Top 10 Tips to Set Up a Performance Appraisal System

Top 10 tips top set up performance
appraisal system
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appraisal

What is performance appraisal?
A performance appraisal (PA), also
referred to as a performance review,
performance evaluation, (career)
development discussion, or employee
appraisal is a method by which the job
performance of an employee is
documented and evaluated.
Performance appraisals are a part of
career development and consist of
regular reviews of employee
performance within organizations.

Important of performance appraisal
• Performance appraisal helps supervisors to assess the
work performance of their subordinates.
• Performance appraisal helps to assess the training and
development needs of employees.
• Performance appraisal provides grounds for
employees to correct their mistakes, and it also
provides proper guidance and criticism for
employee's development.
• Performance appraisal provides reward for better
performance.
• Performance appraisal helps to improve the
communication system of the organization
• Performance appraisal evaluates whether human
resource programs being implemented in the
organization have been effective.
• Performance appraisal helps to prepare pay structure
for each employee working in the organization.
• Performance appraisal helps to review the potentiality
of employees so that their future capability is
anticipated..

Objectives of Performance Appraisal
Performance Appraisal can be done with
following objectives in mind:
• To maintain records in order to determine
compensation packages, wage structure,
salaries raises, etc.
• To identify the strengths and weaknesses of
employees to place right men on right job.
• To maintain and assess the potential present in
a person for further growth and development.
• To provide a feedback to employees regarding
their performance and related status.
• To provide a feedback to employees regarding
their performance and related status.
• It serves as a basis for influencing working
habits of the employees.
• To review and retain the promotional and
other training programes.

Advantages of Performance Appraisal
It is said that performance appraisal is an investment for the
company which can be justified by following advantages:
• Promotion: Performance Appraisal helps the supervisors
to chalk out the promotion programes for efficient
employees. In this regards, inefficient workers can be
dismissed or demoted in case.
• Compensation: Performance Appraisal helps in chalking
out compensation packages for employees. Merit rating is
possible through performance appraisal. Performance
Appraisal tries to give worth to a performance.
Compensation packages which includes bonus, high
salary rates, extra benefits, allowances and pre-requisites
are dependent on performance appraisal. The criteria
should be merit rather than seniority.
• Employees Development: The systematic procedure of
performance appraisal helps the supervisors to frame
training policies and programes. It helps to analyze
strengths and weaknesses of employees so that new jobs
can be designed for efficient employees. It also helps in
framing future development programes.

Contd…
•Selection Validation: Performance Appraisal
helps the supervisors to understand the validity and
importance of the selection procedure. The
supervisors come to know the validity and thereby
the strengths and weaknesses of selection
procedure. Future changes in selection methods
can be made in this regard.
•Communication: For an organization, effective
communication between employees and employers
is very important. Through performance appraisal,
communication can be sought for in the following
ways:
a. Through performance appraisal, the employers
can understand and accept skills of
subordinates.
b. The subordinates can also understand and
create a trust and confidence in superiors.
c. It also helps in maintaining cordial and
congenial labour management relationship.

Contd…
It develops the spirit of work and boosts the
morale of employees.
All the above factors ensure effective
communication.
•Motivation: Performance appraisal serves as
a motivation tool. Through evaluating
performance of employees, a person’s
efficiency can be determined if the targets are
achieved. This very well motivates a person
for better job and helps him to improve his
performance in the future.

Problems of performance appraisal
1.Judgment Errors: People commit mistakes while
evaluating people and their performance. Biases and
judgment errors of various kinds may spoil the show.
Bias here refers to inaccurate distortion of a
measurement.
2.Poor appraisal forms: The appraisal process
might also be influenced by the following factors
relating to the forms that are used by raters:
The rating scale may be quite vague and unclear
The rating form may ignore important aspects of job
performance.
The rating form may contain additional, irrelevant
performance dimensions.
The forms may be too long and complex.

Problems of performance appraisal
3.Lack of rater preparedness:
The raters may not be adequately trained to carry out
performance management activities. This becomes a
serious limitation when the technical competence of a
ratee is going to be evaluated by a rater who has
limited functional specialization in that area.
4.Ineffective organizational policies and practices:
If the sincere appraisal effort put in by a rater is not
suitably rewarded, the motivation to do the job
thoroughly finishes off. Sometimes, low ratings given
by raters are viewed negatively by management – as
a sign of failure on the part of rater or as an
indication of employee discontent.

