Performance Management :

Performance Appraisal

Definitions According to Newstrom,

It is the process of evaluating the performance of employees, sharing that information with
them and searching for ways to improve their performance

Performance appraisal is the step where the management finds out how effective it has been
at hiring and placing employees . A Performance appraisal is a process of evaluating an
employees performance of a job in terms of its requirements.

P-Purpose
E-Empowerment
R-Relationship
F-Flexibility
O-Optimal performance
R-Recognition & Rewards
M-Morale

Objectives of performance appraisal

According to Employee:

Concrete and tangible particulars about their work

Assessment of performance

Aims at:

Personal development
Work satisfaction
Involvement in organisation

According to Organisation:

Measuring the efficiency

Maintaining organizational control

Aims at:

Mutual goals of the employees & the organisation

Growth & development
Increase harmony & enhance effectiveness

Performance Management:
Methods:

Assessment Centre Method

The purpose of this method is to test candidates in social situations. It can be used by startups
for evaluating employees serving at senior level. This method of evaluation is helpful for
assessing managers, who have to deal with their subordinate, peers and supervisors for day-
to-day business. It helps employers understand the capacity and the capability of the
individual in social settings. It involves using situational exercises like an in-basket exercise,
role-playing incident, business game and many other similar exercises. It gives the employer
an insight to the personality of the employee like openness, tolerance,
introversion/extroversion, acceptability, etc.
Behaviourally Anchored Rating Scale
This is latest a modern appraisal technique, which has been developed recently. It is claimed
that the Behaviourally Anchored Rating Scale method is one of the most equitable technique
compared to other methods of appraisals. It is a combination of narrative techniques like
essay evaluation and quantifiable techniques like rating scale. It is comparatively more
expensive than other techniques, but it usually guarantees precision and effectiveness.

Critical Incident Technique

This technique is similar to the essay evaluation method. It involves making statements that
describes both the positive and the negative reactions to stimulus by the employee at his work
place. The statements are recorded cumulatively in a given period of time, so that one can
evaluate how good the employee is at his job. His proficiency will be determined by how he
deals with his day-to-day activities. The appraiser in this method is usually the direct
supervisor or manager under whom the employee is serving. This technique is not only used
for performance appraisals but also utilized in job interviews. The interviewer gives scenarios
to the interviewee and asks them, how they would react to the given scenarios.

Essay Evaluation
The essay method is an affordable and effective way of appraising employees, especially in
startups. This method involves writing a detailed descriptive essay of the performance by the
employees direct supervisor or manager. The essay concentrates on describing the various
strengths, weaknesses, attitude and behaviour of the individual towards job duties. This
method is less structured and thus gives the appraiser an opportunity to explore and describe
niche qualities or shortcomings of the employee that need to be worked on. It is far less
complicated to execute compared to the other methods, only if biases could be kept at bay.

Human Asset Accounting Method

This is a very commercial and practical performance appraisal method for organisations. In
this scenario, the human capital is associated with the amount of revenue that individual
generates, or the number of happy customers, or the number of leads generated in sales. It is a
fair process from the point of view of the organisation and the employee, because it directly
indicates the profitability of the company. This method is adopted by most startups, since it is
easy to execute and track. Therefore, the amount of business generated by an employee
determines whether he deserves to be promoted or terminated.

Management By Objective
A rather interactive and fair form of appraisal, the Management By Objective method is less
time consuming and of course cost effective. The technique involves setting up of objectives
and goals for the employee either by the employer, or his manager, or both employee and
employer. This performance appraisal method helps the employee to perform better, because
he is well aware of his goals and already knows the quality and quantity that needs to be
delivered. It has been observed that when both employee and employer together decide the
objectives, the probability of the individual meeting the goal is much higher. This is a fair
method of evaluating because the employee knows the odds that he is measured against. It
doesnt involve giving constant feedback to the employee, because he is being constantly self
introspective, thereby saving time and efforts of the employer.
Paired Comparison Method
This method bears more relevance and importance in startups/SMBs, which have small
teams. It compares each employee with every individual present in the same team and
depending on their comparative performance to the employee who has performed the best,
appraisals are given. It is considered reliable because it follows a systematic method of
comparative evaluation. This technique is most apt when, the organisation plans on giving
appraisal only to the best employee in the team.

Rating Scale
This performance appraisal method can be used by startups and small businesses that are
scaling and are trying to set up processes in place. It is process-based and involves the
organisation to set pre-determined objectives that employees are expected to meet.
Individuals are then rated by their supervisors or managers. It is similar to the grading system
that is usually followed in schools, but is effective and systematic. Employees are evaluated
for their skills, teamwork, communication skills, precision, etc. And they are expected to
meet a basic score. If they do not meet the score then they are sent for performance
improvement training which would help them cope up with their shortcomings.

Trait Focussed Appraisals

This technique is useful for reinforcing positive work ethics and culture in the organisation. It
considers attributes like helpfulness, dependability, punctuality, etc for being appraised by the
organisation. It motivates employees to be competitive in a fair manner and yet be available
for helping out colleagues if need be. Startups should consider giving their employees trait
focussed appraisals once in a while, because it reinforces positive culture in the organisation.
360 Degree Feedback
This method involves getting a feedback about the employee from every individual who
interacts with him during his working hours. They can be his peers, his subordinates, his
superiors, customers who have interacted with him and even he himself would be interviewed
about his perception of himself and his duties at the workplace. This performance appraisal
method would be very useful for startups, because the best way to review an employees
overall performance and get an insight about his behaviour, personality and attitude this is the
best method to follow. Although it is a little time consuming, but it is cost effective and
precise. It keeps biases out of play due to multiple opinions, so that the review isnt affected
by biases of one person.

