RESEARCH PROJECT

ON

PERFORMANCE APPRAISAL SYSTEM

IN SMALL SCALE INDUSTRIES

Submitted in the partial fulfillment of the requirement for the degree of

MASTER OF BUSINESS ADMINISTRATION
2005-2007

Under the Supervision Of: Submitted By:

Mr. Amit Sharma Priyanka Pruthi
(Associate Manager) MBA IV (Human
Resource) Jindal Strips Ltd. Hisar
Roll No -05061121029

Department Of Business Management,

Guru Jambheshwar University, Hisar.

1
 PREFACE

This project report contains the descriptive study of the

performance appraisal system. People working in organization
need rewards and appraisal system which increase the working
ability of them. They need that instrument which helps in guiding
the efforts of groups of employees to the achievement of goals and
objectives both of the individual and the organization.

Different methods are based on the type of the organization,

person’s ability, learning power, enthusiasm, competitiveness and
their behavior towards group members. All the factors are
necessary to analyze the performance of an individual person. One
particular factor cannot tell us the performance of employees but it
depends upon organization that which factors are considered by it.

Our institute has a provision of undergoing a research project in

MBA during 4th semester. The topic which I choose during my
research was to study and analyze “PERFORMANCE
APPRAISAL SYSTEM IN SMALL SCALE INDUSTRIES”.

I made sincere efforts to make the project interesting.

PRIYANKA

2
 ACKNOWLEDGEMENT

The research project “PERFORMANCE APPRAISAL IN

SMALL SCALE INDUSTRIES” was really a challenge for me.
But it became quite easier due to great attention and help of my
near and dears. It is really a profound privilege to express a sense
of gratitude to my guide Mr. AMIT SHARMA, Associate Manager
Jindal Strips Hisar, for his cooperation, constructive counseling
and valuable guidance provided during the course of this
investigation, without which it would not have been possible for
me to complete this work.

I also wish to thank respondents and all other people who have
directly or indirectly contributed to my project in making a
success.

PRIYANKA

3
 INTRODUCTION
AND
RATIONALE OF THE
STUDY

4
 INTRODUCTION

Of all the resources in an organization, Human Resource is always

considered the most crucial around which revolves its efficiency
and effectiveness. Human resource have vast potential of
competencies and capabilities But people differ in their abilities
and aptitudes. These differences are natural to a great extent and
cannot be eliminated by giving the same basic education and
training to them. There will be some differences in the quality and
quantity of work done by different employees even on the same
job.

Thus, it is necessary for management to know these differences so

that the employees having better abilities may be rewarded and the
wrong placements of the employees may also like to know the
level of his performance in comparison to his fellow employees so
that he may improve upon it.

Correct and objective decisions on the matter related to employees

in an organization are made on the basis of performance appraisal.
These would identify nature and scope of training and

5
development, empowerment, reward and incentive system,
counseling, job enlargement and job enrichment. The managerial
decision, by and large, would have an impact on organizational
effectiveness. It is because all available physical resource in the
organization are got to be utilized through the human being for
achieving and enhancing organizational effectiveness.

Performance appraisal goes by various names such as performance

evaluation, progress rating, merit rating and merit evaluation. In
simple words, performance appraisal means systematic evaluation
of the individual with respect to development. The individual’s
immediate superior in the organization and whose performance is
reviewed in term by his superior does the evaluation.

According to Dale Yoder,

“Performance appraisal includes all formal procedures used to

evaluate personalities and contributions and potentials of group
members in a working organization. It is a continuous process to
secure information necessary for making correct and objective
decision on employees.”

6
LITERATURE REVIEW
AND
CONCEPT
FORMULATION

7
 CHAPTER-1

PERFORMANCE APPRAISAL AND

ORGANIZATIONAL EFFECTIVENESS

Performance appraisal, like every other personal function, forms

eventually a line responsibility, all through involving the staff
assistance and advice. It is a continuous function and not merely an
issue of formal reports at a particular time. It is an on going
responsibility of the supervisor to determine how effectively his
subordinates are performing different tasks allotted to them in their
positions, in identify and correct their weak points and to
recommend them on their potentialities for promotions to higher
positions in the organization. It has been largely assumed that
performance appraisal relates to objective, rational and analytical
reasoning accompanied by subjective value judgments.
Accordingly, it seems plausible to consider the appraisal as
guidelines to action instead of viewing them as precise
measurements. Likewise, it is also largely assumed that
performance appraisal forms an inevitable function and an issue of
choice. Thus, if there is any choice, it merely relates to the
methods used in this program.

8
There are several terms such as merit rating, performance rating,
employee evaluation, performance evaluation, etc. which have
been used interchangeably both by practitioners and scholars
engaged in the field. Explicitly, it is largely that the term “rating”
has narrow connotations while the term “appraisal” is broad and
comprehensive. The term “performance appraisal” which seems to
involve the comparison of performance measures of different
individuals holding similar areas of work responsibility and relate
to determination of worth of measures for the accomplishment of
organizational goals.

According to Heyel, performance appraisal is “the process of

evaluating the performance and qualification of the employees in
terms of the requirements of the job for which he is employed, for
purposes of administration including placement, selection for
promotions, providing financial rewards and other actions which
require differentials treatment among the members of a group as
distinguished from actions affecting all members equally.”

In U.K, Armstrong prefers to use the term “performance

management”, which forms a means of getting improved results
from the organizations, teams and individuals. This is
accomplished by understanding and managing the performance
within an agreed framework of planned goals, standards and
competence requirements. Thus, he defines performance
management as a “process for establishing shared understanding
about what is to be achieved, and an approach to managing and
developing people in a way which increases the profitability that it
will be achieved in the short – and – long – term.

