PERFORMANCE APPRAISAL METHODS IN MANUFACTURING INDUSTRIES REVIEW AND SUGGESTIONS

Malisetty Mahesh and Jim Lee Engineering and Technology Management Program University of Louisiana at Lafayette Box 42250, Lafayette, Louisiana 70503 (337)482-6485
Abstract: The objective of this paper is to review common performance appraisal methods and identify the best approach for manufacturing industries. Different conventional performance appraisal methods and rapid appraisal methods are discussed first. A hierarchical structure for performance appraisal is then developed based on the three conventional existing methods.

INTRODUCTION
Performance appraisal may be defined as an organized formal interaction between a subordinate and supervisor, that usually takes the form of a periodic interview, in which the work performance of the subordinate is examined and discussed, for identifying weaknesses and strengths as well as opportunities for improvement and skills development (Archer North, 2002). In other words, Performance appraisal is a formal system of measuring, evaluating, and influencing an employees job-related attributes, behaviors and outcomes to determine how productive an employee is, and to determine if an employees productivity can be improved (Konobear, 2002). Appraisal results are used in many organizations, either directly or indirectly, to help identifying the better performing employees who should get the majority of available merit pay increases, bonuses, and promotions. There are various appraisal methods are in usage today. Broadly, we can classify them as comparative appraisals (ranking, paired comparisons, and forced distribution), behavioral appraisals (graphic rating scales, checklist, critical incidents, essays, and behaviorally anchored rating scales), and output based appraisals. Also there are rapid appraisal methods for quick, low cost ways to gather data for managers information needs. All of the appraisal methods have been discussed and their advantages and disadvantages are mentioned. In this paper a new appraisal method has been proposed using the existing methods. This new method is developed by taking the advantages of the three common methods including comparative, behavioral and output based mThe advantages and disadvantages of this new method are also discussed. A hierarchical structure discussed in this paper uses all the appraisal methods accordingly at appropriate levels of the company.

ISSUES IN PERFORMANCE APPRAISAL

Evaluation system and feedback system are two basic systems in an effective performance appraisal. The main aim of the evaluation system is to identify the performance gap, and the shortfall that occurs when performance does not meet the standard set by the organization as acceptable. The main aim of the feedback system is to inform the employee about the quality of his/her performance. The information flow is not exclusively one way. The appraisers also receive feedback from the employee about job problems. Looking at performance appraisal from the different viewpoints of the main stakeholders, the employee and the organization is one of the best ways to appreciate the purposes of performance appraisal. From the employee viewpoint, the purpose of performance appraisal is four-fold: Tell me what you want me to do, Tell me how well I have done it, Help me improve my performance, and Reward me for doing well. 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. The performance appraisal process typically consists of four inter-related steps as follows: Establish a common understanding between the manager (evaluator) and employee (evaluatee) regarding work expectations, mainly, the work to be accomplished and how that work is to be evaluated. Ongoing assessment of performance and the progress against work expectation. Provisions should be made for the regular feedback of information to clarify and modify the goals and expectations, to correct unacceptable performance before it was too late, and to reward superior performance with proper praise and recognition. Formal documentation of performance through the completion of a performance and development appraisal form appropriate to the job family. The formal performance and development appraisal discussion, based on the completed appraisal form and ending in the construction of a development plan (Hansen, 2002). Timing of appraisals is important. Systematic appraisals typically are conducted once or twice a year. For new employees, an appraisal 90 days after employment, again at six months, and annually thereafter is common timing. Expectations of a manager in doing a performance appraisal are:

