Performance Appraisal and Potential Appraisal

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Key HR Practices

UNIT 15 PERFORMANCE AND POTENTIAL APPRAISAL

Objectives

After going through this unit, you should be able to:

l understand different objectives and uses of performance appraisal system in anorganisation;

l develop various approaches to performance appraisal and draw a distinctionbetween traditional and newer rating methods.

l identify various errors in performance appraisal in practice and the need forperiodic performance review and feedback.

Structure

15.1 Introduction

15.2 Objectives of Performance Appraisal

15.3 Uses of Performance Appraisal

15.4 Planning the Appraisal

15.5 Approaches to Performance Appraisal

15.6 Components of Performance Appraisal

15.7 Types of Performance Appraisal

15.8 Concerns and Issues in Appraisal

15.9 Steps in the Appraisal Programme

15.10 Methods of Performance Appraisal

15.11 Errors in Performance Appraisal

15.12 Potential Appraisal

15.13 Self Appraisal

15.14 Performance Appraisal Assessment

15.15 Performance Appraisal Guidelines

15.16 Performance Appraisal in Practice

15.17 Performance Review and Feedback

15.18 Strategies to Improve Performance

15.19 Summary

15.20 Self-Assessment Questions

15.21 Case

15.22 Further Readings

15.1 INTRODUCTION

Performance appraisal is a systematic evaluation of present potential capabilitiesof personnel and employees by their superiors, superior’s superior or a professionalfrom outside. It is a process of estimating or judging the value, excellent qualities or

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status of a person or thing. It is a process of collecting, analysing, andevaluating data relative to job behaviour and results of individuals. The appraisal system is organised on the principle of goals and management by objectives.Management decisions on performance utilise several integrated inputs: goals and plans, job evaluation, performance evaluation, and individual history. It connotes a two-dimensional concept - at one end of the continuum lies the goals set by theauthority, and at the other end, the performance achieved by the individual or anygiven group.

Performance appraisal can be either formal or informal. Usage of former systems schedule regular sessions in which to discuss an employee’s performance.Informal appraisals are unplanned, often just chance statements made in passingabout an employee’s performance. Most organisations use a formal appraisalsystem. Some organisations use more than one appraisal system for different types ofemployees or for different appraisal purposes. Organisations need to measureemployee performance to determine whether acceptable standards of performance are being maintained. The six primary criteria on which the value of performancemay be assessed are: quality, quantity, timelineness, cost effectiveness, need for supervision, and interpersonal impact. If appraisals indicate that employees are not performing at acceptable levels, steps can be taken to simplify jobs, train, and motivate workers, or dismiss them, depending upon the reasons for poorperformance.

The results of appraisal are normally used to: (1) estimate the overall effectiveness of employees in performing their jobs, (2) identify strengths and weaknesses in jobknowledge and skills, (3)determine whether a subordinate’s responsibilities can be expanded, •(4) identify future training and development needs, (5) reviewprogress toward goals and objectives, (6) determine readiness for promotion, and(7) motivate and guide growth and development.•

15.2 OBJECTIVES OF PERFORMANCE APPRAISAL

Performance appraisal plans are designed to meet the needs of the organisation and theindividual. It is increasingly viewed as central to good human resource management.This is highlighted in Cumming’s classification of performance appraisal objectives. According to Cummings and Schwab (1973), the objectives of performance appraisal schemes can be categorised as either evaluative ordevelopmental. The evaluative purpose have a historical dimension and are concerned primarily with looking back at how employees have actually performedover a given time period, compared with required standards of performance.The developmental performance appraisal is concerned, for example, with the identification of employees’ training and development needs, and the setting ofnew targets.

The broad objectives of performance appraisal are:

1. To help the employee to overcome his weaknesses and improve �his strengths so as to enable him to achieve the desired �performance.

2. To generate adequate feedback and guidance from the �immediatesuperior to an employee working under him.

3. To contribute to the growth and development of an employee �through helpinghim in realistic goal setting. �

4. To provide inputs to system of rewards (comprising salary �increments,transfers, promotions, demotions or �terminations) and salary administration.

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Key HR Practices 5. To help in creating a desirable culture and tradition in the �organisation.

6. To help the organisation to identify employees for the �purpose ofmotivating, training and developing them.

7. To generate significant, relevant, free, and valid �information aboutemployees.

In short, the performance appraisal of an organisation provides systematicjudgments to backup wage and salary administration; suggests needed changes inone’s behaviour, attitudes, skills, or job knowledge; and uses it as a base forcoaching and counseling the individual by his superior. Appraising employeeperformance is, thus, useful for compensation, placement, and training anddevelopment purposes.

15.3 USES OF PERFORMANCE APPRAISAL

The appraisal systems do not operate in isolation; they generate data that can contribute to other HRM systems - for example to succession planning andmanpower planning.

Some of the common uses of appraisals include:

l Determining appropriate salary increases and bonuses for workers based onperformance measure.

l Determining promotions or transfers depending on the demonstration ofemployee strengths and weaknesses.

l Determining training needs and evaluation techniques by identifying areas ofweaknesses.

l Promoting effective communication within organisations through the interchange of dialogue between supervisors and subordinates.

l Motivating employees by showing them where they stand, and establishing adata bank on appraisal for rendering assistance in personnel decisions.

Organisations use performance appraisals for three purposes: administrative, employee development, and programme assessment. Programme appraisal commonly serve an administrative purpose by providing employers with a rationale for making many personnel decisions, such as decisions relating to pay increases, promotions, demotions, terminations and transfers. Valid performance appraisal data are essential to demonstrate that decisions are based on job related performance criteria. An employee’s performance is often evaluated relative toother employees for administrative purposes, but may be assessed in relation to anabsolute standard of performance. Performance appraisal for employee development purposes provide feedback on an employee’s performance. The intentof such appraisals is to guide and motivate employees to improve their performance and potential for advancement in the organisation. Appraisal data can also be used for employee development purposes in helping to identify specific training needs ofindividuals. Programme assessment requires the collection and storage ofperformance appraisal data for a number of uses. The records can show how effectiverecruiting, selection, and placement have been in supplying a qualified workforce. Performance measures can be used to validate selection procedures and can also beused as ”before” and “after” measures to determine the success of training anddevelopment programmes.