HIGHLIGHTS OF THE SYSTEM
• The appraiser and the appraisee
jointly set the Key Result Areas
(KRA’s) and assign mutually agreed
weightage expressed as a
percentage
• Simple mathematical relationship
between set weightage and
accomplishment gives a final
numerical score on KRA’s
• To evaluate all management
personnel on company values and
leadership attributes a new section
has been added entitled “Values in
Action”

WHAT IS A KEY RESULT AREA ?
• A KRA refers to a target that needs
to be achieved by the appraisee in a
given time
• KRA’s are the set of performance
expectations from the appraisee
• The focus is on tangible outputs.
However this does not mean that
tasks that have a qualitative output
cannot form a KRA
• The focus is on tangible outputs.
However this does not mean that
tasks that have a qualitative output
cannot form a KRA

Setting KRA in case of a Functional Reporting
Relationship
• Functional reporting cases will
require input from the functional
superior in setting KRAs for the
appraisee.
• The appraiser , the appraisee and
the functional superior will have to
mutually agree upon the KRAs for
the appraisee.
• In case of a disagreement , it will
be the functional
superior’s responsibility to
convince the administrative
superior to reach an agreement on
the KRAs and communicate the
same to the appraisee.
• In some cases, functional goals
could be super-ordinate
to business goals.

Top 12 performance appraisal methods

1.Management by Objectives (MBO) Method
This is one of the best methods for the
judgment of an employee's
performance, where the managers and
employees set a particular objective for
employees and evaluate their
performance periodically. After the
goal is achieved, the employees are
also rewarded according to the results.
This performance appraisal method of
management by objectives depends on
accomplishing the goal rather than how
it is accomplished.

Contd…
MBO Features
• MBO emphasizes participatively set goals that are
tangible, verifiable and measurable.
• MBO focuses attention on what must be
accomplished (goals) rather than how it is to be
accomplished (methods).
• MBO, by concentrating on key result areas
translates the abstract philosophy of management
into concrete phraseology. The technique can be
put to general use (non-specialist technique).
Further it is “a dynamic system which seeks to
integrate the company's need to clarify and achieve
its profit and growth targets with the manager's
need to contribute and develop himself”.
• MBO is a systematic and rational technique that
allows management to attain maximum results
from available resources by focusing on achievable
goals. It allows the subordinate plenty of room to
make creative decisions on his own.

2.Critical Incident Method
In this method, the manager writes down
the positive and negative behavioral
performance of the employees. This is
done throughout the performance period
and the final report is submitted as the
assessment of the employees. This
method helps employees in managing
their performance and improves the
quality of their work.

Contd…
Disadvantages of critical Incident
This method suffers however from the
following limitations:
• Critical incidents technique of evaluation is
applied to evaluate the performance of
superiors rather than of peers of subordinates.
• Negative incidents may be more noticeable
than positive incidents.
• It results in very close supervision which
may not be liked by the employee.
• The recording of incidents may be a chore
for the manager concerned, who may be too
busy or forget to do it.
• The supervisors have a tendency to unload a
series of complaints about incidents during an
annual performance review session.

3.Behaviorally Anchored Rating Scales (BARS)
The BARS method is used to describe a
rating of the employee's performance
which focuses on the specific behavior as
indicators of effective and ineffective
performance. This method is usually a
combination of two other methods
namely, the rating scale and critical
incident technique of employee
evaluation.

Contd…
Rating scales for BARs
Each behavior can rate at one of 7 scales
as follows (you can set scales depend on
your requirements)
• Extremely poor (1 points)
• Poor (2 points)
• Below average (3 points)
• Average (4 points)
• Above average (5 points)
• Good (6 points)
• Extremely good (7 points)

4.Behavioral Observation Scales (BOS)
It is defined as the frequency rating of
critical incidents which the employee has
performed over a specific duration in the
organization. It was developed because
methods like graphic rating scales and
behaviorally anchored rating scales
(BARS) depend on vague judgments
made by the supervisors about
employees.

