BM2018

PERFORMANCE APPRAISAL

IMPORTANCE OF MEASURING PERFORMANCE

Performance Management is a tool used by the management to monitor and evaluate employees' work.
This aims to create an environment where people can perform to the best of their abilities to produce the
highest-quality work efficiently and effectively (Tardi, 2019).

Since employees are oriented with the expectations set by the job descriptions and by managers on the
first day of work, it would be helpful to check if these requirements are being met from time to time.

Performance Appraisal is a regular review of an employee's job performance and overall contribution to
a company. It is also known as an annual review, performance review or evaluation, or employee appraisal.
This evaluates an employee's skills, achievements, and growth—or lack thereof (Silver, 2020).
• Performance is defined as the behavior that accomplishes results (Armstrong, 2014). It is the
accomplishment of assigned duties and responsibilities of an employee based on the job description in
a specific period.

Peter Drucker, the father of modern management, once said, "If you can't measure it, you can't improve
it." Drucker means that it can't be known whether or not a person is successful unless "success" is defined
and tracked. In HR, a clearly established metric for employees' performance can quantify the progress and
adjust the process to produce the desired outcome (MacKenzie, 2021). For instance, there should be
timeframes in setting goals to see if these goals are being met within the agreed period.

However, Drucker mentioned that performance does not rely solely on measurements. In order to
improve performance, there has to be mutual confidence, relationship building, and identification of
people in the organization that can only be initiated by the employers.

Reasons for Measuring Performance (Papadopoulos, 2018) (Lussier and Hendon, 2019)
• Personal Attention. Performance appraisal evaluation gives employees the opportunity to relay their
personal concerns and talk about their strengths and weaknesses.
• Feedback. Employees are given feedback on a regular basis that identify weak points for improvement.
Following some metrics for tracking performance, the supervisor or manager realizes the key points to
be improved by the employee.
• Career Path. It allows employees and supervisors to talk about the goals that must be met to achieve
growth within the company. This may encompass recognizing skills that must be acquired, areas for
improvement, and additional qualification/s that must be accomplished.
• Employee Accountability. Employees are well-informed about the need for performance evaluation;
therefore, they must be accountable for the kind of performance they exhibit.
• Communicate Divisional and Company Goals. This does not only give attention to employees' individual
goals but also provides an opportunity for managers to explain organizational goals and discuss how
the employee can contribute to the achievement of these goals.

Objectives of Performance Appraisal

The objectives of performance appraisal must be clear and specific. The following are the main objectives
of conducting a performance appraisal (Lussier and Hendon, 2019):
1. To discuss matters about salary and pay. This gives attention to how well an employee is performing
and to what extent an increase in salary would be considered in comparison to his/her performance.

07 Handout 1 *Property of STI

 [email protected] Page 1 of 7
 BM2018

2. To facilitate promotion decisions. Performance appraisal highlights the employee's performance and
strengths and weaknesses in performing his/her job. It can facilitate discussions such as promotion or
transfer, demotion, or need for additional training.
3. To provide feedback. This objective is the most common justification for an organization to have a
performance appraisal system. Performance appraisal aims to communicate clearly to the employee
how well s/he have performed in the past 12 months and discuss how the employee can improve
his/her job execution.

TYPES OF PERFORMANCE APPRAISAL

There are a number of different options concerning who should evaluate the employee, and the decision
needs to be based on a series of factors. Here are the six (6) options for deciding who should evaluate an
employee (Lussier and Hendon, 2016):

