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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. DO LIEN HUONG _ BATCH NO: BBMD20314A PTA0050463A

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CHAPTER II: LITERATURE REVIEW

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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CHAPTER II: LITERATURE REVIEW

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. DO LIEN HUONG _ BATCH NO: BBMD20314A PTA0050463A

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CHAPTER II: LITERATURE REVIEW

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 DO LIEN HUONG _ BATCH NO: BBMD20314A PTA0050463A

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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.

Capability

High A

Capacity

High 1

Low B

C

D

E

F

OR

2

3

4

5

Low 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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CHAPTER II: LITERATURE REVIEW

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 1. Mary

Quality of work 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 Example given:

Mary Tom Peter John

x x x

x x

x

Rank 4 3 2 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 DO LIEN HUONG _ BATCH NO: BBMD20314A PTA0050463A

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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 timeconsuming. 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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