Performance Appraisal

Definition of Performance Appraisal

The term performance appraisal (PA) or performance evaluation refers to the methods and processes
used by organizations to assess the level of performance of their employees.
 PA is the process of reviewing an individual’s performance and progress in a job and
assessing his or her potential.
 PA is a systematic evaluation of the performance of employees and to understand the abilities
of a person for further growth and development.
 PA evaluates an employee’s skills, achievements and growth or lack thereof.
 PA is the assessment of the real and relative worth of the employees in a systematic and
subjective way.

I. Characteristics of Performance Appraisal

 The system must be bias - free. Evaluator must be objective and the methods of appraisal
must be fair and equitable.
 It must be relevant. It only measure behavior that are relevant to the successful job
performance and not any other personal traits.
 It should be acceptable to all. The performance standards as well as the appraisal methods
should be developed by joint participation and joint collaboration.
 It should be reliable, dependable, stable and consistent. High reliability is essential for
correct decision-making and validation studies.
 It must be able to objectively differentiate between a good employee and an ineffective
employee. Technique must be sufficiently sensitive to pick up the difference between an
effective and an ineffective employee.
 It must be practical, sound, clear and unambiguous so that all parties concerned
understand all its implications.

II. Purpose of Performance Appraisal

 Evaluation. The major purpose of performance appraisal is to evaluate how well employees
have conducted their task. Evaluation differentiates employees on the basis of their job
performance, along with other factors like personality, behavior, etc.
 Provide continuous feedback. It is important for the employers to know what performance
and achievements have been made by their employees. But, it is also equally important for an
employee to know where they stand, where they are going and how they are going to get
there.
 Measure performance accurately. Every company has to set mutually acceptable criteria or
performance standards so it could compare employee’s performance with it.
 Provide clarity of expectation and actual result. Every employee wants them to be told
about their duties and what the company really wants them to do. They should also be told
how well they have done their duties and how can they improve their performance.
 Identify area of weakness of employees. All employees may not be an all-rounder. Some
employees may have weak points as well, which if not sorted out in time, might be a liability for
the company.
 Determine training and developmental needs. Company should make efforts to abolish the
weak points. A properly carried out performance appraisal is a tool to determine what
necessary steps are to be taken in order to help the employees in improving their performance.
 Provide career path. Works as a mirror to employees and it clearly shows what they are
professionally. It also helps the company in recognizing employees with potential.
 Determine promotion of employees. Helps in charting progress of employees. It also helps
in identifying the employees who most deserved to be promoted.
  Take corrective actions. Distinguishes excellent and poor performing employees. The results
help the employers in taking corrective actions. Such actions may be counselling or warning
the poor performer to prevent the occurrence of undesirable results.
 Decide retention and termination of employees. Employees with poor results, are at first
consulted. But if supervisors don’t find any growth, they will be forced to take severe action like
termination.
 Evaluate effectiveness of HRM functions. Recruitment, selection, employee training,
rewarding, etc. are some functions of human resource management whose effectiveness can
only be analyzed when the performance of employees are appraised.
 Decide salary and rewards. The employees will receive wages as per contribution they have
made. The impressive contributors are also rewarded by the company.
 Reduce grievances. Grievances may occur in the company when employees feel unfairly
treated or biased. During such situation, employers can use the reports of performance
appraisal to clarify the issue raised by the employee.
 Keep communication lines open. Works as a bridge of communication between the
employers and employees. Also, open communication helps in strengthening the employer-
employee relationship or superior-subordinate relationship.
 Motivate superior performance. When performance of employees are timely appraised, they
are motivated to make the superior performance because they want to enjoy the perk of being
excellent employee and they fear negative reactions from the supervisors.
 Improve decision making ability. It becomes easier for the company to take right decision
when it has complete knowledge about what’s going on in their company. Performance
appraisal works as a helping hand to the company in making the right decision as it is a source
of the company’s complete statistical data.

