HRM333--1Chapter 4 Performance Appraisal

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1. Chapter 4
Managing Employee
Performance and
Performance Appraisal
HRM433
Principle of Human Resource Management
Prepared by: Nurul Lizzan binti Kamarudin

2. Learning Objectives
At the end of this chapter, students should be able to:
1Describe the main components in a performance
management system;
2Explain the benefits of having an effective
performance appraisal system;
3Describe the factors to be considered when
designing an appraisal system;
4Discuss the requirements for implementing an
appraisal system, and
5Suggest the types of follow-up action which may
be taken after an employee’s performance has
been appraised.

3. 1.0Introduction
1.1An employee performance
management system is a
human resource system
designed to align the work
done by an employee with
the organization’s goals and
to help the employee
improve his performance.

4. 2.0Benefits of an employee
performance management and
appraisal system
An effective employee performance management
system brings the following benefits to an organization.
It:
(i)Encourages quality performance by rewarding
workers who do well;
(ii)Helps to improve current performance by
providing workers with feedback;
(iii) Helps to identify workers who need training;
initiates fair disciplinary proceedings, and
(v)Provides a channel of communication between
managers and their subordinates.

5. 3.0Components of an employee performance
management system
An employee’s performance is affected by:
(i) His/her knowledge and skills;
(ii)His/her motivation to do a good job, and
(iii)The work environment.

6. Employerscanhelpaworkergaintheknowledgeandskillsneeded
toperformonajobthroughvarioustraininginitiatives.The
willingnessofanemployeetoperformtothebestofhisabilityis
affectedbymanydifferentfactors.Ithasbeenwelldocumentedthat
thesefactorsincludeawiderangeofmanagementsub-systems,
including:
(i)Thepaymentorremunerationschemeintheorganization;
(ii)Thesystemforgivingoutrewardsforgoodwork;
(iii)Therelationshipsbetweentheworkerandhiscolleagues;
(iv)Therelationshipbetweentheworkerandhisimmediate
superior,and
(v)Howcommittedtheemployeeistothegoalsandaspirationsof
theemployer.

7. 3.1 Thekeycomponentsofanemployee
performancemanagementsystemare:
(i)Thepreparationoforganizationalplans,
includingthesettingofobjectiveswhich
areestablishedforalllevelsdowntothe
individualworker;
(ii)Theimplementationoftheworkbythe
individualworker,accompaniedby
appropriateformsofmonitoringbythe
worker’smanagerorsupervisor.
(iii)Theappraisaloftheworkoftheindividual
workers,and
(iv)Follow-upactiontakenaftertheappraisal.
Thenatureofthefollow-upactiondepends
uponthequalityofperformanceofthe
individualworker.

8. 3.2 Objective setting
Objectives may also be known as:
(i)Accountabilities/main tasks/main duties;
(ii)Key Result Areas (KRAs);
(iii)Targets;
(iv)Goals/objectives/work norms/performance standards, and
(v)Competences.
Some management experts say that objectives are more likely to be met if they are
SMART, as follows:
S—Stretching. The objectives provide a challenge to the worker.
M—Measurable. Each objective has an output which is easily quantified.
A—Agreed. Objectives are discussed and agreed upon by worker and manager.
R—Realistic. The worker is able to achieve each objective set.
T—Time-bound. Objectives are set for a specific time period.

9. 3.3 Implementation of work and monitoring
A wide variety of methods are available to monitor an employee’s work, including:
(i) Observing work operations;
(ii)Reading written reports;
(iii)Watching computer screen displays of performance data;
(iv)Inspecting the quality of samples of work;
(v)Holding progress review meetings;
(vi)Surveying clients and customers to assess their satisfaction with products or services;
(vii)Conducting market surveys to assess customer preferences, and
(viii)Holding meetings after a project or activity is completed to determine what went
well and what can be improved, commonly known as a post-mortem meeting.
3.4 Appraisalandfollow-upaction
Designinganappraisalsystemisdealtwithinthenextsectionasisalsothefollow-upactionwhich
shouldbetakenafteranemployeehasbeenappraised.

10. 4.0The design of a performance appraisal system
4.1 A performance appraisal system is a systematic and
formal method for evaluating individual employee’s work
performance over an agreed time period.
4.2 Human resource management specialists are
responsible to:
(i)Design appropriate appraisal systems;
(ii)Train all employees in the implementation of the
appraisal system, and
(iii)Ensure timely and fair implementation of the system.
Effective performance appraisal systems are:
(i)Integrated into a performance management system;
(ii)Supported by top management;
(iii)Customized to the needs of the organization;
(iv)Acceptable and understandable, and
(v)Reliable and unbiased, as far as possible.

11. 4.3 Information from an appraisal exercise will be used to answer the following questions:
(i)Did the employee do a good job for which he should be given an extra special reward?
(ii)Is the employee having difficulty with his job and should he be given retraining?
(iii)Should the employee be more carefully monitored in the future?
(iv)Would the employee be more useful to the company if he were transferred to a different job?
4.4 Objections to performance appraisal systems
There is no doubt that many problems arise in all stages of performance management, from the setting of
objectives, the monitoring of performance, the design and implementation of appraisal schemes and even in
the follow-up actions necessary to overcome performance problems. Probably, the most complaints are
voiced about the formal appraisal or evaluation of employees’ performance.

