Performance appraisal (or evaluation) is the HRM activity used to determine the extent on which the

employees are performing the job effectively. Performance appraisal can be either • Informal, when
supervisors think about how well the employees are doing and • Formal, when there is a system set up by
the organization to regularly and systematically evaluate employee performance. In the following we are
referring to formal performance appraisal.

Why using performance appraisal?

• Developmental purposes: it helps to clarify the necessity and the effectiveness of the training programs;

• Reward purposes: helps in determining who should receive rewards and who should be laid off;

• Motivational purposes: stimulates effort to perform better;

• Legal compliance: it provides legally defensible reason for making promotion, transfer, reward and
discharge decisions;

• Human resource and employee planning purposes: it serves as a valuable input to skills inventories and
human resource planning;

• Compensation: helps to identify what to pay and what will serve as an equitable monetary package;

• Communication purposes: the rater and ratee get to know each other through communication;

• HRM research purposes: it can be used to validate selection tools, such as a testing program.

The 6 steps in performing evaluations

1. Establish performance standards for each position and the criteria for evaluation

In setting objectives to be followed by the employee to be evaluated, the following principles are to be met
(SMART objectives): • Specific • Measurable • Achievable (occasionally Agreed between line manager and
employee) • Results orientated • Time framed (with a set date for completion)

2. Establish performance evaluation policies on when to rate, how often to rate and who should
rate

When to rate. Usually, all employees are rated on / near the same date in a company.

How often to rate. In many companies there is one evaluation in a year. However, more and more
organizations shift to quarterly evaluations; this is convenient especially in fast moving organizations,
because a more frequent up-date of the objectives is possible.

Who should rate. There are several possibilities, such as

• Rating by a committee of several superiors,

• Rating by the employee’s peers (co-workers),

• Rating by the employee’s subordinates,

• Rating by someone outside the immediate work situation (seldom used),

• Self-evaluation,

but the most used evaluation is the appraisal by the superior. Sometimes a combination of the above
mentioned possibilities is also used.

3. Have raters gather data on employee performance

The raters collect information by observation, analysis of data and records, and discussion with the
employee. The data they gather are influenced by the criteria used for evaluation and by the technique used
for evaluation.

EVALUATION TECHNIQUES

A. Individual evaluation methods are those techniques when the standards of performance are defined
individually, without references to other person(s).

A 1. Graphic rating scale is the oldest and still most used method of evaluation. In this case the rater is
presented with a set of traits and is asked to rate the employee on each of them. The ratings can be
numeric (from 1 to 5 for example) or alphabetic (such as outstanding, good, satisfactory, fair and
unsatisfactory).

A 2. Forced choice is the technique when the rater must choose from a set of descriptive statements about
an employee. The method was developed to substitute graphic rating scales, as graphic rating scales
permits to evaluate all the employees high.

A3. Essay evaluation, in which the rater is asked to describe the strong and weak aspects of the employee’s
behavior. Usually, this method is used in combination with other methods.

A 4. Critical incident technique, a method according to which the rater maintains a log of behavioral
incidents that represent either effective or ineffective performance for each employee being rated. The
advantage of this method is that the results are less subjective, but this method needs more time to use
than the other techniques.

A 5. Checklists and Weighted Checklists. A checklist is a set of objectives or descriptive statements. If the
rater believes that the employee possesses a trait listed, the rater checks the item; if not, the rater leaves it
blank. A rating score from the checklist equals the number of checks. The method was further developed by
giving weights (from excellent to poor) to several objectives.

A 6. Behaviorally Anchored Rating Scales (BARS). The method was developed by Smith and Kendall. The
BARS approach relies on the use of critical incidents to serve as anchor statements on a scale. A BARS
rating form usually contains 6 to 10 specifically defined performance dimensions, each with 5 to 6 critical
incident anchors (both positive and negative). Employees prefer the using of this method instead of others,
as it seems that they become more committed, less tense and more satisfied than in case using other
methods.

