project on performance apprisal

1. OBJECTIVES OF THE PROJECT
• This project has been undertaken to share my experiences on Performance
appraisal system as well as to enhance my understanding of this fascinating
subject by doing some study & research.
• The project explains the meaning of Performance Appraisal, different methods
used to evaluate the performance of employees, its effective implementation and
the benefits of the system.
• It also aims at understanding the problems associated with performance
appraisal and suggests measures to be adopted to overcome these issues.
• Overall objective of the project is to understand the effectiveness of performance
appraisal system.
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2. SCOPE OF THE PROJECT
This project report covers the definition and meaning of Performance Appraisal. It
elucidates the benefits and drawbacks of the traditional methods as well as recent
advances in the field of performance appraisal.
The project throws light on the concern areas for different people involved in the
appraisal process and attempts to find out ways to overcome those problems.
Appraisees and appraising managers have both been given guidelines in evaluation
process and subsequently the review meeting. It emphasizes how this approach will
help the appraisees by giving them an opportunity to assess and correct areas that
their supervisors feel may have overlooked. Such incidences do happen due to
personal likes and dislikes of superiors. The system can help management to take
informed decisions on pay-hikes and career enhancement for their employees.
Few formats of the performance appraisal forms have been included in the project to
show the way different companies are evaluating the performance of their
employees.
Thus, through this project report one can:
 have a reasonable understanding of the term performance appraisal;
 understand what needs to be done for its effective implementation;
 know the key areas of performance indicators;
 understand the benefits of the system;
 know how it helps in designing the Performance Rated Pay system;
 know how it helps in planning of career of employees;
 know how it helps in the future requirement of the organization as it grows.
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3. EXECUTIVE SUMMARY
Performance Appraisal is a crucial activity for organizations that are looking for growth and
profit maximization in this ever-increasing competitive environment. This project report is a
review based on theory as well as research and experience.
The research report starts with the background and explains it’s importance in the
Performance Management System and also it’s changed scenario in Chapter 1.
The essential components of an effective performance appraisal system consist of
understanding it’s Foundations and the essential steps that lay the foundation. It is also
necessary to recognize the Objectives and Benefits of this system. For benefit realization it
is necessary to Identify Key Result Areas (KRAs) i.e. Goal Setting and monitor resulting
Performance so that a meaningful relationship between performance, reward and
development of required skills, through counseling – if required, can be established. Finally
lot of brainstorming is required to be done to devise a sound appraisal system by evaluating
available techniques and implementation processes. One must remember that performance
Appraisal is an inexact, human process and it is quite a challenge to actually implement it
successfully. All these aspects form subject matter for Chapters 2 through 8.
Performance appraisal system has gone through a sea change over a period of time. In the
beginning the process was non-transparent and the employee was kept in dark about his
performance. No systematic exercise was done and the entire process was arbitrary. These
earlier performance appraisal methods are discussed in Chapter 9.
The current processes of performance appraisal involve self-appraisal by the employee too.
Thus the system has gone through the phase of non-transparency to transparency. In
the transparent system of appraisals appraisee is taken into confidence and the whole
process is interactive. Review process with employees is designed in such a way that
employees become aware of what is expected from them, receive timely feedback and
recognition for their achievements. Some of these relatively transparent methods are
Appraisal Discussion-Dialogue Method of Appraisal, Competency Based Appraisal System,
Potential Appraisal, Performance and Development Planning. While new frontiers to
performance appraisal include Management by Objectives, 360º Feedback and Balanced
Scorecard. These methods are explained in depth in Chapters 10 and 11 respectively. In
this technology driven era appraisals too can be done electronically. eAppraisal system
with its salient features, benefits and process has been covered in Chapter 12.
Finally, the report is rounded up by presenting a case study on one of the top Indian
pharmaceutical companies as Chapter 13 and concluded in Chapter 14.
The report is made useful for readers by incorporating Suggestions and Recommendations
for all concerned on how to make a grand success of appraisal system followed by their
organizations.
Few blank formats of different appraisal methods and processes have been included as
Annexures (Annexure I to IX) in the report to show how today’s successful organizations
are trying to assess and evaluate their employee performance.
In conclusion, this project report will enable one to understand the concept of
Performance Appraisal; it’s evolution from non-transparent to a transparent system.
The report will also help to understand benefits and drawbacks of past and present
appraisal systems. Most importantly, the report will assist the reader in implementing
appraisal system as effective management tool for realizing organization’s as well as
individual’s goals and objectives.
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4. RESEARCH METHODOLOGY
The study of the topic “Performance Appraisal” has been done through various
sources.
The primary source includes the personal experience, which has been added in this
project as the `Sample of Current Practice-Case Study’ in Chapter 13.
The secondary sources include:
• information gathered through surfing the internet;
• information available on intranet site on Knowledge Management;
• different study materials;
• private circulations from consultants;
• deliberations with practicing consultants and experts in the field;
• sample Performance Appraisal forms obtained from reliable resources.
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5. Chapter 1
INTRODUCTION: CONCEPTUAL FRAMEWORK
I. Background:
1. The concept of Performance Appraisal dates back to the First World War
and was then called “Merit Rating Programme”. Over a period of time, this
concept has been through an ocean of change. The areas of evaluation
have also changed.
2. Once an employee has been selected, trained and embarked on his duties,
it is time for performance appraisal. What is performance appraisal? Why
do companies need to take up this task?
3. According to Carl Heyel, author/editor on management, philosopher and
teacher, “it is the process of evaluating the performance and qualifications
of the employees in terms of job requirements, for administrative purposes
such as placement, selection and promotion, to provide financial rewards
and other actions which require differential treatment among the members
of a group as distinguished from actions affecting all members equally”.
II. An integral part of performance management system:
1. Effective performance management requires a good deal of face-to-face
supervisor-employee interaction. By knowing the subordinates, a
supervisor can steer them onto a path of greater productivity and optimized
output. Long-term successful business owners view performance appraisal
as a process of getting to know the people who work for them. It is the
most significant and indispensable tool for an organization. It provides
information, which helps in taking important decisions for the development
of an individual and the organization.
2. Thus, one phase of the annual performance management cycle is
performance appraisal, the process of reviewing employee performance
vis-à-vis the set expectations in a realistic manner, documenting the
review, and delivering the review verbally in a face-to-face meeting, to
raise performance standards year over year through honest and
constructive feedback. In the process management expects to reinforce the
employee’s strengths, identify improvement areas so that one can work on
them and also set stretched goals for the coming year.
3. It is composed of the following two processes both of which are qualitative
subject to human bias –
a. observation and
b. judgment
4. The parameters of performance are a combination of technical expertise
and behavioural attributes. The latter scores a high degree of relevance
with regard to potential appraisal.
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6. III. Concept Of Performance Appraisal:
The concept of Performance Appraisal can be explained with the analogy
illustrated below:
→ The head of the key represents the uniqueness of the employee. No two
employees are alike.
→ The ring represents the management’s requirement -the job content.
→ The shaft represents the communication between the employee and the
company, the transmission of the task and the response from the
performer.
IV. Change:
1. A few decades ago, the employee used to be appraised by his department
head. The department head used to communicate his feedback and
comments only to the immediate superior of the employee. Thus the
feedback was kept confidential in nature. As time passed by, the
immediate superior started appraising his subordinate’s performance and
sending his confidential report to the department head. These were the
periods when the employee was not included in his appraisal process.
The decisions used to be taken by his superiors relating to his pay hike,
promotion etc. Thus the system was non-transparent.
2. The current process of performance appraisal is much more open and
gives some scope for self-appraisal by the employee. The self-appraisal is
followed by a joint discussion with superior and then a decision is taken by
the department head on his promotion, pay hike etc. The feedback relating
to his performance is directly given to the employee. Thus performance
appraisal process has gone through the phase of non-transparency
to transparency.
3. In this transparency phase, a performance appraisal can be defined
as a structured formal interaction between a subordinate and
supervisor, that usually takes the form of a periodic interview (annual
or bi-annual), in which the work performance of the subordinate is
examined and discussed, with a view to identifying weaknesses and
strengths as well as opportunities for improvement and skills
development.
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7. 4. Whether an organization accepts or not the usefulness of Performance
Appraisal, whether it adopts a formal appraisal system or not, top
management is constantly appraising the performance of its subordinate
managers in day-to-day interaction. The latter are doing the same to their
own subordinates. They are doing so because Performance Appraisal,
formal or informal, lies at the heart of art of managing.
5. Managing is a dynamic process, concerned almost entirely with the
present and the future, whereas Performance Appraisal, as generally used
has been a static rating of an employee related almost entirely with the
past. Recently, as some managements were recognizing that “rating” by
itself had very limited utility, they began to appreciate that managing had
evolved into an art. They saw that “management by hunch” could not
longer be tolerated, and that measurements-no matter how vague – were
essential for the future development of the art of managing.
6. The need for measurements gave birth to several “systems” of managing
which attempted to apply measurements of various sorts to the different
aspects and elements of the manager’s job. A number of these systems
leaned on the better Performance Appraisal methods for their measuring
devices or at least for a starting point for measurement. In some
instances, these systems expanded or broadened the meaning of
Performance Appraisal from a mere rating to include the whole concept of
management with all its elements.
What set’s the foundation of Performance Appraisal? The same has been
covered in the following Chapter 2.
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8. Chapter 2
FOUNDATIONS OF PERFORMANCE APPRAISAL
Performance Appraisal assesses how well people have been doing their jobs and
what they must do to be better in their jobs. It deals with the content of the job and
what they are expected to achieve in each aspect of their work. Following are the
foundations in Performance Appraisal process:
I. Job Profile:
Job description concentrates more on the definition of tasks the jobholder has
to accomplish. It includes details of reporting relationship and normally covers
the overall purpose of the job. It indicates how an individual’s job will
contribute to the achievement of objectives of a team or a department and,
ultimately the mission of the organization.
II. Objectives:
An objective describes something, which has to be accomplished. Objectives
define what organizations, functions, departments, teams and individuals are
expected to achieve.
There are two types of objectives:
i. Work or Operational Objectives:
It refers to the results to be achieved or the contribution to be made to
the accomplishment of team, departmental and corporate objectives.
ii. Developmental objectives:
It is concerned with what individual should do and learn to improve their
performance and/or their knowledge, skills and competencies (training
and personal development plans).
III. Competencies:
Competencies refer to the behavioral dimensions of a role. It is the behavior
required of people to carry out their work satisfactorily. Competencies are
what people bring to a job in the form of different types and levels of behavior.
They govern the process aspects of job performance.
IV. Values:
Increasingly, organizations are setting out the core values that they think
should govern the behavior of all their employees. Value statements may be
prepared which define core values in areas such as care for customers,
concern for people, competitiveness, excellence, growth, innovation.
What are the essential steps that set the foundation for an effective
Performance Appraisal? These steps have been covered in Chapter 3.
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9. Chapter 3
THREE ESSENTIAL STEPS FOR EFFECTIVE PERFORMANCE
APPRAISAL
The process of getting to know the people who work for the organization involves
three essential steps viz. training, evaluation and review.
I. Training:
Successful training is the implementation of a system in which everyone in
the workplace is geared towards improvement. It involves a hands on
approach in which the employee is encouraged to evaluate himself or herself
under the guidance of the appraiser.
How it works?
First, the appraiser includes the employee in the appraisal process. When an
employee knows that his or her opinion of other workers is taken into account,
he or she also realizes that everyone else’s opinion matters just as much. This
not only empowers the employee and improves relations in the workplace, but
it encourages higher productivity as well. This interactive approach is made
complete with the leadership of the appraiser. Carefully administering praise
coupled with constructive criticism keeps the workforce on its toes.
II. Evaluation:
The best methods for employee evaluation are based on results and
behavior. While conducting performance appraisal based on employees’
characteristic traits is quite common, the results are often subjective and
unsatisfactory. A results-based approach to performance appraisal is by far
the cleanest, most objective method of tackling the complex task of evaluation.
It uses a rating system to measure productivity within a given timescale. If an
employee makes a certain number of sales in a certain week, he or she can
be rated by sheer worth as well as ranked against other employees. The study
of behavior is closely tied to productivity. The pace of work, willingness to put
in overtime and ability to work with others all contribute to overall productivity.
III. Review:
The review process should, again, employ the techniques of interactivity.
Before sitting down together, the appraiser should give the employee a chance
to review himself or herself. This not only empowers the employee, but also
saves a lot of time and possible contention during the actual discussion.
Initially the appraiser should walk the employee through the process. The
successful supervisor starts out with an overview of why the review session is
needed. Then the supervisor takes the employee down a point-by-point list of
every aspect of the job. In each case, the employee should be given a chance
to describe his or her achievements and shortcomings. The supervisor should
always supplement this with added insight. While praising and applying
criticism, the supervisor maintains authority throughout the review and indeed,
the entire appraisal process.
How this entire interaction and review process is beneficial to the organization as a
whole and what are the objectives of performance appraisal? These have been
jotted down in the succeeding Chapter 4.
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10. Chapter 4
OBJECTIVES AND BENEFITS
The objectives and benefits of Performance Appraisal system can be summarized as
under:
I. Objectives:
Data relating to Performance Appraisal of employees are recorded, stored and
used for several purposes like:
• Let the employees know where they stand in so far as their performance is
concerned and to assist them with constructive criticism and guidance for
the purpose of their development.
• Assessment of skills within an organization.
