Approaches for measuring performance of employees

By Indra Giri & Priya Chetty on January 18, 2017

Measuring the performance of employees is the backbone of any organization’s management. Business owners usually measure employee performance by assessing how much contribution the employee is making to the firm’s growth. This is conveyed to the employee at the time of their performance appraisal. Performance appraisal refers to the evaluation of employees, providing them with valuable feedback, and creating a positive effect on future performance. Employee performance depends upon a number of factors such as;

  • conducive work environment
  • work profile
  • compensation
  • bonus system
  • job satisfaction
  • company policies
  • technology

These factors play an important role in determining employee productivity and hence the overall organizational development.

Organisation can use one or mixed approaches for measuring performance of employees
Different approaches to measuring performance

Organizations can use different strategies and approaches for the purpose of measuring the performance of their employees. The five major approaches are:

  1. Comparative approach,
  2. Attribute approach,
  3. Behavioural approach,
  4. Result Approach and
  5. Quality approach.

Each of these approaches differs in characteristics and suitability. A firm can select any one or a combination of these approaches on the basis of their business goals and management type.

The comparative approach of measuring performance

The comparative approach involves ranking an employee’s performance with respect to that of others in the group. Individuals are ranked on the basis of the highest to the lowest performer. There are several techniques for a comparative approach such as the forced distribution technique, paired comparison, and graphic rating scale (Noe 2008). The forced Distribution technique involves ranking employees in groups.

EXAMPLE

A group of top performers constituted 10%, a group of average performers constituted 40%, and another group of good performers constituted 40%. Finally, a group of low performers constitute the remaining 10%.

This ensures rewards for the top performers. Given proper training and guidance, these top performers can be promoted to higher managerial positions. While the poor performers are given a chance for further improvisation or dismissed if their performance does not meet the standard requirements. This will, in turn, cause new talent hires (Martocchio 2011).

The system ranks the employees on the basis of categorization rules rather than on their performance. In such cases, employees with higher rankings would get better pay than those with lower rankings though they may not deserve it.

In Paired Comparison Technique the organization compares one performer with the other and assigns a score of 1 for the higher performer. The final performance score is the summation of all the winning points.

A comparative approach is undertaken in the case of firms with a small group of employees with similar job profiles. Therefore, the disadvantage is that it is unsuitable in the case of firms with a large number of employees or a firm with different job profiles. Also, since the scale is based on subjective judgment, there is a high chance of bias (Taylor et al. 2007).

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Attribute approach to measuring performance

In this system, the employees are rated on the basis of a specific set of parameters such as:

  • problem-solving skills,
  • teamwork, communication,
  • judgment, creativity and
  • innovation.

The graphic rating scale entails rating the employee on a scale of 1 to 5 (lowest to highest). A mixed rating scale is a more layered form of measurement. In the first step, the employee is rated as high, medium, or low on a given set of parameters. Each parameter is then broken down and scaled as above (+), equal (0) or below (-) (Shaout & Yousif 2014).

The major disadvantage of the attribute approach of performance measurement is that of subjectivity. In other words, it may be heavily reliant on the nature of the evaluator. Another limitation of this method is that it is accurate in identifying only the best and the worst performers. However, the advantage of this method is its simplicity, because of which most organizations go with it (Landy & Conte 2007).

The behavioural approach to measuring performance

This is one of the oldest performance measurement techniques. The Behavioural approach consists of a series of vertical scales for different dimensions of the job. This can be done using the BARS technique or the BOS technique. The Behaviourally Anchored Rating Scale (BARS) technique consists of five to ten vertical scales. These scales are based on parameters (called “anchors”) which are decided consensually by all employees. Employees are then ranked on each of the anchors according to their performance.

On the other hand, Behavioural Observation Scale (BOS) is a recent version of BARS. It provides a more specific description along with frequency in regard to employee behaviour for effective performance. The overall score is the average of all these frequencies. Although the Behavioral approach is suitable for reliability and accuracy, the major drawback of this approach is the voluminous data that the managers have to remember. Supervisors tend to remember only those behaviours that define closely to the performance scale which leads to a biased rating (Bohlander & Snell 2010).

