Performance Appraisal in Insurance

PERFORMANCE APPRAISAL SYSTEM IN INSURANCE
Introduction to
Performance Appraisal
The history of performance appraisal is quite brief. Its roots in the early 20th century.
But this is not very helpful, for the same may be said about almost everything in the field of
modern human resources management. As a distinct and formal management procedure used
in the evaluation of work performance, appraisal really dates from the time of the Second
World War - not more than 60 years ago. Yet in a broader sense, the practice of appraisal is a
very ancient art. In the scale of things historical, it might well lay claim to being the world's
second oldest profession!
There is, says Dulewicz (1989), ".. a basic human tendency to make judgments
about those one is working with, as well as about oneself." Appraisal, it seems, is both
inevitable and universal. In the absence of a carefully structured system of appraisal, people
will tend to judge the work performance of others, including subordinates, naturally,
informally and arbitrarily.
The human inclination to judge can create serious motivational, ethical and legal
problems in the workplace. Without a structured appraisal system, there is little chance of
ensuring that the judgments made will be lawful, fair, defensible and accurate. Performance
appraisal systems began as simple methods of income justification. That is, appraisal was
used to decide whether or not the salary or wage of an individual employee was justified.
The process was firmly linked to material outcomes. If an employee's performance

was found to be less than ideal, a cut in pay would follow. On the other hand, if their
performance was better than the supervisor expected, a pay rise was in order. Little
consideration, if any, was given to the developmental possibilities of appraisal. It was felt that
a cut in pay, or a rise, should provide the only required impetus for an employee to either
improve or continue to perform well. Sometimes this basic system succeeded in getting the
results that were intended; but more often than not, it failed.
For example, early motivational researchers were aware that different people with
roughly equal work abilities could be paid the same amount of money and yet have quite
different levels of motivation and performance. These observations were confirmed in
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empirical studies. Pay rates were important, yes; but they were not the only element that had
an impact on employee performance. It was found that other issues, such as morale and self-
esteem, could also have a major influence.
As a result, the traditional emphasis on reward outcomes was progressively rejected.

In the 1950s in the United States, the potential usefulness of appraisal as tool for motivation
and development was gradually recognized. The general model of performance appraisal, as
it is known today, began from that time.
Most persons share a desire to know the answer to the question, "How am I doing?"
They want to know what is expected of them, how well they are meeting the expectations,
how they can improve, and some want to know how they might qualify for higher
responsibilities. The process of performance appraisal should provide the opportunity for
discussion of these concerns. The process should also provide the basis for enhanced
communication among college personnel.
The feedback is one of the most important tools provided by Human Resources to
managers as the motivational tool. The feedback by Human Resources is organized usually in
the process of the Performance Appraisal. When speaking with HRM Professionals, you can
hear a lot about the performance management process and the forms used to formalize the
whole process of the performance appraisals. Generally, the manager should give feedback
and the quality of the feedback provides the performance appraisals to the individual
employee. But as the HRM Function wants to have a control over the whole performance
management process, the main stress is put on the formal record of the whole performance
appraisal discussion.
The performance appraisals can have a huge impact on the future of the employee in
the company. When the feedback is provided correctly and the manager makes a follow up of
all the agreements done during the performance appraisal interview, the performance
appraisals can work without any formal documents.As the HRM Function is responsible for
the performance management process, it brings new and better performance appraisal forms
every single year. And the result usually fails every year. The managers and the employees
do not see the benefits of participating in the performance review process as they take it as an
activity driven by Human Resources for Human Resources.
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The HRM Function cannot promote the performance appraisals as the set of forms to
be filled by the manager and confirmed by the employee. The HRM Function has to promote
the consequences of the performance management process and the positive impact on the
future of the employee in the organization.
• Definition of Performance Appraisal
“Appraisal is a process that provides an analysis of a Person’s overall capabilities and

potential, allowing informed decisions to be made for particular purposes”. An Important part
of the process is assessment, whereby data on an individual’s past and current work behavior
and Performance are collected and reviewed.
• Concepts
Typically, performance appraisal has

been limited to a feedback process between
employees and supervisors. However, with the
increased focus on teamwork, employee
development, and customer service, the emphasis
has shifted to employee feedback from the full
circle of sources depicted in the diagram below.
This multiple-input approach to performance feedback is sometimes called “360-degree
assessment” to connote that full circle. There are no prohibitions in law or regulation
against using a variety of rating sources, in addition to the employee’s supervisor, for
assessing performance.
Research has shown assessment approaches with multiple rating sources provide more
accurate, reliable, and credible information. For this reason, the U.S. Office of Personnel
Management supports the use of multiple rating sources as an effective method of assessing
performance for formal appraisal and other evaluative and developmental purposes. The
circle, or perhaps more accurately the sphere, of feedback sources consists of supervisors,
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peers, subordinates, customers, and one’s self. It is not necessary, or always appropriate, to
include all of the feedback sources in a particular appraisal program.
The organizational culture and mission must be considered, and the purpose of
feedback will differ with each source. For example, subordinate assessments of a supervisor’s
Performance can provide valuable developmental guidance, peer feedback can be the heart of
Excellence in teamwork, and customer service feedback focuses on the quality of the team’s
or agency’s results. The objectives of performance appraisal and the particular aspects of
performance that are to be assessed must be established before determining which sources are
appropriate.
• SUPERIORS
Evaluations by superiors are the most traditional source of employee feedback. This
form of evaluation includes both the ratings of individuals by supervisors on elements
in an employee’s performance plan and the evaluation of programs and teams by
senior managers.
• SELF-ASSESSMENT
This form of performance information is actually quite common but usually used only
as an informal part of the supervisor-employee appraisal feedback session.
Supervisors frequently open the discussion with: “How do you feel you have
performed?” In a somewhat more formal approach, supervisors ask employees to
identify the key accomplishments they feel best represent their performance in critical
and non-critical performance elements. In a 360-degree approach, if self-ratings are
going to be included, structured forms and formal procedures are recommended.
• PEERS
With downsizing and reduced hierarchies in organizations, as well as the increasing

use of teams and group accountability, peers are often the most relevant evaluators of
their colleagues’ performance. Peers have a unique perspective on a co-worker’s job
performance and employees are generally very receptive to the concept of rating each
other. Peer ratings can be used when the employee’s expertise is known or the
performance and results can be observed. There are both significant contributions and
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serious pitfalls that must be carefully considered before including this type of
feedback in a multifaceted appraisal program.
• SUBORDINATES
An upward-appraisal process or feedback survey (sometimes referred to as a SAM,

for “Subordinates Appraising Managers”) is among the most significant and yet
controversial features of a “full circle” performance evaluation program. Both
managers being appraised and their own superiors agree that subordinates have a
unique, often essential, perspective. The subordinate ratings provide particularly
valuable data on performance elements concerning managerial and supervisory
behaviors. However, there is usually great reluctance, even fear, concerning
implementation of this rating dimension. On balance, the contributions can outweigh
the concerns if the precautions noted below are addressed.
• CUSTOMERS
Executive Order 12862, Setting Customer Service Standards, requires agencies to

survey internal and external customers, publish customer service standards, and
measure agency performance against these standards. Internal customers are defined
as users of products or services supplied by another employee or group within the
agency or organization. External customers are outside the organization and include,
but are not limited to, the general public.
• Basic Purposes
Effective performance appraisal systems contain two basic systems operating in

conjunction: an evaluation system and a feedback system.
The main aim of the evaluation system is to identify the performance gap (if any).
This gap is the shortfall that occurs when performance does not meet the standard set by the
organization as acceptable.
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The main aim of the feedback system is to inform the employee about the quality of
his or her performance. (However, the information flow is not exclusively one way. The
appraiser also receives feedback from the employee about job problems, etc.)
One of the best ways to appreciate the purposes of performance appraisal is to look at
it from the different viewpoints of the main stakeholders: the employee and the organization.
• EMPLOYEE VIEWPOINT
From the employee viewpoint, the purpose of performance appraisal is four-fold:
(1) Tell me what you want me to do
(2) Tell me how well I have done it
(3) Help me improve my performance
(4) Reward me for doing well.
• ORGANIZATIONAL VIEWPOINT
From the organization's viewpoint, one of the most important reasons for having a system
of performance appraisal is to establish and uphold the principle of accountability.
For decades it has been known to researchers that one of the chief causes of organizational
failure is "non-alignment of responsibility and accountability." Non-alignment occurs where
employees are given responsibilities and duties, but are not held accountable for the way in
which those responsibilities and duties are performed. What typically happens is that several
individuals or work units appear to have overlapping roles.
The overlap allows - indeed actively encourages - each individual or business unit to
"pass the buck". This event, the principle of accountability breaks down completely.
Organizational failure is the only possible outcome. In cases where the non-alignment is not
so severe, the organization may continue to function, albeit inefficiently. Like a poorly made
or badly tuned engine, the non-aligned organization may run, but it will be sluggish, costly
and unreliable. One of the principal aims of performance appraisal is to make people
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accountable. The objective is to align responsibility and accountability at every

organizational level.
• DEVELOPMENTAL PERFORMANCE APPRAISAL PURPOSES
The developmental approach to performance appraisal has been related to employees as

individuals. This approach has been concerned with the use of performance appraisal as a
contributor to employee motivation, development, and human resources planning. The
development approach contained all of the traditional overall organizational performance
appraisal purposes and the following additional purposes:
1. Provided employees the opportunity to formally indicate the direction and level of the
employee's ambition
2. Show organizational interest in employee development, which was cited to help the
enterprise retain ambitious, capable employees instead of losing the employees to competitors
3. Provided a structure for communications between employees and management to help

clarify expectations of the employee by management and the employee
4. Provide satisfaction and encouragement to the employee who has been trying to perform
well.
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• EXPECTATIONS OF A MANAGER IN DOING A

