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Performance Appraisal
Management > Performance Appraisal
Table of Contents
Abstract Keywords detailed rating scales that represent each of the important aspects of the job. No matter the method used, however, it is vital that the rating scales be anchored to objective, well-defined criteria of job success. This will help ensure that the performance appraisal system is not only accurate, but fair.

Overview
Uses for Performance Appraisal Information Job Analyses

Overview
There is an old saying that advises, if you do not know where you are going, you will never get there. Certainly, nowhere is this truer than in a business or organizational setting. From an employees perspective, knowing where one wants to go may mean wanting to do the things on the job that will help ensure a pay raise or promotion. From the organizations perspective, knowing where one is going may mean wanting to do the things that will improve its effectiveness and efficiency and, in general, help it become a high performing organization. However, neither the employee nor the organization can meet these goals unless they know how they are currently performing and can determine what changes must be made in order to improve overall performance. For the individual, this information usually comes in the form of feedback from a performance appraisal or review. Performance appraisal is the process of evaluating an employees work performance and providing feedback on how well s/he is doing, typically against some standard of performance for that job. Performance appraisal can also provide the organization with some of the information that it needs in order to make strategic decisions to help it succeed in the marketplace. Uses for Performance Appraisal Information Performance appraisal is one of the key functions of an organizations human resources department. Organizations use the data collected in performance appraisal systems for several purposes. Perhaps the most well known of these is to establish standards and an evaluation system that can be used to form the basis of judgments as to whether to reward employees for good performance or punish them for poor performance. For example, management might set an individual productivity target of manufacturing 200 widgets per day. Those who meet this standard might be given

Further Insights
Methods of Data Collection Rating Scales Management by Objectives (MBO) 360-degree Feedback

Issues
Pay-for-Performance Conclusion

Terms & Concepts Bibliography Suggested Reading

Abstract
Performance appraisal is the process of evaluating an employees performance and providing feedback. It is necessary not only for the individual to improve his/her performance on the job so that s/he can earn the rewards (e.g., money, prestige, power) for which s/he is working, but also important so that the organization can determine the degree to which its employees are contributing toward meeting strategic goals and objectives. There are many ways to judge an employees performance on the job ranging from objective performance data to global rating scales to more

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Performance Appraisal

Essay by Ruth A. Wienclaw, Ph.D.

Keywords
360-Degree Feedback Criterion Empirical Feedback Human Resources Job Analysis Management by Objectives (MBO) Pay for Performance Performance Appraisal Rating Return on Investment (ROI)

tasks are actually performed on the job, the standards to which these tasks need to be performed, and the knowledge, skills, abilities, and other characteristics necessary in order to adequately perform these tasks. Job analysis is the systematic, empirical process of determining the exact nature of a job, including: The tasks and duties to be done; The knowledge, skills and abilities necessary to adequately perform these; and The criteria that distinguish between acceptable and unacceptable performance. The results of a job analysis are typically used in writing job descriptions and setting standards for use in performance appraisals. Performance appraisals need to be based on the tasks that are actually required to be performed on the job rather than on some general impression of the performance of the employee. These tasks and the standards to which they must be performed are usually based on a solid job description based on an objective, thorough job analysis. Good job descriptions and the performance appraisals that are based on them are competency based, describing the job in terms of measurable, observable, behavioral competencies that the employee must demonstrate in order to perform the job well. For example, rather than saying that a salesperson needs to have good customer rapport, the employee would be required to do such things as greet the customer within 30 seconds of entering the store, immediately drop any tasks not directly related to helping customers in the store if a customer needs help, or any other requirement found to be important to good work performance as determined by the job analysis. The performance standards developed as a product of a thorough job analysis are then used not only to frame the performance appraisal criteria, but also to communicate to employees what kind of behavior will be rewarded (or not rewarded) by the organization. Performance appraisal data are then used to give the employee feedback on how well s/he is meeting the standards in order to encourage high performance.

