OBJECTIVES OF THE PROJECT

• This project has been undertaken to share my experiences on Performance

appraisal system as well as to enhance my understanding of this fascinating
subject by doing some study & research.

• The project explains the meaning of Performance Appraisal, different

methods used to evaluate the performance of employees, its effective
implementation and the benefits of the system.

• It also aims at understanding the problems associated with performance

appraisal and suggests measures to be adopted to overcome these issues.

• Overall objective of the project is to understand the effectiveness of

performance appraisal system.

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 SCOPE OF THE PROJECT

This project report covers the definition and meaning of Performance Appraisal. It
elucidates the benefits and drawbacks of the traditional methods as well as recent
advances in the field of performance appraisal.

The project throws light on the concern areas for different people involved in the
appraisal process and attempts to find out ways to overcome those problems.

Appraisees and appraising managers have both been given guidelines in evaluation
process and subsequently the review meeting. It emphasizes how this approach will
help the appraisees by giving them an opportunity to assess and correct areas that
their supervisors feel may have overlooked. Such incidences do happen due to
personal likes and dislikes of superiors. The system can help management to take
informed decisions on pay-hikes and career enhancement for their employees.

Few formats of the performance appraisal forms have been included in the project to
show the way different companies are evaluating the performance of their
employees.

Thus, through this project report one can:

 have a reasonable understanding of the term performance appraisal;
 understand what needs to be done for its effective implementation;
 know the key areas of performance indicators;
 understand the benefits of the system;
 know how it helps in designing the Performance Rated Pay system;
 know how it helps in planning of career of employees;
 know how it helps in the future requirement of the organization as it grows.

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 EXECUTIVE SUMMARY

Performance Appraisal is a crucial activity for organizations that are looking for growth and
profit maximization in this ever-increasing competitive environment. This project report is a
review based on theory as well as research and experience.

The research report starts with the background and explains it’s importance in the
Performance Management System and also it’s changed scenario in Chapter 1.

The essential components of an effective performance appraisal system consist of

understanding it’s Foundations and the essential steps that lay the foundation. It is also
necessary to recognize the Objectives and Benefits of this system. For benefit realization it
is necessary to Identify Key Result Areas (KRAs) i.e. Goal Setting and monitor resulting
Performance so that a meaningful relationship between performance, reward and
development of required skills, through counseling – if required, can be established. Finally
lot of brainstorming is required to be done to devise a sound appraisal system by evaluating
available techniques and implementation processes. One must remember that performance
Appraisal is an inexact, human process and it is quite a challenge to actually implement it
successfully. All these aspects form subject matter for Chapters 2 through 8.

Performance appraisal system has gone through a sea change over a period of time. In the
beginning the process was non-transparent and the employee was kept in dark about his
performance. No systematic exercise was done and the entire process was arbitrary. These
earlier performance appraisal methods are discussed in Chapter 9.

The current processes of performance appraisal involve self-appraisal by the employee too.
Thus the system has gone through the phase of non-transparency to transparency. In
the transparent system of appraisals appraisee is taken into confidence and the whole
process is interactive. Review process with employees is designed in such a way that
employees become aware of what is expected from them, receive timely feedback and
recognition for their achievements. Some of these relatively transparent methods are
Appraisal Discussion-Dialogue Method of Appraisal, Competency Based Appraisal System,
Potential Appraisal, Performance and Development Planning. While new frontiers to
performance appraisal include Management by Objectives, 360º Feedback and Balanced
Scorecard. These methods are explained in depth in Chapters 10 and 11 respectively. In
this technology driven era appraisals too can be done electronically. eAppraisal system
with its salient features, benefits and process has been covered in Chapter 12.

Finally, the report is rounded up by presenting a case study on one of the top Indian
pharmaceutical companies as Chapter 13 and concluded in Chapter 14.

The report is made useful for readers by incorporating Suggestions and Recommendations
for all concerned on how to make a grand success of appraisal system followed by their
organizations.

Few blank formats of different appraisal methods and processes have been included as
Annexures (Annexure I to IX) in the report to show how today’s successful organizations
are trying to assess and evaluate their employee performance.

In conclusion, this project report will enable one to understand the concept of
Performance Appraisal; it’s evolution from non-transparent to a transparent system.
The report will also help to understand benefits and drawbacks of past and present
appraisal systems. Most importantly, the report will assist the reader in implementing
appraisal system as effective management tool for realizing organization’s as well as
individual’s goals and objectives.

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 RESEARCH METHODOLOGY

The study of the topic “Performance Appraisal” has been done through various
sources.

The primary source includes the personal experience, which has been added in this
project as the `Sample of Current Practice-Case Study’ in Chapter 13.

The secondary sources include:

• information gathered through surfing the internet;
• information available on intranet site on Knowledge Management;
• different study materials;
• private circulations from consultants;
• deliberations with practicing consultants and experts in the field;
• sample Performance Appraisal forms obtained from reliable resources.

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 Chapter 1

INTRODUCTION: CONCEPTUAL FRAMEWORK

I. Background:

1. The concept of Performance Appraisal dates back to the First World War
and was then called “Merit Rating Programme”. Over a period of time, this
concept has been through an ocean of change. The areas of evaluation
have also changed.

2. Once an employee has been selected, trained and embarked on his

duties, it is time for performance appraisal. What is performance
appraisal? Why do companies need to take up this task?

3. According to Carl Heyel, author/editor on management, philosopher and

teacher, “it is the process of evaluating the performance and qualifications
of the employees in terms of job requirements, for administrative purposes
such as placement, selection and promotion, to provide financial rewards
and other actions which require differential treatment among the members
of a group as distinguished from actions affecting all members equally”.

II. An integral part of performance management system:

1. Effective performance management requires a good deal of face-to-face

supervisor-employee interaction. By knowing the subordinates, a
supervisor can steer them onto a path of greater productivity and
optimized output. Long-term successful business owners view
performance appraisal as a process of getting to know the people who
work for them. It is the most significant and indispensable tool for an
organization. It provides information, which helps in taking important
decisions for the development of an individual and the organization.

2. Thus, one phase of the annual performance management cycle is

performance appraisal, the process of reviewing employee performance
vis-à-vis the set expectations in a realistic manner, documenting the
review, and delivering the review verbally in a face-to-face meeting, to
raise performance standards year over year through honest and
constructive feedback. In the process management expects to reinforce
the employee’s strengths, identify improvement areas so that one can
work on them and also set stretched goals for the coming year.

3. It is composed of the following two processes both of which are qualitative

subject to human bias –
a. observation and
b. judgment

4. The parameters of performance are a combination of technical expertise

and behavioural attributes. The latter scores a high degree of relevance
with regard to potential appraisal.

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III. Concept Of Performance Appraisal:

The concept of Performance Appraisal can be explained with the analogy

illustrated below:

→ The head of the key represents the uniqueness of the employee. No two
employees are alike.
→ The ring represents the management’s requirement -the job content.
→ The shaft represents the communication between the employee and the
company, the transmission of the task and the response from the
performer.

IV. Change:

1. A few decades ago, the employee used to be appraised by his department

head. The department head used to communicate his feedback and
comments only to the immediate superior of the employee. Thus the
feedback was kept confidential in nature. As time passed by, the
immediate superior started appraising his subordinate’s performance and
sending his confidential report to the department head. These were the
periods when the employee was not included in his appraisal process.
The decisions used to be taken by his superiors relating to his pay hike,
promotion etc. Thus the system was non-transparent.

2. The current process of performance appraisal is much more open and

gives some scope for self-appraisal by the employee. The self-appraisal is
followed by a joint discussion with superior and then a decision is taken by
the department head on his promotion, pay hike etc. The feedback relating
to his performance is directly given to the employee. Thus performance
appraisal process has gone through the phase of non-transparency
to transparency.

3. In this transparency phase, a performance appraisal can be defined

as a structured formal interaction between a subordinate and
supervisor, that usually takes the form of a periodic interview (annual
or bi-annual), in which the work performance of the subordinate is
examined and discussed, with a view to identifying weaknesses and
strengths as well as opportunities for improvement and skills
development.

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 4. Whether an organization accepts or not the usefulness of Performance
Appraisal, whether it adopts a formal appraisal system or not, top
management is constantly appraising the performance of its subordinate
managers in day-to-day interaction. The latter are doing the same to their
own subordinates. They are doing so because Performance Appraisal,
formal or informal, lies at the heart of art of managing.

5. Managing is a dynamic process, concerned almost entirely with the

present and the future, whereas Performance Appraisal, as generally used
has been a static rating of an employee related almost entirely with the
past. Recently, as some managements were recognizing that “rating” by
itself had very limited utility, they began to appreciate that managing had
evolved into an art. They saw that “management by hunch” could not
longer be tolerated, and that measurements-no matter how vague – were
essential for the future development of the art of managing.

6. The need for measurements gave birth to several “systems” of managing

which attempted to apply measurements of various sorts to the different
aspects and elements of the manager’s job. A number of these systems
leaned on the better Performance Appraisal methods for their measuring
devices or at least for a starting point for measurement. In some
instances, these systems expanded or broadened the meaning of
Performance Appraisal from a mere rating to include the whole concept of
management with all its elements.

What set’s the foundation of Performance Appraisal? The same has been
covered in the following Chapter 2.

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 Chapter 2

FOUNDATIONS OF PERFORMANCE APPRAISAL

Performance Appraisal assesses how well people have been doing their jobs and
what they must do to be better in their jobs. It deals with the content of the job and
what they are expected to achieve in each aspect of their work. Following are the
foundations in Performance Appraisal process:

I. Job Profile:
Job description concentrates more on the definition of tasks the jobholder has
to accomplish. It includes details of reporting relationship and normally covers
the overall purpose of the job. It indicates how an individual’s job will
contribute to the achievement of objectives of a team or a department and,
ultimately the mission of the organization.

II. Objectives:
An objective describes something, which has to be accomplished. Objectives
define what organizations, functions, departments, teams and individuals are
expected to achieve.

There are two types of objectives:

i. Work or Operational Objectives:
It refers to the results to be achieved or the contribution to be made to
the accomplishment of team, departmental and corporate objectives.
ii. Developmental objectives:
It is concerned with what individual should do and learn to improve their
performance and/or their knowledge, skills and competencies (training
and personal development plans).

III. Competencies:
Competencies refer to the behavioral dimensions of a role. It is the behavior
required of people to carry out their work satisfactorily. Competencies are
what people bring to a job in the form of different types and levels of behavior.
They govern the process aspects of job performance.

IV. Values:
Increasingly, organizations are setting out the core values that they think
should govern the behavior of all their employees. Value statements may be
prepared which define core values in areas such as care for customers,
concern for people, competitiveness, excellence, growth, innovation.

What are the essential steps that set the foundation for an effective
Performance Appraisal? These steps have been covered in Chapter 3.

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 Chapter 3

THREE ESSENTIAL STEPS FOR EFFECTIVE PERFORMANCE

APPRAISAL

The process of getting to know the people who work for the organization involves
three essential steps viz. training, evaluation and review.
I. Training:
Successful training is the implementation of a system in which everyone in
the workplace is geared towards improvement. It involves a hands on
approach in which the employee is encouraged to evaluate himself or herself
under the guidance of the appraiser.
How it works?
First, the appraiser includes the employee in the appraisal process. When an
employee knows that his or her opinion of other workers is taken into account,
he or she also realizes that everyone else’s opinion matters just as much. This
not only empowers the employee and improves relations in the workplace, but
it encourages higher productivity as well. This interactive approach is made
complete with the leadership of the appraiser. Carefully administering praise
coupled with constructive criticism keeps the workforce on its toes.
II. Evaluation:
The best methods for employee evaluation are based on results and
behavior. While conducting performance appraisal based on employees’
characteristic traits is quite common, the results are often subjective and
unsatisfactory. A results-based approach to performance appraisal is by far
the cleanest, most objective method of tackling the complex task of evaluation.
It uses a rating system to measure productivity within a given timescale. If an
employee makes a certain number of sales in a certain week, he or she can
be rated by sheer worth as well as ranked against other employees. The study
of behavior is closely tied to productivity. The pace of work, willingness to put
in overtime and ability to work with others all contribute to overall productivity.
III. Review:
The review process should, again, employ the techniques of interactivity.
Before sitting down together, the appraiser should give the employee a chance
to review himself or herself. This not only empowers the employee, but also
saves a lot of time and possible contention during the actual discussion.
Initially the appraiser should walk the employee through the process. The
successful supervisor starts out with an overview of why the review session is
needed. Then the supervisor takes the employee down a point-by-point list of
every aspect of the job. In each case, the employee should be given a chance
to describe his or her achievements and shortcomings. The supervisor should
always supplement this with added insight. While praising and applying
criticism, the supervisor maintains authority throughout the review and indeed,
the entire appraisal process.
How this entire interaction and review process is beneficial to the organization as a
whole and what are the objectives of performance appraisal? These have been
jotted down in the succeeding Chapter 4.

