Module Id Module No.20
Pre- Requisites Knowledge of human resource management
Objectives To have a knowledge of various methods of performance appraisal
Keywords Performance Rating, Employee feedback, Rater, Ratee, Appraise, Goal setting
Principal Investigator
Co-Principal Investigator
Paper Coordinator
Content Writer
Maharaja Agrasen University, Baddi
Prof. Dr. Rajeev Jain
University of Kota, Kota
University of Kota, Kota
1. Learning Outcome
5. Summary
After completing this module the students will be able to:
Understand the methods of performance appraisal.
Having the knowledge of the advantages and disadvantages of various performance appraisal
methods.
2. Introduction
While designing an appraisal program, numerous performance appraisal methods are used. Various
methods have been devised to measure the quantity and quality of employee’s job performance. Each
of the methods could be effective for some purposes for some organizations. The methods have to be
accepted according to the needs of the organisation.
3. Methods of Performance appraisal
Numerous methods have been designed to appraise the performance of an employee. Strauss and
Sayles have classified appraisal methods which are widely used into two categories, viz., traditional
methods and modern methods. While traditional methods lay emphasis on the rating of the
individual’s personality traits, such as initiative, dependability, drive, creativity, integrity,
intelligence, leadership potential, etc.; the modern methods, on the other hand, place more emphasis
on the evaluation of work results i.e. job achievements than the personal traits. Modern methods tend
to be more objective and worthwhile.
Traditional Methods Modern Methods
2. Paired comparison method 2. Behaviorally anchored rating scales
3. Grading method 3. Human resource accounting method
4. Forced distribution method 4. 360-degree appraisal
5. Forced choice method 5. Management by Objectives (MBO)
6. Checklist method
Performance Appraisal: Methods
3.1. Traditional Methods
3.1.1. Ranking Method
It is the oldest and simplest formal systematic method of performance appraisal in which
employee is compared with all others for the purpose of placing order of worth. The employees
are ranked from the highest to the lowest or from the best to the worst.
In doing this the employee who is the highest on the characteristic being measured and also the
one who is lowest, are indicated. Then, the next highest and the next lowest between next
highest and lowest until all the employees to be rated have been ranked. Thus, if there are ten
employees to be appraised, there will be ten ranks from 1 to 10.
However, the greatest limitations of this appraisal method are that:
It does not tell that how much better or worse one is than another.
The task of ranking individuals is difficult when a large number of employees are rated.
It is very difficult to compare one individual with others having varying behavioral traits.
To remedy these defects, the paired comparison method of performance appraisal has been
evolved.
3.1.2. Paired Comparison Method
In this method, each employee is compared with every other employee, one at a time. The
number of times the employee is compared as better with others determines his or her final
ranking.
The number of possible pairs for a given number of employees is ascertained by the following
formula: N (N-1) Where N = the total number of employees to be evaluated.
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Example: If the five teachers (naming K, M, R, V, B) have to be evaluated by the Vice
Chancellor of a University, then above formulae gives 5 (5-1)/2 = 10 pairs which are:
K with M
K with V M with V M with V
K with B M with B M with B M with B
Thus, the pairs so ascertained give the maximum possible permutations and combinations. The
number of times a worker is considered better makes his/her score. Such scores are determined
for each worker and he/she is ranked according to his/her score. One obvious disadvantage of
this method is that the method can become unmanageable when large numbers of employees
are being compared.
3.1.3. Grading Method
In this method, certain categories of worth are established in advance and carefully defined.
There can be three categories established for employees: outstanding, satisfactory and
unsatisfactory. There can be more than three grades. Employee performance is compared with
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Performance Appraisal: Methods
grade definitions. The employee is, then, allocated to the grade that best describes his or her
performance.
Such type of grading is done in Semester pattern of examinations and in the selection of a
candidate in the public service sector. One of the major drawbacks of this method is that the
rater may rate most of the employees on the higher side of their performance.
3.1.4. Forced Distribution Method
This method was evolved to eliminate the central tendency of rating most of the employees at a
higher end or the lower end of the scale. Employees are placed between two extremes of ‘good’
and ‘bad’ job performances. The method assumes that employees’ performance level confirms
to a normal statistical distribution - 10, 20, 40, 20 and 10%.
10% are placed at the top level and are given outstanding merit, 20% are given good rating,
40% satisfactory (average), 20% fair and 10% unsatisfactory. This is useful for rating a large
number of employees. This method tends to eliminate or reduce bias. It is also highly simple to
understand and easy to apply in appraising the performance of employees in organisations.
Figure 1: Normal distribution pattern of Forced Distribution Method
The major weakness of this method lies in the assumption that employee performance levels
always confirm to a normal distribution.
3.1.5. Forced Choice Method
In this method the rater is given a series of statements about an employee. These statements are
arranged in blocks of two or more, and the rater indicates which statement is most or least
descriptive of the employee.
Gives good and clear instructions to the subordinates.
Can be depended upon to complete any job assigned.
A pair of negative statements may be:
Makes promises beyond his limit to keep these.
