Performance Appraisal and 360° Feedback | Commerce & Accountancy Optional Notes for UPSC PDF Download

Introduction

• After an employee is placed and trained on the job, the next crucial step in managing an organization's human resources is to evaluate their job performance. This evaluation is essential for recognizing employees' contributions to organizational goals and rewarding them accordingly. Performance appraisal is the process of determining how employees perform their jobs, identifying any problems, and taking immediate steps to address them.
• According to C. Heyel (1973), performance appraisal involves evaluating an employee's performance and qualifications based on the job requirements. This evaluation is used for various administrative purposes, such as placement, promotions, financial rewards, and other actions that require differential treatment among group members. Performance appraisal is organized around the principles of setting goals and managing by objectives.
• The concept of performance appraisal dates back to the First World War when the US Army adopted the 'Man-to-Man' rating system for evaluating military personnel. In the 1920s and 1930s, merit rating programs were introduced for industrial employees. In the early 1950s, the focus shifted to the performance appraisal of technical, professional, and managerial personnel.
• Various terms are used to describe performance appraisal, including merit rating, behavioral assessment, employee evaluation, personnel review, progress report, staff assessment, service rating, and fitness report. However, the most commonly used term is performance appraisal.
• Performance appraisal can be either informal or formal. Informal appraisals are unplanned and occur spontaneously, while formal appraisals are part of a structured system established by the organization. Formal appraisal systems are designed to regularly and systematically evaluate employee performance, reducing the risk of bias and snap judgments.
• According to A. Monappa and M.S. Saiyadain (1957), formal performance appraisal plans serve three needs: the organization's need for systematic judgments to support salary increases, transfers, demotions, or terminations; the individual's need for feedback on their performance and suggestions for improvement; and the need for coaching and counseling by superiors.
• Performance appraisal is a systematic evaluation of an employee's current job capabilities and potential for growth and development by their superiors. It focuses on employee development and can be either formal or informal, with the former being fair and objective and the latter being subjective and influenced by personal factors.

Characteristics

A sound appraisal system should possess the following characteristics:

• Simplicity: The system should be simple and understandable by employees, avoiding unnecessary complications.
• Regularity: It should be suitable for conducting periodic appraisals, enabling employees to improve over time.
• Mutual Understanding: The system should foster an atmosphere of mutual understanding and confidence between employees and management.
• Objectivity: The system should be objective and free from personal bias, ensuring equitable treatment of all employees.
• Employee Involvement: Employees should be involved in the appraisal process, ensuring their input is considered.
• Alignment with Organizational Needs: The system should be suitable for the organization's structure and needs, keeping up with the latest developments in the field.
• Fulfillment of Purpose: It should fulfill its intended purpose, such as identifying potential for promotion, increments, placements, and transfers.
• Training: Evaluators should receive training to be impartial and free from bias.
• Feedback: Negative appraisals should be communicated to employees promptly, allowing them to take corrective action.
• Appeal: Employees should be allowed to appeal negative appraisals if they are not satisfied, fostering trust and confidence in the system.
• Improvement Focus: The system should focus on improving employee performance and organizational effectiveness rather than harassing employees.

By ensuring that these characteristics are present in the performance appraisal system, organizations can effectively evaluate employee performance and contribute to their growth and development.

Primary Objectives

Performance appraisal plans are devised to cater to both organizational and individual needs, seen as fundamental to effective human resource management. According to Cummings, "the ultimate aim of performance appraisal is to enhance an enterprise's efficiency by leveraging the best possible efforts from its employees. These appraisals achieve four goals, including salary reviews, individual development and training, job rotation planning, and assisting in promotions."

The main objectives of employee performance appraisal are as follows:

• To ascertain employee strengths and weaknesses.
• To recognize and fulfill training needs and aspirations.
• To produce meaningful, relevant, and valid information about employees.
• To provide inputs for reward increments, transfers, promotions, and salary administration.
• To aid in enhancing employee performance if deemed unsatisfactory during the review period.
• To foster a desirable organizational culture and tradition.
• To assist in career development planning and human resource planning based on potential.
• To offer data for improving the overall human resources information system and to prevent deadlock situations.