In brief, the various uses of performance appraisal can be classified into two broad categories. One category concerns the obtaining of evaluation data onemployees for decision-making for various personnel actions such as pay

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increases, promotions, transfers, discharges, and for selection test validation. The other main use is for employee development including performance improvementtraining, coaching, and counseling.

15.4 PLANNING THE APPRAISAL

A meaningful performance appraisal is a two-way process that benefits both theemployee and the manager. For employees, appraisal is the time to find out how themanager thinks they are performing in the job. For a manager, a formal appraisalinterview is a good time to find out how employees think they are performing on the job. The planning appraisal strategy has to be done:

Before the appraisal

1. Establish key task areas and performance goals.

2. Set performance goals for each key task area.

3. Get the facts.

4. Schedule each appraisal interview well in advance.

During the appraisal

1 Encourage two-way communication.

2. Discuss and agree on performance goals for the future.

3. Think about how you can help the employee to achieve more at �work.�

4. Record notes of the interview.

5. End the interview on an upbeat note.

After the appraisal

1. Prepare a formal record of the interview.

2. Monitor performance.

15.5 APPROACHES TO PERFORMANCE APPRAISAL

George Odiorne has identified four basic approaches to performance appraisal.

Personality-based systems: In such systems the appraisal form consists of a list of personality traits that presumably are significant in the jobs of the individuals being appraised. Such traits as initiative, drive, intelligence, ingenuity, creativity,loyalty and trustworthiness appear on most such lists.

Generalised descriptive systems: Similar to personality-based systems, they differin the type of descriptive term used. Often they include qualities or actions ofpresumably good managers: “organises, plans, controls, motivates others, delegates, communicates, makes things happen,” and so on. Such a system, like the personality-based system, might be useful if meticulous care were taken to define the meaning of each term in respect to actual results.

Behavioural descriptive systems: Such systems feature detailed job analysis andjob descriptions, including specific statements of the actual behaviour required fromsuccessful employees.

Results-centred systems: These appraisal systems (sometime called work-centred orjob-centred systems) are directly job related.

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Key HR Practices They require that manager and subordinate sit down at the start of each workevaluation period and determine the work to be done in all areas of responsibility andfunctions, and the specific standards of performance to be used in each area.

When introducing performance appraisal a job description in the form of aquestionnaire has to be preferred. A typical questionnaire addressed to an individualwould cover the following points:

l What is your job title?

l To whom are you responsible?

l Who is responsible to you?

l What is the main purpose of your job?

l To achieve that purpose what are your main areas of responsibility?

l What is the size of your job in such terms of output or sales targets, number ofitems processed, number of people managed, number of customers? What targets or standards of performance have been assigned for your job? Are thereany other ways in which it would be possible to measure the effectiveness withwhich you carry out your job?

l Is there any other information you can provide about your job?

15.6 COMPONENTS OF PERFORMANCE APPRAISAL

The components that should be used in a performance appraisal system flowdirectly from the specific objectives of appraisal. The following components are being used in a number of Indian organisations.

1. Key Performance Areas (KPAs) / Key Result Areas (KRAs)

2. Tasks/targets/objectives; attributes/qualities/traits

3. Self appraisal

4. Performance analysis

5. Performance ratings

6. Performance review, discussion or counseling

7. Identification of training / development needs

8. Ratings / assessment by appraiser

9. Assessment / review by reviewing authority

10. Potential appraisal.

15.7 TYPES OF PERFORMANCE APPRAISAL

There are two types of performance appraisal systems which are normally used inorganisations: (i) close ended appraisal system and, (ii) open ended appraisal system.

In the close ended appraisal system, commonly used in government organisations and public enterprises, a confidential report is submitted on the performance of theemployee. Only where an adverse assessment is made against an individual, theconcerned individual is informed about the same. The main shortcoming of thissystem is that an individual is not informed about his/her inherent strengths andweaknesses and, therefore, is not given an opportunity to respond to the assessment made on him/her. The employees are, therefore, in a constant dilemma as to howtheir performance is viewed by the management.

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In the open ended appraisal system, unlike in the close ended system, theperformance of the individual is discussed with him, and he is ranked in a five or tenpoint rating scale. The company uses this tool primarily for rewarding a good performer or for other considerations like promotions. The main weakness of this system is that all the employees are ranked in a particular scale, and whereas the good performers are rewarded, there is no concerted effort to motivate the averageperformers in performing better. Another weakness of the grading system is that theappraisal may turn out to be more subjective in nature due to insufficient data maintained on the individual. This system also leads to unnecessary comparisonsmade on different individuals performing similar jobs.

Performance appraisal can be a closed affair, where the appraisees do not getany chance to know or see how they have been evaluated; or it can be completelyopen, where the appraisees have the opportunity of discussing with their superiorsduring the evaluation exercise.

15.8 CONCERNS AND ISSUES IN APPRAISAL

1. Identifying job responsibilities and duties and performance dimensions,standards and goals.

2. Prioritizing and weighing performance dimensions and performance goals.

3. Determining appropriate methods for appraising performance.

4. Developing suitable appraisal instruments and scoring devices.

5. Establishing procedures that enhance fair and just appraisals of allemployees.

6. Providing performance feedback to all employees.

7. Relating observed and identified performance to the rewards provided byorganisation.

8. Designing, monitoring and auditing processes to ensure proper operation ofthe system and to identify areas of weakness.

9. Granting employees opportunities for appeal whenever and wherever suchaction is appropriate.

10. Training of employees in all phases of the appraisal system.

The basic issues addressed by performance appraisal are:

l What to appraise?

l How to appraise fairly and objectively?

l How to communicate the appraisal and turn the total process into a motivator?

l How the performance appraisal results can be put to good use?

l How to implement the performance appraisal system smoothly?