Despite the importance of performance appraisal, few

organizations clearly define what they are trying to measure. In

9
order to design a system for appraising performance, it is important
to first define what is meant by the term “work performance”.
Although a person’s job performance depends on some
combination of ability, effort, and opportunity, it can be measured
in terms of outcomes on results produced. Performance is defined
as the record of outcomes produced on a specified time period. For
example, a trainer working for the Word Bank was evaluated on
her “organization of presentations”, which was defined as “the
presentation of training material in a logical and methodical order”.
The extent to which she was able to make such “orderly”
presentations would be one measures of outcomes related to that
function. Obviously, a sales representative would have some
measure of sales as an outcome for a primary function of that job.
Customer service is a likely candidate as another important
function, “performance”. College teachers are typically evaluated
on three general functions: teaching, research, and service.
Performance in each of these areas is defined by one or more
different outcomes measures.

Performance on a job as a whole is equal to the sum (or average) of

performance on the job functions or activities. For example, the
World Bank identified eight job functions for its trainers (e.g. use
of relevant examples, participant involvement, and evaluation
procedures). The functions have to do with the work, which is
performed and not with the characteristics of the person
performing. Unfortunately, many performance appraisal system
confuse measures of performance with measures of the person.
Performance refers to a set of outcomes produced during a certain
period of time, and does not refer to traits or personal
characteristics of the performer.

Performance appraisal or merit rating means systematic evaluation

of the personality and performance of each employee by his
supervisor or some other person trained in the techniques of merit
rating. It employs various techniques for comparing individual

10
employees in a work group, in terms of personal qualities or
deficiencies and the requirements of their respective jobs. To quote
Dale Yoder, “performance appraisal includes all formal
procedures used to evaluate personalities and contributions and
potentials of group members in a working organization. It is a
continuous process to secure information necessary for making
correct and objective decision on employees.” The comparisons of
performance with job requirements help in finding out the merit of
individual employees in a work group. Rating may be done by a
supervisor or an independent appraiser.

Performance appraisal is a formal program in an organization,

which is concerned with not the contributions of the members who
form part of the organization, but aims at spotting the potential
also. The satisfactory performance is not only a part of the system
as a whole and the management needs more than evaluating the
performance of the subordinates.

In simple words, performance appraisal is the systematic

evaluation of the individual with respect to his performance on the
job and his potential for development. Performance appraisal is
concerned with determining the differences among the employees
working in the organization.

Performance appraisals have become increasingly important tools

for organizations to use in making and improving the performance
of the employees, in making timely and accurate staffing decision,
and in enhancing the overall quality of the firm services and
products. The design, development, and implementation of
appraisal system are not endeavors, which can coping other
organizational change effort, which should be pursued in the
context of improving the organization’s competitive advantage. As
with any such change effort, individuals who wish to preserve the
status quo will be resistant to change, no matter how beneficial it

11
may be for the organization. These sources of resistance to change
have to be identified and managed so as to build incentives for
using a new appraisal system.

Even after a well-designed system has been implemented, the work

is still not done. An appraisal system has to be maintained by
monitoring its operation through periodic evaluation. Only an
appraisal system that is kept finely tuned in the context of
customer expectations will enable managers to have a rational
basis for making sound personnel decision and contributing to the
kinds of gain in productivity that are so critically needed in today’s
times.

Among HRM decisions and activities, some of the most important

concern the organization’s compensation system. Effective
performance appraisal must also be carefully integrated with an
organization’s compensation system, particularly when the
organization is seeking a close connection between performance
and pay.

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 HISTORICAL PRESPECTIVE

Personnel performance appraisal is as old as human civilization

itself. Every age has had its own methods for appraising corporate
performance – mostly either for developing performance standards
or for dispensing of meritorious performance and at times even for
dispensing punitive measures when the actual performance fell
short of expectations or simply for exercise of control. It is
reported that emperors of WEI DYNASTY (AD 221 – 265)
had an “Imperial Rater” whose task it was to evaluate the
performance of the officials of Royal Household. Centuries later,
Ignatius Loyala established a formal system for rating even the
numbers of his Jesuit society.

The first industrial application of performance appraisal (merit

rating) was probably made by Robert Owen at his cotton mills in
New Lanark, Scotland in the early 1800s. Wood cubes of different
colors indicating different degrees of merit were hung over each
employee’s workstation. As employee performance changed, so
did the apposite wood cube. The merit rating or efficiency rating in
the Federal Civil Service has been in place since 1887.

Introduction of performance appraisal in the U.S. industry can be

traced to the work of industrial psychologists at Carnegie – Mellon
University and their early work in salesman selection and ‘man –

13
to – man’ rating forms. The army in the First World War to assess
the performance of officers later used the ‘man – to – man’ rating
form. Appraisal of employees became popular only after First
World War and appraisal of managers was not widely practiced
until after Second World War. Yearly 1950’s appraisal was an
accepted practice in many organizations. During the past 40 years,
it has been observed that the earliest use of performance appraisal
was as a basis for administrative decisions such as salary
increase/financial incentives, promotions, and so on. However,
throughout the1960s, 1970s and 1980s, performance appraisals
were increasingly used for employee development. From
subjective (trait) approach. The focus is shifting from performance
measurement to performance management.

Dissatisfaction with performance appraisal system has existed for

many years, but organizations can no longer afford to live with
poor appraisal systems. The reasons why the needed improvements
in performance appraisal effectiveness cannot be put off any longer
can be found in three of the trends.

First there is a continued lack of growth in productivity, while the

growth of many of the competitors continues to increase. One of
the primary strategies for enhancing human productivity is
performance management, and the very foundation of performance
management is performance appraisal. The identification and
measurement of critical performance criteria are vital for
improving an organization’s competitive advantage through better
products and services and greater responsiveness to customer
requirements.

Second is the increasing role that performance plays in litigation

today. In fact, performance appraisal is the most heavily litigated
personnel practice today. Legal grounds for challenging appraisal
system are expanding, and litigation can thus expected to increase.

14
The third major trend is the growing diversity of the workforce.
With grater proportions of women and older workers in the labor
force, unfairness and biases already present in appraisal systems,
either real or perceived, may be magnified by greater diversity and
differences between the raters and the rated. Consequently, an
organization requires fairness and objectivity in appraisal practices
and personnel decisions.

