Everything you need to know about performance appraisal. Performance appraisal is a formal system that evaluates the quality of a worker’s performance.
The appraisal measures skills and accomplishments with reasonable accuracy and uniformity. It provides a way to help identify areas for performance enhancement and to help promote professional growth. It should not, however, be considered the supervisor’s only communication tool.
The focus of performance appraisal is as much on the measuring and improving of the actual performance as on the future potential of the employee.
This activity is performed annually by a supervisor for his/her subordinates designed to help employees understand their roles, objectives, expectations, and performance success.
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Performance appraisal can be used for developmental as well as administrative purposes. It is a powerful tool to calibrate, refine, and enhance the capabilities of the employee.
Learn about:-
1. Introduction and Meaning of Performance Appraisal 2. Evolution of Performance Appraisal 3. Objectives 4. Types of Appraisers 5. Role and Importance 6. Types
7. Methods 8. Approaches 9. Policy 10. Uses and Purpose 11. Challenges 12. Measures to Overcome the Barriers.
What is Performance Appraisal: Meaning, Evolution, Objectives, Importance, Types, Uses, Policy and Challenges
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Contents:
- Introduction and Meaning of Performance Appraisal
- Evolution of Performance Appraisal
- Main Objectives of Performance Appraisal
- Types of Appraisers
- Role and Importance of Performance Appraisal
- Types of Performance Appraisal
- Methods of Performance Appraisal
- Approaches of Performance Appraisal
- Policy of Performance Appraisal
- Uses and Purpose of Performance Appraisal
- Challenges Faced by Performance Appraisal
- Measures to Overcome the Barriers of Performance Appraisal
What is Performance Appraisal – Meaning
Performance appraisal is a formal system that evaluates the quality of a worker’s performance. The appraisal measures skills and accomplishments with reasonable accuracy and uniformity. It provides a way to help identify areas for performance enhancement and to help promote professional growth. It should not, however, be considered the supervisor’s only communication tool. Open lines of communication throughout the year help to make effective working relationships. Performance appraisal is the process which assessing the performance and progress of an employee on a given job for his future development, and it mainly consists formal procedures.
Each employee is entitled to a thoughtful and careful appraisal. The success of the process depends on the supervisor’s willingness to complete a constructive and objective appraisal and on the employee’s willingness to respond to constructive suggestions and to work with the supervisor to reach future goals.
An appraisal should not be viewed as an end in itself, but rather as an important process within a broader performance management system that links-
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a. Organisational objectives
b. Day-to-day performance
c. Professional development
d. Rewards and incentives
Performance in the organizational context is a function of determining job criteria, selecting those employees who will be able to perform the required organizational task, motivating and developing them for improving their job skills, and preparing them for higher responsibilities. Hence, the process of performance appraisal involves obtaining, recording, and analysing information about the relative worth of an employee.
The focus of performance appraisal is as much on the measuring and improving of the actual performance as on the future potential of the employee. This activity is performed annually by a supervisor for his/her subordinates designed to help employees understand their roles, objectives, expectations, and performance success. Performance appraisal can be used for developmental as well as administrative purposes. It is a powerful tool to calibrate, refine, and enhance the capabilities of the employee.
The developmental purpose of performance appraisal provides feedback for identifying the employee’s strengths and weaknesses, improving performance, and planning for training and development needs of the future. The emphasis is on improving the employee’s on-the-job behaviour.
The administrative purposes include decisions regarding promotions, transfers, demotions, or layoff. It also provides inputs to other HR activities such as compensation programmes, recruitment and selection, human resource planning, career planning, and the like.
Performance evaluation is the process of evaluating employee performance on the job in terms of job requirements. For example, the ability to do the work, initiative, industry, tact, judgement, leadership, etc.
What is Performance Appraisal – Evolution Over the Period of Time
Performance appraisal is an old concept. In fact it began in China in the Weidy Dynasty where an imperial rater appraised the performance of the members of office family (CAD) 261 – 265.
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In 1883, New York City Civil Services introduced formal appraisal programme before First World War. However formal employee’s performance appraisal is believed to have been started for the first time during First World War. Walter Dill Scott, US army chief put in place man-to-man rating system in military establishment.
In the early fifties performance of technical, professional and managerial personnel were taken up. Since then, it gained momentum. A tremendous change has been sweeping the performance appraisal spectrum of HR. Different experts have evolved different philosophies and concepts in the sphere of performance evaluation. The common phrases used include merit rating, behavioural assessment, employee evaluation, personnel review, performance audit etc. However the term ‘performance appraisal’ is widely used.
After placed and trained as an employee on the job, the next important and essential step in the management of human resources of an organisation is to evaluate the performance of an employee on the job. The management must be able to recognize the level of an employee’s job performance and then they can be rewarded on the basis of their contributions to organizational goals. It is the process of deciding how employees do their jobs and if any problems are identified, then immediately steps are taken to remedy them.
