Question

Question 2 You have been asked to help Universal Ltd to establish a well-designed and effective performance appraisal system. Explain how performance appraisal differs from performance management (3 marks). Identify and explain three (3) main objectives of a performance appraisal system (4.5 marks). Identify and describe three (3) rater errors that could occur in performance appraisals (7.5 marks).

Answer 1

Differences between performance management and performance appraisal

1. Performance management is the systematic process of analyzing, managing and executing the performance metrics of employees; whereas performance appraisal is the process of assessing performance of employees.

2. Performance management is the technique of developing an employee; whereas performance appraisal is the technique of evaluating the actual progress of employees.

3. Performance management relates to present and future; while performance appraisal is the data relating to past.

4. Performance management is proactive because it is future oriented; performance appraisal is reactive because it relates to the data of the past.

5. Performance management relates to collective; performance appraisal relates to individual data.

6. Performance management is strategic; performance appraisal is operational.

Objectives of Performance Appraisal

1. Feedback: Performance appraisal system provides feedback on the employee performance in the last one year. This feedback can be used for future purposes to identify the strengths and weaknesses of the employees.

2. Promotion: Most often, promotion decisions are based on performance appraisal. Performance appraisals provide review of the employee and consistent performance is taken as a criterion for promotion.

3. Compensation: The pay structure is not fully but mostly dependent on performance appraisal. In many organizations where pay for performance is in place, performance appraisal is particularly needed to decide compensation.

Errors in Performance Appraisal

1. Leniency error: The managers who are appraising the employees show leniency thinking that harsh ratings may hamper their chances of promotion. Therefore, they rate all the employees in criteria.

2. Halo Effect error: Halo effect refers to judging a person based on single characteristic. Managers may rate the employees as positive if they perceive them as good based on a single characteristic. Similarly, if they perceive single characteristic as bad, they rate that employee as bad.

For example if the employee punctual to work; it is perceived that he is productive as vice-versa. Errors arising out of such bias are called Halo effect errors.

3. Recency error: In this type of error, managers rate the employees based on their recent behavior. If the employee is rated good based on his performance in the last three months irrespective of his performance in the preceding nine months, this type of error is recency error.