Human

Resource Management (PGDM- 3T Sec B)

PERFORMANCE MANAGEMENT SYSTEM

Things to remember
1. Difference between performance & potential
2. Difference between performance management system and performance
appraisal
3. Process of appraisal
4. Methods of performance appraisal
5. Errors in appraisal

DIFFERENCE BETWEEN POTENTIAL & PERFORMANCE:

People may be able to perform to a very high standard but within the
context of the given role.
May not be capable of moving up a level
Performance is about NOW & potential is about performance in the
FUTURE
The real damage is done when the high performance employee is
promoted to a managerial level, is uncomfortable and struggles in the
new role, resulting in high levels of stress and anxiety causing him/ her to
quit.

Potential appraisal is the process of tracking unrevealed skills & abilities in

aperson that he himself is unaware of; to identify people for higher positions &
responsibilities.

Appraisal of the hidden

qualities of an
employee which might
be not known to
employee also.
On the basis of future
job he can handle.

For hidden
development

skill

Future oriented
Potential Appraisal

Evaluation of the
employee performance.

On the basis of the work

done by the employee.
For practical
development

skill

Based on past & present.

Performance Appraisal
Dr. Pallavi srivastava

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Human Resource Management (PGDM- 3T Sec B)

Potential appraisal is included as part of performance appraisals in

organizations.
Gap Analysis: Used to compare the difference between actual performance and
potential or desired performance.
Date: _______________
S. No.
1.
2.
3.
4.

KRA

Employee Name: ________________________________

Current Standing

Deficiency

Action Plan

FIGURE 1 GAP ANALYSIS FORMAT

The Performance & Potential Matrix
(The 9-box Model or Inverted-L Model):
The performance and potential matrix, commonly referred to as the nine box,
is a simple yet effective tool used to assess talent in organizations. It assesses
individuals on two dimensions their past performance and their future
potential.

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FIGURE 2 NINE BLOCK MODEL

PERFORMANCE MANAGEMENT SYSTEM (PMS):

A strategic and integrated approach to delivering sustained successs to

organizations by improving the performance of the people who work in
them and by developing the capabilities of teams and individual
contributors.

A process that consolidates goal setting, performance appraisal, and

development into a single, common system, the aim of which is to ensure
that the employees performance is supporting the companys strategic
aims.

PERFORMANCE APPRAISAL:

A process, typically performed annually by a supervisor for a subordinate.

Includes Setting work standards, assessing performance, and providing
feedback to employees to motivate, correct, and continue their
performance.

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Human Resource Management (PGDM- 3T Sec B)

PURPOSE OF PMS
i.

Performance improvement: in order to achieve organizational, team

and individual effectiveness.

ii.

Facilitate employee development: Determine specific training &

development needs; Assess individual & team strengths & weaknesses;
Developing the core competences of the organization and the capabilities
of individuals & teams.

iii.

Determine appropriate rewards & compensation: Salary, promotion,

retention, & bonus decisions; Employees must understand & accept
performance feedback system.

iv.

Enhance employee motivation: Employee acknowledgment & praise

reinforces desirable behaviours & outcomes.

v.

Facilitate legal compliance: Documentation is strong defense against

charges of unlawful bias

vi.

Facilitate HR planning process; Alert organization to deficiencies in

overall level & focus of employee skills

vii.

Communication & involvement; To create a climate in which a

continuing dialogue between managers & team members to define
expectations & share information on organizations mission, values &
objectives.

ROLE OF HR DEPARTMENT:

Serves in the policy making and advisory role

Provides advice & assistance regarding the appraisal tool to use
Train supervisors to improve their appraisal skills
Monitors the appraisal system effectivenss & compliance with relevant
laws & guidelines.