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As per the views of C. Heyel (1973), “performance appraisal is the process of evaluating the performance and qualifications of the employees in terms of the requirements of the job for which he is employed, for the purposes of administration including placement, selection for promotions, providing financial rewards and other actions which require differential treatment among the members of a group as distinguished from actions affecting all members equally”. It is organized on the principle of goals and management by objectives.
The performance appraisal of employees has been used for the first time during the First World War when Walter Dill Scott, the US Army adopted the ‘Man-to-Man’ rating system for evaluating the performance of military personnel. During the 1920-30, the merit rating programmes were used for employees of industrial units. In the early fifties, attention began to the performance appraisal of technical, professional and managerial personnel.
According to Wonston Oberg (1972), Common descriptions include performance appraisal, merit rating, behavioural assessment, employee evaluation, personnel review, progress report, staff assessment, service rating and fitness report.
However, the term performance appraisal or evaluation is most widely used. Performance appraisal is a systematic evaluation of the employee’s present job capabilities and also his potential for growth and development by his superiors. It can be either informal or formal. The informal appraisals are unplanned while formal appraisal system is set up by the organisation to regularly and systematically evaluate employee performance. It reduces the chance of bias and snap judgement but bound to yield better results.
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“Formal appraisal of an individual’s performance began in the Weidymasty (A.D. 221-265) in China, where an Imperial Rater appraised the performance of members of the official. In 1883, the New York City Civil Service in U.S.A., introduced a formal appraisal programme shortly before First World War”.
A. Monappa and M. S. Saiyadain Douglas Mc Gregor (1957) says – Formal performance appraisal plans are designed to meet three needs, one of the organisation and other two of the individual, namely:
(i) They provide systematic judgements to back up salary increase, transfers, demotions or terminations.
(ii) They are means of telling a subordinate how he is doing, and suggesting needed changes in his behaviour, attitudes, skills or job knowledge. They let him know ‘where he stands’ with the boss
(iii) They are used as a base for coaching and counselling the individual by the superior.
What is Performance Appraisal – Objectives
The main objectives of performance appraisal is to secure information necessary for making objectives and correct decisions on employees. It provides information for personnel decisions just like – promotion, transfers, demotions, terminations, etc.
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Appraisal of managerial performance is very important and a manager is responsible for achieving the targets of his work unit. A sound appraisal system should include the post-appraisal interview and interview provides an opportunity to the employee to explain his views about performance standards.
The main objectives of performance appraisal has been discussed in the following:
(1) It provides feedback to employees so that they came to know where they stand and can improve their job performance.
(2) It provide a vital database for personnel decisions concerning placements, pay, promotion, transfer and punishment etc.
(3) It diagnose the strengths and weaknesses of individuals so as to identify further training needs.
(4) It provides coaching, counselling, career planning and motivation to subordinates.
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(5) It helps to develop positive superior- subordinate relation, and thereby reduce grievances.
(6) It facilitates research in personnel management.
(7) It also helps to test the effectiveness of recruitment, selection, placement and induction programmes.
What is Performance Appraisal – Types of Appraiser: Self-Appraisal, Supervisors, Peers, Customers/Clients and Subordinates
Analysis of a number of appraisal situations reveals that several alternatives are available for conducting performance appraisals. The effectiveness of some of these alternative choices depends on factors such as the capability, knowledge level, objectivity, time availability, and so on.
Let us look at these alternative choices:
1. Immediate supervisor- Common choice, because of his responsibility and opportunity to guide and observe his subordinate.
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2. Immediate supervisor and his boss- Bringing in the immediate supervisor and his boss might enhance the objectivity of evaluation.
3. Third person along with the immediate supervisor and his boss- The third person can be a consultant, or a person from within the organization.
4. A group of managers or supervisors- This might help to reduce the immediate familiar with the subordinate supervisor’s bias and prejudice.
5. Peer-rating- Individual’s work associates participate in the appraisal.
6. Rating by one’s subordinates- This can be effective if subordinates are capable.
A system’s approach to performance appraisal appears to be an ideal approach. An individual’s job performance involves the participation and cooperation of superiors, peers, and subordinates. Hence, it is appropriate to seek the necessary information and opinions from these sources so that effective developmental programs can be designed to improve the performance of the individual.
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Traditionally, appraisal has been the job of the supervisor with the employee himself having no role to play in the process. However, the whole concept has changed today and the appraisee has an important role in the process. He, in co-ordination with his superior, determines the performance, objectives and standards.
Again, at the end of the appraisal period, the employee assesses his own performance, in comparison to the pre-determined objectives. The supervisor offers his opinion at the end of the appraisal and together they finalise the appraisal results. The areas of development are identified and future actions planned.
In more recent concepts like 360 degree feedback, the peers/colleagues of the employee, his suppliers, his customers/clients and even his subordinates, play a role in assessing his performance. This gives a more holistic view of the performance and also helps in easy identification of the problem areas.
The different appraisers are discussed below:
1. Self-Appraisal:
Self-appraisal is a common practice today, with the employees being given a role in evaluating their own performance. The employee himself is best equipped to evaluate his performance because he understands his strengths and weaknesses the best.