Performance Appraisal in HRM – Process

The process of performance appraisal is designed, developed, and executed as follows:

• Establishing Performance Standards: Performance standards for each job should be developed and discussed with superiors following a comprehensive job analysis. These standards should be clear, measurable, and periodically evaluated.
• Communicating the Standards: Once the performance standards are set, the next step is to communicate these standards to all parties involved, including the appraiser and appraisee. It is crucial to ensure that these standards are understood by the appraisee, and any necessary modifications should be made. According to De Cenzo and Robbins, "many jobs have vague performance standards, which is compounded when these standards are set in isolation without employee involvement."
• Measuring Actual Performance: The next step is to measure the appraisee's actual job performance after a specific period. Typically, appraisers use four common sources to measure performance: personal observation, statistical reports, oral reports, and written reports.
• Comparing Actual Performance with Standards: The fourth step involves comparing the appraisee's actual performance with the established standards. Sometimes, the actual performance may exceed the standards, while other times, it may fall short. Any deviations between actual and standard performance should be carefully noted for further action.
• Providing Feedback to the Employee: In this step, the results of the previous stage are communicated to the employee. The information received by the appraisee about their assessment can significantly impact their performance. Communicating poor performance can be a challenging task for the appraiser.
• Taking Corrective Action, if Necessary: This is the final step of the performance appraisal process. In this stage, the appraiser may recommend two types of corrective action: positive actions, such as salary increases or promotions if the appraisee's performance is satisfactory, and negative actions, such as coaching, counseling, or formal training if the performance is subpar.

Some Main Methods

There are numerous methods for conducting performance appraisals aimed at identifying areas of performance that require modification or improvement. They also provide management with information necessary for specific actions such as promotions, transfers, and compensation adjustments.

Various methods for conducting performance appraisals are detailed below:

Ranking Method
This method necessitates that the evaluator list all employees in order of their performance, starting with the top performer. Several ranking methods are used for employee performance appraisals.

Some important ones include:

• Simple Ranking Method: All employees are rated on the same set of factors and ranked based on their performance relative to others in the group. They are ranked from first to last in order of performance.
• Paired Comparison Method: In this method, each employee's performance is compared with that of others, but the comparison is made with only one member at a time. The number of times each member is preferred over the other is recorded. These numbers determine the ranks of members, with the top performers having the highest ranks.
• Forced Distribution Method: This method evaluates employee performance according to a predetermined distribution scale. Organizations typically use a five-grade scale, with one end representing the best job performance and the other representing the poorest. Employees are rated somewhere on the scale based on their performance relative to others. The ranking method is advantageous due to its low cost, minimal time and effort, and simplicity. However, it is not considered very scientific or objective due to the ambiguity and vagueness involved in ranking employees. Personal biases and favoritism are common as rankings are assigned by supervisors based on their opinions and judgments.

Graphic Rating Scale Method

• This method identifies specific desired traits, behavior factors, or performance criteria, such as the quality and quantity of work, cooperativeness, analytical ability, decisiveness, initiative, and emotional stability. Employees are rated on a scale based on the extent to which they exhibit the desired behavior or meet the desired performance criteria. Ratings for each factor can be based on numbers (1, 2, 3, 4, and 5) or descriptions (excellent, very good, average, poor, etc.). The rating scales aim to provide the appraiser with a continuous representation of various degrees of particular qualities or characteristics present in employees. 
• The total points obtained by an employee on all rating factors constitute their overall rating score compared to other employees in the organization. Many organizations use graphic rating scales because they are practical and cost-effective to develop. However, rating scales suffer from uneven interpretation of performance criteria and ratings unless each evaluator clearly understands what each criterion means and what the rating signifies.

