CHAPTER 1

INTRODUCTION
 CHAPTER 1
TITLE OF THE PROJECT:

A Study of Performance Appraisal System and Its

Effectiveness in an Organization

INTRODUCTION

The history of performance appraisal is quite brief.

Its roots in the early 20th century can be traced to Taylor's pioneering Time and Motion

studies. But this is not very helpful, for the same may be said about almost everything in

the field of modern human resources management.

As a distinct and formal management procedure used in the evaluation of work

performance, appraisal really dates from the time of the Second World War -not more

than 60 years ago.

Yet in a broader sense, the practice of appraisal is a very ancient art. In the scale of

things historical, it might well lay claim to being the world's second oldest profession!

There is, says Dulewicz (1989), "... a basic human tendency to make judgments about

those one is working with, as well as about oneself." Appraisal, it seems, is both

inevitable and universal. In the absence of a carefully structured system of appraisal,

people will tend to judge the work performance of others, including subordinates,

naturally, informally and arbitrarily.

The human inclination to judge can create serious motivational, ethical and legal

problems in the workplace. Without a structured appraisal system, there is little chance

of ensuring that the judgments made will be lawful, fair, defensible and accurate.

Performance appraisal systems began as simple methods of income justification. That is,

appraisal was used to decide whether or not the salary or wage of an individual

employee was justified.

The process was firmly linked to material outcomes. If an employee's performance was

found to be less than ideal, a cut in pay would follow. On the other hand, if their

performance was better than the supervisor expected, a pay rise was in order.

Little consideration, if any, was given to the developmental possibilities of appraisal. If

was felt that a cut in pay, or a rise, should provide the only required impetus for an

employee to either improve or continue to perform well.

Sometimes this basic system succeeded in getting the results that were intended; but more

often than not, it failed.

For example, early motivational researchers were aware that different people with

roughly equal work abilities could be paid the same amount of money and yet have quite

different levels of motivation and performance.

These observations were confirmed in empirical studies. Pay rates were important, yes;

but they were not the only element that had an impact on employee performance. It was
found that other issues, such as morale and self-esteem, could also have a major

influence.

As a result, the traditional emphasis on reward outcomes was progressively rejected. In

the 1950s in the United States, the potential usefulness of appraisal as tool for motivation

and development was gradually recognized. The general model of performance

appraisal, as it is known today, began from that time.

Modern Appraisal

Performance appraisal may be defined as a structured formal interaction between a

subordinate and supervisor, that usually takes the form of a periodic interview (annual or

in which the work performance of the subordinate is examined and discussed, with a

view to identifying weaknesses and strengths as well as opportunities for improvement

and skills development.

In many organizations -but not all -appraisal results are used, either directly or indirectly,

to help determine reward outcomes. That is, the appraisal results are used to identify the

better performing employees who should get the majority of available merit pay

increases, bonuses and promotions.

By the same token, appraisal results are used to identify the poorer performers who may

require some form of counseling, or in extreme cases, demotion, dismissal or decreases

in pay. (Organizations need to be aware of laws in their country that might restrict their

capacity to dismiss employees or decrease pay.)

Whether this is an appropriate use of performance appraisal -the assignment and

justification of rewards and penalties -is a very uncertain and contentious matter.

Controversy, Controversy

Few issues in management stir up more controversy than performance appraisal.

There are many reputable sources -researchers, management commentators,

psychometricians -who have expressed doubts about the validity and reliability of the

performance appraisal process. Some have even suggested that the process is so

inherently flawed that it may be impossible to perfect it (see Derven, 1990, for

example). At the other extreme, there are many strong advocates of performance

appraisal. Some view it as potentially "... the most crucial aspect of organizational life"

(Lawrie, 1990).

Between these two extremes lie various schools of belief. While all endorse the use of

performance appraisal, there are many different opinions on how and when to apply it,

There are those, for instance, who believe that performance appraisal has many

important employee development uses, but scorn any attempt to link the process to

reward outcomes -such as pay rises and promotions. This group believes that the linkage

to reward outcomes reduces or eliminates the developmental value of appraisals. Rather

than an opportunity for constructive review and encouragement, the reward- linked

process is perceived as judgmental, punitive and harrowing. For example, how many

people would gladly admit their work problems if, at the same time, they knew that their
next pay rise or a much-wanted promotion was riding on an appraisal result? Very

likely, in that situation, many people would deny or downplay their weaknesses.