ETHICAL PRESPECTIVE

Organization make decisions about people, such as whom to hire

or promote, what appraisal ratings or merits raise to give, or how to
discipline a particular infraction, it is thus important that the
decisions are seen as fair and just. Research has shown that at least
two aspects of justice influence employees’ job satisfaction and
organizational commitment and both must be considered in
organizational decisions.

The first type is distributive justice, or the perceived fairness of

particular outcomes. It has to do with the distribution of rewards
and punishments across people. Distributive justice would exist if
employees agree that the best person had chosen for a promotion,
that the punishment fit the crime in a discipline case, or that the
size of merit raise accurately reflected true differences in
performance across the people involved. Distributive justice is
specific to a particular decision. It is not include evaluation of the
fairness of the method or process by which the division was made.
The later called procedural justice. Presumably, a just policy or
procedure should help assure equitable outcomes every time,
whereas a single instance of distributive justice could occur by
chance, favoritism, or some other unfair process.

What makes an allocation procedure just? Following are six rules

15
for procedural justice (Folger and Greenberg 1985, p.146):

Consistency Rule: Allocation procedures should be consistent

across persons and overtime;

Bias Suppression Rule: Personal self-interest in the allocation

process should be prevented;
Corretability Rule: Opportunities must exist to enable
decisions to be modified;

Representative Rule: The allocation process must represent

the concerns of a recipient; and

Ethical Rule: Allocations must be based on prevailing moral

and ethical standards.

Performance appraisal must be represents a situation in which

decisions is made about individuals and the potential for
misunderstandings and feelings of injustice are great. This means
that a very fair and clear process should be adopted.

Appraisal are seen as more fair when consistent standards are

applied to all rates; there is a system by which the rate can appeal
or rebut the evaluation; and when raters are familiar with ratee’s
work, solicit employee input before assigning rating, provide
prompt feedback, and allow two way communication in the
appraisal interview. In addition, procedure should be more likely to
be perceived as fair if employees understand the rating dimension
and superior’s expectations well before the rating takes place.
Ideally, rates would also have inputs to determine the rating
criteria.

These appraisal procedures meet most of six rules given above,

16
and should help to assure that the emotionally – laden process of
performance appraisal is seen as fair in so far as humanly possible.

STRATEGIC IMPORTANCE OF
APPRAISAL SYSTEM

Strategically, it is hard to imagine a more important HR system

that performance appraisal. Organizations strive to do the
following at all levels:

 Design jobs and work system to accomplish organizational

goals,

 Hire individuals with abilities and desire to perform

effectively.

 Train motivate and reward Train motivate and reward

employees for performance and productivity.

It is this sequence that allows organizations to diffuse their

strategic goals throughout the organization. Within the context, the
evaluation of performance is control mechanism that provides not
only feedback to individuals, but also organizational information,
managers of an individuals, but also an organizational information,

17
managers of an organization can only guess as to whether
employees are working towards the right goals in the correct way,
and to the desired standard.

Performance appraisal system plays another important role in

organizational strategy, that of assuming strategy – consistency. A
truism of organization life that people engaging behaviors that they
perceive will be rewarded. Employees want to be rewarded and
will do those things the organization emphasizing. For example, if
the focus is on cost control, employees will seek ways to control
cost and thus be recognizes and rewarded. If the focus is on
rewarding productivity, employees will strive for productivity.
Performance appraisal becomes a means of knowing if employees
behavior is consistent with overall strategic focus and a way for
bringing to the fore any negative consequences of the strategy –
behavior link. For example, a single-minded productivity focus
may include potential negative consequences, such as decreased
quality and cooperation.

Performance appraisal is also a mechanism to reinforce the values

and cultures of the organization. A history of developing people or
communication from the highest executives is not enough.
Managers typically have more to do than time to get it done and
will let slide what is not reinforced. If managers are held
accountable for developing their people by being judged on their
tasks in their own performance appraisal, they will be likely to
spend more time on developing subordinates.

A further element in the strategic importance of performance

appraisal is in the alignment of the appraisal with the
organizational culture. For example, many organizations have
adopted a more team-oriented focus, and in such a culture, the
stress is on team management, teamwork, and more open and
trusting relationships among all employees. In a team-oriented
system, the traditional appraisal that rate one employee in

18
comparison to others may be counterproductive. Such a system
will engender competition rather than teamwork among
employees. In such a setting, an appraisal system that emphasizes
coaching and development, and involves feedback from co-
workers, may be more appropriate than the traditional supervisor
based rating.

Criteria for a good appraisal System

The fundamental decision about what type of performance to

assess and how to measure that performance should be shaped by
four desirable criteria: validity, reliability.
Freedom from bias and practically (including user acceptance).

Validity

A good measure of performance should measure important job

characteristic (relevancy) and be free from extraneous or
contaminating influence; it should also encompass the whole job
(not be deficient). A measure is contented valid if it measures
important parts of a job and does so in a representative way. The
relationship between these two types of validity and the concepts
of relevance, contamination, and deficiency is quite clear. A
relevant measure assesses aspect of performance that are truly
important in determining job effectiveness. For example, relevant
measure for assessing the performance of a college professor
would include teaching performance. In the case of the college
professor, the measure of performance would deficient unless it
assessed such factors as research and publications, as well as
teaching performance.

19
A measure is free of command if it avoids assessing other
construct besides performance. If the professor’s performance
rating includes an assessment of how well the professor’s shoes
were shined, the measure would be contaminated by this irrelevant
content.

A performance appraisal system must be valid. It is essential that a

good job analysis be conducted before developing the performance
measure so that all relevant aspects of performance are covered
and irrelevant factors do not contaminate the appraisal measure.

Reliability

Inter-rater reliability is the most relevant type of reliability for

performance appraisal. It is high when two or more raters agree on
the performance of an employee, and low when they do not. Inter-
rater reliability is usually quite good when performance raters
come from the same level of the organization, such as two
superiors or two peers of the person being rated. However, there is
often legitimate disagreement between raters at different levels,
such as a peer and a superior and a subordinate. Thus high inter-
rater reliability is expected only among raters at the same
organizational level.

