# DU SOL B.Com 3rd Year Human Resource Management Notes Chapter 11 Performance Appraisal Or Merit-Rating

## DU SOL B.Com 3rd Year Human Resource Management Notes Chapter 11 Performance Appraisal Or Merit-Rating

Question 1.
What is performance appraisal or Merit-Rating ? Distinguish between job-evaluation and merit-rating.
Performance Appraisal – Meaning:
Performance appraisal, personnel rating, merit-rating or performance evaluation is one of the most important functions of personnel management. People differ in their abilities and aptitudes. The personnel management should know these differences to develop various development programmes in the organisation to have an efficient work force. Merit-rating technique has been evolved to know the relative worth of the employee quantitatively and qualitatively – on the job, in comparison to other fellow workers.

Merit-rating is used for measuring the merit or performance of an employee and comparing it with that of others in the same group. According to Flippo, “Merit-rating is a systematic, periodic and, so far as humanly possible, an impartial rating of an employee’s excellence in matters pertaining to his present job and to his potentialities for a job. ”

According to Denyer, “Merit-rating is an assessment according to individual ability which may be rewarded by additional payments to the ordinary rates of pay for the different job.’’ According to Y Oder, “Performance appraisal refers to all formal procedures used in working organisations to evaluate personalities and contributions and potential of group members. ” Thus, merit-rating is a systematic evaluation by the supervisor or some qualified person of an individual worker’s performance. The process of merit-rating starts at the time of recruitment and continues throughout the life of an employee in an organisation.

The purpose of merit-rating is to determine an employee’s worth to the organisation. It is a continuous process and made at regular intervals. For the purpose of rating, workers in an office, the following factors or qualities are generally considered :

1. Ability and capacity to do the assigned work.
2. Skill and capabilities, i.e., knowledge of various jobs and various operations.
3. Personal qualities of the employee and his work habits like dependability, cooperation etc.
4. Quantity and quality of output.
5. Supervisory qualities.

Distinction Between Merit-Rating And Job-Evaluation :

1. Merit-rating rates the man and not the job as it is concerned with assessing of the abilities to the individuals. But the job-evaluation rates the jobs in order to determine their worth.
2. Job-evaluations is used as a basis of wage structure while merit rating is used as the basis of sound personnel policy in relation to transfer, promotion, etc.
3. The purpose of job-evaluation is very limited i.e., to determine the worth of the job in terms of money while the purpose of merit-ratfng is to appraise the performance of individuals for the purposes of better placement through promotion, transfer, training, dismissal, etc.
4. Job-evaluation tries to define the place of the job in the organisation or in the occupation level. Merit-rating on the other hand, appraises the relative performance of the employee’s qualities or traits so as to know the differences in personal abilities. „

Question 2.
What are the objectives of a merit-rating programme ?
Or
Discuss the importance of merit-rating to an organisation. Also explain the limitations of merit-rating.
Performance Appraisal – Advantages Or Objective, Limitation :
The appraisal of performance is expected to provide answers to many of the questions in management of people in the organisation. The people who make up a working organisation are evaluated for many reasons. Individual managements may give different priorities to the purposes of performance appraisal may serve the following objectives in the organisation;

1. Systematic performance appraisal provides information of great assistance in making and enforcing decisions about such subjects as promotions, pay increases, lay-offs, and transfers. Performance appraisal provides information in advance of time when it may be needed, thereby avoiding spot judgements when a decision must be made. Moreover, the systematic approach provides the information in a form that permits the making of comparisons.

2. A systematic performance appraisal serves to guide employee development. Most people like to. know how they are doing. Appraisal programme provides this information which can be communicated to employees. Weaknesses of the employees revealed through the appraisal process can be removed through organising training and development programmes. Thus, this provides opportunities of assessing employee’s training needs in the organisation.

3. Performance appraisal puts a psychological pressure on people to improve performance on the job. If the people are conscious that they are being appraised in respect of certain factors and their future largely depends on such appraisal, they tend to have positive and acceptable behaviour in this respect. Thus, the appraisal automatically works as a control device.

4. Appraisal also serves to maintain fair relationships in groups. Thus, it is necessary for tactical and strategic planning, motivation, communication, and equity. -. –

5. The existence of a regular appraisal system tends to make the supervisors and the executives more observant of their subordinates because they know that they will be expected periodically to fill out rating forms and would be called upon to justify their estimates. This improves supervision.

