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Modern Methods of Performance Appraisal


Everything you need to know about the modern methods of performance appraisal. Performance appraisal is a formal system that evaluates the quality of a worker’s performance.

The appraisal measures skills and accomplishments with reasonable accuracy and uniformity. It provides a way to help identify areas for performance enhancement and to help promote professional growth.

It should not, however, be considered the supervisor’s only communication tool. Open lines of communication throughout the year help to make effective working relationships.


Each employee is entitled to a thoughtful and careful appraisal. The success of the process depends on the supervisor’s willingness to complete a constructive and objective appraisal and on the employee’s willingness to respond to constructive suggestions and to work with the supervisor to reach future goals.

In modern world performance appraisal evaluates results, achievements and performance as against personal characteristics.

Techniques adopted for performance appraisal are moved on to critical incidents, group standards, mutual goal setting etc.

The modern methods of performance appraisal are:-


1. Assessment Centre 2. Human Asset Accounting 3. Behaviourally Auctioned Rating Scale 4. Management by Objectives 5. Multiple Person Evaluation 6. Performance Test 7. 360° Appraisal & Feedback 8. Post Appraisal Interview  9. Field Review Technique and 10. Cost Accounting.

Modern Methods of Performance Appraisal: Assessment Centre, MBO, 360° Appraisal, MBO, Performance Test and Few Others

Modern Methods of Performance Appraisal: Top 7 Methods – Assessment Centre, Human Asset Accounting, BARS, MBO, Group Evaluation and a Few More Methods

Modern Method # 1. Assessment Centre Method:

This method was introduced by German and British Armies in the year 1930 and 1960 respectively. The aim of this method was to test candidates in a social situation by a number of assessors and variety of procedures. The important aim of the assessment centre is job related simulations.

These simulations are aimed at characteristics, which managers feel are important for success of the job. The evaluators observe and evaluate participants as they perform their activities usually found in higher level jobs. It is used mostly to select employees for the first level (the lowest) supervisory position.

Some of the features of the system are:


a) Application of situational exercises like ‘In basket exercise’, Business game, role playing, Leaderless group discussing.

b) To evaluate experienced managers with ability are taken from different levels of management.

c) Evaluators examine employees both individually and collectively. Each candidate is given one of the following categories like- (i) More than acceptable, (ii) Less than acceptable, (iii) Acceptable, (iv) unacceptable.

d) Evaluators give their opinion in person to candidates who ask for it.

Assessment centres normally evaluate inter-personnel skills and such other aspects as organising ability, planning capacity, interpersonal relation to get along with others, resistance to stress conditions, quality of thinking capacity, motivational ability with regard to work; communication capability, decision making capacity and dependence on others, etc. Apart from the above individuals are to come across a short written psychological test in the overall assessment process.

Modern Method # 2. Human Asset Accounting Method:

This method represents activities mostly concerned with money estimates the value of internal human organisation and its external customers’ goodwill. An able organisation imparts training to its employees, who are not expected to leave the organisation. It the human assets are well-looked after, they get increased. In an enterprise, organisation is the most valuable asset.

Day-to-day value of a firm’s human organisation can be estimated by developing procedures, knowing the periodic measurements of ‘Key Casual’ and ‘ ‘Intervening enterprise’ variables. The key casual variables include the structure of an organisation’s management policies, decisions, business leadership strategies, skills and behaviour.

The intervening variables, reflect the internal state and health of an organisation. They include loyalties, attitudes, motivations and collective capacity for effective interaction, communication and decision making. These two type of variable measurements need to be made over several years to provide requisite data for communication and accounting of human assets.

Modern Method # 3. Behaviourally Auctioned Rating Scale (BARS):

This is a new appraisal technique that has been developed in the recent past.


The procedure for BARS is conducted in five steps as stated below:

a. Generate critical incidents – Individuals with knowledge of the job to be appraised (i.e., jobholders/supervisors) are asked to narrate specific illustrations (critical incidents) of effective and ineffective job performance behaviour.

b. Develop performance dimensions – These people cluster the incidents into a smaller set of performance dimensions. Each cluster is then defined.

c. Reallocate incidents – Any group of people that knows the job and reallocates the original critical incidents. It is given clusters definitions and critical incident and asked to redesign each incident to the dimensions it best describes. Typically a critical incident is retained if some percentage (usually 50-80%) of this group assigns it to the same cluster as that of previous group.


d. Scale of incidents – This second group is generally asked to rate (7 or 9 point scales are typical) the behaviour described in the incident as to how effectively or ineffectively it represents performance on appropriate dimensions.

e. Develop final instrument – Subject to incidents 6 to 7% cluster is used as ‘behaviour anchors’ for the dimensions of performance.

It is as fact that BARS technique is time consuming and more expensive than other appraisal techniques.

Still it has certain advantages as stated below:


i) Steady and accurate technique – BARS is practised by expert persons with more accurate results.

ii) Clear standards – Critical incidents along with the scale help to verify what is extremely good performance, average performance, so on and so forth.

iii) Feedback – The use of critical incidents may be more useful in giving feedback to the individuals who are appraised.

iv) Independent dimensions – Properly clustering the critical incident into 5-6 performance dimensions provides in making dimensions more independent of each other.

v) Rater independence – The technique is not biased by the experience and evaluation of the rater,

Modern Method # 4. Management by Objectives (MBO):

MBO approach is designed to come across the limitations of the traditional system. Tis system was suggested by Peter F. Drucker. In this the approach of merit rating is based on the qualitative measurable performance goals often agreed jointly by superior and subordinate.


Under this system each subordinate is assigned to set for himself ‘short-term goals’ to improve his efficiency. This is a result-oriented approach. The performance goals often agreed jointly by superior and subordinate. The peculiarity of this method is that the superior is not alone asked to rate the subordinate.

The superior and subordinate get together to evaluate the progress towards the determined goals 3-4 times in a year. As the contacts are face to face, new or modified goals are set for the next period as per the requirement. The superior always play a positive and supportive role.

