Performance Appraisal System is a way where the performance of employees is evaluated in a systematic way to understand the abilities of an employee for further carrier growth. The performance appraisal process is generally conducted by key functions of the HR Department in a systematic way and sometimes it is also referred to as a performance review, performance evaluation, or employee appraisal by which the job performance of an employee is documented and evaluated. Performance appraisal helps organizations to review employee’s performance in a consistent way within the organization for further development.
Objectives of Performance Appraisal System
The main objectives of the Performance Appraisal System are as below:
- To identify strengths and weaknesses of employees in the particular job.
- To assess the potentiality of an employee for further growth and development.
- To keep records for determining compensation packages, salary structures, etc.
- To provide performance feedback to the selective employees regarding their job performance.
- To design a training program for developing performance gaps.
Advantages of Performance Appraisal System
An accurateperformance appraisal system can help organizations to manage employee’s performance in a systematic way where investment is required for the company and delivers the following advantages:
- Employee Development: The systematic technique of the performance appraisal system helps organizations to analyze the strengths and weaknesses of employees. This analysis can be used to design a training program for further improvement of the employees.
- Promotion Design: Promotion design is linked with an employee performance appraisal system. Performance appraisal methods help managers to sketch out the promotion programs for efficient employees. This is beneficial for efficient employees as they get promotion offers. Managers can also design improvement plans for inefficient workers so that they can achieve the next promotion offer.
- Selection Validation: Performance Appraisal Techniques helps managers to understand the validity and importance of the selection process. So, an employee appraisal system is a way for the managers to find out the strengths and weaknesses of selection methods.
- Compensation & Benefits: The performance Appraisal System helps in sketching out compensation packages. Compensation packages include salary structure, bonus, extra benefits, allowances, and pre-requisites. Managers can design compensation and benefits packages of the organization for employee satisfaction. Good compensation and benefits packages boost the morale of the employees.
- Motivation: A performance appraisal system can be used as a motivation tool for efficient employees. Employees efficiency can be determined through accurate performance appraisal of the employees. Employees are motivated through a performance appraisal process when their targets are achieved.
Methods or Techniques of Performance Appraisal System
Organizations used various methods for evaluating the performance of the employees which can be classified into two categories as below:
- Traditional Methods
- Modern Methods.
Traditional Methods of Performance Appraisal
This is a traditional method of performance appraisal generally used by government organizations. This is known as ACR or Annual Confidential Report. Immediate superior of an employee prepares this report which indicates strengths and weaknesses, achievements, failure, etc. of the employees over the specific period of time. This report does not contain any development suggestions for the employees.
In this method, the supervisor writes a short essay regarding an employee’s performance based on overall impressions. This report helps to get details information regarding employee’s performance but the main drawback is biasness due to a high level of subjectivity.
Supervisors evaluate the performance of subordinates and present it through ranking. The ranking method provides a comparative analysis of job performance between two competitive groups.
Paired Comparison Method:
This is a traditional method of appraisal which is the modification to the straight ranking method. In this method, all the employees are put to relative comparison. After the comparison or evaluation, the employee gets a rank on the basis of status.
Forced Distribution Method:
In this appraisal technique, the evaluator distributes his rating in the form of a normal frequency distribution. The main purpose of this appraisal system is to eliminate biasness of central tendency. This method is easy to apply.
Graphic Rating Scales:
Generally, evaluators use a specially developed form for every employee t measure their performance. The form contains many characteristics relating to the personality and performance of employees. Evaluators just judge their subordinates according to numerical scale and put ratings. GRS tends to be one of the most frequently used forms of a performance appraisal method.
This is one of the traditional methods of appraisal. This is basically a checklist to determine or evaluate the characteristics and performance of the employees.
Modern Methods of Performance Appraisal
Assessment Centre Method:
This performance appraisal technique was introduced by the German Army. This method enables employees to get a clear picture of how others observe their performance. The main advantage of this performance appraisal technique is not only to assess the existing performance of an individual employee but also to predict his future job performance. Employee’s communication skills, interpersonal skills, mental alertness, stress resistance capability, confidence, etc. are evaluated in this method.
Human Resource Accounting Method:
It measures personal management activities and the use of people in the organization. It helps to find out the relative worth of human resources assets. In the HRA method, the performance of the employees is judged in terms of cost incurred and contributions made by the employees. Cost is measured in terms of human resources planning, recruitment, and selection, training, and development, etc. On the other hand, employee’s contributions are measured in terms of the money value of labor productivity, value-added by human resources.
Behaviorally Anchored Rating Scale (BARS):
Behaviorally anchored rating scales (BARSs) attempt to measure employee behavior rather than his specific characteristics. This performance appraisal tool generally contains a set of specific behaviors that represent gradations of performance and are used as common reference points, called “anchors,” for rating employees on various job dimensions. Developing a BARS assessment tool is mostly time-consuming and expensive.
Management by Objectives (MBO):
Management by objectives (MBO) is a performance appraisal tool where goals are set collaboratively for the organization, departments, and each individual. In this method, employees are evaluated annually based on their achievement of goals that have been specified earlier. MBO method is particularly applicable for non-routine jobs.
Psychological Appraisal Method:
Through this performance appraisal tool, organizations determine the hidden potential of employees. This method generally focuses on analyzing employee’s future performance rather than their past work. These appraisals are used to analyze seven major components of an employee’s performance which are interpersonal skills, leadership skills, cognitive abilities, emotional quotient, intellectual traits, personality traits, and other related skills.
360 Degree Appraisal Method:
This performance appraisal tool is often called 360-degree feedback that collects information from the employee’s supervisor, colleagues, and subordinates regarding an individual’s work-related behavior. This is a multisource feedback or group review system. Key to this type of performance appraisal system is the set of specific goals that should be linked with employee’s job roles and HR strategies.
720 Degree Appraisal Method:
720 Degree Performance Appraisal system is one of the most recently introduced performance evaluation concepts. This performance appraisal tool evaluates the performance of an employee from all aspects and gives timely feedback to ensure that the employee is able to achieve set goals before the next appraisal in place. 720-degree appraisal method aims at monitoring, measuring, giving feedback, and encouraging the employees to achieve goals for the organization.