15.9 STEPS IN THE APPRAISAL PROGRAMME

As in other personnel programmes, performance appraisal forms a line responsibility to be accomplished with advice and help of the personnel department.Indeed, the appraisal programme is likely to be an utter failure if it lacks thesupport of top management; if superiors are not adequately trained, or have notrust in its value; if the results of appraisal are not discussed with the subordinates;and if the appraisal is not used to serve the purposes it is meant.

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Key HR Practices Pigors and Myers suggest several steps to develop and administer the programmeeffectively.

1. The personnel department may attempt to obtain as much as possible theagreement of line management in respect of the needs and objective of theprogramme. A choice has to be made among different kinds of appraisal methods judiciously.

2. The personnel department has to examine the plans of other organisations as well as the relevant literature in the field to formulate the most suitable planfor the appraisal programme.

3. Attempts should be made to obtain the co-operation of supervisors indevising the appraisal form and discuss with them the different factors to beincorporated, weights and points to be given to each factor, and description orinstructions to be indicated on the form.

4. The personnel or industrial relations manager tends to explain the purposeand nature of the programme to all the superiors and subordinates to beinvolved and affected by it. Care should be taken to take into confidence therepresentatives of the union, if it exists in the company.

5. Attempt is to be made to provide intensive training to all the supervisors with a view to obtaining unbiased and uniform appraisal of their subordinates.

6. Care may be taken to acquire line and staff co-ordination and mutual checkingof appraisals with a view to achieving intra and inter-departmental consistencyand uniformity.

7. There should be an arrangement for periodic discussion of the appraisal bythe superior with each of the subordinates where attempts may be made tostress good points, indicate difficulties, and encourage improved performance. Explicitly, in this context, the discussion should be in the form of a progress review and every opportunity should be given to the subordinate to expresshimself, if he feels that the appraisal has been biased and that it should beotherwise.

8. As soon as the appraisal has been duly discussed, attempts may be made torecommend for salary increases or promotion, if these decisions seem plausiblein the light of appraisals.

9. There should be provision for challenge and review of appraisals, if the employees or their union representatives are dissatisfied with the personneldecisions which the management has taken on the basis of these appraisals.These steps, if followed carefully, are likely to help the superiors to evaluate their subordinates effectively.

15.10 METHODS OF PERFORMANCE APPRAISAL

Strauss and Sayles have classified performance appraisal into three groups:traditional performance rating, newer-rating method, and result-oriented appraisal. Abrief description of each is as follows:

(a) Traditional Performance Rating: Traditional rating involves a completion of aform by the immediate supervisor of the individual who is being evaluated. In somecases, attempts are made to accomplish the rating by a committee consisting of theimmediate supervisor, the supervisor’s superior and one or two more officers of thecompany who are familiar with the rates. Although ratings by the committee bringseveral viewpoints together and overcome the superior’s bias, if any, they are highlytime-consuming. The conventional rating scale form incorporates several factors,

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such as, job knowledge, judgment, organising ability, dependability, creativity,dealing with people, delegation, and leadership. The rating is assigned by putting a tick mark horizontally. Frequently, descriptive phrases are given in the form toguide the rater while evaluating the rates. This method is very simple to understandand easy to apply. On the basis of ratings on specific factors, it is possible toidentify areas in which the individual requires further development. The ratings on specific factors can be summated to obtain a composite performance score.

The merit-rating scales are frequently criticised from the standpoints of clarity instandards, differing perceptions, excessive leniency or strictness, the central tendency,the halo effect, and the impact of an individual’s job. The basic criticism of the traditional performance rating is concerned with its emphasis on personality traitsinstead of job performance. Such rating is highly subjective in the absence ofobjective standards.

Other criticisms of traditional performance rating relates to: First, there is adivergence of opinion among raters as to what is meant by such standards as“unsatisfactory”, “good” and so on. Second, there may be divergent perceptions and accordingly, different standards of judgments among the raters. Third, the raters may be susceptible to excessive leniency or strictness error. Fourth, there is an error of central tendency involving a cluster of ratings near the middle of thescale. Fifth, there is a chance of the occurrence of a halo effect. Sixth, there is atendency on the part of the raters to assign high ratings to individuals holding high-paid jobs.

(b) Newer Rating Methods: Because of several inadequacies in the traditional rating scale, attempts have been made to devise new procedures which are lesssusceptible to the above weaknesses. Among these are included rank order, pairedcomparison, forced distribution forced choice, critical incident and field review. Thesemethods are discussed below:

(i) The Rank-order Procedure: It is effective where ten or lesser number ofindividuals are to be evaluated. According to this procedure, each individual isassigned such ranks as first, second, third and so on. If the evaluation processinvolves several traits, the ranking is made separately for each trait. Although thismethod is simple to understand and easy to apply, this technique becomescumbersome and difficult when a large number of employees are to be evaluated inthe organisation.

(ii) Paired-comparison System\: Under this, each individual is compared with everyother individual. The appraiser is required to put a tick-mark against the name of theindividual whom he considers better on the trait in question. The final ranking is determined by the number of times he is judged better than the other. This methodbecomes complicated when the number of individuals for evaluation is large.

(iii) The Forced Distribution Procedure: It is a form of comparative evaluation in which an evaluator rates subordinates according to a specifieddistribution. Here judgments are made on a relative basis, i.e., a person is assessedrelative to his performance in the group he works. This procedure can be used fornumerous traits if required by evaluating the individuals separately on each trait.The forced distribution method is primarily used to eliminate rating errors such asleniency and central tendency.

(iv) The Forced Choice Technique: It forces the rater to select from a series ofseveral statements or traits, the one which best fits the individual and one which leastfits, and each of these statements is assigned a score. Since the appraiser does notknow the score value of statements, this method prevents the rater from deliberately checking only the most favourable trait. Moreover, the appraiser is

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Key HR Practices unable to introduce personal bias into the evaluation process because he does notknow which of the statements is indicative of effective performance. This enhancesthe overall objectivity of this procedure.

