PROJECT REPORT ON

PERFORMANCE AND COMPENSATION

By

SAURABH SHARMA
PG20112202

IILM Institute for Higher Education GURGAON

Critically evaluate whether performance appraisals are an outdated form of managing performance. Enumerate their advantages and disadvantages and examine alternatives to improve measurement and assessment in the workplace?

WHAT IS PERFORMANCE APPRAISALPERFORMANCE- It is the accomplishment of a given task measured against preset known standards of accuracy, completeness, cost, speed etc. APPRAISAL- Appraisals are judgments of the characteristics, traits and performance of others. In industry, appraisal is a systematic evaluation of employees by supervisors. Appraisals aid in making administrative decisions like selection, training, promotion, transfer, wage etc. PERFORMANCE APPRAISAL- Thus performance appraisal can be defined as a systematic and objective way of judging then relative worth of ability of an employee in performing his task. It helps to identify those who are performing their assigned tasks well and those who are not and the reasons for such performance. -The process by which a manager or consultant examines and evaluates an employee's work behavior by comparing it with preset standards, documents the results of the comparison, and uses the results to provide feedback to the employee to show where improvements are needed and why. -Performance appraisals are employed to determine who needs what training, and who will be promoted, demoted, retained, or fired. -Performance appraisal is a systematic way of reviewing and assessing the performance of an employee during a given period of time and planning for his future. OBJECTIVES OF PERFORMANCE APPRAISAL To review past performance To assess training needs To help develop individuals To audit the skills within an organizations To set targets for future performance To identify potential for promotion

PROCESS OF PERFORMANCE APPRAISAL Performance appraisal process begins with establishment of performance standards. These standards should be clear and objective enough to be measured and understood. Once standards are established, it is necessary to communicate these expectations. Communication only takes place when the transference of information has taken place and has been received and understood by subordinate. Thus feedback is necessary. The third step in a appraisal process is measurement of performance. The common sources used by managers include- personal observation, statistical reports, oral reports, and written reports. Now comes the comparison of actual performance with standards. It is important to know deviations between standard performance and actual performance. Final step is the initiation of corrective action when necessary. Corrective action may be immediate or basic.

PERFORMANCE APPRAISAL METHODS CRITICAL INCIDENT METHOD- it focuses the raters attention on those critical behaviors that make the difference between doing a job effectively and doing it ineffectively. This method suffers from drawbacks like- Supervisors are reluctant to write these reports on daily or weekly basis as it is time consuming and burdensome on them. - Critical incidents do not lend themselves to quantification. Thus comparison is difficult. GRAPHIC RATING SCALE- One of the oldest and popular methods. it is used to assess factors such as quantity and quality of work, job knowledge, cooperation, loyalty, honesty etc. If ambiguity occurs, bias is introduced. But this method is less time consuming and permits quantitative analysis. FORCED CHOICE METHOD- In this, the rater has to choose between 2 or more statements, all of which may be favorable or unfavorable. The appraisers job is to identify which statement is most or least descriptive of the individual being evaluated. To reduce bias, the right answers are not known to the rater. CHECKLISTS- The evaluator uses a bit of behavioral descriptions and checks of those behaviors that apply to the employee. The evaluator merely goes down the list and gives yes or no responses. After that it is evaluated by the staff of personnel department. The rater only records the performance but doesnt evaluate. At last the feedback is shared with the subordinate. BEHAVIOURALLY ANCHORED RATING SCALES- These scales combine major elements form the critical incident and graphic rating scale approaches. Appraiser rates the

employees on the points that are examples of actual behavior rather than general traits. This method helps to reduce rating errors and assesses behavior over traits. GROUP ORDER RANKING- It requires evaluator to place employees into a particular classification like top one-fifth or second one-fifth. Employees are ranked as top 5%, the next 5%, the next 15%. But this method doesnt hold good when number of employee is less. Another drawback is that the comparison is relative , therefore a mediocre employee may score high because he/she is the best of the worst. INDIVIDUAL RANKING- Employees are listed in an order from highest to lowest. Thus only one can be the best. MANAGEMENT BY OBJECTIVES (MBO) - It is a process that converts organizational objectives into individual objectives. Consists of 4 steps: goal setting, action planning, self-control, and periodic reviews. This process is useful as it is result oriented and helps employees to know exactly what is expected of them and how they will be evaluated. 360 APPRAISAL- It involves collecting perceptions about a persons behavior from the persons boss, direct reports, colleagues, fellow members, customers and suppliers. Also called multi-rater feedback or multi-source feedback. This process helps in- Improved feedback - Fosters team development - Helps in career development - Reduces discrimination risk - Improved customer service - Training needs assessment - Team effectiveness - Improved communication

BENEFITS OF PERFORMANCE APPRAISAL- the performance appraisal benefits both the

appraiser and the appraise and in turn benefits the organization. Some of the benefits can beFOR THE APPRAISER Helps to develop an overview of individual jobs and departments. Identification of ideas for improvements Helps to link individual objectives with organizational objectives. Opportunity to re-prioritize targets. More trust and understanding with staff.

