Performance Appraisal

In an increasingly competitive global market place, organizations are dedicated to continual individual and organizational improvement. Performance appraisal is considered to be an important tool in accomplishing this improvement. In a study conducted by the American Productivity and Quality Center and Linkage Incorporated several organizations declined to participate in performance appraisal research as they believed their performance appraisal system to be a source of competitive advantage. One executive compared the revealing of his organization’s performance management strategies to Coca-Cola supplying their recipe. (Grote 1999).

According to Dessler et al (1999, p.452), “Performance appraisal may be defined as a process that identifies, evaluates and develops employee performance to meet employee and organisational goals”.

Performance appraisal is an important function usually implemented by the human resource department within organizations. It is an important tool and assists with the execution of other human resource activities. Specifically performance appraisal can provide information which assists with promotion and salary decisions, allows plans to be made to correct work place behavior, reinforces good work place practices and provides a forum to review an employee’s career aspirations (Dessler et al 1999, p.452). Grote 2000 found that best practice organizations use the appraisal process to �establish and reinforce the importance of core competencies’. Some organizations have also used the appraisal process to implement performance related pay (PRP), where salary increases are allocated to reward high performing employees (Lewis 1998).

The appraisal interview can be a forum that allows the organisation to communicate core competencies that support the organisation’s current direction and strategies (Anonymous, HR Focus 2000). The interview can also assist building loyalty and trust between the appraiser and the appraised, employees can feel helped by their manager/supervisor and valued by the organisation (Holden 2000).

There are various methods used to conduct performance appraisals, many of which are outlined below.

The Comparative Standard method assesses employees by ranking them against each other; this is done by comparing employees on common factors. The best and worst employees are identified on each of the factors and the remainder of the employees is then ranked in between (Stone 1998, p.283). Despite the fact that using rankings to assess employee performance is one of the oldest methods it does have some fundamental problems. For example, while it may be easy to identify the best and worst performers it can be difficult to rate those in between; it is also only appropriate where there is a number of employees doing the same job (Stone 1998, p.283).

Absolute Standard appraisal systems attempt to overcome some of the problems associated with ranking employees by evaluating them independently. This method has various forms. It can be done in narrative format where the appraiser writes an essay style assessment of the employee. A critical incident approach uses the employees past behavior during certain incidents and rates that behavior on a scale. Also, it can be done using forced choice where predetermined behaviors are rated on a scale that gives specific behavioral examples of what constitutes good or poor performance. The appraisal is sometimes done using a forced distribution that has predetermined percentages for the number of employees ranked in each of the categories (Dessler et al 1999, p.456). Absolute Standards, provide goals for individual employees but do not put any pressure on them to compete with their peers. However, in using the critical incident approach appraisers can be prone to recency error where they focus on only very recent events and ignore the whole appraisal period. (Stone 1998, pp.283-285). Forced distributions does not allow for groups of employees to all be high performers or perhaps all low performers as it assumes a preset distribution (Dessler et al 1999, p.456).

A result approach commonly known as Management by Objectives (MBO) uses the appraisal interview to set performance objectives for the employee to achieve within the review period (Stone 1998, p.287). These objectives are usually set in consultation with the employee although are sometimes imposed by management. The achievement of the objectives is monitored on an on-going basis and it is important that they are measurable (Eunson 1994). In a recent UK finance industry study covering many aspects of the appraisal process, the researchers found that the way objectives were communicated, their scope, and the number of objectives contributed to the appraisees’ acceptance of them. Specifically, imposed objectives made the employees feel that it