He can easily identify the problem areas that need training and development. The employees however have to be trained to be rational and critical in their appraisal. Pre-determined and measurable objectives can help to ensure a more objective appraisal.
2. Supervisors:
It is the responsibility of the supervisor to ensure that his subordinates perform their jobs well. Hence, the authority to evaluate the employee performance has traditionally been with the supervisor. Even today, the supervisor has a very important role to play in the appraisal of his subordinates.
Many supervisors dread the exercise, as they do not want to spoil their relationship with the employees. The organisation has to develop an open and professional culture, where the process of appraisal is held in a healthy and constructive manner.
3. Peers:
Peer evaluation is a very sensitive area as it may lead to false and unhealthy appraisals, because of the competition among peers. The organisation has to reach an advanced stage of development before it can handle peer appraisal. Peer appraisal has to be used to assess the communication and interpersonal skills of the employee, which can affect the team performance.
4. Customers/Clients:
The performance of an employee has a direct and immediate impact on his customers, either internal or external. In service organisations like banks and hotels, customer feedback has become the most important tool in evaluating employee performance. In manufacturing organisations, the internal customer evaluates the performance of the employee.
For example, the customer of a worker in the assembly line is the next worker in the line, who may assemble the parts provided by the former. Today, when service is an increasingly important source of competitive advantage, customer/client appraisal is becoming extremely relevant.
5. Subordinates:
The concept of the subordinates evaluating the performance of his supervisor is yet to gain acceptance in most Indian companies. The Indian culture does not encourage the idea of a subordinate appraisal. However, with more and more MNCs operating in the country today, this concept is likely to gain ground.
The 360 degree feedback system, which enables appraisal by subordinates, is being adopted by many Indian organisations, especially the new economy players. However, this needs a high level of organisational as well as employee maturity for its successful and effective implementation.
What is Performance Appraisal – Role and Importance
In most organizations, appraisals are conducted only once per year. Organizations usually conduct appraisals in order to improve organizational effectiveness by providing vital information pertaining to the suitability and capability of its human resource.
Performance appraisal is usually conducted by the organizations for administrative and/or developmental purposes.
The role and importance of performance appraisal in these areas is discussed below:
1. Human Resource Planning:
Performance appraisal generates significant, relevant, and useful information about the promotability and the potential of employees. This information is used to assess the organization’s internal supply of human resources and availability of managerial personnel for succession planning.
2. Recruitment and Selection:
Evaluation made in performance appraisal can be used to find out the particular areas of knowledge, skills, and experience possessed by successful performers. This information can be used to review effectiveness of recruitment and selection procedures and practices so that right type of candidates can be selected for the right job.
3. Training and Development:
Performance appraisal helps in identifying development needs of employees. This information can be used to devise suitable training and development programmes to enable employees to overcome their weaknesses and improve their strengths. Improvement in employees’ performance will bring about improvement in their department’s performance also.
4. Career Planning and Development:
Feedback guidance from reporting officers can enable employees to bring about changes in their behaviours, attitudes, skills and knowledge, and set realistic goals for themselves. Employees can also be counselled to develop their potential for particular types of work, keeping in view their strengths and weaknesses.
5. Compensation:
Information gathered through performance appraisal provides inputs for making decisions concerning salary administration, financial incentives, appreciations, additional responsibilities, promotions etc. On the basis of this information, achievers can be rewarded and poor performers can be given appropriate signals.
6. Employee Relations:
Employees can have a continuous dialogue with their managers for clarifying misunderstandings and explaining mutual expectations. They can thus be motivated and developed for better performance and higher productivity. Data gathered through performance appraisal can also be used for making decisions concerning transfer, demotion, or dismissal.
Sometimes an employee’s performance in one position or under one manager may not be an accurate indicator of job success. In such cases, a transfer may be called for, and the employee can be tried in another job or under another manager.
Persistent substandard performance, despite opportunities to improve it, may result in demotion, or even dismissal. Performance appraisal provides legal and organizational justification for such decisions.
What is Performance Appraisal – 4 Main Types: Formal Appraisal, Informal Appraisal, Objective Appraisal and Subjective Performance Appraisal
Performance Appraisal can be categorised into:
Type # 1. Formal Appraisal:
Many organisations adopt the policy of regular appraisal of the performance of their employees. This helps the management in many ways. Regular performance appraisal reports are tabled before the bosses, who inter initiates required action.
A permanent and common procedure is adopted for all the employees and their evaluation is made on predetermined standards. Such an appraisal is made at regular intervals, may be quarterly, half yearly or yearly and so on. A permanent record of such appraisal is maintained.
It helps the administration in assessing the development. If there is no improvement the employee is taken to task and if there is significant improvement rather development the employee is rewarded. Such a policy motivates the employees. Thus a regular and standardized appraisal is known as formal performance appraisal.
Type # 2. Informal Appraisal:
Contrary to formal appraisal this is done at any moment of time by the immediate supervisor if he feels it necessary. There is no standardised procedure for this. The supervisor may assess the performance of any subordinate if he feels necessary. Such appraisal is aimed at assessing the consistency of a particular employee, in-his performance.