• Set targets for future performance.
• Effect promotions based on competence and performance.
• Strengthen relationship between superior and subordinate.
• Assess the training and development needs of employees.
• Identify the strengths and weaknesses of employees.
• Decide upon a pay raise (increments).
• Improve communication as it not only provides a system for dialogue
between the superior and the subordinate, but also improves
understanding of personal goals and concerns. This can also have the
effect of increasing the trust between the appraiser and appraisee.
• Determine whether human resource programs such, as selection, training
and transfers have been effective or not.
II. Benefits:
The following are the benefits of a successful appraisal system:
1. For the Organization:
♦ Improved performance throughout the organization due to:
− Effective communication of organization’s objectives and values.
− Increased sense of cohesiveness and loyalty.
− Managers are better equipped to use their leadership skills and to
develop their staff.
♦ Improved overview of tasks performed by each member of a group.
♦ Identification of ideas for improvement.
♦ Creation and maintenance of a culture of continuous improvement.
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11. ♦ Communication to people that they are valued.
2. For the appraiser:
♦ Opportunity to develop an overview of individual jobs.
♦ Opportunity to identify strengths and weaknesses of appraisees.
♦ Increased job satisfaction.
♦ Opportunity to link team and individual objectives with department &
organizational objectives.
♦ Opportunity to clarify expectations that the manager has from teams
and individuals.
♦ Opportunity to re-prioritize targets
♦ Means of forming a more productive relationship with staff based on
mutual trust and understanding.
♦ Due to all above Increased sense of personal value
3. For the appraisee:
♦ Increased motivation and job satisfaction.
♦ Clear understanding of what is expected and what needs to be done
to meet expectations.
♦ Opportunity to discuss aspirations and any guidance, support or
training needed to fulfill these aspirations.
♦ Improved working relationships with the superior.
♦ Opportunity to overcome the weaknesses by way of counseling and
guidance from the superior
♦ Increased sense of personal value as he too is involved in the
appraisal process
In line with the objectives of Performance Appraisal, to reap it’s benefits, this system
has to be effective failing which it may mar the very purpose of performance
appraisal.
How to make the appraisal process effective is what has been covered in the
subsequent Chapter.
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12. Chapter 5
EFFECTIVE APPRAISAL PROCESS
When it comes to performance appraisal, managers and employees agree about one
thing: They hate going through them. Employees, managers and HR experts agree
that fear, guilt, responsibility and resentment are the real reasons why most
employees dread the appraisal process. Besides some think that it is a ritual that is
mandatory to follow.
An effective review process helps organizations in three areas:
1. evaluation and improving personnel selection and training systems;
2. preventing wrongful termination; and
3. increasing real employee diversity
I. Good appraisals start with information from multiple sources, and they evaluate
employees at all levels from top to bottom.
II. This system requires both the appraisee and appraiser to jointly assess the
employee’s ability to complete the duties and achieve the goals set forth in the
previous appraisal.
III. HR professionals should consider the following steps and make the appraisal
process simple yet effective:
• The performance Appraisal form should reflect the strategic objectives
of the company. Many organizations use a form that contains several
sections.
• The results and impact section should address accomplishments
related to job responsibilities, goals and projects. It is a review of past
performance.
• A skills and abilities section should discuss the ways those results
were accomplished. By listing the core competencies for each job
classification – and for the entire organization – this section can
address the kinds of behavior that are critical for success.
IV. Appraisal results, either directly or indirectly, determine reward outcomes. The
better performing employees may get the majority of available merit pay
increases, bonuses and promotions, while the poorer performers may require
some form of counseling or in extreme cases no increases in pay. The
assignment and justification of rewards and penalties through performance
appraisal is a very uncertain and controversial matter and conveys both
satisfaction as well as dissatisfaction with an employee’s job performance.
Whatever is the case, organizations should foster a feeling that performance
appraisals are positive opportunities that provide for overall development of the
employee, in order to get the best out of the people and the process. Hence
performance appraisals should be positive experiences and it should
never be used to handle matters of discipline.
Performance review needs goals to be set first. Identification of Key Result
Areas i.e. Goal Setting has been explained in the Chapter 6.
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13. Chapter 6
IDENTIFICATION OF KEY RESULT AREAS (KRAS) –
GOAL SETTING
Setting of Key Result Areas i.e. goals is one of the various parameters of
performance evaluation. These are also known as the Targets or Performance
Indicators (PI). Target setting is the first step in the appraisal process, based on
which the employee is appraised.
I. The Purpose or Objective of Target Setting
∙ Ensure that each individual is working towards clearly stated objectives that
tie into the division goals.
∙ Provides a sound basis to improve performance.
∙ Encourages open communication concerning expected results and progress
towards results.
∙ Helps the individual know “How he/she is doing” compared to what his/her
manager expects.
∙ Encourages comparison on individual objectives to identify overlapping or
omitted objectives.
∙ Helps in salary review, and self-development.
The recent trend from a focus on traits or behavior to a results-oriented
approach has seen the emergence of objectives setting as a key issue.
However, managers should attempt to agree objectives with their staff rather
than setting them themselves for the forthcoming period during appraisal
discussion. These objectives or targets should comply with the mnemonic
SMART i.e. Specific, Measurable, Achievable, Realistic and Time-bound.
II. SMART criteria for performance goals
SMART Performance
Criteria Checklist
Goals
Specific
States in clear terms ∙ Does it specify
what outcome, result or - Improved level of quality, quantity, time or
behaviour is to be use of resources.
achieved. - A new/innovative result, faster time line, or
- An improved behavioral outcome?
∙ Does it have a clearly stated singular result?
Measurable
Includes measurable ∙ Will you know from information, data or
results or a description of observation when it is achieved?
the desired outcome. ∙ Does it specify-What? How much? How well?
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14. SMART Performance
Criteria Checklist
Goals
Achievable
A realistic expectation, given ∙ Are resources, authority level, and requisite
time and resources skills in place?
∙ Does it require a stretch of effort?
Realistic
There is a clear tie to goals ∙ Will it matter when it is done?
of the department, division ∙ Does the objective support relevant goals?
etc. ∙ Does it deal with a key aspect of the job?
Time Bound
There is a time limit or ∙ When are the goals to be completed?
deadline by which the ∙ Is there a timetable for milestones or
objective must be achieved checkpoints?
and there may be a time
frame to track phases of
completion in an action plan.
III. Type of Goals:
One may have to set multiple goals combining goals at different levels viz. the
long-term goal, the short-tem goal and the minimum or standard goal.
1. The long-term goal:
The long-term goals are the level of performance sought over a period of
one to two years. Usually this level is significantly better than current
performance. In some cases, the long-term goals are the ultimate level of
performance, such as “zero defects” or “zero absenteeism”. Unlike the other
two goals (described below), the long-term goals can be dictated by
management without regard to past performance or to whether the long-term
goals is currently perceived as attainable.
2. The short-term goal:
The short-term goals is the level of performance desired and perceived as
being attainable with some effort within a period ranging from three months
to one year. At the end of that time, short-term goals are re-evaluated
based upon performance. The expectation is that when the short-term goal
is consistently being met, it will be moved closer to the long-term goal.
∙ It must be less than or equal to the long-term goal
∙ It cannot be better than the best performance ever achieved; and
∙ It must be better than the current average or typical performance. Short-
term goals are negotiated. Usually employees and lower level managers
recommend and develop short-term goals subject to approval by
management.
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15. 3. The Minimum or Standard goal:
The minimum or standard goal is the cut-off point for signaling the existence
of or potential for a performance problem. Like short-term goals, minimum
standards are set for a limited period but for longer duration – perhaps one
to two years. Minimums/standards are negotiated like short-term goals and
must conform to the following criteria:
∙ They must be less than or equal to current average/typical performance;
and
∙ They cannot be worse than the worst performance for any previous
period.
IV. To aid goal setting the following steps may be adopted:
1. Consider the job on the following areas:
- Routine responsibilities
- Problem solving responsibilities
- Innovative responsibilities
- Development responsibilities
2. Locate key tasks in each of the above areas.
3. Periodic Progress Review
The intent of this review is to provide a reconfirmation of direction to
maintain commitment for the balance year. Targets, though should be
stable over the performance period, should be flexible enough for revision
when changes in priorities or responsibilities lead to the expectation of
different results.
V. Key Steps to Goal Setting:
1. The appraiser should:
∙ in advance, review notes on employee’s performance;
∙ discuss targets, praise achievements and identify causes of targets not
being met;
∙ discuss performance skills, reinforce good performance and identify
causes for skills not being met;
∙ agree on the plan for corrective actions to be taken by both;
∙ where necessary, revise targets;
∙ create a non-threatening climate and express confidence.
2. Joint Accountability:
Management must recognize that most results are achieved through the
corporate efforts of two or more people. Therefore, the management style
must encourage maximum individual contribution in co-operation with
others.
Decision on pay hike, promotion and development is outcome of target
achievement and the same has been detailed in following Chapter 7.
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16. Chapter 7
PERFORMANCE, PAY AND DEVELOPMENT
The outcome of the appraisal is either in the form of reward by way of increase in
pay, additional bonus or incentive and/or promotion, or by way of not effecting any
increase in pay, denying promotion etc. This gives emergence to the concept of
Performance Related Pay (PRP).
I. Performance related pay is not an easy option. Before embarking on its
introduction the following factors should be taken into account.
1. Matching the Culture:
Successful PRP schemes need to match the culture and core values of
the organization. It is only by understanding and working with the culture
that it is possible to develop schemes.
2. Linking PRP to the Performance Management process:
The focus when relating pay to performance needs to be one of the issues
which emerge from the business planning process such as profitability,
productivity, cost control, research initiatives, product and market
development and generally increasing stakeholder value.
3. Balancing performance measures:
The performance measures used as a basis for rating must include a
balanced mix of both input factors (skills and competences) and output
factors (performance and contribution). The assessment upon which pay
decisions are made should be based not only on performance in achieving
objectives, contribution to organizational success and the levels of skill
and competence achieved, but also on the degree to which the behavior
of individuals support corporate values in such areas as teamwork, total
quality management, customer services, innovation, etc.
4. Flexibility:
PRP arrangements should allow for some flexibility in the criteria for
reward and the method of payment.
5. Teamwork:
Poor PRP schemes can produce a lot of single-minded individuals. The
importance of teamwork should be recognized in structuring the scheme
and in defining critical success factors and performance indicators.
Individuals should be aware that achieving their targets at the expense of
others is not considered competent performance.
6. Avoiding Short-termism:
To avoid the danger of PRP focusing attention on short-term results at the
expense of more important longer-term objectives, long-term as well as
short-term goals should be set wherever appropriate and short-term
objectives should be discussed in their overall context.
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17. 7. Involvement in the design process:
The design of PRP schemes is usually an iterative process- trying and
testing ideas on measures and structure with those who will eventually be
involved in the scheme. It is also a valuable learning process, which can
throw up fundamental strategic and business issues. Those due to
participate in the scheme should have an input into agreeing critical
success factors and performance indicators both for themselves and the
organization.
8. Getting the message across:
PRP provides a very powerful form of communication. To get the right
messages across, the following question will have to be dealt with:
a. Assess reasons for PRP
• Why do we want to introduce PRP?
• What, realistically, do we expect to get out of it?
b. Assess readiness for PRP
• Is PRP right for our culture?
• Do we have the Performance Management and other processes
in place required for successful PRP?
• Are the attitudes of management and other employees in favour
of PRP? (An attitude survey can be conducted to establish
opinions).
• Do the people concerned with managing PRP have the required
skills and resources?
• Is PRP likely to make a significant enough impact on performance
to justify the costs of developing, introducing and operating the
scheme?
c. Decide whether or not to introduce PRP
• Does the result of the above assessment indicate that PRP is
right for the organization?
• If no, what are the alternatives? There are many: Consider
performance-related team pay, organization-wide profit sharing or
profit-related pay plans, gain sharing, the use of incentive or bonus
schemes, concentrating more on the motivational aspects of
Performance Management, job re-design to increase motivation,
performance-related training more intensive management coaching and
training to improve leadership abilities, process re-engineering to
improve organizational performance and productivity.
d. Brief, consult and involve employees
• How should employees be informed of the organization’s
objectives and intentions concerning the introduction of PRP?
• How do we minimize concerns about PRP through this briefing
process?
• To what extent and how should we consult and involve
employees?
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18. e. Design scheme
• What criteria should be used for determining PRP awards? It can
be an appropriate mix of:
− Input criteria related to the skills and knowledge brought to
bear on fulfilling role responsibilities
− Process criteria related to the behavioral competencies used
successfully in achieving results
− Output performance indicators related to the achievement of
objectives and meeting performance requirements as set out
in statements of principal accountabilities or main tasks
− Outcome contribution indicators which measure how outputs
contribute to the achievement of team, departmental and
organizational objectives and how the behavior of individuals
support corporate values
• To what extent will it be possible to define the criteria in the key
jobs for which PRP will operate?
• Are performance measures available for these criteria, which will
enable fair and consistent assessment to be made?
• What form of rating system should be used?
• How are we going to ensure that ratings are fair and consistent?
• What are our policies be on the size of payments in relation to
performance, contribution, skill and competence?
• What should our policies to be on the rate of progression and any
limits to progression within pay ranges?
• Does the organization want to make provision for performance-
related lump sum bonuses for special achievement or sustained
high-level performance at the top of a range?
• Should PRP reviews be separated in time from performance
reviews conducted as part of the Performance Management
process?
• What rating, pay increase and budget guidelines are going to be
issued to managers implementing PRP in their departments?
• Should performance matrices be used? If so, how should they be
constructed?
• How PRP will be monitored and its effectiveness be evaluated?
• How the cost of PRP would be controlled?
• What is the program for developing and introducing PRP?
f. Brief and train
• How the organization is going to brief and train line managers on
the PRP scheme?
• How the organization is going to brief employees in general on
PRP so that they understand how it will operate and how they will
benefit?
18

