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What are the types of performance appraisal?

Advantages and Disadvantages 

​By Mansour Baker, SHRM-CP

Posted 20 December 2019      |     Revised 16 March 2023

Performance Appraisal Methods

​There are several Performance Appraisal Methods that are utilized in evaluating the performance of employees. It has become a common practice in companies to combine two or even three methods into a company’s overall Performance Appraisal Program.

Exhibit 1

The Five Performance Appraisal Methods: Traditional and Modern

1) Comparative (Ranking)

Regardless of the effort spent in developing a performance appraisal system, appraisers tend to assign uniform ratings to employees regardless of performance. Supervisors often do not and “are not forced to” differentiate between employees despite real difference in performance. Comparative methods can be used to ease out differences between employees by providing direct comparisons.

Alternative Method

This method is implemented by ranking the highest performer, then the lowest performer, then the second-highest performer, the second lowest and so on until a list of names is deduced giving a ranking of employees from the highest performer to the lowest.

The advantages of Alternative Method include the fact that it is a fast, easy to complete, results in a numerical evaluation given to the employees and can be directly related to compensation changes or staffing considerations.

One of the major disadvantages in applying this method that employees are often compared to each other only on an overall performance rather than on specific job criteria.

Paired Comparison

​This method entails comparing pairs of employees and deciding which employee of the pair is performing better according to a certain performance criterion. All employees are compared against each other on all performance criteria, and the employee with the most affirmative answers is ranked highest.

Paired Comparison is quick and easy to use if few employees are to be rated. In fact, supervisors prefer Paired Comparison to Alternative Method or Forced Distribution because they compare two employees at a time rather than all employees to one another.

Disadvantage for using this method is time consuming with large number of employees; another disadvantage is that employees are often compared to each other only on an overall performance.

Forced Distribution

This method is a comparative method of performance appraisal. It requires managers to spread their employees on certain rating distribution. They place employees in classification ranging from poor to outstanding whereby 10% of the employees are rated as poor, 20% below average, 40% satisfactory, 20% above average and 10% outstanding. Although this method is widely used in public and large organizations because it is an easy method to be developed and spare time to use, it has serious disadvantages. Forced distribution is hardly a developmental method since employees do not receive feedback about performance strengths and weaknesses or any future direction. In addition, this method is occasionally unfair and results in frustration among employees.

2) Essay

The Essay appraisal method is implemented by the employee’s supervisor through writing a descriptive recounted report about the employee’s performance. Several questions could be posed to the manager who in turn represents in a written report the employee’s performance. 

However, the major obstacle with this approach is the fact that the essays might be too lengthy, and its content might differ from one manager to another according to the writing skills of each manager, which would adversely affect the performance appraisal process. When the evaluator writes essays describing the strong and weak aspects of the employee’s work conduct, it could be an open-ended essay and considered subjective. Depending on the evaluator writing skills, it could be arduous to compare between different appraisals, hence some employees might not get the appraisal they deserve.

​Since the Essay method forces the evaluator to discuss specific examples of performance, it can minimize supervisory bias and evaluator error. In addition, the Essay method can be easily added to any form.

3) Critical-Incidents

The Critical-Incident methods are tools used by managers through monitoring behaviors performed by the employee, be it positive or negative, that is directly related to both acceptable and unacceptable job performance. Several incidents are recorded and maintained by the manager and thus providing a solid feedback concerning the employee’s performance supported by facts.

One of the disadvantages of this method is that employees might feel disconcerted as they feel they are being monitored by the manager and subsequently cause a certain friction between the manager and the employee. Another impediment related to this approach is the fact that this process is considered laborious, tedious and time consuming. The Critical-Incident method includes the following techniques:

Ongoing Review

One form of the method is for supervisor or appraiser to keep an ongoing record of the employee’s critical incidents during the period of appraisal.  If the review period is one year, the supervisor can keep a file or calendar in which the extraordinary examples of subordinates’ performance are registered. The supervisor would make a review of this file before beginning the performance appraisal. Employees who have little or no records during the year are doing their job satisfactorily.

The advantage of the Annual Review is that it is usually very job specific, with specific dates and incidents resulting the supervisor to be less affected by bias.

The main disadvantages of using an Annual Review File are the difficulty of keeping an accurate record and the difficulty of comparing the performance of different employees using only records of critical incidents.

Checklist

The Checklist Method poses a list of questions that indicate the employee’s behavior for the evaluator to answer with a yes or no. Different weights are allocated to each question and these are concealed from the evaluator to ensure implementing an objective appraisal unaffected by the weight assigned to each question.

The Checklist method is fast and easy to use and can produce a mathematical total for employees. It is also an evaluative and developmental method.

As facile as it implies, there are several disadvantages associated to the checklist method. The evaluator could deduce the importance of each question and estimate its weight; therefore, the evaluators judgement is affected and is no more objective.

