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Free online Course on Performance and Potential Appraisal

Performance and Potential Appraisal




After an employee has been selected for a job, has been trained to do it and has worked on it for a period of time, his performance should be evaluated. Performance Evaluation or Appraisal is the process of deciding how employees do their jobs. Performance here refers to the degree of accomplishment of the tasks that make up an individual's job. It indicates how well an individual is fulfilling the job requirements. Often the term is confused with efforts, which means energy expended and used in a wrong sense. Performance is always measured in terms of results. A bank employee, for example, may exert a great deal of effort while preparing for the CAIIB examination but manages to get a poor grade. In this case the effort expended is high but performance is low.




Performance appraisal is method of evaluating the behavior of employees in the work spot, normally including both the quantitative and qualitative aspects of job performance. It is a systematic and objective way of evaluating both work-related behavior and potential of employees. It is a process that involves determining and communicating to an employee how he or she is performing the job and ideally, establishing a plan of improvement.


Performance appraisal is broader term than Merit Rating. In the past managers used to focus on the traits of an employee while ranking people for promotions and salary increases. Employee's traits such as honesty, dependability, drive, personality, etc., were compared with others and ranked or rated. The attempt was to find what the person has (traits) rather than what he does (performance); the focus was on the input and not on the output. This kind of evaluation was open to criticism because of the doubtful relationship between performance and mere possession of certain traits.




The main characteristics of performance appraisal may be listed thus:

  • The appraisal is a systematic process. It tries to evaluate performance in the same manner using the same approach. A number of steps are followed to evaluate an employee's strength and weaknesses.
  • It provides an objective description of an employee's job's relevant strengths and weaknesses.
  • It tries to find out how well the employee is performing the job and tries to establish a plan for further improvement.
  • The appraisal is carried out periodically, according to a definite plan. It is certainly not a one-shot deal.
  • Performance evaluation is not job evaluation. Performance appraisal refers to how well someone is doing an assigned job. Job evaluation, on the other hand, determines how much a job is worth to the organization, and therefore, what range of pay should be assigned to the job.
  • Performance appraisal may be formal or informal. The informal evaluation is more likely to be subjective and influenced by personal factors. Some employees are liked better than others and have, for that reason only, better chances of receiving various kinds of rewards than others. The formal system is likely to be more fair and objective, since it is carried out in a systematic manner, using printed appraisal forms.




Performance appraisal could be taken either for evaluating the performance of employees or for developing them. The evaluation is of two types: telling the employee where he stands and using the data for personnel decisions concerning pay, promotions, etc. The developmental objectives focus on finding individual and organizational strengths and weaknesses; developing healthy superior-subordinate relations; and offering appropriate counseling/coaching to the employee with a view to develop his potential in future.


Appraisal of employees serves several useful purposes:


(a)             Compensation decisions: It can serve as a basis for pay raises. Managers need performance appraisal to identify employees who are performing at or above expected levels. This approach to compensation is at the heart of the idea that raises should be given for merit rather than for seniority. Under merit systems, employee receives raises based on performance.

(b)             Promotion decisions: It can serve as a useful basis for job change or promotion. When merit is the basis for reward, the person doing the best job receives the promotion. If relevant work aspects are measured properly, it helps in minimizing feelings of frustration of those who are not promoted.

(c)             Training and development programs: It can serve as a guide for formulating a suitable training and development program. Performance appraisal can inform employees about their progress and tell them what skills they need to develop to become eligible for pay raises or promotions or both.

(d)             Feedback: Performance appraisal enables the employee to know how well he is doing on the job. It tells him what he can do to improve his present performance and go up the ‘organizational ladder'.

(e)             Personal development: Performance appraisal can help reveal the causes of good and poor employee performance. Through discussions with individual employees, a line manager can find out why they perform as they do and what steps can be initiated to improve their performance.



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