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PERFORMANCE AND
POTENTIAL APPRAISAL
Objectives
After going through this unit, you should be able to:
lunderstand different objectives and uses of performance appraisal system in an
organization;
2develop various approaches to performance appraisal and draw a distinction
between traditional and newer rating methods.
3identify various errors in performance appraisal in practice and the need for
periodic performance review and feedback.

Structure
15.1 Introduction
15.2 Objectives of Performance Appraisal
15.3 Uses of Performance Appraisal
15.4 Planning the Appraisal
15.5 Approaches to Performance Appraisal
15.6 Components of Performance Appraisal
15.7 Types of Performance Appraisal
15.8 Concerns and Issues in Appraisal
15.9 Steps in the Appraisal Programme
15.10 Methods of Performance Appraisal
15.11 Errors in Performance Appraisal
15.12 Potential Appraisal
15.13 Self Appraisal
15.14 Performance Appraisal Assessment
15.15 Performance Appraisal Guidelines
15.16 Performance Appraisal in Practice
15.17 Performance Review and Feedback
15.18 Strategies to Improve Performance
15.19 Summary
15.20 Self-Assessment Questions
15.21 Case
15.22 Further Readings

15.1 INTRODUCTION
Performance appraisal is a systematic evaluation of present potential capabilities
of personnel and employees by their superiors, superiors superior or a professional
from outside. It is a process of estimating or judging the value, excellent qualities or
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Performance and
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status of a person or thing. It is a process of collecting, analysing, and


evaluating data relative to job behaviour and results of individuals. The appraisal
system is organised on the principle of goals and management by objectives.
Management decisions on performance utilise several integrated inputs: goals and
plans, job evaluation, performance evaluation, and individual history. It connotes
a two-dimensional concept - at one end of the continuum lies the goals set by the

authority, and at the other end, the performance achieved by the individual or any
given group.
Performance appraisal can be either formal or informal. Usage of former systems
schedule regular sessions in which to discuss an employees performance.
Informal appraisals are unplanned, often just chance statements made in passing
about an employees performance. Most organizations use a formal appraisal
system. Some organisations use more than one appraisal system for different types of
employees or for different appraisal purposes. Organizations need to measure
employee performance to determine whether acceptable standards of performance
are being maintained. The six primary criteria on which the value of performance
may be assessed are: quality, quantity, timelineness, cost effectiveness, need for
supervision, and interpersonal impact. If appraisals indicate that employees are
not performing at acceptable levels, steps can be taken to simplify jobs, train, and
motivate workers, or terminate them, depending upon the reasons for poor
performance.
The results of appraisal are normally used to: (1) estimate the overall effectiveness
of employees in performing their jobs, (2) identify strengths and weaknesses in job
knowledge and skills, (3)determine whether a subordinates responsibilities can be
expanded, (4) identify future training and development needs, (5) review
progress toward goals and objectives, (6) determine readiness for promotion, and
(7) motivate and guide growth and development.

15.2 OBJECTIVES OF PERFORMANCE APPRAISAL


Performance appraisal plans are designed to meet the needs of the organization and the
individual. It is increasingly viewed as central to good human resource management.
This is highlighted in Cummings classification of performance appraisal
objectives. According to Cummings and Schwab (1973), the objectives of
performance appraisal schemes can be categorised as either evaluative or
developmental. The evaluative purpose have a historical dimension and are
concerned primarily with looking back at how employees have actually performed
over a given time period, compared with required standards of performance.
The developmental performance appraisal is concerned, for example, with the
identification of employees training and development needs, and the setting of
new targets.
The broad objectives of performance appraisal are:
1. To help the employee to overcome his weaknesses and improve _his strengths
so as to enable him to achieve the desired _performance.
2. To generate adequate feedback and guidance from the _immediate
superior to an employee working under him.
3. To contribute to the growth and development of an employee _through helping
him in realistic goal setting. _
4. To provide inputs to system of rewards (comprising salary _increments,
transfers, promotions, demotions or _terminations) and salary administration.
5. To help in creating a desirable culture and tradition in the _organization.
6. To help the organisation to identify employees for the _purpose of
motivating, training and developing them.
7. To generate significant, relevant, free, and valid _information about
employees.
In short, the performance appraisal of an organization provides systematic
judgments to backup wage and salary administration; suggests needed changes in
onesbehaviour, attitudes, skills, or job knowledge; and uses it as a base for

coaching and counseling the individual by his superior. Appraising employee


performance is, thus, useful for compensation, placement, and training and
development purposes.

15.3 USES OF PERFORMANCE APPRAISAL


The appraisal systems do not operate in isolation; they generate data that can
contribute to other HRM systems - for example to succession planning and
manpower planning.
Some of the common uses of appraisals include:
lDetermining appropriate salary increases and bonuses for workers based on
performance measure.
lDetermining promotions or transfers depending on the demonstration of
employee strengths and weaknesses.
lDetermining training needs and evaluation techniques by identifying areas of
weaknesses.
lPromoting effective communication within organizations through the
interchange of dialogue between supervisors and subordinates.
lMotivating employees by showing them where they stand, and establishing a
data bank on appraisal for rendering assistance in personnel decisions.
Organizations use performance appraisals for three purposes: administrative,
employee development, and performance assessment.Performance appraisal
commonly serve an administrative purpose by providing employers with a
rationale for making many personnel decisions, such as decisions relating to pay
increases, promotions, demotions, terminations and transfers. Valid performance
appraisal data are essential to demonstrate that decisions are based on job related
performance criteria. An employees performance is often evaluated relative to
other employees for administrative purposes, but may be assessed in relation to an
absolute standard of performance. Performance appraisal for employee
development purposes provide feedback on an employees performance. The intent
of such appraisals is to guide and motivate employees to improve their performance
and potential for advancement in the organization. Appraisal data can also be used
for employee development purposes in helping to identify specific training needs of
individuals. Performance assessment requires the collection and storage of
performance appraisal data for a number of uses. The records can show how effective
recruiting, selection, and placement have been in supplying a qualified workforce.
Performance measures can be used to validate selection procedures and can also be
used as before and after measures to determine the success of training and
development programs.
In brief, the various uses of performance appraisal can be classified into two
broad categories. One category concerns the obtaining of evaluation data on
employees for decision-making for various personnel actions such as pay
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increases, promotions, transfers, discharges, and for selection test validation. The
other main use is for employee development including performance improvement
training, coaching, and counseling.