Critical Incidents Method:

• Under this method, the immediate supervisor continuously records all good or bad incidents related to an employee's work behavior. Positive contributions, such as increasing overall productivity or creating a healthy work atmosphere, are recorded when employees do something good. Negative contributions, such as mistakes or errors leading to damage or reduced productivity, are recorded when employees commit errors.
• At the end of the appraisal period, these recorded critical incidents, whether positive or negative, are used to evaluate the employee's performance.
• The critical incidents method measures behaviors critical to effective job performance and provides employees with concrete examples of their actual behaviors. However, it may increase employees' anxiety and hostility, as they are aware of being observed by their supervisors. Some employees may also hide behaviors they believe will negatively affect their performance reviews, resulting in distorted performance reviews.

Checklist Method

• This method begins with an employer checklist of factors, such as cooperation with coworkers, workplace cleanliness, following supervisors' instructions closely, punctuality, and meeting work targets. Each factor receives a numerical value based on its perceived importance to successful job performance, with more important items assigned higher values.
• The actual performance of all employees on the job is measured and compared against the checklist, with their appraisal scores determined by summing the scores of the checked factors.
• The checklist method is advantageous due to its convenience for supervisors, who simply have to say yes or no to the provided statements or factors. However, developing an effective checklist, measuring performance against the checklist, and interpreting the results may be challenging for supervisors.

Essay Method

• Managers provide brief narratives describing an employee's performance. They may write detailed evaluations on job knowledge, understanding of company programs, policies, and objectives, promotability, overall performance, and relationships with coworkers and superiors.
• The essay method provides detailed information about employee performance from managers who have observed them closely on the job. However, it is subjective and inconsistent, as each supervisor may evaluate an employee's performance differently, potentially influenced by a generalized overall impression or bias.

Management by Objectives (MBO) Method:

• MBO is a comprehensive management approach used for performance appraisals. It is considered one of the most scientific and objective methods, following a set procedure. The primary focus is on developing a set of objectives for employees, which are later used as criteria for measuring their performance.
• Employees' responsibilities and tasks are clearly defined based on these objectives. During performance appraisal, a supervisor measures an employee's actual performance and the realization of objectives. Employees who successfully achieve their objectives are rewarded, while those who fall short have their shortcomings identified, and objectives may be redefined for the future.
• MBO is considered objective because goals and objectives are determined before the appraisal begins, giving employees clear directions and standards against which their performance will be measured and compared.

360° Feedback Appraisal

• This method involves collecting information about an employee's behavior from various sources, including bosses, colleagues, team members, suppliers, and customers. The assumption is that those who work closely with an employee see their behavior in different settings and circumstances than a supervisor might.
• This approach aims to eliminate subjectivity in evaluation, as many people rate an employee on a broad list of attributes. Companies prefer this method for its broader and more accurate perception of employees from multiple sources.
• However, if not managed properly, the 360° feedback method may do more harm than benefit, as not all participants may be closely familiar with the employee or able to give an accurate judgment or opinion.

Potential Appraisal

• This method predicts whether an employee is capable of taking on more demanding work and the rate at which they can advance. It tries to judge employees' potential for promotion to higher positions, informing employees of their future prospects and giving them opportunities to perform to the best of their capacity.
• The organization may need to modify and update training and development programs, advising employees on how to enhance their career prospects. The potential appraisal process involves forecasting the direction of a subordinate's career and the rate at which they are expected to develop, providing an incentive for employees to work hard and grow in their careers.
• Assessment of potential involves analyzing existing skills, qualities, and how they can be developed to benefit the company and the employee. Counseling discussions with the individual about their aspirations and how to match them to the organization's future are also critical. This method provides motivation and encouragement for employees to remain with the company.
• Finally, once an employee's performance has been evaluated using any of the methods listed above, the results should be reviewed in a meeting with the manager. This discussion should be viewed as a counseling session, where the manager explains the person's achievements on each evaluation factor and points out how the results compared with the standards.

Then, the manager and the employee together may determine the reasons for performance variations above or below the standards and establish goals and an operating plan for the coming period based on their review of all evaluation factors.