a pay raise or bonus and those who do not might not receive a monetary reward or may be put on probation. Performance appraisal data are also used to provide the criterion information that is used to select new candidates for the job. For example, the results of a job analysis might tell management what tasks a production worker needs to perform on the job. This information is used in conjunction with performance appraisal data that provide information regarding the standards to which employees must be able to perform these tasks in order to develop criteria to be used in hiring new employees for the job. Another use for performance appraisal data is to provide objectives for organizational training programs. For example, if a department-wide performance appraisal finds that widget makers do not have the necessary skills to meet the organizations goal of 200 widgets per employee per day, the human resources department might design or contract for a training program that would teach line workers the skills necessary to be better able to meet this goal. Finally, performance appraisal data can provide management with the data needed to provide feedback to employees and to better control their behavior on the job. In most cases, both the employees and management would like to see improved performance on the job. From the employees perspective, improved performance can be the key to raises, bonuses, perks, and promotions. Such things can help them better meet their needs on the job or in other areas of their lives (e.g., a bigger house, recognition, status). Similarly, management would like to see improved performance because it helps to improve the effectiveness and efficiency of the organization, improves the return on investment for hiring and training, and helps the organization reach its strategic goals and become a high performing organization. Job Analyses Before an objective performance appraisal system can be developed, one must first perform a job analysis to determine what

Further Insights
Methods of Data Collection There are many sources of data that can be used in developing a performance appraisal system. For some jobs, empirical, quantitative data are available to objectively judge the quality of an employees work. For example, for production workers, one might use a combination of quantitative data such as the average number of widgets produced per hour, the amount of waste material produced as a byproduct of manufacturing that number of widgets, and the number of widgets produced that are within specification. In addition to objective production data, in some situations there are personnel data that are available that need to be taken into account when judging an employees performance. For example,
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Performance Appraisal

Essay by Ruth A. Wienclaw, Ph.D.

one might want to consider the number of days the employee was late to work, excessive days taken off, or other hard data that might be found in the employees personnel file that address the employees level of performance on the job. Although sometimes personnel data can be useful adjuncts when judging performance, they are typically not a substitute for more directly related data concerning performance. Of course, not every job can be neatly reduced to quantifiable data. Although one can judge the performance of manufacturing workers, for example, based on the number of widgets they produce per hour, such objective data are not available for every position. In the 21st century, an increasing number of employees are knowledge workers and deal in the realm of information and expertise rather than in the realm of tangible products. For example, although it is possible to collect data on the number of calls a technical support employee takes on a help line, this datum does not provide information on how difficult the problem was, how well it was solved, or how polite the employee was to the customer. As most of us who use technical support lines know, these are important pieces of information and are not captured in the easily collectible number of calls per hour statistic. To help management make better-informed decisions regarding an employees performance, it is often necessary to collect subjective, judgmental data regarding performance. An example of this kind of data collection instrument is the short survey that often pops up after an online interaction with a sales or support employee. Rating Scales There are many approaches to designing a rating scale to be used in performance appraisal. The simplest of these is the global rating scale in which each employee is given a single score which rates his/her overall performance. However, global ratings do not give the employee sufficient data for how to improve his/her performance. In addition, such scales are very prone to various kinds of rating error (see below). Therefore, many organizations develop rating scales based on job-related data and standards. One can use a job description, for example, to break out the major aspects of the job and then rate employees on each of these aspects. However, without well-defined standards for poor, acceptable, and outstanding performance, such rating scales can also be very subjective in nature and prone to rating errors. Behaviorally-anchored rating scales and mixed standards rating scales are two techniques that can be used to increase the objectivity of rating scales and link them to tangible, job-related criteria. Both these methods are based on the collection of critical incidents to discern between good and poor performance on the job. These critical incidents are used to anchor the rating scales and judge current employees against these criteria of success or failure on the job. As mentioned above, rating scales and other instruments that are used to collect subjective data can be easily affected by various rating errors. The most common of these are:

Halo error, Leniency error, and Central tendency error. The halo error (sometimes referred to as the halo/horn error depending on which direction the error is made) occurs when a manager or other rater judges a person in all aspects of job performance based on a single aspect of the job or, on whether or not s/he likes the individual. For example, if someone is seen as an excellent worker (or nice person) in general, the rater may overlook performance problems in the individuals work and rate him/her on all aspects of the job. The leniency error (sometimes referred to as the leniency/severity error) occurs when a rater tends to rate employees in general higher (or lower) than they would be if the rater had been objective. For example, some supervisors tend to be lenient in the ratings because they want to be kind to their employees and, as a result, rate them higher than they deserve. Similarly, some supervisors believe that everyone can always improve and, therefore, tend to rate their employees more severely than they objectively deserve. The central tendency error occurs when a supervisor tends to give ratings toward the middle of the scale believing that although the employees have room for improvement, they also do not deserve to be punished for their performance. Management by Objectives (MBO) It is important to evaluate an employees performance by measuring it against a predetermined standard or set of specific goals to be achieved during the appraisal period. Rating scales are one way to do this; another popular way is through a method called Management by Objectives (MBO). In MBO, the manager or the manager and employee together sets objectives for the employee to meet during the upcoming appraisal period. The employee is evaluated in terms of how well s/he has met these goals in the intervening period. MBO can be used not only to evaluate the performance of an individual employee, but also that of a workgroup, department, or the organization as a whole. Under this approach, organization-wide goals and objectives based on its strategic plan (e.g., increase company profits from the widget product line by $500,000 over the next year) are first set. Using this information, each department or workgroup then sets its own goals and objectives to support the organizations goals (e.g., increase sales of widgets in the Eastern Region by 10% over the next year). Managers and individual employees then discuss these goals and possible contributions that can be made by each individual and set specific, short-term goals (e.g., obtain 10 more customers per quarter; call on 5 more potential customers per week; include two more cities in the region), and individual objectives are set. Like rating scales, however, MBO is not without its drawbacks. One of the most frequent is the development of objectives that are either unclear or unmeasurable. For example, in the example

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Performance Appraisal

Essay by Ruth A. Wienclaw, Ph.D.

of good customer rapport, if there is no operational definition of the concept, then the objective is as open to rating error as a poorly written rating scale. Similarly, some objectives are unreasonable, such as the objective for a research scientist to develop a cure for cancer within the next year. Another difficulty with setting MBO objectives is that supervisors tend to set objectives that are too difficult to meet while employees tend to set objectives that are too easy to meet. 360-Degree Feedback To help ensure fair evaluations under a performance appraisal system, human resource policies or procedures are developed and implemented to help increase the objectiveness of the appraisal feedback or give the employee feedback from multiple sources. A technique called 360-degree feedback (because the feedback comes from people who work all around the employee, not just from one person working above him/her) gives employees feedback on their job performance from representatives of the major groups with whom they interact on the job both inside and outside the organization. Under 360-degree feedback, for example, employees may receive feedback not only from their supervisors, but also from their subordinates, co-workers, customers, and other groups with whom they work. By doing this, an employee receives more feedback than s/he would receive under the traditional supervisor-only appraisal system. This approach to feedback can also help neutralize biased opinions of one person by giving the employee and the supervisor and range of reactions to look at so that they can look at the preponderance of evidence rather than reactions from just one person and, in general, give the employee a better idea of how s/he can improve performance.

such a way that employees can achieve them. Second, employee performance ratings need to be directly tied to pay increases or awards so that employees can see a direct, positive consequence of their actions. In this way, employees are more likely to continue to perform at a level that will bring rewards. Third, fair pay for performance systems need to consider both the employees current salary and his/her contribution to the organization so that rewards for similar contributions are equitable. Finally, pay for performance systems needs to be clear and well-published so that employees know the basis on which decisions are made and what kind of awards are made across the organization (U.S. GAO, 2004). Conclusion Performance appraisal is one of the key elements of the human resources function within an organization. This process of evaluating an employees performance and providing feedback is necessary not only for the individual to improve his/her performance on the job so that s/he can earn the rewards (e.g., money, prestige, power) for which s/he is working, but is also important so that the organization can determine the degree to which its employees are contributing to meeting its strategic goals and objectives. Performance appraisal data can also be used for other purposes as well, including as inputs into training programs or to develop criteria on which to hire new employees. There are many ways to judge an employees performance on the job ranging from objective performance data to global rating scales to more detailed rating scales that represent each of the important aspects of the job. However, whenever a subjective rating method is used, it is vital that the rating scales be anchored to objective, well-defined criteria of job success. This will help ensure that the performance appraisal system is not only accurate, but fair.