Another disadvantage to the checklist method is that the development process of different questions in the list is considered tedious and extensive since different lists should be developed for different job categories.  

4) Rating Scale

Graphic Rating Scale

The Graphic Rating Scale is a range of different numerical and descriptive factors that are used to assess an employee’s performance. These factors could be job knowledge, quality of job performed, precision of work, attendance, and any other job-related behaviors. A specific weight is assigned to each factor according to its impact on the overall employee performance.

Advantages of this method are that it is quick, easy and less difficult for supervisors to use. Also, decision makers find Graphic Rating Scale to be satisfactory for most evaluative purposes because it provides a mathematical evaluation of performance which computes a useable number and can be used to justify compensation or job changes and to validate selection instruments.

One of the disadvantages associated with this method is the fact that the factors could be interpreted differently from one person to another, and if the factors are misinterpreted, rating is not comparable between different employees. In addition, sometimes a certain rating item might be omitted which might be of relevance to job performance, thus an inaccurate rating scale is ensued.

Behaviorally Anchored Rating Scales (BARS)

The Behaviorally Anchored Rating Scales (BARS) method measures behaviors performed on the job that ultimately determine the overall employee job performance. Scales are allocated for all the skills required for each job. The BARS method starts with a rating scale being allocated for a certain job dimension and definitions of performance are specified alongside each scale value. Anchors are written statements of actual behavior exhibited on the job and these statements are anchored opposite the scale indicating the job behavior the employee exhibits. 

Several steps are used to determine the BARS for each job, and these are formulated in coordination between the manager and the employee. The steps used in developing BARS are:

• Manager and employee identify job dimensions or categories of activities that make up a job.
• Manager and employee write a set of behavioral incidents (anchors) for each job dimension.
• Anchors are sorted and rated against the scale value.

Several advantages are cited when using the BARS method. The anchors that are developed are drawn from actual experiences of employees who perform the job. When formulating the anchors, a coordinated effort is utilized between the manager and the employee, thus empowering employees by becoming more involved in setting the performance standards. Another advantage to this method is its provision of an accurate feedback on employee performance. However, disadvantages to this method are that it is time consuming and the fact that several rating scales need to be developed for different job categories.

Competency Based Evaluation

The Competency Evaluation is an extension of the BARS technique, the difference is that the competencies, and professional levels required for each job are predefined, in the jobs’ competency profile or the job description cards, along with the competency dictionary that define the definitions of the competencies and the definitions of the proficiency levels. Hence, managers are not required to develop anything new, on the contrary, they are requested to abide by the designed framework to maintain consistency all over the company.

The main advantage of this technique is that it gives an accurate, and generally unbiased feedback, the competencies are derived from the job itself, so it provides a good base for improvement. The disadvantage is that it is time consuming, and employees & managers are not used to review the definitions to do the performance appraisal.

5) Management by Objectives (MBO)

One of the more widely used appraisal methods is MBO. Objectives setting lies at the heart of the MBO process. With MBO, the objective-setting process begins at the top with the formulation of organizational objectives and cascaded to departmental objectives, and down to individual objectives. An advantage of choosing the MBO method is gaining employee acceptance since the employee is involved in setting the objectives.

An MBO process usually comprises the following:

• Formulating statements of objectives for the work that an employee is to perform, where these objectives should be accurate and distinct.
• Setting up a course of action that displays how to accomplish these objectives, to be implemented by employees.
• Employee performance is then evaluated based on objective achievement.

Objectives set should be measurable and quantifiable, in addition to being challenging, yet attainable. The statements of objectives that are formulated should be expressed in explicit, precise and direct sentences, thus leaving no possibility for debate.

The advantage of MBO is that it is a developmental method, it addresses specific problems and identifies plans of action. On the other hand, the disadvantages of this technique include the fact that it is expensive to develop, time-consuming to use, and becomes harder to apply on the low-level jobs.

Performance Appraisal Methods Comparison

Observation and research indicate that the best techniques and methods used in performance appraisal should be dependent on the objective of conducting performance appraisal. Every performance appraisal situation is different and organizations much decide how much time and effort are worth the payoff.

Exhibit 2

Competency based and performance objectives will provide a balance point of view of overall achievement. 

Pitfalls in Performance Appraisals

Performance appraisals usually undergo several errors. Some of the most common errors are leniency, central tendency, recency and the halo effect. Briefly explained, leniency is giving an overly favorable rating instead of distributing the ratings throughout the scale. Central tendency is rating all employees similarly and choosing all ratings near the middle of the scale. Recency is evaluating an employee depending on the most recent work performed, while the halo effect is rating an employee based on one specific characteristic. 

Multi Evaluation System

The competency based and performance objective methods will achieve a balanced overall assessment.