Effective Performance Appraisal Programs

Many of the controversies surrounding performance appraisals stem from the lack of clear guidelines in using this system. Some common problems in setting up a performance appraisal system include establishing verifiable performance standards, communicating these standards clearly to subordinates, determining the factors to be measured, deciding on the frequency of measurement, choosing the tools of measurement, defining the scope of the program, establishing responsibilities, and more. Some of these issues can be addressed by adhering to specific guidelines for performance appraisal programs.

A sound, constructive program should have the following elements:

• Top Management Support: An effective performance appraisal program should have the backing of top management.
• Careful Planning and Alignment with Company Needs: Objectives and standards of performance appraisal should be meticulously planned and aligned with the company's needs. These objectives and standards should be visible and understood by employees and their supervisors. Subordinates should participate in developing their job objectives.
• Differentiated Approach for Different Occupations: The approach to appraisals and reviews should vary for people in different occupations. A uniform system may be desirable where applicable.
• Objectivity: Objectivity is crucial for the acceptance of the program. Verifiability, or the ability to ascertain whether a given goal has been accomplished, is the key to objectivity in performance appraisal.
• Flexibility: The appraisal program should not be rigid but rather a flexible management tool.
• Assessment of Potential and Training Needs: Estimates of potential can logically be made during performance appraisals, and training and development needs should be identified.
• Post-Appraisal Interview: The post-appraisal interview is an essential factor in an effective evaluation system. During this interview, the superior discusses the review with each subordinate, stimulating them to improve their performance. Criticism of poor performance should be timely and accompanied by a discussion of how to improve.
• Effective Follow-up: The success of the performance appraisal program depends on an effective follow-up procedure.
• Confidentiality of Appraisal Records: Appraisal records must be kept confidential to ensure an honest and objective evaluation.
• Training for Evaluators: Individuals making the appraisals must be trained in conducting constructive reviews.

Steps in a Performance Appraisal Programme

Pigors and Myers suggest several steps to develop and administer the programme effectively:

• Obtain Line Management Agreement: The HR department should seek the agreement of line management regarding the needs and objectives of the program. A choice must be made among different appraisal methods judiciously.
• Examine Other Organizations' Plans and Relevant Literature: The HR department should examine other organizations' plans and relevant literature in the field to formulate the most suitable plan for the appraisal program.
• Secure Supervisor Cooperation: The HR department should secure the cooperation of supervisors in dividing the appraisal form and discussing the factors to be incorporated, weights and points assigned to each factor, and instructions indicated on the form.
• Explain the Program to All Stakeholders: The HR or industrial relations manager should explain the purpose and nature of the program to all supervisors and subordinates involved and affected by it. Care should be taken to involve the union, if it exists in the company.
• Provide Training to Supervisors: Intensive training should be provided to all supervisors to ensure unbiased and uniform appraisal of their subordinates.
• Ensure Coordination and Consistency: Line and staff coordination should be acquired, and mutual checking of appraisals should be implemented to achieve intra- and inter-departmental consistency and uniformity.
• Arrange for Periodic Discussion of Appraisals: There should be an arrangement for periodic discussion of the appraisal by the superior with each subordinate. The discussion should stress good points, indicate difficulties, and encourage improved performance.
• Recommend Salary Increase or Promotion: After the appraisal has been discussed, recommendations for salary increases or promotions may be made, if deemed possible based on the appraisals.
• Provide a Challenge and Review Process: There should be provision for challenging and reviewing appraisals if employees or their union representatives are dissatisfied with the personnel decisions made based on these appraisals.

