CHAPTER-3 REVIEW OF THE LITERATURE 3.1.

Theoretical Review Effective performance appraisal: Aside from formal traditional (annual, six-monthly, quarterly, or monthly) performance appraisal, there are many different methods of performance evaluation. The use of any of these methods depends on the purpose of the evaluation the individual, the assessor and the environment. The formal annual performance appraisal is generally the over-riding instrument which gathers together and reviews all other performance data for the previous year. Performance appraisal should be positive experiences. The appraisal process provides the platform for development and motivation, so organization should foster a feeling that performance appraisal are positive opportunities, in order to get the best out of the people and the process. In certain organizations, performance appraisal are widely regarded as something rather less welcoming which provides a basis only on which to develop fear and resentment, so never,never,never use a staff performance appraisal to handle matters of discipline or admonishmen,which should instead be handled via separately arranged meetings. The relationship between participation in the performance appraisal process and various employee reactions was explored through the meta-analysis of 27 studies containing 32 individual samples. The overall relationship () between participation and employee reactions, corrected for unreliability, was .61. Various conceptualizations and operationalizations of participation and employee reactions also were discussed and analyzed. Overall, appraisal participation was most strongly related to satisfaction, and value-expressive participation (i.e., participation for the sake of having one's "voice" heard) had a stronger relationship with most of the reaction criteria than did instrumental participation (i.e., participation for the purpose of influencing the end result). The results are discussed within the framework of organizational justice.

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PERFORMANCE APPRAISAL: According to Flippo, Performance Appraisal is the systematic, periodic and so far as humanly possible, an important rating of an employees excellence in matters pertaining to his present job and his potential for a better job. According to Shubin, Performance Appraisal is a systematic appraisal of the employees personality traits and performance on the job and is designed to his contribution and relative worth to the firm. Performance appraisal is the procuring, analyzing and documenting of facts and information about an employee's net worth to the organization. It aims at measuring and constantly improving the employee's present performance and tapping on the future potential. Performance appraisal is the process of obtaining, analyzing and recording information about the relative worth of an employee. The focus of the performance appraisal is measuring and improving the actual performance of the employee and also the future potential of the employee. Its aim is to measure what an employee does. Performance appraisal is a method by which the job performance of an employee is evaluated based on their quality, quantity, cost, time, behavior, and attitude typically by the corresponding manger or supervisor. Meaning:Performance Appraisal is a method of evaluating the behavior of employees in the work spot, normally including both the quantitative and qualitative aspects of job performance. Performance here refers to the degree of accomplishment of the tasks that make up an individual job. It indicates how well an individual is fulfilling the job demands. Often the term is confused with effort, but performance is always measured in terms of results and not efforts. Under performance appraisal we evaluate not only the performance of an employee but also his potential for development.Managing employees performance is an integral part of the work that all managers and rating officials perform throughout the year. Performance appraisals, a very
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important function of the human resources department for any organization, are conducted to gauge the net worth of all its employees. For launching or applying performance appraisal in the organization the first step is to identify organization goals and explains them to the employees along with individual goal, the time period by which goals must be achieved and ways or methods by which their performance is going to be evaluated. FAQs about Performance Appraisal Program A) What is the purpose of performance appraisal? Performance appraisals help to strategically review the performance of the employees, their strengths, weakness and accomplishments during the year. Performance appraisal allows deciding the goals, objectives and the desired performance standards for the employee for the upcoming year. B) How should the self appraisal be used? Self appraisal or self evaluation is the review of the performance by the employee himself. The self evaluation should be discussed with the employee and if appropriate, should be incorporated in the final rating. C) Is there any comprehensive formula to calculate the overall rating? No, there is no comprehensive formula for doing so. The overall rating should be based on a number of factors like the extent of goals achieved the overall performance of the employee, his competencies etc. D)How should the rating been given if there has been a change or supervisor or manager during the period of appraisal? To complete the performance appraisal subjectivity and fairly, it is advised to consult the previous supervisor or manager. if this is not possible, consult the supervisors superior to get his views and inputs.

