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Performance Appraisal in HRM: Use or Importance, Methods

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What is Performance Appraisal in HRM?

Performance refers to the effort put by an employee done for the completion of job or the achievement of a target. Each job responsibility has to be performed to accomplish within the required standard. Determining the performance standard, examining and rating employee performance is known as performance appraisal. It guides about the personal qualification, attribute, quality, skill, capability and future potentialities. On the basis of performance appraisal, the best employee is rewarded which will motivate other employee too.

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In conclusion, performance appraisal is the managerial task of determining the work performance standard and deciding, whether the employee's task is as per the standard or not. It serves as the basis compensation and reward management. It helps in testing and evaluating the personal qualification, quality, skill, capability and other personal attribute of employees. This helps to take decision regarding employee's promotion as well as training and development needs of employees. Performance appraisal is a regular activity of an organization. Performance appraisal process consists of following activities:
  • Setting performance standard. 
  • Communicating performance standard. 
  • Measuring actual performance. 
  • Analysis of deviation. 
  • Discussion of the deviation. 
  • Initiating corrective action. 

Use or Importance of Performance Appraisal:

Performance appraisal is one of the important functions of human resource management. Its importance can be described under the following points:

1. Determination of Compensation:

Performance appraisal tells about how well employees have performed their job responsibility. It helps to evaluate their performance and determine their compensation fairly. If employees are compensated appropriately, they will be motivated accordingly. If the compensation is not determined in accordance to their performance, employees may be dissatisfied with their job and the organization.

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2. Training and development planning:

Performance appraisal helps to identify the work performance level of employees. This provides information about the actual capability, skill and expertise. This also helps to know the weaknesses of employees based upon which, training and development planning can be done. By providing training and development, resources will be utilized optimally which will facilitate to the increment of effectiveness of organization.

3. Succession planning:

Employee's capability, skills, experience and attitude towards the job can be known through performance appraisal. Based upon such information decisions relating to promotion and transfer can be made ready for their future role. Performance appraisal helps to make decision regarding:
  • Promotion of outstanding and promising performers. 
  • Transfer of employees to achieve a better fit between the people and job. 
  • Termination of low performing employees through dismissal, layoff or downsizing. 
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    4. Reward management:

    To motivate employees, appropriate reward provision have to be managed which should be linked with performance appraisal. Employees will be displeased if they don't receive appropriate reward for their better performance. Similarly, if employees receive reward despite of their poor or weak performance, employees won't be motivated to improve their performance and this only increase the burden of the organization. Performance appraisal helps to match the reward with the performance.

    5. Easy for supervision:

    It also helps to categorize employees according to their performance. Performance appraisal helps to distinguish the best performing employees from average and poor performing employees. This helps to decide the level of supervision required to an employee. Thus, performance appraisal aids in easing the supervision process.

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    6. Motivation:

    Performance appraisal itself serves as a means of motivation. Employees who give their best performance will be evaluated and treated as valuable and reliable employees. This sort of response will motivate the employees to perform better. It further tells about the types of motivation to be provided to employees based upon their performance.

    7. Proper control:

    Through performance appraisal, appropriate feedback regarding the job performance, effectiveness and productivity can be provided to the employees. This will help to know where the control is required and improve the things. Performance appraisal provides an opportunity to learn from the mistakes and helps to take corrective measures.

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    8. Validity of selection test:

    Performance appraisal can be used as a instrument to evaluate the employee's selection tests effectiveness. It provides feedback about the selection test and process applied by the organization. On this basis, appropriate step can be taken for the employee's selection in the future.

    9. Career planning:

    Employees greatly concern with their career development. To address their career goals and create career paths, an organization requires appropriate basis for career planning. For this, performance appraisal plays a vital role by providing the information regarding the employee's current capabilities and their potentiality.

    10. Policy formulation:

    Performance appraisal provides information about employees and their performance that serves as an input for training and development programs as well as career development and motivational programs. This provides suggestion in formulating appropriate human resource policy for the overall development of the organization.