FOR THE APPRAISEE Increased motivation. Increased job satisfaction.

Clarification of expectations of superiors from individuals. Increased sense of personal value.

FOR THE ORGANIZATION More effective communication of organizations objectives and therefore better performance and loyalty. Identification of ideas for improvement. Long term plans can be developed. Training and development needs can be identified. People with potential can be identified and career development plans can be formulated for staff.

Although performance appraisal brings to the organization a lot of benefits but there is no denying the fact that because of the presence of bias and some errors this process has been termed outdated by many organizations and therefore they are looking for some better alternatives. These alternatives include peer evaluations, ongoing feedback, coaching etc. Thus performance appraisal process might not be a part of organizations in future. Even the management gurus are saying that these alternatives will soon take place of performance appraisal. Due to the limitations in performance appraisal process, it is proving to be destructive instead of being constructive. One downfall of a performance appraisal is that it doesn't always facilitate collaboration between employers and employees. Another problem with performance appraisals is that they address issues that have already occurred -sometimes many months in the past. Some companies are coming to realize that there are better, and more productive ways to communicate with employees. Performance appraisals are slowly becoming the internal metric of the past, being replaced with a better alternative.

LIMITATIONS OF PERFORMANCE APPRAISAL- Here are some limitations of this method

because of which it is now being considered as outdated and therefore the organizations are looking for better alternatives. The limitations and the errors in the process are HALO EFFECT- It is a tendency to rate high/low on all factors due to the impression of a high or low rating on some specific factor. For example- if an employee tends to be dependable, the supervisor might become biased towards him and may rate him/her high on many desirable attributes. TIMELINESS- Employees must receive timely feedback to learn whether they're performing their job functions according to expectations. Absent informal or formal feedback provided by a performance-appraisal system, employees might not realize

how they can improve their processes or their behaviors and attitudes about work. A supervisor's failure to conduct timely performance appraisals demonstrates poor leadership skills and can put a strain on the supervisor-employee relationship. HORN EFFECT- In this case only the negative qualities of the employee are considered and based on this appraisal is done. This again will not help the organization because such appraisal may not present a true picture about the employee. SIMILARITY ERROR- When evaluators rate other people in the same way that the evaluators perceive themselves they are making a similarity error. For example- the evaluator who perceives him/herself as aggressive may evaluate others by looking for aggressiveness. SUPERVISOR BIAS- Intentional or unintentional biases can destroy the integrity of the performance-appraisal system. Biases occur when supervisors overlook poor employee performance during the early part of an evaluation period and focus solely on the most recent performance. Supervisor bias can occur when supervisors feel it's too much work to produce a quality performance appraisal, resulting in a less than properly constructed appraisal. LOW APPRAISER MOTIVATION- If the evaluator knows that a poor appraisal could significantly hurt the employees future(promotion/salary) the evaluator may be reluctant to give a realistic appraisal.. LENIENCY AND STRICTNESS- Some bosses are lenient in grading their employees while some are very strict. Employee who really deserves promotions may lose the opportunity due to strict bosses while those who may not deserve may get benefits due to lenient boss. CENTRAL TENDENCY- In this case the superior gives an appraisal by giving central values. This prevents a really talented employee from getting promotions he deserves and some employees who do not deserve anything may get promotion. SPILL OVER EFECT- In this case the employee is judged positively or negatively by the boss depending upon the past performance. Therefore although the employee may have improved performance, he may still not get the benefit. RECENCY VS PRIMACY EFFECT- Recency refers to the proximity to appraisal period. Generally an employee takes it easy for the whole year and when comes the appraisal time, he/she becomes very active which creates an illusion of high efficiency and in turn benefits the employee as rater rates him/her high. In primacy the initial impression influences the decision on year end appraisal irrespective of whether the employee has been able to keep up the initial impression or not. FEAR OF LOSING SUBORDINATES AND SPOILING RELATIONS- Many bosses do not wish to spoil their relations with their subordinates. Therefore when they appraise the