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Translate organizational goals into individual job objective. Communicate management's expectations regarding employee performance. Provide feedback to the employee about job performance in light of management's objectives Coach the employee on how to achieve job objectives/requirements Diagnose the employee's strengths and weaknesses. Determine what kind of development activities might help the employee better utilize his or her skills improve performance on the current job. Performance appraisal can be done by anyone familiar with a person's performance including the following: supervisors, subordinates, peers, customers and self-appraisal. They are discussed below: Supervisor rating of subordinates: Rating of employees by supervisors is based on the assumption that the manager is the most qualified person to evaluate the employee's performance realistically, objectively and fairly. Drawbacks: First, the superior may have an ethical bias against 'playing God'. Second, the superior may not have the necessary interpersonal skills to give good feedback. And, lastly, the superior - having reward and punishment power - may make the employee feel threatened and alienated. Employee rating of superiors: The concept of having superiors rated by subordinates is being used in a number of organizations today, to make their organizations less hierarchical, and to develop better managers. While subordinates often do not have access to information about all dimensions of supervisory performance, they do have access to information about supervisor-subordinate interactions. Drawback: subordinates may not always evaluate performance objectively or honestly - particularly, if subordinates feel threatened. Peer ratings: Peer ratings are especially useful when supervisors do not have the opportunity to observe each employee's performance, but other work group members do. Common performance dimensions on which team members have evaluation expertise include attendance and timeliness, interpersonal skills, group supportiveness, and planning and coordination. Drawback: peer evaluations have not been widely used however- with the exception of TQM organizationsbecause usually team members resist evaluating colleagues since this can damage relationships. Thus, it may be that peer evaluations are best used for developmental purposes rather than for administrative purposes. Appraisal by Customers: For salespeople and other service jobs, customers/clients may provide the only really clear view of certain behaviors. The information that customers provide can serve as useful input for employment decisions, such as those regarding promotion, transfer, and need for training. It can also be used to assess the impact of training, or as a basis for self-development. Self-Appraisal: Self-appraisal is a self-development tool that forces employees to think about their strengths and weaknesses and set goals for improvement. Thus if an employee possesses a unique skill, the employee may be the only one qualified to rate his/her own behavior. Yet, employees may not rate themselves as supervisors would rate them, using quite different standards. (Schuler, 1995). There are many possible sources of error in the performance appraisal process. One of the major sources is a mistake made by the rater. There is no simple way to eliminate these errors, but making raters aware of them is helpful. The most common errors committed in performance appraisal include: the halo effect; leniency; strictness; the central tendency error, and the contrast error.

METHODS FOR APPRAISING PERFORMANCE

Performance actually can be appraised by a wide variety of methods and techniques. The most commonly used performance appraisal methods can be distinguished into three major categories: comparative appraisals, behavioral appraisals, and output-based appraisals.

Comparative Appraisals
Managers directly compare the performance of their subordinates against one another in comparative appraisals. For example, a dataentry operator's performance would be compared with that of other data-entry operators by the computing supervisor. Comparative techniques include ranking, paired comparisons, and forced distribution. Ranking: In this method, the supervisor lists all subordinates in order, from the highest to the lowest in performance. Rankings such as this are appropriate only in small companies. As the number of employees increases, it becomes gradually more difficult to discern differences in their performance. Drawbacks: the primary drawback of the ranking method is that the size of differences among individuals is not well defined. For example, there may be little difference between individuals ranked second and third, but a big difference in performance between those ranked third and fourth. This drawback can be overcome to some extent by assigning points to indicate the size of the gaps existing among employees. Paired Comparisons: The paired comparison method involves comparing each employee to every other employee in the rating group, one at a time, to determine the better. A rank order is obtained by counting the number of times each individual is

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selected as being the better of a pair. Drawback: if the number of employees to be ranked is large, the number of comparisons that have to be made may be unmanageable. Forced Distribution: In forced distribution, the supervisor must assign only a certain proportion of his/her subordinates to each of several categories on each evaluative factor. A common forced distribution scale is divided into five categories. A fixed percentage of all subordinates in the group fall within each of these categories. Typically, the distribution follows a normal distribution. For example, if a supervisor had to appraise the performance of 50 subordinates using the forced distribution method, he/she should have to rate: 5 employees [10 percent] as 'unsatisfactory'; 10 employees [20 percent] as 'below average'; 20 subordinates [40 percent] as 'average'; 10 individuals [20 percent] as 'good'; and 5 people [10 percent] as 'excellent. Drawback: a group of subordinates may not conform to the fixed percentage. Another drawback of forced distribution is that a supervisor may resist placing any individual in the lowest, or the highest, category. In fact, generally, the distribution of performance appraisal ratings does not approximate the normal distribution of the bell-shaped curve, since it is common for 60% to 70% of the organizations workforce to be rated in the top two performance levels.

