HRM - Performance Appraisal By: Dr. Prashant S Humnabad

Human Resource Management
MODULE – 3.2
PERFORMANCE APPRAISAL
Dr. PRASHANT S HUMNABAD
Department of Mechanical Engineering
Sir MVIT, Bengaluru

PerformanceAppraisal
Performance appraisal is one of the important processes of human resource
utilization function which is related to the periodic assessment of employee’s job
performance.
It can be understood as the act of comparing employee’s input and output with the
pre-established criteria and objectives of the organization.
Example:
There is a life insurance company called, AZN LIC.
It has set the criteria for its agents to sell life insurance to 20 people in a month.
The supervisor of the company keeps an eye on every agent and takes note of
their performances.
The supervisor notes down which of the agents have successfully met the target,
who have overachieved and who have underachieved.
Performance appraisal does not only focus on measuring the targets achieved by
the employees but also their behavior in the workplace. He then takes necessary
actions accordingly.
Dr. Prashant S Humnabad, Sir MVIT, Bengaluru Page 2

Purposes of Performance Appraisal
Performance appraisal is evaluating an employee’s current and/or
past performance relative to his or her performance standard.
– Gary Dessler
Performance appraisal is the systematic evaluation of employees with respect to their
performance on their job and their potential for development.
In other words, it is the process of measuring productivity in terms of efficiency and
effectiveness.
Evaluation
 The major purpose of performance appraisal is to evaluate how well employees have
conducted their duty.
 Performance appraisal helps to keep a record of each employee’s job performance,
including what efforts they have made and what have they achieved.
 Evaluation differentiates employees on the basis of their job performance, along with
other factors like personality, behavior, etc.
Provide continuous feedback
 It is essential for the employers to know what performance and achievements have been
made by their employees.
 It is also equally important for an employee to know where they stand, where they are
going and how they are going to get there.
 Thus, giving feedback to employees is also a major purpose of performance appraisal.

Measure performance accurately
Every company has to set mutually acceptable criteria or performance standards so that it could
compare employee’s performance with it.
This helps in accurate measurement of employee’s job performance which is necessary for the
company to know where it is heading towards.
Provide clarity of expectation and actual result
Every employee wants them to be told about their duties; what the organization really wants
them to do.
They should also be told how well they have done their duties and how can they improve their
performance.
They should be made clear about how near they are to do their expectation.
Identify area of weakness of employees
 All employees may not be an all-rounder.
 Some employees may have weak points as well, which if not sorted out in time, might be
a liability for the company.
 Performance appraisal helps in identifying such weak points.
Determine training and developmental needs
 Only determining weak points is not enough. A company should also make efforts to
abolish them.
 A properly carried out performance appraisal is a tool to determine what necessary steps
are to be taken in order to help the employees in improving their performance.
 The increment in skills and knowledge develop an overall personality, attitude and
behavior of the employees.

Provide career path
Performance appraisal works as a mirror to employees and it clearly shows what they are
professionally and where they stand.
On the other hand, it helps the company in recognizing employees with potential.
Companies provide career development opportunities to such employees and pave their way to
a successful and stable career.
Determine promotion of employees
 Performance appraisal helps in charting progress of employees.
 Such charts can be used by the employers to determine whether or not to promote their
employees.
 They also help in identifying the employees who most deserves to be promoted.
Take corrective actions
 Performance appraisal distinguishes excellent and poor performing employees.
 Results of performance appraisal help the employers in taking corrective actions.
 Such actions may be counseling or warning the poor performers to improve performance
and to prevent the occurrence of undesirable results.
Decide retention and termination of employees
 Progress report of employees does not only help in determining promotion but also in
determining termination.
 Employees, with poor reports, are at first consulted. But, if the supervisors don’t find any
growth, they will be forced to take severe action like termination.

Evaluate effectiveness of HRM functions
Recruitment, selection, employee training, rewarding, etc. are some functions of human resource
management whose effectiveness can only be analyzed when the performance of employees are
appraised.
Decide salary and rewards
 Performance appraisal of employees helps the supervisors in knowing their job
performance and the right amount to pay them.
 The employees will receive wages as per the contribution they have made.
 The impressive contributors are also rewarded by the company as per the organization’s
policy.
Reduce grievances
 Grievances may occur in the company when employees feel unfairly treated or biased.
 For an instance, an employee might feel that his co-worker is being paid more by the
company even though both of them are posted at the same job level.
 During such situation, employers can use the reports of performance appraisal to clarify
the employees that they are being paid on the basis of their job performance, rather than
the position they hold.
Keep communication lines open
 The complete process of performance appraisal includes continuous feedback from the
supervisors.
 This way, performance appraisal works as a bridge of communication between the
employers and employees.
 Also, open communication helps in strengthening the employer-employee relationship or
superior-subordinate relationship.

