BBNP4103 Performance Appraisal

BBNP4103
PERFORMANCE
APPRAISAL
Assoc Prof Dr Sarminah Samad
Copyright © Open University Malaysia (OUM)

Project Directors: Prof Dato’ Dr Mansor Fadzil
Prof Dr Wardah Mohamad
Open University Malaysia
Module Writer: Assoc Prof Dr Sarminah Samad

Universiti Teknologi MARA
Moderator: Ling Ching Nee

Universiti Tunku Abdul Rahman
Developed by: Centre for Instructional Design and Technology

Open University Malaysia
Printed by: Meteor Doc. Sdn. Bhd.

Lot 47-48, Jalan SR 1/9, Seksyen 9,
Jalan Serdang Raya, Taman Serdang Raya,
43300 Seri Kembangan, Selangor Darul Ehsan
First Edition, August 2008

Second Edition, December 2013 (rs)
Copyright © Open University Malaysia (OUM), December 2013, BBNP4103

All rights reserved. No part of this work may be reproduced in any form or by any means
without the written permission of the President, Open University Malaysia (OUM).

Table of Contents
Course Guide xi-xvi
Topic 1 Introduction to Performance Appraisal 1

1.1 Performance Appraisal 2
1.1.1 Importance of Performance Appraisal 3
1.1.2 Formal Versus Informal Appraisal 4
1.1.3 Strategic Importance of Performance Appraisal 5
1.2 Basic Concepts of Performance Appraisal and 6
Performance Management
1.3 Definitions of Performance Appraisal 7
1.4 Understanding Performance 8
1.4.1 Determinants of Performance 8
1.4.2 Environmental Factors as Performance Obstacles 9
1.5 Benefits of Performance Appraisal 10
1.5.1 To the Organisation 11
1.5.2 To the Supervisor 11
1.5.3 To the Employee 12
1.6 Important Uses of Appraisal 12
1.6.1 Development 14
1.6.2 Administration 15
1.6.3 Motivation 15
1.6.4 Communication 16
Summary 16
Key Terms 17
Self-Test 1 17
Self-Test 2 17
Topic 2 Performance Appraisal Process 19

2.1 Preparation of Performance Appraisal 20
2.2 Michael and Yost (2000) Performance Appraisal Model 20
2.2.1 Organisational and Human Resource Philosophies 22
and Goals
2.2.2 Intended Purposes (Uses) 22
2.2.3 Job Structure 22
2.2.4 Type of Performance Measurement 23
2.2.5 Choice of Performance Appraisal Format or Method 23
2.2.6 Other Factors Influencing the Choice of Appraisal 23
Format

iv  TABLE OF CONTENTS
2.2.7 Determination of the Relevant Appraisal Content 24

2.2.8 Establishment of Performance Appraisal Policies 24
and Procedures
2.2.9 Implementation and Evaluation of the Performance 24
Appraisal System
2.3 Craig et el (1986) Performance Appraisal Process Model 25
2.4 People Involved in the Performance Appraisal System 27
2.5 Openness in Appraisal 29
2.5.1 Closed Appraisal 29
2.5.2 Open Appraisal 29
2.6 Performance Appraisal Process 30
2.6.1 Organisational Considerations 31
2.6.2 Appropriateness for Job 32
2.6.3 Choosing the Appraisal Process 33
2.6.4 Implications of the Appraisal Process 33
Summary 34
Key Terms 35
Self-Test 1 35
Self-Test 2 36
Topic 3 Performance Appraisal Planning 37

3.1 Main Objectives of Performance Appraisal 38
3.2 Performance Appraisal Planning and Its Relationship 39
with Organisational Objectives
3.2.1 Consistency between Organisational Strategy 39
and Job Behaviour
3.2.2 Consistency between Organisational Values 40
and Job Behaviour
3.3 Setting Performance Objectives 40
3.3.1 What is a Good Performance Objective? 41
3.3.2 Defining Work Objectives 42
3.3.3 Agreeing on Main Tasks 42
3.3.4 Defining Targets 42
3.3.5 Defining Performance Standards 43
3.4 Identifying Performance Measures 46
Summary 47
Key Terms 48
Self-Test 1 48
Self-Test 2 48

TABLE OF CONTENTS  v
Topic 4 Designing and Implementing a Performance Appraisal System 49

4.1 Designing an Appraisal System 50
4.2 Determining Performance Criteria 51
4.2.1 What Specific Factors to Appraise 53
4.2.2 Need for Job Description 53
4.2.3 Potential Performance Criteria Problems 54
4..3 Factors Affecting Reliability and Validity of Performance 55
Measurement Criteria
4.3.1 Validity 55
4.3.2 Reliability 56
4.4 Methods of Performance Appraisal 57
4.4.1 Subjective Methods 58
4.4.2 Interpersonal Methods 62
4.4.3 Objectives Methods 62
4.5 Guidelines in Choosing Appraisal Methods 66
4.6 Potential Errors in Performance Appraisals 67
4.7 Overcoming Errors in Performance Appraisals 67
4.8 Who Should Do the Ratings Evaluation? 68
4.8.1 Rating by Immediate Supervisor 68
4.8.2 Rating by a Committee of Several Supervisors 69
4.8.3 Rating by EmployeeÊs Peers 69
4.8.4 Rating by Subordinates 69
4.8.5 Rating by Human Resource Specialist 70
4.8.6 Self-evaluation 70
4.8.7 Multi-source Appraisal 71
Summary 72
Key Terms 72
Self-Test 1 73
Self-Test 2 73
Topic 5 Performance Appraisal Implementation 74

5.1 Training the Appraiser and Appraisee 75
5.1.1 Training of Appraiser 75
5.1.2 Training of Appraisee 77
5.2 Feedback of Results: The Performance Appraisal Interview 77
5.2.1 Types of Feedback Interview 80
5.2.2 Problems with Appraisal Feedback 82
5.2.3 Improving the Performance Appraisal Interview 84
5.3 Evaluating Performance 85
5.3.1 Potential Problems in Performance Evaluation 86
5.3.2 Eliminating Rater Errors 91

vi  TABLE OF CONTENTS
5.4 Psychological and Sociological Aspects of Performance 92

Appraisal
Summary 93
Key Terms 94
Self-Test 1 94
Self-Test 2 95
Topic 6 Performance Appraisal Decisions 96

6.1 Performance Appraisal 97
6.2 Decision Making 98
6.2.1 Achieving Quality of Personnel Decisions 98
6.2.2 Achieving Quality of Individual Decisions 98
6.2.3 Playing a Role in Strategic Planning 99
6.3 Purposes of Performance Appraisal 100
6.3.1 Pay Determination 100
6.3.2 Internal Pay Structure 105
6.3.3 External Pay Structure 107
6.3.4 Career Development 107
6.3.5 Strategic Purposes 112
Summary 114
Key Terms 114
Self-Test 1 115
Self-Test 2 116
Topic 7 Relationship between Performance Appraisal Systems and 117

Human Resource Management Functions
7.1 Relationship Between Performance Appraisal and 118
Job Design
7.1.1 Behavioural Concerns 120
7.1.2 Designing Work for Group or Team Considerations 122
7.1.3 Industrial Engineering Considerations 122
7.1.4 Ergonomic Considerations 123
7.1.5 Organisational Objectives 123
7.2 Relationship between Performance Appraisal and 124
Recruitment and Selection
7.2.1 Recruitment 124
7.2.2 Selection 125
Pay System
7.3.1 Pay System 127
7.3.2 Performance Appraisal Related Pay 130

TABLE OF CONTENTS  vii

Human Resource Development
7.4.1 Human Resource Development 133
7.4.2 Human Resource Development Methods and 134
Purposes
7.4.3 Performance Appraisal and Human Resource 135
Development
Summary 137
Key Terms 137
Self-Test 1 137
Self-Test 2 138
Topic 8 Issues and Challenges 139

8.1 Problems in Performance Appraisal 140
8.1.1 Tackling the Performance Appraisal Issues 142
8.1.2 Facing Causes of Problem in Performance 142
8.1.3 Handling Measurement of Performance Appraisal 143
8.1.4 Obstacles to the Success of Formal Performance 143
Appraisal Programmes
8.1.5 Other Problems in Performance Appraisal 145
8.2 Workforce Diversity 146
8.2.1 Diversity at the Workplace 147
8.2.2 Nature of Workforce Diversity 148
8.2.3 Efforts Towards Diversity 149
8.2.4 Diversity and Human Resource Management 150
8.3 Virtual Organisation 151
8.3.1 Nature of Virtual Organisation 151
8.3.2 Suggestions for Successful Telecommunicating 152
8.4 Technology Advancement in the Workplace 154
8.4.1 Benefits of Technological Advancement 154
8.4.2 Effects of Technology on Human Resource 155
Management
8.5 Learning Organisation 157
8.5.1 The Learning Organisation 157
8.5.2 Other Pertinent Points on Learning Organisations 158
8.5.3 Organisational Climate and Learning Organisation 159
8.6 Knowledge Worker 159
8.6.1 Definition of Knowledge Worker 160
8.6.2 Knowledge Worker and Technology 160
8.7 Politics in Performance Appraisal 160
8.7.1 Politics in Organisation 163
8.7.2 Dilemma in Performance Appraisal 164
8.7.3 Factors Increasing the Role of Politics 164

viii  TABLE OF CONTENTS
Summary 165
Key Terms 165
Self-Test 1 165
Self-Test 2 166
Answers 168
References 195

COURSE GUIDE

COURSE GUIDE  xi
COURSE GUIDE DESCRIPTION

You must read this Course Guide carefully from the beginning to the end. It tells
you briefly what the course is about and how you can work your way through
the course material. It also suggests the amount of time you are likely to spend in
order to complete the course successfully. Please keep on referring to the Course
Guide as you go through the course material as it will help you to clarify
important study components or points that you might miss or overlook.
INTRODUCTION
BBNP4103 Performance Appraisal is one of the courses offered by the Faculty of
Business and Management at Open University Malaysia (OUM). This course is
worth 3 credit hours and should be covered over 15 weeks.
COURSE AUDIENCE
This is a core course for students undergoing their Bachelor of Human Resource
Management programme.
As an open and distance learner, you should be able to learn independently and
optimise the learning modes and environment available to you. Before you begin
this course, please confirm the course material, the course requirements and how
the course is conducted.
STUDY SCHEDULE
It is a standard OUM practice that learners accumulate 40 study hours for every
credit hour. As such, for a three-credit hour course, you are expected to spend
120 study hours. Table 1 gives an estimation of how the 120 study hours can be
accumulated.

xii  COURSE GUIDE
Table 1: Estimation of Time Accumulation of Study Hours
STUDY
STUDY ACTIVITIES
HOURS
Briefly go through the course content and participate in initial discussion 3
Study the module 60
Attend 3 to 5 tutorial sessions 10
Online participation 12
Revision 15
Assignment(s), test(s) and examination(s) 20
TOTAL STUDY HOURS ACCUMULATED 120
COURSE OUTCOMES
By the end of this course, you should be able to:
1. Explain the processes of and approaches to performance appraisal;
2. Develop a fair performance appraisal;
3. Elaborate on the uses of performance appraisal;
4. Apply the performance appraisal system for employee development;
5. Apply with the measurement aspect of the appraisal process; and
6. Differentiate the values of various methods used in the performance
appraisal process.
COURSE SYNOPSIS
This course is divided into eight topics. The synopsis for each topic is presented
below:
Topic 1 introduces learners to the concept and importance of performance

appraisal to employees and the organisation. Definitions from several authors are
included to enable learners to understand the actual meaning of performance
appraisal. In addition, the purposes and benefits of performance appraisal to the
employees and organisation are discussed.

COURSE GUIDE  xiii
Topic 2 discusses the activities involved in the process of performance appraisal.

It will be shown in the form of a diagram. There are a few individuals that are
involved in the appraisal process whose input is crucial in determining and
measuring employees' actual performance. Their roles will also be highlighted.
Topic 3 explains the main objectives of performance appraisal. It relates

performance planning with organisational goals. How performance objectives
are set and how these objectives are translated into performance standards will
also be discussed.
Topic 4 touches on setting the criteria for performance measurement. It

highlights some of the factors that can affect the reliability of performance
measurement criteria. In addition, various methods of performance appraisal
commonly used by organisations will be discussed to provide guidelines in
choosing the best method.
Topic 5 describes the need to train the appraiser and appraisee to enhance the
effectiveness of the performance appraisal. The importance of conducting a fair
and justifiable evaluation is also discussed. The psychological and sociological
aspects of performance appraisal and how they affect employees are also
highlighted.
Topic 6 discusses decisions that are related with performance appraisals. The
decisions involve the quality of personnel, quality of individual as well as
strategic planning. Topic 6 also elaborates on the purposes of performance
appraisal in terms of pay determination, career development and strategic
purposes.
Topic 7 will highlight the relationship between performance appraisals and

human resource management functions. Specifically, Topic 7 deliberates the
relationship between performance appraisal with four human resource
management functions i.e. job design, recruitment and selection, pay system and
human resource development.
Topic 8 focuses on some issues and challenges in performance appraisal. Seven

main areas have been focused on in the discussion. Among them are problems in
performance appraisals, workforce diversity, virtual organisation, technology
advancement in workplace, learning organisation, knowledge workers and
politics in performance appraisals.

xiv  COURSE GUIDE
TEXT ARRANGEMENT GUIDE

Before you go through this module, it is important that you note the text
arrangement. Understanding the text arrangement will help you to organise your
study of this course in a more objective and effective way. Generally, the text
arrangement for each topic is as follows:
Learning Outcomes: This section refers to what you should achieve after you
have completely covered a topic. As you go through each topic, you should
frequently refer to these learning outcomes. By doing this, you can continuously
gauge your understanding of the topic.
Self-Check: This component of the module is inserted at strategic locations

throughout the module. It may be inserted after one sub-section or a few sub-
sections. It usually comes in the form of a question. When you come across this
component, try to reflect on what you have already learnt thus far. By attempting
to answer the question, you should be able to gauge how well you have
understood the sub-section(s). Most of the time, the answers to the questions can
be found directly from the module itself.
Activity: Like Self-Check, the Activity component is also placed at various

locations or junctures throughout the module. This component may require you
to solve questions, explore short case studies, or conduct an observation or
research. It may even require you to evaluate a given scenario. When you come
across an Activity, you should try to reflect on what you have gathered from the
module and apply it to real situations. You should, at the same time, engage
yourself in higher order thinking where you might be required to analyse,
synthesise and evaluate instead of only having to recall and define.
Summary: You will find this component at the end of each topic. This component
helps you to recap the whole topic. By going through the summary, you should
be able to gauge your knowledge retention level. Should you find points in the
summary that you do not fully understand, it would be a good idea for you to
revisit the details in the module.
Key Terms: This component can be found at the end of each topic. You should go
through this component to remind yourself of important terms or jargon used
throughout the module. Should you find terms here that you are not able to
explain, you should look for the terms in the module.

COURSE GUIDE  xv
References: The References section is where a list of relevant and useful

textbooks, journals, articles, electronic contents or sources can be found. The list
can appear in a few locations such as in the Course Guide (at the References
section), at the end of every topic or at the back of the module. You are
encouraged to read or refer to the suggested sources to obtain the additional
information needed and to enhance your overall understanding of the course.
PRIOR KNOWLEDGE
Learners of this course are required to pass the BBPB2103 Human Resource
Management course.
ASSESSMENT METHOD
Please refer to myVLE.
REFERENCES
Alexander, S., & Ruderman, M. (1987). The role of procedural and distributive
justice in organisational behaviour. Social Justice Research, 1, 177-198.
Armstrong, M. (2002). Performance management. United Kingdom: Kogan Page.
Brockner, J. (2002). Making sense of procedural fairness: How high procedural

fairness can reduce or heighten the influence of outcome favorability.
Academy of Management Review, 27 (1), 58-76.
DeCenzo, A. D., & Robbins, P. S. (2005). Fundamentals of human resource

management. New Jersey: Wiley.
Dessler, G. (2003). Human resource management. New Jersey: Pearson.
Dessler, G. (2005). Human resource management. New Jersey: Pearson Prentice

Hall.
Heneman, R. L., & LeBlanck, P. V. (2003). Work valuation addresses

shortcomings of both job evaluation and market pricing. Compensation and
Benefits Review, 7-11.
Ivancevich, J. M., (2001). Human resource management. New York: McGraw-

Hill Irwin.

xvi  COURSE GUIDE
Ivancevich, M. J., & Hoon, L. S. (2002). Human resource management in Asia.

Singapore: McGraw-Hill.
Kumar, K., & Thibodeaux M. S. (1990) Organisational politics and planned

organisational change. Group and organisational studies, 15, 354-365
Latham, & Wexley (1994). Human resource in organisation development and

training. New York: Collins.
Longneckner, C. O., Sims, H. P., & Gioia, D. A. (1987). The politics of employee
appraisal. Academy of Management Executive, 1, 183-193.
Milkovich, T. G., & Newman, M. J. (2005). Compensation. New York: McGraw-

Hill.
Murphy, R. K., & Cleveland, J. N. (1995). Understanding performance appraisal.

Social, organisational and goal-based perspectives. London: Sage.
Neo, R. A., Hollenbeck, J. R., Gerhart, B. & Wright, M. P. (2007). Human resource
management. (2nd ed.). Boston: McGraw-Hill Irwin.
Schermerhorn, J. R., Hunt., J. N., & Osborn, R. N. (2005). Organisational

behaviour. USA: Wiley.
Snell, S., & Bohlander, G. (2007). Human resource management. Mason, Ohio:
Thomson South Western.
Wiesner, R. & Millet, B. (2003). Human resource management: Challenges and

future directions. Sydney: Wiley.
Yusof, A. A. (2003). Performance appraisal: Issues, challenges & prospects. Kuala

Lumpur: Pearson Prentice Hall.
TAN SRI DR ABDULLAH SANUSI (TSDAS) DIGITAL

LIBRARY
The TSDAS Digital Library has a wide range of print and online resources for the
use of its learners. This comprehensive digital library, which is accessible
through the OUM portal, provides access to more than 30 online databases
comprising e-journals, e-theses, e-books and more. Examples of databases
available are EBSCOhost, ProQuest, SpringerLink, Books24x7, InfoSci Books,
Emerald Management Plus and Ebrary Electronic Books. As an OUM learner,
you are encouraged to make full use of the resources available through this
library.
Topic  Introduction to
1 Performance
Appraisal
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe the importance of performance appraisal;
2. Differentiate between performance appraisal and performance
management;
3. Describe the purposes and uses of performance appraisal; and
4. Elaborate on the benefits of performance appraisal to various groups
of individuals and organisations.
 INTRODUCTION
This topic will introduce you to the concept of performance appraisal and its
importance to employees and organisations. Performance appraisal systems
require a coordinated effort between an organisationÊs human resource
department and the managers who are responsible for conducting performance
appraisals. The responsibilities of managers in performance appraisals are to
evaluate the performance of employees and try to improve the employeesÊ
performance in the future. There are many benefits that managers, employees
and organisations can gain from performance appraisals. These will be
highlighted in this topic. In addition, definitions from several authors are
included to give you a better understanding of the actual meaning of
performance appraisal. At the end of the topic, a summary of the overall uses,
purposes and benefits of performance appraisal will be provided to enhance your
understanding of the areas discussed.

2  TOPIC 1 INTRODUCTION TO PERFORMANCE APPRAISAL
1.1 PERFORMANCE APPRAISAL

A critical factor related to an organisationÊs long-term success is its ability to
measure how well its employees are performing, and then use that information
to ensure that performance meets present standards and improves over time
(Figure 1.1).
Figure 1.1: Performance appraisal is related to an organisation's long-term success
It is a complex task that is difficult to be carried out, and not done well by most
organisations. However, when performance appraisal is properly conducted, it
not only lets employees know how well they are performing, but also influences
their motivation, acceptance and future level of effort and task direction.
Efforts should be stepped up to ensure that employees are clear about the tasks
that they need to perform. The tasks of the employees should be clarified through
the establishment of a plan for improvement. Performance appraisal is, in a way,
considered as a management tool which is helpful in motivating and utilising
human resource capabilities effectively. Assessing human potential is not an easy
task, no matter how well designed and appropriate the performance planning
and appraisal system are. However, if it is not done carefully, it can reduce
employeesÊ satisfaction and trust in the appraisal system.

TOPIC 1 INTRODUCTION TO PERFORMANCE APPRAISAL  3
Every year, most employees are evaluated based on their past performance. The
evaluation may be in the form of a 10-minute informal discussion between
employees and their supervisors, or done in a more elaborate manner taking up
to several weeks of formal appraisal involving many specific steps and activities.
ACTIVITY 1.1
In your own words, define performance appraisal and list some of its
uses and benefits. Discuss your answer with your coursemates in the
myVLE forum.
1.1.1 Importance of Performance Appraisal

Performance appraisal is considered one of the most important functions of
human resource management because it is a prerequisite to effectively establish
other human resource functions. Performance appraisal is not limited to one-on-
one situations, where a supervisor discusses with an employee the areas
deserving recognition and areas where improvement is needed. It is related to
any personnel decision that affects the status of employees regarding their
retention, termination, promotion, demotion, transfer, salary increase or decrease
and admission into a training programme.
A properly developed appraisal instrument serves as a contract between the

organisation and its employee in that it makes explicit what is required of that
individual. Appraising performance is necessary because it serves as an audit of
the effectiveness of each employee. Such a control system, based on key
behaviours that serve as standards, enables a manager to specify what the
employee must start doing, continue doing or stop doing.
Thus, performance appraisal is vital to improve the productivity of employees

because it is through an appraisal that each individualÊs productivity and
performance is evaluated. It serves as the basis for counselling and
developing an individual to maintain or increase productivity and for
management to make personnel decisions.

ACTIVITY 1.2
Give some examples of how performance appraisal is implemented in

organisations in Malaysia.
1.1.2 Formal Versus Informal Appraisal

Appraisal can be done formally or informally:
(a) Informal and Ongoing Appraisal

Informal appraisals tend to take place on an ongoing basis within the
organisation as supervisors evaluate their subordinatesÊ work, and as
subordinates appraise each other and their supervisors on a daily basis.
Informal and ongoing appraisals are necessary but they are insufficient.
Informal appraisals seldom leave any documentation of either good or poor
performance.
(b) Formal and Systematic Appraisal

The formal and systematic appraisal of an individual employee is likely to
occur at certain intervals throughout that personÊs history of employment.
For example, a personÊs performance may be appraised with proper
documentation during the first six months, quarterly or annually. With
formal, systematic feedback, the personnel department can identify good
and poor performers. It can also identify specific training or career
development needs. Feedback helps evaluate recruitment, selection,
orientation and placement procedures. Even decisions about future
promotions, compensation and other personnel actions depend on
systematic and documented performance appraisal information.
Whether it is a formal or informal evaluation, it will have some direct effects on

employeesÊ work lives. The evaluation may result in employees getting an
increase in pay, a promotion, lucrative bonuses, relevant training and better
career growth or vice versa. Thus, any evaluation of employeesÊ work can be
very sensitive and can create emotionally charged events. A properly developed
and implemented performance appraisal can motivate and develop employeesÊ
potential and help an organisation achieve its goals.

SELF-CHECK 1.1
Why is performance appraisal important to an organisation?
1.1.3 Strategic Importance of Performance Appraisal

Strategically, it is hard to imagine a more important human resource (HR) system
than performance appraisal. Organisations strive to do the following at all levels,
as shown in Figure 1.2.
Figure 1.2: How organisations diffuse their strategic goals
It is this sequence that allows organisations to diffuse their strategic goals. Within
this context, the evaluation of performance is the control mechanism that
provides not only feedback to individuals but also an organisational assessment
of how things are progressing. Without performance information, managers of
an organisation can only guess whether employees are working towards the
right goals, in the correct way and to the desired standard.

1.2 BASIC CONCEPTS OF PERFORMANCE

APPRAISAL AND PERFORMANCE
MANAGEMENT
Virtually all companies have some formal or informal means of appraising their
employeesÊ performance. Performance appraisal means evaluating an employeeÊs
current and/or past performance relative to his or her performance standards.
While „appraising performance‰ usually brings to mind specific appraisal tools,
the actual forms are only part of the appraisal process. Performance appraisal
always assumes that the employee understands what his performance standards
are and that the supervisor provides the employee with the feedback,
development and incentives required to help him eliminate performance
deficiencies or continue to perform above par. The aim should be to improve
performance.
While the idea that appraisals should improve an employeeÊs performance is

nothing new, many managers take the integrated nature of that process ă of
setting goals, training employees and then appraising and rewarding them ă
more seriously today than they did in the past. They call the total, integrated
process performance management. We may then define performance
management as a process that consolidates goal setting, performance appraisal
and development into a single, common system, the aim of which is to ensure
that the employeeÊs performance supports the companyÊs strategic aims.
Performance management includes the practices through which the manager
defines the employeeÊs goals and work, develops the employeeÊs capabilities and
evaluates and rewards the personÊs efforts, all within the framework of how the
employeeÊs performance should contribute to achieving the companyÊs goals.
Therefore, when properly designed, performance management does not only

entail meeting with a subordinate once or twice a year to „review your
performance‰. It means setting goals that make sense of the companyÊs strategic
needs. It means daily or weekly interactions to ensure continuous improvement
in the employeeÊs capacity and performance. It also involves continuous
assurance that the employee has the training and development he needs to
perform the job.

1.3 DEFINITIONS OF PERFORMANCE

APPRAISAL
There are various definitions of performance appraisal. Several definitions of
performance appraisal are worth considering in order to have a better
understanding of its overall meaning.
Mondy and Noe (1996) defined performance appraisal as „a formal system of

periodic review and evaluation of an individualÊs or teamÊs performance‰.
Dessler (2005) defined performance appraisal as „a procedure that involves

setting work standards, assessing employeesÊ actual performance relative to
the set standards and providing feedback to the employees to eliminate
performance deficiency‰.
Kozo Ochiai (1987) stated that performance appraisal is „a process in which

bosses evaluate and report on the performance, attainments, abilities,
potential for future development and other qualities of their subordinates‰.
Ivancevich (1997) described performance appraisal as „an activity used to

determine the extent to which an employee performs work effectively‰.
The definitions provided were derived from various sources. Based on these, it
can be concluded that performance appraisal is as follows:
(a) A process of evaluating employeesÊ past performance by appraisers;
(b) EmployeesÊ overall past performance will be measured against a certain set
of job-related standards and criteria; and
(c) EmployeesÊ overall past performance will later be used by the organisation
to determine their level of effectiveness in performing the assigned work.

A performance appraisal system is set up by an organisation to regularly and

systematically evaluate employeesÊ performance. The employeeÊs total score or
performance appraisal result will later be used by the organisation to make
administrative and developmental decisions.
1.4 UNDERSTANDING PERFORMANCE

Performance refers to the degree of accomplishment of the tasks that make up an
employeeÊs job. It reflects how well an employee fulfils the requirements of a job.
Often confused with effort, which refers to energy expended, performance is
measured in terms of results. For example, a learner might exert a great deal of
effort in preparing for an examination and still obtain a poor grade. In such a
case, the effort expended was high, yet the performance was low.
1.4.1 Determinants of Performance

Job performance is the net effect of an employeeÊs effort as modified by abilities
and role (or task) perceptions. Thus, performance in a given situation can be
viewed as a result from the interrelationships among effort, abilities and role
perceptions.
(a) Effort, which results from being motivated, refers to the amount of energy
(physical and/or mental) an individual uses in performing a task.
(b) Abilities are personal characteristics used in performing a job. Abilities
usually do not fluctuate widely over short periods.
(c) Role (task) perceptions refer to the direction(s) in which individuals believe
they should channel their efforts in their jobs. The activities and behaviours
people believe are necessary in the performance of their jobs define their
role perceptions.
To attain an acceptable level of performance, a minimum level of proficiency

must exist in each of the performance components. Similarly, the level of
proficiency in any one performance component can place an upper boundary on
performance.
(a) If employees put forth tremendous effort and have excellent abilities but
lack a clear understanding of their roles, their performance will probably
not be good in the eyes of their managers. Much work will be produced but
it will be misdirected.
(b) Likewise, an employee who puts forth a high degree of effort and
understands the job but lacks ability will probably be rated low on
performance.

(c) Another possibility is an employee who has a good ability and

understanding of the role but is lazy and expends little effort. This
employeeÊs performance will likely be low.
Of course, an employee can compensate up to a point for a weakness in one area

by being above average in one or more of other areas.
SELF-CHECK 1.2
1. Performance appraisal is not successfully implemented in some

organisations. Why?
2. Explain the difference between performance management and
performance appraisal.
1.4.2 Environmental Factors as Performance Obstacles

Other factors beyond the control of the employee can also stifle performance.
Although such obstacles are sometimes used merely as excuses, they are often
very real and should be recognised.
Some of the more common potential performance obstacles include a lack of or

conflicting demands on the employeeÊs time, inadequate work facilities and
equipment, restrictive policies that affect the job, lack of cooperation from others,
types of supervision, temperature, lighting, noise, machine or equipment pacing
and shifts.
Environmental factors should be viewed not as direct determinants of individual

performance but as modifying the effects of effort, ability and direction. For
example, poor ventilation or worn-out equipment may affect the effort an
individual expends. Unclear policies or poor supervision can also produce
misdirected effort. Similarly, a lack of training can result in underutilised
abilities. One of managementÊs greatest responsibilities is to provide employees
with adequate working conditions and a supportive environment to eliminate or
minimise performance obstacles.
SELF-CHECK 1.3
1. Identify some obstacles that may affect performance appraisal.
2. Differentiate between formal and informal appraisal.

1.5 BENEFITS OF PERFORMANCE APPRAISAL

A performance appraisal can help improve employeesÊ job performance by
identifying their strengths and weaknesses and determining how their strengths
can be best utilised within the organisation and how their weaknesses can be
overcome. Appraisals can help reveal problems which may be restricting the
employeesÊ progress and causing inefficient work practices.
Some supervisors may talk to their subordinates regularly about their problems
and performance at work and therefore, may not see the need for a formal
appraisal system. This type of regular discussion between supervisors and their
subordinates about work performance should be encouraged by the organisation.
However, not many supervisors are willing to do this due to their other
commitments and busy schedules. Thus, a formal appraisal system can develop a
greater degree of consistency by ensuring that supervisors and subordinates
meet formally and regularly to discuss performance and potential. Research has
shown that this can encourage better performance from employees.
An appraisal can also provide information for human resource planning to assist
in succession planning and to determine the suitability of employees for
promotion and specific types of work and training. In addition, they can improve
supervisor-subordinate relationship and communication by giving employees an
opportunity to talk about their ideas and expectations and be told how they are
progressing. This situation can help improve the quality of work life by
increasing mutual understanding between supervisors and subordinates. Almost
universally, where performance appraisal is conducted properly, both
supervisors and subordinates have reported the experience as beneficial and
positive.
Performance appraisal can have a profound effect on the level of employee

motivation and satisfaction. It provides employees with recognition for their
work efforts. The existence of an appraisal programme will indicate to employees
that the organisation is genuinely interested in their individual performance and
development. This alone can have a positive influence on the individualÊs sense
of worth, commitment and belonging.
Appraisal data can be very helpful in monitoring the success of an organisationÊs

recruitment and induction practices in terms of how well the employees are
performing, especially those who have been hired recently. Appraisal data can be
used to monitor the effectiveness of changes in recruitment strategies. By
following the yearly data related to new hires, it is possible to assess whether the
general quality of the workforce is improving, going steady or declining.

In summary, performance appraisal can provide benefits to the organisation,

supervisor and employee, as shown in Figure 1.3:
Figure 1.3: Benefits of performance appraisal to various groups
1.5.1 To the Organisation

Benefits of performance appraisal to the organisation:
(a) Helps improve performance throughout the organisation through more
effective communication of the organisationÊs objectives and values;
(b) Identification of ideas for improvement;
(c) Training and development needs identified more clearly;
(d) Employees with potential can be identified and career development plans
formulated to cater to the requirements of future staff;
(e) The message is conveyed that people are valued; and
(f) A culture of continuous improvement and success can be created and
maintained.
1.5.2 To the Supervisor

Benefits of performance appraisal to the supervisor:
(a) Identification of ideas for improvement;
(b) Increased job satisfaction;
(c) The opportunity to clarify expectations;
(d) A means of forming a more productive relationship with staff based on
mutual trust and understanding; and
(e) The opportunity to link team and individual objectives and targets with
departmental and organisational objectives.

1.5.3 To the Employee

Benefits of performance appraisal to the employee:
(a) Increased job satisfaction;
(b) Increased motivation;
(c) Increased sense of personal value and self confidence;
(d) A clear understanding of what is expected and what needs to be done to
meet expectations;
(e) The opportunity to discuss work problems and how they can be overcome;
and
(f) Improve work relationship with the manager.
ACTIVITY 1.3
State other possible benefits of performance appraisal to organisations,
supervisors and employees. Visit related websites for further
information.
1.6 IMPORTANT USES OF APPRAISAL

Performance appraisal has a few general uses and its roles are often potentially in
conflict. The main uses of an appraisal system are usually for development,
administration, motivation and communication (Figure 1.4).
Figure 1.4: Uses of performance appraisal

Performance appraisal is widely used for administering wages and salaries,

giving performance feedback and identifying employeesÊ strengths and
weaknesses. Most US employers use performance appraisal systems for office,
professional, technical, supervisory, middle management and non-union
production workers. Globally, these systems provide benefits in a variety of work
situations. However, despite their widespread use, not everyone enthusiastically
endorses performance appraisals. Criticisms revolve around the way they are
done and the results. These criticisms include the following:
(a) With todayÊs emphasis on teamwork, appraisals focus too much on the
individual and do too little to develop employees to perform better.
(b) Most employees who receive reviews and supervisors who give these
reviews generally rate the process as a resounding failure.
(c) Most appraisals are inconsistent, short-term oriented, subjective and
valuable only for identifying employees performing extremely well or
poorly.
Poorly done performance appraisals lead to disappointing results for all

concerned. However, having no formal performance appraisal may limit an
employerÊs options regarding discipline and dismissal. Performance appraisals
can answer questions of whether the employer acted fairly or how the employer
actually knew that the employeeÊs performance did not meet standards. Even
though an employer technically may not need a reason to terminate an
employeeÊs services, as a practical matter, appraisals can provide justification for
such actions should they become necessary. Employees also benefit as appraisals
help them to identify where they need to improve, even after a positive appraisal.
Organisations generally use performance appraisals in two potentially conflicting

roles:
(a) One role is to measure performance for the purpose of making pay or other
administrative decisions about employees. Promotions or terminations
might hinge on these ratings, often creating stress for managers doing the
appraisals.
(b) The other role focuses on the development of individuals. In that role, the
manager acts more as a counsellor than as a judge, which may change the
nature of the relationship. The developmental type of performance
appraisal emphasises the identification of potential and the planning of
employeesÊ growth opportunities and direction.

1.6.1 Development
Performance appraisal can be used in several ways to encourage development. It
plays a role in reinforcing and improving performance and in determining career
paths and training needs.
(a) Reinforcing and Sustaining Performance
Using performance appraisal as an employee development tool can place
the supervisor in the role of reinforcing and sustaining performance. By
providing feedback on past performance, a supervisor can encourage
employees to continue on a positive trajectory. Praise can augment any
financial rewards that the employee may receive. Virtually all employees
like to be told that they are doing a good job.
(b) Improving Performance
The supervisor can use performance appraisal to suggest ways in which
employees can perform better in the future. The supervisor can point out
strengths and weaknesses and help employees to identify more effective
ways to accomplish important tasks. Additionally, the supervisor can
discuss work goals with the employee and agree upon a timetable for
achieving these goals.
(c) Determining Career Progression Goals
The performance appraisal session gives the supervisor and employee an
opportunity to discuss the employeeÊs long-term career goals and plans.
The supervisor can advise the employee on the steps that should be taken
to reach these goals. On the basis of past performances, the supervisor can
give the employee short-term, specific suggestions on how to improve his
performance in ways that will help the employee achieve long-term career
goals. As a result, the employee may become more highly motivated to
perform well in his present position since it is a necessary step towards an
ultimate goal.
(d) Determining Training Needs
Performance appraisal can determine the training needs of individual
employees. If particular employees are not performing up to expectation, a
training programme may enable them to correct any skill or knowledge
deficiencies. Employees who are performing well above the requirements
of the position can be placed in a development programme that will
prepare them for promotion to a higher-level job. Performance appraisal
also supplies information useful for developing training programmes that
will fit the needs of most employees. For example, if employeesÊ
communication skills are rated uniformly low, the company can develop a
programme to address the need to improve these skills.

