Session 22

Performance Appraisal

FOCUS
This session covers the following content from the ACCA Study Guide.

D. Leading and Managing Individuals and Teams

7. Review and appraisal of individual performance
a) Explain the importance of performance assessment.
b) Explain how organisations assess the performance of human resources.
c) Define performance appraisal and describe its purposes.
d) Describe the performance appraisal process.
e) Explain the benefits of effective appraisal.
f) Identify the barriers to effective appraisal and how these may be overcome.

Session 22 Guidance
Note that this session describes the benefits of performance appraisal and assessment,
and how the organisation appraises and assesses the human resource function's role in the
process. This integrates with Session 21 on learning and development, because appraisals
are one method to assess the need for additional training or development to meet the
performance criteria established by the needs analysis.
Recognise the need for the organisation to assess competences (s.1). These form the basis
of areas which will be benchmarked as to performance.
(continued on next page)
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VISUAL OVERVIEW
Objective: To understand the concept of competences and the role of the appraisal process
in the development of individual skills.

COMPETENCES

PERFORMANCE ASSESSMENT
Purpose
Benefits
Effective Appraisal
Pay Review

FORMS OF APPRAISAL APPRAISAL PROCESS

Methods Steps
Types of Assessment Management Skills
Assessment Centre Preparation
Location of Interview
Conducting the Interview
Closing Procedures
Follow-Up
Feedback
Barriers

Session 22 Guidance
Understand the purpose of performance measurement and how it benefits employees
and the organisation (s.2).
Know the forms of appraisal, including various methods and types (s.3) and
understand the steps in the appraisal process (s.4).

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Session 22 Performance Appraisal F1 Accountant in Business

1 Competences
< Competences should be:
= objectively defined (e.g. management as a competency is
too broadthere are many aspects of management);
= defined as simply as possible (e.g. easily understood);
= capable of linking together to cover the whole range of skills Competencesskills
and abilities required to carry out a job (e.g. management); and abilities required to
successfully carry out a
= business related; and
particular function.
= measurable or capable of being objectively assessed.

< Actual skills and abilities required for each competence can be
measured and appraised against a standard:*
= personnel specifications;
= recruitment;
= position definition; *To apply for the ACCA
= personal development programmes; designation, students
= assessment for qualifications;
must demonstrate
practical competences
= appraisal assessments. as described in the
Practical Experience

2 Performance Assessment
Requirement (see
Session 23).

2.1 Purpose
< Assessment appraisals are used to:
= assess past performance;
= help improve current performance; Performance
= set performance objectives; appraisalthe
process by which a
= assess training and development needs; manager evaluates the
= aid the personal development of the employee; work of an employee,
= assess salary levels; by comparison
= assess future potential (e.g. promotion or multi-skilling); with preset targets
or standards, and
= assist in career planning; and provides feedback
= provide a forum for the airing of grievances, work-related or which shows where
personal problems. improvements are
needed and why.
2.2 Benefits
Builds a relationship between the employee, manager
and organisation.
The organisation obtains standard information on which to
compare all employees.
Allows the manager to objectively review, discuss and
compare employee performance using standard appraisal
procedures and guidelines rather than relying on hearsay from
other sources.
Improves communication between managers and employees.
Constructive help can be offered to the employee based on
the appraisal.
Provides feedback to senior management via the employee's
immediate supervisor about the job and competences of the
employee.

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F1 Accountant in Business Session 22 Performance Appraisal

Maintains performance levels by identifying and correcting

problems before they become serious.
Ensures that the employee negates weaknesses and builds on
strengths at the earliest opportunity.
Acts as a check on the effectiveness of recruitment and training.
Establishes a database of actual and potential performance as
a basis for manpower planning.
Focuses on the needs of the business.
Ensures that the employee's goals are congruent with those of
the organisation.
The appraiser also is being appraised through their skill and
ability to carry out an appraisal.

2.3 Effective Appraisal Features

Example 1 Features of Effective Appraisal

Identify FOUR features of an effective appraisal.
Solution
1.

2.

3.

4.