1. Supervisor/Manager-Appraisal. The most common evaluator who has legitimate authority to assess
the performance of his/her subordinates is the immediate supervisor because s/he is supposed to
know the level of performance of his/her employees. However, nowadays, supervisors have little to
no direct contact with their employees because they may be in a different building, city, or even
country; therefore, problems that arise (such as if the supervisor doesn't even know what the employee
is supposed to be doing in his/her job or if there is a personality conflict) should be taken into
consideration. A simple way to overcome these problems is to have others evaluate the employee in
addition to (or in place of) the supervisor to avoid personal bias and provide information that
supervisors don't always know. This can result in a more accurate, valid, and reliable performance
appraisal.
2. Peer Appraisal. In addition to supervisors, peers can also be performance evaluators. Teams have been
a trend in the present time, and teams commonly evaluate each member's performance. Peers often
know the job of the individual employee and are more directly affected by the employee's actions,
either positive or negative. However, this process can become less objective, and its validity is really
unclear. Personality differences can affect how individual employees rate their peers. To avoid these
problems, the manager can take the issues into account and adjust values as necessary.
3. Subordinate Appraisal. Employees can also evaluate their boss. This can give a good insight into the
managerial practices and potential missteps of people who oversee others. Subordinate evaluations
may give employees some valuable information that they would be unable to find out using any other
means. Just like other evaluators, personal biases can also hinder a valid and reliable review. For
instance, an employee who had been reprimanded might try to get back at their supervisor. On the
other hand, a lack of understanding of the tasks and duties required of the manager might affect the
accuracy of the evaluation. Sometimes, employees tend to rate their managers higher than the
managers rated themselves. In order to avoid problems related to this, the marks provided by outliers
which are either very high or very low marks should be removed from the calculations. Also,
subordinate evaluations should be anonymous for the employees to provide an honest review.
4. Self-Appraisal. Self-assessment is evaluating one's own performance in doing the job and can be a part
of the formal Performance Appraisal process. Likely, most people tend to see themselves differently
from how others see them and would want to always view themselves positively.
5. Customers Appraisal. When an employee has frequent contact with internal or external customers,
they can be evaluated by them. However, customers are not trained to do accurate assessments, and
the simple graphic rating scales they use in their assessments are considered subjective. Regardless of

07 Handout 1 *Property of STI

 [email protected] Page 2 of 7
 BM2018

the problems, customer assessments provide valuable information concerning employees who have
direct customer contact.
6. 360-Degree Evaluations. In some cases, the evaluation is expanded to everyone that an employee
comes into contact with. The 360-degree evaluation would generally give employees the most
accurate analysis of performance. The following are the four (4) major components of performance
appraisal (Lussier & Hendon, 2019):
• Self-appraisal
• Appraisal by Superior
• Appraisal by Subordinate/s
• Peer Appraisal

PERFORMANCE APPRAISAL METHODS

There are two (2) classifications of appraisal methods: traditional and modern methods (Lussier &
Hendon, 2019).

Traditional Methods
1. Ranking Method. This is the oldest and simplest method of performance appraisal in which
employees are ranked on certain criteria such as traits or characteristics. The employee is ranked from
highest to lowest or from worst to best in an organization. Thus, if there are seven (7) employees to
be ranked, then there will be seven (7) ranks from one (1) to seven (7).
2. Paired Comparison. In this method, the evaluator ranks employees by comparing one employee with
all other employees in the group. The rater is given slips where each slip has a pair of names, and the
rater puts a tick mark next to the name of the employee whom he considers is better of the two (2).
This employee is compared a number of times so as to determine the final ranking.
3. Grading Method. In this method, certain categories are defined well in advance, and employees are
put in a particular category depending on their traits and characteristics. Such categories may be
defined as outstanding, good, average, poor, very poor, or maybe in terms of the alphabet like A, B,
C, D, etc., where A may indicate "best" and D may specify "worst." This type of grading method is
applied during the semester pattern of examinations. One of the major limitations of this method is
that the rater may rate many employees on the better side of their performance.
4. Forced Distribution Method. The fundamental assumption in this method is that employees'
performance level conforms to a normal statistical distribution. For example, 10 percent of employees
may be rated as excellent, 40 percent as above average, 20 percent as average, 10 percent as below
average, and 20 percent as poor. It eliminates the favoritism of rating many employees on a higher
side.
5. Forced-choice Method. The forced-choice rating method contains a sequence of questions in a
statement form where the rater would check how effectively the statement describes each individual
being evaluated in the organization. It may be both the statement describes the characteristics of an
employee, but the rater is forced to tick only one.
6. Checklist Method. In this evaluation method, the evaluator is provided with the appraisal report,
which consists of series of questions that are related to the appraisee. Such questions are prepared
in a manner that reflects the behavior of the concerned appraisee. Every question has two (2)
alternatives—yes or no.