19. g. Implement
• How the process should be started? Even after due care some
unforeseeable problem will arise. It is often advisable to start with
a pilot scheme, probably at management level so that they
understand the principles, benefits and problem before applying
PRP to the people for whom they are responsible.
• How to monitor the introductory stages? It is essential to keep
closely in touch with how things are going so that problems can
be anticipated or dealt with swiftly when they arise.
h. Evaluate
• Have clear objectives been established for the scheme the
progress towards which can be measured and evaluated?
• How to carry out a continuing monitoring and evaluation process?
• Who is responsible for evaluation and taking any corrective action
that may be required?
• What points should be covered?
9. Evaluating Performance Related Pay
It is essential to evaluate the acceptability and cost effectiveness of PRP.
The following questions should be answered:
• To what extent have the defined objectives of PRP been achieved?
• How much have been paid out under the scheme?
• What differentials have emerged between high/average performers
over, say, 2-3 years?
• What measurable benefits has PRP produced in the shape of
improved organizational, team and individual performance?
• How do managers regard PRP? Do they, for example, believe that it is
operating fairly?
• To what extent have rewards been linked to key and measurable areas
of performance? Are rewards meeting people’s expectations?
• Do Performance Management processes provide adequate support for
PRP?
• Do the organization want to retain PRP in its present form? If not, what
are the alternatives?
10. Performance Related Pay (PRP) in practice
There is no doubt the system of PRP must be made to fit the culture of the
organization. This either means that the existing culture can be receptive
to the competitive and individual elements of PRP or the culture has to be
changed. PRP can be used as part of the change process but, on its own,
it is unlikely to be powerful enough to prove successful.
19

