Performance Appraisal H R Project 2

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PERFORMANCE APPRAISAL AND COMPETITIVE

ADVANTAGE
The objectives of petformance appraisal, listed above, point out the purpose which
such an exercise seeks to meet. What needs emphasis is that petformance evaluation
contributes to firm's competitive strength. Besides encouraging high levels of
petformance, the evaluation system helps identify employees with potential, reward
petformance equitably and detetmine employee's need for training. S pecifically,
petformance appraisal helps an organization gain cotnpetitive edge in the following ways
(see Fig below)
hnproving
Strategy and Perfor1nance Making correct
Behavior decisions
Competitive
Advantage
Values and Ensuring Legal

Behaviour Mini1ni zing Compliance
dissatisfaction and
tu1nover
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Fig: How Performance Appraisal can contribute to Firm's Competitive Advantage?
Improving Performance
An effective appraisal system can contribute to competitive advantage by improving
employee job petformance in two ways-by directing employee behaviour towards
organizational goals, as was done by the second beekeeper (see opening case), and by
monitoting that behaviour to ensure that the goals are met.
Making Correct Decisions

As stated above, appraisal is a ctitical input in making decisions on such issues as pay
raise, promotion, transfer, training, discharges and completion of probationaty periods.
Right decision on each of these can contribute to competitive strength of an organization.
If promotion, for exatnple, is made on petformance, the promotee feels motivated to
enhance his or her pe1fo1mance.
Ensuring Legal Compliance

Promotions made on factors other than petformance might land up a firm in a legal
battle, thus diverting its focus on non-productive ai·eas, as it happened to Williamson
Magat·. Organizations can minimize costly pe1fo1mance-related litigation by using
appraisal systems that give fair and accurate ratings.
Minimizing Job Dissatisfaction and Turnover

Etnployees tend to become emotional and fn1strated if they perceive that the ratings
they get at-e unfair and inaccurate. Such employees find that the efforts they had put in
becatne futile and obviously get de-motivated.
Dissatisfaction in the job sets in and one of the outcomes of job dissatisfaction is
increased turnover. Fair and accurate appraisal results in high motivation and increased
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job satisfaction. An organization having satisfied and motivated employees will have an
edge over its competitors.
Consistency between Organizational Strategy and Behaviour

An organization needs a strategy consistent with the behaviour of its employees if it
were to realize its goals. A ttuism of organizational life is that people engage themselves
in behaviours that they perceive will be rewarded. As employees want to be rewarded,
they tend to occupy themselves more with those activities on which the organization
emphasizes. For example, if the focus is on service, employees will behave in ways that
will help them in gaining rewards associated with service delivery. If the focus is on cost
control, employees will seek to control cost and thus be recongnised and rewarded. If the
focus is on rewarding productivity, employees will sttive for productivity. The
petformance appraisal becomes not only a means of knowing if the e1n plo yees' behaviour
is consistent with the overall strategic focus, but also a way of bringing to the fore any
negative consequence of the strategy- behaviour fit For example, a single point
productivity focus may include potential negative consequences such as decreased quality
and co-operations. Thus, the petformance appraisal system is an important organizational
1nechanism to elicit feedback on the consistency of the strategy-behaviourlink.
Organizational Strategy and Performance Appraisal

The pe1fo1mance appraisal system serves many organizational objectives and goals.
Besides encouraging high level of petformance, the evaluation system is useful in
identifying employees with potential, rewarding pe1fo1mance equi tably. And determining
employees' needs for development. These are all the activities that should support the
organization's strategic otientation. Although these activities are clearly instrumental in
achieving cotporate plans and long-term growth, typical appraisal systems in most
organizations have been focused on short-tetm goals.
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From the strategic management point of view, organizations can be grouped into three
categories defenders, prospectors and analyzers. Pe1fo1mance appraisal has definite roles
in all the three strategies.
Typically, defenders have a narrow and relatively stable product-market domain.
Because of this narrow focus, these organizations seldom need to make major
adjustments in their technology. Structure or methods of operations. They devote primaty
attention to improving the efficiency of their existing operations. Because of the
emphasis 01 lbuilding skills within the organization, successful defenders use
petformance appraisal for identifying training needs. Pe1fo1mance appraisal is usually
more behaviour oriented.
Organizations with a prospector strategy continuously seat·ch for different product and
mat·ket op portunities. In addition, these organizations regulat·Iy experiment with potential
responses to new and emerging environmental trends. Prospectors at-e often the
hatbingers of change. Because of the emphasis on skills identification and acquisition of
human resources from extetnal sources, as opposed to skills building with the
organization, prospectors often use the petformance appraisal as a tneans of identifying
staffing needs. The emphasis is on results. Finally, the focus is on division and cotporate
petformance evaluation as they compat·e with other companies during the same
evaluation period.
Organizations with an analyzer strategy operate in two types of product-.mat·ket
domains. One dotnain is stable while the other is changing. In their more innovative
at-eas , managers watch their competitors closely and rapidly adopt the ideas that appeat·
promising. In general, analyzers use cost effective technologies for stable products and
project or mattix technologies for new product. Analyzers tend to emphasize both skill
building and skill i lcquisilion and etnploy extensive training programmes.
Thus, these organizations attempt to identify both training as well as staffing needs. The
appraisal syste1ns ru·e considet-ed at the individual, group and divisional levels. Finally,
successful analyzers have a tendency to examine current petformance with past
petformance within the organization. Cross-sectional compatisons (compat·isons among
'companies) may also occur.
Whatever the category, a petiormance appraisal system has strategic impottance to a
firm in three ways:
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l . Feedback mechanism,
2. Consistency between organizational strategy and job behaviour, and
3. Consistency between organizational values and job behaviour.
APPRAISAL PROCESS
Figure below outlines the petformance- appraisal process. Each step in the process is
ctucial and is arranged logically. The process as shown in Fig. Below is somewhat
ideal ised. Many organizations make evety effott to approximate the ideal process,
resulting in first-rate appraisal systems. Unfortunatel y, many others fail to consider one
or more of the steps and, therefore, have less-effective appraisal system.
Objectives of
Appraisal
• -
Establish job
Expectation
.
' .
• -
Design an appraisal
petiormance
-
Petformance
.
interview
• ,.
Use appraisal data for
appropriate purposes
1. Objectives of Appraisal
Objectives of appraisal as stated above include effecting promotions and transfers,
assessing training needs, awarding pay increases, and the like. The emphasis in all these
is to correct problems. Theses objectives are appropriate as long as the approach in
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appraisal is individual. Appraisal in future, would assume systems orientations. In the

systems approach, the objectives of appraisal stretch beyond the traditional ones.
In the systems approach, appraisal aims at improving the pe1io1mance, instead of
merely assessing it. Towards this end, an appraisal syste1n seeks to evaluate opportunity
factors. Opportunity factors include the physical environment such as noise, ventilation
and lightings, available resources such as human and computer assistance and social
processes such as leadership effectiveness. These oppottunity vaiiables ai·e more
impottant than individual abilities in determining work pe1fo1mance.
In the systems approach the emphasis is not on individual assessment and rewai·ds or
punis hments. But it is on how work the work system affects an individual' s.
In the systems approach the emphasis is not on individual assessment and rewai·ds or
punis hments. But it is on how the work systems affect an individual's petio rmance. In
order to use a systems approach, managers must leatn to appreciate the impact that
systems levels factors have on individual petformance and subordinates must adjust to
lack of competition among individuals. Thus, if a systems approach is going to be
successful, the employee must believe that by working towai·ds shat·ed goals, eve1yone
will benefit.
Not that the role of the individual is undetmined. The individual is responsible for a
Iai·ge percentage of his or her work petio rmance. Employees should not be encouraged to
seek organizational reasons for his failures. The identifications of systems obstacles
should be used to facilitate development and 1notivation, not as an excuse to poor
petformance. The following table displays some of the differences between the traditional
approach and the systems-oriented one.
I PERFORMANCE APPRAISAL SYST EMS I

Traditional Systems
Guiding value Attribution to individual Attribution to systems
Ptimai·y roles Control, documentation Development, problem
solvin!!
Leadership practices Directional, evaluative Facilitative, coaching
Appraisal fi-eauencv Occasional Freauent
Degree of formality High Low
Rewai·d Practices Individual orientation Group orientation
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2. Establish Job Expectations
The second step in the appraisal process is to establish job expectations. This includes
informing the employee what is expected of him or her on the job. Normally, a discussion
is held with his or her superior to review the major duties contained in the job place of
formal pe1fo1mance evaluation .
3. Design Appraisal Programme
Designing an appraisal programme poses several questions which we need to answers.

They are: -
l . Formals versus informal appraisal

2. Whose petformance is to be assessed?
3. Who are the raters?
4. What proble1ns are encountered?
5. How to solve the problems?
6. What should be evaluated?
7. When to evaluate?
8. What methods of appraisal are to be used?
What
methods?
Formal
V/s Whose
Informal performanc
e
When to Appraisal
evaluate? design What are
the
raters?
What to What
evaluate? problems
How to
solve?
1. Whose performance should he rated? To the question as to whose

petfotmance should be rated, the answer is obvious---employees, is it individual
or teams? Specifically the rate may be defined as the individual, work group,
division, or organizations. It is also possible to define the rate at tnultiple levels.
For example, under some condition, it may be desirable to appraise petformance
both at work-group level for merit-pay increases and at the individual level to
assess training needs. Two conditions necessitate a group level appraisal- group
cohesiveness and difficulty in identifying individual petformance. Description.
Individual should not be expected to begin the job until they understand what is
expected out of them.
2. Formal V/s informal appraisal: - the first step in designing an appraisal

programme is to decide whether the appraisal should be formal or informal.
Formal appraisal usually occurs at specified time periods- once or twice year.
Formal appraisals are most often required by the organizations for the purposes
of employee evaluation. Informal petformance appraisal can occur whenever the
supetior feels the need for communication . For example, if the employee has
been consistently meeting or executing standards, an informal appraisal may be
in order to simply recognize this fact. Discussions can take place anywhere in the
organizations, ranging from the managers office to the canteen. But care needs to
be taken to ensure that the discussion is held in private. Many organizations
encourage a mixture of both formal and informal appraisal. The fonnal appraisal
is most often used as primary evaluation. However, the informal appraisal is very
helpful for more petformance feedback. Informal appraisal should not take the
Group cohesiveness refers to shared feeling a1nong work-team metn bers. There is
cooperation and clear understanding to accomplish tasks which are
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interdependent. Any atte1npt to assess individual pe1formance shall undermine

group cohesiveness and tend to promote individualistic or even competitive
orientation. The difficulty in identifying individual conttibution is also important
to consider. In some cases, interdependent of tasks is so complete that it is
difficult to identify who has contributed what. There is no other choice but to
view that task as a team effort. But the point to be remembered is that the
petformance of all employees must be rated. All must become raters.
3. Who are Raters? Raters can be immediate supervisors, specialist from the HR
department, subordinates. Peers, committees, clients, self appraisal, or a
combination of several.
a. Immediate supervisor is the fit candidate to appraise the petformance of

his or her subordinate. There are 3 reasons in support of this choice. No
one is familiar with the subordinate's petiormance than his or her
superior. Another reason is that the superior has the responsibility of
managing a particular unit. When the tasks of evaluating a subordinate is
given to another person, the superior authotity may be undennined
seriousl y. Finally, training and development of subordinate is a1n portent
element in every mangers job. Since appraisal programme are often
clearly linked to training and development, the i1nmediate supetior 1nay
be the legal choice to conduct the petformance evaluation.
b. Subordinate can assess the petformance of their superiors. The use of this
choice may be useful in assessing an employee ability to communicate,
delegate work, allocate resources, disseminate infotmation , resolve intra-
personal conflict, and deal with employees on a fair basis. But the
proble1n with the subordinate evaluation is that supervisors tend to
become popular, not by effective leadership, but by mere gimmicks .
c. Peers are in better position to evaluate cettain facts of job petformance

which the subordinates or supervisors cannot do. Such facts include
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conttibution skills, reliability and initiative. Closeness of the working

