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Management Human Resource Management

Performance Appraisal: Methods

Items Description of Module

Subject Name Management

Paper Name Human Resource Management

Module Title Performance Appraisal: Methods

Module Id Module No.20

Pre- Requisites Knowledge of human resource management

Objectives To have a knowledge of various methods of performance appraisal

Keywords Performance Rating, Employee feedback, Rater, Ratee, Appraise, Goal setting

Principal Investigator

Co-Principal Investigator

Paper Coordinator

Content Writer

Prof. S P Bansal Vice Chancellor

Maharaja Agrasen University, Baddi

Prof YoginderVerma

Pro–Vice Chancellor

Central University of Himachal Pradesh. Kangra. H.P.

Prof. Dr. Rajeev Jain

Department of Commerce and Management Studies

University of Kota, Kota

Mrs.Garima Jain

Department of Commerce and Management Studies

University of Kota, Kota

Paper: 01

Human Resource Management

Module: 20

Performance Appraisal: Methods

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Management Human Resource Management

Performance Appraisal: Methods

QUADRANT-I

Module 20: Performance Appraisal: Methods

1. Learning Outcome

2. Introduction

3. Methods of Performance appraisal

4. Drawbacks of appraisal methods

5. Summary

1. Learning Outcome

After completing this module the students will be able to:

Understand the methods of performance appraisal.

Having the knowledge of the advantages and disadvantages of various performance appraisal

methods.

Reasons of failures of performance appraisal techniques.

2. Introduction

While designing an appraisal program, numerous performance appraisal methods are used. Various

methods have been devised to measure the quantity and quality of employee’s job performance. Each

of the methods could be effective for some purposes for some organizations. The methods have to be

accepted according to the needs of the organisation.

3. Methods of Performance appraisal

Numerous methods have been designed to appraise the performance of an employee. Strauss and

Sayles have classified appraisal methods which are widely used into two categories, viz., traditional

methods and modern methods. While traditional methods lay emphasis on the rating of the

individual’s personality traits, such as initiative, dependability, drive, creativity, integrity,

intelligence, leadership potential, etc.; the modern methods, on the other hand, place more emphasis

on the evaluation of work results i.e. job achievements than the personal traits. Modern methods tend

to be more objective and worthwhile.

Traditional Methods Modern Methods

1. Ranking method 1. Assessment centres

2. Paired comparison method 2. Behaviorally anchored rating scales

3. Grading method 3. Human resource accounting method

4. Forced distribution method 4. 360-degree appraisal

5. Forced choice method 5. Management by Objectives (MBO)

6. Checklist method

7. Critical incidents method

8. Graphic scale method

9. Essay method

10. Field review method

11. Confidential report

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Performance Appraisal: Methods

3.1. Traditional Methods

3.1.1. Ranking Method

It is the oldest and simplest formal systematic method of performance appraisal in which

employee is compared with all others for the purpose of placing order of worth. The employees

are ranked from the highest to the lowest or from the best to the worst.

In doing this the employee who is the highest on the characteristic being measured and also the

one who is lowest, are indicated. Then, the next highest and the next lowest between next

highest and lowest until all the employees to be rated have been ranked. Thus, if there are ten

employees to be appraised, there will be ten ranks from 1 to 10.

However, the greatest limitations of this appraisal method are that:

It does not tell that how much better or worse one is than another.

The task of ranking individuals is difficult when a large number of employees are rated.

It is very difficult to compare one individual with others having varying behavioral traits.

To remedy these defects, the paired comparison method of performance appraisal has been

evolved.

3.1.2. Paired Comparison Method

In this method, each employee is compared with every other employee, one at a time. The

number of times the employee is compared as better with others determines his or her final

ranking.

The number of possible pairs for a given number of employees is ascertained by the following

formula: N (N-1) Where N = the total number of employees to be evaluated.

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Example: If the five teachers (naming K, M, R, V, B) have to be evaluated by the Vice

Chancellor of a University, then above formulae gives 5 (5-1)/2 = 10 pairs which are:

K with M

K with R M with R

K with V M with V M with V

K with B M with B M with B M with B

Thus, the pairs so ascertained give the maximum possible permutations and combinations. The

number of times a worker is considered better makes his/her score. Such scores are determined

for each worker and he/she is ranked according to his/her score. One obvious disadvantage of

this method is that the method can become unmanageable when large numbers of employees

are being compared.

3.1.3. Grading Method

In this method, certain categories of worth are established in advance and carefully defined.

There can be three categories established for employees: outstanding, satisfactory and

unsatisfactory. There can be more than three grades. Employee performance is compared with

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Performance Appraisal: Methods

grade definitions. The employee is, then, allocated to the grade that best describes his or her

performance.

Such type of grading is done in Semester pattern of examinations and in the selection of a

candidate in the public service sector. One of the major drawbacks of this method is that the

rater may rate most of the employees on the higher side of their performance.

