Assignment

Performance Appraisal

A performance appraisal (PA) is a systematic and periodic process that assesses an individual
employee’s job performance and productivity in relation to certain pre-established criteria and
organizational objectives.

According to Michael R. Carrell and Frank E. Kuzmits

“Performance appraisal is a method of evaluating the behavior of employees in the work spot,
normally including both the quantitative and qualitative aspects of job performance”.

To collect PA data, there are two main measures:

 Objective Measures
 Subjective Measures

Performance
Appraisal

Objective Measure Subjective Measure
-Production Measure
-Ranking
-Sales Measure
-Graphic Rating Scale
-Personnel Data
-Paired Comparison
-Forced Distribution
-BARS
-Behaviorally Obsrvation
Scale(BOS)
-Weighted Checklist

Figure: Methods of Performance Appraisal

1

Objective Measure:

Measure an employee’s job performance in terms of things we can see and count with no use of
opinions

 Production measures: count units produced by an employee

 Sales measures: count the sales ($) of an employee

 Personnel data: count things in the employee’s personnel file

Examples:

 Number of times late to work

 Number of times absent

 Number of disciplinary actions taken

Subjective Measure:

In this type of measurement, the employee’s behaviors are measured for performance evaluation.

Examples for a retail store manager:

 Good attendance

 Completes management reports correctly & on time

 Monitors customers and employees for theft

 Coaches employees to welcome customers to the store & offer assistance
within 3 minutes, and to thank customers as they leave

 Conducts regular sessions with employees to develop teamwork

2

There is another approach of classification based on the ratee(s) involved with the appraising
process. On the basis of such classification, there are two types of performance appraisal
techniques:

• Essay
Individual •
•
Critical Incident
Weighted Checklist
Evaluation • Graphic Rating Scale
• BARS
Methods • MBO

• Performance Ranking
Multi-person • Paired Comparison
• Forced Distribution
Evaluation
Methods

Figure: Classification of Performance Appraisal Methods

3

Management By Objectives (MBO) Method:
MBO is a method of performance appraisal in which managers or employers along with their
subordinates set a list of objectives and make assessments on their performance on a regular
basis, and finally make rewards based on the results achieved. This method mostly cares about
the results achieved (goals) but not to the ways how employees can fulfill them.
The concept of management by objectives is actually the outcome of the pioneering works of
Drucker, McGregor and Odiorne in management science. Management by objectives can be
described as “a process whereby the superior and subordinate managers of an organization
jointly identify its common goals, define each individuals' major areas of responsibility in terms
of results expected of him and use these measures as guides for operating the unit and assessing
the contributions of each of its members”. MBO thus represents more than an evaluation
programme and process. Practicing management scientists and pedagogues view it as a
philosophy of managerial practice; it is a method by which managers and subordinates plan,
organize, control, communicate and debate.Goals can be both objective and subjective.
Example goals (some of many) for a retail store manager:
 Objective: Sales goal for year = $2 million
 Subjective: Customer satisfaction goal
Process:
 At the beginning of the review period, the employee and the supervisor meet and they
agree on a set of goals to be achieved by the employee during the review period
 Review period is typically one year, but could be more often
 Apply the goal setting principles:
 Involve the employee in goal setting
 Goal should be SMART.
 Empower employees to achieve their goals
 Throughout the review period, progress toward the goals is monitored
 Employee’s supervisor should be providing coaching to help the employee achieve
his or her goals
 At the end of the review period, the employee and the supervisor meet to evaluate the
extent to which each goal was achieved and to set new goals for the next review
period

4

Critical Incident Method:

This format of performance appraisal is a method which involved identifying and describing
specific incidents where employees did something really well or that needs improving during
their performance period.

This method was developed by Flanagan during World War II (Director of the Division of
Aviation Psychology, United States Army Air Forces).
He described critical incident technique as a set of procedures used to collect observations of
human behavior. These observations are used to solve practical problems and develop
psychological principles.

Example:

An example of a good critical incident of a sales assistant is the following:

July 12 – The sales clerk patiently attended to the customers complaint. He is polite, prompt,
enthusiastic in solving the customers' problem.

On the other hand the bad critical incident may appear as under:

July 21 – The sales assistant stayed 45 minutes over on his break during the busiest part of the
day. He failed to answer the store manager's call thrice. He is lazy, negligent, stubborn and
uninterested in work.

After having the critical log file of both good and bad incidents (recorded by supervisor) of the
employee, the employee is aided in understanding where his or her performance was good or
bad, and how to improve that performance.

5

Checklist Method:

In this style, performance appraisal is made under a method where the jobs being evaluated
based on descriptive statements about effective and ineffective behavior on job.