relationships and the amount of personal contacts place peers in a better
position to make accurate assessments. Unfortunately f1iendship or
ani1nosity may result in distottion of evaluation. Further when reward
allocation is based on peer evaluation, se1ies conflicts a1n ong co-workers
may develop. Finally join together to rate each other high.
d. Although clients are seldom used for rating employee petformance,

nothing prevents an organization ii-om using this source. Clients may be
me1n bers within the organization who have direct contact with the rate
and make use of an output (goods or services) this employee provides.
Interest, courtesy, dependability and innovativeness are but a few of the
qualities for which clients can offer rating information. Clients, external
to the organization can also offer similar kinds of information. Where
appraisal is made by the superior, peers, subordinates and clients, it is
called the 360-degree system of appraisal. First developed at General
Electric, US in 1992 the system has become popular in our country too.
GE (India). Reliance Industries, Crompton Greaves, Godrej Soaps,
Wipro, Infosys, Thermax and Thomas Cook are using the method with
greater benefits. The Arthur Anderson Survey 1997 reveals that 20% of
the organization use 360 degree method. In the 360 degree method,
besides assessing pe1fonnance. Other attributes of the assess- talents,
behavioral quirks, values, ethical standards, tempers and loyalty are
evaluated by the people who are best placed to do it. Many employees use
rating committees to evaluate employees. These committees are often
composed of the employee's immediate supervisor and three or four other
supervisors who come in contact with the employee. This choice is
welcome when an etnployee in the cotu-se of his or her job petfotms a
variety of tasks in different environment. For e.g. !supervisor may work
with the employee when technical aspects of a job are being petfonned
and another supervisor may deal with the same etnployee in situations
where communications skills are crucial. There are several benefits in
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PERFOR ANCE
APPRAISAL
SYSTE
-l-
using multiple raters. First there may be objectivity in rating as more than
rater is involved in the assessment. Fu1thermore where there are
differences in the rater ought ratings they usually stem from the fact that
raters at different level in the organization often observe different facets
of an employee petformance-the appraisal to reflect these differences.
The disadvantages of committee rating are that it diminishes the role of
the immediate supervisor in the area of training and development.
e. In self - appraisal employee himself or herself evaluates his or her own

petfonnance. Indian Telephone Industries has been following the self-
appraisal system for executives in grade I to IV. Hewlett-Packard and
Texas Instruments too ask their petiormance to prepare their own
appraisal. On the positive side it may be stated that in self-appraisal there
is an opportunity to participate in evaluation particularly if it is combine
with goal setti9ng and this should be improve the mangers motivation.
Managers are less defensive in self-evaluation than when supervisors tell
them what they are. Self-appraisal is best suited where executive
development is the main purpose of evaluation as the approach enablers'
managers to clearly assess their areas of differences. Unfortunately self-
appraisal falls short almost by any ctiterion. They tend to be more lenient
cotnpared to other sotu-ces of evaluation, even that of peers who are more
lenient than their supetiors. Self-appraisal is also more likely to be less
biased and less in agreement with judgment of others. In practice a
cotnbination of methods is followed for employee. For example
evaluation by self may be followed by a supetior, the personal department
or the HR department (following diagram).
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Different Raters of Performance-L&T, Bangalore works
PROCEDURE AND SCHEDULEFOR PERFORMANCE APPRAISL PROCESS
Action by/Date Form/Section Brief description of Activities
Annual Petformance Review
Fotm 2
Sec:
• Describes actual results against
objectives set earlier. Not more than
five
Employee by • Carries out self-review highlighting
15.4.1999 significant contributions and factors
influencing petformance
• Keeps himself or herself ready for
appraisal interview by analyzing his
petio rmance, strengths and weakness
and development needs.
Form2
Sec: B, C
• Prepares for the appraisal interview by
analyzing results against objectives,
strengths and weakness and recalling
significant incidents. Related to critical
attributes.
• Discusses with the employees and
provides feedback on ctitical atttibutes
and rate on pe1fo1mance and attributes.
From 'i • Carries out development planning with
the etnployee
• Carries out petformance planning for
From I 1994-1995with employee, selects and
describes role related atttibutes.
From? • Describes strengths and weakness and
comments on potential areas for growth
Sec C • Records training needs and apecific
developments plans.
Sec D
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• Co1n1nents on specific developments

plans
Fro1n 2
Sec E • Makes overall observations on the
employee' s pe1formance
Next superior(s) • Forwards the forms if necessary to his
superior to ensure:
By 15.6.1994
1. Covenants are reviewed by a superiors
at least at DGMlevel
2. Superiors/ executives are reviewed by
covenanted officers.
Immediate
superior(s)
From2
• Notes the comments by the next
superiors and conveys significant
By 15.6.1994 observations to employee
• Forwards for convents to HRD depts.
and for superiors/executives to
•
Personnel/ I
From 2
I Analyses rating and co1TI1nents and
fu1nishes data to all concen1ed for
necessary actions
HRD dept.
By 15.7.1994 • Co-ordinates Development Action
Proposals at Respective Group/ unit
level
• Plans training programme and other

actions
HRD dept.
By 30.7.1994
I From2
I • Complies Pa data for aggregate
analysis
• Comments on Pa exercise and send
repo1t to GMs and corporate
management
From l
Immediate
Supe1ior • Reviews pe1fo1mance and objectives
and w1ites comments as necessaiy
• Reviews development action taken
and records status.
From 3
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2. PERIODIC REVIEW (during the year)

Whoever may be the rater two requisites must be fulfilled. First the rater must be free ii-
om bias. Second the rater must have an opportunity to observe the full spectrum of
activities and behavior of the rate over an extended time petiod.]
4. Problems of Rating: - Pe1fo1mance appraisals are subject to a wide variety of

inaccurate and biases referred to as rating errors. These errors occur in the rater's
observations, judgments and infotmation processing and can setiously affect assessment
result. The most common rating etTors are leniency or severity, central tendency, halo
effect, p11i nary and recency effects, perceptual set, petformance di1nension behavior, spill
over effect and status effect.
5. Leniency or Severity: - Leniency or sevetity on the pait of the rater makes the
assessment subjective. Subjective assessments defeat the very purpose of petformance
appraisal. Ratings are lenient for the following reasons.
• The rater may feel that anyone under his or her jurisdictions who is rated
unfavorably will reflect poorly on his or her own worthiness.
• He or she may feel that anyone who could have been rated unfavorably has
akeady been dischai·ged from the organization
• He or she may feel that a derogatory rating will be revealed to the rate to the
determinant of the relations between the rater and rate.
• He or she may rate leniently in order to win protnotions for the subordinates and
therefore indirectly increase his or her hold over them.
• He or she may be projecting

• He or she feels it necessary to always approve of others in order to gain approval
for him or herself.
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• He or she may be operating on the premise , "whoever associates with me is

meritorious therefore, and I am me1ito1ious".
• He or she may rate leniently because there exists, in the culttu-e, a response set
approve rather than disapprove.
WC according to a WC according to a lenient rater

Severe rater True amount WC
LOW written communication HIGH

Skills (WC)
4. Central tendency: - this occurs when employees are incorrectly rated near the
average or middle of the scale. The attitude of the rate is to play safe . This safe-
playing attitude stems from cettain doubts and anxieties which the raters have
while assessing the ratees. Such doubts and anxieties are :
• "Do I know the man sufficiently well to be able to give a fair assessment of
him?
• "If I rate him the way I think I should what will be its influence on his
relations with me and on his petiormance in the future?
• "If I rate him the way I think I should what will be its effect on my relations
with the others subordinates?"
• "If I rate him the way I think I should what will be its effect on his
relationship within the group or subordinates?"
• "Will I able to be objective in view of pressures ii-om peers , subordinates and

trade union?"
• "Ifl rate him the way I think I should will be accused to being pattial?"
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• "How will my boss view the appraisal I make and how will that influences the
way he appraises the man?"
• "What standards will my peers adopt to appreciate their subordinates? And in
view of this am I likely to affect adversely the future of my subordinates?"
Naturally the rates use such expressions as satisfactory and average to desctibe the
petformance of the rates. For example the principal of a college while giving character
certificates to the outgoing students describe the character of each student as satisfactoty.
Obviously it's become difficult to distinguish between excellent petiormance and poor
petformance. In small organization it is common to label all employees as an average.
But in large companies errors of this type tend to obviate the value of evaluations.
Close to error of central tendency is the problem of range restriction. Range restriction
may involve clustering all employees around any point on a scale, often in combination
with leniency errors at very top. What is distinctive in the error of central tendency and
the error of rdnge restriction is a failure to note real petformance differences, either
intentionally or due to insufficient attention.
Halo Error - it takes place when one aspect of an individual pe1fo1mance influences the
evaluation of the entire petfotmance of the individual just as the assessment of the
petformance of a student in his or her examination being influence by the opening
paragraph of every answer. If the introductory paragraph is poorly written the chances of
scoring high marks in that answer are diminished however good the subsequent pottion
of the essay may be
In an organization a halo error occurs when an emplopuee who work late constantly
tnight be rated high on productivity and quality of output as well as on motivation.
Similarly an attractive or popular employee might be given a high overall rating. Rating
employees separately can each of a number of petiormance and encouraging raters to
guard against the halo effect are two ways to reduce halo effect.
Rater effect: this includes favoritism, stereotyping and hostility. Excessively high or low
scores are given only to certain individual or groups based on the rater's attitude towards
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the rate, not on actual outcomes or behavior. Sex, age, race and ftiendship biases are
exainple of this type of etTor.
Primary and recency effects: - the rater's ratings are heavily influenced either by
behavior exhibited by the rate during the early stage of the review petiod or by outcomes
or behavior exhibited by the rate neai· the end of the review period (recency). For
example if a salesperson captures an impottant contract/ sales just before the completion
of the appraisal the timing of the incident may inflate his or her standing even though the
overall pe1fo1mance of the salesperson may not have been encouraging. Likewise a
blunder committed just before the appraisal petiod may diminish chance of securing a
favorable rating even if the pe1fo1mance is good .
One way of guai·ding against such an error is to ask rater to consider the composite
petformance of the ratee and not to be influenced by one incident or own achievement.
The rater must also be aware of tendency on the pait of the rates to improve odds in their
favors or suppress weak points during the rating period.
Perceptual Set: - this occurs when the rater' s assessment is influenced by previously
held beliefs. If the supervisors for example have a belief that employee hailing from l
paiticulai· region is intelligent and hai·d working his subsequent rating of an employee
hailing from that region tends to be favorably high.
Performance Dimension order: 2 or 1no1-e dimensions on a pe1fo1mance insttument

follows or closely follow each other and both describe or rotate to a similar quality. The
rater rates first dimension accurately ai1d then rates the second dimension similai· to the
first because of their proximity. If the di1nension had been atTanged in a significant
diffet-ent order the rating might have been different.
Spillover effect: This refers to allowing past petformance appraisal ratings to

unjustifiably influence cu1Tent ratings . Past ratings, good or bad 1-esult for the period
although the demonstrated behavior does not deserve the rating good or bad.
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Status effect: - it refers to overrating of employee in higher-level jobs held in high

esteem, and underrating employees in lower-level-job or jobs held in low esteem.
It is not the rater's eti-ors alone that are bartiers to accurate and valid measurement of
employee petformance. Barriers lie deep within the genetic and acquired make-up of all
people concerned with petformance appraisal. A wide variety of emotional,
psychological, intellectual and physical factors that at first glance may appear to be
separate and irrelevant may combine in any numbers of ways during the appraisal
process.
Exhibit 10.2
Here is a bizati-e case of petformance appraisal. A pulp making unit located at Hat·ihae in
Kat·nataka, hired 40 engineers in 1994, as management trainees. The new hires were fresh
ii-om, REC , S uratkal, and other prestigious institutio ns. Obviously they were toppers in
their respective branches and institutions.
The management of the plant adopted a freakish policy with regat·d to petfotmance
appraisal - 10 percent of all the employees were to be rated below average. The
tnanagement did not want all the employees to be ranked high, notwithstanding their
excellent pe1fo1mance.
The axe fell on the trainees. The raters rated all the 40 trainees below average.
Htuniliated, these 40 put in their papers even before their training period expired.
Solving Rater's Problems

the best way to overcome the problems is to provide training to the raters. At Hewlett-
Packat·d, a 2 day training course is organized evety yeat· to prepat·e managers to handle
appraisals better. Not that training is a 'ctu-e- all ' for all the ills of appraisal systems. From
a practical point of view, several factors, including the extent which pay is related to
petformance ratings, union pressure, turnover rates, time constraints and the need to
justify ratings may be 1nore important than training, influencing the ratings they actually
give. This means that improving rating systems involves not just training the raters but
remedying outside factors such ass union pressure. And it means that rater training, to be
effective, should also add real life problems such as the fact that union representatives
will try to influence supervisors to rate evetyone high.
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But training can help improve the appraisal system to the extent of distortion that occurs
due to the rater's error such as halo, leniency, central tendency and bias. In a typical
training, raters are shown a video-tape of jobs being petfotmed and are asked to rate the
workers. Ratings made by each participant are then placed on a flip chatt and the vai·ious
charts at-e e xplai ned. For e.g., a trainee is rated on all critetia (such as quantity and
quality) about the same, the trainer might explain that halo etTor had occu1Ted. If, on the
other hand, a trainer rated all video-taped workers very high, this might be explained as a
leniency error. T ypically, the trainer gives the cotTect rating and then illustrates the rating
etTors made .
In effect, training of raters must help stt-engthen the factors that tend to improve accuracy
of ratings and weaken those that lower the accuracy of the petformance measut-em e nt.
Factors that help improve accuracy:

l. The rater has observed and is familiat· with behaviors to be appraised.
2. The rater has documented the behaviors to improve the 1-ecall .

