Performance appraisals grant upper management an opportunity to reward

excellent performance or reprimand unsatisfactory performance. This powerful

managerial tool should directly reflect the overall organization's goals and
objectives; the employee assessment should provide useful feedback about the
employee's contributions or lack of contributions toward these goals.

Limitations of the study:

In spite of much care has taken by the project trainee, but the following
limitations are inevitable such as

➢ Majority of the sample respondence are not in a position to express their

free opinions regarding performance appraisal system.
➢ Many of the sample respondence are very busy in their schedules and they
could not able to spend much more time with the project trainee.

Period taken for the study:

The present project report “An Empirical Evaluation on Performance

Appraisal Management of KCP Sugar and Industries corporate limited,
vuyyuru” has been compiled with the data available from 2009-2010 to 2017-
2018 and no attempt has been made regarding the previous performance
appraisal system.

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 CHAPTER - II

This chapter seeks present the concept of performance appraisal,

nature of performance appraisal, purpose of performance appraisal, sources of
performance appraisal, methods of performance appraisal, characteristics of
performance appraisal, Objectives of performance appraisal.

Introduction:

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." 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.

Nature:

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 Appraisal the performance of individuals, groups and organizations is a
common practice of all societies. While in some instances these appraisal
processes are structure and finally sanctioned, in other instances they are an
informal and integral part of daily activities.

Performance appraisal is a method of evaluating the behavior of

employees in the work spot, normally including both the quantitative and
qualitative aspects of job performance. Performance here refers to the degree of
accomplishment of the tasks that make up an individual’s job.

Performance evaluation or performance appraisal is the process of

assessing the performance and progress of an employee or of a group of employees
on a given job and his potential for future development.

Formal Definition:

“It is the systematic evaluation of the individual with respect to his/her

performance on the job and his/her potential for development”.

-- FLIPPO

“Performance appraisal is the systematic, periodic and an impartial

rating of an employee’s excellence in matters pertaining to his present job and his
potential for a better job.”

Purpose of Performance Appraisal:

Performance Appraisal is being practiced in 90% of the

organizations worldwide. Self-appraisal and potential appraisal also form a part
of the performance appraisal processes.

Typically, Performance Appraisal is aimed at:

➢ To review the performance of the employees over a given period of time.

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 ➢ To judge the gap between the actual and the desired performance.
➢ To help the management in exercising organizational control.
➢ To diagnose the training and development needs of the future.
➢ Provide information to assist in the HR decisions like promotions, transfers
etc.
➢ Provide clarity of the expectations and responsibilities of the functions to
be performed by the employees.
➢ To judge the effectiveness of the other human resource functions of the
organization such as recruitment, selection, training and development.
➢ To reduce the grievances of the employees.
➢ Helps to strengthen the relationship and communication between superior
– subordinates and management – employees.

Characteristics:

The most significant reasons of using Performance appraisal are:

➢ Making payroll and compensation decisions.

➢ Training and development needs.
➢ Identifying the gaps in desired and actual performance and its cause.
➢ Deciding future goals and course of action.
➢ Promotions, demotions and transfers.
➢ Other purposes including job analysis and providing superior support,
assistance and counseling.

Objectives of Performance Appraisal:

The main purposes of Performance appraisal are as follows:

➢ To review the performance of the employees over a given period of time.

➢ To judge the gap between the actual and the desired performance.
➢ To help the management in exercising organizational control.
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 ➢ Helps to strengthen the relationship and communication between superior
– subordinates and management – employees.
➢ To diagnose the strengths and weaknesses of the individuals so as to
identify the training and development needs of the future.
➢ To provide feedback to the employees regarding their past performance.
➢ Provide information to assist in the other personal decisions in the
organization.
➢ Provide clarity of the expectations and responsibilities of the functions to
be performed by the employees.
➢ To judge the effectiveness of the other human resource functions of the
organization such as recruitment, selection, training and development.

Process of Performance Appraisal:

The performance appraisal process is a process that evaluates

employee performance. Normally it compares quality, quantity, cost, and
time. Some of the things that performance appraisal are used to do would be.

