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Approaches to Performance Appraisal

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Everything you need to know about the approaches to performance appraisal.

The concept of performance appraisal came to light with the development of management. After industrialization when competition crept in the market, the need for effectiveness was felt.

In past, the roots can be traced in the time and motion study. For effective working the need for capable and dedicated worker was felt.

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Newer methods are being tried out in industry and business to assess the performance and potential of employees objectively and with relevance to the performance, job nature, and skill requirements of those being appraised.

The approaches to performance appraisal can be studied under the following heads:- 1. Old/Traditional Approach 2. Modern Approach 3. Competency-Based Approach 4. The 360-Degree Technique 5. The Assessment Center 6. MBO.


Approaches to Performance Appraisal: Traditional, Modern, Competency-Based, 360 Degree Technique and MBO

Approaches to Performance Appraisal – Old and Modern Approaches (With Criticisms)

The concept of performance appraisal came to light with the development of management. After industrialization when competition crept in the market, the need for effectiveness was felt. In past, the roots can be traced in the time and motion study. For effective working the need for capable and dedicated worker was felt.

In time and motion study the efforts were there to save time and activities so that the performance output can be improved. This became more and more popular with the tough competition in the market.

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As on today the company get differential competitive advantage over their rivals whose employees are well trained, motivated, committed and achieving the performance standard. The formal use of performance appraisal procedure was used in the time of Second World War. The history of it is not very long. It is hardly a few decades old.

The approaches to performance appraisal can be explained as follows:

1. Old Approach:

In broader sense, the practice of appraisal is a very old technique or art. In short it can be claimed one of the oldest profession. Performance appraisals are widely used in the society. The history of performance appraisal can be dated back to the 20th century and then to the Second World War when the merit rating was used for the first time. An employer appraising their employees is a very old concept. Performance appraisals are an important part of performance measurement process.

Dulewicz (1989), said that “performance appraisal is a basic human tendency to make judgement 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.

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The human inclination to judge can create serious motivational, ethical and legal problems in the workplace. Without a structured appraisal system, there are chances that the mistakes are likely to take place and these may be unlawful, biased and improper.

Performance appraisal systems was used in the past whether the payments have been made to the workers are justified or not. It can be said that is was a simple income justification. The process was firmly linked to material outcomes. The employees were paid as per the output.

If the output was good the good salary was paid otherwise there was a cut in the salary. A pay increment was given when the performance was more the expected standard. There was no consideration for the human touch to the performance appraisal system. There was no scope for the development of employees.

The motivational factors were only the wage cut or a rise to improve or continue to perform well. Sometimes this basic system could succeed in getting the results that were expected but most of the times it failed.

For example, early motivational researchers were aware that the employees with almost similar ability to work were paid same salary but with the different levels of motivation while performing the jobs. These observations were confirmed in empirical studies. There were many factors to influence to perform well.

The factors were good salary, morale, self-esteem and appreciation. But out of these the salary was a major factor to affect the performance of the workers. As a result, the traditional emphasis on reward outcomes was progressively rejected. In mid of twentieth century the performance appraisal was recognized as a tool for motivation and development of employees. The present form of performance appraisal started from that time onwards.

2. Modern Approach:

Performance appraisal may be defined as a structured formal appraisal system in which the subordinate’s performance is appraised by his supervisor that usually takes place in mid and end of the year assessments. In this the performance of employee is measured, compared and discussed with the objectives to find out the strengths, weaknesses, difficulties faced, and the deficiencies in competencies so that these things can be developed.

The management is looking forward for improvement in individuals’ performance and increase the effectiveness of human resource. This may leads to proper utilization of all resources and finally the company gets competitive advantage in the market over the rivals. In many organisations the appraisal system is used as base for deciding rewards, recognition, compensation, training, promotion, bonuses and many other opportunities for employees’ development.

On other side the poor performers are also identified who may need counselling, coaching, guidance or any other help for further problem solution and improvement in performance. Despite of sincere efforts of the management if the employee is not interested to improve them remedial action can be taken to correct him.

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Such action can include wage cut, dismissal, demotion and loosing seniority subject to provisions of law of the land prevailing. Now it is difficult to say that it is a good method for deciding the corrective and development action. Right now it is a matter for comprehensive discussion.

Criticism of Performance Appraisal:

Performance appraisal is a good method for improvement of performance of employees and increase effectiveness of organisation in the business. Despite of its advantages it has been criticized by some management experts, researchers and consultants. They argued that the reliability and validity of performance appraisal is uncertain.