Behavioral Appraisals
In contrast with comparative appraisals, behavioral appraisals allow supervisors to evaluate each person's performance independent of other employees but relative to important job-related behaviors, which when exhibited can lead to job success. For example, a salesperson that can exhibit the behavior of 'verbal persuasion' appropriately has satisfied a behavior-based criterion. The simplest methods for appraising job performance using behavioral criteria to mark an employee's level of performance in a specific form, namely: the graphic rating scale and checklist. Some managers are required to provide written appraisal information - in a narrative form. These records describe an employee's actions rather than indicating an actual rating. Among the most common narrative appraisal methods are included: the critical incident method and the essay. Graphic Rating Scale: The graphic rating scale allows the rater to mark an employee's job performance on a five-point or seven-point scale. This method identifies certain subjective character traits, such as 'pleasant personality', 'initiative' or 'creativity' to be used as basic job performance criteria. Because of its simplicity, the graphic rating scale is the most frequently used performance appraisal method. Drawbacks: the traits used for performance evaluation may be unrelated to the job itself. Such traits often tend to be ambiguous and too vague to be used as the basis for employee performance appraisal. Another drawback is that the descriptive terms used in such scales may have different meanings to different raters. Factors such as 'initiative' and 'cooperation' are subject to many interpretations, especially in conjunction with words such as 'outstanding', 'average', or 'poor'. Checklist: The checklist uses a list of statements or words that are checked by raters. Raters check statements most representative of the characteristics and performance of an employee. Typical checklist statements are: can be expected to finish work in time, seldom agrees to work overtime, is cooperative and helpful, accepts criticism, and strives for self-improvement. The checklist can be modified so that varying weights are assigned to the statements or words. The results can then be quantified. Usually, the results are not known by the rater and are tabulated by someone else, such as a member of the HR unit. Drawbacks: as with the graphic rating scale, the words or statements used may have different meanings to different raters, thus causing severe practical problems to the effective evaluation of employees. Critical Incidents: In the critical incident method, the manager keeps a written record of the highly favorable and unfavorable actions in an employee's performance. When something happens [a 'critical incident' involving a particular employee] the manager writes it down. Thus, a list of critical incidents is kept during the entire rating period for each employee. The critical incident method can be used with other methods to document the reasons why an employee was rated in a certain way. Drawbacks: what constitutes a critical incident is not defined in the same way by all supervisors. And producing daily or weekly written reports about each employee's performance may be extremely time-consuming. Also, employees may become overly concerned about what the supervisor writes and begin to feel 'threatened'. Essays: The essay (free-form) appraisal method requires the manager to write a short essay describing each employee's performance during the rating period. The rater usually is given a few general headings under which to categorize comments. The intent is to allow the rater more flexibility than other methods do. As a result, the method is often combined with other methods. Behaviorally Anchored Rating Scales (BARS): BARS utilize critical incidents to focus appraisal on employee behaviors that can be changed. Thus, a BARS system describes examples of 'good' or 'bad' behavior. These examples are 'anchored', or measured, against a scale of performance levels. An example of BARS that rates a university professor's attitude toward students is sited here. Construction of BARS begins with the identification of important job dimensions. The dimensions are the most important performance factors in an employee's description. Assume the major job dimensions associated with teaching are: course organization, attitude toward students, fair treatment, and competence in subject area. Short statements, similar to critical incidents, are developed that describe both desirable and undesirable behaviors. Then they are 'retranslated' or assigned to one of the job dimensions. This task is usually a group project and assignment to a dimension usually requires the agreement of 60% to 70% of the group. The group, consisting of people familiar with the job, then assigns each 'anchor' a number, which represents how 'good' or 'bad' the behavior is. When numbered, these anchors are fitted to a scale. The drawbacks are: behaviorally anchored rating scales require

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extensive time and effort to develop and maintain. Also, separate BARS forms are necessary to accommodate different types of jobs in an organization.

Output-based Appraisals
While the methods described above focus on job behaviors or processes, output-based appraisals focus on job products as the primary criteria. The most commonly used output-based appraisal is Management-by-Objectives (MBO). MBO specifies the performance goals that an individual hopes to attain within an appropriate length of time. The objectives that each manager sets are derived from the overall goals and objectives of the organization. Implementing an MBO appraisal system comprised four basic stages. Job Review and Agreement: In the first phase the employee and the supervisor review the job description and the key activities that comprise the employee's job. The idea is to agree on the exact makeup of the employee's job. Development of Performance Standards: Specific standards of performance must be mutually developed. This phase specifies a satisfactory level of performance that is specific and measurable. Guided Objective Setting: Objectives are established by the employee in conjunction with, and guided by, the supervisor. Objectives should be realistically attainable and may be different from the set performance standard. Continuing Performance Discussions: The employee and the supervisor use the objectives as bases for continuing discussions about the employee's performance. Although a formal review session may be scheduled, the employee and the manager do not necessarily wait until the appointed time for performance discussion. Objectives are modified mutually, and progress is discussed during the period. Drawbacks include no management tool is perfect and MBO is not appropriate for jobs with little or no flexibility. Therefore, the MBO process seems to be most useful with managerial personnel and employees who have a fairly wide range of flexibility and control over their jobs.

