Topic

Performance
Appraisal

LEARNING OUTCOMES
By the end of this topic, you should be able to:
1.

Explain performance appraisal its process and application;

2.

Describe the approaches and methods in performance appraisal; and

3.

Discuss the problems related to performance appraisal.

INTRODUCTION
In the previous topic, we have discussed several effective methods in hiring and
developing excellent employees. However, having talented employees is not
enough. A successful organisation must also drive their employees to achieve
beneficial goals, not only for the organisation but also for themselves. In this
topic, we will discuss the performance appraisal, which is one of the methods
that may be used to maintain and raise productivity by helping the organisation
to achieve its goals.
We will begin this topic by defining the meaning of performance appraisal and its
functions. Then, we will discuss the performance appraisal process, its effective
features and who should conduct a performance appraisal. We will end the topic
with a discussion on the methods in performance appraisal and the related
problems.

TOPIC 7

7.1

PERFORMANCE APPRAISAL

97

DEFINITION OF PERFORMANCE
APPRAISAL
ACTIVITY 7.1

Actually, we have all gone through some form of performance

appraisal at one time. For example, at school, our performance was
evaluated through exams.
Think how your performance may be evaluated if you work in a bank.
You may have a lot of experience in conducting a performance appraisal. For
example, some colleges ask the students to appraise their lecturers. Performance
appraisal may be defined as an official system that has to be conducted from time
to time to evaluate and revise individual or group performance. It involves the
identification, measuring and management of human resource in an organisation.
Identification means determining the field of work to be studied by a manager
when the performance is measured. Performance appraisal systems should
concentrate on factors that influence the success of the organisation and not on
features that are not related such as race, gender or age.
Measurement is the pulse of any evaluation system. A manager makes
managerial decisions on how good or bad the performance of an employee.
A good appraisal system must be the same in the organisation. A manager in an
organisation must maintain the comparable evaluation standard.
Management is an entity that is usually not taken seriously by managers in an
appraisal system. Performance appraisal is usually considered a time orientated
activity and is used to criticise or complement an employee for his performance
in the previous year. However, it should be future orientated. It should take into
account what should be done by an employee to remain qualified in an
organisation. It means that a manager must provide employees with feedback
and instructions to attain a higher performance.
A manager is responsible not only for maintaining and improve his performance
level but also the performance of others. A manager must be aware that a
performance appraisal provides an overall view. It is a continuous process and
not a process that happens annually.

98

7.2

TOPIC 7

PERFORMANCE APPRAISAL

USES OF PERFORMANCE APPRAISAL

Define the relationship between performance appraisal and selection, training

and development in your own words.
You may think that a performance appraisal is used for a limited purpose, to
appraise the best employee. Essentially, performance appraisal is a useful method
for an organisation. A performance appraisal can fill many functions that are
beneficial to the organisation and to the individuals being appraised.
Generally, an organisation does a Performance Appraisal for managerial or
development purposes.
(a)

Managerial Purposes
From the managerial standpoint, performance appraisal provides the input
that may be used for all human resource management activities.
Performance appraisal may be used as a basis for remuneration decisions,
especially in determining salary adjustments. Performance appraisal is also
directly connected to several important human resource functions such as
job promotion, transfer, and decision on temporary layoff. Data from the
performance appraisal may be used in human resource planning, to
ascertain a relative value of a job under a job evaluation programme and as
a criterion to validate selection tests. Essentially the success of the whole
human resource programme depends on the employees performance as
compared to the goals to be achieved by them. This is because the
performance appraisal can influence an employees behaviour and therefore
improve his performance level.

(b)

Development Purposes
In terms of individual development, performance appraisal gives important
feedback in discussing the strengths and weaknesses of an employee and
how to improve his performance. Without taking into account the
employees performance, the appraisal process identifies issues for
discussion, like getting rid of problems that may arise and the setting of
new goals in order to achieve a better performance. Performance Appraisal
may highlight the training and development need of an employee. By
showing the shortcomings of an employee, managers and human resources
may plan a training and development programme that allows an individual
to improve his strengths and minimise his weaknesses. This is one of the
advantages of a performance appraisal programme as it sets a perfect
foundation for improving performances.

