Meaning, Objectives, Process and Limitations of Performance Appraisal

 Table of Contents:

Performance Appraisal Meaning

Performance appraisal is a tool that is used to evaluate the employee’s performance at the workplace. This generally includes quantitative and qualitative dimensions of an employee’s job performance. Performance can be defined as the level of work achievement. It simply represents how successfully an individual satisfies the job requirements. Performance can be evaluated based on outcomes.

For example, an athlete applied great effort while preparing for the race but he didn’t perform well. These types of cases show that efforts applied are of high value but the result is low.

Immediate supervisors, subordinates, customers being served and even self-appraisal and computer can evaluate the performance of an individual.

Objectives of Performance Appraisal

Objectives of performance appraisal are as follows: 


1) Providing Feedback: 

The main objective of performance appraisal is to provide feedback to its employees. Through this process, the individual learns how he performed during the past twelve months. Then, he can utilise this information for improving his performance in future. Thus, performance appraisal aims to ensure that the expectations of managers are adequately communicated to employees.

2) Facilitating Promotion and Downsizing Decisions:

Performance appraisal helps in making decisions regarding promotion and downsizing so that efficient employees can be retained and low performers can be removed.

3) Motivating Superior Performance:

Performance appraisal also helps in stimulating people for rendering superior performance in several ways. Firstly, it helps in understanding what an organization means by being “superior”. Secondly, as most people desire to be treated as superior performers, the performance appraisal process helps them to understand their actual performance. Lastly, performance appraisal motivates employees to become superior performers.

4) Setting and Measuring Goals:

Goal establishment has been confirmed as a management process that produces advanced performance. The 360 degree performance appraisal process generally ensures that every individual set and attains valuable goals.

5) Determining Compensation:

The concept of performance pay is generally followed by every organisation. Performance appraisal helps to ensure that those good performers are paid more. Thus, employees are awarded as per their performance

6) Counselling Poor Performers: 

Everyone can’t meet the standards of the organisation. Performance appraisal pressurises managers to deal with those who are not fulfilling the organisational expectations.

7) Encouraging, Coaching and Mentoring: 

Managers are supposed to be good coaches for their subordinates and mentors for their trainees. Performance appraisal determines the need for coaching and motivates managers to play an active role as coaches.

8) Supporting Manpower Planning:

Well-groomed organisations frequently evaluate their to ensure that they have the required talent. Organisations need to find out their most effective employees They also need to locate the departments having talented employees and those that are lagging behind. Performance appraisal provides the organisation with a tool to ensure that they are having that creative strength which is needed in future.

9) Determining Training and Development Needs: 

With the help of data obtained from performance appraisals, training and development experts can better decide the areas where an organisation should focus its training efforts.

10) Validating Hiring Decisions: 

Once the performance of newly selected employees is evaluated, only thin an organisation can determine whether or not they have selected the right candidate. 

11) Providing Legal Defensibility for Personnel Decisions:

More or less every personnel decision, whether termination, denial of a promotion or transfer to another department, is governed by legal inspection. If any of these decisions are challenged, the organisation could also be challenged. Therefore, the organisation must be capable of justifying that the decisions taken were not established on any personal issue or any other protected aspect. A strong record of performance appraisals deeply assists in legal defensibility, when any complaint about biasness is made.

12) Improving Overall & organisational Performance: 

Overall improvement of organisational performance is one of the most important purposes for which performance appraisal is being used in organisations. Performance appraisal helps in conveying the organisational expectations to all team members and evaluates how each employee is performing his job. When an employee is aware of what is being expected from him and how he is performing his work against those expectations, then ultimately this leads to enhancement in the success of an organisation.

Process of Performance Appraisal

Performance Appraisal includes various steps as shown in the figure :

Process of Performance Appraisal

1) Establish Performance Standards with Employees:

The process of performance appraisal starts with the formation of performance standards, according to organisational planned goals. These standards should be derived from the organisational strategic decisions, particularly from job analysis and job description. These standards should be easy to understand so that they can be easily evaluated and comprehended. 

Generally, these standards are expressed with confusing remarks that one understands little such as “a full day’s work” or “a good job”. It is difficult to understand what is a full day’s work or a good job. A manager should have a clear-cut picture in his mind of what he expects from his employees. Thus, he would be able to convey these expectations to the employees in future and evaluate their performance as per these standards.

2 Mutually Set Measurable Goals:

After the formation of standards, the most important thing is to communicate the expectations so that an employee would not waste his time assuming what is being expected from him. Many jobs have ambiguous performance standards and the problem occurs when these standards are set individually without any discussion with employees. Only the transfer of information from manager to employee cannot be termed as communication because communication is a two-way process.

3) Measure Actual Performance:

Measurement of actual performance is the following phase of the appraisal process. To measure actual performance, it is important to gather information about it. Managers should be aware of what is to be measured and how. There are four common sources of information that are often applied by managers to evaluate the actual performance of employees. These sources are statistical reports, personal observations, and oral and written reports. 

