Approaches / Methods of Performance Appraisal

PSYCH-105 Industrial Psychology

Chapter 17: Performance Appraisal

Unit 1

Unit 2

Unit 3

Unit 4


Approaches / Methods of Performance Appraisal

Fig.: Performance Appraisal Methods


Traditionally, performance appraisal has been used as just a method for determining and justifying the salaries of the employees. Then it was used as a tool for determining rewards (a rise in the pay) and punishments (a cut in the pay) for the past performance of the employees. This approach was a Past Oriented approach which focused only on the past performance of the employees i.e. during a past specified period of time. This approach did not consider the developmental aspects of the employee performance i.e., his training and development needs or career developmental possibilities. The primary concern of the traditional approach is to judge the performance of the organization as a whole by the past performances of its employees. Therefore, this approach is also called as the overall approach. 

1. Ranking Method

It is the simplest and the oldest method of merit rating. It considers the employee and his performance as a whole and assigns him a suitable rank in the organization. Ranking is a simple process of placing employees in a rank according to their job performance. All workers are judged on the same factors and they are rated on the overall basis with reference to their job performance instead of individual assessment of traits. In this way, the best is placed first in the rank and the poorest occupies the last rank. The difficulty of this system is that subjectivity of the appraiser may enter into his judgments. The other difficulty with this method is that it does not indicate the degree of difference between the first man and the second man and so on. It is also difficult to adopt this method, in case of evaluating large number of employees.

2. Paired Comparison Method

A procedure which does systematically force the rater to compare each man with every other man is known as the method of Paired Comparison. After the completion of comparison, the results can be tabulated, and the rank is created from the number of times each person is considered to be superior. Under this, every employee in a job family is compared with every other employee to determine which the better worker is. The rater is provided with a little booklet containing two names on each page. Every employee is compared with every other employee in the same job family. The paired comparison gives a more reliable rating than the order of ranks discussed above although this system is more tedious to construct and use. It cannot be used for periodic employees’ ratings as it does not make evaluation of any improvement in the employees that might have been made over a period of time. 

3. Graphic Rating Method

Under this method, the rater places a checkmark on a form next to the word or phrase describing the degree of merit for each of several traits such as quality of work, quantity of work, dependability, attitude job knowledge or punctuality and so forth. The rate usually receives a score of 1 to 5, with 5 representing excellent performance. A major problem with graphic rating scale is that words like “excellent” and “poor” mean different things to different people. Whatever method is adopted, the following points should be kept in mind for selecting traits for merit rating : 

  1. Observability – Can the rater actually observe this trait in action? 
  2. Universality – Is the trait under consideration an important characteristic in successful performance of all the jobs to be rated?
  3. Distinguishability – Is the trait under question clearly distinguishable from the other traits? 

It has the following merits: 

  1. It is less subjective as it considers a number of different traits or aspects of employees rather than single total evaluation. 
  2. Traits are defined in advance so that the ambiguity is less. 
  3. It shows the degree of each trait and hence is more mathematical. It permits the statistical tabulation of scores in terms of measures of central tendency, skewness and dispersion. 

This method imposes a heavy burden upon the rater who must report the performance of the subordinates on scales involving as many as five degrees on a number of factors. Moreover, it is difficult to

(i) decide about relative weightage of different traits;

(ii) validate the opinions; and

(iii) ensure uniformity as rating would differ with different raters.

Fig.: Example of Graphic Rating Method

4. Forced Distribution Method

The method operates under an assumption that the employee performance level conforms to a normal statistical distribution curve. Generally, it is assumed that employee performance levels conform to a bell – shaped curve. In this system, a five point scale for job performance is used. One end of the scale represents best job performance whereas the other end poorest job performance. The supervisor is asked to allocate approximately 10% of the men to the best end of the scale, 20 % in the next category, 40 % in the middle category, 20 % in the bracket next to low end and 10% in the low brackets. With this method, a predetermined percentage of employees are placed in each of the five categories as shown in the curve (figure).