6. Performance appraisal serves as a means for evaluating the effectiveness of devices used for the selection and classification of workers. A knowledge of the characteristics of superior and inferior workers can be helpful in selection and placement of workers.

7. Wage increase to some people in the organisation may be justified on the basis of performance appraisal.

8. The performance appraisal pinpoints the deficiencies and short comings of the employees and organisation doing the course of appraisal. The employef may take corrective measures to improve upon their performance.

9. The employee comes to know his performance on the job and his potential for the higher job. It helps the employee in introspection.

In this way, performance appraisal aims at improving the administrative deficiences and improving the performance of the personnel.

Limitations Of Merit Rating :
Following are the main limitations of merit rating:

1. If merit rater is influenced by ratee’s one or two outstandingly good or bad performances accordingly or sometimes the rater’s judgement is influenced by work team or informal group with which the subordinate associates. If the group is not liked or very much liked by the rater, it will affect the rating of the subordinate.

2. The Manager sets the standard against which he compares the subordinates because standards are difficult to define in measurable or objective terms. Ambiguity, vagueness and generality of criteria are difficult hurdles to overcome.

3. Employees who are rated better or inefficient, are not rewarded accordingly and therefore, they feel frustrated and their morale goes down.

4. Merit-rating will be inaccurate and difficult to appraise the personnel in the right perspective if-the rater is biased or he does not have adequate information about job and employees and full cooperation of management and subordinates.

Question 3.
Describe the essentials of a good appraisal system.
Essentials Of A Good Appraisal Ssytem:

Following are the essentials of a good appraisal system:
1. It must.be easily understandable. If the system is too complex or too time consuming, it will not be successful.

2. It must have the support of all line people who administer it. If the line people think it is too theoretical, too ambitious, too unrealistic, or that it has been foisted on them by ivory-tower staff consultants who have no comprehepsion of the deamands on the time of the line operators, they will resent it. A similar goodwill and understanding must exist between the rater and the ratees.

3. The system should fit the organisation’s operations and structure. A system that may work extremely well at a company whose activities are compact and whose executives have ready access to one another may have no success at all at a plant whose activities are scattered and whose officers are often widely separated. Similarly, where the operations are interdependent and interlinked performance dat& pertaining to any one individual cannot be regarded as sufficiently discrete or reliable for appraising his performance.

4. The system should be both valid and reliable. The validity of ratings is the degree to which they are truly indicative of the intrinsic merit of employees. The reliability of ratings is the consistency with which the ratings are made, either by different raters, or by one rater at different times. Both validity and reliability result from objectivity.

5. The system should have built-in incentive, that is a reward should follow satisfactory performance. Many authors, however, advocate against a direct linkage between appraisal, and rewards. In their opinion, such a connection throttles downward communication of performance appraisal because surperiors do not like being questioned by disgruntled subordinate in the event of an adverse appraisal. ,

6. The system should be periodically evaluated to be sure that it is continuing to meet its goals. Not only there is the danger that subj ective critria may become more salient than the objective standards originally established, there is the further danger that the system may become rigid in a tangle of rules and procedures, many of which are no longer useful.

7. The restilts of the appraisal, particularly, when they are negative should be communicated to the employees concerned so that they may try to improve their performance.

Question 4.
What are the various methods of performance appraisal ?
Methods Of Performance Appraisal:
The performance of employees may be appraised by a number of > ways and methods. Two basic types of performance appraisal methods are –

2. Modem Appraisal Methods

(a) Traditional Appraisal Method. These methods are very old techniques and based on personnel traits of the rate.
There are several methods of appraisal under trait or traditional approach –

1. Ranking – The oldest and simplest method of formal gating is to compare one man with all other men and place him in a simple rank order. Ghiselli and Brown have described the technical features of ranking method, i Their idea of ranking is to distribute the individuals being rated along an order of merit from best to poorest, or from most to least, on one or more characteristics.-This method is quite simple in a small group, but is difficult in a large one. Since differences in rank do not indicate absolute or equal differences of ability between individuals, the system is of limited value.

