HUMAN RESOURCE MANAGEMENT – LEVEL 1

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Performance Evaluation / Appraisal

LEARNING OBJECTIVES:
- At the end of this session participants will be able to:
1. Understand the importance (value) and uses of performance appraisals in organizations.
2. Describe the decisions necessary in designing an appraisal system.
3. Discuss performance appraisal methods.

Performance Management
Today’s work environment requires/demands employees productivity and organizations strive to
create a high-performance culture using a minimum number of employees. It has been
suggested/claimed that better performance management represents a largely untapped
opportunity to improve productivity and consequently company profitability.
Performance Management is: a means of getting better results by managing performance
within an agreed framework of goals, standards and competence requirements. It is a process to
establish a shared understanding about what is to be achieved, and an approach to managing and
developing people in order to achieve it.
The process of Performance Management encompasses all activities related to improving
employee performance, productivity, and effectiveness; including goal setting, merit pay
increases, training and development, career management, and disciplinary action. The foundation
of performance management is the performance appraisal process. Appraisals provide a concrete
basis for analysis of an employee’s work performance, and for any action taken to maintain,
enhance, or change it.

Performance Appraisal
Performance appraisal is of considerable strategic importance to today’s organizations because
the most effective way for firms to differentiate themselves in a highly competitive, service-
oriented, global marketplace is through the quality of their employees. The performance process
should also link performance criteria to current strategic objectives and implementation plans.

Main Reasons for Performance Appraisals:

 Identify training and development needs
 Identify and acknowledge good performance
 Identify and deal with poor performance
 Ensure managers and staff communicate
 Help make reward decisions
 Increase productivity
 Measure the standard of people management

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The Process
Performance Appraisal is the process by which an employee’s contribution to the organization,
during a specified period of time, is assessed in a formal and systematic manner. It is a judgment
on an employee’s performance on the job, and may be based on considerations other than
productivity alone. (It is sometimes called merit rating, when its sole object is to discriminate
among employees in granting increases in wages and salaries.)

Performance Appraisal may be defined as any procedure that involves 1) setting work
standards; 2) assessing the employee’s actual performance relative to these standards; and 3)
providing feedback to the employee with the aim of motivating that person to eliminate
performance deficiencies or to continue to perform above par.

Performance appraisal can be an emotionally laden process that dramatically affects employees’
attitudes towards the organization and themselves. If used effectively, performance appraisal can
improve employee motivation and performance. If used inappropriately, it can have disastrous
effects.

A great deal of research has been devoted to performance appraisal systems. This research has
looked at:
1. Who should do the appraisal
2. What methods of appraising are best
3. When and how often appraisals should be done
4. For what purposes appraisal information should be used

Strategic importance of performance appraisals

Strategically, it is hard to imagine a more important HR system than performance appraisal.
Since organizations strive to:
 Design jobs and work systems to accomplish organizational goals
 Hire individuals with the abilities and desire to perform effectively
 Train, motivate, and reward employees for performance and productivity, which is the
sequence that allows them to diffuse their strategic goals throughout the organization, the
evaluation of performance is the control mechanism that provides not only feedback to
individuals, but also an organizational assessment of how things are progressing. Without
performance information, managers can only guess as to whether employees are working
toward the right goals, in the correct way, and to the desired standard.
Performance appraisal can be used towards assuring strategy-consistent behaviour.

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Functions/Uses of Performance Appraisals

 Developmental Uses:
1. Identification of Individual Training Needs
2. Performance Feedback
3. Determining Transfers and Job Assignments
4. Identification of Individual Strengths and Weaknesses

 Administrative Uses/Decisions:
5. Salary
6. Promotion
7. Retention or Termination
8. Recognition of Individual Performance
9. Layoffs
10. Identification of Poor Performers

 Organizational Maintenance/Objectives:
11. Human Resource Planning
12. Determining Organization Training Needs
13. Evaluation of Organizational Goal Achievement
14. Information for Goal Identification
15. Evaluation of Human Resource Systems
16. Reinforcement of Organizational Development Needs
17. Criteria for Validation Research
18. Documentation of Human Resource Decisions
19. Helping to Meet Legal Requirements

Criteria for a Good Performance Appraisal

The fundamental decisions about what type of performance to assess and how to measure that
performance should be shaped by four desirable criteria:
1. Validity – A good measure of performance should measure important job characteristics
(relevancy) and be free from extraneous or contaminating influences; it should also
encompass the whole job (not be deficient). A measure is construct-valid if it accurately
measures what it claims to measure. A measure had content validity if it measures all
important parts of a construct and does so in a representative way.
2. Reliability – Inter-rater reliability is the most relevant type of reliability for performance
appraisal. It is high when two or more raters agree on the performance of an employee, and
low when they do not.
3. Freedom from Bias – In performance appraisal, the criterion of freedom from bias has two
components. the first concerns legal issues of fairness to employees; the second has to do
with the subjectivity of one person’s judgments about the performance of others.
4. Practicality – It takes time, effort, and money to develop, implement, and use a performance
appraisal system. the benefits to the organization of using the system must out-weigh its
costs. The appraisal system should also be relatively easy to use and should have a high
degree of employee and management acceptance. Even the best developed appraisal system
is futile if it is not used.