2.4 Pay Review

< The performance appraisal should be a frequent event; the
pay review usually being conducted once a year.
< From the viewpoint of the organisation, many factors other
than performance determine the amount of reward which can
be afforded.
< Additional effort by the employee should be rewarded, usually
by extra remuneration.
< By conducting the performance appraisal and salary
review together:
= salary is inevitably the dominating factor;
= until the employee hears about the salary, nothing else will
be considered;
= if the employee is unhappy with the salary increase, it can
easily be taken as an unintended negative reflection on
performance;
= money dominates the discussion rather than the review
of past, present and future performance and development
recommendations.

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Session 22 Performance Appraisal F1 Accountant in Business

< Ideally, performance appraisal and salary review should have

sufficient time between them to allow the employee to put
into place any improvement considered necessary by the
performance appraisal. In other words, employees will have
time to modify their performance before receiving a poor
salary review.
< In performance-related pay schemes, the pay review also
will incorporate an appraisal. In such cases, additional
performance appraisals should be held at various times
throughout the year to concentrate solely on performance
and development.

3 Forms of Appraisal

3.1 Methods
3.1.1 Open Assessment (Blank Sheet Approach)
< Manager writes a free-form report about the employee.
< Strengths (and weaknesses) can be stressed without constraint.
< Requires good report writing skills.
< Expressed in manager's own terms.
< Impossible to compare employees as no structure is imposed.
< Very difficult to assess changes compared to previous reports.
< Cannot be constructively analysed.
< The assessment is entirely subjective.
3.1.2 Guided Assessment
< Manager is required to address specific headings in the report.
< Guidelines are used to explain the headings and how they
should be interpreted (e.g. what does "client working
relationship" mean).
< Although placing a structure on the report, the strengths and
weaknesses are broadly similar to those for open assessments.

3.1.3 Rating Scales (Grading)

< Competences identified for a job are given a rating (1 = poor;
5 = excellent; or high, average, low) based on the employee's
performance and the general expected performance for an
employee at that level (e.g. 3 = satisfactory).
< Forms are easy to complete and may not involve too much
thinking on behalf of the manager.
< Tendency to rank everybody as "average".
< Can be subjective, in that each manager will have his or her
own concept of each grade.
< For schemes which arrive at the sum total of all grading to
assess the overall performance, this just leaves the assessor
with a number which does not describe the employee's
performance.
< Best combined with written elements covering, for example,
strengths, weaknesses and recommended action.

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F1 Accountant in Business Session 22 Performance Appraisal

3.1.4 Critical Incident Rating

< Ratings are based on recordings and observations by
managers of successful and unsuccessful employee behaviour
when carrying out the job.
= Successful behaviouremployee meets or exceeds the
benchmark.
= Unsuccessful behaviouremployee fails to meet the
benchmark.
< Individual employees are then graded based on their
behaviours.
< The appraisal concentrates on critical behaviour and actual
incidents, rather than general aspects of the job.
< As with rating scales, however, the sum of the employee's
critical incident ratings does not determine an employee's
overall performance measure.

3.1.5 Peer Comparison

< All employees in the assessment group (e.g. all assistant
managers) are compared with each other.
< Even with small groups, this can take some time.
< Employees may resent being directly compared with their
peers as part of their appraisal feedback.
< Difficult to compare peer grading between different
departments (e.g. an audit with a tax assistant manager or
sales with a marketing manager).

3.1.6 Peer Ranking

< The same approach as for peer comparison, except that all
members of a group are ranked by performance.
< May be easy to rank at the extremes, but very difficult in
the middle.
< Ranking objectively may be difficult, as different employees
will have different strengths and weaknesses.
< Assumes a normal distribution of competence, which may not
be the case.
< What the employee has actually done and the improvements
made since the last review can easily be overlooked.

3.1.7 Management by Objectives (MBO)Results Oriented

< Performance is reviewed against defined and agreed tasks
and standards.
< As each employee has agreed to the standards to be achieved,
they are able to monitor their own performance. This
effectively makes the manager a coach.
< Targets will be relevant to the job and the employee.
< May assist in motivating the employee.
< Targets must be achievable, otherwise they will be ignored.
< One disadvantage is that the system may concentrate on only
a few aspects of the job and ignore all other aspects.