Example:

Based on elements of job performance, we can design questions for an employee as follows (for
example)

Table: Table of checklist

No. Questions Yes No
1 Employee works overtime
when asked to
2 Employee keeps work station
well organized
3 Employee listens to advice but
seldom follows it
4 Employee cooperatively assists
coworkers who need help
5 Employee plans actions before
beginning work

• Send this form to employees for answer (tick yes or no).
• Identify result by summarizing all the frequencies of yes or no answers.

6

Paired Comparison Analysis:

This form of performance appraisal is a good way to make full use of the methods of options.
There will be a list of relevant options. Each option is in comparison with the others in the list.
The result will be calculated and then such option with highest score will be mostly chosen.

For all possible pairs of employees, subjectively decide which employee is better.

Example:

Suppose there are five employees (A,B,C,D and E) to rate. In the paired comparison method, we
have to make a chart, as in the following chart, of all possible pairs of employees for each . Now,
we consider a trait (quality of work) for comparing employees with each other. Then indicate
(with a + or a -) who is the better employee of the pair. Next, add up the number of +’s for each
employee.

As Compared A B C D E
to
A + + - -
B - - - -
C - + + -
D + + - +
E + + + -

Here, employee B ranks highest here. At the same way we will rank every employee considering
different traits such as creativity, quantity of work etc.

7

Graphic Rating Scale:

This format is considered as the oldest and most popular method to assess the employee’s
performance.

A scale that lists a number of traits and a range of performance for each is called graphic rating
scale. The employee is then rated by identifying score that best describe his or her level of
performance for each trait.

Example:

There is an employee to be rated based on six different traits with range (the level of
performance for each trait).

8

Table: Typical Graphic Rating Scale

Employee Name................... Job title .................

Department ......................... Rate ...............

Data ..................................

Scales 1 2 3 4 5
Traits Unsatisfactory Fair Satisfactory Good Outstanding

Quantity of work: Volume 
of work under normal
working conditions
Quality of work: Neatness, 
thoroughness and accuracy
of work Knowledge of job
A clear understanding of the 
factors connected with the
job
Attitude: Exhibits 
enthusiasm and
cooperativeness on the job
Dependability: 
Conscientious, thorough,
reliable, accurate, with
respect to attendance,
reliefs, lunch breaks, etc.
Cooperation: Willingness 
and ability to work with
others to produce desired
goals.

From the graphic rating scales, excerpts can be obtained about the performance standards of
employees. For instance, if the employee has serious gaps in technical-professional knowledge
(knows only rudimentary phases of job); lacks the knowledge to bring about an increase in
productivity; is reluctant to make decisions on his own (on even when he makes decisions they
are unreliable and substandard); declines to accept responsibility; fails to plan ahead effectively;
wastes and misuses resources; etc., then it can safely be inferred that the standards of the
performance of the employee are dismal and disappointing.

9

Essay Evaluation Method:

Under this method, the rater is asked to express the strong as well as weak points of the
employee's behavior. This technique is normally used with a combination of the graphic rating
scale because the rater can elaborately present the scale by substantiating an explanation for his
rating. While preparing the essay on the employee, the rater considers the following factors: (i)
Job knowledge and potential of the employee; (ii) Employee's understanding of the company's
programmes, policies, objectives, etc.; (iii) The employee's relations with co-workers and
superiors; (iv) The employee's general planning, organizing and controlling ability; (v) The
attitudes and perceptions of the employee, in general.

Behaviorally Anchored Rating Scales (BARS):

An appraisal method that aims at combining the benefits of narrative critical incident method and
quantified ratings is called behaviorally anchored rating scales (BARS).

This formatted performance appraisal is based on making rates on behaviors or sets of indicators
to determine the effectiveness or ineffectiveness of working performance. The form is the mix of
rating scale and the critical incident techniques to assess performance of the staff.

Process:

Process of BARS includes several steps:

 Write critical incidents
 Develop performance dimensions
 Scale the incidents
 Develop a final instrument

For example, we may evaluate a salesman’s performance by using BARS.

First of all, we have to write critical incidents such as a particular day’s behavior with customer
and the leaving of the customer from the shop in a huff as ineffective performance or an
exceptional process introduced by the employee for handling relatively angry customers as
effective performance.

10

Then from the critical log files, we have to group these incidents into some performance
dimensions:

• Customer assistance
• Skill in Bagging
• Skill in Monetary transactions
• Observational ability

Then, scale each category of dimension with different scale points. Finally, summing up the
scale points of every dimension for decision making.