TOPIC 7

PERFORMANCE APPRAISAL

99

ACTIVITY 7.2
Explain the relationship between performance appraisal and selection,
training and development by using your own words. You may refer to
Mondy, Noe & Premeauxs (2000) text book as listed on page (xiii) from
this module.

7.3

PERFORMANCE APPRAISAL PROCESS

Now we will discuss the process in performance appraisal. It consists of the

following steps:
(a)

Determining the Goals of Performance Appraisal

It is the starting point in a performance appraisal process. As the appraisal
system is unable to achieve all goals effectively, a manager has to determine
some goals that should be realistic and achievable. For example, some
companies emphasise staff development and some emphasise managerial
decisions such as salary adjustments. Most performance appraisal systems
fail because the management does not only fail to set the goals but it tries to
achieve too many goals through this system.

(b)

Determining Job Expectations

After determining the goals of the performance appraisal system,
employees and team members need to understand what is expected from
them in the job. While determining the duties and job standards, a manager
should discuss with the employees to get further information (input) and
their agreement to the goals to be appraised.

100

TOPIC 7

PERFORMANCE APPRAISAL

(c)

Performance Appraisal
In this step, an employees actual performance is compared to the
established standards.

(d)

Feedback Session
In the feedback session, employees performance and progress will be
discussed. The discussion will determine the reasons why an employee fails
to achieve the set goals, and formulate a programme to solve the problems.
Included in the session is the goal setting process for the next evaluation
period.

ACTIVITY 7.3
Illustrate on the relationship that exists between each step in a
performance appraisal.

7.4

FEATURES OF EFFECTIVE PERFORMANCE

APPRAISAL

The main purpose of the performance appraisal is to improve the performance of

an individual, a team, and the whole organisation. As it is also used to make
management decisions, a precise performance appraisal will enable the
development programme to improve the performance of the individual and
team. Realising the importance of performance appraisal in an organisation, a
performance appraisal should be developed and must have the features as shown
in Figure 7.1.

Figure 7.1: Features of a performance appraisal

TOPIC 7

PERFORMANCE APPRAISAL

101

(a)

Job-related Criteria
Criteria that are used to conduct a performance appraisal must be job
related. Although subjective factors such as effort, morale, loyalty, and
teamwork are important, these factors cannot be used if they are not related
to the job.

(b)

Performance Expectations
Managers and subordinates must agree on the expectations of the
performance before starting the appraisal. It is not fair for a manager to
evaluate an employee based on the criteria that is unknown to the
employee. Therefore, the performance expectation should be set earlier.

(c)

Standardisation
Standardisation means that an employee and supervisor in a job category
must be appraised using the same instruments. The appraisal should be
done frequently and the evaluation period should be the same period for all
employees. When a performance appraisal is carried out, it must be
formally documented and employees must sign their appraisals. If an
employee refuses to do so, action can be taken by the manager.

(d)

Trained Appraiser
Usually the supervisor conducts a performance appraisal. However, the
subordinates, colleagues, or customers also conduct a performance
appraisal. Nevertheless, the responsibility to appraise the employees
performance should be given to an individual who can directly observe the
employees to be appraised. The appraiser must receive continuous training
to ensure consistency. The training should not only cover the methods to
appraise an employee but also how to conduct an appraisal interview.

(e)

Open Communication
Most employees want to know about their performance achievement. A
good performance appraisal system usually gives a desired feedback.
Therefore, appraisal interviews should not contain any surprises. Even
though the interview seems like a good opportunity for both parties to
exchange ideas, it cannot substitute daily communications.