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    Methods of Performance Appraisal in HRM

    Performance appraisal is the process of evaluating employee performance by measuring process towards the organization goal. There are specific ways to establish performance standards and devices or instruments for performance appraisal. There are three approaches for doing appraisals. Employees can be appraised through:

    1. Absolute standards:

    It refers to measuring an employee's performance comparing with the established standards. Under this techniques, employee's evaluation is independent to other employee in a work group. This process analyzes employee's job traits and behavior. They are based on the absolute standards. Some of them are discussed as below:

    i. Critical incident appraisal method:

    This method focuses on the employee's behavior relating to job performance in critical situations. Supervisors record the behavior in critical situations. Under this method, the rater focuses on the critical behavior of employees that distinguishes whether their performance is effective or ineffective.
    Advantages of critical incident appraisal method:
    • It looks at the behavior in the critical situation. 
    • Employees can be shown which of their behaviors are desirable. 
    • This method judges performance rather than personalities. 
    • This method is based on actual job behavior of the employee which reduces the biasness in evaluation. 
    • Useful for giving feedback to the employees. 
     Disadvantage of Critical incident appraisal method:
    • Since the method requires continuous supervision and paperwork, it is time consuming and burdensome for supervisors. 
    • It is difficult to quantify and compare the incidents thus the comparison and ranking is difficult. 
    • It focuses only on the unusual or critical situation to evaluate the employees. 
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      ii. Check list method:

      It is a performance evaluation method in which a rater checks applicable employees attributes. Check-list is a confidential performance appraisal report. Under this method, employee's desired behavior are listed and checked whether they match with those of employees or not. Checklist can be simple or weighted.
      Simple checklist:
      In this method, she checklist of descriptive statements of employee behavior and characteristics are listed. The rater simply checks off 'yes' or 'no' for employee's behavior.
      Weighted checklist:
      In this method, the statements lists are prepared and certain weight is assigned to each of the statements based upon their importance. Feedback is provided by the rater to the employee.
      Advantages of Check list method:
      • Since the rater and scorer are different individuals, it reduces biasness in the evaluation process. 
      • It is easy to administer. 
      • It is easy to compare. 
       Disadvantages of Check list method:
      • It is costly and time consuming method. 
      • Checklist differs with job category. 
      • It focuses on the personality rather than performance. 
      • Assigning weight to the checklist statements is difficult task.

      iii. Graphic rating scale appraisal:

      It is a method that evaluates applicable employee attributes. It is the oldest and most popular method of appraisal. The rater provides subjective evaluation of an employee's performance and traits along a scale. Rating scales can be used to assess factors such as quantity and quality of work, job related knowledge, attendance, attitudes, cooperation, honesty, initiative, loyalty and dependability etc.

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      Advantages of graphic rating scale appraisal method:
      • Easy to develop and administer. 
      • Less time consuming. 
      • Easy to compare employees. 
      • Quick feedback. 
       Disadvantages of graphic rating scale appraisal method:
      • Since the method is based on rater's opinion, there is a chance of biasness. 
      • It is focused on personality traits rather than job performance. 
      • There is no chance for uniformity in rating. 
      • Ratings error may prevail. 

      iv. Forced choice method:

      This method whereby employees are to be ranked compulsorily after the performance appraisal is known as forced choice method. Generally, employees are categorized into 5 levels. The rater is forced to choose between two or more behavior related statements that are most or least descriptive of the employee being appraised. Finally HRM department arrives at overall scoring for each employee by applying a scoring key. For instance, students evaluating their college instructor might have to consider the criteria like:
      • Keeps up with the schedule identified in the syllabus
      • Lectures with confidence. 
      • Keeps interest and attention of class
      • Demonstrates how concepts are practically applied in today's organization. 
       Based upon these criteria student has to rate the lecture to one of the five levels.
      • Highest performer
      • Highest average performer
      • Average performer
      • Low average performer
      • Below average performers. 
       Advantages of forced choice method:
      • Since the rater doesn't know the correct answer, there is less chance of biasness. 
      • Facilities in reducing mistakes through rater's subjective value system. 
      • Since large number of employees are rated at the same time, there is a high potentiality of developing better human relation between them. 
       Disadvantages of forced choice method:
      • It is difficult to rate employees when they are of same level.
      • It is difficult to distinguish clearly because of employees working at the same level are treated equally. 
      • Information on employee's performance description is difficult to get. 
      • This method is difficult, time consuming and costlier. 
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        v. Behaviorally anchored rating scale (BARS):

        It is a performance appraisal technique that generates critical incidents and develops behavioral dimensions of performance. The evaluator appraises behaviors rather than traits. The format of BARS consists of a set of statements which describes the key aspects of performance in a particular job and have been sealed on a single dimension, ranging from very poor behavior to outstanding behavior. BARS method evaluates how well HR employee relations specialist can understand and interpret company policies by describing the levels of performance. Following steps are required to fulfill in developing BARS. 
        • First step:
        The key job dimensions must be identified. This will determine the scope of employee's activities. 
        • Second step:
        The job holders and their supervisors are asked to provide information about critical incidents of job the jobs to be appraised. 
        • Third Step:
        Incidents are classified under the various dimensions or areas of responsibility. Each incident area is determined by including into specific job performance. 
        • Fourth Step:
        All stage, raters rate each item of job behavior by assigning it a number on a scale from 1 to 7 (or 1 to 9) whereby 1 indicates the lowest level of low performance and 7 (or 9) the highest performance level.