Due to its different types of errors it is impossible to say it is a perfect method for performance evaluation. Derven support this criticism in 1990. The appraisal of people is like to be biased due to different factors. It creates confusion, frustration and employees reject the feedback given by the appraiser. Sometime favour, nepotism, preference and other factors play their role in appraisal.

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In most of the cases the appraisal given by the appraiser are not uniform given at the different times of the same person or same person appraising the different persons. It leads to dissatisfaction. Further it is a time-consuming and traditional method. It is not going to give any concrete decision for further action.

In Favour of Performance Appraisal:

On other side the experts give the extremely opposite view about performance appraisal. They are strong supporters of performance appraisal. Lawrie said that is the most crucial aspect of organisational life. The latest statement accepted worldwide by different organisations is — “get paid according to what you contribute” – the focus of the companies is towards performance management process and particularly to individual performance.

Performance appraisal helps to evaluate the performance and contribution of employee towards the organisational goals. If the whole process formal and properly structured and implemented, it helps in giving the clear ideas to the employees regarding their roles and responsibilities, targets achieved and difficulties faced while performing the jobs.

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It helps to align the individual performances with the organisational goals and also suggest how the effectiveness of employees and organisation can be achieved further.

Further there are people of different opinions between the two extreme sides of performance appraisal. They have differences regarding the methods and time of application of performance appraisal. One group believes that performance appraisal is important to find out the strengths and weaknesses and development uses.

But when it is related to rewards, pay rise or cut, promotion and demotion then it is taken as negative point. When it is related to these it eliminated the development part of the appraisal. The very objective of performance appraisal is hidden in punitive actions and not in development of employees. It is not providing the opportunity for development, encouragement but it is a deterrent approach of the management.

When employee knows that his next pay rise is due, the employee is not going to disclose the difficulties faced by him. This may be taken as a weakness of the employee and wage rise may be denied.

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Further, there may be difference of opinion of the appraiser and executioner. Supervisor in day-to-day working understand the employees in a better way. He may suggest for employee to brush up the certain skill for further improvement. But this may be taken by the executioner as a weakness and he may be denied further promotion. This may be taken in different way and can damage the morale, develop frustration and dissatisfaction.

It may leads to bitter relationship, creates labour problems and productivity will go down. Ultimately the performance will be poorer further. These advocates say that the performance appraisal should not be linked with the reward and promotion. This should be considered separately on the basis of merit, results and efforts.

The Link to Rewards:

Bannister and Balkin said that the employees are more interested in accepting this. They feel that the appraisal system should be linked with the reward and compensation plans. They feel more satisfaction when it is related to the rewards in many organisations. On this point, the others argue that for reward purpose there should be clear communication in appraisal system.

In present practice the reward issues are not discussed in appraisal of employees. It is the responsibility of the management to discuss with every employee over the issue of rewards. Consistency is not maintained in different organisations. This is further increased by conducting separate wage and salary review in which the rises, bonuses and other incentives are decided arbitrarily and often without disclosing the facts to the employees by manager and supervisor.


Approaches to Performance Appraisal – Traditional and Objective-Centered Approaches

Traditional appraisals have placed emphasis on measuring or appraising traits of individuals and general characteristics of their work. Some of these traits are- creativity, initiative, adaptability, communication, working with others, judgment, resourcefulness, and so on. It was concluded in one of the research studies that-

Most companies, it appears from a study of appraisal blanks, are concerned mainly with personality and character traits. So strong is the emphasis on personality that “job knowledge” and even “job performance” may have only a minor place in the overall rating.

The traditional approach tends to appraise people on personality rather than on performance. This approach can be called the individual-centered approach. Several research studies have been conducted to verify the connection between personal traits and performance. The general findings were negative in nature and as a result, new approaches and techniques came into existence.

It was felt that an individual’s performance in his present job must be an important factor in judging him. Of course, one cannot ignore the role of personal traits because some of these traits bear significance when considering the potential of an individual for higher jobs in the organizational hierarchy. To appraise the performance of an individual, it seems appropriate to look into his present job for the performance of which he is being paid.

Hence, the responsibilities and requirements of the current job assignment become the yardsticks against which performance is appraised. This is a job-centered approach to the process of appraising performance. It does not seek to compare one individual with another or to a group of individuals who are assumed to be doing a similar job. Instead, the emphasis is on the particular requirement of the job and on comparing and relating the individual’s performance to his major responsibilities.