20. 11. Performance Related Pay (PRP) – a judgment?
Does Performance Related Pay work? Most experience in the United
States is that greater use of performance pay results in improved
organizational performance as measured by return on capital employed,
particularly when applied to managerial pay. In the United Kingdom, the
few studies have been largely negative or inconclusive.
Finally, all research has confirmed that employees regard positively the
concept of PRP but deny quite strongly that it acts as a motivator for them
in practice, and are mostly critical of the resulting procedural and
distributive justice. It can be concluded that employees may work harder,
in a more focused way and get better results through a PRP system which
is under printed by a robust performance management scheme but
employees may do this through a mixture of necessity and fear, rather
than a genuine desire to do so.
Employees need to be developed for superior performance. PRP helps in
identifying the development areas for an employee and where he needs to
be counseled. The concept of counseling is discussed hereafter.
20

21. THE COUNSELING PROCESS
Counseling is an act of providing professional guidance. It involves the long-term
development and realization of the potential of an employee through the technique of
advising. Performance management counseling is a valuable tool for superiors to
use, particularly when subordinates show substandard performance.
I. The main objectives of counseling are:
• helping appraisee to realize his potential
• helping appraisee to understand himself i.e. his strengths and weaknesses
• providing appraisee an insight into his behavior.
• helping appraisee to have better understanding of the environment
• identifying performance problems or obstacles
• encouraging appraisee to generate alternatives for dealing with various
problems
II. The counseling process consists of three stages:
• Recognition and Understanding : Recognizing and understanding the
Indications of problems and issues.
• Empowering : Enabling the employee to recognize his
own problem or situation and
encouraging him to express it.
• Resourcing : Managing the problems, this will include
the decision on who is best able to act
as counselor – the manager or a
specialist.
III. Approaches to Counseling:
The following are different approaches to counseling:
1. The Tell and Sell Approach:
• Appraiser lets appraisee know how he/she is doing.
• Gets appraisee’s acceptance of the evaluation.
• Gets appraisee follow a plan outlined for improvement.
2. The Tell and Listen Approach:
• Appraiser lets appraisee know his performance.
• Appraiser allows the appraisee to respond.
• Appraisee is allowed to think and decide what needs to be done.
3. The Problem Solving Approach:
• Appraiser encourages appraisee to identify problem areas.
• Appraisee discusses with appraiser in deciding what should be done
about the problems.
• Steps are taken to solve problems.
21

22. Of the three approaches discussed above, the problem solving approach is the
best approach. The below comparison justifies how:
The Tell and Sell The Tell and The Problem Solving Approach
Approach Listen Approach
Requires Requires skills on Encourages appraisee to review his
considerable skill to
the part of own performance and identify
get people to accept
appraiser in problem areas thus motivating
criticism listening appraisee
Is more of a one- Better than the Appraiser does not impose his
way communication `tell and sell decision but discusses problems
process, indicating
approach’ since it with appraisee
authoritarianism involves
appraisee
Such approach may Appraiser does This also requires skills but is the
not motivate the not play a very most effective method of counseling
appraisee or even active role where both appraiser and appraisee
may turn counter- enjoy confidence of each other and
productive work together in the direction of
finding out solutions.
IV. Counseling is an art and requires skills, which are difficult to acquire in the
normal course of work. It is, therefore, suggested that appraisers should be
provided with special training by experts in counseling skills.
Counseling skills required by a good appraiser are:
• Problem identification : recognizing that the problem exists.
• Probing : probing by open-ended, non-directing
questions to make the appraisee more
comfortable.
• Listening : ability to listen attentively by probing,
evaluating, interpreting and supporting.
• Sensitivity : sensitivity to individual beliefs and values.
• Reflecting : being able to restate the problem from
appraisee’s point of view.
• Empathy : having regard for feelings and anxieties of the
individual.
• Impartiality : ability to remain impartial.
• Sincerity : having a genuine attitude of interest and
openness to the individual’s problems.
• Belief : having the belief that individuals have the
resources to solve their own problem, with
some help and guidance.
22