This is done in informal way of discussion, dialogue or communication or constant supervision of his performance. There is no time fixed for such appraisal. The supervisor gets the feedback from the employees and thus knows whether he has followed the instructions or whether he could understand the way to perform a job.
It is always up to the enterprise as to which type of appraisal is adopted. But then both are supplementary to each other. As such many enterprises adopt both the types. Formal appraisal enables the management to get regular information and informal appraisal gets them feedback. This feedback helps the management to formulate policies for human and atmospheric development.
Type # 3. Objective Appraisal:
Evaluation of performance with a specific object can be termed as objective performance appraisal. Such an appraisal is aimed at assessing the performance of the workers against some specific standard. Such standards are based on job analysis and evaluation.
Thus objective appraisal assesses the performance on specific job. It does not include any other aspect in which his otherwise performance is not considered. Such an appraisal removes misconceptions regarding the performance on a specific job. Objective performance evaluation apparently looks to be the best as far as workers performance on a particular job is concerned. But it is difficult to measure management potential.
If objective appraisal is decided to be undertaken preliminaries right from understanding the job, then analysing it and afterwards fixing measurement or assessment standards are required to be done. If such evaluation is required for a number of employees it may consume more time and naturally more expenditure, in nutshell objective performance appraisal is best for a job but expensive.
Type # 4. Subjective Performance Appraisal:
Contrary to objective evaluation, subjective evaluation is meant for overall evaluation of the workers performance. Thus it gives more information to the management. Such evaluation is aimed at assessing the general performance of the employees, the performance is assessed as well as evaluated against general standards and not specific standards.
Same standards are made applicable for evaluation of all the workers in the same category. There may be some upgradation and / or downgradation for different categories. Subjective appraisal equips the management on various matters of employee performance, their overall drawbacks, extra potential in some employees which, in turn, help the management to decide promotions, placement, bonus and rewards etc.
What is Performance Appraisal – Top 8 Methods: Graphic Rating Scale Method, Ranking Method, Paired-Comparison Method and a Few Other Methods
As a result of research and from the contributions of many practicing managers, a number of performance appraisal systems have been developed in the past thirty years. While some of these methods emphasize personality factors in appraising the performance of individuals, others focus on job-related factors the older methods of evaluation tended to be subjective while the modern methods stress objectivity.
The findings of various studies show that many organizations are moving towards objective methods of performance appraisals. The objective methods require the participation of subordinates in setting their work goals and measuring their performance against these goals. The purpose of modern appraisal methods seems to be the development of the individual rather than the reward or punishment for meeting or not meeting the established goals.
Let us examine some of the methods used in appraisals:
1. Graphic Rating Scale Method:
Some kind of graphic rating scales are commonly used for rating the performance of employees in many organizations. Such scales are used mostly for non-managerial jobs and in some cases for middle level management positions. This method focuses on the individual who performs the job.
The traits or characteristics of the individual are identified for a particular job classification and the individuals are rated on these using five or seven-point scale. Some of the traits used for operative employees are the ability to learn, initiative, cooperation, knowledge of work, dependability and so on. Characteristics such as creativity, leadership ability, planning ability, self-expression, decisiveness, and similar other factors are included in the graphic rating form intended for managers, supervisors, and department heads.
The characteristics related to success in a job classification must be identified, and brief descriptions for these characteristics must be written to achieve uniformity in interpretation. Each characteristic must have a corresponding scale. These scales may be continuous or discontinuous. The continuous scale has a low weightage at one end and a high weightage at the other end. The points between these two ends are assigned with weights.
The supervisor compares this characteristic with the individual being rated, and circles the appropriate point on the scale. Once all the characteristics are rated, the total points can be computed. An advantage of this method is that a comparison of scores can be made among the employees under a supervisor.
In the discontinuous scale, brief descriptions are provided for each scale and these descriptions are neither in ascending order nor in descending order.
The discontinuous scale forces the rater to read the scale descriptions carefully before checking the appropriate box. In some rating forms, spaces are also provided for additional comments. The purpose of this approach is to reduce subjectivity in rating the performance of individuals.
(i) Easily understood by the user.
(ii) Construction of the scales may be relatively easier.
(iii) If the rating is backed by comments, the halo error can be reduced.
(i) Since the traits are involved, the rater must have knowledge of psychology and human behavior.
(ii) The supervisors must be given adequate training to use this approach.
(iii) Still the element of subjectivity cannot be eliminated under this approach.
2. Ranking Method:
This method is the simplest of all the appraisal methods and has been in use in some industries for a long time. Under this method, criteria for good performance are set and the individuals are rated by comparing against the criteria and also comparisons among the individuals being appraised are made. Thus, subordinates under a supervisor are ranked from the best performer to the worst performer.
(i) Very simple to understand.
(ii) Under this method, putting all the individuals under the classification “average” does not occur. Thus, the error of central tendency is eliminated.
(iii) It is a natural way of rating people.
(iv) Ideal for a small organization.
