Performance is an accomplishment of assigned task by the employee. Anything that we show or do is performance.
Organization has a number of functions to be done continuously for its effective operation. Policymaking, taking a decision is about various areas, operation matching with dynamic environment needs to know performance level of each employee. Succession planning, reward management, adding expansion schedule need present performance level of employees that helps in taking a decision about how to run operating activities in days to come.
Therefore, human resource department needs to evaluate performance level of each employee which is simply known as performance appraisal. It is defined as evaluating and measuring of an accomplished job by the employee. It directs to potential future responsibilities to be assigned viewing effectiveness and efficiency. Performance appraisal provides feedback to employees and provides guidelines for improvement. Reward allocation is made on the basis of performance of employees. Employees should perceive the performance appraisal as fair, equitable and transparent.
According to Dales Beach," Performance appraisal is the systematic evaluation of individual with respect to their performance on the job and their potential for development."
According to Mondi and Noël," The process which leads to formalized evaluation of employees is referred as a performance appraisal."
Performance appraisal is a function of human resource management. It is to be made effective for the achievement of organization's objectives. Organization needs to improve productivity through the improvement of performance appraisal mechanism. It is one of the oldest and most universal practices of management.
Its purposes are:
Performance appraisal is an evaluation of job accomplished by employees that is used to reward management and succession planning. It plays an important role in identifying training and developing needs and also helps to evaluate the effectiveness of training and development programs. Moreover, there are others uses of performance appraisal which are highlighted as importance in the following way.
Performance improvement: It provides feedback to employees about their performance rating and helps to remove performance deficiency. Future potential can be initiated to help employee and it can be identified.
Reward management: Reward management is needed for encouraging employees. Punishment decision is taken to control and remove frauds and weaknesses. Performance appraisal is the basis for the decision regarding reward and punishment.
Training and development decision: Performance appraisal indicates performance deficiency in employees. It provides a guide for identifying training and development needs. Management development needs of managers can also be identified to realize their future potential.
Promotion, transfer, termination decision: Promotion is an upward movement of employees, transfer is displacement from job to job for better fit and termination is dismissal from the job. All of them mentioned above need to be served for decision. Performance appraisal provides guidelines for taking right decision regarding promotion, transfer and termination. Performance appraisal serves as a basis for termination of employees to weed out low performer's through dismissal, lay off, downsizing etc.
Supervisory understanding: Period performance appraisal encourages supervisors to observe the job performance of their subordinates. They take an interest in helping them. This improves communication and mutual understanding between the supervisor and subordinates. The relationship gets strengthened and grievances get reduced.
Career planning and succession planning: Performance appraisal helps to access the effectiveness of employees that helps in understanding potential path for self-development. Organization can use it for succession planning to identify managers who are ready to move into the higher position.
Policy formulation: Organization needs to formulate policies regarding promotion, transfer, training, management development and career development. Performance appraisal provides information related to them. Performance appraisal is basis and guideline for policy formulation.
Setting the performance standards: The first step of performance appraisal is the establishment of performance standards. The point of reference for setting performance standard is job analysis, job description, and job specification. It contains information like what is to be done, how well it is to be done. Example: The target of Rs. 1000000 is set by the company.
Communicate the expectation: To identify what is the expectation of employees there must be two-way communications to reduce barrier. The goal is communicated by managers to the employees. Feedback from the employee is important to ensure that the communicated information is received and understood as intended.
Measure actual performance: The actual job performance of employee should be measured during a specified period. Measuring actual performance different method like graphical rating, observing, written reports, oral reports, etc are used. The technique of measurement should be correct.
Comparing standard and actual performance: After collecting information, comparison of actual and standard performance either above or below limit is done. The actual performance is compared with the standards. The magnitude, nature, causes and incidence of deviations are analyzed.
Discussion of appraisal with the employee: In this step, pros and cons of outcomes were discussed with the employees. The results of performance appraisal are discussed with the employees which provide performance feedback to the employees. The discussion of appraisal can have positive as well as negative motivational consequences.
Corrective actions: This step is the last step of performance appraisal. If performance is below standards, training or punishment is given and if performance is over standard, the reward is given. The corrective actions are initiated to correct deviations.
Performance appraisal is an evaluation of job that employee perform. It needs to be evaluated scientifically to give an accurate and fair rating to each performance. There is no single effective method of performance appraisal. Various methods have developed in the field of performance appraisal which is summarized below:
Graphic rating scale method: Graphic rating scale method is a widely used method of job performance appraisal. Under this method, rater prepares a firm with different qualities of employees and scale for each heading. Following factors are rated on a scale. Quality and quantity of work, job knowledge, attendance, appearance, loyalty, and dependability, honesty, integrity, attitude, initiative, cooperation etc. It is easy method and comparison among employees is possible but it is not free from biases and rating error may be present. It is an indirect method.
Alternative ranking method: Alternative ranking method is a group appraisal method of performance appraisal. A total number of employees are considered at a time and all their personal and job performance related factors are collected. Whose rating is high will be high rated and rank is prepared for all the considered employees. Whose rate is highest will be accepted as excellent and whose rate is poor will be last. It is a simple process of planning employees on a rank in order to observe job performance. The disadvantage of the ranking system is that it is highly subjective.
Paired comparison method: Number of employees who are under appraisal are compared with each other. Paired comparison method is useful to make an evaluation of the performance of 10 to 20 employees. Positive and negative signs are given on the basis of qualities and good performance of employees that they have shown in the job. Who gets maximum plus will be highly rated and maximum negative signs show poor performance. It is a simple and economic method. It is easy to prepare a chart for the rating but chances of biases may present.
Force distribution method: Force distribution method is a method of performance appraisal developed to overcome the problem of the business of business. Under this method, manager rate employees by categorizing into five ways. Force distribution method is a relative measure of evaluation.
Critical incident method: An organization has uncertain environment. Different kinds of uncertain, unwilling events may take place during this course of action. Such incidents are occurred due to the carelessness of employees and sometimes caused by external factors. Employees of an organization should pay intellectual role to protect the organization from unwilling events or incidents. Supervisor keeps the record of employee’s performance of that time. So, under this method, performance of employees is evaluated and rated as per their role playing in critical time of an organization. Those employees are highly rated who protect organization by using their tricks carefully. It is simple method but sometimes supervisor can be bias and negative events of unfavour employees may be recorded.
Essay method: This is a method of performance appraisal of employees. Under this method, supervisor finds and keeps the record of strength and weaknesses of employees regularly inform of essay. In this method, supervisor includes work, knowledge, employee’s potential and programs, policies, objectives etc. and employees understanding to them. But essay method is a time-consuming method.
Checklist method: It is a popular and widely used method of job performance appraisal. Under this method, a list is prepared to get an answer in yes/no form. It helps in knowledge through work abilities, behavior, and traits of employees. Question may be "does an employee accepted order?" Does he become interested in doing assigned job, does he make error frequently? Does he have helpful behavior? According to this behavior aspect of employees, their performance is measured and rated. It is easy method but it is not actual appraisal method of job performance. It is expensive for evaluation. In this method, there is less chance of being a bias of employees.
Management by objectives: A collaborative goal setting process through which organizational goals flow down through out the organization called management by objectives. It converts organizational objectives into individual objectives. It is an object result-oriented method of evaluation. In this, top managers establish an overall goal for the organization and it divides larger or overall goal into smaller goals. Then, it arranges meetings to communicate goals to employees. After that, finally, managers and subordinates ensure that the subordinates have the resources needed to reach the goals.
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