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Types of Performance to Measure
The criteria for evaluating performance appraisal systems (described above) provide the basis for
making important decisions when developing an appraisal system. one crucial choice is simply
what type of performance to assess. There are three basic categories of performance information:
1. Trait-based – assesses the abilities or other personal characteristics of an employee, such as,
ability to make decisions, loyalty to the company, communication skills, or level of initiative.
This type of appraisal asks a lot about what a person is, but relatively little about what he/she
actually does. Trait-based approaches have questionable validity. Traits assessed in this type
of appraisal often do not relate well to how employees really behave on the job because job
behaviour is strongly influenced by situational and environmental factors. Trait-based
performance appraisal systems are not likely to be accepted by the courts: what is assessed
should have a clear link to effectiveness on the job.
2. Behaviour-based – measures the extent to which an employee engages in specific, relatively
well-defined behaviours on the job. Behaviour measures are appropriate when it is very
important how a job is done. In behaviour-based appraisals, employees are assessed on what
they do on their job. (Such assessments are more acceptable to the courts than the trait-based
appraisals. Behaviour measures can be very useful for feedback purposes because they
indicate exactly what an employee should do differently. Deficiency may be a problem with
some behaviour-based appraisals sine they will not include all behaviours that could lead to
job effectiveness.
3. Results-based – measures the “bottom line” associated with the employee’s work; did the
job get done, was a profit made? It measures the results of work behaviour. This approach
deals with the bottom line issues such as how many items an employee sold or made, or how
mush profit the employee brought into the organization during the month. When it is not
important how results are achieved and when there are many different ways to succeed, a
result-based approach would be appropriate.

Methods of Appraising Performance

Performance can be measured in many different way most of the performance measures
currently in use can be characterized as either objective or subjective. Objective measures are
typically results-based measures of physical output, whereas subjective measures can be used to
assess traits, behaviours, or results.

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Objective Measures
Objective measures assess performance in terms of numbers, such as the amount of a
product an employee produces or sells, the number of defective items produced, the
number of times the employee is absent or late to work, or some other direct numerical
index of how well or quickly an employee can perform certain tasks. There are five major
types of objective measures:

1. Production Measures –

2. Dollar Sales –

3. Personnel Data – (info. from employee’s personal file, such as absenteeism and
timekeeping.)

4. Performance Tests –

5. Business Unit Performance Measures – (esp. for managers)

Subjective Measures
Because they rely on human judgment, subjective measures are prone to rating error.
However many performance appraisal systems place heavy emphasis on subjective
ratings of performance. Unlike subjective measures, subjective judgments can be used
even when the employee does not produce a measurable physical product. Subjective
ratings can be used to measure the behaviour or personal traits of employees, as well as
results. The major problem with subjective measures of performance is that the raters
have to observe and evaluate job-related behaviour. Raters may not have the chance to
observe relevant behaviour, and even if they do, their ratings may be biased. Several
different types f subjective measures can be used. Generally, they can be classified as
either comparative procedures (ranking) or assessments against absolute standards
(rating).

SIX PRIMARY CRITERIA ON WHICH THE VALUE OF PERFORMANCE MAY BE

ASSESSED:
1. Quality: The degree to which the process or result of carrying out an activity approaches
perfection, in terms of either conforming to some ideal way of performing the activity or
fulfilling the activity’s intended purpose.
2. Quantity: The amount produced, expressed in such terms as dollar value, number of units, or
number of completed activity cycles.

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3. Timeliness: The degree to which an activity is completed, or results produced, at the earliest
time desirable from the standpoints of both coordinating with the outputs of others and
maximizing the time available for other activities.
4. Cost effectiveness: The degree to which the use of the organization’s resources (e.g., human,
monetary, technological, material) is maximized in the sense of getting the highest gain or
reduction in loss from each unit or instance of use of a resource.
5. Need for supervision: The degree to which a performer can carry out a job function without
either having to request supervisory assistance or requiring supervisory intervention to
prevent an adverse outcome.
6. Interpersonal impact: The degree to which a performer promotes feelings of self-esteem,
goodwill, and cooperation among coworkers and subordinates.