1.6.2 Administration
Performance appraisal helps the organisation to determine who should be given
salary increments, bonuses, promotions, transfers, and even demotions and
terminations. All these decisions are based on how effective employees are in
performing the assigned tasks and this is reflected in performance appraisal.
(a) Linking Rewards to Performance

Performance appraisals are part of the reward and punishment system of
an organisation. Employees who receive favourable evaluations tend to
receive organisational rewards, such as merit pay increases and bonuses,
whereas those with unfavourable evaluations receive organisational
sanctions, including demotions and dismissals. Other personnel decisions
commonly linked to performance appraisals include promotions, layoffs,
transfers and disciplinary decisions.
The goal in linking pay to performance and to other personnel decisions is

to motivate employees to perform better. Unfortunately, matching
performance and reward is much easier said than done. The performance of
individuals must be accurately assessed, the rewards provided must truly
be of value to employees and the organisation must develop a performance-
based reward system that employees perceive as being fairly administered.
The system will fail if employees believe managers and supervisors
distribute rewards on the basis of favouritism or political considerations.
(b) Evaluation of HR Policies and Programmes

Performance appraisal data can also be used to evaluate the effectiveness of
HR programmes. Appraisals can be performed before and after an
intervention to measure the level of change that has occurred. Interventions
that might be evaluated with performance appraisal data include training
programmes, job enrichment or redesign, quality circles and the like. The
empirical validation of selection devices requires scores on a job
performance criterion. This information is usually collected through some
method of performance appraisal.
1.6.3 Motivation
Appraisal is also said to encourage initiative and drive, develop a sense of
responsibility, stimulate employeesÊ efforts to perform at their maximum with
accurate assessment and fair rewards as well as motivate employees to perform
better.

1.6.4 Communication
Another usage of performance appraisal is that it serves as a basis for ongoing
discussion between subordinates and superiors about job-related matters.
Through interaction, both parties would be able to establish good understanding
with regard to their needs and expectations.
ACTIVITY 1.4
In your opinion, why do some organisations focus only on the
administrative uses, rather than the developmental, motivational or
communicative uses of performance appraisal?
SELF-CHECK 1.4
1. Why do we need to understand the uses of performance appraisal?
2. How does a performance appraisal help to motivate employees?
 Performance appraisal is a process of evaluating employeesÊ past

performance by the rater(s).
 A properly developed and implemented performance appraisal system can
help an organisation motivate its employees, improve their performance and
productivity, and enable the organisation to achieve its goals.
 Performance appraisal is a management tool which is used for various
purposes. The uses of performance appraisal include:
(a) Developmental;
(b) Administrative;
(c) Motivational; and
(d) Communicative.
 Performance appraisal provides benefits to organisations, supervisors,
managers and employees.
 Most companies have some formal and informal means of appraising their
employeesÊ performance.

Administrative uses Motivation

Developmental uses Performance appraisal
Formal appraisal Performance feedback
Informal appraisal Performance obstacles
1. Define performance appraisal.
2. What is the purpose of having performance appraisal in an organisation?
3. What are some of the benefits that can be obtained by the organisation,
employees and managers from performance appraisal?
4. Discuss the circumstances in which appraisals can have negative and

positive effects on employeeÊs morale.
5. In what ways can performance appraisal assist an organisation in assuring

congruence between strategic goals and the behaviour of employees?
6. Explain how you can convince the management that performance appraisal
can help achieve the organisationÊs objectives.
1. Describe the advantages of having performance appraisal in an

organisation.
2. Discuss how performance appraisal purposes contradict one another.
3. Describe the reasons why some companies are reluctant to implement

performance appraisal in their organisation.
4. How should the evaluation of teams differ from the evaluation of

individuals?

5. Discuss the differences between formal and informal performance

appraisal.
6. Explain how you can convince employees that performance appraisal is

important for their career development.

Topic  Performance
2 Appraisal
Process
LEARNING OUTCOMES
1. Explain the relationship of each element in the appraisal process
developed by Michael and Yost (2000);
2. Identify the factors that influence the accuracy of the appraisal
process;
3. Describe the roles of the people who are involved in the appraisal
system; and
4. Differentiate between open and closed appraisal used by some
organisations.
 INTRODUCTION
This topic discusses the elements and activities involved in the performance
appraisal model and process. Performance appraisal is a process by which an
employeeÊs contribution to an organisation during a specified period is assessed.
If performance appraisal is implemented according to the stated process, it can
help to improve employee motivation and performance. If used inappropriately,
the appraisal process can have disastrous effects. A formal appraisal system is
structured and consists of several steps that are important for supervisors and
the organisation to abide by. Each of these elements is shown in the form of an
appraisal model. The process includes several individuals whose roles and input
to the appraisal process are crucial, especially in determining and measuring
employeesÊ actual performance. Their roles will be highlighted to provide you
with a better understanding of how they contribute to the success of the
appraisal process.

20  TOPIC 2 PERFORMANCE APPRAISAL PROCESS
2.1 PREPARATION OF PERFORMANCE

APPRAISAL
The appraisal should create an accurate picture of an individualÊs job
performance. To achieve this goal, appraisal systems should be job-related and
practical, follow certain standards and use dependable measures. Job-related
means that the system evaluates critical behaviours that constitute job success.
These behaviours are normally identified as part of the job analysis process. If the
evaluation is not job-related, it is invalid. Without validity and reliability, the
system may be discriminatory, therefore violating equal opportunity laws. Even
if discrimination does not occur, appraisals may be inaccurate and useless if they
are not job-related. However, a job-related approach must also be practical. A
practical system is understood by evaluators and employees. A complicated,
impractical approach may cause resentment, confusion and non-use.
A standardised system within an organisation is helpful because it allows

uniform practices to be established by the personnel department. Standardisation
among firms across different industries does not exist. Employees are
encouraged to participate in developing performance standards based on the
critical elements of the jobs to be appraised. The method of identifying these
elements would most likely be through job analysis procedures. However,
whatever method is used, there must be a written record of the standards. The
employee must also be advised of these standards before the evaluation occurs,
not afterwards. The appraisal of each employeeÊs performance must be based on
the employeeÊs actual peformance of the critical elements.
However, before specific approaches to performance appraisal can be examined,

common elements of most performance systems should be discussed. These
include performance standards, performance measures and rater biases.
2.2 MICHAEL AND YOST (2000)

PERFORMANCE APPRAISAL MODEL
The diagram in Figure 2.1 is a performance appraisal process model developed
by Michael and Yost (2000). This model integrates various related factors that
will assist managers and supervisors in effectively implementing the
performance appraisal system in the organisation. There are various elements
that need to be considered when developing and implementing the performance
appraisal system. These elements include organisational and human resource
philosophies and goals, intended purposes, job structure, type of performance
measurement, choice of performance appraisal format, relevant content, as well
as performance appraisal policies and procedures.

TOPIC 2 PERFORMANCE APPRAISAL PROCESS  21
Figure 2.1: Performance appraisal model

Source: Adapted from Michael and Yost (2000)

SELF CHECK 2.1

1. Why do managers need to carefully prepare the performance
appraisal implementation?
2. Describe the important elements in the performance appraisal
model developed by Michael and Yost (2000).
ACTIVITY 2.1
Compare the steps in the performance appraisal process discussed

here to those used by some organisations that you have seen.
2.2.1 Organisational and Human Resource

Philosophies and Goals
Before any management decision can be reached or any programme
implemented, an organisation must first establish its overall organisational
philosophies and goals. Establishing organisational philosophies can be equally
or more important than organisational goals. Without clear reasons for the
existence of the organisation and its values and philosophies, the goals which
follow will be vague and unrealistic.
2.2.2 Intended Purposes (Uses)

The purpose of the appraisal is said to be one of the important variables in the
performance appraisal process. The intended purpose evolves around the
developmental and administrative uses.
2.2.3 Job Structure

The other crucial variable is the job structure for which the appraisal is to be
done. Every job varies along the highly structured versus highly unstructured
continuum. An example of a highly structured job would be a simple assembly
task, where the employee is told precisely what to do and how to do it. An
example of an unstructured job would be when the chief executive officer of a
company is given a general goal for which he is to generate profit. The means of
achieving the goal are left entirely to the person holding the post. As a result of

such differences in job structure, the nature of the job will, in part, dictate the
extent to which performance assessments should focus on specific job behaviour
and end results.
2.2.4 Type of Performance Measurement

The preceding two components of the model, i.e. the purpose of the appraisal
and the degree of structure of the job to be appraised, determine the type of
performance measurement that is most useful and appropriate. Organisations
should consider these factors before deciding on the type of information that is
needed. The establishment of performance measurement for each position is
completed when an organisation conducts a job analysis.
2.2.5 Choice of Performance Appraisal Format or

Method
Many factors play a role in the decision of what format to use. The same format
cannot be expected to serve well for all appraisal purposes and for all types of
jobs. Given the factors which have been presented thus far in the proposed
model, managers must make business decisions often involving trade-offs to find
the most appropriate choice for a given need in their organisation. There are
many ways to evaluate employees. These methods will be discussed in Topic 4.
2.2.6 Other Factors Influencing the Choice of

Appraisal Format
The cost of alternative appraisal formats must be considered. Even if a manager
were to know which method of appraisal is most scientifically ideal for a given
situation, that method may not be the best business choice if the incremental
costs of this method, over relatively less expensive alternatives, are not offset by
tangible benefits to the organisation over the long run.
Ease of implementation must be considered. What will it take in terms of training

and dissemination of information to supervisors and employees in order to
implement the system? Will there be substantial resistance to the system?
Perceived adequacy and acceptability of users of the appraisal system must be

considered. It must be measurable and data collection cannot be inefficient or too
disruptive. Problems in this area will hamper effective implementation and
inflate the cost.

2.2.7 Determination of the Relevant Appraisal

Content
Regardless of the specific format of appraisal, the evaluation should be job-
related and include information on the type which is needed to serve the desired
purposes. For a highly structured appraisal format (such as BARS), the content of
the appraisal will be determined in some systematic manner and will be included
as part of the appraisal document. For unstructured formats (such as critical
incidents and essay), the content of the evaluation is partially or fully up to the
discretion of the evaluator.
2.2.8 Establishment of Performance Appraisal Policies

and Procedures
A performance appraisal system needs to include the policies and procedures
which accompany the appraisal document. Included in such a system would be
policies concerning who evaluates, how often appraisals should be done, how
important information concerning the way in which appraisals are to be done is
disseminated, and what type of training activities will be used to train
supervisors, the type of forms and the procedures that need to be followed.
2.2.9 Implementation and Evaluation of the

Performance Appraisal System
The final steps in the model involve implementing the system of performance
appraisal which has been decided upon and then evaluating its success.
Evaluations of success should be in terms of the extent to which the results of the
performance evaluation actually provide quality data that is timely and
consistent with the purpose of the evaluation. Finally, the appraisal should
provide an evaluation of whether it has contributed to human resource and
organisational goals and objectives.

2.3 CRAIG ET AL (1986) PERFORMANCE

APPRAISAL PROCESS MODEL
Craig et al. (1986) suggested an eight-stage performance appraisal process, as
explained by the following:
(a) Establishing Standards and Measures

The first step is to identify and establish measures which would
differentiate between successful and unsuccessful performances. These
measures should be under the control of the employees being appraised.
The methods for assessing performance should be decided next.
(b) Communicate Job Expectations

The next step in the appraisal process is communicating to employees the
measures and standards which will be used in the appraisal process. Such
communication should clarify expectations and create a feeling of
involvement.
(c) Performance Planning

In this stage, the manager plans for the realisation of performance
expectations, arranging for the availablility of the resources needed to
attain the goals set.
(d) Monitoring Performance

Performance appraisal is a continuous process which involves ongoing
feedback. Even though performance is appraised annually, it has to be
managed daily. Monitoring is a key part of the performance appraisal
process. It should involve providing assistance when necessary and
removing obstacles rather than interfering.
(e) Appraising
This stage involves documenting performance through observation, recall,
evaluation, written communication, judgement and data analysis. The
supervisor will normally use these data to appraise the subordinatesÊ
performances.
(f) Feedback
After the formal appraisal stage, a feedback session is desirable. The session
should involve verbal communication, listening, problem solving,
negotiating, compromising, conflict resolution and reaching consensus.

(g) Decision Making

On the basis of appraisal and feedback results, various decisions can be
made about giving rewards and punishments. The outcome of an appraisal
system should also be used for career development.
(h) Development Plan

The last stage in the appraisal process is development of performance plan
or professional development. This can be done by providing opportunities
for upgrading skills and competencies.
Figure 2.2 summarises the performance appraisal process discussed.
Figure 2.2: Performance appraisal process, as suggested by Craig et al. (1986)

2.4 PEOPLE INVOLVED IN THE PERFORMANCE

APPRAISAL SYSTEM
Appraising performance needs supervisory skill and Figure 2.3 shows the people
involved in the performance appraisal system.
Figure 2.3: Participants in the performance appraisal system
(a) The Supervisor

The supervisor usually does the actual appraising and a supervisor who
rates his employees too high or low is doing a disservice to them, to the
company and to himself as well. Therefore, supervisors must be familiar
with basic appraisal techniques, avoid problems that can cripple appraisals,
and have the knowledge of how to conduct appraisals fairly.
(b) The Human Resource Department

The human resource department participates in the performance appraisal
process in many ways. It plays a policy-making and advisory role and helps
in developing the job descriptions and specifications necessary for the
development of standards of performance for jobs. The department
provides advice and assistance on which appraisal tool to use but leaves the
final decisions on appraisal procedures to the operation or functional heads.
In some firms, the personnel office prepares detailed forms and procedures,
insists that all departments use them and monitors the use of the appraisal
system. The human resource department is also responsible for training
supervisors to improve their appraisal skills.

(c) Employees (Self-Evaluation)

The employee will evaluate himself or herself. Employees are responsible
for understanding their job duties, as well as what steps to follow in order
to achieve the performance standards that have been defined and
communicated as part of the requirements of their position. They are also
responsible for participating in the performance appraisal process and
signing the appraisal forms.
(d) Subordinates
This system is typically used in universities where students evaluate the
professorsÊ teaching effectiveness. It is used more for development aspects
of performance appraisal rather than administrative purposes.
Table 2.1 shows a summary of the responsibilities of those involved in the

performance appraisal system.
Table 2.1: Responsibilities of Those Involved in the Performance Appraisal System
Company  Create a strategic plan

 Provide support and resources
Manager  Identify job requirements
 Observe and document employee performance
 Provide ongoing feedback to employees
 Provide support and resources
Manager and  Identify job goals
Employee Together  Create action plans on how to meet requirements and
goals
 Engage in ongoing discussion on performance
Employee  Listen to and act on feedback from the manager
 Perform by meeting requirements and goals
 Provide feedback to the manager about work
SELF-CHECK 2.2
Who usually evaluates employees in an organisation?

2.5 OPENNESS IN APPRAISAL

Performance appraisal can be a closed affair whereby the appraisees do not get
any chance to know or see how they have been evaluated; or it can be completely
open, whereby the appraisees have the opportunity to discuss with their
superiors during the evaluation exercise. The desirability or otherwise of keeping
appraisal confidential has been a subject of controversy for many years.
2.5.1 Closed Appraisal

The conventional practice of keeping appraisals confidential is often preferred by
a manager because he is free from the constraint of having to guard against
criticisms from the employee being reported on. He could give opinions without
having to justify them thoroughly and he would feel free in his choice of words.
Thus, the appraiser is more likely to be candid, especially in drawing attention to
weaknesses.
However, the closed appraisal system is unsatisfactory to the appraisee since he

has no accurate information on how he is regarded by his superior and is usually
forced to speculate about this. Thus, it is difficult for him to direct his attention to
areas where he might be able to improve. The only check on the fairness of the
appraiser or reporting officer is the need for the report to be approved by the
countersigning officer, who might have some knowledge of the work of the
employees, but probably not all.
2.5.2 Open Appraisal

An open appraisal system aims to rectify all the deficiencies of a closed appraisal
system. In particular, it is based on the premise that everyone should know his
own strengths and weaknesses, and should be given the right feedback on his
performance by his superior.
There are various degrees of openness in an appraisal system. The following are
the main variations:
(a) The employee discusses with the superior the various factors appraised
before the evaluation is done;
(b) The employee discusses with the superior the various factors appraised and
the grades given after the evaluation is done;

(c) The employee does a self-appraisal, which is later compared to his

superiorÊs tentative appraisal during a discussion, before the final
evaluation is done;
(d) The employee does a self-appraisal, which is later compared to his
superiorÊs final appraisal during a discussion; and
(e) The employee sees the final evaluation report and signs it, without having
the chance to discuss with his superior.
In any of the above cases, the employee may or may not be given the opportunity
to express his comments on the appraisal form. The employee may be permitted
to see the evaluation report in full or in parts.
Where employees may only see the evaluation report in parts, the following two
sections are normally not disclosed:
(a) Future potential or promotional prospects; and
(b) Overall rating.
Exclusions of future potential and promotional prospects are most prevalent

since these obviate the necessity for managers to undertake the unpleasant task
of revealing unfavourable assessments to their subordinates. It would also
eliminate any adverse effects on those considered not promotable.
The seeing and signing of reports by the appraisee is not in itself enough to
provide a truly open and participative approach. What is more important is the
extent to which the appraisee is able to comment on the assessment.
With the recent emphasis of linking rewards to individual performance,

openness in appraisal should become more important. It is the major means of
providing accurate feedback to the employee, who can capitalise on his strengths
and improve on his weak points before the next round of appraisals. Since the
link between wage increase and performance may prove to be a sensitive issue, it
is only fair that the employee is given the chance to know the ratings that have
been given to him.
2.6 PERFORMANCE APPRAISAL PROCESS

Performance appraisal is the process by which an employeeÊs contributions to an
organisation during a specified period is assessed. Performance feedback, then,
lets employees know how well they have performed in comparison with the
standards of the organisation. Performance appraisal and feedback can be
emotionally laden process that dramatically affects employeesÊ attitudes towards

the organisation and themselves. If used effectively, performance appraisal can

improve employeesÊ motivation and performance. However, if used
inappropriately, the appraisal process can have disastrous effects.
The performance appraisal process itself comprises three steps:

(a) Define the Job
Defining the job means making sure that you and your subordinate agree to
his duties and job standards.
(b) Appraise Performance
Appraising performance means comparing your subordinateÊs actual
performance to the standards that have been set; this usually involves some
type of rating form.
(c) Provide Feedback
Third, performance appraisal usually requires one or more feedback
sessions.
With a wide range of appraisal methods and approaches currently in use, human
resource professionals and other managers are faced with the difficult task of
developing the best approach to meet an organisationÊs needs. Before making
recommendations, human resource professionals should examine two broad
areas:
 Factors in the culture of the organisation that would help or hinder the
implementation of a particular approach; and
 The appropriateness of a particular appraisal technique for the specific jobs to
which the system would apply.
2.6.1 Organisational Considerations

Many factors have an impact on the appraisal system. Three factors that are
especially important are as follows:
(a) Leadership Style

Leadership style, in terms of the amount of criticism that is used, greatly
impacts the outcome of the appraisal interview. Leadership style goes
beyond this. Skills in participative leadership are required in many aspects
of the appraisal system if the organisation wants a collaborative, problem
solving, future-oriented system. For example, such skills are needed at the
outset in developing the system in a cooperative way with employees and
supervisors. As another example, participative leadership skills are needed

in working with individuals and groups in establishing goals where real

agreement is reached.
(b) Organisational Climate

Similarly, as research has shown, the broader organisational climate affects
the outcomes of an appraisal interview. If the organisation wants fairly high
employee satisfaction with the appraisal system, the overall company
climate must move towards such elusive goals as increased trust, openness
and support and towards a developmental approach to dealing with
organisational members.
(c) Training in Appraisal Procedures

Training in appraisal is also important for the success of any appraisal
system. Regardless of which appraisal method is used, appraisers must be
coached on how to use it properly. There is no substitute for this training,
which can minimise the occurrence of rating errors and improve reliability
and validity. For example, one study of training in the use of behavioural-
observation and trait-based scales found that when individuals received
four hours of training in their use, there was a significant reduction in
rating errors in each method.
2.6.2 Appropriateness for Job

In many respects, the choice of an appraisal method boils down to a selection
between one that is trait-based or one that is behaviour-based, or some
combination of the two. Appraisal methods that focus on employee traits or
characteristics have been used for years. These methods can be developed
quickly and easily and can be used for many jobs. However, their advantages are
offset by major shortcomings. The primary limitation of trait-based appraisal,
especially when applied across jobs, is that it is unlikely to be highly job-related.
Personal traits or characteristics (such as a sense of humour, neatness and tact)
may or may not have a bearing on job performance. The issue is basically one of
validity, and as pointed out earlier, the validity of an appraisal method is critical
in todayÊs legal environment.
Partly because the courts have generally favoured behaviour-based methods,

organisations are moving towards increased use of behaviour-based performance
appraisals developed through job analysis, which contributes to the validity of
the process. Behaviour-based methods include behaviourally-anchored rating
scales, behavioural observation scales and management-by-objectives
approaches. More traditional rating methods can still be used as long as
organisations take the time and care to develop them around peformance-based
dimensions that are clearly job-related.
2.6.3 Choosing the Appraisal Process

EmployeesÊ job performance is an important issue for all employers. However,
satisfactory performance does not happen automatically; thus, it is more likely to
happen with a good performance appraisal system in place. A good performance
appraisal system consists of the process used to identify, encourage, measure,
evaluate, improve and reward employeesÊ work performance.
Performance appraisal involves the evaluation of actual against desired

performance. It also helps in reviewing various factors which influence
performance. Managers should plan performance development strategies in a
structured manner for each employee. In doing so, they should keep the goals of
the organisation in mind and aim at optimal utilisation of all available resources,
including financial resources. Performance appraisal is a multistage process in
which communication plays an important role.
2.6.4 Implications of the Appraisal Process

The design of the appraisal system and its procedures are usually handled by the
human resource department. The specific approach selected will be influenced by
previous procedures and the purpose of the new approach. If the goal is to
evaluate past performance and allocate rewards, comparative approaches may be
preferred. Other types of past performance-oriented instruments may be used if
the appraisal system exists primarily to give employees counselling on their
behaviour. Future-oriented approaches such as MBO techniques may focus on
specific goals. Self-appraisals or assessment centres may seek to uncover specific
weaknesses or to help with internal placement. However, regardless of the
technique selected by the human resource department, the approach must be
converted into an ongoing practice among the line managers. Except in the filed
review or psychological appraisal methods, raters are unfamiliar with the
procedures or the forms. Furthermore, they may not be very interested in self-
study to learn more because the evaluation process may be seen as a project
imposed by the personnel department and not as something of immediate
concern to those who supervise others. Evaluation systems that involve othersÊ
design may gain greater acceptance. Such involvement may increase interest and
understanding. However, to operationalise the performance appraisal system,
training may be required for those who will serve as raters.

SELF CHECK 2.3

Discuss the weaknesses in the closed appraisal system used by some
companies.
 There are various variables involved in the development and implementation

of the performance appraisal system. These are:
(a) Organisational and human resource philosophies and goals
(b) Purposes (uses)
(c) Job structure
(d) Type of performance measurement
(e) Choice of performance appraisal format
(f) Other factors influencing performance appraisal format
(g) Relevant appraisal content
(h) Rules and procedures of performance appraisal
(i) Implementation process
(j) Evaluation of performance appraisal
 The participants in a performance appraisal system include the supervisor,

the employees, the human resource department and subordinates. Each has a
role and responsibility to ensure the successful implementation of the
appraisal.
 In implementing performance appraisal, Craig, Beatty, and Baird (1986)

suggested an eight-stage process:
(a) Establish standards and measures
(b) Communicate job expectations
(c) Conduct performance planning
(d) Monitor performance
(e) Conduct appraisal
(f) Provide feedback
(g) Perform decision making
(h) Prepare development plan

 It is important for a supervisor to follow the performance appraisal process to

ensure procedural fairness.
 The performance appraisal process consolidates goal setting, performance

appraisal and development into a single, common system. The aim is to
ensure that employeesÊ performance supports the companyÊs strategic aims.
Closed appraisal Performance appraisal policy

Development plan Performance appraisal process
Job structure Performance measures
Open appraisal
1. Based on the performance appraisal model, why do you think that

organisations need to clarify the intended purpose of performance
appraisal to the employee?
2. Why do supervisors need to establish standards and measures during the
beginning stage of the performance appraisal process?
3. Discuss the role of the individuals involved in the performance appraisal
system.
4. Based on the model described earlier, what are the some other variables
that you might want to include?
5. What are the some of the advantages of having an open system of appraisal
feedback?

1. With the aid of a diagram, identify some of the variables in the performance
appraisal model.
2. Describe some of the steps in the performance appraisal process.
3. Discuss the role of a manager in ensuring that performance appraisal is
conducted according to the stated procedures of the company.
4. Why do you think that some supervisors are reluctant to discuss openly
with the employees when doing the ratings?
5. Discuss why there is a need for an organisation to have a good performance
appraisal system in place.

Appraisal
3 Planning
LEARNING OUTCOMES
1. Identify the objectives of the performance appraisal system;
2. Describe the characteristics of good performance objectives;
3. Explain the targets and performance standards; and
4. Develop a performance appraisal plan for an organisation.
 INTRODUCTION
This topic explains the main objectives of performance appraisal. It describes
some of the objectives which have normally been set in many organisations,
which include reviewing employeesÊ past performance, analysing training needs,
auditing skills, rewarding employees accordingly, etc. At the heart of
performance appraisal is the notion that the employeesÊ efforts should be goal-
directed. The manager should appraise employees based on how they performed
in reaching the specific standards by which they are expected to be measured.
EmployeesÊ goals and performance standards should make sense in terms of the
companyÊs strategic goals. This topic will try to show the relationship that exists
between performance planning and achieving organisational goals. Clarifying
what you expect from your employee is trickier than it may seem. Supervisors
need to know how to quantify their expectations. They need to set measurable
standards for each objective. Employees should know ahead of time how and on
what basis supervisors are going to appraise them and their goals should stem
from the support of the departmentÊs and the organisationÊs broader goals. How
performance objectives are set and how these are translated into performance
standards will be discussed in this topic.

38  TOPIC 3 PERFORMANCE APPRAISAL PLANNING
3.1 MAIN OBJECTIVES OF PERFORMANCE

APPRAISAL
The objectives of the appraisal scheme should be determined before the system is
designed in detail. The objectives will, to a large extent, dictate the methods and
performance criteria for appraisal so that they can be discussed with employees,
managers and trade unions to obtain their views and commitment. The main
objective of a performance appraisal is to improve the organisationÊs
performance by enhancing the performance of individuals. A number of more
specific objectives associated with performance appraisal include the following,
as shown in Figure 3.1:
Figure 3.1: Objectives of performance appraisal
It is important that performance appraisal has specific and clear objectives that
can later be integrated into the organisational strategy. Employees are said to
work best when they know what they have to do, how well they have to do it
and how well they are thought to have done it. Managers need to take their
employees' views into account in setting work goals and deciding on appropriate
training.
SELF-CHECK 3.1
What is performance appraisal planning and why is it very important in
achieving organisational objectives?

TOPIC 3 PERFORMANCE APPRAISAL PLANNING  39
3.2 PERFORMANCE APPRAISAL PLANNING

AND ITS RELATIONSHIP WITH
ORGANISATIONAL OBJECTIVES
Before implementing a performance appraisal, supervisors and managers need to
plan how to make it more effective and successful. The first step that needs to be
taken is to identify the mission, goals and strategy of the organisations for the
coming year. After that, they need to look at the departmental goals and
strategies and develop the specific goals and tasks that employees are expected to
achieve. The tasks and objectives must be aligned with the departmental and
organisational goals and mission. Once the objectives and goals have been
identified, the supervisors are expected to develop the performance standards
that they expect employees to achieve. Having clear goals and standards will
enable employees to work towards achieving them, thus increasing the
possibility of achieving the organisational objectives.
3.2.1 Consistency between Organisational Strategy

and Job Behaviour
Performance appraisal plays another important role in organisational strategy,
which is ensuring strategy-consistent behaviour. A fact of organisation life is that
people engage in behaviours that they perceive will be rewarded. Employees
want to be rewarded and will do the things that the organisation emphasises. For
example, if the focus is on service, employees will behave in ways that gain the
rewards associated with service delivery. If the focus is on cost control,
employees will seek ways to control cost and thus be recognised and rewarded. If
the focus is on rewarding productivity, employees will strive for productivity.
Performance appraisal becomes a means of knowing whether employee
behaviour is consistent with the overall strategic focus and is a way of bringing
to the fore any negative consequences of the strategy-behaviour link. For
example, a single-minded focus on productivity may include potential negative
consequences, such as decreased quality and cooperation. Performance appraisal
is an important organisational mechanism to elicit feedback on the consistency of
the strategy-behaviour link.

3.2.2 Consistency between Organisational Values and

Job Behaviour
Performance appraisal is also a mechanism to reinforce the values and culture of
an organisation. For example, how is an organisation that articulates the value of
developing its people to know if this value is shared by managers throughout the
organisation? A history of developing people or communication from the highest
executives is not enough. Managers typically have more to do than the time to
get it done and will let what is not reinforced slide. If managers are held
accountable for developing their people by being evaluated on this task in their
own performance appraisal, they will more likely spend more time on grooming
their subordinates. A further element in the strategic importance of performance
appraisal is the alignment of the appraisal with the organisational culture. For
example, many organisations 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 rates one employee in 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
emphasises coaching and development, and involves feedback from co-workers
may be more appropriate than the traditional supervisor-based rating.
3.3 SETTING PERFORMANCE OBJECTIVES

The performance of employees, especially in a smaller firm, is an essential factor
in any organisationÊs ability to meet its goals. In a one-person business, the
setting and achieving of goals is a matter of transforming words into action but
moving the business towards its goals in a larger firm means that the employer
has to figure out each personÊs role in attaining that success, communicate that
role to them, and reward or correct their performance. It also means that the
appraisal should incorporate factors such as collaborative ability and a sense of
framework, not just individual performance.
Performance objective describes something which has to be accomplished.

Performance objectives or goals define what individuals are expected to achieve.
Individual performance objectives can be expressed as a quantified output or
improvement target.

3.3.1 What is a Good Performance Objective?

Figure 3.2 shows the characteristics of good performance objectives.
Figure 3.2: Characteristics of good performance objectives
(a) Challenging
To stimulate high standards of performance and to encourage progress.
(b) Agreed
Agreed by the manager and the individual concerned ă the aim is to
provide for the ownership, not the imposition, of objectives, although there
may be situations where individuals have to be persuaded to accept a
higher standard than they believe themselves to be capable of attaining.
(c) Teamwork-oriented
Emphasise teamwork as well as individual achievement.
(d) Time-related
Achievable within a defined time scale (this would not be applicable to a
standing objective.
(e) Achievable
Within the capabilities of the individual, an account should be taken of any
constraints which might affect the individualÊs capacity to achieve the
objectives. These can include lack of resources (money, time, equipment,
support from the manager, team leader or other people), lack of experience
or training, external factors beyond the individualÊs control, etc.

(f) Measurable
They can be related to quantified or qualitative performance measures.
(g) Consistent
Consistent with the values of the organisation and departmental and
organisational objectives.
(h) Precise
Clear and well-defined, using positive words.
3.3.2 Defining Work Objectives

The process of agreeing on objectives need not be unduly complicated. It should
start from an agreed list of main tasks or what are sometimes referred to as
principal accountabilities or key result areas. It is then simply a matter of jointly
examining each area and agreeing on targets and standards of performance as
appropriate. Agreement can also be reached on any projects to be undertaken
which might be linked to a specific accountability, or the agreement may refer to
more general projects which fall broadly within the remit of the job holder.
3.3.3 Agreeing on Main Tasks

This should be done in accordance with the guidelines set out in the last topic,
namely:
(a) Define the overall purpose of the job.
(b) Identify the main tasks ă not more than 10 and covering all the different
parts of the job which make a direct impact on achieving its overall
purpose.
(c) Use active verbs to define what is done in each area.
(d) Define not only what has to be done but also why it has to be done.
3.3.4 Defining Targets

The first step is to identify the key result areas of the job from the list of main
tasks to which targets can be attached.
Targets are quantified and time-based. They always define specific and
measurable outputs and when they have to be reached. The target may be to
achieve a specified level of output or to improve performance in some way.
Targets may be expressed in financial terms such as profits or sales to be made,
income to be generated, costs to be reduced or budgets to be worked within.

They may also be expressed in numerical terms such as a specified number of
units to be processed, responses to be obtained or clients or customers to be
contacted over a period of time.
Targets define outputs but it should be remembered that these outputs are there
to contribute to desired outcomes as expressed in the main task definition. For
example, there is no point in setting an output target for the number of calls per
day or week a sales representative is expected to make unless outcome targets, in
the shape of firm orders and sales value, are also defined.
Output targets are expressed in financial or some other quantified term, for
example:
(a) Achieve sales of RM1.6 million by 30 June.
(b) Maintain inventory levels at no more than RM12 million.
(c) Maintain throughput at the rate of 800 units a day.
Performance improvement targets may be expressed in terms such as:

(a) Increase sales turnover for the year by eight per cent in real terms.
(b) Reduce the overhead to sales ratio from 22.6 per cent to 20 per cent over the
next 12 months.
(c) Increase the ratio of successful conversions (enquiry to sales) from 40 per
cent to 50 per cent.
(d) Reduce cost per unit of output by three per cent by the end of the year.
(e) Reduce wastage rate to five per cent of stock by value.
(f) Achieve a five per cent improvement in customer ratings by the end of the
year.
(g) Reduce the error rate to 1:1000 by 1 June.
(h) Increase market share by 12 per cent within the next two years.
3.3.5 Defining Performance Standards

The next stage is to define performance standards for any main task to which
specific time-based targets cannot be attached. These are sometimes described as
standing or continuing objectives because, as explained earlier, this essential
nature may not change significantly from one review period to the next if the key
task remains unaltered, although they may be modified if new circumstances or
task definitions arise. However, the broad definition should be expanded and, as
far as possible, particularised. Standards should preferably be quantified in terms

of for example level, of service or speed of response. Where the standard cannot
be quantified, a more qualitative approach may have to be adopted, in which
case the standard of performance definition would in effect state: „This job or
task will have been well done if ⁄.(the following things happen).‰ Junior or
more routine jobs are likely to have a higher proportion of standing objectives to
which performance standards are attached than senior and more flexible or
output-oriented jobs.
The following are some examples of performance standards which spell out the
end results required in quantitative terms:
(a) Prepare and distribute management accounts to managers within three
working days of the end of the accounting period.
(b) Deal with 90 per cent of customer complaints within 24 hours ă the
remaining to be acknowledged the same day and answered within three
working days.
(c) Hear job evaluation appeals within five working days.
(d) Maintain a level of customer satisfaction in which complaints do not exceed
1:1000 transactions.
(e) Acknowledge all customer orders within 24 working hours of receipt.
In each of these examples, the figures expressing standards of performance may

be changed occasionally but the underlying objectives (levels of service, customer
satisfaction, bad debt control, delivery time, swift turnround of customer orders)
are standing features of the job.
It may not always be possible to quantify performance standards as in the

examples given above. The end results required may have to be defined in
qualitative terms.
The fact that it is difficult or impossible to set quantifiable objectives for some
jobs or segments of jobs does not mean that some form of measurement cannot
take place. What can be done is to compare the results expected, defined as
standards of performance and also expressed in factual or behavioural terms.
It is often assumed that qualitative performance standards are difficult to define.