Nor is the desire to distort or deny the truth confined to the person being appraised.

Many appraisers feel uncomfortable with the combined role of judge and executioner.

Such reluctance is not difficult to understand. Appraisers often know their appraises

well, and are typically in a direct subordinate-supervisor relationship. They work

together on a daily basis and may, at times, mix socially. Suggesting that a subordinate

needs to brush up on certain work skills is one thing; giving an appraisal result that has

the direct effect of negating a promotion is another.

The result can be resentment and serious morale damage, leading to workplace

disruption, soured relationships and productivity declines.

On the other hand, there is a strong rival argument which claims that performance

appraisal must unequivocally be linked to reward outcomes. The advocates of this

approach say that organizations must have a process by which rewards -which are not an

unlimited resource -may be openly and fairly distributed to those most deserving on the

basis of merit, effort and results.

There is a critical need for remunerative justice in organizations. Performance appraisal -

whatever its practical flaws -is the only process available to help achieve fair, decent and

consistent reward outcomes. It has also been claimed that appraises themselves are

inclined to believe that appraisal results should be linked directly to reward outcomes -
and are suspicious and disappointed when told this is not the case. Rather than feeling

relieved; appraises may suspect that they are not being told the whole truth, or that the

appraisal process is a sham and waste of time.

The Link to Rewards

Recent research (Bannister & Balkin, 1990) has reported that appraises seem to have

greater acceptance of the appraisal process, and feel more satisfied with it, when the

process is directly linked to rewards. Such findings are a serious challenge to those who

feel that appraisal results and reward outcomes must be strictly isolated from each other.

There is also a group who argues that the evaluation of employees for reward purposes,

and frank communication with them about their performance, are part of the basic

responsibilities of management. The practice of not discussing reward issues while

appraising performance is, say critics, based on inconsistent and muddled ideas of

motivation.

In many organizations, this inconsistency is aggravated by the practice of having

separate wage and salary reviews, in which merit rises and bonuses are decided

arbitrarily, and often secretly, by supervisors and managers.

There are basically three purposes to which performance appraisal can be put. First, it

can be used as a basis for reward allocation. Decision as to who gets salary increase,

promotion, and other rewards are determined by their performance evaluation. Second,

these appraisals can be used for identifying areas where development efforts are needed.

The performance appraisal is a major tool for identifying deficiencies in individuals.

Finally it can be used as a criterion against which selection devices and development

programs are validated. As a key input into management's reward and punishment

decision, performance appraisals can motivate or de-motivate employees.

Three different approaches exist for doing appraisals. Employees can be appraised

against

1. Absolute standards

2. Relative standards

3. Objectives
PERFORMANCE MANAGEMENT

Since organizations exits to achieve goals, the degree of success that individual

employees have in reaching their individual goals is important in determining

organization effectiveness.

Performance system is fundamentally, a feedback process, which requires sustained

commitment. The cost of failure to provide such feedback may result in a loss of key

professional employees, the continued poor performance of employees who are not

meeting performance standards and a loss of commitment by employees, in sum, the

myth that the employee knows what they are doing without adequate feedback from

management can be an expensive fantasy.

THE APPRAISAL PROCESS

1. Establishing Performance Standard

2. Communicate Performance expectations to employees

3. Measure actual performance

4. Compare actual performance with standards

5. Discussion with the employees and identification development programs to bridge

the gap.

6. Initiate action
 THE PURPOSE OF APPRAISING PERFORMANCE

In general the appraisal systems serve a twofold purpose

1. To improve the work performance of employees by helping them realize and use

their full potential in carrying out their firms mission.

2. To provide information to employees and managers for use in making, work

related decisions.

More specifically appraisals serve the following purposes.

a) Appraisals provide feedback to employees and help them. "' management identify

the areas where development efforts are "' needed to bridge the gaps thereby

serving as vehicles for personal “and career development.

b) It helps management spot individuals who have specific skills so that their

promotions/transfer is in line with organizational requirements.

c) Appraisal serves as a key input for administering a formal organization reward and

punishment system.

d) The performance system can be used as a criterion against which selection devices

and development programs are validated.