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Result approach to measuring performance

This approach is a simple and straightforward concept, wherein organization rate employees on the basis of employee performance results. The first type of result approach is the Balanced Scorecard technique. This technique focuses on four perspectives namely:

  1. financial,
  2. customer,
  3. internal & operations, and
  4. learning & growth.

The second approach is the Productivity Measurement and Evaluation System (ProMES). It is very effective in motivating employees for enhanced productivity and measuring feedback. It consists of four steps. The first step is to identify the objectives which the organization wants to achieve. The second step measures how well these objectives are made. While the third step involves how effective are they in evaluating employee performance. Finally, the last step gives feedback to the employees. Organizations calculate an overall productivity score as a summation of the performance scores of all these factors.

The main advantage of the result-based approach to performance measurement is that it converts strategy into operations with a more holistic view. It takes into consideration the external environment of the job such as customers and learning and growth. It does not simply rely on financial indicators of job performance. However, the disadvantages are the lack of focus on the human resource aspect, and the absence of certain key stakeholders in the indicators (Gomes & Romao 2014).

The quality approach to measuring performance

This approach focuses on improving customer satisfaction by reducing errors and achieving continuous service improvisation. This approach takes into consideration both personal and system factors. Also, employers take regular feedback on the personal and professional traits of the employee from managers, peers, and clients to resolve performance issues. The Quality Approach mainly focuses on the use of the Kaizen process in order to continuously improve business processes. The advantages of this approach include:

  • assessment of both employee and system,
  • problem-solving through teamwork,
  • use of multiple sources to evaluate performance and
  • involvement of both internal and external factors

However, practitioners of this approach believe that this approach does not correspond with the quality philosophy of an organization (Noe 2008).

Benefits of using performance measuring approaches

Organizations can use all these approaches together effectively to evaluate employee performance. This has a positive impact on employees’ motivation and they tend to perform better. They can identify their strengths and weaknesses and work on improving their skill sets. Since the employees are well aware of the organizational goals, they can also work on improvising their skills further to achieve them. Employee performance enhances the communication between an employee and the supervisor to discuss job duties and work-related issues for a healthy work environment. With the changing trend, more recent techniques and approaches are being formulated to measure employee productivity and organizational performance.

References

  • Bohlander, G. & Snell, S., 2010. Managing Human Resources, Mason: Cengage Learning.
  • Gomes, J. & Romao, M., 2014. Advantages and limitations of performance measurement tools: The balanced scorecard. In 7th IADIS Information Systems 2014 Conference (IS 2014). Madrid: ISEG School of Economics and Management.
  • Landy, F. & Conte, J., 2007. Work In The 21St Century: An Introduction To Organizational And Industrial and Organisational Psychology, New Delhi: Tata McGraw-Hill Education.
  • Martocchio, J., 2011. Strategic Compensation: A Human Resource Management Approach, Noida: Dorling Kindersley.
  • Noe, R., 2008. Human Resource Management, New Delhi: Tata McGraw-Hill Education.
  • Shaout, A. & Yousif, M., 2014. Performance Evaluation Methods and Techniques Survey. International Journal of Computer and Information Technology, 3(5), pp.966–979.
  • Taylor, T., Doherty, A. & McGraw, P., 2007. Managing People in Sport Organizations: A Strategic Human Resource Perspective, Oxon: Routledge.

Priya is the co-founder and Managing Partner of Project Guru, a research and analytics firm based in Gurgaon. She is responsible for the human resource planning and operations functions. Her expertise in analytics has been used in a number of service-based industries like education and financial services.

Her foundational educational is from St. Xaviers High School (Mumbai). She also holds MBA degree in Marketing and Finance from the Indian Institute of Planning and Management, Delhi (2008).

Some of the notable projects she has worked on include:

  • Using systems thinking to improve sustainability in operations: A study carried out in Malaysia in partnership with Universiti Kuala Lumpur.
  • Assessing customer satisfaction with in-house doctors of Jiva Ayurveda (a project executed for the company)
  • Predicting the potential impact of green hydrogen microgirds (A project executed for the Government of South Africa)

She is a key contributor to the in-house research platform Knowledge Tank.

She currently holds over 300 citations from her contributions to the platform.

She has also been a guest speaker at various institutes such as JIMS (Delhi), BPIT (Delhi), and SVU (Tirupati).

 

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