Davis suggests the following guidelines for better evaluation

• Mutual Goal Setting: Use a system of mutual goal setting.
• Focus on Performance, Not Personality: Discuss performance, not personality, during evaluation discussions.
• Consider Everyday Work Relationships: Relationships in everyday work situations are crucial, and employee development should be a full-time consideration.
• Use Praise Effectively: Praise, if used properly, can be an effective tool.
• Act as a Counsellor: Your role in the appraisal process is that of a counsellor.
• Avoid Discussing Compensation: Compensation should not be dealt with in evaluation interviews.
• Uses of Performance Appraisal Data:
• Performance appraisal data are useful in several ways:
• Promotion and Job Rotation: They can serve as a basis for promotion and job rotation, projecting or curtailing future requirements based on this data.
• Salary Increase and Bonus Determination: They help determine appropriate salary increases and bonuses for workers based on their performance measures.
• Training and Development Programs: They provide suitable information for formulating training and development programs. If an employee is not performing up to expectations, a training program may help correct any skill or knowledge deficiencies.
• Motivation: They can motivate employees by showing them where they stand and establishing a data bank on appraisals for rendering assistance in personal decisions.
• Differentiation between Good and Poor Performance: They are a useful tool for differentiating between good and poor employee performance. For example, IBM set new guidelines to its performance appraisal system to more strictly enforce its existing method of ranking employees on a numerical scale of 1 to 4. Under the new guidelines, managers were forced to rank people as 4 whenever necessary. Industry executives expect about 10% of IBM’s U.S. workforce, or about 20,000 people, to get this low rating and face pressure to resign.

Common Errors

Performance evaluation in HRM can be prone to various common errors, and these errors can significantly impact the credibility of the appraisal process. Some of the most frequent errors include:

• First Impression Error: This occurs when the appraiser forms an opinion based on initial impressions, rather than a comprehensive evaluation of the candidate's performance.
• Halo Effect: This happens when the appraiser's perception of one trait influences their assessment of other traits, regardless of the individual's actual performance on those traits.
• Leniency or Severity Errors: The appraiser may consistently assign either high or low ratings to all subordinates, regardless of their performance, due to personal bias.
• Central Tendency: The appraiser may avoid extreme ratings and assign average ratings to all subordinates, which can fail to distinguish between good and poor performance.
• Horn Effect: This occurs when one negative trait of the employee influences the overall appraisal, rather than considering the entire performance.
• Contrast Error: The appraiser's evaluation of a subordinate may be influenced by recent encounters with other subordinates who rank higher or lower on the same characteristics.
• Recency Effect: The appraiser may focus solely on recent behavior or performance, ignoring past performance over longer periods.
• Personal Bias: The appraiser's personal biases, such as those related to sex, race, religion, or age, can affect the evaluation process.

To improve performance appraisal, consider the following suggestions:

• Behaviorally Based Measures: Focus on specific examples of performance rather than abstract traits, as these measures are more objective and reliable.
• Trained Appraisers: Provide training to appraisers to minimize errors and improve the accuracy of evaluations.
• Multiple Raters: Consider input from multiple sources to increase the validity and reliability of evaluations.
• Peer Evaluations: Allow employees' co-workers to provide feedback, as they are often more aware of day-to-day work behaviors.
• Evaluation Interviews: Conduct regular performance review sessions that provide employees with essential feedback and set goals for future performance improvement.

Advantages and Disadvantages

Performance appraisal, a critical aspect of Human Resource Management (HRM), comes with both advantages and disadvantages.

Advantages:

• Promotion Planning: It aids supervisors in devising promotion programs for efficient employees.
• Compensation Planning: It facilitates planning compensation packages, including bonuses, higher salary rates, and additional benefits.
• Training Program Design: The systematic nature of performance appraisal assists supervisors in framing effective training policies and programs.
• Selection Procedure Validity: It helps supervisors understand the validity and importance of the selection process.
• Employee Ability Identification: It helps identify the abilities of employees.
• Motivation Tool: By evaluating employee performance, it becomes a tool for motivation. When targets are achieved, it motivates individuals to perform better and improve their future performance.

Disadvantages:

• Negative Experience: If not executed correctly, performance appraisals can create a negative experience.
• Time-Consuming: They can be time-consuming and overwhelming for managers with many employees.
• Subject to Errors and Biases: They are based on human assessment and are thus subject to errors and biases.
• Potential Waste of Time: If not conducted appropriately, they may not yield meaningful outcomes.
• Stressful Environment: The appraisal process can create a stressful environment for all involved parties.