Everything you need to know about the traditional and modern methods of performance appraisal. There are two approaches to evaluate the performance of employees, namely, the ‘traditional approach’ and the ‘developmental approach’.
The traditional approach focuses only on the past performance of the employee, i.e., during a specified period. This technique does not consider the developmental aspects of the employee’s performance, i.e., his/her training and development needs or career development possibilities.
The superior sits on the judgement of the past performance of his/her subordinates in the traditional technique.
The developmental approach to performance development has made the performance appraisal process more formal and structured.
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Now, the performance appraisal is taken as a tool to identify better performing employees, their training needs, career development paths, rewards and bonuses, and their promotion to the next level.
Some of the traditional methods of performance appraisal are:-
1. Ranking Method 2. Paired Comparison Method 3. Grading Method 4. Forced Distribution Method 5. Forced Choice Method 6. Check List Method 7. Critical Incident Method 8. Graphic Scale Method
9. Essay Method 10. Field Review Method 11. Confidential Report 12. Rating Scales 13. Behaviourally Anchored Rating Scales (BARS) 14. Performance Tests and Observations 15. Cost Accounting Method 16. Group Appraisal.
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Some of the modern methods of performance appraisal are:-
1. Management by Objectives (MBO) 2. Behaviourally Anchored Rating Scale (BARS) 3. 360 Degree Appraisal and Feedback System 4. Cost Accounting Method 5. Assessment Centre 6. Balance Score Card Method (BSC)
7. Potential Appraisal 8. Industry Quotes 9. Employee Self Appraisals 10. Human Resource Accounting 11. Behaviour Observation Scales 12. Psychological Appraisal 13. Result Method 14. Productivity Measures.
Traditional and Modern Methods of Performance Appraisal
Traditional and Modern Methods of Performance Appraisal – Ranking Method, Paired Comparison Method, Forced Distribution Method, MBO, BARS, BSC and a Few Others
I. Traditional Methods:
1. Ranking Method:
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This is also known as order of merit method. A supervisor is required to rank the employees under him in the order of merit. If a worker is rated seventh, it means he is in the seventh position in the group in terms of performance, behaviour, sincerity, etc.
i. This method cannot be applied when the number of employees to be evaluated is large.
ii. Comparison among group members having dynamic traits is difficult,
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iii. This method does not express how much better or worse one is than another.
Under this method, each employee is compared with all others in the group. If there are five employees, each one is to be compared with others.
This method becomes unwieldy when a large number of members is to be compared.
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In this method certain benchmarks of performance are defined in advance. Persons are graded according to their traits and characteristics like outstanding, average, poor, very poor. Rater’s bias reduces the reliability of the method.
4. Forced Distribution Method:
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This method was advocated by Tiffen to eliminate the rater’s tendency of rating most of employees on higher side. This method assumes that employees, performance level conforms to the normal distribution i.e., 10, 20, 40, 20 and 10 per cent.
This method is useful for rating a large number of employees and their promotability. It minimises rater’s bias to a large extent.
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J.P. Guild developed this method. A series of statements describing the qualities of an individual employee are given. They may be positive or negative. For example –
Positive Statement:
i. Gives clear cut instructions.
ii. Completes the work as per schedule.
Negative Statement:
i. Misunderstands instructions.
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ii. Will do the work under force.
Each of the aforesaid statements carries weight which is not known to the rater. HR department would carry out ratings for all the statements. This method is objective but the construction of evaluative statement is a time consuming process.
This method eases the evaluation burden of the raters. HR department prepares a questionnaire containing a number of statements revealing character, attributes, job performance, attitude, knowledge, skills etc., of the employees. Rater has to tick the ‘yes’ or ‘no’ column. Each question carries weight in relation to its importance.
When checklist is completed, it is sent to HR department which would compute the final scores of the appraisee. While preparing the questionnaire, an attempt should be made to ensure the consistency of the response by repeating the question in a different manner. If there are number of job categories different questionnaires need to be prepared. The drawback of this method is that it consumes a lot of time and effort.
Under this method, only critical incidents and behaviour with regard to specific incidents concerned are taken for evaluation.
This comprises of three steps.
Step 1 – A list of ‘on the job behaviour’ with respect to a specific event is prepared.
Step 2 – Team assigns value or score to these incidents considering desirability or otherwise of particular action in such a situation job.
Step 3 – A check list of incidents which define good and bad employees is prepared.
The rater gives rating to the ‘on the job behaviour’ recorded in the light of the check list prepared in aforesaid three steps. The logic behind this method is to appraise an employee in an abnormal situation. In other words, whether an employee applies his presence of mind in a critical situation is ascertained to know his potential. But this is a time consuming process.
8. Graphic Scale Method:
This is known as linear rating system. A printed appraisal form is used to appraise the employees. The traits to be measured and range of performance characteristics are listed. Five point scale is used to measure each character. The rater has to tick the appropriate score describing the character of each appraisee.
One drawback of this method is that any ambiguity in designing graphic scale results in bias in appraising employee’s performance.
Rater writes a narrative description on employee’s strengths, weaknesses, past performance, potentials and suggestions for his performance improvement. It does not require a complex format. The drawback of this method is that absence of structured format makes it lengthy in content.
The quality of appraisal depends on the skill of the rater. This method uses only qualitative information about the employee. Non-inclusion of quantitative information makes it suffer from subjectivity problem. Nonetheless, this method is a good start if it is used in conjunction with other appraisal methods.
10. Field Review Method:
This method neutralises the deficiencies like biased rating and exaggerative rating. This is conducted by a HR official in the HR department.
It involves the following processes:
i. Observing the worker at his work place
ii. Deciding on functional areas to be reviewed.