PERFORMANCE APPRAISAL
The following is typically expected from company managers when doing performance
appraisals:
i. Translate organizational goals into individual job objective.

ii. Communicate management's expectations regarding employee performance.
iii. Provide feedback to the employee about job performance in light of management's
objectives.
iv. Coach the employee on how to achieve job objectives/requirements.
v. Diagnose the employee's strengths and weaknesses.
vi. Determine what kind of development activities might help the employee better utilize
his or her skills improve performance on the current job.
Objectives of Performance Appraisals

Performance appraisals seek to meet specific objectives. They include tell and sell,
tell and listen, problem solving, and mixed model. Tell and sell is evaluative in nature. It is
used for purely evaluative purposes. The supervisor coaches by telling the employee the
evaluation and then persuading the employee to follow recommendations for improvement.
Tell and listen is evaluative in nature.
The supervisor coaches by telling the employee the evaluation and then listens to the
employee's reactions to the evaluation in a nonjudgmental manner. Problem solving is
developmental in nature and involves counseling. It is used for employee development
purposes. The supervisor does not offer evaluation but lets the employee decide his or her
weak areas and works with the employee to develop an action plan for improvement. The
mixed model combines coaching and counseling. It is used for both evaluative and
development purposes. The supervisor begins the appraisal with a problem-solving session
and concludes with a more directive tell and sell approach.
Data relating to performance assessment of employees are recorded , stored and use for
several purposes. The main purposes of employee assessment are as follows:-
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1. To effect promotions based on competence and performance

2. To confirm the services of probationary employees upon their completing the
probationary period satisfactory.
3. To assess the training and development needs of employees.
4. To decide upon the pay raise where regular pay scales have not been fixed.
5. To let the employees know where they stand in so far their performance is concerned
and to assess them with constructive criticism and guidance for the purpose of their
development.
6. To improve communication. Performance appraisal provides the format for dialogue
between the superior and the subordinator, and improves understanding of personal
growth and concerns. This can also have the effect of increasing the trust between
rater and ratee.
7. Finally, performance appraisal can be used to determine whether HR programmes
such as selection, training and transfers have been effective or not.
BROADLY, PERFORMANCE APPRAISAL SERVES FOUR

OBJECTIVES:
1. Development uses:
2. Administrative decision;
3. Organizational maintenance;
4. Documentation purposes
Pre-requisites for Effective & Successful Performance Appraisal
The essentials of an effective performance system are as follows:
• Documentation – means continuous noting and documenting the performance. It

also helps the evaluators to give a proof and the basis of their ratings.
• Standards / Goals – the standards set should be clear, easy to understand,

achievable, motivating, time bound and measurable.
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• Practical and simple format - The appraisal format should be simple, clear,
fair and objective. Long and complicated formats are time consuming, difficult to
understand, and do not elicit much useful information.
• Evaluation technique – An appropriate evaluation technique should be selected;

the appraisal system should be performance based and uniform. The criteria for
evaluation should be based on observable and measurable characteristics of the
behavior of the employee.
• Communication – Communication is an indispensable part of the Performance

appraisal process. The desired behavior or the expected results should be
communicated to the employees as well as the evaluators. Communication also plays
an important role in the review or feedback meeting. Open communication system
motivates the employees to actively participate in the appraisal process.
• Feedback – The purpose of the feedback should be developmental rather than

judgmental. To maintain its utility, timely feedback should be provided to the
employees and the manner of giving feedback should be such that it should have a
motivating effect on the employees’ future performance.
• Personal Bias – Interpersonal relationships can influence the evaluation and the
decisions in the performance appraisal process. Therefore, the evaluators should be
trained to carry out the processes of appraisals without personal bias and effectively
1. Benefits of Appraisal
Perhaps the most significant benefit of appraisal is that, in the rush

and bustle of daily working life, it offers a rare chance for a supervisor
and subordinate to have "time out" for a one-on-one discussion of
important work issues that might not otherwise be addressed.
Almost universally, where performance appraisal is conducted

properly, both supervisors and subordinates have reported the experience
as beneficial and positive.
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Appraisal offers a valuable opportunity to focus on work activities and goals, to

identify and correct existing problems, and to encourage better future performance. Thus the
performance of the whole organization is enhanced.
For many employees, an "official" appraisal interview may be the only time they get
to have exclusive, uninterrupted access to their supervisor. Said one employee of a large
organization after his first formal performance appraisal, "In twenty years of work, that's the
first time anyone has ever bothered to sit down and tell me how I'm doing."
The value of this intense and purposeful interaction between a supervisors and
subordinate should not be underestimated.
• MOTIVATION AND SATISFACTION
Performance appraisal can have a profound effect on levels of employee motivation and
satisfaction - for better as well as for worse. Performance appraisal provides employees with
recognition for their work efforts. The power of social recognition as an incentive has been
long noted. In fact, there is evidence that human beings will even prefer negative recognition
in preference to no recognition at all.
If nothing else, the existence of an appraisal program indicates to an employee that the
organization is genuinely interested in their individual performance and development. This
alone can have a positive influence on the individual's sense of worth, commitment and
belonging.
The strength and prevalence of this natural human desire for individual recognition
should not be overlooked. Absenteeism and turnover rates in some organizations might be
greatly reduced if more attention were paid to it. Regular performance appraisal, at least, is a
good start.
• TRAINING AND DEVELOPMENT
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Performance appraisal offers an excellent opportunity - perhaps the best that will ever
occur - for a supervisor and subordinate to recognize and agree upon individual training and
development needs.
During the discussion of an employee's work performance, the presence or absence of