3 . T he rater has a checklist to obtain and 1-eview jo b-1-ela ted i nfotmation.
4. The rater is awai·e of personal biases and is willing to take action to minimize their
effect.
5. Rating scores by raters of one group or organization at-e s u1n1nai·ized and compat-ed
with those by other raters.
6. The rater focuses attention on petformance-1-ela ted be haviors over which the rater has
better control than in other aspects of evaluation.
7. Higher levels of management at-e held accountable for reviewing all ratings.
8. The rater's own petfotmance ratings ai·e 1-elated to the quality of rating given and the
petformance of units.
9. Petformance factors ai·e properly defined.
Factors that may lower accuracy:

l. The rater rates ratees only when administrative actions at-e co ntemplated.
2. The rater tends to inflate ratings when the ratees receive scot-es and 1-esults of
a ppraisals .
- 28 -
3. The rater tends to recall more behaviours known to be of particular interest to higher
level managers, whether or not they are pertinent, when his or her ratings are reviewed by
such authorities.
4. The rater is unable to express hi1n or herself honestly and unambiguously.
5. Appraisal systems, processes and instruments fail to suppott the rater.
6. The rater has to rate employees on factors that are poorly defined.
7. Finally, the supervisor/rater must be trained to conduct the appraisal interview. For
many raters, this is a difficult task, especially when the appraisal is unfavorable to the
rater. Favorable or unfavorable rating, it is the job of the rater to convince the ratee about
the appraisal, and advise him or her about the futtu-e course of action the rate should take.
What should be rated?

One of the steps in designing an appraisal programme is to determine the evaluation
cti teria. It is obvious that the ctiteria should be related to the job. The six criteria for
assessing performance are:
l. Quality: The degree to which the result or process of carrying out an activity
approaches petfection in terms of either conforming to some ideal way of petforming the
activity, or fulfilling the activity's intended ptupose.
2. Quantity: The amount produced, expressed in monetaty te1ms, number of units, or
number of completed activity cycles.
3. Ti1neliness: the degree to which an activity is completed or a result produced, at the
earliest time desirable from the standpoints of both co-coordinating with the outputs of
others and of maximizing the time available for other activities.
4. Cost Effectiveness: the degree to which the use of the organization's resources (e.g.
human, monetaty, technological and material) is 1naxi1nized in the sense of getting the
highest gain or reduction in loss from each unit or instance of use of a resow·ce.
5. Need for supervision: the degree to which a job pe1fo1mer can catTy out a job
function without either having to request supervisory assistance or requiring supervisoty
intervention to prevent an adverse outcome.
6. Interpersonal impact: the degree to which as petformer pro1notes feeling of self-
estee1n, goodwill and co-operationa1n ong co-workers and sub-ordinates.
- 29 -
INDEX
SR.NO TOPIC PAGE NO
1. MEASURING PERFORMANCE V/S 2-3

ACTION
2. PERFORMANCE APPRAISAL 4-5
3. OBJECTIVES OF PERFORMANCE 6-7

APPRAISAL
4. PERFORMANCE APPRAISAL AND 8-11

COMPETITIVE ADVANTAGE
5. APPRAISAL PROCESS 12-29
6. METHODS OF APPRAISAL 30-41
7. MANAGEMENT BY BJECTIVES(MBO) 42-43
8. LARSEN AND TOUBRO, HUMAN 44--46

RESOURCE DEVELOPMENT-
PERFORMANCE APPRAISAL
SYSTEM
9. ASSESSMENT CENTRES 47-49
10. 360-DEGREE FEEDBACK 50

11. APPRAISE THE PERFORMANCE 51
12. PERFORMANCE INTERVIEW 52
13. GUIDELINES FOR EFFECTIVE 53

APPRAISAL INTERVIEW
-2-
These critetia relate to past petfonnance and behavior of an employee. There is also the
need for assess ing, as was pointed out earlier, the potential of an employee for future
petformance, patticularly when the employee is tipped for assuming greater
responsibilities.
Exhibit 10.3
Appraisal of Potential at Philips
More and more ntunber of organizations ai·e ttying to assess potential of their employees,
patticulai·Iy at the managerial level. Cadbtuy India, Sandoz, Pfizer, Mafatlal, Philips,
National Organic Chemical Industries, Glaxo and P&G at-e a few of the companies which
seek to top managerial potential.
At Philips a 2 by 2 matrix is used to assess petformance and potential to petform. The
ve1tical axis measu1-es potential while the hotizontal, actual pe1io1mance. Both ai·e futther
subdivided into pat·ameters - high and low - resulting in 4 quadrants of classification.
Problem
Children Stars
Potential
Problem Solid
tB Separation Citizens
- - --•; I P e rfonnance I ....

t-- - -
T h e Phi lips Model
Lo v Potential-Low Performance: these employees at-e categotized as question mai·ks.

The company asks such employees to improve their petiormance levels. Failure to
improve would 1-esult in their planned se pat·ation.
High Potential-Lo1·v Performance: these ai·e the problem childt-en. In order to help them
improve their petformance, these employees at-e shifted to new locations to work and at-e
closely monitored. If petformance levels do not improve, these employees ai·e reclassified
as question mai·ks and the sepat-ation process initiated.
- 30 -
High Potential-High Performance: these are the star petformers. They have to be kept
engaged with complex assignments all the time and groomed to take up the top positions.
Othetwise, they might leave.
Lo v Potential-High Performance: these are called as solid citizens and constitute 70 to
75 % of the total number of employees in any organization. They have skills but lack the
potential to grow beyond their cutTent jo b-profile. The organization has to constantly
recognize their limitations and take care of their needs.
In order to assess employee potential, Philips has adopted the system that prevails at
Philips N V, Ho lland. The system at Philips NV uses 4 broad attributes - conceptual
effectiveness, operational effectiveness, interpersonal effectiveness and achievement
effectiveness and achievement motivation. Each attribute has a 5-point grading scale -
excellent, very good, good/adequate, weak and insufficient.
Coming to the six critetia, it may be stated that the first 4 - quality, quantity, timeliness
and cost effectiveness - are objective in nature; and the last 2 - need for supervision and
intetpersonal impact - are subjective. Objective measures are quantifiable and are
therefore highly useful in measuting the pe1fo1mance of an employee. But petformance
of employees should not always be evaluated against the amount of deposits mobilized for
his or her bank. The effort put in by him/her, the contacts he/she has established, the image
about the bank he/she has created in the eyes of public, and if relationships he/she has
maintained with subordinates speak more reliably about the manager' s petformance. Here
comes the relevance of the subjective critetia. However, as subjective measures are
dependent upon human judgments, they are prone to the kinds of errors we noted earlier -
leniency or severity, central tendency, halo and the like. To be useful, subjective
tneasures must be based on a careful analysis of the behaviors viewed as necessary and
impottant for job petformance.
Of late, there has been a shift in focus of appraisals. This shift is Ji-om petformance of the
individual to the systems approach. As stated earlier, in the systems approach the
emphasis is on improving one's petfotmance. Work petformance of an individual
depends on organizational factors in addition to his or her abilities. The focus in the
systetns approach is, therefore, the entire organization.
- 31 -
Timing of Evaluation
How often should an employee be assessed? The general trend is to evaluate once in 3
months, or six months, or once in a year. According to a survey conducted in 1997 by
Arthur Anderson, 70 percent of the organizations conduct petformance appraisal once a
year. Newly hired employees are rated more frequently than the older ones. Frequent
assessment is better than phased evaluation. Feedback in the latter is delayed and the
advantage of timely remedial measures by the employee is lost. Frequent evaluation gives
constant feedback to the rate, thus enabling him or her to improve petformance if there is
any deficiency . The petfotmance of trainees and probationers should be evaluated at the
end of respective programmes.
METHODS OF APPRAISAL
The last to be addressed in the process of designing an appraisal programme is to
determine methods of evaluation. Numerous methods have been devised to meastu-e the
quantity and quality of employee's job petio rmance. Each of the methods discussed
could be effective for some purposes, for some organizations. None should be dismissed
or accepted as appropriate except as they 1-elate to the particular needs of the organization
or of a particular type of employees. Broadly, all the approaches to appraisal can be
identified into (i) past-oriented methods, and (ii) futu1-e- orie nted methods. Each group has
several techniques as shown in the figure below:
- 32 -
Appraisal
Methods
Past-Oriented Methods
Rating Scales: This is the simplest and most popular technique for appraising employee
petformance; the typicalr dting-scale system consists of several numerical scales , each
representing a job-related petformance ctiterion such as dependability, initiative, output,
attendance , attitude, co-operation, and the like. Each scale ranges from excellent to poor.
The rater checks the appropriate petformance level on each ctitetion, then computes the
employee's total numerical score. The number of points scored may be linked to salary
increases, whereby so many points equal a tise of some percentage.
RATING SCALE
Instructions: For the following performances factors, please indicate on the rating
Scale your evaluation of the employee named below:
Employee's Name: _ Department

Rater's Name Date.
- 33 -
Excellent Good Acceptable Fair Poor

5 4 3 2 1
1. Dependability
2. Initiative
3. Overall Output
4. Attendance
5. Attitude
6. Co-Operation
------ ------
20. Quality of Work
TOTAL + + + +
TOTALSCORE
Rating scales offer the advantages of adaptability, relatively easy use and low cost.
Nearly evety type of job can be evaluated in a short time, and the rater does not need any
training to use the scale.
The disadvantages of this method are several. The rater's biases are likely to influence
evaluation , and the biases are patticularly pronounced on subjective ctiteria such as co-
operation, attitude and initiative. Futthermore, numetical scoring gives an illusion of
precision that is really unfounded.
Checklist: Under this method a checklist of statements on the traits of the employee and
his or her job is prepat·ed in 2 columns - viz., a 'Yes' column and a ' No' col umn. All that
- 34 -
the rater (immediate superior) should is tick the 'Yes' column if the answer to the
statement is positive and in column 'No' if the answer is negative. A typical checklist is
given in the table below. After ticking off against each item, the rater forwards the list to
the HR depaitment. The HR depai·tment assigns certain points to each 'Yes' ticked.
Depending upon the number of 'Yes' the total score is at-rived at. When points ai-e
allotted to the checklist, the technique becomes a 1veighted checklist. The advantages of
as checklist are economy, ease of administration, limited training of rater, and
standai·dization. The disadvantages include susceptibility to rater's biases (especially the
halo effect), use of personality ctiteria instead of pe1fo1mance criteria, misinterpretation
of checklist ite1n s, and the use of improper weights by the HR depaitment. Another
disadvantage of this approach is that it does not allow the rater to give up relative ratings.
Table: - Checklist for Operators