He ensures that his subordinates achieve the preset objectives. He always offers valuable advice and guidance. The aim of MBO is the result and not the means or personal trait.

MBO is an integrated sequence of process. It has continuous activities as a process. The organisational objectives are usually of long-term’ process. This process is carried out by the top management and it will be of long-term objectives.

Organisational objectives are achieved through individuals, hence subordinate objectives are to be set by the lower level management. After the objectives have been established by the superior and the subordinate, plan of action for achieving the objective is to be developed.

In MBO system individuals are permitted to pursue their objectives essentially in their own ideas. One achieves goal according to one’s capabilities and efforts put-in.


Participants are periodically evaluated and performance feedbacks are informed to them accordingly. Any significant deviation to a planned performance is scrutinised for identifying the causes and necessary corrective action taken to that effect. This provides feedback to management to make adequate changes in the objectives and also in policies in the ensuing period.

Advantages of MBO System:

i. It ensures effective management.

ii. MBO focuses on ‘results’ rather than merely planning activities.

iii. It makes managers to think how the objectives can be achieved and what resources are required.

iv. It ensures the standard of control system.


v. It brings out organisational lapses like overlapping of authority, delegational faults and ineffective communication, etc., for necessary rectification

vi. It promotes individual’s commitment for better performance.

vii. It ensures objectivity and reduce the element of pure judgement.

Modern Method # 5. Multiple Person Evaluation Method (Group Evaluation):

Each supervisor evaluates his own subordinates and also evaluates persons working with other supervisors in group evaluation method. This especially provides introduction for supervisors with one another’s subordinates and have a chance to observe their behaviour. Multiple assessment can modify or cancel a bias by immediate superior. This method is rarely feasible to practice.

Group appraisal method is normally rated by an appraisal group. This consists of the supervisor of a group and three or four other supervisors, who have some knowledge of their performance. Supervisor explains the nature and other attributes of his subordinates’ duties to the group.

A group discusses standards of performance of the job holder and the details of their exclusive level of performance and given suggestions for further improvement, as required. The benefit of this method is that it is perfect, very simple and having no adverse effects. It involves multiple gadgets for ascertaining the results of performance. This method is time consuming.


In brief, one can adopt several sources of appraisal. This information can be used by each one for its positive and negative aspects (strengths and weaknesses). Definitely computation is possible, and at the same time, one must know the costs involved for the same. Circumstances and prevailing conditions have to be carefully considered before adopting an approach or a combination is finally selected.

Modern Method # 6. Performance Test:

Performance Tests:

When tests are to be introduced, the organisation has to select the performance criteria for each test. This test must decide how to observe the individual and understand the criteria for each job special.

The measurement techniques have been classified into three distinct approaches as stated below:

a) Comparison to job standard.

b) Comparison between individuals.

c) Comparison to agree objectives.

The tests are designed according to comparisons and they are as follows:

i. Essays

ii. Check lists

iii. Critical incidents

iv. Rating scales

v. Behaviourally anchored rating scale (BARS).

i. Essays:

This is a method of evaluating the candidate’s overall personality. The candidate has to write a narrative himself. The employee’s strength, weakness, past performance technical efficiency ability to lead others; his important development needs, suggestion for improvement. Apart from this, supervisor should consider any critical incidents of employee having the assessment period noted by him. In this essay, the employees’ positive and negative aspects have the importance, since –

a. This method considers to focus on extreme behaviour in the employees ‘work’ rather than his routine day today performance.

b. The result often speaks ability of the rater. A good or a poor appraisal speaks the appraiser’s presentation skill as by the employee’s real level of performance.

c. The narration of essay, if the employee makes he presents his performance and that can give an idea of the employee’s personality. When the essay is finally assessed by the appraiser, it becomes difficult to compare employees across individual’s group of department, aspects of each subordinate’s performance. This makes it difficult to use details of essay for decision making as subordinates are not compared objectively and relative to each other.

ii. Check-List:

This method is also an individual evaluation and is in very simple form. The check-list is a set of objectives of descriptive statements. The rater checks or ticks the item and he does not leave it blank. If there are 10 item on the check-list and the rater ticks 10 employees’ score, it is 6 out of 10.

In a weighted check-list system, each statement on the list describes specific aspects of behaviour that can occur on the job and each statement has weight or score attached to it in apprising the individual’s performance the rater ticks those statements which accurately show the behaviour of the employee.

Also, the check-list that is given to the rater does not have weight attached to each item. The marks are compiled centrally in the HQs office. In this way the rater is not allowed from unduly raising or lowering the performance of the employee.

Special type of behavioural check-list system is known as ‘Forced choice sys­tem’. This technique was developed to reduce rater leniency and to have objective standards for comparing individuals. Even after having adequate precautions, it is of­ten easy for a rater using a favourable item.

Lenient raters can then check the items that make an employee look good even though they are not possessing the qualities, may actually represent the behaviour of the employee as per their desire.

iii. Critical Incidents:

According to supervisors’ report about critical incident, their observations about employees are not of factual nature. Since the reports speak about what the employees have done was particularly effective or ineffective. The focus on behaviour and not on trait.

At the time of evaluation, the rater/supervisor takes the support of rater records and examples of critical behaviour are taken into consideration to evaluate the employee at the end of the period. This method has a similarity to critical incidents technique stated for job analysis.

In this method the appraiser gathers many examples of behaviour so as to enable his written evaluation provides factual documentation and also to avoid vague generalisation are totally avoided. This method is very useful, since a list of critical incidents gives very useful examples that employees can be apprised of the behaviour that is useful and others, where improvement is essential for better job performance.