Rapid Appraisals
Rapid appraisal methods are quick, low-cost ways to gather data systematically in support of managers' information needs, especially questions about performance. Rapid appraisal methods fall on a continuum between very informal methods, such as casual conversations or short site visits, and highly formal methods, such as censuses, surveys, or experiments. Strengths of rapid appraisal methods are they are relatively low-cost, can be quickly completed, are good at providing in-depth understanding, and they provide flexibility. Limitations are they have limited reliability and validity, lack quantitative data from which generalizations can be made for a whole population, and credibility with decision-makers may be low. Choosing between informal, rapid appraisal, and formal methods of data collection should depend on balancing several potentially conflicting factors like purpose of the study (importance and nature of the decision hinging on it), level of confidence in results needed (accuracy, reliability, validity), time frame within which it is needed (when decision must be made), resource constraints (budget, expertise), and nature of information required. Regarding the last factor-nature of the information required-rapid appraisal methods are especially useful and appropriate. Common rapid appraisal methods are discussed below. Key informant interview: Involves interviews with 15 to 35 individuals selected for their knowledge and to reflect diverse views. Interviews are qualitative, in-depth and semi structured. Interview guides listing topics are used, but questions are framed during the interviews, using subtle probing techniques. Focus groups: Several homogeneous groups of 8 to 12 participants each discuss issues and experiences among themselves. A moderator introduces the topic, stimulates and focuses the discussion, and prevents domination of discussion by a few. Community interviews: These take place at public meetings open to all community members. Interaction is between the participants and the interviewer, who presides over the meeting and asks questions following a carefully prepared interview guide. Direct observation: Teams of observers record what they see and hear at a program site, using a detailed observation form. Observation may be of physical surroundings or of ongoing activities, processes or discussions. Mini surveys: Involves interviews with 25 to 50 individuals, usually selected using non-probability sampling techniques. Structured questionnaires are used that focus on a limited number of closed-ended questions. Generates quantitative data that can often be collected and analyzed quickly (USAID Center for Development Information and Evaluation, 2002).

PROPOSED PERFORMANCE APPRAISAL APPROACH

The performance appraisal approach proposed in this paper uses the existing appraisal methods: graphic rating scales, checklist, critical incidents and management by objectives. Like the graphic rating scales, the rater marks an employees performance on a continuum that is on a five point or seven point scale (See Figure 1). But the character traits mentioned here are based on the checklist. Unlike in checklist, here the checklist statements are on five-point or seven-point scale like graphical rating scales. Also the

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goals that have to be attained by the employees/managers/top management in the next week or for the next appraisal time are taken into consideration. The goal achievement is being rated on a scale too. The rater finally quantifies these points and evaluates the performance of the employee with others. Besides this the critical incidents are noted for the varying behaviors of the employee. Critical incidents easily go with the other appraisal methods. This method has the advantage of graphic rating scales that is its simple to use. Second advantage is that the checklist can be modified so that varying weights are assigned to the statements are words. Finally, the MBO part specifies the performance goals that an individual hopes to attain within an appropriate length of time. The main drawback of this method is that the words or statements used may have different meanings to different raters, thus causing severe practical problems to the effective evaluation of employees. Secondly, as no management has perfect flexibility and control over their jobs, it is practically difficult to achieve the goals predetermined. Finally, when it comes to critical incidents, the critical incident may not be defined in the same way by all supervisors and it is time consuming noting the incidents for each employee every now and then. APPRAISAL FORM Date _______ Name _______ Checklist 1. 2. 3. 4. 5. Can be expected to finish work in time Seldom agrees to work overtime Is cooperative and helpful Accepts criticism Strives for self-improvement Department _____ Supervisor _____ Scale 1___2___3___4___5 1___2___3___4___5 1___2___3___4___5 1___2___3___4___5 1___2___3___4___5

Goals to be achieved 1. 2. Number of products Number of hours 1___2___3___4___5 1___2___3___4___5