A variation on the ranking system designed to increase its value for use in large groups is the method of ‘paired comparison’. In this method each man is compared with every other man, one at the time. The results of these comparisons can be tabulated, a rank created from the number of times each person is considered to be superior. This is an improvement over the previous method; however, this requires a large number’of comparisons. For a 50-men group, there would be 1,225 comparisons, based on the following formula:

Number of comparisons = $$\frac{N(N-1)}{2}$$
In this formula, N equals the number of persons to be compared.

2. Man-to-man comparison – This system was used first by US army during World War-I. In this method, certain personality factors such as leadership, initiative, dependability, and so on, are selected for purposes of analysis. A scale is developed for each factor. Instead of comparing a man
to another, personnel are compared to key men, one factor at a time. Thus; a scale of men is created for each selected factor. This system of measurement is utilised today in job evaluation being known as the ‘factor comparison’ system. Though, it is highly useful in measuring job, it has very limited use in measuring people.

3. Grading – In the grading system, certain categories of worth (as excellent, very good, good, average, poor, very poor etc.) are established in advance. These are carefully defined, and personnel are placed in a particular group depending upon their worth. For example, the grades may be defined – as outstanding, satisfactory, and unsatisfactory. Sometimes, grading system is modified into a forced distribution system in which certain percentages are fixed for each grade. The basic idea behind this is to put limit for, generalisation on the part of the rater. However, in a small group, forced – distribution system is not useful.

4. Graphic Rating Scales – It is an approach similar to that of the man- to-man system, except that the degree on a factor scale are represented by definitions rather than by key men. The central idea behind this scaling is to provide the rater with a continuum representing varying degrees of a particular .characteristic. The rater can estimate the degree to which each trait is present in his subordinates by observing their behaviour on the job.

There are two types of factors which are measures on graphic scales. These are (i) personal characteristics, such as leadership, initiative, dependability, etc. and (ii) contributions, such as quality and quantity of work. Since, certain areas of job performance cannot be measured objectively, it is‘likely that graphic scales will continue to use a mixture of characteristics and contributions, with emphasis upon the latter. In India, most organisations following systematic appraisal process use this method to appraise personal characteristics. Graphic rating scales have undergone substantial changes to make the system more reliable and valid. Among the design innovations are the adoption ofthe discontinuous scales, reversed scales, numerical weighting systems and more accurate definitions of the traits and the degrees of traits.

5. Forced-choice Rating – Forced-choice method appraisal was developed by psychologists for the U.S. army in World War II, and was subsequently adopted ‘widely in industry. This method combines ratings with scoring system. The rater has a form on each item consisting of group of a .statements pertaining to subordinates. The rater checks two of the four statements, one which he feels is the most characteristic and the other least « characteristic of the person he is rating. For example, a pair such as the following will be presented to the rater :

1. He is hard working. ,
2. He gives clear instructions to his subordinates.

The rater is forced to select any one of these which is more characteristic of the rater. Though he may claim that both are equally applicable or inapplicable, he has to select the one that is closer to describing the person in question. The rater is also forced to choose between statements that are equally unfavourable such as following:

1. He cannot be depended upon for good working.
2. He shows favouritism towards some employees.

Only one of the statements in each pair is correct in identifying the : better performance, and this scoring key must be kept secret from the rater.

In this manner, bias is removed from the appraisal process. In a research 1 study, it was found that the use of force-choice scale effectively eliminated the leniency error while the use of a graphic scale format enabled bias to be introduced. There are certain disadvantages of the force-choice scaling, and because of these disadvantages, its use is not widespread. Cozan feels that , this method appears to have greater objectivity, four basic requirements are hard to meet: trained technicians to develop the scales, a different collection of items for each job group, a fair agreement on the criteria for success and failure and acceptance by supervisors who must rate their subordinates without knowing the relative rating they are giving.

Besides the above methods of appraisal, some other methods are also used, such as checklist method, selection of- critical incident method, and descriptive method. All these methods are used as supplementary to above mentioned methods.

6. Check-list – Under this method the rater does not evaluate the performance of the employees. He simply reports about it and final rating is done by the personnel department. Under this system, a check-list questionnaire is prepared containing questions concerning the employees and their behaviour, The rater then, checks to indicate if the answer to a question about an employee is positive or negative. Each question will be allotted weight in the light of which the performance is evaluated. Generally, the questions are on Yes/No pattern.