Disadvantages of this Method:

a) It is much time consuming for the appraiser to keep detailed logs for informing the same to a large number of subordinates.

b) It is difficult to structure or quantify the incidents.

c) The narrative form of incidents do not permit any comparisons across individuals and departments.

d) This may cause too many supervisions with the employee and create anxiety about a particular incident, the superior is selecting to announce either good or bad.

iv. Rating Scale:

This is the oldest and most popularly used evaluation technique. In this technique, the appraiser who is also the supervisor is provided with a printed form for each employee to be rated. This form is used for lower level employees. In rating lower level employees, the points noted are quality and quantity of work, job knowledge, cooperation, dependability, initiative, willingness to accept responsibility and so on.

For managerial personnel the attributes noted are analytical ability, judgement, leadership, communication skills, creative ability, initiative, knowledge of work, imagination, interpersonal skills, planning and conceptualising abilities.

The advantages of rating scales are many. However, they do not provide the depth of information that makes a critical incident.

With regard to disadvantages, the traits indicated judgement, attitude, dependability that are subjective; whereas all type of rating errors that occur are leniency, severity, central tendency and other adverse effects.

v. Behaviourally Anchored Rating Scales (BARS):

This approach starts like other scales in this subject. This approach uses critical incidents to provide ‘anchors’, which means examples for different points on the rating scales. These examples or anchors make the rating scale more specific to job rather than trait oriented ones. Consequently it is hoped to be less subjective and less error prone.

Important Steps involved in Developing BARS:

1. Superiors identify performance strata like different type of activities that create the job.

2. Then they prepare a set of critical incidents for each job dimensions.

3. An independent separate group of supervisors categories the critical incidents for each dimension of job.

4. These incidents are regularly categorised and kept in a particular dimension and remaining are discarded after dimension-wise categorisation. These scales are then provided with anchors or incidents, showing either good or bad performance.

Advantages of this System:

i. BARS, mostly require considerable employee participation. It is mostly accepted by supervisors and subordinates. This participative process is very useful in properly communicating to employees, what the good or bad performance means in respect-of their jobs.

ii. BARS is on a careful analysis of the job. The scales with anchor points are directly required to the job for evaluation.

Main Disadvantages:

i. It is very costly.

ii. It is a complex and difficult method.

iii. Each job category needs its own BARS which may not be viable in many of the organisations. Due to economic reasons or because of a few employees in particular job make the development technique not practicable on almost all occasions.

Modern Method # 7. Field Review Technique:

In this method, a trainer employee from the department of personnel interviews line supervisors to include their particular subordinates. The appraiser is fully equipped with definite test questions usually memorised in advance which he puts to the supervisor; who has to give his opinion about the progress of his subordinates, the capacity of the performance of each subordinate, his weaknesses, good points, superior’s ability, possibility of promotion and the requisite plan of action in cases requiring additional consideration.

These questions are asked orally and the appraiser takes detailed notes of the answers. This is being approved by the supervisor and is placed in employee’s personal dossier. The success of this procedure depends upon the competence of the interviewer. If he has the knowledge of his work, he can properly contribute to accurate appraisal. Over and above, he keeps the supervisor on his toes by his evaluation and reduce the bias and prejudice on his part.

This system is useful for a large organisation and does not suffer from the weaknesses, which are evident in other systems. The overall ratings are obtained by largely using a three-way categorisation, viz. – outstanding, satisfactory and unsatisfactory. It relieves the supervisor of the need for filling out appraisal forms. The main defect is that it keeps two management representative busy with the appraisal.

Modern Methods of Performance Appraisal – Top 3 Methods of Appraisal Used by Modern Organisations (With Advantages and Disadvantages)

The important methods of appraisal which are used by modern organisations include the following:

i. Managing by objectives (MBO),

ii. Behaviourally Anchored Rating Scale (BARS),

iii. 360° appraisal.

An overview of these methods is given below:

i. Management by Objectives (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.

Concept of Managing by Objectives (MBO):

John Humble defined managing by objectives as a dynamic System which integrates the company’s need to achieve its goals for profit and growth with manager’s need to contribute and develop himself.

According to George S. Ordiome, the system of Management by objectives can be described as a process whereby the superior and subordinate managers of an organisation jointly identify its common goals, define each individual’s major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing the contribution of each of its members.

Ordiome also stressed that MBO is not merely a set of rules, a series of procedures, or even a set method of managing, but it is a way of thinking about management.

Features of Managing by Objectives:

The broad characteristics of MBO are as follows:

(i) Operational Technique:

Management by objectives is a highly practical technique. The goals have to be set in measurable or quantitative terms. As Drucker puts it, “Objectives must be operational; they must be capable of being converted into specific targets and specific assignments. They must be capable of becoming the basis as well as the motivation for work and achievement”.

(ii) Comprehensive Technique:

MBO represents a comprehensive tool of management. It is not a piece-meal tool of human resource management for measuring performance, but an overall management technique concerned with realisation of objectives at each level in the organisation.

(iii) Participative Management:

MBO emphasises participative approach to management. The goals are determined by managers in consultation with their subordinates. MBO is not merely a meeting of minds, but joint authorship of goals and their implementation.

(iv) Result Oriented:

MBO is performance-oriented. That is why; its other name is Management by Results. This approach concentrates on ends rather than means and is diagnostic rather than punitive in character. The performance of person or unit is evaluated according to the results obtained.

(v) Concentration on Key Result Areas:

The emphasis in MBO is on performance improvement in the areas which are of critical importance to the organisation as a whole. By identification of key result areas, MBO ensures that due attention is given to the priority areas which are crucial for good performance and growth of the organisation.

(vi) Systems Approach:

MBO attempts to integrate the individual with the organisation and the organisation with its environment. It seeks to ensure the accomplishment of both personal and enterprise goals by creating goal congruence.

Advantages of Managing by Objectives:

The important benefits of MBO are discussed below:

(i) Better Planning:

Managing by objectives involves setting of goals and targets through active participation of both superiors and subordinates. Such mutual goal setting improves goal clarity and results in realistic plans to which the subordinates become committed. MBO makes objectives explicit and planning directed towards these objectives.