(f)

Rights to See the Appraisal Results

The effort to develop an employee will be disturbed if he is not given the
chance to see his performance results. This is to enable the employee to
check the results that has been given to avoid mistakes. Sometimes, there
are employees who are not satisfied with the decision and they want to
challenge it. Managers should offer training and guidance to employees

102

TOPIC 7

PERFORMANCE APPRAISAL

who receive poor performance results. They must be informed of the

consequences if they failed to reach the satisfactory level.
(g)

Due Process
Due process is important for an organisation because it allows the
employees to make appeals against the appraisal if they believe that it is not
fair or inaccurate.

SELF-CHECK 7.1
What are the features of an effective performance appraisal? List down
and explain each feature.

7.5

DECIDING WHO WILL CONDUCT THE

APPRAISAL

Who is supposed to evaluate employees performance? Of course, you would

answer the employer, but, there are other parties who may also evaluate
employees. As shown in Figure 7.2, the appraiser may be a supervisor,
colleagues, yourself, subordinates and customers.
(a)

Appraisal by Supervisor/Immediate Superior

Appraisal by supervisor/immediate supervisor is an ordinary method to
evaluate employees performance. A manager or supervisor is considered
the most qualified person for this because their position allows them to
observe an employees job performance. A manager is given the
responsibility to manage a unit. If the duty to appraise a subordinate is
given to other people, the manager will not have absolute authority in the
performance appraisal process.
If the appraisal is done by a supervisor, his superior will revise the
appraisal that has been done. This is to reduce unfairness in the appraisal.
Usually, the comments by a supervisors superior are more objective and
give a wider scope to the employees performance as compared to the
appraisal by the supervisor.

TOPIC 7

PERFORMANCE APPRAISAL

103

Figure 7.2: Choice of resources for performance appraisal

(b)

Appraisal by Colleagues
In peer appraisal, employees of the same standard in an organisation will
appraise each other. The peer appraisal may give different information
because colleagues have different point of view. Colleagues may identify
the leadership skills and other strengths and weaknesses of their colleagues.
Peer appraisal is effective in forecasting the future career of an individual as
a manager.
One of the advantages of peer appraisal is that information is more accurate
and valid as compared to the appraisal done by a supervisor. The appraisal
data by colleagues is one of the most reliable sources of information because
a colleague may have a clearer picture than a supervisor who sees the
employee occasionally. This method is also considered as free of any
influence. Although evidence shows that peer appraisal is the more accurate
method to assess an employees behaviour, there are reasons why it is
seldom practised.
Some of the reasons include:
(i)

A peer appraisal can become a popularity contest

(ii)

Managers dont want to lose authority in the appraisal process

(iii) Employees with low rating may want revenge on their colleagues; and
(iv) Stereotyping an employee in the rating
When there is competition among colleagues, i.e. for the post of salesperson,
performance appraisal for the purpose of making administrative decisions
like salary and bonus payment is not encouraged.
(c)

Self-appraisal
Sometimes an employee is asked to appraise himself. Self-appraisal is
usually done by the employee being appraised by filling in the appraisal
form before the performance interview. It is a useful method if the

104

TOPIC 7

PERFORMANCE APPRAISAL

supervisor wants the employee to participate in the performance appraisal

process. It also allows the employee to think about his strengths and
weaknesses and the problems in achieving an effective performance.
This method is also suitable when managers and employees work together
to determine the performance goals or employees development
programmes. One of its weaknesses is that individuals who appraise
themselves is more lenient than the manager and will have the tendency to
give higher appraisal. Therefore, self-appraisal is suitable for staff
development than to make managerial decisions.
(d)

Appraisals by Subordinates
Many organisations allow the subordinates to evaluate their managers
performance. This process is called upward feedback. When this method is
used in an organisation, the process helps top management to determine the
leadership style, to identify individual issues that may turn into problems
and to take corrective action with the managers if necessary. The
subordinates are in a suitable position to appraise their managers because
they are always in contact with the managers and able to observe a lot of
performance related behaviour. Among the most suitable performance
dimensions to be appraised include leadership, oral communications,
distribution of authority and teamwork coordination.
As subordinate appraisal gives employees the power over their managers,
some managers may be reluctant to accept this system, especially if it can be
used as a basis for measuring remuneration. But managers should be more
open towards this method if the information is used for development
purposes. However, to avoid problems, subordinate appraisals should be
sent anonymously and several individual appraisers should be pooled
together.