Performance Appraisal Interview

One of the potentially most important uses of appraisals is providing performance feedback to
employees. Most theories of work motivation point out that before employees can improve their
performance they must know how well they are currently doing.
The feedback interview is a discussion between the supervisor and the employee concerning the
employee’s past performance and how that performance can be improved in the future. The three
main approaches to feedback discussion are:
1. Tell and Sell – the supervisor tells the employee how good or bad his/her performance has
been and then attempts to persuade the employee to accept this judgment. The employee has
no input into the evaluation. Because it is very direct and one-sided, the tell-and-sell
interview can lead to defensiveness, resentment, and frustration on the part of the
subordinate. It fails to recognize that the employee may have information pertinent to the
evaluation - information of which the supervisor may be unaware. The employee may not
accept the results of the interview and may not be committed to achieving the goals that are
set.
2. Tell and Listen – the supervisor tells the employee what has been right and wrong with
his/her past performance but then gives the employee a chance to react. The extent of the
subordinate’s participation in the interview can vary widely.
3. Problem Solving – the employee has much more control over the process. Employees
evaluate their own performance and set their own goals for future performance. The
supervisor is primarily a helper and colleague rather than a judge, and proffers observations
and advice in a non-critical manner. An active and open dialogue ensues, in which goals for
improvement are established mutually the problem-solving interview is more difficult for the
supervisor than the other types of interviews, but it is more likely to result in employee
acceptance and commitment to the established goals. a drawback to problem-solving
interviews is that some employees may prefer a more direct approach.

Barriers to Effective Appraisal (Problems in Practice)

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In theory, appraisal schemes may seem very fair to the individual and very worthwhile for the
organization, but in practice the appraisal system often goes wrong. Some of the major appraisal
barriers are:
 Appraisal as confrontation: Many people dread the appraisal interview because they
view it as a confrontation between the appraiser and the person being appraised. This
may be due to the following.
- There is lack of agreement on performance levels/standards.
- The feedback is subjective: in other words the manager/appraiser is biased,
allowing personality differences to get in the way.
- The feedback is badly delivered.
- Appraisals are based on ‘yesterday’s performance’, not on the period (whole year)
under review.
- There is a lack of attention to appraisees’ development needs and potential.
 Appraisal as judgment: The appraisal is seen as a one-sided process in which the
appraiser acts as judge, jury and counsel for the prosecution. This puts the subordinate on
the defensive. The process of managing performance needs to be jointly operated in order
to retain the commitment and develop the self-awareness of subordinates.
 Appraisal as chat: The appraisal is conducted as if it was a friendly chat without regard
to purpose or outcome. Many managers/supervisors, embarrassed by the need to give
feedback and set stretch targets, reduce the appraisal to a few mumbled “well dones” and
leave the interview with several unresolved issues.
 Appraisal as bureaucracy: Appraisal is a form-filling exercise, to satisfy the HR
department. Its underlying purpose of improving individual and organizational
performance is forgotten.
 Appraisal as unfinished business: Appraisal should be part of a continuing future-
focused process of performance management, not a way of just wrapping up the past
year’s performance issues.
 Appraisal as annual event: Many targets set at annual appraisal meetings become
irreverent or out-of-date. Feedback, goals adjustment and improvement planning should
be a continuous process.

Popular Performance Appraisal Methods/Techniques

 Written Essays – technique in which an evaluator writes out a description of an employee’s
strengths, weaknesses, past performance and potential, and then makes suggestions for
improvements.
 Critical Incidents – technique in which an evaluator lists key behaviours that separate
effective from ineffective job performance.
 Graphic Rating Scales – technique in which an evaluator rates a set of performance factors
on an incremental scale.
 Behaviourally Anchored Rating Scales (BARS) – technique in which an evaluator rates
employees on specific job behaviours derived from performance dimensions.

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 Multiperson Comparison – technique in which individuals are compared to one another.
Group order ranking is an approach that groups employees into ordered classifications
such as “top one-fifth” or “second one-fifth”. Individual ranking is an approach
that ranks employees in order from highest to lowest. Paired comparison is
an approach that in which each employee is compared to every other employee, and
rated as either the superior or weaker member of the pair.
 Objectives (MBO) – employees are evaluated by how well hey accomplish a specific set of
objectives that have been determined to be crucial in the successful completion of their
jobs. These objectives need to be tangible, verifiable, and measurable. (Tends to be
the preferred method for assessing managers and professional employees)
 360 degree Feedback – a performance appraisal review that uses feedback from supervisors,
subordinates and co-workers – the full circle of people with whom the individual
interacts.
 Balanced Scorecard – the performance reviewed is anchored in company-wide objectives
that focus on the company’s major stakeholders. The performance measures are also
linked in a quantifiable manner to the overall business planning process, and therefore
executives view it as a business tool.