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After studying this chapter, students should be able to understand the following:



We begin this chapter by defining performance appraisal and identifying the uses of performance appraisal. We

then explain environmental factors affecting performance appraisal and the performance appraisal process.

Then, we identify the aspect of a person’s performance that should be evaluated, who will be responsible

for appraisal, and the appraisal period. Next, we discuss the various performance appraisal methods,

problems associated with performance appraisal, and characteristics of an effective appraisal system.

A. Performance Appraisal

Performance appraisal is a system of review and evaluation of an individual or team’s job performance. An

effective system assesses accomplishments and evolves plans for development. Performance management is

a process that significantly affects organizational success by having managers and employees work together

to set expectations, review results, and reward performance. Its goal is to provide an accurate picture of past

and / or future employee performance. To achieve this, performance standards are established.

I. The Performance Appraisal Process

Many of the external and internal environmental factors previously discussed can influence the appraisal

process. Legislation requires that the appraisal systems be nondiscriminatory. The labor union might affect

the appraisal process by stressing seniority as the basis for promotions and pay increases. Factors within the

internal environment can also affect the performance appraisal process. The type of corporate culture can

serve to help or hinder the process. Identification of specific goals is the starting point for the PA process.

After specific appraisal goals have been established, workers and teams must understand what is expected

from them in their tasks. Informing employees of what is expected of them is a most important employee

relations task. At the end of the appraisal period, the appraiser observes work performance and evaluates it

against established performance standards. The evaluation results are then communicated to the workers.

The performance evaluation discussion with the supervisor serves to reestablish job requirements.

Steps in the performance appraisal process

􀂄 Identify the specific performance appraisal goals.

􀂄 Establish job expectations (job analysis).

􀂄 Examine work performed.

􀂄 Appraise performance.

􀂄 Discuss appraisal with employee.

II. Uses Of Performance Appraisal

Performance appraisal serves two types of the objectives one is to make the evaluation decisions and other

is to provide the need assessment source for the training and development if there is a gap between actual

and expected performance. For many organizations, the primary goal of an appraisal system is to improve

performance. A system that is properly designed and communicated can help achieve organizational

objectives and enhance employee performance. In fact, PA data are potentially valuable for use in numerous

human resource functional areas.

a. Human Resource Planning—In assessing a firm’s human resources, data must be

available that describe the promotability and potential of all employees, especially key


b. Recruitment And Selection—Performance evaluation ratings may be helpful in

predicting the future performance of job applicants.

c. Training And Development—A performance appraisal should point out an employee’s

specific needs for training and development. By identifying deficiencies that adversely

affect performance, human resource and line managers are able to develop T&D programs

that permit individuals to build on their strengths and minimize their deficiencies.

d. Career Planning And Development—Career planning and development may be viewed

from either an individual or organizational viewpoint.

e. Compensation Programs—Performance appraisal results provide the basis for decisions

regarding pay increases.

f. Internal Employee Relations—Performance appraisal data are also frequently used for

decisions in areas of internal employee relations including motivation, promotion,

demotion, termination, layoff, and transfer.

g. Assessment Of Employee Potential—Some organizations attempt to assess employee

potential as they appraise job performance.

III. What to Evaluate

What aspect of a person’s performance should an organization evaluate? In practice, the most common sets

of appraisal criteria are traits, behaviors, and task outcomes.

a. Traits—Many employees in organizations are evaluated on the basis of certain traits such

as attitude, appearance, initiative, etc.

b. Behaviors—When an individual’s task outcome is difficult to determine, it is common to

evaluate the person’s task-related behavior.

c. Task Outcomes—If ends are considered more important than means, task outcomes

become the most appropriate factor to evaluate.

d. Improvement Potential—Some attention must be given to the future and the behaviors

and outcomes that are needed to not only develop the employee, but also to achieve the

firm’s goals. This involves an assessment of the employee’s potential.

IV. Performance Appraisal Methods

The type of performance appraisal system utilized depends on its purpose. If the major emphasis is on

selecting people for promotion, training, and merit pay increases, a traditional method such as rating scales

may be most appropriate. Collaborative methods are designed to assist employees in developing and

becoming more effective.

a. 360-Degree Feedback—Involves input from multiple levels within the firm and external

sources as well.

b. Rating Scales—Rates employees according to defined factors. The factors chosen for

evaluation are typically of two types: job related and personal characteristics.

c. Critical Incidents—Requires written records be kept of highly favorable and highly

unfavorable work actions.

d. Essay—The rater simply writes a brief narrative describing the employee’s performance.

