CAIIB ABM Unit 24 - Performance Management - Part 1

performance appraisal is an important tool by which the organizations review employee performance, take corrective steps through training, interventions or placement decisions, reward good performance and attempt to take the employee performance to a higher level.

Objectives of Performance Appraisal System

1. Judgemental - for salary increases, transfers and promotions;
2. Developmental - telling an employee how is he doing and suggesting changes in his skills, attitudes, behaviour;
3. Counseling by superior - for giving feedback and understanding problems for poor  performance.

Uses of Performance Appraisal

1. It rates all the employees in a unified manner by using the same rating scales and thus making them comparable on a common footing.
2. It provides information which could be critical while deciding on promotion, pay increases, transfers, training, etc.
3. It provides information about the areas of weaknesses of the employee to enable initiation of corrective steps.
4. It improves the quality of supervision as the supervisor becomes a keen observer.
5. The system, if implemented with openness and trust, ensures better interpersonal relations between the employee and his supervisor.

Performance Appraisal Methods

Traditional Methods

1. Free Form Essay Method
2. Straight Ranking Method
3. Comparison Method
4. Grading Method
5. Graphic or Linear Rating Scales
6. Forced Choice Description Method
7. Forced Distribution Method
8. Group Appraisal Method

Modern Methods

1. Assessment Centre Workshops
2. Management by Objectives
3. Human Asset Accounting Method
4. Behaviourally Anchored Rating Scales
5. 360 Degree Appraisal Method

Performance Appraisal versus Confidential Report

In a large number of organizations the annual performance appraisal exercise is carried out as a confidential activity. In fact, the form in which the performance of the employee is evaluated and reported is called confidential report.

Merits and Demerits of performance appraisal system

The merits are:

1. It reveals a concern for performance and creates an atmosphere of openness and trust in the organization.
2. Gives feedback to the employee and ensures that corrective steps are taken in time.
3. It raises the general motivation level of the employees if implemented properly.

The demerits are:

1. The halo effect — a tendency to allow one trait or characteristic of an employee to influence the assessment. The halo is to rate an employee consistently high or low.
2. The leniency or strictness tendency of the superior interferes with the appraisal and accordingly the assessment gets influenced. The superior is unable to come out of these tendencies.
3. The central tendency problem refers to assigning average ratings to all the employees without properly evaluating each aspect of appraisal carefully and fearlessly.
4. Similar error is the tendency of comparing the employee with oneself on various traits and parameters. Those who show the similar characteristics are normally rated high.