5.360 Degree Performance Appraisal Method
The definition of this performance
evaluation method is that, it is a system or
process wherein the employees receive
some performance feedback examples,
which are anonymous and confidential
from co-workers. This process is
conducted by managers and subordinates
who, through 360 degrees, measure
certain factors about the employees.
These are behavior and competence,
skills such as listening, planning and
goal-setting, teamwork, character, and
leadership effectiveness.

Contd…
Advantages of 360 degree appraisal
• Offer a more comprehensive view towards the
performance of employees.
• Improve credibility of performance appraisal.
• Such colleague’s feedback will help strengthen self-
development.
• Increases responsibilities of employees to their
customers.
• The mix of ideas can give a more accurate
assessment.
• Opinions gathered from lots of staff are sure to be
more persuasive.
• Not only manager should make assessments on its
staff performance but other colleagues should do, too.
• People who undervalue themselves are often
motivated by feedback from others.
• If more staff takes part in the process of performance
appraisal, the organizational culture of the company
will become more honest.

6.Checklist and Weighted Checklist Method
The checklist method comprises a list of set
objectives and statements about the employee's
behavior. For example, leadership skills, on-
time delivery, innovation, etc. If the appraiser
believes that the employee possesses the trait
mentioned in the checklist, he puts a tick in
front of it. If he thinks the employee doesn't
have a particular trait he will leave it blank and
mentions about it in the improvement column.
Weighted checklist is a variation of the
checklist method where a value is allotted to
each question. The value of each question can
differ based on its importance. The total score
from the checklist is taken into consideration
for evaluating the employee's performance. It
poses a strong threat of bias on the appraiser's
end. Though this method is highly time-
consuming and complex, it is widely used for
performance evaluation.

Contd…
Advantages and disadvantages of
weighted checklist
• This method help the manager in
evaluation of the performance of the
employee.
• The rater may be biased in
distinguishing the positive and negative
questions. He may assign biased weights
to the questions.
• This method also is expensive and time
consuming.
• It becomes difficult for the manager to
assemble, analyze and weigh a number of
statements about the employee’s
characteristics, contributions and
behaviors.

7.Graphic Rating Scale Method
Graphic rating scale is one of the most
frequently used performance evaluation
methods. A simple printed form enlists
the traits of the employees required for
completing the task efficiently. They are
then rated based on the degree to which
an employee represents a particular trait
that affects the quantity and quality of
work. A rating scale is adopted and
implemented for judging each trait of the
employee. The merit of using this method
is that it is easy to calculate the rating.
However, a major drawback of this
method is that each characteristic is given
equal weight and the evaluation may be
subjective.

Contd…
Advantages and Disadvantage of the rating
scales
Advantages of the rating scales
• Graphic rating scales are less time
consuming to develop.
• They also allow for quantitative
comparison.
Disadvantages of the rating scales
• Different supervisors will use the same
graphic scales in slightly different ways.
• One way to get around the ambiguity
inherent in graphic rating scales is to use
behavior based scales, in which specific work
related behaviors are assessed.
• More validity comparing workers ratings
from a single supervisor than comparing two
workers who were rated by different
supervisors.

8.Comparative Evaluation Method
Two ways are used to make a comparative evaluation,
namely, the simple ranking method and the paired
comparison method. In the simple or straight ranking
method the employee is rated by the evaluator on a scale
of best to worst. However, the evaluator may be biased
and may not judge the overall performance effectively
in the absence of fixed criteria. This kind of evaluation
may be more opinion-based than fact-based.
Under the paired comparison method, the overall
performance of one individual is directly compared with
that of the other on the basis of a common criterion.
This comparison is all evasive and not job-specific.
While some employees emerge as clear front runners,
there are others who seem to be lagging behind. This is
not a popular evaluation system as employers do not
want to encourage discrimination. This is useful in
companies which have a limited number of promotions
or funds.

Contd…
Steps to conduct paired comparison analysis
• List the options you will compare (elements
as A, B, C, D, E for example).
• Create a table 6 rows and 7 column.
• Write down option to column and row; A to
row second, cell first from left and A to row
first, cell second from left; B to row third,
cell first from left and B to row first, cell
third from left etc; column seventh is total
point.
• Identify importance from 0 (no difference)
to 3 (major difference).
• Compare element “A” to B, C, D, E and
place “point” at each cell.
• Finally, consolidate the results by adding up
the total of all the values for each of the
options. You may want to convert these
values into a percentage of the total score.