Consistency

Internal consistency reliability over time are not especially

important in performance appraisal because performance itself
may not be internally consistent or stable over time. A person may
be very good at certain aspects of job but quite weak at others, so a
measure that accurately gauged these different aspects of
performance would not show high internal consistency. Similarly,
because performance may improve with the experience or training
and fluctuate with effort or luck, strong stability over time is not

20
necessarily expected.

For more objective measure of performance, another aspect of

reliability is important. Suppose absenteeism from work is used as
one measure of an employee’s performance. If the supervisor
sometimes record when the employee’s is absent and sometimes
does not, then this measure of performance is unreliable. Thus
when evaluation the reliability of performance appraisal, it is very
important to know exactly of measure is used, and, in the case
subjective rating of performance, who is making the rating.

Freedom from bias

In performance appraisals, the criterion of freedom from bias has

two components. The first concerns legal of fairness to employees;
the second has to do with the subjectivity of one person’s
judgments about the performance of others.

Legal issues of fairness

In one sense, an appraisal is free from bias if it is fair to all

employees regardless of their race, sex, national origin, disability
status and so on. Although there is no legal mandate for an
organization to have and use an appraisal system that meets some
state-of-the-art requirement for soundness, the methods of
appraisal that an organization employs should not adversely impact
groups protected by the law. If challenged, the organization will
seek to defend itself on the basis of the soundness, objectivity and
validity of its appraisal system. Most performance appraisal system
currently in use would probably not fare too well if they were
subjected to legal challenge.

A system can be discriminatory for any of the following reasons.

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 1. The rating content is not job related or valid

2. The content of the rating is not developed from a thorough

job analysis.

3. Ratings are based on rater’s evaluation of subjective or vague

factors.

4. Ratings are not collected and scored under standardized

conditions.

5. The raters do not observe rates performing their work.

An employer can reduce the probability of a legal challenge in

several ways. A primary rule is to use only appraisal systems that
are based on a thorough job analysis. The appraisal process should
incorporate only those duties or characteristics that are important
for job performance. Supervisors must be trained to use the rating
instrument properly, and the results and rationale for all evaluation
must be carefully documented. If possible, formal appeal
mechanism should be established and upper-level or human
resource managers should review ratings. Finally some, form of
counseling should be offered to help poor performances
improvement.

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THE NEXUS BETWEEN PERFORMANCE
APPRAISAL AND ORGANIZATIONAL
EFFECTIVENESS

Every organization, as an instrument to achieve predetermined

goals finds itself necessarily utilizing manpower, processing
different kinds and degrees of talents and skills. Such utilization,
perforce, may also be required to conform to a given hierarchical
pattern. Then again, persons performing at various levels view the
work variously depending upon their in the hierarchy, educational
background and task responsibilities.

Manpower can be broadly categorized into three broad segments.

 Firstly, those that may have only superficial or peripheral

knowledge of the job and its performance.

 Secondly, those that may have a general understanding of the

job and likely to possess a perspective more informed than

23
 the first category. Their knowledge may be empirically based
and may even clarify the relationship with kindred areas.

 Thirdly, those that may have sound technical knowledge of

the work, acquired through formal education and professional
training. Thus, these three categories are termed as laymen,
Generalists and Specialists. Each presenting a predominant
state of knowledge at the moment.

In fact, such a categorization remains valid for academic

discussion only as these really can not be put in watertight
divisions. Every employee as part of the assigned role to release
performance in organizations alternates between the three
categories continuously depending upon work experience,
knowledge, situation and time.

The anatomy of performance is a highly complex phenomenon.

This is inevitable because of the fact that in general, the word
performance connotes to the actions of individuals in fulfillment of
tasks or duties entrusted to them, in an organizational situation.
Individual actions in organizational context do not remain
unaffected by the organization economy and therefore performance
in essence, is the result of interaction between individual and
organization against the backdrop of ecology. A host of variables
can be found influencing the interaction. Identification or isolation
of a particular variable for a scientific analysis proves to be indeed
difficult; for, in any situation, quite often the individual, the
organization, and other super systems appears to irretrievably fuse.
At the micro level of individual performance may simply mean
accomplishment of personal objectives or executing individual
plans or putting in to effect personal ideas.

The connotation remains simple and free of problems as long as it

pertains to a single individual and the moment another individual
arrives on the scene, the implication undergo a radical change both

24
qualitatively and quantitatively. Juxtaposition of organization
dynamics and its attributes over and above this already hazy
picture reduces it to a poor monochromatic mosaic. At the macro
level of organizations, performance dons the mantle of corporate
image, which in sum total represents an amalgam of the individual
goals, objectives, plans and strategic, for the achievement of
organizational goals and objectives in the milieu of society,
culture, technology, constraints, facilities and resources. The
current literature on management provides quite a few approaches
(the process approach, the quantitative approach, the system
approach, the behavioral approach and the contingency approach)
for analyzing corporate and individual performance in
organizations.

All along the history of organizational thought and its

development, there has been an appreciation of the necessity and
significance of the need to create cohesive groups of people to
work together for the accomplishment of common objectives.
Attainment of objectives can be made easier if only the objectives
are made to appear meaningful and related to ultimate goals.

Again such objectives must also be actionable and verifiable and

that the measure of personnel effectiveness should be a
demonstrated ability of personnel in framing their tasks, skills
required for fulfilling these tasks and the ability to deal organized
conglomerations of individuals in a concerted manner towards the
organizational goals. Yet a clash between emphasis on individual
performance and restraints on individual performance is
observable in any organization.

Analysis of organizational effectiveness should begin with the

evaluation of economic importance, appraisal of organizational
growth, structure and its causes and the appraisal of personnel
comprising the organization. Such information can be ascertained
through a systematic analysis of jobs, tasks, individual capabilities

25
and individual performance.