III. Uses of Performance Appraisal

1. Performance Improvement. Performance feedback allows the employee, manager and
personnel specialist to intervene with appropriate actions to improve performance.
2. Compensation Adjustments. Performance evaluations help decision makers determine who
should receive pay raises. Many firms grant part or all of their pay increases and bonuses
based upon merit, which is determined mostly through performance appraisals.
3. Placement Decisions. Promotions, transfers and demotions are usually based on past or
anticipated performance. Often promotions are a reward for past performance.
4. Training and Development Needs. Poor performance may indicate untapped potential that
should be developed.
5. Career Planning and Development. Performance feedback guides career decisions about
specific career paths one should investigate.
6. Staffing Process Deficiencies. Good or bad performance implies strengths or weakness in
the personnel department’s staffing procedures.
7. Informational Inaccuracies. Poor performance may indicate errors in job analysis
information, human resource plans, or other parts of the personnel management information
system. Reliance on inaccurate information may have led to inappropriate hiring, training or
counseling decisions.
8. Job Design Errors. Poor performance may be a symptom of ill-conceived job designs.
Appraisals help diagnosed these errors.
9. Equal Employment Opportunity. Accurate performance appraisals that actually measure job-
related performance ensure that internal placement decisions are not discriminatory.
10. External Challenges. Sometimes, performance is influenced by factors outside the work
environment, such as family, financial, health or other personal matters. If uncovered through
appraisals, the human resources department may be able to provide assistance.
11. Feedback to Human Resources. Good/bad performance throughout the organization
indicates how well the human resources function is performing.
IV. Essentials of an Effective Performance Appraisal System
Clear Objectives. The objectives of performance appraisal must be clear, specific, timely and
open. It must be fair and equitable to both employee and the company.
Reliable and Valid. Appraisal system must provide consistent, reliable and valid information
and date. It only measure what they are supposed to measure.
Standardization. The appraisal form, procedures and rules should be standardized. There
should be well-defined performance criteria and standards.
Training. Evaluators is given training in procedures and principles. They are provided with
knowledge and skills in designing appraisals, conducting post appraisal interviews and
correcting rating errors.
Job Relatedness. It should focus attention on job-related behavior and performance. It should
provide information on job related activities and areas.
Mutual Trust. A climate of mutual trust, cooperation and confidence should be created in the
company. Under the system, the employees should be treated in a supportive manner.
Feedback and Participation. The ratings should be communicated to both the employees and
the raters. It must be open and participative. The employees should get information on their
performance. The system involves employees in the goal setting process.
Help Focus. Appraisal must not judgmental. The evaluator helps employees to reach their full
potential. The over-all purpose of appraisals is developmental.
Recognition of Differences. Organization differs in terms of work, size, resources, needs and
environment. It should be specific – tailor made for the particular company.
Post Appraisal Review. An interview with the employee should be arranged after appraising
his performance. It will help to know the difficulties of work and training needs of employees.

V. Methods and Techniques of Performance Appraisal

The techniques of appraisal have been divided into two categories: The modern and the traditional
techniques. While the traditional methods base their findings on the personality trades of an
individual like creativity, responsibility, and leadership, the modern techniques laid more stress on
the evaluation of work results.

Traditional Method
1. Essay or Free Form Method. A very time consuming method wherein the appraiser writes a
short essay detailing the performance of the employee.
2. Straight Ranking Method. The oldest and simplest technique of performance appraisal. In
this method, the appraiser ranks the employees from the best to poorest on the basis of their
over-all performance.
3. Paired Comparison. In this method, one particular trait is considered to evaluate the
employees. Based on the trait, each employee is compared with all others in the group, one at
time.
4. Forced Distribution Method. This method is popular in big organizations. The evaluator is
required to distribute the employees rating in the form of normal frequency distribution.
Employees are shown in categories that range from poor to excellent by the evaluator.
5. Rating Scale. It is the popular traditional method of performance appraisal. In this method, a
numerical scale is created to evaluate the performance of employee against certain
parameters. These parameters usually include the attitude, attendance, punctuality and
interpersonal skills of the employees.
6. Critical Incident Method. In this method the evaluator rates the employee on the basis of
critical events and how the employee behaved to a certain situation. It includes both negative
and positive points.
7. Field Review Method. This method is based on superiors’ opinion on the performance,
behavior and skill of the employee. The HR specialist asks the supervisors to evaluate and rate
their respective subordinates. A very time consuming method but helps reduce the superior’s
personal bias.
 8. Checklist Method. In this method, the rater is given a checklist of the descriptions of the
behavior of the employees on job. The checklist contains a list of statements on the basis of
which the rater describes the on the job performance of the employees.
9. Confidential Appraisal Method. This method is mostly used in government organizations for
promotion and transfer of an employee. It is usually prepared by the immediate supervisor to
describe in detail the strength and weakness along with major achievements and failures of the
employee. The personality and behavior of the employee also find mention in this report. The
report is supposed not to be revealed to anyone and is sent in a sealed cover to the concerned
officials who appraise the employee.
10. Group Appraisal Method. Employees are rated by a group of people comprising the
immediate supervisor of the employee and other supervisor who have the knowledge of the
employee work along with the concerned head of the department and a personnel expert. This
group determines the standards and then measures the actual performance of the employee.

