CHAPTER II: LITERATURE REVIEW

CHAPTER II: LITERATURE REVIEW

II.1 What is Performance Appraisal?

II.1.1 Definition

Performance appraisal refers to a formal structures system for measuring

evaluating, and influencing an employee’s job- related attributes, behaviors, and

outcomes, including absenteeism which is usually determined by a supervisor from

observing his/ her performance.

McGregor contends that performance appraisal is often perceived simply as

a technique of personnel administration, but where it is used for administrative

purposes, it becomes part of managerial strategy, the implicit logic of which is that

in order to get people to direct their efforts towards organization objectives,

management must tell them what to do, judge how well they have done, and reward.

The general steps of the process of performance appraisal:

- Determine the performance standard.

- Comparing the actual performance to the predefined standards of performance.

- Determination of any area of weakness.

- Developing the solution to overcome the weakness.

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II.1.2 Performance Appraisal Objectives

Determine a framework of performance appraisal system that helps:

 To provide information for the employee about their strength and

weakness in job performance

The performance appraisal is treated as a basic guideline for the employee’s

counseling and it provides the opportunity for the employee to provide feedback

on the job assigned. Hence it enables the management to determine whether the

right person has been assigned to the right job. If the problem is not due to the

employees, the management determines the problem areas and seeks total

solution for it.

 To provide information for selecting employee for promotion and / or for

transferring

The management may refer to past performance information as one

indication of the potential of the employee has to do higher-level or more

challenging job that demands a better performance.

 Determining individual for pay increases

It provides information or a tool for comparing an employee’s performance

level in the salary administration. It provides a range of salaries for that

particular role. It contains information on length of service that determines salary

increment. It provides education information of the employee record with salary

increase when higher qualification of education is granted.

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 Counseling for job enrichment and motivation

It provides information to motivate or stimulate interest in self- development

for the purpose of greater personal accomplishment. Based on the past

performance appraisal record, the management is able to justify what is the

expected performance level. If the employee does not achieved his/her usual

standard, the management may arrange job counseling.

 Identifying individual training needs

It provides information to the management that the employee needs job

training in order to provide better performance.

 To encourage better or higher standard of performance

It provides information to the management on the new requirements (for

example, a new technology that eases the employee’s job may be require new

hardware and/or software). This is essential to help to improve the performance

of the employee. It helps the employees to improve their current job’s

performance indirectly that will improve the company’s performance.

 Help to justify the organization objectives

It provides information for the management to justify the objective of the

organization after an overview of all the employees’ performance appraisal. It

means a guideline to management on whether it is justifiable to announce that

the entire serviced item will be returned to customer within five working days.

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II.2 The Standard of Performance

II.2.1 Definition

The standard of performance is the condition that will exist when the task or

the job is completed in an acceptable manner. The standard of performance must

exist for the management to do measurement or comparison of the employee job

performance.

II.2.2 Steps involved in Defining the Standard:

The performance appraisal system is a scale or technique for measurement

used in an organization. Before the measurement or rating of job performance of

employees, establish the standard performance expected on all jobs. Confirm all

criteria on which employee are evaluated are clearly job related.

The following steps help the company on defining the standard:

1. All the employees write down their view about their existing job, specific

duties and their contribution to goal of the company.

2. The specific duties will be discussed by the entire department.

3. The behaviors are added or deleted until the entire department agree that the

role has been defined completely

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4. Each employee lists their expectations of the other roles in the same department

that will affect their own job performance.

5. These expectations again are discussed, adjusted and finally agreed by the entire

department.

6. Each employee decides what are expecting from the person in that role.

7. Every employee in each job makes a list of role summaries that has been

predefined by the entire department.

8. The list of role summaries are reviewed again before another role is analyzed.

The defining standard of performance process is a continuous cycle process.

The performance standard will be reviewed from time to time. With the help of the

new IT technology, the standard performance has to be adjusted higher in order to

gain competitive advantages or remain competitive in the market.

Please refer to Appendix D, sample document of job description.

II.2.3 Who should set Standards of Performance?

The management has to decide the standard of performance. The standard of

performance will be more feasible and justifiable with the involvement of the

subordinates.

The subordinate may be able to point out the missing factors that the

management has overlooked. After the discussion with the management, the

subordinates are able to understand better the aim of standard performance. This will

avoid or reduce greatly the argument of the performance standard in the future.

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II.3 Performance Appraisal Methods

The performance appraisal techniques used vary in detail from one

organization to another. Each of these techniques has certain advantages and

limitations. Hence, there is no single best technique that serves all purposes.

These are list of commonly used rating scale

II.3.1 Simplest Rating Scale

The method of performance appraisal which rater answers “yes or no” that a

series of questions about the behavior of the employee being rated.

Example given:

Does the employee fulfill his/her job required? Yes/No

a) Advantage

The rating is very simple and easy to understand.

b) Limitations

The measurement factors are determined by “yes or no” only. Then it makes the

appraiser finds difficulty to do grading when the person did not always

accomplish.

II.3.2 Graphic Rating Scale

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Method of performance appraisal requires the rater to indicate on a scale

where the employee rates on factors such as quantity of work, dependability, job

knowledge, and cooperativeness.