(ii) Better Organisation:

When the goals for each individual are reset under MBO, there is a considerable change in the job descriptions of various positions. This may call for a revision of the existing organisation structure.

The organisation charts and manuals are suitably amended to depict the change brought by the introduction of management by objectives. The job descriptions of all the jobs must define their objectives, responsibilities and authority.

(iii) Means of Control:

MBO serves as a means of control. There is a greater sense of identification by the management team with the objectives of the enterprise wherein controls are reckoned as tools of ‘self-control’ rather than devices to be used against the subordinates.

(iv) Higher Productivity:

There is an improvement in productivity as everyone concentrates on important tasks rather than wasting energies on less important matters.

(v) Better Appraisal of Performance:

The process of defining the results expected establishes accurate criteria for appraisal of performance. Clear understanding of responsibilities or criteria of evaluation intensifies accountability.

MBO provides an objective measuring instrument for linking the evaluation of actual performance against expected performance. Appraisal is result-Oriented and not trait-oriented. An individual can also evaluate himself by the results of his own performance.

(vi) Executive Development:

MBO emphasises long-term and com­prehensive development of executives. It calls for finding new methods to deal with emerging situations. Thus, MBO is a tool of self-development of the executives.

That is, each executive acquires the knowledge and skills on the job as a by-product of his meeting performance requirements. Opportunities for learning and experimenting are natural ingredients in the goal setting process.

Steps in Managing by Objectives:

In order to put the philosophy of Management by Objectives into practice, the following steps are to be undertaken:

a. Setting of Goals:

The goals of each subordinate for a specified period are set up by the subordinate himself. Such goals should be in congruence with the organisational and departmental objectives. The subordinate will fix the targets for himself for a specified period which may be six months or one year. He will also list the resources required to meet the targets. The goals laid down by the subordinate are the starting point of managing by objectives.

b. Approval of Goals:

The superior will sit with the subordinate to discuss the goals laid down by the latter for the specified period. The goals may be revised, if necessary. Once this process is complete, there will exist a meeting of minds of the superior and his subordinate as to what is to be accomplished by the subordinate.

The finalised version of objectives and responsibilities for the subordinate should be reduced into writing to avoid any misunderstanding. This document is termed as the Key Result Analysis.

It should contain the following information:

(i) The overall objectives of the subordinate’s job.

(ii) The key targets he must accomplish.

(iii) The short-term and long-term priorities of his job.

(iv) The standards by which his performance will be evaluated.

c. Establishment of Check-Points:

Management by objectives stands for delegation of authority to the subordinate to do his job. But the superior must establish certain check-points to ensure that authority is exercised in the proper manner and adequate steps are taken to accomplish the job. This will facilitate continuous monitoring of the performance of the subordinate.

d. Periodic Review of Progress:

The superior must make a periodic review of the progress in achieving the subordinate’s targets. For this, the superior must seek progress reports from the subordinate at regular intervals, say fortnightly or monthly. He should also contact the subordinate to identify the problems faced by him and take appropriate steps to overcome the problems.

Even the targets may be revised in the light of challenges in the environment. A continuous contact between the superior and the subordinate will ensure that things do not go out of control.

e. Appraised of Performance and Counselling:

Formal appraisal at the end of the target period is done by the superior for the thorough evaluation of the subordinate’s performance. Under this, achievements are carefully analysed against the background of prevailing circumstances and the goals of the subordinate. The design and format of the Performance Review Form will depend on the nature of the job of the subordinate.

The performance of every individual is evaluated in terms of the standards or end-results clearly agreed upon by the superior and the subordinate. Under MBO, the performance review is aimed to counsel the subordinate to improve his performance in future. The superior will discuss with the subordinate the ways to remove deficiencies in performance and advise him as to how his performance could be improved.

Difficulties in Managing by Objectives:

A system of managing by objectives may suffer from certain weaknesses. Some of them are inherent in the system while others arise while introducing it. Though the philosophy of managing by objectives appears to be a simple process, yet in actual practice, most people are unable to implement it effectively.

The weaknesses or limitations of MBO are as follows:

(i) Difficulty in Setting Quantitative Targets:

Management by objectives is successful if the objectives are set in measurable terms. It is difficult to judge the performance of individuals where the objectives cannot be set in quantitative terms. Thus, it will not be possible to implement MBO effectively.

(ii) Emphasis on Short-Term Goals:

Under MBO, goals are set only for a short period, say for six months or one year. The subordinates may concentrate on their immediate goals without caring for the long-range objectives of the enterprise which is not a healthy sign of organisational efficiency and effectiveness.

Because performance of the subordinates is to be reviewed after every six months or one year, they tend to concentrate on their immediate objectives.

(iii) Resistance to Change:

The system of MBO appears to be simple, but it requires far reaching changes in traditional thinking and practices. In practice, it is often resisted by both the executives and the operative workers.

Moreover, functional departmentation, hierarchical structure, unilateral goal setting, trait- oriented appraisals, etc. are major impediments to the successful implementation of MBO which requires real hard-work and patience on the part of managers.

(iv) Lack of Training:

There is generally lack of training and knowledge on the part of the supervisors in implementing the program. Many are prone to sit down with the subordinate, dictate the goals and targets with no input permitted from the subordinate, and then demand may be met in a specified time. Whether they are realistic goals or not does not enter the picture. No consideration is given to any outside factors over which the subordinate has no control or influence.

In such situations, there can be no two-way communication because of the outer- imposed objectives. This may destroy morale, initiative and good results faster than anything else in an enterprise.

(v) Lack of Follow-Up:

Lack of follow-up by the superior at the appropriate time is another hurdle in the successful implementation of MBO. The superior must get with the subordinate at the appropriate time. The subordinate is prepared to tell the boss exactly what has been accomplished and how. If the superior delays the meeting, the subordinate will also take the MBO program casually.