▪ Give something tangible to the employee regarding their work

performance.
▪ Shows what training employees need.
▪ Determines what the employees raise might be.

There are some other things that performance appraisals do; these are
just some of them. There are some procedures that you should put in work at
your work place. This will help the employees know what you are expecting of
them, and also establish a standard within your work that everyone will be able
to understand and follow. Some of these things would be listed here.

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✓ Establishing performance standards.
✓ Communicate standards and expectations.
✓ Set up a system that measures actual performance.
✓ Compare employee with the standards implemented.
✓ Discuss results with employee.
✓ Make a decision on what you are going to do, or take corrective action.

Establishing performance
Standards

Communication standards
and expectations

Measuring the actual

performance

Comparing with standard

Discussing results

(Providing feedback)

Decision making-take
corrective actions

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Establishing Performance Standards:

The first step in the process of performance appraisal is the setting

up of the standards which will be used to as the base to compare the actual
performance of the employees. This step requires setting the criteria to judge the
performance of the employees as successful or unsuccessful and the degrees of
their contribution to the organizational goals and objectives. The standards set
should be clear, easily understandable and in measurable terms.

Communicating the Standards:

Once set, it is the responsibility of the management to communicate

the standards to all the employees of the organization. The employees should be
informed and the standards should be clearly explained to them. This will help
them to understand their roles and to know what exactly is expected from them.
The standards should also be communicated to the appraisers or the evaluators
and if required, the standards can also be modified at this stage itself according
to the relevant feedback from the employees or the evaluators.

Measuring the Actual Performance:

The most difficult part of the Performance appraisal process is

measuring the actual performance of the employees that is the work done by the
employees during the specified period of time. It is a continuous process which
involves monitoring the performance throughout the year. This stage requires the
careful selection of the appropriate techniques of measurement, taking care that
personal bias does not affect the outcome of the process and providing assistance
rather than interfering in an employees work.

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Comparing the actual with the desired performance:

The actual performance is compared with the desired or the standard

performance. The comparison tells the deviations in the performance of the
employees from the standards set.

The result can show the actual performance being more than the
desired performance or, the actual performance being less than the desired
performance depicting a negative deviation in the organizational performance. It
includes recalling, evaluating and analysis of data related to the employee’s
performance.

Discussing Results:

The result of the appraisal is communicated and discussed with the

employees on one-to-one basis. The focus of this discussion is on communication
and listening. The results, the problems and the possible solutions are discussed
with the aim of problem solving and reaching consensus.

Decision making:

The last step of the process is to take decisions which can be taken
either to improve the performance of the employees, take the required corrective
actions, or the related HR decisions like rewards, promotions, demotions,
transfers etc.

Challenges of performance Appraisal:

An organization comes across various problems and challenges Of

Performance Appraisal in order to make a performance appraisal system effective
and successful. The main Performance Appraisal challenges involved in the
performance appraisal process are:

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 • Determining the Evaluation criteria:

Identification of the appraisal criteria is one of the biggest problems

faced by the top management. The performance data to be considered for
evaluation should be carefully selected. For the purpose of evaluation, the criteria
selected should be in quantifiable or measurable terms.

• Create a Rating Instrument:

The purpose of the Performance appraisal process is to judge the

performance of the employees rather than the employee. The focus of the system
should be on the development of the employees of the organization.

• Lack of competence:

Top management should choose the raters or the evaluator carefully.

They should have the required expertise and the knowledge to decide the criteria
accurately. They should have the experience and the necessary training to carry
out the appraisal process objectively.

• Errors in rating and evaluation:

Many errors based on the personal bias like stereotyping, halo effect
(i.e. one trait influencing the evaluator’s rating for all other traits) etc. may creep
in the appraisal process. Therefore the rater should exercise objectivity and
fairness in evaluating and rating the performance of the employees.

