8 – Performance Management System

Introduction

Performance appraisals are used in every organisation for a variety of reasons. The fundamental point of contention is the criteria to evaluate performance. Given that all assessments contain subjective judgments, organisations employ a variety of methodologies and tools to assess performance as objectively as feasible. A consistent strategy, clear standards and measures, and bias-free ratings are all required for a successful performance appraisal. The rater’s preparation is an essential aspect of the evaluation process. To maintain consistency and accuracy, raters must be trained on the system and its purpose. Finally, if employees’ performance is to improve, they must be given feedback and suggestions on how to improve.

8.1 Appraisal of Performance

8.1.1 Definition and Meaning

It is the process of systematically assessing an individual’s job performance and potential for advancement.

Performance appraisal is a formal, structured system for measuring and evaluating an employee’s job-related behaviours and outcomes to determine how and why the employee is currently performing on the job and how the employee can perform more effectively in the future. This benefits the employee, the organisation, and society.

8.1.2 Objectives of Performance Appraisal

1. Compensation Decision: It can be used to justify compensation increases. This remuneration philosophy lies at the foundation of the idea that promotions should be based on merit rather than seniority.
2. Work Transition or Promotion: It can be used as a guide for a job change or promotion.
3. Training and Development Program: PA can keep employees updated on their progress and tell them what abilities they need to improve to be considered for increases in compensation, promotions, or both.
4. Feedback: It can advise an employee on how to improve his or her current performance and advance up the corporate ladder.
5. Personal development: It can assist in identifying the factors that influence excellent and bad employee performance.

8.2 Techniques of Performance Appraisal

 8.2.1 Scale of the Past

1. Rating Scale: A typical rating scale system consists of several numerical scales, each representing a job-related performance criterion such as dependability, initiative, output, attendance, attitude, cooperation, etc. Each scale ranges from excellent to poor, and each scale ranges from excellent to poor. The number of points attached to the scale may be linked to a salary increase, with so many points equalling a percentage increase. Almost any sort of job can be assessed, and a large number of employees can be evaluated in a short period. The rater’s prejudices that affect evaluation are considered a disadvantage. Furthermore, numerical scoring creates an erroneous perception of precision.

2. Checklists: In this method, a checklist containing assertions about the employee’s characteristics and task is prepared in two columns, a ‘YES’ column and a ‘NO’ column. The rater must only tick ‘YES’ if the response is positive and ‘NO’ if the answer is negative. When the HR department assigns points for each “YES,” the technique becomes a weighted checklist. The benefits include cost savings, convenience of administration, limited rater training, and standardisation. The HR department’s weights are incorrect, which is a disadvantage.

3. Compulsory selection: The rater is given a series of statements about the employee, which are placed in blocks of two or more, and the rater is asked to determine which statement is the most or least descriptive of the employee. For example,

• Learn fast and work hard.
• Those who are frequently absent are usually late.

The HR department is in charge of the actual evaluation. The absence of personal prejudice in grading is an advantage. A disadvantage is that the statement may not be correctly phrased.

4. Crucial Incident Method: This method focuses on critical employee behaviours that can distinguish between effective and ineffective work performance. When such occurrences occur, the superiors keep track of them. One of the benefits is that the assessment is based on actual job performance. It also enhances the likelihood that the subordinates will improve because they will understand what is required more precisely. Adverse incidents are more noticeable than positive ones, which is a disadvantage.

5. Rating Scales that are Behaviorally Anchored: The scale represents a spectrum of descriptive expressions about behaviour, ranging from ineffective to highly effective. A rater must say which behaviour best characterises an employee’s performance on each scale. The following is a feature of BARS:

• The person who will use the scales will identify and define the areas of performance to be evaluated.
• The scales are based on a description of actual job behaviour that supervisors agree represents specific job performance.
• Because BARS are customised, all performance characteristics to be evaluated are based on observable behaviours and are relevant to the task being assessed.
• The raters using the scale are more likely to be committed to the final result because they were involved in the development process.

Unfortunately, most rating techniques have distortions, and this is one of them.

6. Method of Field Review: The assessee’s department is not involved in this review; typically, someone from the corporate office or HR department conducts it. There are two drawbacks to this:

• An outsider is unfamiliar with the working conditions of an employee.
• He does not have the opportunity to observe employee performance behaviour over time.