The system is subject to bias on the part of the rater because he can distinguish between positive and negative questions. It is expensive and time consuming because a separate checklist is to be prepared for each class of job.

7. Field Review Method. Underthis method, supervisors are interviewed by a expert from the Human Resource Department. The expert questions the supervisors to obtain all the pertinent information on each employee and
takes note in his note book. Thus, there no rating form with any degree or rating, but overall ratings are obtained. The workers are usually classified into three categories – outstanding, satisfactory and unsatisfactory.

The interviewer questions the supervisors about the requirement of each job in his unit and about the performance of each employee in his job. He probes not only on how a man is doing on a job but also why he does that way or how can he be improved. The supervisor gives his opinion about the process, shortcomings, outstanding ability etc. of each employee.

The success of the method depends upon the competence of the interviewer. Superficial judgements should be eliminated if the appraiser ; probes deeply.

8. Critical Incidents Method – The method is based on the principle that there are certain critical events that occur in the life of the employee on the job. These events make all the difference between success and failure on the job. The supervisor keeps the record of such events and recalls at the time of the rating. Likewise various behaviours like the type, of job, judgement, learning ability, productivity, responsibility etc. are recorded. The incidents and the behaviours are studied and ranked in order of frequency and importance. There is much scope of biased decision.

Evaluation of Trait-approach Methods :
The trait-approach methods are commonly used in industry because of convenience and simplicity. To some extent, the appraisal through these methods can serve useful purpose in taking decisions, if the raters are not biased in the appraisal process. In this approach, the manager tries to obtain an impartial, objective, factual and acceptable score. However, in recent years this approach has been severely criticised. According to various experts like Paton and Whisler trait approach presents following problems, making its use gradually limited:

1. disillusionment about solving technical and semantic difficulties;
2. the failure to improve the way the raters use the systems;
3. pressure to adopt new systems; and
4. low statistical validity.
5. Systems are subjective and based on personnel judgement.

(B) Modern Appraisal Methods. The following are the important modern appraisal techniques –

1. Appraisal by results or management by objective.
2. Assessment centre appraisal.
3. Human Asset Accounting method.’
4. Behaviourally Anchored Rating Scales (BARS)
5. 360 degree appraisal.

1. Appraisal by Results on Management by Objectives (MBO) :
In recent years, the appraisal has been extended to management groups also which has encouraged added attention to evaluation of performance. Managers now feel that performance is in itself the most reliable indicator of potential and quality. This feeling has led to the development of appraisal by results, that is against the setting and accomplishing of verifiable objective. The essential feature of the appraisal is the manager’s observation of the subordinate’s performance measured against specific pre-determined goals with the subordinate’ s actions, attitudes, and general job behaviour examined in this context. Conclusions are based on observation and evidence of performance rather than the superior’s opinions of the subordinates.

It was Peter F. Drucker who proposed goal setting approach to performance appraisal which he called ‘Management by objectives and self control. This approaches was further strengthened by Duglas McGregor.
Though there are variations, six basic elements are common to most result-oriented appraisal plans:

1. The superior and each of his subordinates jointly plan the subordinate’s tasks and responsibilities.
2. The subordinate prepares a plan for specified period, say, six months, or a year. Through mutual consultation, the final target to be achieved is fixed.
3. Through mutual consultation, they also fix up and clarify superior’s supporting and evaluative role.
4. At the end of the specified period, the superior makes a performance
evaluation of subordinate on the basis of mutually agreed criteria.
5. Superior discusses the results and his evaluation with the subordinate, corrective actions, if necessary, are suggested, and mutually agreed upon targets are fixed for future.
6. The method emphasises traits and other characteristics, focussing on performance results.

The process of appraisal poses several questions and problems. The two most common problems relating to appraisal are – (a) fixation of goals and (b) measuring accomplishment of goals. The fixation of goals is carried on through mutual consultation between superior and his subordinate and it depends upon their judgement and experience. In assessing goal accomplishment, the evaluator must take into account such considerations as whether goals were reasonably attainable, whether the factors beyond the control of subordinate have helped or hindered him in accomplishing his goals, and finally what the reasons for accomplishment or non-accomplishment were. As such, the success of this system depends upon: (i) good job descriptions specifying areas in which goals are to developed; (ii) trust in subordinate to establish responsible goals; (iii) specification of specific rather than general goals; and (iv) problem solving, rather than critical, discussion of ensuring performance.