However, all managers make judgements about the standards of performance
they expect and obtain from their staff and most people have some idea of
whether or not they are doing a good job. The problem is that these views are
often subjective and are seldom articulated. Even if, as often happens, the final
definition of a performance standard is somewhat bland and unspecific, the

discipline of working through the requirements in itself will lead to greater

mutual understanding of performance expectations and will facilitate the
objective review of performance.
A performance standard definition should take the form of a statement that

performance will be up to standard if a desirable, specified and observable result
happens. This result can be defined in terms of:
(a) Achievement of already defined operational norms in such areas as
administrative procedures, good employment practices, customer or client
satisfaction and public image.
(b) Meeting already defined service delivery standards.
(c) Proportion of take-up of a service of facility.
(d) Change in the behaviour of employees, customers, clients or other people of
importance to the organisation.
(e) Reaction of clients, customers (internal and external) and outside bodies to
the service provided.
(f) Degree to which behaviour and performance support core values in areas
such as quality, care for people and teamwork.
(g) Speed of activity or response to requests.
(h) Ability to meet deadlines for „deliverables‰.
(i) Existence of a backlog.
(j) Meeting defined standards of accuracy.
The following are some examples of qualitative performance standards.

Performance will be up to standard:
(a) If line managers receive guidance on the interpretation and implementation
of inventory policies which is acted on and makes a significant contribution
to the achievement of inventory targets.
(b) When callers are dealt with courteously at all times, even when they are
being difficult.
(c) If proposals for new product development are fully supported by data
provided from properly conducted product research, market research and
product testing programmes and are justified by meeting return on
investment criteria policies.
(d) If the companyÊs business plans are analysed and used to provide the basis
for the realistic anticipation of future human resource requirements.

(e) If a cooperative and productive relationship is maintained with fellow team

members.
(f) If there is evidence of a sustained drive to improve quality standards.
(g) If it can be demonstrated that policies and programmes for continuous
improvement have been implemented effectively and followed for
members of the department.
For performance appraisal to be effective, both employee and supervisor need to

have a common understanding of the expected standards of performance of the
employeeÊs job. This is often a difficult but essential task if the organisation is to
run successfully. In order for any performance appraisal to function effectively,
first of all, realistic performance standards must be established for each position
in the organisation. Jobs have to be analysed, job descriptions must be developed
and performance standards must be set. Performance standards are defined
differently from one job to another in an organisation. Once standards have been
set, precise or imprecise, employees need to be informed about the specific types
and levels of performance expected of them. Finally, in the performance
appraisal process:
(a) Individual behaviour must be monitored;
(b) Corrective actions need to be planned should desired levels of performance
not be met; and
(c) Future plans for improving already satisfactory performance may be
spelled out.
ACTIVITY 3.1
How can you ensure that the planning is in line with organisational
objectives?
3.4 IDENTIFYING PERFORMANCE MEASURES

Performance evaluation requires dependable performance measures. These are
ratings used to evaluate performance. In order for these ratings to be useful, they
must be easy to use, reliable and report on the critical behaviours that determine
performance. These observations can be made directly or indirectly.

(a) Direct observation occurs when the rater actually sees the performance.
(b) Indirect observation occurs when the rater can evaluate only substitutes for
actual performance. Indirect observations are usually less accurate because
these evaluate substitutes or constructs. Since constructs are not exactly the
same as actual performance, they may lead to errors.
Another dimension of performance measures is whether they are objective or

subjective.
(a) Objective performance measures are indications of job performance that are
verifiable by others. Usually, objective measures are quantitative. They
typically include items such as gross units produced, net units approved by
quality control, scrap rates, number of computational errors, number of
customer complaints or some other mathematical precise measure of
performance.
(b) Subjective performance measures are those ratings that are not verifiable by
others. Usually, such measures are the raterÊs personal opinion. Subjective
measures are low in accuracy. When subjective measures are also indirect,
accuracy becomes even lower. Since the evaluation is subjective, accuracy is
usually low even if the supervisor directly observes the employee.
Accuracy is likely to be even lower when the rater uses an indirect measure.
Whenever possible, personnel specialists prefer objective and direct
measures of performance.
SELF-CHECK 3.2
1. What is the importance of objectives?
2. What are characteristics of a good performance objective?
 The effective functioning of any performance appraisal system depends on

the establishment of realistic performance standards for each job in the firm.
 Jobs must be analysed, job descriptions must be developed and performance

standards must be set. Performance standards must be defined differently
from one job to another.
 Once standards have been set, employees must be informed about the
specific types and levels of performance expected of them.
Performance Relevance criteria

Performance objectives Targets
Performance standards
1. Describe the relationship between performance appraisal and

organisational objectives.
2. Why is it important for managers to set performance standards for the
subordinates?
3. Describe good objectives.
4. What is the difference between performance standards and job criteria, and
why do the criteria problems of contamination and deficiency exist?
5. Many employees dislike performance appraisals. Many students dislike
grades. What would happen if teachers quit giving grades? What if
everyone receives the same grade?
1. Describe why there is a need for supervisors and subordinates to agree on

the main task to be performed by employees.
2. In what ways can performance appraisal assist an organisation in assuring
congruence between strategic goal and behaviour of employees?
3. Why are direct and objective measures of performance usually considered
superior to indirect and subjective measures?
4. What difference does it make to you, in terms of effort and learning, to take
a course on a pass-fail basis rather than on a grade basis?
5. Discuss the importance of having SMART objectives to the organisation
and employees.

T op i c  Designing and
Implementing
4 a Performance
Appraisal
System
LEARNING OUTCOMES
1. Discuss some of the important issues in designing an appraisal
system;
2. Identify what are the specific criteria and factors to appraise for each
category of jobs; and
3. Distinguish the various methods of performance appraisal including
their advantages and disadvantages.
 INTRODUCTION
The process of designing an appraisal system should be carefully done and
involve managers, supervisors, employees and HR professionals. Attention
should be given to the choice of appraisers, the role of the HR department, and
the validity and reliability of the appraisal methods. How performance appraisal
is conducted can have a decided impact on employeesÊ motivation, morale and
plans for improvement. Appraisal can be conducted by the immediate
supervisor, employee, peers, clients, committee or the employeeÊs subordinates.
Involving all these parties and getting input from them in designing the
appraisal system will help to reduce some of the problems that might be
encountered in the future with regard to performance appraisal.
50  TOPIC 4 DESIGNING AND IMPLEMENTING A PERFORMANCE APPRAISAL SYSTEM
Reliability and validity can be reduced by appraisal errors such as the halo error,
central tendency or leniency. The use of written standards for rating scales,
supervisor training in the use of appraisal instrument, appeal or review
procedures and documentation will tend to strengthen the management position
in implementing an acceptable appraisal system. This topic will highlight some
approaches used in appraising performance including graphic rating scale, the
essay, behaviourally-anchored rating scales, ranking methods, behavioural
observation scales and Management by Objectives (MBO) in addition to some
other important concerns that need to be focused on in designing an appraisal
system.
ACTIVITY 4.1
In your opinion, what are the factors that should be considered in
designing and implementing a performance appraisal system?
4.1 DESIGNING AN APPRAISAL SYSTEM

When designing an appraisal system, an organisation should design one that is
congruent with its departmental and institutional context. It must address the
following questions:
(a) Are organisational and departmental goals integrated into the appraisal
plan?
(b) Are staff members involved in the planning and implementation of the
appraisal process?
(c) Is the appraisal process congruent with the organisational climate and
culture?
(d) Have adequate job descriptions based on job analysis been written?
(e) Is the purpose of the performance appraisal system clearly articulated and
congruent with staff and management needs and expectations?
(f) Have weights or priorities been assigned to job expectations?
(g) Has a process been worked out to monitor and evaluate the system?
It is essential for an organisation to have written records and documentation of

the performance appraisal to provide feedback to employees and to allow
managers to monitor the effectiveness of appraisals. Documentation and records
are not ends in themselves but are essential so that managers can provide reliable
and concrete feedback to employees and more managers can monitor the

TOPIC 4 DESIGNING AND IMPLEMENTING A PERFORMANCE APPRAISAL SYSTEM  51
effectiveness of the appraisals. The design of the forms will depend on the nature
of the organisation, the objectives of the appraisal system and the employees to
be appraised. However, most performance appraisal forms should contain the
following:
(a) Basic personal details such as name, department, post and length of service;
(b) Job title;
(c) Job description;
(d) Detailed review of the individualÊs performance against a set of job-related
criteria;
(e) Overall performance rating;
(f) General comments by a more senior manager;
(g) Comments by the employee; and
(h) Plan for development and action.
In addition, there should be some clear guidance and procedures explaining the
objectives of the scheme and how the appraisal interview should be conducted.
ACTIVITY 4.2
What are the core criteria that you think need to be included in all the
appraisal systems? Why?
4.2 DETERMINING PERFORMANCE CRITERIA

Most effective systems of appraising performance are:
(a) Pragmatic;
(b) Relevant; and
(c) Uniform.
Pragmatism is important because it helps to ensure that the system will be easily
understood by employees and effectively put into action by managers. Appraisal
structures that are complex or impractical tend to result in confusion, frustration
and non-use. Likewise, systems that are not specifically relevant to the job may
result in wasted time and resources. Indeed, most successful appraisal
programmes identify and evaluate only the critical behaviours and criteria that
contribute to job success. Systems of appraisal that do not relate criteria
appropriately are often invalid, inaccurate and result in discrimination based on
non-related factors. Uniformity of the appraisal practice is vital because it

ensures that all employees will be evaluated on a standardised scale. An
appraisal that is not uniform is less effective because the criteria for success or
failure becomes arbitrary and meaningless. Finally, uniformity allows a company
to systematically compare the appraisals of different employees.
Keeping in mind the three key traits of effective performance appraisal systems,
companies make four decisions in structuring their appraisal systems:
(a) What should be assessed?;
(b) Who should make the appraisal?;
(c) Which procedures should be utilised?; and
(d) How will the results be communicated?
In determining what to evaluate, designers of an appraisal system usually

consider not only results but also the behaviours that lead to the results. The
behaviours and results that are measured will depend on a variety of factors
specific to the company and industry. Most importantly, criteria that will
encourage the achievement of comprehensive corporate objectives should be
selected. This is established by determining the exact role of each job in
accomplishing company goals and which behaviours and results are critical for
success in each position. Furthermore, different criteria for success should be
weighted to reflect their importance. Some recommend concentrating assessment
on quality, quantity, timeliness and cost-effectiveness, which can be objectively
measured and compared. Focus on these four factors enable companies to
determine if workers are performing their tasks at an acceptable pace and if they
are performing their tasks at an acceptable level of cost, quality and time.
Since performance appraisal is aimed at measuring employee workplace

behaviours, the criteria chosen must fulfil the following requirements:
(a) The description should accurately describe major significant behaviours
required in the successful performance of the job.
(b) The description should consider the capabilities of the employee, the tasks
to be performed and what is under the employeeÊs control.
(c) The description must not be so general that it does not allow for objective
assessment of accomplishments.
(d) There must be no ambiguity and overlap in the selection and definition of
criteria.
(e) The criteria must be amenable to weighting, since some criteria are more
important than others for a particular job.

4.2.1 What Specific Factors to Appraise

Just as the number of criteria used varies from one organisation to another, so do
the specific factors chosen. A number of factors are commonly appraised in many
organisations and the most common factors appearing on the appraisal forms of
61 companies, according to Lazer and Wikstrom (1977), are as follows:
(a) Knowledge
(b) Leadership
(c) Initiative
(d) Quality of work
(e) Quantity of work
(f) Cooperation
(g) Judgement
(h) Creativity
(i) Dependability
(j) Planning
(k) Communication
(l) Problem solving
(m) Attitude
(n) Motivation and effort
Based on the above, the majority of the factors relate to the behaviours of the
employee and the remaining factors relate to output. The preference to have
more on one factor and less on others can be attributed to the nature of the
business. Normally, companies in the service sector will focus more on factors
based on personality or behaviour while those in the manufacturing sector will
give more focus and value to factors based on output and cost-effectiveness.
4.2.2 Need for Job Description
A job description indicating the main objectives and duties of a job should be
featured at the beginning of an employee appraisal form. The job description
should be agreed upon between the manager and the employee and should
estimate the percentage of time taken to perform each of the duties. The job

description helps appraisers to focus their attention on the employeeÊs

performance at work and to avoid assessing character.
4.2.3 Potential Performance Criteria Problems

Performance measures that leave out some important job duties are considered
deficient. For example, when measuring the performance of an employment
interviewer, if only the number of applicants hired and not the quality of those
hired is evaluated, performance measurement is likely to be deficient. On the
other hand, including some irrelevant criteria contaminates the measure. An
example of a contaminated criterion might be „appearance‰ for a telemarketing
sales representative whom customers never see. Managers need to guard against
using deficient or contaminated criteria in measuring performance.
Performance measures can be objective or subjective. Objective measures can be

directly measured or counted ă for example, the number of cars sold or invoices
processed. Subjective measures require judgement on the part of the evaluator
and are more difficult to measure. One example of a subjective measure is a
supervisorÊs ratings of an employeeÊs „attitude‰ which cannot be seen directly.
Unlike subjective measures, objective measures tend to be more narrowly
focused, which sometimes leads to them being inadequately defined. However,
subjective measures may be prone to contamination or other random errors.
Neither is a panacea, so both objective and subjective measures should be used
carefully.
SELF-CHECK 4.1
1. Describe some of the criteria that need to be appraised.
2. Differentiate between objective and subjective measures.
ACTIVITY 4.3
1. What will happen if some of the important criteria is missing in an

appraisal?
2. What happens if an appraisal is overloaded with irrelevant
criteria?

4.3 FACTORS AFFECTING RELIABILITY AND

VALIDITY OF PERFORMANCE
MEASUREMENT CRITERIA
Measuring employeesÊ performance requires the use of relevant criteria that
focus on the most important aspects of an employeeÊs job. The most important
job criteria should be identified and linked to the employeeÊs job description.
Performance measures that leave out some important job duties are considered
deficient. For instance, when measuring the performance of a bank clerk, if only
the number of applicants hired and not the quality of those hired is evaluated,
performance measurement is likely to be deficient. On the other hand, including
some irrelevant criteria contaminates the measure. An example of a
contaminated criterion might be „appearance‰ for a telemarketing sales
representative whom customers never see. Managers need to guard against using
deficient or contaminated criteria in measuring performance.
Performance measures also can be thought of as objective or subjective.

(a) Objective measures can be directly measured or counted ă for example, the
number of cars sold or the number of invoices processed.
(b) Subjective measures require judgement on the part of the evaluator and are
more difficult to measure.
One example of a subjective measure is a supervisorÊs ratings of an employeeÊs

„attitude‰ which cannot be seen directly. Unlike subjective measures, objective
measure tend to be more narrowly focused, which sometimes leads to them
being inadequately defined. However, subjective measures may be prone to
contamination or other random errors. Neither is a panacea, and both objective
and subjective measures should be used carefully.
4.3.1 Validity
Validity is the extent to which a performance measure assesses all the

relevant ă and only the relevant ă aspects of performance. This is often
referred to as „content validity‰.
It is said that for a performance measure to be valid, it must not be deficient or

contaminated. Validity is concerned with maximising the overlap between actual
job performance and the measure of job performance.

A good performance measure should measure important job characteristics

(relevancy) and be free from extraneous or contaminating influences; it should
also encompass the whole job (not be deficient). A measure is content valid if it
measures important parts of a job and does so in a representative way. A
measure is valid as a construct if it measures what it claims to measure ă in this
case, job performance. The relationship between these two types of validity and
the concepts of relevance, contamination and deficiency is quite clear. A relevant
measure assesses aspects of performance that are truly important in determining
job effectiveness. For example, a relevant measure for assessing the performance
of a college professor would include teaching performance. A measure is not
deficient if it measures all important aspects of performance. In the case of a
college professor, the measure of performance would be deficient unless it
assessed such factors as research and publications, as well as teaching
performance. A measure is free from contamination if it avoids assessing other
constructs beside performance. If the professorÊs performance rating included an
assessment of how well the professorÊs 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 a performance measure so that all
relevant aspects of performance are covered and irrelevant factors do not
contaminate the appraisal measure.
4.3.2 Reliability
Reliability refers to the consistency of the performance measure. One

important type of reliability is interrater reliability ă the consistency among
the individuals who evaluate the employeeÊs performance.
A performance measure has interrater reliability if two raters give the same or
quite similar evaluations of a personÂs job performance. Evidence seems to
indicate that most subjective supervisory measures of job performance show low
reliability. With some measures, the extent to which all the items rated are
internally consistent is important. In addition, the measure should be reliable
over time (test-retest reliability). A measure that results in drastically different
ratings depending on the time at which the measures are taken lacks test-retest
reliability. Therefore, one needs to measure performance consistently across time.
Interrater 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. Interrater reliability is usually quite good
when performance raters come from the same level of the organisation, 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 or a superior and a subordinate. Thus, high interrater reliability is
expected only among raters at the same organisational level. In a study of almost
10,000 employees from 79 organisations, Hannah R. Rothstein found that
interrater reliabilities - that is, the correlation between two raters observing the
same employee - typically ranged from 0.65 to 0.73, a high enough level to lead
confidence to the stability of the rating process.
Internal consistency reliability and 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 a job but quite weak at others, so a measure that accurately gauges
these different aspects of performance would not show high internal consistency.
Similarly, because performance may improve with experience or training and
fluctuate with effort or luck, strong stability over time is not necessarily expected.
For more objective measures of performance, another aspect of reliability is

important. Suppose absenteeism from work is used as one measure of an
employeeÊs performance. If the supervisor sometimes records when the
employee is absent and sometimes does not, then this measure of performance is
unreliable. Thus, when evaluating the reliability of performance appraisals, it is
very important to know exactly what type of measure is used, and, in the case of
subjective ratings of performance, who is making the ratings.
4.4 METHODS OF PERFORMANCE APPRAISAL

Performance can be appraised by a number of methods. The various methods are
categorised into four groups. The different methods raise the question of whether
performance is measured against a valid standard. An employeeÊs performance
can be compared to the duties underlined in the job description or the
performance or results of others. Performance can also be rated against expected
behaviours that should be made known to employees in advance. There are three
categories of performance appraisal methods:
(a) Subjective methods;
(b) Interpersonal methods; and
(c) Objective methods.
All these methods will be discussed, including some of their advantages and
disadvantages.

Figure 4.1: Performance appraisal methods
4.4.1 Subjective Methods

The simplest methods often used to appraise performance are category rating
methods which require a manager to mark an employeeÊs level of performance
on a specific form divided into categories of performance. The graphic rating
scale and checklist are common category rating methods.
(a) Graphic Rating Scale

The graphic rating scale allows the appraiser to rate an employeeÊs
performance on a continuum. The appraiser ticks the appropriate rating on
the scale for each job criterion listed. The rating scale method offers a high
degree of structure for appraisals. This method lists a number of factors to
be assessed such as quality, output of work, trait or characteristic. The traits
assessed on these scales include employee attributes such as cooperation,
communications ability, initiative, punctuality and technical competence.
One major provision in selecting traits is that they should be in some way
relevant to the appraiseeÊs job. The traits selected by some organisation
have to be carefully determined to avoid legal action by employees on

grounds of discrimination. All these factors are then rated on a numerical

scale according to level of performance, for example:
(i) Outstanding
(ii) Exceeds requirements of the job
(iii) Meets the requirement of the job
(iv) Shows some minor weaknesses
(v) Shows some significant weaknesses
(vi) Unacceptable
This method is widely adopted because of its simplicity. The greatest

advantage of rating scales is that they are structured and standardised. This
allows ratings to be easily compared and contrasted even for the entire
workforce. Each employee is subjected to the same basic appraisal process
and rating criteria, with the same range of responses. This encourages
equality in treatment for all appraisees and imposes standard measures of
performance across all parts of the organisation.
Rating scale methods are easy to use and understand. The concept of the
rating scale makes clear sense; both appraisers and appraisees have an
intuitive appreciation for the simple and efficient logic of the bipolar scale.
The result is widespread acceptance and popularity for this approach.
A question may arise as to whether the rating-scales traits are relevant to

the jobs of all appraisees. It is inevitable that with a standardised and fixed
system of appraisal, certain traits will have greater relevance in some jobs
than in others. For example, the trait „initiative‰ might not be very
important in a job that is tightly defined and rigidly structured. In such
cases, a low appraisal rating for initiative may not mean that an employee
lacks initiative. Rather, it may reflect the fact that an employee has few
opportunities to use and display that particular trait. Thus, the relevance of
rating scales is said to be context-sensitive. Job and workplace
circumstances must be taken into account.
Rating scales, and the traits they purport to measure, generally attempt to
encapsulate all the relevant indicators of employee performance. An
employeeÊs performance may depend on factors that have not been
included in the selected traits. Such employees may end up with ratings
that do not truly or fairly reflect their efforts or value to the organisation.
Employees in this class are systematically at a disadvantage by this kind of
rating scale method.

The problem of perceived meaning occurs when appraisers do not share the
same opinion about the meaning of the selected traits and the language
used on the rating scales. For example, to one appraiser, an employee may
demonstrate the trait of initiative by reporting work problems to a
supervisor. To another appraiser, this might suggest excessive dependence
on supervisory assistance and thus, a lack of initiative.
This method is subject to central tendency error. Since it is highly

subjective, there is often a tendency for appraisers to gather the ratings
around the average point regardless of the actual performance of a
subordinate. They do this to avoid confrontation and keep themselves safe
from criticism. This problem is aggravated in organisations where the
appraisal process does not enjoy strong management support or where the
appraisers do not feel confident with the task of appraisal.
(b) Checklist
Another relatively straightforward appraisal approach uses the checklist
method. Under this approach, the rater is presented with a list of positive or
negative adjectives or descriptive behavioural statements and is asked to
check off all those that apply to the person being rated. The checklist uses a
list of statements or words for the rater to rate. Appraisers check statements
which are most representative of the characteristics and performance of the
respective employees. The following are some examples of the typical
checklist statements:
--------------------------- Can be expected to finish work on time

--------------------------- Seldom agrees to work overtime when required
--------------------------- Is cooperative and helpful while performing a
given task
--------------------------- Accepts criticism well
--------------------------- Strives for self-improvement
--------------------------- Cannot accept constructive criticism
In this approach, all items are considered to be of equal value. Greater

sophistication occurs with the use of a „weighted checklist‰, in which each
item receives a weighted value based on its perceived importance to
successful job performance. Weighted values are determined by those
highly familiar with the job.
Checklists are easy to use and are not subject to such rating errors as central
tendency or leniency. However, they are not problem-free. The process of
weighting is difficult and requires professional assistance.

(c) Essay Method

In the essay method, managers are required to write a short essay
describing each employeeÊs performance during the rating period in his or
her own words. Some essays are without guidelines while others are more
structured. The effectiveness of the essay approach depends on the
supervisorÊs ability to write. Some supervisors are unable to express
themselves well in writing, resulting in a poor description of employeesÊ
actual performance.
The essay method is far less structured and confining than the rating scale
method. It allows the appraiser to examine almost any relevant issue or
attribute of performance. This contrasts with methods where the appraisal
criteria are rigidly defined.
Appraisers may place whatever degree of emphasis on issues or attributes

that they feel appropriate. Thus, the process is open-ended and very
flexible. The appraiser is not locked into an appraisal system that limits
expression or assumes that employee traits can be scaled neatly.
The essay method is time-consuming and difficult to administer.

Appraisers often find it more demanding than other methods such as rating
scales.
(d) Field Review

The field review method focuses attention on who does the evaluation. In
this method, the outside reviewer or specialist becomes an active partner in
the rating process. He goes into the „field‰ and assists supervisors with the
rating. He will solicit specific information about an employeeÊs
performance from the employeeÊs immediate supervisor. Then, he will
prepare an evaluation based on information obtained from interviews. The
evaluation is then sent to the supervisor for review, changes, approval and
discussion with the employee being rated. This method assumes that the
specialist knows enough about the job setting to help supervisors give more
accurate and thorough appraisals.
The major weakness of this method is the extent of control the outside
reviewer or specialist exercises over the rating process. In addition, the field
review is time-consuming, especially if a large number of employees are to
be rated.

4.4.2 Interpersonal Methods

Comparative methods require managers to directly compare the performance of
their employees against one another. For example, a data-entry operatorÊs
performance would be compared with that of other data-entry operators by the
computing supervisor. Comparative techniques include ranking and forced
distribution.
(a) Ranking
The ranking method lists all employees from the highest to the lowest in
performance. The primary drawback of the ranking method is that the size
of the differences among individuals is not well defined. For example, the
performance of individuals ranked between second and third differs a little
but the performance of those ranked between third and fourth differs a
great deal. This drawback can be overcome to some extent by assigning
points to indicate the size gaps. Ranking also means someone must be last,
which ignores the possibility that the last-ranked individual in one group
might be equal to the top employee in a different ranked group.
Furthermore, the ranking task becomes unwieldy if the group to be ranked
is large.
(b) Forced Distribution

The second comparative method of performance appraisal is forced
distribution, which resembles grading on the curve. Here, the appraiser is
forced to assign a certain percentage of subordinates to one of several
predetermined categories. For example, the categories might be the highest
10 per cent, the next highest 25 per cent, the middle 30 per cent, the next
lowest 25 per cent, and the lowest 10 per cent. Such a technique may
overcome leniency, strictness and central tendency errors. However, the
managerÊs bias towards or against certain individuals may still exist. Forced
distribution requires a comparison among people in the work group under
consideration. With the forced distribution method, the ratings of
employeesÊ performance are distributed along a bell-shaped curve.
4.4.3 Objectives Methods

Behavioural rating approaches attempt to assess an employeeÊs behaviours
instead of other characteristics. Some of the different behavioural approaches are
Behaviourally Anchored Rating Scales (BARS) and Behavioural Observation
Scales (BOS), whereas for the objective method, the most popular one is
Management by Objectives (MBO). BARS compare what an employee does with

possible behaviours that might be shown on the job. BOS count the number of
times certain behaviours are exhibited.
(a) Behaviourally Anchored Rating Scales (BARS)

The BARS approach relies on the use of critical incidents to serve as anchor
statements on a scale. A BARS rating form usually contains five to ten
specifically defined performance dimensions, each with five to six critical
incident anchors. The rater is expected to read the anchors and place an X at
some point on the scale for the rate.
BARS usually contain the following features:

(i) Five to ten performance dimensions identified and defined by both
raters and ratees.
(ii) Dimensions anchored with positive and negative critical incidents.
(iii) Each rate is then rated on the dimensions.
(iv) Ratings are fed back using the terms displayed on the form.
Engineering Competence
(Technical Ability that is Directly Applied to Completing Sasaar Projects)
_______________________________________________ Engineer’s Name
_____ 9 ___ This engineer applies a full range of technical skills and can be
expected to perform all assignments in an excellent manner.
_____ 8 ___
_____ 7 ___ This engineer is able to apply in most situations a good range of
technical skills and can be expected to perform most assignments
well.
_____ 6 ___
_____ 5 ___ This engineer is able to apply some technical skills and can be
expected to adequately complete most assignments.
_____ 4 ___
_____ 3 ___ This engineer has difficulty applying technical skills and can be
expected to bring in most projects late.
_____ 2 ___
_____ 1 ___ This engineer is confused about using technical skills and can be
expected to disrupt the completion of work because of this deficiency.
Figure 4.2: Sample BARS dimension

(b) Behavioural Observation Scales (BOS)

BOS use the critical incident approach to identify a series of behaviour
covering the domain of the job. A major difference between BARS and BOS
is that instead of identifying the behaviour exhibited by the rate during a
rating period, the rater indicates on a scale how often the rate was actually
observed engaging in the specific behaviour identified in the BOS. In this
BOS appraisal form, 25 behavioural items are identified. The maximum
score is 125 (25x5) and the minimum score is 25. Employees with scores
above 115 are considered excellent performers while a score in the 25 to 35
range is considered extremely poor. Figure 4.3 shows the sample of BOS.
Accurate in preparing cost reports for project crew.

Almost never 1 2 3 4 5 Almost always
Practises careful supervision of project crew.

Available for technical consultation when needed.

Develops a fair and equitable work schedule.

Figure 4.3: Sample BOS Items for Supervisor
(c) Management by Objectives (MBO)

The use of Management by Objectives (MBO) was first advocated by
management theorist Peter Drucker. MBO, as a method of performance
appraisal, is results-oriented. This appraisal method seeks to measure the
extent to which predetermined work objectives have been met by
employees.
The first step in this process is to have each employee arrive at a clear
statement of the major features of his job. This statement defines broad
areas of the employeeÊs responsibilities. The manager and the employee
then jointly discuss targets and modify them if necessary. This occurs
until both agree that the targets are adequate.
Working from this statement of responsibilities (broad goals), the employee

then establishes his objectives or goals for a specified period (say, 12 months).
These targets are specific actions which the employee proposes to take.

For example:
(i) Setting up regular staff meetings to improve communication;
(ii) Reorganising the office and getting it ready by 12 August; and
(iii) Reducing rejects by eight per cent.
MBO is viewed as a method by which supervisors and subordinates plan,

organise, control, communicate and discuss. By setting objectives through
participation, the subordinate is provided with a course to follow and a
target to shoot for while performing the job. However, there are a few
problems with MBO. These include:
(i) Too much paperwork;
(ii) Too much emphasis on short-term goals;
(iii) The objectives set are often modified;
(iv) Too many objectives are set and confusion occurs; and
(v) The MBO is used as a rigid control device that intimidates rather than
motivates.
SELF-CHECK 4.2
1. Identify the nature of behavioural approaches to performance
appraisal and Management by Objectives (MBO).
2. Describe some of the advantages of the graphic rating scale
method.
ACTIVITY 4.4
1. What are the main features of MBO?

2. Some managers complain that MBO does not make good jobs out
of bad jobs, that it is only a management gimmick to increase
production, that it is a new whip to create more pressure and
that it only results in a lot of useless paper-shuffling. Is MBO
based on sound principles of management?

4.5 GUIDELINES IN CHOOSING APPRAISAL

METHODS
You should know that not all of the methods are used very often. The graphic
rating scale is the most widely used technique. Studies indicate that the essay
method is also widely used, usually as part of the graphic rating scale form.
Checklists are common too.
Studies also show that other methods such as forced choice, critical incident,
BARS, BOS, field review and MBO combined, are used by a small number of
firms. Ranking and paired comparison are used by a much larger percentage of
employers. MBO is most likely be used for managerial, professional and technical
employees.
Which method should be used in a specific instance? The literature on the

shortcomings, strengths, reliability and validity of each of the methods is vast.
Each method is sometimes good and sometimes poor, depending on the purpose
and categories of employees. The major problems are not with the methods
themselves but with how they are used and by whom. Untrained raters or raters
who have little knowledge and training to evaluate can destroy or hamper any
appraisal method. The rater is more critical than the method in developing an
effective appraisal system.
Appraisal methods can be judged on a series of criteria, such as costs and

purposes. At least two major purposes are served by evaluation:
(a) Personal development; and
(b) Appraisal for rewards.
Some appraisal methods serve one purpose better than the others and some
systems cost more to develop and operate than others. If the primary purpose of
the appraisal is development, some firms will use BARS, BOS, essay, critical
incident, MBO or field review as a tool. If the primary purpose of the appraisal is
rewards, the firm might use graphic rating scales, field reviews, forced
distribution, MBO, critical incident, BARS or BOS.
Regardless of which method or system is chosen, a firm will encounter many

problems using it. None of the methods is perfect; they all have limitations and
some of these limitations are common to all of these methods, while others are
more frequently encountered with certain ones.

4.6 POTENTIAL ERRORS IN PERFORMANCE

APPRAISALS
Several common errors have been identified in performance appraisals. Leniency
occurs when ratings are grouped at the positive end instead of being spread
throughout the performance scale. Central tendency occurs when appraisal
statistics indicates that most employees are appraised as being near the middle of
the performance scale. Recency occurs when evaluations are based on work
performed most recently ă generally work performed one to two months prior to
evaluation. Leniency, central tendency and recency errors make it difficult, if not
impossible, to separate the good performers from the poor performers. In
addition, these errors make it difficult to compare ratings from different raters.
For example, it is possible for a good performer who is evaluated by a manager
committing a central tendency error to receive a lower rating than a poor
performer who is rated by a manager committing a leniency error.
Another common error in performance appraisals is the halo effect. This occurs
when a rater allows a single prominent characteristic of an employee to influence
his judgement on each separate item in the performance appraisal. This often
results in the employee receiving approximately the same rating on every item.
Personal preferences, prejudices and biases can also cause errors in performance
appraisals. Managers with biases or prejudices tend to look for employee
behaviours that conform to their biases. Appearance, social status, attire, race and
sex have influenced many performance appraisals. Managers have also allowed
first impressions to influence later judgements of an employee. First impressions
are only a sample of behaviour; however, people tend to retain these impressions
even when faced with contradictory evidence.
4.7 OVERCOMING ERRORS IN PERFORMANCE

APPRAISALS
As the preceding discussion indicates, the potential for errors in performance
appraisals is great. One approach to overcoming these errors is to make
refinements in the design of appraisal methods. For example, one could argue
that the forced distribution method of performance appraisal attempts to
overcome the errors of leniency and central tendency. In addition, behaviourally-
anchored rating scales are designed to reduce halo, leniency and central tendency
errors, because managers have specific examples of performance against which
to evaluate an employee. Unfortunately, because refined instruments frequently
do not overcome all the obstacles, it does not appear likely that refining appraisal
instruments will totally overcome errors in performance appraisals.

A more promising approach to overcoming errors in performance appraisals is to

improve the skills of raters. Suggestions on the specific training that should be
given to evaluators are often vague but they normally emphasise that evaluators
should be trained to observe behaviour more accurately and judge it more fairly.
More research is needed before a definitive set of topics for rater training can be
established. However, at a minimum, raters should receive training on the
performance appraisal method(s) used by the company, the importance of the
raterÊs role in the total appraisal process, the use of performance appraisal
information and the communication skills necessary to provide feedback to the
employee.
ACTIVITY 4.5
Among all the methods discussed above, which method is the best
and why?
4.8 WHO SHOULD DO THE RATINGS

EVALUATION?
There are a number of individuals who can be appointed to appraise
performance. However, the employeeÊs immediate supervisor is the most
common individual responsible for conducting the actual appraisal in a vast
majority of the cases. There are other possibilities that an organisation can
consider as well to conduct the ratings.
4.8.1 Rating by Immediate Supervisor

SupervisorsÊ rating is based on the assumption that the immediate supervisor is
the best and most qualified person to evaluate the employeeÊs performance
realistically and objectively. They are in the position to observe and evaluate the
employeeÊs performance and are responsible for that employeeÊs performance.
Some supervisors keep logs of what their employees have done. A log serves to
record the memory and provides specific examples of employeesÊ favourable and
unfavourable behaviour.

4.8.2 Rating by a Committee of Several Supervisors

Many organisations use rating committees. These committees usually comprise
the employeeÊs immediate supervisor and three to four other individuals
appointed by the department. Through this approach, the supervisors chosen are
usually those most likely to come into contact with the employee. Using multiple
raters makes a lot of sense. While there may be some discrepancies among
ratings by individual supervisors, the committee ratings tend to be more reliable,
fair and valid. This approach has the advantages of off-setting bias on the part of
one superior and adding additional information to the evaluation, especially if it
follows a group meeting format. It also has higher inter-rater reliability or
consistency and helps cancel out problems like bias and halo effects.
4.8.3 Rating by Employee’s Peers

With many firms using self-managing teams, peers or team appraisals, the appraisal
of an employee by his peers is becoming more popular. Peer appraisal can predict
future management success and is found to be quite accurate in predicting which
employees would be promoted and which would not. Another positive impact of
peer appraisal is that it improves perception of open communication, task
motivation, group viability, cohesion and satisfaction. In the peer appraisal system,
co-workers must know the level of performance of the employee being evaluated.
For this system to work, it is preferable for the evaluating peers to trust each other
and not be in competition for raises and promotions. This approach may be useful
when the tasks of the work unit require frequent working contact among peers.
4.8.4 Rating by Subordinates

Many firms today let subordinates anonymously rate their supervisorÊs
performance, a process some call upward appraisal. The process will help top
management diagnose a supervisorÊs management style, identify potential
„people‰ problems and take corrective action with individual supervisors as
required. This technique gives employees an opportunity to comment on the
performance of their manager or supervisor and may provide a more balanced
view of an individualÊs performance. It is used more for the developmental aspects
of performance appraisal than some of the other methods. Managers are less likely
to accept being rated by subordinates if the information is going to be used for
administrative purposes (such as pay raises and promotions) than if it is used for
development. This source of rating information is more acceptable if the manager
or supervisor believes that his subordinates are familiar with the job.