Graphic rating scale includes both numerical ranges and written descriptions.

High Low
Capability A B C D E F

OR

High Low
Capacity 1 2 3 4 5 6

The six- point scale is ideal for most practical purposes. Avoid the range

being too wide or narrow. The numerical scales are more preferable due to easier

calculation.

a) Advantages

The rating is very easy to understand

The rules are easily constructed

b) Limitations

The rater must have sound knowledge of psychology and human behavior.

The appraisal must be trained before he/ she can use them.

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II.3.3 Ranking System

It is seldom used in the process of formal appraisal. The appraiser is required

to rank a group of employees of similar status in descending order.

Example given:

Quantity of work Quality of work

1. Mary 1. Peter

2. Peter 2. Mary

3. John 3. John

a) Advantages

The rating is very easy to understand.

The tendency to central is eliminated.

b) Limitations

Not feasible when the appraiser has a large group of people. He has difficulty to

rank all the people at a time.

II.3.4 Paired Comparison Ranking

Few employees are observed and compared at the same time. The rank is

determined by the basis of number of times each employee was preferred over the

others.

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Mary Tom Peter John Rank

Mary 4
Example given:
Tom x 3
Peter x x 2
John x x x 1

Mary is not preferred by all the people in the group. John is the most preferred

people in the group.

a) Advantage

By comparing one to another at the same time, the result of the comparison is very

fine.

b) Limitations

Not feasible when the group is large, time consuming.

This method is not suitable when every employee is unique to their nature of job.

II.3.5 Forced Choice Method

A force choice method has a number of items; each item is with few

statements. The appraiser reads the items carefully and picks the one statement that

is most descriptive and another one for least descriptive. The most descriptive

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statement will have the highest weights and the least descriptive statement will have

the lowest weighs.

a) Advantage

It is easy to understand.

b) Limitations

It is very difficult to construct the statement.

It is not suitable for developmental and counseling purposed.

II.3.6 Weighted Checklist Method

The checklist can also have varying weights assigned to each question. The

result is called a weighted checklist.

Example given:

Weights Check here

(6.5) 1. Employee works overtime when asked ________

(4.0) 2. Employee cooperatively assists other who need help ________

. .. ……….

. .. ……….

(0.2)_ 28. Employee keeps workstation well organized ________

100.0 Total of all weights

a) Advantage

The evaluation concentrates on the job and not the people.

b) Limitations

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It is very difficult to construct the rating scale.

This method is not suitable for the development and counseling processes.

II.3.7 Critical Incident Appraisal

Method of performance appraisal in which the rater keeps a written record of

incidents that illustrate both positive and negative behaviors of the employee the

rater then uses these incidents as a basis for evaluating the employee’s performance.

a) Advantages

The incidents provide a basis for evaluating performance and feedbacks to

employee.

b) Limitations

The rater is required to restrict incidents regularly, which can be hard and time-

consuming.

The definition of critical incident is unclear and may be interpreted differently by

different people.

This method may also lead to friction between the manager and employees when the

employees believe the manager is keeping a book on them.

II.4 Perceptual Errors in Performance Appraisal

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Performance evaluation can be biased due to a variety of perceptual errors

made by raters. Regardless of the performance criteria or the nature of the appraisal

method, perceptual error can be occurring.

II.4.1 Types of Perceptual Errors

a) Halo Effect

The halo effect occurs when the rater’s personal opinion of the employee

influences the measurement of performance. This problem is most severe when

raters must evaluate personality traits, their friends, or people they strongly dislike.

b) Central Tendency Error

Some raters do not like to rate employees as effective or ineffective, and they

distort the ratings to make each employee appear average. On rating forms, this

distortion causes evaluators to avoid checking extremes. Instead, they place their

marks near the center of the rating sheet.

c) Stereotyping

Stereotyping occurs when the rater places an employee into a class or

category based on one or a few traits or characteristics.

d) Personal Prejudice

Appraisers have great personal preference or dislike for the appraisee which

will have tremendous effect on the appraisee’s rating. If there are grounds to suggest

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that an appraiser may not be fair to the appraisee because of personal conflicts or

competition interpersonal history.

e) Attributions

Another perceptual error that can affect the validity of the performance

appraisal involves the attributions the rater makes about employee behavior. Making

an attribution means to assign causation for another’s behavior.

f) Recency Effects

Recency errors occur when performance is evaluated based on performance

that occurred most recently. Essentially, supervisor rate the employee’s most recent

behavior. Recency errors are most likely to occur when there is a long period of time

between performance evaluations (such as a year).

g) Negative and positive Leniency Errors

This rating error may cause the wrong person being promoted. Positive

leniency may over rate the person’s performance and raise unwarranted expectations

of the employee for promotions. Negative leniency may frustrate the employee who

has done well. No matter how good he performed, he is unable to satisfy the

superior.

II.4.2 Proposed Solution to minimizing the Perceptual Errors

The manager should gather to discuss the nature of problem and the solution

for it and finally conclude one solution that is acceptable to all for each problem.

Please refer to Appendix A for seeing summary of review.

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