15.4 PLANNING THE APPRAISAL


A meaningful performance appraisal is a two-way process that benefits both the
employee and the manager. For employees, appraisal is the time to find out how the
manager thinks they are performing in the job. For a manager, a formal appraisal
interview is a good time to find out how employees think they are performing on the

job. The planning appraisal strategy has to be done:


Before the appraisal
1. Establish key task areas and performance goals.
2. Set performance goals for each key task area.
3. Get the facts.
4. Schedule each appraisal interview well in advance.
During the appraisal
1 Encourage two-way communication.
2. Discuss and agree on performance goals for the future.
3. Think about how you can help the employee to achieve more at _work._
4. Record notes of the interview.
5. End the interview on an upbeat note.
After the appraisal
1. Prepare a formal record of the interview.
2. Monitor performance.

15.5 APPROACHES TO PERFORMANCE APPRAISAL


George Odiorne has identified four basic approaches to performance appraisal.
Personality-based systems: In such systems the appraisal form consists of a list
of personality traits that presumably are significant in the jobs of the individuals
being appraised. Such traits as initiative, drive, intelligence, ingenuity, creativity,
loyalty and trustworthiness appear on most such lists.
Generalised descriptive systems: Similar to personality-based systems, they differ
in the type of descriptive term used. Often they include qualities or actions of
presumably good managers: organizes, plans, controls, motivates others,
delegates, communicates, makes things happen, and so on. Such a system, like the
personality-based system, might be useful if meticulous care were taken to define
the meaning of each term in respect to actual results.
Behavioural descriptive systems: Such systems feature detailed job analysis and
job descriptions, including specific statements of the actual behaviour required from
successful employees.
Results-centred systems: These appraisal systems (sometime called work-centred or
job-centred systems) are directly job related.
They require that manager and subordinate 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.
When introducing performance appraisal a job description in the form of a
questionnaire has to be preferred. A typical questionnaire addressed to an individual
would cover the following points:
lWhat is your job title?
lTo whom are you responsible?
lWho is responsible to you?
lWhat is the main purpose of your job?
lTo achieve that purpose what are your main areas of responsibility?
lWhat is the size of your job in such terms of output or sales targets, number of
items processed, number of people managed, number of customers? What
targets or standards of performance have been assigned for your job? Are there
any other ways in which it would be possible to measure the effectiveness with
which you carry out your job?
lIs there any other information you can provide about your job?

15.6 COMPONENTS OF PERFORMANCE APPRAISAL


The components that should be used in a performance appraisal system flow
directly from the specific objectives of appraisal. The following components are
being used in a number of Indian organisations.
1. Key Performance Areas (KPAs) / Key Result Areas (KRAs)
2. Tasks/targets/objectives; attributes/qualities/traits
3. Self appraisal
4. Performance analysis
5. Performance ratings
6. Performance review, discussion or counseling
7. Identification of training / development needs
8. Ratings / assessment by appraiser
9. Assessment / review by reviewing authority
10. Potential appraisal.

15.7 TYPES OF PERFORMANCE APPRAISAL


There are two types of performance appraisal systems which are normally used in
organizations: (i) close ended appraisal system and, (ii) open ended appraisal system.
In the close ended appraisal system, commonly used in government organizations, a confidential report is
submitted on the performance of the
employee. Only where an adverse assessment is made against an individual, the
concerned individual is informed about the same. The main shortcoming of this
system is that an individual is not informed about his/her inherent strengths and
weaknesses and, therefore, is not given an opportunity to respond to the assessment
made on him/her. The employees are, therefore, in a constant dilemma as to how
their performance is viewed by the management.
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In the open ended appraisal system, unlike in the close ended system, the
performance of the individual is discussed with him, and he is ranked in a five or ten
point rating scale. The company uses this tool primarily for rewarding a good
performer or for other considerations like promotions. The main weakness of this
system is that all the employees are ranked in a particular scale, and whereas the
good performers are rewarded, there is no concerted effort to motivate the average
performers in performing better. Another weakness of the grading system is that the
appraisal may turn out to be more subjective in nature due to insufficient data
maintained on the individual. This system also leads to unnecessary comparisons
made on different individuals performing similar jobs.
Performance appraisal can be a closed affair, where the appraisees do not get
any chance to know or see how they have been evaluated; or it can be completely
open, where the appraisees have the opportunity of discussing with their superiors
during the evaluation exercise.

15.8 CONCERNS AND ISSUES IN APPRAISAL


1. Identifying job responsibilities and duties and performance dimensions,
standards and goals.
2. Prioritizing and weighing performance dimensions and performance goals.
3. Determining appropriate methods for appraising performance.
4. Developing suitable appraisal instruments and scoring devices.
5. Establishing procedures that enhance fair and just appraisals of all
employees.

6. Providing performance feedback to all employees.


7. Relating observed and identified performance to the rewards provided by
organization.
8. Designing, monitoring and auditing processes to ensure proper operation of
the system and to identify areas of weakness.
9. Granting employees opportunities for appeal whenever and wherever such
action is appropriate.
10. Training of employees in all phases of the appraisal system.
The basic issues addressed by performance appraisal are:
lWhat to appraise?
lHow to appraise fairly and objectively?
lHow to communicate the appraisal and turn the total process into a motivator?
lHow the performance appraisal results can be put to good use?
lHow to implement the performance appraisal system smoothly?