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E) How can input or feedback be collected for the appraisal process? Different input forms can be used for taking the feedback from the various sources like the superior, peers, customers, vendors and the employee himself. All the perspectives thus received should be combined in the appropriate manner and to get an overall, complete view of the employees performance. Observation can also be exercised by the superior to obtain information. F) What if the employee refuses to agree or accept the review? First of all, ensure that the employee has got a change to review his completed appraisal form. If the employee refuses to accept his appraisal.try to sort out the problem by discussing his reasons of dissatisfaction with him calmly if the employee refuses to co-operate, then pass the documents to the HR department with a note on it that the employee has refused to accept and let them take the necessary action. Analysis for improving performance Any performance review process is incomplete without the feedback to the employees. The feedback could be given in the review discussion. Review discussions are semi formal, schedule, periodic interactions-usually bimonthly or quarterly between a manager and his employee. The basic purpose of the review discussion is toanalyze the performance of the employee in the past to improve the performance of the employee in future. A review discussion is an opportunity to coach, mentor, learn and understand. The manager encourages his/her employees to critically reflect over progress made on the performance appraisal plan and to develop creative, yet feasible alternatives for problem areas. The manager user this opportunity to: Review the performance of the each employee individually Discuss the problem faced by the employees during the course of action The solution tried, and the degree of success achieved in solving the problem faced Revisit with the employee, his/her annual plan for the remaining time period and develop revised action plans. If necessary
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PERFORMANCE APPRAISAL Performance appraisal is the process of obtaining, analyzing and recording information about the relative worth of an employee. The focus of the performance appraisal is measuring and improving the actual performance of the employee an also the future potential of the employee. Its aim is to measure what an employee does. According to Flippo, a prominent personality in the field of human resources performance appraisal is the systematic, periodic and an impartial rating of an employees excellence in the matters pertaining to his present job and his potential for a better job. Performance appraisal is a systematic way of reviewing and assessing the performance of an employee during a given period of the time and planning for his future. It is a powerful tool to calibrate, refine and reward the performance of the employee. It helps to analyze his achievements and evaluate his contribution towards the achievements of the overall organization goals. By focusing the attention on performance, performance appraisal goes to the heart of personnel management and reflects the managements interest in the progress of the employees. PURPOSE OF PERFORMANCE APPRAISAL: Why you do performance appraisal? Purpose of performance appraisal includes elements as follows: 1. Career Development: This provides an opportunity for discussion of career objectives, and creation of a strategy designed to maximize career potential. To provide an opportunity for career counseling. To help in succession planning. To plan for career development. To assess and develop individual abilities

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2. Feedback: As well, feedback is encouraged in both directions: as such, employees are encouraged to prepare ratings of their supervisors. To provide constructive feedback to the individual regarding how their performance is seen. This provides a structured format for the discussion of performance issues on a regular basis. Feedback either reinforces performance strengths, or provides the opportunity to discuss resolution of performance deficiencies.

3. Administrative Uses of Performance appraisal: Salary. Promotion. Retention/termination. Recognition of performance. Layoffs. Identification of poor performers. 4. Performance History: This provides a performance history which is not dependent upon human memory, and which may be useful in the full range of personnel decisions, including compensation decision-making. To review past and present performance, identifying strengths and weaknesses. 5. Organizational Goals: To clarify, for the individual, organizational expectations. This provides an opportunity to view ones performance in the context of broader organizational goals. To assess future promotion prospects and potential. To set objectives for the next period.

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6. Job Standards: This provides an opportunity for clearer articulation and definition of performance expectations. 7. Documentation use of Performance appraisal: Documentation for HR decisions. Helping to meet legal requirements. Performance Appraisal is being practices in90%of the organization worldwide. Self appraisal and potential appraisal also form a part of the performance appraisal processes.

PROCESS OF PERFORMANCE APPRAISAL

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ESTABLISHING PERFORMANCE STANDARDS

The first step in the process of performance appraisal is the setting up of the standards which will be used to as the base to compare the actual performance of the employees. This step requires setting the criteria to judge the performance of the employees as successful or unsuccessful and the degree of their contribution to the organization goals and objectives. The standards set should be clear, easily understandable and in measurable terms. In case the performance of the employee cannot be measured, great care should be taken to describe the standards.

COMMUNICATING THE STANDARDS: Once set, it is the responsibility of the management to communicate the standards to all the employees of the organization The employees should be informed and the standards should be clearly explained to the employees. This will help them to understand their roles and to know what exactly is expected from them. The standards should also be communicated to the appraisers or the evaluators and if required, the standards can also be modified at this stage itself according to the relevant feedback from the employees or the evaluators. MEASURING THE ACTUAL PERFORMANCE: The most difficult part of the performance appraisal process is measuring the actual performance of the employees that is the work done by the employees during the specified period of time .It is a continuous process which involves monitoring the performance throughout the year. This stage requires the careful selection of the appropriate techniques of measurement, taking care that personal bias does not affect the outcomes of the process and providing assistance rather than interfering in an employees work.