Exhibit 3

Multi-evaluation system of objectives and competencies "what achieved and how achieved" will provide a balanced assessment of employees.

In the above multi-evaluation system, the weights for both methods are management roles. The weights depend on the employee’s level and complicity of the role.

Integration

Managing performance across an organization is critical to achieve success for employees, department heads and the organization. To reinforce its importance to the business, and to continue encouraging a performance-focused culture, the performance & development will impact on a number of other key aspects of people management, e.g. learning & development, succession planning, annual salary review, and incentives.

​How to review and upgrade performance management?

Introduction

​Review and upgrade the existing performance management approach to enhance target setting, performance evaluation, feedback, post evaluation action planning, and automation.

​Performance management is linked to training and compensation, and targets are set to ensure productivity and appropriate reward/recognition.

Near Term (1-6 months)

• ​Review and upgrade the existing performance management approach to enhance target setting, performance evaluation, feedback, post evaluation action planning, and automation.

​Medium Term (6-12 months)

• Pilot and implement performance management processes to support effective deployment of upgraded system.
• Evaluate current HR system and add performance management module.

Exhibit 4

​​Near & Medium Term Activities

Objectives

• To ensure that employee activities at all levels relate directly to the company’s mission and objectives.
• To provide a systematic approach to manage performance, help employees understand the importance of their individual activities, and facilitate recognition and reward of high performance and evaluation of poor performance and its probable causes.

Key Activities

• Conduct baseline of current system and performance culture and evaluate design options.
• Convene working group of the company staff to assess desired performance management future state.
• Review and agree on defined purpose of performance management system.
• Define desired performance management content.
• Define performance management process.

Key Deliverables

1. Baseline assessment
2. Performance Management purpose summary
3. Performance management content definition
4. Performance management process definition and system roll out

1. Baseline Assessment

• Convene working group of company staff to assess desired performance management future state.
• Assessment of current company performance management system and potential design approaches.
• Assessment of company performance culture, including clarification of performance norms, philosophy, manager accountability, training, value system, performance constraints, and accountability.

2. Performance management purpose summary

• Report summarizing the key purpose and intent of the company’s future performance management system.

3. Performance management content definition

• Report summarizing desired performance management system foundation (competency-driven system and/or a goals-driven system, determination of rating scales, etc.), structure, and content (to be undertaken after commencement of workforce gaps and risk analysis activity in develop effective workforce planning initiative).

4. Performance management process definition and system roll out

• Articulation of policies and processes for the annual performance management cycle.
• Determination of rating method (e.g., single rater, multi rater) and delivery mechanism.
• Pre-implementation strategy and change management communications.
• Strategy roll-out strategy
• Provision of training (assessment procedures for managers, accountability for professional development by employees, process management for human resources, leading-by-example for leadership).
• Roll out of revised performance management system.

Performance Management Reporting & KPIs

KPIs provide a backbone for developing reporting and performance management tools that will focus management conversations on future outcomes and performance improvements.

Performance Management Reports

• Performance management reports will focus on monitoring strategic objectives such as financial performance against strategy and business plan. 

Business Function KPI Reports

• Business function KPI Reports will be produced for each of the business functions. A suite of Business Function KPIs will focus on the underlying operating activities in each of the business functions and provide a basis for scrutinizing the causality of the measures contributing to the monthly performance outcomes.

Components of the Performance Reporting Definition Card

• Reporting is driven by the strategic outcomes and value drivers in order to enable consistent and effective forward-looking decision-making.
• Reports focus on driving performance by prioritizing insights over information. They are developed with an objective to drive activities, resulting in a process or an action, adding value to business activities and relevant for the particular audience.
  

1. Definition: States what is the report is and what it is used for.
2. Components: States what the report consists of.
3. ​​Action to be taken: Steps required by stakeholders to issue the report.
4. RACI: Includes who developed the report, who approves it and to whom is the report intended for.
5. Frequency of Report: The necessary number of times that report is issued. 

Exhibit 5

Sample Performance Reporting Card

What is a KPI Definition Card?

• Performance measurement serves as the foundation for governance, and predictive models to drive performance and growth.
• Identifying the KPIs will be based on leveraging the transitional and long-term goals. The KPIs will offer the opportunity to analyze performance in order to identify areas of further development.

Components of the KPI Reporting Definition Card

1. Definition: States what is the KPI and how is it measured.
2. Rational: Reasoning of why the KPI selected and how the selection tackles certain aspects/fields.
3. ​​Calculation Methods: Includes the formula used to calculate the KPI.
4. Desired Change in KPI: What is the required achieved outcome from the KPI.
   
5. Proposed Data Source: Proposed source of data for KPI calculation.
   
6. Frequency of Measurement: The necessary number of times that the KPI is measured.
   

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