Critical Incidents 1. 2. Highly favorable action Highly unfavorable action

Figure 1: Proposed Performance Appraisal Form

HIERARCHICAL STRUCTURE FOR APPRAISAL METHODS

The hierarchical structure for appraisal methods is actually a series of appraisal methods happening at all levels of management in a company to achieve better results. The structure uses different appraisal methods at different levels of management that suit accordingly. The structure proposed slightly varies with the size of the company (small and large-scale companies). A company has three levels of management, namely, Top level, Middle level, and the Bottom level management. Bottom level management: The bottom level management includes all the workers or employees. Here, we use two kinds of appraisal methods. Peers Rating: Colleagues evaluate the co-workers. This again deals with the behavior of the worker as it is concerned with the feelings to the fellow employee. "Check list Method" with checklist statements representing the characteristic and performance of an employee would be perfect for workers to rate their co-workers. Again this is fairly possible in small companies. Supervisor Rating: The immediate supervisor or manager will rate the employees. Here we choose comparative method to rate the workers. For a small company, "Rating Method" would be perfect for small companies and "Forced Distribution Method" is good for

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the large companies with huge number of workers. Self-appraisals of employees can be done to think about their strengths and weaknesses and set goals for improvement. Middle level Management: Middle level Management consists of managers and supervisors. The following are the appraisal methods used at this level. Superior Rating: Here, the top-level management evaluates managers or supervisors on the basis of their communicating with the employees and getting better results. For a small company, it is better using "Graphic Rating Scales Method" allowing the superior to mark manager's performance on a continuum - that is, on a five points or seven point scale. For the large companies, it's better to go with "Critical Incidents" as the written record of only the highly favorable and unfavorable actions of a manger or supervisor performance are taken into the consideration. Employee Rating Supervisors: "Behaviorally Anchored Rating Scales" (BARS) is used by an employee to rate the supervisor. The employee identifies the job dimensions like the attitude toward employees, fair treatment, knowledge of the related work etc., and they are anchored. Peers Rating: The manager evaluates the fellow manager through "Check List Method". The Manager considers different checklist methods as helpfulness at the work, knowledge of the work etc. Self-Appraisal: Self-Appraisal is very important at this stage. The managers use "Management By Objectives" for this purpose. MBO specifies the performance goals that an individual hopes to attain within an appropriate length of time. Top Level management: The top-level management consists of Chief Executive Officer, Managing Director, Vice President, and General Manager etc. The following are the appraisal methods used at this level. Self-Appraisal: Self-Appraisal is very important at this stage. The top-level management uses "Management By Objectives" for this purpose. MBO specifies the performance goals that an individual hopes to attain within an appropriate length of time. Managers Rating Supervisors: "Behaviorally Anchored Rating Scales" (BARS) is used by a manager to rate the superior. The manager identifies (or given) the job dimensions like the attitude toward managers, fair treatment, incentive/wages etc., and they are anchored. Peers Rating: The Top-Level personnel evaluate the rest of the Top-level management through "Check List Method". They consider different checklist methods as helpfulness at the work, timely decisions, dealing the tough situations etc. A customer/client source of appraisal is also requested for the better service. Various rapid appraisal methods used at different levels: Key Informant Interviews: This can be used for various managers representing different workforces on different work environments Focus Groups: Employees with small groups can be evaluated with this technique with group leader being the moderator. Community Interviews: The middle/top level management can interview all employees of different work groups. Suitable for small companies. Direct Observation: A manager in a group can use this to evaluate the employees. Useful both in small and large companies. Mini Surveys: To interview the employees the middle or top-level management can do mini-surveys. Useful for large companies.

CONCLUSIONS
In this paper, we have discussed the existing performance evaluation appraisal methods with their advantages and disadvantages. We have also proposed and discussed a new appraisal approach, which is based on three existing appraisal methods: graphic rating scales, checklist, critical incidents and management by objectives. This approach has the benefit of all the three methods employed in one. We discussed about a hierarchical structure of implementing appraisal methods. At each level of the management, the specific appraisal methods are suggested making no ambiguity. These methods are appropriately allocated to the various raters at different levels of management. With the fixed methods to each rater, the goals are set clear and no confusion occurs.

REFERENCES
Hansen, D. (2002). Performance Appraisal Tips Help Page, http://iso9k1.home.att.net/pa/performance_appraisal.html. Kanobear, Inc. (2002). Performance Appraisal, http://www.geocities.com/Athens/Forum/3126/htmlperfapp.html. North, Archer (2002). Performance Appraisal, www.performance-appraisal.com. Schuler, R. S. (1995). Managing Human Resources, Min/St. Paul West Publishing, http://www.ensia.inra.fr/~courtois/fidel/maich. USAID Center for Development Information and Evaluation (2002) Performance Monitoring and Evaluation Tips, Using Rapid Appraisal Methods, www.childrensvaccine.org/files/USAID_RapidAppraisal.pdf.

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