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COMPARING THE ACTUAL WITH THE DESIRED PERFORMANCE: The actual performance is compared with the desired or the standard performance. The comparison tells the deviations in the performance of the employees from the standards set. The result can show the actual performance being more than the desired performance or the actual performance being less than the desired performance depicting a negative deviation in the organization performance. It includes recalling, evaluating and analysis of data related to the employees performance DISCUSSING RESULTS: The result of the appraisal is communicated and discussed with the employees on one to-one basis. The focus of this discussion is on communication and listening. The result the problem and the possible solution are discussed with the aim of problem solving and reaching consensus. The feedback should be given with a positive attitude as this can have an effect on the employees future performance. The purpose of the meeting should be to solve the problem faced and motivate the employees to perform better. DECISION MAKING: The last step of the process is to take decisions which can be taken either to improve the performance of the employees, take the required corrective actions, or the related HR decisions like rewards, promotions, demotion, transfers etc. Pre requisites for effective & successful performance appraisal The essential of an effective performance system are as follows: 1. Documentation: Means continuous noting and documenting the performance. It also helps the evaluators to give a proof and the basis of their ratings. 2. Standards/Goals The standards set should be clear, easy to understand, achievable, motivating, time bound and measurable
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3. Practical and simple format The appraisal format should be simple, clear, fair and objective. Long and complicated formats are time consuming, difficult to understand, and do not elicit much useful information 4. Evaluation technique An appropriate evaluation technique should be selected; the appraisal system should be performance based and uniform. The criteria for evaluation should be based on observable and measurable characteristics of the behaviors of the employee 5. Communication: Communication is an indispensable part of the performance appraisal process. The desired behavior or the expected results should be communicated to the employees as well as the evaluators.Communication also plays an important role in the review of feedback meeting. Open communication system motivates the employees to actively participate in the appraisal process. 6. Feedback: The purpose of the feedback should be development rather than judgment alto maintain its utility, timely feedback should be provided to the employees and the manner of giving feedback should be such that it should have a motivating effect on the employees future performance. 7. Personal Bias: Interpersonal relationship can influence the evaluation and the decisions in the performance appraisal process. Therefore, the evaluators should be trained to carry out the processes of appraisals without personal bias and effectively

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Performance appraisal as career development Performance appraisal is a part of career development.the latest mantra being followed by organizations across the world being get paid according to what you contribute the focus of the organizations is turning to performance management and specifically to individual performance. Performance appraisal helps to rate the performance of the employees and evaluate their contribution towards the organization goals. Performance appraisal leads to the recognition of the work done by the employees, many a times by the means of rewards and appreciation etc.it plays the role of the link between the organization and the employees personal career goals. Potential appraisal, a part of performance appraisal helps to identify the hidden talents and potential of the individuals. Identifying these potential talents can help in preparing the individuals for higher responsibilities and positions in the future. the performance appraisal process in itself is development in nature Performance appraisal is also closely linked to other HR processes like help to identify the training and development needs, promotions, demotions, change in the compensation etc. Approaches to performance development Traditional approaches: Traditionally, performance appraisal has been used as just a method for determining and justifying the salaries of the employees. Than It began to be used a tool for determining rewards (a rise in the pay) and punishments (a cut in the pay) for the past performance of the employees. This approach was a past oriented approach which focused only on the past performance of the employees i.e. during a past specified period of time. This approach did not consider the developmental aspects of the employee performance i.e. his training and development needs or career developmental possibilities. The primary concern of the traditional approach is to judge the performance of the organization as a whole by the past performance of its employees. Therefore this approach is also called as the overall approach. in 1950s the performance appraisal was recognized as a complete system in itself and the modern approach to performance appraisal was developed.