(i) Not suitable when a supervisor has a large number of subordinates.
(ii) When ranks are assigned, the rater assumes that the differences between ranks are uniform.
3. Paired-Comparison Method:
This is an improvised form of the ranking method. Under this method, one individual being evaluated is compared against another individual under a supervisor at a time. Thus, each individual under a supervisor gets a chance to be compared against the rest of the individuals. The number of times each individual rated better than the other is noted and finally ranks are computed on the basis of number of times each individual was preferred over the other.
(i) By comparing one individual against the other at a time, comparisons become finer.
(ii) Much better than the traditional “ranking” method.
(i) Not suitable when supervisor has a large group of subordinates.
(ii) Although preferable to ranking method, there is still some element of subjectivity when one is compared against the other.
4. Forced-Choice Method:
This method of evaluation is preferred by quite a few organizations because of its objectivity. A forced-choice instrument has a number of items, each item with four statements. These statements are related to the job classification of the individuals being rated. A simple job may require a dozen items while a complex one may require thirty to forty items.
The supervisor who rates the individuals must read these items carefully and pick one statement that is most descriptive and another statement that is least descriptive of the individuals being rated. The supervisor picks two statements and there is no way for him to know which of these statements has a high weightage and which one has a low weightage.
(i) Greater objectivity than many other methods.
(ii) Instruments are commercially available for various job classifications.
(iii) Scoring of the instrument is easy because the key is provided.
(i) Construction of forced-choice instrument is complicated.
(ii) Each job requires a different set of items.
(iii) Not suitable for developmental and counselling purposes.
(iv) The secrecy involved in the scoring aspect may not provide much enthusiasm for the immediate supervisor to appraise the subordinates.
5. Weighted Checklist Method:
The focus of this method of evaluation is on the job itself. Under this method, statements relating to on-the-job behavior are prepared for each job. Scales ranging from extremely favorable to extremely unfavourable behavior are set up for each one of these statements.
The supervisor checks those statements that are most descriptive of the subordinate s behavior. Weights assigned to various points on the scale are kept secret from the rater. The supervisor’s boss scores the weighted checklist.
(i) Focus of this method is on the behavior related to the job of the subordinate being rated.
(ii) Somewhat objective since the weights are kept secret from the rater.
(iii) If a weighted checklist is available, then it is relatively easy to check and score.
(i) Construction of the weighted checklist method is a cumbersome process and requires expertise.
(ii) The secrecy of this method may not provide enthusiasm for the supervisor to evaluate his subordinates.
(iii) The information available for developmental and counselling purposes is limited.
6. Critical Incident Method:
This method of evaluation is based on the fact that in an employees work behavior, certain incidents lead to success and certain others to failure. The supervisor observes and keeps record of these incidents over a period of time and the final evaluation is based on the review of these incidents.
For Example:
(i) Displayed abusive behavior to customers.
(ii) Improved the design of a requisition form resulting in saving of time.
(iii) Due to the timely help of the individual, a machine breakdown was averted.
(iv) Due to the negligence of the individual, the rate of scrap was high.
(v) Failed to return an important phone call.
While the second statement is related to success, the first example is related to failure. The incident leading to success or failure must be of unusual nature. Flanagan and Miller state that an incident is “critical” when it illustrates that the employee has done, or failed to do, something that results in unusual success or unusual failure on some part of his job.
An effective method of evaluation because the observations and factual information come from the job and the individual who performs it.
(i) Contributes to effective supervision as it is the supervisor’s responsibility to keep track of critical incidents.
(ii) Offers administrative advantage.
Limitations:
(i) Constant observation is necessary to keep track of critical incidents. Other responsibilities of supervisors may be neglected.
(ii) The subordinate may get the idea that the supervisor is trying to spy on him.
(iii) Results in close supervision.
(iv) Time-consuming and requires extensive record-keeping.
7. Field Review Method:
An interesting feature of this method of evaluation is that the personnel department gets directly involved in the performance appraisal of employees. The employee evaluation staff of the personnel department is sent to the scene of action to have discussions with the immediate supervisors of employees being rated. They gather information regarding the performance of employees and prepare reports when they return to their department.
To be effective, the personnel staff must have good knowledge of various jobs in the organization and their sessions with supervisors must be well-planned. The reports prepared by the personnel staff are sent to the supervisors for comments and final approval.
(i) Helps to validate many personnel programs, such as recruitment, selection and training.
(ii) Brings cooperation between personnel staff and the line staff.
(iii) Evaluations may be objective as they are done by a third person.
(iv) Relieves the supervisors from extra burden of paper work as appraisals are usually considered burdensome.
(i) Cooperation which is necessary for the success of this method of evaluation may not always be forthcoming as there are inherent differences between the line and staff.
(ii) Supervisors may not have the time to sit and discuss with personnel staff about the performance of their subordinates.
(iii) Supervisors may still inject their biases and prejudices in their discussions with personnel staff against the employee whom they do not favor.