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 Chapter 4

OBJECTIVES AND BENEFITS

The objectives and benefits of Performance Appraisal system can be summarized as

under:

I. Objectives:
Data relating to Performance Appraisal of employees are recorded, stored and
used for several purposes like:
• Let the employees know where they stand in so far as their
performance is concerned and to assist them with constructive criticism
and guidance for the purpose of their development.
• Assessment of skills within an organization.
• Set targets for future performance.
• Effect promotions based on competence and performance.
• Strengthen relationship between superior and subordinate.
• Assess the training and development needs of employees.
• Identify the strengths and weaknesses of employees.
• Decide upon a pay raise (increments).
• Improve communication as it not only provides a system for dialogue
between the superior and the subordinate, but also improves
understanding of personal goals and concerns. This can also have the
effect of increasing the trust between the appraiser and appraisee.
• Determine whether human resource programs such, as selection, training
and transfers have been effective or not.

II. Benefits:
The following are the benefits of a successful appraisal system:

1. For the Organization:

♦ Improved performance throughout the organization due to:
− Effective communication of organization’s objectives and values.
− Increased sense of cohesiveness and loyalty.
− Managers are better equipped to use their leadership skills and
to develop their staff.
♦ Improved overview of tasks performed by each member of a group.
♦ Identification of ideas for improvement.
♦ Creation and maintenance of a culture of continuous improvement.

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 ♦ Communication to people that they are valued.
2. For the appraiser:
♦ Opportunity to develop an overview of individual jobs.
♦ Opportunity to identify strengths and weaknesses of appraisees.
♦ Increased job satisfaction.
♦ Opportunity to link team and individual objectives with department &
organizational objectives.
♦ Opportunity to clarify expectations that the manager has from teams
and individuals.
♦ Opportunity to re-prioritize targets
♦ Means of forming a more productive relationship with staff based on
mutual trust and understanding.
♦ Due to all above Increased sense of personal value

3. For the appraisee:

♦ Increased motivation and job satisfaction.
♦ Clear understanding of what is expected and what needs to be done
to meet expectations.
♦ Opportunity to discuss aspirations and any guidance, support or
training needed to fulfill these aspirations.
♦ Improved working relationships with the superior.
♦ Opportunity to overcome the weaknesses by way of counseling and
guidance from the superior
♦ Increased sense of personal value as he too is involved in the
appraisal process

In line with the objectives of Performance Appraisal, to reap it’s benefits, this system
has to be effective failing which it may mar the very purpose of performance
appraisal.

How to make the appraisal process effective is what has been covered in the
subsequent Chapter.

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 Chapter 5

EFFECTIVE APPRAISAL PROCESS

When it comes to performance appraisal, managers and employees agree about one
thing: They hate going through them. Employees, managers and HR experts agree
that fear, guilt, responsibility and resentment are the real reasons why most
employees dread the appraisal process. Besides some think that it is a ritual that is
mandatory to follow.

An effective review process helps organizations in three areas:

1. evaluation and improving personnel selection and training systems;
2. preventing wrongful termination; and
3. increasing real employee diversity

I. Good appraisals start with information from multiple sources, and they
evaluate employees at all levels from top to bottom.
II. This system requires both the appraisee and appraiser to jointly assess the
employee’s ability to complete the duties and achieve the goals set forth in the
previous appraisal.
III. HR professionals should consider the following steps and make the appraisal
process simple yet effective:
• The performance Appraisal form should reflect the strategic objectives of
the company. Many organizations use a form that contains several
sections.
• The results and impact section should address accomplishments related
to job responsibilities, goals and projects. It is a review of past
performance.
• A skills and abilities section should discuss the ways those results were
accomplished. By listing the core competencies for each job classification
– and for the entire organization – this section can address the kinds of
behavior that are critical for success.
IV. Appraisal results, either directly or indirectly, determine reward outcomes. The
better performing employees may get the majority of available merit pay
increases, bonuses and promotions, while the poorer performers may require
some form of counseling or in extreme cases no increases in pay. The
assignment and justification of rewards and penalties through performance
appraisal is a very uncertain and controversial matter and conveys both
satisfaction as well as dissatisfaction with an employee’s job performance.
Whatever is the case, organizations should foster a feeling that performance
appraisals are positive opportunities that provide for overall development of
the employee, in order to get the best out of the people and the process.
Hence performance appraisals should be positive experiences and it
should never be used to handle matters of discipline.

12
Performance review needs goals to be set first. Identification of Key Result
Areas i.e. Goal Setting has been explained in the Chapter 6.

13
 Chapter 6

IDENTIFICATION OF KEY RESULT AREAS (KRAS) –

GOAL SETTING

Setting of Key Result Areas i.e. goals is one of the various parameters of
performance evaluation. These are also known as the Targets or Performance
Indicators (PI). Target setting is the first step in the appraisal process, based on
which the employee is appraised.

I. The Purpose or Objective of Target Setting

∙ Ensure that each individual is working towards clearly stated objectives that
tie into the division goals.
∙ Provides a sound basis to improve performance.
∙ Encourages open communication concerning expected results and progress
towards results.
∙ Helps the individual know “How he/she is doing” compared to what his/her
manager expects.
∙ Encourages comparison on individual objectives to identify overlapping or
omitted objectives.
∙ Helps in salary review, and self-development.

The recent trend from a focus on traits or behavior to a results-oriented

approach has seen the emergence of objectives setting as a key issue.
However, managers should attempt to agree objectives with their staff rather
than setting them themselves for the forthcoming period during appraisal
discussion. These objectives or targets should comply with the mnemonic
SMART i.e. Specific, Measurable, Achievable, Realistic and Time-bound.

II. SMART criteria for performance goals

SMART Performance
Criteria Checklist
Goals
Specific
States in clear terms ∙ Does it specify
what outcome, result or - Improved level of quality, quantity, time or use
behaviour is to be of resources.
achieved.
- A new/innovative result, faster time line, or
- An improved behavioral outcome?
∙ Does it have a clearly stated singular result?
Measurable
Includes measurable ∙ Will you know from information, data or
results or a description of observation when it is achieved?
the desired outcome. ∙ Does it specify-What? How much? How well?

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 SMART Performance
Criteria Checklist
Goals
Achievable
A realistic expectation, given ∙ Are resources, authority level, and requisite
time and resources skills in place?
∙ Does it require a stretch of effort?
Realistic
There is a clear tie to goals ∙ Will it matter when it is done?
of the department, division ∙ Does the objective support relevant goals?
etc.
∙ Does it deal with a key aspect of the job?
Time Bound
There is a time limit or ∙ When are the goals to be completed?
deadline by which the ∙ Is there a timetable for milestones or
objective must be achieved checkpoints?
and there may be a time
frame to track phases of
completion in an action plan.

III. Type of Goals:

One may have to set multiple goals combining goals at different levels viz. the
long-term goal, the short-tem goal and the minimum or standard goal.

1. The long-term goal:

The long-term goals are the level of performance sought over a period of
one to two years. Usually this level is significantly better than current
performance. In some cases, the long-term goals are the ultimate level of
performance, such as “zero defects” or “zero absenteeism”. Unlike the other
two goals (described below), the long-term goals can be dictated by
management without regard to past performance or to whether the long-term
goals is currently perceived as attainable.

2. The short-term goal:

The short-term goals is the level of performance desired and perceived as
being attainable with some effort within a period ranging from three months
to one year. At the end of that time, short-term goals are re-evaluated
based upon performance. The expectation is that when the short-term goal
is consistently being met, it will be moved closer to the long-term goal.
∙ It must be less than or equal to the long-term goal
∙ It cannot be better than the best performance ever achieved; and
∙ It must be better than the current average or typical performance. Short-
term goals are negotiated. Usually employees and lower level managers
recommend and develop short-term goals subject to approval by
management.

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 3. The Minimum or Standard goal:
The minimum or standard goal is the cut-off point for signaling the existence
of or potential for a performance problem. Like short-term goals, minimum
standards are set for a limited period but for longer duration – perhaps one
to two years. Minimums/standards are negotiated like short-term goals and
must conform to the following criteria:
∙ They must be less than or equal to current average/typical performance;
and
∙ They cannot be worse than the worst performance for any previous
period.

IV. To aid goal setting the following steps may be adopted:

1. Consider the job on the following areas:
- Routine responsibilities
- Problem solving responsibilities
- Innovative responsibilities
- Development responsibilities

2. Locate key tasks in each of the above areas.

3. Periodic Progress Review

The intent of this review is to provide a reconfirmation of direction to
maintain commitment for the balance year. Targets, though should be
stable over the performance period, should be flexible enough for revision
when changes in priorities or responsibilities lead to the expectation of
different results.

V. Key Steps to Goal Setting:

1. The appraiser should:
∙ in advance, review notes on employee’s performance;
∙ discuss targets, praise achievements and identify causes of targets not
being met;
∙ discuss performance skills, reinforce good performance and identify
causes for skills not being met;
∙ agree on the plan for corrective actions to be taken by both;
∙ where necessary, revise targets;
∙ create a non-threatening climate and express confidence.

2. Joint Accountability:
Management must recognize that most results are achieved through the
corporate efforts of two or more people. Therefore, the management style
must encourage maximum individual contribution in co-operation with
others.

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Decision on pay hike, promotion and development is outcome of target
achievement and the same has been detailed in following
Chapter 7.

17
 Chapter 7

PERFORMANCE, PAY AND DEVELOPMENT

The outcome of the appraisal is either in the form of reward by way of increase in
pay, additional bonus or incentive and/or promotion, or by way of not effecting any
increase in pay, denying promotion etc. This gives emergence to the concept of
Performance Related Pay (PRP).

I. Performance related pay is not an easy option. Before embarking on its

introduction the following factors should be taken into account.

1. Matching the Culture:

Successful PRP schemes need to match the culture and core values of
the organization. It is only by understanding and working with the culture
that it is possible to develop schemes.

2. Linking PRP to the Performance Management process:

The focus when relating pay to performance needs to be one of the issues
which emerge from the business planning process such as profitability,
productivity, cost control, research initiatives, product and market
development and generally increasing stakeholder value.

3. Balancing performance measures:

The performance measures used as a basis for rating must include a
balanced mix of both input factors (skills and competences) and output
factors (performance and contribution). The assessment upon which pay
decisions are made should be based not only on performance in achieving
objectives, contribution to organizational success and the levels of skill
and competence achieved, but also on the degree to which the behavior
of individuals support corporate values in such areas as teamwork, total
quality management, customer services, innovation, etc.

4. Flexibility:
PRP arrangements should allow for some flexibility in the criteria for
reward and the method of payment.

5. Teamwork:
Poor PRP schemes can produce a lot of single-minded individuals. The
importance of teamwork should be recognized in structuring the scheme
and in defining critical success factors and performance indicators.
Individuals should be aware that achieving their targets at the expense of
others is not considered competent performance.

6. Avoiding Short-termism:
To avoid the danger of PRP focusing attention on short-term results at the
expense of more important longer-term objectives, long-term as well as
short-term goals should be set wherever appropriate and short-term
objectives should be discussed in their overall context.

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7. Involvement in the design process:
The design of PRP schemes is usually an iterative process- trying and
testing ideas on measures and structure with those who will eventually be
involved in the scheme. It is also a valuable learning process, which can
throw up fundamental strategic and business issues. Those due to
participate in the scheme should have an input into agreeing critical
success factors and performance indicators both for themselves and the
organization.

8. Getting the message across:

PRP provides a very powerful form of communication. To get the right
messages across, the following question will have to be dealt with:

Assess reasons for PRP

• Why do we want to introduce PRP?
• What, realistically, do we expect to get out of it?

Assess readiness for PRP

• Is PRP right for our culture?
• Do we have the Performance Management and other processes
in place required for successful PRP?
• Are the attitudes of management and other employees in favour
of PRP? (An attitude survey can be conducted to establish
opinions).
• Do the people concerned with managing PRP have the required
skills and resources?
• Is PRP likely to make a significant enough impact on
performance to justify the costs of developing, introducing and
operating the scheme?