15.9 STEPS IN THE APPRAISAL PROGRAMME


As in other personnel programmes, performance appraisal forms a line
responsibility to be accomplished with advice and help of the personnel department.
Indeed, the appraisal programme is likely to be an utter failure if it lacks the
support of top management; if superiors are not adequately trained, or have no
trust in its value; if the results of appraisal are not discussed with the subordinates;
and if the appraisal is not used to serve the purposes it is meant.
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Key HR Practices Pigors

and Myers suggest several steps to develop and administer the programme
effectively.
1. The personnel department may attempt to obtain as much as possible the
agreement of line management in respect of the needs and objective of the
programme. A choice has to be made among different kinds of appraisal
methods judiciously.
2. The personnel department has to examine the plans of other organisations as
well as the relevant literature in the field to formulate the most suitable plan
for the appraisal programme.
3. Attempts should be made to obtain the co-operation of supervisors in
devising the appraisal form and discuss with them the different factors to be
incorporated, weights and points to be given to each factor, and description or
instructions to be indicated on the form.
4. The personnel or industrial relations manager tends to explain the purpose
and nature of the programme to all the superiors and subordinates to be
involved and affected by it. Care should be taken to take into confidence the
representatives of the union, if it exists in the company.
5. Attempt is to be made to provide intensive training to all the supervisors with
a view to obtaining unbiased and uniform appraisal of their subordinates.
6. Care may be taken to acquire line and staff co-ordination and mutual checking
of appraisals with a view to achieving intra and inter-departmental consistency
and uniformity.
7. There should be an arrangement for periodic discussion of the appraisal by
the superior with each of the subordinates where attempts may be made to
stress good points, indicate difficulties, and encourage improved performance.
Explicitly, in this context, the discussion should be in the form of a progress
review and every opportunity should be given to the subordinate to express
himself, if he feels that the appraisal has been biased and that it should be
otherwise.

8. As soon as the appraisal has been duly discussed, attempts may be made to
recommend for salary increases or promotion, if these decisions seem plausible
in the light of appraisals.
9. There should be provision for challenge and review of appraisals, if the
employees or their union representatives are dissatisfied with the personnel
decisions which the management has taken on the basis of these appraisals.
These steps, if followed carefully, are likely to help the superiors to
evaluate their subordinates effectively.

15.10 METHODS OF PERFORMANCE APPRAISAL


Strauss and Sayles have classified performance appraisal into three groups:
traditional performance rating, newer-rating method, and result-oriented appraisal. A
brief description of each is as follows:
(a) Traditional Performance Rating: Traditional rating involves a completion of a
form by the immediate supervisor of the individual who is being evaluated. In some
cases, attempts are made to accomplish the rating by a committee consisting of the
immediate supervisor, the supervisors superior and one or two more officers of the
company who are familiar with the rates. Although ratings by the committee bring
several viewpoints together and overcome the superiors bias, if any, they are highly
time-consuming. The conventional rating scale form incorporates several factors,
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Performance and
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such as, job knowledge, judgment, organizing ability, dependability, creativity,


dealing with people, delegation, and leadership. The rating is assigned by putting a
tick mark horizontally. Frequently, descriptive phrases are given in the form to
guide the rater while evaluating the rates. This method is very simple to understand
and easy to apply. On the basis of ratings on specific factors, it is possible to
identify areas in which the individual requires further development. The ratings
on specific factors can be summated to obtain a composite performance score.
The merit-rating scales are frequently criticised from the standpoints of clarity in
standards, differing perceptions, excessive leniency or strictness, the central tendency,
the halo effect, and the impact of an individuals job. The basic criticism of the
traditional performance rating is concerned with its emphasis on personality traits
instead of job performance. Such rating is highly subjective in the absence of
objective standards.
Other criticisms of traditional performance rating relates to: First, there is a
divergence of opinion among raters as to what is meant by such standards as
unsatisfactory, good and so on. Second, there may be divergent perceptions
and accordingly, different standards of judgments among the raters. Third, the
raters may be susceptible to excessive leniency or strictness error. Fourth, there is
an error of central tendency involving a cluster of ratings near the middle of the
scale. Fifth, there is a chance of the occurrence of a halo effect. Sixth, there is a
tendency on the part of the raters to assign high ratings to individuals holding highpaid
jobs.
(b) Newer Rating Methods: Because of several inadequacies in the traditional rating
scale, attempts have been made to devise new procedures which are less
susceptible to the above weaknesses. Among these are included rank order, paired
comparison, forced distribution forced choice, critical incident and field review. These
methods are discussed below:
(i) The Rank-order Procedure: It is effective where ten or lesser number of
individuals are to be evaluated. According to this procedure, each individual is

assigned such ranks as first, second, third and so on. If the evaluation process
involves several traits, the ranking is made separately for each trait. Although this
method is simple to understand and easy to apply, this technique becomes
cumbersome and difficult when a large number of employees are to be evaluated in
theorganisation.
(ii) Paired-comparison System\: Under this, each individual is compared with every
other individual. The appraiser is required to put a tick-mark against the name of the
individual whom he considers better on the trait in question. The final ranking is
determined by the number of times he is judged better than the other. This method
becomes complicated when the number of individuals for evaluation is large.
(iii) The Forced Distribution Procedure: It is a form of comparative
evaluation in which an evaluator rates subordinates according to a specified
distribution. Here judgments are made on a relative basis, i.e., a person is assessed
relative to his performance in the group he works. This procedure can be used for
numerous traits if required by evaluating the individuals separately on each trait.
The forced distribution method is primarily used to eliminate rating errors such as
leniency and central tendency.
(iv) The Forced Choice Technique: It forces the rater to select from a series of
several statements or traits, the one which best fits the individual and one which least
fits, and each of these statements is assigned a score. Since the appraiser does not
know the score value of statements, this method prevents the rater from
deliberately checking only the most favourable trait. Moreover, the appraiser is
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Key HR Practices unable