Inclines to favour some employees.
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Performance Appraisal: Methods
Each statement carries a score or weight, which is not made known to the rater. The human
resource section does rating for all sets of statements— both positive and negative. The final
rating is done on the basis of all sets of statements. Thus, employee rating in this manner makes
the method more objective. In this method, the rater is forced to select statements which are
readymade.
3.1.6. Check-List Method
The basic purpose of utilizing check-list method is to ease the evaluation burden upon the rater.
In this method, a series of statements, i.e., questions with their answers in ‘yes’ or ‘no’ are
prepared by the HR department. The check-list is, then, presented to the rater to tick appropriate
answers relevant to the ratee. These questions are concerned with the employee behavior. Each
question carries a weight-age in relation to their importance.
When the check-list is completed, it is sent to the HR department to prepare the final scores for
all ratees based on all questions. However, one of the disadvantages of the check-list method is
that it is difficult to assemble, analyse and weigh a number of statements about employee
characteristics and contributions. From a cost point of view, this method may be inefficient,
particularly if there are a number of job categories in the organisation because a separate check-
list of questions must be prepared for each category of job. It will involve a lot of money, time
and efforts.
3.1.7. Critical Incidents Method
This method has gained a lot of interest these days. In this method, the rater focuses his or her
attention on those key or critical behaviors that make the difference between performing a job
in a noteworthy manner (effectively or ineffectively). There are three steps involved in
appraising employees using this method.
First, a list of noteworthy (good or bad) on-the-job behavior of specific incidents is prepared.
Second, a group of experts then assigns weightage or score to these incidents, depending upon
their degree of desirability to perform a job. Third, finally a check-list indicating incidents that
describe workers as “good” or “bad” is constructed. Then, the check-list is given to the rater for
evaluating the workers.
Performance Appraisal: Methods
The basic idea behind this rating is to appraise the workers who can perform their jobs
effectively in critical situations. This is so because most people work alike in normal situation.
The strength of critical incident method is that it focuses on behaviors and, thus, judge’s
performance rather than personalities.
Its drawbacks are that one has to regularly write down the critical incidents which become
time-consuming and burdensome for evaluators, i.e., managers. Generally, negative incidents
are more noticed than positive ones. It is rater’s inference that determines which incidents are
critical to job performance. Hence, the method is subject to all the limitations relating to
subjective judgments.
3.1.8. Graphic Rating Scale Method
The graphic rating scale is one of the most popular and simplest techniques for appraising
performance. It is also known as linear rating scale. In this method, the printed appraisal form is
used to appraise each employee.
The form lists traits (such as quality and reliability) and a range of job performance
characteristics (from unsatisfactory to outstanding) for each trait. The rating is done on the
basis of points on the continuum. The common practice is to follow five points scale.
The rater rates each appraisee by checking the score that best describes his or her performance
for each trait and all assigned values for the traits are then totaled.
This method is good for measuring various job behaviors of an employee. However, it is also
subjected to rater’s bias while rating employee’s behavior at job. Occurrence of ambiguity in
designing the graphic scale results in bias in appraising employee’s performance.
3.1.9. Essay Method
Essay method is the simplest one among various appraisal methods available. In this method,
the rater writes a narrative description on an employee’s strengths, weaknesses, past
performance, potential and suggestions for improvement. Its positive point is that it is simple in
use. It does not require complex formats and extensive/specific training to complete it.
However, essay method, like other methods, is not free from drawbacks. In the absence of any
prescribed structure, the essays are likely to vary widely in terms of length and content. And, of
course, the quality of appraisal depends more upon rater’s writing skill than the employee’s
actual level of performance.
Moreover, because the essays are descriptive, the method provides only qualitative information
about the employee. In the absence of quantitative data, the evaluation suffers from subjectivity
problem. Nonetheless, the essay method is a good start and is beneficial also if used in
association with other appraisal methods.
3.1.10. Field Review Method
This is an appraisal by someone outside the rater’s own department usually someone from the
corporate office or the HR department. The outsider reviews employee’s records and holds
interviews with the appraisee and his or her superior. This method is useful when comparable
information is needed from employees in different units or locations.
3.1.11. Confidential Report
Performance Appraisal: Methods
It is the traditional way of appraising employees mainly in the Government Departments.
Evaluation is made by the immediate boss or supervisor for giving effect to promotion and
transfer. Usually a structured format is devised to collect information on employee’s strength,
weakness, intelligence, attitude, character, attendance, discipline etc. Overall grading can be
given on a five point scale (outstanding, very good, good, average, and poor). The confidential
reports, as the name suggests, are very confidential.
3.2. Modern Methods
3.2.1. Assessment centres
An assessment centre typically involves the use of methods like social/informal events, tests
and exercises, assignments being given to a group of employees to assess their competencies to
take higher responsibilities in the future. Generally, employees are given an assignment similar
to the job they would be expected to perform if promoted. The trained evaluators observe and
evaluate employees as they perform the assigned jobs and are evaluated on job related
characteristics.