REQUIREMENT OF THE PERFORMANCE MANAGEMENT SYSTEM.

Reliability: The foremost requirement of a sound system is reliability. In this contact it

refers to consistency of judgment. For any given employee, appraisals made by raters

working independently of one another should agree closely. But raters with different

perspective (e.g. supervisors, peers, subordinates) may see the same individual’s job

performance very differently. To provide reliable data, each rater must have an adequate

opportunity to observe what the employee has done and the condition under which he or

she has done it. By making appraisal system relevant, sensitive and reliable we assume

the resulting judgment is valid as well.

Acceptability: In practice, acceptability is the most important requirement of all, for it is

true that human resources program must have the support of those who will use them.

Unfortunately, many organizations do not put much effort into garnering the front end

support and participation of those who will use the appraisal system. Ultimately it is

management's responsibility to define as clearly as possible the type and level of job

behavior desired of employees.

It is important to enlist the active support and cooperation of subordinates by making

explicit what aspects of job performance they will be evaluated on.

Practicality: This implies that appraisal instruments are easy for managers and employees

to understand and to use.

For years, personnel specialists have searched for the 'Perfect; appraisal method as if it

were some kind of miraculous cure for many pitfalls that plague organizations. Such a

method does not exist. In tomorrow’s world of work far more emphasis needs to be

placed on process issues. Factors such as timing and frequency are no less important. In

sum performance appraisal is a dialogue involving people and data. Both technical and

human issues are involved. Neither can be overemphasized at the expense of the other.

WHO SHOULD EVALUATE PERFORMANCE?

The most fundamental requirement for any rater is that he or she has an adequate

opportunity to observe the rates job performance over a reasonable period of time. This

suggests several possible raters.

The immediate supervisor: Generally appraisal is done by this person. He is probably

the most familiar with the individual's performance and in most jobs has had the best

opportunity to observe actual job performance. Furthermore, the immediate supervisor

is probably best able to relate the individual's performing to department and

organizational objectives.

In some jobs such as outside sales, law enforcement and teaching, the immediate
supervisor may observe a subordinate's actual job performance rarely (and indirectly

thru written reports). Here judgment of peers play important role. However, there is a

danger of potential bias.

Subordinates: Appraisal by subordinates can be useful input to the immediate

development. Subordinates know firsthand the extent to which the supervisor actually

delegates, how well he communicates, the type of leadership he has and the extent to

which he or she plans and orgasms.

Self appraisal: On one hand it improves the rate's motivation and moral, on the other it

tends to be more lenient, less variable and biased. The evidence on the accuracy of self

assessment is fairly complex.

In industry it is seen that feed back/ input is taken from various sources -Peers,

subordinates, superiors etc. Some companies have gone step ahead in taking feedback

from the customers and integrating it into the performance management process.
APPROACHES TO PERFORMANCE MANAGEMENT

The traditional approach: The one dimensional model

The Job Define what results Performance contact

have to e achieved

Define a set of key

objectives against the
accountabilities
Accountabilities i.e.,
output

Review performance
against the key
objectives

In this model job expectations are defined in terms of what results have to be achieved.
This model doesn't have a long term focus and can't be used for employee development
and career path planning,
A satisfactory performance implies doing a job effectively and efficiently, with a
minimum degree of employee -created disruptions. Employees are performing well when
they are productive. Yet productivity itself implies both concern for effectiveness and
efficiency. Effectiveness refers to goal accomplishment. Efficiency evaluates the ratio of
inputs consumed to outputs achieved. The greater the output for a given input, the more
efficient the employees. Similarly, if output is a given, consumed to get that output
results in greater efficiency.

There are basically three purposes to which performance appraisal can be put. First, it can
be used as a basis for reward allocations. Decisions as to whom get salary increases,
promotions, and other rewards are determined by their performance evaluation. Second,
these appraisals can be used for identifying areas where development efforts are needed.
Management needs to spot those individuals who have specific skill or knowledge
deficiencies. The performance appraisal is a major tool for identifying these deficiencies.
Finally, the performance appraisal can be used as a criterion against which selection
devices and development programs are validated.