SR. QUESTIONS YES NO
NO.
l. Is the employee really interested in the job? - -
2. Does he or she possess adequate knowledge about the job - -
3. Is his or her attendance satisfactory? - -
4. Does he/she maintain his/her equipment in good condition? - -
5. Does he/she co-operate with co-workers? - -
6. Does he/she keep his/her temper? - -
- 35 -
7. Does he/she obey orders? - -
8. Does he/she observe safety precautions? - -
9. Does he/she complete what he/she commences? - -
10. Does he/she evade responsibility? - -
Forced Choice Method: b1 this , the rater is given a series of statements about an
employee. These statements are arranged in blocks of 2 or 1nore, and the rater indicates
which statement is most or least descriptive of the employee. Typical statements are :
1. Leai11s fast works hai·d
2. Work is reliable pe1fo1mance is a good example for
3. Absents often others usually tai·dy.
As in the checklist method, the rdter is simply expected to select the statements that
describe the rate. Actual assessment is done by the HR Depaitment.
This approach is known as the forced choice method because the rater is forced to select
statements, which ai·e read ymade . The advantage of this method is the absence of
personal bias in rating. The disadvantage is that the statements may not be properly
fi-amed - they may not be precisely desctiptive of the ratee's traits.
Forced Distributoin Method: One of the errors in rating is leniency - clustering a Iai·ge
number of employees ai·ound a high point on a rating scale. The forced distribution
method seeks to overcotne the probletn by compelling the rater to distribute the ratees on
all points on the rating scale.
The method operates under an assumption that the employee petformance level confotms
to a normal statistical distribution. Generally, it is assumed that employee petionnance
levels confotm to a bell shaped curve. For example, the following distribution might be
assumed to exist - excellent 10 %, good 20 %, average 40 %, below average 20 %, and
unsatisfactoty 10 %.
The major weakness of the forced distribution method lies in the assumption that the
employee petformance levels always confotm to a normal distribution. fu organizations
that have done a good job of selecting and retaining only the good pe1fo1mers, the use of
- 36 -
forced distribution approach would be unrealistic, as well as possibly destructive to the

employee morale.
The error of central tendency may also occur, as the rater resists from placing an
employee in the lowest or in the highest group. Difficulties also arise for the rater to
explain to the rate why he or she has been placed in a particular group. One merit of this
approach is that it seeks to eliminate the error of leniency. However, the forced choice
method is not acceptable to raters and ratees, especially, in small groups or when group
members are of high ability.
Critical Incidents Method: The critical incidents method of employee assessment has
generated a lot of interest these days. The approach focuses on certain critical behaviors
of an employee that make all the difference between effective and non-effective
petformance of a job. The supervisors as and when they occur record such incidents.
Examples of critical incidents of a plant manager are given in the following table:
Examples of Critical Incidents for an Assistant Plant Manager
- 37 -
One of the advantages of the critical incidents methods is that the evaluation is based on
CONTINUING TARGETS CRITICAL

DUTIES INCIDENTS
Schedule Production for Plant Full Utilization of Instituted new production
personnel and scheduling system;
machinery in the plant, decreased late orders by
order delivered on time 10% last month;
increased machine
utilization in plant by20%
last month
Supervise proctu-ement of raw Minimize inventoty Let inventory storage costs
matetials and inventory control costs while keeping rise 15% last month;
adequate supplies on Over - Ordet-ed parts "A"
hand and "B" by 20%;
Under - Ordered patt "C"
by30%
Supervise machinery No shutdowns due to Instituted new preventive
maintenance faulty machinery maintenance system for
plant;
Pt-evented a machine
breakdown by discovering
faulty patt.
actual job behavior. Further, the approach has descriptions in support of particulai· ratings
of an employee. Giving job-related feedback to the ratee is also easy. It also reduces the
personal biases, if raters 1-ecord incidents throughout the rating period. Finally, this
approach can increase the chances that the subordinates will improve because they leai·n
more precisely what is expected of them. The method however has significant limitations.
These include:
l. Negative incidents at-e generally mot-e noticeable that positive ones.
2. The 1-ecording of incidents is a chore to the supervisor and may be put off an easily
forgotten.
3. Overly close supervision may result.
4. Managers may unload a series of complaints about incidents during an annual
petformance review session. The feedback may be too much at one time and thus
- 38 -
appearing as a punishment to the rate. More appropriately, the management should use
incidents of poor petformance as opportunities for immediate training and counseling.
Behaviorally Anchored Rating Scales:

Behaviorally Anchored Scales , sometimes called behavioral expectation scales, are rating
scales whose scale points are determined by statements of effective and ineffective
behaviors. They are said to be behaviorally anchored in that the scales represent a range
of desctiptive statements of behavior varying from the least to the most effecti ve. A rater
must indicate which behavior on each scale best describes an employee's petio rmance.
Behaviorally anchored rating scales (BARS) have the following feattu-es:
l . Areas of petformance to be evaluated are identified and defined by people who will
use the scales.
2. The scales are anchored by descriptions of actual job behavior that, supervisors agree,
represent specific levels of petformance. The result is a set of rating scales in which both
dimensions and anchors are precisely defined.
3. All dimensions of petfotmance to be evaluated are based on observable behaviors and
are relevant to the job being evaluated since BARS are tailor-made for the job.
4. Since the raters who will actually use the scales are actively involved in the
development process. They are more likely to be com1ni tted to the final product. BARS
were developed to provide results which subordinates could use to improve petfotm ance.
Supetiors would feel comfortable to give feedback to the rates. Further, BARS help
overcome rating errors. Unfortunately, this method too suffers from distortion inherent in
most rating techniques.
- 39 -
14. USE OF APPRAISAL DATA 54
EDWARD DEMING ON 55
15.
16. CHALLENGESOFPERFORMANCE 56-60

APPRAISAL
17. PIRAMYD MEGASTORE - STORY 61-62

OUTLINE
18. HR VISION OF PIRAMYD MEGASTORE 63-64

19. PERFORMANCE APPRAISAL 65-70
METHODS USED AT PIRAMYD
-3-
Field Review Method
This is an appraisal by someone outside the, a<;sessor's own depattment. Usually

someone from the cotporate office or the HR depattment. The outsider reviews Employee
records and holds interviews with the ratee and his or her superior.
This method is primai·ily used for making promotional decision at the managerial level.
Field reviews ai·e also useful when compai·able infotmation is needed from employees in
different units or locations. Two disadvantage of this method ai-e:-
l. An "outsider" is usually not fa1ni liai· with conditions in an employees' work
environment which may affect the employee's ability or motivation to pe1fo1m.
2. An 'outsider' review dose not have the opportunity to observe employee behavior of
petformance over a period of time and in a vai·iety of situations. But only in an attificially
structured interview situation which extends over a very short period of time.
- 40 -
.
.
Extremely good 7 By knowing the price of items. This checker would be
performance expected to look for mis1narked and unmarked items.
Good You can expect this checker to be aware of items that

(
performance constantlv fluctuate in 01ice.
Slightly good I
When in doubt. This checker would ask the other clerk if
performance the item is taxable.
This checker can be expected to verify with another
checker a discrepancy between the shelf and the marked
price before ringing up that Ite1n.
Neither poor When operating the quick check. If the lights are flashing
nor good 4 this checker can be expected to check out a custo1ner with
performance 15 ite1ns.
You could expect this checker to ask the customer the

Slightly poor price of an Item that he or she does not know.
3 In the daily course of personal relationships, he or she may
performance
be expected to linger in long conversations with a custo1ner
or with another checker.
Poor
performance 2 ...
In order to take a break. this checker can be expected to
block off the check stand while people wait in line.
Extremely poor 1 ...
perfor1n ance
A BARS Scale for the Knowledge and Judgement Dimension of a

Grocery Checker's Job.
Raters, making field reviews normally receive training on how to conduct the interview
and develop their writing skills. Being independent of the work scene they normally have
less bias for or against the ratee than docs the i1n1nediate su pervisor. Even when a
supervisor or others concerned supply biased information the rater may he able to
pinpoint areas requiring training and development assistance.
- 41 -
Performance Tests and Observations

With limited number of jobs, employee assessment 1nay be based upon a test of
knowledge or skills. The test may he of the paper-and-pencil variety or an actual
demonstration of skills. The test must he reliable and validated to be useful. Even then,
pe1formance tests are apt to measure potential more than actual pe1fonnance. In order for
the test to be job related, observations should he made under circumstances likely to be
encountered. Practicality may suffer if costs of test development or administration arc
high.
Confidential Records
Confidential records arc maintained mostly in government Departments. though its
application in the industry .not nlled out. ITI. for example. had followed this method for a
long time. Called the Annual Confidential Report (ACR). the approach had 14 items-(i)
attendance. (ii) self-expression (written or oral). (iii) ability to work with others. (iv)
leadership. (v) initiative. (vi) technical ability (job knowledge). (vii) ability to understand
new material. (viii) ability to reason, (ix) originality and resourcefulness. (x) areas of
work that suits the person best. (xi) judgement. (xii) integ1ity. (xiii) responsibility and.
(xiv) and defect-indebtedness. Memo served. etc. Twelve of these were filled on a four-
point grade scale (Excellent. Good. Fair and Poor).
For integrity. there were special inst111ctions ti-om the management. Justification was
required for outstanding or poor rating. Over:!!! rating on a five-point scale was
separately given (Outstanding. Very good. Good. Average, Poor). again with justification
for rating as outstanding or poor. Recommendations for promotion were also given. The
ACR contained recommendations and signature of the rater. the head of the department
and the CMD.
The system was highly secretive and confidential Feedback to the assessee was given
only in case of an adverse entry. The AC'R was highly subjective. Ratings were easily
manipulated because the evaluation was linked to promotion. Even ITI has discontinued
ACR syste1n for these reasons.
- 42 -
Essay Method
In the essay method the rater must desctibe the etn plo yee within a number of broad
categories such as (i) the ratet's overall impression of the etnployee's petfotmance. (ii),
the promo ability of the employee (iii) the jobs that the employee is now able or qualified
to petform (.iv) the strengths and weaknesses of the employee. and (v)the training and
the development assistance required by the etn ployee . Although this method may be used
independently, it is most frequently found in combination with others. It is extremely
useful in filing infonnation gaps about the employees that often occur in the better structtu-
ed checklist method.
The strength of the essay method depends on the writing skills and analytical ability
of the rater.
However many raters do not have good writing skills. They become confused about
what to say. How much they should state and the depth of the nati-ative The essay tnethod
can consume much time because the rater must collect the infotmation necessaty to
develop the essay and then he or she must write it The essay method also depends on the
memoty power of the rater.
A probletn with this method is that the rate 1nay be rated on the quality of the
appraisals that they give. The quality standat·d for the appraisal may be unduly influenced
by appeat·at1ce rather than content. T hus. a 'high quality' appraisal may provide little
useful information about the petformance of the rate.
Cost Accounting Method
This method evaluates petiotmance from the monetai·y rettu·ns the employee yields to
his or her organisation. A relationship is established between the cost included in keeping
the etn ployee and the benefit the organization derives fi-otn hitn or her. Petformance of
the employee is then evaluated based on the established relationship between the cost and
the benefit.
Comparative Evaluation Approaches
- 43 -
These are a collection of different methods that compare one worket's petfonnance
with that of his/her co-workers. Comparative appraisals are usually conducted by
supervisors . As these appraisals can result in a ranking ii-om best to worst, they are useful
in deciding merit-pay increases, promotions and organisational rewards. The usual
comparative fotms used in this kind of evaluation are the ranking method and the paired
comparison method.
Ranking Method
b1 this , the superior ranks his or her subordinates in the order of their merit, starting
Ji-om the best to the worst. All that the HR department knows is that A is better than B.
The, 'how' and 'why' are not questioned, nor answered. No attempt, is made to
ii-actionalise what is being appraised into component elements. This method is subject to
the halo and recency effects, although rankings by two or more raters can be averaged to
help reduce biases. Its advantages include ease of administration and explanation.
Paired-comparison Method
Under this method the appraiser cotnpares each employee with every other employee
one at a time. For example there are five employees named A, B. C. D and E. The
petformance of A is first compared with the petformance of B and a decision is made
about whose petfonnance is better. Then A is compared with C. D and E in that order.
The same procedure is repeated for other employees. The number of comparisons may be
calculated with the help of a formula which reads thus: N(N-1)/ 2 where N stands for
the number of employees to be compared. If there are 10 employees, the number of
comparisons will be 10(10-1)/2 = 45.
After the completion of comparison, the results can be tabulated and a rank is created
ii-om the number of times each person is considered to be superior.
Future-oriented Appraisals
Is it not enough if only the past petformance is assessed . How an employee can
petform in the days to come is equally important. This can be assessed by focusing on
- 44 -
employee potential or setting futtu-e pe1fo1mance goals . The commonly used future-
01iented tec hniques are MBO, psychological appraisals, and assessment centres.
MANAGEMENT BY OBJECTIVES
It was Peter F. Drucker who first gave the concept of MBO to the world way back in
1954 when his The Practice of Management was first published. The MBO concept, as
was conceived by Drucker, reflects a management philosophy which values and utilizes
employee contributions. Application of MBO in the field of petformance appraisal is a
recent thinking.
Four Steps in the MBO Process