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        Advantages of BARS:
        • It is job related. 
        • It specifies definite observable and measurable job performance behavior. 
        • It is easy for rater. 
        • Easy to compare employees job performance. 
        • It includes manager and subordinates. 
        • Employees easily receive feedback. 
         Disadvantages of BARS
        • It is complex, time consuming and costly method. 
        • This method is activity oriented rather than result oriented. 
        • There is higher chance of being error by rater. Thus, the evaluation may not be correct. 

        vi. Essay method:

        Rater describes strengths and weakness of each employee in the form of an essay. Rater describes the performance, traits and behavior of the employees. He describes about; employee strengths and weakness, technical effectiveness, leadership skill, need for training and development, future potentiality, probability of promotion etc.
        Advantages of Essay method:
        • It is simple to understand. 
        • Raters can develop the essay in their own way. 
        • It provides detailed information for decision making process. 
        • It provides feedback to employees. 
         Disadvantages of essay method:
        • Since essay of each employee is required, it becomes time consuming. 
        • Unstructured essays differs in the context which makes the comparison difficult. 
        • It focuses on employees behavior rather than performance standard. 
        • Biasness may prevail while preparing essay. 

        2. Comparison - oriented methods:

        The second general category of appraisal method compares individual employee with other employees. This method is relatively more standard than the absolute measuring devices. Comparison - oriented methods may be as follows:

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        i. Individual ranking method:

        It is a method of ranking employees performance from highest to lowest. In this process, only one employee can assumed to be the best. If the evaluator is to appraise eleven employees, this method assumes that the difference between the first and second employee is the same as that between the ninth and tenth employee.
        Advantage of individual ranking method:
        • It is easy to understand and use. 
        • It saves time and money. 
        • Easy to compare the job performance. 
         Disadvantages of individual ranking method:
        • It is not applicable for large organizations. 
        • Practically, it is not easy to compare each employees. 

        ii. Group order ranking method:

        The group order ranking procedure has been designed to prevent supervisors from clustering their employees at the high end of the scale. Employees are serially classified into different groups. There are few employees as if they are classified on percentage basis, which makes it easy to compare. For instance, if all employees are to classify into five groups, each groups is maintained at twenty percent. It is the improved version of individual ranking method.
        Advantages of group order ranking:
        • This method is easy, less time consuming and cost effective. 
        • There is less chance of being bias from the rater. 
        • It motivates employees to increase capacity. 
         Disadvantages of group order ranking method:
        • This method is not suitable for large organizations. 
        • Since employees are directly classified and compared with each other, it may have negative impact on their psychology. 
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          iii. Paired comparison method:

          It is a method of ranking individual's performance by counting the times any one individual is compared with all other employees. This method is an organized way of obtaining a rank order listing of employees. In this method, each employee is compared with other employees one at a time. For instance, if there are N number of employees to be rated. then N(N-1)/2 separate comparisons must be made. More precisely, if there are 10 employees then the number of comparison will be 45 i.e., [10(10-1)/2].
          Advantages of paired comparison method:
          • Since, each employee is compared with each other on one-on-one basis, performance appraisal is more effective.  
          • The ranking is reliable. 
           Disadvantages  of paired comparison method:
          • It is not suitable when the number of employees is large.
          • It only emphasizes on job performance and overlooks human dimension. 
          • Feedback is not provided to employees for their improvement. 
          • It focuses only on the overall performance rather than distinct performance dimensions. 

          3. Management by objective (MBO):

          It is the appraisal method based on how well the time bound objectives have been accomplished. This is the method that includes mutual objective setting and evaluation based on the attainment of specific objectives. The organization's overall objectives are translated into specific objectives for each succeeding level i.e.. divisional, departmental, and individual in the organization. MBO who works from the bottom up as well as from top down approach. The emphasis is given not on activities but on the results achieved. The steps  are involved in MBO:
          First step: Collaborative goal setting. 
          Second step: Action plan setting
          Third step: Performance review
          Fourth step: Performance evaluation
          Advantages of management by objective:
          • It is result oriented instead of process oriented. 
          • It is participatory approach. Goal setting and performance reviews are done jointly by senior and sub-ordinates. 
          • It assists in planning and control. 
          • Rewards are linked to performance. 
          Disadvantages of management by objectives:
          • It requires employees participation. 
          • It is complex and challenging task. 
          • It is time consuming and costlier method. 
          • Comparison between employees is not possible in this method. 
          • Most organizations lack proper climate for MBO to succeed. 

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