However, this, process is time-consuming and raters view it as an unnecessary interference.
This method is increasingly practised in public sector and Government offices. Usually, heads of respective departments fill up the structured format furnishing information about employee’s strengths, weaknesses, character, attendance, discipline, intelligence etc. The drawback of this method is that subjective evaluation by the boss weakens its reliability. There is scope for them to improve upon their weak areas of their performance.
Defects in Traditional Appraisal Methods:
i. Conventional approach is more prone to bias.
ii. Identification of trait is a great challenge. There are some 300 traits according to psychologists.
iii. Employees resist the trait-based evaluation and feel that organization should have nothing to do with personal values and thinking of employees. They feel that work performance should be the sole criterion. Superiors also resist it on the ground that it adds to too much of paper work.
Despite these short comings, traditional methods are in use even at present. However, they are used in combination with other methods.
II. Contemporary Methods:
Modern methods or contemporary methods are as follows:
1. Management by Objectives (MBO):
Peter. F. Drucker is the exponent of the concept of management by objectives. It is a method of building team work so that each job is directed towards the objective of the whole business. Under this method, superior and subordinates jointly set objectives in a verifiable term. In other words, both groups decide Key Result Areas (KRA) and the role of subordinates in achieving the goals in KRA.
The appraisal is conducted together by the superiors and subordinates where they would deliberate on the employee’s actual performance in comparison with KRA set at the beginning. There are interim appraisals before the final appraisal where changes are made in the objectives initially set and the new ones may have to be incorporated in line with dynamics in business environment. Final review would give data pertaining to organizational performance in the light of which organizational goals would be re-tuned.
Management by objectives requires identification of clear goals of each department which will result in the achievement of the objectives of the entire organization. Manager and subordinates pull in the right direction without friction and without unnecessary duplication of efforts so that the attainment of the enterprise objectives is possible.
Step 1:
i. Setting objectives – Since without clear objectives, management becomes haphazard, clear goals i.e., verifiable objectives must be first set. They should not be vague but should be clear-cut, specific and as far as possible, must be quantified. For instance, instead of stating that earning good profit is the objective, it can be quantified, say, a net profit of Rs. 5 lakhs must be earned.
ii. Corporate objective – The objectives of the enterprise as a whole must first be set. Available opportunities, the capacity of the enterprise, existing level of efficiency, financial strength, etc., must all be examined.
iii. Sub-goals – Short-term, sub-goals must also be set for each unit or department in such a way that the accomplishment of the goals of all the units contribute to the realization of the enterprise objectives as a whole.
iv. Individual targets – Performance targets for each individual manager at different levels must be fixed.
Developing Action Plans:
Action must be taken for giving concrete shape to plans. In other words, action must be initiated for attaining the objectives. This involves allocation of specific responsibilities to different departments and individuals. It may also include taking decision on resources required and no motivation to be introduced so that work performance can proceed as per the time-schedule.
Step 3:
Conducting Periodic Reviews:
Superiors and subordinates should hold periodic meetings to review the progress made and to chalk out programmes for achieving targets. Performance is measured in terms of quantity, quality, time and cost. How much has been achieved, how well it has been achieved and at what expense this has been achieved are all to be discussed. Deviation from the targets set must be noted and reported for remedial action.
Step 4:
Appraising Performance (Evaluation):
The last phase of MBO programme is the annual evaluation of performance. The stress is on corrective action required for avoiding deviation from predetermined targets. Evaluation must be done both by superiors and subordinates.
Advantages of MBO:
i. It is true, beyond any shadow of doubt, that managing by objective results in much improved managing.
ii. MBO draws the attention of the managers on problems relating to the objectives of the management. It forces managers to think of planning for results rather than merely planning activities for work.
iii. Managers are also made to devise ways for accomplishing results and the organization and the personnel needed for it.
iv. Commitment and willing cooperation – Since all, including the subordinates, have a hand in actually setting these objectives, there is commitment for performance. They have clear purpose. They develop a sense of involvement. Subordinates get positive guidance from superiors and the superiors get the willing cooperation of the subordinates in accomplishing the predetermined goals.
v. Developing control – Evaluation of performance is an essential element of management by objectives. Thus, MBO aids management in developing control which means measuring activities and taking action for correcting deviation. A clear set of verifiable goals provide the necessary measuring rod.
2. Behaviourally Anchored Rating Scale (BARS):
BARS were developed in US around 1960. It describes various behaviours with reference to a particular performance dimension. In other words, it illustrates a series of behaviour both good and bad that may emerge from a particular dimension. It assigns score to different behavioural dynamics. In short, this method combines the benefits of narratives, critical incident and quantified ratings by anchoring a quantified scale with specific behavioural method or critical incident.
Process of Designing BARS:
It involves five steps:
a. Critical incidents are those essential for the performance of the job effectively. Persons who have a thorough knowledge are asked to describe critical incidents connected with job performance. These incidents need to be described in a few short sentences.
b. These critical incidents are then grouped under performance dimension.
c. Another group of people who have a thorough knowledge about the job in question again deliberate on critical incidents. Finally such of those incidents which meet 50 to 80 per cent agreement with the cluster are retained.
d. The same group assigns scores for critical behaviours included in various dimensions on 5 to 7 point scale.
e. Usually 6 to 7 incidents are included in each dimension.
3. 360 Degree Appraisal and Feedback System:
Tremendous changes happening everywhere have an impact on industry. Companies across sectors compete with one another with human resources as a competitive advantage. In other words, it ultimately boils down to the quality of HR that determines the end results of any enterprise. In this backdrop of ever increasing value of talented manpower, it is necessary to assess their worth to the organization given the recurring corporate investment on manpower development.
