Importance Of Performance Appraisal Business Essay

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In layman terms, Performance Appraisal means evaluating performance. Feldman, 1981, says, "in any organization, some of the most important decisions concern people: who should be promoted? Who deserves a raise? Who can take on more responsibility? These questions are sometimes addressed formally, by using various types of evaluation procedures."

Neeley, Gregory and Platts, 1995 put Performance Appraisal as an interesting topic:

"Performance measurement is a topic which is often discussed but rarely defined. Literally it is the process of quantifying action, where measurement is the process of quantification and action leads to performance. According to the marketing perspective, organizations achieve their goal that is they perform, by satisfying their customers with greater efficiency and effectiveness than their competitors (Kotler, 1984). The terms efficiency and effectiveness are used precisely in this context. Effectiveness refers to the extent to which customer requirements are met, while efficiency is a measure of how economically the firm's resources are utilized when providing a given level of customer satisfaction. This is an important point because it not only identifies two fundamental dimensions of performance, but also highlights the fact that there can be internal as well as external reasons for pursuing specific courses of action (Slack, 1991). Take, for example, one of the quality-related dimensions of performance - product reliability. In terms of effectiveness, achieving a higher level of product reliability might lead to greater customer satisfaction. In terms of efficiency, it might reduce the costs incurred by the business through decreased field failure and warranty claims. Hence the level of performance a business attains is a function of the efficiency and effectiveness of the actions it undertakes, and thus:

Performance measurement can be defined as the process of quantifying the efficiency and effectiveness of action.

A performance measure can be defined as a metric used to quantify the efficiency and/o effectiveness of an action.

A performance measurement system can be defined as the set of metrics used to

quantify both the efficiency and effectiveness of actions, (Neely, 1994)."

Looking back at history we know that performance appraisal dates back to the 20th century. Taylor's Time and Motion studies could be a starting point. However relying solely on this would net be correct. More prudent would be the period of the WW II, almost 60 years back.

According to Dulewics (1989) it is a basic human nature to judge people and processes around. We tend to judge ourselves, others and this includes colleagues, subordinates, superordinates and so on and so forth. This makes a performance appraisal system's importance even more significant since it means without a standard pattern of measuring performance, people will judge the quality and nature of work assigned and produced by others. This phenomenon in turn proves undermining to productivity of an organization in the long run. In the short run, this would lead to numerous and grave motivational, ethical and legal problems in the workplace.

Performance Appraisal started as simple and plain measure to justify a raise in an employee's income. This process was in turn linked to material incentives. Translating into simple words, an employee would get a raise if the performance was well above standard. On the contrary, a salary cut would be on the way if performance exceeded expectations. The raise or cut in salary was deemed the only justified incentive for a change in performance levels of employees. Appraisals were not seen as developmental tools back then.

Empirical studies revealed a different perspective to appraisals. Researchers were able to figure out those two individuals, at the same pay scale would have different levels of motivation and hence their performance would vary significantly. These studies revealed that pay scales mattered but only to a specific extent. Depending on a diverse range of factors, employee performance would always vary. Many factors like work environment, relationship with colleagues and boss etc matter too. For example, according to Huselid, 1995, ". . . perceptions of jon secutiy, the presence of a union, compensation level, job satisfaction, organizational tenure, demographic variables such as age, gender, education, and number of dependents, organizational commitment, whether a job meets an individual's expectations and the expressed intention to search for another job were all predictive of employees' leaving …"

Modern appraisal systems, as we know them today, gradually evolved by 1950 in the US.

The analysis of an employee's performance according to the jobs and responsibilities assigned to him is Performance Appraisal. The appraisal is solely dependent on the outcome of employee's performance and certainly not on his personal/ personality characteristics. The appraisal includes the measurement of skills and activities in relation to precision and consistency. It helps recognize the areas for performance improvement and aids the advancement of professional growth. However, it should not be considered the only way of communication between manager and employee. A thorough and regular communication between both of them supports the development of effective working relationships.

Every employee should go through a fair and equal process and criteria of appraisals. To make the performance appraisal process a success, it is necessary to have the willingness of the manager to present a productive and unbiased appraisal and the willingness of employees to react to the areas that need improvement to attain the set goals.

According to Huber, 1983; Jacobs, Kafry & Zedeck, 1980; Landy & Far 1983 : Performance appraisal provides information that is relevant for many personnel decisions, including salary increases, recommendations for promotions, as well as for employee development and performance feedback.