However, it is a costly technique and also difficult for many raters to understand.

(v) The Critical Incident Method: This technique of performance appraisal wasdeveloped by Flanagan and Burns. Under this procedure, attempts are made todevise for each job a list of critical job requirements. Superiors are trained to be onthe lookout for critical incidents on the part of the subordinates in accomplishing the job requirements. The superiors enlist the incidents as they happen and in theprocess, tend to build up a record of each subordinate with debit on the minus sideand credit on the plus side. The merit of this procedure is that all evaluations arebased on objective evidence instead of subjective rating.

(vii) The Field Review: It is an appraisal by someone outside the employee’s owndepartment, usually someone from the corporate office or from the employee’s ownhuman resource department. The field review process involves review of employeerecords, and interviews with the employee, and sometimes with the employee’ssuperior. Field review as an appraisal method is used primarily in making promotiondecisions at the managerial level. Field reviews are also useful when comparableinformation is needed from employees in the different units or locations.

(c) Results-Oriented Appraisal: The results-oriented appraisals are based on theconcrete performance targets which are usually established by superior andsubordinates jointly. This procedure has been known as Management by Objectives(MBO).

MBO: The definition of MBO, as expressed by its foremost proponent, Dr.George S. Odiorne, is: “Management by objectives is a process whereby the superior and subordinate managers of an organisation 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 unitand assessing the contribution of each of its members.”

Much of the initial impetus for MBO was provided by Peter Drucker (1954) and by Douglas McGregor (1960). Drucker first described management by objectives in 1954 in the Practice of Management. Drucker pointed the importance ofmanagers having clear objectives that support the purposes of those in higher positions in the organisation. McGregor argues that by establishing performance goals for employees after reaching agreement with superiors, the problems ofappraisal of performance are minimised. MBO in essence involves the setting outclearly defined goals of an employee in agreement with his superior. Carroll and Tosi(1973), in an extensive account of MBO, note its following characteristics:

1. The establishment of organisational goals.

2. The setting of individual objectives in relation to organisational goals.

3. A periodic review of performance as it relates to organisational goals.Effective goal-setting and planning by top management.

5. Organisational commitment.

6. Mutual goal-setting.

7. Frequent individual performance reviews.

8. Some freedom in developing means of achieving objectives.

MBO is, thus, a method of mutual goal-setting, measuring progress towards the goals,taking action to assure goal attainment, feedback, and participation. It is a result-oriented philosophy, enabling an employee to measure progress toward a goal which

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the employee often has helped to set. In the goal-setting phase of MBO, a superior and subordinate discuss job performance problems and a goal is agreed upon.Along with mutual goal-setting, a major component of MBO is the performancereview session between the superior and subordinate, which takes place regularly toevaluate progress towards specified goals.

The key features of management by objectives are as under:

1. Superior and subordinate get together and jointly agree upon �the list theprincipal duties and areas of responsibility of �the individual’s job.

2. The subordinate sets his own short-term performance goals or �targets in co-operation with his superior.

3. They agree upon criteria for measuring and evaluating �performance.

4. From time to time, as decided upon, the superior and �subordinate gettogether to evaluate progress towards the �agreed-upon goals. At thosemeetings, new or modified goals �are set for the ensuing period.

5. The superior plays a supportive role. He tries, on a day-to-�day basis, to helpthe subordinate achieve the agreed upon �goals. He counsels and coaches.

6. In the appraisal process, the superior plays less of the �role of a judge andmore of the role of one who helps the �subordinate attain the organisationgoals or targets.

7. The process focuses upon results accomplished and not upon personal traits.

There are four main steps in MBO:

1. Define the job. Review, with the subordinates, his or her �key responsibilitiesand duties.

2. Define expected results (set objectives). Here specify in �measurable termswhat the person is expected to achieve.

3. Measure the results. Compare actual goals achieved with �expected results.

4. Provide feedback, appraise. Hold periodic performance review �meetings with subordinates to discuss and evaluate the �latter’s progress in achievingexpected results.

MBO as a mutual goal setting exercise is most appropriate for technical, professional, supervisory, and executive personnel. In these positions, there isgenerally enough latitude and room for discretion to make it possible for the person to participate in setting his work goals, tackle new projects, and discovernew ways to solve problems. This method is generally not applied for lowercategories of workers because their jobs are usually too restricted in scope. There islittle discretionary opportunity for them to shape their jobs.

MBO may be viewed as a system of management rather than an appraisal method. A successful installation of MBO requires written mission statements thatare prepared at the highest levels of top management. Mission statements providethe coherence in which top-down and bottom-up goal setting appear sensible andcompatible. MBO can be applied successfully to an organisation that has sufficient autonomy, personnel, budget allocation, and policy integrity. Managers areexpected to perform so that goals are attained by the organisation. Too often MBOis installed top-down in a dictatorial manner with a little or no accompanyingtraining. If properly implemented, it serves as a powerful and useful tool for thesuccess of managerial performance.

MBO is a tool that is inextricably connected with team building so that the workcommitment of team members can be increased and their desire to excel inperformance can be inspired. It is important to have effective team work among a

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Key HR Practices group of managers or a group of subordinates. The group of employees orsubordinates must be looked upon as a team that needs to be brought together. Goalsshould be set by manager-subordinate pairs, and also by teams. The basic superior-subordinate relationship in an organisation is in no way undermined in this concept ofteam goal setting. Lines of responsibility, authority, and accountability remain clear.