Conventional performance appraisal methods suffer from flaws like evaluator’s bias and narrow perspective. Newer tools like 360 degree appraisal facilitating all around comprehensive assessment of an employee has been invading the performance evaluation scenario of business enterprises.
360 degree appraisal is a process by which an individual gets feedback from different categories of individuals – boss, reporting officer, reviewers and subordinates, direct and indirect reporters, peers (colleagues) and internal customers and external customers with whom he is interacting.
There are many advantages, to individuals as well as the organization, from this tool. Since a person’s behaviour at work is assessed through multiple lens, the findings command credibility and credulity.
Objectives of 360 Degree Appraisal and Feedback:
Assessment is made on a questionnaire specially designed to measure leadership styles, managerial qualities and human behaviour at work.
Such feedback from divergent sources can be used to meet the following ends:
i. Spotting out strength and potential of the workers in terms of proven parameters.
ii. Enlightening role clarity and expanding the horizon of accountability.
iii. Leadership development.
iv. Generating data for various HR decisions.
v. Strengthening culture-building and reinforcing change management efforts.
vi. Synchronising the individual cum team efforts with vision, mission and values of the organization.
vii. Enhancing organizational effectiveness.
viii. Stepping up internal customer satisfaction.
Benefits of 360 Degree Appraisal:
It yields benefits to both organization and employees.
i. Benefits to the Organization:
a. It provides objective and credible feedback.
b. Being a participative process, it serves as a team building tool.
c. Promotes culture of transparency.
d. It is very effective for building and developing leadership and other competencies considered critical for performing various leadership roles.
e. Yields best inputs for quality HR decisions like training and development and rewards management.
f. Helps in identifying competency gap and planning development interventions.
g. Aligns the individual goals and objectives with that of the organization.
ii. Benefits to the Individual:
a. It promotes team spirit in individuals.
b. Enables an individual to spot out his strength and weakness and to focus on overcoming one’s weakness.
c. Knowledge of weakness enables individual to self-develop through learning and personal training.
d. Multiple feedback nurtures a competitive spirit among the employees.
e. Gets clarity about one’s role.
f. Enables an individual to share good relations with various constituencies by which he/she is assessed.
This method evaluates employee’s performance from the perspective of monetary benefits that the employee contributes to his organization by his performance. The benefits is ascertained by establishing a relationship between the cost of training of the employee and the benefits an organization receives from him. The factors like average value of production or service products, overheads, cost of supervisor’s time spent on appraising the employee and so on are to be considered.
This method was practised in Germany in 1930s to appraise army officers. Then it gradually spread to US and UK in 1940s. This concept is of recent origin in India. Crompton Greaves, Eicher, Hindustan Lever, Modi Xerox and so on have adopted this technique.
It is a combination of different techniques and it involves experts from different fields like psychology, human resources management and functional areas to assess the performance of employees. Therefore, the final assessment about performance of a certain employee reflects the collective opinion of experts. This method uses techniques like management games, psychometric test and group discussions.
The management games bring out the hidden potentials of employees through simulation exercises. Psychometric test examines the appraisee’s consistency in thinking and behaviour. The group discussion without group leader measures one’s decision-making and team-building skills. Assesse’s behaviour is observed and noted independently by different experts. Finally they meet together to deliberate on their pooled information and arrive at a conclusion about the performance of each and every assesse. The feedback is ultimately given to the assesses concerned to know his strength, weakness and potentials.
6. Balance Score Card Method (BSC):
This method was developed by Dr. Robert Kaplan and David Norton of Harvard Business School. Traditional financial statements reveal the story of past events. This measure was adequate for industrial age companies for which investment in long term liabilities and customer relationships were not critical for success. But contemporary companies in information age seek to create value through their investment in customers, suppliers, processes, employees, technology and innovation.
BSC seeks to transform organizational goals into performance indicators namely – Customer perspective, Financial perspective, Internal business process perspective and Learning and growth perspective.
a. Customer Perspective:
The goal of contemporary organization is to delight the customer and thereby win their loyalty. It has to set goals to achieve this end and measures performance in the light of the goals related to this aspect like lower cost of product, quality improvement, improving customer relationship, etc.
b. Financial Perspective:
Organizations are set up for profit maximization. In a competitive environment, financial success of a business entity hinges on its generation of sufficient resources to reinvest in people, technology absorption, R&D, education and so on. Accurate balance score card helps organization’s financial success and builds up value to the entity. Thus, decreasing operating expenses, creation of positive cash flow, maximization of long term profitability and so on are core areas in ensuring financial success. Goals need to be set covering various financial aspects.
c. Internal Business Process:
Organization has to identify those processes of delivering the goods and services to internal and external customers and to see that these processes are constantly improved besides figuring out newer processes. It has to set appropriate goals to meet this end.
d. Learning and Growth Perspective:
This perspective intends to measure the learning, knowledge levels and cultural attributes of the organization. Learning and growth perspectives would lead the organization to become more of a learning organization to achieve its objectives. Learning involves knowledge accumulation, innovation, technology absorption, adapting to change and culture. The goals centering these objectives are to be framed.
The aforesaid perspectives to BSC are key indicators of an organizational performance. BSC intends to measure the organization’s performance both in terms of financial and non-financial measures like productivity, culture, customer satisfaction, change absorption, technology absorption, innovation, etc.
BSC system integrates employees across the board towards a common goal. It translates strategy into performance measures and targets, thus making it operational and effective. It cascades the corporate level, measures down to all employees at the operational level so that they can see what they should do to improve organizational effectiveness and helps to focus the entire organization on what must be done to create breakthrough performance.