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Session 22 Performance Appraisal F1 Accountant in Business

3.2 Types of Assessment

3.2.1 Top-Down
< The traditional approach, manager to subordinates.
3.2.2 Bottom-Up (Upward Appraisal)
< Subordinates appraise their managers.
< Subordinates are in an ideal position to assess the
competences required to manage them.
< As a manager manages a number of employees, a consensus
of the actual capabilities of the manager can be formed, thus
avoiding the potential biases of top-down appraisal.
< Feedback from a subordinate can be given directly to the
manager by the subordinate, and can be given anonymously
(or directly) from higher management.
< There is always the fear of reprisals and vindictiveness from
the manager.
< Managers fear that their subordinates do not fully understand
the role of a manager and are therefore unable to give an
objective opinion.

3.2.3 Sideways Appraisal

< Given by the customers of the employee.*
3.2.4 360-Degree Appraisal *Customers in a
sideways appraisal may
< Combines down, up and sideways appraisals. be internal or external
< Recognises that some roles cannot be fully appraised unless all and the appraisals are
sides are seen and considered. often obtained through
"customer satisfaction"
< Appraisals are carried out by the employee's immediate boss,
reports.
peer workers, (e.g. team dynamics or as internal customers),
their subordinates and external customers.
< Provides a fuller assessment of the employee and a more
effective development plan.
< May provide surprising results if conflicting views are given by
the appraisal groups. This will require specific counselling to
establish why the views diverge.
< The appraisal system can only be effective in open organisations
and where employees (directors, managers and shop floor) are
prepared to accept and act on constructive criticism.

3.2.5 Self-Appraisal
< Employee carries out a self-evaluation of own strengths
and weaknesses.
< In some schemes the employee identifies the job competences
and their strengths and weaknesses, thus saving the
manager time.
< Employee motivation may be improved because of increased
responsibility.
< In flat organisations (i.e. with few managerial levels),
employees are expected to be responsible for driving their own
development. Self-appraisal is a key managerial competence.

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F1 Accountant in Business Session 22 Performance Appraisal

< Because self-appraisal is ongoing, set times for appraisal are

unnecessary and the employee development program can be
on a rolling basis.
< Many schemes combine this method with another (e.g. a
manager and subordinate fill out the same form, ranking
against competence criteria, compare results and then discuss
during the appraisal interview). Emphasis is placed on areas
in which they sufficiently disagree to establish why they
disagree and to agree on appropriate action.

Example 2 Disadvantages of Self-Appraisal

Identify FOUR disadvantages of self-appraisal.

Solution
1.

2.

3.

4.

3.3 Assessment Centre

< Groups of individuals are assessed over a number of days.
Several methods of assessment and appraisal are combined.
< Apart from its use in recruitment (see Session 17), the
assessment centre approach may be used to appraise
potential managers and is a common method of officer/
specialist selection in the armed forces.

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Session 22 Performance Appraisal F1 Accountant in Business

4 Appraisal Process

4.1 Steps

4.2 Management Skills Required

< Broadly, interpersonal skills are required. For example:
= Listening (e.g. the 70% rule)
= Questioning (open, checking, closed)
= Non-verbal (e.g. body language of self and appraisee)
= Counselling

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F1 Accountant in Business Session 22 Performance Appraisal

= Coaching
= Goal setting
= Persuasion
= Assertiveness.

< Combinations of skills will be required depending on the style

of the appraisal.
= "Tell and sell" (more formal)mainly assertiveness
and persuasion.
= "Tell and listen" (semi-formal)emphasis on listening,
questioning, non-verbal.
= MBO approach (can be relaxed and informal)more or less
all with the emphasis on coaching.

4.3 Preparation
4.3.1 Identify the Objective of the Interview
< For example:
= tell
and sell (e.g. annual pay review);
= tell
and listen (e.g. semi-annual performance reviews); or
= coaching (e.g. on-the-job assessment).

4.3.2 Arrange Interview

< Arrange a convenient time and location with the employee.
< Ensure that the employee is fully aware of the purpose of the
interview and what it will cover.
< Ensure that the employee receives all necessary
documentation in sufficient time to allow the person to fully
prepare. For example:
= up-to-date job description;
= copy of the action plan and goals set after the last
appraisal; and
= completed assessment/self-assessment form.