(e)

Appraisal by Customers
This appraisal is based on the concept of total quality management. A
company receives the appraisals from its internal and external customers.
Appraisals by external customers have been used in appraising restaurant
employees. However, other companies has now employed this method. The
manager will determine the customer service measurement and employees
goals related to the organisational goals. Usually, a customer service
measurement will be related to employees remuneration through incentive
programmes.
Unlike external customer appraisals, internal customers consist of
individual in an organisation that is dependent on the revenue of an
employee. For example, a manager of a department who is dependent on

TOPIC 7

PERFORMANCE APPRAISAL

105

the human resource department for the selection and recruitment will be
the candidate who will do the appraisal by customers for the human
resource department.

ACTIVITY 7.4
In your opinion who should conduct a performance appraisal for the
following individuals?
Salesperson:
Photocopier Technician:
Manager of Human Resource:
Lecturer:

7.6

PERFORMANCE APPRAISAL PROCESS

In this part, we will discuss the methods used in a performance appraisal process
(a)

Graphic Rating Scale

This is the most favoured technique in performance appraisal. In this
method, a set of work appraisal factors such as quantity and quality of
work, knowledge, loyalty, attendance, and efforts are listed. Subordinates
will be appraised based on each factor. A graphic rating scale used is 1 (an
unsatisfactory performance) until 5 (a very satisfactory performance). A
supervisor will appraise every subordinate by circling or ticking the value
that best summarises the employees performance accurately. Then, the
values will be added together. This is the most favoured method because
even though it does not give much information compared to other
evaluation methods (such as essay rating or critical incident method), it
does not take up much time. This method also allows for quantitative and
comparative analysis.

(b)

Critical Incident Method

In critical incident method, a supervisor will keep a log and list down all
incidents or employees behaviour (good or bad) related to the job. The
supervisor and the employee will then meet and discuss the employees
performance by using these incidences as examples. In this method, the
evaluation covers the entire evaluation period and does not focus on the last
month or week prior to the evaluation only.

106

TOPIC 7

PERFORMANCE APPRAISAL

(c)

Essay Rating
In essay rating, the appraiser is required to prepare a written statement that
accurately describes the employee being evaluated. He is required to
describe the strengths and weaknesses of the employee and suggest ways to
develop his skills. This method usually gives additional information on the
employees performance that cannot be attained in the graphic rating scale
method. This method also gives the employee an opportunity to show his
unique characteristics. However, if an appraiser wants to write important
aspects of the employee, it will take a longer period. Another weakness of
this method is that the appraisal of an employee depends on the written
skills of the appraiser. An appraiser who is skilled in writing may make an
average performer looks like an employee with high performance.

(d)

Behavioural Anchored Rating Scale

This method is a combination of the critical incidents method and graphic
rating scale. This method decides the work behaviour that is certain, can be
observed and measured.
Behavioural Anchored Rating Scales comprise a series of five to ten vertical
scales each scale for every performance dimension that has been identified
in job analysis. A sample of the behaviour and work performance
dimension may be attained by asking the employee to explain a behaviour
that is effective or ineffective in each work performance dimension. Then,
all the work behaviour will be interpreted as a set of work performance
dimension, and each contains different performance level. The dimension is
based on the behaviour that has been identified through the critical
incidents analysis method.
In this method, various levels of performance are shown in one scale and
are described in terms of employees work behaviour. A sample of a
Behavioural Anchored Rating Scale is given in Table 7.1. In this table, youll
see a scale to evaluate the performance, from very good t very poor (for
value 1 to 5). Each value in the scale corresponds to a critical incident and
this helps to describe what is meant by very good or very poor
performance.