According to Drenth, 1984, an organization may desire to use performance appraisal as a tool for guiding employee development. Using appraisal to make promotion recommendations, the rater is obliged to focus on comparisons between individuals, whereas within-individuals comparisons are necessary for determining employee training and development needs.

Importance of Performance Appraisal

Employees are an asset which shapes and runs an organization. Human capital serves as the formidable foundation of a successful enterprise. Just as the management is always fully aware of the worth of all its tangible assets, so does the full worth and value of Human Resource needs to be maintained and evaluated for an establishment to realize its full strength and value. The process can be translated as the Performance Appraisal systems. This system aims at acknowledging achievement, assessing progress made, measuring gaps and design training programs to bridge those gaps. Performance appraisal serves a twofold purpose: a) on employee's end: a better understanding of the strengths and weaknesses and opportunity to enhance potential qualities and actual weaknesses. It turns out to be a SWOT for an employee. b) Management gains insight as to what needs to be cultivated into the employees and what the areas which need attention and training are, also provides an insight into employees who need career development.

Performance appraisals can be put to a variety of organizational purposes. Not only will this serve as a standard for comparing individuals, this would also be put to use for providing knowledge as to whether trainings should be provided at organizational level to further employees' careers. According to Cleaveland, Murphy &Williams, 1989, "Performance appraisals may serve as criteria in validity studies, as data in a training needs assessment, or as a component of a personnel planning effort."

According to Meyer and Davis, 1999

"Because of the pivotal role that performance appraisal plays in managing human resources (Cardy & Dobbins, 1994), there has been a great deal of research conducted to understand appraisals. Murphy and Cleveland (1991) noted that much of this research has focused on such issues as appraisal formats and minimizing bias from raters. One of the issues that they suggested that warrants further attention

is the criteria by which appraisal systems are judged. They suggested that one such research area that needs to be addressed is the reactions of the ratees to the appraisal system. Murphy and Cleveland proposed that research should seek to understand how appraisal accuracy affects reactions to the appraisal. Cardy and Dobbins (1994) mirrored this sentiment and argued that such perceptual reactions to the appraisal system are clearly important to the appraisal system's operational effectiveness. Along similar lines, Cummings (1983) speculated on the effect that the performance appraisal process can have on employee trust for the organization. He hypothesized that the use of self-appraisal in the performance evaluation system should be positively associated with trust. Further, he proposed that if the results of appraisals are fed back to appraisees, trust will be enhanced."

An understanding of the appraisal context will help have a clear idea as to the objective of the context. As per Feldman, 1981:

" The typical manager has many duties, only some of which involve the direct supervision of subordinate's' job behaviour is often fragmentary; direct personal contact with subordinates may be minimal and restricted to a particular set of situations, depending on the nature of the job. Jobs themselves are incompletely understood, and specific duties may be inadequately described or entirely unspecified, especially at higher managerial levels (Campbell et all,. 1970). In this uncertain, informationally "noisy" environment, the supervisor must perform several cognitive tasks before performance appraisals are possible:

The supervisor must tend to and recognize relevant information about employees.

This information must be organized and stored for later access. New information must also be integrated with previously gathered data.

When judgements are required- for example, when work assignments are to be made- relevant information must be recalled in organizational fashion.

At various times in the above stages, or when task demands (such as evaluation forms) require it, information must be integrated in some sort of summary judgement.

It should be evident that performance appraisal, as envisioned here, is a complex and cyclical process or rather a combination of interacting processes. Time is a vital consideration, since impressions and evaluations are formed as behaviour is observed sequentially, and final judgements are based as much or more on memory as on current observation."

Performance Appraisal Process

Delineating Performance Standards

Starting with Performance Appraisals, the foundation step is to formulate a set of standard that will in turn serve as the base to compare performance of employees. A criteria needs to be set as which will be used to grade performance of employees high or low. The standards should be measurable, clear and precise.

Articulating Standards

After setting standards, it is imperative that higher management effectively articulates performance standards, set in step 1, to the employees. Clear and effective communication of performance standards is imperative here as this is the key to setting proper work roles and expectations about a particular job. Appraisers and evaluators need to be clear on performance standards so that there is no discrepancy left in the appraisals. The standards can be modified keeping in view the feedback of the evaluator and the employees as may the case be.

Measuring the actual performance

This step involves measuring performance throughout the designated period of evaluation. The process is continuously ongoing and involves close check and monitoring of employee performance. Various performance measurement techniques are also applied in this section. There are chances that personal biases of appraiser distort the appraisals so measures should be taken to reduce these errors.