23. V. Follow-up of completed appraisal:
Post appraisal is very crucial for helping employee and the immediate superior
i.e. appraiser playing the role of a Facilitator and Developer.
• Enough time (say one week) should be given for the appraisee as well as
appraiser to prepare for Post-Appraisal discussion.
• This discussion should be devoted uninterrupted and sufficient time, say an
hour or so.
• Appraisee should be put at ease and allowed to first speak on his
performance.
• The appraiser should listen attentively without interruption with patience.
• Appraiser should be supportive and objective on performance evaluation of
the employee.
• Appraiser should discuss the training and development needs with the
appraisee.
• Finally, the meeting should conclude wherein the appraisee leaves with a
feeling of empowerment.
The subsequent chapter gives guidelines on Designing an Appraisal Process.
23

24. Chapter 8
DESIGNING AN APPRAISAL PROCESS
Before understanding the process of appraisal, the following terms are revised:
▪ Performance refers to an employee’s accomplishment of assigned tasks.
▪ Performance Appraisal is the systematic description of the job-relevant
strengths and weaknesses of an individual or a group.
▪ Appraisal period is the length of time during which an employee’s job
performance is observed in order to make a formal report of it.
▪ Performance Management is the total process of observing an employee’s
performance in relation to job requirements over a period of time (i.e. clarifying
expectations, setting goals, providing on-the-job coaching, storing and recalling
information about performance) and then making an appraisal of it. Information
gained from the process may be fed back via an appraisal interview to determine
the relevance of individual and work-group performance to organizational
purposes, improve the effectiveness of unit and improve work performance of
employees.
Designing an appraisal program poses several questions, which need answers.
They are:
1. Whose performance is to be assessed?
2. Who are the appraisers?
3. What should be evaluated?
4. When to appraise?
5. What problems are encountered?
6. How to solve the problems?
7. What methods of appraisal are to be used?
1. Whose performance should be assessed?
The answer is obvious – employees. When we say employees, it is individual
or teams? Specifically, the appraisee may be defined as the individual, work
group, division or organization.
2. Who are the appraisers?
Appraisers can be immediate superiors, specialists from the human resource
department, subordinates, peers, committees, clients, self-appraisals or a
combination thereof.
24

25. 3. What should be evaluated?
One of the steps in designing an appraisal program is to determine the
evaluation criteria. It is obvious that the criteria should be related to the job.
The criteria for assessing performance can be:
a. Quality & Quantity
b. Timeliness
c. Cost Effectiveness
d. Need for supervision
e. Interpersonal impact
f. Innovation & Creativity
g. Problem Analysis
h. Customer orientation
i. Market Orientation
j. Entrepreneurial Drive
k. Negotiation skills etc.
This is not an exhaustive list, but several other parameters too can be added
depending on job requirements and organizational needs.
4. When to appraise/rate?
The most frequent rating schedules are semi-annual and annual. New
employees are rated more frequently than older ones. Some practices call for
ratings:
∙ Annually as per company practice
∙ After first 6 months of employment
∙ Upon promotion or within 3 months after promotion
∙ When the job occupied has been reevaluated upward
∙ Upon special request, as when the employee’s salary is below the average
pay
5. What are the problems related to Performance Appraisal?
An ideal Performance Appraisal is done when the evaluation is free from biases
and idiosyncrasies of the evaluator. There are many factors of appraisal that
lead to failure of the system:
a. Negative attitude towards Performance Appraisal:
There is a large population of managers who are hostile or indifferent to
the Performance Appraisal processes and/or do it badly if they do it at all.
i. Hostility from the appraiser:
The appraiser reacts indifferently to the appraising system because
he believes that it is a waste of time. At times they feel that the
scheme has nothing to do with their own needs and it exists to feed
the personnel database.
25

26. ii. Hostility from the appraisee:
Hostility from the people at the receiving end arises because they
feel Performance Appraisal is simply another method in the hands of
the managers to exercise their command and control prerogatives.
They feel that the data collected will be utilized as evidence against
them. In some cases appraisees even have a feeling that the
outcome of the performance evaluation is predetermined by the
management or their superiors and the process is completed only as
a formality, due to which appraisees lack interest in the entire
appraisal process.
b. Halo Error:
Under this type of error, one marked characteristic or latest achievement
or failure of the appraisee (either favourable or unfavourable) may be
allowed to dominate the appraisal for the entire year.
c. Logical Error:
This is a dangerous pitfall for the inexperienced appraiser. He is very
often inclined to arrive at similar assessments in respect of qualities that
seem logically related.
d. Constant Error:
When two appraisers rate an appraisee their ratings may be different.
One may show consistent leniency by giving him high scores, the other my
consistently rate him by giving low scores.
e. Central Tendency:
It is also called as “Average Ratings”. Here, the appraiser tends to avoid
giving frank views to the question asked or the appraiser is in doubt or he
has inadequate information or he simply wants to play safe and don’t
displease anyone.
f. Mirror-Image Error or Projection Error:
This error arises when an appraiser expects his own qualities, skills, and
values in an appraisee. The appraiser may falsely believe that if the
appraisee is good he has to be like him (appraiser) because the appraiser
considers himself as the standard.
g. Contrast Error:
This error occurs in the sequencing of ratings. If superior performers are
rated first, average performers are rated down, if poorer performers come
first, the average performers will be rated more highly.
h. Biases of position, Sex, Race, Religion & Nationality:
There is a tendency to rate the occupant at a higher position more
favorably than the person in a lower position. Similarly rating can be
biased based on sex, religion and nationality too.
i. Lack of Skill in conducting Appraisal discussion:
Conducting Performance Appraisal discussions require certain skills and
training.
26

27. 6. How to solve the appraiser’s problems?
The best way to overcome the problem is to give training to the appraiser.
Training can help improve the appraisal system to the extent that distortion
occurring due to appraiser errors such as halo, leniency, central tendency and
bias are minimized.
a. Factors that help to improve accuracy:
• The appraiser has observed and is familiar with behaviors to be
appraised.
• The appraiser has documented behaviors calling for improvement.
• The appraiser has a checklist to obtain the review on job-related
information.
• The appraiser is aware of personal biases and is willing to take action
to minimize their effects.
• Rating scores by appraisers of one group or organization are
summarized and compared with those by other appraisers.
• The appraiser focuses attention on performance related behaviors over
which he has better control than on other aspects of evaluation.
• Higher levels of management are held accountable for reviewing all
ratings.
b. Factors that may lower accuracy:
• The appraiser rates only when administrative actions are
contemplated.
• The appraiser is unable to express herself/himself honestly and
unambiguously.
• Appraisal systems, processes and instruments fail to support the
appraiser
• The appraiser is unaware of causes of rating errors.
• The appraiser has to rate employees on factors that are poorly defined.
7. Techniques/methods of appraisal to be used?
There are different types of systems for measuring the excellence of an
employee. Each type has its own advantages and disadvantages. The earlier
developed methods, still being used, are Traditional Methods that are non-
transparent in nature. While other newer methods are transparent in nature.
Each of the method has it’s own format of appraisal form.
The various techniques and processes have been explained in the
forthcoming chapters.
27