To use the method one must assume that employee performance is normally distributed that there are certain percentage of employees who are poor, average and excellent. Employee performance probably is not normally distributed.

Fig.: Example of Forced Distribution Method

5. Checklist Method

Many rating scales require the judge to check or indicate which of a number of statements, adjectives or attributes are descriptive of a person being rated. Each person is assigned a total score based upon the particular item checked. In this method, the evaluator has a list of specific situations and statements describing the performance and behavior of employees and compares it with employees. The main purpose of this method is to reduce the evaluator’s burden of rating the employee. In this method a dichotomous questionnaire (A question with two answer choices namely `Yes’ or `No’) is used. A rater is required to put a tick mark against the respective column. Each statement is given a scale value or weight. The total of these gives the merits of an employee. This questionnaire is prepared and scored by the HR department. The main disadvantage of this method is the rater is not given the flexibility to add or delete the statements. 

Fig.: Example of Checklist

6. Critical Incident Method

The critical incident technique is a procedure developed by Flanagan (1954). The term critical incident refers to all those on-the-job behaviours of people which the supervisor would consider to be “noteworthy”, either outstandingly “good” or “bad”. The critical incident checklist has the great advantage that it is based upon actual job behaviours or incidents. A supervisor is not placed in the position of being forced to judge traits or to rank his workers, etc. He only has to respond in terms of whether or not he has or has not observed a particular incident on the part of each worker. 

A performance appraisal in which the supervisor keeps a record of incidents that show positive and negative ways the employee has acted; the supervisor uses this record to assess the employee’s performance. Under this method, the manager prepares lists of statements of very effective and ineffective behavior of an employee. To conduct a critical-incident appraisal, the supervisor keeps a written record of incidents that show positive and negative ways in which the employee has acted. The essence of this technique is that it attempts to measure employee’s performance in terms of certain events or episodes that occur in the performance of the job. These events are known as critical incidents. The superior keeps a log of positive and negative examples (incidents) of subordinate’s work related behaviour. The basis of this method is the principle that there are certain significant acts in each employee’s behaviours and performance, which make all the difference between success and failure in the job.

Fig.: Example of Critical Incident Method

7. Forced Choice Method

In this, the rater is given a series of statements about an employee. These statements are arranged in blocks of 2 or more, and the rater indicates which statement is most and least descriptive of the employee. Typical statements are: can be a leader, wastes time on unproductive things, at all time, cool and calm, smart worker. The statement items are grounded in such a ways that the rater cannot easily judge which statements apply to the most effective employee.

8. Field Review Method

The supervisors fill in no forms, but they are interviewed by an expert belonging to the personnel department. The expert questions the supervisor to obtain all the pertinent information on each employee and takes notes in his notebook. These notes are later on sent to supervisor for his approval or suggested modifications.

Criticism of Traditional Method

1. Scope and objective

The scope and objectives of traditional performance appraisal systems are very limited. They are applicable to the operative workers whose performance can be measured quantitatively. They are not applicable to technical, professional and managerial personnel. 

2. Personal judgment of rater

They are too subjective in nature because all of them are based on personal judgment of the rater. The personal judgment is always subjected to personal bias or prejudice as well as pressure from certain other areas.

3. Post appraisal interview

Under this approach, the interview becomes one of communicating the appraisal in order to justified decisions and stimulating the employees to improve themselves. No emphasis is given to stimulate the employees to analyze their performance and set their own objectives. The subordinate has no choice but to accept the result of the performance appraisal.


In 1950s, the performance appraisal was recognized as a complete system in itself and the modern approach to performance appraisal was developed. The modern approach to performance development has made the performance appraisal process more formal and structured. In this, performance appraisal is taken as a tool to identify better performing employees from others, employees training needs, career development paths, rewards and bonuses and their promotions to the next level. The modern approach to performance appraisal is a future oriented approach and is developmental in nature. This recognizes employees as individuals and focuses on their development. 