It was found that supervisors who receive feedback from subordinates who
identify themselves view the upward appraisal process more positively than
supervisors who receive anonymous feedback. However, subordinates are more
comfortable giving anonymous responses and those who have to identify
themselves tend to provide inflated ratings. Subordinates appraisal is usually
restricted to „people-oriented‰ issues such as leadership, delegation and
communication, rather than planning, controlling and other less easily observed
aspects of the manager or supervisorÊs performance.
4.8.5 Rating by Human Resource Specialist

This approach is also known as the field review technique. It uses a specialised
appraiser from outside the job setting, such as a human resource specialist, to
rate the employee. However, this approach is often costly, so it is generally used
only for exceptionally important jobs. It might be used for the entire workforce if
accusation of prejudice is encountered. A crucial consideration is that the human
resource specialist is not likely to have as much data as evaluators in any of the
other earlier approaches.
4.8.6 Self-evaluation
In this case, the employee evaluates himself with the techniques used by other
appraisers. This approach seems to be used more often for the developmental
aspects of performance appraisal. It is also used to evaluate an employee who
works in physical isolation. Self-appraisal has often been met with scepticism by
organisations because the self-interests of the employee could outweigh an
objective appraisal. The basic problem is that employees usually rate themselves
higher than if they were rated by supervisors or peers. It was found in one study
that when employees were asked to rate their own job performance, most of
them placed themselves in the top 20 per cent well above average. Usually only
one per cent or two per cent will place themselves in a below average category.
Not surprisingly, in many cases, even if you do not ask for a self-appraisal, your
employees will almost certainly enter the performance review session with his
own self-rating in mind, and it is usually higher than the supervisorÊs ratings.
Thus, the supervisor should be prepared for a dialogue, with specific critical
incidents and documentation to make their points. Research indicates that self-
appraisal can correlate reasonably well with supervisorsÊ ratings, especially if the
employees have information about their own performance.

4.8.7 Multi-source Appraisal

One system of appraising performance that appears to be growing in popularity
is the multi-source appraisal or also known as 360-degree feedback system. As
the name implies, this method uses multiple appraisers, including supervisors,
subordinates, peers, self and clientÊs feedback. The appraisal is 360 degrees in
that information is collected and feedback is provided in full circular fashion ă
from top to bottom and back to the top. Most companies find that this technique
is very useful in providing more reliable information for development purposes
and can also be used for personnel decisions such as merit pay increases and
promotions.
Most 360-degree appraisal systems consist of several common features. Relevant

parties such as peers, supervisors, subordinates and clients, for instance,
complete surveys on an individual. Computerised and Web-based systems then
compile this feedback into an individualised report that the human resource
department will present to the ratees. The ratees then meet with their own
supervisors and share the information they feel is pertinent for developing a self-
improvement plan. It is suggested that any firm implementing a 360-degree
appraisal should carefully assess the potential costs of the programme, focus any
feedback very clearly on concrete goals, carefully train the individuals giving and
receiving the feedback and not rely solely on 360-degree feedback for
performance appraisal. Also, particularly with so many appraisers involved, the
company should make sure that the feedback the ratees receive is productive,
unbiased and development-oriented.
ACTIVITY 4.6
Who usually evaluates employees in your organisation?

 Job criteria identifies important job dimensions. The job criteria must be
relevant to the job that an employee is performing.
 There are many factors that can distort the validity and reliability of the
performance measurements criteria.
 Appraisals can be conducted by superiors, self, teams, customers, specialists
and a combination of raters.
 Four types of appraisal methods are available: category rating, comparative,
narrative and behaviourial or objective.
 Category rating methods such as graphic rating scales and checklists are
widely used.
 Comparative methods include ranking and forced distribution.
 Narrative methods include the critical incident, essay approach and field
review.
 Two behavioural or objective methods of appraisal include behavioural
rating approaches and MBO.
 In deciding which method to use, firms need to consider the cost and purpose
of the appraisal.
 Performance appraisal systems have problems because of halo effect, central
tendency error, recency error, personal preferences, prejudices and biases.
Alternation ranking method Graphic rating scale

BARS (Behaviourally Anchored Halo error/effect
Rating Scales)
MBO (Management by Objectives)
Central tendency error
Recency error
Forced distribution method

1. Describe some of the criteria normally used to evaluate employeesÊ

performance.
2. Discuss some of the reasons why supervisors need to provide a clear job
description to employees.
3. What is the difference between validity and reliability? Why are these two
items important with regard to performance appraisal acceptance?
4. What are the potential benefits of 360-degree feedback?
5. How would you respond to an executive who said, „I do not want any
personality factors in the companyÊs performance appraisal. I only want to
measure quantity and quality. It is results weÊre after‰?
1. Distinguish between subjective, interpersonal and objective methods of

2. Under what circumstances would you use customerÊs or clientÊs evaluation
as a basis for appraising employees?
3. Some companies use 360-degree appraisal systems to determine employeesÊ
overall performances. What is your view about it?
4. What is the difference between graphic rating scales, the critical incidents
method and behaviourally anchored rating scales?

5 Appraisal
Implementation
LEARNING OUTCOMES
1. Discuss the need to train the appraiser and appraisee to ensure the
successful implementation of performance appraisal;
2. Explain the ways to obtain a successful performance appraisal
feedback session;
3. Discuss different types of performance feedback interview;
4. Highlight the major problems in performance appraisal feedback;
5. Describe the various psychological and sociological aspects of
performance appraisal; and
6. Explain various types of problems that may occur in performance
appraisal.
 INTRODUCTION
This topic discusses important aspects in ensuring the successful implementation
of performance appraisal such as training the appraiser and appraisee, and
providing relevant and accurate feedback. It is important to provide training to
both the appraiser and appraisee as the effectiveness of the appraisal
implementation depends also on the accuracy and understanding of the
appraisal process. Sufficient and relevant training in conducting and
implementing performance appraisal can help reduce some of the mistakes and
errors that are usually associated with the reasons for dissatisfaction with the
performance appraisal system. Very often, we hear that employees are very
pleased with how performance appraisal was implemented rather than with the
system itself. Besides discussion on the importance of training the appraiser and
appraisee, this topic will also highlight some of the important psychological and
sociological aspects of performance appraisal for employees.
TOPIC 5 PERFORMANCE APPRAISAL IMPLEMENTATION  75
ACTIVITY 5.1
Before you read further, what do you think are some of the elements
involved in the implementation stage of the performance appraisal
system?
5.1 TRAINING THE APPRAISER AND

APPRAISEE
After a performance appraisal system has been designed and developed, it must
be implemented. Putting the system into operation requires the organisation to,
among other things, provide training to both the appraiser and appraisee. As
noted, performance appraisal can be considered as a useful channel for
developing employees and maximising their potential for work improvement. If
it is to be effective, performance appraisal must be taken seriously and a proper
system should be developed. It is not sufficient just to have a good performance
appraisal form. Other prerequisites of a good performance appraisal system such
as a training programme for appraisers and appraisees also need to be
formulated.
5.1.1 Training of Appraiser

Since most of the problems with performance appraisal are indicative of poor
supervisory skills, most of them can be overcome by the proper training of the
appraiser. It is very useful to provide training sessions in the appraisal process,
particularly when introducing a new or revised scheme. This training should not
only cover the technicalities of performance appraisal but also the
communication skills required. The skills required of an appraiser are many and
varied. To be effective as an appraiser, the supervisor must be able to assess the
following:
(a) Job requirements and standards;
(b) Job-related goals, both short and long term;
(c) Employee capabilities and performance;
(d) Employee goals and demand; and
(e) On and off job problems that affect workplace behaviour.

76  TOPIC 5 PERFORMANCE APPRAISAL IMPLEMENTATION
Initiating and carrying out a successful appraisal session requires objectivity as

well as good interviewing and counselling skills. Interviewing skills normally
focus on the ability to gather and assess information related to job performance,
whereas counselling skills aim at facilitating the achievement of change and the
redirection of job behaviour so that it is beneficial to both the individual and the
organisation. As these skills do not come naturally, proper training is required.
In developing a performance appraisal system, particularly one that involves

subjective evaluations of performance, a number of serious problems must be
overcome. Training evaluators and giving them feedback are ways to improve
their ability to make accurate appraisals.
Several training programmes have been developed that aim to help evaluators
produce reliable and accurate performance ratings. These programmes can
generally be classified into three types: rater error training, frame-of-reference
training and information processing training.
(a) Rater Error Training

People can be taught how to reduce rating errors, such as leniency, severity,
central tendency and halo errors. In Rater Error Training (RET), evaluators
view examples of the common errors and receive suggestions on how to
avoid them. RET has been found effective in reducing common rating
errors. Several critics, however, have argued that error reduction often
comes at the expense of rating accuracy. For example, if a supervisor has
many high-performing employees, all of them should be rated high. If the
supervisor decides to avoid the appearance of leniency error by lowering
the ratings of some employees, the evaluations become less accurate.
(b) Frame-of-Reference Training

Attempts have been made to reduce errors by developing a common frame
of reference among raters for evaluating performance. Examples of actual
employee behaviour in the organisation are used to develop norms for
good and poor performance. Raters are then trained to observe these
behaviours and use them as the standard against which to judge the
performance of employees.
In review of the effectiveness of rater training programmes, four of the

seven studies using Frame-of-Reference (FOR) were reported to have
reduced leniency error. Only three of ten studies using FOR training to
reduce halo error reported positive results. A more recent study focused on
implementation problems associated with FOR training including
procedures to identify incidents and understand differences between
supervisors and subordinates with respect to appropriate frames of
reference. It appears that many of the implementation issues associated

with FOR training can be overcome but that FOR training is most useful in
improving rating accuracy when combined with other methods.
(c) Information Processing Approaches

Some training efforts focus on how performance raters observe, store, recall
and use information. In a 1980 study, raters were trained to avoid eight
different „errors of observation‰. Their accuracy in observing and
remembering behaviour improved but no measures of rating error or rating
accuracy were taken. A more recent study introduced two information
processing methods of rater training that increased rater accuracy.
Observation training focused on helping raters to improve the way they
observed the behaviour of employees and to identify important
performance activities. Decision-making training introduced raters to good
strategies for use in decision making and helped them identify mistakes in
inference that supervisors often make when appraising performance.
(Given several accurate pieces of information, a supervisor may make
inappropriate inferences about them and their relation to one another and
end up making a bad decision).
5.1.2 Training of Appraisee

Separate training sessions should be provided to the appraisee. The training
should focus on clarifying the objectives and benefits of performance appraisal.
All appraisees are required to receive training in documenting their performance
achievement and observation, communication skills and performance
improvement session.
5.2 FEEDBACK OF RESULTS: THE

PERFORMANCE APPRAISAL INTERVIEW
One of the potentially most important uses of appraisals is providing
performance feedback to employees. Most theories of work motivation point out
that before employees can improve their performance, they must know how well
they are currently doing.
Usually, neither supervisor nor employee looks forward to the appraisal

interview. It can be an uncomfortable and anxiety-provoking experience for both
parties. One would expect a supervisor to be apprehensive about discussing a
negative evaluation with an employee but most managers see little or no
practical value in conducting performance appraisal interviews, no matter what
the evaluation is. Conducting a good interview requires a great deal of effort and
skill on the part of the supervisor.

Once the expected performance has been defined and the employeesÊ
performance has been measured, it is necessary to feed that performance
information back to the employees so that they can correct the deficiencies in
their performance. The performance feedback process is complex and causes
anxiety for both the manager and the employee. Few of us feel comfortable
sitting in judgement of others. The thought of confronting others with what we
perceive to be their deficiencies causes many of us to feel uncomfortable. If
giving negative feedback is painful, receiving it can be excruciating; thus, the
importance of the performance feedback process.
Employees should be made aware of whether their performance is meeting their

employersÊ expectations. If employees are not made aware of how their
performance is not meeting expectations, their performance will almost certainly
not improve and may even get worse. An effective supervisor must be able to
provide specific performance feedback to employees in a way that elicits positive
behavioural responses. The following process would help increase the potential
for a successful performance feedback session.
(a) Feedback Should Be Given Continuously, Not Once a Year

The reason for this is that supervisors have the responsibility of correcting
performance deficiencies immediately upon becoming aware of them,
instead of waiting until the end of the year. This will save the firm from loss
of productivity.
(b) Ask the Employee to Rate His Performance Before the Session
Having employees complete a self-assessment before the feedback can be
very productive. It requires employees to think about their performance
over the past rating period and encourages them to think about their
weaknesses. Although self-ratings used for administrative decisions are
inflated, there is evidence that they may actually be lower than supervisorsÊ
ratings when done for developmental purposes. Self-rating allows both
supervisor and employee to discuss the disagreement.
(c) Encourage the Subordinate to Participate in the Session

Supervisors can take one of three approaches in performance feedback
sessions. In the „tell-and-sell‰ approach, supervisors tell employees how
they have rated them and justify the ratings. In the „tell-and-listen‰
approach, supervisors tell employees how they have rated them and let the
employees explain their side of the story. In the „problem-solving‰
approach, supervisors and employees work together to solve performance
problems in an atmosphere of respect and encouragement.

(d) Recognise Effective Performance through Praise

The purpose of the session is to give accurate performance feedback, which
entails recognising effective performance as well as poor performance.
Praising effective performance provides reinforcement for that behaviour. It
also adds credibility to the feedback by making it clear that the supervisor
is not only identifying performance problems.
(e) Focus on Solving Problems

A common mistake that supervisors make in providing performance
feedback is trying to use the session as a chance to punish poorly
performing employees by telling them how utterly lousy their performance
is. This will only reduce the employeesÊ self-esteem and increase their
defensiveness but not improve their performance. To improve poor
performance, a supervisor must attempt to solve the problems causing it.
This entails working with the employees to determine the actual cause and
then agreeing on how to solve it.
(f) Focus Feedback on Result or Behaviour, Not on the Person

One of the most important things to do when giving negative feedback is to
avoid questioning an employeeÊs worth as a person. The feedback needs to
focus on the employeeÊs productivity or results and behaviour, not on the
employee.
(g) Minimise Criticism

An effective supervisor should resist the temptation to reel off a litany of
offences. If confronted with a performance problem, an employee often
would agree that change is needed. However, if the supervisor comes up
with more and more examples of low performance, the employee may get
defensive.
(h) Agree to Specific Goals and Set a Date to Review Progress

The importance of goal setting cannot be denied. It is one of the most
effective motivators of performance. Besides setting goals, the supervisor
must also set a specific follow-up date to review the employeeÊs
performance towards the goal. This ultimately provides an added incentive
for the employee to take the goal seriously and work towards achieving it.

5.2.1 Types of Feedback Interview

An effective performance evaluation system involves two-way communication.
This means there must be active communication between the supervisor and the
subordinate about the latterÊs performance. Evaluation should not be viewed
simply as a once-a-year completion of rating forms. On the contrary, it is a
continuous process.
To help with this communication, the supervisor should hold an evaluation

interview with each subordinate to discuss his appraisal and to set objectives for
the upcoming appraisal period. In addition, experts advise that actions
concerning the employeeÊs development or salary should not be discussed
during this interview. Thus, although most organisations with formal evaluation
systems give employees feedback, many are not doing it in the best way possible.
Norman Maier describes three generally used approaches to these interview

situations ă tell and sell; tell and listen; and problem solving. Research on when
each should be used indicates that the tell-and-sell approach is best for new and
inexperienced employees, and that the problem-solving approach which
encourages employeesÊ participation is useful for more experienced employees,
especially those with strong work ethics.
Although these types of interview differ in terms of the supervisorÊs behaviour,

effective evaluation feedback sessions share a number of characteristics. Annual
discussions of performance should include:
(a) Review of overall progress;
(b) Discussion of problems that are encountered;
(c) Agreement about how performance can be improved;
(d) Discussion on how current performance fits with long-range career goals;
and
(e) Specific action plans for the coming year; how to reach short-term and
long-term objectives.
The feedback interview is a discussion between the supervisor and the employee
concerning the employeeÊs past performance and how that performance can be
improved in the future. The three main approaches to feedback discussion are
often referred to as tell and sell, tell and listen, and problem solving.

(a) Tell and Sell

In a tell-and-sell feedback interview, the supervisor tells the employee how
good or bad the employeeÊs performance has been and then attempts to
persuade the employee to accept this judgement. The employee provides no
input in the evaluation. It is very directive and one-sided and the tell-and-
sell interview can lead to defensiveness, resentment and frustration on the
part of the subordinate. It fails to recognise the possibility that the
employee may have information pertinent to the evaluation ă information
of which the supervisor is unaware. The employee may not accept the
results of the interview and may not be committed to achieving the goals
that are set. This may lead to poor performance in the future.
For new employees or those who have little desire for participation, the tell-
and-sell interview can be effective in providing feedback and improving
performance. New employees often feel unqualified to judge their own
performance and prefer to be told how they are doing and what is expected
of them.
(b) Tell and Listen

In the tell-and-listen approach to the feedback interview, the supervisor
tells the employee what is right and wrong with the employeeÊs past
performance and gives the employee a chance to react. The extent of the
subordinateÊs participation in the interview can vary widely. The
subordinate may simply be given an opportunity to react to the
supervisorÊs statements or may be permitted to offer a full self-appraisal,
challenging the supervisorÊs assessment. There is evidence that
subordinates prefer even very limited participation to none at all.
(c) Problem Solving

The employee has much more control over the problem-solving interview.
Employees evaluate their own performance and set their own goals for
future performance. The supervisor is primarily a helper and colleague
rather than a judge and prefers observations and advice in a non-critical
manner. An active and open dialogue is held, in which goals for
improvement are established mutually. The problem-solving interview is
more difficult for the supervisor than the other types of interviews but it is
more likely to result in employee acceptance and commitment to the
established goals. Training can help supervisors to learn to conduct such
interviews effectively. A drawback of problem-solving interviews is that
some employees may prefer a more direct approach. Some may be hesitant
to discuss poor performance with their supervisor, particularly if personnel
decisions such as salary increases will be based on the interview.

To bypass some of the difficulties associated with tell-and-sell and problem-

solving interviews, a mixed approach has been recommended. The mixed
interview uses the tell-and-sell approach to communicate administrative
decisions, whereas the problem-solving approach is reserved for discussing
employee development issues and planning for future performance.
5.2.2 Problems with Appraisal Feedback

Three major problems complicate the process of giving feedback to subordinates.
The first has to do with disagreement about the rated level of performance, the
second with the use of the appraisal interview for multiple purposes, and finally,
impression management.
(a) Disagreement and Defensiveness

Supervisors and subordinates often disagree about how well the
subordinates have performed. A recent review study found that the
average correlation between subordinate and supervisor ratings was only
0.22. Subordinates in the United States usually rate their performance
higher than do supervisors. In only one of the 18 studies reviewed were
supervisorsÊ ratings of subordinate performance higher than the
subordinatesÊ ratings of their own performance.
Even when supervisors and subordinates agree on the level of performance,

they often disagree about its causes. Supervisors tend to feel that
subordinates are personally responsible for their performance, especially
poor performance. On the other hand, subordinates often (sometimes
legitimately) blame poor performance on situational factors such as bad
luck, lack of resources or insufficient cooperation from others.
Disagreement on level of performance or cause sets the stage for

subordinate defensiveness. A subordinate may make excuses for his past
performance and argue with his supervisorÊs rating. The subordinate then
becomes unable to listen and learn from any legitimate points the
supervisor may have. Note that defensiveness is not restricted to employees
who receive a low performance rating. One study found that subordinates
who were judged „satisfactory‰ also became upset because they had
expected higher ratings.
One author maintains that the traditional manager-to-subordinate

performance appraisal feedback is an authoritarian procedure ă a parent-
child type of exchange. It is suggested that as organisations move towards
involvement-oriented working, a performance discussion based on the
subordinateÊs self-review may be more appropriate. Furthermore, such a
review has the advantage of forcing the manager into a counselling mode
rather than a mainly judicial one.
(b) Multiple Purposes

Appraisal interviews are often used to review past performance, convey
administrative decisions, plan for future work goals and discuss an
employeeÊs career goals and development needs. This is a great deal to
accomplish in a single meeting. In addition, supervisors must play two
incompatible roles ă judge and coach ă in a multipurpose interview. For
merit raised decisions to have credibility, they must be clearly linked to
past performance. Thus, it is wise to couple these two purposes in the
appraisal interview. However, conventional wisdom holds that it is
counterproductive to discuss future goals and development in that same
interview. Criticism of past work or announcement of a smaller-than-
expected raise may make the subordinate defensive and unwilling to
address performance improvement issues seriously. Thus, a separate
interview a few weeks later is recommended for developmental issues.
More recent research has challenged this view. Two studies in field settings
found that discussing salary issues did not hurt the developmental aspects
of a feedback interview and, in fact, had some positive effects. Including
salary discussion in the appraisal interview may force the supervisor to
give more specific feedback in order to back up the decision. Salary
discussion can also energise the interview and elicit more subordinate
participation. Perhaps, with sufficient skill and tact on the part of the
supervisor, both administrative and developmental purposes can be served
in the same appraisal interview. A position of compromise may be wisest ă
the supervisor can plan to talk about past performance, merit pay decisions,
future performance goals and development in a single interview. If the
subordinate becomes defensive or upset when discussing past performance
and salary, the supervisor can postpone the discussion.
(c) Impression Management in Feedback Process

Recent research has emphasised the role of impression management in the
feedback process. Impression management refers to employeesÊ behaviour
that is designed to control how he appears to the supervisor. For example,
impression management tactics can include:
(i) Taking sole credit for positive events even when credit should be
shared;
(ii) Making the supervisor aware of oneÊs accomplishments;

(iii) Arriving early or staying late to give the impression of being a hard
worker; or
(iv) Showing interest in the supervisorÊs personal life and perhaps doing
him personal favours.
Poorly performing employees use impression management strategies to

minimise the amount of negative feedback they receive. Their goal is to
maintain positive self-esteem. At the same time, such strategies meet the
needs of the supervisor, who generally have an underlying reluctance to
give negative performance feedback. In any case, impression management
tends to skew the appraisal and feedback interaction.
5.2.3 Improving the Performance Appraisal Interview

Feedback is most effective in improving performance when it is specific and
when it is accepted by the employee.
(a) Feedback Specificity

Feedback is particularly helpful if it comes from a behaviourally based
appraisal instrument and if the performance rating is backed up with
specific examples of good or poor performance. A critical incident log can
be useful in providing this type of specific feedback. Specific feedback helps
employees determine exactly what they should do differently to improve
performance. Research has shown that subordinates prefer specific
feedback in the appraisal interview, even if it concerns poor performance,
to appraisals that contain only vague performance information.
(b) Subordinate Acceptance

For feedback to be accepted by a subordinate, it must come from a credible,
trustworthy source. Credibility is enhanced when the evaluator is seen as
being knowledgeable about the subordinateÊs job, has adequate
opportunity to observe the behaviour of the subordinate and has clearly
taken the time to prepare carefully for the appraisal interview. Research has
shown that feedback is more likely to affect subsequent performance when
it comes from a believable source. In addition, feedback should be given
often and as soon as possible after both good and bad performance events,
so that employees always know where they stand and can quickly take any
necessary corrective action. The formal interview should be the culmination
of the ongoing, continual process of informal performance feedback.
Nothing in the annual appraisal interview should come as a surprise to the
subordinate.

It may be particularly difficult for a subordinate to accept negative

feedback. Destructive criticism and threats to the subordinate are
ineffective and may cause his subsequent performance to deteriorate. Thus,
the supervisor should discuss specific incidents of poor performance in a
considerate, constructive way. Two studies have shown that when the
supervisor attributes poor performance to situational causes, the
subordinate is better able to accept negative feedback. For example, a
supervisor may note that a salesperson fell far below sales goals but also
acknowledge that the economy was in a downturn mode (a possible
external cause of poor performance). The supervisor can then proceed to
discuss what the subordinate might do differently to improve performance
even when economic conditions are poor. This approach will help minimise
defensiveness on the part of the salesperson.
A number of studies support the notion that satisfaction with and

acceptance of appraisal feedback are a function of the subordinateÊs degree
of contribution and participation in the appraisal discussion. Anything that
moves the interview from an authoritarian boss-subordinate interaction to a
discussion between two knowledgeable and committed individuals will
enhance the acceptance of the results.
SELF-CHECK 5.1
1. Why is feedback important for an employeeÊs performance?

2. Describe the approaches in conducting an appraisal feedback
interview.
5.3 EVALUATING PERFORMANCE

If the contract between supervisor and subordinate was carefully constructed
and periodic reviews were held, then the final evaluation should be a positive
experience, and the subordinateÊs success should be recognised and rewarded.
However, even if the subordinate was not successful, the final evaluation did not
have to be anxiety-ridden and confrontational. If the previous performance
appraisal process was followed, the atmosphere should be one of compatible
problem solving.

The failure should come as no surprise if periodic reviews were conducted

properly, and the evaluation discussion should concern the possible causes of
failure and alternative solutions. The causes might be unrealistic objectives,
inadequate resources or lack of personal effort or skill. If the supervisor chooses
to retain the subordinate, a new contract is established. This contract, like the
previous one, not only specifies the results to be achieved by a certain date with
periodic reviews, but also provides for additional resources, greater
opportunities for training or whatever else is necessary to achieve success.
5.3.1 Potential Problems in Performance Evaluation

Regardless of which technique or system is chosen, there will be many problems
encountered in its use. None of the techniques is perfect; they all have
limitations. Some of these limitations are common to all of the techniques, while
others are more frequently encountered with certain ones.
(a) Opposition to Evaluation

Most employees are wary of performance evaluation. Perhaps the most
common fear is of subjectivity on the part of the rater. Subjective bias and
favouritism are real problems that create opposition to most performance
evaluation systems. These problems are hidden, however, and other, more
general arguments are provided. For example, those who oppose the use of
formal performance evaluation systems argue that:
(i) They increase paperwork and bureaucracy without benefiting
employees much. Operating managers do not use them in decisions
about rewards (system problems).
(ii) Managers and employees dislike the evaluation process. Raters
especially have problems with reaching decisions about the
performance levels of employees.
(iii) Employees who are not evaluated in the top performance category
experience a reverse motivation effect ă they slow down (employee
problems).
(b) System Design and Operating Problems

Performance evaluation systems break down because they are poorly
designed. The design can be blamed if the criteria for evaluation are poor,
the technique used is cumbersome or the system has more form than
substance. If the criteria used focus solely on activities rather than output
(results) or on personality traits rather than performance, the evaluation
may not be well received. Some evaluation techniques take a long time to
carry out or require extensive written analysis, both of which many

managers resist. If this is the problem, another technique can be chosen.

Finally, some systems are not online and running. Some supervisors use the
system but others just haphazardly fill out the paperwork. Top
managementÊs support for performance evaluation can remedy this
problem of ritualism.
(c) Rater Problems

Even if the system is well designed, problems can arise if the raters (usually
supervisors) are not cooperative and well trained. Supervisors may not be
comfortable with the process of evaluation or what Douglas McGregor
called „playing God‰ . This is often because they have not been adequately
trained or have not participated in the design of the programme.
Inadequate training of raters can lead to a series of problems in completing
performance evaluations, including:
 Problems with standards of evaluation;
 Halo effect;
 Leniency or harshness;
 Central tendency error;
 Recency error;
 Contrast effects; and
 Personal bias.
(i) Standards of Evaluation

Problems with evaluation standards arise because of perceptual
differences in the meaning of the words used to evaluate employees.
Thus, good, adequate, satisfactory and excellent may mean different
things to different evaluators. Some teachers give As easily while
others almost never give an A. They differ in their interpretation of
what is excellent. If there is only one rater, the evaluation can be
distorted. This difficulty arises most often in graphic rating scales but
may also appear in essays, critical incidents and checklists.
What does „good‰ performance for quality of work mean? How does
it differ from a „fair‰ rating? How would you interpret the quality or
quantity of performance? This rating scale is ambiguous. Perhaps
defining the meaning of each dimension and training the rater to
apply the five ratings (outstanding, good, fair, below accepted and
poor) consistently can reduce the potential rating problem.

(ii) The Halo Effect

At one time, it was believed that the halo error in ratings was a major
problem in performance evaluation. A halo error occurs when a rater
assigns ratings for several dimensions of performance on the basis of
an overall general impression of the ratee.
A halo error can be positive or negative, meaning that the initial

impression can cause the ratings to be either too low or too high.
Suppose that an information systems manager thought that a
particular computer programmer was the best in the department at
developing new software. If solely on the basis of this impression, the
programmer is given high ratings on decision making, getting along
with peers and leadership potential, then a halo error has occurred.
A problem with understanding and dealing with a halo error is that

the ratings represent an error only if they are not justified. Imagine
that our computer programmer deserved high ratings on the three
dimensions of performance other than programming. Even though
the manager was basing the ratings on a general impression, they
could represent an accurate evaluation. In other words, it is important
to realise that there is a difference between a halo error and a true
halo, which occurs when uniformly high or low ratings across
different aspects of performance are actually justified by the rateeÊs
performance.
Interestingly, halo errors are not as common as was once believed.

Raters do seem to be able to distinguish halo errors from a true halo in
many situations. When halo errors do occur, however, they can be
very difficult to eliminate. One procedure to reduce this type of error
is to have the rater evaluate all subordinates on one dimension before
proceeding to another dimension. The theory underlying this practice
is that thinking of one dimension at a time forces the rater to think in
specific instead of overall terms when evaluating subordinates.
(iii) Leniency or Harshness Error

Performance evaluations require the rater to objectively reach a
conclusion about performance. Being objective is difficult for
everyone. Raters have their own rose-coloured glasses with which
they „objectively‰ view subordinates. Consequently, a leniency or
harshness rating error may occur in ratersÊ evaluations of their
subordinates. Some raters see everything as good ă these are lenient
raters. Other raters see everything as bad ă these are harsh raters.

Raters can assess their own tendencies towards harsh and lenient
rating by examining their ratings. This self-assessment is sometimes
startling. Another method used to reduce harsh and lenient rating is
to ask raters to distribute ratings ă forcing a normal distribution (for
example, 10 per cent of the subordinates will be rated as excellent, 20
per cent rated as good, 40 per cent rated as fair, 20 per cent rated
below fair and 10 per cent rated as poor).
(iv) Central Tendency Error

A central tendency error occurs when a rater avoids using high or low
ratings and assigns average ratings. The rater resorts to a philosophy
that everyone is about average and rates subordinates around a four
on a one to seven scale or a three on a one to five scale. This type of
„average‰ rating is almost useless ă it fails to discriminate between
subordinates. Thus, it offers little information for making human
resource management decisions regarding compensation, promotion,
training or what should be fed back to ratees. Raters must be made
aware of the importance of discriminating across ratees and the use of
evaluations. This sometimes stimulates raters to use less central
(average) ratings.
(v) Recency Error

One difficulty with many of the evaluation systems is the time frame
of the behaviour being evaluated. Raters forget more about past
behaviour than current behaviour. Thus, many persons are evaluated
more on the results of the past several weeks than on six monthsÊ
average behaviour. This is called a „recency of events‰ rating error.
Some employees are well aware of this difficulty. If they know the
date of the evaluation, they make it their business to be visible and
noticed in many positive ways for several weeks in advance. Many
evaluation systems suffer from this difficulty. It can be mitigated by
using a technique such as critical incident or Management by
Objectives (MBO) or by irregularly scheduling evaluations.
(vi) Contrast Error

Recall that with the individual performance evaluation techniques,
each employee is supposed to be rated without regard to other
employeesÊ performance. However, some evidence suggests that
supervisors have a very difficult time doing this. If a supervisor lets
another employeeÊs performance influence the ratings that are given
to someone else, then a contrast effect has occurred. For example,
when the performance of an average employee is evaluated
immediately after the performance of an outstanding employee, the

supervisor might end up rating the average person as „below

average‰ or „poor‰.
Contrast effects can also occur when a supervisor unknowingly

compares employeesÊ present performance with their past
performance and this comparison affects ratings. Those who have
been poor performers in the past can get rated „above average‰ if they
improve their performance, even if the improvement actually only
brings their performance up to „average‰.
Contrast effects are another rating problem that is difficult to

eliminate. Fortunately, this type of error seems to dissipate over time,
as more information about employeesÊ performance is gathered.
(vii) Personal Bias Error

A personal bias rating error is (as the term implies) an error related to
a personal bias held by a supervisor. There are several kinds of
personal bias errors. Some can be conscious, such as blatant
discrimination against someone because of sex or race. Or some
supervisors might try to „play favourites‰ and rate people they like
higher than people they do not like.
Other personal bias errors are more subtle and the supervisor might
be totally unaware of them. For example, an error sometimes occurs
when a rater gives a higher rating because the ratee has qualities or
characteristics similar to the rater.
Personal bias errors have been detected in many studies of

performance evaluation. Research indicates that personal liking can
affect the attributions a manager makes about a subordinateÊs level of
performance as well as the kind of feedback that he will give.
However, „trait‰ ratings seem to be more strongly affected than
„outcome‰ ratings by personal biases such as liking. Moreover, errors
associated with rateesÊ sex and race do occur. The effect of these errors
is generally small when the supervisor has adequate performance-
related information upon which to base ratings but even small effects
for characteristics such as sex, age and race are cause for concern.
Thus, organisations should attempt to eliminate even small effects of
these characteristics.

5.3.2 Eliminating Rater Errors

As mentioned earlier, behaviour-based rating scales were originally designed to
help eliminate the kinds of rating errors just described. However, when such
scales did not demonstrate any consistent superiority over other rating formats,
researches began to concentrate more on the rating process. In other words, more
recent efforts to improve performance evaluations in organisations have centred
on helping raters to more accurately observe, recall and report behaviour.
(a) Rater Training

One popular way to improve managersÊ ability to conduct effective
performance appraisals is through rater training programmes. Many types
of programmes exist, differing in focus, cost and duration. The two most
popular types are training programmes designed to eliminate common
rating errors such as the halo error and training programmes designed to
improve the supervisorÊs observation and recording skills.
Programmes dealing with errors do seem to eliminate many of these from

ratings. In addition, even short, relatively inexpensive programmes are
effective at accomplishing this goal. However, there is much less evidence
that this kind of training actually increases the accuracy of appraisals.
Programmes focused on observation and recording skills may offer greater
improvement in accuracy than those that simply focus on errors.
In either case, training alone will probably not solve all the problems of
performance appraisals. Unless raters are motivated to use the system
effectively and are given the opportunity to observe their subordinatesÊ
performance, errors such as those discussed are likely to continue.
(b) EmployeesÊ Participation in Developing Performance Appraisal (PA)

System
For an evaluation system to work well, employees must understand it and
feel that it is a fair way to evaluate performance. In addition, they must
believe that the system is used correctly for making decisions concerning
pay increases and promotions. Thus, for a performance evaluation system
to work well, it should be as simple as possible ă unnecessary complexity in
rating forms or other evaluation procedures can lead to dissatisfaction
among employees. The system should also be implemented in a way that
fully informs employees about how it is going to be used.