The major competencies that are judged in assessment centres are interpersonal skills,
intellectual capability, planning and organizing capabilities, motivation, career orientation etc.
Assessment centres are also an effective way to determine the training and development needs
of the targeted employees.
3.2.2. Behaviorally anchored rating scales (BARS)
Behaviorally Anchored Rating Scales (BARS) is a relatively new technique which combines
the graphic rating scale and critical incidents method. It consists of predetermined critical areas
of job performance or sets of behavioral statements describing important job performance
Performance Appraisal: Methods
qualities as good or bad (for example: the qualities like inter-personal relationships, adaptability
and reliability, job knowledge etc). These statements are developed from critical incidents.
In this method, an employee’s actual job behavior is judged against the desired behavior by
recording and comparing the behavior with BARS. Developing and practicing BARS requires
expert knowledge.
Human resources are valuable assets for every organization. Human resource accounting
method tries to find the relative worth of these assets in the terms of money. In this method the
performance appraisal of the employees is judged in terms of cost and contribution of the
employees. The cost of employees include all the expenses incurred on them like their
compensation, recruitment and selection costs, induction and training costs etc. whereas their
contribution includes the total value added (in monetary terms). The difference between the
cost and the contribution will be the performance of the employees. Ideally, the contribution of
the employees should be greater than the cost incurred on them.
3.2.4. 360 degree performance appraisal
360 degree feedback, also known as “multi-rater 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.
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.
360 degree appraisal has four integral components:
Self appraisal
Peer appraisal
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 has high employee involvement and also has 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 of 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.
3.2.5. Management by objectives (MBO)
The concept of ‘Management by Objectives’ (MBO) was first given by Peter Drucker in 1954.
It can be defined as a process whereby the employees and the superiors come together to
identify common goals, the employees set their goals to be achieved, the standards to be taken
as the criteria for measurement of their performance and contribution and deciding the course
of action to be followed.
The essence of MBO is participative goal setting, choosing course of actions and decision
making. An important part of the MBO is the measurement and the comparison of the
employee’s actual performance with the standards set. Ideally, when employees themselves
have been involved with the goal setting and the choosing the course of action to be followed
by them, they are more likely to fulfill their responsibilities.
MBO process
The principle behind Management by Objectives (MBO) is to create empowered employees
who have clarity of the roles and responsibilities expected from them, understand their
objectives to be achieved and thus help in the achievement of organizational as well as personal
Some of the important features and advantages of MBO are:
Clarity of goals – With MBO, came the concept of SMART goals i.e. goals that are:
o Specific
o Measurable
o Achievable
o Realistic, and
o Time bound.
The goals thus set are clear, motivating and there is a linkage between organizational goals
and performance targets of the employees.
The focus is on future rather than on past. Goals and standards are set for the performance
for the future with periodic reviews and feedback.
Involving employees in the whole process of goal setting and increasing employee
empowerment enhances employee job satisfaction and commitment.
Frequent reviews and interactions between superiors and subordinates helps to maintain
harmonious relationships within the enterprise and also solve many problems faced during
the period.
4. Drawbacks of appraisal techniques
Performance appraisal techniques have often failed to give a correct assessment of the employee, the
causes of such failures are.
4.1. The supervisor plays dual and conflicting role of both the judge and the helper.
4.2. Too many objectives often cause confusion.
4.3. The supervisor feels that subordinate appraisal is not rewarding.
4.4. A considerable time gap exists between two appraisal programmes.
4.5. The skills required for daily administration and employee development are in conflict.
4.6. Poor communication keeps employees in the dark about what is expected of them.
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Performance Appraisal: Methods
4.7. There is a difference of opinion between a supervisor and a subordinate, in regard to the latter’s
performance.
4.8. Feedback on appraisal is generally unpleasant for both supervisor and subordinate.
4.9. Unwillingness on the part of supervisors to tell employees plainly how to improve their
performance.
5. Summary
Performance appraisal refers to the assessment of an employee’s actual performance, behavior on job
and his or her potential for future performance. Numerous methods have been designed to appraise
the performance of an employee. Some are traditional methods and some are modern methods of
appraisal.
While traditional methods lay emphasis on the rating of the individual’s personality traits, such as
initiative, dependability, drive, creativity, integrity, intelligence, leadership potential, etc.; the modern
methods, on the other hand, place more emphasis on the evaluation of work results i.e. job
achievements than the personal traits. Modern methods tend to be more objective and worthwhile.
360 degree appraisal can provide valuable insights and information or feedback regarding the “on-
the-job” performance of the employee by anyone who comes into contact with him/her. They can be
peers, superior, subordinates, team members, customers, suppliers, vendors etc.
360 degree appraisal is a powerful developmental tool because when conducted at regular intervals it
helps to keep a track of the changes of others’ perceptions about the employees. A 360 degree
appraisal is more suitable for the managers as it helps to assess their leadership and managing styles.
Management by Objectives process is to create empowered employees who have clarity of the roles
and responsibilities expected from them, understand their objectives to be achieved and thus help in
the achievement of organizational as well as personal goals.