1. Behaviorally Anchored Rating Scale (BARS)

In this method the employee’s behavior and performance dimensions are analyzed and used for evaluating the performance of the employee. The HR department is involved in the process of preparing the BARS. Based on the Employee’s performance and behavior, employees are anchored in different slots of good, average and poor. The rater is required to give corresponding ratings to the employee. It is a combination of the rating scale and critical incident techniques of employee performance evaluation. The following steps are need in this method:

a. Collect critical incident

People with knowledge of the job to be probed, such as job holders and supervisors, describes specific examples of effective and ineffective behavior related to job performance.

b. Identify performance dimensions

The people assign the task of developing the instrument cluster, the incidents into a small set of key performance dimensions. Generally, between 5 – 10 dimension account for most of the performance.

c. Reclassification of incidents

Another group of participants who are knowledge about the job is instructed to re translate or reclassify the critical incidents generated (in step 2) previously. They are given the definitions of job dimension and told to assign each critical incident to the dimension that it best describes. At this stage incidents for which there is not 75% agreement are discarded as being too subjective. 

d. Assigning scale values to the incidents

Each incident is then rated on a ‘one to seven’ or ‘one to nine’ scale with respect to how well it represents performance on the appropriate dimension. A rating of ‘one’ represents ineffective performance; the top scale value indicates very effective performance. 

e. Producing the final instrument

The final BARS instrument consists of the series of vertical scales (one for each dimension) anchored (or measured) by the final incidents. Each incident is positioned on the scale according to its mean value.

Fig.: Example of BARS

2. Management By Objective (MBO)

Management by Objective (MBO) is a process of defining objectives for each employee and then comparing and directing their performance against the objective which have been set. Management by objective was first outlined by Peter Drucker in 1954 in his book ‘The Practice of Management’. According to Drucker, managers should avoid ‘the activity track’ i.e. getting so involved in their day to day activities that they forgets their main purpose or objective. The system of management by objective can be described as a process whereby the superior and subordinate managers of an organization jointly identify common goals, define each individuals major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing the contribution of each of its members. MBO is known by different names such as “Management by Results”, “Accountability Management”, “Performance Results and Individual Development Evaluation (PRIDE)”, “Work Planning and Review”, etc. The appraisal is based on whether or not the employee has met his or her objectives. The basic steps of MBO are: 

a. Setting of objectives

In order to set objective of the enterprise, a detail assessment has to be made of the various resources at its disposal. A market survey must be conducted to know what type of goods and services are required by the community. Proper forecast should be made to estimate the demand, and the business conditions in the country. An attempt should be made to set specific goals in various key areas on which the survival and growth of the business depends.

b. Developing an action plan

After the targets for the subordinates have been approved by the superior, both of them should meet to develop an action plan.

c. Establishing check points

MBO ensures periodic meetings between the superior and the subordinates to review the progress towards the accomplishment of targets of the subordinates. For this the superior must establish check points or standards of performance for evaluating the progress of subordinates. The standards should be defined quantitatively as far as possible and the subordinate must understand them fully.

d. Review of performance

The performance of every individual is evaluated in terms of standards or end results clearly agreed to by the superior and the subordinate. The performance review is aimed to assess the subordinate to improve his performance in the future. It also helps in setting fresh goals or the next period.

