Evolution of performance appraisal systems and its importance

By Priya Chetty on April 23, 2020

Performance appraisal is the process of evaluating the performance of an employee (Schermerhorn, Hunt, & Osborn, 2002). The information gathered from such evaluation is shared with employees. This critical information regarding their strengths and weaknesses helps enhance their scope for improvement. Over the last century, many performance appraisal systems have been introduced by various researchers and organizations. These systems were subject to advantages and drawbacks.

Importance of performance appraisal systems

The success of any organization depends on the quality and characteristics of its employees. Performance appraisal systems lay down the strategic framework to evaluate their employees’ work performance and further improve it (Bagul, 2014). When work performance is excellent, it should be recognized. This motivates the employees to work even harder. Performance appraisal systems also facilitate the organizations to identify the top performers. Using such insights from the system, the organizations can then use innovative methods like pay-for-performance compensation plan to motivate employees to outperform their own performance.

Performance appraisal systems facilitate saving on operational costs and related overheads from a high attrition rate (Sippy and Varma, 2016). One way to lower the attrition rate is by recognizing the hard work put in by the employees and compensating them appropriately for the same. This requires adopting and implement a robust performance appraisal system.

Different performance appraisal systems adopted by organizations

Over the course of many decades, several methods of performance appraisal systems have come into existence. Organizations choose an appropriate appraisal system on the basis of many factors such as:

  • their nature of the business,
  • a number of employees,
  • organizational goals,
  • training needs for implementing it,
  • costs involved and,
  • error reduction (Jafari, Bourouni, and Amiri, 2009). 

Straight ranking method

This is the oldest performance appraisal framework that compares employees to one another resulting in a systematic order of employees. Here top to bottom performers is ranked. Average performers are hard to put in order (Bhattacharya, 2011). The drawback of this method is that it does not show job-related aspects and is suitable only for a large number of employees (Kumar, 2011). Furthermore, it is difficult to compare two individuals having varying behavioral traits (IIBF, 2005). 

Paired comparison method

Owing to the shortcomings of the Straight ranking method, the paired comparison method came into existence. The paired comparison method compares each employee with every other employee in a pair (Bogardus, 2007). According to the Community for Human Resource Management, this appraisal system is more reliable. This is because it uses a systematic method of comparison and evaluation. The number of times a worker is considered, which contributes to their score. This method is advantageous because of its simplicity, but in the case of a large number of employees, the method becomes ineffective. Moreover, it does not reveal the degree of difference between two people of the same rank (Moran, Stueart and Morner, 2013).

Forced distribution method

Forced distribution method eliminates the central tendency of rating most of the employees at a higher end of the scale (Aswathappa, 2005). Such a phenomenon occurs in the case of grading. Here, the manager conveys the appraisal to the employee. The advantages of this method are its ease of use and its ability to correct rating errors. However, it is feasible only for large employees companies and lacks validity, which is its biggest drawback (Myers, 2004).

Grading and checklist

Checklist evaluation requires close-ended questions for the employer like, “Is an employee helpful to co-workers?”. The passing criteria, certain standards are set as per industry norms to which the responses of the employer are compared (Balachandran and Chandrasekaran, 2009). Moreover, in the case of the grading system, there are A to F letter grades in different categories to rate employees like poor, satisfactory, and excellent. There may be more than these parameters. One of the major drawbacks of this grading system is that it may rate the maximum number of employees on the higher side of their performance.

Forced choice method

According to this method, a rater has a list of statements and rates each statement telling how effectively it describes an employee. Its framework includes both negative and positive statements like “Helps co-workers”, and “do not meet deadlines” (Davis and Buskist, 2008). The drawback of the method is that the actual constructing of several evaluative statements called ‘forced-choice scales’, takes a lot of time and effort. Moreover, it involves bias in rating as the rater may be inclined towards one response interval if more than two choices are involved (Heckenlively and Arden, 2006).

Critical incidence method

This method involves the collection of anecdotes which represent the effective and ineffective behavior of employees (Pederson, 2005). The anecdotes are related to critical incidents. The observer describes the event that led to the incident, how effectively or ineffectively the employee handled it, and what was the outcome of it. It is closely related to the case-study method.

The advantage of this method is that it focuses on observable behavior. However, the drawback of this method is that it is time-consuming and burdensome for evaluators and managers who have to list down the critical traits of the employees every day (Allen, 2017).

Graphic rating scale method

This method is the most popular method of employee performance appraisal. In this method, the rating is done on a hard copy of the appraisal by every employee. A form contains traits and a range of job performance degree Likert scale, for each trait. In the end, all the scores of the employee are added up for final evaluation (Bohlander and Snell, 2011). Furthermore, this method is generally subject to the bias of the rater which leads to leniency or too much strictness (Chiu & Alliger, 1990).

Essay method

It is the simplest form of an appraisal method. Under this method, a manager writes a narrative description of the employees’:

  • strengths,
  • weaknesses,
  • potential,
  • past performance and,
  • suggestions for improvement. 

Like other methods, this method too has its own disadvantages. Since it is a descriptive method it does not considers the quantitative aspect and also it can go to any length.

Confidential method

This is a traditional way of appraising an employee used in Government Departments. Under this method, the immediate boss or a manager evaluates the performance of an employee for promotion.

Management by objective

Modern evaluation methods try to remove some of the subjectivity and bias inherent in traditional methods. However, management by objective, appraisals require the employee and supervisor to agree on a set of objectives before the evaluation. The process relies on goal setting and constructive feedback to be successful. Under this program, there are four main steps:

  1. Goal setting
  2. Performance standard
  3. Comparison
  4. Periodic review

One of the major problems with this type of method is unclear and immeasurable objectives. Apart from this, it is a time-consuming and lengthy process.

Behavior-focused performance appraisal system

The problem of judgmental performance evalu­ation inherent in the traditional methods of performance evaluation led to some organizations to go for the objective evaluation. This was done by developing a technique known as “Behaviorally Anchored Rating Scales” in the 1960s. This system judges the behavior based on the actions of the employees using the rating scale. 

  • Graphics rating judges’ behaviors on a sliding scale from excellent to poor. Average employee’s results should cluster in the middle, with poor employees near the bottom and exceptional employees near the top.
  • Behaviorally anchored scales rely on very specific evaluators to score the employee actions as pass or fail. For example, “Does the employee answer the telephone with the correct greeting?” or “Do they verify all customer information in the correct order?”
  • The forced-choice scale lists rankings of performance such as poor, needs improvement, average, above average or excellent. With no other options; a mixed standards scale is a forced-choice scale with room for administrator comments.

360-degree feedback

Under this method, the employer conducts a primary survey incorporating the responses of co-workers, supervisors, subordinates, and sometimes clients. 360-degree feedback provides multiple feedback channels offering the objective perspective of behavioral actions. Such feedback allows employees to set goals for self-development. Therefore, this further improves their career and also benefits the organization. This method is also subject to suffer from the subjectivity on the part of the appraiser.

The picture below represents a diagrammatic timeline presentation of different performance appraisal methods.

Evolution of Performance Appraisal System
Evolution of Performance Appraisal System

A path towards organisational improvement

The absence of such a system increases the attrition rate as employees do not receive praise and recognition for good work. This increases the operational cost of the company due to the requirement of hiring new recruits and the cost of providing training to them. Moreover, with the introduction of PAS, employees are able to provide better service at a relatively lesser time (Mucha, 2010). Performance Appraisal Systems help managers in evaluating and developing a fair system of promotions. Thus, performance appraisals assist the organization in recognizing the best-fit employees. It also helps the employees in understanding and following the path of their development and promotion.


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