28. Chapter 9
TRADITIONAL METHODS OF APPRAISAL
As explained in Chapter 1 Performance Appraisal is an exercise of observation and
judgment, a feedback process, and an organizational intervention. It is a
measurement process as well as an intensely emotional process. Above all, it is an
inexact, human process. While it is fairly easy to prescribe how the process should
work, descriptions of how it actually works in practice are rather discouraging.
Some of the traditional methods of appraisal are explained below:
1. Ranking
In this, the superior ranks his/her subordinates in order of their merit, from best
to worst.
- It is done in a competitive group.
- It is done by placing the appraisee on numerical scales i.e. 1 st, 2nd, 3rd etc. in
the total group.
- Ranking of an appraisee on his job performance/traits against that of
another member.
2. Person-to-Person/Paired Comparison
Under this method the appraiser compares each employee with every other
employee, one at a time.
- Certain key performance areas/traits are developed. E.g.: Leadership,
Creativity, Initiative etc.
- A scale for each factor is designed.
- A scale of people is also created for each factor.
- Each Appraisee is compared to every other person on the scale.
- Certain scores for each factor are awarded to the appraisee.
3. Grading
- Certain categories of traits/performance criteria, which are worth of
appraising, are established. E.g. cooperativeness, self-expression,
dependability, job knowledge etc.
- The actual performance (Key performance area) of an employee is then
compared to the predetermined grade definitions.
- Appraisee is allotted with the grade, which describes his performance in the
best possible manner.
- Any grade that is selected should be well defined.
28

29. 4. Graphic Scales
- A printed form, one for each person to be rated is used.
- The factors included in the form are Employee characteristics such as
leadership, cooperativeness, enthusiasm, loyalty etc. or Employee
contribution which includes quantity and quality of work, specific goals
achieved, regularity of attendance, responsibility assumed etc.
- The traits can be evaluated on continuous scale – the appraiser places a
mark along a continuum (range).
- The best method to use is the “multiple” type of scale wherein one has to
“tick off” the box, which suits the description of an appraisee’s performance.
- Certain types of graphs are prepared based on these derived ratings.
5. Checklist
- A series of questions are presented concerning an appraisee’s behavior.
- The appraiser has to reply to the questions in either negative or positive
tone- (Yes/No).
- The value of each question may be weighted i.e. one can have
predetermined scale and scoring to those questions.
6. Essay
- A blank form is given to the appraiser.
- The form contains main heading such as employees’ characteristics,
attitudes, job knowledge, potential etc.
- The appraiser is asked to put in words his impressions about the employee.
- It contains factual and concrete knowledge.
- It gives specific information about the employee.
7. Confidential Reporting
- It is the most traditional way of appraising employee’s performance. The
basic assumption here is that since the superior is in direct contact he
knows his subordinates better than any other and hence his appraisal would
be more appropriate.
- The superior writes a paragraph or so about his subordinate’s strengths,
weaknesses, intelligence, attitude to work, attendance, conduct and
character, work efficiency, etc.
8. Critical Incident Method
- Initially a set of noteworthy (good or bad) on-the-job behaviours is prepared.
This is usually in the form of incidents.
- These incidents are given to a group of experts who assign scale values
depending upon the degree of desirability for the job.
- This checklist is used by superiors for evaluating the employees.
- This method helps in identifying the key areas where the employees are
weak or strong.
- It emphasizes rating on objective evidence and helps in counseling.
29

30. 9. Forced Choice Technique
- In forced choice system the appraiser is forced to choose one from among a
group of 4 statements that best fits the individual being rated and one which
least fits him.
- Each statement is given a value or a score.
- The evaluator does not know the score value of statements; hence he
cannot show any favor towards the appraisee.
- The method of arranging the traits involves a long process from getting the
description of “good” or “bad” employees to establishing their validity and
reliability.
10. Behaviourally Anchored Rating Scales (BARS)
- Behaviourally Anchored Rating Scales (BARS) are anchored with
descriptive alternative behaviors.
- For every given category of behavior or performance, statements are
ordered in an ascending or descending order of excellence.
- Although these scales represent job-relevant dimensions of performance,
they still pose problems in determining which actually, observed
behaviours match with specifically anchored performance scales.
- Despite this difficulty, BARS are a significant improvement, since they
require less inference on the appraiser’s part as against traditional rating
approaches.
The above methods are non-transparent in nature, as the appraisee or the employee
is not involved in the process of his appraisal. The rating is done entirely by his
superiors.
The other methods wherein employee is appraised not only by his superiors
but also by the appraisee himself, and in some cases with involvement of third
parties are newer methods and detailed in Chapters 10 and 11.
30

31. Chapter 10
RELATIVELY TRANSPARENT METHODS OF APPRAISAL
As time has progressed, there have been advancements in the appraisal system. As
against the earlier traditional methods, the newer methods include self-appraisal by
the appraisee. After having discussed the appraisal with the appraisee, the appraiser
forwards his recommendation to the management for further decision on reward
giving.
Some of the relatively transparent methods have been detailed below:
I. Appraisal Discussion – Dialogue Method of Appraisal
1. An appraiser and appraisee get together to engage in a dialogue about the
appraisee’s performance and development. It is like a meeting in which
views are exchanged so that an agreed conclusion can be reached. The
formal appraisal meeting is referred as discussion because there is a free-
flowing affair in which both parties are fully involved.
2. The appraisal discussion provides the means through which the five key
elements of Performance Appraisal can be achieved. These are:
a. Measurement: It assesses results against agreed targets and
standards.
b. Feedback: It gives the appraisee information on how he or she has
been doing.
c. Positive reinforcement: It emphasizes what has been done so that it
will be done even better in the future. A constructive criticism is done
i.e. points that help in improving performance are given.
d. Exchange of views: It ensures that the discussion involves a full, free
and frank exchange of views about what has been achieved, what
needs to be done to achieve more, what appraisees think about their
work, the way they are guided and managed and their aspirations.
e. Agreement: Both parties jointly arrive at an understanding about what
has to be done in order to improve performance and overcome any
work problems raised during the discussion.
3. Opening the Discussion
During the discussion the appraiser should build up good trust level with
the appraisee and should take following steps to open a discussion:
a. He should start by reminding the appraisee of the purpose of the
discussion, stressing that this is not to dwell unduly on the past but to
look to the future.
b. The appraisee should be made aware of the time set aside for the
discussion to demonstrate that he is not going to rush through it.
31

32. c. Continue by explaining that the aim is to come to an agreement on
what has been achieved since the last meeting and what is to be
achieved in the future.
d. This should be followed by a brief exchange in which each party
itemizes the key points they want to discuss – setting the agenda.
e. The discussion can then begin, probably with an invitation from the
appraiser to the appraisee to talk generally about the progress he or
she has been making during the year with reference to notes made
prior to the meeting or a completed preparation form.
4. General Guidelines
There are a number of general guidelines on how the appraisal discussion
may be conducted. Each of them should be applied according to the
circumstances in which the discussion is taking place and the
personalities of those involved – there is no one right way to conduct an
appraisal discussion.
a. Let the appraisee do most of the talking.
b. Encourage self-appraisal
c. Keep the whole period under review
d. No surprises i.e. discuss issues at the time they take place.
e. Recognize achievements and reinforce strengths
f. Criticize constructively
g. Adopt a joint problem-solving approach
h. Asking the right questions
5. There are four basic types of questions:
a. Open Questions: Open questions help to create an atmosphere of
calm and friendly inquiry. It can be expressed quite informally, and can
be put in a ‘tell me’ form. E.g.: How do you think things have been
going?
b. Probing Questions: Probing questions ask for specific information on
what has happened and why it has happened. They examine closely
the steps that need to be taken to put things right, do better in the
future and avoid repeating a mistake.
c. Closed Questions: When there is a need to obtain or confirm specific
factual data, a closed question, which severely restricts the reply to
supplying the information, is asked. E.g. How many times has this
happened?
d. Leading Questions: Leading questions are those which supply their
own ‘right’ answer, e.g. Do you agree that …….?
32

33. A typical appraisal discussion contains a mix of open, probing and closed
questions. While the conversation should be kept going with open
questions, one needs to identify the real issues with probing questions and
get the facts with closed questions. Leading questions should be avoided.
6. Listen carefully
An appraisal discussion is a dialogue. Both parties are communicating
information and ideas to one another to achieve the purpose of the
meeting.
Good listeners concentrate on the speaker. They respond quickly to
points made by the speaker, ask questions frequently to elucidate
meaning, give the speaker an opportunity to rephrase or underline a point,
comment on the points made by the speaker without interrupting the flow
of conversation.
33