Evaluation of Appraisal by Results Method or Management by Objectives (MBO) – This method of appraisal springs from forces that have generated a popular philosophy of management known as ‘management by objective’ or ‘management by result’. Thus, this method is less a technique and more a way of life for managers. If the prevailing style of management is harmonious with the objectives approach, appraisal by results appears to be an improvement over trait approach methods of appraisal.

One study indicates that the very nature of trait approach tends to immediately stimulate the rater to adopt a role stereotype of a supervisor – critical evaluative, and often defensive. The result-oriented approach alters this stereotype and rates reporting greater satisfaction, more agreement, greater comfort, and less tension and hostility.

Appraisal by result has the same strength as management by objectives or results. This has a great advantage of being operational because appraisals are not apart from the job a manager does, but a review of what actualy he does as a manager. Moreover, the person appraised is more likely to see positive steps to improvement than he would if he were faced with the need to remould his inner psychological make-up to satisfy his superior. Self-generated change works better than imposed change which generates resistance, hostility, and defensiveness on the part of subordinates.

MBO has the following merits :

1. It involves setting of goals by active participated of both superiors and subordinates.
2. When goals for each individual are reset, there is considerable change in the job description of various positions.
3. MBO serves as a self control device.
4. There is an improvement in productivity as management concentrates on important task of reducing costs and harnessing opportunities.
5. By defining the results expected, the performance can be evaluated by results expected. Thus, an individual can evaluate his own performance by results expected.
6. MBO is a tool for the development of executive.

The result-oriented approach, however, is not without its limitations.
This approach has all the weaknesses of management by objectives. In particular, this appraisal method has following weaknesses:

1. One of the major weaknesses of the method is to emphasise results alone, and it is entirely possible for a man to meet or miss goals through no fault of his own. External factors often play important part in perfomance. Most evaluators claim that they always take uncontrolable or unexpected factors into account in assessing goals performance. But it is extremely difficult.

2. It requires the job being performed to be such that goal establishment is possible by others than the managers. It is doubtful if such a procedure is practicable for the job whose output is qualitative. The more restricted and regimented the job the less usable is this particular approach.

3. The result approach necessarily involves considerable time, thought and contact between superior and subordinate. If the span of management is large, this system may be inappropriate and trait approach appraisal may be selected.

4. This approach puts entire emphasis on training and development, since management by objectives gives better and more accurate visibility to managerial needs,and development programmes can be better pinpointed. Yet, management has to make various decisions on a comparative basis – who gets the pay increase or who is to be promoted. This approach provides some data for justifying the correctness of decision, but their comparability among competing subordinates is limited.

5. This programme appraises operating performance only. There are also other factors to appraise, notably an individual’s managerial ability. Thus, an individual, failing to achieve particular target in one direction at present, may be an asset to the organisation in future. Therefore, an adequate appraisal system must appraise performance as a manager as well as performance in setting and meeting goals.

2. Assessment Centre Method:

1. Assessment Centre Method – The purpose of this method is to test candidates in a social situation, using a number of assessors and variety of procedures. The feature of the assessment centre method is job related simulations. These simulations involve characteristics that managers feel are the important to the job success. The evaluators observe and evaluate participants as they perform activities commonly found in these higher level jobs.

Under this method, many evaluators join together to judge employee performance in several situations with the use of variety of creiteria. It is used mostly to help select employees for the first level (the lowest) supervisory positions. Assessments are made to determine employee potential for purposes of promotion. The assessment is generally done with the help of a couple of employees and envolves a paper-and-pencil test, interviews and situational exercises. Some of the other features of this system are:

• The method uses simulation exercises (such as an in-basket exercise, business game, a role-playing incident and leaderless group discussion);
• Evaluators are drawn form experienced managers with proven ability at different levels of management;
• They evaluate all employees, both individually and collectively, and each candidate is given one of the four categories; more than acceptable, less than acceptable and unacceptable;
• A summary report is prepared by the members, and a feedback on a face-to-face basis is administered total to the candidates who ask for it.