Effective Performance Management Systems:

1. Are fair, consistent, and reliable

2. Use established performance measures
3. Supported by managers and executives
4. Communicates performance expectations regularly
5. Hold employees accountable for their actions
6. Promotes continuous employee development
7. Are flexible and efficient
8. Aligns individual goals to the department and organization
9. Seek to maximize employee performance
10. Can be used for succession planning
11. Links performance to compensation, rewards, and recognition

Performance Mgt System:

It is an organisation wide management program that provides a structured approach to:
i. Communicate business strategy
ii. Establish shared understanding of what is to be achieved and how it is to be achieved
iii. Facilitate management of self and others
iv. Measure and motivate performance (organisational and individual)

Performance Management: a management process fpr ensuring employees are focusing their work efforts in
ways that contribute to achieving the agencys mission. I consists of three phases:
a) Setting expectations for employee performance
b) Maintaining a dialogue between supervisor and employee to keep performance on track
c) Measuring actual performance relative to performance expectations

It is:
i. A process for communicating employee perfoemance expectations, maintaining ongoing
perfprmance dialogue and conducting annual performance appraisals
ii. A procedure for addressing employee performance that falls below expectation
iii. A procedure for encouraging and facilitating employee development
iv. Training in managing performance and administering the system
v. A procedure for resolving performance pay disputes

Objectives of PMS
i. To check effectiveness and efficiency of individuals, teams and organisation
ii. To effect promotion based on competence and performance
iii. To access the training and development need of employee
iv. To decide upon pay rise
v. It can tell whether HR progs have been effective or not
PMS includes:
i. Workplan a document that describes work to be completed by an employee with performance
cycle, the performance expected, and how the perf will be measured
ii. Corrective action plan: a short term action plan that is initiated when an employee performance
fails to meet expectations. Its purpose is to achieve an improvement in performance.
iii. Individual development plan: an action plan for enhancing an employees level of performance in
order to excel in the current job or prepare for new responsibilities.
iv. Performance appraisal: A confidential document that includes the employees performance
expectations, a summary of employees actual performance relative to those expectations, an
overall rating of the employees performance, and the supervisors and employees signatures.
v. Performance document: a lettr, memo, completed form, or note on which the supervisor indicates
the exyent to which the employee is currently meeting expectations and provides evidence to
support that conclusion.
vi. Fair appraisal: appraising employees in manner that accurately reflects how they peformed relative
to the expectations defined in their work plan and in a manner that is not influenced by factors
irrelevant to performance.
Compensation:
Employees receive compensation from a company in return for the work performed. Most people think pay &
compensation to be same, but the fact is compensation is much more than just monetary rewards provided by an
employer.
Milkovich & Newman:
Compensation is all forms of financial returns and tangible services & benefits employees receive as a part of an
employment relationship.
Compensation affects: competitive advantage
Steps of designing compensation plan:
i. Focusing on strategy objectives
ii. Ensuring commitment through communication & participation
iii. Analyzing job function
iv. Writing job description
v. Determining internal pay equity

Objectives of compensation:
i. Attract employees who are qualified, experienced & interested in organisation
ii. The employees are motivated for better performance
iii. The employees do not leave the employer frequently
Components of compensation:
i. Basic wages : cash component of wage structure based on which other elements of compensation
may be structured
ii. Dearness allowance: enables him to face price rise or inflation
iii. Incentives: payments by results, depend on sales, profit, cost reduction efforts etc.
iv. Bonus: fixed percentage, or n proportion to the profitability
v. Non-monetary benefits:
a. Recognition of merit through certificate
b. Offering challenging job responsibilities
c. Promoting growth prospects
d. Comfortable working conditions
e. Competent supervision
f. Job sharing and flexitime
vi. Commissions: based on sales revenue or profit of company.
vii. Mixed plan: wages/salary + commission
viii. Fringe benefits ( indirect compensation)
a. Paid vacation
b. Pension
c. Health insurance

Types of compensation:
A. Direct compensation
i. Basic salary
ii. House rent allowance
iii. Conveyance
iv. Leave travel allowance
v. Medical reimbursement
vi. Bonus
vii. Special allowance
a. Overtime,
b. Mobile allowance
c. Meals
d. Commission
e. Travel expense
f. Insurance
g. Club membership
B. Indirect compensation
i. leave policy (paid casual leave, maternity leave, sick leave)
ii. Overtime policy (overtime pay, transport facility)
iii. Hospitalization (regular check ups)
iv. Insurance (accidental, life insurance)
 v. Leave travel
vi. retirement benefits
vii. holiday homes & guest house
viii. flexible timing

Factors considered when deciding compensation:

Internal factors
capacity to pay
top management philosophy
job requirements
org policies
employee related factors
productivity of workers
External factors
Compliance with law of the land
Demand and supply of the labour
Cost of living
Government
Prevailing wage rate
Labour union & collective bargaining
Employee related
Performance
Seniority
Experience
Potential

Objectives of compensation management:

To provide fair and equitable remunerations
To attract competent personeel
To retain resent employees
To improve productivity
To control cost
To improve union management relations
To improve public image of company
To improve job satisfaction
To motivate employees
Peace of mind
Increase self confidence