3.1.4. Forced Distribution Method

This method was evolved to eliminate the central tendency of rating most of the employees at a

higher end or the lower end of the scale. Employees are placed between two extremes of ‘good’

and ‘bad’ job performances. The method assumes that employees’ performance level confirms

to a normal statistical distribution - 10, 20, 40, 20 and 10%.

10% are placed at the top level and are given outstanding merit, 20% are given good rating,

40% satisfactory (average), 20% fair and 10% unsatisfactory. This is useful for rating a large

number of employees. This method tends to eliminate or reduce bias. It is also highly simple to

understand and easy to apply in appraising the performance of employees in organisations.

Figure 1: Normal distribution pattern of Forced Distribution Method

The major weakness of this method lies in the assumption that employee performance levels

always confirm to a normal distribution.

3.1.5. Forced Choice Method

In this method the rater is given a series of statements about an employee. These statements are

arranged in blocks of two or more, and the rater indicates which statement is most or least

descriptive of the employee.

A pair of positive statements may be:

Gives good and clear instructions to the subordinates.

Can be depended upon to complete any job assigned.

A pair of negative statements may be:

Makes promises beyond his limit to keep these.

Inclines to favour some employees.

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10

20

30

40

Poor Below Average Average Good ExcellentPe

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Performance Rating

Forced Distribution Method

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Management Human Resource Management

Performance Appraisal: Methods

Each statement carries a score or weight, which is not made known to the rater. The human

resource section does rating for all sets of statements— both positive and negative. The final

rating is done on the basis of all sets of statements. Thus, employee rating in this manner makes

the method more objective. In this method, the rater is forced to select statements which are

readymade.

3.1.6. Check-List Method

The basic purpose of utilizing check-list method is to ease the evaluation burden upon the rater.

In this method, a series of statements, i.e., questions with their answers in ‘yes’ or ‘no’ are

prepared by the HR department. The check-list is, then, presented to the rater to tick appropriate

answers relevant to the ratee. These questions are concerned with the employee behavior. Each

question carries a weight-age in relation to their importance.

When the check-list is completed, it is sent to the HR department to prepare the final scores for

all ratees based on all questions. However, one of the disadvantages of the check-list method is

that it is difficult to assemble, analyse and weigh a number of statements about employee

characteristics and contributions. From a cost point of view, this method may be inefficient,

particularly if there are a number of job categories in the organisation because a separate check-

list of questions must be prepared for each category of job. It will involve a lot of money, time

and efforts.

Source: https://www.businesstopia.net/sites/default/files/styles/articles/public/checklist-method.png?itok=XMLILfpC

3.1.7. Critical Incidents Method

This method has gained a lot of interest these days. In this method, the rater focuses his or her

attention on those key or critical behaviors that make the difference between performing a job

in a noteworthy manner (effectively or ineffectively). There are three steps involved in

appraising employees using this method.

First, a list of noteworthy (good or bad) on-the-job behavior of specific incidents is prepared.

Second, a group of experts then assigns weightage or score to these incidents, depending upon

their degree of desirability to perform a job. Third, finally a check-list indicating incidents that

describe workers as “good” or “bad” is constructed. Then, the check-list is given to the rater for

evaluating the workers.

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Management Human Resource Management

Performance Appraisal: Methods

The basic idea behind this rating is to appraise the workers who can perform their jobs

effectively in critical situations. This is so because most people work alike in normal situation.

The strength of critical incident method is that it focuses on behaviors and, thus, judge’s

performance rather than personalities.

Its drawbacks are that one has to regularly write down the critical incidents which become

time-consuming and burdensome for evaluators, i.e., managers. Generally, negative incidents

are more noticed than positive ones. It is rater’s inference that determines which incidents are

critical to job performance. Hence, the method is subject to all the limitations relating to

subjective judgments.

Source:

https://media.licdn.com/mpr/mpr/shrinknp_800_800/AAEAAQAAAAAAAAV1AAAAJDI5Y2M1YzgwLWIyOWYtNGI2OC04YTg2LWI0OTVkNTc4Mm

EyZA.jpg

3.1.8. Graphic Rating Scale Method

The graphic rating scale is one of the most popular and simplest techniques for appraising

performance. It is also known as linear rating scale. In this method, the printed appraisal form is

used to appraise each employee.

The form lists traits (such as quality and reliability) and a range of job performance

characteristics (from unsatisfactory to outstanding) for each trait. The rating is done on the

basis of points on the continuum. The common practice is to follow five points scale.

The rater rates each appraisee by checking the score that best describes his or her performance

for each trait and all assigned values for the traits are then totaled.

This method is good for measuring various job behaviors of an employee. However, it is also

subjected to rater’s bias while rating employee’s behavior at job. Occurrence of ambiguity in

designing the graphic scale results in bias in appraising employee’s performance.