Decide whether or not to introduce PRP

• Does the result of the above assessment indicate that PRP is
right for the organization?
• If no, what are the alternatives? There are many: Consider
performance-related team pay, organization-wide profit sharing or
profit-related pay plans, gain sharing, the use of incentive or bonus
schemes, concentrating more on the motivational aspects of
Performance Management, job re-design to increase motivation,
performance-related training more intensive management coaching
and training to improve leadership abilities, process re-engineering to
improve organizational performance and productivity.

Brief, consult and involve employees

• How should employees be informed of the organization’s
objectives and intentions concerning the introduction of PRP?
• How do we minimize concerns about PRP through this briefing
process?

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• To what extent and how should we consult and involve
employees?

20
Design scheme
• What criteria should be used for determining PRP awards? It
can be an appropriate mix of:
− Input criteria related to the skills and knowledge brought to
bear on fulfilling role responsibilities
− Process criteria related to the behavioral competencies used
successfully in achieving results
− Output performance indicators related to the achievement of
objectives and meeting performance requirements as set out
in statements of principal accountabilities or main tasks
− Outcome contribution indicators which measure how outputs
contribute to the achievement of team, departmental and
organizational objectives and how the behavior of individuals
support corporate values
• To what extent will it be possible to define the criteria in the key
jobs for which PRP will operate?
• Are performance measures available for these criteria, which
will enable fair and consistent assessment to be made?
• What form of rating system should be used?
• How are we going to ensure that ratings are fair and consistent?
• What are our policies be on the size of payments in relation to
performance, contribution, skill and competence?
• What should our policies to be on the rate of progression and
any limits to progression within pay ranges?
• Does the organization want to make provision for performance-
related lump sum bonuses for special achievement or sustained
high-level performance at the top of a range?
• Should PRP reviews be separated in time from performance
reviews conducted as part of the Performance Management
process?
• What rating, pay increase and budget guidelines are going to be
issued to managers implementing PRP in their departments?
• Should performance matrices be used? If so, how should they
be constructed?
• How PRP will be monitored and its effectiveness be evaluated?
• How the cost of PRP would be controlled?
• What is the program for developing and introducing PRP?

Brief and train

• How the organization is going to brief and train line managers
on the PRP scheme?
• How the organization is going to brief employees in general on
PRP so that they understand how it will operate and how they
will benefit?

21
 Implement
• How the process should be started? Even after due care some
unforeseeable problem will arise. It is often advisable to start
with a pilot scheme, probably at management level so that they
understand the principles, benefits and problem before applying
PRP to the people for whom they are responsible.
• How to monitor the introductory stages? It is essential to keep
closely in touch with how things are going so that problems can
be anticipated or dealt with swiftly when they arise.

Evaluate
• Have clear objectives been established for the scheme the
progress towards which can be measured and evaluated?
• How to carry out a continuing monitoring and evaluation
process?
• Who is responsible for evaluation and taking any corrective
action that may be required?
• What points should be covered?

9. Evaluating Performance Related Pay

It is essential to evaluate the acceptability and cost effectiveness of PRP.
The following questions should be answered:
• To what extent have the defined objectives of PRP been achieved?
• How much have been paid out under the scheme?
• What differentials have emerged between high/average performers over,
say, 2-3 years?
• What measurable benefits has PRP produced in the shape of improved
organizational, team and individual performance?
• How do managers regard PRP? Do they, for example, believe that it is
operating fairly?
• To what extent have rewards been linked to key and measurable areas
of performance? Are rewards meeting people’s expectations?
• Do Performance Management processes provide adequate support for
PRP?
• Do the organization want to retain PRP in its present form? If not, what
are the alternatives?

10. Performance Related Pay (PRP) in practice

There is no doubt the system of PRP must be made to fit the culture of the
organization. This either means that the existing culture can be receptive
to the competitive and individual elements of PRP or the culture has to be
changed. PRP can be used as part of the change process but, on its own,
it is unlikely to be powerful enough to prove successful.

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11. Performance Related Pay (PRP) – a judgment?
Does Performance Related Pay work? Most experience in the United
States is that greater use of performance pay results in improved
organizational performance as measured by return on capital employed,
particularly when applied to managerial pay. In the United Kingdom, the
few studies have been largely negative or inconclusive.

Finally, all research has confirmed that employees regard positively the
concept of PRP but deny quite strongly that it acts as a motivator for them
in practice, and are mostly critical of the resulting procedural and
distributive justice. It can be concluded that employees may work harder,
in a more focused way and get better results through a PRP system which
is under printed by a robust performance management scheme but
employees may do this through a mixture of necessity and fear, rather
than a genuine desire to do so.

Employees need to be developed for superior performance. PRP helps in

identifying the development areas for an employee and where he needs to
be counseled. The concept of counseling is discussed hereafter.

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 THE COUNSELING PROCESS

Counseling is an act of providing professional guidance. It involves the long-term

development and realization of the potential of an employee through the technique of
advising. Performance management counseling is a valuable tool for superiors to
use, particularly when subordinates show substandard performance.

I. The main objectives of counseling are:

• helping appraisee to realize his potential
• helping appraisee to understand himself i.e. his strengths and weaknesses
• providing appraisee an insight into his behavior.
• helping appraisee to have better understanding of the environment
• identifying performance problems or obstacles
• encouraging appraisee to generate alternatives for dealing with various
problems

II. The counseling process consists of three stages:

• Recognition and Understanding : Recognizing and understanding the
Indications of problems and issues.
• Empowering : Enabling the employee to recognize his
own problem or situation and
encouraging him to express it.
• Resourcing : Managing the problems, this will include
the decision on who is best able to act
as counselor – the manager or a
specialist.

III. Approaches to Counseling:

The following are different approaches to counseling:
1. The Tell and Sell Approach:
• Appraiser lets appraisee know how he/she is doing.
• Gets appraisee’s acceptance of the evaluation.
• Gets appraisee follow a plan outlined for improvement.

2. The Tell and Listen Approach:

• Appraiser lets appraisee know his performance.
• Appraiser allows the appraisee to respond.
• Appraisee is allowed to think and decide what needs to be done.

3. The Problem Solving Approach:

• Appraiser encourages appraisee to identify problem areas.
• Appraisee discusses with appraiser in deciding what should be done
about the problems.
• Steps are taken to solve problems.

24
 Of the three approaches discussed above, the problem solving approach is the
best approach. The below comparison justifies how:

The Tell and Sell The Tell and The Problem Solving Approach
Approach Listen Approach
Requires Requires skills on Encourages appraisee to review his
considerable skill to
the part of own performance and identify
get people to accept
appraiser in problem areas thus motivating
criticism listening appraisee
Is more of a one- Better than the Appraiser does not impose his
way communication `tell and sell decision but discusses problems
process, indicating
approach’ since it with appraisee
authoritarianism involves
appraisee
Such approach may Appraiser does This also requires skills but is the
not motivate the not play a very most effective method of counseling
appraisee or even active role where both appraiser and appraisee
may turn counter- enjoy confidence of each other and
productive work together in the direction of
finding out solutions.

IV. Counseling is an art and requires skills, which are difficult to acquire in the
normal course of work. It is, therefore, suggested that appraisers should be
provided with special training by experts in counseling skills.

Counseling skills required by a good appraiser are:

• Problem identification : recognizing that the problem exists.

• Probing : probing by open-ended, non-directing

• Listening
• Sensitivity
questions to make the appraisee more
comfortable.
: ability to listen attentively by probing,
evaluating, interpreting and supporting.
: sensitivity to individual beliefs and values.

• Reflecting : being able to restate the problem from

appraisee’s point of view.
• Empathy : having regard for feelings and anxieties of the
individual.
• Impartiality : ability to remain impartial.

• Sincerity : having a genuine attitude of interest and

openness to the individual’s problems.
• Belief : having the belief that individuals have the
resources to solve their own problem, with
some help and guidance.

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V. Follow-up of completed appraisal:
Post appraisal is very crucial for helping employee and the immediate superior
i.e. appraiser playing the role of a Facilitator and Developer.
• Enough time (say one week) should be given for the appraisee as well as
appraiser to prepare for Post-Appraisal discussion.
• This discussion should be devoted uninterrupted and sufficient time, say an
hour or so.
• Appraisee should be put at ease and allowed to first speak on his
performance.
• The appraiser should listen attentively without interruption with patience.
• Appraiser should be supportive and objective on performance evaluation of
the employee.
• Appraiser should discuss the training and development needs with the
appraisee.
• Finally, the meeting should conclude wherein the appraisee leaves with a
feeling of empowerment.

The subsequent chapter gives guidelines on Designing an Appraisal Process.

26
 Chapter 8

DESIGNING AN APPRAISAL PROCESS

Before understanding the process of appraisal, the following terms are revised:

▪ Performance refers to an employee’s accomplishment of assigned tasks.

▪ Performance Appraisal is the systematic description of the job-relevant

strengths and weaknesses of an individual or a group.

▪ Appraisal period is the length of time during which an employee’s job

performance is observed in order to make a formal report of it.

▪ Performance Management is the total process of observing an employee’s

performance in relation to job requirements over a period of time (i.e. clarifying
expectations, setting goals, providing on-the-job coaching, storing and recalling
information about performance) and then making an appraisal of it. Information
gained from the process may be fed back via an appraisal interview to determine
the relevance of individual and work-group performance to organizational
purposes, improve the effectiveness of unit and improve work performance of
employees.

Designing an appraisal program poses several questions, which need answers.

They are:

1. Whose performance is to be assessed?

2. Who are the appraisers?
3. What should be evaluated?
4. When to appraise?
5. What problems are encountered?
6. How to solve the problems?
7. What methods of appraisal are to be used?

1. Whose performance should be assessed?

The answer is obvious – employees. When we say employees, it is individual
or teams? Specifically, the appraisee may be defined as the individual, work
group, division or organization.

2. Who are the appraisers?

Appraisers can be immediate superiors, specialists from the human resource
department, subordinates, peers, committees, clients, self-appraisals or a
combination thereof.

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 3. What should be evaluated?
One of the steps in designing an appraisal program is to determine the
evaluation criteria. It is obvious that the criteria should be related to the job.
The criteria for assessing performance can be:
a. Quality & Quantity
b. Timeliness
c. Cost Effectiveness
d. Need for supervision
e. Interpersonal impact
f. Innovation & Creativity
g. Problem Analysis
h. Customer orientation
i. Market Orientation
j. Entrepreneurial Drive
k. Negotiation skills etc.

This is not an exhaustive list, but several other parameters too can be added
depending on job requirements and organizational needs.

4. When to appraise/rate?
The most frequent rating schedules are semi-annual and annual. New
employees are rated more frequently than older ones. Some practices call for
ratings:
∙ Annually as per company practice
∙ After first 6 months of employment
∙ Upon promotion or within 3 months after promotion
∙ When the job occupied has been reevaluated upward
∙ Upon special request, as when the employee’s salary is below the
average pay

5. What are the problems related to Performance Appraisal?

An ideal Performance Appraisal is done when the evaluation is free from biases
and idiosyncrasies of the evaluator. There are many factors of appraisal that
lead to failure of the system:

a. Negative attitude towards Performance Appraisal:

There is a large population of managers who are hostile or indifferent to
the Performance Appraisal processes and/or do it badly if they do it at all.

i. Hostility from the appraiser:

The appraiser reacts indifferently to the appraising system because
he believes that it is a waste of time. At times they feel that the
scheme has nothing to do with their own needs and it exists to feed
the personnel database.

28
 ii. Hostility from the appraisee:
Hostility from the people at the receiving end arises because they
feel Performance Appraisal is simply another method in the hands of
the managers to exercise their command and control prerogatives.
They feel that the data collected will be utilized as evidence against
them. In some cases appraisees even have a feeling that the
outcome of the performance evaluation is predetermined by the
management or their superiors and the process is completed only as
a formality, due to which appraisees lack interest in the entire
appraisal process.
b. Halo Error:
Under this type of error, one marked characteristic or latest achievement
or failure of the appraisee (either favourable or unfavourable) may be
allowed to dominate the appraisal for the entire year.
c. Logical Error:
This is a dangerous pitfall for the inexperienced appraiser. He is very
often inclined to arrive at similar assessments in respect of qualities that
seem logically related.
d. Constant Error:
When two appraisers rate an appraisee their ratings may be different.
One may show consistent leniency by giving him high scores, the other my
consistently rate him by giving low scores.
e. Central Tendency:
It is also called as “Average Ratings”. Here, the appraiser tends to avoid
giving frank views to the question asked or the appraiser is in doubt or he
has inadequate information or he simply wants to play safe and don’t
displease anyone.
f. Mirror-Image Error or Projection Error:
This error arises when an appraiser expects his own qualities, skills, and
values in an appraisee. The appraiser may falsely believe that if the
appraisee is good he has to be like him (appraiser) because the appraiser
considers himself as the standard.
g. Contrast Error:
This error occurs in the sequencing of ratings. If superior performers are
rated first, average performers are rated down, if poorer performers come
first, the average performers will be rated more highly.
h. Biases of position, Sex, Race, Religion & Nationality:
There is a tendency to rate the occupant at a higher position more
favorably than the person in a lower position. Similarly rating can be
biased based on sex, religion and nationality too.
i. Lack of Skill in conducting Appraisal discussion:
Conducting Performance Appraisal discussions require certain skills and
training.