Still another approach in the direction of modernization of performance appraisal is the objective-centered approach. Under this method, specific objectives are established for each position. These objectives identify the specific results to be achieved over a given period of time, usually a year. At the end of this period, actual results achieved are measured against the original objectives planned and the results expected. This process is derived from the sound notion that a manager should be measured against what he accomplished.

Thus, there appears to be a transition from traits to job requirements and to objectives in appraising the performance of individuals.


Approaches to Performance Management – New Approaches: Competency-Based Approach, The 360-Degree Technique and the Assessment Center

Newer methods are being tried out in industry and business to assess the performance and potential of employees objectively and with relevance to the performance, job nature, and skill requirements of those being appraised.

Thus, we will focus on competency-based assessment and the 360- degree technique. The competency-based approach is still in the process of being evolved. As the companies are becoming more market-driven and customer-focused, the competencies required to achieve such goals become relevant and therefore, receive attention in appraising the performance and potential of employees.

Hong Kong Telecom, for instance, uses the competency-based approach for assessing the performance and career-potential of its employees at all levels, involving nine main streams in the organization.

Let us look at what these new approaches are and how they function:

1. Competency-Based Approach:

The job description based performance assessment is somewhat static and out-dated. It does not provide for the choice of the best candidate for the job. It does not facilitate the identification of those who exhibit potential for higher level jobs. Furthermore, it lacks the thrust in identifying the best performers and rewarding them accordingly.

Instead, it promotes inefficiency, ineffectiveness and hinders achievement of higher level productivity. It breeds poor morale and disenchantment and the outcome of such experience is burn-out among the achievers. Turnover, absenteeism, and poor morale may have devastating impact on the overall productivity and performance of work organizations.

On the other hand, the new approach based on competencies will identify the best suitable candidate for the job, reward the best performer based on objectivity, and promote the ideal candidate when the position opening is available. Under this new approach, higher calibre staff with outstanding performance and contributions will have a faster career progression.

Furthermore, the new approach will help to attract, retain, and develop quality people by developing suitable progression plans for various career streams. It will forge a stronger link between reward and contribution. Thus, it is an effective way of putting equity theory into practice. When employees see that their efforts and contributions are being rewarded fairly and effectively, they tend to put all their efforts to improve constantly and perform even better.

At the corporate level, the competency-based approach will provide employee satisfaction; build partnerships based on equity and stronger employee commitment to achieving company’s business strategies and objectives.

According to the Collin’s Dictionary, competence is the condition of being capable or ability and competent as having sufficient skill, and knowledge, to perform a particular task or undertake an activity.

In the organizational context, some tend to identify competency with skills and not the physical or psychological aspects. On the other hand, some may contend that skills have a basis on certain psychological make-up. For example, a generic competency such as leadership may have a basis on the personality of the individual.

Key Features of Competencies:

The key features of competencies revealed in some research studies are:

i. A competency must be related to realistic workplace practice.

ii. It should be based on recognizable work activity, and not on training activities, tests or simulations.

iii. A competency should be expressed as an outcome. Thus, it is the result of an activity, not method or procedure.

iv. A competency must be capable of demonstration, observation and assessment. It must identify specific outcome or behavior.

v. A competency must complement performance criteria. It will be assessed against performance criteria.

vi. A competency must be written in a language, which makes sense to the people who have to use it.

vii. A general rule is that a competency should group together activities, which have the same criteria associated with them.

Since competencies describe specific behaviors that people can demonstrate to achieve high performance results, they favorably impact a person’s ability to accomplish his performance. Competencies look at how a person achieves results and provides useful insights into what specific behaviors a person can develop to enhance his performance.

While understanding the meaning of competencies and applying them to work situation in order to assess the performance of subordinates, the above information on competencies can be useful.

Successful managers exhibit competencies different from those who are not so successful. Competency is a function of worthy performance of a manager which includes general knowledge, motives, traits, self-images and skills.

An extensive study by the American Management Association identified the following clusters:

1. Goal and Action Management – This cluster includes a manager’s initiative, image, problem- solving skills, and goal orientation. The competencies included in this cluster are efficiency orientation, pro-activity, concern with impact, and diagnostic use of concepts.

2. Directing Subordinates – This cluster includes a manager’s freedom of expression in giving directives and feedback to help develop subordinates. Use of unilateral power, developing others, and spontaneity are the competencies included in this cluster.

3. Leadership – This cluster represents a manager s ability to deal with key issues and communicating. Self-confidence, ability to conceptualize, logical thought and use of oral presentation are the competencies included in this cluster.

4. Human Resource Management – This cluster deals with human resource skills such as developing positive expectations, having realistic views of oneself, building networks and to stimulate cooperation. The competencies included in this cluster are: managing groups, positive regard, perceptual objectivity, accurate self-assessment, self-control, and use of socialized power.