How MBO works can be described in four steps:
The first step is to establish the goals each subordinate is to attain. In so1ne
orga nisations, superiors and subordinates work together to establish goals. In others.
Supetiors establish goals for subordinates. The goals typically refer to the desired
outcome to be achieved. These goals can then be used to evaluate employee petio rmance.
The second step involves setting the petformance standard for the subordinates in a
previously arranged time pe1iod. As subordinates pe1fo1m, they know fairly well what
there is to do, what has been done, and what remains to be done.
In the third step, the actual level of goal attainment is compared with the goals agreed
upon. The evaluator explores reasons for the goals that were not 1net and for the goals
that were exceeded. This step helps detetmine possible training needs. It also aletts the
superior to conditions in the organization that may affect a subordinate but over which
the subordinate has no control.
The final step involves establishing new goals and, possibly new strategies for goals
not previously attained. At this point, subordinate and superior involvement in goal-
setting may change. Subordinates who successfully reach the established goals may be
allowed to patticipate more in the goal setting process the next time. The process is
- 45 -
repeated. As with other approaches. MBO too has been criticised. One comment made
against the approach is that it is not applicable to all jobs in all organisations. Jobs with
little or no flexibility. Such as assembly-line work, are not compatible with MBO. An
assembly-line worker usually has so little job flexibility that the petformance standards
and objectives are already determined. The MBO process seems to be most useful with
managerial personnel 'and employees who have a fairly wide range of flexibility and self-
control in their jobs. Besides, when the result of an MBO syste1n are to be used to
allocate organisational rewards, employees may be less likely to establish challenging
goals-goals they are confident that they can accomplish. Further, the allocation of metit
pay on a semi-annual or annual basis may encourage the setting up of goals with short
time horizons to the disadvantage of impottant long-term goals.
The petiormance appraisal presently followed in L&T reflects the principles of MBO.
Psychological Appraisals
Large organization employs full-time industtial psychologists. When psychologists are

used for evaluations. They assess an individual's futtu-e potential and past pe1o
i 1mance.
The appraisal normally consists of in-depth interviews, psychological tests. Discussions
with supervisors and a 1-eview' of other evaluations. The psychologist then wtite an
evaluation of the employee's intellectual, emotional, motivational and other-related
charactetistics that suggest individual potential and tnay predict future petformance. The
evaluation by the psychologist may be for a specific job opening for which the person is
being considered . Or it may be a global assessment of his or her futtu-e potential. From
these evaluations. Placement and development decisions may be made to shape the
person's career. Because this approach is slow and costly, it is usually 1-equired for bright
young members who, others think. May have considerable potential within the
organisation. Since the quality of the appraisal depends largely on the skills of the
psychologists, some employees object to this type of evaluation, especially if cross-
culttu-al differences exist.
- 46 -
LARSEN AND TOUBRO, HUMAN RESOURCE DEVELOPMENT-

PERFORMANCE APPRAISAL SYSTEM
- 47 -
CONFIDENTIAL NAME EMS. PS. NO CADRE GROUP DEPT.

PAFORM:28
EXECUTIVES &
SUPERVISORS
LARSEN &TOUBRO LIMITED
HUMAN RESOURCE DEVELOPMENT-PERFORMANCEAPPRAISAL
SYSTEM
PERFORMANCE ANALYSIS AND REVIEW
APRIL 1993 TO MARCH 1994
NAME
DATE
SIGNATURE
EMPLOYEE
IMMEDIATE SUPERVISOR
NEXT SUPERIOR 1.
2.
PERSONNEL/ HRD DEPT.
A]PERFORMANCE REVIEW AGAINST Bl] BY IMMEDIATE

OBJECTIVES SUPERIOR
Al] BY EMPLOYEE
0 Lt.l
AGREED RESULTS 2a Lt.l
!-
<(
(@ ::i
OBJECTIVES AND ACHIEVED < 0
Cl
::i @'
f- Cl
TARGETS V)
8 0 @' Cl
<(
Cl
> R <( (6
1.
2.
3.
4.
5.
- 48 -
A2] SELF REVIEW (by employee)

SIGNIFICANT CONTRIBUTO RS (JOBS OR PROFESSION RELATED - NOT COVERED ABOVE)
IMPORTANT FACTORS FACILITATING PERFORMANCE

IMPORTANT FACTORS HINDERING PERFORMANCE
B2] IT ORMANCE AGLfSTOBJE

TI ES(BY ItjIBDA
I TE SUPLJ IOR)
OUTSTANDING V. GOOD GOOD ADEQUATE INADEQUATE

C l ] Appraisal of Critical Attributes (by i1mnediate
0
s uperior) Ul
E-
0 Ul <(
C2] CRITICAL ATI RIBUTES z
<( 0
E-
<(
:::i
0 :::i CY
E- 0 Ul
Cll 0 CY 0
E- 0 0 Ul
1.
INNOVATIVENESS Ability to think new and better
> 8 9 <(
ways of doing things that results

in introduction of new ideas or
improvements of the systems
and ooerations.
2.
INITIATIVE Ability to determine and initiate
actions that result in improve
handling of jobs, without
waiting to be told.
3.
INTERPERSONAL & Ability to interact effectively
TEAM RELATIONSHIP with people at all levels to gain
their confidence and respect and
work m a collaborative and
participative manner.
4.
RESOURCEFULNESS Ability to muster resources to
achieve desired results and
device ways and means of
solving problems in difficult
situations.
5. Ability to convey thoughts and
COMMUNIC ATION feelings clearly both through
SKILLS oral as well as written
expressions for better
understandin2.
C2] AREAS OF STRENGTH AND IMPROVEMENTS (by i1mn ediate superior)
- 49 -
MEASURING PERFORMANCE V/S ACTION

Come appraisal time and one of the most debated aspects of completing the fair-and-
square appraisal revolves around what is 'measured' and what is 'achieved'. And the fable
of the Bees and the Bee Keepers is a very popular paradigm that often gets quoted at such
times . It goes thus:
The Story: Once upon a time there were two beekeepers that each had a beehive.
The beekeepers worked for a company called Bees, b1c. The company's customers loved
its honey and demand for the product was increasing. So Bees, Inc. assigned each
beekeeper a goal for increased honey production. The beekeepers had different ideas
about how to meet their goal and designed different approaches to improve the
petformance of their hives.
The first beekeeper established a bee pe1fo1mance management approach that
measured the number of flowers each bee visited. At considerable cost to the beekeeper,
an extensive measure1n ent system was created to count the flowers each bee visited. He
also provided feedback to each bee at mid-season on his individual petformance. He also
created special awards for the bees who visited the most number of flowers. However, the
bees were never told about the hive's goal to produce more honey so that the company
could increase honey sales. The second beekeeper also established a bee pe1fo1mance
management approach but this approach communicated to each bee the goal of the hive
for increased honey production. The beekeeper and his bees measured two aspects of
their petformance the amount of nectar each bee brought back to the hive and the amount
of honey the hive produced. The petfotmance of each bee and the hive's overall
petformance were charted and posted on the hive's bulletin board for all the bees to see.
The beekeeper created a few awards for the bees that gathered the most nectar. But he also
established a hive incentive program that rewarded each bee in the hive based on the hive's
overall honey production the more honey produced, the more recognition each bee
would receive.
-4-
C3] Potential Areas Of Growth (By Immediate Superior)
D] Recommendations For Training And Development( By I1mnediate Superior)
Dl] IN-COMANT TRAINING PROGRAMMES
Descri ption Code Description Code
1. 2.
D2] OTHER TRAINING PROGRAMMES

1. 2.
D3] SPECIFIC DEVELOPMENT PLANS

Proposed action Details of Actions Required
(tick as applicable)
Job rotaion
Job enlarge1n ent
Special assignment
Deputatiom n of other dept
Others(please specify)
E] COMMENTS BY NEXT SUPERIOR(S)

El] ON SPECIFIC DEVELOPMENT PLANS STATED ABOVE IN D3
E2] OVERALL OBSERVATIONS:
F] FOR USE BY PERSONNEL/ HRD CO -ORDINATOR
- 50 -
ASSESSMENT CENTRES
Mainly used for executive hiting, assessment centre are now "being used for evaluating
executive or supervisoty potential. An assessment centre is a central location where
managers may come together to have their participation in job-related exercise evaluated
by trained observers. The principal idea is to evaluate managers over a period of time say
one to three days, by observing (and later evaluating) their behaviour across a series of
select exercises or work samples. Assesses are requested to patticipate in in-basket
exercises, work groups (without leaders), computer simulations, role paying, and other
similat· activities which require the same attributes for successful petfotmance, as in the
actual job. After recording their observations of ratee behaviors, the raters meet to discuss
these observations. The decision regat·ding the petfotmance of each assessee is based
upon this discussion of observations. Self-appraisal and peer evaluation ai·e also thrown
In for final rating.
The chat·acteristics assessed in a typical assessment centre include assertiveness,
persuasive ability, communicating ability, planning and organisational ability, self -
confidence, resistance to stress, energy level, decision - making, sensitivity to the
feelings of others, administrative ability, creativity and mental alett ness. It is a
formidable list which is quite difficult to measure accurately over three days, though
there would be sizable number of trained observers and psychologists.
First developed in the US and the UK in 1943, the assessment centre is ga1n1ng
populat·ity in our country, Crompton greaves, Facher, HLL and Modi Xerox ai·e using the
technique with results being highly positive.
Assessment Centre - Many Takers
• Ranbaxy retained the services of a team of psychologists from the UK-based