MBO has many benefits, since it:

1. Provides a way for measuring objectively the performance of subordinates.

2. Co-ordinates individual performance with company goals.

3. Clarifies the job to be done and defines expectations of job accomplishment.

4. Improves superior-subordinate relationships through a dialogue that takesplace regularly.

5. Fosters increased competence, personal growth, and opportunity for careerdevelopment

6. Aids in an effective overall planning system.

7. Supplies a basis for more equitable salary determination, especially incentivebonuses.

8. Develops factual data for promotion criteria.

9. Stimulates self-motivation, self-discipline and self-control.

10. Serves as a device for integration of many management functions.

MBO has certain potential problems, such as:

1. It often lacks the support and commitment of top management.

2. Its objectives are often difficult to establish.

3. Its implementation can create excessive paperwork if it is not closely monitored.

4. It concentrates too much on the short run at the expense of long-range planning.

5. It may lead to excessive time consuming.

Traditionally, in most performance evaluations a supervisor evaluates theperformance of subordinate. Recently, a new approach has been enunciated by thewestern management gurus, which is known as 360 degree appraisal - a performancemanagement in which people receive performance feedback from those on all sides of them in the organisation - their boss, their colleagues and peers, and their own subordinates, and internal and external customers. The list can grow to include vendors and consultants, human resource professionals, suppliers andbusiness associates, even friends and spouses. The 360 degree feedback refers to thepractice of using multiple raters often including self-ratings in the assessment ofindividuals. Thus, the feedback comes from all around. It is also a move towards participation and openness. Many American companies are now using this360 degree feedback. Companies that practice 360 degree appraisals include Motorola, Semco Brazil, British Petroleum, British Airways, Central Televisions,and so on. Barring a few multinational companies, in India this system of appraisal isuncommon.

This form of performance evaluation can be very beneficial to managers because it typically gives them a much wider range of performance-related feedback thana traditional evaluation. That is, rather than focusing narrowly on objectiveperformance, such as sales increase or productivity gains, 360 degree often focuses on such things as interpersonal relations and style. Of course, to benefit from 360degree feedback, a manager must have thick skin. The manager is likely to hear somepersonal comments on sensitive topics, which may be threatening. Thus, a 360degree feedback system must be carefully managed so that its focus remains onconstructive rather than destructive criticism.

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Balance Score Card: The Balance Score Card (BSC) creates a template for measurement of organisational performance as well as individual performance. It isa measurement based management system, which enables organisations to clarifyvision and strategy before initiating action. It is also a monitoring system thatintegrates all employees at all levels in all departments towards a common goal. BSCtranslates strategy into performance measures and targets, thus making it operationaland highly effective. It helps cascade corporate level measures to lower level so thatthe employees can see what they must do well to improve organisationaleffectiveness and helps focus the entire organisation on what must be done to create breakthrough performance. BSC was introduced in 1992 by Dr. RobertKaplan and David Nortan and has been successfully adopted by numerous companies worldwide.

Assessment Centre– Experts from various departments are brought together toevaluate individuals or groups specially their potentials for promotions.

Activity A

What type of executive performance appraisal system exists in your organisation?

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15.11 ERRORS IN PERFORMANCE APPRAISAL

Differences in perception and value systems influence evaluations. Forinstance, two raters observe an employee disagreeing with a supervisor. Oneperceives this as insubordination, but the other sees it as a willingness to stand upfor what he believes in. Individual rater bias can seriously compromise thecredibility of an appraisal. Some of the common syndromes are:

Halo Effect: This is a tendency to let the assessment of a single trait influence theevaluation of the individual on other traits too.

Horns Effect: This is a tendency to allow one negative trait of the employee to colour the entire appraisal. This results in an overall lower rating than may bewarranted.

Leniency or Constant Error: Depending upon the appraiser’s own value system which acts as a standard, employees may be rated leniently or strictly. Suchratings do not carry any reference to actual performance of the employees. Some appraisers consistently assign high values to all employees, regardless of merit. This is a leniency error. The strictness tendency is a reverse situation, where allindividuals are rated too severely and performance is understated.

Central Tendency: This is the most common error that occurs when a rater assignsmost middle range scores or values to all individuals under appraisal. Extremely high or extremely low evaluations are avoided by assigning ‘average ratings’ to all.

Spill-over Effect: This refers to allowing past performance to influence theevaluation of present performance.

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Key HR Practices Personal Bias: Perhaps the most important error of all arises from the fact thatvery few people are capable of objective judgments entirely independent of theirvalues and prejudices.

The above errors have evoked concerns about performance appraisal. McGregor (1960), with his concern for the human side of enterprise, appraisal represented a judgemental and demotivating process. Similar concerns were voiced by Deming(1982) who suggested that appraisal was ‘a deadly disease’ which blamed individuals for problems systematic to organisations. Margerison (1976) went as faras to predict that appraisal would ‘fall apart at the seams’ due to a combination ofmanagerial indifference, employee ambivalence and union opposition. This theme was reiterated by Fletcher (1993), who suggested that the days of standardisedappraisal were numbered. But, despite these gloomy predictions, the use ofperformance appraisal has flourished.

15.12 POTENTIAL APPRAISAL

In consonance with the philosophy of human resource development that has replaced the erstwhile personnel management in many organisations, more emphasis has been laid on the appraisal of the employees’ potential in addition totheir performance. Performance is a thing of the past, while potential includes thepossible knowledge, skills, and attitudes the employee may possess for betterperformance.

The purposes of a potential review are:

1. to inform employees of their future prospects;

2. to enable the organisation to draft a management succession programme;

3. to update training and recruitment activities;

4. to advise employees about the work to be done to enhance �their careeropportunities.

The following are some of the requirements and steps to be followed whenintroducing a potential appraisal system:

Role Description: A good potential appraisal system would be based on clarity ofroles and functions associated with the different roles in an organisation. Thisrequires extensive job descriptions to be made available for each job. These jobdescriptions should spell out the various functions involved in performing the job.

Qualities Required: Besides job descriptions, it is necessary to have a detailed list ofqualities required to perform each of these functions. These qualities may be broadly divided into four categories - (1) technical knowledge and skills, (2) managerial capabilities and qualities, (3) behavioural capabilities, and (4)conceptual capabilities.

Indicators of Qualities: A good potential appraisal system besides listing down the functions and qualities would also have various mechanisms for judging thesequalities in a given individual. Some of the mechanisms for judging these qualitiesare - (a) rating by others, (b) psychological tests, (c) simulation games andexercises, (d) performance appraisal records.