The philosophy perspectives and practices of appraisal in the past

were simple, perhaps in tune with the existent organizational
styles. Human needs products, consumption patterns and business
styles have acquired new complexities due to the impact of rapid
advances in technology, which in turn were successful in
stimulating multiple approaches to describe, define systematize
and update the humus of knowledge on organizations.
Yet, personnel performance the anchor sheet of individual goals
and enterprise objectives continues to be treated as an inert object,
amenable to manipulation through various purported motivational
levers like rewards, incentives, creation of hygienic environments
etc. All these elements suffer from their own limitations, which in
turn inhibit rationality in application. On the other hand, even a
marginal innovation in either the procedures or processes of
appraising personnel performance, evolved through scientifically
valid methods, facilitates better awareness of job and generates
greater willingness to perform at every level with a minimum of
dysfunctional side effects and costs. Such a scientific design by
necessity should be multi-disciplinary even at the infrastructure
level.

An organization is run by and through people. It is through people

that goals are set and organizational effectiveness optimized. The
effectiveness of an organization is thus dependent upon the sum
total of the performance of its members. According to
PETER.F.DRUCKER, “an organization is like true; it is not
constituted by individual sounds but by their synthesis”. The
success of an organization will therefore depend on its ability to
measure accurately the performance of its members and use it
objectively and appropriately as a most vital resource.

Performance appraisal system has become an unquestioned crucial

aspect of life in most organizations. The major benefits of

26
performance appraisal system could be enumerated as under:-

1. The performance appraisal systems are generally regarded as

a necessary part of the management system of an
organization. They provide financial leverage to employees
and unions as well as to the management.

2. Decisions – beneficial or insidious – about continuity of

employment, promotions, rewards, opportunities,
redundancy, inclusion or exclusion from decision – making
are made on the basis of performance appraisal.

3. Performance appraisal recognizes merit, effort and results. It

is the only process available to help assure fair, decent and
consistent reward outcomes.

4. Appraisals have increasingly demonstrated greater

acceptance of the appraisal process and feel more satisfies
when the process is directly linked to rewards.

5. Organizations find it useful to summarize employee

performance.

6. The performance appraisal system provides employees with

an opportunity the receipt a feedback regarding their
performance usually at least once in a year.

7. It leads to reduced errors and waste, increased productivity,

improved quality and service for customers as well as
enhanced employee motivation, commitment.

8. It provides an opportunity for performance related

discussions like setting work objectives for the employees,
aligning individual and organizational goals, identifying
training and development needs.

27
 9. Standardized and objective performance appraisal providing
uniform process and criteria results in a fair, valid and legally
defensive basis for rewarding and recognizing individual
performance.

Traditionally, the human resource literature has considered as

separate and distinct the issue of which types of performance to
measure, methods of measuring performance, who should rate
performance, and methods of improving performance.
Performance management is a means where by employee’s work
behaviors are aligned with the organization’s goals resulting in
organizational effectiveness.

There is no one way to manage performance. Whatever system is

adopted needs to be congruent with the culture and principles that
pervade the organization. However, most systems of performance
management have several parts:

1. Defining performance: It is desirable to carefully define

performance so that is supports the organization’ strategic
goals. The setting of clear goals for individual employees is a
critical component of performance management.

2. Measuring performance: Measuring performance does

not need to be narrowly conceived, but can bring together
multiple types of performance measured in various ways. The
key is to measure often and use the information for mid
course corrections.

3. Feedback and coaching: In order to improve

performance, employees need information (feedback) about
their performance, along with guidance in reaching the next
level of results. Without frequent feedback, employees are

28
 unlikely to know that behavior is out of synchronization with
relevant goals or what to do about it.

The purpose of performance management is to make sure that

employee goals, employee behaviors used to achieve these goals,
and feedback of information about performance are all linked to
corporate strategy.

Performance management emerged in the later 1980s partly due to

the negative dimension of merit rating, MBO and performance
appraisal. As developed in the 1970s and 1980s performance
appraisal tended to embody an uneasy mix of objective setting and
rating processes which have been imposed by the personnel
management department on line managers (who conducted
appraisals under duress and thus, badly). These were top-down
activities embodying an annual appraising meeting. This is applied
by the term “appraisal” where managers tell their subordinates
what they think about them.

The development of performance management was accelerated by

the emergence of human resources management, a realization that
it was a concern of everyone, a shift from top-down to upward
appraisal; dissatisfaction with performance related pay and allied
factors. The PM incorporates at least partly the MBO philosophy.

It also embodies varied approaches to appraisal schemes; setting of

objectives, behaviorally anchored factored and formal review
meetings. It is also much more than performance appraisal
schemes – an integrating process, a normal management process, a
concern of all as partners, an agreed upon system, an issue of
individuals as well as teams, a combination of inputs (knowledge,
competence, etc.) and outcomes (results and contributions), a
continuous process, a joint process, an improvement-orientation, a
focus on “self – managed” etc. It stresses on the need for
empowerment and managing expectations. As a natural process of

29
management, it has emphasis, measurement, and monitoring
performance planning and coaching. Its philosophy is holistic
treating people as valued resources. It is concerned with the
interrelated processes of work, management, development and
reward.

PROBLEM FORMULATION

Performance appraisal has been carried out in some form or the

other in the organizations since long because it has been found to
be an effective HRD mechanism in appraising the existing
competencies of the personnel, identification of training needs and
deciding on the training needs and wage and salary determination.

The methods of performance appraisal have been centered on

evaluating personality traits. There is a growing feeling that
performance appraisal system should be broad based and taken
into account performance and effectiveness of the personnel in
achieving organizational objectives.

The personnel may be the repositories of positive personality traits.

Yet, there contribution to the prosperity of the organizations may
be at discount. There have been many researchers and studies that
have suggested that there should a stress on performance
management. Performance appraisal by objectives can be
supplement the age-old system of appraising personnel by traits
theory.

30
 RESEARCH
METHODOLOGY

31
 RESEARCH METHODOLOGY

2.1 SELECTION OF THE TOPIC

Before choosing a particular topic for my research, I had various

topics in my mind, on which research could be done. But all those
topics, which were in my mind; already by one way, or other
research was done. So, I was in need of the topic that was new,
current and had an essential role to play in our lives. After
considering many topics I found “Performance of Employees in
Small Scale Industry” as one of such topics which is new.

