A performance Appraisal System is a process of evaluating the performance of employees in a systematic way to understand their abilities for further carrier growth. The performance appraisal process is generally conducted by the HR Department in a systematic way. A performance Appraisal System is also known as a performance review or performance evaluation system. Performance appraisal helps organizations review employees’ performance in a consistent way within the organization for further career 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 selective employees regarding their job performance.
- To design a training program for developing performance gaps.
Advantages of Performance Appraisal System
An accurate performance appraisal system can help organizations to manage employee 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 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 help managers to understand the validity and importance of the selection process. So, an employee appraisal system is a way for 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 prerequisites. Managers can design compensation and benefits packages for 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. Employee 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 their employees which can be classified into two categories below:
- Traditional Methods
- Modern Methods.
Traditional Methods of Performance Appraisal
This is a conventional method of performance appraisal and is generally used by government organizations. This report has been prepared by the immediate superior of an employee and indicates strengths and weaknesses, achievements, failures, etc. of the employees over a specific period of time and is known as the Annual Confidential Report (ACR). 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 performance but the main drawback is biased 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 conventional method of performance appraisal which is basically a modification to the straight ranking method. 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 biases 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. In this method, the supervisor evaluates their subordinate’s performance according to a numerical scale and puts ratings. GRS tends to be one of the most frequently used forms of a performance appraisal method.
This is one of the conventional methods of appraisal where a checklist is used 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. This performance appraisal system not only assesses the current performance of an individual employee but also predicts his future job performance. Employees’ stress resistance capability, communication skills, interpersonal skills, mental alertness, 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 costs 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 contributions are measured in terms of the monetary value of labor productivity and the value added by human resources.
Behaviorally Anchored Rating Scale (BARS):
Behaviorally anchored rating scales (BARSs) attempt to measure employee behavior rather than 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 strategic performance appraisal tool that aims to improve organizational performance where goals or objectives are clearly defined and agreed upon by both management and employees. Here, management and employees are aligned with the set goals. In this method, employees’ performances are evaluated annually based on specified goals. The MBO method is particularly applicable to non-routine jobs. This method was expressed by Peter Drucker in the 1950s.
Psychological Appraisal Method:
Through this performance appraisal tool, organizations determine the hidden potential of employees. This method generally focuses on analyzing employees’ 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.
720 Degree Appraisal Method:
The 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 generates a report to ensure that the employee is ready to achieve set goals before the next appraisal is in place. 720-degree appraisal method aims at monitoring, measuring, giving feedback, and encouraging the employees to achieve goals for the organization.