TOPIC 7

PERFORMANCE APPRAISAL

107

Table 7.1: Behavioural Anchored Rating Scales

A Sample of Behavioural Anchored Rating Scales for Human Resource Officers
One of the most important skills to be a human resource officer is the ability to
understand and define the company policies. This skill is related to the ability of the
human resource officer to use his knowledge in advising other managers on company
policies, assisting in the recruitment process and updating the company policies.
5

Outstanding

This employee may be a source of information to other

employees other than having in-depth knowledge about
company policies.

Good

The employee may give advice on company policies to

other employees in the organisation but he doesnt know
all of the policies.

Average

The employee has an average knowledge on company

policies but is unable to advise other employees in this
large field of policy.

Poor

The employee has limited knowledge on company policies

but he can learn about new policies if explanation is given.

Very Poor

The employee doesnt know the companys new policies

even after the explanation is given.

(e)

Forced Distribution
Forced distribution is when the appraiser is required to place an individual
in a group that comprises several limited categories that are similar to
normal frequency distribution.
Forced distribution is the same as giving marks on curves. With this
method, the percentage of employees are evaluated and placed in
performance categories. For example, you may decide to distribute as
follows:
15% employees who are very high performers
20% employees who are high to average performers
30% employees who are average performers
20% employees who are average to poor performers
15% employees who are low performers
In schools, forced distribution means that not all students will achieve an
A and the performance is evaluated in relation to other students
performances.

108

(f)

TOPIC 7

PERFORMANCE APPRAISAL

Management by Objective
Management by objective is a management philosophy suggested by Peter
Drucker in 1954 and is still a method most preferred today. It appraises
performances based on an employees success in achieving the goals agreed
upon by the employee and the managers.
In this method, an employee is required to determine the objectives to be
achieved (production costs, sales volume, production output, profit)
through negotiations with managers. These objectives will be the basis of
the employees performance appraisal. It is a goal setting process, that is a
goal may be determined at organisational, departmental, managerial, and
workers levels.
To determine its success, Management by Objective programme must be
accepted as a part of the entire management system and not considered as
an additional work for the manager. A manager must be willing to
empower his employees in order to achieve the objectives. The employee
can choose the method to be used to achieve the established objectives.

ACTIVITY 7.5
Describe briefly each step in the performance appraisal according to your
understanding.
Critical Incidents Method:
Essay Method:
Behavioural Anchored Rating Scales:
Compare your answers with your classmates in the myLMS forum.

7.7 PROBLEMS OF PERFORMANCE APPRAISAL

In practice, a formal performance appraisal programme sometimes provides
discouraging results. Some of the reasons of its failure is the lack of information
and support by the top management, unclear performance standard, unfair
rating, too many forms to be filled and the use of a performance appraisal for
contradictory objectives. For example if a programme is used for pay adjustments
and to give encouragement to employees, there are contradictions in the
management and development objectives. Consequently, performance appraisal
interview will become a discussion on salaries and a manager will defend his
actions. In this case, the discussion will have little effect on the employees job
performance in the future.

TOPIC 7

PERFORMANCE APPRAISAL

109

Although the organisation tries to find a performance appraisal which is free

from individual influences and prejudices, problems arise in this process. In this
part, we will discuss the problems that may result in the failure of the
performance appraisal in an organisation.
(a)

Lack of Objectivity
One of the weaknesses of a traditional performance appraisal method is its
lack of objectivity. For example in the rating methods, factors that are
usually used are loyalty, personality and attitude of an individual. These
factors are difficult to measure and they have nothing to do with job
performance. Although subjectivity always exists in an appraisal method,
the use of related job factors will increase the objectivity of the job appraisal
method.