Customer assistance
5 = Could be expected to volunteer to help customer and to walk with customer to location of
desired product
4 = Could be expected to walk with customer to location of desired product when asked for help
by customer
3 = Could be expected to tell and point customer to where the desired product is located when
asked for help by customer
2 = Could be expected to shrug shoulders and walk away when asked for assistance by customer
1 = Could be expected to hide from customers in the employee break-room

Performance Ranking Method:

The performance appraisal of ranking is used to assess the working performance of employees
from the highest to lowest levels.

Managers will make comparisons of an employee with the others, instead of making comparison
of each employee with some certain standards. Ranking employees from best to worst on a
particular trait, choosing highest, then lowest, until all are ranked.

11

Example:

Suppose there are 5 employees:

1. Abul
2. Babul
3. Rahim
4. Karim
5. Kalam

And the trait “creativity” on which we have to rank them using ranking method.

First of all, we have to list all subordinates to be rated. Then, on a form like the following,
indicate the employee who is the highest on the characteristic (creativity) being measure and the
one who is the lowest. Then, chose the next highest and the next lowest, altering between highest
and lowest until all employees have been ranked.

Highest Ranking Employee

1.---------------------------------------

2.---------------------------------------

3.---------------------------------------

4.---------------------------------------

5.---------------------------------------

Lowest Ranking Employee

12

360 degree performance appraisal:

In this type of performance appraisal, ratings are collected “all around” an employee, from
supervisors, subordinates, peers and internal or external customers. Employers generally use this
appraisal for employee’s development.

 360 degree measures manners and capabilities.
 360 degree improves such skills as listening, planning and goal-setting.
 360 degree concentrates on subjective areas, for example efficiencies of teamwork,
character, and leadership.
 360 degree supplies on the way others think about a specific staff.

360 degree appraisal has four components:

• Internal/external customers’ appraisal

• Subordinate’s appraisal

• Peer appraisal.

• Superior’s appraisal

Process:

Most 360 degree appraisal systems contain several common features. Appropriate parties-peers,
supervisors, subordinates and customers for instance-completes surveys on an individual. The
surveys often include items such as “returns phone call promptly”, “listens well”, “keeps an
employee informed” then compiled this feedback into individualized reports, just for the ratees.
They then communicate their appraisal with their supervisors as well as subordinates to share the
information they found is pertinent for self improvement.

13

Example:

Suppose, 360 degree appraisal method has been applied to a salesman to evaluate his or her
performance.

Rater: peers/ supervisors/subordinates/customers

Ratee: A Salesman

Table : Demo table for 360 degree appraisal survey

Measures of a salesman’s Need Could Benefit Capable and Role Model
Personality and Interest Significant from Effective
Improvement development
Extraversion(tendency to be
sociable)
Openness to
experience(disposition to be
imaginative &
Nonconforming)
Agreeableness(tendency to
be trusting, caring & gentle)
Conscientiousness(comprised
of achievements and
dependability)
Neuroticism (tendency to
exhibit anxiety, hostility etc)

14

Forced Distribution:

In this style of performance appraisal, employees are ranked in terms of forced allocations.

For instance, it is vital that the proportions be shared in the way that 10 or 20% will be the
highest level of performances, while 60 or 70% will be in the middle level and the rest will be in
the lowest level.

Evaluator must place a fixed percentage of employees in each performance category.

Example:
10% must be rated 5 = Excellent
25% must be rated 4 = Very satisfactory
45% must be rated 3 = Satisfactory
15% must be rated 2 = Unsatisfactory
5% must be rated 1 = Very unsatisfactory

Under forced distribution method, a certain number of employees always have been failed to
accomplish their targeted objectives.

15

Behavioral Observation Scales:

The method based on the scales of observation on behaviors is the one in which important tasks
that workers have performed during their working time will be assessed on a regular basis.

Evaluators rate the frequency with which an employee engages in specific behaviors

The instrument of BOS is ordinal scale questionnaires (usually 1-5, or 1-7 scale). The question
is related to the FREQUENCY of the GOOD or BAD BEHAVIOR. Note that higher score is
given to higher frequency good behavior. Lower score for higher frequency of bad behavior!.

On a list of possible employee behaviors, rate how often the employee engages in each behavior
using a rating scale where:
1 = almost never  5 = almost always

Example:

For example of a bus supervisor and his behavior with the passengers may be evaluated by
considering BOS. Questions (Good behavior as well as bad behavior) with scales may be as
follows:

Good Behavior:

“Thank you for your visits” to the passengers who completes the journey

1 (never) 2 3 4 5 (always)

Bad Behavior:

Show the "sad face" to the passengers

1 (always) 2 3 4 5 (never)

Finally, the total performance of an employee is the sum of the score of the questionnaire. Better
employee (better performer) is someone reaches higher score.