Kelly& King to take the executives (of Ranbaxy) through an assessment center.
20 stat· manager went through the exercise.
• Santt11pt Misra, Director- Birla Management Corporation had plans for a similat·
exercise to be held at Gyanodaya, the Aditya Birla leai·ning ce ntre. Misra first
- 5l -
used the assessment centre concept four years ago on 150 middle and senior level
managers.
• Old ti1ners like Tata have created their own assessment centers, and so have the
talent centric companies' like Wipro and Cognizant.
• SHL, a HR consulting firm has worked with over 100 companies conducting dose
to 1,000 assessment centers.
• Consulting fi1m ECS (fo1merly known as Eicher Consulting Services) does a

number of assess1nents in a month for a variety of clients like Tata Steel, ING
Vysya and the host of BPO outfits.
• ICICI Bank uses assessment centre as a recruitment and selection tool to find the
best talent, while GE India subsidiary GECIS has used it on 20% of it5 middle
managers.
The problem with the assessment centres is their cost Not only are the asses sees away
ii-om their jobs while the company pays for their travel and lodging, but the evaluators are
often company managers who are assigned to the assessment centre for short durations.
These managers are often supplemented by psychologists and HR specialists who 11111 the
centre and also make evaluations. Hence this approach is cost - effective only in large
organisations.
Assessment-centre staff is often influenced by subjective element; such as personality
of the candidates: Raters tend to evaluate the quality of the individual's social skills rather
than the quality of the decisions he/she makes. Assessment -centre ratings seem to be
strongly influenced by the participant's interpersonal skills.
The approach also involves real hazards. One of the most obvious is the examination-
taking syndrome. Solid pe1formers in day-to-day operations feel suffocated in the
simulated environment. Another drawback is its potential adverse effect on those not
selected to participate in the exercise.
- 52 -
Employees who receive a poor repott from the centre may react in negative ways.
Ideally, a rejected employee would return to his or her tanner job, satisfied that he or she
would not be promoted to a job he or she could not handle. However, a good petformer at
one level may leave the organisation in order to remove the bad assesstnent repott ti-om
his or her work record. Thus, a poor report can demoralize an employee who was once an
asset.
Other problems include-strong and unhealthy sense of competition among assesses;
Difficulty of conducting the test frequently; and the possibility of overemphasizing the
test petformance.
But a well-conducted assessment centre can and does achieve better forecasts of future
petformance and progress than other methods of appraisal. Also, reliability, content
validity, and predictive validity are said to be high in the assesstnent centres.
The test also makes sure that the wrong people are not hired or protnoted. Finally, the
Assessment centre test clearly defines the ctiteria for selection and promotion.
- 53 -
360-DEGREE FEEDBACK
As stated earlier, where multiple raters are involved in evaluating pe1fo1mance, the
technique is called 360 degree appraisal. The 360 degree technique is understood as
systematic collection of petformance data on an individual or group, derived from a
number of stakeholders--the stakeholders being the immediate supervisors. team
members, customers, peers, and self. b1 fact , anyone who has useful information on how
an employee does the job may be one of the appraisers.
The 360-degree appraisal provides a broader perspective about an employee's

petformance. In addition, the technique facilitates greater self-development of the
employees. For one's development, multi-source feedback is highly useful. It enables an
employee to co1npare his or her perceptions about self with perceptions of others.
Besides, the 360-dcgree appraisal provides fotmalized communication links between an
employee and his or her customers. It makes the employee feel much more accountable
to his or her internal or external customers. The technique is particularly helpful in
assessing soft skills possessed by employees. By design, the 360-degree appraisal is
effective in identifying and measuring intetpersonal skill, customer satisfaction, and
team-buildingskills.
However, there are drawbacks associated with the 360-degree feedback. Receiving
feedback on petformance Ji-om 1nultiple sources can be intimidati ng. It is essential that
the organisation create a non - threatening environment by emphasizing the positive
impact of the technique on an employee's petformance and development. Ftut her, fitms
that use the technique take a long time on selecting the rater, designing questionnaires, and
analyzing the data. In addition; multiple raters are less adept at providing a balanced and
objective feedback than the supervisors who are sought to be replaced. Raters can have
enotmous problems separating honest observations from personal differences and
biases.
Pitfalls notwithstanding, more and 1nore number of firms are using the 360 -degree
appraisal technique to assess the petformance of their employees.
- 54 -
APPRAISE THE PERFORMANCE

The next step in the appraisal process is to measw·e the petformance. We revert to the
moral of the stoty narrated in the beginning of this chapter. The moral taught us that we
need to measw·e the petformance and not tnere activities.
What then is petformance? Petfotmance is essentially what an etnployee does or does

not do. Employee petformance cotntnon to most jobs include the following eletnents:
• Quantity of output
• Quality of output
• Timeliness of output
• Presence at work
• Cooperativeness
In addition to these, other elements that deserve assessment are job knowledge,
leadership abilities, judgement, supervision, versatility and health. Assessment should
also include one's potential to pe1form and not just actual petio rmance.
Petformance measurement needs to be based on the benchmarks listed above. These

benchtnarks vary Ji-om job to job. The job of a professor needs to be assessed against
parameters that are different to those used to evaluate the petfonnance of a sales
representative.
- 55 -
PERFORMANCE INTERVIEW
Petformance interview is another step in the appraisal process. Once appraisal has been
made of employees, the raters should discuss and review the petformance with the ratees,
so that they will receive feedback about where they stand in the eyes of superior.
Feedback is necessary to effect improvement in petformance, especially when it is
inadequate. Specifically, petformance interview has three goals: (i) to change behaviour
of employees whose petformance does not meet organisational requirements or their own
personal goals. (ii) To maintain the behaviour of employees who petform in an
acceptable manner and (iii) to recognize superior petformance behaviotU'S so that they
will be continued.
Raters offer feedback to the ratees through several methods-tell and sell, tell and listen,
problem solving and mixed . In tell and sell, also called directive interview, the
interviewer let assesses know how well they are doing and sells them on the metits of
setting specific goals for improvement, if needed. The tell and listen interview provides
the subordinates with chances to participate and establish a dialogue with their supetiors.
Its ptU'pose is to communicate the ratet's perceptions about the ratee's strength and
weaknesses and let the subordinates respond to these perceptions. In the problem -solving
or participative interview, an active and open dialogue is established between the superior
and the subordinate. Not only are perceptions shared, but also solutions to problems are
presented, discussed, and sought. Mixed interview is a combination of tell and sell and
problem solving interviews.
Whatever be the approach followed, the emphasis in the interview should be on

counseling and development and not on criticism, witch-hunting and buck passing.
Because of the significance of appraisal interview, every effort must be made to make it
effective. Guidelines given in Table below will help make the interview successful.
- 56 -
GUIDELINES FOR EFFECTIVE APPRAISAL INTERVIEW

• Select a good time
• Minimize inter111ptions
• Welcome, set at ease
• Start with something positive
• Ask open - ended questions to encourage discussion
• Listen
• Manage eye contact and body language
• Be specific
• Rate behaviour, not personality
• Layout development plan
• Encourage subordinate participation
• Complete fo1m
• Set mutually agreeable goals for improve1nent
• End in a positive, encouraging note
• Set time for any follow - up meetings
- 57 -
USE OF APPRAISAL DATA

The final step in the evaluation process is the use of evaluation data. The data and
information generdted through petfotmance evaluation must be used by the HR
department.
It may be recollected that the most significant rewards employers offer to

employees are:
l . Money to purchase goods and services required not only for cutTent and future
survival, but also for the luxuries moden1 life has to offer.
2. The opportunity to use innate and learned skills and talents in a productive manner that
the individual and his or her managers and co-workers recognize as valuable.
3. Opportunities to interact with other people in a favorable working environment.
4. Opportunities to learn, grow, and make full use of their potential.
5. A sense of petformance and stability through the continuing existence of the
organisation and the job.
6. The oppottunity to petform work assignments within an environment that not only
protects. But protnotes physiological, emotional and psychological health.
In one way or another, data and information outputs of a petformance-appraisal

programme can critically influence these coveted employer-employee reward
oppottunities. Specifically, the data and information will be useful in the following areas
ofHRM:
I. Remuneration administration
2. Validation of selection programmes
3. Employee training and development programmes
4. Promotion, transfer and lay-off decisions
5. Grievance and discipline prograrrunes
6. HR planning
- 58 -
EDWARD DEMING ON PERFORMANCE APPRAISAL

Towards the end of this section, it is worthwhile to note Edward Deming's views on
petformance evaluation. Deming is opposed to employee assessment, because it:
I. Rewards people for manipulating the systetn rather than improving it,
2. Is often self-defeating,
3. Is inconsistent with team-work,
4. Acts as a substitute for proper managetnent, and
5. Is inherently unfair.
His alternatives to performance appraisal are:

l . Meticulous selection of leaders,
2. Educating workers about their obligations, and improved training and education after
selection,
3. Getting leaders to function as colleagues rather than as judges,
4. Subordinate petformance to be assessed using statistical data,
5. Three to four hours interview annually, with subordinates ai1n ed at support and
encouragement, and
6. Accommodation to Ione workers.
Perfor-mance
Appraisal
- 59 -
At the end of the season, the beekeepers evaluated their approaches. The first
beekeeper found that his hive had indeed increased the number of flowers visited ,but the
amount of honey produced by the hive had dropped. The Queen Bee reported that
because the bees were so busy trying to visit as many flowers as possible, they limited the
amount of nectar they would carty so they could fly faster. Also, since only the top
petformers would be recognized, the bees felt they were competing against each other for
awards. As a result, they would not share valuable information with each other that could
have helped improve the petfotmance of all the bees (like the location of the flower filled
fields they'd spotted on the way back to the hive). As the beekeeper handed out the
awards to individual bees, unhappy buzzing was heard in the background. After all was
said and done, one of the high petforming bees told the beekeeper that if he had known
that the real goal was to make more honey, he would have worked totally differently. The
second beekeeper, however, had very different results. Because each bee in his hive was
focused on the hive's goal of producing more honey. This Bess had concentrated their
efforts on gatheting more nectar in order to produce more honey than ever before. The
bees worked together to detetmine the highest nectar yielding flowers and to create quicker
processes for depositing the nectar they had gathered. They also worked together to help
increase the atnount of nectar gathered by the poorer petio rmers. Tile Queen Bee of this
hive reported that the poor petfotmers either improved their petfotmance or transferred to
hive No. l , because the hive had reached its goal. The beekeeper rewarded
each bee his pottion of the hive incentive. The keeper was also stuprised to hear a loud,
happy buzz and a jubilant flapping of wings as he rewarded the individual high-
petforming bees with special recognition.
Should you measure petfotmance or mere activities of employees? is the one who
does silent work but does not show of himself/herself or the one who puts up a show but
hardly petforms to be recognized and rewarded? This and other related questions are
answered in this chapter.
- 5-
CHALLENGES OF PERFORMANCE APPRAISAL

With the increased significance of petformance appraisal, challenges confi-onting the
system are mounting. One serious challenge facing the petformance appraisal system
relates to assesstnent of self-managed teams. Popularly called empowered teams, these
self-managed teams create special challenges for petfonnance appraisal-etn po we red
teams petform without supervisors. Histotically, if one recalls, it is the supervisor who
assesses the petformance of his or her subordinates. Another challenge is that both,
individual and team petfonnance, need to be meastu-ed . A s ui ta bl e device needs to be
developed to assess the pe1fo1mance of empowered teams because more and more firms
use such teams to enhance productivity. Figure below contains a typical model of teatn
appraisal.
Identify KRAs Set tangible targets for Determine intangible

critical to business each KRA. Incorporate para1neters (like
<luting the year stretch eletnents for each initiative), which indicate
. .
target. Fix the m1n1mum pockets of individual
acceptable target excellence with the team
Evaluate petiormance of Communicate the Measure the

. the team against results to ensure pe1fo1mance of the
"
predetennined targets transparency team (actual versus

targets) every month
'•
Identify individuals who have excelled.
Disco unt subjective factors by including
assessors from outside the teatn to
identify outstanding individuals.
Figure: Appraising Teams
- 60 -
The Following table contains challenges of Performance Appraisal -

Challenges of Appraisal:
• Create a culture of excellence that inspires every employee to improve and lend
himself or herself to be assessed
• Align organizational objectives to individual aspirations
• Clear growth paths for talented individuals
• Provide new challenges to rejuvenate careers that have reached the plateau stage
• Forge a pattnership with people for managing their cat-eers
• Empower employees to make decisions without the feat· of failing
• Embed teamwork in all operational processes
• Debureaucratise the organization stt11ctur e for ease of flow of infonnation.
Comprehensive
Performance Management
Implementation Model
Performance
Management
System Design
Conducting
Performance
Appraisals
Performance
Coaching &
Counselling
- 61-
LEGAL ISSUES ASSOCIATED WITH PERFORMANCE

APPRAISAL
Petformance appraisal data as stated earlier, are used to make many important HR
decisions (e.g. Pay, pro1notion, training, transfer and termination) . The appraisal system
is a common target of legal disputes by employees involving charges of unfairness and
bias. An employee may seek the legal recourse to obtain relief Ji-om a disc1iminato1y
petformance appraisal. One such case goes back to 1980s. In 1981, three junior
employees of Williamsons Magor were promoted superseding 15 of their senior
workmen. The basis for promotion was reco1nmendations of the departmental heads and
other authorities. The 15 workmen challenged the promotion to the three workmen in the
Supre1ne Co u1t and the cou1t upheld the contention of the petitioners on the ground that
he said recommendations of departmental heads and authorities were arbitrary and could
not be the main basis for effecting promotions.
There are several recomtnendations 10 assist employees in conducting fair pe1ionnance
appraisal and avoiding legal suits. Gleaned fro1n case laws, these recommendations are
intended to be prescriptive measures that e1nployers should take to develop fair and
legally defensible petformance appraisal systems.
1. Legally Defensible Appraisal Procedures
• All personnel decisions should be based on a fotmal standardized pe1fo1mance

appraisal system.
• Any petformance appraisal process should be uniform for all employees within a
job group, and decisions based on those pe1fo1mance appraisals should he
monitored for differences according o race, sex. national origin. Religion or age
of the employees. While obtained differences as a function of these variables are
not necessarily illegal. an organization will have more difficulty defending an
appraisal system with ratings related to these variables.
• All specific petfonnance standards should be fotmally communicated to
employees.
• All employees should be able to review their appraisal results.
- 62 -
• There should be a formal appeal process for the rate to rebut rater judgments.
• All raters should be provided with written instructions and training on how to
conduct appraisals properly to facilitate systematic, unbiased appraisals .
• All personnel decision-makers should be well informed of anti-discrimination
laws.They should be 1nade aware of the fine distinctions between legal and illegal
activities regarding decisions based on appraisals.
2. Legally Defensible Appraisal Content
• Any petformance appraisal content should be based on a job analysis.