Performance appraisal is a thing of past. But potential appraisal goes beyond the current level of performance of employees. It is concerned with assessing the hidden potentials of employees i.e., latent capacity to discharge a responsibility. Performance appraisal is seeing above the person while potential appraisal is seeing below the person.
Purpose of Potential Appraisal:
Its purpose include:
i. To inform employees of their future prospects.
ii. To enable the organization to design a succession planning.
iii. To update training and development activities.
iv. To career counsel the employees for his career advancement.
v. To allocate jobs among the employees as per their capabilities.
Rationale behind Potential Appraisal:
There are some justification for conducting potential evaluation of employees.
i. Performance appraisal cannot be taken at face value due to likely favouritism and nepotism of raters.
ii. Higher level of performance does not guarantee a similar performance in a higher level job.
iii. The role requirements of jobs at various levels vary.
Hence, potential appraisal can bridge the gap of performance appraisal.
Traditional and Modern Methods of Performance Appraisal
There are two approaches to evaluate the performance of employees, namely, the ‘traditional approach’ and the ‘developmental approach’. The traditional approach focuses only on the past performance of the employee, i.e., during a specified period. This technique does not consider the developmental aspects of the employee’s performance, i.e., his/her training and development needs or career development possibilities.
The superior sits on the judgement of the past performance of his/her subordinates in the traditional technique. The developmental approach to performance development has made the performance appraisal process more formal and structured. Now, the performance appraisal is taken as a tool to identify better performing employees, their training needs, career development paths, rewards and bonuses, and their promotion to the next level.
The developmental technique to performance appraisal includes a feedback process that helps to strengthen relationship between superiors and subordinates and improve communication. The modern approach is future-oriented and developmental in nature. It recognizes the employees as assets and focuses on their development.
Although a number of performance appraisal techniques are available, each organization chooses the one that is more appropriate to its structure and the needs. Some traditional methods noted in different organizations are ranking methods, graphic rating scale method, critical incidents methods, checklist methods, essay method, field review method, work standard approach, assessment centres, and management by objectives.
Each of these has its own combination of strengths and weaknesses, and none is able to achieve all the purposes for which the performance appraisal system is undertaken nor is any one technique able to evade all of the pit falls; the best anyone can hope to do is to match an appropriate appraisal method to a particular performance appraisal goal.
There are various methods of merit rating which may be classified into:
(1) Traditional Methods, and
(2) Modern Methods.
The methods differ for various obvious reasons.
First, they differ in the source of traits or qualities to be rated. The qualities may differ due to difference in job requirements, statistical requirements and opinion of the management. For instance, ‘cooperation’ may not be considered at all necessary by the management. Then, it is difficult also to reliably rate such factors as cooperation.
Second, they differ with respect to the coverage who is being rated, e.g., executives, salesmen, factory workers.
Third, variations may be caused due to the degree of precision attempted in the evaluation.
And finally, they may differ with respect to methods used to obtain weightage for the various traits.
As far as practicable, merit rating should be based on objective factors; it should be a continuous process and made at regular intervals.
Any good method of merit rating should assess the following personal qualities of the employees:
(i) Knowledge of work.
(ii) Ability to do the work.
(iii) Quality and quantity of output.
(iv) Personal qualities like dependability, adaptability, initiative, etc.
(v) Special qualities like confidence, leadership, etc.
Traditional and Modern Methods of Performance Appraisal – Past-Oriented Methods and Future-Oriented Appraisal Methods
1. Past Oriented Methods:
i. Confidential Report:
It is mostly used in public sector enterprises and government organizations. It is a descriptive report prepared, generally at the end of every year, by the employee’s immediate superior/supervisor. The report highlights the strengths and weaknesses of the subordinate. The report generally does not offer any feedback to the subordinate or the appraise.
ii. Checklist Method:
Under this method a checklist of statements on the traits of the employee and his or her job is prepared in two columns namely; “yes” column and a “no” column. All the rater (immediate superior) needs to do is tick the option yes if the answer to the statement is positive and tick the column “no” if the answer is negative.
After this, the rater forwards the list to the HR department where the actual assessment of the employee takes place. The HR department assigns certain points to each “Yes” ticked and depending on the number of “yes”, the total score is arrived at. When points are allotted to the checklist, the technique is known as a Weighted Checklist.
iii. Rating Scales:
This is the simplest and the most popular technique for appraising employee performance. The typical rating scale system consists of several numerical scales, each representing a job-related performance criterion such as dependability, initiative, output, attendance, attitude, cooperation and so on. Each scale ranges from excellent to poor.
The rater checks the appropriate performance level on each criterion, and then computes the employee’s total score. The number of points scored may be linked to salary increments, whereby a certain amount of point may equal a rise of some percentage. Although rating scales offer the advantage of adaptability, ready usability and cost effectiveness; the major disadvantage of the method is the involvement of the rater’s biasness and so on.
iv. Forced Choice Method:
In this method, the rater is given a series of statements about the employees. These statements are arranged in blocks of two or more, and the rater indicates which statement is most or least descriptive of the employee.
These may include statements like:
i. Learns fast → Works hard
ii. Work is reliable → Performance is a good example for
iii. Absents often → Others usually tardy
This approach is known as forced choice method because the rater is forced to select statements which are readymade. The advantage of this method is the absence of personal bias in rating. The disadvantage is that the statements may not be properly framed and may not also precisely be the descriptive of the ratee’s traits.
v. Forced Distribution Method:
One of the errors in rating is leniency or the clustering of a large number of employees around a high point on a rating scale. The forced distribution method seeks to overcome the problem by compelling the rater to distribute the ratees on all points on the rating scale.