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Management Human Resource Management

Performance Appraisal: Methods

Figure 2: Graphic Rating Scale

3.1.9. Essay Method

Essay method is the simplest one among various appraisal methods available. In this method,

the rater writes a narrative description on an employee’s strengths, weaknesses, past

performance, potential and suggestions for improvement. Its positive point is that it is simple in

use. It does not require complex formats and extensive/specific training to complete it.

However, essay method, like other methods, is not free from drawbacks. In the absence of any

prescribed structure, the essays are likely to vary widely in terms of length and content. And, of

course, the quality of appraisal depends more upon rater’s writing skill than the employee’s

actual level of performance.

Moreover, because the essays are descriptive, the method provides only qualitative information

about the employee. In the absence of quantitative data, the evaluation suffers from subjectivity

problem. Nonetheless, the essay method is a good start and is beneficial also if used in

association with other appraisal methods.

3.1.10. Field Review Method

This is an appraisal by someone outside the rater’s own department usually someone from the

corporate office or the HR department. The outsider reviews employee’s records and holds

interviews with the appraisee and his or her superior. This method is useful when comparable

information is needed from employees in different units or locations.

3.1.11. Confidential Report

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Management Human Resource Management

Performance Appraisal: Methods

It is the traditional way of appraising employees mainly in the Government Departments.

Evaluation is made by the immediate boss or supervisor for giving effect to promotion and

transfer. Usually a structured format is devised to collect information on employee’s strength,

weakness, intelligence, attitude, character, attendance, discipline etc. Overall grading can be

given on a five point scale (outstanding, very good, good, average, and poor). The confidential

reports, as the name suggests, are very confidential.

3.2. Modern Methods

3.2.1. Assessment centres

An assessment centre typically involves the use of methods like social/informal events, tests

and exercises, assignments being given to a group of employees to assess their competencies to

take higher responsibilities in the future. Generally, employees are given an assignment similar

to the job they would be expected to perform if promoted. The trained evaluators observe and

evaluate employees as they perform the assigned jobs and are evaluated on job related

characteristics.

The major competencies that are judged in assessment centres are interpersonal skills,

intellectual capability, planning and organizing capabilities, motivation, career orientation etc.

Assessment centres are also an effective way to determine the training and development needs

of the targeted employees.

Source: https://image.slidesharecdn.com/assessmentcentres-140814055654-phpapp02/95/assessment-development-centres-21-

638.jpg?cb=1408016717

3.2.2. Behaviorally anchored rating scales (BARS)

Behaviorally Anchored Rating Scales (BARS) is a relatively new technique which combines

the graphic rating scale and critical incidents method. It consists of predetermined critical areas

of job performance or sets of behavioral statements describing important job performance

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Management Human Resource Management

Performance Appraisal: Methods

qualities as good or bad (for example: the qualities like inter-personal relationships, adaptability

and reliability, job knowledge etc). These statements are developed from critical incidents.

In this method, an employee’s actual job behavior is judged against the desired behavior by

recording and comparing the behavior with BARS. Developing and practicing BARS requires

expert knowledge.

Source: https://image.slidesharecdn.com/top12performanceappraisalmethods-150507155914-lva1-app6891/95/top-12-performance-

appraisal-methods-9-638.jpg?cb=1431014406

3.2.3. Human resource accounting method

Human resources are valuable assets for every organization. Human resource accounting

method tries to find the relative worth of these assets in the terms of money. In this method the

performance appraisal of the employees is judged in terms of cost and contribution of the

employees. The cost of employees include all the expenses incurred on them like their

compensation, recruitment and selection costs, induction and training costs etc. whereas their

contribution includes the total value added (in monetary terms). The difference between the

cost and the contribution will be the performance of the employees. Ideally, the contribution of

the employees should be greater than the cost incurred on them.

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Performance Appraisal: Methods

Source: https://image.slidesharecdn.com/humanresourceaccountingppt-131214003949-phpapp01/95/human-resource-accounting-ppt-4-

638.jpg?cb=1386981648

3.2.4. 360 degree performance appraisal

360 degree feedback, also known as “multi-rater feedback”, is the most comprehensive

appraisal where the feedback about the employees’ performance comes from all the sources

that come in contact with the employee on his job.

360 degree respondents for an employee can be his/her peers, managers (i.e. superior),

subordinates, team members, customers, suppliers/ vendors - anyone who comes into contact

with the employee and can provide valuable insights and information or feedback regarding the

“on-the-job” performance of the employee.

360 degree appraisal has four integral components:

Self appraisal

Superior’s appraisal

Subordinate’s appraisal

Peer appraisal

Self appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his

achievements, and judge his own performance. Superior’s appraisal forms the traditional part of

the 360 degree appraisal where the employees’ responsibilities and actual performance is rated

by the superior.