Comparison of performances

This is when the actual performance is compared to the ideal/standard performance. Any discrepancy in the standard and actual measures the level of performance. Performance gathered in the above step is then used as input to derive results.

Communicating Results

The step involves communicating the results to employees. Great care should be taken in articulating the result and should be on a one-to-one basis. Patient and careful listening is the key here. This meeting should be oriented towards a problem solving productive mode and negative criticism should be avoided.

Decision making

Lastly comes decision making in which either the rewards or corrective actions are executed depending upon the performance of the employees. Corrective actions might lead to training or demotions, transfers or rotations and rewards would lead to promotions or salary raise etc.


Conceptual Framework

The study aims to explore the performance appraisal practices adopted by selected organization that is, Bank AlFalah Limited and analyze the effectiveness of these practices. The study supports the conceptualization that effective performance appraisal practices play a major role in employee motivation and improvement and thus yield affluent organizational benefits. The paper focuses on what appraisal activities are adopted by Bank AlFalah Limited bring positive changes in the organization.

The performance appraisal process and methods combines the efforts mentioned below:

Establishing performance standards

Communicating standards and expectations

Measuring the actual performance

Comparing with standards

Discussing results (providing feedback)

Decision making- taking corrective actions

The above mentioned Performance Appraisal process as explained in the literature review section will be run through in front of the research respondents to know and analyze the actual practices of Bank AlFalah at each stage of performance appraisal. Similarly, the actual performance will be measured and compared with the desired performance outcome. Later, the results will be discussed with managers and human resource department to help them improve their process, alter it or made other decisions on the basis of the desired outcome.

Further the decisions regarding the performance appraisal or new performance appraisal policies/ practices will be put on a trial following basic Performance Appraisal process of developing, performing, assessing, reviewing and planning.

Research Methodology

The research methodology maps out the research instruments that will be used in order to obtain and analyze the data that is required to answer the proposed research questions. This section highlights the research methodology that will be adopted for research. The strategy to obtain the findings, setting the sampling techniques and data gathering tools will be discussed for the research and analytical techniques that will be employed will be identified. During this research, opinions, interest and perception of employees towards the concept itself and implementation of the concept of performance appraisal and will be collected. In the research and data analysis part, these key findings will help determine the patterns and identify the understanding of performance appraisal at different managerial levels. Also effectiveness of the concept after a thorough comparison between areas identified through Performance Appraisal process and measures taken for it will be revealed and discussed.

Research Method

The research will be conducted purely in Qualitative Method which involves gathering a large amount of qualitative information from the past experiences and beliefs presented by researchers and individuals which in this case would be managers and employees. The research philosophy behind this research is Interpretivism, which argues that the world is subjective. Interpretivism allows the author of the research to deeply explore and understand the subject matter. The issue under discussion is subject which would start off with a general understanding and end up on specific patterns and understanding of the matter therefore Inductive approach will used. The direct observations from the primary data and available secondary data will be studied to address the research question. The research is Descriptive Research where the variables of interest will be explored.




Time Horizon

Data Collection







Case study

Action research

Grounded theory


Archival research



Secondary Data from available texts, journals, books and literature, Primary data will be obtained through one to one interviews with employees and managers

Table-1: Summary of Research methodology

Sampling Technique

The population of the research survey includes the employees of Bank AlFalah Limited, Pakistan. The sample size would be 60 employees for primary data collection. The target sample is selected branch wise and then further department wise.

Quota Sampling and Convenience Sampling Technique is adopted for the primary research.. First, the Convenience sampling technique is performed which allows the researcher to gather different opinions and observations of the participants on convenient availability. At this stage, the sample is not assigned any quota on basis of any demographics, as done in probability sampling. Convenience sampling technique comes under non-probability sampling in which the sample consists of respondents chosen on the randomly and conveniently. There is no demographic condition for the sampling of employees; every type of employee is interviewed from the branch that is conveniently available for the research study purpose. Hence, 5 branches of Bank AlFalah Limited will be selected on the basis of convenience without any demographic condition. However, different areas of branches are preferred for interview to add variety and avoid any type of area bias to the analysis.

Within each branch of bank, the quota of 12 employees (interviews) is assigned on the basis of branch. Further, the quota is assigned on the basis of three diversified departments which are Customer Service, Banking and Finance, and Marketing whose managers would be interviewed and 3 employees under each department.