07 Handout 1 *Property of STI

 [email protected] Page 3 of 7
 BM2018

7. Critical Incidents Method. This method is very useful in finding out those employees who have the
highest potential to work in a critical situation. In this method, only the case of sudden trouble and
behavior associated with these incidents are taken for evaluation.
8. Graphic Scale Method: In a graphic rating scale, the printed appraisal form is used to appraise each
employee. Such forms contain a number of objectives and trait qualities and characters to be rated
like the quality amount of work, job know-how, dependability, initiative, attitude, leadership quality,
and emotional stability. The rater gives an estimate of the extent to which subordinates possess each
quality from one (1) to five (5) or maybe expressed in terms like excellent, very good, average, poor,
and very poor; or very high, high, average, low and very low.
9. Essay Method. In this method, the rater writes a detailed description of the employee's characteristics
and behavior, knowledge about organizational policies, procedures, and rules, knowledge about the
job, training and development needs of the employee, strengths, weakness, past performance,
potential, and suggestions for improvement.
10. Field Review Method. In this method of appraisal, the direct superior is not going to appraise an
employee but by another person, usually from the personnel department. The rater, in such a case,
appraises the employee on the basis of his past records of productivity and other information such as
absenteeism, late corning, etc.

Modern Methods
1. Management by Objectives (MBO). The concept of Management by Objectives (MBO) was coined by
Peter Drucker in 1954. It is a process where the employees and the superiors come together to identify
some goals which are common to them. Objectives should be SMART (specific, measurable,
attainable, relevant, and time-based). Moreover, communication is the key factor in determining
MBO's success or failure, and employees should continually critique their own performance. Thus, the
manager and employee must often communicate to review progress by feedback and continuously
evaluating performance. Lastly, employees' performance should be measured against their
objectives. Employees who meet their objectives should be rewarded through recognition, praise, pay
raises, promotions, and so on. Employees who do not meet their goals, so long as the reason is not
out of their control, usually have rewards withheld, and even punishment is given when necessary.
2. Behaviorally Anchored Rating Scales. This method is a combination of traditional rating scales and
critical incidents methods. It consists of preset critical areas of job performance or sets of behavioral
statements which describe the important job performance qualities as good or bad (e.g.,
interpersonal relationships, flexibility, and consistency, job knowledge, etc.). These statements are
developed from critical incidents. These behavioral examples are then again translated into
appropriate performance dimensions.
3. Assessment Centers. It is a method that was first implemented in the German Army in 1930. This is a
system of assessment where an individual employee is assessed by many experts by using different
techniques of performance appraisal. The techniques which may be used are role-playing, case
studies, simulation exercises, transactional analysis, etc. The basic purpose behind assessment is to
recognize whether a particular employee can be promoted or if there is any need for training or
development.
4. 360-Degree Performance Appraisals. This method is also known as multi-rater feedback. It is an
appraisal in a wider perspective where comments about an employee's performance come from all
possible sources that are directly or indirectly related to the employee on his/her job.

07 Handout 1 *Property of STI

 [email protected] Page 4 of 7
 BM2018

5. Cost Accounting Method. In this method performance of an employee is evaluated on the basis of
monetary returns the employee gives to his/her organization. A relationship is recognized between
the cost included in keeping the employee in an organization and the benefit the organization gets
from him/her. The evaluation is based on the established relationship between the cost and the
benefit. The following factors are considered in an employee's performance evaluation:
o Interpersonal relationship with others.
o Quality of product produced or service given to the organization.
o Wastage, damage, accidents caused by the employee.
o Average value of production or service by an employee.
o Overhead cost incurred.