7. Performance Test: When a limited number of jobs are available, employee evaluations may be based on a knowledge and skill test. To be valid, the test must be trustworthy and validated, whether it be paper and pencil or an actual display of skills. In practice, if the expenses of test development or administration are excessive, it may suffer.

8. Annual Confidential Report: The ACR is most commonly used in government departments such as ITI and military groups, and it includes 14 categories such as attendance, self-expression, ability to work with others, leadership, initiative, technical skill, and reasoning ability, to mention a few. On a four-point scale, twelve are graded (excellent, good, fair, poor). Justification is necessary for an outstanding or poor rating. A five-point scale was used to assign an overall rating (Outstanding, Very Good, Good, Average, Poor). There was also a recommendation for performance. This is a top-secret and confidential system. Because the evaluation was connected to promotion, ratings are easily influenced.

9. Cost Accounting Approach: This method assesses an employee’s performance based on the monetary returns he or she generates for the company. The employee’s performance is evaluated based on the established cost-benefit connection.

10. Comparative Evaluation Approach: This is a group of approaches for comparing one worker’s performance to that of his or her co-workers. They help determine merit raises, promotions, and organisational awards. The two most used comparative methods are the ranking technique and the paired comparison approach.

8.2.2 Appraisal of the Future

Object-oriented management

When his book The Practice of Management was first published in 1954, Peter F Drucker introduced the concept of MBO. There are four steps to follow:

1. In certain companies, superiors and subordinates collaborate to set goals. These objectives can then be used to assess employee performance.
2. It entails establishing a performance criterion for subordinates over a predetermined period. As subordinates work, they have a good idea of what needs to be done, what has been done, and what has to be done next.
3. The actual level of goal achievement is contrasted to the agreed-upon objectives. This stage aids in determining potential training requirements.
4. It entails setting new objectives and, maybe, new tactics for objectives that have yet to be achieved.

The drawback is that it isn’t appropriate for all jobs in all organisations. MBO is incompatible with jobs that require little or no flexibility, such as assembly-line work.

Appraisal of the Mind

The appraisal usually includes in-depth interviews, psychological testing, talks with supervisors, and a review of other evaluations. The psychologist then writes on the employee’s intellectual, emotional, motivational, and other associated traits that can forecast future performance and imply individual potential. Some employees disagree with this sort of evaluation because the appraisal is quality largely depends on the psychologists’ abilities, mainly if cross-cultural gaps occur.

Centers for Evaluation

In 1930, the German Army used this appraisal form for the first time. In reality, it is a system or organisation in which several experts assess several people using various methodologies. Some of these strategies include in-basket, role-playing, case studies, simulation exercises, and transactional analysis.

Individuals are brought together for two or three days to work on an individual or group assignment similar to the ones they would be handling when promoted. Observers rate each participant’s performance on a scale of one to ten. All individuals are given equal opportunities to demonstrate their talents and abilities and earn merit-based promotions.

Feedback from all sides

360-degree assessment is a technique that involves many raters in evaluating performance. The 360-degree technique is the systematic gathering of performance data about an individual or group from various sources, including direct supervisors, team members, customers, colleagues, and oneself.

Multi-source input is highly beneficial to one’s progress. It allows an employee to compare his or her self-perceptions to those of others. The technique is handy for evaluating employees’ soft skills. The 360-degree appraisal will uncover and measure interpersonal skills, customer satisfaction, and team-building abilities.

It has a slew of flaws. Receiving performance evaluations from a variety of sources might be scary. The organisation must create a non-threatening environment by emphasising the technique’s positive impact on an employee’s performance and development. The process of selecting the rater, preparing questions, and assessing the results takes a lengthy time.

8.3 System for Managing Performance

A performance management system is a method for creating objectives and tracking progress toward those objectives. It’s the same as any other system in which results are constantly measured and compared to desired goals or outputs. Any mismatch or gap is identified and sent back into the process to change the inputs to obtain the intended results.

Performance management entails ensuring that objectives are routinely completed promptly and effectively. Performance management focuses on the organization, a department, product or service development processes, workers, etc. Organizations have realised the importance of a performance management system. Organizations exist to carry out tasks. Organizations do not thrive if people do not perform. Organizations may compete and make waves if their people perform at their best.

If effectively developed and implemented, performance management systems have the potential to alter the trajectory of an organization’s growth and impact. Performance management systems are a relatively new phenomenon in today’s fast-paced business world. Organizations and HR departments have squandered a lot of time by focusing on performance appraisals rather than performance management.