employee they may end up giving higher grades which are not required. This is an injustice to really deserving employees. LACK OF CLARITY- The objective of performance appraisal is to evaluate and develop employees. Any performance appraisal system, however good the design, is unlikely to succeed if the managers and employees are suspicious of its objectives. All these limitations and errors in the performance appraisal system has accounted for its abolition by many organizations already and in future is likely to be replaced by some better and efficient alternatives in most of the organizations. The above mentioned issues focus mainly on reliability and validity of performance appraisal. The question what is appraised is what was supposed to be appraised cannot be answered as long as appraisal format continues to involve subjective judgment. Some of the steps that can help improve the system are- Develop goals tied to the organizations annual plan. All department and individual goals should play a part in achieving the annual plan. - Engage employees in developing and assessing goals and achievements. - The supervisors should be told that performance appraisal is an integral part of their job duties and they themselves would be evaluated on how seriously they have taken this exercise. - Supervisors need to be provided systematic training on writing performance reports. - System should be designed in a way that it is easy to understand and not impossible to practice. - After the appraisal is over, the supervisor should monitor the employee whether the improvement in weak areas is taking place or not and if not, help the employee to achieve the required improvement. - Results are a combination of WHAT is done and HOW its done. Measure and assess both in order to develop a culture that reflects the organizations values. - Realize that a performance appraisal is an annual activity, but a performance management process is continuous. The performance appraisal is NOT a suitable replacement for regular ongoing feedback. - Celebrate goal achievement by individuals, departments, and the entire organization. - Finally, reviewing, the appraisal systems every now and then help updating it, and making suitable changes in it. This is the most important factor in making appraisals effective.

All these points should be kept in mind so that the performance appraisal serves the purpose of the organization and is efficient as well as effective. In addition to these, there are some alternatives that can prove more beneficial than performance appraisal. The alternatives are-

ALTERNATIVES TO IMPROVE MEASUREMENT & ASSSESSMENT IN WORKPLACESome of the alternatives are PERIODIC PLANNING CONFERENCES- Through periodic planning conferences, employees and their leaders concentrate on the future, constructively discussing ways the employee can improve his or her performance and productivity, acquire new skills and grow both personally and professionally. Periodic planning conferences focus on future behaviors versus discussing the past, which tends to be a much more positive and motivational conversation. This approach also gives the employee an opportunity to tell his leader how she can help facilitate suggested growth. Its a two -way conversation vs. a one-way review which isnt nearly as productive. ONGOING FEEDBACK- Instead of sharing reviews annually, managers should share both disappointments and expectations on a day-today basis. Thus there will be no surprises at the time of annual formal review. PEER EVALUATIONS- This differs from a performance appraisal in that it is based on a consensus of individuals at the same level of authority as the people they are evaluating. Peer evaluations facilitate teamwork and satisfactory interpersonal skills among employees rather than impelling individuals to appear to be the best employee when under a supervisor's observation. SELF REVIEWS- Ask employees to rate themselves in key areas and suggest their own ideas to make needed improvements. For example, employees can evaluate their personal ratings and create specific, realistic goals based on their successes or weaknesses. Meet with employees to discuss their results. PERFORMNACE PREVIEWS- While a performance appraisal focuses on the past, a performance preview looks to the future. To conduct a performance preview, you sit down with your employees one-on-one and discuss in detail how you can improve your working relationship in the future to meet specific goals. Unlike performance appraisals, performance previews can take place whenever the manager or employer determines that improvement is needed -- on a daily, weekly or monthly basis. MULTIPLE RATERS- As the number of raters increase, the probability of attaining more accurate information increases. If a person has had ten raters, nine having rated him or her excellent and on poor, we can discount the value of one poor evaluation.

 COACHING- Coaching provides employees with support, feedback, challenges and guidance. It differs from a performance appraisal because it is ongoing. Coaching helps employees develop a sense of awareness and responsibility in relation to their job. Instead of telling employees how to improve, it encourages them to figure out how to solve problems on their own and make necessary adjustments. PROCESS APPRAISAL- Process appraisal is another alternative to performance appraisal. This tool focuses on the elements of a process that are likely to lead to successful outcomes. BEHAVIORALLY BASED MEASURES- Behaviorally based measures should be given preference over traits based measures. Many traits often have a little or no performance relationship. Thus managers should prefer behavior oriented measures rather than trait based. These were the few alternatives that can prove beneficial and can serve the purpose that performance appraisals are not able to. These alternatives can also cover the negative points of performance appraisals. Finally, a performance appraisal is only as good as the performance management, system it is part of. If an organization merely does performance appraisals for the sake of doing them, they are wasting their time. But if they strategically incorporate performance management into their strategic plan to implement business goals, they will provide a process to accomplish those goals. And even then if it doesnt benefit the organizations, the alternatives then can certainly serve the purpose.