work skills can become very obvious - even to those who habitually reject the idea of training
for them!
Performance appraisal can make the need for training more pressing and relevant by
linking it clearly to performance outcomes and future career aspirations. From the point of
view of the organization as a whole, consolidated appraisal data can form a picture of the
overall demand for training. This data may be analyzed by variables such as sex, department,
etc. In this respect, performance appraisal can provide a regular and efficient training needs
audit for the entire organization.
• RECRUITMENT AND INDUCTION
Appraisal data can be used to monitor the success of the organization's recruitment and
induction practices. For example, how well are the employees performing who were hired in
the past two years?
Appraisal data can also be used to monitor the effectiveness of changes in recruitment
strategies. By following the yearly data related to new hires (and given sufficient numbers on
which to base the analysis) it is possible to assess whether the general quality of the
workforce is improving, staying steady, or declining.
• EMPLOYEE EVALUATION
Though often understated or even denied, evaluation is a legitimate and major objective
of performance appraisal. But the need to evaluate (i.e., to judge) is also an ongoing source of
tension, since evaluative and developmental priorities appear to frequently clash. Yet at its
most basic level, performance appraisal is the process of examining and evaluating the
performance of an individual.
Though organizations have a clear right - some would say a duty - to conduct such
evaluations of performance, many still recoil from the idea. To them, the explicit process of
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judgment can be dehumanizing and demoralizing and a source of anxiety and distress to
employees.
It is been said by some that appraisal cannot serve the needs of evaluation and
development at the same time; it must be one or the other. But there may be an acceptable
middle ground, where the need to evaluate employees objectively, and the need to encourage
and develop them, can be balanced.
Five Rules for Performance Appraisals
Performance appraisals can be stressful for both the manager and the employee
receiving the appraisal. The process of writing and delivering the appraisal can be eased,
however, by following these five guidelines:
A. Start the appraisal process at least two weeks prior to the appraisal meeting. Complete
the appraisal form in advance. This will allow you time to adequately consider each of
the areas of assessment and to think of examples that you can use in the assessment.
Gather any documentation you might need (i.e., notes-to-file, attendance records, last
year’s appraisal). Give the employee ample notice of the date and time of the
appraisal meeting, this will allow the employee to begin his/her preparation too.
B. Keep the examples observable and non-evaluative. Without explicitly linking an
assessment to an observation, managers risk confusing, angering, or demoralizing
their employees. The assessment, and the examples given in the assessment, should be
non-judgmental, that is, they should be based on observable facts and not personal
commentary. Wrong: “You’re always late. You lack discipline.”
C. Right: “In the last month you have been late-to-work four times.” In the above
examples, the Wrong statement is a judgment (you lack discipline), it is accusatory,
and it is generalized (always late). The Right statement references information that is
observable and can be verified if necessary. The employee cannot contest the
statement.
D. A word of caution: be aware of “halos” and “horns”. We tend to allow our personal
feelings toward an individual to bias the way in which we assess their work
performance. By basing your assessment on observable incidents and required job
standards you lessen the chance of the employee accusing you of giving a poor
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appraisal because you, “don’t like me.” Conversely, you will avoid giving a more
favorable appraisal to someone simply because you like them as an individual.
Everyone will be appraised, equally, based on their performance.
E. Evaluate the person against the standards of the job and against their prior year’s
development goal(s), if applicable. Do not evaluate a person’s work ability based on
what a co-worker is capable of doing. If the job description states that a person must
process 8 claims per hour, and they do, they are adequately meeting the standards of
the job. The fact that their co-worker can process 10 claims per hour has no bearing
on the first individual’s assessment. If the appraisal is a yearly process, and part of
that process is setting developmental goals, such as learning new software or taking
on additional responsibilities, these goals should be reviewed and assessed in terms of
completion and the quality of completion. If the goals have not been met, re-evaluate
them and transfer them to this year’s assessment if still applicable.
F. When setting future goals, or correcting poor performance, tell the employees what
the desired behavior looks like - tell them what you would like to see more of.
Frequently the employee doesn’t know what “correct” behavior to substitute for the
incorrect behavior. Additionally, if you cannot envision what the desired performance
is, neither can your worker.
G. Wrong: “You need to work on handling customers better.” Right: “Speak more slowly
when talking with customers. You and I know insurance inside and out, but remember
that most of what we speak about is very foreign to our customers.”The Wrong
statement, above, is too vague. The Right statement addresses a particular issue and
suggests a way to correct it.
H. Do not dominate the conversation. The appraisal isn’t about you. You should speak
approximately 40% of the time and let the employee speak 60% of the time. Build on
his/her ideas and comments. Ask the employee how s/he feels s/he is doing in the job.
Are there frustrations? Is there something new s/he would like to learn or additional
responsibility s/he would like to take on? What can you do to make the job more
enjoyable or more meaningful for the individual? Appraisals should be less about
judging past accomplishments and more about planning for future development.
People will happily work toward goals that they set, but rarely work happily toward
goals that are set for them.
I. Close the appraisal meeting in a positive manner. Gain agreement with the employee
regarding what was discussed and the goals that were set. Plan follow-up meetings if
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necessary. Ask the employee, “Is there anything else we should discuss?” S/he might
have been waiting for the “perfect” opportunity to bring something up and sensing
that the meeting is about to be over, will realize s/he should put it on the table now.
Thank the employee for their time and tell them that you have great faith in their
continued success with the company and the goals that were set.
• TWO FINAL THOUGHTS:
If at all possible, it is wise to separate appraisals and pay increases. While one (appraisal)
contributes to the other (pay increase), they are not dependent on each other. For example, if
Jane’s appraisal score last year was a four (out of a possible 4) and her pay increase was 5%;
and this year her appraisal is also a four, but the increase is 3%, how does one explain that to
the employee? Perhaps the lower pay increase is attributable to an economic downturn or
large capital investments that restrict the amount of available moneys.
By previously linking the appraisal score to a dollar amount, you’ve unnecessarily created
a one-to-one correlation and set the employee up for disappointment this year.
Also, keep in mind that appraisals are legal documents. They are one of the first things
looked at during legal investigations. The appraisal should be a record of information that has
been communicated to the employee regarding performance and management’s evaluation of
that performance. This fact reinforces the need for objective, standards based, appraisals.
It is your responsibility as a manager to develop your employees. Not only does having a
more talented staff make your life easier, but it reflects well on you.
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Evaluating Your Most Important Asset:
The Employee Performance Appraisal

Process
The employee performance appraisal enables you to identify, evaluate and develop an
individual's performance. It is a tool to encourage strong performers to maintain their high
level of performance and to motivate poor performers to do better.
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• OTHER IMPORTANT BENEFITS OF A FORMAL APPRAISAL

PROCESS ARE:
i. validation of hiring practices — are the right people in the right positions?
ii. provision of an objective measuring tool on which compensation decisions, and
promotions can be based
iii. identification of training needs — individually, departmentally and organizationally
iv. identification of employees who have the potential for advancement or who might be
better suited in other areas of the organization
In short, it is critical that your organization appropriately evaluate its employees. Let's see
how best to do it.
PERFORMANCE STANDARDS
A key component of the performance appraisal process is the creation of specific

performance criteria or competencies. These performance standards must be developed,
defined and communicated to the incumbent with performance monitored against those
standards throughout the year. Without equitable and objective standards, questions will
continue to arise about how performance is measured and how compensation decisions are
made.
The standards should be:
• included in the job description

• based on the position, not the present or former incumbent
• reasonable, measurable and specific
• subject to change as the position evolves
Once developed and communicated, the standards may need to be modified. In some
cases, they are revised as a result of feedback from the incumbent. This is especially true in
the case of a newly created position. In other instances, performance standards may need to
be revised for particular business units or departments as the focus of the organization
changes. In all instances, the performance standards should accurately reflect the skills,
behaviors and goals that the organization values.
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Here is an example of how standards might be modified. An organization's call center

employees or sales staff will typically be evaluated on how well they service the external
customer. However, many employees don't have the opportunity to "touch" the customer. If
your organization believes that service is its true value proposition, then you must consider
internal customer service. Doing so will ultimately enhance your external service. For
instance, employees of your service departments (i.e. systems, human resources, finance)
might best be evaluated utilizing a standard measuring how well they service other
departments within the organization.
PREPARING THE EVALUATION
Whether the actual evaluation tool is numerically based, a narrative overview or some
combination of both, the performance appraisal tool needs to be user friendly for the
manager, and easily understood by the employee. If numerical rankings or categories such as
"Above Average", "Below Average" and the like are used, a detailed definition should
accompany each category so that the standard is clear to the reviewer and the employee.
The evaluation should be a comprehensive and detailed account of the employee's

performance. Try to be specific. Use concrete examples whenever possible. Detail how the
employee met surpassed or fell short of the previously established performance standards and
goals.
There are at least three common mistakes to avoid. Too often, managers simply check
off a numerical rating on an evaluation form and then try to write a narrative justifying the
chosen rating. Actually, the process should be just the reverse. The reviewer should first
thoughtfully detail the employee's performance in each relevant area. The resulting narrative
will then allow you to naturally select the rating. Using this approach avoids the artificial task
of justifying a rating which was selected before you actually evaluated the employee's
performance.
A second common mistake is not making enough time available to complete the
process. Employees are an organization's most important asset. This is especially so in our
information based economy. You must take the appropriate time to properly complete the
employee performance appraisal process or the quality of your most important asset will
erode over time.
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A third type of problem is presented by overrating the average performer or

underrating the good one. A manager who avoids dealing with a poor performer and rates the
employee inappropriately high places the organization at risk if corrective action is necessary
in the future.
Finally, make sure that your performance appraisal tool is updated on a periodic basis
to remain relevant to your employees and business objectives.
TWO PRIMARY APPROACHES: "DATE OF HIRE" AND "FOCAL"

REVIEWS
Some organizations use a " date of hire" or anniversary date evaluation review. Others
use a focal review process that is tied to the organization's budget. There are advantages and
disadvantages to both approaches.
"Date of hire" or anniversary reviews allow managers to stagger evaluations

throughout the year. Some months there may not be any evaluations to complete. At other
times during the year, many may be necessary. Most managers indicate that the employee
evaluation process is less burdensome when the date of hire or anniversary date method is
employed. However, there are disadvantages. A manager can easily overspend the salary
increase portion of the budget in the beginning of the year leaving less money for good
performers whose anniversary dates fall at the end of the year. Additionally, it is difficult to
measure similarly tasked employees against each other when reviewing them at different
times of the year.
The focal review process coordinates employee reviews and related compensation
decisions with the company's budget process. All reviews are done at the same time.
Performance is evaluated in a more comparative setting than when the date of hire or
anniversary method is used. However, focal reviews place a heavy burden on managers who
have numerous direct reports. Additionally, focal reviews place a strenuous burden on the
payroll manager and have an immediate, substantial impact on cash flow because all of the
related salary increases occur at the same time.
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If you are thinking of converting from an anniversary date to a focal method of

employee evaluations, make sure you speak to a colleague who has made the change to get
her perspective.
DELIVERING THE PERFORMANCE APPRAISAL
The best performance appraisal will be perceived by the employee as a disaster if it is

not delivered effectively by the manager. "One-on-One" dialogue between the manager and
the employee is critical. The review should be conducted in a private, quiet place with plenty
of uninterrupted time set aside for a true dialogue, not a soliloquy by the manager.
Employees wait all year for this feedback even though there shouldn't be any surprises
if you have followed the process throughout the year. Most employees want an opportunity to
talk about how they think things are going. They want to be able to express their aspirations
and comment generally on the organization. While a self-evaluation tool can provide this
opportunity, uninterrupted discussion time with the manager shows employees that they are
indeed the valued asset they truly are. This personal exchange can also be used to set goals
for the following year and to confirm that the employee understands your expectations.
Whose job is this anyway?
Responsibility for the performance appraisal process resides with the organization's
supervisors and managers, not simply the human resource department. In fact, senior
management must support the process in order to create maximum value for the organization.
The human resource department functions merely as the coach. All managers, including
senior management, must take the field.
Think about it
The performance appraisal system should be