< Confirm arrangements with each employee in writing.

< Schedule interviews, making sure that sufficient time is
allocated to each interview; that there is sufficient time
between interviews to complete notes; and that each
interview is treated appropriately and fairly.

4.3.3 Pre-interview Preparation

< Review the employee's file, including job description,
personnel specification, job skills, training, job experience,
qualifications, etc.
< Review the employee's last appraisal, notes, development plan
and goals.
< Determine progress made since the last review, including
goals, performance indicators reached (why and why not) and
contributory factors not under their control (discuss with other
managers as necessary).
< Review the employee's self-assessment form (if system used),
identify differences and consider why they arise.
< Obtain all necessary documentation to be used during the
interview (including items to be given to the employee).
< From the information obtained, prepare an interview plan.

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Session 22 Performance Appraisal F1 Accountant in Business

4.3.4 Interview Plan

< Identify the objectives of the interviewwhat is to be achieved.
< Note the approach and order of topics to be covered.
< Note the questions to be asked and facts to be ascertained.
< Make sure that the review covers the entire period since the
last review and not just recent events.
< Draft a summary, development plan, training requirements,
tasks, etc. These may need to be changed in the light of the
interview.
< Where the interview is to be highly structured (e.g. tell and
sell), then an agenda can be used. Where the interview is less
structured, the interview plan will need to be flexible.

4.4 Location of Interview

< The location and environment of the interview should be
appropriate for its objectivesrelaxed but formal for tell and
sell, relaxed and informal for counselling and coaching sessions.
< In general, the manager should ensure:
= an appropriate environment (e.g. temperature, humidity, ease
of access, free from interruptions, low noise levels, private);
= that the employee is not made to feel uncomfortable
(e.g. directly facing sunshine, uncomfortable chair,
physical barriers between them, lack of refreshments and
appropriate breaks); and
= that the employee has access to necessary resources.

4.5 Conducting the Interview

< Get into the right frame of mind"clear the desk".
< Welcome the employee, relax and establish rapport.
< Make clear that you are meeting to review the employee's
performance and to assist in developing the employee over
the next measurement period.
< Ensure that the employee fully understands what the appraisal
is about and that they have all the documentation and
information they need.
< Lead into the main aspects of the review as quickly as possible.
< Progress through the interview plan, applying appropriate
interpersonal skills as required:
= listening (70/30 rule);
= questioning (open, seek rather than give information,
assumption-free, not leading, simple);
= coaching (seeking the solutions together, with the emphasis
on the employee); and
= body language (relaxed, truthful, honest, open).
< Ensure that the interviewee is involved and feels involved in
the process.
< Encourage the employee to self-analyse and develop solutions
through the use of open questions and coaching.
< Ensure that the employee's aspirations and ambitions are
realistically achievable (i.e. not impossible).

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F1 Accountant in Business Session 22 Performance Appraisal

4.6 Closing Procedures

< Summarise what the appraisal has covered.
< Give the employee opportunity to react, question and add
additional information.
< Agree on future goals, the action required and who is responsible
for it happening in the form of a written development plan.
< Set dates by when the actions should be completed.
< Ensure that the employee leaves the appraisal knowing what
the manager and organisation feels about their strengths
and weaknesses. The employee must also be fully aware
of development expectations and likely progress within the
organisation.

4.7 Follow-Up
< The manager should write a formal report on the appraisal if it
is not done during the review.
< A copy of the report should be given to the employee for his or
her agreement.
< Whatever action was promised by the manager or the
employee during the appraisal should be implemented quickly
rather than waiting for the next appraisal (which in some
cases may be 12 months later).
< A manager who delegates an action agreed on in the appraisal
must still ensure that the action takes place.
< Appraisals should be ongoing.
4.8 Feedback
< Feedback requires comparing a system's output with a
benchmark or standard and adjusting the input or the process
as necessary to ensure that the output meets the standard.
< Managers require feedback about how their subordinates
are performing to ensure that the organisation achieves
operational, departmental and strategic objectives.
< Employees need constructive feedback to ensure that they can
correct any inappropriate action and be motivated towards
continuous improvement.
< Constructive feedback is essential to learning and developing a
sense of achievement, both strong motivators. Anything less
will be demotivating.
< The appraisal interview provides an opportunity for general
feedback to an employee, but in some situations (e.g. in day-
to-day operations) it may be too late (good information needs
to be on time). Ideally, evaluation will be an informal process
of continuous appraisal with immediate feedback.