The performance management system consists of the following components:

1. Identifying and specifying performance parameters
2. Establishing performance standards
3. Employee participation in planning
4. Identifying capabilities and gaps in competencies that help or impede performance
5. Make plans for activities that can help you improve your performance.

8.4 Performance Appraisal Issues and Challenges

8.4.1 Issues with Performance Evaluation

The issues with performance appraisal can be summed up as follows: (Teel, Gioia and Sims)

1. Misjudgement Errors: When appraising people and their performance, people make mistakes. Biases and numerous types of judgement errors may jeopardise the show. The term “bias” refers to a measurement’s distortion. These are of various kinds:
   1. First impressions (primacy effect): An appraiser’s initial opinion of an applicant may influence his subsequent judgement of that candidate’s behaviour. In the case of a negative primacy impact, the employee may appear to do nothing right, while the employee cannot do anything wrong in the case of a positive primacy effect (Harris, p.192).
   2. Halo: A halo error occurs when one component of a subordinate’s performance impacts the rater’s assessment of other performance aspects. If a person has few absences, his supervisor may give him a high rating in all other work areas. Similarly, an employee may be given a high-performance rating merely because he is well-dressed and arrives on time!
   3. Horn effect: The rater’s bias is the opposite, with one of the employee’s negative qualities being harshly assessed. For example, the rate rarely smiles, making it difficult for him to get along with others!
   4. Leniency: Raters may be assessed extremely rigorously or very leniently, depending on their mental makeup at the moment of appraisal. Appraisers typically find it difficult to evaluate others, especially when negative judgments must be provided. When all other students have passed the exam, a professor may be hesitant to fail a candidate. Due to the leniency error, an appraisal system might be rendered useless. If everyone is to be given a high rating, the system has done nothing to distinguish between employees.
   5. Central Tendency: The central tendency, which occurs when appraisers rate all employees as average performers, is an alternative to the leniency effect. For example, a professor might award a class virtually identical B grades, regardless of individual performance variations, just to be safe.
   6. Stereotyping: Stereotyping is a mental image that someone has of another person based on their sex, age, religion, caste, or other characteristics. The rater excessively overestimates or underestimates a person’s performance by generalising behaviour based on such fuzzy visuals. If raters with sophisticated urban backgrounds negatively perceive rural backgrounds, for instance, they might judge employees from rural areas unfavourably.
   7. Recency effect: In this scenario, the rater gives recent events more weight than previous performance. For example, an outstanding performance from six or seven months ago is conveniently ignored, while an employee’s performance in recent weeks is given a low evaluation. Alternatively, a ‘spillover effect,’ which occurs when past performance influences current assessments, could harm the appraisal process.
2. Inadequate Appraisal Forms: The following elements linked to the forms used by raters may potentially have an impact on the rating process:
   1. The grading scale may be ambiguous and vague.
   2. The rating form may overlook crucial aspects of job performance.
   3. The rating form may include extra, unrelated performance information.
   4. The forms may be excessively long and complicated.
3. Inadequate Rater Preparation: The raters may not be adequately prepared to carry out performance management tasks. When a rater with limited functional specialisation in that area evaluates a rater’s technical ability, this becomes a major constraint. The raters may not have enough time to complete appraisals systematically and provide detailed feedback. Because of their low self-esteem and lack of self-confidence, raters may be unable to perform the evaluations. They may also become perplexed if the appraisal objectives are ambiguous and confusing.
4. Ineffective Organizational Policies and Practices: If a rater’s sincere appraisal effort is not appropriately recognised, the drive to complete the task completely is lost. Low ratings given by raters are sometimes seen adversely by management as a sign of the rater’s failure or as a signal of employee dissatisfaction. As a result, despite low performance, most employees obtain satisfactory ratings. Usually, the rater’s immediate supervisor must approve the ratings. In practice, however, this is not the case. As a result, the rater ‘goes off the rails’ and wreaks havoc on the rating process.

8.4.2 Challenges

The twin ideas of motivating employees at all levels are widespread in today’s organisations: recognise distinctive contributions and ease personal worries that affect professional performance. To get the most out of employees, CEOs should:

• Establish a culture of excellence that encourages employees at all levels and aligns organisational and individual goals.
• Provide employees with the skills they need to do their jobs well.
• For talented personnel, there are clear progression paths.
• Create new tasks to keep flattening corners fresh.
• Employees should be able to make decisions without fear of failure.
• Encourage collaboration, teamwork, and open communication.