Overall the sampling techniques used in this paper are:


Quota Sampling

Non probability

Convenience Sampling

The sampling process tree would be as follows:



Per Branch


Per Department

Branch 1

Gulberg, Lahore Branch

Branch Code 501

12 employees

Customer Service, Finance, Marketing

3 employees each department

1 manager

Branch 2

Defence Lahore Branch

Branch Code 0033

12 employees

Customer Service, Finance, Marketing

3 employees each department

1 manager

Branch 3

Township Branch

Branch Code 0039

12 employees

Customer Service, Finance, Marketing

3 employees each department

1 manager

Branch 4

Liberty Market

Branch Code 0065

12 employees

Customer Service, Finance, Marketing

3 employees each department

1 manager

Branch 5

Model Town, Lahore

Branch Code 0137

12 employees

Customer Service, Finance, Marketing

3 employees each department

1 manager

Data Gathering Methods

The primary research is done through in-depth one to one interviews with the employees and managers using a questionnaire that is more qualitative in nature and consisting open ended questions eliciting more information from the respondents.

Secondary data is gathered through archival research. The data on this particular research topic is analyzed for literature review as well as for the analysis of judgment and opinions of various researchers over the performance appraisal techniques adopted by the banks. This data is studied to uncover the trends and practices adopted by Bank AlFalah and their effectiveness.

Project Objective

Below are the research objectives of this project:

To see the difference between the management's view and the employee's view of Performance Appraisal.

To measure the effectiveness of performance appraisals through comparing some areas of Performance appraisals with the measures taken by the management (objectives determined in Performance Appraisal and actual scenario)

To complete the research project in a manner that it helps the organization and us to build a better understanding about the performance appraisal and its effective use.

Content of Questionnaire

The questionnaire would have two parts:

General Part

Specific Part

The general part of the questionnaire includes questions to know their general belief and understanding towards performance appraisal, its importance and effects on the employees and their working environment.

The specific part includes some specific questions from employees and managers regarding their own personal experience of performance appraisal supported by examples, cases and specific happenings along with the detail of facts and figures, if they would like to share it. It also includes the opportunities they are seeking, their expectations from this particular practice and the potential improvement that according to them can be made to fill the gap between actual and desired outcome.

The questionnaire would be based on qualitative responses. Most of the questions would be kept open ended so that it fits in each respondent's area of discussion.

Following questions are selected to be asked from employees and managers in one to one interviews.

Interview Questions For employees

What is your designation?

Is the scope of your job clear to you?

How important do you think performance appraisal practice is for an employee?

Do you think performance appraisal increases efficiency?

Do you think performance appraisal is an effective tool for an employee's improved working behavior?

Being at this position, do you know what performance outcome is expected from you?

Do you see any difference between your performance and standard performance expected from you?

If no, do you see any room for improvements? What?

If yes, why do you think there is a difference?

Who/ What do you stand responsible for the difference?

How do you think this difference can be omitted and gap can be filled between desired and actual performance?

What are the suggestions you want to give to your department head, human resource department or decision makers regarding performance appraisal process?

Interview Questions for Managers

What is your designation?

How often do you communicate the scope of job to your subordinates?

How important do you think performance appraisal practice is for a manager?

Do you think performance appraisal increases efficiency?

Do you think performance appraisal is an effective tool to bring out the best and improved working behavior of an employee?

Do you clearly know what performance outcome is expected from each one of your subordinates?

Do you see any difference between subordinate's performance and standard performance expected from them?

If no, do you see any room for improvements? What?

If yes, why do you think there is a difference?

Who/ What do you stand responsible for the difference?

How do you think this difference can be omitted and gap can be filled between desired and actual performance?

What are the suggestions you want to give to subordinates to improve their working behaviors?

The secondary research will gather the data related to Performance Appraisal concept, theories, models, journals and articles. All the supporting facts and related theories will be gathered for a comprehensive analysis. The background of performance appraisal, its growth and practices will be studied.

The secondary research will specifically revolve around the reviews and opinions of various organizations in Pakistan on this concept. Keeping Pakistani organization subject of study, point of views of managers, supervisors and other figures at various authoritative/managerial level will be studied to know what they think is the opportunity and the room for improvement. The articles related to the performance appraisal and its effectiveness will also be covered in the secondary research.

The resources selected for the secondary research include journals, articles, newspapers, case studies, online reports, websites, projects reports, and annual reports of relevant departments, and reviews of managers and human resource representatives on Performance Appraisal.