Organising the System: Once the functions, the qualities required to perform these functions, indicators of these qualities, and mechanisms for generating theseindicators are clear, the organisation is in a sound position to establish and operate the potential appraisal system. Such establishment requires clarity inorganisational policies and systematisation of its efforts.

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Feedback: If the organisation believes in the development of human resources itshould attempt to generate a climate of openness. Such a climate is required forhelping the employees to understand their strengths and weaknesses and to create opportunities for development. A good potential appraisal system should provide an opportunity for every employee to know the results of assessment. He should be helped to understand the qualities actually required for performing the role forwhich he thinks he has the potential, the mechanisms used by the organisation toappraise his potential, and the results of such an appraisal.

A good potential appraisal system provides opportunities continuously for theemployee to know his strengths and weaknesses. These are done through periodiccounseling and guidance sessions by either the personnel department or the managersconcerned. This should enable the employee to develop realistic self-perceptions andplan his own career and development.

Activity B

Are you aware of any potential appraisal system in practice? If so, give a briefaccount of the same.

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15.13 SELF APPRAISAL

Development or change takes place only if the appraise is interested in development or change. Such a desire is normally an outcome of self-review orreflection. It is an opportunity for the appraisee to recapitulate and list down his accomplishments and failures. The most important part of self appraisal is theprocess of review and refletion through performance analysis.

A thorough performance analysis done prior to the review discussion helps inmaking the review discussion fruitful. Review discussion aims at making theappraiser and the appraise understand each other better by communicating theperformance analysis of the appraisee’s performance. It is in this discussion that the appraiser should:

1. complement the appraisee for his accomplishments and good qualities;

2. understand and appreciate his difficulties and make action plans to help him inthe future;

3. understand the appraisee’s perceptions of the situation and correct theperceptions if necessary;

4. help him to recognise his strong points and weak points;

5. communicate the expectations of the appraiser from the appraisee; and

6. identify developmental needs of the appraisee and chalk out a course of actionfor meeting these needs.

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Key HR Practices15.14 PERFORMANCE APPRAISAL ASSESSMENT

The quality of an appraiser is much more crucial than the appraisal methods. Itis desirable to make the immediate superior a party to the appraisal programme. Theassessment can be accomplished by an individual or by a combination of theimmediate superior, other managers acquainted with the assessee’s work, a higherlevel manager, a personnel officer, the assessee himself, and the assessee’ssubordinates. Training of appraisers has been largely stressed as a measure toimprove performance appraisals. Appraisers can be trained with a view to improvingtheir ability to evaluate subordinates and discuss evaluations with them effectively.

The following questions can provide an assessment of performance appraisal system:

1. What purposes does the organisation want its performance appraisal system toserve?

2. Do the appraisal forms really get the information to serve the purposes?

3. Are the appraisal forms designed to minimise errors and ensure consistency?

4. Do the processes of the appraisal serve the purpose of effective communication between the appraiser and the �appraisee?

5. Are supervisors rewarded for correctly evaluating and developing theiremployees?

6. Are the evaluation and developmental components separated?

7. Are superiors relatively free from task interference in doing performanceappraisal?

8. Are the appraisals being implemented correctly?

The following questions serve as guidelines for assessing the end-product ofperformance appraisal:

1. Did the appraisal session motivate the subordinate?

2. Did the appraisal build a better relationship between the supervisor and thesubordinate?

3. Did the subordinate come out with a clear idea of where he or she stands?

4. Did the superior arrive at a fairer assessment of the subordinate?

5. Did the superior learn something new about the subordinate?

6. Did the subordinate learn something new about the superior and pressures he orshe faces?

7. Does the subordinate have a clear idea of what corrective actions to be taken toimprove his/her own performance?

Exhibit 1Executive Performance Contents and Criteria

Contents

l Job Knowledge

l Quality of Work

l Leadership

l Problem Solving and Decision Making

l Planning and Organising

l Responsibility and Accountability

l Customer Service

l Business Judgment

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l Ability to Work with Others

l Motivating Others

l Creativity

l Initiative and Enthusiasm

l Interpersonal Competence

l Communication Skills

l Integrity and Courage

l Honesty and Sincerity

Criteria

Periodicity of Appraisal (tick any one):

Quarterly Half-Yearly yearly

Performance Criteria (tick any one):

Exceeds Performance Meets Performance

Below Performance Standards Standards

15.15 PERFORMANCE APPRAISAL GUIDELINES

l Keep the system simple, and keep the paperwork burden down.

l It is a managerial tool to be used for improving results under the manager’sprovince. But it should not be used punitively and unjustly.

l Establish and maintain two entirely different performance appraisal systems:one geared to making pay decisions and the other designed to yield information about employee development.

l Once a system has been decided upon, apply it for several years; in other wordsdon’t tinker with the system annually.

l Do not rely on formal performance appraisals to do the entire job in communicating on performance; day-to-day informal contacts must do thebulk of the job.

l Review performance formally atleast once in a year and also whenever there has been a repetition of negative employee behaviour.

15.16 PERFORMANCE APPRAISAL IN PRACTICE

Traditionally appraisals are carried out by the supervisors of the employees. Somecompanies do follow self appraisal and compare the same with the traditionalappraisal of the supervisors. A new approach has been recently enunciated by thewestern management gurus, which is known as 360 degree appraisal wherebyappraisals are required to be carried out not only by the supervisors, but also bythose supervised (subordinates) and peers. This approach also needs a re-look in the context of leadership concepts being practiced universally. If one requires to beappraised on how well he performs the leadership role, the appraisal should originate from the followers (bottom to top approach) and not from theirsupervisors alone.

While the supervisors can appraise, on the performance standards, goals, targets, achievements, the leadership attributes need to be appraised only by those being

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Key HR Practices supervised. This argument is quite valid for higher level executives including CEOs.Therefore, all the three approaches, top-bottom, bottom-top and peer level appraisal will be very relevant. Perhaps, appropriate weightage is required to be assigned for appraisals being carried out in the 360 degree system, which is yet to take offseriously in many organisations.