29
 6. How to solve the appraiser’s problems?
The best way to overcome the problem is to give training to the appraiser.
Training can help improve the appraisal system to the extent that distortion
occurring due to appraiser errors such as halo, leniency, central tendency and
bias are minimized.

a. Factors that help to improve accuracy:

• The appraiser has observed and is familiar with behaviors to be
appraised.
• The appraiser has documented behaviors calling for improvement.
• The appraiser has a checklist to obtain the review on job-related
information.
• The appraiser is aware of personal biases and is willing to take action
to minimize their effects.
• Rating scores by appraisers of one group or organization are
summarized and compared with those by other appraisers.
• The appraiser focuses attention on performance related behaviors over
which he has better control than on other aspects of evaluation.
• Higher levels of management are held accountable for reviewing all
ratings.

b. Factors that may lower accuracy:

• The appraiser rates only when administrative actions are
contemplated.
• The appraiser is unable to express herself/himself honestly and
unambiguously.
• Appraisal systems, processes and instruments fail to support the
appraiser
• The appraiser is unaware of causes of rating errors.
• The appraiser has to rate employees on factors that are poorly defined.

7. Techniques/methods of appraisal to be used?

There are different types of systems for measuring the excellence of an
employee. Each type has its own advantages and disadvantages. The earlier
developed methods, still being used, are Traditional Methods that are non-
transparent in nature. While other newer methods are transparent in nature.
Each of the method has it’s own format of appraisal form.

The various techniques and processes have been explained in the

forthcoming chapters.

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 Chapter 9

TRADITIONAL METHODS OF APPRAISAL

As explained in Chapter 1 Performance Appraisal is an exercise of observation and

judgment, a feedback process, and an organizational intervention. It is a
measurement process as well as an intensely emotional process. Above all, it is an
inexact, human process. While it is fairly easy to prescribe how the process should
work, descriptions of how it actually works in practice are rather discouraging.

Some of the traditional methods of appraisal are explained below:

Ranking
In this, the superior ranks his/her subordinates in order of their merit, from best
to worst.
- It is done in a competitive group.
- It is done by placing the appraisee on numerical scales i.e. 1st, 2nd, 3rd etc.
in the total group.
- Ranking of an appraisee on his job performance/traits against that of
another member.

Person-to-Person/Paired Comparison
Under this method the appraiser compares each employee with every other
employee, one at a time.
- Certain key performance areas/traits are developed. E.g.: Leadership,
Creativity, Initiative etc.
- A scale for each factor is designed.
- A scale of people is also created for each factor.
- Each Appraisee is compared to every other person on the scale.
- Certain scores for each factor are awarded to the appraisee.

Grading
- Certain categories of traits/performance criteria, which are worth of
appraising, are established. E.g. cooperativeness, self-expression,
dependability, job knowledge etc.
- The actual performance (Key performance area) of an employee is then
compared to the predetermined grade definitions.
- Appraisee is allotted with the grade, which describes his performance in
the best possible manner.
- Any grade that is selected should be well defined.

31
Graphic Scales
- A printed form, one for each person to be rated is used.
- The factors included in the form are Employee characteristics such as
leadership, cooperativeness, enthusiasm, loyalty etc. or Employee
contribution which includes quantity and quality of work, specific goals
achieved, regularity of attendance, responsibility assumed etc.
- The traits can be evaluated on continuous scale – the appraiser places a
mark along a continuum (range).
- The best method to use is the “multiple” type of scale wherein one has to
“tick off” the box, which suits the description of an appraisee’s
performance.
- Certain types of graphs are prepared based on these derived ratings.

Checklist
- A series of questions are presented concerning an appraisee’s behavior.
- The appraiser has to reply to the questions in either negative or positive
tone- (Yes/No).
- The value of each question may be weighted i.e. one can have
predetermined scale and scoring to those questions.

Essay
- A blank form is given to the appraiser.
- The form contains main heading such as employees’ characteristics,
attitudes, job knowledge, potential etc.
- The appraiser is asked to put in words his impressions about the
employee.
- It contains factual and concrete knowledge.
- It gives specific information about the employee.

Confidential Reporting
- It is the most traditional way of appraising employee’s performance. The
basic assumption here is that since the superior is in direct contact he
knows his subordinates better than any other and hence his appraisal
would be more appropriate.
- The superior writes a paragraph or so about his subordinate’s strengths,
weaknesses, intelligence, attitude to work, attendance, conduct and
character, work efficiency, etc.

Critical Incident Method

- Initially a set of noteworthy (good or bad) on-the-job behaviours is prepared.
This is usually in the form of incidents.
- These incidents are given to a group of experts who assign scale values
depending upon the degree of desirability for the job.
- This checklist is used by superiors for evaluating the employees.

32
 - This method helps in identifying the key areas where the employees are weak
or strong.
- It emphasizes rating on objective evidence and helps in counseling.

Forced Choice Technique

- In forced choice system the appraiser is forced to choose one from among
a group of 4 statements that best fits the individual being rated and one
which least fits him.
- Each statement is given a value or a score.
- The evaluator does not know the score value of statements; hence he
cannot show any favor towards the appraisee.
- The method of arranging the traits involves a long process from getting the
description of “good” or “bad” employees to establishing their validity and
reliability.

Behaviourally Anchored Rating Scales (BARS)

- Behaviourally Anchored Rating Scales (BARS) are anchored with
descriptive alternative behaviors.
- For every given category of behavior or performance, statements are
ordered in an ascending or descending order of excellence.
- Although these scales represent job-relevant dimensions of performance,
they still pose problems in determining which actually, observed
behaviours match with specifically anchored performance scales.
- Despite this difficulty, BARS are a significant improvement, since they
require less inference on the appraiser’s part as against traditional rating
approaches.

The above methods are non-transparent in nature, as the appraisee or the employee
is not involved in the process of his appraisal. The rating is done entirely by his
superiors.

The other methods wherein employee is appraised not only by his superiors
but also by the appraisee himself, and in some cases with involvement of third
parties are newer methods and detailed in Chapters 10 and 11.

33
 Chapter 10

RELATIVELY TRANSPARENT METHODS OF APPRAISAL

As time has progressed, there have been advancements in the appraisal system. As
against the earlier traditional methods, the newer methods include self-appraisal by
the appraisee. After having discussed the appraisal with the appraisee, the appraiser
forwards his recommendation to the management for further decision on reward
giving.

Some of the relatively transparent methods have been detailed below:

Appraisal Discussion – Dialogue Method of Appraisal

1. An appraiser and appraisee get together to engage in a dialogue about the

appraisee’s performance and development. It is like a meeting in which views are
exchanged so that an agreed conclusion can be reached. The formal appraisal
meeting is referred as discussion because there is a free-flowing affair in which both
parties are fully involved.

2. The appraisal discussion provides the means through which the five key
elements of Performance Appraisal can be achieved. These are:
a. Measurement: It assesses results against agreed targets and
standards.
b. Feedback: It gives the appraisee information on how he or she has
been doing.
c. Positive reinforcement: It emphasizes what has been done so that it
will be done even better in the future. A constructive criticism is done
i.e. points that help in improving performance are given.
d. Exchange of views: It ensures that the discussion involves a full, free
and frank exchange of views about what has been achieved, what
needs to be done to achieve more, what appraisees think about their
work, the way they are guided and managed and their aspirations.
e. Agreement: Both parties jointly arrive at an understanding about what
has to be done in order to improve performance and overcome any
work problems raised during the discussion.

Opening the Discussion

During the discussion the appraiser should build up good trust level with
the appraisee and should take following steps to open a discussion:

a. He should start by reminding the appraisee of the purpose of the

discussion, stressing that this is not to dwell unduly on the past but to
look to the future.
b. The appraisee should be made aware of the time set aside for the
discussion to demonstrate that he is not going to rush through it.

34
 c. Continue by explaining that the aim is to come to an agreement on
what has been achieved since the last meeting and what is to be
achieved in the future.
d. This should be followed by a brief exchange in which each party
itemizes the key points they want to discuss – setting the agenda.
e. The discussion can then begin, probably with an invitation from the
appraiser to the appraisee to talk generally about the progress he or
she has been making during the year with reference to notes made
prior to the meeting or a completed preparation form.

General Guidelines
There are a number of general guidelines on how the appraisal discussion
may be conducted. Each of them should be applied according to the
circumstances in which the discussion is taking place and the
personalities of those involved – there is no one right way to conduct an
appraisal discussion.

a. Let the appraisee do most of the talking.

b. Encourage self-appraisal
c. Keep the whole period under review
d. No surprises i.e. discuss issues at the time they take place.
e. Recognize achievements and reinforce strengths
f. Criticize constructively
g. Adopt a joint problem-solving approach
h. Asking the right questions

There are four basic types of questions:

a. Open Questions: Open questions help to create an atmosphere of
calm and friendly inquiry. It can be expressed quite informally, and can
be put in a ‘tell me’ form. E.g.: How do you think things have been
going?
b. Probing Questions: Probing questions ask for specific information on
what has happened and why it has happened. They examine closely
the steps that need to be taken to put things right, do better in the
future and avoid repeating a mistake.
c. Closed Questions: When there is a need to obtain or confirm specific
factual data, a closed question, which severely restricts the reply to
supplying the information, is asked. E.g. How many times has this
happened?
d. Leading Questions: Leading questions are those which supply their
own ‘right’ answer, e.g. Do you agree that …….?

35
 A typical appraisal discussion contains a mix of open, probing and closed
questions. While the conversation should be kept going with open
questions, one needs to identify the real issues with probing questions and
get the facts with closed questions. Leading questions should be avoided.

Listen carefully
An appraisal discussion is a dialogue. Both parties are communicating
information and ideas to one another to achieve the purpose of the
meeting.

Good listeners concentrate on the speaker. They respond quickly to

points made by the speaker, ask questions frequently to elucidate
meaning, give the speaker an opportunity to rephrase or underline a point,
comment on the points made by the speaker without interrupting the flow
of conversation.

36
COMPETENCY BASED APPRAISAL SYSTEM

What is Competency?
Competency is an underlying characteristic of an individual, which is casually
related to effective or superior performance.

Competence based appraisals can be defined as a method of appraising

people wholly or partly by reference to the level of competence they
demonstrate in carrying out their roles.

One of the problems surrounding the concept of competence or competency is

that the term is used to refer to the ability to perform a job or task competently
and also to how people ought to behave in order to carry out a role with
competence.
∙ Competence should be used to refer to areas of work in which the person is
competent.
∙ Competency should be used to refer to the dimensions of behaviour lying
behind competent performance.

1. Competence based appraisal must depend on some method of

measuring competence. To do this, it is useful to distinguish between the
input, process and output aspects of performance and how competence can
be measured under each heading.

a. As an input, competence can be measured by the capacity within

people to do their work well. Capacity refers to what people bring to
their work in the form of knowledge, skills and personal attributes.
b. As a process, competence can be measured in terms of the behaviour
required of people in order to effectively convert inputs into outputs.
c. As an output, competence is measured by the outcomes of the
behaviour of people in making the best use of their knowledge, skills
and attributes.

2. Appraisals can be related to competence in two ways:

• as a people-based process which links assessment to the level of
competence attained by individuals; or
• as a job-based process which uses competence headings wholly or
partly to evaluate jobs or roles.

Both levels of competence and levels of performance in achieving

objectives, should be taken into, on the reasonable grounds that they should
be assessed not only for how people perform (competence inputs) but also
for what they achieve (outputs).

37
3. Advantages of competence based Appraisal System
∙ High-performance organizations need high levels of competence and
hence employees should be appraised according to their level of
competence and the contribution they therefore make to the success of
the business.
∙ Performance-linked appraisals help companies in performance
enhancement of employees. Hence competence is important.
∙ Competences add value and predict success and hence attributes that
lead to successful performance should be appraised.
∙ It can provide for the alignment of rewards with core values.
∙ It can support a culture devoted to learning, growth and continuous
development.
∙ It can deliver messages to people about the behaviour expected of
them in such aspects of work as team membership, flexibility,
continuous improvement, customer relations.
∙ It can focus attention on the competences required in knowledge-based
organizations which are selling services or solutions, not products, and
are therefore people rather than task or product oriented.
∙ Competences are geared to sustained performance and are better
predictors of future performance than what people happen to have
done in the past.
∙ It is recognized that it is necessary to assess and reward what people
bring to a role in the shape of their knowledge, skills, attributes and
competences as well as the results they achieve.