A 7. Behavioral Observation Scales, developed by Latham and associates. Like BARS, the BOS uses the
critical incident technique to identify a series of behaviors that cover the domain of the job. The major
difference is that the rater should give under BOS how often the ratee has been observed engaged in the
specific behaviors identified in the BOS.
B. Multiple person evaluation techniques are those methods when the performance of one employee is
directly and intentionally compared with the performance of other employee.

B 1. Ranking – the case when the superior is asked to rank the subordinates based on some overall
criterion.

B 2. Paired comparison, used in case there are several subordinates to be ranked. Each employee is paired
with every person to be compared with. The rater chooses the better performing subordinate. The number
of times that a person is chosen as the better employee is tallied, and results are indexed based on this
number.

B 3. Forced distribution is the method similar to grading on a curve. The rater is asked to rate the
employees in some fixed distribution of categories, such as 10% in low, 20% on low average, 40% in
average, 20% in high average and 10% in high. Which evaluation technique to use? An exact answer can
not be given. The major problem is not with the techniques, but how they are used and by whom? The
responsibility of the rater and the seriousness of the rater are much more critical than which method to
choose.

4. Have raters (and employees in some systems) evaluate employees’ performance

Management by objectives

MBO is more than just an evaluation program and process. It is viewed as a philosophy of managerial
practice, a method by which managers and subordinates plan, organize, control, communicate and debate.
By setting objectives through participation or by assignment from a superior, the subordinate is provided
with a course to follow and a target to shoot for while performing the job.

POTENTIAL PROBLEMS WHEN CONDUCTING PERFORMANCE EVALUATIONS

A. Opposition to evaluation. Most employees are wary of performance evaluation. The most common fear is
that of rater subjectivity.

B. System design and operating problems. If the criteria for evaluation are poor, the technique used is
cumbersome, or the system is more form than substance, the design is blamed and the evaluation is worth
nothing.

C. Rater problems, such as:

• Problems with the standards of evaluation, which arises due to the perceptual differences in the meaning
of the words used to evaluate employees. Some teachers are easy “As”, others never give excellent
qualifications.

• The Halo Effect occurs when a rater assigns ratings on several dimensions of performance based on an
overall, general impression of the ratee.

• Leniency or harshness error. Some raters see everything good (lenient raters), other see everything bad
(harsh raters).

• Central tendency error – the tendency of the raters to assign average ratings for all the dimensions.

• Recency of events error – raters forget more about past behavior than current behavior.
• Contrast effects. At the individual evaluation techniques the performance of an employee is requested to
be rated independently of the performance of other employees. However, this is in some cases only theory.
For example, if the performance of an average colleague is evaluated after the evaluation of an outstanding
employee, the average employee can get low ratings.

• Personal bias error. The tendency to rate the preferred employees higher and those not preferred lower.

The rater errors, however, can be eliminated, or at least reduced. The recent observations show that
trainings for raters in order to develop their ability to observe, recall and report subordinate behavior lead to
improvement of employee evaluations. Others consider that the using of new methods, such as BARS, also
can contribute to better evaluation.

D. Employee problems with performance evaluations. The most common problem is that employees may
feel that the evaluations are unfair. In order to avoid this perception, it should be presented how difficult is
the evaluation of employees. The self evaluations can be a good method in achieving this aim.

5. Discuss the evaluation with the employee

The supervisor should hold an evaluation interview with each subordinate in order to discuss his or her
appraisal and to set objectives for the upcoming evaluation period. Experts advise that the employee
development and salary action discussions should not occur in the same interview.

There are three generally used approaches to these interview situations: tell and sell, tell and listen and
problem solving – the using of which depends mainly on the experience level of the employee.

The performance evaluation discussions should include

• Review of overall progress

• Discussions of problems that were encountered

• Agreement about potential performance improvement possibilities

• Discussion how current performance is in line with long term carrier goals

• Specific action plans for the coming year

6. Make decisions and file the evaluation