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Session 22 Performance Appraisal F1 Accountant in Business

< Feedback can be formal (direct) or informal (via a third party).

Workplace examples include:
= praise;
= constructive criticism;
= direct answers to questions;
= physical reactions to questions or different situations;
= gossip;
= budgetary analysis; and
= strike action by employees to a proposal or action by
management.

4.9 Barriers to Effective Appraisal*

< Considered unnecessary by management (e.g. something that
has to be done because it was agreed with the trade union)
*"Now my friend, as
or just a form-filling exercise (e.g. meets the requirements of the appraisal system
quality control). is a cooperative,
< Seen as confrontational by both or either parties. constructive,
communication
< Considered a one-way process by management informing
process, I will let you
an employee of their judgement and the required action to
know what I have been
be taken. told is wrong with you,
< No more than a "friendly chat"life continues as normal. and then you will let
< Inappropriate measurement criteria (e.g. poor job description, me know what else is
wrong with you."
irrelevant competences and personnel specification).
< Dislike by employee (e.g. nervous).
< Manager is ill-prepared, has insufficient or incorrect facts.
< Manager is subjective or biased and has already "written the
final report".
< Manager dislikes having to give constructive criticism or
writing the report (e.g. considers the findings as extremely
critical rather than constructive).
< Employee is held responsible for factors outside of their control.
< Insufficient time is allocated to the appraisal.
< Insufficient time is allowed for the employee to prepare.
< May only be carried out once a year. Targets very quickly
become out of date.
< Employee is unwilling to accept constructive criticism and
development assistance.
< Lack of follow-up and failure to take action agreed at appraisal.
< System may be inflexible (e.g. "one tool for all" approach).

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 Session 22

Summary
< In order to determine an employee's value, an organisation must define:
the competences required of the employee to successfully execute against the rms
objectives; and
the positions within the organisation which will be responsible for executing each
component of the objective.
< Performance appraisals are required to ensure that employees meet the needs of their position.
< Forms of appraisal include open assessment, guided assessment, grading, critical incident
rating, peer comparison, peer ranking and management by objectives (MBO).
< Assessment can be accomplished as top-down, bottom-up, sideways, 360-degree or
self-appraisal.
< Assessment centres may be used to measure performance and provide appraisal, much as
they are used to select employees in the hiring process.
< Appraisers must identify the criteria, prepare an appraisal report, hold the appraisal interview,
develop an action plan, review the appraisal and monitor the employee's development plan.
< Appraisers should prepare for the interview by identifying the objective, arranging the
interview, assembling data, developing the interview plan, ensuring an appropriate
environment, conducting the interview, closing the process, following up and providing
feedback to the employee.

Session 22 Quiz
Estimated time: 25 minutes

1. List SIX areas where assessment appraisals are used. (1)

2. List the benefits of appraisals. (2.2)
3. Describe the rating scales method of appraisal. (3.1)
4. List the SIX steps in the appraisal process. (4.1)
5. Describe the barriers to an effective appraisal. (4.9)

Study Question Bank

Estimated time: 25 minutes

Priority Estimated Time Completed

MCQ22 Performance Appraisal 25 minutes

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EXAMPLE SOLUTIONS

Solution 1Features of Effective Appraisal

F requent Regular and appropriate for the employee's job.
F actual Based on targets and measurable performance citing factual
examples, not subjective traits.
F irm Improvement can only start when failure is recognised.
F air Uniform appraisals in different areas of the company.
No bias from single appraiser.

Solution 2Disadvantages of Self-Appraisal

Employees may not be the best judges of their own performance.
Employees may be too close to the work they carry out in order
to be able to stand back and give an objective assessment of their
strengths and weaknesses (or just incapable of doing so).
Employees may just wish to develop personal skills without taking
into account the organisation's objectives.
If carried out as a joint appraisal with their manager, employees may
deliberately understate or overstate rankings in order to tie in with
those they expect to receive from their manager.

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NOTES

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