38
POTENTIAL APPRAISAL

Assessment Center Method

Under this method, many evaluators i.e. appraisers join together to judge
employee performance in several situations by using variety of criteria The
most important feature of this method is job-related simulations. These
simulations involve characteristics that managers feel are important for the job
success. The evaluators observe and evaluate participants as they perform
activities commonly found in these higher-level jobs. It involves a paper-and-
pencil test, interviews and exercises.

1. Features:
• The use of situational exercise (such as in-basket exercise, business
game, a role-playing incident and leaderless group discussion);
• Evaluators are drawn from experienced managers with proven ability at
different levels of management;
• They evaluate all employees, both individually and collectively.
• A summary report is prepared by the members, and a feedback on a
face-to-face basis is administered to all the candidates who ask for it.

2. Purpose:
a. It is used to:
• Measure potential for first level supervision, sales and upper
management positions; and also for higher levels of management
for development purposes.
• Determine individual training and development needs of
employees.
• Select freshers for entry-level positions.
• Provide more accurate human resource planning information.
• Assist in implementing affirmative action goals.

b. It generally measures interpersonal skills and other aspects such as:

organizing and planning; interpersonal competence (getting along with
others), quality of thinking, resistance to stress, orientation (motivation)
to work, dependence on others and creativity. The ability to organize,
plan and make decisions, as in-basket simulations and scores obtained
on paper and pencil, psychological tests, are important to the overall
assessment score.

The duration of Assessment Center Program varies depending on the

level of appraisee. For example, centers designed for selection of first line
supervisors, sales personnel, and management trainees generally last for
a day or less; while those used for higher-level managers may run for two
or three days or longer if used for developmental and not for selection
purposes.

39
3. Problems:
• The ratings are generally influenced by the participant’s interpersonal
skills; judges tend to evaluate the quality of the individual’s social skills
rather than quality of the decisions themselves. Further, the organizing
and decision-making abilities are measured by in-basket exercises,
verbal ability and personal traits.
• Solid performers in day-to-day operations suddenly choke in simulated
environment.
• Unreasonably high cost of assessing an individual in a particular job
level.
• There are potential bad effects on those not selected to participate in
the exercise.
• Usually immediate supervisors nominate participants. Employees who
are curious, independent, aggressive and intelligent may never be
selected because such traits, though important at higher levels, are not
accepted by lower level supervisors.
• Poorly rated appraisee may react in negative ways and might get
demoralized.

To make Assessment Center Program successful, strong emphasis must be

placed on clear statement of goals, obtaining commitment of top management,
job analysis, appraiser training, program audit and evaluation.

40
PERFORMANCE AND DEVELOPMENT PLANNING

Performance and Development Planning (PDP):

PDP is a process for managers that aligns individual performance with

company goals and ensures focus on the development of talent company-wide.
PDP is an important step in their corporate effort to engage and enable
employees to deliver their contribution to their business. Also, PDP serves to
enable employees to identify and realize personal opportunities for
development that are aligned to current and future business challenges.

PDP process enables each employee to understand his true value-added

to the organization.

1. Steps for successful implementation of PDP:

• Schedule the PDP meeting and define pre-work with the appraisee.
• The appraisee does self-appraisal, writes business and personal
developmental goals on the PDP form and gathers needed
documentation, including 360º feedback results, when available.
• The appraiser prepares for the PDP meeting by clearly defining the
most important outcomes needed from the appraisee’s job within the
framework of the organization's strategic plan.
• The appraiser writes business and personal developmental goals on
the PDP form in preparation for the discussion.
• The appraiser gathers data including work records and reports and
input from others familiar with the apprasiee’s work.
• Both the appraiser and the appraisee examine how the appraisee is
performing against all criteria, and think about areas for potential
development.
• The appraiser develops a plan for the PDP meeting that includes
answers to all questions about the PDP process with examples,
documentation, and so on.
• Recognize that this process takes place quarterly and that the most
time and work are invested in the first PDP meeting.
• The rest of the quarterly PDP goals, maybe for years, are updates to
the initial goals.
• So, while seemingly time consuming on the front end, the PDP
process, with a formal, effective foundation of solid personal and
business goals, is less time consuming as quarters pass. The PDP
continues to create business and employee success and value during
its lifetime. With quarterly updates, the PDP process contributes into
the future.

2. PDP Process:
The PDP process has been explained with the help of a chart as
Annexure I. A sample format of PDP form is attached as Annexure II and
the PDP form overview is explained in brief as Annexure II (a). All these
Annexures have been included at the end of the report.

41
As part of a relatively transparent method of appraisal, a sample form designed and
used by a reputed pharmaceutical company for appraising it’s employees at junior
management level is shown as Annexure III at the end of this report.

The latest trend of appraising the performance of an employee involves two or more
of any of the above detailed techniques including traditional methods.

The subsequent chapter details the new frontiers to performance appraisal.

42
 Chapter 11

NEW FRONTIERS TO PERFORMANCE APPRAISAL

In recent years the system of performance appraisal is becoming more and more
transparent wherein the employee, who is being appraised, is involved in the
process. The objectives or targets are set with mutual understanding between the
appraisee and his immediate superior. The feedback regarding his performance is
given to the appraisee with areas of improvement by disclosing his strengths and
weakness and the opportunities available. I will take you into details of these new
frontiers to Performance Appraisal viz:

I. Management by Objectives (MBO)

II. Balanced Scorecard
III. 360º Feedback

I. MANAGEMENT BY OBJECTIVES
1. Management by Objectives is basically a process whereby the superior
and the subordinate managers of an enterprise 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 unit and assessing the contribution of each of its members.
Management by Objectives is primarily to change the behaviour and
attitude towards getting an activity or assignment completed in a manner
that it is beneficial for the organization. Management by objectives is a
result-oriented process, wherein emphasis is on results and goals rather
than a prescribed method. A number of companies have had significant
success in broadening individual responsibility and involvement in work
planning at the lowest organizational levels.

2. The concept rests on a philosophy of management that emphasizes

integration between external control (by managers) and self-control (by
subordinates). It can apply to any manager or individual no matter what
level or function, and to any organization, regardless of size.

For instance, the number of quality articles to be churned out in a week at

a publishing house is, let’s say, five. This is the goal of the organization.
This goal has to be set in coordination with the writers. The emphasis
here again would be on accomplishing this task flawlessly over the week
rather than the setting of a method to accomplish the same. You are
giving them a free hand to decide as to how they want to work in order to
accomplish target. This gives the employee both responsibility as well as
authority to do a job. The employees are now responsible for its success
or failure and it is their baby. It is a VERY SMART MANAGEMENT TOOL
where the employee is involved in the decision making process.

43
 3. Management by Objectives is a five-sutra process having following basic
steps:
i. Set Organizational Goals:
This envisages that organizational goals and business strategies are
expressed clearly, concisely and accurately. They are periodically
reviewed. They should be challenging enough to motivate the
employee. Clear and attainable goals help channel energies towards
desired behaviour and let the employee know the basis on which he
will be rewarded. At this time, any appropriate changes in the
organization structure should be made: changes in titles, duties,
relationships, authority, responsibility, span of control and so forth.

ii. Joint Goal Setting:

This step establishes short-term goals, which are performance
oriented, between the management and the employee. The
responsibilities are clarified to the employees through organizational
charts and job description. The goals decided by the employee need to
complement the goals of the management. They also need to be
flexible to accommodate new ideas without losing individual
responsibilities. Moreover they should be easily quantifiable. For
example:
 To prepare, process and transfer to the office superintended, all
account payable vouchers within three working days from the
receipt of the voucher.
 To hold weekly meetings with all employees.
 To use program evaluation and review technique (pert) for all new
plant layouts.

iii. Performance Reviews:

This step suggests frequent performance reviews between the
manager and the employees. During the initial stages the meetings be
held once a month and later could be quarterly. For maximum benefit
these meetings should be scheduled for more than once a year.

iv. Set check posts:

Establishment of major check posts to measure progress. This is
merely to check that the employee surges towards his premeditated
(planned) goal without any disruptions. These check levels should be
higher in the initial stages and then gradually reduce. This demands
that the manager should be on constant alert and exercise sound
judgment.

v. Feedback:
The employees who receive frequent feedback about their performance
are highly motivated than those who do not. However, one has to
ensure that the feedback is relevant and specific. This helps the
employee and the manager understand where they stand.

44
 The five-sutra process of management by objectives ensures that the
manager and the employee define and establish goals and objectives for
an employee to be achieved within a prescribed period of time. The
employee is to be supervised and evaluated, periodically. To this extent,
a frequent feedback and superior-employee interaction model must be
evolved.

4. Throughout the time period what is to be accomplished by the entire

organization should be compared with what is being accomplished;
necessary adjustments should be made and inappropriate goals
discarded. At the end of the time period a final mutual review of objectives
and performance takes place. If there is discrepancies between the two,
efforts are initiated to determine what steps can be taken to overcome
these problems. This sets the stage for the determination of objectives for
the next period.

5. Benefits of MBO Program

a. Helps and increases employee motivation because it relates overall
goals to the individual’s goals; and help to increase an employee’s
understanding of where the organization is and where it is heading.
b. Managers are more likely to compete within themselves than with
other managers. This kind of evaluation can reduce internal conflicts
that often arise when managers compete with each other to obtain
scarce resources.
c. Results in a “means-ends” chain. Management at succeedingly
lower levels in the organization establishes targets, which are
integrated with those at the next higher level. Thus, it can help ensure
that everyone’s activity is ultimately aimed toward organization’s goals.
d. Reduces role conflict and ambiguity. Role conflict exists when a
person is faced with conflicting demands from two or more supervisors;
and role ambiguity exists when a person is uncertain as to how he will
be evaluated, or what he has to achieve. Since MBO aims at providing
clear targets and their order or priority, it reduces both these situations.
e. Provides more objective appraisal criteria. The targets that emerge
from the ` process provide a sound set of criteria for evaluating the
manager’s performance.
f. Forces and aids in planning. By forcing top management to establish
a strategy and goals for the entire organization, and by requiring other
managers to set their targets and plan how to reach them.
g. Identifies problems better and early. Frequent performance review
sessions make this possible.
h. Identifies performance deficiencies. It enables the management and
employees to set individualized self-improvement goals and thus
proves effective in training and development of people.

45
 i. Helps the individual manager to develop personal leadership,
especially the skills of listening, planning, counseling, motivating
and evaluating. This approach to managing instills a personal
commitment to respond positively the organization’s major concerns as
well as to the development of human assets. Such a manager has a far
greater chance to move ahead within the management hierarchy.

A blank format of “Management by Objectives Appraisal form” is reproduced as

Annexure IV at the end of this report.

46
II. 360° FEEDBACK
With the movement in the eighties to find new strengths and productivity
through employee empowerment came the idea of performance appraisals from
subordinates, their superiors, their peers and themselves – “360º feedback.”

1. The 360º Feedback process is called multi-source assessment, taps the

collective wisdom of those who work most closely with the employee,
superiors, colleagues (peers), direct reports and possibly internal and often
external customers. The collective intelligence these people provide on
critical competencies or specific behaviours and skills gives the employee a
clear understanding of personal strengths and areas ripe for development.
Employees also view this performance information from multiple
perspectives as fair, accurate, credible, and motivating. Employees are
often more strongly motivated to change their work behaviours to attain the
esteem of their coworkers than to win the respect of their supervisor alone.

2. As the 360º Feedback process better serves the needs of employees, it

serves the changing needs of their organizations too. Organizations are
reducing hierarchy by removing layers of management and putting more
emphasis on empowerment, teamwork, continuous learning, individual
development, and self-responsibility. The 360º Feedback Model aligns with
these organizational goals to create opportunities for personal and career
development and for aligning individual performance expectations with
corporate values.