9.Forced Choice Method
In this method, the appraiser is asked to
choose from two pairing statements
which may appear equally positive and
negative. However, the statements dictate
the performance of the employee. An
excellent example of this can be "works
harder" and "works smarter". The
appraiser selects a statement without
having knowledge of the favorable or the
unfavorable one. This method works in
companies where the appraiser shows a
tendency to under-evaluate or over-
evaluate the employees. Also, it is very
costly to implement and does not serve
the purpose of developing the employees.
It can also frustrate the appraiser as he
does not know which is the right option.

10.Forced Distribution Method
In this method, the appraiser rates
employees according to a specific
distribution. For example, out of a set of 5
employees, 2 will get evaluated as high, 2
will get evaluated as average while 1 will
be in the low category. This method has
several benefits as it tries to eliminate the
leniency and central tendency of the
appraiser. However, its biggest drawback
is the fact that it encourages
discrimination among the employees.
Another major problem with this method
is that it dictates that there will be forced
distribution of grades even when all the
employees are doing a good job.

Contd…
Advantages and disadvantages of forced
Ranking
Advantages:
• They force reluctant managers to make
difficult decisions and identify the most and
least talented members of the work group.
• They create and sustain a high performance
culture in which the workforce continuously
improves.
Disadvantages
• They increase unhealthy cut-throat
competitiveness;
• They discourage collaboration and
teamwork;
• They harm morale;
• They are legally suspect giving rise to age
discrimination cases.

11.Essay Evaluation Method
In the essay method of evaluation the
appraiser writes an elaborate statement
about the employee who is being
evaluated. He mentions the employee's
strengths and weaknesses. He also suggests
ways to improve his performance and
appreciates the good qualities. This essay
can be prepared by the appraiser alone or
together with the employee. As the criteria
for evaluation is not defined, it helps the
appraiser to focus on the areas that actually
need improvement. This open-ended
method accords flexibility and eliminates
rigidity which is observed in criteria-driven
evaluations. However, it is a highly time-
consuming and subjective method, and
may not necessarily work for the benefit of
the organization.

Contd…
Essay evaluation is a non-quantitative technique
This method is advantageous in at least one sense, i.e., the
essay provides a good deal of information about the
employee and also reveals more about the evaluator. The
essay evaluation method however, suffers from the
following limitations:
It is highly subjective; the supervisor may write a biased
essay. The employees who are sycophants will be
evaluated more favorably then other employees.
Some evaluators may be poor in writing essays on
employee performance. Others may be superficial in
explanation and use flowery language which may not
reflect the actual performance of the employee. It is very
difficult to find effective writers nowadays.
The appraiser is required to find time to prepare the essay.
A busy appraiser may write the essay hurriedly without
properly assessing the actual performance of the worker.
On the other hand, appraiser takes a long time, this
becomes uneconomical from the view point of the firm,
because the time of the evaluator (supervisor) is costly.

12.Performance Test and Observation Method
This method deals with testing the knowledge
or skills of the employees. It can be
implemented in the form of a written test or
can be based on the actual presentation of
skills. The test must be conceived by the
human resources department and conducted
by a reliable evaluator who has in-depth
knowledge about the field of the test. There
can be bias if the performance is evaluated on
the presentation of skills. However, a written
test can be a reliable yardstick to measure the
knowledge. Tests will also enable the
management to check the potential of
employees. However, if the human resources
department decides to outsource the
compilation of the test, it may incur
additional cost for the organization.

9 Steps of the Performance Appraisal Process

1. Establishing Performance Standards
In this we use as the base to compare the
actual performance of the employees. In
this step it requires to set the criteria to
judge the performance of the employees as
successful or unsuccessful and the degrees
of their contribution to the organizational
goals and objectives. The standards set
should be clear, easily understandable and
in measurable terms. If employee doesn't
come up to expectance, then it should be
taken extra care for it.