Motivate superior performance
 When performances of employees are timely appraised, they are motivated to make the
superior performance.
 It is because #1 they want to enjoy the perk of being an excellent employee or #2 they
fear negative reactions from the supervisors.
 When employees know that they are heading in right direction, it develops a sense of
satisfaction in them.
Improve decision making ability
 It becomes easier for the organization to take right decision when it has complete
knowledge about what’s going on in their company.
 Performance appraisal works as a helping hand to the company in making the right
decision as it is a source of the company’s complete statistical data.

Process of performance appraisal
Performance appraisal describes a wide variety of activities through
which organizations seek to assess employees and develop their
competence, enhance performance and distribute rewards.
– Fletcher, 2001
COMPONENTS OF PERFORMANCE APPRAISAL
Define expectations
For any kind of evaluation, there must be a standard tool to measure against.
In the process of performance appraisal, expectations work as the standard tool.
Employers set expectations or targets that are meant to be achieved by the employees within a
set period.
Expectations can also be set in terms of behavior.
An employer expects good manners, discipline, ability to work calmly under pressure,
flexibility and punctuality in any employee.
Measure and evaluate
An employer tracks the performance of its employees and compares them with the pre-set
criteria.
The process of evaluation does not only focus on measuring how much work has been done.
The true purpose of appraising is to understand what influences their performance level and to
recognize the factors that contribute to motivating them.

Provide feedback
Feedback is essentially a process wherein the employer and employee discuss possible ways to
achieve organizational goal effectively and efficiently.
It is the ultimate opportunity where the employer can coach each employee individually and
build motivation and accountability in them.
A constructive feedback works as a mirror for employees which shows them where they
actually stand.
It praises good performance, corrects poor performance and guides the employees to the right
path to their goals.
Record performance
A responsible employer must always record employees’ performances post feedback. It will help
him/her in measuring the effectiveness of feedback.
Required components of performance appraisal
There are several aspects that should be included in a performance appraisal and these aspects
can differ from company to company or department to department. However, there are some
components that must be included in any performance appraisal, regardless of the company or
department. These components are mentioned
Name of the employee
Name of the reviewer
Date of review
Review period
Job title, level or position
Review instructions and evaluation criteria
Rating
Examples to support rating
General feedback
Recommended components of performance appraisal
The employer has to look at various factors while appraising the employees. Given below
are some important points that a typical review would include.
Quality of work
Quantity of work
Dependability
Punctuality
Communication skills
Problem-solving skills
Ability to work as part of a team
Compliance with company procedures
Progress made toward professional goals

Things to avoid during performance appraisal
Performance appraisal must be biased-free, open and positive.
The review should be professional and free from personal feelings since the written comments
also reflect the abilities of the employer as a team leader.
Thus, an employer is suggested to avoid following items in performance appraisal.
Excessive criticism or negative comments
Conversations about compensation and promotion
Threats of disciplinary action for poor performance
Focusing on the most recent or memorable activities as the sole basis for appraisal
 Mentioning items that have not been previously discussed with employees, either
formally or verbally
Providing feedback that cannot be supported by examples
Placing emphasis on personality traits rather than job performance
An example of a written performance appraisal
There are typically fourteen methods of performance appraisal. Given below is an example of
essay method of performance appraisal of Josephine (marketing manager) who has exceeded
employer’s expectations.
Employee Name: Josephine Winston Position: Marketing manager Supervisor/Employer name:
Wendy Smith Department: Marketing
Review period: January 1, 2017 – March 31, 2017
Josephine effectively communicates her point of view and expectations. She effectively manages
and facilitates meetings and group discussions and effectively communicates with clients.
Josephine has accomplished optimal levels of performance with great sincerity in the field of
marketing. She has showcased great team player abilities and has consistently improved at
developing effective marketing strategies. She has improved her overall productivity level by
74%.
Josephine has garnered great support and respect from subordinates for lending a patient ear to
their concerns. She fosters a spirit of innovation within the team. She works well independently
and would benefit from additional team-building skills.