• Appraisals based on traits should be avoided.
• Objectively verifiable pe1fo1mance data (e.g. sales, productivity, not ratings)
should be used whenever possible.
• Constraints on an employee's pe1fo1mance that are beyond the employee's control
should be prevented from influencing the appraisal to ensure that the employee
has an equal opportunity to achieve any given petformance level.
• Specific job-related petformance dimensions should be used rather than global
measures or single overall meastu-es .
• The petformance dimensions should be assigned weights to reflect their relative
importance in calculating the composite petiormance score.
3. Legally Defensible Documentation of Appraisal Results
• A thoroughly w1itten record of evidence leading to termination decisions should

be maintained(e.g. petformance appraisal and pe1fo1mance counseling to advise
employees of petformance deficit, and to assist poor petformers in making
needed improvements)
• Wtitten docu1nentation (e.g. specific behavioural examples) for extreme ratings

should he required and they 1nust be consistent with the numerical ratings.
• Documentation requirements should he consistent among the raters.
- 63 -
4. Legally Defensive Raters
• The raters should be trained in how to use an appraisal system
• The raters must have the opportunity to observe the ratee first hand or to review
important ratee petiormance products
• Use of more than rater is desirable in order to lessen the amount of influence of
any one rater and to reduce the effects of biases. Peers, subordinates, customers,
and clients are possible sources.
- 64 -
------------ -----
PIRAMYD MEGASTORE - STORY OUTLINE
Crossroads at Mumbai created a revolution pioneering the concept of shoppertainment
in the country. It was an attempt to give the citizens of Mumbai a truly international
shopping expetience, a destination where the entire family can enjoy a day together
shopping or browsing, eating and playing games in an unmatched ambience .
Of the three ingredients, i.e. shopping, dining and entertainment, Shopping was the main
ingredient. It had to be world class and had to incorporate global standards in te1ms of
retail management, technology and design. Mrs Urvi Piramal , Vice Chair person of
Piramal Group, had a strong viewpoint on shopping- "True shopping is browsing,
enjoying, indulging and making choices. It is an expression of lifestyle and makes an
affirmative statement". This was the thought, which translated into Piramyd, India's first
Megastore for lifestyle products. Piramyd spreads across 3 levels in the mall and has over
30000 sqft of space in Crossroads.
To a typical Mumbai Women, shopping normally meant endless rounds of bargaining,
endless tiips back and forth ii-om store to store, pushy sales people and scarcely enough
space to push their elbow. Piramyd Megastore broke all these conventional hassles of
shopping for women.
In terms of product offering, Piramyd has everything that a woman would want to buy
and more less than one roof. It has the widest range ethnic wear, westetn wear, lingerie,
nightwear, leather accessories, sunglasses, fine jewelty, and satis. The idea is to provide
- 65 -
her with a complete basket of shopping. In a single visit she can choose to pick up
apparels, go over to the footwear section to pick up complimenting footwear, browse for
that matching leather bag, and end up her buying with some matching jewelry. No longer
has she had to visit different shops at times in different location. To extend her shopping
she can also look out for groceries and foodstuff Ji-om the Supetmarket which is just a
btidge away.
Today's working women wants products, which are fashionable and yet affordable. All
the products in Piramyd are showcased keeping in mind the price-conscious Indian buyer.
Projecting a dynamic image for the youth, Piramyd reflects the latest trend in style and
includes new range of clothing on an ongoing basis.
The store targets the upwardly mobile women of today who lays emphasis on quality.
She is patticular about grooming standards and spends on keeping herself and her family
well grootn ed . Dressing right is no longer a fashion statement. It is a revelation of her
personality and that is lodged deep within her. A woman can express herself with a
choice of appat-els and accessories from Piratnyd that essentially speaks for her.
This does not come at a very high price. For a mere Rs 1200 she can choose to pick up a
decent Salwat· Kutta set, a footweat· statting from Rs. 400, a leather bag at Rs 400 etc.
However depending on the spending mood, she can indulge in luxury and choose a
Linat·ika designer weat· label at even Rs. 4500.
To keep her fa1n ily well groomed too, the Indian woman need not go looking beyond. For
the man or the big kid in her life, she can just climb up one floor and buy the exclusive
shirt, the gorgeous ethnic suit, the top of the line blazer or just a beautiful tie to match.
Not only does Piramyd offer the finest brands available in India, but it also offers a
world-class ambience and service, with the widest choice. A wotnan can browse through
the offetings to her heatts content without any pt-essure of buying through serene
ambience in the classy glass and marble interiors designed by International architects.
There is enough space for her to rest, take a break while shopping and then continue
again. The staff at Piramyd is trained to be unobtrusive. They ru·e there to help one make
a choice or simply serve quietly and efficiently. With constant in-depth product raining,
the Piramyd Staff offers service to all customers with a positive attitude, pleasant
disposition and good communication skills translated into a motto, which reads " we
believe in service, we do it with ptide".
- 66 -
HR VISIO N
Employee Value Proposition
Since inception in 1999 we as an organization have been through various phases of

business. We created a mark for ourselves in a the Organized retail sector and now are
known as a retailing brand .The single most factor that will act as a catalyst to otu- growth
are the "Human Resources"
To attract and retain the best people, we add value to the life of our employee at evety
instant. We are constantly designing, refining and implementing HR processes and
activities which touch our employees.
Otu- HR Proposition:
''WONDERFUL PLACE TO BE, AN EXCITINGPLACE TO WORK"
As far a<; the Human Resource Depattment of Piramyd Retail Limited is concetned, it
consists of highly qualified people who have achieved their specialization in this vety
field. The organization Structure for Human Resource development and Personnel
Depattment is as follows:
Manager - Human
Resources
Assistant Manager-
Human Resotu-ces
Executive -
Human Resource Executive -
Human Resource
Executive - Executive -
Human Resource Human Resource
- 67 -
Executive -
Human Resotu-ce
We, as a group met Mr. Paresh Patel who is one of the executives from the H.R..
Department.
When asked about the need for the H.R. Department in a firm, he explained that as
Piramyd Retail Li1ni ted is a company dealing with its customers directly and there is a
direct interaction with the customer in the service industry, it needed its employees to
speak and interact with the customer in an efficient manner in order to know the
requirements and then suggest the merchandises accordingly. In order to that it was
necessary for the sales staff to be more effective and hence to achieve this very target
they need good people with good inter personal communication skills, good knowledge
and a sound sense of humor. And this can be done only when an effective H.R..
Department is in place.
Coming back to the topic, according to hi1n, out of the 6 factors involved in the 360
degree appraisal system, they considered only 3 which are the colleagues, the supervisors
and the sub-ordinates.
Out of the pre-decided and the pre-defined methods & techniques for pe1fo1mance
appraisal; it was identified by otu- project group that they used a combination of 2
different methods. The 2 methods are 'The Grading Method' & 'The Graphic Rating
Scale Method'.
Before going ahead let's understand the above 2 methods in brief as to what they are all
about:-
1. The Grading Method:
In the grading method, a number of grades or classes are first established and carefully
defined. The rater evaluates the pe1formance of an individual employee against these
standards and places him in one of these grades. The grades are related to qualities of
employees and grades are given to such qualities. The qualities may be like job
knowledge, judgement, leadership, co-operative attitude and so on. The grades may be
like A (for outstanding), B (for very good), C (for Good), D (for fair) and E (for poor).
The rater judges the petfonnance of an employee and puts him under a suitable catego1y.
This method is simple and quick but the rating of employees may not be accurate
- 68 -
patticularly when the rater has to complete the rating of Iai·ge number of e1nployees
within a short period.
2. Graphic rating Scale Method:

This is one of the oldest and the most widely used methods of petformance appraisal.
Here, four to twelve factors ai·e select ed, depending upon the category to which the
employee belongs. So1ne of these factors ai-e quantity of output, quality of output,
initiative, integrity, dependability, etc. these factors and their degrees ai·e mai·ked on a
graph paper provided in the appraisal form. The rater has merely to check on the scale
where he thinks the employee belongs.
The following table gives us an idea about the Graphic Rating Scale Method...
Quantity of Quality of Integrity Initiative

Factors/Consideration,s Output Output
Excellent ./
Very Good ./
Good ./
Average ./
Below Average
Advantages of Graphic rating Scale Method:

(a) It is simple to understand and easy to operate,
(b) It is also not a time-consuming method,
(c) It is economical and ensu1-es unifotmity in the assessment of employees.

Compaiison among the employees is easy as the details ai-e clearly noted on the
paper by the rater.
Disadvantages of Graphic rating Scale Method:
- 69 -
An organization's goals can be achieved only when people put in their best efforts. How
to ascettain whether an employee has shown his or her best petformance on a given job?
The answer is petformance appraisal. Employee assessment is one of the funda1ne ntal
jobs of HRM. But not an easy one though. This chapter is devoted to a detailed
discussion of the nattu-e and process of conducting pe1to1mance appraisal.
Meaning and Definition

In simple terms, pe1fo1mance appraisal may be understood as the assessment of an
individual's pe1fo1mance in a systematic way, the petformance being measured against
such factors as job knowledge, quality and quantity of output, initiative, leadership
abilities, supervision, dependability, co-operation, judgement, versatility, health, and the
like. Assessment should not be confined to past petformance alone. Potentials of the
employee for future pe1fo1mance must also be assessed.
A formal definition of petformance appraisal is:
It is the systematic evaluation of the individual with respect to his or her performance on
the job and his or her potential for development.
A more comprehensive definition is:

Performance' appraisal is a formal structured system of measuring and evaluating an
employee's job related behaviors and outcomes to discover how and vhy the employee is
presently performing on the job and ho v the employee can perform more effectively in
the future so that the employee organization and society all benefit.
The second definition includes employees' behaviow· as part of the assessment.
Behaviour can be active or passive--do something or do nothing. Either way behaviour
affects job results. The other terms used for petfonnance appraisal arc: pe1fo1mance
rating, employee assessment. Employees petiormance review, personnel appraisal,
-6 -
(a) It puts heavy pressure on the rater as he has to consider four to twelve different
factors with five degrees for each factor. It is therefore, not possible to guarantee
the accuracy of the rater' s decision.
(b) The rater may be biased,
(c) The rater has to do a lot of paper work in the graphic rating scale method. He may
do marking mechanically, if he has to make appraisal of large number of ratees.
(d) Accurate rating may not be done as there is a ve1y thin gap between two
considerations (e.g., vety good and good).
After discussing about what the two different methods mean we now see how Piramyd
Retail Limited (PRL) actually implements these 2 methods in their organization.
According to Mr. Paresh Patel, it takes nearly 2 months for the H.R. Department
complete the whole process of petformance and potential appraisal of all the employees
tight from the Store Manger to the Trainee Sales Associate of the firm. The foremost
condition of the petformance appraisal of an etn ployee in PRL is that he / she should
have completed at least a year in the organization. And also there are no performance
appraisals for Part-timers in PRL.
The appraisals take place in the months of April - May and the results are announced
through a meeting which sees the attendance of the Manager - Human Resources as well
as the Store Manager of that patticular branch store.
There ai·e 3 grades designed for the employees of PRL which ai·e
A - OUTSTANDING
B - AVERAGE/ GOOD
C- ADEQUATE.
On the basis of the above 3 grades, all the employees ai·e divided and placed among the
above slots. Any positive or negative feedback ii-om an individual's colleague, supervisor
or sub-ordinate sees him/ her in the respective column.
The Organization Structure for Piramyd's Operations Depatt1nent
- 70 -
l Store Manager
'•
2 Assistant Store Managers
'•
4 Floor Managers
'•
Senior Sales Associates
'•
Junior Sales Associates
Trainee Sales Associates
From the above given grades, only the individuals obtaining the topmost grade i.e. the A
grade gets a tise in the post or only those individuals can climb the ladder of this
organization sttucture. Although, most number of employees settle in the second grade
i.e. the Average grade. However, these employees are only given a nominal increment of
Rs. 450/- in their monthly salaries. On the other hand, for the apex achievers apart ti-om
the tise in the post in the organization, they are awarded with an increment of Rs.750/- in
their monthly salati es.
Whereas there is bad news for the employees at the bottom level, by terming thetn as the
'Adequate' people in the fitm. They ai·e not given any sott of incentives or increments for
that patticulat· yeat· and also ai·e allowed to leave PRL at their request without any ftuther
hesitation.
The process of appraisal is as follows:
- 71 -
First of all, before the appraisal period, there is a meeting held, which all the e1n plo yees
on the lower or the higher post have to attend and it is mandatoty for all. This meeting
takes place at least a week before the original appraisal petiod starts. b1 this very week all
the e1n plo yees are infonned individually about the date of his I her petformance appraisal
and hence his I her attendance on that very appraisal day becomes compulsoty. On a day
nearly 4-5 employees are appraised.
The e1n ployees are asked to be prepared for any sort of situations during the appraisals. As
an important step of their career, employees also take it very seriously and do their work
setiously before and after appraisals.
The appraisals in Pira1nyd Megasto re are co nducted by 2 Executives - Human Resources,
altetnatively. These 2 executives are a patt of the 3 - man committee formed for the
ptupose of appraisals. The 3 - man Committee for the cu1Tent yeai·'s appraisal process
consisted of: l. Mr. Bosco Menezes - Store Manager,
2. Ms. Amrapali Shahdeo - Executive (Human Resources),
3. Mr. Pat-es h Pa te l - Executive (Human Resources).
The employees ai·e called for the appraisals along with their managers for his I her
appraisal.
1. Self - Evaluation: This is the first step in the appraisal process at PRL, whet-e an
employee has to rate himself from l - 6, where l is the lowest point, whet-eas 6 is the
highest grade. The employee is actually given a questionnaire which contains approx. 30
questions. On these questions the employee has to awai·d the points to himself.
The questions in the questionnait-e ai·e based on the following important aspects of his Job
Responsibility in Piramyd Retail Limited. Each aspect under this job responsibility is
given a different weightage. The chatt showing the different aspects of the Job
Responsibility in PRL and their weightage is given below:
Sr. No. Aspects of Job Responsibility Weightage Given

l. Tat·get Cover 35 %
2. Customer Focus 15 %
3. Visual Merchandising & House Keeping 15 %
- 72 -
4. Discipline & Attendance 10 %
5. Honesty & Integrity 10 %
6. Other Factors 15 %
2. Argument Starts: After the employee rates himself in the questionnaire on the above
mentioned aspects from l - 6, the same repott is given to his superior in this case the
Floor Manager. There is an argument between the floor manager and the employee, if the
floor manager feels that the employee has overrated himself in any of the questions.
for instance, if a question is, "How Clean Do I Keep My Section?" , and if the employee
awards himself full points i.e. 6 which means that his section is always clean and there is
no dust in his section, his floor manager may argue in the point and intetfere that his
section is not always clean and he has found bits of paper on the floor of his section
several number of times, then the employee mat argue on that point or even go ahead
without having any sort of arguments by saying the words, "I Agree". At this stage the
employee has full liberty to argue and repeatedly try and prove his point without affecting
or losing any points on it. And it is observed that the employees take full advantage of
this liberty at PRL.
3. Joh Related Questions: The employees are then asked the questions relating to their
jobs, for instance, about the fabric knowledge, any extra knowledge that the employee
shares while selling the merchandises to the customers, any further developments he
would suggest towards the betterment of his own section, brand, or the store. The best
suggestions are also given bonus points. The employee is also enquired about his mbility
to move to any other branch of Piramyd Megastore at any point of time. The positive
response is given good points. he is also asked about the ulti1n ate post that he would
strive for in this particular organization and the ways of achieving it. if he is found
capable and his means and ways to reach that position effective enough then he is given
good ratings which fall under the Other Factors category in the above table.
4. The Results: The employees are rated accordingly from the questionnaires, the out
comes of the arguments are also given significance and lastly the abilities of the
employee judged on the basis of the Job Related Questions. the employees are judged on
the following basis or distribution and cut-off percentages which are stated below:
- 73 -
Percentage cut-off Rating

90 % and Above Outstanding
80 % - 90 % Good
80 % and Below Adequate
And accordingly the increments are given in the salaties of the employees at PRL.
personally as a group we feel that the petformance appraisal standai·ds at PRL ai·e quite
dicey and difficult as well, as a person in order to come true to these standai·ds of the
appraisal co1n1nittee is very difficult as we inquired with a few of the sales staff deployed
on the different levels of Piramyd Megastore. The response to the appraisal techniques
had many people saying that they found in difficult to make it to the top 2 levels of repute
and most of them landed up in the 3rd category which is of a bit embatTassing position.
THE END
- 74 -
petformance evaluation employee evaluation and (perhaps the oldest of the terms used)
merit rating. In a formal sense, employee assessment is as old
as, the concept of management and in an informal sense; it is Petformance
Appraisal
probably as old as mankind. Nor petformance appraisal is done
in isolation. It is linked to job analysis as shown in Fig.
Performance
Job Analvsis Standards
Desc ti bes work and . Translate job requirements I Describes the job-relevant
personnel requirement into levels of acceptable or strengths and weaknesses of
of a particular job I' unacceptable petiormance each individual
Fig. Relationship of Performance Appraisal and Job Analysis
Job analysis sets out requirements, which are translated into petfotmance standards,
which in ttu-n ii-om the basis for petformance appraisal.
- 7-
OBJECTIVES OF PERFORMANCE APPRAISAL

Data relating to pe1fo1mance assessment of employees arc recorded, stored. and
used for seven purposes. The main ptu·poses of employee assessment are:
l . To effect promotions based on competence and petformance.
2. To confinn the services of probationary employees upon their cotnpleting the
probationaty period satisfactoti ly.
3. To assess the training and development needs of employees.
4. To decide upon a pay raise where (as in the unorganized sector) regulai· pay scales
have not been fixed .
5. To let the employees know where they stand insofai· as their petiormance is concetned
and to assist them with constructive criticism and guidance for the purpose of their
development.
6. To improve com1nunication. Petformance appraisal provides a fonnat tor dialogue
between the superior and the subordinate, and improves understanding of personal goals
and concerns. This can also have the effect of increasing the trust between the rater and
the ratee.
7. Finally, petiormance appraisal can be used to determine whether HR programmes such
a selection, training, and transfers have been effective or not.
Broadly, petformance appraisal serves four objectives-
(i) developmental uses,
(ii) administrative uses/decisions ,
(iii) organizational maintenance/objectives, and
(iv) documentation ptu·poses
-8 -
Table below outlines these and specific uses more clearly:-
Multiple Purposes of Performance Assessment
General Applications Specific Purpose

Developmental Uses Identification of individual needs
Petfonnance feedback
Determining transfers and job assignments
Identification of individual strengths ad
development needs
Salaty
Promotion
Administrative Uses/Decisions Retention or termination
Recognition of individual petformance
Lay-offs
Identification of poor petformers
HR planning
Determining organization training needs
Evaluation of organizational goal
Organizational Maintenance/ Objectives achievement
Information for goal identification
Evaluation of HR systems
Reinforcement of organizational
development needs
Criteria for validation research

Documentation for HR decisions
Documentation
Helping to meet legal requirements
-9 -

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PERFORMANCE APPRAISAL AND COMPETITIVE

Values and Ensuring Legal

Fig: How Performance Appraisal can contribute to Firm's Competitive Advantage?

Making Correct Decisions

Ensuring Legal Compliance

Minimizing Job Dissatisfaction and Turnover

Consistency between Organizational Strategy and Behaviour

Organizational Strategy and Performance Appraisal

appraisal is individual. Appraisal in future, would assume systems orientations. In the

I PERFORMANCE APPRAISAL SYST EMS I

2. Establish Job Expectations

3. Design Appraisal Programme

Designing an appraisal programme poses several questions which we need to answers.

l . Formals versus informal appraisal

1. Whose performance should he rated? To the question as to whose

2. Formal V/s informal appraisal: - the first step in designing an appraisal

interdependent. Any atte1npt to assess individual pe1formance shall undermine

a. Immediate supervisor is the fit candidate to appraise the petformance of

c. Peers are in better position to evaluate cettain facts of job petformance

conttibution skills, reliability and initiative. Closeness of the working

d. Although clients are seldom used for rating employee petformance,

e. In self - appraisal employee himself or herself evaluates his or her own

Different Raters of Performance-L&T, Bangalore works

PROCEDURE AND SCHEDULEFOR PERFORMANCE APPRAISL PROCESS

Action by/Date Form/Section Brief description of Activities

Annual Petformance Review

• Co1n1nents on specific developments

• Plans training programme and other

2. PERIODIC REVIEW (during the year)

4. Problems of Rating: - Pe1fo1mance appraisals are subject to a wide variety of

• He or she may be projecting

• He or she may be operating on the premise , "whoever associates with me is

WC according to a WC according to a lenient rater

LOW written communication HIGH

• "Will I able to be objective in view of pressures ii-om peers , subordinates and

Performance Dimension order: 2 or 1no1-e dimensions on a pe1fo1mance insttument

Spillover effect: This refers to allowing past petformance appraisal ratings to

Status effect: - it refers to overrating of employee in higher-level jobs held in high

Solving Rater's Problems

Factors that help improve accuracy:

2. The rater has documented the behaviors to improve the 1-ecall .

Factors that may lower accuracy:

What should be rated?

1. MEASURING PERFORMANCE V/S 2-3

2. PERFORMANCE APPRAISAL 4-5

3. OBJECTIVES OF PERFORMANCE 6-7

4. PERFORMANCE APPRAISAL AND 8-11

5. APPRAISAL PROCESS 12-29

6. METHODS OF APPRAISAL 30-41

7. MANAGEMENT BY BJECTIVES(MBO) 42-43

8. LARSEN AND TOUBRO, HUMAN 44--46

9. ASSESSMENT CENTRES 47-49

10. 360-DEGREE FEEDBACK 50

13. GUIDELINES FOR EFFECTIVE 53

- - --•; I P e rfonnance I ....

T h e Phi lips Model

Lo v Potential-Low Performance: these employees at-e categotized as question mai·ks.

Employee's Name: _ Department

Excellent Good Acceptable Fair Poor

Table: - Checklist for Operators

l. Is the employee really interested in the job? - -

2. Does he or she possess adequate knowledge about the job - -