“Performance Appraisal” is a very important and

32
challenging job; important because it is a job, not of managing
‘man’, but of appraising the performance of people in an
organization. Performance is challenging task because of dynamic
nature of the people. No two persons are similar in mental abilities,
traditions, sentiments and behavior, they differ widely. People are
responsive; they feel, think and act; therefore, they can’t be
operated like machine or shifted and altered like a template in a
room layout. They therefore need a tactful appraisal of their
performance by management or by leaders. So, it had become
necessary to research on such a name “performance appraisal in
small scale industries”. The basic idea to select this topic is that to
know that – What are the factors that affect the performance of
employees? , How the people work in different situations? And
also to know that where the persons are lacking so, that they can be
improved.

2.2 OBJECTIVE OF THE STUDY

The main objective of the study is to find “leadership style in small

scale industries”. The objective incidentals to it are:-

 To find out the difference prevailing style of appraising

the performance of employees in small-scale industries.

 To find the interrelationship between different situations

 To understand how the appraising the performance of

employees change with the age.

 To see that what is the dominant prevailing performance

style in small scale industries.

33
  To compare the performance style between two sex (i.e.
Male & Female).

2.3 SCOPE OF THE STUDY

 The study was carried out at various small scale industries of

Hisar in order to study the prevailing performance styles.

 Suggestions for some performance appraisal styles for

improvement in different challenging situations.

2.4 RESEARCH METHODOLOGY

2.4 (a) RESEARCH DESIGN

Exploratory research:- Exploratory research design is used

to study this research. The main purpose of such a study is of
formulating a problem for more precise investigation or of
developing the working hypotheses from an operational point of
view. The major emphasis is given on the discovery of ideas and
insights. This research design is appropriate because it is flexible
enough to provide opportunity for considering different aspects of
the problem under study.

2.4 (b) DATA COLLECTION

Data collected is totally based on primary and secondary sources.

Instrument is prepared which is based on the theory of
performance appraisal. The instrument consist of Annual Reports,
Newspaper, Magazines, Questionnaire (open and close ended).

34
2.4 (c) SAMPLING

Random sampling method was used.

Sample Size – 50

2.4 (d) SAMPLING ANALYSIS

The data so collected from the various sources was further

organized, compiled and analyzed. The sets of questionnaire
(enclosed as annexure) were handed over to the personnel who
were asked to record their views to the best of sincerity, objectivity
and fair sense of play.

2.4 (e) LIMITATION OF THE STUDY

 The sample size was 50, which proved a limitation for me.

 Being a student of BBA, I had a problem of time because the

project was time bounded.

 This study is based on primary data. So, the probability of

personal bias cannot be ruled out.

 Most of the respondents were not very helpful and since they
were not having management qualification. I had to make
things understand to them every time.

 Although the study is carried out with full effort and devotion
the limitation of time resource available was faced.

 The finding may contain certain element of biasness as some

didn’t take it seriously but as a whole response was good.

35
 ANALYSIS

Analysis of the data was done with the help of the Answer-cum-
Work Sheet, which is used here for scoring the individual
responses and to diagnose the performance of employees which is
done by:-

• The data which is collected by the help of the Instrument or

the Questionnaire is first compiled and organized. The
responses of the respondents then record on the Answer-cum-
Work Sheet, by encircling the alternatives they adopted as an

36
 employee. Thus there are two question papers and each
question paper includes fifteen questions.

• Then responses were transferred to the question paper. In

first type of question paper, they have to tell them their views
and second question paper is Answer-cum-Work Sheet, they
can give their response by encircling the alternatives.

Thus, we get the employee performance of each respondent.

Further, analysis is done with the Personal Profile of the
respondent and his performance is analyzed. From here the
analysis section is divided into two sections:

• Section A

Analysis on the basis of questionnaire no. 1.

• Section B

Analysis on the basis of questionnaire no. 2.

37
 ANALYSIS OF
DATA
AND
INTERPRETATION

ANALYSIS OF QUESTIONNAIRE NO.1

38
1. Satisfied with the appraisal system -

95% Yes
Almost all the persons are satisfied with the appraisal system.

2. Knowledge about the exact appraisal rating given to me –

100% Yes
All the employees feel that they are given the appropriate and
required knowledge about the appraisal rating given to them.

3. Belief that the immediate superior is responsible for the

appraisal -

67% employees were agreed.

33% feel that besides superior peer staff members were also asked
to give their opinion on their performance.

4. Extend to which the formal appraisal rating done by the

organization matches my self-assessment -

85% employees feel that their performance is either over assessed

or under assessed.
Only 15% of the employees feel that appraisal rating done by the
organization matches their self-assessment.

5. Awareness of the criterion used in my performance appraisal -

93% Yes
7% No

6. Belief that monetary rewards are based on my performance

appraisal -

39
100% yes monetary rewards are based on performance appraisal.

7. Development of better or new job related skills based on the

performance appraisal system -

80% of the employees feel that the performance appraisal system

leads to development of new or better job related skills in the form
of computer up-gradation, seminars etc.
20% of them do not feel so.

8. Extent to which the formal performance appraisal system

provides guidelines for the superior to assess my performance –

95% employees feel that the formal performance appraisal system

provides guidelines for the superior to assess their performance.
5% of them do not feel so.

9. Increase in responsibilities and promotion based on the

performance appraisal system -

87% of them feel that performance appraisal system results in

promotion that in turn leads to increase in responsibilities.
13% of them do not feel so.

10. Mutual co-operation and understanding with the superiors

related to my job -

50% of the employees were in favor and rest

50% were not

11. Feeling that the formal appraisal system is necessary for my

colleagues and me -

40
All of them feel that the formal appraisal system is necessary for
my colleagues and them.

12. Extend to which the formal appraisal system helps in

discovering my potential for higher responsibilities –

67% of them feel that the formal appraisal system helps in

discovering my potential for higher responsibilities.
The rest of them (33%) feel besides performance appraisal alone,
on the job performance also helps in discovering their potential for
higher responsibilities.