equitable, accurate and timely. It should create a
process whereby strong performers are
acknowledged and rewarded, average performers are encouraged and poor performers are
coached and counseled toward improvement or ultimately separated from the organization.
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Performance appraisal training can help your organization avoid the problems described in
this article by showing managers how to objectively measure performance, prepare an
evaluation, communicate with the employee and follow up as appropriate. The cost of this
training is minimal compared to the return you will receive on your investment. Remember,
employees are your most important asset!
Understanding Employee Performance
Accurately tracking and reporting employee performance can present a huge problem
for even the smallest of companies, not to mention much larger corporations. The value of
tracking employee performance is quite apparent. When all is said and done your business
needs to be profitable. If employee performance is not closely watched the business will
continue to allow underperforming employees to hurt the bottom line. The health of the
business depends on understanding and making informed decisions based on employee
performance research.
To this end a few business software technology companies have developed dashboard
solutions to ease the burden of tracking and understanding employee performance data.
Fittingly this dashboard software solution is commonly referred to as a performance
dashboard.
The information displayed by the performance dashboard is based on the leading

indicators of performance that your organization has identified. These leading indicators are
also thought of as key performance indicators. A key performance indicator serves as a
variable that helps quantify the level of performance any given employee is realizing.
For instance, in a sales environment one key performance indicator might be the level
of sales dollars a particular representative brings in each month. Continuing with this
example, as management examines the performance dashboard – which displays the key
performance indicators and their values for each employee – surely they will want to know
which employees are underperforming in terms of the amount of sales dollars they bring in
each month.
Management will probably weight the key performance indicators as they see fit,
then use the information displayed on the performance dashboard to rank the sales
representatives from best to worst. In this manner they can objectively examine employee
21
performance across the board and hopefully identify ways to improve the performance of
underperforming employees.
The real value of a performance dashboard really lies in being able to bring all
relevant information together in one spot and present it in such a way that the information is
understandable and can be interpreted accurately. A performance dashboard enhances the
decision making process as it relates to employee performance by saving managers valuable
time and providing them with equally valuable information so they can make the right
decision.
Any business that relies heavily on its employee workforce should seriously consider
using a performance dashboard to analyze employee performance. A performance dashboard
has proven its worth by helping countless managers get the most out of their employees by
identifying the strengths and weaknesses of their workforce.
Weaknesses can be fortified once they are recognized but if you are lacking the ability
to identify the key performance indicator that weighs in below average across the board then
you will have a hard time righting the ship. A performance dashboard helps you determine
which key performance indicator is a problem area and will require additional training to
boost employee performance.
Modern Methods Of Performance

Appraisal
• ASSESSMENT CENTRES
An assessment centre typically involves the use of methods like social/informal events,
tests and exercises, assignments being given to a group of employees to assess their
competencies to take higher responsibilities in the future. Generally, employees are given an
assignment similar to the job they would be expected to perform if promoted. The trained
evaluators observe and evaluate employees as they perform the assigned jobs and are
evaluated on job related characteristics.
22
The major competencies that are judged in assessment centers are interpersonal skills,
intellectual capability, planning and organizing capabilities, motivation, career orientation
etc. assessment centers are also an effective way to determine the training and development
needs of the targeted employees.
• BEHAVIORALLY ANCHORED RATING SCALES
Behaviorally Anchored Rating Scales (BARS) is a relatively new technique which

combines the graphic rating scale and critical incidents method. It consists of predetermined
critical areas of job performance or sets of behavioral statements describing important job
performance qualities as good or bad (for eg. the qualities like inter-personal relationships,
adaptability and reliability, job knowledge etc). These statements are developed from critical
incidents.
In this method, an employee’s actual job behavior is judged against the desired behavior
by recording and comparing the behavior with BARS. Developing and practicing BARS
requires expert knowledge.
Performance Factor Rating Scale
(Marks = 4) (Marks = 3) (Marks = (Marks = (Marks =

2) 1) 0)
EXCELLENT Good
Average Below Average Unacceptabl
Performance Performance e
frequently Performance Performance
consistently
fully Performance
exceeds exceeds requirements. sometimes
meets job meets below minimal
requirements; Performs the task and
requirements on requirements, acceptable
with minimum /or function a
consistently but not standards;
supervision and/or
consistent basis. consistently;
in a timely manner; immediate
direction,
improvement
initiates and/or improvement
achievements are
necessary.
volunteers; performs required.
well beyond those
the
expected at this
task and/or function at
level.
a
23
Performance Appraisal Percentage
Rating % of Rating Increase
1 Excellent ( Rating = 4) 80% - 100% 20%
2 Good ( Rating = 3) 60% - 80% 15%
3 Average ( Rating = 2) 40% - 60% 10%
4 Below Average ( Rating = 1) 20% - 40% 5%
5 Unacceptable ( Rating = 0) 0% - 20% 0%
• HUMAN RESOURCE ACCOUNTING METHOD
Human resources are valuable assets for every organization. Human resource accounting
method tries to find the relative worth of these assets in the terms of money. In this method
the Performance appraisal of the employees is judged in terms of cost and contribution of the
employees.
The cost of employees include all the expenses incurred on them like their compensation,
recruitment and selection costs, induction and training costs etc whereas their contribution
includes the total value added (in monetary terms). The difference between the cost and the
contribution will be the performance of the employees. Ideally, the contribution of the
employees should be greater than the cost incurred on them.
• 360-DEGREE-PERFORMANCE-APPRAISAL METHOD
Performance appraisal is the process of obtaining, analyzing and recording information

about the relative worth of an employee. The focus of the performance appraisal is
measuring and improving the actual performance of the employee and also the future
potential of the employee. Its aim is to measure what an employee does.
According to Flippo, a prominent personality in the field of Human resources,

“performance appraisal is the systematic, periodic and an impartial rating of an employee’s
excellence in the matters pertaining to his present job and his potential for a better job."
24
Performance appraisal is a systematic way of reviewing and assessing the performance

of an employee during a given period of time and planning for his future. It is a powerful
tool to calibrate, refine and reward the performance of the employee.
It helps to analyze his achievements and evaluate his contribution towards the
achievements of the overall organizational goals. By focusing the attention on performance,
performance appraisal goes to the heart of personnel management and reflects the
management’s interest in the progress of the employees.
25
Techniques in Performance Appraisal
In a landmark study, Locher & Teel (1977) found that the three most common
appraisal methods in general use are rating scales (56%), essay methods (25%) and results-
oriented or MBO methods (13%).
Certain techniques in performance appraisal have been thoroughly investigated, and

some have been found to yield better results than others.
• ENCOURAGE DISCUSSION
Research studies show that employees are likely to feel more satisfied with their appraisal
result if they have the chance to talk freely and discuss their performance. It is also more
likely that such employees will be better able to meet future performance goals.
Employees are also more likely to feel that the appraisal process is fair if they are given a
chance to talk about their performance. This especially so when they are permitted to
challenge and appeal against their evaluation.
• CONSTRUCTIVE
INTENTION
It is very important that employees

recognize that negative appraisal
feedback is provided with a
constructive intention, i.e., to help
them overcome present difficulties
and to improve their future
performance. Employees will be less anxious about criticism, and more likely to find it
useful, when they believe that the appraiser's intentions are helpful and constructive.
In contrast, other studies have reported that "destructive criticism" - which is vague,
ill-informed, unfair or harshly presented - will lead to problems such as anger, resentment,
26
tension and workplace conflict, as well as increased resistance to improvement, denial of

problems, and poorer performance.
• SET PERFORMANCE GOALS
It has been shown in numerous studies that goal-setting is an important element in