34. II. COMPETENCY BASED APPRAISAL SYSTEM
What is Competency?
Competency is an underlying characteristic of an individual, which is casually
related to effective or superior performance.
Competence based appraisals can be defined as a method of appraising
people wholly or partly by reference to the level of competence they
demonstrate in carrying out their roles.
One of the problems surrounding the concept of competence or competency is
that the term is used to refer to the ability to perform a job or task competently
and also to how people ought to behave in order to carry out a role with
competence.
∙ Competence should be used to refer to areas of work in which the person is
competent.
∙ Competency should be used to refer to the dimensions of behaviour lying
behind competent performance.
1. Competence based appraisal must depend on some method of
measuring competence. To do this, it is useful to distinguish between the
input, process and output aspects of performance and how competence can
be measured under each heading.
a. As an input, competence can be measured by the capacity within people
to do their work well. Capacity refers to what people bring to their work in
the form of knowledge, skills and personal attributes.
b. As a process, competence can be measured in terms of the behaviour
required of people in order to effectively convert inputs into outputs.
c. As an output, competence is measured by the outcomes of the behaviour
of people in making the best use of their knowledge, skills and attributes.
2. Appraisals can be related to competence in two ways:
• as a people-based process which links assessment to the level of
competence attained by individuals; or
• as a job-based process which uses competence headings wholly or
partly to evaluate jobs or roles.
Both levels of competence and levels of performance in achieving
objectives, should be taken into, on the reasonable grounds that they should
be assessed not only for how people perform (competence inputs) but also
for what they achieve (outputs).
34

35. 3. Advantages of competence based Appraisal System
∙ High-performance organizations need high levels of competence and
hence employees should be appraised according to their level of
competence and the contribution they therefore make to the success of
the business.
∙ Performance-linked appraisals help companies in performance
enhancement of employees. Hence competence is important.
∙ Competences add value and predict success and hence attributes that
lead to successful performance should be appraised.
∙ It can provide for the alignment of rewards with core values.
∙ It can support a culture devoted to learning, growth and continuous
development.
∙ It can deliver messages to people about the behaviour expected of them
in such aspects of work as team membership, flexibility, continuous
improvement, customer relations.
∙ It can focus attention on the competences required in knowledge-based
organizations which are selling services or solutions, not products, and
are therefore people rather than task or product oriented.
∙ Competences are geared to sustained performance and are better
predictors of future performance than what people happen to have done
in the past.
∙ It is recognized that it is necessary to assess and reward what people
bring to a role in the shape of their knowledge, skills, attributes and
competences as well as the results they achieve.
35

36. III. POTENTIAL APPRAISAL
Assessment Center Method
Under this method, many evaluators i.e. appraisers join together to judge
employee performance in several situations by using variety of criteria The
most important feature of this method is job-related simulations. These
simulations involve characteristics that managers feel are important for the job
success. The evaluators observe and evaluate participants as they perform
activities commonly found in these higher-level jobs. It involves a paper-and-
pencil test, interviews and exercises.
1. Features:
• The use of situational exercise (such as in-basket exercise, business
game, a role-playing incident and leaderless group discussion);
• Evaluators are drawn from experienced managers with proven ability
at different levels of management;
• They evaluate all employees, both individually and collectively.
• A summary report is prepared by the members, and a feedback on a
face-to-face basis is administered to all the candidates who ask for it.
2. Purpose:
a. It is used to:
• Measure potential for first level supervision, sales and upper
management positions; and also for higher levels of management
for development purposes.
• Determine individual training and development needs of employees.
• Select freshers for entry-level positions.
• Provide more accurate human resource planning information.
• Assist in implementing affirmative action goals.
b. It generally measures interpersonal skills and other aspects such as:
organizing and planning; interpersonal competence (getting along with
others), quality of thinking, resistance to stress, orientation (motivation)
to work, dependence on others and creativity. The ability to organize,
plan and make decisions, as in-basket simulations and scores obtained
on paper and pencil, psychological tests, are important to the overall
assessment score.
The duration of Assessment Center Program varies depending on the
level of appraisee. For example, centers designed for selection of first line
supervisors, sales personnel, and management trainees generally last for
a day or less; while those used for higher-level managers may run for two
or three days or longer if used for developmental and not for selection
purposes.
36

37. 3. Problems:
• The ratings are generally influenced by the participant’s interpersonal
skills; judges tend to evaluate the quality of the individual’s social skills
rather than quality of the decisions themselves. Further, the organizing
and decision-making abilities are measured by in-basket exercises,
verbal ability and personal traits.
• Solid performers in day-to-day operations suddenly choke in simulated
environment.
• Unreasonably high cost of assessing an individual in a particular job
level.
• There are potential bad effects on those not selected to participate in
the exercise.
• Usually immediate supervisors nominate participants. Employees who
are curious, independent, aggressive and intelligent may never be
selected because such traits, though important at higher levels, are not
accepted by lower level supervisors.
• Poorly rated appraisee may react in negative ways and might get
demoralized.
To make Assessment Center Program successful, strong emphasis must be
placed on clear statement of goals, obtaining commitment of top management,
job analysis, appraiser training, program audit and evaluation.
37