to introduce personal bias into the evaluation process because he does not
know which of the statements is indicative of effective performance. This enhances
the overall objectivity of this procedure.
However, it is a costly technique and also difficult for many raters to understand.
(v) The Critical Incident Method: This technique of performance appraisal was
developed by Flanagan and Burns. Under this procedure, attempts are made to
devise for each job a list of critical job requirements. Superiors are trained to be on
the lookout for critical incidents on the part of the subordinates in accomplishing
the job requirements. The superiors enlist the incidents as they happen and in the
process, tend to build up a record of each subordinate with debit on the minus side
and credit on the plus side. The merit of this procedure is that all evaluations are
based on objective evidence instead of subjective rating.
(vii) The Field Review: It is an appraisal by someone outside the employees own
department, usually someone from the corporate office or from the employees own
human resource department. The field review process involves review of employee
records, and interviews with the employee, and sometimes with the employees
superior. Field review as an appraisal method is used primarily in making promotion
decisions at the managerial level. Field reviews are also useful when comparable
information is needed from employees in the different units or locations.
(c) Results-Oriented Appraisal: The results-oriented appraisals are based on the
concrete performance targets which are usually established by superior and
subordinates jointly. This procedure has been known as Management by Objectives
(MBO).
MBO: The definition of MBO, as expressed by its foremost proponent, Dr.
George S. Odiorne, is: Management by objectives is a process whereby the
superior and subordinate managers of an organization jointly identify its
common goals, define each individuals major areas of responsibility in terms of
the results expected of him, and use these measures as guides for operating the unit

and assessing the contribution of each of its members.


Much of the initial impetus for MBO was provided by Peter Drucker (1954) and by
Douglas McGregor (1960). Drucker first described management by objectives
in 1954 in the Practice of Management. Drucker pointed the importance of
managers having clear objectives that support the purposes of those in higher
positions in the organization. McGregor argues that by establishing performance
goals for employees after reaching agreement with superiors, the problems of
appraisal of performance are minimised. MBO in essence involves the setting out
clearly defined goals of an employee in agreement with his superior. Carroll and Tosi
(1973), in an extensive account of MBO, note its following characteristics:
1. The establishment of organizational goals.
2. The setting of individual objectives in relation to organizational goals.
3. A periodic review of performance as it relates to organizational goals.
Effective goal-setting and planning by top management.
5. Organizational commitment.
6. Mutual goal-setting.
7. Frequent individual performance reviews.
8. Some freedom in developing means of achieving objectives.
MBO is, thus, a method of mutual goal-setting, measuring progress towards the goals,
taking action to assure goal attainment, feedback, and participation. It is a resultoriented
philosophy, enabling an employee to measure progress toward a goal which
Performance and
Potential Appraisal

the employee often has helped to set. In the goal-setting phase of MBO, a superior
and subordinate discuss job performance problems and a goal is agreed upon.
Along with mutual goal-setting, a major component of MBO is the performance
review session between the superior and subordinate, which takes place regularly to
evaluate progress towards specified goals.
The key features of management by objectives are as under:
1. Superior and subordinate get together and jointly agree upon _the list the
principal duties and areas of responsibility of _the individuals job.
2. The subordinate sets his own short-term performance goals or _targets in cooperation
with his superior.
3. They agree upon criteria for measuring and evaluating _performance.
4. From time to time, as decided upon, the superior and _subordinate get
together to evaluate progress towards the _agreed-upon goals. At those
meetings, new or modified goals _are set for the ensuing period.
5. The superior plays a supportive role. He tries, on a day-to-_day basis, to help
the subordinate achieve the agreed upon _goals. He counsels and coaches.
6. In the appraisal process, the superior plays less of the _role of a judge and
more of the role of one who helps the _subordinate attain the organisation
goals or targets.
7. The process focuses upon results accomplished and not upon personal traits.
There are four main steps in MBO:
1. Define the job. Review, with the subordinates, his or her _key responsibilities
and duties.
2. Define expected results (set objectives). Here specify in _measurable terms
what the person is expected to achieve.
3. Measure the results. Compare actual goals achieved with _expected results.
4. Provide feedback, appraise. Hold periodic performance review _meetings with

subordinates to discuss and evaluate the _latters progress in achieving


expected results.
MBO as a mutual goal setting exercise is most appropriate for technical,
professional, supervisory, and executive personnel. In these positions, there is
generally enough latitude and room for discretion to make it possible for the
person to participate in setting his work goals, tackle new projects, and discover
new ways to solve problems. This method is generally not applied for lower
categories of workers because their jobs are usually too restricted in scope. There is
little discretionary opportunity for them to shape their jobs.
MBO may be viewed as a system of management rather than an appraisal
method. A successful installation of MBO requires written mission statements that
are prepared at the highest levels of top management. Mission statements provide
the coherence in which top-down and bottom-up goal setting appear sensible and
compatible. MBO can be applied successfully to an organisation that has sufficient
autonomy, personnel, budget allocation, and policy integrity. Managers are
expected to perform so that goals are attained by the organisation. Too often MBO
is installed top-down in a dictatorial manner with a little or no accompanying
training. If properly implemented, it serves as a powerful and useful tool for the
success of managerial performance.
MBO is a tool that is inextricably connected with team building so that the work
commitment of team members can be increased and their desire to excel in
performance can be inspired. It is important to have effective team work among a
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Key HR Practices group of