employee motivation. Goals can stimulate employee effort, focus attention, increase
persistence, and encourage employees to find new and better ways to work.
The useful of goals as a stimulus to human motivation is one of the best supported
theories in management. It is also quite clear that goals which are "...specific, difficult and
accepted by employees will lead to higher levels of performance than easy, vague goals (such
as do your best) or no goals at all."
• APPRAISER CREDIBILITY
It is important that the appraiser (usually the employee's supervisor) be well-informed and
credible. Appraisers should feel comfortable with the techniques of appraisal, and should be
knowledgeable about the employee's job and performance.
When these conditions exist, employees are more likely to view the appraisal process as
accurate and fair. They also express more acceptance of the appraiser's feedback and a greater
willingness to change.
Following are the different methods of Performance Appraisal. Each of these has its own
combination of strengths and weaknesses, and none is able to achieve all the purposes for
which management institutes performance appraisal systems.
Nor is any one technique able to evade all of the pitfalls. The best anyone can hope to do
is to match an appropriate appraisal method to a particular performance appraisal goal.
• ESSAY APPRAISAL
In its simplest form, this technique asks the rater to write a paragraph or more covering an
individual's strengths, weaknesses, potential, and so on. In most selection situations,
particularly those involving professional, sales, or managerial positions, essay appraisals
27
from former employers, teachers, or associates carry significant weight. The assumption
seems to be that an honest and informed statement -either by word of mouth or in writing-
from someone who knows a man well, is fully as valid as more formal and more complicated
methods.
The biggest drawback to essay appraisals is their variability in length and content.
Moreover, since different essays touch on different aspects of a man's performance or
personal qualifications, essay ratings are difficult to combine or compare. For comparability,
some type of more formal method, like the graphic rating scale, is desirable.
FORCED-CHOICE RATING
Like the field review, this technique was developed to reduce bias and establish
objective standards of comparison between individuals, but it does not involve the
intervention of a third party. Although there are many variations of this method, the most
common one asks raters to choose from among groups of statements those which best fit the
individual being rated and those which least fit him.
The statements are then weighted or scored, very much the way a psychological test is
scored. People with high scores are, by definition, the better employees; those with low
scores are the poorer ones. Since the rater does not know what the scoring weights for each
statement are, in theory at least, he cannot play favorites. He simply describes his people, and
someone in the personnel department applies the scoring weights to determine who gets the
best rating.
The rationale behind this technique is difficult to fault. It is the same rationale used in
developing selection test batteries. In practice, however, the forced-choice method tends to
irritate raters, who feel they are not being trusted. They want to say openly how they rate
someone and not be second-guessed or tricked into making "honest" appraisals.
A few clever raters have even found ways to beat the system. When they want to give
average employee Harry Smith a high rating, they simply describe the best employee they
know. If the best employee is Elliott Jones, they describe Jones on Smith's forced-choice
form. Thus, Smith gets a good rating and hopefully a raise.
28
An additional drawback is the difficulty and cost of developing forms. Consequently,

the technique is usually limited to middle- and lower-management levels where the jobs are
sufficiently similar to make standard or common forms feasible.
Finally, forced-choice forms tend to be of little value- and probably have a negative
effect- when used in performance appraisal interviews.
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CRITICAL INCIDENT APPRAISAL
The discussion of ratings with employees has, in many companies, proved to be a

traumatic experience for supervisors. Some have learned from bitter experience what General
Electric later documented; people who receive honest but negative feedback are typically not
motivated to do better - and often do worse - after the appraisal interview. Consequently,
supervisors tend to avoid such interviews, or if forced to hold them, avoid giving negative
ratings when the ratings have to be shown to the employee.
One stumbling block has no doubt been the unsatisfactory rating form used. Typically,
these are graphic scales that often include rather vague traits like initiative, cooperativeness,
reliability, and even personality. Discussing these with an employee can be difficult. The
critical incident technique looks like a natural to some people for performance review
interviews, because it gives a supervisor actual, factual incidents to discuss with an employee.
Supervisors are asked to keep a record, a "little black book," on each employee and to record
actual incidents of positive or negative behavior. For example:
Bob Mitchell, who has been rated as somewhat unreliable, fails to meet several deadlines
during the appraisal period. His supervisor makes a note of these incidents and is now
prepared with hard, factual data:
"Bob, I rated you down on reliability because, on three different occasions over the last two
months, you told me you would do something and you didn't do it. You remember six weeks
ago when I. . ."
Instead of arguing over traits, the discussion now deals with actual behavior. Possibly,
Bob has misunderstood the supervisor or has good reasons for his apparent "unreliability." If
so, he now has an opportunity to respond. His performance, not his personality, is being
criticized. He knows specifically how to perform differently if he wants to be rated higher the
next time. Of course, Bob might feel the supervisor was using unfairly high standards in
evaluating his performance. But at least he would know just what those standards are.
30
There are, however, several drawbacks to this approach. It requires that supervisors
jot down incidents on a daily or, at the very least, a weekly basis. This can become a chore.
Furthermore, the critical incident rating technique need not, but may, cause a supervisor to
delay feedback to employees. And it is hardly desirable to wait six months or a year to
confront an employee with a misdeed or mistake.
Finally, the supervisor sets the standards. If they seem unfair to a subordinate, might
he not be more motivated if he at least has some say in setting, or at least agreeing to, the
standards against which he is judged?
MANAGEMENT BY OBJECTIVES
To avoid, or to deal with, the feeling that they are being judged by unfairly high
standards, employees in some organizations are being asked to set - or help set - their own
performance goals. Within the past five or six years, MBO has become something of a fad
and is so familiar to most managers that I will not dwell on it here.
It should be noted, however, that when MBO is applied at lower organizational levels,
employees do not always want to be involved in their own goal setting. As Arthur N. Turner
and Paul R. Lawrence discovered, many do not want self-direction or autonomy. As a result,
more coercive variations of MBO are becoming increasingly common, and some critics see
MBO drifting into a kind of manipulative form of management in which pseudo-participation
substitutes for the real thing. Employees are consulted, but management ends up imposing its
standards and its objectives.
Some organizations, therefore, are introducing a work-standards approach to goal setting

in which the goals are openly set by management. In fact, there appears to be something of a
vogue in the setting of such work standards in white-collar and service areas.
WORK-STANDARDS APPROACH
Instead of asking employees to set their own performance goals, many organizations set
measured daily work standards. In short, the work standards technique establishes work and
staffing targets aimed at improving productivity. When realistically used, it can make
possible an objective and accurate appraisal of the work of employees and supervisors.
31
To be effective, the standards must be visible and fair. Hence a good deal of time is spent
observing employees on the job, simplifying and improving the job where possible, and
attempting to arrive at realistic output standards.
It is not clear, in every case, that work standards have been integrated with an
organization's performance appraisal program. However, since the work-standards program
provides each employee with a more or less complete set of his job duties, it would seem only
natural that supervisors will eventually relate performance appraisal and interview comments
to these duties. I would expect this to happen increasingly where work standards exist. The
use of work standards should make performance interviews less threatening than the use of
personal, more subjective standards alone.
The most serious drawback appears to be the problem of comparability. If people are
evaluated on different standards, how can the ratings be brought together for comparison
purposes when decisions have to be made on promotions or on salary increases? For these
purposes some form of ranking is necessary.
RANKING METHODS
For comparative purposes, particularly when it is necessary to compare people who work
for different supervisors, individual statements, ratings, or appraisal forms are not particularly
useful. Instead, it is necessary to recognize that comparisons involve an overall subjective
judgment to which a host of additional facts and impressions must somehow be added. There
is no single form or way to do this.
Comparing people in different units for the purpose of, say, choosing a service supervisor
or determining the relative size of salary increases for different supervisors, requires
subjective judgment, not statistics. The best approach appears to be a ranking technique
involving pooled judgment. The two most effective methods are alternation ranking and
paired comparison ranking.
Alternation ranking:
In this method, the names of employees are listed on the left-hand side of a sheet of
paper - preferably in random order. If the rankings are for salary purposes, a supervisor is
32
asked to choose the "most valuable" employee on the list, cross his name off, and put it at the
top of the column on the right-hand side of the sheet. Next, he selects the "least valuable"
employee on the list, crosses his name off, and puts it at the bottom of the right-hand column.
The ranker then selects the "most valuable" person from the remaining list, crosses his name
off and enters it below the top name on the right-hand list, and so on.
Paired-comparison ranking:
This technique is probably just as accurate as alternation ranking and might be more
so. But with large numbers of employees it becomes extremely time consuming and
cumbersome.
To illustrate the method, let us say we have five employees: Mr. Abbott, Mr. Barnes,
Mr. Cox, Mr. Drew, and Mr. Eliot. We list their names on the left-hand side of the sheet. We
compare Abbott with Barnes on whatever criterion we have chosen, say, present value to the
organization.
If we feel Abbott is more valuable than Barnes, we put a tally beside Abbott's name.
We then compare Abbott with Cox, with Drew, and with Eliot. The process is repeated for
each individual. The man with the most tallies is the most valuable person, at least in the eyes
of the rater; the man with no tallies at all is regarded as the least valuable person.
Both ranking techniques, particularly when combined with multiple rankings (i.e.,
when two or more people are asked to make independent rankings of the same work group
and their lists are averaged), are among the best available for generating valid order-of-merit
rankings for salary administration purposes.
33
Producing Premium Performance
Poor performance is often blamed on employees, but usually it is not purely their
fault. To achieve premium performance you need an effective performance
management framework. There are 7 elements to developing an effective performance
management framework which combine together to result in premium employee
performance. Find out why most performance appraisal processes don't work - and
how to create a system to achieve premium performance.
One of the major issues that arises in managing a small or medium size business is in
the area of employee performance. Many business owners are frustrated with the poor
performance of their team or some individuals within their team. No matter how hard they
try, they don’t seem to be able to create a sustainable improvement in performance. The
tendency is to blame the employees for poor performance. However, more often than not, the
problem stems from not establishing an effective performance management framework.
There are a number of elements that create a framework for producing premium
performance.
The most important element is to establish a clear description of the required outcome
of the job. This may be in terms of a position description if the job is broad and covers a
number of responsibilities. Or it may simply be providing a sample or a picture of an article
that should be produced by the work. When there is a clear understanding of the output
required, it is much more likely that result will be produced.
The second element requires establishing a best practice approach to doing the work. Often
there are many ways a job can be done, but usually only one way is the most efficient. A best
practice approach involves determining the best way to do the job and then requiring
everyone to do the job the same way to maximize efficiency.
The third element is to establish a timeframe or deadline for the completion of the
work. The employee will know if they are on track if they know how long the job should
take.
34
When you use a best practice approach and establish a timeframe for the work, you
can also provide a target for output over time. In other words, if you work so many hours
you should produce x amount of product. This allows us to establish a productivity target.
When an employee starts a new job, it is best to teach or train the person in how to
do the work. This may involve showing the new employee what is done for the first time or
two and then watching while the employee tries it a time or two, or until you are satisfied
they can do it without help. This is one of the most frustrating parts of the delegation process.
The time it takes to complete this element puts a lot of people off. They need to realize that
some short term pain leads to much long term gain, rather than allow the loss of some short
term productivity to keep them from ever delegating their difficult tasks.
A very important element that many forget in the delegation process is to establish a
process to measure and monitor results. One of the greatest dangers in business growth is
that of losing control because growth means we can no longer physically see everything that
goes on. Losing control leads to poor productivity and quality and escalating costs, all of
which will destroy your business if left unchecked. Control comes from knowing the results
of particular actions and being able to provide feedback or make changes if the results are
outside the parameters required.
The results achieved in a job over an extended period of time can be influenced
positively by developing an appraisal process. The appraisal process should provide
feedback to the employee about how they are performing in the job relative to expectations,
how their performance affects the success of the organization and how they interact with the
components of the organization around them.
The appraisal approach that gets best results is to adopt a coaching role with your
employees, rather than an examiner role. Too often, performance appraisal meetings are set
up for failure because the two parties come to the meeting with different objectives. The
manager wants to highlight areas of poor performance and take steps to improve these areas,
but the employee wants to be told how well they have done. This often occurs when
appraisals are held annually or six monthly and conflict is created when the judgments are
subjective.
35
The result usually is disappointment and demotivation on the part of the employee
and frustration from the manager. Both people hate the process and no effective outcome is
achieved. It is much better to conduct appraisal meetings frequently, to compare actual results
with targets, using objective rather than subjective measures. The coaching meetings then can
be used as a discussion focused on performance improvement, instead of a confrontation
about how the employee felt they had performed.
The final element of the performance management framework is the reward process.
Every positive outcome should result in a reward for the employee. This can be tangible or
intangible and dependent on the level of maturity and experience of the employee. For some
positions, it is appropriate for rewards to be small, frequent and immediate, where for other
positions, more long term and cumulative rewards are appropriate. However, this element is
often a neglected or an ill thought out part of the process and as such, has the potential to
undermine results.
A good reward process supports and enhances the management process and increases
motivation for achieving premium performance.
The important lesson to learn is that results can be influenced through establishing an
effective performance management framework which requires all elements to work together
effectively. Poor performance often results if any elements are either missing from the
process or are poorly designed and become a negative influence on performance. But a well
designed and coordinated framework means that all elements work together systematically to
produce premium performance.
36
Ten Tips for Creating a Employee