38. IV. PERFORMANCE AND DEVELOPMENT PLANNING
Performance and Development Planning (PDP):
PDP is a process for managers that aligns individual performance with
company goals and ensures focus on the development of talent company-wide.
PDP is an important step in their corporate effort to engage and enable
employees to deliver their contribution to their business. Also, PDP serves to
enable employees to identify and realize personal opportunities for
development that are aligned to current and future business challenges.
PDP process enables each employee to understand his true value-added
to the organization.
1. Steps for successful implementation of PDP:
• Schedule the PDP meeting and define pre-work with the appraisee.
• The appraisee does self-appraisal, writes business and personal
developmental goals on the PDP form and gathers needed
documentation, including 360º feedback results, when available.
• The appraiser prepares for the PDP meeting by clearly defining the
most important outcomes needed from the appraisee’s job within the
framework of the organization's strategic plan.
• The appraiser writes business and personal developmental goals on
the PDP form in preparation for the discussion.
• The appraiser gathers data including work records and reports and
input from others familiar with the apprasiee’s work.
• Both the appraiser and the appraisee examine how the appraisee is
performing against all criteria, and think about areas for potential
development.
• The appraiser develops a plan for the PDP meeting that includes
answers to all questions about the PDP process with examples,
documentation, and so on.
• Recognize that this process takes place quarterly and that the most
time and work are invested in the first PDP meeting.
• The rest of the quarterly PDP goals, maybe for years, are updates to
the initial goals.
• So, while seemingly time consuming on the front end, the PDP
process, with a formal, effective foundation of solid personal and
business goals, is less time consuming as quarters pass. The PDP
continues to create business and employee success and value during
its lifetime. With quarterly updates, the PDP process contributes into
the future.
2. PDP Process:
The PDP process has been explained with the help of a chart as
Annexure I. A sample format of PDP form is attached as Annexure II and
the PDP form overview is explained in brief as Annexure II (a). All these
Annexures have been included at the end of the report.
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39. As part of a relatively transparent method of appraisal, a sample form designed and
used by a reputed pharmaceutical company for appraising it’s employees at junior
management level is shown as Annexure III at the end of this report.
The latest trend of appraising the performance of an employee involves two or more
of any of the above detailed techniques including traditional methods.
The subsequent chapter details the new frontiers to performance appraisal.
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40. Chapter 11
NEW FRONTIERS TO PERFORMANCE APPRAISAL
In recent years the system of performance appraisal is becoming more and more
transparent wherein the employee, who is being appraised, is involved in the
process. The objectives or targets are set with mutual understanding between the
appraisee and his immediate superior. The feedback regarding his performance is
given to the appraisee with areas of improvement by disclosing his strengths and
weakness and the opportunities available. I will take you into details of these new
frontiers to Performance Appraisal viz:
I. Management by Objectives (MBO)
II. Balanced Scorecard
III. 360º Feedback
I. MANAGEMENT BY OBJECTIVES
1. Management by Objectives is basically a process whereby the superior and
the subordinate managers of an enterprise jointly identify its common goals,
define each individual’s 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. Management by
Objectives is primarily to change the behaviour and attitude towards getting
an activity or assignment completed in a manner that it is beneficial for the
organization. Management by objectives is a result-oriented process,
wherein emphasis is on results and goals rather than a prescribed method.
A number of companies have had significant success in broadening
individual responsibility and involvement in work planning at the lowest
organizational levels.
2. The concept rests on a philosophy of management that emphasizes
integration between external control (by managers) and self-control (by
subordinates). It can apply to any manager or individual no matter what
level or function, and to any organization, regardless of size.
For instance, the number of quality articles to be churned out in a week at
a publishing house is, let’s say, five. This is the goal of the organization.
This goal has to be set in coordination with the writers. The emphasis
here again would be on accomplishing this task flawlessly over the week
rather than the setting of a method to accomplish the same. You are
giving them a free hand to decide as to how they want to work in order to
accomplish target. This gives the employee both responsibility as well as
authority to do a job. The employees are now responsible for its success
or failure and it is their baby. It is a VERY SMART MANAGEMENT TOOL
where the employee is involved in the decision making process.
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41. 3. Management by Objectives is a five-sutra process having following basic
steps:
i. Set Organizational Goals:
This envisages that organizational goals and business strategies are
expressed clearly, concisely and accurately. They are periodically
reviewed. They should be challenging enough to motivate the
employee. Clear and attainable goals help channel energies towards
desired behaviour and let the employee know the basis on which he
will be rewarded. At this time, any appropriate changes in the
organization structure should be made: changes in titles, duties,
relationships, authority, responsibility, span of control and so forth.
ii. Joint Goal Setting:
This step establishes short-term goals, which are performance
oriented, between the management and the employee. The
responsibilities are clarified to the employees through organizational
charts and job description. The goals decided by the employee need to
complement the goals of the management. They also need to be
flexible to accommodate new ideas without losing individual
responsibilities. Moreover they should be easily quantifiable. For
example:
 To prepare, process and transfer to the office superintended, all
account payable vouchers within three working days from the
receipt of the voucher.
 To hold weekly meetings with all employees.
 To use program evaluation and review technique (pert) for all new
plant layouts.
iii. Performance Reviews:
This step suggests frequent performance reviews between the
manager and the employees. During the initial stages the meetings be
held once a month and later could be quarterly. For maximum benefit
these meetings should be scheduled for more than once a year.
iv. Set check posts:
Establishment of major check posts to measure progress. This is
merely to check that the employee surges towards his premeditated
(planned) goal without any disruptions. These check levels should be
higher in the initial stages and then gradually reduce. This demands
that the manager should be on constant alert and exercise sound
judgment.
v. Feedback:
The employees who receive frequent feedback about their performance
are highly motivated than those who do not. However, one has to
ensure that the feedback is relevant and specific. This helps the
employee and the manager understand where they stand.
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42. The five-sutra process of management by objectives ensures that the
manager and the employee define and establish goals and objectives for
an employee to be achieved within a prescribed period of time. The
employee is to be supervised and evaluated, periodically. To this extent,
a frequent feedback and superior-employee interaction model must be
evolved.
4. Throughout the time period what is to be accomplished by the entire
organization should be compared with what is being accomplished;
necessary adjustments should be made and inappropriate goals discarded.
At the end of the time period a final mutual review of objectives and
performance takes place. If there is discrepancies between the two, efforts
are initiated to determine what steps can be taken to overcome these
problems. This sets the stage for the determination of objectives for the
next period.
5. Benefits of MBO Program
a. Helps and increases employee motivation because it relates overall
goals to the individual’s goals; and help to increase an employee’s
understanding of where the organization is and where it is heading.
b. Managers are more likely to compete within themselves than with
other managers. This kind of evaluation can reduce internal conflicts
that often arise when managers compete with each other to obtain
scarce resources.
c. Results in a “means-ends” chain. Management at succeedingly
lower levels in the organization establishes targets, which are
integrated with those at the next higher level. Thus, it can help ensure
that everyone’s activity is ultimately aimed toward organization’s goals.
d. Reduces role conflict and ambiguity. Role conflict exists when a
person is faced with conflicting demands from two or more supervisors;
and role ambiguity exists when a person is uncertain as to how he will
be evaluated, or what he has to achieve. Since MBO aims at providing
clear targets and their order or priority, it reduces both these situations.
e. Provides more objective appraisal criteria. The targets that emerge
from the ` process provide a sound set of criteria for evaluating the
manager’s performance.
f. Forces and aids in planning. By forcing top management to
establish a strategy and goals for the entire organization, and by
requiring other managers to set their targets and plan how to reach
them.
g. Identifies problems better and early. Frequent performance review
sessions make this possible.
h. Identifies performance deficiencies. It enables the management
and employees to set individualized self-improvement goals and thus
proves effective in training and development of people.
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43. i. Helps the individual manager to develop personal leadership,
especially the skills of listening, planning, counseling, motivating
and evaluating. This approach to managing instills a personal
commitment to respond positively the organization’s major concerns as
well as to the development of human assets. Such a manager has a far
greater chance to move ahead within the management hierarchy.
A blank format of “Management by Objectives Appraisal form” is reproduced as
Annexure IV at the end of this report.
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44. II. 360° FEEDBACK
With the movement in the eighties to find new strengths and productivity
through employee empowerment came the idea of performance appraisals from
subordinates, their superiors, their peers and themselves – “360º feedback.”
1. The 360º Feedback process is called multi-source assessment, taps the
collective wisdom of those who work most closely with the employee,
superiors, colleagues (peers), direct reports and possibly internal and often
external customers. The collective intelligence these people provide on
critical competencies or specific behaviours and skills gives the employee a
clear understanding of personal strengths and areas ripe for development.
Employees also view this performance information from multiple
perspectives as fair, accurate, credible, and motivating. Employees are
often more strongly motivated to change their work behaviours to attain the
esteem of their coworkers than to win the respect of their supervisor alone.
2. As the 360º Feedback process better serves the needs of employees, it
serves the changing needs of their organizations too. Organizations are
reducing hierarchy by removing layers of management and putting more
emphasis on empowerment, teamwork, continuous learning, individual
development, and self-responsibility. The 360º Feedback Model aligns with
these organizational goals to create opportunities for personal and career
development and for aligning individual performance expectations with
corporate values.
3. Diagram showing the key stakeholders in a 360º Feedback Process
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45. 4. Benefits to Key Stakeholders
The 360º Feedback process offers extensive and diverse benefits to key
stakeholders in the organization – and the organization too:
a. Customers: The process gives customers a chance to strengthen the
customer-supplier relationship. The 360º Feedback captures the
relevant and motivating information from internal and external customers
while giving them a voice in the assessment process.
b. Employees: By participating in a process that has tremendous impact on
their careers, employees may help select what evaluation criteria will be
used to judge their performance and who will provide feedback.
Participation plays a critical role for employees as they determine the
fairness of the process.
c. Team members: The only option for identifying team and individual
members’ effectiveness is 360º Feedback. Failing feedback from
multiple sources, team members lack the information necessary for
effective individual development and teamwork. With no team
evaluation, accountability may evaporate, and performance may falter
(weaken).
d. Supervisors: This process expands supervisors’ insight regarding the
performance of each direct report by providing them more
comprehensive and detailed performance information than they usually
have access to. Also, the process typically reduces by half, or more, the
supervisor’s time spent on evaluating individual employees.
e. Leaders and Managers: The process provides leaders and managers
an opportunity to tap information from the organization that may
otherwise not be shared with them for fear of reprisal.
f. Organizations: Organizations can gain access to credible, quantitative
information to understand organizational strengths and weaknesses,
leadership gaps, and training needs more fully. This information is much
more useful than relying on intuitive judgment or responding to those
who are making the most noise.
5. Why are Organizations adopting these systems?
Structure and cultural factors and employee’s relations have motivated
organizations to begin experimenting with 360º Feedback systems. For
example, as organizations remove layers of management, flatten their
structure, and begin using self-directed teams, the only practical option for
performance feedback is from multiple sources. As organizations change
their culture to align with their vision and values, 360º Feedback becomes an
ideal choice to communicate the new competencies required by the new
values.
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