Methods of Performance Appraisal:

The various methods and techniques used for Performance appraisal

can be categorized as the following traditional and modern methods

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 Methods of Performance
Appraisal

Traditional Methods Modern Methods

❖ Assessment
❖ Graphic Rating Scales Centers
❖ Straight Ranking ❖ 360-Degree
Method Performance
❖ Paired Comparison Appraisal
Method ❖ Behaviorally
❖ Critical Incident Anchored Rating
Method Scales
❖ Confidential Reports ❖ Management by
❖ Group Appraisal Objectives
Method ❖ Human resource
❖ Other Methods Accounting

Traditional methods:

➢ Graphic rating scales method:

It is a numerical scale indicating different degrees of a particular

train. The rate is given a printed form for each employee to be rated. The form
contains several characteristics relating to the personality and performance of
employee. Intelligence, attitude, quality of world, leadership skills judgment, etc.
this method is widely used as it is easy to understand. It allows a statistical
tabulation of scores and a ready comparison of scores among the employees is

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possible. The approach is multi-dimensional as several significant dimensions of
the job can be considered in evaluation.

➢ Ranking method:

Ranking method is a technique; evaluator assigns relative ranks to

all employees in the same work unit doing the same job. Employees are ranked
from the best to the poorest on the basis of overall performance. The relative
passion of an employee is reflected in the numerical rank. It is one of the simplest
methods. It is time saving and comparative evaluation technique of appraisal.

➢ Paired comparison method:

This is a modified form of man to man ranking. Here in, each

employee is compared with all others in pairs on at a time. The number of times
an employee is judged better than other determines his rank. Comparison is made
on the basis of overall performance.

➢ Critical incident method:

In this method the superior keeps a written record or critical (either

good or bad) events and how different employees behaved during such events.
The rating of the employee depends on the positive or the negative behavior
during these events. These critical incidents are identified after through study of
the job and discussions with the staff.

➢ Confidential reports:
It is mostly used in government organizations. It is a descriptive
report prepared generally at the end of every year, by the employee’s
immediate superior. The report highlights the strengths and weakness of
the subordinate. This report is generally not made public and hence no
feedback is available. In recent years due to pressure from courts and trade

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 unions, the details of a negative confidential report are given to the
appraise.
➢ Group appraisal method:

Under this method, a group of evaluators assess employees. This

group consists of the immediate supervisors of the employee, other supervisors
having close contact with the employer’s work, head of the department and a
personnel expert. The group determines the standards of performance for the job,
measure actual performance of an employee, analysis the causes of poor
performance and offers suggestions for improvements in future.

➢ Other methods:
• Forced Choice Distribution Method:

In this method, the rating elements are several sets of pair’s phases
or adjectives relating to job proficiency or personal qualification. The rather is
asked to indicate which of the phrases is most and least descriptive of the
employee.

• Checklist Method:

In this method, series of questions are presented concerning an

employee’s behavior. Here rater does not evaluate employee performance; he
supplies reports about it and the personnel department does the final rating.

• Free Essay Method:

In this method, the supervisor makes a free form, open-ended about

the employee in his own words and puts down his impression about the employee.
The description is always as factual and concrete as possible.

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• Field Review Method:

In this method, a trainer employee from the personnel department

interviews line supervisors to evaluate respective subordinates. The supervisor is
required to give his opinion about the progress of his subordinates and his plan of
action in cases requiring for consideration.

The traditional methods given above focus on the traits of an

employee than his job performance. In the absence of predefined performance
criteria or standards, the personal bias or subjectivity of the evaluator affects the
rating. This approach caused the following responses:

▪ The very nature of the appraisal system led to criticism.

▪ Criticism exercised a negative impact on goal attainment.

▪ Criticism increased antagonism and defensiveness among

employees resulting in inferior performance.

▪ Managers generally are not qualified to assess personality traits.

▪ Some managers discourage good performance by over emphasizing

shortcomings and almost neglecting good work.

In order to overcome these weaknesses some new techniques of

performance appraisal have been developed.

