In the weighted method, the performance ratings of the employee are multiplied by the weights of the statements and the coefficients are added up. This cumulative coefficient is the weighted performance score of the employee, which, in turn, is compared with the overall assessment standards in order to find out the overall performance of the employee. However, this method is expensive to design and time consuming in nature.
iii. Critical Incident Method:
In the critical incident method, the rater or manager prepares a list of statements on the basis of the effective and ineffective behaviour of an employee. These incidents represent the behaviour of employees on their job. The rater periodically records the critical incidents and maintains it. At the end of the rating period, these critical incidents are used to evaluate the overall employee performance.
In an essay-form appraisal the manager writes a short essay describing the employee’s performance. This form, prepared during the rating period, emphasizes the evaluation of the overall performance on the basis of their strengths/weaknesses. A major limitation of this method is that the quality of ratings depends on the writing skills of the manager, rather than the performance of an employee.
In this method, an employee is appraised by a group of appraisers. The group consists of the immediate supervisor of the employee, manager or head of the department, and consultants. The group may use one or multiple methods.
The group first appraises the performance of the employee, compares the actual performance with the standards, finds out the deviations, and discusses the reasons for it in order to suggest ways for improving the performance of the employee. The group also prepares a plan of action, studies the need for change in job analysis and standards, and recommends change. This method is used for the purpose of promotion, demotion, and retrenchment appraisal.
Under this method, the supervisor appraises the performance of his subordinates on the basis of his observations, judgement, and intuitions. This method is usually used in government organizations and is prepared at the end of every year. The report states the strengths, weaknesses, sincerity, punctuality, attitude, knowledge, skills, conduct, and character of the employees.
II. Modern Methods:
The modern methods of performance appraisal are discussed below:
1. Behaviourally Anchored Rating Scales (BARS):
This is recently developed appraisal method. It is a combination of the rating scale and critical incident method.
The five-step procedure for BARS is discussed below:
Step I- Collect Critical Incidents:
People with knowledge of the job to be appraised are asked to describe specific illustrations of effective and ineffective performance behaviour.
Step II- Identify Performance Dimensions:
These people then cluster the incidents into a smaller set (of say, 5-10) of performance dimensions. Each cluster (dimensions) is then defined.
Step III- Re-Classify the Incidents:
Another group of people, who have knowledge about the job, re-classify the critical incidents. They are given the cluster definitions and critical incidents, and asked to re-design each incident to the dimension it best describes. Typically, a critical incident is retained if some percentage (usually 50% to 80%) of this group assigns it to the same cluster as the previous group did.
Step IV- Rate the Incidents:
This second group is generally asked to rate (7 or 9-point scales are typical) the behavior described in the incident in terms of how effectively or ineffectively it represents performance on the appropriate dimension.
Step V- Develop the Final Instrument:
A subset of incidents (usually 6 or 7 per cluster) is used as ‘behavior anchors’ for the performance dimensions.
This method is used to test candidates in a social situation, using a variety of procedures and a number of assessors. The most important feature of the assessment centre is job-related simulations. These simulations involve characteristics that managers feel are important to job success.
The evaluators observe and evaluate participants (in several situations) as they perform activities commonly found in these higher-level jobs. Assessments are made to determine employee potential for the purpose of promotions.
Assessment centres are used for the following purposes:
i. To measure the potential for first-level supervision, sales and upper management positions, and also for higher levels of management for development purposes.
ii. To determine the individual training and development needs of employees.
iii. To select recent college students for entry-level positions.
iv. To provide more accurate human resource planning information.
v. To make an early determination of potential.
vi. To assist in implementing affirmative action goals.
3. Human-Asset-Accounting Method:
Human-asset accounting is a sophisticated method which deals with the cost and contribution of human resources to the organization. Cost of employee includes cost of manpower planning, recruitment, selection, induction, placement, training development and benefits, etc.
Employee contribution is the employee’s service towards the organization. Employee performance is positive if the employee contribution is more than his/her cost to the company.
Management by objectives is described as ‘a process whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individual’s major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing the contributions of each of its members’.
MBO is a modern method of evaluating the performance of employees—it measures each employee’s contribution to the success of the organization.
To establish objectives, the key people involved should engage in the following three activities:
i. Meet to achieve the objectives within a given period of time.
ii. Develop plans to accomplish the objectives.
iii. Agree on the ‘yardsticks’ for determining whether the objectives have been met.
So, MBO is a complete system of planning, control, and philosophy of management.
5. 360° Performance Appraisal:
The appraiser can be any person who has knowledge about the job done, the contents to be appraised, the standards of contents, and observes the employee while performing a job. The comprehensive appraisals from the supervisors, peers, subordinates, and the employee himself/herself are called 360° appraisal.
The appraiser should assess the performance without bias and must also be capable of determining what is more important and what is less important.