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Human Resource Management (PGDM- 3T Sec B)

FIGURE 3 STRATEGIC CHOICES IN PERFORMANCE EVALUATION

WHO EVALUATES?
a) Traditionally, the immediate supervisor

Problems with immediate supervisors conducting performance

evaluations:
Lacking appropriate information to provide informed feedback on
employee performance
Insufficient observation of employees day-to-day work to validly assess
performance
Lack of knowledge about technical dimensions of subordinates work
Lack of training or appreciation for evaluation process
Perceptual errors by supervisors that create bias or lack of subjectivity in
evaluations.

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Human Resource Management (PGDM- 3T Sec B)

b) Peers
Only effective when political considerations & consequences are
minimized, & employees have sense of trust
c)

Subordinates
Insights into interpersonal & managerial styles
Excellent measures of individual leadership capabilities
Same political problems as peer evaluations

d) Customers
Feedback most free from bias
e) Self-evaluations
Allow employees to participate in critical employment decisions
More holistic assessment of performance
f) Multi-rater systems or 360-degree feedback systems
Seeks performance feedback from supervisors, peers, employees,
customers and the like evaluate the individual.
Used by approximately 90% of the Fortune 1000 firms
Due to delayering supervisors have greater work responsibility & more
people reporting directly to them hence difficult to know each employee
extensively.
Peers included because of growth of project teams.
Can be very time-consuming
More performance data collected, greater overall facilitation of
assessment & development of employee
Costly to collect & process
Consistent view of effective performance relative to strategy

WHAT TO EVALUATE?
1. Traits measures: Assessment of how employee fits with organizations
culture, not what s/he actually does
2. Behaviour-based measures: Focus on what employee does correctly &
what employee should do differently
3. Results-based measures (e.g. KRAs): Focus on accomplishments or
outcomes that can be measured objectively

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a. Problems occur when results measures are difficult to obtain,

outside employee control, or ignore means by which results were
obtained
b. Limitations:
i. Difficult to obtain results for certain job responsibilities
ii. Results sometimes beyond employees control
iii. Ignores means or processes
iv. Fails to tap some critical performance areas

HOW TO EVALUATE?
I.

Absolute measurement: Measured strictly by absolute performance

requirements or standards of jobs

II.

Relative assessment: Measured against other employees & ranked on

distance from next higher to next lower performing employee
Ranking allows for comparison of employees but does not shed light on
distribution of performance.

METHODS OF PERFORMANCE APPRAISAL/ EVALUATON

Methods

Rating

Graphic rating
Scales

Behaviourally
Anchored Rating
Scales (BARS)

Ranking

Alternation
Ranking Method

Paired
comparison

Forced Ranking/
Distribution

Annual
Conhidential
Reports (ACR)

Narrative

Management By
Objectives
(MBOs)

Essays

Critical Incident
Method

FIGURE 4 DIFFERENT METHODS OF PERFORMANCE EVALUATION

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Human Resource Management (PGDM- 3T Sec B)

I.

GRAPHIC RATING SCALES:

Simplest and most popular performance appraisal technique.

A scale is used to list a number of traits and a range of performance for

each, then the employee is rated by identifying the score that best
describes his/her performance level for each trait.

Unfortunately, they are typically not anchored in terms of behaviours and

often have items that measure only traits.

FIGURE 5 GRAPHIC RATING SCALE

II.

BEHAVIOUARLLY ANCHORED RATING SCALES (BARS)

A technique that generates critical incidents and develops behavioural

dimensions of performance.

Combines the benefits of narratives, critical incidents, and quantified

scales, by anchoring a scale with specific behavioural examples of good or
poor performance.

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Human Resource Management (PGDM- 3T Sec B)

The appraiser rates the employees based on items along the continuum,
but the points are of actual behaviour on the job rather than general
descriptions or traits.

Time consuming.

Reduces rating errors

DEVELOPING A BARS
1. Generate critical incidents
1. Develop performance dimensions
2. Reallocate incidents
3. Scale the incidents
4. Develop a final instrument

FIGURE 6 AN EXAMPLE OF BARS

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FIGURE 7 AN EXAMPLE OF A BARS FOR THE DIMENSION "SALESMANSHIP SKILLS"

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III.