It is quite disappointing to note that appraisals are not being carried out with thedue importance and seriousness they deserve though the systems provide scope forperiodic and timely appraisals. Normally appraisals are being carried out once a yearor at the most twice a year as per the existing practice. Many organisations dofollow monthly and quarterly appraisals for management trainees till they are confirmed, and follow the by-annual or annual appraisal system thereafter. Appraisal is a continuous process, to be scientifically carried out day in dayout, if one has to seriously carry out appraisals.

15.17 PERFORMANCE REVIEW AND FEEDBACK

Performance review or evaluation interview is necessary with a view tocommunicate effectively with each employee on his performance. The main thrust of the system is to effectively develop the communication process between theappraiser and the appraisee so that individual strengths and weaknesses are identified and necessary corrective actions taken. If the performance of the employee falls short of the standards set in the process of goal setting, theemployee is encouraged to improve his performance. Similarly, if the employee has exceeded the standard, he is encouraged to accept a higher goal.•

Evaluation interviews are not easy to conduct, and if they are poorly handled they may lead to hostility and greater misunderstanding. Performance review canbe quite beneficial to the organisation and to the individual involved if done properly. Consequently, many companies have spent a great deal of time andeffort on training their supervisors to handle evaluation interviews more effectively.To ensure that no essential part of the interview is left out, supervisors are oftenencouraged to follow a standardised outline. For example:

1 The supervisor tells the subordinate the purpose of the interview, and that it isdesigned to help him do a better job.

2. The supervisor then presents the evaluation, giving the strong points first andthen the weak points.

3. Next the supervisor asks for general comments on the evaluation.

4. The supervisor then tries to encourage the subordinate to give his own pictureof his progress, the problems he is meeting, what he can do to solve them, and how his supervisor can help him.

The interview ends with a discussion of what the subordinate can do by himself toovercome his weak points and what the supervisor can do to help. The supervisortries to accept any criticism or aggression on the part of the subordinate withoutargument or contradiction.

Feedback is important in letting your employees know how they are doing. Without feedback, employees tend to assume that their performance is acceptable. If theymake the wrong assumption for an extended period of time, a serious performanceproblem can develop - one that may be hard to correct. There are two types of feedback - positive and corrective. Providing regular feedback is important if youwant to demonstrate to your employees that you care about them. It is also another way to make the human-touch appraisal process an ongoing activity.

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Giving feedback on performance requires an intelligent and diplomatic approach. Overwhelmingly negative feedback often causes genuine stress, demotivation,demoralisation, and even depression, all of which can have a serious impact on how someone does his job. Positive feedback strengthens performance. There are somemanagers who think that, as long as you don’t tell an employee there’s a problem, the employee should assume that everything is okay. Some of these managers thinkthat giving positive feedback is a sign of weakness. But the fact is, most people aremotivated by the desire to achieve specific results - especially established goals. And generally, employees will work to achieve these goals as long as they believethat what they do is recognised and appreciated.

In his all-time best-seller, The One-Minute Manager , Dr. Ken Blanchardintroduces the philosophy of “catching” your employees doing something right.

Activity C

Do you follow periodic performance review and give feedback to the assesseeduring the appraisal process.

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15.18 STRATEGIES TO IMPROVE PERFORMANCE

Companies can do many things to improve employee performance. More specificand frequently used strategies include:

1. Positive reinforcement system

2. Positive discipline programmes

3. Employee assistance programmes

4. Employee counseling.

The positive reinforcement system lets employees know how well they are meetingspecific goals and rewards improvements with praise and recognition. In the sensethat no money is involved, it is a unique incentive system. Like all incentivesystems, a basic premise of positive reinforcement is that behaviour can be understood and modified by its consequences. Some organisations improve performance through the use of positive discipline or non-punitive discipline.Employee assistance programmes are designed specifically to assist employees with chronic personal problems that hinder their job performance and attendance. Such programmes are often used with employees who are alcoholicsor who have severe domestic problems.

Counseling is an inescapable and necessary part of appraisal. It has to do with apersonal relationship, and interaction between two people one of whom is wiser ormore experienced than the other. The main steps in appraising and counselingsubordinates are as follows:

1. Schedule periodic appraisals for all immediate subordinates.

2. Establish performance appraisal standards jointly with �subordinates.

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Key HR Practices 3. Prepare for each appraisal and counseling session, select �an appropriate place, provide enough time, and review �records.

4. Make appraisal sessions cooperative. The subordinate must be �encouraged toappraise his own performance and share his �ideas and feelings with theappraiser.

5. Establish and maintain rapport with the subordinate by �words, actions, andattitude.

6. Jointly explore alternative solutions and the consequences �of selecting eachone.

7. Help the subordinate to come to a self-determined solution �to the problem ordeficiency.

8. Terminate the session gracefully.

9. Complete records of the session and decisions for future reference.

10. Carry out the decisions and actions.

11. Follow up and evaluate results.

Many situations that arise at work demand effective counseling skills. Counseling is an important communication based activity. Counseling skills include listening, understanding, initiating effective communication, and evaluatingsolutions. Effective counseling skills are aimed at:

(i) bringing about some constructive change in the subordinate’s behaviour;

(ii) locating the root cause of subordinate’s problem;

(iii) reducing frustration by allowing subordinates to express their attitudes andfeeling about their jobs; and

(iv) stimulating problem-solving for the purpose of finding solutions to thesubordinate’s problems and achieve excellence in his performance.

Effective counseling demands effective communication, active listening, and transactional analysis. In addition, some specific counseling guidelines include:

1. Avoid making your subordinates defensive; recognise that defensive behaviour isnormal.

2. Never attack a person’s defense; try to concentrate on the act itself (inadequatesales, decreasing profits and so on) rather than on the subordinate.

3. Postpone action; sometimes, the best thing to do is nothing at all.

4. Be an active listener; be sure you understand not only the words, but, moreimportantly, the feelings and attitudes underlying them.

