Thesis on "What Kind of Performance Appraisal Is Most Effective in Business"

Thesis 31 pages (8831 words) Sources: 11 Style: APA

[EXCERPT] . . . .

Performance Appraisals for Business

Effective Performance Appraisals for Business

The primary goal of human resource management is to utilize one of the organization's most valuable assets to its greatest advantage -- their employees. In the increasingly globalized and hypercompetitive environment organizations must operate within today, appraising employee performance is one of the most important tasks in management of the organization's human resources. However, there are several concerns with the process of performance appraisals and ensuring they are effective tools for the organization.

As businesses look towards their knowledge-based capital increasingly for a competitive advantage, performance appraisals of employees must be efficient and accurate. Determining accurately whether an employee has performed well over the appraisal time period is often difficult. This subjective decision can be rife with bias, and judgments may be arbitrary. Over the years, a variety of systems for performance appraisal have been developed. From the performance management system, to the fuzzy-based appraisal system, to management by objectives, to the 360-degree feedback system, there has been a continuing evolution of appraisals processes in order to someday devise a system that is both effective and efficient. However, are any performance appraisal systems a fair and effective means of motivating employees?

Are There Effective Performance Appraisals for Business?

The primary goal of human resource management is to utilize one of the organization's most valuable assets to its greatest advantage -- their employees. In the increasingly globalized and hypercompetitive environment organizations must operate within today, appraising employee performance is one of the most important tasks in management of the organization's human resources. However, there are several concerns with the process of performance appraisals and ensuring they are effective tools for the organization.

As businesses look towards their knowledge-based capital increasingly for a competitive advantage, performance appraisals of employees must be efficient and accurate. Determining accurately whether an employee has performed well over the appraisal time period is often difficult. This subjective decision can be rife with bias, and judgments may be arbitrary. Over the years, a variety of systems for performance appraisal have been developed. From the performance management system, to the fuzzy-based appraisal system, to management by objectives, to the 360-degree feedback system, there has been a continuing evolution of appraisals processes in order to someday devise a system that is both effective and efficient. However, are any performance appraisal systems a fair and effective means of motivating employees?

The Changing Performance Appraisal Concept

Manoharan, Muralidharan, and Deshmukh (2009) define performance appraisals as a management tool used to evaluate an employee's efficiency and efficacy in the workplace. It is a formal, structured interaction between a supervisor and their subordinate, typically taking place as a periodic interview. The authors continue to note that an appraisal's goal is to "engage, align, and coalesce individual and group effort to continually improve overall organizational mission accomplishment. It provides a basis for identifying and correcting disparities in performance. Thus, it is activities oriented and is a ration, formalized, legitimate test using observation and judgment." These evaluations are traditionally recorded for future reference. Weaknesses and strengths are identified and discussed as a means of giving the employee opportunities to improve in areas where improvement is needed.

As noted, the purpose of the performance appraisal is to determine the contribution the employee has made to the organization. This process in found in all types of organizations, irrespective of industry, and is conducted for every employee function and at every level (Sudarsan, 2009). Traditionally, employee performance appraisals have been equated with annual reviews that are undertaken to measure an employee's organizational efforts for the previous year. However, this traditional concept has been changing over recent years. A performance appraisal, according to Murphy (2008) is dependent on what the evaluator is trying to accomplish when completing the appraisal. The answer isn't always simply that they are trying to best measure the performance of their subordinates. With the advent of personnel psychology in the 1970s, evaluators were treated as measurement devices. It was assumed that those performing an appraisal were trying to measure the performance of their employees. It was believed that if these evaluators were given better tools, such as better scales and training, they would be more effective appraisers. This was challenged in the 1970s and 1980s, which helped build a better understanding of what evaluators do and why.

Performance appraisal processes have changed significantly over the past couple of decades, in response to this new understanding, according to Rao (2008) as a means of making the process objective. However, most now have realized that there is simply no way to completely remove the subjectivity from a performance appraisal process. The appraiser's personal judgments, standards, processing abilities, and information assimilation are all biases that will affect objectivity. Today, there are a variety of performance appraisals systems being touted as an effective means of determining an employee's efforts, as well as an effective means of motivating employees to improve performance in the future.

The Performance Management System (PMS)

Rao (2008) notes that the traditional form of analyzing an employee's performance over a certain time frame is ineffective and recommends using a Performance Management System (PMS) with changes to make it more effective. The first change is to stop using the term 'performance appraisal' and instead use the term 'performance management'. Rao surmises that this translates to simply taking an employee's efforts over the last six or twelve months of work and reducing it to a number. Using the term 'appraisal' indicates that the primary purpose of the system is to evaluate the employee. By using the term 'management', this includes concepts such as development, planning, recognition, and improvements. He concedes that numbers do have useful properties. These numbers are meant to counteract subjective and allow one employee to be compared against another. However, it is exactly these two features that have negatively affected many employees -- preventing promotions (or promoting those who didn't deserve it), causing some to leave their jobs, and negatively affecting the motivation and satisfaction of other employees. A primary issue with traditional employee performance appraisals are that the numbers assigned to employees to ensure objectivity are still issued subjectively.

Rao (2008) states, "No two numbers are comparable in appraisals." At best, these numbers follow the nominal scale; however, there is still the appraisers subjectivity that comes into play when those numbers are awarded. Rao uses the example of questioning whether a Production Chief awarding a four on a five-point scale being the same as a four awarded by a Marketing Chief. These ratings are biased by the rater's own background, their personality, their expectations, and a variety of other factors that are personal to the assessor. If the expectations of one assessor are higher than another, and both receive the same rating, clearly they are not equal. Yet, traditionally this is how employee rewards are determined. As such, Rao offers a variety of suggestions.

First, Rao (2008) recommends ratings in appraisals be recognized as notional, and should be used for discussion purposes in conjunction with other parameters such as achievement of sales targets, percentage increase in customer base, and development of junior employees. These rating should never be used to determine incentives mathematically. Not only should performance be measured against expectations, but these expectations should be changed as the situation changes, making expectation sharing an important part of the PMS process. Small recognitions and rewards should be encouraged and these should be given throughout the year, not simply during the formal review. Unrequested, informal feedback can be a powerful motivator and help employees keep on track for meeting expectations. Human Resource Managers should be removed from the PMS and instead this task should be shifted to Performance Managers created from line jobs.

Fuzzy Based Appraisal System

Yee and Chen (2009) discuss the fuzzy based approach to appraisal systems. Citing Khairul and Qiang, the authors not that one of the best ways to manage multiple variables that are based on imprecise data is to apply the fuzzy concept of reasoning. This, therefore, reflects the method of human thinking. As such, the authors use a multifactorial evaluation model, along with the application of fuzzy set theory, to how decisions are made during the performance appraisal process.

In Yee and Chen's (2009) model, each year employees are required to fill out a Yearly Work Plan to give a progress report of the tasks they've been assigned. At year end, the performance is evaluated from this work plan. Four facets are evaluated during this appraisal. This includes: the quantity, quality and effectiveness of the employee's output and their punctuality, the employee's skill and knowledge, their personal qualities, like discipline, cooperativeness, and innovativeness, and lastly their contribution inside and outside of the organization. Employees are scored on a scale of 1 to 10 and then through a series of calculations and weightings, the employee's score against the entire companies is compared to determine into which category of reward they fall. This, the authors surmise, allows for consistently reliable and… READ MORE

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