ALTERNATION RANKING METHOD

Where employees are ranked from best to worst on a particular trait,

choosing highest, then lowest, until all are ranked

FIGURE 8 ALTERNATION RANKING

IV.

PAIRED COMPARISON METHOD

Involves ranking employees by making a chart of all possible pairs of

employees for each trait and indicating which is the better employee of
the pair

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Human Resource Management (PGDM- 3T Sec B)

FIGURE 9 PAIRED COMPARISON RANKING

Note: + means better than. means worse than. For each chart, add up the
number of +s in each column to get the highest-ranked employee.

V.

FORCED RANKING/DISTRIBUTION
Where predetermined percentages of appraisees are placed in various
performance categories; similar to grading on a curve.
Arguments in favour of forced ranking
Best way to identify highest-performing employees
Data-driven bases for compensation decisions
Forces managers to make & justify tough decisions
Arguments critical of forced ranking
Can be arbitrary, unfair, & expose organization to lawsuits
Inherent subjectivity
Forced rankings tend to be more effective in organizations with high-
pressure, results-driven culture

EXAMPLE
Jack Welch, General Electrics former CEO, is often associated with a 20-70-10
distribution: the top 20 percent is rewarded for best performance, the middle
70 percent is rated average and the bottom 10 percent is coached for
improvement. The rank-and-yank system, also associated with Jack Welch,

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automatically terminates employees in the bottom category, allowing

organizations to purge the worst performers.

FIGURE 10 FORCE DISTRIBUTION CURVE

VI.

ANNUAL CONFIDENTIAL REPORT (ACR)

Traditional form of appraisal used in most government organizations.

A confidential report prepared by the employees immediate superior.
A descriptive appraisal used for promotions and transfers.
Focuses on evaluating rather than developing the employee
It covers the strengths, weaknesses, main achievement and failure,
personality and behaviour of the employee.
Involves subjectivity.
No feedback provided to the employee being appraised; the employee
being appraise never knows his weaknesses and the opportunities
available for overcoming them.

VII.

ESSAY M ETHOD

Simplest method where an appraiser writes a narrative describing an

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

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Strength lies in its simplicity which requires no complex forms or

extensive training to complete; provides specific information, much of
which can be easily fed back and understood by the employee.

Unstructured hence it is difficult to compare and rank individuals across

organizations.

A good or bad is impacted by a raters writing skills.

VIII.

CRITICAL INCIDENT APPRAISAL

Focuses on the key behaviours that make the difference between doing a
job effectively or ineffectively.

The rater writes down anecdotes describing what the employee did that
was especially effective or ineffective.

Judge behaviour rather than personalities.

Time consuming.

Difficult to compare individuals as they produce qualitative data.

FIGURE 11 EXAMPLES OF CRITICAL INCIDENTS FOR PLANT MANAGERS

IX.

MANAGEMENT BY OBJECTIVES (MBOS)

Includes mutual objective setting and evaluation based on the attainment

of the specific objectives.

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Requires the manager to set specific measurable goals with each

employee and then periodically discuss his/her progress toward these
goals.

MBO Philosophy: employees can be responsible, can exercise self-

direction, and do not require external controls, and threats of
punishments to motivate them to work towards their objectives.

Introduced in India, in 1970s by companies like Madura coats.

STEPS IN MBOS:
1. Goal Setting: organizations overall objectives are used as guidelines to
set departmental & individual objectives and performance standards for
each employee.
2. Action Planning: The means are determined for achieving the ends
established in goal setting; identifying the activities necessary to
accomplish the objectives; their time requirements, resources needed.
3. Periodic reviews & Self Control: systematic monitoring & measuring of
performance- by having the employee review his or her performance.
4. Feedback: corrective action is initiated when behaviour deviates from
the standards established in the goal setting phase.

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Important Advantages & Disadvantages

of Appraisal Tools
Tool

Advantages

Disadvantages

Graphic rating scale

Simple to use; provides a quantitative

rating for each employee.