16

Compensation Determination

Definition
Employee compensation refers to all forms of pay going to employees and arising from their
employment. Direct financial payments include wages, salaries, incentives, commissions and
bonuses whereas financial benefits like employer-paid insurance and vacation. It has to main
components:

Indirect Financial
Payments

Direct Financial Employee
Payments Compensation

Figure: Employee Compensation

Different types of compensation include:

Base Pay
Commissions
Overtime Pay
Bonuses, Profit Sharing, Merit Pay
Stock Options
Travel/Meal/Housing Allowance
Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes

17

Establishing Compensation

Compensation will be perceived by employees as fair if based on systematic components.
Various compensation systems have developed to determine the value of positions. These
systems utilize many similar components including job descriptions, salary ranges/structures, and
written procedures.

The components of a compensation system include:

Job Descriptions
Job Analysis
Job Evaluation
Pay Structures
Salary Surveys
Policies and Regulations

Factors Influencing Pay
There are some factors that influence pay rates:

 Firm’s ability to pay
 Cost of living
 Union’s pressures and strategies
 Legal considerations
 Company policy
 Competitive strategy
 Equity

Equity here is of two kinds such as (1) internal equity and (2) external equity. Internal equity has
been established when the pay rate is equal for same level of designation among different
departments whereas external equity has been ensured when same level of payment existed for
the same level of designation among different companies in the same industry.

18

The process of establishing compensation while ensuring equity consists of five steps:

Conduct a salary survey of what other
employees are paying for comparable jobs.

Determine the worth of each job in your
organization through job evaluation.

Group similar jobs into pay grades.

Price each pay grade using wage curve.

Fine tune pay rates.

Figure: Establishing Compensation Rates

1. Salary survey
The salary survey is a survey that aimed at determining prevailing wage rates which
includes:
 Formal
 Informal
A good salary survey provides specific wage rates for specific jobs. Formal written
questionnaire surveys are the most comprehensive, but telephone surveys and newspaper
ads are also sources of information.
Employers use salary surveys in three ways:
Firstly, they use survey data to price benchmark jobs where benchmark jobs
refer to the jobs around which other jobs are arranged in order of relative
worth.
Secondly, employers typically price 20% or more of their positions directly in
their market place (rather than relative to the firm’s benchmark jobs).

19

Thirdly, the surveys also collect data on benefits like insurance, sick leave and
vacations to provide a basis for decisions regarding employee benefits.
Sources of salary survey:
There are some well established sources from which information regarding salary survey
can be collected. The sources are more or less the followings:

Sources of
salary survey

Self
Consulting Professional Government
conducted The Internet
firms Associations Agencies
surveys

2. Job Evaluation
A systematic comparison done to determine the worth of one job relative to another is
called job evaluation. Job evaluation eventually results in a wage or salary structure or
hierarchy. The basic principle of job evaluation is this: jobs that require greater
qualifications, more responsibilities and more complex job duties should receive more
pay than jobs with lesser requirements.

Job evaluation methods:
i. Ranking Method
ii. Point Method
iii. Factor Comparison Method
Ranking:
The method involves ranking each job relative to all other jobs, usually based on overall
difficulty.

20

There are certain steps to complete a job evaluation process using ranking method:
 Obtain job information
 Select raters and jobs
 Select compensable factors
 Rank jobs
 Combine ratings

Point method:
The job evaluation method in which a number of compensable factors are identified and
then the degree to which each of these factor present on the job is determined.

Factor comparison method:
A widely used method of ranking jobs according to a variety of skills and difficulty
factors, then adding up these rankings to arrive at an overall numerical rating for each
given job is called factor comparison method.

3. Group similar jobs into pay grades
Once the committee has used job evaluation to determine the relative worth of each job, it
can turn to the task of assigning pay rates to each job; however, it will usually want to
first group jobs into pay grades.
A pay grade is comprised of jobs approximately equal difficulty or importance as
established by job evaluation.

4. Price each pay grade-Wage Curves
The wage curve shows the pay rate currently paid for jobs in each pay grades relative
to the points or rankings assigned to each job or grade by the job evaluation.
The purpose of the wage curve is to show the relationship between (1) the value of
the job determined by one of the job evaluation method and (2) the current average
pay rate for your grades.

The figure in the next page presents an example. Note that it shows average pay rate on
the vertical axis and points in the horizontal axis. The wage curve has been drawn on the
basis of the relationship of both variables, i.e. the value of the job determined by one of
the job evaluation method and the current average pay rate for grades.

