Performance Appraisal

6.1 Purpose and Process

Performance appraisal systematically evaluates an employee's contribution to the organisation against pre-defined goals or competencies. It serves as the foundation for: salary increments, promotion decisions, training needs identification, and career planning.

Appraisal cycle: Set standards → Communicate standards → Measure performance → Compare actual vs. standard → Discuss results → Corrective action/rewards.

6.2 Appraisal Methods

Traditional Methods:

Method	Description	Limitation
Graphic Rating Scale	Rate attributes (quality, punctuality) on a scale 1–5 or 1–10	Most common; prone to central tendency bias
Ranking Method	Rank employees best to worst	Forces comparison; impractical for large groups
Paired Comparison	Compare each employee to every other	Accurate but time-consuming
Critical Incident Method	Record specific effective/ineffective behaviours	Rich behavioural data; time-intensive
Forced Distribution (Bell curve)	Allocate fixed % to top/middle/bottom performers (e.g., 10/70/20)	Used by GE (Jack Welch's "vitality curve"); controversial

Modern Methods:

Method	Description	Key Feature
MBO (Management by Objectives)	Goals set jointly by manager + employee; appraise achievement	Peter Drucker 1954; SMART goals
360-Degree Feedback	Rating from self, peers, subordinates, supervisors, customers	Holistic view; reduces bias; used by 90% of Fortune 1000
Balanced Scorecard (BSC)	Evaluate on 4 perspectives: Financial, Customer, Internal Processes, Learning & Growth	Kaplan & Norton 1992; links performance to strategy
Assessment Centre	Multi-day simulation exercises (in-tray, role-play, group discussion)	Highly valid; used for leadership selection/development
Behavioural Anchored Rating Scale (BARS)	Rating scale with specific behavioural examples at each point	More objective than graphic scales

6.3 Appraisal Errors (Rating Biases)

• Halo effect: One outstanding trait inflates overall rating
• Horn effect: One negative trait deflates overall rating
• Central tendency: Rating everyone average (3 on a 5-point scale) to avoid controversy
• Leniency/strictness bias: Systematic overrating or underrating
• Recency bias: Overweighting recent events, ignoring the full appraisal period
• Similar-to-me bias: Rating higher those who resemble the appraiser

Minimising bias: Appraiser training, BARS usage, calibration sessions (managers review each other's ratings), multiple raters (360-degree).

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