Performance Appraisal: Why it Matters for Organizational Success

Concept of Performance Appraisal

Performance appraisal is a crucial tool that helps organizations evaluate their employees’ job performance, recognize their strengths, identify areas that need improvement, and make strategic decisions to achieve their objectives.

It is a systematic evaluation of employees by superior or other familiar with their performance on the job and their potential for development. Performance appraisal is also called as merit rating in which one individual is ranked as better or worse in comparison to others.

The basic purpose of Performance Appraisal is to use the assessment result to ascertain the employees eligibility for remuneration hike or promotion, employees potential for development, training need, transfer discharge etc. which make the performance appraisal system more comprehensive.

Performance appraisal emphasized on two aspect: systematic and and objective. This is because it evaluate performance in same manner, utilizing the same approaches so that appraisal of different person is comparable. Performance appraisal has its own objective also as it attempt at accurate measurement by trying to eliminate human biases and prejudices.

Features of Performance Appraisal

Performance Appraisal comes with multiple characteristics which are shortly explained below:

  • It is a systematic process consisting of a number of steps to be followed for evaluating an employee’s strengths and weakness.
  • It is a systematic and objective description of an employee’s strengths and weakness in terms of their job.
  • The appraisal is a ongoing and continuous process where the evaluations are arranged periodically according to a definite plan. It is not a one shot deal.
  • The performance appraisal seeks to secure information necessary necessary for making objective and correct decisions on employee.
  • Performance Appraisal may be formal or informal. It is more fair and objective since it is carried out in a systematic manner using printed appraisal forms.

Objective of Performance Appraisal System

Performance Management is undertaken for a variety of reasons as stated below:

Providing Feedback on Job Performance

One of the primary objectives of performance appraisal is to provide feedback on an employee’s job performance. Performance feedback helps employees understand how they are doing and what they need to do to improve their performance. Employers can use several methods to provide feedback, including 360-degree feedback, self-assessments, and supervisor evaluations.

Identifying Employee Strengths and Weaknesses

Another objective of performance appraisal is to identify employee strengths and weaknesses. By evaluating employee performance, employers can recognize employees’ strengths and encourage them to develop these areas further. They can also identify areas where employees may need additional training or development opportunities.

Setting Performance Goals and Objectives

Performance appraisal also helps organizations set performance goals and objectives. By evaluating employee performance, employers can set specific and measurable goals that align with the organization’s overall goals and objectives. This process helps employees understand what is expected of them and what they need to do to achieve their goals.

Motivating Employees

Performance appraisal can be an effective tool to motivate employees. When employees receive feedback on their performance, they are more likely to feel valued, engaged, and motivated to improve their performance. Employers can use this opportunity to recognize employees’ achievements and offer incentives to encourage continued performance.


Improving Organizational Performance

Performance appraisal plays a critical role in improving organizational performance. By evaluating employee performance, employers can identify areas where organizational performance can be improved. This process helps employers make strategic decisions to address issues that impact the organization’s overall success.

You may also read: Duties and Responsibilities of HR Manager

Importance of Performance Appraisal

Employee Development

Performance appraisal provides employees with feedback on how they are performing their job duties. It helps them identify areas where they need to improve and provides guidance on how to improve their performance. This feedback helps employees develop the skills they need to do their jobs better, making them more valuable to the organization.

Identifying Training Need

Performance appraisal helps identify areas where employees need additional training. This helps organizations provide the necessary training to employees to improve their performance and productivity. Employees can understand what is expected of them, and managers can provide guidance on how to achieve their goals. It’s a two-way street that can benefit both the employee and the company.

Goal Setting

Performance appraisal helps employees set goals and objectives that align with the organization’s overall goals. This ensures that all employees are working towards the same goals, which is critical for organizational success. It will ultimately helps the organization to strengthen the workforce with necessary skills and support.

Performance Management

Performance appraisal provides a mechanism for measuring employee performance. This helps organizations identify top-performing employees and those who need additional support to improve their performance.

When employees feel they are being recognized for their hard work, they are more likely to stay with the company and work harder to achieve their goals.

Decision Making

Performance appraisal provides managers with the information they need to make decisions about promotions, salary increases, and other job-related decisions. These decisions have a direct impact on employee motivation and job satisfaction.