THE PERFORMANCE APPRAISAL PROCESS

The performance appraisal system used in organizations may vary, though some of the specific steps that
an organization may follow are as follows (Kalpana, n.d.):

1. Establish Performance Standards

The standards that are set evolve out of job analysis and job descriptions. The standards set should be
aligned with the objectives and mission of the organization. Moreover, performance standards must
be realistic and attainable.
2. Communicate the Performance Standard to the Employee
After setting the standards, the expected level of performance should be communicated to the
employees so that they are all well aware of what is expected of them.
3. Measure the Actual Performances
This is a crucial step in the process as actual performances are measured. The four (4) important
sources frequently used by managers in measuring actual performances are personal observation,
statistical reports, oral reports, and written reports.
4. Compare the Actual Performance with Standards Set
Comparing the standard levels of performance and the actual performances measured will determine
the gap/s between the two (2); such gaps can be bridged through training and development.
5. Provide and Discuss Feedback
In this step, the performance of the employee must be discussed. This will help the employee to
identify the weak areas and initiate actions to overcome them. Such feedback motivates employees to
perform better in the future by avoiding the repetition of the same mistakes.
6. Initiate Corrective Action
Corrective action can be of two (2) types: (1) instant, which deals primarily with symptoms; (2) basic,
which deals with the causes. Instant corrective action is often described as "putting out fires," whereas
basic corrective action gets to the source from where deviation has taken place and seeks to adjust the
differences permanently. Basic corrective action aims to rectify something right at a particular point
and gets things back on track. When the actual performance matches the standard performance, there
is no need for any corrective action.

Performance Appraisals encounter problems during and even after the process. The following are
problems that may arise (Lussier & Hendon, 2019):

07 Handout 1 *Property of STI

 [email protected] Page 5 of 7
 BM2018

• Bias – This is a personality-based tendency either or against the individual employee. Biases make the
Performance Appraisal process subjective rather than objective, and these certainly show a lack of
consistency in effect on different groups of employees.
• Stereotyping – This is mentally classifying a person into an affinity group and identifying the person as
having the same assumed characteristics. Making assumptions about an individual employee's
characteristics based on their supposed membership in a group creates the potential for significant
error in evaluations.
• Halo error – This occurs when the evaluator forms a generally positive impression of an individual and
then extends that impression to an overall evaluation of the individual. Alternatively, the evaluator
can form an negative initial impression which may affect the overall evaluation called horns error.
• Distributional errors – These involve severity or strictness, central tendency, and leniency. In severity
or strictness, the rater evaluates just about everyone as below average. Central tendency error occurs
when the rater gives just about everyone average. And leniency happens when just about everyone
is graded above average.
• Similarity error – This error occurs when the rater gives better evaluations to subordinates whom they
consider similar to themselves than those who don't.
• Recency error - This occurs when the rater uses only the last few weeks of a rating period as evidence
when putting together performance ratings. Employers and managers are encouraged to maintain
performance logs. But these are only valuable when they review them thoroughly before performance
reviews. If the evaluator/s failed to review the performance logs, their judgment might naturally give
more weight to employees' most recent behavior because they remember it better.
• Contrast error – In this, the rater compares and contrasts performance between two (2) employees,
rather than using absolute measures of performance to assess each employee. For example, the rater
may contrast a good performer with an outstanding performer; then, as a result of the significant
contrast, the good performer seems to be "below average." So, raters need to evaluate the individual
based on their actual performance against an objective standard.