2. Communicating the standards
It is the responsibility of the
management to communicate the
standards to all the employees of the
organization. The employees should
be informed and the standards
should be clearly explained. This
will help them to understand their
roles and to know what exactly is
expected from them.

3. Measuring the actual Performance
The most difficult part of the performance
appraisal process is measuring the actual
performance of the employees that is the
work done by the employees during the
specified period of time. It is a nonstop
process which involves monitors the
performance all over the year. This stage
requires the watchful selection of the
suitable techniques of measurement,
taking care that individual bias does not
affect the outcome of the process and
providing assistance rather than
interfering in an employees work.

4. Comparing the Actual with the Desired Performance
In this the actual performance is
compared with the desired or the standard
performance. The comparison tells the
deviations in the performance of the
employees from the standards set. The
result can show the actual performance
being more than the desired performance
or, the actual performance being less than
the desired performance depicting a
negative deviation in the organizational
performance. It includes recalling,
evaluating and analysis of data related to
the employees' performance.

5.Establish a File
For managers to be effective and help
employees develop skills and capabilities,
it’s essential to begin the
performance management process on the
employee's first day. Create a file
for each employee and record the
accomplishments, areas for improvement
and regular feedback throughout the year.

6.Provide Regular Feedback
Regular feedback should occur at least once each
quarter and more frequently if an employee needs
encouragement or motivation. According to the
American Society for Clinical Laboratory
Science, “The performance management
process starts with employee planning and ends
with an evaluation of employee progress.
Managers and employees should meet to discuss
planning and goals throughout the year. If
possible, formally sitting down with your
supervisor or manager on a quarterly basis is
optimal. The process, at its best, is a collaborative
one which should add value for both the employee
and the employer.”
Employees thrive on feedback because it ensures
they are performing job duties and responsibilities
according to the company’s expectations.
The feedback can be given in a casual manner,
provided the topic of the feedback is suitable for a
casual meeting. Always document any feedback
you provide to employees

7.Discipline Issues
Throughout the year, an employee may
engage in behavior that warrants
disciplinary action. Your
company’s procedure for
addressing discipline should include a
requirement to document every
disciplinary action taken. All disciplinary
issues and improvements are taken into
account during the annual performance
appraisal meeting.

8.Conduct the Appraisal Meeting
As the time nears for scheduling the appraisal
meeting, begin preparing the performance
appraisal document. Many companies have
lengthy forms that require managers to record
relatively detailed information about the
employee’s performance in all areas
of the job. Performance is rated in areas such
as job proficiency, interpersonal relationships,
communication skills and aptitude.
Some employers consider employee self-
evaluations. In these cases, the employee
should prepare her comments about her
performance during the past year. Both the
manager and the employee should feel
comfortable during the appraisal meeting.
Tension will just make the meeting agenda
much more difficult and uncomfortable than
it needs to be.

9.Follow Up Action
After the performance appraisal meeting,
there will likely be follow up matters such as
discussing areas for improvement,
establishing goals for the next year and
confirming the employee's salary or
wage increase. In addition, the manager and
employee may schedule another time to
discuss unresolvable issues that arise during
the performance appraisal meeting.

Performance appraisal meeting

Prepare for the Meeting
• Review the job description to make
sure it is accurate and current
• Gather and review any documentation
• Complete the performance appraisal
form or narrative for the employee
• Review your appraisal to be sure it is
objective
• Give the employee at least a week’s
notice

Conduct the Meeting
• Control the environment; avoid an
atmosphere of stress
• State the purpose of the discussion
• Allow the employee to give their
assessment of their performance
• Provide your own review of the
employee’s performance
• Position criticisms as areas for
improvement

Conduct the Meeting
• Give specific examples of strengths
and areas for improvement
• Ask open-ended questions
• Be calm and objective; don’t blame
or attack
• Focus on the performance, not the
person
• Listen
• Set specific goals and timelines;
action plan
• Close the discussion

Follow-up
• Provide frequent communication
and feedback (positive and
corrective)
• Maintain written records (positive
and negative)
• Respond promptly to requests for
help
• Conduct interim reviews
– Review goals/action plans and
timelines
• Evaluate your own performance
and its effect on your employees

Top 10 Tips to Set Up a Performance Appraisal System

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