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Modern approaches: The modern approach to performance development has made the performance appraisal process more formal and structured. now the performance appraisal is taken as a tool to identify better performing employees from others, employees training needs, career development paths , rewards and bonuses and their promotions to the next levels. Appraisal have become a continuous and periodic activity in the organization the results of performance appraisal are used to take various other HR decisions like

promotions,demotions,transfers, training and development reward outcomes. The moderns approach to performance appraisal includes a feedback process that helps to strengthen the relationship between superiors and subordinates and improve communication throughout the organization The modern approach to performance appraisal is a future oriented approach and is development in nature. This recognizes employees as individuals and focuses on their development Tie in to employee performance: The balanced scorecad approach can be used and applied at both the individual and the organizational level. It provides a balanced approach to evaluate the employees performance in a comprehensive manner rather than a partial view. In most of the organizations, the common practice of measuring the employee performance refers to only the comparison of their action

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3.2. APPLIED REVIEW A study conducted by Alexander, S. and Ruderman, M. (1987) entitled "The Role of Procedural and Distributive Justice in Organizational Behaviour" reveals that Performance appraisal of candidates in relation to a particular position is a key task towards managing the human resources of an organization. Supervisors are concerned with performance appraisal judgments and evaluations that they have to make on their subordinates. On the other hand, subordinates are increasingly realizing the importance of performance appraisal since it would very much affect their rewards and future career path. As the world began to shift towards knowledge based capitalism, it reminds all organizations on the importance of maintaining their talented knowledge workers. Therefore, discovering and promoting the most qualified Candidates are essential because valuable human expertise is the main source of competitive advantage for the organizations. Thus, the creation of performance criteria is an important requirement towards performance appraisal. D. W., Johnston, M., &Moncrief, W. C conducted a study in the year 1996 entitled Examining the role of organizational variables in the salesperson job satisfaction model". Their study reveals that Performance appraisal is usually conducted periodically within an organization to examine and discuss the work performance of subordinate so as to identify the strengths and weaknesses as well as opportunities for improvement among employees. Following this, most of the employers use the performance appraisal result to determine if a particular staff should be terminated or reinforced; as an employee development and coaching tool; to give a practical evaluation of an employees readiness for promotion; and to serve as the foundation for giving merit bonus. Barnes (1997) notes that 360-degree appraisal moves the manager back into a comfort zone as she or he is now only one among a number of assessors. In addition, it greatly reduces the problems of central tendency, positive skewness, and halo effects, it reduces defensiveness on the part of the appraisee because there are a variety of assessors, and it recognizes that subordinates are best placed to assess leadership or people management skills. The technique is said to be helpful in defending legal challenges of the outcome of appraisals, it

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meets the demands for employee empowerment and involvement, and it is a useful tool in tapping employee opinions and attitudes. Performance Appraisal System: Different PurposesFirms engage in the performance-evaluation process for numerous reasons. Managers may conduct appraisals to affect employee behavior through the feedback process, or to justify some sort of human resource management action (termination, transfer, promotion, etc.). However, many other benefits may also accrue from the information yielded by the appraisal. These benefits include increases in knowledge regarding the effectiveness of selection and placement programs, training and development needs, budgeting; human resource planning, and reward decisions (Cocanougher&Ivancevich, 1978; Dubinsky, Skinner, & Whittler, 1989; Thomas &Bretz, 1994; Wanguri, 1995). Perhaps the overriding reason for performance appraisals is provided by Ilgen and Feldman (1983). They contend that organizations cannot function effectively without some means of distinguishing between good and poor performance. The study conducted by Drucker, 1994; Barney entitled Performance and satisfaction in an industrial sales force: an examination of their antecedents and simultaneity" reveals that appraisal is potentially one way in which those efforts can be aligned with the aims of an organization, employees can be motivated and their performance managed. According to Yehuda Baruch (1996), Performance Appraisal systems are used for two main purposes: - To serve a variety of management functions such as decision-making about promotions, training needs, salaries, etc.To enhance developmental processes of employees or as an evaluation instrument The performance appraisal is a technique that has been credited with improving performance (Bagozzi, 1980; DeCarlo& Leigh, 1996; Jaworksi&Kohh, 1991) and building both job satisfaction and organizational commitment (which has been related to lower levels of turnover) (Babakus, Cravens, Johnston, &Moncrief, 1996; Babin&Boles, 1996; Brown & Peterson, 1994; Churchill, Ford, Hartley, &Walker, 1985). Although the relationship between appraisals and performance may not be a direct and causal one, their impact on performance may be attributed to their ability to enhance: role clarity, communication effectiveness, merit pay and administration, expectancy and instrumentality estimates, and perceptions of equity. Duhinsky,
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Jolson, Michaels, Kotahe, and Lim (1993) discuss the concept that increases in role clarity can affect both the effort/performance expectancy and performance/reward instrumentality estimates. Thus, by reducing ambiguity performance appraisals may positively influence the levels of motivation exhibited by employees. More frequent appraisals and feedback help employees to see how they are improving, and this should increase their motivation to improve further (cf. Kluger and DeNisi, 1996). Wendy R. Boswelljohn W. Boudreau (2000), examined two typical performance appraisal uses: evaluative and developmental. The evaluative function includes the use of performance appraisal for salary administration, promotion decisions, retention termination decisions, recognition of individual performance, layoffs, and the identification of poor performance. Appraisals are generally considered to have a positive influence on performance, but they also may have a negative impact on motivation, role perceptions, and turnover when they are poorly designed or administered (Churchill et al., 1985). According to Levy and Williams (2004), . . . if participants do not perceive the system to be fair, the feedback to be accurate, or the sources to be credible then they are more likely to ignore and not use the feedback they receive. Indeed, the significance of feedback to the appraisal process as well as to the broader management process has been widely acknowledged (Bernardin and Beatty, 1984; Ilgen et al., 1979; Lawler, 1994; Murphy and Cleveland, 1995). First, from the organizations point of view, feedback keeps both itsmembers behavior directed toward desired goals and stimulates and maintains highlevels of effort (Lawler, 1994; Vroom, 1964). From the individuals point of view, feedback satisfies a need for information about the extent to which personal goals are met (Nadler, 1977), as well as a need for social comparison information about onesrelativeperformance (Festinger, 1954).Second, feedback potentially can influence future performance (Ilgen et al., 1979; Kluger and DeNisi, 1996). Third, it is believed to play a significant role in the development of job and organizational attitudes (Ilgen et al., 1981; Taylor et al., 1984).Performance feedback should include information on how to improve performance, along with information about what areas of performance need improvement. The frequency of feedback is also important. The rating scales should focus on results as much as on processes. Thus, feedback is not only important to individuals but also to organizations because of its