The method operates under an assumption that the employee performance level conforms to a normal statistical distribution. It is assumed that the employee performance level conform to a bell- shaped curve. The major disadvantage of this method is in the assumption that employee performance levels always conform to a normal distribution curve.
vi. Critical Incident Method:
This approach focuses on certain critical behaviours of an employee that makes the difference between effective and non-effective performance of a job. These events are generally noted or recorded by the superiors. One of the major advantages of this method is that the evaluation is based on actual job behaviour.
Further, the approach has descriptions in support of particular ratings of an employee. Giving job-related feedback to an employee becomes also easy. This approach can also increase the chances that the subordinates would improve their performances because they learn more precisely what is expected of them.
One of the few disadvantages includes those like the method depends on the recording of the incidents by the supervisor which might also be influenced by overly close supervisions.
vii. Behaviourally Anchored Rating Scales (BARS):
Behaviourally anchored rating scales are also known as Behavioural Expectations Scale. These are rating scales whose scale points are determined by statements of effective and ineffective behaviours. They are said to be behaviourally anchored in that the scales represent a range of descriptive statements of behaviours varying from the least to the most effective. A rater must indicate which behaviour on each scale best describes an employee’s performance.
The following table represents an example of a sales trainee’s competence and application of BARS. Raters while constructing a BARS for evaluating their employee performance, take into consideration the following steps, namely:
EABRARS:
The BARS format was used to develop the Extension Agent Behaviours and Results Anchored Rating System (EABRARS). Job dimensions and anchors were derived from a 1979 Extension agent job analysis commissioned by USDA and conducted by the American Institutes for Research (AIR). Nine job dimensions (5 behaviours and 4 results) were selected from the AIR analysis. Within each of these job dimensions, anchor statements were rewritten and grouped in categories from 1 to 7, according to AIR weightings.
EABRARS represents the beginning of a new wave of performance appraisal formats that must meet legal mandates as well as serve a variety of organizational purposes in identifying, measuring, and developing human performance.
viii. Field Review Method:
This is an appraisal by someone outside the assessee’s own department, usually someone from the corporate office or the HR department. The outsider reviews employee records and holds interviews with the ratee his or her superior. The method is primarily used for making promotional decisions at the managerial level. Field reviews are also useful when comparable information is needed from the employees in different units or locations.
ix. Performance Tests and Observations:
With a limited number of jobs, employee assessment may be based upon a test of knowledge or skills. The test may be of the paper and pencil variety or an actual demonstration of skill. The test must be reliable and validated to be useful. In order for the test to be job related, observations should be made under circumstances likely to be encountered.
x. Essay Method:
In this method, the rater must describe the employee within a number of broad categories, such as- (a) the rater’s overall impression of the employee performance, (b) the promotability of the employee (c) the jobs that the employee is now able or qualified to perform, (d) the strengths and weaknesses of the employee and (e) the training and development assistance required by the employee. Although this method may be used independently, it is most frequently found in combination with others.
xi. Cost Accounting Method:
This method evaluates performance from the monetary returns the employee yields to his or her organization. A relationship is established between the cost included in keeping the employee and the benefit the organization derives from him or her. Performance of the employee is then evaluated based on the established relationship between the cost and the benefit.
xii. Comparative Evaluation Approaches:
These are a collection of different methods that compare one worker’s performance with that of his/her coworkers. Comparative appraisals are usually conducted by supervisors. As these appraisals can result in a ranking from best to worst, they are useful in deciding merit-pay increases, promotions and organizational rewards. The usual comparative forms used in this kind of evaluation are the Ranking Method and the Paired Comparison Method.
a. Ranking Method:
In this method the superior ranks his or her subordinates in the order of their merit, starting from the best to the worst. This method is subject to the halo and regency effects, although rankings by two or more raters can be averaged to help reduce bias. Its advantages include ease of administration and explanation.
b. Paired-Comparison Method:
Here the appraiser compares each employee with every other employee, one at a time. For example, there are five employees namely, A, B, C, D, E. The performance of A is 1st compared with that of B and a decision is made about whose performance is better. Then A is compared with C, D and E in that order. The same procedure is repeated for other employees.
The number of comparisons can be calculated with the help of a formula, namely:
N (N – 1) / 2, where N stands for the number of employees to be compared.
If there are 10 employees, the comparisons will be 10 (10 – 1) / 2 = 45. After the completion of comparison, the results can be tabulated, and a rank is created from the number of times each person is considered to be superior.
(a) Explain company goals and objectives to employees
(b) Set key result areas (KRAs) early enough in the year
(c) Ensure that KRAs are understood by the employees in relation to their organizational goals
(d) See that measurable yardsticks are created and explained at the time of implementing the KRAs.
(e) Both the employee and the employer should feel that the KRAs are fair, clear and measurable.
(f) Both employee and employer must agree upon the terms of the performance metrics used to measure the KRAs.
(g) Ensure that KRAs are not changed too frequently.
2. Future-Oriented Appraisal Methods:
i. Industry Quotes:
“We at Safexpress believe that a healthy relationship between an employer and an employee is a must if the company has to grow. This can only be achieved if the employee is sure that her/his work is being acknowledged,” “An employee’s growth is largely dependent on the level of motivation s/he receives from his employer,” affirms Vineet Kanaujia, GM-Marketing, Safexpress.
It provides her/him with a reason to give her/his best. Also, an organised appraisal system helps an individual understand her/his strengths and weaknesses. This understanding aids in the employee’s development and also assists the organization in formulating a development and training schedule for the employee.
ii. Management by Objectives (MBO):
Management by Objectives is a process whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individual’s major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing the contributions of each of its members.
iii. 360 Degree Feedback Appraisal Systems:
The 360 degree feedback appraisal process is the systematic collection of performance data on an individual or group, derived from a number of stakeholders—the stakeholder being the immediate supervisors, team members, customers, peers and the self (self-appraisal).