Benefits of Performance Appraisal System

Performance Appraisal system put to several uses concerning the entire spectrum of human resource management functions. The important benefit and uses, which justify the existence of a system of performance appraisal in an organization, are as follows:

  • An effective system pf performance appraisal helps the manager or supervisor to evaluate the performance of his subordinates systematically and periodically. It help him to place his employees on the job for which they are best suited.
  • The result of performance appraisal may be used by the manager in constructively guiding the employees in the efficient performance of their job.
  • It provide management an objective basis for discussing salary increases and special increment, transfer, promotion and demotion of the staff.
  • It can be used to analyze the training and development needs and evaluating the effectiveness of existing training training programme. Weakness of the employee can be removed through further training.
  • It also facilitates human resource planning, career planning and succession planning.
  • When achievements are recognized and rewarded on the basis of objective performance measures, there is improvement in work environment.
  • Systematic Appraisal of performance helps to develop confidence and loyalty among employees. It will prevent grievances, if employees are convinced of the impartial basis of the evaluation.

Limitations of Performance Appraisal

Performance Appraisal help the management to collect data on human resources and use it for enhancing responsiveness of the organization. Since this is a manual process of assessment by people who have emotions there will always be some subjectivity. So, criterion could be stipulated, personal likings, and biases will influence the evaluation.

Performance appraisal system must not only be fair, equitable and transparent but it must be perceived to be so. This can happen only if the system has in-build transparency. And the system of performance appraisal is very sensitive as it affect an employees present position, status and future growth in the organization.

There are some common limitations or pitfalls/challenges in all types of organizations that encountered in performance appraisal system explained below:

Hallo Error

The hallo error or effect is a tendency to evaluate a person on the basis of one trait or characteristics. Hallo error is arise when the appraiser judges an employee based on the strength of a specific trait and does not base his interface on his overall performance. An employee may be consistently rated high, average or low based on various traits depending upon the rater or appraiser over all judgment of the employee.

For example, if the rater is friendly to a worker, he may rate him outstanding or if the rater is unfriendly with the employee he may give him average rating or even if his performance on the job is good.

Hallo error may be controlled if the rater is given a list of characteristics and is asked to evaluate persons characteristic-wise.

Central Tendency

It is most commonly found error in merit ratting. The error arises when the rater is not sure about the performance of the employee or he may not well conversant with his work or may have less time at his disposal.

The appraiser will like to play safe in evaluating the employee and rate him as average. Neither he will rate him having poor performance nor he will rate him outstanding.

Similarity Error (Horn Effect)

The error arises from from the mental make up of an evaluator. The evaluator uses his own trait as a basis for assessing the subordinates. This is not correct because the performance also depends on the situation.

Leniency or Strictness

The evaluator have their own value system which act as a standard for evaluation. Some evaluator may be lenient and will give high rating to everyone. On the other hand, an evaluator may be strict and will give low rating to everyone. The tendency of giving high rating is called positive leniency error and tendency of giving low rating is called negative leniency error.

The rater should be given proper training for evaluation purpose be told of what is expected from the rating.

Rater’s Bias (Stereotyping)

Some rater’s have a standard mental picture about a person because of that person’s sex, color, caste, look, age, religion, political view etc. Such assessment are based on false assumption and feelings rather than facts.

Psychological Blocks

The utility of appraisal system will depend upon the skill s of the users. This system will depend upon the psychological characteristics of manager, no matter what method is being used. There are many psychological blocks working against the system. Managers considers appraisal system as an extra burden some time. They try to treat subordinates failure as their own, dislike to communicate unfavorable reports to subordinates. Because of this psychological blocks manager do not tend to become impartial or objective in evaluating the subordinates.

There are some other pitfalls in performance appraisal system such as taking too short appraisal interviews and failing to support opinions with evidence, inadequate briefing of the appraisee and pre judging performance. In some organization like Government and PSUs, there is a system called CCR (Character Confidential Report). And this system started by East India Company. Since is is confidential , it can be manipulated by higher authority or by the evaluator so this system is now abandoned by the organizations.

Conclusion: Performance Appraisal

In conclusion, performance appraisals are a crucial part of any company’s HR strategy. They provide a platform for feedback and communication, aid in employee growth and development, inform decisions about promotions and compensation, and create a channel for employee feedback. They help companies build a more engaged and motivated workforce, which is critical for achieving long-term success. So, the next time you walk into your performance appraisal, remember that it’s not just a meeting, but an opportunity to grow and thrive in your career.

You may click here for more information.

The corporate world now realize the challenges and issues of the traditional performance appraisal system and introduce self appraisal method, 360 degree evaluation system, Human Resource Accounting system for effective and bias less appraisal in the modern organizations.


Leave a Comment