5. Try not to criticise; criticism often just evokes defensive behaviour.

6. Try to counsel often, on a daily basis, rather than once or twice a year; givefeedback.

7. Use critical incidents. No one likes being told with vague generalities that hisperformance is not up to the mark. Try to be especially specific about thebehaviour you consider unsatisfactory.

8. Agree on standards of improvement. Best results are always achieved when thesuperior and subordinate set specific goals to be achieved.

9. Get your subordinates to talk.

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Activity D

What is the strategy of your organisation to improve overall performance ofemployees?

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There is great degree of unhappiness all around with performance appraisals. Rarelydoes one come across managers who are happy with the appraisal systems in theirorganisations. But managers find it difficult to do without them because in theabsence of an appraisal mechanism, howsoever weak it may be, it is difficult to getwork out of people. It is a good mechanism to control people. In practice, adevelopment-oriented performance appraisal system has to be evolved by combining certain key elements such as performance analysis, self-appraisal, performanceratings, and counseling. Voltas have evolved a development-oriented appraisal system on the basis of their own experiments and experiences over the years.Larsen & Toubro Limited is the first company in India to introduce a development-oriented performance appraisal system almost a decade ago as a part of an integrated human resource development system. The State Bank of India alsointroduced such a system in some of its branches covering a large number of officials. Any organisation interested in changing its appraisal system from control-oriented confidential reports to a development oriented system is actuallyinitiating a change in its culture. Such a change is slow, and is likely to be resistedeven if it is good for the employees and, therefore, should be carefully plannedand monitored.

Exhibit 2

Performance Appraisal at Pepsi-Cola International

Pepsi-Cola International (PCI), with operations in over 150 countries, has devised a common performance appraisal system that focuses on motivatingmanagers to achieve and maintain high standards of performance. Administrativeconsistency is achieved through the use of a performance appraisal system of five feedback mechanisms - instant feedback, coaching, accountability based performance appraisals, development feedback, and a human resource plan. Thecommon system provides guidelines for performance appraisal, yet allows formodification to suit cultural differences. For example, the first step of instant feedbackis based on the principle that any idea about any aspect of the business or about an individual’s performance is raised appropriately and discussed in a sensitivemanner. The instant feedback message can be delivered in any culture; the important thing is not how it is done but that it is done. The purpose of instant feedback isalways to improve business performance, not to criticise cultural styles. Using thissystem, PCI tries to balance the cultural and administrative imperatives of successful managing the performance of a diverse workforce.

15.19 SUMMARY

The performance appraisal system ideally is an organisation designed programmeinvolving both the organisation and the personnel to improve the capability of both.The elements of performance management include: purpose, content, method,

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Key HR Practices appraiser, frequency, and feedback. The appraisal process involves determiningand communicating to an employee how he or she is performing the job andestablishing a plan of improvement. The information provided by performance appraisal is useful in three major areas: compensation, placement, and training anddevelopment. Appraisal helps to improve performance by identifying the strengthsand weaknesses; it helps to identify those with a potential for greater responsibility; and assists in deciding on an equitable compensation system. The methods of performance appraisal include rating scale, critical incident, ranking methods, and management by objectives. Several common errors have beenidentified in performance appraisal. Leniency occurs when ratings are grouped atthe positive 7end instead of being spread throughout the performance scale. Thecentral tendency occurs when all or most employees are ranked in the middle of therating scale. The halo effect occurs when a manager allows his or her generalimpression of an employee to influence judgment of each separate item in theperformance appraisal. A sound appraisal system involves assessing employeeperformance on a regular basis. Performance appraisal can be done by superiorswho rate subordinates, subordinates who rate their superiors, and self-appraisal. Asuitable performance appraisal system has to be designed keeping in view the cultureand requirements of an organisation.

15.20 SELF-ASSESSMENT QUESTIONS

1. Discuss the objectives of performance appraisal.

2. Describe the methods used in performance appraisal.

3. What is Management by Objectives (MBO)? What are its key features?

4. What is the purpose and significance of performance review?

5. Highlight the significance of performance counseling in developingemployees.

15.21 CASE

Johnson, age 25, has been with the advertising department as a copyman for threeyears. His job is to design advertisements for use in newspapers and magazines. Hemust work closely with the girls in the art department, with the members of the salesdepartment, and with the vice president, sales and promotion, who is in charge of thewhole division.

Johnson is an extremely enthusiastic worker with many good ideas. But he hasconsiderable trouble in dealing with people. He is too impatient with the girls in theart department and constantly chasing them to finish his own work in time. He makesit perfectly clear that his ideas are always best while dealing with the people in the sales department. When the vice president was thinking loud during aconference, Johnson cut short the speech of the vice president by an aggressive answer. It was a good answer, and the vice president did not mind, but some of theother people thought that Johnson had behaved badly. As a manager you areconcerned about the animosity he is creating in your department. As per thecompany policy, each employee has to undergo an evaluation interview every six months. There are no performance evaluation forms.

Discussion Questions

1. What should your strategy be in handling evaluation interview �with Johnson?

2. What remedial measures do you suggest to tackle the situation?

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Performance andPotential Appraisal15.22 FURTHER READINGS

Corner, Bernard J., The Communication of Merit Rating, Personnel, vol. 30,No. 2, p. 88.

Davis, Keith, Human Behaviour at Work, Tata McGraw-Hill, New Delhi, 1977.

Fisher, M., Performance Appraisals, Kogan Page Ltd., London, 1995.

Pigors, P., and Myers, C.A., Personnel Administration, McGraw-Hill, Tokyo, 1973.

Richard Henderson, Performance Appraisal: Theory to Practice, Reston PublishingCo., 1980.

Strauss, G., and Sayles, L.R., Personnel - The Human Problems of Management,Prentice-Hall Inc., Englewood Cliffs, New Jersey, 1960.

Yoder, Dale, Personnel Management and Industrial Relations, Prentice Hall ofIndia, New Delhi, 1975.

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