Performance appraisal is a process concerned with determining how well employees are doing their jobs, communicating that information to the employees and establishing a plan for performance improvement.

Appraisal is the judgment of an employee’s performance in a job, based on consideration other than productivity atone.  What is being assessed in appraisal is the employee’s performance in carrying out the general duties of his/her role, together with any specific targets that have been set.

Performance appraisal is the process of determining and communicating to an employee how he is performing on the job and establishing a plan of improvement.  They tell an employee how well he is performing and the future level of effort and took direction.

Reasons for Performance Appraisal

  1. For making administrative decisions relating to promotions, firings, layoffs and merit pay increases. It helps a manager decide what increases of pay shall be given on grounds of merit.
  2. For determining the future use of an employee.
  3. Appraisal can provide needed input for determining both individual and organizational training and development needs, through identifying strengths and weaknesses.
  4. Appraisal encourages performance improvement. They may motivate the employee to do better in his current job due to knowledge of results, recognition of merit and the opportunity to discuss work with his manager.
  5. Appraisals help to identify an individual’s current level of performance.
  6. Information generated by appraisal can be used as an input to the validation of selection procedures.
  7. Appraisal information is an important input to human resource planning and succession planning, career planning and so on.

By making effective use of the performance appraisal system, an organization may seek to: –

  • Improve productivity
  • Promote internal control through timely detection and feedback on actual performance
  • Create a positive work environment
  • Stimulate, recognize and reward achievements
  • Provide objective measures of performance
  • Furnish information for other HR sub-systems.

Frequency of Performance Appraisal

Despite the many potential benefits of appraisal, many organizations do not make effective use of the system.  When appraisal is infrequently used, employees voice concern about the possible abuse.  There seems to be no real consensus on how frequently performance appraisals should be done, but it is good to have them as often as in necessary to let employees know what kind of job they are doing, and measures to be taken for improvement.

An annual appraisal is not enough.  For most employees informal performance appraisals can be conducted two or three times a year in addition to an annual formal performance appraisal.

Key Principles in the design of Appraisal Schemes.

  1. Create motivation to change or improve behaviour.
  2. Provide recognition for successful performance.
  3. Provide valid and reliable information for pay decisions.
  4. Provide guidance on what skills, competences and behaviour are needed to meet expectations.
  5. Need to be simple, clear and written in accessible language.
  6. Must make realistic demands on employees and managers time and other resources.
  7. Must be perceived to be fair.


Selection of a Performance Appraisal Method

Whatever method of appraisal an organizational uses, it must be job related.  Therefore before selection of a method, an organization must conduct job analyses and develop job descriptions.

Methods of Performance Appraisal

  1. Goal setting or Management by Objectives (MBO).
  2. Multi-rater (360 – degree feedback).
  3. Ranking methods.
  4. Rating methods.
  5. Work standards approach.
  6. Essay appraisal.
  7. Critical – incident appraisal.
  8. Checklist.
  9. Assessment centre.
  10. Open –ended method.



This is more commonly used with professional and managerial employees.  Other terminologies used for this include; management by results, performance management, results management and work planning and review programmes.

The MBO process consists of the following steps:-

  1. Establishing clear and precisely defined statements of objectives for the work to be done by an employee.
  2. Developing an action plan indicating how these objectives are to be achieved.
  3. Allowing the employee to implementing the action plan
  4. Measuring objective achievement
  5. Taking corrective action when necessary
  6. Establishing objectives for the future.

 For MBO to be successful;

  • Objectives should be quantifiable and measurable
  • Objectives should be challenging yet achievable
  • Objectives should be expressed in writing and in clear, concise, unambiguous language
  • Employees should participate in the objective-setting process
  • The objectives and action plan must serve as a basis for regular discussions between manager and employee


  • MBO is intended to encourage employee participation and increase job satisfaction by giving the employee a sense of achievement and involvement with his or her sense of achievement and involvement with his or her work.
  • Training needs may also emerge during the discussion at the beginning and end of the review period
  • Employees are forced to think hard about their roles and objectives, about why task are necessary and how best to get things done
  • Targets are clarified and the crucial elements in each job identified
  • Superiors and subordinates are obligated to communicate with each other, and there is forced co-ordination of activities between various levels of management, departments and between short and long term goals.


  • Many managers and employees find the joint objective setting and performance review interviews difficult and sometimes inconsistent with the general management style of the company.
  • The system may then generate into a routine in which the manager simply instructs the employee which objectives to pursue.
  • Quite often, it is difficult to find new objectives, which offer a challenge, and the system may encourage individual, selfish effort to the detriment of the working group.
  • Attempts to quantify performance in activities that are not really quantifiable. (E.g. advisory duties or the work of a receptionist)
  • Concentration on short term measurable goals while neglecting important but less precise long term objectives
  • Difficulties arising from subordinates being given objectives but not the resources, information and authority needed to achieve them.
  • Takes a great deal of time, energy and form.
  • Some executives find it hard to even think of their own work habits.
  • Some areas of management are difficult to measure in terms of performance e.g. Employee development.
  • Possibility of a tug of war with supervisors setting high targets and the subordinates setting very low targets.

In many organisations where the objectives are pre-determined, Key Performance Areas (KPA’s) or Key Result Areas (KRA’s) are also decided in advance through joint effort. Evaluation is done in terms of the degree of achievement and non-achievement of the objectives KPA’s/KRA’s

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