21

Figure: Wage Curve

22

5. Fine tune pay rates

The wage line usually anchors the pay rate for each pay range. The firm might then
arbitrarily decide on a maximum and minimum rate for each grade, such as 15% above
and below the wage lines.
Fine tuning involves (1) developing pay ranges and (2) correcting out of line rates.

Developing Pay Ranges:
Most employers do not just pay one rate for all jobs in a particular pay grade. Instead,
employers develop vertical pay (or rate) for each of the horizontal pay grades (or pay
classes)
 Flexibility in meeting external job market rates
 Easier for employees to move into higher pay grades
 Allows for rewarding performance differences and seniority

23

Correcting out of line rates:
The wage rate for a particular job may now fall well off the wage line or well outside the
arte range for its grade, as shown in the figure above. This means that the average pay for
that job is currently too high or too low, relative to other jobs in the firm. For underpaid
jobs, the solution is clear; raise the wages of underpaid employees to the minimum of
the rate range for their pay grade.

Pricing managerial and professional jobs
Pricing managerial and professional jobs involves some special issues. Managerial pay
typically consists of:
 Base Pay
 Short Term Incentives
 Long Term Incentives and
 Executive Benefits
Base pay includes the person’s fixed salary as well as, often guaranteed bonuses such as
“10% of pay at the end of the fourth fiscal quarter, regardless of whether the company
makes profit a profit. Short term incentives are usually cash or stock bonuses for
achieving short term goals. Long term incentives aim to encourage the executive to take
actions that drive up the value of the company’s stock and include things like stock
options; these generally give the executive the right to purchase stock at a specific price
for a specific period. Finally, executive benefits might include supplemental executive
retirement pension plans, supplemental insurance, and health insurance.
What determines executive pay?
For top executive jobs (especially the CEO), job evaluation typically has little relevance.
One recent study concluded that three main factors accounted for about two thirds of
executive compensation variance. They are:

1. Job complexity (span of control, degree of range),
2. Employer’s ability to pay (profit/rate of return) and
3. Human Capital(education, field of study, work experience)

The traditional wisdom is that company size and performance significantly affect top
managers’ salaries. In reality, CEO pay is set by the board taking into account a variety
of factors such as the business strategy, corporate trends and most importantly where
they want to be in a short or long term.

Competency based pay
We have seen that employees traditionally base a job’s pay rate on the relative worth of
the job. But, in case of competency based pay payment is based on performance rather
than job title s/he holds. Competency based pay means the company pays for the
employee’s range, depth and types of skills and knowledge, rather than for the job title he
or she holds.

24

In practice, competency based pay usually comes down to using one or both of two basic
types of pay programs.

Pay for knowledge:
Pay for knowledge pay plan reward employees for learning organizationally relevant
knowledge-for instance, Microsoft pays new programmers more as they learn the
intricacies of windows.

Skill based pay:
Skill-based pay tends to be used more for workers with manual jobs-thus; carpenters earn
more as they become more proficient at finishing cabinets.

Differences between traditional and competency based pay
The biggest difference between traditional and competency based pay is the following:

 Traditional job evaluation-based pay plans tie the worker’s pay to the
worth of the job based on the job description-pay here is more job
oriented.
 Competency based pay ties the worker’s pay to his or her competencies-
pay is more person oriented. Employees here are paid based on what they
know or can do-even if, at the moment, they don’t have to do it.

25

Competency based pay in practice
In practice, any skill/competency/knowledge based pay program generally contains five
main elements, which are listed as follows:
i. A system for defining specific required skills
ii. A process for tying the person’s pay to his or her skill level
iii. A training system that lets employees acquire the skills
iv. A formal skill competency testing system
v. A work design that lets employees move among jobs to permit work
assignment flexibility.

Conclusion
Developing a pay plan is as important in a small firm as a large one. Paying overly high
wages may be unnecessarily expensive, and paying less may guarantee inferior help and
high turnover. Furthermore, internally inequitable wage rates will reduce morale and
causes endless badgering by employees demanding raises. In it can be inferred that
necessary factors should be considered for establishing an effective pay plan.

26

References

Human Resource Management,12th edition,2011-2012,Gary Dessler, publishing as Printice
Hall,One Lake street,Upper Saddle River,New Jersey 07458,ISBN 10:0-13-509519-0.

Methods of Performance Appraisal,2012, collected from the website www.openlearnigworld.com

Techniques of Performance appraisal and its form, 2012, collected from the website
www.humanresources.hrvinet.com

Performance Appraisal Tool, 2012, collected from the website www.hronline.com

27

Assignment

More Related Content

What's hot (11)

Similar to Assignment (20)

Assignment