(vi) Rigidity:

Management by objectives may tend to introduce inflexibility in the organisation. Since goals are set after every six months or one year, the superior may not like to modify them in between because of fear of resistance from the subordinate. There may arise a need to revise the goals at lower levels to achieve the long-range objectives of the enterprise. The manager must handle such a situation properly.

(vii) Limited Application:

Management by objectives is not appropriate for all levels and for everyone. It is suitable only where both managers and subordinates feel comfortable with it and are willing to participate in it. The heavy demands made by it make MBO useful largely to managerial and professional employees.

Guidelines for Effective MBO:

The following guidelines should be followed for the effective implementation of MBO:

(a) Top Level Commitment:

Initial acceptance and enthusiasm among the employees for an MBO program may quickly disappear unless the top management makes concerted efforts to keep the system alive and fully functioning. Managers who find it difficult to set and review objectives may revert to more traditional and authoritarian approaches. Top managers must be aware of such tendency and take precautionary steps against this.

(b) Training of Managers:

For MBO to succeed, managers must understand it and have the appropriate skills. They must be educated concerning the procedures and advantages of the system and, the skills required. If managers remain resistant, an MBO program will not succeed.

(c) Clarity of Purpose:

MBO may be used for different purposes, e.g., long-range planning, performance appraisal, productivity improvement, etc. The details and mechanics of MBO program vary with the purpose for which it is used. Therefore, the purpose should be clearly defined before installing an MBO program.

(d) Encouragement of Participation:

Managers must realise that participation by subordinates in goal setting may imply some reallocation of power. They must be willing to relinquish some direct control over their subordinates and encourage them to play active role in defining and achieving their own objectives.

(e) Delegation of Adequate Authority:

The subordinates who have accepted the challenging assignments through discussion with the superior must be given adequate authority to accomplish their goals. MBO will not work if the manager is not willing to delegate sufficient authority to the subordinates as the subordinates will not be willing to accept new assignments and may even resist the setting of clearly defined goals.

(f) Overall Integration:

MBO should not be treated as an isolated program. It must be integrated with all the organisation programs including human resource planning, human resource development, product planning and development, production control, financial planning and so on.

ii. Behaviourally Anchored Rating Scales:

Behaviourally Anchored Rating Scales (BARS) are designed to identify the critical areas of performance for a job, and to describe the more effective and less effective job behaviour for getting results.

Performance is evaluated by asking the rater to record specific observable job behaviours of an employee and then to compare these observations with a “behaviorally anchored rating scale”. As a result, the supervisor is in a position to compare the employee’s actual behaviour with the behaviour that has been previously determined to be more or less effective.

Behaviourally Anchored Rating Scales (BARS) approach combines elements of the traditional rating scales and critical incident method. Using BARS, job behaviours from critical incidents— effective and ineffective behaviours—are described more objectively.

This method employs individuals who are familiar with a particular job to identify its major components. They are asked to rank and validate specific behaviours for each of the components. BARS approach gets away from measuring subjective personal traits and instead measures observable, critical behaviours that are related to specific job dimensions.

Development of BARS requires the following steps:

(a) Generate Critical Incidents – Experts who know the job being appraised (job holders and/or supervisors) are asked to describe specific illustrations (critical incidents) of effective and Ineffective performance.

(b) Develop Performance Dimensions – These people then cluster the incidents into a smaller set of performance dimensions (say 5 to 10). Each cluster (dimension) such as ‘conscientiousness’ is thus defined.

(c) Reallocate Incidents – Another group of experts who also know the job then reallocates the original critical incidents. They are given the cluster definitions and the critical incidents and are asked to reassign each incident to the cluster they think it fits best. Typically, a critical incident is retained if some percentage (usually 50% to 80%) of the second group assigns it to same cluster as did the first group in step (ii).

(d) Scale the Incidents – The second group is generally asked to rate the behaviour described in the incident as to how effectively or ineffectively it represents performance on the appropriate dimension (seven or nine point scales are typical).

(e) Develop Final Instrument – A subset of the incidents (usually six or seven per cluster) is used as behavioural anchors for each dimension.

The advantages of BARS are as follows:

a. Experts are engaged to develop the BARS. The result should therefore be a good and accurate gauge of performance on the job.

b. The critical incidents along the scale help to clarify what is meant .by extremely good performance, average performance and so forth.

c. The critical incidents may be more useful in providing feedback to employees than simply informing them of their performance rating and not providing specific behavioural examples.

d. Systematically clustering of critical incidents into five or six performance dimensions helps in making the dimensions more independent of one another.

e. BARS evaluations seem to be relatively consistent and reliable in that different raters’ appraisals of the same person tend to be similar. This technique is not biased by the experience and evaluation of the rater.

iii. 360° Appraisal 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 organisation.

According to Milliman and others – “360-degree appraisal is the process of systematically gathering data on a person’s skills, abilities and behaviours from a variety of sources—the superiors, peers, subordinate and even customers and clients”.

Thus, appraisal of an employee is done by his superior, his peers, his subordinates and clients or outsiders with whom he interacts in the course of his job performance. In 360-degree appraisal, besides appraising the performance of the assesse, his other attributes such as talents, behaviour, values, and technical capabilities are also appraised.

Components of 360 Degree Appraisal:

The components of 360 degree appraisal are described as under:

a. Self-Appraisal:

Self-appraisal is a very important part of the 360 degree appraisal system because it gives the employee absolute freedom to look at his strengths and an opportunity to assess his performance. In a well-established system, employees use the tool of self-appraisal very effectively and organisations also find that employees often are their own strongest critics and display very high degree of objectivity.

Self-appraisal also provides an opportunity to the employee to express his career moves for the future. However, this is only for gathering information and that under the given organisational constraints, it may not be possible to provide the career progression desired by the employee. Nevertheless, it is in the organisation’s interest to atleast know on a first hand basis the aspirations of its employees.

b. Superior Appraisal:

This is, of course, the most important component of the 360 degree appraisal system. But here the focus is to provide constructive feedback on employee’s performance and his development needs. It is the responsibility of the superior to ensure that employee sets goals not only in the area of business performance but also in the areas that are vital to the organisation.

