It is a systematic evaluation of an individual with respect to performance on the job and individuals potential for development.

It is the assessment of individuals performance in a systematic way. It is the development tool used for the all round development of the employee and organization.

Plan

Develop

Review

Perform

Assess

Companies can use performance appraisals to evaluate employees on how they fared against the goals and objectives set by their managers. Appraisals are also useful for setting expectations for the upcoming year. Small-business owners can use appraisals to recognize the extraordinary efforts of certain employees, while pointing out how they can improve.

Evaluation is about identifying performance gaps, while development is about filling in those gaps. Businesses can use performance appraisals as the basis for career development plans, including the identification of skills and training that employees would need to progress up the ranks in a corporate hierarchy. For example, if an employee needs to work on his time management skills, the employer could organize a training session for all employees who need help in organizational skills

Companies may also use performance appraisals to recognize outstanding employees. For example, employees with a consistent rating in the top five percent of their peer group might be placed in a management mentoring program and receive pay raises. . However, consistently under-performing employees may be demoted or terminated. Whenever possible, companies should provide written appraisals because formal records are important for preparing future appraisals and in legal procedures.

Appraisals can also be useful for gathering employee feedback. For example, companies sometimes ask employees if they are satisfied with their career development plans and what additional training they might need. This kind of feedback helps human resources and senior management with career planning.

The strength and prevalence of natural human desire for individual recognition should not be overlooked.
Performance appraisal provides employees with recognition for their work efforts. The power of social recognition as an incentive has been long noted. In fact, there is evidence that human beings will even prefer negative recognition in preference to no recognition at all.

Performance appraisal offers an excellent opportunity for a

supervisor and subordinate to recognize and agree upon individual training and development needs.

During the discussion of an employee's work performance, the presence or absence of work skills can become very obvious - even to those who habitually reject the idea of training for them.

How well are the employees performing who were hired in the past few years?
Appraisal data can also be used to monitor the effectiveness of changes in recruitment strategies. By following the yearly data related to new hires (and given sufficient numbers on which to base the analysis) it is possible to assess whether the general quality of the workforce is improving, staying steady, or declining.

Do not demoralize, motivate!

Though organizations have a clear right - some would say a duty - to conduct such evaluations of performance, many still recoil from the idea. To them, the explicit process of judgement can be dehumanizing and demoralizing and a source of anxiety and distress to employees.

PAST ORIENTED METHODS

Rating scales consists of several numerical scales representing job related performance criterions such as dependability, initiative, output, attendance, attitude etc. Each scales ranges from excellent to poor. The total numerical scores are computed and final conclusions are derived.

Regularity in the job

1
Extremely poor

10
Excellent

CHECKLIST
Under this method, checklist of statements of traits of employee in the form of Yes or No based questions is prepared. Here the rater only does the reporting or checking and HR department does the actual evaluation.
Example: Is the employee really interested in the task assigned? Yes/No Is he respected by his colleagues (coworkers) Yes/No Does he give respect to his superiors? Yes/No Does he follow instructions properly? Yes/No Does he make mistakes frequently? Yes/No

FORCED CHOICE METHOD

The series of statements arranged in the blocks of two or more are given and the rater indicates which statement is true or false. The rater is forced to make a choice. HR department does actual assessment.
Example: The employee maintains required level of productivity True / False Employee posses all skills required for carrying out the job True / False

COST ACCOUNTING METHODS

Performance is evaluated from the monetary returns yields to his or her organization.

Cost to keep employee, and benefit the organization derives is ascertained. Hence it is more dependent upon cost and benefit analysis.

OTHER METHODS
Field Review Method: This is an appraisal done by someone outside employees own department usually from corporate or HR department.

Performance Tests & Observations: This is based on the test of knowledge or skills. The tests may be written or an actual presentation of skills. Tests must be reliable and validated to be useful.

Ranking Methods: Superior ranks his worker based on merit, from best to worst. However how best and why best are not elaborated in this method. It is easy to administer and explanation.

Paired Comparison Methods: In this method each employee is rated with another employee in the form of pairs.

FUTURE ORIENTED METHODS

The performance is rated against the achievement of objectives stated by the management. MBO process goes as under.

Organizational Objectives reviewed

MBO for the next operating period begins

Employee objectives are set

Achievers Rewarded

Progress monitored

Performance Evaluated

Superiors

Customers

Employee

Suppliers

Peers

It is a technique which is systematic collection of performance data on an individual group, derived from a number of stakeholders like immediate supervisors, team members, customers, peers and self. This technique is highly useful in terms of broader perspective, greater self-development and multi-source feedback is useful. 360-degree appraisals are useful to measure inter-personal skills, customer satisfaction and team building skills. Multiple raters may be less adept at providing balanced and objective feedback.

The firm Euro Power Inverters employs 150 employees, out of which roughly 40% is on a contract basis. The firm does not have an HR department as it is an SME but is planning for the same, in the near future. Therefore, performance appraisal is undertaken by the top management itself.

Methods used:
A

rating scale is used to assess the performance of floor workers. The various parameters are time taken, productivity, efficiency, punctuality etc.
For

the sales staff, the 360 degree feedback system is used. Information is solicited from the peers and suppliers. Feedback forms are also used to better analyze the employees performance.

Performance appraisal is carried out, usually with the objective of determining promotion and training. The motivation levels more or less remain the same, however, if the appraisal is followed by a pay hike, a boost in performance is observed. The constraint faced sometimes is that, the employees think that management is partial in nature. Appraisals are highly subjective in nature and it is not necessary that the employee agrees with the managements views.

With rewards being directly linked to achievement of objectives, goal setting and Performance Appraisal assumes utmost importance. The implementation is the responsibility of each and every employee along with their supervisor. There should be adequate training to the evaluator that will go a long way in answering the quality of Performance Appraisal. A formal Performance review is important as it gives an opportunity to get an overall view of job performance and staff development. It encourages systematic and regular planning for the future. Good performance reviews therefore dont just summarize the past they help determine future performance. In conclusion, a Performance Appraisal is a very important tool used to influence employees.