PerformanceAppraisal Methods
There are several Performance Appraisal Methods that are utilized in evaluating the performance
of employees.
It has become a common practice in companies to combine two or even three methods into a
company’s overall Performance Appraisal Program.
It various from company to company.
The Five Performance Appraisal Methods: Traditional and Modern
Companies have been practicing various methods of appraising employee performance,
among which some popular ones are described below.
1.Essay method
2.Comparative evaluation
3.Rating
4.Forced distribution method
5.Forced choice method
6.Graphic rating scale method
7.Field review method
8.Checklist
9.Confidential report
10.Critical incident method
11.Management by objectives (MBO)
12.Behaviorally anchored rating scales (BARS)
13.Cost accounting method
14.360-degree appraisal

Essay method
It is a traditional and judgmental approach under which employee is evaluated and a
descriptive essay is written on him/her.
The essay describes in detail about the strengths, weaknesses, potential, nature, etc.
Essay method helps in collecting a lot of information about the employees.
However, this method is tedious and difficult to manage as it demands more description than
other methods of appraisal.
The reports being descriptive in nature, it is difficult to compare and contrast them or withdraw
any conclusion.
Besides, the evaluator must have good writing skills, or else the whole process is distorted.
Comparative evaluation
Comparative evaluation is a technique of appraising employees by comparing and contrasting
issues and traits of an employee with another.
There are basically two ways to conduct comparative evaluation; they are:
Paired comparison
Under this method, the pairs of employees of same job post or level are formed, following which
they are evaluated on the basis of performance of each other. Subjects like skills, experience,
team player, behavior, etc. are evaluated by the raters and picks the best performing employee.
To be precise, the raters are provided with a bunch of slips, each containing a pair of names of employees.
The employee whom raters consider to be the best is given a tick mark and the process is repeated for all
pairs. At the end, the employee who succeeds to get the most tick is considered to be the best while the
employee getting least ticks is comparatively considered poor.

Paired comparison is a good method for evaluating employee performance. However, it becomes
very difficult for companies with large number of employees to form pairs as the pairs are
formed by applying the formula:
N (N-1) ÷ 2, where N = No. of employees
For an example, if there are four employees, the number of pairs formed will be six.
Ranking
Ranking is one of the simplest methods of performance appraisal. Under this method, employees
are ranked from the best to the worst according to their performance level.
The best performing employees are ranked #1 and the least performing one is ranked the last.
Based on these rankings, the companies may take any actions, from promotion to termination.
Although ranking method of performance appraisal is considered to be an easier approach, it
becomes problematic and full of issues when conducted in a large scale. Also, this method of
performance appraisal is criticized because it is unsystematic and results are often drawn on the
basis of snap judgment.
Rating
Rating is a commonly used traditional method of performance appraisal. Under this approach, an
employee is numerically rated from 1 to 10 on various job performance criterions like
attendance, attitude, performance, output, sincerity, dependability, initiative, etc.The employee
may be rated by his/her superiors, colleagues or even customers, depending upon the nature of
job. Scores of all criterions are finally calculated, and results are withdrawn.

Rating method of performance appraisal is commonly used because it is economic in nature and
raters do not require to have high skills to use it. Also, it is applicable in almost all types of job
and even with large workforce.
There is, however, a drawback of this method, i.e. employees might be incorrectly rated due to
rater’s biasedness.
Forced distribution method
Employers or raters are found to have tendency to rate their employees near average or above
average performing categories. In around late 90s, Tiffen introduced a new method of
performance appraisal call forced distribution, in an attempt to eliminate the flaws of the raters.
Under this method, raters are forced to divide his employees evenly into certain categories which
vary from organization to organization. The categories can be poor, average, good and excellent
or percentile based like 10% poor, 40% fairly good, 40% good and 10% excellent.