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potential influence on employee performance and a variety of attitudes and behaviors of interest to organizations. The ultimate goal of performance appraisal should be to provide information that will best enable managers to improve employee performance. Thus, ideally, the performance appraisal provides information to help managers manage in such a way that employee performance improves (Angelo S. DeNisi and Robert D. Pritchard, 2006). Providing the employee with feedback is widely recognized as a crucial activity. Such feedback may encourage and enable selfdevelopment, and thus will be instrumental for the organization as a whole Yehuda Baruch (1996). Larson (1984) supports the importance of evaluations in terms of their effect on organizational effectiveness, stating that feedback is a critical portion of an organization's control system. The distributive justice: The study of distributive justice deals with the perceived fairness of the outcomes or allocations that individuals in organizations receive (Folger and Cropanzano, 1998). In the case of performance appraisal, distributive justice requires that performance appraisal ratings meet employee expectations, outcomes are based on the ratings, and outcomes meet the expectations of employees (Bowen et al., 1999).- The procedural justice: The study of

procedural justice focuses on the fairness of methods that are used in organizations to arrive at distributive justice. It addresses fairness issues concerning the methods, mechanisms, and processes used to determine outcomes (Folger and Cropanzano, 1998). Perceptions of procedural justice reflect an appraisal of the process by which an allocation decision is {or was) made (Folger and Cropanzano, 1998). Leventhal and colleagues have been credited with

importing the concept to organizational settings from the legal literature (Leventhal, 1980). Leventhals theory of procedural justice focused on six criteria that a procedure should meet if it is to be perceived as fair. Procedures should: a- be applied consistently across people and time, b- be free from bias, c- ensure that accurate information is collected and used in making decisions, d- have some mechanism to correct flawed or inaccurate decisions, e- conform to personal or prevailing standards of ethics or morality,

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f- ensure that the opinions of various groups affected by a decision have been taken into account. (Colquitt et al., 2001)Applied to questions of performance appraisals, procedural justice underlies two theories: control theory and the group-value model. In control theory (Thibaut& Walker, 1975) it is assumed that individuals prefer to be in control of decision-making processes rather than be passive recipients. For example, in a recent study of computer-based performance monitoring, Douthitt and Aiello (2001) reported that employee participation (providing input related to the expression of work process preferences) had a positive impact on perceptions of procedural justice. However, they showed that the ability to control the computer monitoring (if it was on or off) did not significantly influence perceptions of justice. Their findings suggest that various forms of control (decision and process) may partially determine the perceived fairness of performance appraisal systems. Previous research on 360-degree feedback has found that rates approve of these appraisals when they are used for developmental purposes but are not as accepting when they are used for evaluation (for example, Antonioni, 1996; Ash, 1994; McEvoy, 1990; McEvoy, Buller, and Roghaar, 1988).

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