These are called corporate thrust areas and may include relationship management, safety and quality development. If the working style of the employee is a concern area and needs improvement for enhancing effectiveness, then goal may be set for “style of functioning” such as, from short-term to long-term orientation.

c. Peer Group Appraisal:

Peers play an important role in the life of an employee in the organisation. They can also provide a deep insight into the personality make up, attitude and style of working of the employee. For better results, it is essential to select the right peers for the purpose of appraisal.

They must include peers both from within the department as well as from the other departments which are directly connected with the working of employee’s department. The concept of internal customers comes handy here. Three to five internal customers should normally be chosen for peer appraisal.

Peer appraisal must strive to get the feedback on – (1) employee’s working style, (2) sensitivity towards others, (3) spirit of co-operation and collaboration, and (4) ability to work as a team member.

d. Subordinates’ Appraisal:

The most distinctive feature of 360 degree appraisal is the role of subordinates in appraisal. It signifies two things. Firstly, it is a clear expression from the organisation that it encourages openness and that feedback is a two-way process. Secondly, it is a systemic recognition of the fact that an employee’s subordinates do play a vital role in his appraisal.

Thus, the purpose of subordinate’s appraisal is to get first hand assessment of how the subordinates perceive their superior to be in terms of – (1) delegation of authority, (2) guiding and training of subordinate, (3) motivation of subordinates, (4) team building, etc.

The upward appraisal also provides an opportunity to the subordinates to give feedback to their superior on the kind of things they would like him/her to continue doing (status quo), things they would like him/her to stop doing (areas for corrective action), things they would like him/her to start doing (areas for new initiatives).

The above four components complete the 360 degree, each one representing 90 degree of the overall appraisal. It may be noted that 360 degree appraisal is a logical and systematic way of looking at appraisals.

The factors to keep in mind before attempting to introduce 360 degree appraisal may include the level of maturity in the organisation, history of appraisal, organisational climate and culture, top management’s commitment to openness and willingness to receive feedback and clarity about the use of the inputs received from 360 degree appraisal.

The advantages of 360° appraisal are as follows:

(a) It reveals strengths and weaknesses of the employees.

(b) The gap between self-assessment and the views of one’s colleagues is reduced.

(c) When peer group assessment is included in performance appraisal, teamwork thrives.

(d) Inflexible managers are forced to initiate self-change.

(e) It helps improve overall quality of the staff because each member is helping the others to improve.

The drawbacks of 360° appraisal are as follows:

(a) Response from peers (colleagues) and subordinates may be biased.

(b) Performance in terms of attaining goals is ignored.

(c) Feedback may cause frustration and resentment among the employees.

(d) 360° appraisal is a complex and time consuming appraisal technique.

Modern Methods of Performance Appraisal – 4 Main Methods: MBO, Assessment Centres, 360 Appraisal and Post Appraisal Interview

1. Management by Objectives:

MBO is a philosophy of management first proposed by Peter Drucker in 1954. This method involves goal-setting process whereby objectives are established for the organisation departments and individual managers and employees. A significant feature of the cycle is the establishment of specific goals by the employee but those goals are based on the broad statement of employee responsibilities prepared by the supervisor. Employee-established goals are discussed with the supervisor and jointly reviewed and modified until both parties are satisfied with them.

The goal statements are accompanied by a detailed account of the actions the employee proposed to take in order to reach the goals. During periodic reviews as objective data are made available the progress that the employee is making toward the goals is then assessed. Goals may be changed at this time as new or additional data are received. At the conclusion of a period of time the employee makes a self-appraisal of what he or she has accomplished substantiating the self-appraisal with factual data wherever possible.

The final step is reviewing the connection between individual and organisational performance. To ensure success, MBO programmes should be viewed as part of a total system for managing, not as merely an addition to the manager’s job. Managers must be willing to empower employees to accomplish their objectives on their own, giving them discretion over the methods they use (but holding them accountable for outcome).

The following guidelines may be especially helpful:

i. Managers and employees must be willing to establish goals and objectives together. Goal setting has been shown to improve employee performance, typically ranging from 10 to 25 percent. Goal setting works because it helps employees focus on important tasks and makes them accountable for completing these tasks. It also establishes an automatic feedback system that aids learning because employees can regularly evaluate their performance against their goals.

ii. Objectives should be quantifiable and measurable for the long and short term. However goal statements should be accompanied by a description of how that goal will be accomplished.

iii. Expected results must be under the employee’s control.

iv. Goals and objectives must be consistent for each level (top executive, manager and employee)

v. Manager and employees must establish specific times when goals are to be reviewed and evaluated.

2. Assessment Centres:

Under this method, the future potential of an employee is evaluated by a group of evaluators. Assessment centres are a standardised form of employee’s appraisal that depends on multiple types of evaluation and multiple raters. Basic feature of the assessment centre is job related simulation. The rater observes the participants when they perform various activities.

Some common features of assessment centres are:

(i) It is applied to middle level Managers who have the potential to perform more responsible jobs in the organisation.

(ii) The employees are evaluated individually and collectively.

(iii) Individuals are subjected to in-depth interviews, primary tests, peer rating, group discussion, rating by Managers and physiologists, business games, role playing etc.

(iv) These activities are carried out for a few days and during this period raters evaluate the strengths, weakness and potential of each Manager at the centre.

(v) The rater for each individual prepares a report.

3. 360° Appraisal:

In 360 degree appraisal, superiors rate the performance of their subordinates, subordinates also evaluate the performance of superiors on general traits viz. communication skills, leadership, interaction with colleagues, punctuality, innovation, imitativeness etc., and peers appraise the performance of each other. Thus it becomes a round of 360° thereby, giving it the name 360° appraisal.