One way to help foster understanding about the system is to allow

employees to participate in its development. It can also be helpful if they
are trained in performance evaluation methods so they can better
understand how difficult the process can be. Self-evaluation can be a useful
addition to an evaluation system, especially for purposes of facilitating
performance evaluation discussions with a supervisor.
With regard to fairness, performance evaluation is in some ways like the

grading system in schools. If you have received grades that you thought
were unfair, inequitable, incorrectly computed or based on the „wrong
things‰ (for example, always agreeing with the instructor), you know what
your reactions were. Students will say „I got an A‰ for a course in which
they worked hard and were fairly rewarded. They will say „He (or she)
gave me a D‰ if they feel it was unfair. Their reaction sometimes is to give
up or to get angry. Similarly, responses can come from employees as well. If
raters are incompetent or unfair, the employees may resist, sabotage or
ignore the rating programme.
SELF-CHECK 5.2
1. What are some of the errors that you can identify in a

performance appraisal?
2. Describe how you can solve these errors.
ACTIVITY 5.2
How can you improve the fairness and employee acceptance of a

performance appraisal implemented in an organisation?
5.4 PSYCHOLOGICAL AND SOCIOLOGICAL

ASPECTS OF PERFORMANCE APPRAISAL
The psychological and sociological aspects of performance appraisal are
concerned with the relationship between the individual and the organisation.
This relationship involves the process of giving and receiving by both the
individual and the organisation. Most employees differ in terms of attributes,
abilities, temperament, tolerance, commitment and willingness to perform their
jobs and these factors have significant psychological and sociological impact on

the evaluation of their performance. Thus, in choosing the method of evaluation,

the supervisor must take extra precautions to ensure that the evaluation is done
in an objective and justifiable manner. The interpretation, words used, familiarity
with the jobs and documentation of employeesÊ past performance have to be
given greater attention in order to make a fair judgement and assessment of the
employeesÊ past performance. Psychologically, a supervisorÊs familiarity with
subordinates will influence the subordinatesÊ perception of fairness and
acceptance of the appraisal process.
The sociological aspects of performance appraisal are concerned with the impact
of the implementation on the social relationship of various groups within the
organisational hierarchy. In some cases, conflict between supervisors and
subordinates is inevitable because of the differences in interpreting the actual
level of performance. Thus, subordinates will be victimised if the wrong staff are
rewarded or punished. As a result, the relationship between supervisors and
subordinates who feel that they have been victimised will deteriorate.
ACTIVITY 5.3
Performance appraisal can affect employees sociologically and
psychologically. What are some of the precautions or measures that
you think should be considered to avoid these problems?
 A performance appraisal system that has been carefully designed needs to be

implemented according to the stated procedures and processes.
 Usually, the problems that arise in the appraisal system relate to how it is
implemented.
 In order to reduce the dissatisfaction of employees with performance

appraisal, both raters and ratees are recommended to go through
performance appraisal training.
 Among the training suggested for raters and ratees include that on
communication skills, feedback, counselling skills, objectives and purpose of
appraisal and documentation.
 Regular feedback needs to be provided by raters to ratees in order to help

them improve their future performance. Feedback should be constructive and
positive for employees to continue to improve in their jobs.

 Performance appraisal has some psychological and sociological impact on

employeesÊ performance. It is advisable to conduct performance appraisal
fairly.
 There are three types of performance appraisal feedback interview ă tell and
sell; tell and listen; and problem solving.
 Three major problems complicate the process of giving feedback to

subordinates. They are: disagreement about the rated level of performance;
the use of appraisal interview for multiple purposes; and impression
management.
 Feedback is most effective in improving performance when it is specific and

when it is accepted by the employee.
 Potential problems to be aware of in performance appraisal include: position

to evaluation, system design and operating problems and rater problems.
 Giving training to the raters and involving employees in developing the

performance appraisal system will help eliminating later errors.
Central tendency error Halo effect

Contrast error Leniency, harshness error
Frame of reference training Recency error
1. Discuss why we need to carefully design the appraisal system.

2. When designing an appraisal system, why do we need to include all the
managers, supervisors and employees?
3. Why is performance appraisal training necessary?
4. What are some the techniques that can be used by supervisors when
conducting an appraisal feedback?
5. Why is performance feedback important in terms of employeesÊ
performance improvement?

1. Define the following types of performance appraisal error:

(a) Leniency
(b) Central tendency
(c) Recency
(d) Halo effect
2. Outline some conditions associated with the success or failure of appraisal
interviews.
3. Describe some conditions that might make a performance appraisal system
illegal.
4. Outline some recommendations for ensuring a legally acceptable
5. Discuss what are some sociological and psychological implications of an
unfair appraisal system.

6 Appraisal
Decisions
LEARNING OUTCOMES
1. Explain performance appraisal decision in terms of achieving quality
personnel, individual and strategic planning decisions; and
2. Discuss the purposes of performance appraisal.
 INTRODUCTION
Performance appraisal has attracted much interest from managers, practitioners
and employees. This is due to its links with the attitudinal and behavioural
aspects of the employees in organisations. More importantly, performance
appraisal has always been used by managers for the purpose of compensation
decision making. Compensation decision is one of the activities that the manager
of an organisation has a great concern for as it will determine certain decisions
affecting employees. The questions that may alert most employees are ă „What is
performance appraisal in the context of decision making?‰ and „What are the
objectives of having performance appraisal decisions?‰ This topic explores the
concept of performance appraisal in the decision-making context. Consequently,
it discusses the objectives of having performance appraisal based on three
purposes.

TOPIC 6 PERFORMANCE APPRAISAL DECISIONS  97
6.1 PERFORMANCE APPRAISAL

What do you know about performance appraisal in the decision-making context?
According to Latham and Wexley (1994), performance appraisal is any personnel

decision that affects the status of employees regarding their retention,
termination, promotion, demotion, transfer, salary increase or decrease or
admission into a training programme.
This definition indicates that performance appraisal plays a vital role in

determining certain decisions regarding employees in organisations.
Performance appraisal is the basis for determining, for example, who is
promotable to a higher position. It is also important to management development
because if an employeeÊs strengths and weaknesses are not known, it is difficult
to determine whether development efforts are aimed in the right direction. More
importantly, performance appraisal helps in determining how much pay
individuals receive based on their contributions to the organisation. Therefore,
most scholars agree that performance appraisal should include the following:
(a) Setting work standards, criteria or benchmark;
(b) Assessing employeesÊ actual performance relative to these standards,
criteria or benchmark; and
(c) Providing feedback to employees with the aim of motivating and
improving them and eliminating or reducing weaknesses in order to
achieve high performance and effectiveness in the organisation.
These activities are important as they help in determining the pay of individuals.
Looking at the above definition, the role of performance appraisal is very
significant in management decision making. Since performance appraisal is
fundamentally a feedback process, it generally would give positive impact in
terms of achieving organisational productivity. Furthermore, to ensure that
performance appraisal is done effectively, any feedback programme needs
continuous commitment from the top management, manager and all the
members of the organisation. Therefore, in line with the decision-making process,
managers face obstacles on how to provide feedback as required regularly to
their employees.
Several implications and consequences may be faced by the management if it

fails to provide feedback to employees. For example, it may cause the loss of
important professional employees and the continuity of non-performing
employees due to failure in meeting performance standards expected by
employers. Consequently, it would jeopardise the organisationÊs aim of
achieving high commitment and effectiveness from employees.
98  TOPIC 6 PERFORMANCE APPRAISAL DECISIONS
6.2 DECISION MAKING

Performance appraisal is one of the important aspects in human resource
management decision making. It serves as a tool to determine decisions such as
in personnel, individual and strategic planning.
6.2.1 Achieving Quality of Personnel Decisions

Performance appraisal is one of the factors in determining pay, job assignment,
training opportunities and so on. A good performance system has the potential to
support a wide range of personnel decisions. This includes career advancement,
promotions, rewards and benefits. Performance appraisal is also important as it
provides a basis for evaluating the quality of personnel decisions. For example,
performance ratings provide criteria on measures for validating personnel
selection systems or for assessing the impact of training programmes.
Performance appraisal has the potential value of linking valid and accurate
information about job performance to personnel decisions.
In personnel and development of employee, for example, the major aim of the
personnel and human resource development in an organisation is to optimise
employeesÊ contributions in line with the organisational goals. Therefore,
evaluation and assessment of employeesÊ job performance can play a key role in
carrying out that function. Management may also use performance appraisal to
identify and determine certain talents of employees which can be of great value
to the organisation. This group of people can be a valuable asset to sustain the
high productivity and performance of the organisation. Therefore, it is the role of
the management to link how performance appraisal can maintain, retain and
motivate employees in the organisation.
6.2.2 Achieving Quality of Individual Decisions

Quality of individual decisions refers to decisions made by employees that
would bring a positive and significant impact to the employee. As we all know,
the employees of an organisation face the challenge of making decisions and
fulfilling expectations in relation to their roles and responsibilities. As
experienced by most employees, present and future roles, responsibilities and
commitments have to be considered in terms of time, talents and efforts to
perform the tasks assigned to them. They may even think of how to perform a
challenging task better despite the pressures they face from their non-task roles
such as those related to their family life and social life. As a strategy, because
performance appraisal systems provide accurate and timely feedback about their

job and responsibilities, the question of achieving individual decisions of quality

would not be a problem.
Generally, performance appraisal helps in achieving quality decisions.

One important element is that management must ensure the provision of high-
quality feedback to their employees. With quality feedback from high-quality
employees, the organisations that employ them will gain a lot of benefits.
Research has reported that feedback in performance appraisal is one of the
important elements of success in any training programme. Furthermore, there is
a relationship between the quality of performance appraisal and feedback in
perceptions of fairness, legitimacy and rationality of several aspects of
organisational practices and policies.
6.2.3 Playing a Role in Strategic Planning

Strategic planning is the planning conducted by an organisation in line with its
goals, objectives, mission and vision. Performance appraisal should play a role in
organisational strategic planning. Strategic planning is related to whether the
given measurement indicators for assessing employees are in adherence to and
implementation of a strategic plan, maximising objectivity and minimising
subjectivity in making a performance appraisal and ways to increase
effectiveness of the appraisal process by focusing on the future rather than the
past.
A performance appraisal instrument normally defines what is meant by

implementation of and adherence to the strategic plan at the level of the
individual employee. Therefore, the instrument used for performance appraisal
would never be free from modification and revision if there are changes in the
strategic plan. This is to ensure the performance appraisal instrument used is
valid and reliable. Only with a valid and reliable instrument of performance
appraisal can the objective of having the most effective and efficient performance
appraisal be achieved.
There are several ways that management can ensure an effective, sustainable and
efficient instrument of performance appraisal. This can be achieved, for example,
by having self-management by employees or by guiding, coaching or counselling
them. Performance appraisal is linked to the strategic purpose of strategic
planning, particularly in human resources. This is because the performance
appraisal system explains explicitly what constitutes effective and efficient
behaviour. It particularly refers to employeesÊ previous behaviours which are
very critical and pertinent to the implementation of the strategic plan of an
organisation.

ACTIVITY 6.1
In an organisational context, think of ways to have an effective, efficient

and sustainable instrument of performance appraisal.
6.3 PURPOSES OF PERFORMANCE APPRAISAL

Research has indicated several purposes of performance appraisal. This module
discusses performance appraisal for three purposes, mainly for wage or pay
determination, career development and strategic purposes. Generally, managers
will implement performance appraisal for these three main purposes. Therefore,
it is the responsibility of an organisation to provide information for decisions
related to these three purposes.
6.3.1 Pay Determination

Performance appraisal plays an important role in compensation decisions.
Compensation can be classified as direct and indirect as well as relational
(Milkovich and Newman, 2005). Direct compensation includes cash
compensation and consists of the pay an employee receives in the form of wages,
salaries, bonuses and commissions (Ivancevich and Hoon, 2002) while indirect
compensation includes benefits and perks. Direct and indirect compensation are
financial compensation. Meanwhile, relational returns are non-financial forms of
compensation (e.g. praise, self-esteem, recognition and status).
Wage is defined as income received for labour services (Heneman and LeBlanck,
2003). Wage is also defined as pay given to employees who are covered by
overtime. Non-exempts usually have their pay calculated at an hourly rate rather
than a monthly or annual rate. Salary is a pay given to employees who are
exempt from regulations and hence do not receive overtime pay (Milkovich and
Newman, 2005).
Wages and pay affect peopleÊs lives in positive and negative ways. These will
have a positive effect if employees perceive them as elements that can benefit
them and vice versa. Pay and wages also indicate the social status of individuals
in society. PeopleÊs wages and salaries would determine whether they own
luxurious homes and drive luxury cars or just rent a flat and take the bus to
work. Inevitably, wages and salaries help portray socio-economic status and
influence friendship, neighbourhood, clothing choice, eating behaviour and
lifestyle. Generally, the level of compensation an individual receives is important

in determining their social status, self-esteem and ability to provide for their
current needs and long-term security.
This topic focuses on how performance appraisal would help in determining the
pay of employees.
In deciding how much employees should be paid, managers need to consider

several factors. There are two main groups of factors ă internal and external
factors as illustrated in Figure 6.1.
Figure 6.1: Factors that contribute towards pay determination

Source: Adapted from Milkovich and Newman, 2005
(a) External Factors:

External factors include the following:
(i) Labour Market Factors
 Nature of demand ă Able to offer competitive products to
customers.
 Nature of supply ă Able to fulfil demand for products by
customers.

(ii) Product Market Factors

 Degree of competition ă Able to compete with competitors. The
higher the level of ability to compete, the better.
 Level of product demand ă Ability to penetrate product market at
all levels of customers.
(iii) Organisational Factors
 Industry ă e.g. type of industry.
 Strategy ă e.g. in line with the strategy of the organisation.
 Size ă e.g. based on the strength of the employee or capital.
 Individual manager ă e.g. ability and capability of a manager to
lead the organisation.
(b) Internal Factors

Internal factors include the following:
(i) Labour Market Factors
 Economic forces ă e.g. competition from competitors, supply and
demand of products in the market, etc.
 Government policies ă Any policy from the government.
 Laws and regulations ă e.g. laws and regulations from certain
authorities.
 Stakeholders ă e.g. the interested party
 Cultures and customs ă e.g. ways of doing things and practices in
an organisation
(ii) Product Market Factors
 Strategy ă How an organisation is going to achieve its goals and
objectives, etc.
 Technology ă Means in terms of technology owned by the
organisation.
 Human capital ă Human resource or employees who contribute
towards the performance of the organisation.
 Human resource policy ă Policy pertaining to human resource
roles and functions.
 Employee acceptance ă Whether an employeeÊs value is congruent
with the organisational values.
 Cost implications ă Whether there is a return in investment and

vice versa.
(iii) Organisational Factors
 Levels ă e.g. positions of employees.
 Differentials ă e.g. difference in levels of positions.
 Criteria ă e.g. the standards used.
Among the most important decisions that a manager should make for employees
in an organisation is how much pay to give employees who carry out the same
tasks or functions. For example, is it possible to give computer analysts the same
pay as that given to engineers? If not, what is the basis for the differences in
compensation? These questions require an answer. The answer to these questions
can be found by having individual pay determination.
SELF-CHECK 6.1
Differentiate between external and internal factors that influence an
organisationÊs capability to pay.
One of the issues addressed by performance appraisals is determination of

individual pay. Managers are always concerned about how much individuals
should be paid. In order to address this issue, the management should first solve
the question of how much an employee gets relative to another employee who is
doing the same task in the same organisation. Secondly, is it possible to pay both
employees the same amount? If they deserve to be paid differently, the manager
needs to think of the basis for not giving the same pay.
There are employers who pay different rates to employees doing the same tasks.
There are several reasons why employees are paid differently. The differentials in
pay are due to the following reasons:
(a) Employee Background

(i) Skills ă Some employees may have more than one skill and these skills
are matched with the organisationÊs needs.
(ii) Knowledge ă Employee levels of knowledge are never equal. Those
who are knowledgeable are an asset to the organisation they work for.

(iii) Competencies ă The more competencies employees have, the better.

For example, individuals may have soft skills such as communication
and leadership skills.
(b) Employee Expectations

The employees of an organisation have different needs and expectations.
Newly appointed employees may have different wants from their seniors.
Example:
The more senior an employee, the higher their pay expectation.
Or
The higher the performance of an employee, the higher the pay he expects
to get.
There are several reasons why employers pay different rates for the same
jobs. They do so to:
(i) Ensure that employees are able to contribute significantly and
substantially to the organisation and achieve the organisational goals.
(ii) Emphasise the role of skills, competencies and knowledge that
employees should contribute in achieving organisational goals,
objectives, vision and mission.
(iii) Ensure the norms, cultures and values of the organisation are
maintained and sustained without having employees leave for other
organisations through promotion.
(iv) Achieve fairness, resulting in the reduction of turnover and the ability
to retain, attract and motivate people to work in the organisation. This
can be ensured through procedural and distributive justice.
(v) Help the management determine any market change within the same
jobs in the same grade without a great change in the compensation
package.
Based on the discussion, the employer can determine the pay of employees based
on the time they spend working, their skills, knowledge and competencies or a
combination of all these aspects that make them able to contribute to the
organisation. Consequently, this helps the management in determining the pay
structure of each individual employee.

Generally, pay is classified into two structures ă internal and external. How can
these pay structures be determined? Compensation techniques explain the
analyses, approaches or methods used to determine the internal structure, pay
structure, pay level of employees as comparison of how much other
organisations are able to pay and employee contributions based on performance-
based approaches.
6.3.2 Internal Pay Structure

Pay structure refers to an array of pay rates for different work or skills within a
single organisation. The number of levels, the differentials in pay between the
levels and the criteria used to determine these differences describe the structure
(Milkovich and Newman, 2005). The internal pay structure is based on the
following:
(a) Job-based Structure

The job-based structure relies on the content of the jobs ă tasks, behaviours
and responsibilities. Job analysis helps to analyse the job-based internal pay
structure. The following are some functions of job analysis with relation to
pay determination:
(i) Collect information systematically to identify similarities and
differences in the work of individuals.
(ii) Provide information and identify the content of the job. The job
content will help in describing and assessing the value of the work.
(iii) Identify the skills and experience required to perform the work;
clarify hiring and promotion standards; and determine training needs.
(iv) Provide both managers and employees work-related rationale for pay
differences.
(v) Help managers defend their decisions on pay if challenged.
After collecting information on jobs through job analysis, it is important to

have job descriptions to summarise the information and to help in
conducting the next step, that is, job evaluation.
Job evaluation is part of the process of establishing an internally aligned

pay structure. According to Milkovich and Newman (2005), the criteria that
determine whether a pay structure is aligned are that it:
(i) Supports the organisational strategy;
(ii) Fits the work flow;

(iii) Is fair to employees; and

(iv) Motivates employeesÊ to achieve organisational objectives.
(b) Person-based Structure

The person-based structure focuses on the employees ă their skills,
knowledge and competencies and whether these are used for a particular
job in an organisation. Two analyses are commonly used to analyse person-
based structure ă skill analysis and competency analysis. Skill analysis is a
process of describing, certifying and evaluating the skills of individuals
which is very useful for pay purposes. For example, with regard to skills
required by a general worker in a mill company, the management can use a
skill-based structure based on a group of skills such as the following:
(i) Foundation skills: Seminar, videos on materials handling, etc.
(ii) Core electives: Fabrication, welding, painting, etc.
(iii) Optional electives: Additional specialised competencies such as team
leadership skills and computer application skills.
Competencies look at the organisation and try to abstract the underlying,

broadly applicable knowledge, skills and behaviours that form the
foundation for successful work performance at any level or job in the
organisation (Milkovich and Newman, 2005). The competency set might be
related to organisational understanding, cost management or ability to
identify business opportunities. Some organisations will determine their
competency indicators in the form of:
(i) Human resource expertise;
(ii) Change management;
(iii) Personal credibility; and
(iv) Global business partnership.
Person-based pay structures are generally designed with relatively few

levels and relatively wide differentials for increased flexibility. Generally,
under the job-based structure, pay increase is gained through promotion
but under the person-based structure, it is gained through more valued
skills or competencies (Milkovich and Newman, 2005).

6.3.3 External Pay Structure

External pay structure refers to an organisationÊs pay level in comparison with
how much competitors or other organisations pay for similar work and what pay
forms they use. The techniques used to determine this pay are like relevant
labour markets and surveys. These techniques ensure the capability of employers
to compete, conduct survey of other employerÊs or competitorsÊ pay and use that
information so that they are in line with the organisationÊs policy decision to
formulate a pay structure. The pay structure formulated is very important in
determining organisational efficiency in handling motivation of employees. At
the same time, it influences an employerÊs ability to control labour costs as well
as to attract and retain motivated and competent employees.
The worth or value of employees in an organisation can also be determined

through performance and/or seniority-based pay increases, incentive plans,
stock options and other performance-based approaches.
SELF-CHECK 6.2
1. Explain decisions in performance appraisal.
2. Discuss factors that determine compensation decision.
6.3.4 Career Development

Career development is a focus of attention for many managers. This is because
career development determines an employeeÊs future and where he is supposed
to be in a certain period. This topic focuses on how performance appraisal will
help to determine the career development of employees.
Performance appraisal is the process of measuring employeesÊ performance.

Several different approaches for measuring performance are identified in
management books. This includes ranking employees, rating their work
behaviour, rating the extent to which they have desirable traits believed to be
necessary for job success (such as leadership) and directly measuring the results
of work performance (such as productivity).
What is the important element in performance appraisal? Performance appraisal

data is essential in assessing an employeeÊs strengths and weaknesses and in
determining their potential. The data can be a primary source of information and
feedback for employees and is a key to their future development.

Research has shown that there is a relationship between performance appraisal

system and the rewards employees hope to receive and their productivity. This
means performance appraisal is important in determining individual
productivity, resulting in reward determination, career promotion and career
progression.
Therefore, for administrative purposes, performance appraisal plays an

important role in decisions on promotions, terminations, layoffs and transfer
assignments. For example, the order of layoffs can be justified by performance
appraisals. For this reason, if an employer claims that the decision was
performance-based, the performance appraisal must document clearly the
differences in employee performance. Performance appraisal helps management
to determine the career progression of individuals. Those who have shown
exceptional performance, for example, can be promoted to a higher position. This
means individuals can develop their career within an organisation. Most
organisations focus on career development.
Career development is the process by which employees progress through a series

of stages. Each stage is characterised by a different set of developmental tasks,
activities and relationships to other employees.
There are several different career development models:
(a) Life-cycle Model (Developmental Tasks)

Employees face certain developmental tasks over the course of their careers
and they move through distinct life or career stages. For example, a
manager may quit his job and become a lecturer.
(b) Organisation-based Model (Activities)

Careers proceed through a series of stages but these models suggest that
career development involves employees learning to perform certain
activities. Each stage involves changes in activities and relationships with
peers and managers. For example, an employee in a human resource
division might move from the training department to the compensation and
benefits department. This move will definitely involve changes in the tasks
and activities they are supposed to carry out and the people they have to
deal with.
(c) Directional Pattern Model (Relationships)

This model describes the form or shape of careers. Employees make
decisions about how quickly they want to progress through the career
stages and at what point they want to return to an earlier career stage. This
model has four stages:

(i) Exploration Stage

This stage is also considered as an orientation stage. Employees try to
identify the work or job that matches their interests or choices. After
considering their interests, values and work preferences, they will
begin to pursue the needed education or training. The purpose of
having orientation and socialisation activities in the organisation is
because it helps new employees get used to and feel comfortable with
their jobs and co-workers so that they can effectively help to achieve
the companyÊs goals.
(ii) Establishment Stage

In this stage, it is hoped that the employees already feel more
comfortable and are able to find their place in the company,
contribute to the company independently, handle more
responsibilities, contribute to financial success and develop a
desirable or new lifestyle based on the new workplace environment. It
is the role of the management to formulate and develop policies
which ensure that employees are able to cope with work and non-
work related roles in order to have a good quality of life.
(iii) Maintenance Stage
This stage is concerned with employees being perceived by others as
capable of keeping their skills up to date. The organisation must be
able to maintain employees who are at a plateau and ensure that
employeesÊ skills would not be out of date or obsolete.
(iv) Disengagement Stage
This stage deals with the possibility of employees leaving the
organisation. They might want to leave because they are ready for
changes in order to balance work and non-work activities such as
sports, hobbies, travelling or volunteer work. Employees may leave to
join another organisation to change their job position or be forced to
leave because of downsizing or mergers. Others may leave because of
their interests, values or abilities. Career management activities or
decisions in this stage mostly involve planning for retirement and
outplacement.
A career development programme should be viewed as a dynamic process that

tries to meet the needs of managers, their employees and the organisation.

How does career development benefit managers? It does so by:

(i) Giving them increased and better or more skills in managing their own
careers;
(ii) Ensuring greater retention of valued employees;
(iii) Providing understanding of the organisation; and
(iv) Enhancing their reputation as people-developers.
Organisational career development is a strategic process which maximises an

individualÊs career potential and enhances the success of the organisation as a
whole.
Why does an organisation place great emphasis on career development? Major

forces pushing organisations to offer career development programmes are:
(i) Increased competition for promotion and career progression;
(ii) Constant creativity and innovation in technology;
(iii) Pressures for equal employment opportunities;
(iv) Corporate rightsizing, downsizing and restructuring;
(v) Globalisation of economy;
(vi) Borderless business activities; and
(vii) EmployeesÊ passion or intention to get the most out of their careers.
Career development involves the development of individual skills and

competencies. However, in planning a career, an organisation should not attend
to only one area such as the acquisition of specific job knowledge and skills or job
know-how. In order to have successful employees in an organisation, the
management should ensure that they develop many skills and competencies. For
example, a successful manager should achieve a higher level of proficiency in
areas such as communication, time management, self-motivation, interpersonal
relationships and the broad area of leadership. Skill analysis and competency
analysis will help in determining areas of individual proficiency.
Skill analysis will link the pay of individuals with their depth or breadth of the
skills, abilities and the knowledge they acquire that is relevant to the work.
According to Milkovich and Newman (2005), skill plans focus on depth (for
example, specialists in corporate law, finance, and welding and hydraulic
maintenance) and breadth (generalists with knowledge in all phases of
operations including management, marketing, finance and human resources).

Meanwhile, competency analysis looks at the organisation and tries to abstract

the underlying broadly applicable knowledge, skills and behaviours that form
the foundation for successful work performance at any level or job in the
organisation (Milkovich and Newman, 2005). The competency model varies from
one company to the other. For example, one company may list the following as
core competencies in human resource management:
(i) Human resource expertise;
(ii) Change management;
(iii) Personal credibility; and
(iv) Global business partnership.
Meanwhile, another companyÊs career competencies in human resource

management may focus on the following:
(i) Interpersonal skills;
(ii) Problem-solving skills;
(iii) Communication skills;
(iv) Leadership skills;
(v) Organisation and planning skills;
(vi) Technical skills;
(vii) Responsibility;
(viii) Assertiveness;
(ix) Flexibility; and
(x) Judgement.
In conclusion, performance appraisal is important in determining individual

career development, such as for promotions and rewards. The use of objective
measures encourages the acceptance of appraisal decisions as the connection
between performance and reward is less ambiguous.
What is the relationship between performance appraisal and career

development? Performance appraisal audits the quality and quantity of an
employeeÊs work output. It measures the degree to which human resources, as
both units and individuals, have fulfilled managerial goals, reveals deficiencies
and suggests remedies.

6.3.5 Strategic Purposes

Strategy has been defined in a variety of ways. Common to all perspectives,
strategy refers to achieving goals. Another common view is that strategies are the
chosen means of interacting with the external environment. The strategic
purpose of performance appraisal refers to how performance appraisal can
achieve its goals mainly in achieving organisational effectiveness or efficiency,
fairness to employees, its ability in adhering or complying with the laws, rules
and regulations. In addition, performance appraisal helps in achieving the
quality of personnel and individual decisions and plays a role in strategic
planning. This section addresses strategic purposes in achieving efficiency,
fairness and complying with laws and regulations.
(a) Achieving Efficiency

Most organisations strive to achieve efficiency such as in controling labour
costs, increasing quality and improving performance as well as delighting
customers and stakeholders. In relation to performance appraisal, the
strategic purpose of achieving efficiency involves three general areas of
concern as suggested by Milkovich and Newman (2005):
(i) Strategy to Support Corporate Objectives
This strategy focuses on whether the plan is cost-effective, improves
quality of service and improves performance at the bottom line. Cost-
effective means that the organisation is able to secure a return from
the investment it makes. Improved quality of service refers to
improvement in any services rendered by the organisation.
Meanwhile, improvement in performance encompasses all
dimensions of activities that include employee and organisation
performance as a whole. This strategy also looks at defect rates rise
and whether the plan is linked well with organisational strategy and
objectives. This means that the organisation will work hard towards
zero defects and make sure it is in line with the organisational
strategy. The final point is how much increase of pay based on
performance can make a difference to employees and motivate them
to higher performance? Here, the management will link the value or
contributions of employees with the amount of pay and rewards they
deserve to receive. The main aim is to attract and retain them to stay
longer in the organisation.
(ii) Structure that Creates Flexibility
The structure of organisation should be sufficiently decentralised to
allow different operating units to create flexible variations on a pay-
for-performance plan. This practice also allows more opportunity for
pay structure and gives more freedom to managers in their pay-for-
performance decision. Under this system, a manager can make
decisions on performance appraisal based on the criteria set. This can

be done, for example, by having a performance review. Based on the
review, the manager can get the budget, have some training to
conduct reviews and get a mandate, for example, to differentiate pay
for stars relative to average performers or risk losing stars. Managers
are given a number of performance dimensions and the determination
of dimension decision is actually a personal decision. Different
operating units may have different competencies and different
competitive advantages. For example, the financial department may
have a different determination of dimension decision. This is because
of the different nature of work and responsibilities.
(iii) Performance System Based on Standards
Standards can be based on objectives, measures, eligibility and
funding. In terms of objectives, the standards may be specific yet
flexible. An organisation should be flexible in addressing certain
objectives that are considered unique or based on isolated cases. This
includes whether employees are able to see that their behaviour
influences their ability to achieve the objectives of the organisation or
industry. Measures refer to whether the appraisal tools or techniques
used are sufficiently good to merit a payout. Eligibility focuses more
on how far employees are involved in ensuring the pay-for-
performance plan. This means that not only top management can see
how their decisions affect the bottom line. Funding refers to whether
an organisation has enough allocation to compensate employees.
(b) Achieving Employee Fairness

The second strategic purpose of performance appraisal is to ensure that
employees are treated fairly. Employee fairness is concerned with whether
the amount of pay based on performance is distributed fairly. This is called
distributive justice. The perception of fairness depends on the amount of
compensation received by an employee relative to input, for example,
productivity compared to some relevant standards. A manager has little
influence over the size of employeesÊ pay cheque as this will be influenced
by factors such as external market conditions, pay policy decisions and the
occupational choice of employees.
The second issue of fairness is related to employeesÊ concern with the

procedures used to determine the amount of rewards they receive. This is
called procedural justice. According to Brockner (2002), organisations that
use fair procedures and supervisors who are viewed as fair in the means
they use to allocate rewards are perceived as more trustworthy and
command higher levels of commitment. Alexander and Ruderman (1987)
suggest that employee satisfaction of pay for performance depend on the

procedures used to determine pay than the actual level distributed.

Employee fairness with the performance appraisal used for determining
pay can influence the behaviour of employees. Employees who feel they are
fairly treated tend to be motivated, satisfied and loyal to the company.
Research has also reported on the negative impact of unfair treatment of
employees such as absenteeism, turnover intention and dissatisfaction.
Fairness will help the management to make certain decisions such as for
promotions, transfers, rewards, discharges, training and development.
(c) Compliance
Strategic performance appraisal must comply with laws, rules and
regulations. This means a performance appraisal should consider legal
requirements such as those pertaining to the compensation system of
certain authorities of the countries in which an organisation operates. This
is in line with the objective of pay for performance, that is, a reward system
is to maintain and enhance the reputation of a firm or organisation. It is not
enough that an employer determines the amount of pay based on
performance. Provisions of prevailing wage laws and equal rights
legislation must also be met. Performance appraisals are used as one basis
for human resource management actions, and so they must meet certain
legal requirements.
SELF-CHECK 6.3
1. What is competency indicator and why is it important to an

organisation?
2. Discuss the four stages of a career development programme.
 Decision making is linked to performance appraisal. Decision making

involves quality of personnel, quality of individual and strategic planning.
 Performance appraisals are carried out for pay determination, career
development and strategic purposes.
 In pay determination, internal and external factors must be considered. These
factors are related to the pay structure of an organisation.
 Career development focuses on career models and career stages.

 Strategic purposes of performance appraisal should focus on achieving

efficiency and fairness towards employees as well as compliance with laws
and regulations.
Competency analysis Performance appraisal

External pay structure Person-based structure
Job-based structure Skill analysis
1. Explain performance appraisal in the context of decision making.

2. Differentiate between achieving quality of individual decisions and playing
a role in strategic planning.
3. Justify why achieving the quality of personnel decisions is important to an
organisation.
4. Why is performance appraisal important in decision making? Provide
examples of three decision-making processes.
5. Discuss external factors that determine pay determination.
6. Why do some employers pay different rates of pay for the same job done?
7. Differentiate between internal pay structures.
8. A newly appointed human resource personnel may face some
dissatisfaction among employees due to their performance appraisal. How
could you relate performance appraisal with pay determination in solving
this issue?

1. Define career development.

2. What are the career development models and why is it important to
employees?
3. Discuss the four stages of a career development programme. Which stage is
the most critical and why?
4. Elaborate on the benefits that managers can gain from career development.
5. Explain the purpose of performance appraisal for career development
programmes.
6. Elaborate on the strategic purposes of performance appraisal in terms of
achieving efficiency, fairness and compliance.
7. Which of the strategic purposes of performance appraisal is the most
significant to an organisation and why?
8. YY and SS Company is experiencing poor performance and low
productivity. You have to advise the manager on how to improve poor
organisational performance and increase productivity. Suggest three
strategies on how to improve the companyÊs performance and increase
productivity and why these strategies are chosen.

Topic  Relationship
7 between
Performance
Appraisal
Systems and
Human
Resource
Management
Functions
LEARNING OUTCOMES
1. Determine the relationship between performance appraisal systems
and job design;
2. Explain the relationship between performance appraisal systems and
recruitment and selection;
3. Describe the relationship between performance appraisal systems
and pay system; and
4. Discuss the relationship between performance appraisal systems and
human resource development.

118  TOPIC 7 RELATIONSHIP BETWEEN PERFORMANCE APPRAISAL SYSTEMS
AND HUMAN RESOURCE MANAGEMENT FUNCTIONS
 INTRODUCTION
Organisations are reengineering themselves to become more effective and
efficient. Therefore, jobs are designed as best as they can be to help achieve the
objectives of the organisation and at the same time satisfy the needs and
expectations of the employees who perform them. Clearly, the duties and
responsibilities of the jobs greatly influence productivity, job satisfaction,
employee turnover intention and overall organisational effectiveness. Therefore,
the values for performance appraisal and human resource functions will be
stressed in this topic. The topic will also emphasise that performance appraisal
provides the foundation for making objective decisions on human resource
functions. This is in line with the function of human resource management which
generally involves recruitment, selection, training and development,
performance appraisal and compensation management.
However, this topic will only discuss the relationship between performance
appraisal and the following human resource functions:
(a) Job design;
(b) Recruitment and staff selection;
(c) Pay system; and
(d) Human resource development.
7.1 RELATIONSHIP BETWEEN PERFORMANCE

APPRAISAL AND JOB DESIGN
A job comprises a group of activities, functions and duties that are related. The
duties of a job should include natural units of work that are equal or interrelated.
Management normally will ensure that a job given to an employee is clear and
unambiguous. However, it should be distinct from other jobs carried out by
employees in other units to minimise misunderstanding, miscommunication and
conflict among employees. This is aimed at recognising and fulfilling the
expectations and needs of employees. Therefore, the role of the manager is to
carefully plan how to select and recruit capable and competent employees for an
organisation. At the same time, the manager must be able to make wise decisions
by using a proper assessment process. One of the techniques is carrying out
performance appraisal. Performance appraisal that is related to techniques and
tools used in evaluating individuals are like job analysis, job specification, job
description and job design.

TOPIC 7 RELATIONSHIP BETWEEN PERFORMANCE APPRAISAL SYSTEMS  119
A job specification is a statement of the knowledge, skills and abilities required of

a person to perform a job. Employees may possess different levels and types of
knowledge, skills and abilities. This is because employees who join an
organisation may have previous experience working in other organisations. In
their current workplace, they might be given exposure or training to improve
their skills and abilities in certain areas.
Job specification varies from one job to another and from one organisation to
another. For example, a job specification in a human resource department may
require a graduate with major coursework in human resource management, three
years of experience in employee performance and compensation and two years
of experience in developing job-related training and development. Some
companies may require employees with skills in computer literacy and some soft
skills such as leadership and communication. Therefore, job analysis plays a
pivotal role in preparing accurate information for job specification and job
description. This is because data from job analysis is used to develop job
specification and job description. Job specification and job description are used to
support human resource functions especially in recruitment, selection, training
and development, performance appraisal and compensation management. In a
job description, the management will summarise the most important features of a
job and describe the general nature of the work involved, specific task
responsibilities, outcomes and the employee characteristics required to perform
the job (Milkovich and Newman, 2005).
Only after a thorough job analysis has been conducted by management combined
with a high-quality job description and job specification, can an organisation use
this information to design and redesign jobs.
Job design is an outgrowth of job analysis and is concerned with structuring jobs
in order to improve organisational efficiency and employee job satisfaction. Job
design will be involved in changing, modifying and enriching jobs of employees
in certain departments in order to match their talents with the job to be
performed to improve organisational performance. For example, Company 3YS
which is engaged in continuous improvement and/or process reengineering may
revamp its jobs in order to eliminate job tasks that are not applicable or find
better ways to perform work. Job design should also facilitate the achievement of
organisational objectives. In addition, it should recognise the capabilities and
needs of employees who are to perform a particular job.