Purpose Of Assessment Centres :
Assessment centres technique serves the following pursposes:

1. To measure potential for first level supervision, sales and upper management positions; and also for higher levels of management for development purposes.
2. To determining individual training and development needs of employees.
3. To select recent college students for entry level positions.
4. To provide more accurate human resource planning information
5. To make an early determination of potential.
6. To assist in implementing afirmative action goals.

To make this method successful, it is necessary that heavy emphasis must be placed on clear statement of goals, the obtaining of top managemt commitment, job analysis, assessor training etc.

3. Human Asset Accounting Method :
The human asset accounting method refers to activity devoted to attaching money estimates to the value of a firm’s internal human organisation and its external customer goodwill. If able, well-trained personnel leave a firm, the human organisation is worthless; if they join it, its human assets are increased. If distrust and conflict prevail, the human enterprise is devalued. If teamwork and high moral prevail, the human organisation is a very valuable asset.

The current value of a firm’s human organisation can be appraised by developed procedures, by undertaking periodic measurements of “key casual” and “intervening enterprise” variables. The key casual variables include the structure of an organisation’s management policies, decisions, business leadership, strategies, skills and behaviour. The intervening variables reflect the internal state and health of an organisation.

They include loyalties, attitudes, motivations, and collective capacity for effective interaction, communication and decision-making. These two types of variable measurements must be made over several years to provide the needed data for the computation of the human asset accounting.
This method is not yet very popular.

4. Behaviouraly Anchored Rating Scales (BARS) :
This is a new appraisal technique which has recently been developed. Its supporters claim that it provides better, more equitable appraisals as compared to other techniques. BARS approach combines elements of traditional rating scales and critical incidents method. Using BARS job behaviours from critical incidents effective and ineffective behaviours are described more objectively. This method employs individuals who are familiar with a particular job to identify its major components. They are asked to rank and validate specific behaviours for each of the components.. This approach gets away from measuring subjective personal parts and instead measures observable, critical behaviours that are related to specific job dimensions. The procedure for BARS is usually five stepped.

(i) Generate Critical Incidents – Persons with knowledge of the job to be appraised (job holders/ supervisors) are asked to describe specific illustrations (critical incidents) of effective and ineffective performance.

(ii) Develop Performance Dimensions – These people cluster the incidents into a smaller set of performance dimensions. Each cluster is then defined.

(iii) Reallocate Incidents – Any group of people who also know the job then reallocate the original critical incidents. They are given the cluster’s definitions, and critical accidents, and asked to redesign each incident to the dimension it best describes. Typically a critical incident is retained if some percentage (usually 50 to 80%) of this group assigns it to the same cluster as the previous group did.

(iv) Scale of Incidents – This second group is generally asked to rate (7 or 9 point scales are typical) the behaviour described in the incident as to how effectively or ineffectively it represents performance on the appropriate dimension.

(v) Develop Final Instrument – A subset of incidents (usually 6 or 7 per cluster) are used as “behaviour anchors” for the performance dimensions.

Though BARS technique is more time-consuming and expensive to another appraisal tools, yet it has got certain advantages, such as:

• A more accurate gauge, since BARS is done by persons expert in the technique, the results are sufficiently accurate.
• Clear Standards. The critical incidents along the scale help to clarify what is meant by “extremely good” performance, “average” perffomance and so forth.
• Feedback. The use of critical incidents may be more useful in providing feedback to the people being appraised.
• Independent dimensions. Systematically clustering the critical incidents into 5 or 6 performance dimensions, helps in making the dimensions more independent of one another.
• Rater-Independence. The technique is not biased by the experience and evaluation of the rater.

5. 360 Degree Appraisal :
A 360 degree appraisal was developed by the General Electric Company of the USA in 1992 and soon got popularity throughout the globe. In India, several companies follow this technique. These companies include Wipro Corporation, Reliance Industries, Thomas Cook, Godrej soaps, InfosysTechnologies etc.

Under this technique, employee or manager rating is done by gathering data on a person’s skills, abilities and behaviours from everyone above, alongside and below him inside and outside the company e.g. the manager, peers, subordinates, customers and even client etc. Thus, appraisal of an employee under this technique is done by his superiors his peers his subordinates, and clients or outsiders with whom he interacts regularly in the course of his job performance. In 360 degree appraisal, besides appraising the performance of the assessee his other attributes like latents, behaviours, values and technical capabilities are also appraised.

DU SOL B.Com 3rd Year Human Resource Management Notes