Every source has its own limitations and benefits. However, a group of these sources will increase the number of input sources and the possibility of collecting accurate information. What is being measured is more difficult to evaluate as compared to how it is being measured. Selecting the wrong criteria may result in severe results. What is to be measured indicates, what people have to achieve to excel in the organisation.

4) Compare Actual Performance with Standards:

The next step involves the comparison of standards with actual performance. This step involves the identification of variations between the standard performance and the actual performance to proceed further.

5) Discuss the Appraisal with the Employee:

During this phase, the appraiser discusses the concept of appraisal with the employee. For managers, the most difficult job is to provide a precise appraisal to the employee. The review of performance appraisal affects an employee’s self-esteem and most importantly his performance.

Certainly, giving positive feedback is comparatively easier for both the appraiser and the employee than giving negative feedback. The appraisal may have both positive and negative outcomes.

6) If Necessary, Take Corrective Actions:

The last phase of the appraisal process includes taking corrective actions wherever needed. These actions could be immediate or basic. Immediate actions deal mostly with the symptoms. These actions are frequently regarded as putting out fires as they deal with urgent problems. 

They rectify the problems immediately and smoothen the flow of work. On the other hand, basic actions deal with the causes of the problem. These actions cover the reasons for fluctuation and aim at controlling the variations forever. 

They diagnose how and why the performance fluctuates. In some cases, appraisers may give a reason that due to a shortage of time, they did not take basic remedial actions. 

Hence, appraisers feel happy setting out fires. Efficient managers know that spending a short time evaluating the problem now, may save their time in solving the problem tomorrow.

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Features of performance appraisal

Features of Performance  appraisal are as follows :

1)  Evaluating Process: 

Performance appraisal identifies the employee’s performance level based on some predefined criteria and tries to develop a future improvement plan.

2) Organised Process:

Performance appraisal is an organised process that has the following three steps:

  • Deciding performance standards.
  • Providing feedback so that employees can remove errors and enhance their performance in due course of time.
  • Comparing the actual performance of employees with performance standards.

3) Periodic Process: 

Performance appraisal is performed at regular intervals as per the specified requirement. It is not a one-time process. These cycles can be large or small, depending on the requirement.

4) Futuristic :

Performance appraisal focuses on the future instead of focusing on the past. It identifies and indicates the areas where employees are lagging and helps employees to produce the best results by appropriately utilising their capabilities.

5) Develops Employees:

Performance appraisal also emphasises the overall development of employees. It guides managers to act like coaches rather than judges. It helps in identifying the issue for discussion, removes any significant problems, and determines new goals for purpose of attaining high performance.

6) Identifies employee’s potentialities:

Performance appraisal determines the capability of employees to perform the allocated job effectively.

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Need for Performance Appraisal

 The need for performance appraisal is as follows :

1) It is required to inform the employees about the criteria being used by the organisations to decide the productivity and utility of employees in the organisation

2) It is required in an organisation to evaluate the achievements and failures of employees related to their work

It also helps the employees to know their position in the opinion of their supervisor and organisation.

3) Performance appraisal help employees to be motivated and become more efficient in their work. It provides them with a summary of their past performance which helps them in planning their future in a better way

4) It helps to recognise personality differences because each person differs in personality and has different situational, psychological, physiological and social traits.

5) Performance appraisal helps to identify the strengths and weaknesses of an employee. Consistent appraisal makes this information easily available during allocating new assignments. Knowing the strengths and weaknesses also helps the management in effectively selecting the right employee for the right team, which is necessary for effective management.

Limitations of Performance Appraisal

Performance appraisal is a tool that is used to estimate employees’ performance at the workplace. This generally includes qualitative and quantitative dimensions of employees’ job performance. In this context, performance is described as the level of work achievement. It generally represents how successfully someone fulfils the job requirements.

Limitations and constraints of performance appraisal are as follows:

1) Rating Errors: Positive or negative deviations in ratings of performance appraisal which affect its accuracy are termed rating errors. The common rating errors are given as follows:

 i) First Impression Error: It occurs when a manager forms a positive or negative image of an employee based on a first impression and keeps it in mind for future judgements as well. It is also known as primacy or primary effect. 

For example, a new boss finds that a worker is not performing properly. The reason behind this was that his parents had recently died in a mishap. In a month, the employee became normal and began giving high-level performance but the manager’s opinion did not change as it was negatively influenced by the first impression.

ii) Halo Effect: It takes place whenever a person who is rating gives too much importance to a particular factor of performance and gives identical ratings to other performance factors as well. 

For example, if an employee is always the first one to reach the office and the last one to leave the office, he is considered to be very creative and industrious. Whereas a worker with a  relaxed body language and casual attitude would not be taken seriously and would not be trusted. These two judgements that have been taken by a manager are based on the halo effect and might not be accurate as the manager has taken into account only a single obvious characteristic of the employees. Such judgements should be carefully examined as a single trait cannot define the character and performance of an employee.

iii) Leniency or Strictness: Many managers rate their subordinates equally either high or low. These are known as leniency or strictness errors. The strict manager gives lower ratings to what an employee is entitled to. While the lenient manager gives a higher rating than the entitled. 