Components of 360 Degree Appraisals:
i. Self-appraisal – When an employee is being allowed to appraise himself or herself against some predefined and mutually agreed performance goals and performance standards it is known as the self-appraisal. This forms the central hub of the 360 degree appraisal system.
ii. Peer appraisal – Here an employee is being rated by his/her colleagues or employees working in the organization having similar positions and/or responsibilities.
iii. Son/Daughter (Subordinate) appraisal – Here an employee is being appraised by his/her immediate subordinates.
iv. Parent (Boss) appraisal – This is the most commonly used appraisal where an employee is being rated and appraised by his/her immediate supervisor.
v. Grandparent/Super-boss appraisal – In this appraisal the employee is being appraised by the boss’s boss, who may be the divisional manager of even the general manager/vice president.
vi. Uncle/Aunt appraisal – Here the employee is being appraised by the departmental heads of other departments of divisions of the organization with whom the employee’s performance might be related.
vii. Client appraisal – In this appraisal, the employee is being assessed by the clients with whom he/she might be regularly be dealing with. These individuals could be the customers, dealers, suppliers, distributors, vendors, anyone in the value chain of the organization.
Steps in 360 Degree Assessment:
1. Identify and define the key competencies for organizational success based on the organization’s vision, values and goals.
2. Express the key competencies as attitudes against which participants can be assessed.
3. Select the persons to be evaluated—peers, customers, subordinates, and managers.
4. Compile the results. Feedback is to be kept confidential.
5. Provide feedback to the individual.
6. Create an action plan to improve the individual’s performance.
The 360 degree performance assessment has an advantage over the traditional manager assessment process in that the individual receives feedback from multiple relevant sources. It helps foster interdependent partnership and develops team-based organizations. It facilitates greater self-development opportunities and a formalized communication links between an employee and his or her customers.
It makes the employee feel much more accountable to his or her internal or external customers. By design, this identifying and assessing interpersonal skills, customer satisfaction and team-building skills.
Employee self-appraisal, within a performance management or annual performance review system involves asking the employee to self-evaluate his or her job performance. Typically, prior to meeting with an employee, the manager will ask the employee to complete an evaluation form on his or her own, to be used as a basis for discussion during the annual performance review meeting.
Then at the meeting, the manager and employee discuss the self-appraisal results, and negotiate final evaluations based on both the manager’s perceptions and those of the employee. Self-appraisals as part of performance management system can take the form of evaluating progress towards pre-defined annual objectives and performance standards, involve the employee in rating him or her self-using the same rating form the manager uses, or even involve self-ranking.
There are a number of benefits to having employees self-evaluate or self-appraise, either as part of the formal performance management system, or informally.
These include:
1. By having employees do some sort of self-evaluation before the actual review meeting, the review meetings can be shorter.
2. If done properly and tactfully, encouraging employees to self-evaluation or self-appraise at any time during the year, including around the actual review meetings, help convey the message that the process of performance management and appraisal is a team effort, and not something the manager does to the employee. This greases the wheels of the process, making it more effective.
3. Why self-appraisal is an accepted and integrated part of the performance management process, it encourages employees to self-evaluate throughout the year. That’s exceedingly valuable, because what most managers want is employees who can do their jobs, monitor their own progress, and self- correct all year long. When that happens managers can spend far less time firefighting or micromanaging.
Self-appraisal is an important step in making the employees feel involved in the process as appraise gives his perspective. Moreover, in the realm of self-managed work, a good manager should be able to identify good potential employees from the quality of goals set and self-evaluated.
Traditional and Modern Methods of Performance Appraisal – Graphic Rating Scale, Essay Method, 360° Performance Appraisal, Psychological Appraisal and a Few Others
Traditional Methods:
These methods lay more emphasis on rating of individuals’ personality traits, such as initiative, dependability, drive, creativity, integrity, intelligence, leadership potential, etc.
1. Graphic Rating Scale
2. Ranking Method
3. Paired Comparison Method
4. Forced Distribution method
5. Forced Choice Method
6. Essay Method
7. Group Appraisal
8. Confidential Report
9. Field Review Method
10. Check List Method-
a. Simple Check List
b. Weighted Check List
c. Critical Incident Method
1. Graphic Rating Scale or Linear Rating Scale:
This method lists a set of performance factors such as job knowledge, work quality, cooperation that the supervisor uses to rate employee performance using an incremental scale. This is the most commonly used method of evaluating an employee’s performance. In this method questionnaire is used to collect the data.
The questionnaire consists of set of questions covering aspects such as:
a. Employee characteristics include factors such as initiative, leadership, dependability, attitude, loyalty, creative ability, analytical ability etc.
b. Employee contribution includes factors such as quantity and quality of work, specific goals achieved regularity, attitude and approach towards supervisors and colleagues, etc.
2. Ranking Method:
It is the oldest and simplest method of performance appraisal. In this method the employee is ranked from the highest to the lowest or from best to the worst. Thus, if there are five employees the best employee is given the first rank and the worst employee in the group is given the fifth rank.
3. Paired Comparison Method:
In this method, each employee is compared with the other on one- to-one basis. This method makes judgment easier as compared to ranking method. The number of times the employee is rated as better in comparisons with others determines his or her final ranking.
4. Forced Distribution Method:
This technique was contributed by Joseph Tiffin. The method operates under the assumption that an employee’s performance can be plotted in a bell-shaped curve. According to a forced distribution performance appraisal, an employee is judged on his own accomplishments. This is rewarding for an employee who values individual achievements over teamwork and team-based goals.