Appraisal System
Face the facts: Creating a new employee performance appraisal system is a difficult
undertaking. It’s even more difficult if the organization doesn’t have a logical, well-
tested, step-by-step process to follow in developing their new procedure.
• One
Get top management actively involved. Without top management’s commitment and
visible support, no program can succeed. Top management must establish strategic plans,
identify values and core competencies, appoint an appropriate Implementation Team,
demonstrate the importance of performance management by being active participants in the
process, and use appraisal results in management decisions.
• Two
Establish the criteria for an ideal system. Consider the needs of the four stakeholder
groups of any appraisal system: Appraisers who must evaluate performance; Appraisees
whose performance is being assessed; Human Resources professionals who must administer
the system; and the Senior Management group that must lead the organization into the future.
Identifying their expectations at the start helps assure their support once the system is finally
designed. Ask each group: "What will it take for you to consider this system a smashing
success?" Don’t settle for less.
• Three
Appoint an Implementation Team. This task force should be a diagonal slice of both
appraisers and appraises from different levels and functions in the organization. The
implementation team is responsible for accomplishing the two major requirements for a
37
successful system. First, developing appropriate appraisal forms, policies and procedures.
Second (and the task too often overlooked) assuring a successful deployment.
• Four
Design the form first. The appraisal form is a lightning rod that will attract everyone’s
attention. Design the form early and get lots of feedback on it. Don’t believe anybody who
tells you that the form isn’t important. They’re wrong. If you’re designing a new form
internally, make sure it assesses both behaviors and results.
• Five
Build your mission, vision, values, and core competencies into the form. Performance
appraisal is a means, not an end. The real objective of any performance management system
is to make sure that the company’s strategic plan and vision and values are communicated
and achieved. Core competencies expected of all organization members should be included,
described and assessed. If your mission statement isn’t clearly visible in the performance
appraisal system, cynicism will likely result. Values become real only when people are held
accountable for living up to them.
• Six
Assure on-going communication. Circulate drafts and invite users to make

recommendations. Keep the development process visible through announcements and regular
updates. Use surveys, float trial balloons, request suggestions and remember the cardinal
principle — "People support what they help create."
• Seven
Train all appraisers. Performance appraisal requires a multitude of skills — behavioral

observation and discrimination, goal-setting, developing people, confronting unacceptable
38
performance, persuading, problem-solving, planning, etc. Unless appraiser training is

universal and comprehensive, the program won’t produce much. And don’t ignore the most
important requirement of all: the need for courage.
• Eight
Orient all appraisees. The program’s purposes and procedures must be explained in
advance — and explained enthusiastically — to everyone who will be affected by it. Specific
skills training should be provided if the new performance management procedure requires
self-appraisal, multi-rater feed-back, upward appraisal, or individual development planning.
• Nine
Use the results. If the results of the performance appraisal are not visibly used in making
promotion, salary, development, transfer, training and termination decisions, people will
realize that it’s merely an exercise.
• Ten
Monitor and revise the program. Audit the quality of appraisals, the extent to which
the system is being used, and the extent to which the original objectives have been met.
(One of the great advantages of an online performance appraisal system is that all of these
data are available instantaneously.)
Provide feedback to management, appraisers and appraisees. Train new appraisers as

they are appointed to supervisory positions. Actively seek and incorporate suggestions for
improvement.
A company’s performance appraisal process is critically important. It answers the two

questions that every member of an organization wants to know: 1) What do you expect of
me? and 2) How am I doing at meeting your expectations? Using these ten tips will help you
develop or select a system to will give accurate and complete answers to everyone.
39
Performance Appraisal for Employees

at Different Levels
Performance appraisal is important for employees at all levels throughout the

organization. The parameters, the characteristics and the standards for evaluation may be
different, but the fundamentals of performance appraisal are the same. But as the level of the
employees’ increases, performance appraisal is more effectively used as the tools of
managing performance.
• PERFORMANCE APPRAISAL OF MANAGERS:
Appraising the performance of managers is very important, but at the same time, it is
one of the most difficult tasks in the organization. It is difficult because most of the
managerial work cannot be quantified i.e. it is qualitative in nature like leading his/her team,
guiding, motivating, planning etc.
Therefore, the two things to be noted and evaluated for the purpose of appraisals are:
• Performance in accomplishing goals, and

• Performance as managers
• PERFORMANCE IN ACCOMPLISHING GOALS
Managers are responsible for the performance of their teams as a whole. Performance in
accomplishing goals would mean to look at the completion or achievement of the goals set
for a team of employees which is being assigned to or working under a particular manager.
The best measuring criteria for a manager are hi goals, his plans of course of action to
achieve them and the extent of achievement of the goals.
40
• PERFORMANCE AS MANAGERS
The responsibilities of managers include a series of activities which are concerned with
planning, organizing, directing, leading, motivating and controlling. Managers can be rated
on the above parameters or characteristics
Criteria for measuring performance at different levels:
The criteria for measuring performance changes as the levels of the employees and their roles
and responsibilities change.
A few examples for each level are described below:
• For top level management

• Degree of organizational growth and expansion
• Extent of achievement of organizational goals
• Contribution towards the society
• Profitability and return on capital employed
• For middle level managers
• Performance of the departments or teams
• Co-ordination with other departments
• Optimal use of resources
• Costs Vs. revenues for a given period of time
• The communication with superiors and subordinates
• For front line supervisors
• Quantity of actual output against the targets

• Quality of output against the targets
• Number of accidents in a given period
• Rate of employee absenteeism
41
Current Global trends in Performance