360-degree appraisal system has started gaining ground in the organisations. It identifies development plans about current and future roles of employees, generates basis for rewards and other decisions pertaining to personnel and helps in team building, career planning, role clarity and culture building etc. In this appraisal system an individual’s performance is rated through boss, immediate subordinates and peers periodically. It requires strong people, no fragile minds.

In order to make it effective, the following salient points should be considered in the larger interest of the organisation:

i. Support of the Top Management:

Adequate support of the strategic apex is required. Preferably, it should be started with the top management and gradually at all levels. Environment of the organisation should be characterised by openness, trust, authenticity and honestly. Vision of the employees should be broadened to create a developmental environment enriched by a positive, progressive and pragmatic approach. If any organisation is interested in developing the capabilities of its employees, it should understand the nature of capabilities required to perform different functions as well as the dynamics underlying the development of these capabilities in an organisation context.

ii. Clear Objectives:

It is very essential to outline the purpose of the feedback and agree on it and communicate it clearly. The HRD department can perform a significant role in this regard. Unless all apprehensions are cleared, such a system cannot be implemented successfully.

iii. Choose Instrument Carefully:

Specificity, objectivity, clarity of questions should be maintained to check the accuracy of the instrument. Thus, the instrument should be customised for the organisation. A questionnaire should be designed by the organisation concerned that is relevant to its cultural and goals as a specifically designed questionnaire ensures high acceptability and commitment to the system. Raters should be asked to evaluate those dimensions of a person’s performance that they know best.

iv. Anonymous Feedback:

Due importance should be attached to the anonymity for fair assessment and for making the feedback very authentic and reliable otherwise subordinates may rate bosses high because they are afraid of retaliation and peers tend to evaluate each other positively as well, to avoid disrupting the group. On the other hand, peers who are competing against each other for promotions may tend to rate their colleagues on the low side. Researchers suggest that ‘Anonymity’ on the part of appraiser should be maintained for the sake of free and fair appraisal.

v. Making Feedback Meaningful:

Feedback should comprise of written description as well as numerical rating to make it more meaningful. The feedback should focus on development of employees. An appraisee should also be made prepared particularly for negative feedback. The feedback is given to an employee to get him/her to understand his/her strengths and weaknesses. Appraisee should be helped at this stage to identify two or more developmental areas for which action plans should be chalked out effectively.

Action plans should comprise of specific measurable and time bound goals. Periodic monitoring of efforts made by the appraisee, is done by the appraiser. 360 degree appraisal feedback can change an individual’s self-ratings based on an understanding of the expectation from him by others. An expert should make interpretation of feedback. Moreover, those who have undergone the feedback could meet formally to discuss action plans, experiences, etc.

Locus of control should be internal rather than external so that the employees may take feedback in right sense.

Performance coaching is a vital part of meaningful feedback. It should consist of opening, exploring and committing. Opening stage refers to description of the issue and clarification of the viewpoints. Exploring deals with exchanging information and generating ideas to solve a problem. Committing is concerned with action planning for results.

vi. Follow up Survey:

Feedback should be followed by a follow-up survey three to six months later to know the progress in action plans on low scoring areas.

vii. Cutting the Length of Review Periods:

360 appraisal degree is less effective when viewed by employees as an annual event. A better alternative is to divide the year into two or more periods.

viii. Designing Training Calendar:

Training Calendar should be designed for sharing common weaknesses of employees and provide development opportunities for those wanting to leverage on their strength. Training should be imparted to appraiser to understand the response scale so that halo effect and stereotyping may be avoided. Research show that halo effect is common in upward ratings.

ix. HRIS Database:

The company should have a reliable up-to-date Human Resource Information System database that gives great help in identifying participants for 360-degree appraisal.

360-degree feedback has a lot of potential. Feedback from multiple resources bears more credibility as individual biases are minimized and a more complete picture is obtained. 360 degree assessment is useful for both the employees as well as organisation. Constant evaluation of the effectiveness of the system needs to be done to ensure its reliability and validity.

4. The Post Appraisal Interview:

The post appraisal interview has been considered by most of the organisations, as well as employees, as the most essential part of appraisal system. This interview provides the employee the feedback information and an opportunity to the appraiser to explain the employee his rating and the traits and behaviour he has taken into consideration for appraisal.

It also gives an opportunity to the employee to explain his views about the ratings, standards or goals, rating scale, internal and external environmental causes for low level of performance. Further it helps both the parties to review standards set new standards based on the reality factors and helps the appraiser to offer his suggestions, help, guide and coach the employee for his advancement.

Thus, the post appraisal interview is designed to achieve the following objectives:

i. To let employees know where they stand;

ii. To help employees do a better job by clarifying what is expected of them;

iii. To plan opportunities for development and growth;

iv. To strengthen the superior-subordinate working relationship by developing a mutual agreement of goals;

v. To provide an opportunity for employees to express themselves on performance related issues.

Thus, post appraisal interview is most helpful to the employee as well as his superior.

Modern Methods of Performance Appraisal – 5 Main Methods: MBO, BARS, Assessment Centres, 360-Degree Appraisal and Cost Accounting

Modern Method # 1. Management by Objectives (MBO):

Most of the traditional methods of performance appraisal are subject to the antagonistic judgments of the raters. It was to overcome this problem; Peter F. Drucker propounded a new concept, namely, management by objectives (MBO) way back in 1954 in his book, “The Practice of Management”.

The concept of MBO as was conceived by Drucker, can be described as a “process whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individual’s major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing the contribution of each its members”.

Modern Method # 2. Behaviourally Anchored Rating Scales (BARS):

The problem of judgmental performance evaluation inherent in the traditional methods of performance evaluation led to some organisations to go for objective evaluation by developing a technique known as “Behaviourally Anchored Rating Scales (BARS)” around 1960s. BARS are descriptions of various degrees of behaviour with regard to a specific performance dimension.