5. Forced Choice Method:
This method was contributed by J.P. Guilford. Here, an evaluator rates an employee on the basis of a group of statements. These statements are a combination of positive and negative statements and are arranged in blocks of two or more. The rater is required to identify the most or least descriptive statement pertaining to an employee.
6. Essay Method:
In this method, the rater writes a narrative description of an employee’s strengths, weaknesses, past performance, potential and suggestions for improvement. As the essays are descriptive in nature, it only provides qualitative information about the employee.
7. Group Appraisal:
In group rank ordering the supervisor places employees into a particular classification such as “top one-fifth” and “second one-fifth”. If a supervisor has ten employees, only two could be in the top fifth, and two must be assigned to the bottom fifth.
i. In individual ranking the supervisor lists employees from highest to lowest. The difference between the top two employees is assumed equivalent to the difference between the bottom two employees.
ii. In paired comparison the supervisor compares each employee with every other employee in the group and rates each as either superior or weaker of the pair. After all comparisons are made, each employee is assigned a summary or ranking based on the number of superior scores received.
8. Confidential Report:
This is a traditional method of evaluating an employee’s performance. It is normally used in Government departments and small business units. Here, the evaluation is done by the immediate boss or supervisor. The main limitation of this method is the ratings are generally not discussed with the ratee (only in case of adverse remark).
9. Field Review Method:
If during the appraisal process there are reasons to believe that the employee is given a higher rating because of rater bias, a review process is initiated. The review process is generally conducted by the personnel officer of the HR department. This method is also used for making promotional decisions at the managerial level and when information is required from employees of different units and location.
10. Check List Method:
The main purpose of this method is to reduce the evaluator’s burden of rating the employee. In this method a dichotomous questionnaire (A question with two answer choices namely ‘Yes’ or ‘No’) is used. A rater is required to put a tick mark against the respective column. This questionnaire is prepared and scored by the HR department. The main disadvantage of this method is the rater is not given the flexibility to add or delete the statements.
a) Simple Check List:
A checklist represents, in its simplest form, a set of objectives or descriptive statements about the employee and his behavior. If the rater believes strongly that the employee possesses a particular listed trait, he checks the item; otherwise, he leaves the item blank.
b) Weighted Check List:
A more recent variation of the checklist method is the weighted list. Under this, the value of each question may be weighted equally or certain questions may be weighted more heavily than others. A rating score from the checklist helps the manager in evaluation of the performance of the employee.
Limitation of the Checklist Method:
i. The rater may be biased in distinguishing the positive and negative questions. He may assign biased weights to the questions.
ii. Another limitation could be that this method is expensive and time consuming.
iii. Finally, it becomes difficult for the manager to assemble, analyze and weigh a number of statements about the employee’s characteristics, contributions and behaviors.
iv. In spite of these limitations, the checklist method is most frequently used in the employee’s performance evaluation.
The supervisor’s attention is focused on specific or critical behaviors that separate effective from ineffective performance. This method evaluates an employee on the basis of certain ‘events’ or ‘episode’ known as critical incident. The underlying principle of this method is “there are certain significant acts in each employee’s behaviour and performance, which can make all the difference between success and failure on the job.
Thus, in this method the rater focusses his attention on all those factors that can make a difference between performing a job in a noteworthy manner
Modern Methods:
1. 360° Performance Appraisal
2. Behaviourally Anchored Rating Scales (BARS)
3. Assessment Centres
4. Human Resource Accounting
5. Management by Objectives (MBO)
6. Behaviour Observation scales
7. Psychological Appraisal
8. Result Method
9. Productivity Measures
10. Balance Scorecard
1. 360° Performance Appraisal:
360 Degree appraisal is a method of appraisal in which people receive performance feedback from those on all sides of them in the organization their boss, their colleagues and peers and their subordinates. Multiple raters are involved in evaluating performance; the technique is called 360-degree appraisal viz. Supervisors, Peers, Subordinates, Self-Appraisal, Customers and Consultants etc.
The 360-degree technique is understood as systematic collection of performance data on an individual or a group derived from a number of stakeholders the stakeholders being the immediate team members, customers, peers and self.
The 360-degree appraisal provides a broader perspective about an employee’s performance. In addition, the technique facilitates greater self-development of the employee. It enables an employee to compare his evaluation about self with perceptions of others. Though this method was developed to bring about a degree of objectivity, it still suffers from subjectivity.
This multi-source feedback method provides a comprehensive perspective of employee performance by utilizing feedback from the full circle of people with whom the employee interacts- supervisors, subordinates and co-workers. It is effective for career coaching and identifying strengths and weaknesses.
2. Behaviorally Anchored Rating Scales (BARS):
In order to overcome the problem of judgmental evaluation, this method was conceived by some organizations. This method combines the benefits of Essay Method, Critical Incident and Rating scales. In this method the employee’s behaviour and performance dimensions are analyzed and used for evaluating the performance of the employee. The HR department is involved in the process of preparing the BARS.
Based on the Employee’s performance and behaviour, employees are anchored in different slots of good, average and poor. The rater is required to give corresponding ratings to the employee. BARS combine elements from critical incident and graphic rating scale approaches. The supervisor rates employees according to items on a numerical scale.
a. Collect critical incident
b. Identify performance dimension.
c. Reclassification of incidents
d. Assessing scale values to the incidents.
e. Producing final instruments.
This method was used to appraise army officers in Germany way back in 1930s. The concept was adapted from army to business arena in 1960s. In India, the concept has been adopted by organisations such as Crompton Greaves, Eicher, Hindustan Lever and Modi Xerox recently.