Standards may be unclear; halo effect,

central tendency, leniency, bias can
also be problems.

BARS

Provides behavioural anchors.

BARS is very accurate.

Difficult to develop.

Alternation ranking

Simple to use (but not as simple as

graphic rating scales). Avoids central
tendency and other problems of rating
scales.

Can cause disagreements among

employees and may be unfair if all
employees are, in fact, excellent.

Forced distribution
method

End up with a predetermined number

or % of people in each group.

Employees appraisal results depend

on your choice of cutoff points.

Critical incident
method

Helps specify what is right and

wrong about the employees
performance; forces supervisor to
evaluate subordinates on an ongoing
basis.

Difficult to rate or rank employees

relative to one another.

MBO

Tied to jointly agreed-upon

performance objectives.

Time-consuming.

Dr. Pallavi srivastava

STEPS IN PERFORMANCE EVALUATION

Defining the job
Setting standards
Appraising Performance
Providing feedback

I.
II.
III.
IV.

THE APPRAISAL INTERVIEW : An interview in which the supervisor and

subordinate review the appraisal and make plans to remedy deficiencies and
reinforce strengths.
GUIDELINES F OR T HE I NTERVIEW :

Talk in term of objective work related data

Donot get personal
Encourage the person to talk
Donot tiptoe around

While criticizing employees:

Do it in a manner that lets the person maintain his or her dignity and
sense of worth.

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Criticize in private and do it constructively

Give daily feedback so that the review has no surprises.
Never say the person is always wrong.
Be objective and free from biases

FORMAL WRITTEN WARNINGS

PURPOSE OF A WRITTEN WARNING
To shake your employee out of bad habits.

To help you defend your rating, both to your own boss and (if needed) to
the courts.

A WRITTEN WARNING SHOULD:

Identify standards by which employee is judged.

Make clear that employee was aware of the standard.

Specify deficiencies relative to the standard.

Indicate employees prior opportunity for correction.

REASONS WHY EMPLOYEE APPRAISALS FAIL...

Inadequate preparations on the part of the manager

Employee is not given clear objectives at the beginning of performance
period.
Managers may not be able to observe performance or have all the
information.
Performance standards may not be clear.
Inconsistency in ratings among supervisors or other raters.
Rating personality rather than performance.
The halo effect, contrast effect, or some other perceptual bias.
Inappropriate time span (either too long or too short).
Overemphasis on uncharacteristic performance.
Inflated ratings because the managers donot want to deal with bad
news.
Subjective or vague language in written appraisals.
Organizational politics or personal relationships cloud judgements.
No thorough discusson of causes of performance problems.
Manager may not be trained at evaluation or giving feedback.
No follow-up and coaching after the evaluation.

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PERCEPTUAL ERRORS OF RATERS

1. Halo effect: Rater allows single trait, outcome or consideration to
influence other measures of performance
2. Stereotyping: Rater makes performance judgments based on employees
personal characteristics rather than employees actual performance.
3. Recency error: Recent events & behaviours of employee bias raters
evaluation of employees overall performance
4. Central tendency error: Evaluator avoids higher & lower ends of rating
in favour of placing all employees at or near middle of scales
5. Leniency or strictness errors: Evaluators tendency to rate all
employees above (leniency) or below (strictness) actual performance
level
6. Personal biases & organizational politics: Have significant impact on
ratings employees receive from supervisors

RECENT TRENDS
IBM, Microsoft, Accenture and Deloitte are some of the companies that are doing
away with their annual performance review process, moving away from rigid
rankings into more fluid systems. Amazon ensures that employees can get
feedback anytime from managersa nd colleagues rather than just once a year. GE
once notorious for its Rank or Yank policy is rolling out a process that focusses
on employees goals rather than their grades. The approach is developmental
where employees can gain access to their feedback (called insights) through an
app called PD&GE which is available on mobiles and other platforms. Similarly at
Adobe, instead of annual rating and ranking, employees get frequent check-ins
with their managers.

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