There is a clear connection between the practice and bottom-line business performance. In order to produce best results, practices must be based on certain proven competencies. Identification of these proven competencies is a laborious but worthwhile exercise. Such an exercise is necessary to sustain the dynamism of the organization.

A major survey of global companies conducted by The Economists Intelligence Unit found that 61 percent of the respondents from the Asia-Pacific region indicated that there was a need to identify and foster the needed competencies of the well-being and growth of any enterprise.

A survey carried out on behalf of the Australian Industry Task Force on Leadership and Management Skills identified technical expertise, management expertise, leadership, entrepreneurial skills, acceptance of responsibility, adaptability, ability to look well into the future, and cross-cultural skills as critical areas.

Some organizations adopt a standard set of competencies to meet the specific organizational needs. This approach serves only short-range needs, interests and objectives. A comprehensive and well-documented approach to the competency identification will be in the long-range interests of the organization. There is a potential incremental advantage that will be gained by the development and conduct of a fully competency-based program within the organization.

Moving on to the next level, it is fairly accurate to assume that best practice management development is not only business driven but also competency based. Therefore, applying or incorporating best practices without any regard for competencies required to succeed in a particular environment may not yield the best results in the long-run.

Thus, a program based on the identification of generic competencies that may be required to carry the organization through in the next decade or so may be the first logical step. As this process evolves, more specific or functional competencies may be identified.

The identification of functional and more specific competencies is a must in designing and implementing vital tools such as performance assessment, potential assessment, developing career progression models and approaches, proper placement, upgrading, and other human resource-related practices. The generic competencies enable the organization to build a strong corporate culture.

In recent years, a number of world-class organizations are moving in the direction of competency-based approach instead of relying on job description-based approach. This shift brings more dynamism into the organizations.

2. The 360-Degree Technique:

This new form of assessment, known as 360-degree appraisal or feedback, involves having an employee assessed on performance by everyone above (superiors), alongside (peers), and below (subordinates) the individual. It is a multi-rater assessment. Through structural questionnaires, performance data and related information about an employee is obtained from the employee’s boss, peers, and subordinates.

Some of the areas covered in this assessment include- how effectively the employee handles his superior and subordinates, how clearly the employee communicates in all directions, how effectively the employee delegates and how the employee manages. The responses are obtained on a five-point scale.

Generally, an employee is assessed by a dozen peers, five to six subordinates and a supervisor. At times, customers’ views are also sought where critical and applicable. Traditional appraisals focus on an individual’s efforts and ignore the road taken. The focus is on achievements rather than the intrinsic qualities that a manager must have in order to lead.

Many organizations such as General Electric (GE, India) Reliance Industries Ltd., Crompton Greaves, Godrej, Thomas Cook, and Thermax are using this form of appraisal system to find out the whole truth about their managers. A HR director puts it aptly, “You can’t deduct five percent of someone’s increment because he trampled over two people to achieve his goals.” In a way, this form of appraisal forces employees to focus on various aspects that have impact on performance and not just on one’s own targets.

General Electric, for instance, uses 360° leadership assessment to grade employees from all directions, namely, manager, peers, direct reports, and customers. The characteristics chosen reflect GE’s values. These values are part of Jack Welch’s 31 leadership secrets. The characteristics included in GE’s assessment include – vision, customer/quality focus, integrity, accountability/ commitment, communication/influence, shared ownership/boundary less, team builders/ empowerment, knowledge/expertise/intellect, initiative/speed, and global mind-set.

Edwards and Ewen feel that 360° performance feedback increases accuracy and supports a corporate culture that is described as participative, empowering, team-oriented and productive and offers an equal opportunity for employees to succeed and upgrade. While the traditional appraisal system assumes that the supervisor have the ability and will make objective evaluations, the 360° feedback system offers accountability for judgment by comparison with others.

Edwards and Ewen cite some pitfalls involved in 360° appraisals and offer some suggestions to avoid such pitfalls. Lack of safeguards, culture shock, autocracy, betrayal of employee trust, supervisory inactions, lack of training and nepotism are some of these pitfalls. By piloting the process, using team models, keeping the employees fully informed, training supervisors in the system and its implementation and providing proper safeguards, the pitfalls can be avoided.

3. The Assessment Center:

The assessment center technique provides a detailed picture of the high performer’s potential, ensures that wrong people are not elevated, creates an atmosphere where inter-cadre promotion is possible, helps identify talented individuals for greater responsibilities, and clearly defines the criteria for promotions.

