Concept of Performance Evaluation

Performance evaluation is making the judgment about the performance of subordinates by the superiors in an organization. It is the process of checking how close is the actual performance to the needed performance. Performance evaluation is comparing the actual and standard performance of employees and providing necessary feedback to keep the performance on the required track.

Performance evaluation  is a mechanism to judge employee performance level and praising, appreciating, guiding, advising and suggesting employees on their performance status. It is monitoring performance for making decisions such as transfer, promotion, job enrichment, job enlargement, job re-design, development of reward system etc.

Key Definitions

Defined By	Definition
Ivancevich and Glueck	“Performance evaluation is the personnel/HR management activity that is used to determine the extent to which an employee is performing the job effectively”
Casio	“Performance evaluation is the systematic description of job-relevant strengths and weaknesses of an individual or group”
McKenna and Beech	“Performance evaluation is a process whereby managers and their subordinates share understanding about what has to be accomplished and the manager will naturally be concerned about how best to bring about those accomplishments by adept management and development of people in the short and long terms”

From the above discussion and definitions:

• Performance evaluation is a systematic process of judging employee performance through direct or indirect supervision and observation.
• It requires proper understanding between superiors and subordinates at the time of setting goals to make performance evaluation fair and transparent.
• Based on observed results of the performance, superiors provide necessary guidelines, directions and suggestions to subordinates for better performance.
• Performance evaluation is reviewing, appraising, rating and ranking employee performance.

Why is Performance Evaluation Done?

• To make personnel decisions such as career development, training, transfer, promotion, job re-design, job enrichment, job enlargement etc.
• To provide feedback to employees regarding job-related strengths and weaknesses
• To measure the effectiveness of employee recruitment, selection, socialization and training process adopted for employees
• To identify and diagnose problems related to the job at different levels, units, sections and departments of the organization
• To initiate, implement and improve rewards for employees
• To develop and motivate employees through improvement in training and compensation programs for employees
• To review employee potential and plan accordingly for organizational advantage from such potentials

The Performance Evaluation Process

Performance evaluation is the systematic process of evaluating employees as per different factors and their parameters. It is knowing the current performance status and potential for future development of an employee. Noticeably, the process of performance evaluation follows the given steps:

Step 1:

Establishment of Performance Standards

First of all, the organization has to set definite performance standards. It is the level upto which the performance of the employee should be. An organization sets standards for punctuality, dress, behavior, attitude, job targets etc. For these factors, the parameters of high to low are set to evaluate the employee’s performance. For instance, a Customer Service Desk employee of a bank must open 10 accounts everyday. Here, “10 accounts every day” is the set performance standard for the employee.

Step 2:

Communicating the Standards

In this step, the established performance standards are communicated to employees. This is making standards of performance known to the concerned employee. It is telling employees what to do and what not to do regarding their duties, responsibilities, attitude, behavior and work culture of the organization. Such communication of established performance standards is done through e-mails, circulars, notices, manuals, code of conduct papers etc.

Step 3:

Measure Actual Performance

After establishment and communication of performance standards, actual performance is measured. The measurement is done during the working of the employee. It is capturing what the employees are doing at work regarding their duties and responsibilities. Their behavior and attitude at the workplace are also taken into consideration. It is measuring and making notes of the actual performance of employees.

Step 4:

Comparing Actual Performance With Standard Performance

The obtained performance results are compared with the standard performance. The actual performance is up to mark with the standard performance is checked. After such comparison, the outcome could be either actual performance meets the standard performance level or actual performance could be lower than standard performance. Such outcome from the comparision is communicated with the concerned employee.

Step 5:

Take Corrective Actions (If Required)

        It is fine if actual performance equals or goes higher than the standard performance level. But if actual performance is lower than standard performance, corrective actions are required. Such corrective actions could be in the form of an oral or written warning, suspension, termination, grade holding etc.  