13. Extend to which the past years performance appraisal helps in

providing guidance for improving future performance –

100% feel that the past years performance appraisal helps in

providing guidance for improving future.

14. Extend to which my superior’s superior reviews my

performance appraisal –

100% Yes

15. Belief that there is enough opportunity to give frank opinions,

views and problems during the discussion of my performance –

100% all of them feel that there is enough opportunity to give

frank opinions, views and problems during the discussion of my
performance.

16. Sufficient time is spent on the discussion and guidance to help

me improve my performance –

About 96% of them feel that sufficient time is spent on discussion

41
and guidance to help them improve their performance.

17. Ranking of the importance of factors for which performance

appraisal is actually carried out –

1) Scientific methods of performance appraisal.

2) Proactive approach in improving the level of performance.
3) Periodic counseling and guidance to employees to bridge the
gap between the desired performance and the actual
performance.

ANALYSIS OF QUESTIONNAIRE NO.2

42
1. Awareness of the performance appraisal and promotional
policies -

70% of the employees are aware of the performance appraisal

policies of the organization,
30% of the employees do not know enough about their
performance appraisal system and promotional policies.

2. Recognition of the efforts in the organization –

60% feel that painstaking efforts are duly recognized.

20% said sometimes efforts are recognized.
20% said that appraiser’s do not give due weight-age to the efforts.

3. Clarity about accountability -

Almost all the employees are clear about accountability.

4. Environment -

90% of the employees feel that the work environments in the

organizations are congenial.

5. Link between pay structure and length of service -

100% employees were unanimous is holding that the pay structure

should include an element to reward the unblemished length of
service.

6. Periodicity of assessment -

20% of employees favor assessment in every 3 months.

30% of employees favored in every 6 months.

43
50% feel that periodicity of assessment should be once in a year.

7. Short term goals -

The executive set short term goals themselves. Senior officers set
the employees goals.

8. Discharge of work to the best of abilities –

95% employees told that they are putting their beat foot forward
discharging their duties to the best of their abilities.

9. Clarity about -

90% of the employees are fully aware of the pay policy of the
organization. The lower level employees are not very clear about
the same.

10. Clarity about the linkage of the pay with performance

appraisal-

80% of the employees are clear about the linkage of pay with
performance appraisal.

11. Transparency of performance appraisal system -

A majority of 80% employees expressed satisfaction on the

transparency of performance appraisal system.
20% feel that system is not fully transparent.

12. Nexus between performance appraisal and effective

performance –

90% of the employees are of the view that performance appraisal

help them to perform more effectively if a proper feedback is

44
provided to them by the management as it will helps in making
them aware of there shortcomings, identify there training needs.

13. Relationship between training requirements and performance

appraisal –

90% feel that performance appraisal brings to light there training

requirements by pointing out inadequacies in performance.

14. Basis of assessing an individual performance –

60% of the employees are of the view that it should be the

amalgam of targets achieved.
20%, work attitude,
5%, innovative skills,
5%, interpersonal and team relationships,
5%, communication skills,
5%,which should form the basis of assessing an individual’s
performance.

15. Impact of past rating on the current performance –

80% of the employees feel that a negative feedback results in

demoralizing them thereby adversely affecting their work
performance.
20% feel there is always scope for improvement.

16. Knowledge about who decide incremental benefits –

20% of the employees were ignorant about who decides

incremental benefits.
80% are very much aware.

45
17. Discussion with the employee before the final grading –

A majority of 85% employees feel that no discussions whatsoever

are with them before recording their final grading.

46
 FINDINGS

CONCLUSION

In addition to the collection of primary data through the two sets

47
of questionnaire, culling out the relevant material from the
organization’s published material in the form of annual reports,
company reports, interviews with personnel at all levels (staff,
supervisors and executive personnel) were conducted in a relaxed
manner. It was gratifying that they were forthcoming in providing
a fair account of what they perceived to be the organizational
philosophy on performance appraisal and what are their hopes,
aspirations and expectations.

On the basis the exploratory research conducted the following

conclusion emerged:-

1. Awareness, knowledge and understanding of the performance

appraisal system among the personnel at all the levels are fairly
good.

2. Appraisal helps the employees to perform their work more

effectively because the feedback provided by the management
leads to identification of short coming paving the way for training
requirement. This leads to enhance organizational effectiveness in
the long run.

3. A majority of the personnel feel that the performance appraisal

system is transparent enough and is perceived to be reasonable
laying emphasis on objectivity, fairness and clarity.

4. Work environment in the organization was rated to be extremely

congenial and comfortable making the employees put their best
foot forward. Buoyancy was apparent on the faces of the most of
the employees. That’s why almost all (95%) employees had a
sense of pride in the quality of the work done by them in the
organization.

5. The personnel are by and large aware of the organization’s pay

policies, have the knowledge as to who decides their incremental

48
benefits, and the performance appraisal helps the personnel
performance better.

6. The standards of performance fixed by the management are

perceived to be fair by and large. They are however, of the view
that poor performance must not be reflected in terms of earning
them lesser remuneration.

7. The degree of loyalty of the personnel towards the organization

was of the high order. The personnel do not plan to change their
jobs. The employee’s turnover rate has been found to be very slow.

8. Almost all the employees in the organization perceive work as a

duty, enjoyment, challenge and, of course, as a meaning of
earning. They are practically unanimous in holding that they are
always endeavoring to put their best foot forward in the discharge
of their duties.

49
SUGGESTIONS

50
SOME SUGGESTED DO’S AND DON’TS

DO

 Appraise continuously and in a relaxed way; you will

then avoid resentment that is felt for a “formal” annual
review.

 Talk about strengths and weaknesses objectively;

beware of overreacting to good or bad points.

 Avoid saving up praise or criticism for the next

appraisal. Deal with issues as they arise.

 Make criticism specific and illustrate the points you are

trying to make. You must indicate what should have
been done.

 Complete forms carefully and discuss ‘difficult’ issues

with your boss to obtain a rounder picture.