A package of various tests are put together which focus on general aptitude, actual knowledge and relevant aspects.

In addition to these tests, structured interviews are also conducted. In terms of comprehen­siveness, objectivity, and organization, the assessment center approach sets the benchmark.

The rewards resulting from performance appraisals may include salary increases, special bonuses, further fringe benefits, and in the case of chief executives of subsidiaries, actual promotions or paving the way for future promotions and moving to a better location. Some multinational companies consider overseas experience as a requirement for future promotions within the corporation.


Approaches to Performance Appraisal – 2 Main Approaches: MBO, 360° Appraisal and Feedback Approach

Approach # 1. MBO:

Goal setting approach or ‘Management by Objectives’ (MBO) is the behavioural approach to subordinate appraisal, actually called ‘Work Planning and Review’ in General Electric Co., U.S.A. Under this approach, an employee is not appraised by his recognizable traits, but by his performance with respect to the agreed goals or objectives. Thus, the essential feature of this approach is mutual establishment of job goals.

The application of goal setting approach to performance appraisal involves the following steps:

1. The subordinate discusses his job descriptions with his superior and they agree on the contents of his job and the key result areas.

2. The subordinate prepares a list of reasonable objectives to be achieved for the coming period of six to twelve months.

3. He sits with his superior to discuss these objectives or targets and a final set is worked out.

4. Check-points are established for the evaluating of the progress and ways of knowing the progress are selected,

5. The superior and the subordinate meet at the end of the period to discuss the result of the subordinate’s efforts to meet the targets mutually established.

The goal-setting approach to performance appraisal involves mutual establishment of performance goals, mutual evaluation of performance and mutual consultation to improve subordinate’s performance. It is based on clear and time bound objectives from the corporate level to the individual level. This approach can be applied with great success if the performance appraisal programme consists of the following elements – (i) Good job descriptions are available to help setting of goals for different positions, (ii) Superiors have trust in the subordinates to establish reasonable goals; and (iii) There is emphasis on problem solving rather than critical discussion of the performance of the subordinates.

Goal setting approach is superior to the traditional methods of appraisal because of its following merits:

(i) The goal setting approach has done away with the judgmental role of the superiors in the appraisal of their subordinates.

(ii) It has led to greater satisfaction, greater agreement, greater comfort and less tension and hostility between the workers and the management.

(iii) It emphasizes training and development of individuals. It is a problem solving approach rather than tell and sell approach.

(iv) This approach has also got a built-in device of self-appraisal by the subordinates because they know their goals and the standards by which their performance will be measured.

(v) The involvement of an employee in setting his own goals will improve his conceptual skill. He will have better understanding of what is expected of him. This will improve his job performance.

The goal setting approach suffers from the following limitations:

(i) This approach can be applied only when the goal establishment is possible by the subordinates. It is doubtful if such a procedure can be applied for the blue collar workers.

(ii) This approach is not easy to administer. It involves considerable time, thought and contact between the superior and the subordinate. If the span of supervision is quite large, it will not be possible for the superior to have discussion with each and every subordinate for setting up mutually agreed goals.

(iii) This approach mainly emphasizes training and development. It is urged that critical evaluation and modification to improve are incompatible. But, in practice, it is not possible to forego the critical aspect of performance appraisal.

(iv) This approach is appropriate for the appraisal of executives and supervisory personnel who can understand it in a better way. Operative workers cannot understand this approach and, moreover, a vast majority of them do not want to take initiative in setting their own goals.

(v) Goal setting approach assumes mutual cost and confidence throughout the organization. But in practice status differentials and cautious attitudes of people do not permit an open dialogue between superiors and subordinates. This reduces the effectiveness of this approach.

(vi) This approach emphasizes operating performance of results. But results alone do not reflect the efforts of a subordinate because results are also influenced by many factors beyond his control. Appraisal against predetermined standards is very useful but individuals may fail to achieve the targets for no fault of their own. An individual’s managerial ability and potential for development are also important. These aspects should not be ignored by the performance appraisal.

Approach # 2. 360° Degree and Feedback:

The 360 degree appraisal involves rating of an employee or manager by everyone above, alongside and below him. Corporates like General Electric India (GE), Reliance Industries Ltd. (RIL), Crompton Greaves, Godrej Soaps, Wipro, Infosys, Thermax and Thomas Cook are all using this tool to find out truths about their managers. Although deployed mostly as a fact-finding technique, 360° appraisal is also used to design promotion and reward system in the organization.


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