3. Assessment Centre Appraisal

The basis of this method is to test candidates in social situations, using a number of assessors, and job-related simulations. These simulations involve characteristics that manger feels are important to the job success. The evaluators observe and evaluate participant as they perform activities commonly found in the higher-level jobs. They can use a number of criteria for the purpose of assessment. It is a method to objectively observe and assess the people in action by experts or HR professionals with the help of various assessment tools and instruments. The assessment is generally done with the help of a paper and pencil test, interviews and simulation exercises. An assessment centre typically involves the use of methods like social/informal events, tests and exercises, assignments being given to a group of employees to assess their competencies to take higher responsibilities in the future. Generally, employees are given an assignment similar to the job they would be expected to perform if promoted. This review of potential is concerned with forecasting the direction in which an individual’s career should go and the rate at which he is expected to develop. The trained evaluators observe and evaluate employees as they perform the assigned jobs and are evaluated on job related characteristics. The major competencies that are judged in assessment centers are interpersonal skills, intellectual capability, planning and organizing capabilities, motivation, career orientation etc. assessment centers are also an effective way to determine the training and development needs of the targeted employees.

4. 360 Degree Feedback Appraisal

360 degree feedback, also known as “multi rater feedback” is the most comprehensive appraisal where the feedback about the employees’ performance comes from all the source that come in contact with the employee on his job. 360 degree respondents for an employee can be his/her peers, managers (superior), subordinates, team members, costumers, supplies / venders anyone who comes into contact with the employee and can provide valuable insight and information or feedback regarding the ‘on the job’ performance of the employee. It is effective for career coaching and identifying strengths and weaknesses. Four integral components of 360 degree methods are 

a. Self appraisal

It gives a chance to the employee to look at his/her strengths and weaknesses, his achievements, and judge his own performance.

b. Superiors’ appraisal

It forms a traditional part of the 360 degree performance appraisal where the employees’ responsibilities and actual performance is rated by the superior. 

c. Subordinates' appraisal

It gives a chance to judge the employee on parameters like communication and motivating abilities, superior’s ability to delegate the work, leadership qualities etc.

d. Peer appraisal

Also known as internal costumers, the correct feedback given by peers can help to find employee ability to work in a team cooperation and sensitivity towards others.

5. Human Resource Accounting Method

American Accounting Association has defined human resource accounting (HRA) as “a process of identifying and measuring data about human resources and communicating to the interested parties”. Human resources are valuable assets for every organization. Human resource accounting method tries to find the relative worth of these assets in the terms of money. In this method the performance appraisal of the employees is judged in terms of cost and contribution of the employees. The cost of employees includes all the expenses incurred on them like their compensation, recruitment and selection costs, induction and training costs etc. whereas their contribution includes the total value added (in monetary terms). The difference between the cost and the contribution will be the performance of the employees. Ideally, the contribution of the employees should be greater than the cost incurred on them.

Advantages and Disadvantages of Approaches of Performance Appraisal

Sl. No.


Key Idea




Ranking Method

Ranking employees from best to worst on a particular trait, choosing highest, then lowest, until all ranked.

  1. Fastest
  2. Transparent
  3. Cost Effective
  4. Simple and easy to use
  1. Less objective
  2. Morale problems who are not rated at or near the top of the list.
  3. Suitable for small workforce.
  4. Worker’s strengths and weakness cannot be easily determined.


Graphic Rating Scales

A scale that lists a number of traits and a range of performance for each, the employee is then rated by identifying the score that best describes his or her performance for each trait.

  1. Simple.
  2. Easily constructed.
  3. Ease of use.
  4. Results are standardized what allows comparison to be made between employees.
  5. Reduce the personal bias.
  1. Rating may be subjective.
  2. Each characteristic is equally important in evaluation of the employee’s performance


Critical Incident

Keeping a record of uncommonly good or undesirable examples of an employee’s work-related behavior and reviewing it with the employee at predetermined times.

  1. Easy and economic to develop and administer.
  2. Based on direct observations.
  3. It is time tested and provides more face time.
  1. Time consuming and laborious to summarize and analyze the data.
  2. Difficult to convince people to share their critical incidents through a survey.
  3. Provides a personal perspective of organizational issues.


Narrative Essays

Evaluator writes an explanation about employee’s strength and weakness points, previous performance, positional and suggestion for his (her) improvement at the end of evaluation time.