Since job design involves several decisions, the management needs to think of
some criteria as the basis for job design decisions. Some basic considerations in
job design are:
(a) Behavioural concerns that influence an employeeÊs job satisfaction

(reflected in different talents, abilities and skills of employees);
(b) Group or team considerations;
(c) Industrial engineering including ways to make the job technologically
efficient (focusing on efficient production processes and work method
improvements);
(d) Ergonomic concerns including workersÊ physical and mental capabilities
(involving human capabilities and limitations); and
(e) Organisational objectives that portray the need the job was created to fulfil
(e.g. tasks, duties and responsibilities).
Figure 7.1 summarises the basic considerations in job design:
Figure 7.1: Job design considerations
7.1.1 Behavioural Concerns

Job enrichment and job characteristics are job design methods which seek to
incorporate the behavioural needs of employees as they perform their individual
jobs. Both methods strive to satisfy the intrinsic needs rather than the extrinsic
needs of employees. Intrinsic needs are related to intrinsic rewards that are
received by an individual directly through task performance. A feeling of
achievement after accomplishing a particularly challenging task is an example of
intrinsic rewards. Meanwhile, extrinsic needs are linked to extrinsic rewards that
are given to an individual by some other person in the work setting. Base wage
or salary is an example of extrinsic rewards that are related to individual
extrinsic needs.

Job enrichment refers to job enhancement which involves improving tasks and
duties so that they become more meaningful, rewarding and satisfying for
employees. Hezberg (1974) suggests five aspects of job design which ultimately
motivate employees in terms of intrinsic rewards such as achievement,
recognition, growth, responsibility and performance of the job.
A manager can use the following five aspects of needs to enrich the jobs of
employees by:
(a) Increasing the level or degree of difficulty and responsibility of the job;
(b) Allowing employees to retain more authority and control over work
outcomes, giving more freedom and autonomy. This is important to
produce more creative and productive employees;
(c) Providing unit or individual job performance reports directly to employees;
(d) Adding new tasks and responsibilities to a job that requires training and
growth; and
(e) Assigning individuals specific tasks so that they can be groomed to become
experts in certain areas.
Job characteristics highlight the nature of work performed or to be performed by

employees. The job characteristics model suggests that three psychological states
of a jobholder result in improved work performance ă internal motivation, lower
absenteeism and lower turnover. A motivated, satisfied and productive
employee results in meaningfulness of the work performed, responsibility for
work outcomes and knowledge of the results of the work performed. Research
has indicated that the job characteristics that constitute skill variety, task identity,
task significance, autonomy and feedback will produce the three psychological
states.
Job enrichment and job characteristics can successfully change the job of
employees if these are combined with employee empowerment. This is because
employee empowerment is a technique of involving employees in their work
through the process of inclusion. Through empowerment, employees are
encouraged to become innovators and managers of their own work.
Empowerment involves employees in their jobs in ways that give them more
control and autonomous decision-making capabilities.

7.1.2 Designing Work for Group or Team

Considerations
A variety of techniques have been formulated to involve employees in
organisations. This involves employeesÊ involvement in job design. However,
these techniques have two common characteristics ă enhancing collaboration and
increasing synergy. Collaboration in the work environment can improve work
processes and organisational decision making. Group synergy technique
emphasises the contributions of two or more employees and sees these as greater
and more significant than efforts by an individual. This is more relevant when an
organisation needs to accomplish a task within a time frame. Employee
involvement in groups is very much encouraged as a group of employees who
meet together can certainly come up with better ideas and this will help in
resolving problems. Employees are also able to offer suggestions for
organisational improvement. Employee teams are an outgrowth of employee
involvement. Teamwork involves a group of individuals working together
towards a common purpose, in which members have complementary skills, their
work is mutually dependent and the group has discretion over tasks. Members in
a team also share responsibility and accountability. In work, team managers
accept the notion that the group is the unit to apply resources to resolve
organisational problems and concerns. However, there are advantages and
disadvantages in working as a group. The most important thing is that the
management must be able to develop an effective group. Effective groups have
high levels in the achievement of task performance, member satisfaction and
team viability. Literature has documented that effective group teamwork is
related to organisational job design.
7.1.3 Industrial Engineering Considerations

As discussed earlier, job design involves several processes. It is related to multi-
disciplinary knowledge which includes technical and non-technical aspects. One
aspect that needs to be considered in job design is industrial engineering. This is
concerned with analysing work methods and establishing time standards. It
involves the study of work cycles to determine elements that can be modified,
combined, rearranged or eliminated to reduce the time needed to complete the
cycle. Industrial engineering constitutes a disciplined and objective approach to
job design. Since this consideration may sometimes prove to be inappropriate
psychologically, to ensure effectiveness in job design, it must also incorporate
some elements that address the satisfaction of behavioural needs.

7.1.4 Ergonomic Considerations

Ergonomics tries to accommodate human capabilities and limitations of those
who are to perform a job. It focuses on adapting the entire job system ă the work,
the work environment, the machines, equipment and processes ă to match
human characteristics. It seeks to fit the job to the person rather than the person
to the job. Ergonomics also tries to minimise the harmful effects of carelessness,
negligence and other human fallibilities and deficiencies that may cause product
defects, damage to equipment as well as the injury or death of employees.
Ergonomics improves productivity and morale and yields positive returns on
investment. In any job design, ergonomics will look at human needs to help them
adapt to the working environment so that employees can work more
comfortably. This factor is a necessity to ensure high performance of employees
and organisational productivity.
7.1.5 Organisational Objectives

Most organisations have their own objectives, be they long-term or short-term.
Objectives are formulated based on certain criteria or factors such as internal and
external forces. Management needs to have a careful plan in setting the objectives
as it involves expected outcomes. Therefore, the jobs designed need to be in line
with organisational objectives or goals. The job design should be able to address
issues of the ability to meet the tasks, duties and responsibilities to be performed
by employees and in improving organisational productivity.
ACTIVITY 7.1
Based on what you have read so far, try to relate performance appraisal
to job design.
The requirements contained in the description of a job design provide the criteria
for evaluating the performance of the holder of a job. However, the results of
performance appraisal may reveal that certain requirements established for a job
are not completely valid. Therefore, the criteria determined must be specific and
job-related. If the criteria used to evaluate employee performance is vague and
not job-related, employers may find them being charged with unfairness or
discrimination. In determining the rate to be paid for performing a job, the
relative worth of the job is one of the most important factors. The relative worth
of the job is based on what the job demands of an employee in terms of skills,
efforts and responsibilities as well as the conditions and hazards under which the

work is performed. Job design reflects subjective opinions about the ideal
requirements of a job. Therefore, performance appraisal has to address issues of
subjectivity of employeesÊ performance. This is in contrast with job analysis,
which is concerned with objective and verifiable information about the actual
requirements of a job. Performance appraisal will evaluate the behaviour needed
to achieve organisational objectives.

APPRAISAL AND RECRUITMENT AND
SELECTION
7.2.1 Recruitment
Recruitment deals with organisational activities that affect the number and types
of applicants who apply for a job and whether the applicants will accept the job
offer given to them. There are two sources of recruitment ă outside sources
(external recruitment) and internal sources (internal recruitment).
(a) External recruitment is a process of locating potential individuals who

might join organisations and encouraging them to apply for existing or
anticipated job earnings. The process begins with the notification to
applicants about the qualifications that match the nature of job to be carried
out and the capability of the organisation to provide the job and career
opportunities to potential employees. A person can apply to fill a job
vacancy in an organisation either in the same organisation he is working in
or another organisation. However, his application will depend on the
availability of personnel, the organisationÊs human resource policies and
the job requirements.
The outside sources from which employers recruit vary with the type of
position to be filled. The condition of the labour market may also help to
determine which recruiting sources an organisation will use. Studies have
suggested that an employeeÊs recruitment source can affect his subsequent
tenure and job performance in both small and large organisations. External
recruitment offers several approaches or methods that management can
select. Among the methods are advertisements, unsolicited applications
and resumes, Internet recruiting, employee referrals, executive search firms,
educational institutions, professional associations, labour unions, public
employment agencies, private employment, temporary agencies and
employee leasing.

(b) Internal recruitment is an organisational policy of filling job vacancies

above the entry-level position through promotions and transfers. By having
a policy of filling vacancies within an organisation, the organisation can
capitalise on the investment it has made in recruiting, selecting, training
and developing its current employees who might look for a job elsewhere if
they lack promotion opportunities. As you all know, recruitment and
training are very costly and internal recruitment is one of the alternatives to
reduce operation cost in this area. In some companies, the policy of
promotion from within has contributed to its overall growth and success.
One example of a company that practises this policy is Wal-Mart in the US.
Promotion rewards employees for their past performance and is aimed at
encouraging them to continue their good efforts. Promotion within the
organisation can help to retain and motivate employees to stay longer or be
loyal to the company. This will also lead to other employees producing
similar efforts that can lead to promotion and the increase of their morale.
There is no effective method of identifying internal talent as each method

has its strengths and weaknesses. Therefore, the effective use of internal
sources requires a system for locating qualified job candidates and for
enabling those who consider themselves qualified to apply for the opening.
Qualified job candidates within the organisation can be located through a
number of methods. Among these are human resource information
systems, job postings and biddings, inventory management talents, using
assessment centres and performance appraisals.
7.2.2 Selection
The recruiting process is to increase the number of applicants whose
qualifications meet job requirements and the needs of the organisation. Selection
is the process of reducing the number of applicants and choosing from among
those individuals who have the relevant qualifications. In other words, selection
refers to an activity that involves selecting the best and most eligible applicants to
perform a job. Selection is also the process of choosing individuals who have
relevant qualifications to fill jobs in an organisation. For example, the job as
human resource manager requires applicants who possess at least a degree in
human resource. Those who have non-relevant qualifications would not be
shortlisted. The selection will also look at other criteria as requested in the
advertisement such as experience, other skills, etc. This means selection involves
a series of steps from initial applicant screening of collected and required
information to final hiring of the new employees. This process involves
completing application materials, conducting an interview, completing any
necessary test, doing a background investigation and deciding to hire or not to
hire.
In some organisations, job descriptions are used in the selection and orientation
of employees. A job description is a statement of the tasks, duties and
responsibilities of a job. Employers must be able to show that the job
specifications used in selecting employees for a particular job relate specifically to
the duties of that job. An organisation must be careful to ensure that managers
with job openings do not hire employees on the basis of „individualised‰ job
requirements that satisfy personal interests but fail to relate these to the objective
of achieving successful job performance. Good selection and placement decisions
are an important part of successful human resource management.
ACTIVITY 7.2
How is performance appraisal related to recruitment and selection?

Discuss it with your coursemates in the myVLE forum.
Generally, performance appraisal serves two main purposes: developmental and

administrative. In the recruitment and selection process, performance appraisal
plays important roles for both developmental and administrative purposes. In
developmental purpose, for example, it helps the management to identify
potential strengths and weaknesses of employees and identify goals that need to
be achieved based on the knowledge, skills and abilities of potential employees.
Successful performers are often good candidates for a promotion. In contrast,
those who perform poorly may benefit from a transfer to another area or even a
demotion.
Identifying and developing talent in individuals are roles that all managers
should take seriously. As they conduct a formal appraisal, they should be
concerned with their subordinatesÊ potential for managerial or advanced
technical jobs and encourage their growth in that direction. Therefore,
performance appraisal can be a valuable input for skills inventories and human
resource planning in the recruitment and selection of employees.
From the administrative view, appraisal programmes provide input that can be
used for the entire range of human resource management activities. Research has
indicated that performance appraisals are used most widely as a basis for
compensation decisions. The practice of paying for performance is found in all
types of organisations. Performance appraisal is also directly related to a number
of other major human resource functions such as promotion, transfer and
termination decisions. Performance appraisal data may also be used in human
resource planning, in determining the relative worth of jobs under a job
evaluation programme and as criteria for validating selection tests. Performance

appraisal also provides a paper trail for documenting human resource

management actions that may result in legal action. Some companies use the
performance appraisal system in concert with learning and career management
objectives. This decision can be integrated in the recruitment and selection
process.
SELF-CHECK 7.1
1. Define job design.
2. Why do you need to consider certain criteria in job design?

APPRAISAL AND PAY SYSTEM
Let us take a look at the relationship between performance appraisal and pay
system.
7.3.1 Pay System

Pay system refers to the system of pay practised by an organisation. A pay
system provides the foundation for financial reward systems. In addition, there
are basic rate systems, whereby employees receive a fixed rate per hour, week or
month with no additional payment. There are systems related in whole or part to
individual or group performance or profit. There are also systems based in part
on workers gaining and using additional skills or competencies. Generally, pay
systems provide the basis on which an organisation rewards workers for their
individual contributions, skills and performance.
Pay systems can be classified into two categories:
(a) Fixed Pay

The pay does not vary in relation to achievements or performance (basic
rate or systems); and
(b) Non-fixed Pay

The pay or part pay varies in relation to results or profits or performance
(including the acquisition of skills).

There are also systems where pay and any enhancement is given due to the
gaining of extra skills or competencies. These systems offer opportunities for
greater job satisfaction. At the same time, they allow employees to carry out a
wider range of work, work at a higher level and carry out more challenging
assignments. Some companies practise the basic rate pay system. Research has
proven that basic rate systems are the easiest to operate and apply to many
employees, for example, in the UK. In this system, the worker receives a fixed
rate per hour, week or month.
However, for a large number of employees, part of their pay is based on

incentives or variable systems. Therefore, their earnings can vary depending on
their own performance, their team or group work or because of the teamÊs or
groupÊs efforts as a whole.
Relativities and pay differentials between individuals or groups of employees are

also of fundamental importance. These are generally determined by the wage or
salary structure of the organisation, rather than by the pay system, but may be
affected by changes in the pay system.
The selection of an organisationÊs pay system is normally determined through

negotiations between the management and the representatives of the employees.
In theory, these negotiations can be kept quite separate from negotiations over
payment structures and levels or amounts of pay; but in practice, negotiations
often include all pay-related issues.
The following are some points which need to be considered in the pay system:
(a) Basic rate schemes, while clear, may not offer incentives for increased or
improved performance or quality, nor for recruitment and retention of
workers;
(b) Incentive schemes may be individual or group based, short-term or
long-term;
(c) Productivity or efficiency gains may be required if a scheme is to be
„self-financing‰; and
(d) Organisations may use a combination of systems to meet their particular
requirements.
The important thing in the pay system is its objectives. Therefore, the objectives
of the pay system need to be identified and related to the organisationÊs overall
objectives, strategies and goals. Among the objectives of a pay system are to:
(a) Improve productivity and performance;
(b) Control unit labour costs and ensure cost-effectiveness;
(c) Attract, recruit, retain and motivate suitably qualified workers;

(d) Improve quality of service;

(e) Move towards or encourage teamwork;
(f) Change organisational culture, values and attitudes;
(g) Simplify and improve existing system;
(h) Reduce or eliminate conflict arising from the existing system; and
(i) Comply with the law on equal pay.
Selecting the most appropriate and acceptable pay system requires some
considerations such as:
(a) One type of system suits the work process more than any other.
(b) The volume or predictability of output has higher priority.
(c) The system needs to cover additional factors such as new technology,
reduction of waste and staffing levels.
(d) As changes may be made to pay rates, some jobs may require „red-circling‰
of current pay levels to avoid detriment to individuals ă the ideal system
may be too expensive.
(e) All staff, production and non-production, are to be covered in the new
system.
(f) The new scheme complies with the law on equal pay.
The following are some guidelines which need to be considered to shape the pay
system to suit certain environment needs:
(a) What measures will be used in assessing performance ă For instance,
individual, team, group, enterprise based.
(b) How standards will be set ă Perhaps by work measurement or reference to
past performance.
(c) Whether the measures and standards are free from elements of bias or
discrimination and comply with relevant legislation such as the law on
equal pay, the prevention of discrimination in employment and the national
minimum wage.
(d) How the organisation will deal with relativities and differentials.
(e) How the management and the representatives of the workers will jointly
review the system and address changing standards.

There is no best pay system but the overall aim must be to keep the system as
simple and straightforward as possible. People need to be able to calculate their
earnings, or at least understand how these have been calculated. Otherwise, they
may become demotivated and dissatisfied.
Any changes to pay can make people anxious. A good pay system should:
(a) Be clear and easy to understand;
(b) Take into account the needs of the organisation and the workforce;
(c) Allow for flexibility to cope with changing environments;
(d) Be straightforward and cost-effective to administer;
(e) Be developed with the participation of worker representatives; and
(f) Have the commitment of the management and the workforce.
Changes to pay systems should always be agreed with employees and their
representatives. Proper consultation and thorough preparation will help to make
sure that pay is fair and acceptable to employees and complies with the relevant
legislation, such as the law on equal pay, discrimination and minimum wage.
Changing pay systems without the agreement of workers may be in breach of
contract and may result in complaints to employment tribunals or other legal
action. This is similar to what is suggested by Milkovich and Newman (2005)
whereby the pay system should reach the strategic objectives of achieving
efficiency, fairness to employees and compliance with laws and regulations.
ACTIVITY 7.3
How is pay system related to performance appraisal?
7.3.2 Performance Appraisal Related Pay

Performance appraisal related pay is generally used to link progression through
a pay band to an assessment of an individual's work performance during a
particular reference period, often a year. Alternatively, the reward may be an
additional sum of money paid in the form of a bonus.
Assessments usually relate to an individual's achievements against agreed objectives

relating to output and quality of work but may also include an element of evaluation
of personal characteristics, such as adaptability, initiative and so on.

Pros of having performance appraisal related pay:

(a) It may provide a „felt fair‰ system of rewarding people according to their
contributions;
(b) Higher performance within the organisation may result;
(c) It provides a tangible means of recognising achievements;
(d) People understand the performance imperatives of the organisation; and
(e) The link between extra pay and extra performance is clear.
Cons of having performance appraisal related pay:

(a) Performance appraisal related pay can prove difficult because
measurements of individual performance may be broad and lack objectivity
and may be inconsistent.
(b) As noted, such schemes also usually involve only an annual assessment and
payout, which may weaken any incentive effect.
(c) Many performance appraisal related pay schemes pay quite small sums in
terms of performance pay progression or annual „bonus‰. While any such
scheme may encourage workers to focus on organisational objectives, they
are unlikely to provide a great deal of individual motivation and may even
demotivate.
Linking pay to performance appraisal can also have the disadvantage of turning
the appraisal into a backward looking event where assessments are made and
where employees may become defensive, as opposed to using the appraisal to
look forward and agree on new objectives as well as discuss development and
training needs. Where pay is at stake, the individual may be less receptive to
work counselling and may seek to negotiate softer objectives at the outset.
If an employee is rated „less than satisfactory‰ and receives no increase at all

under an appraisal pay scheme, his motivation and morale may be adversely
affected. Therefore, it is important to focus appraisals on the assessment of
performance, the identification of training needs and the setting of objectives, not
on any dependent pay.
Any organisation that chooses performance appraisal related pay should have
good industrial relations and a good communications system in place. It is also
important that the funds necessary to operate the scheme are available.
Performance appraisal related pay is most successfully introduced when it is
linked to an existing appraisal scheme that is working well, rather than a
simultaneous introduction of appraisal and appraisal related pay.

It is important to monitor the appraisals, to pick up any drift from the overall
distribution of ratings and to check the fairness, equity and consistency of the
ratings.
Recent surveys have shown that individual performance related pay schemes get
and maintain popularity, particularly for senior managers in the private sector.
They have also been introduced in the public sector and for lower-level jobs in
both sectors.
Managers need to be trained to operate individual performance related pay

schemes and should be aware that teamwork may be adversely affected ă such
schemes may prove divisive as workers seek their own performance
improvements without considering the effects on the team and may withhold
help and information from co-workers.
Individual performance related pay needs to be carefully considered in the light

of any organisational move towards teamwork and worker involvement. Such
schemes also tend to lack the transparency sought by employees to properly
understand how their pay is decided.
In determining the rate to be paid for performing a job, the relative worth of the
job is one of the most important factors. It is based on what the job demands of
an employee in terms of skills, efforts and responsibilities, as well as the
conditions and hazards under which the work is performed.
Research has shown that performance appraisals are used most widely as a basis
for compensation decisions. It is also directly related to a number of other major
human resource functions such as promotion, pay determination, transfer,
termination and layoff decisions.
Finally, it is important to recognise that the success of the entire human resource
programme depends on knowing how the performance of employees compares
with the goals established for them. Appraisal systems can influence employee
behaviour, thereby leading directly to improved organisational performance.


APPRAISAL AND HUMAN RESOURCE
DEVELOPMENT
Let us look at the relationship between performance appraisal and human
resource development.
7.4.1 Human Resource Development

Employee or human resource development is more future-oriented and more
concerned with education than job specific training and focuses on human
resource or employee personal growth. Here, education means that employee
development activities attempt to instil sound reasoning processes to enhance
oneÊs ability to understand and interpret knowledge rather than impart a body of
facts or teaching a specific set of motor skills.
Successful employees prepared for positions of greater responsibility have

analytical, human conceptual and specialised skills. Employees are able to think
and understand. By having only training, employees are unable to overcome an
individualÊs ability to understand cause and effect relationships, to synthesise
from experience, to visualise relationships or to think logically. As a result,
development is suggested as predominantly an educational process rather than a
training process.
One important component of employee development is that all employees

regardless of level can be developed. Generally, development is aimed for
potential management personnel. While it is critical for individuals to be trained
in specific skills, for example, management skills such as planning, organising,
leading, controlling and decision making, these skills also need to be taught and
imparted to non-managerial employees. The use of teamwork, reductions in
supervisory roles allowing employees to be involved in setting job goals and
greater emphasis on quality and customers have changed the way employee
development is viewed. Consequently, organisations require their employees to
have skills, adequate knowledge and abilities.
Several methods are used in developing human resources. Among the popular
methods are: job rotation, assistant to positions, committee assignment, lecture
courses and seminars, simulations and outdoor training.

7.4.2 Human Resource Development Methods

and Purposes
(a) Job Rotation
Moving employees horizontally or vertically to expand their skills,
knowledge and abilities. For example, employees can be assigned to a
superior job or the same job assignment with more tasks, duties and
responsibilities.
(b) Assistant to Positions

This refers to employees who demonstrate potential work under a senior
and successful manager, often in different areas of the organisation. In this
way, employees can be given opportunities to carry out more responsible
and challenging work. This approach also helps employees experience a
wide variety of management activities and be groomed to assume the
duties of the next higher level and for future succession planning.
(c) Committee Assignment

This assignment requires employees to sit in a committee that allows them
to discuss and make collective decisions. This type of committee allows
employees to share in decision making, to learn by watching others and to
investigate specific organisational problems and collectively make
decisions. EmployeesÊ participation in certain committees will improve
their exposure to other members of the organisation, broaden their
understanding and enable them to grow and make recommendations under
the scrutiny of other committee members.
(d) Lecture Courses and Seminars

These are formal ways to train and develop employees. A traditional form
of instruction is used in formal lecture courses and seminars. Attending
lectures and seminars will help individuals to acquire knowledge and
develop their conceptual and analytical abilities. Many organisations offer
these in-house, through outside vendors or both. However, the success of
these courses and seminars depends on a lot of factors, for example,
objectives of the course or seminar and its implementation including course
materials, facilitators and location.
(e) Simulations
These refer to any artificial environment that attempts to closely mirror an
actual condition. This type of training is more popular for technical work
although non-technical work is also starting to make use of it. Although it is
critical in training for actual work experiences, it is now more popular for
employee development.
(f) Outdoor Training

This is the current trend of employee development. The main focus of such
training is to teach trainees the importance of working together in a team.
Training involves emotional and physical challenges. Examples: white
water rafting, mountain climbing, paintball games and surviving a week in
a jungle. The purpose is to see how employees react to the difficulties that
nature presents to them. Outdoor training is carried out by most
organisations to get their employees to work in a team. This is in line with
the spirit of team building.
ACTIVITY 7.4
Discuss the relationship between performance appraisal and human

resource development.
7.4.3 Performance Appraisal and Human Resource

Development
A performance management system involves a variety of activities, far more than
simply reviewing what an employee has done. This system should fulfil several
purposes. This is more important because it is normally constrained by
difficulties in how it operates.
Several decades ago, performance appraisals were designed primarily to inform

employees how they had done their jobs over a period of time to tell them the
pay raise they will receive. The feedback mechanism is said to serve its purpose.
However, recently, other factors were addressed such as documentation and
development concerns. Topic 7 will only highlight the development of human
resources.
For the purpose of human resource development, performance appraisal must

convey to employees how well they have performed on established goals. It is
also desirable to have these goals and performance measures agreed on mutually
by the employee and the supervisor. If there is no proper two-way feedback
about an employeeÊs efforts, this might decrease his motivation. Equally
important is the issue of development.
Development refers to those areas in which an employee has a deficiency or

weakness or an area that simply could be better through efforts to enhance
performance. For example, a lecturer demonstrates extensive knowledge in his

field and conveys this knowledge to students in an adequate way. Despite his
satisfactory performance, his peers may indicate that some improvements should
be made. In this case, development may be made through exposure to different
teaching methods. This can be done, for example, by bringing into the classroom
more experiential learning, exercises, real-world application, Internet
applications and case studies.
Research indicates that newer approaches to performance appraisal emphasise

training and development and growth plans of employees. A developmental
approach to appraisal recognises that the purpose of a manager is to improve job
behaviour. Having a sound basis for improving is one of the major benefits of an
appraisal programme.
EmployeesÊ job performance is an important issue for all employers. A

performance management system consists of the processes used to identify,
encourage, measure, evaluate, improve and reward employee performance at
work.
Developmental decisions include those related to improving and enhancing an

individualÊs capabilities. An appraisal provides the feedback essential for
discussing strengths and weaknesses as well as improving performance.
The appraisal process provides an opportunity to;

(a) Identify issues for discussion;
(b) Eliminate any potential problem; and
(c) Set new goals for achieving high performance.
The development function of performance appraisal can identify areas in which

the employee might wish to grow.
Successful development requires top management support and an

understanding of the relationship of development to other human resource
activities.
SELF-CHECK 7.2
1. Discuss the pay system practised by an organisation.
2. What are some of the criteria in pay system considerations?

 Performance appraisal is linked to job design, recruitment and selection, pay

system and human resource development.
 Job design also considers aspects such as industrial engineering and

ergonomics.
 Recruitment can be done internally and externally to select the right

applicant.
 Human resources involves methods to use such as job rotation, assistant to

positions, committee assignment, lecture courses and seminars, simulations
and outdoor training.
Human resource development Recruitment

Job design Selection
Pay system
1. What are human resource functions? Briefly elaborate on each of them.

2. How could managers enrich the job of their employees?
3. Why is job design important in performance appraisal?
4. Discuss recruitment and selection in the performance appraisal context.
5. What are the two sources of recruitment? Discuss.
6. How do external and internal recruitment help in an organisationÊs
decision making?
7. Discuss the relationship between performance appraisal and job design,
and recruitment and selection.
8. You are a HR manager of a company. You need to negotiate the subject of
pay with employees which embrace mostly pay related issues. Advise your
employer on the points that need to be taken into consideration during
negotiation.

1. Discuss pay system.

2. What are some considerations required in selecting an acceptable pay
system?
3. Discuss the criteria for a good pay system.
4. Discuss the relationship between performance appraisal and pay system.
5. Discuss five human resource development methods. Justify which method
you think is the most relevant with performance appraisal.
6. Human Resource Development (HRD) is one of the approaches to develop
employees in an organisation. Why is HRD important to an organisation?
7. How could you relate performance appraisal and human resource
development?
8. Zahid is the most non-performing employee in Company 3SY. He is seldom
punctual to the office and most of the tasks given fail to meet the target
date. In group work, he seems uncommitted and unmotivated. Critically
discuss how performance appraisal and HR functions can tackle this
problem.

Topic  Issues and
Challenges
8
LEARNING OUTCOMES
1. Identify the problems in performance appraisal;
2. Recognise workforce diversity and politics in performance appraisal;
3. Describe the benefits of technology advancement at the workplace;
4. Differentiate between learning organisation and virtual organisation;
and
5. Elaborate on knowledge workers.
 INTRODUCTION
Performance appraisal is one of the important topics in human resource
management. Performance appraisal plays a significant role in human resource
functions and in any ongoing business organisation. This is because performance
appraisal serves the following purposes among others:
(a) Help supervisors to observe their subordinates more closely and do a better
coaching job;
(b) Motivate employees by providing feedback on how they are performing;
(c) Provide back-up data for management decisions concerning merit
increases, transfers, dismissals, trainings and so on;
(d) Improve organisational development by identifying people with promotion
potential, pinpointing development needs and future succession planning;
and
(e) Establish a research and reference base for personnel decisions for both
practitioners.

140  TOPIC 8 ISSUES AND CHALLENGES
Generally, most organisations now conduct performance appraisal programmes

although formal performance appraisal programmes have often yielded
unsatisfactory and disappointing results, as the growing body of critical
literature attests. Some scholars even suggest that performance appraisal is a lost
cause and they point to scores of problems and pitfalls as evidence. Performance
appraisal is more relevant to organisations that practise performance-based pay.
However, considering the potential of appraisal programmes, the issue should
not be whether to scrap them but how to make them better. This topic identifies
the issues and challenges related to performance appraisal systems.
8.1 PROBLEMS IN PERFORMANCE APPRAISAL

Performance appraisal is one of the most controversial human resource
management processes and generates a range of views and emotions. As an
example, in some organisations, everyone hates or dislikes the entire
performance appraisal process. The employee who gets a good appraisal thinks
that the system is wonderful while the employee who gets a bad appraisal thinks
that the system is unfair and ineffective. Clearly, for better or for worse, most
governmental and even non-governmental organisations employ some type of
Among the problems faced by the management of an organisation in conducting

performance appraisal are as follows:
(a) The Manager Lacks Information Concerning an EmployeeÊs Actual

Performance
This problem arises due to certain factors. Among others are:
(i) No systematic approach of collecting data;
(ii) Inexperienced or untrained people in handling the performance
appraisal; and
(iii) Errors and weaknesses in performance appraisal measurement.
Without adequate information, an organisation would not be able to have a

good and effective performance appraisal, therefore leading to
dissatisfaction among employees.
(b) The Standards to Evaluate EmployeesÊ Performance are Unclear

Organisations that fail to provide clear standards and criteria in evaluating
employeesÊ performance can cause an ineffective appraisal, which is linked
to psychological impacts such as absenteeism, turnover intention and low
motivation.

TOPIC 8 ISSUES AND CHALLENGES  141
(c) The Manager Does Not Take the Appraisal Seriously

This can happen due to inexperienced, less trained and unaccountable
personnel. EmployeesÊ morale would be affected should the management
fail to resolve this issue.
(d) The Manager is Not Prepared for the Appraisal Review with the Employees
To avoid this problem, the management should always be well prepared
before conducting an appraisal.
(e) The Manager is Not Honest or Sincere During the Evaluation

Honesty and sincerity are very much related to the integrity of managers.
Only managers who have high integrity can ensure that the appraisal is
carried out effectively.
(f) The Manager Lacks Appraisal Skills

This is related to the education and training of managers as raters of their
subordinates. It is important that the raters be given adequate training to
ensure a successful appraisal.
(g) The Employee Does Not Receive Ongoing Performance Feedback

Continuous feedback to employees is important to ensure their satisfaction
and commitment to the organisation.
(h) Insufficient Resources are Provided to Reward Performance

These resources can be in terms of allocations and good human resources.
(i) There is Ineffective Discussion of Employee Development

This problem can be due to a poor employee development plan.
(j) The Manager Uses Unclear or Ambiguous Language in the Evaluation

Process
Ambiguous language can cause misunderstanding and misinterpretation,
resulting in poor performance appraisal outcomes.
If a performance problem is to be managed effectively, it needs to be clearly

identified. This may not be as straightforward as it may sound. There are
different views about the methods of identifying problem performance and a
manager must be able to appreciate the differing points of view. Specifically, the
distinction between conduct and performance is crucial because the responses to
them need to be different. Another facet of the effective management of problem
performance lies in identifying the causes of problem performance.

There are performance problems that result from the way that an organisation
operates, which may well make the individual worker not perform better, for
example in terms of the design of the task he is asked to perform. However, there
are also performance problems that stem from a workerÊs attitude. In between
these two, there are performance problems which do not come from a disinterest
in performing well and are not system-based issues, but are caused by a workerÊs
own inability to perform. Generally, problems in performance appraisal involve
subjective and objective matters.
However, once there is clarity about the nature of the performance problem that
the manager encounters, then he must be able to measure the extent of that
problem performance if he is to deal with it effectively. Definition and
description of the problem that are not clear and precise can lead to a less than
useful treatment in many ineffective performance management approaches. The
observation of a worker naturally leads to the assessment of the standards of
performance of that worker. This process is often put into a formal performance
appraisal system and a manager needs to be aware of the qualities of an effective
system.
8.1.1 Tackling the Performance Appraisal Issues

There are several strategies to tackle performance appraisal issues as highlighted
below:
(a) Recognise the benefits of addressing the controversial issues related to

problem performance.
(b) Distinguish between conduct problem and performance problem.
(c) Identify correct statements about personality traits linked to performance.
(d) Distinguish between arguments for and against forced ranking systems.
8.1.2 Facing Causes of Problem in Performance

Most scholars agree that in order to overcome problem performance, one should
first identify the root causes of the problem. The next step is to face the causes.
The following are some tips on handling this issue:
(a) Recognise the benefits of identifying the causes of problem performance at

work.
(b) Analyse a given situation to determine the systemic causes of problem
performance.

(c) Analyse aptitude problems so as to identify appropriate responses.

(d) Apply techniques to improve attitude problems that are causing problem
performance.
8.1.3 Handling Measurement of Performance

Appraisal
One of the stumbling blocks in performance appraisal is the inability of managers
to measure performance appraisal. The following are some points to note in
addressing measurement of performance appraisal:
(a) Recognise the benefits of using accurate, objective and organised

measurements of performance at work.
(b) Apply techniques to collect data on performance in a given scenario.
(c) Assess standards of performance in a given situation.
(d) Characterise best practices in performance appraisal systems.
8.1.4 Obstacles to the Success of Formal Performance

Appraisal Programmes
The following are among the most troublesome obstacles in performance
appraisal:
(a) Performance appraisal programmes require too much information from

supervisors. Formal performance appraisals normally require at least
periodic supervisor observation of subordinates' performance. For example,
they may ask every month or three months for subordinatesÊ performance
records. However, the typical first-line supervisor can hardly know, in a
very adequate way, just what each 20 to 30 per cent or more of subordinates
are doing.
(b) Standards, criteria and ratings used to assess employees tend to vary
widely and, often, unfairly. Some raters are tough while others are lenient.
This will cause inconsistent results. Some departments may have highly
competent and trained people while others may have less competent and
even inexperienced people. Consequently, employees subject to less
competition or lenient ratings can receive higher appraisals than equally
competent or superior associates. This will demotivate employees and
create dissatisfaction.

(c) Bias and subjectivity are issues in performance appraisal. Raters sometimes
tend to be biased in evaluating people whom they know or have as a
personal contact. Therefore, personal values and bias can replace
organisational standards. An appraiser may not lack standards but the
standards he uses may be the wrong ones. This can happen if the appraiser
is untrained and incompetent. For example, unfairly low ratings may be
given to valued subordinates so that they will not be promoted out of the
rater's department. However, more often, outright bias dictates favoured
treatment for some employees.
(d) Communication is important for an effective performance appraisal.