managers or a group of subordinates. The group of employees or


subordinates must be looked upon as a team that needs to be brought together. Goals
should be set by manager-subordinate pairs, and also by teams. The basic superiorsubordinate
relationship in an organisation is in no way undermined in this concept of
team goal setting. Lines of responsibility, authority, and accountability remain clear.
MBO has many benefits, since it:
1. Provides a way for measuring objectively the performance of subordinates.
2. Co-ordinates individual performance with company goals.
3. Clarifies the job to be done and defines expectations of job accomplishment.
4. Improves superior-subordinate relationships through a dialogue that takes
place regularly.
5. Fosters increased competence, personal growth, and opportunity for career
development
6. Aids in an effective overall planning system.
7. Supplies a basis for more equitable salary determination, especially incentive
bonuses.
8. Develops factual data for promotion criteria.
9. Stimulates self-motivation, self-discipline and self-control.
10. Serves as a device for integration of many management functions.
MBO has certain potential problems, such as:
1. It often lacks the support and commitment of top management.
2. Its objectives are often difficult to establish.
3. Its implementation can create excessive paperwork if it is not closely monitored.
4. It concentrates too much on the short run at the expense of long-range planning.
5. It may lead to excessive time consuming.
Traditionally, in most performance evaluations a supervisor evaluates the
performance of subordinate. Recently, a new approach has been enunciated by the
western management gurus, which is known as 360 degree appraisal - a performance

management in which people receive performance feedback from those on all


sides of them in the organisation - their boss, their colleagues and peers, and their
own subordinates, and internal and external customers. The list can grow to
include vendors and consultants, human resource professionals, suppliers and
business associates, even friends and spouses. The 360 degree feedback refers to the
practice of using multiple raters often including self-ratings in the assessment of
individuals. Thus, the feedback comes from all around. It is also a move
towards participation and openness. Many American companies are now using this
360 degree feedback. Companies that practice 360 degree appraisals include
Motorola, Semco Brazil, British Petroleum, British Airways, Central Televisions,
and so on. Barring a few multinational companies, in India this system of appraisal is
uncommon.
This form of performance evaluation can be very beneficial to managers because
it typically gives them a much wider range of performance-related feedback than
a traditional evaluation. That is, rather than focusing narrowly on objective
performance, such as sales increase or productivity gains, 360 degree often focuses
on such things as interpersonal relations and style. Of course, to benefit from 360
degree feedback, a manager must have thick skin. The manager is likely to hear some
personal comments on sensitive topics, which may be threatening. Thus, a 360
degree feedback system must be carefully managed so that its focus remains on
constructive rather than destructive criticism.
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Balance Score Card: The Balance Score Card (BSC) creates a template for
measurement of organisational performance as well as individual performance. It is
a measurement based management system, which enables organisations to clarify
vision and strategy before initiating action. It is also a monitoring system that
integrates all employees at all levels in all departments towards a common goal. BSC
translates strategy into performance measures and targets, thus making it operational
and highly effective. It helps cascade corporate level measures to lower level so that
the employees can see what they must do well to improve organisational
effectiveness and helps focus the entire organisation on what must be done to
create breakthrough performance. BSC was introduced in 1992 by Dr. Robert
Kaplan and David Nortan and has been successfully adopted by numerous
companies worldwide.
Assessment Centre Experts from various departments are brought together to
evaluate individuals or groups specially their potentials for promotions.
Activity A
What type of executive performance appraisal system exists in your organisation?
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15.11 ERRORS IN PERFORMANCE APPRAISAL


Differences in perception and value systems influence evaluations. For
instance, two raters observe an employee disagreeing with a supervisor. One
perceives this as insubordination, but the other sees it as a willingness to stand up

for what he believes in. Individual rater bias can seriously compromise the
credibility of an appraisal. Some of the common syndromes are:
Halo Effect: This is a tendency to let the assessment of a single trait influence the
evaluation of the individual on other traits too.
Horns Effect: This is a tendency to allow one negative trait of the employee to
colour the entire appraisal. This results in an overall lower rating than may be
warranted.
Leniency or Constant Error: Depending upon the appraisers own value system
which acts as a standard, employees may be rated leniently or strictly. Such
ratings do not carry any reference to actual performance of the employees. Some
appraisers consistently assign high values to all employees, regardless of merit. This
is a leniency error. The strictness tendency is a reverse situation, where all
individuals are rated too severely and performance is understated.
Central Tendency: This is the most common error that occurs when a rater assigns
most middle range scores or values to all individuals under appraisal. Extremely
high or extremely low evaluations are avoided by assigning average ratings to all.
Spill-over Effect: This refers to allowing past performance to influence the
evaluation of present performance.
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Personal Bias: Perhaps the most important error of all arises from the fact that
very few people are capable of objective judgments entirely independent of their
values and prejudices.
The above errors have evoked concerns about performance appraisal. McGregor
(1960), with his concern for the human side of enterprise, appraisal represented a
judgemental and demotivating process. Similar concerns were voiced by Deming
(1982) who suggested that appraisal was a deadly disease which blamed
individuals for problems systematic to organisations. Margerison (1976) went as far
as to predict that appraisal would fall apart at the seams due to a combination of
managerial indifference, employee ambivalence and union opposition. This theme
was reiterated by Fletcher (1993), who suggested that the days of standardised
appraisal were numbered. But, despite these gloomy predictions, the use of
performance appraisal has flourished.