12. Whendesigningaperformanceappraisalscheme,everyattemptmustbemadebythehumanresource
managementspecialiststoovercometheproblemslistedabove.Theywillneedtodecidethefollowing
questions:
(i)Howisbiastobereducedtoensureaccurateinput?
(ii)Whoistobeinvolvedintheappraisal?
(iii)Whatwillbethefrequencyoftheappraisals?
(iv)Whatmethodsofappraisalwillbeused?
(v)Whatdocumentationistobeused?

13. 4.5 Biasinperformanceappraisals
Performanceappraisalsareverypronetobiassuchas:
(i)Therecencyeffect—wherebytheappraiserbasestheappraisalofanemployeeonrecent
behaviourandperformanceandignoresearlierwork;
(ii)Thehaloorhornseffect—theappraiserisoverinfluencedbyoneaspectoftheemployee
beingappraisedandignoresothers;
(iii)Central/leniency/strictnesstendencies—Theappraisergivesappraisalratingsneartothe
centre/topend/lowerendofaratingscale;
(iv)Prejudiceandstereotyping—Someappraisersholdnegativeperceptionsaboutwhole
groupsofpeopleandareunabletoaccuratelyappraiseanyindividualmemberofsucha
group,and
(v)Fatigueofappraiser—Ifappraiserhastoomanysubordinatestoappraise,hemayrush
throughtheappraisals,notgivingproperconsiderationtoeachemployeebeingappraised.

14. 4.6 Parties involved in performance appraisal
The parties involved in a performance appraisal include:
(i)The employee being appraised who may be asked to
complete a self-appraisal form and be required to
discuss this with his superior;
(ii)The employee’s superior officer who will appraise the
employee and discuss the appraisal with him;
(iii)The employee’s colleagues (peers) who may be
requested to provide information about the employee’s
performance, usually on an anonymous basis;
(iv)The employee’s subordinates, if any, who may be
required to evaluate the managerial abilities of their
superior, and
(v)Customers and other parties who have knowledge of
the employee’s performance.
When a variety of sources of information about the
performance of the employee are used, the performance
appraisal scheme is known as a 360 degree scheme.

15. 4.7 Frequency of appraisals
The more often appraisals are conducted, the more accurate is the information collected.
However, performance appraisal is often an unpopular activity and, if carried out too often,
costs will increase. Hence, most companies conduct a formal performance appraisal on an
annual or bi-annual basis.
Special appraisals may be held when new recruits complete a period of probation, or when an
employee is promoted.
4.8 Appraisal methods
The key methods available are:
(i)Comparative procedures such as ranking of employees from best to worst;
(ii)Trait rating scales whereby the appraiser rates or measures various aspects of the
employee’s performance on a pre-agreed scale (commonly 1–10). A weighting system
may be used if some aspects of performance are more important than others;
(iii)Essay/incident writing whereby the appraiser drafts a word picture describing the
employee’s performance.

16. 5.0Implementing an
appraisal system
5.1 Theappraisalinterview
Anappraisalinterviewisaformaldiscussionbetweenan
employeeandhissuperiorofficerconcerningthe
employee’spastandfutureperformance.
5.2Thecontentofanappraisalinterview
typicallyincludes:
(i)Discussionoftheemployee’spastperformance;
(ii)Negotiationandclarificationofobjectivesforthe
future,and
(iii)Discussionofactionplansdesignedtoachievethe
futureobjectives.
Managerswhoconductappraisalinterviewsneedto:
(i)Ensurenecessarydocumentationiscollectedin
advanceofthemeeting;
(ii)Chooseanappropriatetimeandplaceforthe
meeting;
(iii)Establishrapportwiththesubordinateduringthe
earlystagesofthemeeting;
(iv)Conductthemeetingaccordingtoanorderly
agenda,and
(v)Keepcontroloftheemployee’saswellastheir
ownemotionsduringthediscussion.

17. 5.3 Counselling employees with problems
Managers frequently use counselling skills as part of
the appraisal process as well as for:
(i)Disciplinary interviews;
(ii)Retrenchment exercises including voluntary
separation schemes;
(iii)Career development discussions, and
(iv)Pre-retirement programmes.
The success of counselling sessions at the workplace
is influenced by:
(i)The non-verbal environment especially the
physical environment;
(ii)The listening skills of the manager—a much
underestimated skill, and
(iii)The ability of the manager to ask the right
question in the right way.

18. 5.4 After the appraisal interview
Once the appraisal interview is complete, follow-up action will be required.
This action will depend upon the employee’s performance in the period
under review.
(i)If the employee has performed exceptionally well, suitable
rewards should be provided to him or her;
(ii)If the employee’s performance was acceptable but could be I
improved, a plan of action must be mapped out by the
employee and his manager so that the former can improve in
the next review period, and
(iii)If the employee’s performance was totally unacceptable, the
employer will have to make a decision concerning the
employee’s future.
When an employee’s performance does not meet the standards required,
action must be taken to change the situation. The employee could be:
(i)Given training or coaching;
(ii)Counselled and motivated to overcome his performance
problems;
(iii)Transferred to another job more suited to his abilities and
interests, and
(iv)Dismissed, if the options above have not solved the
performance problem.

19. -End of Chapter 4 -