8. Management by Objectives:
Management by Objectives is a method of management which emphasizes the goals to be reached and in its full application calls for specific objectives to be established for each position. The objectives identify the specific results to be achieved over a given period of time, usually a year.
At the end of the given period, actual results achieved are measured against the original objectives set and the results expected. This method is based on the sound notion that a manager should be measured by what he accomplishes.
For the past fifteen years, the importance of establishing specific performance objectives has been emphasized as an essential part of performance appraisal in many organizations. The credit of introducing this concept to the practitioners of management goes to Peter Drucker and Douglas McGregor.
According to Drucker-
An effective management must direct the vision and efforts of all managers toward a common goal. It must ensure that the individual manager understands what results are demanded of him. It must ensure that the superior understands what to expect from each of his subordinate managers. It must motivate each manager to maximum efforts in the right direction. And, while encouraging high standards of workmanship, it must make them the means to the end of business performance rather than ends in themselves.
This method of appraisal gives more freedom to the subordinate to set his own goals and encourages his full participation in appraising his performance. McGregor contends that management by objectives concept is based on Theory Y. One of the assumptions of his theory states-
External control and the threat of punishment are not the only means to bring about effort toward organizational objectives. Man will exercise self-direction and self-control in the service of objectives to which he is committed.
Unlike other methods, this method of evaluation has no external control of close supervision to determine whether the subordinate is achieving his performance or not. The control aspect is in the hands of the subordinate. The greatest advantage of management by objectives is perhaps that it makes it possible for a manager to control his own performance.
Management by objectives is a process of establishing job responsibilities and developing standards of performance which are then used for setting objectives and appraising performance.
Translating this concept into practice involves the following steps:
1. Agreement on duties and responsibilities of the subordinate’s job. Every individual has major areas of responsibility in performing his job. These responsibilities define his job in terms of what he is expected to do. When these are known, he can concentrate on meeting them and turning in a good performance. One way of defining these job responsibilities is that the superior and subordinate draw up separate lists of what each believes to be the subordinates major responsibilities. Then both of them get together, compare their lists, and reach a joint agreement on a final list.
2. Setting objectives in all major areas of responsibility. The setting of objectives provides the superior and the subordinates with a means of planning and measuring their performance. The subordinate writes down his major performance objectives for the coming year, and his specific plans for achieving these objectives, such as time schedule, methods or approaches, and results expected.
The objectives should be stated in such a way that their performance can be clearly measured. The list should include both quantitative (how much?) and qualitative (how well?) objectives. Objectives should show accountability, commitments, priorities and target dates. They should be significant, forward-looking and attuned to the needs of related areas. The individual setting the objectives must be responsible for those factors which he can control.
3. After setting the objectives, the subordinate submits them to his superior for review. Here, the superior has the opportunity to help the subordinate in sizing up the objectives and finalizing the direction. Out of the discussion comes an agreed set of objectives.
4. Reporting of progress is the next step. Reporting should indicate whether the work is moving to completion on a planned basis and what, if any, significant problems exist. Such reporting provides the superior the opportunity to probe into indicated deviations from plans and if needed, take corrective measures. Usually on a quarterly basis the subordinate reviews progress towards the objectives with his superior.
5. At the end of the given period, the subordinate prepares an accomplishment report, consisting of all the major accomplishments, with comments on the variances between results actually achieved and the results expected. Some organizations provide specific forms for this self-appraisal.
6. The next important step is the appraisal interview. This interview is conducted in a wide variety of ways. Usually, reasons for objectives not being met are explored in these interviews and a new. set of objectives is established for the next period. During the appraisal interview, a plan must be developed to assist the individual in improving his results during the next period. This plan should specify what needs to be done and when the action should be accomplished.
The interview should stimulate the subordinate to improve his performance, to let the subordinate know where he stands, and to help him recognize his areas of weaknesses and strengths. It is necessary that plans for the improvement of the subordinate’s weaknesses be mutually agreed on during the interview. There must be a follow-up procedure to see whether the subordinate is making progress by going through the improvement plans.
1. The appraisal function is shifted from the supervisor to the subordinate under this method, thus assuring the subordinates full participation.
2. The focus is on the self-development of the individual.
3. It is an improvement and “innovation-oriented” approach.
4. It fosters good communication and strengthens the superior-subordinate relationship.
5. This method helps to identify the training needs of the individual.
6. Since the individual sets his own goals he may feel a sense of accomplishment at the end of the performance of objectives.
7. Many organizations find this method flexible and productive.
8. The General Electric Company research showed greater accomplishment for those persons who set definite goals than for those who did not.
9. Improved delegation and decision-making.
1. This method of appraisal may not fit all situations and all types of jobs. In some jobs, it is difficult to set short range objectives.
2. The attitudes of an authoritarian manager are such that he may not wish to delegate the responsibility of setting goals of performance to his subordinate.
3. This method may breed resentment and hostility between the supervisor and the subordinate because it ignores the deeper emotional components of motivation.’ There is always the danger that the subordinate may set lenient goals. On the other hand, it may also force the individual to set goals beyond his capability simply because fellow workers have set such goals.