Diagram showing the key stakeholders in a 360º Feedback Process

47
 Benefits to Key Stakeholders

The 360º Feedback process offers extensive and diverse benefits to key
stakeholders in the organization – and the organization too:
a. Customers: The process gives customers a chance to strengthen the
customer-supplier relationship. The 360º Feedback captures the relevant and
motivating information from internal and external customers while giving them a
voice in the assessment process.
b. Employees: By participating in a process that has tremendous impact
on their careers, employees may help select what evaluation criteria will be used to
judge their performance and who will provide feedback. Participation plays a critical
role for employees as they determine the fairness of the process.
c. Team members: The only option for identifying team and individual
members’ effectiveness is 360º Feedback. Failing feedback from multiple sources,
team members lack the information necessary for effective individual development
and teamwork. With no team evaluation, accountability may evaporate, and
performance may falter (weaken).
d. Supervisors: This process expands supervisors’ insight regarding the
performance of each direct report by providing them more comprehensive and
detailed performance information than they usually have access to. Also, the
process typically reduces by half, or more, the supervisor’s time spent on evaluating
individual employees.
e. Leaders and Managers: The process provides leaders and managers
an opportunity to tap information from the organization that may otherwise not be
shared with them for fear of reprisal.
f. Organizations: Organizations can gain access to credible,
quantitative information to understand organizational strengths and weaknesses,
leadership gaps, and training needs more fully. This information is much more
useful than relying on intuitive judgment or responding to those who are making the
most noise.
Why are Organizations adopting these systems?
Structure and cultural factors and employee’s relations have motivated
organizations to begin experimenting with 360º Feedback systems. For
example, as organizations remove layers of management, flatten their
structure, and begin using self-directed teams, the only practical option for
performance feedback is from multiple sources. As organizations change
their culture to align with their vision and values, 360º Feedback becomes an
ideal choice to communicate the new competencies required by the new
values.

Structure changes
Organizational structures have changed substantially since the mid-1980s.
The 360º Feedback process offers support for these structural changes,
such as growth in supervisor’s span of control, the increased use of

48
 technical or knowledge workers, and introduction of matrix and project
management organization design, and the move to working in teams.
g. Increased span of control: A typical manager used to supervise
three to nine employees. Today production and service companies have moved from
traditional span of control to one supervisor for as many as seventy or more direct
reports. Classic supervisors with a large number of reporting relationships lack the
opportunity to observe many individual performance actions.
h. Knowledge workers: A supervisor may not have enough technical or
expert knowledge to provide credible performance feedback on employees in
positions requiring highly specialized knowledge, like MIS managers or scientists.
Many organizations have adopted a multi-source system to provide accurate
assessments by coworkers with similar expertise.
i. Matrix and Project Management: Many organizations have adopted
360º Feedback systems because their employees work in matrix or project
management situations, with employees often reporting to more than one supervisor
during a project.
Matrix organization structures occur as a result of the need to deploy
human assets at high velocity. People move quickly from project to
project and may only occasionally interact directly with their supervisor.
Project management designs require information from multiple sources
because no one person has sufficient information to provide a complete
performance picture of the individual.
j. Team: When the organizational structure has moved from classic
supervisory designs to work teams, with leadership dispersed throughout the team,
team members offer highly credible performance feedback.

Change in Organizational Culture

Revolutionary changes in organization cultures have made traditional single-
source assessments illogical and impractical. Among these changes are:
a. Participative Leadership: Organizations have given employees a
voice in organizational decision processes and have adopted 360º
Feedback systems to drive culture change and align individual
behaviours with organizational values and objectives. Leaders who
best empower employees are recognized and rewarded when those
they lead provide excellent performance feedback.
b. Empowerment: The 360º Feedback process communicates the
appropriate actions needed from employees to support this culture
change, and these actions are then recognized and rewarded.
c. Customer Services: The improved communication through 360º
Feedback can translate to better customer service.
d. Quality Focus: The 360º Feedback systems provide the best
measures for competencies. This logical application for individual
performance measurement meshes with the organization’s quality
philosophy.

49
 e. Reengineering: Reengineering or the reinvention of work processes
often requires new methods to obtain accurate performance measures.
Reengineering actions focus on redesigning the way employees work
in order to improve individual, team, and organizational productivity.
Since 360º Feedback systems improve the quality of information, these
systems logically support the reengineering effort at organizations.
f. Competency-Based Reward: Information from multiple sources
offers the best method for measuring competencies. Traditional,
single-source measures are deficient at assessing competencies
because supervisors seldom have sufficient opportunity to observe
each employee’s full range of work behaviours.
g. Team-Based Rewards: 360º Feedback systems are the most
appropriate ways to evaluate individual performance and contribution.
Team assessment provides these organizations with a credible
information source for recognition and rewards.
h. End of Entitlements: Multi-source performance measures more
clearly distinguish among levels of performance than do single-source
measures. Multi-source assessments are substantially better at
distinguishing high, medium, and low performers, enabling appropriate
recognition and rewards and an end to automatic entitlements.

Employee Relations
No other information has more impact on an employee’s career than
information on his or her performance. Hence, the accuracy, fairness and
usefulness of performance measures are critical factors to employees.
a. Career Development: The 360º Feedback process yields specific and
quantitative information for each employee to use in making intelligent
career decisions.
b. Fair Reward Decisions: Managers and employees want pay and
promotion decisions to be fair. Research across large sets of
employee groups indicates that users perceive 360º Feedback to be
fairer than single-rate processes.
c. Accurate Performance Measures: Assessment by multiple coworkers
is more reliable and objective than information gained from a single
person because they have the best opportunity to observe work
behaviours.
d. Valid Performance Measures: Assessment information when
provided by the individual’s work associates; the employee tends to
perceive the results as having for more credibility as against a single-
source assessment.
e. Non-performance: Supervisors must document, justify and confront
non-performance. 360º Feedback systems helps in identifying non-
performers or poor-performers as co-workers and team members are
rarely reluctant to identify them if they are not sufficiently contributing to
the team’s efforts and try to push them if they need help.

50
 f. Diversity Management: Multi-source performance measures
moderate adverse discrimination against older employees, presumably
recognizing the great experience level; are generally neutral to women
as against single-source assessment which are often biased.
g. Legal Protection: Multi-source assessments offer stronger legal
protection, resembling the jury system because the model combines
multiple perspectives.

Pitfalls of 360º Feedback

a. 360º feedback has produced some real successes; but when not done
artfully, including internal preparation, it can rebound. Colleagues and
subordinates are good judges of behaviour and managerial style but
are not best judges of a manager’s job performance. Hence the ratings
should be used with caution in decisions for pay and promotions.
b. In practical, peers and subordinates tend to give negative feedback
about a manager due to bias or for setting scores. Such feedback may
get undue importance when only selected few peers and subordinates
appraise a manager.
c. Also, at times, the organizational culture is unable to accept the
system.

Options for implementation

There are three common ways of getting 360º degree feedback each more
comprehensive and powerful in promoting change, both organizational and
personal:
i. using an outside consultant, minimizing any personal friction within the
organization;
ii. launching a comprehensive program in-house to get feedback on all
key people, top to bottom;
iii. creating a comprehensive program designed to uncover not just
personal flaws but systematic and organizational ones, too.

The implementation of the same are detailed below:

a. Send a few managers to an outside consultancy for assessment and

feedback. Here, managers may hand out survey to whom they know
(and expect to get feedback with minimal negative information) the data
collected by the consultancy, and the managers receive an "offsite"
training and feedback session with similar managers from different
companies.
While this approach has its merits, its major deficiency is that a few
individuals are changed, the overwhelming mass of management is
not, and the systems and processes that encourage old behaviors are
still in place.
b. The second approach is to bring such a program "in-house", where
many managers receive 360º feedback. In this approach, the feedback

51
 can be more systematic for two reasons: i) surveys are handed out to
all subordinates and peers rather than those who have been
"volunteered" by the person receiving feedback. This tends to reduce
"sampling bias" of just giving it to those who might give just good
feedback; and ii) the implementation of this process can be from the
top of the organization down the bottom. This has the advantage of
allowing upper management to be an example of willingly receiving
such feedback and encourage them to be both models of behavior and
coaches to those underneath them.
c. The third approach involves all of the second approach, and also deals
with "systems issues." Where 360º feedback alone can only deal with
problems caused by individual behavior, it by itself does nothing for the
systemic causes of problems, such as organizational structure,
inappropriate and distorted measurement systems, company-wide lack
of skills, or performance appraisal and pay problems. 360º Feedback
can serve both as a catalyst to help management realize the systemic
causes of organizational problems, and can be part of the solution, so
that management style becomes in harmony with other organizational
changes senior management is trying to make.

The following issues need to be considered before implementation of 360º

feedback
Questions about implementing 360º feedback are easy to ask but not so to
answer. Often times, management assumes the answers but does not
openly discuss them with the result being much chaos and confusion down
the road.

Among these some of these questions are:

a. How ready is your organization to handle 360º Feedback?
Often times, organizations may be willing to pay consultants to assist
them in implementing such a system, but the organization needs to be
prepared. At times, "soft skills" training in communication, leadership,
management style, meeting management etc. is useful in preparing
management. Teambuilding activities might also be useful, as well as a
general organizational climate survey to determine the context of
implementation and find any additional issues beyond management
style that might be a problem.
b. Who needs to agree? Who will be the decision-making body about
360º feedback? Will it be the head of the organization, or Human
Resources, or a cross-section of employees from a variety of levels?
c. Who will be involved? Which employees are to be the focus of the
360º feedback, and who will provide it to them?
d. Is this voluntary or mandatory? Will some employees be offered the
"opportunity" to receive this feedback, will everyone receive it, or will
just management receive the feedback?
e. What methods and measurements will be used? Will employees
just fill out numerical surveys, or will this information be supplemented
with observations and interviews? Will the report be just a graph, a

52
 summary of high need for change survey items, or will there be a
written report with recommendations? To what extent will this report be
personalized and handcrafted Vs being automated?
f. To what extent will the data be collected anonymously and/or
confidentially? While the intent may be to keep the survey data
anonymous, if written comments or interview data are also included,
the data may have to be altered to avoid making obvious conclusions
about who communicated what. In addition, management must answer
questions about personal, confidential data that might be accidentally
revealed during interviews.
g. To what extent will the data be collected anonymously and/or
confidentially? While the intent may be to keep the survey data
anonymous, if written comments or interview data are also included,
the data may have to be altered to avoid making obvious conclusions
about who communicated what. In addition, management must answer
questions about personal, confidential data that might be accidentally
revealed during interviews.
h. What will be done with alleged violations of laws, ethics or
policies? Though this may not be the intent of 360º feedback, on
occasion information is gathered that suggests violations of legal,
ethical and company codes of conduct.
i. What information will be public? At first blush, you might think that
all data will be private, but does that mean that one's own supervisor
can't see the data and the report? Will group and company averages
be made public without them being broken down into individual scores?
j. What consequences will there be? Will they receive additional
coaching and counseling, training, or be terminated or re-assigned?
Will the 360º feedback be the sole determiner of this decision?
k. What logistics and support will be necessary to make this
successful? To what extent will the data be collected electronically
(via the Web or intranet) or on paper? What administrative and
technical support will be necessary?
l. What systems changes will accompany this organizational change? As
stated before providing feedback on management style in and of itself can
only be part of organizational change and can rarely stand on its own. As a
result, one must ask how and when will 360º degree feedback be
incorporated into training, selection and pay decisions?
12. The flow diagram attached as Annexure V explains the 360° feedback
process and Annexure VI is a blank sample of 360° feedback form (for the
Head of Support Unit of an University).

53
III. Balanced Scorecard

1. Balanced Scorecard (BSC) is a set of measures derived from an

organization’s vision and strategy. It is a concept that helps translate
strategy into action. It requires an organization to balance its goals across
multiple perspectives to reduce the chance that one goal will dominate
others to the detriment of the organization. It leads to a realistic
compromise that addresses short-term goals and longer-term staying
power.

2. The balanced scorecard was developed by Robert S. Kaplan and David P.

Norton in early 1990s. The article The Balanced Scorecard - Measures
that Drive Performance of Harvard Business Review (year 1992) –
describes balanced scorecard as a methodology used for measuring
success and setting goals from financial and operational viewpoints. With
those measures, leaders can manage their strategic vision and adjust it for
change.

3. BSC links performance measures by looking at a business's strategic

vision from four different perspectives: financial, customer, internal
business processes, and innovation & learning. These four perspectives of
the Scorecard provide a balance between desired outcomes and drivers
for those outcomes and between objective and subjective performance
measures. BSC is prescriptive about a balanced range of measures and
about how one perspective defines the drivers for the next.

a. Financial Perspective
The financial perspective provides a view of how the senior
executives, the board of directors and the shareholders see the
company. Typical metrics in this perspective might be earning per
share, revenue growth and profit maximization. In the BSC, financial
measures play a dual role: they define the financial performance
expected from the strategy and they serve as the ultimate targets
for the objectives and measures of all the other scorecard
perspectives. The financial measures are chosen based on the
business life cycle and also the strategic theme chosen for the financial
perspective. In addition to increasing returns, most organizations are
concerned with the risk of these returns. Therefore, when it is
strategically important, these organizations will want to incorporate
explicit risk management objectives into their financial perspective.

