Tag: Analysis of Financial Statements Notes

Rating errors are factors that mislead or blind us in the appraisal process. Armstrong warned that “appraisers must be on guard against anything that distorts reality, either favorably or unfavorably.” These are the 10 rating errors seen most often. They’re where managers and other raters are most likely to go offtrack.

1. Central tendency. Clustering everyone in the middle performance categories to avoid extremes of good or bad performance; it’s easy, but it’s wrong. This isn’t fair to employees who are really making an effort, and it can be demoralizing.
2. Overlooking the flaws of favored or “nice” employees, especially those whom everyone likes.
3. Excusing below standard performance because it is widespread; “Everyone does it.”
4. Guilt by association. Rating someone on the basis of the company they keep, rather than on the work they do.
5. The halo effect. Letting one positive work factor you like affect your overall assessment of performance.
6. Holding a grudge. A dangerous luxury that may result in your ending up in court. Never try to make employees pay for past behavior.
7. The horns effect. The opposite of the halo effect letting one negative work factor or behavior you dislike color your opinion of other factors.
8. Allowing your bias to influence the rating. Bias can come from attitudes and opinions about race, national origin, sex, religion, age, veterans’ status, disability, hair color, weight, height, intelligence, etc.
9. Rating only recent performance, good or bad. Data should be representative of the entire review period. If you’re not keeping good notes, you may not remember the whole period. Armstrong noted that “you want to make sure, again, that you’re keeping records so that you can adequately describe performance over an entire performance period.”

• The sunflower effect. Rating everyone high, regardless of performance, to make yourself look good or to be able to give more compensation.

Performance Appraisal is defined as a systematic process, in which the personality and performance of an employee is assessed by the supervisor or manager, against predefined standards, such as knowledge of the job, quality and quantity of output, leadership abilities, attitude towards work, attendance, cooperation, judgment, versatility, health, initiative and so forth.

It is also known as performance rating, performance evaluation, employee assessment, performance review, merit rating, etc.

Performance Appraisal is carried out to identify the abilities and competencies of an employee for future growth and development. It is aimed at ascertaining the worth of the employee to the organization, in which he/she works.

Objectives of Performance Appraisal

(i) To provide employees feedback on their performance.

(ii) Identify employee training needs.

(iii) Document criteria used to allocate organizational rewards.

(iv) A basis for decisions relating to salary increases, promotions, disciplinary actions, bonuses, etc.

(v) Provide the opportunity for organisational diagnosis and development.

(vi) Facilitate communication between employee and employer.

(vii) Validate selection techniques and human resource policies to meet regulatory requirements.

(viii) To improve performance through counseling, coaching and development.

(ix) To motivate employees through recognition and support.

Advantages of Performance Appraisal

It is said that performance appraisal is an investment for the company which can be justified by following advantages:

1. Promotion: Performance Appraisal helps the supervisors to chalk out the promotion programmes for efficient employees. In this regards, inefficient workers can be dismissed or demoted in case.
2. Compensation: Performance Appraisal helps in chalking out compensation packages for employees. Merit rating is possible through performance appraisal. Performance Appraisal tries to give worth to a performance. Compensation packages which includes bonus, high salary rates, extra benefits, allowances and pre-requisites are dependent on performance appraisal. The criteria should be merit rather than seniority.
3. Employees Development: The systematic procedure of performance appraisal helps the supervisors to frame training policies and programmes. It helps to analyze strengths and weaknesses of employees so that new jobs can be designed for efficient employees. It also helps in framing future development programmes.
4. Selection Validation: Performance Appraisal helps the supervisors to understand the validity and importance of the selection procedure. The supervisors come to know the validity and thereby the strengths and weaknesses of selection procedure. Future changes in selection methods can be made in this regard.
5. Communication: For an organization, effective communication between employees and employers is very important. Through performance appraisal, communication can be sought for in the following ways:

• Through performance appraisal, the employers can understand and accept skills of subordinates.
• The subordinates can also understand and create a trust and confidence in superiors.
• It also helps in maintaining cordial and congenial labour management relationship.
• It develops the spirit of work and boosts the morale of employees.

All the above factors ensure effective communication.

6. Motivation: Performance appraisal serves as a motivation tool. Through evaluating performance of employees, a person’s efficiency can be determined if the targets are achieved. This very well motivates a person for better job and helps him to improve his performance in the future.

Limitations

1. Bias of Appraiser

The presence of ‘Halo Effect’ in evaluation of employees is the biggest weakness of this method.

A high rate is given to favoured employees whereas unfriendly employees are rated low.

2. Ambiguity in Standards

If the standards are not clear, the supervisors may follow different standards for different employees.

3. Insufficient Evidence

An employee who can impress the boss may get a positive evaluation though his impression in his own department may be very poor. In such cases, the performance appraisal will be superfluous.

4. Several Qualities Remain Without Appraisal

Through performance appraisal, only few qualities of employees can be measured. All individuals differ from each other in terms of background, values and behaviour.

5. Leniency or Strictness Tenancy

Every evaluator has his own valuation procedure which is regarded as his own standard for evaluation. For example, some teachers are strict in evaluation of answer books whereas others are lenient. The lenient tendency is known as ‘Positive Leniency Error’ whereas strict tendency is called as ‘Negative Leniency Error’. The rating may be high or low depending upon the nature of evaluators.

6. Average Rating Problem

In order to give very low or very high rating, the top managers are required to give reasons to justify the rating. The most common error committed in performance appraisal is to give average rating to all employees. Moreover, low rating antagonizes the subordinates.

7. Influence of Man’s Job

There is a tendency to give a high rating to highly paid jobs. So a senior employee may get a higher rating than a junior employee.

8. Similarity Error

The evaluator tries to look those qualities in subordinates which he himself possesses. Those who show the similar characteristics are rated high.

Process of Performance Appraisal

1. The first step in the process is the establishment of performance standards against which the output can be measured.
2. These standards are them communicated the employees as well as to the evaluators. This step helps the employees know what is expected from them and the feedback from the employees can be used for making any require changes in these standards.
3. The next step is to measure the actual performance against these standards a suitable technique for measurement is selected and the internal and external factors that influence the performance are also identified. Information on results is gathered and four sources are most commonly used to measure the actual performance. These are personal observations, Oral reports, written reports and statistical reports.
4. The results of the appraisal are then shared with the employee so that he become aware of the deviation in performance and can also identify and analyze the cause behind this deviation. This help and employee in identifying his strengths and weaknesses and improve future performance.
5. Corrective actions is then undertaken to improve the performance of the employees the common tools for corrective action are coaching, counseling and training.