Methods of Performance Evaluation

Performance evaluation is a systematic process of evaluating employee performance. For such evaluation, different methods are used. These methods of performance evaluation have been explained below:

1. Graphic Rating Scale: This is the most commonly used method for performance evaluation. In this method, the evaluator rates different attributes on a scale of 1 to 5. On this scale of 1 to 5, the highest rating is 5 and the poorest rating is 1. In this method, a set of performance factors like character, quality of work, technical knowledge, co-operativeness, punctuality, integrity, initiative etc. are used to evaluate the performance of employees. This is an easy, simple and quick method to use. But the fairness of the rating is questionable due to potential biases or prejudice of the rater of the performance.
2. Ranking Method: This is a very simple method in which the employees being appraised are ranked from higher to lower order. Such ranking is based on different attributes such as punctuality, quality and quantity of output, leadership qualities, client handling, negotiation, level of co-operation, the need for supervision etc. All these attributes are ranked from ‘Excellent to Poor’. Each of these attributes of each employee is ranked and finally, the rank of each employee is determined. This is an economical method to use. In this method, ranks are relative and the difference of ranking can’t be quantified in numbers.
3. Paired Comparision Method: This is a method where every employee is compared with another employee forming a pair. Each employee in a pair is rated ‘Strong’ and ‘Weak’ to another in the pair. After finishing pairing and comparing, the final ranking is given to each employee based on their strong and weak aspect. This is a very simple and easy method to use for evaluating performance. However, it is possible to use where there are less than 15 employees as pairing is easy in such a situation. In a larger organization with a large number of employees, such paired comparison is not practically possible.
4. Forced Choice Method: In this method, the rater is forced to choose between the descriptive statements of equal worth. Statements are chosen from both sides ie. Favorable and unfavorable. The rater is asked to choose between favorable statements and unfavorable statements for an employee. Based on the number of favorable statements and unfavorable statements, the performance of the employee is judged. This method has less chance of rater biases as the rater must choose from given statements and he/she cannot add any new statements. However, this is a very time-consuming method as statements are to be prepared for individual employees engaged in different work at different levels in different departments.
5. Critical Incident Method: There could be different critical incidences in an organization. Employees also behave distinctly in different critical incidences. The job behavior of employees in such incidences is rated by the rating supervisor. Actual job behavior rather than personality traits of the employee is measured in this method. Generally, negative incidences have a higher impact and remembrance than positive incidences. Hence, the chance of negative incidences influencing the ranking is more as compared to positive incidences. 
6. Essay Method: Under this method, the appraising supervisor is asked to write a descriptive essay about the performance of the employee. Different parameters to rate are listed. The rater describes each parameter of the employee subjectively. Different traits of the employee can be explained in detail under this method The evaluation of the employee depends upon the writing skill and memory of the supervisor. Assessment Centers: Assessment centers are those organizations that have professional evaluators to assess the job performance of employees. An employee is sent to these centers for 1 to 3 days where the knowledge, skills and abilities of the employee are being assessed. The evaluators evaluate the personality, job knowledge, behavior, tactfulness, leadership qualities etc. of the employee. This is done with the help of tests and simulation exercises. Primarily the techniques of simulation exercises like management games, leaderless group discussion, role-play etc. are used to assess the employee performance. Assessment centers are used to assess the performance of executive-level employees or a large group of employees
7. Management By Objective (MBO): This is both employee and employer-driven method. In an organization, employees have their individual goals and managers also have their goals. They both sit and decide on common goals to achieve. Managers take note of employee performance directed towards their goal achievement and checks how near are these employees to achieve the common organizational goals. This is a fair method as the standard is known to employees against which their performance is to be measured.
8. Behaviorally Anchored Rating Scale (BARS): This is a method in which the behavior of employees at each critical incidences is measured through a rating scale. Employee behavior could be favorable to not acceptable levels. Such behavior is rated on a scale of 1 to 9. The score of such a rating scale is totaled to find the performance level of the employee.