15.12 POTENTIAL APPRAISAL


In consonance with the philosophy of human resource development that has
replaced the erstwhile personnel management in many organisations, more
emphasis has been laid on the appraisal of the employees potential in addition to
their performance. Performance is a thing of the past, while potential includes the
possible knowledge, skills, and attitudes the employee may possess for better
performance.
The purposes of a potential review are:
1. to inform employees of their future prospects;
2. to enable the organisation to draft a management succession programme;
3. to update training and recruitment activities;
4. to advise employees about the work to be done to enhance _their career
opportunities.
The following are some of the requirements and steps to be followed when
introducing a potential appraisal system:
Role Description: A good potential appraisal system would be based on clarity of
roles and functions associated with the different roles in an organisation. This
requires extensive job descriptions to be made available for each job. These job

descriptions should spell out the various functions involved in performing the job.
Qualities Required: Besides job descriptions, it is necessary to have a detailed list of
qualities required to perform each of these functions. These qualities may be
broadly divided into four categories - (1) technical knowledge and skills, (2)
managerial capabilities and qualities, (3) behavioural capabilities, and (4)
conceptual capabilities.
Indicators of Qualities: A good potential appraisal system besides listing down
the functions and qualities would also have various mechanisms for judging these
qualities in a given individual. Some of the mechanisms for judging these qualities
are - (a) rating by others, (b) psychological tests, (c) simulation games and
exercises, (d) performance appraisal records.
Organising the System: Once the functions, the qualities required to perform these
functions, indicators of these qualities, and mechanisms for generating these
indicators are clear, the organisation is in a sound position to establish and operate
the potential appraisal system. Such establishment requires clarity in
organisational policies and systematisation of its efforts.
67
Performance and
Potential Appraisal

Feedback: If the organisation believes in the development of human resources it


should attempt to generate a climate of openness. Such a climate is required for
helping the employees to understand their strengths and weaknesses and to create
opportunities for development. A good potential appraisal system should provide
an opportunity for every employee to know the results of assessment. He should be
helped to understand the qualities actually required for performing the role for
which he thinks he has the potential, the mechanisms used by the organisation to
appraise his potential, and the results of such an appraisal.
A good potential appraisal system provides opportunities continuously for the
employee to know his strengths and weaknesses. These are done through periodic
counseling and guidance sessions by either the personnel department or the managers
concerned. This should enable the employee to develop realistic self-perceptions and
plan his own career and development.
Activity B
Are you aware of any potential appraisal system in practice? If so, give a brief
account of the same.
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15.13 SELF APPRAISAL


Development or change takes place only if the appraise is interested in
development or change. Such a desire is normally an outcome of self-review or
reflection. It is an opportunity for the appraisee to recapitulate and list down his
accomplishments and failures. The most important part of self appraisal is the
process of review and refletion through performance analysis.
A thorough performance analysis done prior to the review discussion helps in
making the review discussion fruitful. Review discussion aims at making the

appraiser and the appraise understand each other better by communicating the
performance analysis of the appraisees performance. It is in this discussion that the
appraiser should:
1. complement the appraisee for his accomplishments and good qualities;
2. understand and appreciate his difficulties and make action plans to help him in
the future;
3. understand the appraisees perceptions of the situation and correct the
perceptions if necessary;
4. help him to recognise his strong points and weak points;
5. communicate the expectations of the appraiser from the appraisee; and
6. identify developmental needs of the appraisee and chalk out a course of action
for meeting these needs.
68

15.14 PERFORMANCE APPRAISAL ASSESSMENT


The quality of an appraiser is much more crucial than the appraisal methods. It
is desirable to make the immediate superior a party to the appraisal programme. The
assessment can be accomplished by an individual or by a combination of the
immediate superior, other managers acquainted with the assessees work, a higher
level manager, a personnel officer, the assessee himself, and the assessees
subordinates. Training of appraisers has been largely stressed as a measure to
improve performance appraisals. Appraisers can be trained with a view to improving
their ability to evaluate subordinates and discuss evaluations with them effectively.
The following questions can provide an assessment of performance appraisal system:
1. What purposes does the organisation want its performance appraisal system to
serve?
2. Do the appraisal forms really get the information to serve the purposes?
3. Are the appraisal forms designed to minimise errors and ensure consistency?
4. Do the processes of the appraisal serve the purpose of effective
communication between the appraiser and the _appraisee?
5. Are supervisors rewarded for correctly evaluating and developing their
employees?
6. Are the evaluation and developmental components separated?
7. Are superiors relatively free from task interference in doing performance
appraisal?
8. Are the appraisals being implemented correctly?
The following questions serve as guidelines for assessing the end-product of
performance appraisal:
1. Did the appraisal session motivate the subordinate?
2. Did the appraisal build a better relationship between the supervisor and the
subordinate?
3. Did the subordinate come out with a clear idea of where he or she stands?
4. Did the superior arrive at a fairer assessment of the subordinate?
5. Did the superior learn something new about the subordinate?
6. Did the subordinate learn something new about the superior and pressures he or
she faces?
7. Does the subordinate have a clear idea of what corrective actions to be taken to
improve his/her own performance?
Exhibit 1
Executive Performance Contents and Criteria
Contents
lJob Knowledge

lQuality

of Work

lLeadership
lProblem

Solving and Decision Making


lPlanning and Organising
lResponsibility and Accountability
lCustomer Service
lBusiness Judgment
69
Performance and
Potential Appraisal
lAbility

to Work with Others


Others
lCreativity
lInitiative and Enthusiasm
lInterpersonal Competence
lCommunication Skills
lIntegrity and Courage
lHonesty and Sincerity
Criteria
Periodicity of Appraisal (tick any one):
Quarterly Half-Yearly yearly
Performance Criteria (tick any one):
Exceeds Performance Meets Performance
Below Performance Standards Standards
lMotivating

15.15 PERFORMANCE APPRAISAL GUIDELINES


lKeep

the system simple, and keep the paperwork burden down.


