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. Performance appraisal process generally conducted by as key functions of HR Department through a systematic way and sometimes it is also referred as performance review, performance evaluation, or employee appraisal by which job performance of an employee is documented and evaluated. Performance appraisal helps organization to review employee’s performance in a consistent way within the organization for further development.
Objectives of Performance Appraisal System
Main objectives of 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 training program for developing performance gap.
Advantages of Performance Appraisal System
Accurate performance appraisal system can help organization to manage employee’s performance in a systematic way where an investment is required for the company and delivers following advantages:
- Employee Development: The systematic technique of performance appraisal system helps organization to analyze the strengths and weaknesses of employees. This analysis can be used to design training program for further improvement of the employees.
- Promotion Design: Promotion design is linked with employee performance appraisal system. Performance appraisal methods helps managers to sketch out the promotion programs for efficient employees. This is beneficial for efficient employees as they get promotion offer. Managers can also design improvement plan for inefficient workers so that they can achieve next promotion offer.
- Selection Validation: Performance Appraisal Techniques helps managers to understand the validity and importance of selection process. So, employee appraisal system is a way for the managers to find out the strengths and weaknesses of selection methods.
- Compensation & Benefits: Performance Appraisal System helps in sketching out compensation packages. Compensation packages includes salary structure, bonus, extra benefits, allowances and pre-requisites. Managers can design compensation and benefit packages of the organization for employee’s satisfaction. A good compensation and benefit packages boosts morale of the employees.
- Motivation: Performance appraisal system can be used as a motivation tool for the 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 which generally used by the 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 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 high level of subjectivity.
Supervisors evaluate the performance of subordinates and present it through ranking. 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 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 status.
Forced Distribution Method:
In this appraisal technique, evaluator distributes his rating in the form of a normal frequency distribution. Main purpose of this appraisal system is to eliminate biasness of central tendency. This method is easy to apply.
Graphic Rating Scales:
Generally, evaluator 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. Evaluator just judge his subordinates according to numerical scale and put ratings. GRS tends to be one of the most frequently used forms of 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 on how others observe their performance. The main advantage of this performance appraisal technique is not only assess the existing performance of an individual employee but also predict his future job performance. Employees 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 use of people in the organization. It helps to find out the relative worth of human resources assets. In HRA method, 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 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 which 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 of 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 often called 360 degree feedback that collects information from the employee’s supervisor, colleagues and subordinates regarding 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 role and HR strategy.
720 Degree Appraisal Method:
720 Degree Performance Appraisal system is one of the most recently introduced performance evaluation concept. This performance appraisal tool evaluates the performance of an employee from all aspects and give 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.