Appraisal Program
The performance appraisal process has become the heart of the human resource management
system in the organizations. Performance appraisal defines and measures the performance of
the employees and the organization as a whole. It is a tool for accessing the performance of
the organization. The important issues and points concerning performance appraisal in
the present world are:
 The focus of the performance appraisals is turning towards career development

relying on the dialogues and discussions with the superiors.
 Performance measuring, rating and review systems have become more detailed,
structured and person specific than before.
 Performance related pay is being incorporated in the strategies used by the

organizations.
 Trend towards a 360-degree feedback system
 The problems in the implementation of the performance appraisal processes are being
anticipated and efforts are being made to overcome them.
 In India, the performance appraisal processes are faced with a lot of obstacles, the
most prominent being the lack of quantifiable indicators of the performance.
Global trends
The emergence of following concepts and the following trends related to Performance
appraisal can be seen in the global scenario:
• 360 DEGREE APPRAISAL
360 degree feedback, also known as 'multi-rater feedback', is the most comprehensive
appraisal where the feedback about the employees’ performance comes from all the sources
42
that come in contact with the employee on his job. Organizations are increasingly using
feedback from various sources such as peer input, customer feedback, and input from
superiors. Different forms with different formats are being used to obtain the information
regarding the employee performance.
• TEAM PERFORMANCE APPRAISAL
According to a wall street journal headline, “Teams have become commonplace in U.S.
Companies”. Most of the performance appraisal techniques are formulated with individuals in
mind i.e. to measure and rate the performance of the individual employee. Therefore, with the
number of teams increasing in the organizations, it becomes difficult to measure and appraise
the performance of the team. The question is how to separate the performance of the team
from the performance of the employees. A solution to this problem that is being adopted by
the companies is to measure both the individual and the team performance. Sometimes, team
based objectives are also included in the individual performance plans.
• RANK AND YANK STRATEGY
Also known as the “Up or out policy”, the rank and yank strategy refers to the
performance appraisal model in which best-to-worst ranking methods are used to identify and
separate the poor performers from the good performers. Then the action plans and the
improvement opportunities of the poor performers are discussed and they are given to
improve their performance in a given time period, after which the appropriate HR decisions
are taken. Some of the organizations following this strategy are Ford, Microsoft and Sun
Microsystems.
Why Do We Need Performance Appraisals?
Performance Appraisal is an objective system to judge the ability of an individual

employee to perform his tasks. A good performance appraisal system should focus on the
individual and his development, besides helping him to achieve the desired performance. This
means that while the results are important the organization should also examine and prepare
its human capital to achieve this result. This holds true even for new inductees.
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There is a strong linkage between induction, training and appraisal. In a large number
of firms worldwide, a new recruit is expected to discuss his schedule of work in achieving his
induction objective. This schedule of work becomes a part of his job for the next few months.
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RESEARCH AND SURVEY

{Overall Insurance Industry}
• Statement of the Problem:
Performance appraisal is a process of assessing, summarizing and developing the work performance
of an employee. In order to be effective and constructive, the performance manager should make
every effort to obtain as much objective information about the employee's performance as possible.
Low performance can push the organization back in today’s tough competition scenario. The project
is aimed at analyzing the performance appraisal in insurance companies.
• Objective:
The various objectives of our research are as follows:
A. To examine why an appraisal system is important
B. To study existing appraisal system in various organizations across Insurance

Industry
C. To find the expectation of appraiser and appraise

To determine the satisfaction level of the appraisee
D. To reveal the various loopholes in the appraisal system if any
E. To find the consequences of an inappropriately conducted appraisal system
• Research Methodology:
The data source: Primary as well as Secondary.
The research approach: Survey Method.
The research instrument: Questionnaire.
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The respondents: The Managers & Employees of various organizations.
The primary data was collected with the help of survey information. A concise questionnaire
was prepared keeping in mind the information specifications.
RESULTS
Findings from Appraisee Survey
1. Expectations from Appraisal System :
Respondents were asked to rank the various options according to their preference. (Rank 1
being most preferred and rank 6 being least preferred). Then scoring was given on the basis of
ranks. 1 mark was allotted to rank 1, 2 marks for rank 2 and so on.
Particular Score Overall Rank
Salary Administration and Benefits 87 1
Determination of promotion or transfer 109 2
Assistance in goal 228 3
Guideline for training plan 254 4
An insight into your strengths and weakness 312 5
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Decision to layoff 354 6
From the above table it can be seen that employees expect “Salary Administration and
Benefits” to be the main reason for conducting a Performance Appraisal. “Decision to layoff”
is of least importance as per the appraisee.
2. Awareness about Responsibilities :
From the graph it can be seen that majority of employees are aware about their
responsibilities, which implies that the appraisers have efficiently communicated to the
appraisees all the parameters that will be taken into account during appraisal.
3. Satisfaction Level among appraise regarding Appraisal System :
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From graph it can be seen that majority of the respondents are satisfied with the appraisal
system. Only a meager 30% were dissatisfied with the Performance Appraisal programs.
4. Awareness about performance ratings :
This clearly shows that majority of the employees are not aware about the performance
ratings that are taken into account while conducting a performance appraisal.
5. Alowing Self ratings :
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From graph it can be seen that majority of respondents want self rating to be a method of
conducting the appraisals .
6. Chance to rate your own performance
From the graph we can see that majority of the employees are not given a chance to rate their
own performance in the organization.
7. Timing of Appraisals
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This shows that most of the organisations conduct their Performance Appraisal programs
annually. A very small percentage of the organisations conduct Performance Appraisals on a
half yearly basis. The share of the quarterly and monthly appraisals are extremely minimal.
8. Credibility of Appraiser
This shows that according to the employees/appraisees the credibility of the appraiser is
extremely important and it has an effect on the overall Performance appraisal program.
9. Complaint channel for employees
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This shows that there is no proper complaint channel existing in the organisations for the
employees who are dissatisfied with the performance appraisal system.
10.Standards communicated to employees
From this it can be seen that there is a clear majority among the employees who say that the
standards on the basis of which the performance appraisal is carried out is not communicated
to the employees before hand.
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11.Performance Appraisal
Almost all the Performance Appraisals are carried our by the Immediate Supervisor in these
organisations. In very few organisations, Rating committees carry out the performance
appraisals. None of the organisations use Peer Appraisals, Appraisals by subordinates and
Self rating as a method of Performance Appraisal.
12.Clear understanding of Appraisee’s job
This shows that the performance Appraisal programs are successful in giving a clear
understanding of the appraisee’s job to both appraiser and appraisee.
13.Objectives of Appraisal System

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From the figure we can derive that the objective for conducting the Appraisal system is clear
only to half of the employees. The remaining half are not clear about the objective for which
the Performance Appraisal is carried out.
14.Good communication between top management and business goals
This shows that the appraisal systems do not provide a good communication flow of the top-
management plans and business goals to the staff below.
15.Comments and suggestions to be considered
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Almost all the employees expect that their comments and suggestions should be taken into
consideration while conducting the Performance Appraisal.
16.Post Appraisal interview
As per the response from the employees we can see that there is no interview conducted after
the appraisal program for majority of the employees.
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Findings from Appraiser Survey
1. Purpose of Appraisal
Respondents were asked to rank the various options according to their preference. (Rank 1
being most preferred and rank 6 being least preferred). Then scoring was done on basis of
these ranks. 1 mark was allotted to rank 1, 2 marks for rank 2 and so on. Then the total score
for each purpose was calculated and overall ranking was given.
Particular Score Overall Rank
Determination of promotion or transfer 24 1
Salary Administration and Benefits 27 2
Decision to layoff 42 3
Guideline for training plan 69 4
Assistance in goal 72 5
An insight into your strengths and weakness 81 6
From table it can be seen that appraiser considers “Determination of promotion or transfer” &
“Salary administration and Benefits” as two important factors for conducting an Appraisal.
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2. Appraisal System
In this question appraiser was asked to rate how helpful the appraisal system is, from the
graph it can be seen that majority of appraisers have rated 5,4 & 3 which implies that
Performance Appraisal system is very helpful in Planning their work. Also most of the
appraisers are satisfied with the appraisal system.
3. Support from subordinate
This question was asked to find out how helpful appraisal system is in communicating the
support that apprasier needs from appraisee. From results it is seen that the performance
appraisal system is very helpful in communicating the support and help needed by the
appraiser from the appraisee.
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4. Type of Appraisal System
From results its clear that majority of companies prefer to use “360 degree feedback” system
for Performance Appraisal. As 360 degree feedback gives feedback of appraisee from
everyone interacting with him, it is more reliable and hence most preferred.
5. Performance Appraisal criteria
From results we can see that Qualitative Process is considered as the most important criteria
for which the Performance appraisal programs are carried out, which shows that companies
consider Qualitiy of product & service and Customer satisfaction as most important factors.
6. Timing of Appraisals
57
From graphs we can see that most of companies conduct appraisals on annual basis. Some
companies conduct quaterly also.
7. Effect of poor Appraisal System
It can be seen from results that most of the employees get De-motivated because of a poorly
conducted appraisal. To some extent employees dont coordinate with their team members.
Thus resulting in reduction of output.
8. Communication between top management and staff
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All appraisers totally agree that performance appraisal helps in communicating the top
management plans and business goals to staff at lower level.
9. Insight to Apprasiee’s strength and weakness
It is evident from the results that performance appraisal system doesn’t help the appraiser in
understanding strength and weakness of apraisee.
10.Appraisee’s comment and suggestion
59
From the results it can be seen that appraisee’s comments and suggestion are not taken into
consideration before Performance Appraisal. Performance Appraisal system is designed by
appraiser without consulting appraisee.
11.Performance Appraisal
It is evident from the results that performance appraisal is conducted by the Immediate
Supervisor in all the companies.
12.Understanding of Apprasiee’s Job
60
From this it is clearly seen that according to appraiser there is a clear and joint understanding
of the appraisee’s job.
13.Standards for Performance Appraisal
From results it is evident that Performance appraisal standards are very well communicated to
Appraisee before the Appraisal is carried out.
14.Self rating in Performance Appraisal
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From results it can be clearly seen that the Appraisee is not given a chance to rate his own
performance.
15.Action after Performance Appraisal
This shows that most of the companies act upon the results of their Performance Appraisal program.
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FINDINGS AND RECOMMENDATIONS