Avoiding Appraisal Problems

• Develop accurate performance measures. The organization should have its own HR specialist or hired
consultants develop an objective assessment process.
• Use multiple criteria. HR must ensure that evaluators focus on more than one (1) or two (2) criteria
to evaluate an individual's performance. There should be at least one (1) evaluation criterion for each
major function within an individual job so that HR has the ability to lower the incidence of halo,
recency, and contrast errors, and they may even be able to affect bias and stereotyping because of
the fact that many criteria, not just one or two, are being analyzed.
• Minimize the Use of Trait-Based Evaluations. Trait-based evaluations tend to be more subjective than
behavior and results-based evaluations, and as a result, they should generally not be used unless there
is a specific reason why employees must exhibit a particular trait to be successful in a job.
• Train evaluators. Evaluators should be trained on how to avoid common errors and problems and
how to use the measurement methods and forms.
• Use multiple raters. In some cases, the use of multiple raters to evaluate an individual is gaining
popularity in many organizations. Multiple evaluators would have to rate the individual employee
instead of choosing only one (1) evaluator.

07 Handout 1 *Property of STI

 [email protected] Page 6 of 7
 BM2018

• Debrief the Appraisal. The debriefing process is where the HR and supervisors communicate to
individuals the analysis of their performance. There are two (2) major reasons for assessing
performance: for evaluative decisions and for development.

There are three (3) basic types of formal appraisal discussions (Dessler, 2016):

1. Satisfactory–Promotable
This is the easiest of the three (3) formal appraisal discussions. The objective is to discuss the person's
career plans and develop a specific action plan for the educational and professional development that
the person needs to move to the next job.
2. Satisfactory–Not promotable
This is for employees whose performance is satisfactory but for whom promotion is not possible. The
objective here is not to improve or develop the person but to maintain satisfactory performance. This
situation is not easy. The best option is usually to find incentives that are important to the person and
are enough to maintain satisfactory performance. These might include extra time off, a small bonus,
additional authority to handle a slightly enlarged job, and verbal reinforcement in the form of "Well
done!"
3. Unsatisfactory–Correctable vs. Uncorrectable
When the person's performance is unsatisfactory but correctable, the objective is to lay out an action
plan (such as a Performance Improvement Plan or PIP) for correcting the unsatisfactory performance.
If the employee's performance is unsatisfactory and the situation is uncorrectable, there is usually no
need for any formal appraisal discussion because the person's performance is not correctable anyway.
Either the person's poor performance is tolerated for now, or s/he will be dismissed.

References
Armstrong, M., & Taylor, S. (2014). Armstrong's handbook of human resource management practice. Kogan Page.
Corpuz, C. R. (2016). Human resource management (3rd ed.). Rex Book Store.
Dessler, G., & Chhinzer, N. (2016). Human resource management in Canada. Pearson.
Hayes, A. (2021, March 16). Performance appraisal. Investopedia. https://www.investopedia.com/what-is-a-
performance-appraisal-4586834
Kalpana, R. (n.d.). Steps involved in performance appraisal process. Businessmanagementideas.com.
https://www.businessmanagementideas.com/performance-appraisal/steps-involved-in-performance-
appraisal-process/2519
Lussier, R. N., & Hendon, J. R. (2016). Fundamentals of human resource management: Functions, applications, and
skill development. SAGE Publications.
Lussier, R. N., & Hendon, J. R. (2019). Fundamentals of human resource management: Functions, applications, and
skill development. SAGE Publications.
Mackenzie, G. (2021). If you can’t measure it, you can’t improve it. Guava box. Retrieved March 17, 2021 from
https://guavabox.com/if-you-cant-measure-it-you-cant-improve-it/
Objectives of Performance Appraisal. (n.d.). In Whatishumanresource.com.
http://www.whatishumanresource.com/objectives-of-performance-appraisal
Papadopoulos, A. (2018, November 5). 5 benefits of measuring your employees' performance (and how to get
started). Ceoworld magazine. https://ceoworld.biz/2018/11/05/5-benefits-of-measuring-your-employees-
performance-and-how-to-get-started/
Tardi, C. (2019, August 27). Performance management. Investopedia.
https://www.investopedia.com/terms/p/performance-management.asp#

07 Handout 1 *Property of STI

 [email protected] Page 7 of 7