Issues
Pay-for-Performance Performance appraisal tools and systems are not ends in and of themselves. Among the major purposes of performance appraisal are the ability to provide employees with measurable criteria of success on the job and to provide feedback on how they can improve their performance in order to better meet their performance goals and objectives. One of the ways in which performance appraisal data are frequently being used is to link pay to performance. Under this paradigm, an employee is rewarded financially for high performance and contributing to the organizations goals. Pay for performance systems can be used at all levels of the organization, including C-level personnel (e.g., Chief Executive Officer, Chief Operating Officer). The U.S. Government Accountability Office (GAO) has investigated the viability of pay for performance systems and has found a number of factors that make them successful. First, it is important to use objective competencies to assess the quality of the employees performance. As discussed above, this means that performance objectives need to be based on the empirical data developed through a thorough job analysis and be written in

Terms & Concepts

Criterion: A dependent or predicted measure that is used to judge the effectiveness of persons, organizations, treatments, or predictors. The ultimate criterion measures effectiveness after all the data are in. Intermediate criteria estimate this value earlier in the process. Immediate criteria estimate this value based on current values. Empirical: Describing theories or evidence that are derived from, or based on, observation or experiment. Feedback: Information a person receives about his/her behavior or its consequences. Human Resources: In general, human resources are any personnel employed by an organization or, the field of study related to recruiting and managing the organizations personnel. Human resources systems need to consider human resource planning; recruitment, hiring, and placement; training and development; wages, compensation, perquisites (perks); and employee relations.
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Performance Appraisal

Essay by Ruth A. Wienclaw, Ph.D.

Job Analysis: The systematic, empirical process of determining the exact nature of a job, including the tasks and duties to be done; the knowledge, skills and abilities necessary to adequately perform these; and the criteria that distinguish between acceptable and unacceptable performance. The results of a job analysis are typically used in writing job descriptions and setting standards for use in performance appraisals. Management by Objectives (MBO): An approach to performance appraisal in which the employee and his or her manager jointly set performance objectives for the coming appraisal period and then review the progress made toward accomplishing these at predefined times. The employees performance is evaluated in terms of how well s/he met the objectives previously determined. Operational Definition: A definition that is stated in terms that can be observed and measured. Pay for Performance: An incentive plan in which employees are rewarded financially for high performance and contributing to the organizations goals. Pay for performance plans are applicable to all levels within the organization. Performance Appraisal: The process of evaluating an employees work performance and providing feedback on how well s/ he is doing (typically against some standard of performance for that job). Perquisites (perks): Something given to the employee in return for work over and above regular pay or compensation. Perks may include such things as health insurance, a company car, or a private office. Return on Investment (ROI): A measure of the organizations profitability or how effectively it uses its capital to produce profit. In general terms, return on investment is the income that is produced by a financial investment within a given time period (usually a year). There are a number of formulas that can be used in calculating ROI. One frequently used formula for determining ROI is (profits costs) (costs) x 100. The higher the ROI, the more profitable the organization. Survey: (a) A data collection instrument used to acquire information on the opinions, attitudes, or reactions of people; (b) a research study in which members of a selected sample are asked questions concerning their opinions, attitudes, or reactions are gathered using a survey instrument or questionnaire for purposes of scientific analysis; typically the results of this analysis are used to extrapolate the findings from the sample to the underlying population; (c) to conduct a survey on a sample. 360-Degree Feedback: An approach to giving employees feedback on their job performance in which representatives the major groups working with the person them feedback on their performance. In 360-degree feedback, employees may receive not only feedback from their supervisors as in the traditional performance appraisal paradigm, but also from their subordinates, co-workers, customers, and other groups with whom they work.

Bibliography
Cascio, W. F. (1998). Applied psychology in human resource management (5th ed.). Upper Saddle River, NJ: Prentice Hall. Dessler, G. (2005). Human resource management (10th ed.). Upper Saddle River, NJ: Pearson Education/Prentice Hall. Landy, F. J. & Conte, J. M. (2004). Work in the 21st century: An introduction to industrial and organizational psychology. Boston: McGraw Hill. Muchinsky, P. M. (2003). Psychology applied to work (7th ed.). Belmont, CA: Wadsworth/Thomson Learning. U.S. General Accounting Office. (2004). Human capital: Implementing pay for performance at selected personnel demonstration projects. GAO Reports (GAO-04-83). Retrieved 27 March 2007 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/ login.aspx?direct=true&db=bth&AN=18173828&site=eh ost-live