As a conclusion, eventually all objectives and measures in the other

scorecard perspectives should be linked to achieving one or more
objectives in the financial perspective.

b. Customer Perspective
The customer perspective provides a view of how the customers see
the company. Kaplan and Norton contend that, " to put the balanced
scorecard to work, companies should articulate goals for time, quality,

54
 and performance and service and then translate these goals into
specific measures." Overall, this is a measure of how the company
provides value to the customer. Changes made to a business
process output that lowers the customer’s cost or allows the customer
to achieve his or her objective, have value for the customer. For
example, it’s not enough to simply bring down the cost of an item. The
delivery time and manner in which the customer is dealt during times of
sales and support are important as well. It is a measure of that value
that should be captured by the metrics (e.g. market share, customer
satisfaction, customer loyalty, customer acquisition) representing this
perspective.

In this perspective, managers must first determine core measures that

will describe the successful outcomes of a well-formulated and
implemented strategy. They have to also identify what are the
attributes that the customers value and choose the value proposition
that they want to deliver to the targeted customers. Today, many
companies have a corporate mission that focuses on the customer.

c. Internal Business Process Perspective

The internal business process perspective provides a view of what the
company must excel at to be competitive. Kaplan and Norton
recommend that, "companies also attempt to identify and measure their
company's core competencies, the critical technologies needed to
ensure continued market leadership."

In this perspective, the managers must identify the internal processes

that are crucial to their organization and develop the best possible
measures with which to track the organization’s progress. These
processes should help them deliver superior value to their customers
and achieve financial targets. The Balanced Scorecard go beyond
the simple assessment of existing processes, and usually
identifies new processes that the organization should implement
in order to be successful. By incorporating innovation processes
measures, the Balanced Scorecard provides managers with a set of
tools that does not only reflect the short term, but also gives insight
about the longer-term.

d. Innovation and Learning Perspective

Kaplan and Norton underscore the importance of innovation and

learning in their statement that, "a company's ability to innovate,
improve, and learn ties directly to the company's value." While the
financial perspective deals with the projected value of the company,
the innovation and learning perspective sets measures that help
the company compete in a changing business environment. This is
of principal interest to the CEO and the architects of the long-range
business plan. Their focus for this innovation is in the formation of new
or the improvement of existing products and processes. This

55
 perspective looks at how effectively the organization can redesign
and implement new business process, introduce and exploit new
technology and adapt to changing conditions in general. Thus the
measures in this perspective are truly the enablers of the other three
perspectives. These measures are like the roots of a tree that will
ultimately lead through the trunk of internal process to the
branches of customer results and finally to the leaves of financial
returns. Metrics of this perspective can be adaptability, employee
satisfaction, and willingness to share and gain knowledge.

With the financial, customer and internal perspectives, managers are

able to identify the gaps between existing organizational resources
and the ones required to be successful. The only way to close those
gaps is for the organization to judicially invest in employees and
information technology and to design the most appropriate
organizational structure that could support their strategy. The given
below diagram shows the Balanced Scorecard.

56
4. The steps of implementation are:

Identifying and defining Key Performance Indicators from the multiple

perspectives:

First the multiple perspectives are to be identified, which can be, as: Financial
Measure, Customer Measure, Internal Process and People (Learning & Growth).
After this the main task is to identify the Key Performance Indicators (KPI) in each
of these multiple perspective.
a. Identifying Key Action Areas
b. Implementation of Key Action Areas
c. Monitoring Key Action Areas

5. The advantages of the Balanced Scorecard:

a. First, the measures incorporated in the Balanced Scorecard are grounded in

the organization’s strategic objectives and competitive demands. Therefore,
this set of critical indicators helps the organization focus its efforts on the
strategic vision.

b. The four perspectives of the Balanced Scorecard enable organizations to

track financial results while simultaneously monitoring progress in building the
capabilities and acquiring the intangible assets they need for future growth.
The Balance Scorecard then becomes the cornerstone of the organization’s
current and future success. Also, by balancing external and internal
measures, there is no trade-off among key success factors.

c. Finally, managers can use the Balanced Scorecard to:

‫־‬ clarify and gain consensus about the strategy;
‫־‬ communicate the strategy throughout the organization;
‫־‬ align departmental and personal goals to the strategy;
‫־‬ link strategic objectives to long-term targets and annual budgets;
‫־‬ identify and align strategic initiatives;
‫־‬ perform periodic and systematic strategic reviews;
‫־‬ obtain feedback to learn about and improve strategy.

6. Potential Problems with a Balanced Scorecard:

a. The creation of a Balanced Scorecard involves a considerable amount of time

on the part of everyone whose performance will be measured; the selection
of appropriate measures for the four perspectives too is very time consuming.
This is simply due to the fact that there are a large number of potential goals
and targets and even more ways to measure them. People are likely to
disagree about which objectives to measure and how to measure those
objectives, and it will take time before consensus is achieved.

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b. The time factor involved in designing a Balanced Scorecard can be
considerable since it involves a lot of people in the organization. Their
commitment is important not only in building the Balanced Scorecard but
especially in implementing and using it. Although a Balanced Scorecard may
be well designed, lack of participation and commitment on the part of staff will
make the scorecard useless.

c. Finally, there is always a chance that too many measures will be selected.
This is a problem because it is very difficult to track a large number of
measures. Furthermore, some of the measures selected may be objective,
such as employee turnover rates, and other measures may be subjective
measures, such as employee morale or quality time spent with customers.
The subjective measures, by definition, involve somebody’s judgment and,
therefore, are more prone to error. Consequently, there is a question
whether subjective measures should be used and if so how can they be
made more reliable.

A sample blank eAppraisal (discussed in the forthcoming Chapter 12) form

implementing Balanced Scorecard in it is shown in Annexure VII.

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 Chapter 12

ELECTRONIC APPRAISAL SYSTEM (eAPPRAISAL)

eAppraisal is a recently introduced method of performance appraisal that eliminates

paper work. eAppraisal simplifies and enhances the employee performance
appraisal process. It has features that make it’s use easy and helps both HR
administrators and line managers produce better results more quickly. It provides an
organization with a powerful tool to help develop organization’s critical talent all year
round. It is easier to conduct eAppraisals by automating the time-consuming
process of administrating employee performance reviews. It is flexible and can be
customized to suit an organization’s needs. The comprehensive workflow makes it
easy for human resource professionals to manage the process by approving
appraisal forms, monitoring the status and sending automatic email notifications to
managers. eAppraisal templates and robust content options, help appraisees to
create appraisals quickly and professionally.

I. Features:
• intranet-based
• Ease of use
• Sophisticated workflow
• Centralized repository
• User customizable performance appraisal forms
• Automated email notification and reminder notice
• Comprehensive status and action view for HR manager
• Competency-based text answers and/or range scale
• Self-rating capabilities
• Continuous performance journal entries throughout the year
• Import employee data from the HRIS system of the organization
• Scoring and weighting capabilities

II. Benefits:
• Appraisals are processed more quickly and efficiently.
• Appraisal data is received by concerned superior/manager in virtual real-time
when the appraisal is uploaded into eAppraisal system.
• It can be attached to the e-Target Setting wherein it imports data of e-Target
Setting and the weightage and scoring is done based on the e-Targets decided
mutually by the appraisee and his manager.
• Appraisals cannot be misplaced or lost, as is possible with hardcopies.
Appraisals can be stored electronically and available online.

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III. In an eAppraisal all the new frontiers of appraisal systems can be
incorporated.

How?
• The appraisee and his manager decide on the individual targets with are in
line with organizational targets.
• With periodic reviews the targets can even be modified. The targets can be
decided keeping in mind the 4 perspectives of Balanced Scorecard viz
financial, customer, internal business processes, and innovation & learning.
The programming of eAppraisal can be customized accordingly.
• The weightage and scores can be divided not only on these perspectives but
also on the personal strengths and weaknesses of an individual as well as
the training and developmental needs.
• To assess the strengths and weakness of an individual 360º Feedback
system can be used and accordingly the training and developmental needs
can be identified.

IV. Process:
The eAppraisal process chart is attached as Annexure VIII. The process has been
detailed below:
• The appraisee creates an eAppraisal and fills up Key Performance Areas (KPAs) &
achievements with their weightages. In short he does self-appraisal. The system
aggregates the rating as per the formula and calculates total score as well as
overall rating.
• Appraisee submits the eAppraisal request to his reporting manager (Main Appraiser).
Appraisee can also intimate other appraisers, if any, through the system before
submitting his request to the Reporting Manager. The reporting manager receives
an email with the document-link of submitted request.
• Reporting Manager enters his rating and can change the weights of each KPA
achieved by the employee and the system recalculates the totals and overall rating.
However, the ratings/weights entered by appraisee cannot be changed. Appraiser
has to also complete the section on Overall Assessment, Strengths & Training
Needs.
• After completing the evaluation, Appraiser submits the eAppraisal to the reviewer,
who is reporting head of reporting manager. System will intimate the request by an
email to reviewer to the document link.
If necessary, appraiser has option to return the appraisal back to the appraisee and
request for suitable modifications and re-submission.
• Other appraisers, if any, enter their aggregate rating and comments in appraisal
summary & review section.
• Reviewer sees the scores & comments entered by the appraisee, the Appraiser
and other appraisers. Reviewer enters his overall rating & comments on the same.
Then the reviewer forwards the same to the Human Resource (HR) department.
Reviewer has an option to send it back to appraiser if necessary.

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 • HR accesses to various summary views to help them analyze the appraisers. They
also identify activities behind schedule and intervene as necessary to expedite. The
data is then presented to the Management Committee.
• The HR person enters the final overall rating and comments.
• At the above stage final discussions between main appraiser and appraisee take
place and the appraisee confirms this by adding the date of discussions and his
own comments.
• Thus this process is fully transparent as appraisee can view the rating and
comments entered at different levels.

A blank format of eAppraisal for junior management level staff is attached as

Annexure IX.

After having gone through the various methods and techniques of appraisal,
the current practice being followed in a renowned organization is shared in the
next Chapter 13.

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 Chapter 13

SAMPLE OF CURRENT PRACTICE – “CASE STUDY”

I. Profile of Organization:
Company ABC is 40 years old company started in 1968. It is one of the top 6
pharmaceutical companies in India having turnover of more than 1700 crores
annually. The company has communicated its vision and goals to its
employees across the organization at all levels and is in the process of
adopting best practices in every sphere of its business.

II. Past Practice:

1. When the company started there was no systematic method of
performance appraisal. The employees were given ad-hoc increases in
their pay based on their performance, which used to be the sole discretion
of the management. Later as the company grew, each department head
used to appraise his department employees where neither the appraisee’s
immediate superior nor the appraisee himself was involved. The Head of
Department’s decision used to be the final decision.

2. During 1980s the company’s process of appraisal changed and the

immediate superior was asked to appraisee their employees. The
immediate manager used to give his confidential reporting to the
department head, who then used to take final decision on the reward
payment of the employee. Till this time the entire process of appraisal
was totally non-transparent, as the appraisee was never given feedback
on his performance.

3. During 1990s, the process changed for better as the employees were
asked to give their key result areas and target achievement. Appraiser
used to discuss with the appraisee his performance and started giving
feedback with his strengths and weaknesses and also the areas of
improvement. Based on their discussion, training needs used to be
identified. However, the involvement of the appraisee was only till this
stage. The results were still not disclosed to him and kept confidential.
Through the letter of reward i.e. pay hike, incentive or promotion;
employee was able to know the results of his performance appraisal. In
case of poor performance, letter of `no increment’ was given to the
employees. The company had it’s budget allotted for this purpose the
employees rewards had to fitted in this budget. Hence there were
different ratings based on their grades viz Superior, Good, Average and
Poor.

III. Current Practice:

1. By the year 2000 company’s appraisal system has become quite
transparent. The employee is communicated his rating based on his
performance and target achievement. The company introduced 6 levels of
rating viz O, E, FA, MA, PA, NA i.e. Outstanding, Exceeded, Fully

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 Achieved, Mostly Achieved, Partly Achieved and Not Achieved. For each
KRA i.e. key result area, the appraisee was appraised. The appraisal
consists of 100 marks of which 85 marks are based on professional
competence and 15 marks on behavioural traits or soft skills.