 From the survey results its evident that both the appraisee’s and appraisers expectation
from Performance appraisal system are the same i.e. “Determination of Promotion or
Transfer” and “Salary Administration and Benefits”. Hence a single performance
appraisal system can satisfy needs of both the Appraiser and appraisee. Therefore the
Performance appraisal program would be designed in such a way that the appraiser would
be able to analyse the contribution of the employee to the orgaisation periodically and all
the employees who have been performing well would be rewarded suitably either by an
increase in the salary or a promotion. Through this the appraiser can also motivate the
employees who felt that they had no growth in the organisation and serves the purpose of
employee development.Thus performance appraisals can be used as a significant tool fo
career lanning.
 Analyzing ones own strengths and weaknesses is the best way of identifying the
potentials available, rather than the other person telling. Self-appraisal is a tool to analyze
oneself. One of the most important findings was that almost all the employees wanted
self-rating to be a part of performance appraisal program carried out by the organisation.
From the responses of the appraiser we can also see that Self rating is not encouraged by
the organisations. This could therefore be an important factor which leads to
dissatisfaction among the appraisees. At the end of the year of the appraisal period the
appraisal process should begin with self-appraisal by every employee. To appraise ones
own self on key performing targets and qualities, the appraisee would go through a
process of reflection and review. It is an established fact that change is faster when it is
self initiated. If any employee has to improve or do better, he must first feel the need to
do so. Reflection and review is a process that enables him to feel the need and improve
more upon his strengths and weaknesses
 Another point to be noticed is that even in the other forms of Performance Appraisal also
the employees expect that they should be given a chance to rate their own performance.
This can allow the employee to analyze ones own performance which gives new insights
on how one is performing and what are the critical points where he has to put his best and
improve upon
 The existence of a proper complain channel was also of utmost importance to the
appraisees. They should be given a chance to convey their greviences to the top
management.
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 The appraisees also expect that their comments and suggestions should be taken in to
account while conducting the appraisals. This expectation is not fulfilled as the appraisers
do not take their comments and suggestions into consideration. Therefore they should
look into this matter before it leads to dissatisfaction among the employees.
 The results also indicate that the there is no communication of top management plans and
business goal to the appraisee. The appraisers on the other hand feel that the goals and
plans have been clearly communicated to the appraisees. Communication is very essential
for any system to function efficiently. Therefore the appraisers should look into this
matter and see to it that the goals and plans are communicated effectively.
 The findings suggest that for success of Appraisal system the credibility of appraiser is of
utmost importance.
 As per the Appraiser, a poorly conducted appraisal system would lead to demotivation
and ineffective teamwok which will result in inefficient functioning and low productivity
in the organization. Therefore, if at all they feel there is dissatisfaction among the
appraisee’s they should motivate them. Achievement, recogntion, invelvement, job
satisfaction and development can motivate the employees to a large extent. Along with
this satisfactory working conditions and appropraite awards also play an important role.
 Also a majority of employees were satisfied with the current appraisal system although
they requested for some changes.
 Most of the employees were also not clear about the criteria on which ratings were given
to each employee while conducting the performance appraisal. Instead of secrecy there
should be openess. Because of lack of communication, employees may not know how
they are rated. The standards by which employees think they are being judged are
sometimes different from those their superiors actually use. Proper communication of
these ratings can help the employers achieve the level of acceptability and commitment
which is required from the employ.
 From the survey we can also derive that the appraisee’s expect a post appraisal interview
to be conducted wherein they are given a proper feedback on their performance and they
can also put forward their complaints if any. The appraisal should also be followed up
with a session of counseling which is often neglected in many organizations. Counseling
involves helping an employee to identify his strengths and weaknesses to contribute to his
growth and development. Purpose is to help an employee improve his performance level,
maintain his morale, guide him to identify and develop his strong points, overcome his
weak points, develop new capabilities to handle more responsibilities, identify his
training needs.
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Conclusion
Performance appraisal is a formal review of employee performance. At a performance
appraisal, objectives or targets are agreed between manager and employee. At each
subsequent appraisal, current and past performance is compared and targets are reviewed. It
is a prescribed system with a meeting arranged after a set period to review the targets set by
the previous appraisal. This may be six-monthly or annually, depending on your organization.
Nonetheless, the performance appraisal is not only a means to review performance standards
and specific targets. It is a means to:
1. Identify current job performance levels
2. Identify individual employee strengths and weaknesses
3. Motivate and encourage the individual employee
4. Reward employees for their contribution to organizational objectives
5. Identify training and development needs
6. Identify potential performance standards
7. Plan future development of the individual
8. Discuss salary, promotion and training
The performance appraisal assesses individual employees in terms of their job

performance. Training evaluates individual employees in terms of knowledge, skills and
behaviour, and how they affect overall performance and the achievement of individual and
organizational goals.
A performance appraisal is looking for results, where the role of training is to direct
the process of achieving results. The final stage in the performance appraisal is the action
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plan to achieve targets. The appropriate action may require training to increase knowledge,
improve skills or change behaviour.
66

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PERFORMANCE APPRAISAL SYSTEM IN INSURANCE

The process was firmly linked to material outcomes. If an employee's performance

As a result, the traditional emphasis on reward outcomes was progressively rejected.

• Definition of Performance Appraisal

“Appraisal is a process that provides an analysis of a Person’s overall capabilities and

Typically, performance appraisal has

With downsizing and reduced hierarchies in organizations, as well as the increasing

An upward-appraisal process or feedback survey (sometimes referred to as a SAM,

Executive Order 12862, Setting Customer Service Standards, requires agencies to

Effective performance appraisal systems contain two basic systems operating in

From the employee viewpoint, the purpose of performance appraisal is four-fold:

(1) Tell me what you want me to do

(2) Tell me how well I have done it

(3) Help me improve my performance

(4) Reward me for doing well.

accountable. The objective is to align responsibility and accountability at every

• DEVELOPMENTAL PERFORMANCE APPRAISAL PURPOSES

The developmental approach to performance appraisal has been related to employees as

3. Provided a structure for communications between employees and management to help

• EXPECTATIONS OF A MANAGER IN DOING A

i. Translate organizational goals into individual job objective.

Objectives of Performance Appraisals

1. To effect promotions based on competence and performance

BROADLY, PERFORMANCE APPRAISAL SERVES FOUR

Pre-requisites for Effective & Successful Performance Appraisal

The essentials of an effective performance system are as follows:

• Documentation – means continuous noting and documenting the performance. It

• Standards / Goals – the standards set should be clear, easy to understand,

• Evaluation technique – An appropriate evaluation technique should be selected;

• Communication – Communication is an indispensable part of the Performance

• Feedback – The purpose of the feedback should be developmental rather than

Perhaps the most significant benefit of appraisal is that, in the rush

Almost universally, where performance appraisal is conducted

Appraisal offers a valuable opportunity to focus on work activities and goals, to

• MOTIVATION AND SATISFACTION

• TRAINING AND DEVELOPMENT

During the discussion of an employee's work performance, the presence or absence of

• RECRUITMENT AND INDUCTION

Five Rules for Performance Appraisals

• TWO FINAL THOUGHTS:

Evaluating Your Most Important Asset:

The Employee Performance Appraisal

• OTHER IMPORTANT BENEFITS OF A FORMAL APPRAISAL

A key component of the performance appraisal process is the creation of specific

The standards should be:

• included in the job description

Here is an example of how standards might be modified. An organization's call center

PREPARING THE EVALUATION

The evaluation should be a comprehensive and detailed account of the employee's

A third type of problem is presented by overrating the average performer or

TWO PRIMARY APPROACHES: "DATE OF HIRE" AND "FOCAL"

"Date of hire" or anniversary reviews allow managers to stagger evaluations

If you are thinking of converting from an anniversary date to a focal method of

DELIVERING THE PERFORMANCE APPRAISAL

The best performance appraisal will be perceived by the employee as a disaster if it is

Whose job is this anyway?

The performance appraisal system should be

Understanding Employee Performance

The information displayed by the performance dashboard is based on the leading

Modern Methods Of Performance