This method is widely applied and has been considered effective in service-driven companies.
However, the method also has some drawbacks. They are:
It creates false competition between employees.
 All employees might not fit neatly into a category, leading to their placement in such a
category that does not reflect their true image.
 Raters may end up placing more visible employees in superior categories and less visible
ones in poor category, irrespective of their job performance.
Forced choice method
Forced choice method of performance appraisal was introduced by J.P. Guilford. It is one of the
most systematic and reliable approach to evaluate employees accurately.
Under this approach, the HR manager, at first, prepares a set of positive as well as negative
statements. The statements are then forwarded to the rater, following which the rater indicates
which of the given statements suits the employee. Once the rater finishes evaluating all
employees, the report is sent to the HR manager for final assessment.
Some examples of positive and negative statements are
Positive statements
Communicates well with superiors.
Plays active role in meetings and other office events. Negative statements
Consistently over-promises and under-delivers.
Isn’t punctual, often comes late to the office.
Each of such statements, both positive as well as negative, carries certain score set by the HR
manager, which is not even revealed to the rater. It makes the process more objective. The scores
are at last summed up and conclusion is withdrawn. The employees with high scores are ranked
at the top while least scoring employees are ranked at the bottom.
Some critics have, however, noted that this method is time consuming and it is very challenging
to construct pertinent evaluative statements.
Graphic rating scale method
Graphic rating scale is one of the oldest and commonly used methods of performance appraisal.
Under this approach, the employees are evaluated on the basis of various job performance
criterions, such that each criterion is categorically divided into poor, fairly poor, fairly good,
good and excellent. Also, these criterions carry certain score weight. The rater ticks the category
that best describes the employee and finally the score is totaled.

Graphic rating scale is an easy and simple method of performance appraisal as it does not require
any writing skills. However, the rater’s capricious mood may result in ineffective evaluation.
Field review method
Field review method of performance appraisal is conducted by the rater who does not belong to
the employees’ department. The rater is someone from the corporate, especially from HR
department.
Use of this technique to evaluate employees’ performance is helpful in completely eliminating
issues that arise due to rater’s biasedness. However, this method is not widely used because of
the drawbacks. They are
 The rater is not familiar with employees, making it impossible for him to observe their
actual behavior.
The rater might feel aggrieved in cases when employees try to clarify any matter.
Checklist
Checklist method is another of the easiest methods of appraising employee’s performance. Under
this method, a checklist is prepared by the HR manager and is forwarded to the rater. The
checklist may include list of questions (depicting behavior and job performance of employee)
and the rater has to answer them in just ‘YES’ or ‘NO’ form.

The rater analyzes the question and the employee, and based on his views, he answers them.
Such questions also carry some scores (equal or different), depending upon the nature or
importance, which is totaled at the end of the procedure by the HR manager.
This method is helpful not only in evaluating employee’s job performance but also in evaluating
degree of uniformity of the rater by giving him two similar questions in different manner. In the
given figure, question no. 3 and 6 are differently asked same questions.
Confidential report
Confidential report is the method of evaluating employee’s performance and taking necessary
actions without giving any feedbacks to the employees. Confidential report should only be
viewed by authorized personnel. Therefore, it is not send openly but in sealed envelope.
Generally, such method of performance appraisal is conducted yearly and employees are
appraised on the following traits:
Attendance
Team work
Dependability
Leadership
Behavior with superior, colleagues and junior workers
Discipline
Integrity and honesty
Quality and quantity of output, etc.
Confidential report usually highlights the strengths and weaknesses of the employees. Despite
the fact, it is used only in government organizations and not in other forms of organization as it
does not provide any feedback to the employees. Employees are deprived of information such as
how is he evaluated, why his ratings have fallen, why he is underrated, what mistakes are to
rectify, how to improve his performance, etc. Employees have to directly face the consequence
(either positive or negative) of the appraisal.