For example, Ramesh gave higher ratings to all his employees than what they deserved because he feels that this will motivate them to perform better and they will put all their efforts to fit with the rating being given to them.

iv) Central Tendency Bias: Some managers play a safe game by providing average ratings to all the employees. It could be performed with the idea to averse the need for valid scoring across two ends. The reason behind this is that several systems want the managers to mention additional remarks when they assign too high or too low ratings to employees.

v) Recency Bias: Recent actions have the tendency to surpass the overall performance. Generally, people have a short memory. 

For example, an employee acted strongly and very well over the years, but due to some inevitable situations in the last few weeks, his performance level went downwards. As a result, his supervisor gave him a bad rating based on his last few week’s performances and ignored his eleven months’ superior performance. This is termed a recency error. Recency error can be reduced to a large extent if a manager maintains a record of his performance throughout the year then.

vi) Stereotyping: Stereotyping refers to making a general image regarding the characteristics (which are usually wrong) of all members of a group. This impedes a manager’s ability to take correct decisions. 

For example, Suresh is an introvert but an outstanding salesman and his manager underrates his performance as compared to the other salespersons because he does not fit with them. The manager here ignored his performance due to stereotyping and made an inaccurate judgement.

vii) Contrast Effect: Contrast effects state something drastically different (highest or lowest). will overstate the difference. 

For example, in an interview when there are large numbers of job applications, distortion in the evaluation of any candidate may occur based on the place of his application. If a person’s application is placed after a relatively weak candidate, he may immediately catch the attention of the interviewer whereas another candidate may lose his charm, if his application is placed after a very strong candidate. 

Another example of the contrast effect is that after rating an excellent performer, the manager begins to rate a good performer. But due to contrasting effects, the boss will find significant differences in their productivity, performance, and aptitudes and therefore will rate him as an average performer. Hence, the contrast effect plays a very negative role in the manager’s decision making.

viii) Personal Bias: Sometimes unfair evaluation occurs due to various reasons like attitudes, experiences, personal beliefs,  assumptions,  preferences, and deficiency of accepting any particular individual, class, or fact. Everyone experiences such biasness while taking day-to-day decisions about people, things, etc. Differentiating people based on race, religion, age, sex, etc., and assuming that a particular person is not suitable for a specific job, is an example of personal bias. If a manager believes that men are rational and women are emotional, then he will not select a female candidate for a job, which requires practical decisions. Another assumption is that people believe that young employees are more efficient than ageing employees. This may result in giving a lower efficiency rating to the older worker as compared to young workers.

ix) Spillover/Past Performance Effect: It simply means the previous performance rating is affecting the current rating, irrationally. 

For example, Vijay was awarded as a star performer the last year as he got the highest rating. This year his performance was not up to the mark even then he was rated as a star performer, based on the previous record.

x) Similar-to-Me Effect: It is the nature of supervisors to give higher ratings to those employees whom they believe have qualities or qualifications similar to their own. 

For example, those employees whose children go to the same school as their managers, get high-performance ratings as compared to those employees whose children go to other schools.

xi) Attribution Error: It is the inclination to determine the behaviour of people according to personal factors while ignoring situational factors. 

For example,   A manager has both good and average employees in his team. But he gives the credit for success only to his own leadership qualities and blames the laziness and bad attitude of employees for failure.

2) Poor Appraisal Forms: Various factors related to appraisal forms affect the whole appraisal process:

i) Ambiguous rating scale.

ii) Vital dimensions of job performance may be ignored by the rating form. 

iii) Various irrelevant performance dimensions are involved in rating forms.

iv) Forms may be lengthy and complicated.

3) Lack of Rater Awareness: It can be possible that raters may not be correctly skilled to execute performance management exercises. Then it becomes a great barrier for a rater having inadequate specialisation in a particular area, to assess the technical capabilities of a rate. The raters may not have plenty of time to execute the appraisals in an organised manner and to hold a proper review session. At times, the raters may not be skilled enough to perform the assessments due to poor self-confidence and bad self-image. Appraisers may also, get puzzled due to ambiguous objectives of appraisals.

4) Ineffective Organisational Policies and Practices: Raters get demotivated if they do not get a correct appreciation for their evaluation. Frequently, low ratings given by raters are taken by management as a negative sign of malfunction on the part of the rater or a signal of employee dissatisfaction. Thus, most of the employees obtain good ratings, despite their poor performance. Generally, the rater’s immediate senior must appreciate the ratings. However, practically, it does not occur. Therefore, the rater becomes upset and produces comprehensive harm to the rating process.

5) Inflationary Pressures: It is a special case of low discrimination in the upper limit of the rating decisions. These pressures are regular in occurrence. Due to the increasing importance of equality principles and fear of revenge from unhappy employees, who did not receive fair reviews, the appraisal process has become quite lenient and firm. Harmful consequences from the appraisal process can be minimised by usually inflating or modifying appraisals. Thus, inflating the assessments has created a tough situation for organisations to defend their own actions while discharging an employee.

Limitations of Performance Appraisal

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