  1. Report actually shows employee’s performance.
  2. Can cover all factors.
  3. Examples are given.
  4. Provides feedback.
  1. Time consuming.
  2. Supervisor may write a biased essay
  3. Effective writers are very difficult to find.


Management by Objectives

Employees are evaluated how well they accomplished a specific set of objectives that have been determined to critical in the successful completion of the job.

  1. Easy to implement and measure.
  2. Employee motivated as he is aware of expected roles and accountability.
  3. Performance oriented diagnostic system
  4. Facilitates employee counseling and guidance.
  1. Difficult to employees agree on goals.
  2. Misses’ intangibles like honesty, integrity, quality, etc.
  3. Interpretation of goals may vary from manager to manager, and employee to employee.
  4. Time consuming, complicated, lengthy and expensive.


Behaviorally Anchored Rating Scale

BARS combines elements from critical incident and graphic rating scale approaches. The supervisor rates employees‟ according to items on a numerical scale.

  1. Job behaviors describe employee performance in a better way.
  2. More objective
  3. More acceptances due to participation of managers and employees.
  1. Scale independence may not be valid/ reliable.
  2. Behaviors are activity oriented rather than result oriented
  3. Very time consuming for generating BARS.
  4. Each job will require creating separate BARS scale.


Human Resource Accounting (HRA)

The people are valuable resources of an organization or enterprise, Information on investment and value of human resource is useful for decision making in the organization

  1. Ascertain the cost of labor turnover.
  2. Development of human resources.
  3. Planning and execution of personnel policies.
  4. Return on investment on human resources.
  5. Improve the efficiencies of employees.
  1. There are no specific & clear-cut guidelines for finding cost and value of human resources of an organization.
  2. The method measures only the cost to the organization but ignores completely any measure of the value of the employee to the organization.
  3. The life of human resources is uncertain and therefore, valuing then under uncertainty seems unrealistic.


Assessment Centers

Employees are evaluated over a period of time; say one or three days, by observing their behaviors across a series of selected exercises or work samples.

  1. Concepts are simple.
  2. Highly flexible methodology.
  3. Helps in selection and promotion decisions and for diagnosing employee development needs.
  4. Allow for the measurement of multiple attributes.
  5. Exercise is hard to fake.
  1. Expensive and difficult to manage
  2. Requires a large staff 
  3. Requires a great deal of time.
  4. Only a limited number of people can be processed at a time.
  5. Much cognitive loads o assessors


360 Degree

It relies on the input of an employee’s superior, colleagues, subordinates, sometimes customers, suppliers and/or spouses

  1. Excellent employee development tool.
  2. Accurate, reliable and credible system
  3. Legally more defensible
  4. More objective being multi-rate system.
  1. Time consuming and very costly.
  2. Sensitive to organization and national culture.
  3. May damage self-esteem of employees if the feedback is brutal.
  4. Prone to political and social games played by people.
  5. Difficult to implement in cross-functional teams.
  6. Maintaining confidentiality may pose challenge in small organizations.


720 Degree

360 degree appraisal method is practiced twice. When 360-degree appraisal is done, then the performance of the employee is evaluated and having a good feedback mechanism, the boss sits down with the employee again a second time and gives him feedback and tips on achieving the set targets.

  1. Improved feedback from more resources.
  2. Team Development
  3. Personal and organizational Performance Development.
  4. Responsibility for career development.
  5. Reduced discrimination risk.
  6. Improved customer Service.
  7. Training needs assessment.
  1. Exceptional Expectations for the process.
  2. Insufficient Information.
  3. Design process downfalls
  4. Failure to connect the process.
  5. Insufficient training and process understanding.
  6. Focus on negatives and weaknesses.
  7. Requires commitment of top management and the human resources (time, finance, resources, etc.)
  8. Paperwork (computer entry overload)
  9. Rater inexperience and ineffectiveness.


Author – Dr. Niyati Garg

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