 Be open to changes suggested by the appraisee; they

may lead to better performance.

 Remember that the purpose is to motivate better

performance and provide data for pay and promotion.

51
DON’T

 Believe that your assessment of a bad performance will

ensure that an employee improves.

 Fail to appreciate that individual performance are dependent

upon the team; a bad or a good performance may not lie
entirely within the control of any single team member.

 Dictate what the employee must not do. You can outline the
approach most likely to succeed, but if the individual chooses
not to adopt it, then don’t press your point.

 Obscure criticism by talking ‘around’ it.

 Adopt different standards for different people.

Categories:

 Executive
 Supervisory
 Staff

Methodologies:

 Self and immediate supervisor (for category 1&2)

 Immediate supervisor
 Countersigned by the employee

52
 PERFORMANCE APPRAISAL

EXECUTIVES

1. On self-perspective, like appearance/ administrative skills/

human relations skills/ communication skills/ planning and
organizational skills/ quality of output.
2. Achievements of departmental objectives/ implementation of
departmental standards/ security and safety consciousness/
use and application of resources/ training and development of
subordinates/ degree of responsibility/ leadership qualities.
3. Individual training and development plans.
4. Overall performance and personnel action.

SUPERVISORY

1. Self-assessment by the appraise having 16 aspects.

2. Appraiser’s remark
3. Overall performance
4. Personnel action

STAFF

1. Appraiser’s remark 17 points

2. Overall performance
3. Personnel action

SCALE

53
1 to 4 points on each aspect of appraisal.

1. Poor Performance 2. Average Performance

3. Good Performance 4. Excellent Performance

BIBLIOGRAPHY

54
 REFERENCES

 Heyel C : The Encyclopedia of Management : Reinhold

Publishing Corporation, New York (1973).

 Armstrong M : A Handbook of Personnel Management

Practice : Kogan Page Ltd. London (1995).

 Levinson H : Appraisal of what performance? Harward

Business Review July (1976).

 Laxmipathy V., Performance Appraisal in Public Enterprise

Himalayan Publishing house (1985).

 Megginson L. C., Personnel : A Behavioral Approach to

Administration : Illinois.

 Bolar Malathi : Performance Appraisal : Vikas Publishing

55
 House, New Delhi.

 Bhatia O. P., Performance Appraisal Proceedings of

Seminars IIP (1981).

 Mamoria C. B., Personnel Management, Himalaya

Publishing House, 2000.

 Likert, Rensis, The Human Organization, McGraw-Hill Book

Company, 1964.

56
 ANNEXTURE

QUESTIONNAIRE – 1

Age:
Sex:
Designation:
Department:

1. I am satisfied with appraisal system.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

2. I am fully aware about to exact appraisal rating given to me.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

3. My immediate superior is solely responsible for my appraisal.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

4. The formal appraisal rating done by the other organization

matches my self-assessment.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

57
5. I am fully aware of the criterion used in my performance
appraisal.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

6. The monetary rewards given to me are based on my formal

performance appraisal.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

7. Based on my actual appraisal, better/new job are developed for

me.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

8. I am given formal feedback guidance based upon my

performance given in the appraising rating.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

9. The current formal appraisal system helps my superior to assess

my performance.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

10. The appraisal helps me in getting more appropriate

responsibilities and promotion.

---------------------------------------------------------------------------------

58
---------------------------------------------------------------------------------
11. There is mutual co-operation and understanding with my
superiors in matters related to my job.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

12. I feel that the formal appraisal system is necessary for my

colleagues and me.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

13. The formal appraisal system helps me in discovering my

potential for higher responsibilities.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

14. On the basis of past years performance appraisal, proper

guidance is given for improving future performance.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

15. I have the opportunity to give my frank opinions, view and

problems during the discussion of my performance.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

16. The superior’s superior reviews my appraisal.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

59
17. Sufficient time is spent on discussion and guidance to help me
improve my performance.

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

18. (a) I am satisfied with the appraisal system that I have with my
superiors (in terms of past performance level, personal strength,
salary/promotion/my training needs, personal weakness, problems
and difficulty)

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

(b) In my opinion the ideal ranking in order of the importance of

the factors in 18(a) should be

---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

60
 QUESTIONNAIRE - 2

1. Are you aware of the performance appraisal and promotional

policies in the company?

Yes ( ) No ( ) Only performance appraisal ( )

Only promotion policies ( )

2. Do you think efforts are recognized in the organization?

Yes ( ) No ( ) Sometimes ( )

3. Are you clear about accountability?

Yes ( ) No ( )

4. Is the environment in which you work is congenial.

Yes ( ) No ( )

5. According to you the pay structure should include an element to

reward the length of service.
Yes ( ) No ( )

6. You would like to be assessed.

In every 3 months ( ) In every 6 months ( ) Once a year ( )

7. Are you confident that your superior will appraise you

adequately?
Yes ( ) No ( )

8. Are you aware that you are performing well in your job?
Yes ( ) No ( )

61
9. Every employee in the company has a sense of pride in the
quality of work he/she does:
Yes ( ) No ( )

10. By whom are your Short term goals set?

Yes ( ) No ( )

11. Do you work to the best of abilities?

Yes ( ) No ( )

12. Are you clear about your organizations pay policy?

Yes ( ) No ( )

13. Is it clear to you how performance appraisal links to your pay?

Yes ( ) No ( )

14. Is the performance appraisal system transparent?

Yes ( ) No ( )

15. Does performance appraisal help you to perform more

effectively?
Yes ( ) No ( )

16.Your performance appraisal reveals your training requirements?

Yes ( ) No ( )

17. According to you on what basis you access an Individual

performance.
Targets achieved ( ) Work attitude ( ) Innovative skills ( )
Interpersonal and term relationships ( ) Communication
Skills ( )

62
18. Do past rating affect your current performance?
Yes ( ) No ( )

19. Do you know who decides your increment?

Yes ( ) No ( )

20. Are there any discussion with the employee before the final
grading?
Yes ( ) No ( )

63