Subordinates appraisal gives a chance to judge the employee on the parameters like

communication and motivating abilities, superior’s ability to delegate the work, leadership

qualities etc. Also known as internal customers, the correct feedback given by peers can help to

find employees’ abilities to work in a team, co-operation and sensitivity towards others.

Self assessment is an indispensable part of 360 degree appraisals and therefore 360 degree

performance appraisal has high employee involvement and also has the strongest impact on

behavior and performance. It provides a "360-degree review" of the employees’ performance

and is considered to be one of the most credible performance appraisal methods.

360 degree appraisal is also a powerful developmental tool because when conducted at regular

intervals (say yearly) it helps to keep a track of the changes of others’ perceptions about the

employees. A 360 degree appraisal is generally found more suitable for the managers as it helps

to assess their leadership and managing styles. This technique is being effectively used across

the globe for performance appraisals. Some of the organizations following it are Wipro,

Infosys, and Reliance Industries etc.

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Performance Appraisal: Methods

Source: http://www.payrollsoftware.co.in/images/360feedback_BIG.jpg

3.2.5. Management by objectives (MBO)

The concept of ‘Management by Objectives’ (MBO) was first given by Peter Drucker in 1954.

It can be defined as a process whereby the employees and the superiors come together to

identify common goals, the employees set their goals to be achieved, the standards to be taken

as the criteria for measurement of their performance and contribution and deciding the course

of action to be followed.

The essence of MBO is participative goal setting, choosing course of actions and decision

making. An important part of the MBO is the measurement and the comparison of the

employee’s actual performance with the standards set. Ideally, when employees themselves

have been involved with the goal setting and the choosing the course of action to be followed

by them, they are more likely to fulfill their responsibilities.

MBO process

The principle behind Management by Objectives (MBO) is to create empowered employees

who have clarity of the roles and responsibilities expected from them, understand their

objectives to be achieved and thus help in the achievement of organizational as well as personal

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Performance Appraisal: Methods

goals.

Source: https://image.slidesharecdn.com/finalmanagementbyobjectives-111110014331-phpapp02/95/management-by-objectives-18-

728.jpg?cb=1320889723

Some of the important features and advantages of MBO are:

Clarity of goals – With MBO, came the concept of SMART goals i.e. goals that are:

o Specific

o Measurable

o Achievable

o Realistic, and

o Time bound.

The goals thus set are clear, motivating and there is a linkage between organizational goals

and performance targets of the employees.

The focus is on future rather than on past. Goals and standards are set for the performance

for the future with periodic reviews and feedback.

Involving employees in the whole process of goal setting and increasing employee

empowerment enhances employee job satisfaction and commitment.

Frequent reviews and interactions between superiors and subordinates helps to maintain

harmonious relationships within the enterprise and also solve many problems faced during

the period.

4. Drawbacks of appraisal techniques

Performance appraisal techniques have often failed to give a correct assessment of the employee, the

causes of such failures are.

4.1. The supervisor plays dual and conflicting role of both the judge and the helper.

4.2. Too many objectives often cause confusion.

4.3. The supervisor feels that subordinate appraisal is not rewarding.

4.4. A considerable time gap exists between two appraisal programmes.

4.5. The skills required for daily administration and employee development are in conflict.

4.6. Poor communication keeps employees in the dark about what is expected of them.

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Performance Appraisal: Methods

4.7. There is a difference of opinion between a supervisor and a subordinate, in regard to the latter’s

performance.

4.8. Feedback on appraisal is generally unpleasant for both supervisor and subordinate.

4.9. Unwillingness on the part of supervisors to tell employees plainly how to improve their

performance.

5. Summary

Performance appraisal refers to the assessment of an employee’s actual performance, behavior on job

and his or her potential for future performance. Numerous methods have been designed to appraise

the performance of an employee. Some are traditional methods and some are modern methods of

appraisal.

While traditional methods lay emphasis on the rating of the individual’s personality traits, such as

initiative, dependability, drive, creativity, integrity, intelligence, leadership potential, etc.; the modern

methods, on the other hand, place more emphasis on the evaluation of work results i.e. job

achievements than the personal traits. Modern methods tend to be more objective and worthwhile.

360 degree appraisal can provide valuable insights and information or feedback regarding the “on-

the-job” performance of the employee by anyone who comes into contact with him/her. They can be

peers, superior, subordinates, team members, customers, suppliers, vendors etc.

360 degree appraisal is a powerful developmental tool because when conducted at regular intervals it

helps to keep a track of the changes of others’ perceptions about the employees. A 360 degree

appraisal is more suitable for the managers as it helps to assess their leadership and managing styles.

Management by Objectives process is to create empowered employees who have clarity of the roles

and responsibilities expected from them, understand their objectives to be achieved and thus help in

the achievement of organizational as well as personal goals.