Developing BARS typically involves five steps:

i. Generating Critical Incidents:

Critical incidents (or say, behaviours) are those which are essential for the performance of the job effectively Persons who are knowledgeable of the job in question (jobholders and/or supervisors) are asked to describe specific critical incidents of effective and ineffective performance. These critical incidents may be described in a few short sentences or phrases using the terminology.

ii. Developing Performance Dimensions:

The critical incidents are then clustered into a smaller set of performance dimensions, usually five to ten. Each cluster, or say, dimension is then defined.

iii. Reallocating Incidents:

Various critical incidents are reallocated dimensions by another group of people who also know the job in question. Various critical incidents so reallocated to original dimensions are clustered into various categories, with each cluster showing similar critical incidents. Those critical incidents are retained which meet 50 to 80% of agreement with the cluster as classified in step 2.

iv. Scaling Incidents:

The same second group as in step 3 rates the behaviour described in each incident in terms of effectiveness or ineffectiveness on the appropriate dimension by using seven to nine points scale. Then, average effectiveness ratings for each incident are determined to decide which incidents will be included in the final anchored scales.

v. Developing Final BARS Instrument:

A subset of the incidents (usually six or seven per cluster) is used as a behavioural anchor for the final performance dimensions. Finally, a BARS instrument with vertical scales is drawn to be used for performance appraisal.

How BARS is developed can be exemplified with an example of grocery checkout clerks working in a large grocery chain.

Modern Method # 3. Assessment Centres:

The introduction of the concept of assessment centres as a method of performance method is traced back in 1930s in the Germany used to appraise its army officers. The concept gradually spread to the US and the UK in 1940s and to the Britain in 1960s.

The concept, then, traversed from the army to business arena during 1960s. The concept of assessment centre is, of course, of a recent origin in India. In India, Crompton Greaves, Eicher, Hindustan Lever and Modi Xerox have adopted this technique of performance evaluation.

Modern Method # 4. 360-Degree Appraisal:

Yet another method used to appraise the employee’s performance is 360- Degree appraisal. This method was first developed and formally used by General Electric Company of USA in 1992. Then, it travelled to other countries including India.

In India, companies like Reliance Industries, Wipro Corporation, Infosys Technologies, Thermax, Thomas Cook etc., have been using this method for appraising the performance of their employees. This feedback based method is generally used for ascertaining training and development requirements, rather than for pay increases.

The 360 Degrees Performance Appraisal:

The 360 degrees Performance Appraisal method was first used in the 1940s. Analogous to the multiple points on a compass, the 360 method provides each employee the opportunity to receive performance feedback from his or her supervisor, peers, staff members, co-workers and customers.

360-degree feedback or multi-source feedback is an appraisal or performance assessment tool that incorporates feedback from all who observe and are affected by the performance of a candidate.

Usually, this tool is used for employees at middle and senior level. The complexity of their roles enables the organisation to generate sufficient data from all stakeholders for a meaningful assessment.

Most organisations that focus on employee development use the 360-degree tool to assess performance and potential of staff and enable the employees to map their career path based on the feedback.

Organisations take 360-degree feedback about an employee before taking a major decision about the professional’s career.

The results from 360-degree feedback are often used by the person receiving the feedback to plan training and development. Results are also used by some organizations in making administrative decisions, such as pay or promotion. When this is the case, the 360 assessment is for evaluation purposes, and is sometimes called a “360-degree review.”

360 degree feedback is the most comprehensive appraisal where the feedback about the employees’ performance comes from all the sources that come in contact with the employee on his job. This method is being used in the (Maruti Suzuki Motors and HCL)

Who are the Stakeholders in doing 360-Degree Assessment?

360 degree respondents for an employee can be his/her peers, managers (i.e., superior), subordinates, team members, customers, suppliers/vendors – anyone who comes into contact with the employee and can provide valuable insights and information or feedback regarding the “on- the-job” performance of the employee.

Self-appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his achievements, and judge his own performance. Superior’s appraisal forms the traditional part of the 360 degree appraisal where the employees’ responsibilities and actual performance is rated by the superior.

Subordinates appraisal gives a chance to judge the employee on the parameters like communication and motivating abilities, superior’s ability to delegate the work, leadership qualities etc. Also known as internal customers, the correct feedback given by peers can help to find employees’ abilities to work in a team, co-operation and sensitivity towards others.

Self-assessment is an indispensable part of 360 degree appraisals and therefore 360 degree Performance appraisal have high employee involvement and also have the strongest impact on behavior and performance. It provides a “360-degree review” of the employees” performance and is considered to be one of the most credible performance appraisal methods.

360 degree appraisal is also a powerful developmental tool because when conducted at regular intervals (say yearly) it helps to keep a track of the changes others perceptions about the employees. A 360 degree appraisal is generally found more suitable for the managers as it helps to assess their leadership and managing styles. This technique is being effectively used across the globe for performance appraisals. Some of the organizations following it are Wipro, Infosys, and Reliance Industries etc.

Modern Method # 5. Cost Accounting:

This method evaluates an employee’s performance from the monetary benefits the employee yields to his/her organisation. This is ascertained by establishing a relationship between the costs involved in retaining the employee, and the benefits an organisation derives from him/her.

Job Analysis, Job Description and Job Specification:

i. Job Analysis – This is the procedure for determining the duties – 4 and skill requirements of a job and the type of person who should be employed for it.

ii. Job Description – A list of job’s duties, responsibilities reporting relationship, working conditions and supervisory responsibilities.

iii. Job Specification – list of job’s human requirements that is the requisite education, skills, personality etc.

What is studied in job Analysis – is (i) work activities (ii) human behaviour, (iii) machine, tools, equipment used (iv) performance standards (expected from the employee) (v) working conditions – organizational and social context (vi) human requirements i.e., job related knowledge, skills, education and training, experience, aptitude, personality and physical standards.

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