Because of lack of communication, employees may not know how they are
rated. The standards by which employees think they are being judged are
sometimes different from those their superiors actually use. No
performance appraisal system can be very effective for management
decisions, organisational development or any other purpose until the
people being appraised know what is expected of them and by what criteria
they are being judged. Therefore, raters and employees must be given
enough information about the organisationÊs performance appraisal system.
(e) Appropriate and correct techniques are important to prevent problems in

performance appraisal. Appraisal techniques tend to be used as
performance panaceas. If a worker lacks the basic ability or has not been
given the necessary training for his job, it is neither reasonable to try to
stimulate adequate performance through performance appraisals nor fair to
base salary, dismissal or other negative decisions on such an appraisal. No
appraisal programme can substitute for sound selection, placement and
training programmes. Poor performance represents someone else's failure.
(f) The role of supervisors in their ways of conducting the ratings is pivotal in
reducing performance appraisal problems. In many cases, the validity of
ratings is reduced by supervisory resistance to making the ratings. Rather
than confront their less effective subordinates with negative ratings,
negative feedback in appraisal interviews and below-average salary
increases, supervisors often take the more comfortable way out and give
average or above average ratings to inferior performers.
(g) Performance appraisal ratings can cause unintended reactions or results

when communicated to employees. Negative feedback (i.e. criticism) not
only fails to motivate the typical employee but also can cause him to
perform worse, quit the organisation or display a negative attitude. Only
those employees who have a high degree of self-esteem appear to be
stimulated by criticism to improve their performance.

(h) Performance appraisal can interrupt some developmental efforts in an

organisation. For example, performance appraisals interfere with the more
constructive coaching relationship that should exist between a superior and
his subordinates. Performance appraisal interviews tend to emphasise the
superior position of the supervisor by placing him in the role of judge, thus
countering his equally important role of teacher and coach. This may also
disrupt the existing good relationship between a supervisor and his
subordinates. This is particularly damaging in organisations that try to
maintain a harmonious and more participative organisational climate.
8.1.5 Other Problems in Performance Appraisal

(a) Work is tied to many systems and processes. An appraisal focuses on
individuals as if the individual can be appraised apart from the system.
(b) Appraisal would be a problem when involving individual and group work.
Most work is the product of a group of people. Appraising an individual
requires a pretense that the individual is working alone. The result would
be encouragement of "lone rangers" or divisiveness.
(c) Performance appraisal is a dynamic process. It is exposed to a lot of forces
and influenced by many factors. Performance appraisal presumes
consistent, predictable systems. Systems or processes are subject to constant
changes, therefore they are unpredictable.
(d) It is very difficult to quantify employees objectively in performance
appraisal. However, performance appraisal has to be a process that is
objective, consistent, dependable and fair.
(e) Performance appraisal encourages mediocrity by rewarding "safe"
behaviour as opposed to risk-taking and self-challenge.
(f) Performance appraisal pressures employees to work around systems rather
than improve them.
(g) Performance appraisal inevitably demoralises employees and creates losers
or cynics (self-esteem or self-image is at risk).
(h) Performance appraisal provides feedback that is distorted by evaluatorsÊ
bias on events that are usually beyond the employeesÊ ability to control.
Credible feedback is usually too little too late.
(i) Using performance appraisal as a basis for reward is a mistake. EmployeesÊ
income becomes dependent on capricious factors well beyond their ability
to influence.

(j) Do not use performance appraisal as protection from discrimination

problems. Performance appraisal gives only the appearance of an equitable,
objective system. It is neither; and therefore, it is indefensible.
The conventional performance appraisal system is more like a gamble than an

objective observation process. It is distorted by the evaluatorÊs bias and more
often reflects the unpredictability and instability of the organisationÊs systems.
Those who promote these activities labour under the mistaken belief that they are
achieving a true discernment of an employee's achievement. Meanwhile, low-
rated employees, sharing in this mistaken belief, feel disheartened and bear
undeserved personal guilt. Those rated high, also sharing the same belief, take
undeserved personal credit. Many employees are sceptical of the evaluation
results and even more sceptical of the competence of those managers who
indulge in such futility.
8.2 WORKFORCE DIVERSITY

Diversity refers to the varied personal characteristics that make the workforce
heterogeneous. Until recently, organisations were concerned about personnel
diversity, assuming that people who were different would somehow
automatically want to assimilate. Today, most managers have found that
employees do not set aside their cultural values and lifestyle preferences when
they come to work. The challenge, therefore, is to ensure that organisations are
more accommodating towards diverse groups of people by addressing lifestyles,
family needs and work styles. Organisations now give more attention to
recognition and celebration of differences. Research has indicated that
organisations which celebrate differences reap higher profits.
Managing diversity involves creating an environment that allows all employees

to contribute to organisational goals and experience personal growth. This
includes access to jobs as well as fair and positive treatment of all employees. In
other words, employers should be able to overcome problems of unfairness by
following, for example, procedural and distributive justice in rewarding
employees. For this reason, the company is required to develop employees so
that they are comfortable working with others from a wide variety of ethnic,
racial and religious backgrounds.
Management of diversity has been given priority because of its link to improving
productivity, lowering employee turnover, reducing absenteeism and cutting
other costs related to human resources and psychological impacts. Internal issues
that companies face will influence the companyÊs current workforce for the
future, helping dysfunctional managers and motivating employees to learn.

8.2.1 Diversity at the Workplace

TodayÊs workforce is changing and anyone insensitive to diversity issues had
better stop and check his attitude at any time. Today, diversity in terms of
ethnicity, cultures, values, races, locations and other demographic profiles have
shaped the nature of the workforce in organisations. One of the important
elements of diversity is the organisational culture. Culture, according to
Mintzberg, is the soul of the organisation ă its beliefs and values and how these
are manifested. The structure can be viewed as the skeleton and the culture as the
flesh and blood. Culture is the soul that holds the organisation together and gives
it a life force. Organisational culture refers to the pattern of shared values, beliefs
and assumptions considered to be the appropriate way to think and act within an
organisation. Culture is also shared, helps members solve problems, is taught to
newcomers and strongly influences behaviour.
People are still considered as a companyÊs main asset, not the computers or the
real property. To ignore people is to ignore assets and that not only contributes to
bad business performance, but in our current competitive world, will put a
business out of business. Therefore, the management of an organisation should
and must realise that the importance of legal requirements are not enough to
meet the needs of our changing workforce, to improve our workplace culture
and environment or to fully utilise the skills of all employees, but that a company
also needs to improve its competitiveness.
Among the primary organisational culture characteristics that influence the

behaviour of employees, resulting in a high performance organisation, are:
(a) Innovation and Risk-taking
The degree to which employees are encouraged to be innovative and take
risks.
(b) Attention to Detail
The degree to which employees are expected to exhibit precision, analysis
and attention to detail.
(c) Outcome Orientation
The degree to which the management focuses on results or outcomes rather
than on techniques and processes.
(d) People Orientation
The degree to which management decisions consider the effects of
outcomes on people within the organisation.
(e) Team Orientation
The degree to which work activities are organised around teams rather than
individuals.

(f) Aggressiveness
The degree to which people are aggressive and competitive rather than
easy-going.
(g) Stability
The degree to which organisational activities emphasise maintaining the
status quo in contrast to growth.
In the Malaysian context, to fully maximise the contributions of a foreign

workforce and cultural diversity, we must commit to voluntarily focusing on
opportunities to foster mutual respect and understanding. This can be done by
valuing our differences, which enrich our workplace, not only because it is the
law or because it is morally or ethically the right thing to do or because it makes
good business sense and also because when we open our minds and hearts, we
feel better about ourselves. Decency is hard to put a price tag on.
8.2.2 Nature of Workforce Diversity

There are many causes of workforce diversity. In the US, for example, it started
in the 1960s when the government introduced laws prohibiting employment
discrimination. These laws stated that women and minority groups must be
given equal opportunity in employment. As a result, the women and minority
groups became the fastest growing segments in the workforce. It has become a
big and pivotal responsibility of managers to accommodate their needs. This
scenario was timely as at the same time, the US was experiencing a decline in
birth rate. However, the baby boom generation and globalisation have changed
the scenario as more people including Hispanics, Asians and other immigrants
came to the United States and sought employment.
Diversity in terms of gender, race, religion, culture, the disabled and the elderly
has become a common phenomenon in most organisations including those in
Malaysia. In the US, the baby boom population, for example, has made a great
impact on the workforce. The „greying of the workforce‰, highlighted by some
researchers, shows that more individuals now want to work past the retirement
age. With the need for greater income to sustain current living standards or a
desire to remain active, more individuals over the age of 55 are expected to
remain in the workforce. In line with the baby boom generation such as in the
US, employees expect to work past the age of 65. In some countries, the
retirement age is higher than the normal age of 55 due to a high quality of life.
Current diversity issues are shaped with the increased participation of women,
the elderly and the disabled. In some sectors, women form the majority group of
workers, sometimes even almost 80 per cent to 90 per cent. In Malaysia, most
teachers and factory workers are women. Another issue is multiculturalism.

In the US, globalisation has reduced barriers to immigration. The US proportion

of people of Hispanic, Asian, Pacific Island and African origin has increased
significantly since a couple of decades ago. This trend generally will continue
everywhere. In Malaysia, the number of foreign employees such as those from
Bangladesh, Indonesia, Nepal, Vietnam and other Asian countries is increasing.
Therefore, multiculturalism is not just a US phenomenon. Countries like Britain,
Germany, Canada and Malaysia are experiencing similar changes. Malaysia as a
case in point has foreign workers from Indonesia, Myanmar, Pakistan, Nepal, etc.
These people are making MalaysiaÊs population diverse and its workforce more
heterogeneous.
8.2.3 Efforts Towards Diversity
ACTIVITY 8.1
In your opinion, what can companies or organisations do to facilitate

diversity?
It is inevitable that diversity will affect organisations, especially those which

employ people from various backgrounds. Therefore, it is important to take some
preventive measures to avoid unnecessary problems. The following are some
suggestions to facilitate diversity:
(a) Role of Leader in Organisation
Enlist leadership from all levels to accomplish diversity goals.
(b) Clear Goals
Identify goals, barriers, obstacles and solutions and develop a plan to meet
goals and overcome obstacles.
(c) Education
Develop awareness through training, books, videos and articles. Use
outside speakers and consultants as well as internal resources to determine
how to motivate and maximise the skills of a diverse workforce.
(d) Good System
Establish internally sanctioned employee support systems, networks or
groups.
(e) Assessment on Decisions
Challenge each employee to question his beliefs, assumptions and
traditions and assess how these affect their relationships and decisions.

(f) Policy
Modify existing policies or create diversity policies and communicate them
to all current and future hires.
(g) Accountability
Hold managers accountable and reward them for developing, mentoring or
providing awareness training.
(h) Communication
Build accountability through surveys and audits to measure progress as
diligently as you would, increasing production quotas or maintaining zero
loss-time accidents. Then, communicate the results and repeat the process.
Continuous improvement applies to diversity as well as production.
8.2.4 Diversity and Human Resource Management

The more diverse the organisation, the more challenges the managers face in
managing the workforce. This is because as organisations become more diverse,
managers and employers have to adapt their human resource practices and
cultures to reflect those changes. Most organisations today have introduced
programmes pertaining to diversity. Bank of America, for example, introduced a
workforce diversity programme. Under this programme, the bank hopes to hire,
promote and retain minorities, encourage vendor diversity and provide diversity
training for employees. Some companies like Coca-Cola, Motorola and Mars
conduct cultural audits to ensure that diversity is pervasive in the organisation.
Diversity programmes are also practised in Malaysia. Among the popular
programmes are like Hari Raya festival, Family Day, etc.
Workforce diversity has become a major issue for managers. Although

similarities are common among individuals, obvious differences exist. A means
of identifying some of those differences is getting to know individuals from
diverse groups. For this exercise, you will need to contact people from a different
country. If you do not know any, you can ask your office for help. Interview at
least three people to ask the following questions:
(a) What country or state do you come from?
(b) What is your first language?
(c) Describe your countryÊs or stateÊs culture in terms of gender, age, ethnicity,
etc. in employment.
(d) What are the greatest difficulties in adapting to this culture issue?
(e) What advice would you give me if I obtained a human resource
management position in your country?

8.3 VIRTUAL ORGANISATION

Virtual organisation is getting popular as people work globally and have
international responsibilities in other regions of the world. With
telecommunications advancement, virtual organisation has become one of the
preferred means of doing business among organisations. In fact, one of the more
dynamic changes and potentially the most far-reaching in business is
telecommuting. Telecommunication is the use of personal computers, networks
and other communication technology such as fax machines to do work at home
that is traditionally done at the workplace. A variant of telecommunicating is the
virtual office or virtual organisation.
8.3.1 Nature of Virtual Organisation

Virtual organisations have been termed and defined differently by different
scholars based on their background and disciplines. Some writers refer to virtual
organisation as „virtual office‰ and some writers refer to it as „virtual
assignment.‰ According to Schermerhorn (2005), a virtual organisation is an
ever-shifting constellation of firms, with a leading corporation, that pools skills,
resources and experiences to thrive jointly. In the business context, this group
normally has a stable group of people or firms which may include customers,
competitors, research centres, suppliers and distributors. It will be led by a
mechanism that can make the business accessible. The key to accessibility is
technology or access to customers.
In the business context, virtual organisations can be effective if they follow some
rules as suggested by Schermerhon (2005). First, the production system should be
able to have a partnership with other companies to produce the desired products.
New technology can be introduced to replace work currently done manually by
people. The partnership should be able to develop and maintain:
(a) An advanced information technology (not only based on face-to-face
interaction);
(b) Trust and cross-ownership of problems and solutions; and
(c) Common shared values.
A virtual organisation is also closer to a "virtual office‰, which refers to an

environment where employees are in the field helping customers or are stationed
at other remote locations working as if they were in the home office or in the
organisation.

A virtual organisation is handled through telecommunicating.

Telecommunicating allows employees to balance both work and family
responsibilities.
There are several advantages managers and human resource professionals can
gain from telecommunicating in a virtual organisation, such as:
(a) Increased Flexibility for Employees
Employees may not necessarily go to other locations but instead solve the
problem at the existing office.
(b) Ability to Attract Workers who Might not Otherwise be Available
This can also overcome the problem of lack of employees.
(c) Lessened Burden on Working Parents
Parents can work from home or have flexible working hours.
(d) Less Time and Money Wasted on Physical Commuting
This is because employees can work at home or at any place even while on
leave if there is urgent work to be settled.
(e) Increased Productivity
The management can monitor easily since employees can be supervised
with a systematic system of monitoring by using computers and other
technology.
(f) Reduced Absenteeism
Bosses and supervisors will not face problems of absenteeism.
(g) Reduced Turnover
If absenteeism can be overcome, there will be no problem of turnover or at
least the turnover rate will be reduced.
Research has indicated that possibly the strongest economic reason in favour of
telecommunicating is its power to retain valued employees. Retention of
employees is a top priority in an organisation largely because costs of replacing
employees are far higher than those involved in installing a telecommunicating
arrangement.
8.3.2 Suggestions for Successful Telecommunicating

Some points need to be considered to ensure an effective telecommunicating
programme. The following are some suggestions suggested by DeCenzo, A.D.
and Robbins (2005) in establishing a successful telecommunicating programme:

(a) Identify Jobs Best Suited to Distance Work

Those involving sales, customer service and auditing are logical choices.
(b) Select Responsible Employees
Employees who are self-starters, motivated, trustworthy and can work
independently are ideal candidates. Establish employee feedback
procedures and performance review methods for employee evaluation.
(c) Establish Formal Teleommunicating Guidelines
These can cover hours of availability, office reporting periods, performance
expectations and weekly progress reports or e-mail updates.
(d) Begin a Formal Training Programme
Training for both telecommuters and managers should include the technical
aspects of equipment usage and relationship factors such as how and when
to contact the office or availability and location of support facilities.
(e) Keep Telecommuters Informed
Physical separation can make telecommuters feel isolated and invisible.
Department and staff updates, inclusion of telecommuters on project teams,
required attendance at meetings and chatroom discussions all keep
telecommuters in the loop.
(f) Recognise when Telecommuting is not Working
State in telecommunicating policies that the arrangement may be
terminated when it no longer serves company needs or if the employeeÊs
performance declines.
Although telecommunicating offers significant impact to employers, some

potential pitfalls have to be considered. These include the loss of creativity as
employees are not interacting with one another regularly; difficulty in
developing appropriate performance standards and evaluation system for
telecommuters; and the need to formulate an appropriate technology strategy for
allocating the necessary equipment. Furthermore, managers may think that
telecommunicating affects employee-supervisor relationships through loss of
knowledge or information, trust and sense of connectedness. Therefore,
employers wishing to have their employees telecommute should also comply
with wage and hour laws, workerÊs compensation regulations, equipment
purchase or rental agreements or employeeÊs right act with employees and with
other relevant authorities. Employees who are denied the opportunity to work
from home may feel discriminated against, resulting in disgruntled employees
and possible legal action.

SELF-CHECK 8.1
1. Discuss five problems faced by the management of an

organisation in conducting performance appraisal.
2. Discuss how you can overcome performance appraisal problems.
8.4 TECHNOLOGY ADVANCEMENT IN THE

WORKPLACE
Technology means any equipment, tool or operating method designed to make
work more efficient. Technological advancement integrates technology into a
process for changing input into output. One simple example is that in order for
goods and services to be sold or marketed, an organisation should first transform
certain input (labour, raw materials etc.) into output.
8.4.1 Benefits of Technological Advancement

In the past, many of these transforming operations were performed by human
labour. With technological advances, the production process has been enhanced,
replacing human labour with technology, electronic and computer equipment.
The heavy dependence of some assembly operations on robots is very obvious,
for example, at General Motors. Robots play many roles and are able to perform
repetitive tasks which human labour can hardly handle ă for example, spot
welding and painting much more quickly than humans can. Robots are different
from humans as they are not subject to health problems caused by exposure to
chemicals or other hazardous materials and can offer better service to customers.
Technology has been used widely in the manufacturing industry and financial
sector such as banking. In the banking industry, thousands of tellers have been
replaced by Automated Teller Machines (ATM) and online banking systems.
More useful information can be provided through technological advancements.

Individuals can visit certain websites to gain certain information. For example,
you can visit http://www.hrfree.com to get general human resource
information.
Some cars are also equipped with a computer circuit to help technicians
determine certain operating problems.

A lot of advantages have been gained from the information explosion and
advancements in information technology. Computer networks offer unlimited
amounts of data to be stored, retrieved and used in a wide variety of ways from
simple to complex controlling equipment. This has caused a dramatic change in
how organisations do business. The use of the Internet is common among small
and large companies and e-commerce has become an organisational challenge in
21st century.
8.4.2 Effects of Technology on Human Resource

Management
Technology has shown a positive impact on organisational operation as it helps
in changing the way a human resource manager works. Technology offers
integrative communication centres to employees. These centres are able to
disseminate information by linking computers, telephones, fax machines, copiers,
printers and the like. Technology allows employees to work in a specified
organisational location. With the help of technological facilities such as
notebooks, desktop computers, fax machines, high-speed modems, the Internet
and other technology tools, employees can work any place, any time and in any
location. Furthermore, technology will help managers to better facilitate human
resource plans, make decisions faster, clearly define more jobs and improve
communication among members in the organisation. Among examples of human
resource activities that can be handled through technology are as follows:
(a) Recruiting
Instead of applicants sending their resume in a conventional approach, they
can submit it through electronic means.
(b) Employee Selection
Human resource management selection tools will be able to select quality
manpower and identify those who are not capable as team players and
cannot handle stress
(c) Training and Development
Technology is able to change how human resource managers orient, train
and develop employees including their career management.
One of the most popular technologies used in human resource management is

Human Resource Information System (HRIS). This is a computerised system that
provides current and accurate data for purposes of control and decision making.
Most organisations are determined to lower cost and improve productivity. HRIS
can be a potent tool for lowering administrative costs, increasing productivity,
speeding up response time and improving decision making and customer
satisfaction and service. According to the HRD Management Report, among the

most commonly used human resource information systems applications

(DeCenzo, A.D. and Robbins, 2005) are:
(a) Payroll (76.7 per cent);

(b) Benefits administration (57.1 per cent);
(c) Benefits enrolment (41.4 per cent);
(d) Recruitment (39.1 per cent);
(e) Personnel administration (39.1 per cent);
(f) Training and development (31.6 per cent);
(g) Employee self-service (24.8 per cent);
(h) Manager self-service (18 per cent); and
(i) Others (3.8 per cent)
However, despite the benefits that an organisation can gain from HRIS, several
factors need to be evaluated in using HRIS, such as:
(a) Fit of the application to the companyÊs employee base;
(b) Ability to upgrade or customise the software;
(c) Compatibility with current systems;
(d) User-friendliness;
(e) Availability of technical support;
(f) Time required to implement and train staff members to use the HRIS,
including human resource payroll personnel, managers and employees;
and
(g) Initial costs and annual maintenance costs.
An effective HRIS will help human resource personnel to concentrate more

efficiently on the companyÊs strategic direction instead of on routine tasks,
especially in forecasting personnel needs, planning for career and employee
promotions and evaluating the impact of the companyÊs policies both those
related to HR functions and other functions, in an effort to improve companyÊs
earning and strategic direction.

8.5 LEARNING ORGANISATION

Working in an organisation is a continual learning process and learning is at the
heart of all training activities. Different learning approaches are possible and
learning is a complex psychological process that is not fully understood even by
research psychologists.
8.5.1 The Learning Organisation

A learning organisation can be defined as an organisation that values continued
learning and believes a competitive advantage can be derived from it. The
concept of learning organisation describes a significant organisational mindset or
philosophy. A learning organisation has the capacity to continuously adapt and
change because all members take an active role in identifying and resolving
work-related issues. In a learning organisation, employees practise knowledge
management by continuously acquiring and sharing new knowledge and
willingly applying that knowledge in making decisions or performing their
work.
In a learning organisation, it is crucial for members to share information and

collaborate on work activities throughout the entire organisation, across different
functional specialties and even at different organisational levels. Employees are
free to work together and collaborate in doing the organisationÊs work the best
way they can and to learn from each other. The need to collaborate also tends to
make teams an important feature of a learning organisation. Employees carry out
activities in teams and make decisions about their work or resolve issues.
Empowered employees and teams have little need for „bosses‰ to direct and
control them. Instead, traditional managers serve as facilitators, supporters and
advocates for employee teams.
Generally, learning cannot take place without enough information. Therefore, for
a learning organisation „to learn‰, information must be shared among members ă
the employees in the organisation must engage in knowledge management. This
will include sharing information openly at an appropriate time and as accurately
as possible. This must be supported by an organisational environment that is
conducive to open communication and extensive information sharing.
Few factors contribute towards a learning organisation. Leadership, for example,

plays a primary role as an organisation moves to become a learning organisation.
One of the most important functions of leadership is to facilitate the creation of a
shared vision for the organisationÊs future and to keep organisational members
working towards that vision. Consequently, leaders should support and
encourage the collaborative environment critical to learning. Without strong and

committed leadership throughout the organisation, it would be extremely

difficult to be a learning organisation.
Another important aspect of being a learning organisation is organisational

culture. A learning organisationÊs culture is one in which everyone agrees on a
shared vision and everyone recognises the inherent interrelationships among the
organisationÊs processes, activities, functions and external environment. There is
a strong sense of community, caring for each other and trust. In a learning
organisation, employees feel free to openly communicate, share, experiment and
learn without fear of criticism and punishment.
8.5.2 Other Pertinent Points on Learning

Organisations
A learning organisation needs to provide activities for employees as well as an
environment, climate or condition that facilitates learning. Research has
documented three main factors that influence or contribute to learning in an
organisation:
(a) People who can influence the learning process, such as trainers and
supportive top and middle management;
(b) Mission and operating procedures to guide policy; and
(c) The culture or shared values that frame organisational actions.
Besides that, a key characteristic of the learning organisation is the ability of its
members to make opportunities to learn from whatever resources or situations
are available and to add value to the organisation by converting individual
information into organisational knowledge.
As a learning organisation is supposed to facilitate learning by all of its members,

the following are several identified characteristics that are associated with a
learning organisation:
(a) Opportunities for organisational members to experiment in developing
corporate strategy;
(b) Participation in policy making, in which sharing and the involvement of all
members are encouraged;
(c) Open exchange of information that promotes internal dialogues and collects
external data;
(d) Flexible structure that encourages growth and experimentation, creative
problem solving and flexibility; and
(e) Opportunities and resources for self-development such that individuals are
encouraged to take responsibility for their own learning and development.
An individualÊs role is inherent in the learning organisation and therefore, the

individualÊs capacity to learn is a key component of this capability. Although the
concept of learning organisation did not emerge until the 1980s, its principles are
rooted in many perspectives of management and its practices recognise a wide
range of factors, such as organisational strategy, organisational climate, culture,
structure, absorptive capacity, problem-solving ability, employee participation,
organisational commitment or climate for creativity.
8.5.3 Organisational Climate and Learning

Organisation
Based on literature review, a creative organisational climate is one of the
important elements that plays a vital role in a learning organisation. A creative
climate is the organisational characteristics as perceived by its members. These
characteristics include a learning climate ă a culture that encourages creativity
and innovativeness. A creative organisational climate also encourages people to
generate new ideas and helps the organisation to grow and increase its efficiency
and at the same time, it enables members to generate and implement creative
ideas more effectively. Therefore, according to researchers and practitioners,
there is a need to understand the relationship between creative organisational
climate and learning organisation.
According to literature, there is a relationship between climate in the

organisation and learning organisation and that organisational climate is related
to and has a major impact on learning organisations. Consequently, these
components exert a direct influence on the performance and outcomes of
individuals, working groups and organisations. A study conducted among
managers of information technology in Malaysia revealed that creative
organisational climate and commitment had a positive and significant impact on
learning organisations.
8.6 KNOWLEDGE WORKER

Generally, leaders in organisations will have a clear understanding of how to
make globalisation work, for example. and more specifically, how to meet the
challenges of managing people in a global environment. Under globalisation,
knowledge has become equally important as other resources. Therefore,
organisations require their employees to be knowledgable. The new age of
gaining momentum of knowledge worker started in the 1970s with everything
based on information. Many low-skilled and blue-collar jobs were eliminated by
technological advancements. At this time, the information wave transformed
society from focusing on manufacturing to service. People were increasingly
changing from jobs on the production floor to clerical, technical and professional
jobs. Job growth in the past 20 years has been in low-skilled service work (like as
fast food employees and clerks) and knowledge workers.
8.6.1 Definition of Knowledge Worker

Knowledge workers are individuals whose jobs are designed around the
acquisition and application of information. In addition, their responsibilities
extend beyond the physical execution of work to include planning, decision
making and problem solving. Knowledge workers include professionals such as
registered nurses, accountants, teachers, lawyers and engineers. This includes
technologists (people who work with their hands) and information technologists
(people who work with theoretical knowledge). Jobs under this category are like
computer programmers, software designers and system analysts.
8.6.2 Knowledge Worker and Technology

Due to the advent of advanced technology, there is a reduction in the number of
jobs that require little skill and an increase in the number of jobs that require
considerable skill. This transformation is referred to as a shift from „touch
labour‰ to what is called knowledge worker, in which employee responsibilities
expand to include a richer array of activities such as planning, decision making
and problem solving. In many cases, current employees are trained to assume
new roles and responsibilities. Even when employees are displaced, they require
retraining. Technology, transportation, communication and utilities industries
will incur the most cost for training. In some companies, knowledge-based
training is very important. In the US, some of the largest employment agencies
provide free information technology training online.
8.7 POLITICS IN PERFORMANCE APPRAISAL

Politics is always linked to many activities and business. Politics often relates the
performance appraisal process, thereby affecting work. A conscious effort must
be made by both the manager and those training him in appraisal techniques to
keep the process from becoming worse in a political game.
Performance appraisal ă these two relatively unassuming words generally evoke

an immediate and, at times, negative reaction from both managers and
subordinates. Feelings of dread, anxiety, and frustration frequently accompany
the appraisal process. Yet, every manager recognises that, like it or not,
performance appraisals need to be carried out.

For decades, employee evaluations have been used for a variety of different
organisational purposes. Previously, the appraisal process was generally
considered to be one of the more difficult and yet routine and narrow
management practices. In contrast, it is now widely recognised as a significant
vehicle for improving performance and productivity of both employees and
organisations. In organisations that are practising pay or compensation based on
performance, performance appraisal has become an important tool to assess their
employees. To this end, many organisations and managers are currently re-
examining their appraisal procedures and practices. Why is performance
evaluation currently viewed as a very important tool in assessing employees?
One of the likely reasons for this attention appears to be that both human
resource managers and researchers have recently moved away from their rather
critical concern with refining the nature of the appraisal instrument itself. Over
the past several decades, emphasis has been placed on creating an appraisal
instrument that would allow managers to generate ratings that were close to 100
per cent accurate. As is perhaps evident to any manager who has conducted an
appraisal, that effort is somewhat misguided, and may be even a futile pursuit.
More appropriate goals for appraisals include employee development and
productivity, which are attainable by focusing not on the content of the
instrument but rather on the process of evaluation. That recognition and the
awareness that the appraisal process, properly done, provides a way of
improving employee and organisational performance probably best explains
why appraisal is becoming a hot topic.
In theory, employee appraisal is an objective, rational and systematic attempt on

the part of the manager to accurately describe subordinate performance.
However, recent research has demonstrated that in reality managers have some
very pragmatic concerns in evaluating their people. These concerns are clearly
more pressing than simply generating cruelly accurate ratings. This is because
performance appraisal sometimes fails to address subjective matter. In a dynamic
organisational environment, accuracy might not be as important to a manager as
discretion, effectiveness and, ultimately, survival. Managers require latitude and
flexibility in their efforts to make their departments productive. Therefore,
assessment of employeesÊ performance should also cover subjective matter that
includes their attitude and behaviours.
In managers' dynamic environments, they often find it necessary to exercise

some creative discretion over employee ratings. It happens to the best of
managers at times. Put bluntly, occasionally, managers feel the need to
manipulate ratings in the perceived best interest of their employees, their
departments and perhaps even themselves. Managers will use the appraisal
process to their advantage, rather than allow the appraisal event to derail their
efforts for the sake of mere accuracy in employee performance ratings. As a

result, there are other barriers to the optimal use of appraisal as a performance
enhancing device.
Any serious discussion of performance appraisal must recognise that

organisations are political entities and that few, if any, important decisions are
made without the key actors trying to protect their own interests. In other words,
raters must not be influenced by personal values and self-interest. Performance
appraisals are no exception. Thus, it is likely that political considerations (factors
not related to actual performance) influence managers when they evaluate
subordinates. Politics in this context refers to raters' deliberate attempts to
enhance or protect their own interests when conflicting courses of action are
possible in the ratings they provide to their subordinates. Politics in performance
appraisal can also be interpreted as an activity that leads towards unethical
decisions such as the rates may be biased or in favour of a good or bad decision.
In this sense, factors other than the subordinate's actual performance are likely to
affect the actual rating the subordinate receives. Therefore, political activity on
the part of the person doing the rating represents a conscious source of bias or
inaccuracy in employee appraisal.
Stated more simply, no matter how well designed the appraisal system, no
matter how effective the organisationÊs training programme, no matter how hard
the issue of accuracy is stressed, performance appraisal would not able to achieve
its objective if the raters act unethically and try to impart elements of politics in
the performance appraisal exercise. The major upshot of this recognition of how
appraisals are really conducted is twofold:
(a) Firstly, rating accuracy is automatically derailed; and
(b) Secondly, political activity on the part of managers can become a prominent
feature of the appraisal process and can have a debilitating effect on
employee trust, motivation and development.
The occurrence of politically induced behaviour in appraisals is essentially a

natural phenomenon; it should be expected, and it is not likely to be stamped out
(despite the efforts of human resource managers and trainers who continually
tell us that inaccuracy in ratings will lead to the death of the organisation).
However, so far, there is no clear picture of interpretation on political
interference in performance appraisal. More importantly, the goal of the
understanding manager and organisation should not be to eliminate the politics
of appraisals. Rather, the goal should be to understand and manage the bias and
to create an organisational culture that stimulates effective rater behaviour.

8.7.1 Politics in Organisation

(a) Generally, individuals cannot ignore politics in organisations. This is
because organisational life is infused with politics (some organisations
more than others) and only the degree of politics may vary.
(b) It cannot be denied that in some organisations, performance appraisals are
highly influenced by politics and impression management. How far this
statement is true, only a scientific research can answer.
(c) Two types of politics in organisations that are related to performance
appraisal were identified in the literature:
(i) Inflation Bias
Most often found when making global measures. A common
justification given for this is that the manager is concerned and is
looking out for the subordinate (e.g. help to give a person a bigger
share of merit bonuses, help to overcome short-term performance
problems and recognise end-of-the year improvements).
(ii) Deflating Bias
Less common than inflation bias.
Organisational politics does not necessarily lead to negative effects depending on

how individuals use influence and power. Although politics is a controversial
topic, some managers take a favourable view of political behaviour. While others
see it as detrimental to the organisation, political activity is encouraged by most
organisations due to several reasons, such as unclear goals, autocratic decision
making, ambiguous lines of authority, scarce resources and uncertainty. Even
objective activities may involve politics. One example of an objective activity is
performance appraisal. According to Longnecker (1987), 60 executives who had
extensive experience in employee evaluation indicated that political
considerations were nearly always part of the performance appraisal process.
Politics cannot be ignored or eliminated in organisations. What managers can do

is to take some proactive actions to manage the political behaviour that,
according to Kumar and Thibodeaux (1990), inevitably occurs.
Among the key points that need to be considered in managing political

behaviours are as follows:
(a) Have open communication;
(b) Clarify expectations regarding performance;
(c) Encourage participative management;
(d) Encourage cooperation among work groups;

(e) Manage scarce resources;

(f) Provide a supportive organisational climate; and
(g) Manage political behaviour at work.
8.7.2 Dilemma in Performance Appraisal

The central dilemma in the appraisal process is how to have an open discussion
of performance that meets the individualÊs need for feedback and the
organisationÊs personnel development needs while preventing damage to the
individualÊs self-esteem and to his confidence about organisational rewards.
8.7.3 Factors Increasing the Role of Politics

Generally, the following are factors that may affect the role of politics in an
organisation:
(a) Role Modelling by Senior Managers
What superiors or leaders have done will always be an example to their
followers.
(b) Lack of Accountability (e.g. No One Checks Performance Appraisals)
This is due to little or no good corporate governance.
(c) Secrecy and Lack of Transparency (e.g. Are There Clear Criteria?)
This is due to no specific or right guidelines.
SELF-CHECK 8.2
1. Based on examples of selected organisations which you know of,
elaborate on the benefits that the organisations can get from
technological advancement in workplace.
2. Discuss the factors that help in realising a learning organisation.

 This topic discusses problems in performance appraisal and suggestions on

how to handle the measurement of performance appraisal as well as obstacles
and pitfalls of performance appraisal.
 Workforce diversity and how to facilitate it besides its links with human
resource management are also discussed.
 An explanation on virtual organisation as a new trend in managing human
resources is included.
 This topic also touches on technology advancement and its effect on human
resource management.
 Learning organisation and some related factors are discussed.
 Knowledge worker and technology as well as politics in performance
appraisal are included.
Knowledge workers Technology

Learning Virtual organisation
Organisation Workforce diversity
1. Discuss causes of problem in performance appraisal and how to handle

them.
2. Explain diversity by giving examples based on the Malaysian context.
3. Suggest some ideas on how to facilitate diversity in a multinational
organisation.
4. Why is diversity important in organisations?
5. Propose five suggestions on how to have an effective virtual organisation.
6. Discuss the four advantages and disadvantages of virtual organisations that
managers can gain.

7. What is the relationship between performance appraisal and workforce

diversity and virtual organisation?
8. Mr. Yasin is a CEO (Chief Executive Officer) of 3SY Multinational Company
which has branches in Europe, Middle East, Western countries and Asia
Pacific. He has to deal with various issues of diversity due to different
backgrounds of employees across the world. The main problem is their
cultural diversity.
(a) What do you think are the greatest difficulties in adapting to this
culture issue?
(b) What advice would you give to Mr. Yasin if he were to send or
appoint an HRM position in each of the 3SY CompanyÊs branches?
1. Discuss some human resource activities that can be handled by technology

advancement.
2. What is technology advancement and how is it used?
3. How does an organisation learn and continue to learn over time?
4. How does organisational climate influence a learning organisation?
5. Based on your experience, describe the effect of operation technology on an
organisation.
6. How does a knowledge worker help in achieving high performance
organisation?
7. Discuss the relationship of performance appraisal with the following:
(a) Technology advancement in the workplace;
(b) Learning organisation;
(c) Knowledge worker; and
(d) Politics in the organisation.