This method tends to focus on extreme behavior in the employee’s work rather than

routine day-to-day performance.

e. Work Standards—Compares each employee’s performance to a predetermined standard,

or expected level of output.

f. Ranking—The rater simply places all employees in a given group in rank order on the

basis of their overall performance. Paired comparison is a variation of the ranking method

that involves comparing the performance of each employee with every other employee in

the group.

g. Forced Distribution—An appraisal approach where the rater is required to assign

individuals in the work group to a limited number of categories similar to a normal

frequency distribution.

h. Forced-Choice And Weighted Checklist Performance Reports—The forced-choice

performance report is a technique in which the appraiser is given a series of statements

about an individual and the rater indicates which items are most or least descriptive of the

employee. The weighted checklist performance report is a technique whereby the rater

completes a form similar to the forced-choice performance report, but the various

responses have been assigned different weights.

i. Behaviorally Anchored Rating Scales—A performance appraisal method that combines

elements of the traditional rating scales and critical incidents methods.

j. Results-Based Systems—In a result-based system the superior and the subordinate

jointly agree on objectives for the next appraisal period.

k. Assessment Centers—Recognizing the differences in purposes, and the difficulty that a

PA system will have in achieving both aims, some firms opt to use an assessment center as

an adjunct to their appraisal system

l. Management by objectives (MBO)—It is a goal-oriented performance appraisal

method, requires that supervisors and employees determine objectives for employees to

meet during the rating period, and the employees appraise how well they have achieved

their objectives

m. The Appraisal Interview

The appraisal interview is the Achilles’ heel of the entire evaluation process.

Scheduling the Interview—Supervisors usually conduct a formal appraisal interview

at the end of an employee’s appraisal period.

Interview Structure—A successful appraisal interview should be structured in a way

that allows both the supervisor and the subordinate to view it as a problem solving

rather than a faultfinding session.

Use of Praise and Criticism—Praise should be provided when warranted, but it can

have only limited value if not clearly deserved. Criticism, even if warranted, is

especially difficult to give.

Employees’ Role—Two weeks or so before the review, they should go through their

diary or files and make a note of every project worked on, regardless of whether they

were successful or not.

Use of Software—Computer software is available for recording the appraisal data.

Concluding the Interview—Ideally, employees will leave the interview with positive

feelings about management, the company, the job, and themselves.

V. Responsibility For Appraisal

In most organizations, the human resource department is responsible for coordinating the design and

implementation of performance appraisal programs. However, it is essential that line managers play a key

role from beginning to end.

a. Immediate Supervisor—An employee’s immediate supervisor traditionally has been the

most common choice for evaluating performance.

b. Subordinates—Some managers have concluded that evaluation of managers by

subordinates is feasible.

c. Peers—Peer appraisal has long had proponents who believed that such an approach is

reliable if the work group is stable over a reasonably long period of time and performs

tasks that require considerable interaction.

d. Self-Appraisal—If individuals understand the objectives they are expected to achieve and

the standards by which they are to be evaluated, they are—to a great extent—in the best

position to appraise their own performance.

e. Customer Appraisal—The behavior of customers determines the degree of success a

firm achieves. Therefore, some organizations believe it is important to obtain performance

input from this critical source.


Many performance appraisal methods have been severely criticized. Many of the problems commonly

mentioned are not inherent in the method but, rather, reflect improper usage.

a. Lack of Objectivity— A potential weakness of traditional methods of performance

appraisal is that they lack objectivity. Some subjectivity will always exist in appraisal

methods. However, the use of job-related factors does increase objectivity.

b. Halo Error—Occurs when the evaluator perceives one factor as being of paramount

importance and gives a good or bad overall rating to an employee based on this factor.

c. Leniency/Strictness—The giving of undeserved high or low ratings.

d. Central Tendency—Occurs when employees are incorrectly rated near the average or

middle of the scale.

e. Recent Behavior Bias—It is only natural to remember recent behavior more clearly than

actions from the more distant past. However, performance appraisals generally cover a

specified period of time, and an individual’s performance should be considered for the

entire period.

f. Personal Bias—Supervisors doing performance appraisals may have biases related to their

employees’ personal characteristics such as race, religion, gender, disability, or age group.

g. Manipulating the Evaluation—In some instances, supervisors control virtually every

aspect of the appraisal process and are therefore in a position to manipulate the system.

Key Terms

Performance: Performance appraisal is a system of review and evaluation of an individual or team’s job


Halo Error: Occurs when the evaluator perceives one factor as being of paramount importance and gives a

good or bad overall rating to an employee based on this factor.

MBO: It is a goal-oriented performance appraisal method, requires that supervisors and employees

determine objectives for employees to meet during the rating period, and the employees appraise how well

they have achieved their objectives

360-Degree Feedback: Involves input from multiple levels within the firm and external sources as well.

Central Tendency: Occurs when employees are incorrectly rated near the average or middle of the scale.

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