(b)

Halo Effect
The halo effect is a problem that does not only exist in the appraisal process
but also in the interview process in recruitment. Many individuals have the
tendency to give higher marks to someone they like. Halo effect is the
tendency of an appraiser who lets his evaluation on a persons certain
characteristic influence his evaluation on other characteristics of the person.
A persons personality and his other characteristics may influence the
managers judgement. For example, a manager usually likes people from
the same background and lifestyle as him. Therefore, he might give a higher
evaluation to an employee who was a graduate from the same college as
him and not because of his job performance.

(c)

Leniency/Strictness Error
When an appraiser gives a high evaluation to an employee who does not
deserve it, he is said to have made a leniency error. It happens when the
appraiser gives a high mark in the performance appraisal. As a result, the
employees performance is pictured as higher than his actual performance.
There are appraisers who are too strict when conducting a performance
appraisal. As a result, the employees performance is pictured as lower than
his actual performance.
This problem would not exist if all employees in the organisation are
evaluated by the same appraiser. The difficulty arises when different
appraisers with various levels of leniency evaluate the performance of the
employees. For example, Azmi and Bakri perform the same job but under
different supervisors and they have equal job performances. This difference
in evaluation can occur if Azmis supervisor is lenient while Bakris is strict.

110

TOPIC 7

PERFORMANCE APPRAISAL

(d)

Central Tendency
Central tendency is a mistake when an appraiser evaluates all subordinates
as average in all criteria that is evaluated. This attitude exists because the
appraiser is afraid of the negative reaction from employees if he gives a low
evaluation. However, if he gives a high evaluation to all employees, the
head appraiser may question him. To be on the safe side, he evaluates all his
employees as normal or average.

(e)

Personal Bias
A supervisor who evaluates the performance might be prejudiced towards
some individual characteristics such as race, religion, gender or age. For
example, a supervisor with no university qualification might have prejudice
against degree holders employees.

(f)

Recent Behaviour Bias

Most employees know when they are scheduled for performance appraisal.
Without realising, the employee may improve his behaviour or productivity
before the appraisal. Usually, an appraiser remembers recent behaviour of
an employee compared to his former actions. Performance appraisal should
cover a certain evaluation period and the appraisal must consider the whole
period.

In this topic, you have been introduced to performance appraisal processes

and its functions in an organisation.

You have also been exposed to various approaches and methods in

performance appraisal.

In Topic 7, you have studied the problems you face as a manager in the
performance appraisal process.

Critical incident method

Leniency

Essay rating

Peer appraisal

Forced distribution

Self-appraisal

TOPIC 7

PERFORMANCE APPRAISAL

111

1.

Alia, one of your employees, has been working for one year service in the
company. Time has come for you as manager to do evaluate her
performance. Alia is a good employee; her work is accurate and attentive.
Her work was good until this morning she scolded a major customer of
your company, Then, she left without giving any explanation. You observed
the incident but didnt say a word. The next day, Alia returned but did not
say anything about yesterdays incident. You now come to the behaviour
section in the Performance Appraisal form. How will you fill it?

2.

Fill in the blank for each statement by selecting an appropriate answer from
those given in the box below:

Peer appraisal

Halo effects

Leniency

Central tendency

Critical incident method

Forced distribution

Performance appraisal

Self-appraisal

(a)

______________ is defined as a formal system that is done from time to

time to appraise and comment the of performance of an individual or
group

(b)

In ______________, employees at the same level in an organisation will

appraise each other.

(c)

In ______________, appraisal is done by the employee being

appraised, usually in a form that is filled by the employee before a
performance interview

(d)

In this method______________ a supervisor will keep a log that lists

down incidents or employees good or bad behaviour that are related
to his work.

(e)

In this method______________ a certain percentage of employees who

are evaluated will be listed under the performance category.