is a managerial tool to be used for improving results under the managers
province. But it should not be used punitively and unjustly.
lEstablish and maintain two entirely different performance appraisal systems:
one geared to making pay decisions and the other designed to yield
information about employee development.
lOnce a system has been decided upon, apply it for several years; in other words
dont tinker with the system annually.
lDo not rely on formal performance appraisals to do the entire job in
communicating on performance; day-to-day informal contacts must do the
bulk of the job.
lReview performance formally atleast once in a year and also whenever there
has been a repetition of negative employee behaviour.
lIt

15.16 PERFORMANCE APPRAISAL IN PRACTICE


Traditionally appraisals are carried out by the supervisors of the employees. Some
companies do follow self appraisal and compare the same with the traditional
appraisal of the supervisors. A new approach has been recently enunciated by the
western management gurus, which is known as 360 degree appraisal whereby
appraisals are required to be carried out not only by the supervisors, but also by
those supervised (subordinates) and peers. This approach also needs a re-look in
the context of leadership concepts being practiced universally. If one requires to be
appraised on how well he performs the leadership role, the appraisal should
originate from the followers (bottom to top approach) and not from their
supervisors alone.
While the supervisors can appraise, on the performance standards, goals, targets,
achievements, the leadership attributes need to be appraised only by those being

70
Key HR Practices supervised.

This argument is quite valid for higher level executives including CEOs.
Therefore, all the three approaches, top-bottom, bottom-top and peer level appraisal
will be very relevant. Perhaps, appropriate weightage is required to be assigned
for appraisals being carried out in the 360 degree system, which is yet to take off
seriously in many organisations.
It is quite disappointing to note that appraisals are not being carried out with the
due importance and seriousness they deserve though the systems provide scope for
periodic and timely appraisals. Normally appraisals are being carried out once a year
or at the most twice a year as per the existing practice. Many organisations do
follow monthly and quarterly appraisals for management trainees till they are
confirmed, and follow the by-annual or annual appraisal system thereafter.
Appraisal is a continuous process, to be scientifically carried out day in day
out, if one has to seriously carry out appraisals.

15.17 PERFORMANCE REVIEW AND FEEDBACK


Performance review or evaluation interview is necessary with a view to
communicate effectively with each employee on his performance. The main thrust of
the system is to effectively develop the communication process between the
appraiser and the appraisee so that individual strengths and weaknesses are
identified and necessary corrective actions taken. If the performance of the
employee falls short of the standards set in the process of goal setting, the
employee is encouraged to improve his performance. Similarly, if the employee has
exceeded the standard, he is encouraged to accept a higher goal.
Evaluation interviews are not easy to conduct, and if they are poorly handled they
may lead to hostility and greater misunderstanding. Performance review can
be quite beneficial to the organisation and to the individual involved if done
properly. Consequently, many companies have spent a great deal of time and
effort on training their supervisors to handle evaluation interviews more effectively.
To ensure that no essential part of the interview is left out, supervisors are often
encouraged to follow a standardised outline. For example:
1 The supervisor tells the subordinate the purpose of the interview, and that it is
designed to help him do a better job.
2. The supervisor then presents the evaluation, giving the strong points first and
then the weak points.
3. Next the supervisor asks for general comments on the evaluation.
4. The supervisor then tries to encourage the subordinate to give his own picture
of his progress, the problems he is meeting, what he can do to solve them,
and how his supervisor can help him.
The interview ends with a discussion of what the subordinate can do by himself to
overcome his weak points and what the supervisor can do to help. The supervisor
tries to accept any criticism or aggression on the part of the subordinate without
argument or contradiction.
Feedback is important in letting your employees know how they are doing. Without
feedback, employees tend to assume that their performance is acceptable. If they
make the wrong assumption for an extended period of time, a serious performance
problem can develop - one that may be hard to correct. There are two types of
feedback - positive and corrective. Providing regular feedback is important if you
want to demonstrate to your employees that you care about them. It is also another
way to make the human-touch appraisal process an ongoing activity.
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Performance and

Potential Appraisal

Giving feedback on performance requires an intelligent and diplomatic approach.


Overwhelmingly negative feedback often causes genuine stress, demotivation,
demoralisation, and even depression, all of which can have a serious impact on how
someone does his job. Positive feedback strengthens performance. There are some
managers who think that, as long as you dont tell an employee theres a problem, the
employee should assume that everything is okay. Some of these managers think
that giving positive feedback is a sign of weakness. But the fact is, most people are
motivated by the desire to achieve specific results - especially established goals.
And generally, employees will work to achieve these goals as long as they believe
that what they do is recognised and appreciated.
In his all-time best-seller, The One-Minute Manager , Dr. Ken Blanchard
introduces the philosophy of catching your employees doing something right.
Activity C
Do you follow periodic performance review and give feedback to the assessee
during the appraisal process.
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15.18 STRATEGIES TO IMPROVE PERFORMANCE


Companies can do many things to improve employee performance. More specific
and frequently used strategies include:
1. Positive reinforcement system
2. Positive discipline programmes
3. Employee assistance programmes
4. Employee counseling.
The positive reinforcement system lets employees know how well they are meeting
specific goals and rewards improvements with praise and recognition. In the sense
that no money is involved, it is a unique incentive system. Like all incentive
systems, a basic premise of positive reinforcement is that behaviour can be
understood and modified by its consequences. Some organisations improve
performance through the use of positive discipline or non-punitive discipline.
Employee assistance programmes are designed specifically to assist employees
with chronic personal problems that hinder their job performance and
attendance. Such programmes are often used with employees who are alcoholics
or who have severe domestic problems.
Counseling is an inescapable and necessary part of appraisal. It has to do with a
personal relationship, and interaction between two people one of whom is wiser or
more experienced than the other. The main steps in appraising and counseling
subordinates are as follows:
1. Schedule periodic appraisals for all immediate subordinates.
2. Establish performance appraisal standards jointly with _subordinates.
72
Key HR Practices 3.