Modern methods:

➢ Assessments center method:

An assessment center is a group employee drawn from different

work units. These employees work together on assignments similar to the one
they would be handling when promoted. The most important feature of the
assessments center is job-related simulations. Evaluators observe and rank the

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performances of all participants. This group evaluates all employees are both
individually and collectively by using simulations techniques like role-playing,
business games and in-basket exercises? Employees are evaluated on the basis of
job related characteristics considered important for job success.

➢ 360 degrees performance appraisal:

This is a new concept in performance appraisal, where the feedback

is collected from all around the employee, the superior, the subordinates, the peer
group, and the customers. The evaluation is very comprehensive in terms of the
employee’s skills, abilities, styles and job-related competencies.

➢ Behavioral anchored rating scales (BARS):

This method combines graphic rating with critical incidents method.

BARS are descriptions of various degrees of behavior relating to specific
performance dimensions. Critical areas of job performance and the most effective
behavior for getting results are determined in advance. The rater records the
observable job behavior of an employee and compares these observations with
BARS.

➢ Management by objectives (MBO):

The concept of management by objectives was developed by Peter

Drucker in 1954.since then MBO has become an effective and operational
technique of performance appraisal and a powerful philosophy of managing.

➢ Human resource accounting method:

Human resources are a valuable asset for any organization. This

asset can be valued in terms of money. When competent and well -trained
employees leave an organization the human asset ids decreased and vice versa.

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Under this method performance is judged in terms of costs and contributions of
employees.

Costs of human resources consists of expenditure on human resource

planning, recruitment, selection, induction, training, compensation, etc.
contribution of human resources is the money value of labor productivity or value
added by human resources.

Short comings of performance appraisal:

The ideal approach to performance evaluation is that in which the

evaluator is free from personal biases, prejudices and idiosyncrasies. This is
because when an evaluation is objective, it minimizes the dysfunctional
behavioral of the evaluator, which may be detrimental to the achievement of
organizational goals. The factors which impede objective evaluations are;

• The halo effect:

The halo effect is a “tendency to let the assessment of an individual

one trait influence the evaluation of that person on other specific traits.” There is
this effect in appraisal when the appraiser assigns the same rating to all traits
regardless of an employee’s actual performance on these traits.

The halo effect problem can be alleviated by:

▪ Providing a training programmer to the evaluators.

▪ Restructuring the questions by requiring the evaluator to consider

each question independently.

• Leniency or strictness tendency

Every evaluator has own value system which acts as a standard

against which he makes his appraisals. Relative to the true or actual performance

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an individual exhibits, some supervisors have a tendency to be liberal in their
rating that is they may have a tendency to assign consistently ‘low rating’.

• The central tendency problem

It is the most commonly found error. It assigns “average rating” to

all the employees with a view to avoiding commitment or involvement; or when
the rate is in doubt or has inadequate information or lack of knowledge about the
behavior of the employee, or when he does not have much time at his disposal.
The ranking tools discussed earlier are aimed at avoiding this problem.

• Similarity error

This type of error occurs when the evaluator rates other people in the
same way he perceives himself. This error also washes out if the same evaluator
appraises all the people in the organization.

• Miscellaneous biases

Bias against employees on ground of sex, race religion or position is

also a common error in rating. For example, a higher rating may be given to a
senior employee. The rater may also be influenced by organizational influence
and give higher rating to those holding higher positions.

• Social differentiation

Rating is sometimes impeded by the evaluator’s style of behavior.

Pious has classified raters as ‘high differentiators’- that is using most of the scale
or ‘low differentiators’-that is using a limited range of the scale. “Low
differentiators” tend to ignore or suppress differences, perceiving the universe as
more uniform than it really is.

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 • Spillover effect

This type of error occurs when past performance rating influences the
current rating.

Steps for making appraisal successful:

✓ Existence of an atmosphere of confidence and trust.

✓ The results of performance rather than personality traits should

be given due weight.

✓ The supervisor should analyze the strengths and weaknesses of

the employee and advise him.

✓ The appraisal programmed should be less time-consuming and

less costly.

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