8. 3SY Construction Conglomerate, operating in 200 countries and doing

business in more than ten languages, is a company with a performance-
based culture. Employing more than 150,000 people, 3SY Construction
Conglomerate is known as a great place to work. This company also values
ideas and believes that ideas are best developed in a teamwork culture.
However, as most other organisations, 3SY Construction Conglomerate is
also facing problems. One issue that this company is facing is distasteful
office politics pertaining to employeesÊ performance management.
(a) What are the main characteristics of an organisational culture that
strongly supports behaviour of employees in 3SY Construction
Conglomerate?
(b) How can the political behaviour in 3SY Construction Conglomerate be
overcome?

168  ANSWERS
Answers
TOPIC 1: INTRODUCTION TO PERFORMANCE

APPRAISAL
Self-Test 1
1. A process of evaluating an employeeÊs current and past performance
relative to his or her performance standard or expectation.
2. The purpose of having performance appraisal in an organisation can be

divided into four, i.e. administrative, developmental, motivational and
communicative.
Organisations use performance appraisal information to make

administrative decisions, i.e. salary increment, promotion, termination and
recognition.
Motivational purpose includes encoursing initiative, responsibility and

optimal performance.
Developmental purpose includes identifying the training required by the

employees aimed to improve their performance.
Communicative purpose involves two-way communication between

employee and supervisor about the expectations and goals that the
employee is expected to achieve.
3. Benefits obtained by the organisation include being able to identify good

performers, reward employees equitably, improve productivity and
increase employee motivation. Benefits obtained by employees include clear
expectation and target, motivation and ability to discuss performance or job
problems with the supervisor. Benefits for managers include enhanced
relationship between supervisor and subordinate, improved
communication and expectation, and the ability to motivate employees.

ANSWERS  169
4. Negative effects: When performance appraisal is not conducted fairly and

employees do not have clear goals and expectations, they may not be able to
perform as expected and this may lower their motivation.
Positive effects: When performance appraisal is done accordingly and their

performance is being fairly rewarded, employees are more satisfied and
productive.
5. Performance appraisal rewards employees based on their ability to achieve

expected organisational goals.
It rewards employees based on expected behaviours.
It allocates higher weightage on achieved organisational goals and desirable

organisational behaviour.
6. HR managers need to show that performance appraisal system supports the

achievement of organisational objectives. If there is no performance
appraisal, we are not able to motivate and reward good performance. Thus,
employees may not be motivated to exert their full effort or potential on the
job.
Self-Test 2
1. (a) Reward employees equitably;
(b) Measure employee performance and determine the best and worst
performer;
(c) Provide relevant training to employees; and
(d) Develop employeesÊ career.
2. Performance appraisal is supposed to develop and improve employeesÊ

performance. It is used for development purposes, and also used to
terminate employees who do not meet the set standard. Therefore, its
purposes contradict one another.
3. Some of the reasons include increased cost and time of supervisor, a lot of
paperwork needed, too tedious, and it can create conflicts among
employees, supervisors and management.

170  ANSWERS
4. Team appraisal should focus on achievement of team goals not individual

ones. All team members should be rewarded if they were successful in
achieving the expected goals, and not according to each memberÊs level of
achievement.
5. Formal appraisal is done according to a specified process and procedure.

It is done systematically and according to a certain period and for a certain
purpose. The informal appraisal is done on an ad-hoc basis and not
according to a systematic process of appraisal.
6. You need to show the relationship between their performance and career
goals. Employees need to be made aware that their level of performance
will affect their opportunity for promotion. If there is no improvement in
their performance as depicted in the performance appraisal, then there will
be less chance for them to be upgraded as opposed to if they were identified
as good performers during the appraisal.
TOPIC 2: PERFORMANCE APPRAISAL PROCESS
Self-Test 1
1. Employees need to be informed about the intended purpose of the
performance appraisal so that they are clear about the benefits they will
obtain from the system. They will become more committed and accept the
system if it is clearly explained to them.
2. So that employees are clear about what to achieve and at what level.
Standards specify the expected level of performance for the employees to
achieve. Measures allow employees to know what items are used to
measure their performance.
3. Employees should discuss the expectations, goals, standards and measures

with their superior. This is to enable them to be clear about what is expected
and achieved. Employee should communicate with the superior regarding
problems related to the job to ensure effective performance.
4. You should study the diagram carefully and suggest some additional
variables. As long as it is justifiable, then it is acceptable.

ANSWERS  171
5. Employees are able to identify their weaknesses; good relationship between

subordinates and superior can be established; employees are clear about
their supervisorÊs expectations, etc.
Self-Test 2
1. Variables in the model include:
(a) Identify organisational and HR philosophies and goals;
(b) Intended purpose of performance appraisal;
(c) Job structure;
(d) Types of performance measures;
(e) Choice of performance format;
(f) Factors affecting performance format;
(g) Relevant appraisal content;
(h) Appraisal policies and procedures; and
(i) Implement and evaluate performance appraisal system.
2. Steps in the performance appraisal process include:

(a) Establishing standards and measures;
(b) Communicating job expectations;
(c) Conducting performance planning;
(d) Monitoring performance;
(e) Appraising performance;
(f) Providing feedback;
(g) Performing decision making; and
(h) Preparing development plan.
3. The role of the manager is to ensure that the supervisors or raters

implement the performance appraisal according to the stated policies and
procedures. The manager needs to give advice on matters related to
performance appraisal implementation.

172  ANSWERS
4. One of the reasons for the reluctance is that they want to avoid getting
involved in arguments or conflicts with the employees. They do not feel
good telling employees negative aspects of their behaviour or performance.
5. A good performance appraisal system can provide many benefits to the

organisation such as having the ability to reward employees equitably, treat
employees fairly, train or develop employees accordingly, etc. It allows
employers to make better decisions in relation to promotion or termination.
TOPIC 3: PERFORMANCE APPRAISAL PLANNING
Self-Test 1
1. The goals set to be achieved by employees need to be in line with the
organisational goals and objectives. Performance appraisal allows
supervisors to monitor the performance of employees to ensure that goals of
organisation are achieved. EmployeesÊ performance will be measured and
rewarded based on how effective employees are in achieving the stipulated
performance objectives and goals.
2. Performance standards allow employees to know the expected level of

performance that needs to be accomplished. Performance standards allow
the manager to measure the ability and effectiveness of employees in
performing the task. It helps managers to make decisions on promotion or
training.
3. A good objective has the SMART element:
S ă Specific
M ă Measurable
A ă Achievable
R ă Realistic
T ă Time frame
4. Performance standards are the expected level of performance. Employees

are expected to achieve this level of performance in order to proceed to the
next level of performance. EmployeesÊ level of performance will be
measured against the performance standards.

ANSWERS  173
Job criteria are the dimension of performance upon which an employee is

evaluated. Examples include quality of work, quantity of work and cost of
work.
The problems of contamination and deficiency occur because of the

supervisorÊs inability to provide reasonable and exact number of job criteria
to be measured.
5. We are then unable to determine or differentiate between good and weak

students. We are also not able to develop the weak students and reward
good ones. If everyone receives the same grade, then there will not be any
competition, motivation and improvement in their performance. Some
students will be dissatisfied with the system.
Self-Test 2
1. There is a need for both parties to be clear about what is to be achieved.
When both parties are clear about the expectations, then it is easier for them
to perform and evaluate the level of performance respectively. The task
organised needs to be realistic, achievable and agreeable by the
subordinates as some assigned tasks might be beyond employees' abilities.
2. Continuous feedback by the supervisor on the employees' performance can

help achieve the congruence between strategic goals and employeesÊ
behaviour. Employees need to be informed immediately of any side track.
3. Objective measures can be easily measured and quantified. It helps

employees to be clear about what to achieve as opposed to an indirect and
subjective measure. Subjective measures expose the supervisor to conflict
with subordinates.
4. I will not exert my effort so much as opposed to course with grades. This is
because the line between pass and fail is so thin. Grades can distinguish
between good and bad performers. For each grade, there is a mark and this
mark will differentiate between other people and me. So, I will be more
serious and exert more effort to obtain the best results.
5. SMART objectives enable employees in the organisation to specifically

identify the targets that are expected for them to achieve.

174  ANSWERS
TOPIC 4: DESIGNING AND IMPLEMENTING A

PERFORMANCE APPRAISAL SYSTEM
Self-Test 1
1. Criteria include:
(a) Quality of work;
(b) Quantity of work;
(c) Behaviour;
(d) Personality;
(e) Interpersonal relations; and
(f) Leadership.
2. Job description is the employeeÊs job scope. Employees need to be provided

with a clear job description to enable them to know exactly what they need
to do or what is not in their job scope. Employees can be more focused on
the relevant job if their job descriptions are clear.
3. Validity is the extent to which the performance measure can assess all the
relevant aspects of performance.
Reliability refers to the consistency of the performance measures.
(You may provide two to three reasons why validity and reliability are
important).
4. Benefits include more reliable information, more acceptable to employees,

able to identify actual performers and better documentation.
5. A pleasant personality helps to attract more customers and make others

pleasant to work with.

ANSWERS  175
Self-Test 2
1. Subjective method requires managers to mark employees' level of
performance on a specific form and divided into categories of performance.
Interpersonal methods require managers to directly compare the

performance of their employees against one another.
Objective methods attempt to assess employees' behaviours instead of other

characteristics.
2. Customer input is important for your companyÊs survival. This information

from the customer is important. Usually, service sector industries require
customers to be one of the appraisers for the employeeÊs performance
appraisal.
3. Supervisors set goals with subordinates.

Subordinates are able to exercise control and manage their job performance.
The manager and subordinates plan, organise, control, communicate and

debate to give a suitable target for employees to achieve.
Both subordinate and manager are actively involved in the objective

formulation process and must also argue on the nature of the performance
assessment.
4. The graphic rating scale is a common form of performance appraisal

approach. Using this technique, the rater is presented with a set of traits and
is asked to rate employees on each of the characteristics listed.
The critical incident technique requires raters to maintain a log of

behavioural incidents that represent the effective or ineffective performance
for each employee being rated. These incidents are critical incidents.
The BARS approach relies on the use of critical incidents to serve as anchor
statements on a scale. A BARS rating form usually contains six to ten
specifically defined performance dimensions, each with five to six critical
incident „anchors‰.

176  ANSWERS
TOPIC 5: PERFORMANCE APPRAISAL

IMPLEMENTATION
Self-Test 1
1. A carefully designed appraisal system will enable the organisation to
achieve its objective effectively. It helps to improve and motivate employees
to achieve their highest performance through a clearly defined and well
designed appraisal system. It makes every employees in the organisation
understand the objective of performance appraisal and identify the benefits
that will be obtained from the system.
2. It is important to include them in the designing stage as their input is very

pertinent to the success of the system and to ensure their commitment and
acceptance.
3. Appraisal training is necessary because it will enhance the ability of the

raters to provide accurate evaluation of subordinates' performance.
Training allows raters to be more confident of their appraisal and enables
greater acceptance from subordinates.
4. Tell and sell technique: The supervisor telling employees about the
expectations and expecting employees to accept the suggestion. Supervisor
acts as a judge. Appropriate for new employees.
Tell and listen: The supervisor informs employees about his expectation and
the employees are expected to listen to the suggestion and implement it.
The supervisor allows the subordinate to discuss at a minimum level.
Problem solving technique: The supervisor and subordinate try to resolve

some of the problems faced by the subordinate. Two-way communication
between both parties is essential. Suitable for more senior subordinates.
5. Employees are able to identify some of their weaknesses and will try to
improve if the supervisor provides feedback. Feedback allows subordinates
to be more committed to their job.

ANSWERS  177
Self-Test 2
1. (a) Leniency ă refers to the situation where the rater gives undeserved
high ratings to an employee.
(b) Central tendency ă an error that occurs when employees are rated
near the average or middle of the scale to avoid controversy.
(c) Recency ă errors made by raters when they tend to be influenced by
the more current event that occurred related to the ratees.
(d) Halo effect ă occurs when the evaluator perceives one factor as having
paramount importance and gives a good or bad overall rating based
on this one factor.
2. Failure:
(a) Lack of objectivity;
(b) Below standards;
(c) Unrealistic standards;
(d) Poor measures of performance; and
(e) Rater error or untrained rater.
For success; it is the opposite.
3. Possible conditions include:

(a) The firm based the appraisals on subjective supervisory observation.
(b) It did not administer and score the appraisals in a standardised
fashion.
(c) Two of the three supervisors did not have daily contact with the
employees they appraised.
4. Recommendations include:
(a) Communicate performance expectations in writing;
(b) Identify performance standards in writing;
(c) Avoid being too subjective; and
(d) Provide clear goals and standardised evaluations.

178  ANSWERS
5. Employees will become demotivated, unproductive, dissatisfied and might

resign from the company. Employees might not trust the system anymore
as they feel they are unfairly judged.
TOPIC 6: PERFORMANCE APPRAISAL DECISIONS
Self-Test 1
1. Performance appraisal in the context of decision making:
(a) Definition of performance appraisal.
(b) For decision making, the explanation should focus on the following
three areas:
(i) Achieving quality of personnel decision;
(ii) Achieving quality of individual decision; and
(iii) Decision in strategic planning.
2. Differentiate between achieving quality of individual decisions and playing

a role in strategic planning:
(a) Achieving quality of individual decisions

(i) Refers to decisions made by employers or management towards
employees.
(ii) To ensure employeesÊ present and future roles, commitment to
and responsibility in the organisation.
(iii) It also deals with the decision on employeesÊ expected
performance in the organisation.
(iv) As a strategy, performance appraisal decisions will help in
ensuring quality of employee.

ANSWERS  179
(b) Playing a role in strategic planning

(i) Refers to strategic planning by management.
(ii) The primary focus is to achieve the following:
 Goals;
 Objectives;
 Mission; and
 Vision of organisation.
3. Achieving the quality of personnel decisions is important because the

management has to deal with the following issues:
(a) EmployeesÊ needs;
(b) EmployeesÊ expectation;
(c) EmployeesÊ roles and responsibilities;
(d) EmployeesÊ commitment; and
(e) EmployeesÊ performance.
4. Performance appraisal is important in decision making for the following

reasons:
(a) Determining the pay;
(b) Career development determination; and
(c) For strategic purposes.
(For each decision, you have to give any relevant example.)
5. External factors that determine pay determination are:
 Labour market factors;

 Product market factors; and
 Organisational factors.
(a) Labour market factors:

(i) Nature of demand ă able to offer competitive products to
customers.
(ii) Nature of supply ă able to fulfil demands of products to
customers.

180  ANSWERS
(b) Product market factors:

(i) Degree of competition ă able to compete with competitors. The
higher the level of ability to compete, the better.
(ii) Level of product demand ă ability of company to penetrate
product market at all level of customers.
(c) Organisational factors:

(i) Industry ă e.g. type of industry.
(ii) Strategy ă e.g. in line with the strategy of organisation.
(iii) Size ă e.g. based on the strength of the employee or capital.
(iv) Individual manager ă e.g. ability and capability of a manager in
leading the organisation.
6. Reasons for different rates of pay for the same job are as follows:
(a) To ensure that employees are able to contribute significantly and
substantially to the organisation and achieve the organisational goals.
(b) To emphasise the role of skills, competencies and knowledge that
employees should contribute in achieving organisational goals,
objectives, vision and mission.
(c) To ensure that norms, cultures and values of the organisation are
maintained and sustained without having employees leave for other
organisations through promotion.
(d) To achieve fairness resulting in reduction of turnover and be able to
retain, attract and motivate people to work in the organisation. This
can be ensured through procedural and distributive justice.
(e) To help management determine any market changes within the same
jobs in the same grade without great change in compensation package.

ANSWERS  181
7. Internal pay structure is based on:

(a) Jobs (job-based); and
(b) Person at work (person-based).
Person-based structure:
(a) Person-based structure focuses on the employees: the skills,
knowledge and competencies the employee possesses and whether
they use them for a particular job done in an organisation.
(b) Two analyses are commonly used to analyse person-based structure:

skill analysis and competency analysis. Skill analysis is a process
needed to describe, certify and value the skills of individuals which is
very useful for pay purposes. Examples are skills required by a
general worker in a mill company. Management can group a skill-
based structure based on some groupÊs skills such as:
(i) Foundation skills: seminar, videos on materials handling, etc.
(ii) Core electives : fabrication, welding, painting, etc.
(iii) Optional electives: additional specialised competencies, team
leadership skills or computer applications.
8. Relate performance appraisal with pay determination in solving this issue:

(a) Answer for this question is open and based on your ability to relate
performance appraisal and pay determination.
(b) This question is to test your ability to apply the knowledge pertaining
to performance appraisal.
(c) Basically the focus is on the role of performance appraisal in
determining pay.
(d) Among the roles are:
(i) Ensuring both internal and external factors are really examined
and assessed during the performance appraisal to determine the
pay structure of employees.
(ii) Making sure that the pay given is able to motivate, retain and
attract employees to join the organisation.
(iii) Making sure the pay given is fair to employees.

182  ANSWERS
Self-Test 2
1. Career development is the process by which employees progress through a
series of stages; each characterised by a different set of developmental tasks,
activities and relationships with other employees.
2. The models are:

(a) Life-cycle models (developmental tasks);
(b) Organisation-based models (activities); and
(c) Directional pattern model (relationships).
Why it is important ă answer can be picked up from the explanation of the

models. Generally, for three main purposes:
(a) For developmental tasks.
(b) Ensure learning required to perform certain activities.
(c) Highlight the forms or shapes of career.
3. The four stages are:

(a) Exploration stage;
(b) Establishment stage;
(c) Maintenance stage; and
(d) Disengagement stage.
Which stage is the most crucial ă up to you to choose by giving proper

justification. This an open question to test your ability to think critically.
4. Benefits that managers can gain from career development:

(a) Giving them increased and better or more skills in managing their
own careers.
(b) Greater retention of valued employees.
(c) Understanding of the organisation and enhancing their reputation as
people-developers.

ANSWERS  183
5. The purpose of performance appraisal for career development programmes:

(a) Performance appraisal is able to audit the quality and quantity of the
employeeÊs work output.
(b) It also aims at measuring the degree to which the human resources, as
both units and individuals, have fulfilled managerial goals.
(c) It suggests remedies and deficiencies.
6. The strategic purposes of performance appraisal in terms of achieving

efficiency, fairness and compliance:
(a) Achieving efficiency is to focus on effectiveness, cost effectiveness,
quality and productivity.
(b) Fairness is to ensure employees are fairly treated and that can
influence positive behaviors.
(c) Compliance means to comply with laws, regulations and other
requirements.
7. (This is an open question. You can choose one of the strategies or all
strategies subject to the justification given.)
8. The company should achieve three strategic perspectives from the

performance appraisal purposes of giving compensation to employees. The
strategies are:
(a) Achieve efficiency;
(b) Achieve fairness; and
(c) Compliance.
Elaborate on the answers based on the above points.

184  ANSWERS
TOPIC 7: RELATIONSHIP BETWEEN PERFORMANCE

APPRAISAL SYSTEMS AND HUMAN
RESOURCE MANAGEMENT FUNCTIONS
Self-Test 1
1. The following are the HR functions:
(a) Job design;
(b) Recruitment and selection;
(c) Pay system; and
(d) Human resource development.
Elaboration is based on the above functions
2. Managers can enrich the job of employees by:

(a) Increasing the level or degree of difficulty and responsibility of the job
to be performed.
(b) Allowing employees to retain more authority and control over work
outcomes, giving more freedom and autonomy. This is important to
produce a more creative and productive employee.
(c) Providing unit or individual job performance reports directly to
employees.
(d) Adding new tasks and responsibilities to the job that requires training
and growth.
(e) Assigning individuals specific tasks, so that employees can be
groomed to become experts in certain areas.
3. Job design is important in performance appraisal to:

(a) Eliminate job tasks that are not applicable;
(b) Find better solutions of performing work;
(c) Facilitate the achievement of organisational objectives; and
(d) Recognise the capabilities and needs of employees who are to perform
a particular job.

ANSWERS  185
4. Discussion about recruitment and selection in the performance appraisal

context should focus on two roles, mainly:
(a) Developmental purposes; and
(b) Administrative purposes.
 For developmental purposes, for example, it helps management in
identifying potential strengths and weakness of employees and
identifying goals that need to be achieved based on the knowledge,
skills and ability the potential employees have. Successful performers
are often good candidates for a promotion. In contrast, poor and weak
performer employees may benefit from a transfer to another area or
even a demotion.
 For administrative purposes, appraisal programmes provide input that
can be related to the entire range of HRM activities.
 Performance appraisal is also directly related to a number of other major
HR functions such as promotion, transfer and termination decisions.
 Performance appraisal data may also be used in HR planning, in
determining the relative worth of jobs under a job evaluation
programme and as criteria for validating selection tests.
 Performance appraisal also provides a paper trail for documenting
HRM actions that may result in legal action.
5. There are two sources for recruitment:

(a) Outside sources (external recruitment); and
(b) Internal sources (internal recruitment).
Discussion should be based on the two main sources as stated above.
6. External and internal recruitment help in an organisationÊs decision making.

Discussion can be focused on two main points as follows:
(a) External recruitment helps in locating potential individuals who might
join organisations and encouraging them to apply for existing or
anticipated job earnings.
(b) Internal recruitment helps in filling job vacancies above the entry-level
position through promotions and transfers.

186  ANSWERS
7. The relationship between performance appraisal and job design, and

recruitment and selection.
Answers should relate to two main functions:
(a) For developmental purposes; and
(b) For administrative purposes.
8. Points for consideration such as:

(a) Basic rate schemes, while clear, may not offer incentives for increased
or improved performance or quality, nor for recruitment and retention
of workers.
(b) Incentive schemes may be individual or group based, short-term or
long-term.
(c) Productivity or efficiency gains may be required if a scheme is to be
„self-financing‰.
(d) Organisations may use a combination of systems to meet their
particular requirements.
Self-Test 2
1. In your discussion on pay system including the following:
(a) Define pay system briefly:
(i) A system of pay being practised or carried out by an
organisation. There are basic rate systems; and
(ii) Provide the bases on which an organisation rewards workers for
their individual contribution, skill and performance.
(b) Discuss the following pay system:

(i) Fixed pay; and
(ii) Non-fixed pay.

ANSWERS  187
2. Considerations required in selecting an acceptable pay system:

(a) One type of system suits the work process more than any other.
(b) Volume of output, or predictability of output, has higher priority.
(c) The system needs to cover additional factors such as new technology,
reduction of waste, staffing levels.
(d) As changes may be made to pay rates, some jobs may require „red-
circling‰ of current pay levels to avoid detriment to individuals - the
ideal system may be too expensive.
(e) All staff, production and non-production, are to be covered in the new
system.
(f) The new scheme complies with the law on equal pay.
3. Criteria for a good pay system include:

(a) Clear and easy to understand;
(b) Takes account of the needs of the organisation and the workforce;
(c) Allows for flexibility to be built in to meet changing environments;
(d) Straightforward and cost effective to administer;
(e) Developed with the participation of worker representatives; and
(f) Has the commitment of management and the workforce.
4. The relationship between performance appraisal and pay system:

(a) It may provide a „felt fair‰ system of rewarding people according to
their contribution;
(b) Higher performance within the organisation may result;
(c) It provides a tangible means of recognising achievements;
(d) People understand the performance imperatives of the organisation;
and
(e) The link between extra pay and extra performance is clear.

188  ANSWERS
5. Human resource development methods include:

(a) Job rotation;
(b) Assistant to positions;
(c) Committee assignment;
(d) Lectures and seminars; and
(e) Simulations.
Which one is the most relevant? You may choose one of them and give the
justification.
6. HRD is important to an organisation because it:

(a) Expands skills, knowledge and abilities;
(b) Demonstrates potential work under supervision of bosses;
(c) Allows employees to discuss and make collective decisions;
(d) Provides an avenue for employees to be trained and developed; and
(e) Attempts to investigate the actual ability of employees.
7. The appraisal process provides an opportunity that relates to HR such as:

(a) Identify issues for discussion and the need for employees to be trained
and developed.
(b) Eliminate any potential problems by proposing measures on how the
potential of employees can be explored and developed.
(c) Set new goals for achieving high performance by providing suitable
training and development.
8. Relate the answer to the role of performance appraisal based on the

following HR functions:
(a) Job design;
(b) Recruitment and selection;
(c) Pay system; and
(d) HRD.

ANSWERS  189
TOPIC 8: ISSUES AND CHALLENGES
Self-Test 1
1. Causes of problem in performance appraisal and how to handle them:
(a) The manager lacks information concerning an employeeÊs actual
performance;
(b) Unclear standards to evaluate employeeÊs performance;
(c) The manager does not take the appraisal seriously;
(d) The manager is not prepared for the appraisal review with the
employees;
(e) The manager is not honest or sincere during the evaluation; and
(f) The manager lacks appraisal skills.
How to Overcome:
(a) Recognise the benefits of addressing the controversial issues related to
problem performance;
(b) Distinguish between conduct problems and performance problems;
(c) Identify correct statements about personality traits linked to
performance; and
(d) Distinguish between arguments for and against forced ranking
systems.
2. Diversity refers to the varied personal characteristics that make the

workforce heterogeneous. (You may give any example.)
3. Diversity refers to the varied personal characteristics that make the

workforce heterogeneous. How to facilitate through:
(a) Clear goals;
(b) Education;
(c) Good system;
(d) Assessment on decisions;
(e) Policy;
(f) Accountability; and
(g) Communication.

190  ANSWERS
4. Diversity is important in organisations because it:

(a) Allows all employees to contribute to organisational goals;
(b) Allows employees to experience personal growth;
(c) Improves productivity;
(d) Overcomes turnover and absenteeism problem;
(e) Cost related to HRM; and
(f) Psychological impacts.
5. Five suggestions on how to have an effective virtual organisation.

(a) Able to have partnership;
(b) Advanced technology;
(c) Trust;
(d) Cross-ownership of problems and solutions; and
(e) Common shared values;
6. Four advantages and disadvantages of virtual organisations that managers

can gain:
(a) Advantages:
(i) Increased flexibility for employees ă Employees may not

necessarily go to other locations but instead solve the problem at
the existing office.
(ii) Ability to attract workers who might not otherwise be available ă
This can also overcome problems of lack of employees.
(iii) Lessened burden on working parents ă parents can do work
from home or have flexible time.
(iv) Less time and money wasted on physical commuting ă this is
because empoyees can do work at home or at any place even
during leave if there is urgent work to be settled.
(b) For disadvantages, reverse the advantages or any answer as long as it

is reasonable.

ANSWERS  191
7. The relationship between performance appraisal and workforce diversity

and virtual organisation.
This is an open question. You need to relate some aspects of performance
appraisal with workforce diversity and the organisation.
Among the performance appraisal aspects are:

(a) Measures or approaches of performance;
(b) How performance is conducted; and
(c) Objective of performance appraisal.
8. (a) The greatest difficulties are related to coping with organisational

culture. Among the areas are:
(i) How to influence positive behaviours and attitude of employees.
(ii) You may give any example of the behaviour and attitude of
employees.
(iii) Answers can be related to organisational culture characteristics.
(b) The advice is:

(i) The employees or officers should learn the culture of the place,
people and organisation that they work in.
(ii) They also need to learn cross-cultural communication.
(iii) Must be aware of the diversity in an organisation.
(iv) Foster cultural diversity.
Self-Test 2
1. Human resource activities that can be handled by technology advancement:
(a) Recruitment
(b) Selection
(c) Training and development
(You should elaborate on the answer based on the above points.)

192  ANSWERS
2. Technology advancement integrates technology into a process for changing

input into output.
An example is that in order for goods and services to be sold or marketed,

organisations should first transform certain input (labour, raw materials,
etc) into output.
3. An organisation learns through the learning organisation.
How organisations continue to learn over time:

(a) Information to be shared;
(b) Must engage knowledge management;
(c) Good leadership;
(d) Provide climate for learning organisation; and
(e) Practising lifelong learning concept.
4. Organisational climate influences a learning organisation through:

(a) Opportunities for organisation members to experiment;
(b) Participation in policy making;
(c) Exchange of information;
(d) Flexible structure that encourages growth; and
(e) Opportunities and resources for self-development.
5. The effect of operation technology has on an organisation:

(a) This in an open question.
(b) You may give answers based on what you experience from a selected
organisation regarding the effect of operation technology in an
organisation.
(c) E.g. In the legal system of a company ă the company is able to use
high-tech computer systems and problems of registration of legal
cases have been overcome.

ANSWERS  193
6. Knowledge workers are individuals whose jobs are designed around the
acquisition and application of information.
How knowledge workers achieve high performance:

(a) By contributing skills, knowledge and positive attitudes that align
with goals, vision and mission of the organisation.
(b) With skill and knowledge, employees are qualified to undertake
challenging tasks important to achieve high productivity.
(c) With positive attitude, employees demonstrate good values required
to produce high productivity.
7. The relationship of performance appraisal with the following:
(a) Technology Advancement in Workplace

(i) Relate technology advancement with jobs or tasks carried out in
organisations.
(ii) Employees who are skilled enough with the task will be
appraised better.
(b) Learning Organisation

(i) Relate with what employees will gain from a learning
organisation.
(ii) The learned employees would produce positive results and will
perform better and will be appraised accordingly.
(c) Knowledge Worker

(i) Knowledge workers are very much required.
(ii) With the high degree in this area, employees will perform better,
resulting in good performance.
(d) Politics in the Organisation

(i) Politics that can cause negative impact will affect individual

194  ANSWERS
8. (a) Among the characteristics:

(i) Innovation and risk-taking;
(ii) Attention to detail;
(iii) Outcome orientation;
(iv) People orientation;
(v) Team orientation;
(vi) Aggressiveness; and
(vii) Stability.
(b) Having open communication:

(i) Clarify expectations regarding performance;
(ii) Encourage participative management;
(iii) Encourage cooperation among work groups;
(iv) Manage scarce resources;
(v) Provide a supportive organisational climate; and
(vi) Manage political behaviour at work.

REFERENCES  195
References
Alexander, S., & Ruderman, M. (1987). The role of procedural and distributive
justice in organisational behaviour. Social Justice Research, 1, 177-198.
Armstrong, M. (2002). Performance management. United Kingdom: Kogan Page.
Brockner, J. (2002). Making sense of procedural fairness: How high procedural

fairness can reduce or heighten the influence of outcome favorability.
Academy of Management Review, 27 (1), 58-76.
DeCenzo, A. D., & Robbins, P. S. (2005). Fundamentals of human resource

management. New Jersey: Wiley.
Dessler, G. (2003). Human resource management. New Jersey: Pearson.
Dessler, G. (2005). Human resource management. New Jersey: Pearson Prentice

Hall.
Heneman, R. L., & LeBlanck, P. V. (2003). Work valuation addresses

shortcomings of both job evaluation and market pricing. Compensation and
Benefits Review, 7-11.
Ivancevich, J. M., (2001). Human resource management. New York: McGraw-

Hill Irwin.
Ivancevich, M. J., & Hoon, L. S. (2002). Human resource management in Asia.

Singapore: McGraw-Hill.
Kumar, K., & Thibodeaux M. S. (1990) Organisational politics and planned

organisational change. Group and organisational studies, 15, 354-365
Latham, G. P., & Wexley, K. N. (1994). Human resource in organisation

development and training. New York: Collins.
Longneckner, C. O., Sims, H. P., & Gioia, D. A. (1987). The politics of employee
appraisal. Academy of Management Executive, 1, 183-193.
Milkovich, T. G., & Newman, M. J. (2005). Compensation. New York: McGraw-

Hill.

196  REFERENCES
Murphy, R. K., & Cleveland, J. N. (1995). Understanding performance appraisal.

Social, organisational and goal-based perspectives. London: Sage.
Neo, R. A., Hollenbeck, J.R., Gerhart, B. & Wright, M.P. (2007). Human resource
management. (2nd ed.). Boston: McGraw-Hill Irwin.
Schermerhorn, J. R., Hunt., J. N., & Osborn, R. N. (2005). Organisational

behaviour. USA: Wiley.
Snell, S., & Bohlander, G. (2007). Human resource management. Mason, Ohio:
Thomson South Western.
Wiesner, R. & Millet, B. (2003). Human resource management. Challenges and

future directions. Sydney: Wiley.
Yusof, A. A. (2003). Performance appraisal: issues, challenges & prospects. Kuala

Lumpur: Pearson Prentice Hall.

MODULE FEEDBACK
MAKLUM BALAS MODUL
If you have any comment or feedback, you are welcome to:
1. E-mail your comment or feedback to modulefeedback@oum.edu.my
OR
2. Fill in the Print Module online evaluation form available on myVLE.
Thank you.
Centre for Instructional Design and Technology

(Pusat Reka Bentuk Pengajaran dan Teknologi)
Tel No.: 03-27732578
Fax No.: 03-26978702

BBNP4103 Performance Appraisal

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

BBNP4103 Performance Appraisal

Hochgeladen von

Copyright:

Verfügbare Formate

BBNP4103

Copyright © Open University Malaysia (OUM)

Module Writer: Assoc Prof Dr Sarminah Samad

Moderator: Ling Ching Nee

Developed by: Centre for Instructional Design and Technology

Printed by: Meteor Doc. Sdn. Bhd.

First Edition, August 2008

Copyright © Open University Malaysia (OUM), December 2013, BBNP4103

Copyright © Open University Malaysia (OUM)

Topic 1 Introduction to Performance Appraisal 1

Topic 2 Performance Appraisal Process 19

Copyright © Open University Malaysia (OUM)

2.2.7 Determination of the Relevant Appraisal Content 24

Topic 3 Performance Appraisal Planning 37

Copyright © Open University Malaysia (OUM)

Topic 4 Designing and Implementing a Performance Appraisal System 49

Topic 5 Performance Appraisal Implementation 74

Copyright © Open University Malaysia (OUM)

5.4 Psychological and Sociological Aspects of Performance 92

Topic 6 Performance Appraisal Decisions 96

Topic 7 Relationship between Performance Appraisal Systems and 117

Copyright © Open University Malaysia (OUM)

7.4 Relationship between Performance Appraisal and 133

Topic 8 Issues and Challenges 139

Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

COURSE GUIDE DESCRIPTION

Copyright © Open University Malaysia (OUM)

Table 1: Estimation of Time Accumulation of Study Hours

Topic 1 introduces learners to the concept and importance of performance

Copyright © Open University Malaysia (OUM)

Topic 2 discusses the activities involved in the process of performance appraisal.

Topic 3 explains the main objectives of performance appraisal. It relates

Topic 4 touches on setting the criteria for performance measurement. It

Topic 7 will highlight the relationship between performance appraisals and

Topic 8 focuses on some issues and challenges in performance appraisal. Seven

Copyright © Open University Malaysia (OUM)

TEXT ARRANGEMENT GUIDE

Self-Check: This component of the module is inserted at strategic locations

Activity: Like Self-Check, the Activity component is also placed at various

Copyright © Open University Malaysia (OUM)

References: The References section is where a list of relevant and useful

Armstrong, M. (2002). Performance management. United Kingdom: Kogan Page.

Brockner, J. (2002). Making sense of procedural fairness: How high procedural

DeCenzo, A. D., & Robbins, P. S. (2005). Fundamentals of human resource

Dessler, G. (2003). Human resource management. New Jersey: Pearson.

Dessler, G. (2005). Human resource management. New Jersey: Pearson Prentice

Heneman, R. L., & LeBlanck, P. V. (2003). Work valuation addresses

Ivancevich, J. M., (2001). Human resource management. New York: McGraw-

Copyright © Open University Malaysia (OUM)

Ivancevich, M. J., & Hoon, L. S. (2002). Human resource management in Asia.

Kumar, K., & Thibodeaux M. S. (1990) Organisational politics and planned

Latham, & Wexley (1994). Human resource in organisation development and

Milkovich, T. G., & Newman, M. J. (2005). Compensation. New York: McGraw-

Murphy, R. K., & Cleveland, J. N. (1995). Understanding performance appraisal.

Schermerhorn, J. R., Hunt., J. N., & Osborn, R. N. (2005). Organisational

Wiesner, R. & Millet, B. (2003). Human resource management: Challenges and

Yusof, A. A. (2003). Performance appraisal: Issues, challenges & prospects. Kuala

TAN SRI DR ABDULLAH SANUSI (TSDAS) DIGITAL

Copyright © Open University Malaysia (OUM)

1.1 PERFORMANCE APPRAISAL

Figure 1.1: Performance appraisal is related to an organisation's long-term success