A number of companies using management by objectives method in appraising the performance of their employees have indicated that this approach resulted in reductions of money tied-up, better plant utilization, reduction in scrap and re-work, improved product quality, reduction in direct and indirect labor costs per unit of output, better customer service, and better delivery.
Managing by objectives is effective only when it is accepted as a way of life in managing organizations. Effective implementation of this method of appraisal requires the full support and commitment of the top management.
Openness and active participation are the necessary ingredients of this approach. As a preparatory step, a climate study must be carried out. If the survey indicates that openness and participative climate exists, then management by objectives can be introduced with proper orientation. When a worthwhile system of management by objectives is introduced in a company, there is a continuous process of reviewing and restating of the company’s strategic and tactical plans.
The Director of Employment and Training of a multinational office-machine company has this to say about management by objectives when the author contacted him regarding his research on appraisal systems in the Fortune 500 organizations.
“Our performance review avoids ratings on traits and characteristics and tries to relate performance reviews to objective performance requirements of the job itself. Unfortunately, we find that our system doesn’t work too well.
We believe this is because:
1. Superiors have difficulty interpreting the exact meaning of the job descriptions which were written primarily for job evaluation—salary administration purposes.
2. Many job descriptions are an amalgam of the duties of many similar positions and are not meant to describe one specific position.
3. Our system has not provided for the establishment of measurable standards of performance.
4. Most superiors have a natural reluctance to discuss performance in a confrontation kind of setting with their subordinates.
Because we recognize these problems, we are modifying and installing a management by objectives type system of management in one of our facilities to utilize the hopefully positive results of this system at other locations after thoroughly testing it.
We believe that both the short- and long-term goal setting features of MBO, coupled with skill training for supervisors on appraisal interviewing, will improve the performance of our managers and supervisors in this important part of their job.”
According to Morrisey, the dynamism that can make management by objectives a potent force in organizations occurs only with the recognition that it is a human and not a mechanical process.
What is Performance Appraisal – 4 Basic Approaches Identified by George Odiorne are: Personality-Based Systems, Generalized Descriptive Systems and a Few Others
George Odiorne has identified four basic approaches to performance appraisals, namely:
Approach # 1. Personality-Based Systems:
Here the appraisal system takes into consideration of a list of personality traits that presumably are significant in the jobs of the individuals to be appraised. Such traits include those of initiative, drive, intelligence, ingenuity, creativity, loyalty and trustworthiness etc.
Approach # 2. Generalized Descriptive Systems:
These include qualities or actions of presumably good performers. These are described in terms of the qualities of “good performers” regarding to what extent appraises can “organize, plan, control, motivate, delegate, communicate, and make things happen”.
Approach # 3. Behavioural Descriptive Systems:
These systems feature detailed Job Analysis and Job Descriptions, including specific statements of the actual behaviour required from successful employees.
Approach # 4. Result-Centered Systems:
These appraisal systems (Work-centered or job-centered systems) are directly job related. They require that manager and subordinates sit down at the start of each work evaluation period and determine the work to be done in all areas of responsibility and functions, and the specific standards of performance to be used in each area.
What is Performance Appraisal – Policy: Meaning, Objectives and Contents
The performance appraisal policy is a formal statement of the top management’s thinking. It serves as a guide for action and establishes parity among employees of the organization. The performance appraisal policy also lays down the rules regarding the timing of the performance appraisal—who shall evaluate performance and the criteria for evaluation. Organizations have started tracking the performance appraisal policy to determine how well the critical elements of the policy are being implemented and administered.
In the area of appraisal, policy decisions are seen to be required on the factors such as degree to which the appraisal is formalized, uses of the appraisal results, and the methods to be used for appraisal. This is clearly indicative of the commitment of the top management towards the performance appraisal function.
It is reflected through policies and programmes evolved for the performance evaluation of the different categories of employees. It redresses grievances and develops confidence among employees because of the impartial basis of evaluation. Manifestation of such policies and programmes is noted to be reflected variously in the HR policy manual of the companies.
The objectives of the performance appraisal policy, in one of the Indian companies, are noted to run as follows:
(i) The company sets targets and performance norms, monitors work progress, and plans for improved performance.
(ii) The company understands the gaps in knowledge, skills, and attitude that exist and sees how these can be filled by planned guidance and training.
(iii) The company considers employees’ suitability for different types of assignments and matches the abilities and expertise of the existing personnel with the job requirements.
(iv) The company provides the basis for delivery of merit, efficiency, and suitability for purposes of promotion.
The content of the appraisal policy may include the following:
i. Criteria for the performance appraisal.
ii. Frequency and the methods of appraisal.
iii. Basis of promotion.
iv. Rationale for transfer.
v. Basis and periodicity of transfer.
vi. Machinery for wage determination.
vii. Wage differentials.
viii. Employee benefits and maintenance; and
ix. Non-monetary incentive.
What is Performance Appraisal – Use and Purpose
The performance appraisal data are useful in the following ways:
1. It can serve as a useful basis for promotion and job rotation. On the basis of this, the future requirements can be projected or curtailed.