VI. Modern Method of Appraisal and Career Development

1. Management by Objective (MBO). In this method, first the organizational goals are defined
then individual goals are defined for the employees. The performance of the employees is
reviewed against achievement of individual goals. The management measures the
performance of employees and compares it with expected performance to appraise the
employees. (Specific, Measurable, Achievable, Realistic, Time Bound)
2. 360-Degree Feedback. This method makes the appraisal more transparent and participative.
It 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.
3. Assessment Centre. It typically involves the use of methods where several activities like
social/informal events, test and exercises, assignments are organized for the employees by the
management to assess their competencies to take higher responsibilities in the future. This
technique mainly gives emphasis on evaluating interpersonal skills, intelligence and planning
and organizing skills.
4. Behaviorally Anchored Rating Scale (BARS). This method gives emphasis on the job
related behaviors of employee. This method breaks down the job into different behaviors on
behaviorally anchored rating scale. Then the behaviors of the employee are compared with the
behaviors rated on the scale. Also, it 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 qualities
as good or bad.
5. Human Resource Accounting. This method aims to find out the net contribution of employee
to the company in monetary terms. The cost of employee is calculated by adding the expenses
incurred on the employee like compensation, recruitment, training and development. After this,
the monetary contribution of employee is found out. The difference between the cost and
contribution of employee indicates the performance of employees. If the contribution is more
the employee will be appraised positively.

VII. Limitations of Performance Appraisal

1. Halo Effect. In this case the superior appraises the person on certain positive qualities only.
The negative traits are not considered. Such an appraisal will not give a true picture about the
employee. And in some cases employees who do not deserve promotions may get it.
2. Horn Effect. In this case only the negative qualities of the employee are considered and based
on this appraisal is done. This again will not help the company because such appraisal may
not present a true picture about the employee.
3. Central Tendency. In this case the superior gives an appraisal by giving central values. This
prevents a really talented employee from getting promotions he deserves and some
employees who do not deserve anything may get promotion.
 4. Leniency and Strictness. Some bosses are lenient in grading their employees while some
are very strict. Employee who really deserves promotions may lose the opportunity due to strict
bosses while those who may not deserve may get benefits due to lenient boss.
5. Spill Over Effect. In this case the employee is judged +vely or -vely by the boss depending
upon the past performance. Therefore, although the employee may have improved
performance, he may still not get the benefit.
6. Fear of Losing Subordinates and Spoiling Relations. Many bosses do not wish to spoil
their relations with their subordinates. Therefore, when they appraise the employee they may
end up giving higher grades which are not required. This is an injustice to really deserving
employees.
7. Goodwill and Techniques to be used. Sometimes a very strict appraisal may affect the
goodwill between senior and junior. Similarly, when different departments in the same
company use different methods of appraisal it becomes very difficult to compare employees.
8. Paper work and personal biased. Appraisal involves a lot of paper work. Due to this the work
load of HR department increases. Personal bias and prejudice result in bosses favoring certain
people and not favoring others.

VIII. Best Practices

Best Practices in National Power Corporation on Performance Appraisal

To pursue the thrust of the Civil Service Commission (CSC) and the Governance Commission for
GOCCs (GCG) of establishing a performance evaluation system in the government, a Strategic
Performance Management System (SPMS) is adopted in the National Power Corporation (NPC) to
promote performance improvement and organizational effectiveness.

The SPMS shall apply to all officials and employees holding position on a Permanent, Temporary,
Co-terminus, Casual or Contractual (with employer-employee relationship) employment status.

Performance Review and Evaluation. It aims to assess the level of performance of the
Corporate/Functional Group/Department/Division/Individual based on set targets and measures
as approved. This is done on per semester basis, i.e. July for the rating period January to June;
and January of the succeeding year for the July to December rating period of a given year.

The result of performance evaluation assessment shall serve as input to the Functional
Group/Cost Center Head/Project Management Team in identifying potential nominees to Program
on Awards and Incentives for Service Excellence (PRAISE) Awards.

Rating Scale. The five-point rating scale of 1 to 5 shall be used, with 5 being the highest and 1,
the lowest. (Outstanding, Very Satisfactory, Satisfactory, Unsatisfactory, Poor)

Performance Ratings. Performance ratings shall be used as basis for promotion, training, and
scholarship grants and other personnel actions.

Rating Period. The Performance Evaluation shall be done every six (6) months ending on June
30 and December 31 of every Calendar Year. The minimum appraisal period shall be at least
ninety (90) days or three (3) months.

Submitted by:

RIEZEL MARIE L. BALBUENA (NAPOCOR)

ANNA MARIA ERLA S. FONTECILLA (DEPED)

MBBA – Human Resource Management

Dr. Mary Jeane S. Lubos