Performance appraisal is a procedure of setting up work standards and assessing the actual performance of employees based on these standards to identify deviations. The version matching the set criteria can be termed ‘good performance’. Now how to identify suitable performance? Only having criteria against which employers can evaluate performance does not help. It becomes effective only when it is
- Relevant to the successful performance of the job.
- Reliable, stable and consistent.
- Accepted by everyone in the organization.
- Must be able to differentiate a good employee from a bad one effectively.
- Practical and unambiguous.
- The evaluator must be objective and free of bias.
Now, let us answer a very relevant question, why? Why should there be performance appraisals? The main objectives behind the performance appraisal are
- It provides feedback which shows both the employee and the employer how well the employees have understood work and where they stand in performance.
- It becomes more accessible for the firm to take promotional decisions, ensuring that positions are filled by candidates best suited for the job.
- To an extent, it helps in rightsizing the organization. Performance appraisal ensures that the most talented employees are retained in the event of downsizing.
- Pointing out the areas where one needs to work is a source of motivation to improve yourself.
- Goal setting is an essential feature of performance appraisal. Firms determine specific standards of performance and motivate employees to achieve those standards.
- Poor performances can be identified and confronted.
- It also plays a crucial role in determining whether management will bring compensation changes.
- Training and Development can effectively be planned after performance appraisals.
- Performance appraisal can justify any personal decisions concerning termination, transfer, or promotion denial.
- Improve the overall performance of the organization.
There are several methods of performance appraisal, and these methods are categorized into
1. Traditional methods
2. Modern methods
Traditional methods of performance appraisal
1. Unstructured appraisal
As the name suggests, under this method, the appraiser gives their impression of the employee in an unstructured manner. It is highly subjective as it depends on the appraiser’s attitude. There is a high possibility of bias or distortion of results. The appraiser may be expected to list their opinions on certain specific aspects like qualities or other personal traits of the employee.
2. Employee ranking
Also known as the straight ranking method, Under the method, each employee’s performance is considered a separate entity and is ranked from best to worst. Just like the first method, this is also highly subjective in nature. It also becomes pretty tedious when the performances of a large number of employees are to be measured.
3. Forced distribution method
This method requires the evaluator to force the employee’s performance into a bell-shaped curve. Under this method, it is assumed that an employee’s job performance confirms a normal statistical distribution. Pre-determined rates are placed under performance categories. The final distribution will take shape as a bell.
4. Graphic rating scale
The most widely used performance appraisal method wherein the evaluator rates employees o the basis of job-related knowledge. The criteria for judgement may be categorised as employee characteristics and employee contribution. Performance is evaluated based on these criteria, and then the score is tabulated. It is easy to use, and the results are better comprehended, yet it is highly subjective. It depends on how much weightage the evaluator feels each criterion holds.
5. Check list
The simplest method of performance evaluation. A checklist is prepared, including statements describing employees’ job-related behaviour. The evaluator simply has to tick or check against the statement he feels the employee possesses. He then sends it to HR, who assesses the employee’s performance based on the number of tick marks. A checklist may also be weighted under which items with significant importance in organizational behaviour are given weightage.
6. Critical incident method
Under this method, the performance of employees is evaluated based on specific events that occurred during the execution of their job. Considering how well the employee handled that situation without losing his composition. Not just one but several such incidents are noted, and an evaluator, rather than giving his personal opinions, is expected to state the facts. The only limitation of this method is that adverse incidents are often well noticed than positive incidents.
7. Field review method
This is more like an interview. An HR personnel is given specific questions, which he asks the employees and offers his views based on the employee’s answers. The evaluator may be expected to provide opinions on employees’ strengths, weaknesses or other aspects. The observations about the employee are documented and maintained as a file.
8. Performance test and observations
This method uses tests and observations to assess employees’ knowledge and skills. The test may be written or demonstrative. The only limitation is that this method is apt to measure potential rather than actual performance.
Modern methods of performance appraisal
1. Management by objectives
It includes setting up measurable goals with each employee and reviewing the progress. It involves six steps.
- Setting up organizational goals.
- Setting departmental goals.
- Discussing the goals (departmental) with all employees.
- Setting individual goals.
- Reviewing performance.
- Discussing the results with the employees.
2. Behaviorally anchored rating scales
This method combines the benefit of narratives, critical incidents, and quantified rating by anchoring a quantified scale with specific behavioural examples of good and bad performance. The following steps are to be undertaken in this method to develop the rating scale.
- Describing the critical incident
- Defining performance dimensions
- Allocation of the critical incidents in two dimensions by both the employer and employee
- Reallocation of the same by another group of people which the required job knowledge
- This group may be asked to rate the behaviour mentioned in the incident to see how effectively or ineffectively it represents the performance dimension.
- A subset of incidence is used to develop the final instrument and is then used as a behavioural anchor for each dimension.
3. Assessment centres
This method uses role plays, situational judgement tests, presentations and other tools to assess employees’ performance. The assessment may also be held in groups through group discussions and basket exercises. The employee’s knowledge and behaviour can be effectively judged during such exercises. A typical assessment centre involves 6 participants and lasts 2 to 3 days. Evaluators observe each employee and make notes based on their observations. One feature of the Assessment Centre is that it relates to future performance rather than the employee’s current performance.
4. 360o appraisal
Under this method, ratings are collected not just from the employer but from other employees, peers, supervisors and the assessees themselves. Sometimes it may extend to the stakeholders or even three external customers. This gives the assessor awareness of how others see them and how they see themselves. Moreover, self-awareness motivates the employees to give their best performance. Data is generally collected through questionnaires. The questions focus on various competencies like communication, organisational skills, and leadership. Evaluators rate each employee against these competencies feedback is celebrated, which baby provided to the employees or the manager.
5. Human resource accounting
This method aims to find the worth of human resources in monetary terms. Under this method performance of employees is evaluated based on cost and contribution. For example, cost includes recruitment cost, compensation to the employee and cost of training and contribution may consist of total value added in monetary terms. The difference between cost and contribution Will be the performance of the employee.
Most firms use a combination of several techniques based on the requirements of their firm. Each method has its benefits and limitations, but it is essential to carry out performance appraisal as it shows the firm whether its workforce is productive.