Suggested Reading
Ahn, T. S., Hwang, I., & Kim, M.-I. (2010). The impact of performance measure discriminability of rate incentives. Accounting Review, 85 (2), 389-417. Retrieved 4 May 2010 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=true&db=bt h&AN=48750130&site=ehost-live Chan, H. S. & Gao, J. (2009). Putting the cart before the horse: Accountability or performance? Australian Journal of Public Administration, 68, S51-S61. Retrieved 4 May 2010 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=true&db=bt h&AN=36840029&site=ehost-live Cichello, M. S., Fee, C. E., Hadlock, C. J., & Sonti, R. (2009). Promotions ,turnover, and performance evaluation: Evidence from the careers of division managers. Accounting Review, 84 (4), 1119-1143. Retrieved 4 May 2010 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=tr ue&db=bth&AN=43251584&site=ehost-live Ellis, S., Mendel, R., & Aloni-Zohar, M. (2009). The effect
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Performance Appraisal

Essay by Ruth A. Wienclaw, Ph.D.

of accuracy of performance evaluation on learning from experience: The moderating role of after-event reviews. Journal of Applied Social Psychology, 39 (3), 541-563. Retrieved 4 May 2010 from EBSCO Online Database Academic Search Complete http://search.ebscohost.com/ login.aspx?direct=true&db=a9h&AN=36622676&site=eh ost-live Goffin, R. D., Jelley, R. B., Powell, D. M., & Johnston, N. G. (2009). Taking advantage of social comparisons in performance appraisal: The relative percentile method. Human Resource Management, 48 (2), 251-268. Retrieved 4 May 2010 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=tr ue&db=bth&AN=37267995&site=ehost-live Kaplan, S. E. & Wisner, P. S. (2009). The judgmental effects of management communications in a fifth balanced scorecard category on performance evaluation. Behavioral Research in Accounting, 21 (2), 37-56. Retrieved 4 May 2010 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=tr ue&db=bth&AN=43248470&site=ehost-live Kumar, M. J. (2009). Evaluating scientists: Citations, impact factor, h-index, online page hits and what else? IETE Technical Review, 26 (3), 165-168. Retrieved 4 May 2010 from EBSCO Online Database Academic Search Complete http://search.ebscohost.com/login.aspx?direct=tr ue&db=a9h&AN=40395847&site=ehost-live Lau, C. M., Wong, K. M., & Eggleton, I. R. C. (2008). Fairness of performance evaluation procedures and job satisfaction: The role of outcome-based and non-outcomebased effects. Accounting and Business Research, 38 (2), 121-135. Retrieved 27 April 2010 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=33751340 &site=ehost-live Narcisse, S. & Harcourt, M. (2008). Employee fairness perceptions of performance appraisal: A Saint Lucian case study.

International Journal of Human Resource Management, 19 (6), 1152-1169. Retrieved 27 April 2010 from EBSCO Online Database Business Source Complete http://search. ebscohost.com/login.aspx?direct=true&db=bth&AN=3274 4010&site=ehost-live Sholinhin, M. & Pike, R. (2009). Fairness in performance evaluation and its behavioural consequences. Accounting and Business Research, 39 (4), 397-413. Retrieved 27 April 2010 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?d irect=true&db=bth&AN=44723761&site=ehost-live Tan, H.-T. & Shankar, P. G. (2010). Audit reviewers evaluation of subordinates work quality. Auditing, 29 (1), 251266. Retrieved 4 May 2010 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/ login.aspx?direct=true&db=bth&AN=49128040&site=eh ost-live Varma, A. & Pichler, S. (2007). Interpersonal affect: Does it really bias performance appraisals? Journal of Labor Research, 28 (2), 387-412. Retrieved 27 April 2010 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=true&db=bt h&AN=25149624&site=ehost-live Williams, S. L. & Hummert, M. L. (1990). Evaluating performance appraisal instrument dimensions using construct analysis. Journal of Business Communication, 27 (2), 117-135. Retrieved 27 April 2010 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5765771& site=ehost-live Wren, B. M. (2006). Examining gender differences in performance evaluations, rewards and punishments. Journal of Management Research, 6 (3), 114-124. Retrieved 27 April 2010 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=tr ue&db=bth&AN=25175510&site=ehost-live

Essay by Ruth A. Wienclaw, Ph.D.

Dr. Ruth A. Wienclaw holds a Ph.D. in Industrial/Organizational Psychology with a specialization in Organization Development from the University of Memphis. She is the owner of a small business that works with organizations in both the public and private sectors, consulting on matters of strategic planning, training, and human/systems integration.
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