2. It helps in determining appropriate salary increase and bonus for workers based on performance measure.
3. It can provide suitable information for formulating training and development programmes. If an employee is not performing upto expectations, a training programme may enable him to correct any skill or knowledge deficiencies.
4. It can motivate employees by showing them where they stand and establishing a data bank on appraised for rendering assistance in personal decisions.
5. The data are useful tool for differentiating between good and poor employees performance. For example, in 1992, IBM set new guidelines to its performance appraisal system with the objective of more strictly enforcing its existing method of ranking employees on a numerical scale of 1 to 4, 1 being the highest.
Over the years, it had become established practice to rate employees between 1 to 3 with very few exceptions. Under the new guidelines, managers were forced to rank people as 4 whenever necessary. Industry executive expect about 10% of IBM’s U.S. workforce, or about 20,000 people to get this low rating and face pressure to resign.
In the nut shell, the uses of performance appraisal can be categorized into two broad categories. One category concerns for administrative uses such as pay increases, promotions, transfers, and discharges. The other use is for employee development including performance improvement training, coaching and counselling.
What is Performance Appraisal – Challenges Faced by an Organization while Appraising the Performance of an Employee
Although the performance appraisal process provides numerous benefits to the organization and employees, there are various challenges that an organization experiences while appraising the performance of an employee.
Some of these challenges are discussed as follows:
Challenge # 1. Ambivalence:
Develops within the organization when a manager fails to play both the roles, such as that of a manager and a facilitator simultaneously. Managers must ensure that their subordinates’ performance contributes positively towards the organizational goals. They appraise the performance of their juniors; provide feedback on their performance; make decisions about increment, promotions, and transfers; and guide them on improving their performance in future.
When employees’ performances have been satisfactory and the results they generate are in abundance, the superior finds no difficulty in appraising the employees. However, when subordinates’ performance is not satisfactory, it becomes difficult for managers to communicate negative feedback to their juniors.
Juniors also find it difficult to accept negative feedback, since it leads to a sense of failure. On the contrary, if awards given to the employees are not in accordance with the performance that they have given during the year, they may feel dissatisfied. Managers also have to encourage their subordinates and discuss their performance problems.
Challenge # 2. Design and Implementation Problems:
Arise often while conducting performance appraisal program due to reasons, such as poorly specified performance criteria, use of inappropriate performance appraisal approaches, poorly constructed performance appraisal methods, or lack of support from the top management. The criteria selected for appraisal should be fair, transparent, realistic, and measurable. Thus, it is important to design an effective performance appraisal system that helps in reducing dissatisfaction.
Challenge # 3. Appraiser Bias and Errors:
Occur when the values and prejudices that the appraiser holds distort the rating of the appraisee. An effectively designed performance appraisal plan may also fail if the people using the system do not understand it. Errors can be based on stereotyping, which is a mental picture that the appraiser holds about appraisee due to their personal attributes or any other characteristics. For example, a punctual employee may be rated higher in team participation as well. Therefore, the appraiser should exercise objectivity and fairness in evaluating the employees.
Challenge # 4. Resistance:
Arises from the employees when the performance standards are not clearly communicated and explained to them. Employees should clearly know what is expected out of them, so that the appraisal process does not face resistance from employees and trade unions.
At the end of the year, the appraisal should be discussed with the concerned employees, so that they come to know about their shortcomings and achievements. In addition, if there is a discussion between the two, it results in healthy relationships and avoidance of grievances/conflicts. Moreover, the superior can guide employees on how to improve their performance in future.
Challenge # 5. Inadequate Motivational Climate:
Arises when employees perform their duties sincerely and efficiently but do not get sufficient rewards in lieu of their work. Such employees get dissatisfied and de-motivated to work; therefore, do not contribute positively towards the organizational goals. Managers should maintain proper climate of trust, understanding, and motivation to keep their workforce happy and satisfied.
Challenge # 6. Incompetence of Appraiser:
Influences the evaluation of the performance of the employees. If the appraisers are not adequately trained to carry out the evaluation process, the results of appraisal may become vague and unclear.
What is Performance Appraisal – Measures to Overcome the Barriers
Systematic performance appraisal should be an accurate and reliable one. The reliability and accuracy of performance appraisal is obtained whenever the barriers of performance appraisal are overcome by the management.
The management may take the following measures to overcome the barriers of performance appraisal:
1. Single employee is rated by two raters. Then, the comparison is made to get accurate rating.
2. Continuous and personal observation of an employee is essential to make effective performance appraisal.
3. The rating should be done by an immediate superior of any subordinate in an organisation.
4. A separate department may be created for effective performance appraisal.
5. The rating is conveyed to the concerned employee. It helps in several ways. The employee can understand the position where he stands and where he should go.
6. The plus points of an employee should be recognised. At the same time, the minus points should not be highlighted too much but they may be hinted to him.
7. The management should create confidence in the minds of employees.
8. The standard for each job should be determined by the management.
9. Separate printed forms should be used for performance appraisal to each job according to the nature of the job.