Problems/Challenges of Performance Evaluation

Performance evaluation is not free from problems or challenges. Different problems are to be tackled during performance evaluation.These problems can happen anytime in any form during performance evaluation. Some of such problems have been discussed below:

1. Unclear Standards: Performance evaluation becomes difficult when there are no clear standards for evaluation. In such a case, the evaluator can use different standards or expectations for employees performing similar jobs. Such problems are likely to exist when ambiguous criteria and subjective weightings by the evaluator are used. This means no clear and uniform standards to evaluate the performance of employees.
2. Rater Bias: This is the most prevailing problem in performance evaluation. A rater might have a strong liking or dislikefora certain aspect of the employee. This results in conscious or intentional biases in rater during the evaluation of employee performance. This is reflected in the preferential behavior of the rater to favor or not favor an employee while reviewing, rating, judging and ranking employee performance. 
3. Recency Effect: This is a problem in which rater rates recent performances highly.  The weight to most recent performance is high and previous performance is low. This cannot give an exact performance during the entire evaluation period. Employees who work best during the first few months of the evaluation year and not in recent months are highly in a disadvantage position under recency effect. The recency effect is a problem in performance evaluation as it never considers all performances during the entire evaluation period.
4. Halo Effect: This type of problem occurs when the rater rates an employee high or low on all aspects of the job because of one dominant characteristic. This is portraying perceived one aspect of the employee in all other aspects of the job. IF perception is negative about the dominant characteristic, all items are rated negatively and vice versa. In the halo effect, the rater does not think about other characteristics of employees separately.
5. Rating Pattern or Central Tendency: This is a type of problem where the rater rates employees in the central part of the rating scale. For example, if the rating scale ranges from 1 to 7, some managers try to avoid high ratings of 6 to 7 and low ratings of 1 to 2 and rate employees on a scale of 3 to 5. Due to such ratings highly competent and hard working employees get a low score and those who are not competent or excellent get a higher score than they deserve.
6. Contrast Error: Another problem in performance evaluation is the tendency to rate people relative to other people rather than to performance standards. This comparing two or more people rather than the actual and standard performance of an individual employee. For example, everyone else in a group is doing a mediocre job, a person performing somewhat better may be rated as excellent because of the contrast effect.
7. Past-Record Anchoring: This type of problem occurs due to the record of employees. If an employee has a high past record, the rater tends to rate current performance high although current performance may be below the past performance. The same tendency of rater exists to rate employees current performance as low if it was low in past. This is intending to evaluate current performance based on past high or low-performance ratings. This is a problem as not the actual current performance but past records tend to influence the evaluation of performance.

Effective Performance Evaluation System

A performance evaluation system is said to be effective if it can overcome different problems or challenges during performance evaluation. It must suit the nature of the employee, job contents, organizational policy, reward and punishment mechanism, employee career development and organizational goals. An effective performance evaluation system consists of the following:

1. Relevance: A performance evaluation system is said to be relevant if it can address organizational goals and performance standards. Similarly, it must coincide with job knowledge, quality of work, creativity and so on. Moreover, the criteria on which an employee is to be rated must comply with job elements described in the job specification.
2. Reliability: The judgment of the evaluator must closely agree with the evaluation of the employee independently. The reliability of performance evaluation depends upon the close observation of job-related behavior of employees. More closer the observation of employees, the higher will be the reliability of the performance evaluation.
3. Sensitivity: An effective performance evaluation system should be capable enough to distinguish between effective and ineffective performers. If the results of the evaluator are inefficient to distinguish between effective and ineffective performers, it will not be sensitive enough to categorize productive and unproductive employees. Hence, an effective performance evaluation system must consist of sensitivity.
4. Acceptability: It is necessary for the results of an evaluation to be acceptable to all parties involved in performance evaluation. To make the performance evaluation system acceptable, all parties involved should have a good understanding, no prejudice or biasness, harmonious relation etc. This develops trust and understanding among parties of the performance evaluation which makes the evaluation system more effective.
5. Practicability: The techniques and instruments of the performance evaluation system must be easy to understand and use. If it is not so, the process of evaluation becomes not practical with a dysfunctional effect.