2. Each rating has been allotted the scale of 1 to 6 as under :

OS-6, E-5, FA-4, MA-3, PA-2, NA-1

3. The rating of each KRA is multiplied by the weightage given to it and the
total is arrived at by adding up the product for each KRA. Similarly
weightage is given to each behavioural trait specified for the appraisee
and the rating scored by him is multiplied by the weightage. The product
for each trait is then summed up. Then the total of professional
competence and the total scored on behavioural traits are added up.
Based on the aggregate total the employee is awarded a relevant rating
and based on his grade the reward in the form of pay hike and/or
promotion.

4. The total aggregate marks that an employee can get are 600 because the
total weightage is 100 and the highest rating is 6. By multiplying
weightage by highest rating i.e. 6, the total comes to 600. The rating
structure is as under:

Rating Range
1 551-600
2 451-500
3 351-450
4 251-350
5 151-250
6 Less than 151

5. To avoid any skewed structure, the rating of each employee is reviewed

by the reviewer who is usually is head of the Department or the Strategic
Business Unit (SBU). The SBU head rationalizes the ratings for all his
people in a predefined manner as shown in the bell curve below:

Poor ……….……....Average…………...... Superior

(MA/PA/NA) (FA) (E/OS)

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 The bell curve represents appraisal ratings of the employees in each
category as under:
10% in OS category i.e. Outstanding performance
25% in E category i.e. Exceeded performance
55% in FA category i.e. Fully Achieved
10% in MA/PA/NA category i.e. Mostly/Partly/Not Achieved

Any imbalance in the overall rating is thus rationalized by the Management

in consultation with the reviewer.

6. The increment and incentive structure is decided based on the grade and
rating for all the employees and a separate promotion policy (based on
yearly appraisal) is formulated which goes hand-in-hand with the
increment/incentive policy.

7. The employees are also rated on performance-potential grid by their

immediate superiors. The performance is shown horizontally moving left
to right from low to high, while the potential is shown vertically moving
upward from low to high. The Performance-Potential Grid is shown below:

HIGH LH MH HH
MEDIUM LM MM HM
Potential
LOW LL ML HL
LOW MEDIUM HIGH
Performance

The above grid clearly explains that LL rated person has low performance
with low potential, HM rated person shows high performance but medium
potential, while HH rated person is high performer with high potential.

The company gives special allowance to these HH employees and training

to develop them as future leaders of the company and of course try to
retain them as talent pool.

Employees with technical qualification and post degree professional

certificate holders too are given special allowance as part of their salary
structure.

8. The company has thus introduced an appraisal system which combines

the new systems viz. management by objectives and Balanced Scorecard
and also potential appraisal and competency based appraisal However, it
is not free from forced rating in the form of bell curve which is used to
rationalize the overall rating system and maintain the budgeted figure for
this purpose.

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 9. The entire appraisal process right from target setting till the final rating is
done electronically.

Thus this company has moved from the traditional confidential reporting
to a totally transparent system by way of eAppraisal.

IV. These changes in the appraisal system have benefited all concerned right
from appraisee to the organization as a whole in the following ways:

1. Automated the system:

Eliminated paper forms and processes and enabled anytime/anywhere
access for managers through Web technology.

2. Reduced Time:
Reduced the time necessary for managers to prepare and conduct annual
reviews.

3. Ease for Appraisee:

Appraisee can continue to fill the form over several sessions as per his
convenience.

4. Tracking:
The bottlenecks in the process are tracked and can be expedited.

5. Manage KPAs:
Made it easier to manage, track and evaluate KPA’s throughout the year.

6. Standardized the System:

Organization-wide all employees follow the standard process of appraisal.

7. Centralized Administration:
Data and processes are centrally administered and driven by HR.
Managers are able to review the appraisals in an efficient manner.

8. Flexibility:
This system is flexible enough to be customized, as and when need
arises.

9. Increased organization efficiencies:

It has improved appraisal quality, accuracy, and privacy with intuitive
interfaces, authoring aids, and centralized storage. It has also provided
the ability to track and modify objectives/standards and performance notes
throughout the performance year.

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 Chapter 14

CONCLUSION

Performance Management System (PMS) is a key role of Human Resource

Department of any organization. These systems are needed to support pay for
performance, making performance appraisal as an indispensable part of it. To retain
good performers and for keeping the employees motivated avoiding performance
appraisal is, hence, not recommended.

On evaluating the different processes and methods of performance appraisal, I can

draw the following conclusions:

• The traditional methods seem to be arbitrary in nature and should be avoided in

today's scenario where employees are more empowered and their suggestions
are sought in management decisions. Hence the transparent systems should
be given preference over the non-transparent ones.

• Again, whether non-transparent or transparent, the appraisal process calls for

investment of time and energy by respective people, and hence involves cost
as whole. The costs are incurred on preparing and designing the appraisals,
conducting reviews, copying / printing / filling / distributing the appraisal forms,
communicating the appraisal process, training the appraisers as well as
appraisees in the process, handling post appraisal grievances etc. Hence
management needs to decide how much time and money they want to allocate
for this purpose and should critically evaluate the entire process.

• The automated systems call for higher investment in terms of money though
reduced time and increased overall effectiveness.

• The management should communicate the importance and benefits of this

process to all the employees and to avoid the negative emotional feelings,
worrying depression, stress, and anguish on part of those giving as well as
receiving appraisals.

According to me, depending on the size and nature of business, management

should introduce a suitable appraisal system. The management should try to
have a balanced blend of several systems incorporating the benefits while
avoiding the complexities of each method. The Case Study shared in Chapter
13 reflects a method having appropriate blend of several methods. Looking at
the cost involved, the organization needs to decide whether they can afford an
eAppraisal system or not, which has a host of benefits. It may seem a bit
expensive initially, but looking at the benefits derived from this system, I
recommend eAppraisal by large size companies, while smaller size companies
can go for an appraisal form having an appropriate blend of various methods.

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 SUGGESTIONS/RECOMMENDATIONS

In any performance appraisal, due consideration must be given to the ethics of

appraisal, failing which many organizational problems may crop up and the very
purpose of appraisal may be defeated. The following are some suggestions and
recommendations for appraisees, appraisers and reviewers.

I. For Appraisees:
Following are five keys to help employees to overcome a bad appraisal:
1. Employees should complete a draft of the Performance Appraisal Form or
Narrative Form. They will be surprised at how much they have
accomplished.
2. They should go into the review assuming there will be some negatives,
and think of the meeting as a way to learn what specific issues they have
to work on to get to that next step. It’s the boss’ job to let the employees
know about areas where they can improve, so the employee should try not
to be offended. The employees’ goal is to convince the supervisor, in a
positive manner, that they are willing to make that commitment.
3. Before going into a review, employees should carry a page with two
columns, the first headed “Specific Areas of Strength” and the second,
“Specific Areas of Improvement”. It’s very important that they hear both
the good and the bad comments, because they will never improve, to their
boss’ satisfaction, if they deny, in their anger, that there are any areas
needing improvement.
4. Employees should ask for clarification and specific examples if they hear
generalizations or don’t understand what the problem is. But they should
try hard not to be too argumentative.
5. Employees should find out how their boss might solve these issues, and
ask for another review in 30 days to address these specific issues, to see
if headway is being made.
Thus, the employees should create an image of a thoughtful employee who is
willing to change and able to modify behavior.

II. For Appraisers:

Appraising manager should prepare for the appraisal in following ways:
1. He must be well trained and he should know why the appraisal is needed.
2. Clarify expectations for the employee (a job description with a listing of
duties and responsibilities).
3. Make the employee aware of performance standards, objectives,
expectations and specific areas of accountability.
4. Encourage the employee to prepare for the meeting.
5. Review actual work performance in relation to the performance plan,
objectives and outcomes.

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6. Provide ongoing feedback on performance on day-to-day basis. If an
employee is given ongoing feedback, then the annual appraisal should contain no
surprises.
7. Schedule the appraisal meeting several days in advance.
8. Put the employee at ease at the beginning of the appraisal meeting.
9. Allow the employee to engage in self-evaluation.
10. Emphasize work behaviours rather than personal traits.
11. As soon as a performance is declined or affected, openly discuss with the
employee to try to determine the cause of affecting the performance.
12. Provide positive feedback as well as negative feedback.
13. Keep a regular record of lack-a-side attitude.
14. While appraising, he should make it clear to the employee that it is only his
personal opinion of the facts as seen by him;
15. Use specific examples to illustrate employee’s accomplishments.
16. He should pass the appraisal information on only to those concerned with
the process.
17. To initiate the performance appraisal discussion with the concerned subordinate by
objectively assessing performance vis-à-vis targets set.
18. Ask probing questions to seek clarification of misunderstandings or views
that differ. This gives the employee an opportunity to discuss items of interest or
concern.
19. Close the performance review meeting:
 Summarize the key issues that were discussed and seek agreement
and/or clarification.
 Give positive feedback to the employee for his/her active participation
in the review meeting.
 Reinforce one’s commitment and the employee’s commitment to future
plans, as discussed.
 Explain the next step in the performance process.
 End the meeting in a positive, friendly manner.
20. Identify potential talent
21. To discuss subordinate’s appraisal with the Reviewer & finalize ratings.

III. For Reviewers:

For final decision maker i.e. reviewer the following are the recommendations:
1. To articulate department/ SBU goals in line with organization vision.
2. To cross verify Final Ratings and Promotion relating to all team members.
3. To moderate Ratings of team members based on departmental/SBU
performance.

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 4. Should not be bias, but be fair in rewarding or penalizing the appraisee.
5. To review the potential talent identified by appraiser.
6. Should not compare the employee’s appraisal with somebody else’s
without knowing the basis on which it was made.
7. To ensure timely submission of all targets and appraisals of the entire
team (department) to Human Resource department.
8. To ensure that all Appraisees have been given constructive feedback by
respective Appraisers.

IV. Management Committee:

The role of Management Committee is to:
1. Strategically lay overall organizational vision/ goals.
2. Critically review business results based on set targets.
3. Review & approve departmental / SBU rating pattern and promotions.
4. Decide on incentive and increment matrix (compensation strategy) for
organization.
5. Review all potential talent identified and lay a strategic intent towards their
development.

V. Human resources:
The human resources department has to:
1. Facilitate performance management system process across the company.
2. Conduct workshop for higher clarity & bearing on performance
management system (PMS).
3. Make use of PMS to create talent pipeline for future.
4. Propose & work closely with management committee on compensation
strategy & implementation linked to market & performance.
5. Ensure end-to-end visibility in completion of this exercise and timely
release of reward letters.

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 BIBLIOGRAPHY

1. Findings (reasonable portion):

www.lrconsultants.com
2. Definition by Carl Heyel:
http://www.rcw.raifoundation.org/management/bba/hrm/lecture-notes/lecture-24.pdf
3. Performance Management:
a. HR > K Mailer: Performance Management, 06.11.2004
http://lupinho/Knet/tmm/kma/hr/perfm/hr_perfm_061104.htm
b. HR > K Mailer: Performance Management, 13.11.2004
http://lupinho/Knet/tmm/kma/hr/perfm/hr_perfm_131104.htm
c. HR > K Mailer: Performance Management, 30.10.2004
http://lupinho/Knet/tmm/kma/hr/perfm/hr_perfm_301004.htm
4. Management By Objectives:
a. TheManageMentor-Human Resources – Performance Appraisal –
Management by Objectives
http://lupinho/Knet/tmm/kzone/EnlightenmentorAreas/hr/PerfMgmt/pa-
mgmtbyobj.htm
b. http://service.govdelivery.com/service/document.html? code=HRDOC_205
(MBO form)
5. Effective Appraisal Process:
TheManageMentor-Human Resources – Effective appraisal process
http://lupinho/Knet/tmm/kzone/EnlightenmentorAreas/hr/PerfMgmt/effappraisal.htm
6. Guidelines for appraisee:
TheManageMentor-Human Resources – Performance Appraisal Blues
http://lupinho/Knet/tmm/kzone/EnlightenmentorAreas/hr/PerfMgmt/PerfAppBlues.htm
7. Managing work place performance:
www.performance-management.us/
8. 360º Feedback :
http://www.wits.ac.za/depts/cult/360GeneralInfo.doc
9. Counseling process:
http://usace-ccm-guide.com/counseling/counseling_1.htm
10. Balanced Scorecard:
a. http://sixsigmatutorial.com/Six-Sigma/Articles/ Balancing- Your-Legal-
Scorecard-Part2
b. Book titled: “Balanced Scorecard - step-by-step: Maximizing Performance and
Maintaining Results” by Paul R. Niven (printed in 2002)

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