Critical incident method
Generally, all employees perform alike during normal situations but there are very few who can
maintain their performance during unfavorable time as well. Critical incident method is used to
evaluate the ability of employees to work during such situation.
Under this method, the rater keeps record of effective as well as ineffective behaviors of
individual employee at the workplace. Such appraisal is conducted periodically. And at the end
of every assessment, the HR manager or some experts evaluate the behavior and score them,
depending upon which the best scoring employees and poor scoring employees are identified.
An example of effective behavior: A customer angrily stormed into the shop, complaining that the
product he ordered was damaged. The sales executive patiently listened to the complaint and promptly
replaced it, apologizing for the customer’s inconvenience.
An example of ineffective behavior: The sales clerk went on a leave during the festive season, during
which 80% of the sales happened. He provided no logical reason for the leave and stopped responding to
the phone calls.
Maintaining logs of employee’s critical incident behavior helps in preparing checklist too. The
group of experts evaluates the behaviors of employees collectively and they prepare checklist,
whenever necessary.Critical incident method evaluates job performance of an employee, rather
than his personality. However, this method has some drawbacks. They are:
Ineffective behavior or negative response of employees is easily noticed than positive ones
It is time consuming
It requires very close supervision which is disliked by the employees
Recording detailed information about every employee is problematic
Raters may forget to mention any important incidents
Management by objectives (MBO)
 Management by objectives (MBO) is a modern and systematic method of appraising
employee’s performance which was jointly founded by some experts of management.
 Managers of present generation are aware of the fact that results of traditional methods of
MBO is employer-employee driven approach of performance appraisal which involves
superior and subordinates in setting goals.
 The employees work upon achieving their set goals and employers keep a record of how
close they are to accomplishment of the goals.
 This way, employees become clear about which path to walk on to get the goals,
subsequently increasing and improving his performance level.
 MBO, at this point, does not only work as a tool for evaluating performance but also as a
motivation factor which allows the company to extract maximum output from available
human resource, permitting employees adequate space for self-development and growth.

Behaviorally anchored rating scales (BARS)
Behaviorally anchored rating scales (BARS) is the combination of critical incident and rating
scale methods of performance appraisal. Under this method, the scale points are defined by
critical (effective or ineffective) behaviors of the employee.
BARS usually consists of scale ranging from 5 to 9 points, each representing continuum of
statements that describes behavior of employees ranging from unacceptable to most effective.
A BARS can be developed in following steps.
1. Collecting samples of effective and ineffective job behavior from the experts by
analyzing the critical incident method
2.Converting these samples into performance dimension
3.Relocating the performance dimension (from unacceptable to outstanding)
4.Rating the performance dimension accordingly, starting from 1
5.Finally, using the scale anchor to evaluate employee’s performance

Cost accounting method
Cost accounting method of performance appraisal is the process of evaluating monetary benefits
yield to the organization from the job performance of an employee. In other words, this method
is used to analyze the cost of keeping the employee and the benefits the company derives from
his/her presence and / or absence.
There are some major points which are considered while evaluating employee under this
approach. They are:
Average value of unit cost of production of goods and services
Quality of the goods and services produced
Overhead cost incurred (lighting, electricity, equipment, etc.)
Extra-expenses (accident, error, damage, wear and tear of tools and equipment)
Relationship with customers and clients
Cost of the time spent by the supervisor in appraising the employee
360-degree appraisal
360-degree appraisal is a modern technique to evaluate employee’s performance which was
developed in the early 90s in the U.S.A.
Under this method, an employee’s job performance is appraised by the help of the factors that
are present around him at the workplace. Such factors may be superiors, colleagues, subordinates
and even clients, customer or spouse.
An evaluator asks various questions to these factors and collects their feedback. The gathered
information is then assembled through computerized system and individual reports are prepared.
Such reports are finally distributed to the employees, following which they can communicate
with their appraiser in regards with their opinion about how to improve his performance.
360-degree method is considered to be the most effective way of appraising employee’s
performance as information and feedback is collected from all around.

Advantages of performance appraisals:
 They provide a document of employee performance over a specific period of time.
 They provide a structure where a manager can meet and discuss performance with an
employee.
 They allow a manager the opportunity to provide the employee with feedback about their
performance and discuss how well the employee goals were accomplished.
 They provide a structured process for an employee to clarify expectations and discuss issues
with their manager.
 They provide a structure for thinking through and planning the upcoming year and
developing employee goals.
 They can motivate employees if supported by a good merit increase and compensation
system.
Disadvantages of performance appraisals:
 If not done right, they can create a negative experience.
 Performance appraisals are very time consuming and can be overwhelming to managers
with many employees.
 They are based on human assessment and are subject to rater errors and biases.
 Can be a waste of time if not done appropriately.
 They can create a very stressful environment for everyone involved.
Personal Counseling based on Annual Confidential Reports
**Explain Sir MVIT API Form (API2021_April_ver4.0.doc)
More Information about PA:
 https://www.businesstopia.net/human-resource/performance-appraisal-definition-and-
examples
 https://www.pesync.com/what-are-the-advantages-and-disadvantages-of-performance-
appraisal-methods.html
 https://www.slideshare.net/bindmadhuri/performance-appraisal-23010631
 https://www.toppr.com/guides/business-management-and-entrepreneurship/human-resource-
management/performance-appraisal/

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