This method is mainly used to evaluate executive and supervisory potential. Here employees are taken to a place away from work and a series of tests and exercises are administered. For example, assesses are asked to participate in; in-basket exercise, simulations, group exercise and role plays.
Performance of the employee is evaluated in each of these tests and feedback is provided to the ratee, in terms of strengths and weaknesses. In this approach, individuals from various departments are brought together, to spend two or three days working, as an individual or group assignment similar to the ones they would be handling when promoted.
Observers rank the performance of each and every participant in order of merit. This appraisal is mainly used for promotion purpose.
4. Human Resource Accounting (HRA):
This method evaluates an employee’s performance in relation to the contribution of an employee in monetary terms. Human Resource Accounting measures the cost and contribution of human resources in the organisation. The cost includes the cost of recruitment, selection, induction, training, salaries and other facilities, etc. Contribution is the money value of the service of the employees. This service is measured by labour productivity. If the contribution is more than the cost, then the employee performance is positive and vice-versa.
Here the rater evaluates the employee in terms of cost of retaining the employee and the benefits the organisation derives from him or her.
The following factors are taken into account in this method:
a. Cost of training the employee.
b. Quality of product or service rendered,
c. Accidents, damages, errors, spoilage, wastages etc.
d. The time spent in appraising the employee.
5. Management by Objectives (MBO):
This method was propounded by Alfred Sloans and Donaldson Brown in 1920s. However, it was further popularised by Peter Drucker in his book “The Practice of Management” in 1954.
George S. Odiorne- MBO can be described as “a process whereby the superior and the immediate subordinate of an organisation jointly identify the common goals, define each individual’s major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing the contribution of each of its members.”
In this method emphasis is laid on stating objectives for Key Result Areas (KRAs) in Quantifiable terms. MBO is used as a performance appraisal technique, as it is easy to measure whether the stated objectives have been achieved or not. MBO evaluates how well an employee has accomplished objectives determined to be critical in job performance.
This method aligns objectives with quantitative measures such as sales, profits, zero-defect units produced:
a. Joint goal setting
b. Action planning
c. Self-control
d. Periodic progress review
6. Behaviour Observation Scales:
Rating system used in identifying how often employees or trainees display the preferred behavior. Behavioral observation is a method used to measure the behavior and value of employees whose job performance cannot be evaluated on the basis of productivity alone. Such measurements are usually made based on a behavioral observation scale that is used to evaluate everyone in a comparable manner.
Such scales are generally used to record whether or not an employee engages in a certain type of behavior or action and, if so, how often. Each employee’s result from the behavioral observation scale can be compared to other employees’ results or to some objective baseline for expected behavior. Evaluation of this sort can be used to ensure that an employee is meeting expectation or to determine if disciplinary action is necessary.
Psychological appraisal is done to find out the conceptual skills, human skills, technical skills, etc. of the employee. It is done by different methods, such as in-depth interviews, psychological tests, consultations and discussions with the employees, superiors, subordinates and others, who are working with the employee.
Large organizations employ full time industrial psychologist. Here psychologists are used for evaluations they assess an individual’s future potential and not past performance.
Organizations of the contemporary periods evaluate employee performance based on accomplishments they achieved rather than on the behavioural traits. An employee accomplishment includes sales turnover, number of units produced, number of customers served, number of complaints settled etc.
In this method employees are appraised based on the ratio of output they turned out to the input they used, example, sales to employee salary and benefits, number of clients served per day etc. These measures are not free from limitations as measurement of all kinds of output as well as all kinds of input would be difficult.
The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.
It was originated by Dr. Robert Kaplan and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more ‘balanced’ view of organizational performance. Robert S. Kaplan and David P. Norton published the book, “The Balanced Scorecard – Translating Strategy into Action.”
‘A strategic planning and management system used to align business activities to the vision statement of an organization’.
The Balanced Scorecard goes beyond standard financial measures to include the following additional perspectives- the customer perspective, the internal process perspective, and the learning and growth perspective.
a. Financial perspective – Includes measures such as operating income, return on capital employed, and economic value added.
b. Customer perspective – Includes measures such as customer satisfaction, customer retention, and market share in target segments.
c. Business process perspective – Includes measures such as cost, throughput, and quality. These are for business processes such as procurement, production, and order fulfillment.
d. Learning & growth perspective – Includes measures such as employee satisfaction, employee retention, skill sets, etc.
Each perspective of the Balanced Scorecard includes objectives, measures of those objectives, target values of those measures, and initiatives, defined as follows:
a. Objectives – major objectives to be achieved, for example, profitable growth.
b. Measures – the observable parameters that will be used to measure progress toward reaching the Objective. For example, the objective of profitable growth might be measured by growth in net margin.
c. Targets – the specific target values for the measures, for example, +2% growth in net margin.
d. Initiatives – action programs to be initiated in order to meet the objective.
Balanced Scorecard as a Strategic Management System:
The Balanced Scorecard originally was conceived as an improved performance measurement system. However, it soon became evident that it could be used as a management system to implement strategy at all levels of the organization by facilitating the following functions. These functions have made the Balanced Scorecard an effective management system for the implementation of strategy.
1. Clarifying strategy – The translation of strategic objectives into quantifiable measures clarifies the management team’s understanding of the strategy and helps to develop a coherent consensus.
2. Communicating strategic objectives – The Balanced Scorecard can serve to translate high level objectives into operational objectives and communicate the strategy effectively throughout the organization.
3. Planning, setting targets, and aligning strategic initiatives – Ambitious but achievable targets are set for each perspective and initiatives are developed to align efforts to reach the targets.
4. Strategic feedback and learning – Executives receive feedback on whether the strategy implementation is proceeding according to plan and on whether the strategy itself is successful (“double-loop learning”).