Prepare for each appraisal and counseling session, select _an appropriate
place, provide enough time, and review _records.
4. Make appraisal sessions cooperative. The subordinate must be _encouraged to
appraise his own performance and share his _ideas and feelings with the

appraiser.
5. Establish and maintain rapport with the subordinate by _words, actions, and
attitude.
6. Jointly explore alternative solutions and the consequences _of selecting each
one.
7. Help the subordinate to come to a self-determined solution _to the problem or
deficiency.
8. Terminate the session gracefully.
9. Complete records of the session and decisions for future reference.
10. Carry out the decisions and actions.
11. Follow up and evaluate results.
Many situations that arise at work demand effective counseling skills. Counseling
is an important communication based activity. Counseling skills include
listening, understanding, initiating effective communication, and evaluating
solutions. Effective counseling skills are aimed at:
(i) bringing about some constructive change in the subordinates behaviour;
(ii) locating the root cause of subordinates problem;
(iii) reducing frustration by allowing subordinates to express their attitudes and
feeling about their jobs; and
(iv) stimulating problem-solving for the purpose of finding solutions to the
subordinates problems and achieve excellence in his performance.
Effective counseling demands effective communication, active listening, and
transactional analysis. In addition, some specific counseling guidelines include:
1. Avoid making your subordinates defensive; recognise that defensive behaviour is
normal.
2. Never attack a persons defense; try to concentrate on the act itself (inadequate
sales, decreasing profits and so on) rather than on the subordinate.
3. Postpone action; sometimes, the best thing to do is nothing at all.
4. Be an active listener; be sure you understand not only the words, but, more
importantly, the feelings and attitudes underlying them.
5. Try not to criticise; criticism often just evokes defensive behaviour.
6. Try to counsel often, on a daily basis, rather than once or twice a year; give
feedback.
7. Use critical incidents. No one likes being told with vague generalities that his
performance is not up to the mark. Try to be especially specific about the
behaviour you consider unsatisfactory.
8. Agree on standards of improvement. Best results are always achieved when the
superior and subordinate set specific goals to be achieved.
9. Get your subordinates to talk.
Performance and
Potential Appraisal

Activity D
What is the strategy of your organisation to improve overall performance of
employees?
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There is great degree of unhappiness all around with performance appraisals. Rarely
does one come across managers who are happy with the appraisal systems in their
organisations. But managers find it difficult to do without them because in the
absence of an appraisal mechanism, howsoever weak it may be, it is difficult to get
work out of people. It is a good mechanism to control people. In practice, a
development-oriented performance appraisal system has to be evolved by combining
certain key elements such as performance analysis, self-appraisal, performance
ratings, and counseling. Voltas have evolved a development-oriented appraisal
system on the basis of their own experiments and experiences over the years.
Larsen & Toubro Limited is the first company in India to introduce a
development-oriented performance appraisal system almost a decade ago as a part
of an integrated human resource development system. The State Bank of India also
introduced such a system in some of its branches covering a large number of
officials. Any organisation interested in changing its appraisal system from
control-oriented confidential reports to a development oriented system is actually
initiating a change in its culture. Such a change is slow, and is likely to be resisted
even if it is good for the employees and, therefore, should be carefully planned
and monitored.
Exhibit 2
Performance Appraisal at Pepsi-Cola International
Pepsi-Cola International (PCI), with operations in over 150 countries, has
devised a common performance appraisal system that focuses on motivating
managers to achieve and maintain high standards of performance. Administrative
consistency is achieved through the use of a performance appraisal system of five
feedback mechanisms - instant feedback, coaching, accountability based
performance appraisals, development feedback, and a human resource plan. The
common system provides guidelines for performance appraisal, yet allows for
modification to suit cultural differences. For example, the first step of instant feedback
is based on the principle that any idea about any aspect of the business or about
an individuals performance is raised appropriately and discussed in a sensitive
manner. The instant feedback message can be delivered in any culture; the important
thing is not how it is done but that it is done. The purpose of instant feedback is
always to improve business performance, not to criticise cultural styles. Using this
system, PCI tries to balance the cultural and administrative imperatives of
successful managing the performance of a diverse workforce.

15.19 SUMMARY
The performance appraisal system ideally is an organisation designed programme
involving both the organisation and the personnel to improve the capability of both.
The elements of performance management include: purpose, content, method,
74
Key HR Practices appraiser, frequency, and feedback. The

appraisal process involves determining


and communicating to an employee how he or she is performing the job and
establishing a plan of improvement. The information provided by performance
appraisal is useful in three major areas: compensation, placement, and training and
development. Appraisal helps to improve performance by identifying the strengths
and weaknesses; it helps to identify those with a potential for greater
responsibility; and assists in deciding on an equitable compensation system. The
methods of performance appraisal include rating scale, critical incident, ranking
methods, and management by objectives. Several common errors have been
identified in performance appraisal. Leniency occurs when ratings are grouped at
the positive 7end instead of being spread throughout the performance scale. The

central tendency occurs when all or most employees are ranked in the middle of the
rating scale. The halo effect occurs when a manager allows his or her general
impression of an employee to influence judgment of each separate item in the
performance appraisal. A sound appraisal system involves assessing employee
performance on a regular basis. Performance appraisal can be done by superiors
who rate subordinates, subordinates who rate their superiors, and self-appraisal. A
suitable performance appraisal system has to be designed keeping in view the culture
and requirements of an organization.

15.20 SELF-ASSESSMENT QUESTIONS


1. Discuss the objectives of performance appraisal.
2. Describe the methods used in performance appraisal.
3. What is Management by Objectives (MBO)? What are its key features?
4. What is the purpose and significance of performance review?
5. Highlight the significance of performance counseling in developing
employees.
Source: Internet Search