Performance appraisal is a method of evaluating the behaviour of employees in the work spot, normally including both the quantitative and qualitative aspects of job performance. It is a systematic and objective way of evaluating both work-related behaviour and potential of employees. It is a process that involves determining and communicating to an employee how he or she is performing the job and ideally, establishing a plan of improvement.
Performance appraisal could be taken either for evaluating the performance of employees or for developing them. The evaluation is of two types: telling the employee where he stands and using the data for personal decisions concerning pay, promotions etc.
Appraisal of employees serves several useful purposes:
1) Compensation decisions: It can serve as a basis for pay raises. Managers need performance appraisal to identify employees who are performing at or above expected levels. This approach to compensation is at the heart of the idea that raises should be given for merit rather than for seniority. Under merit systems, employee receives raises based on performance.
2) Promotion decisions: It can serve as a useful basis for job change or promotion. When merit is the basis for reward, the person doing the best job receives the promotion. If relevant work aspects are measured properly, it helps in minimizing feelings of frustration of those who are not promoted.
3) Training and development programs: It can serve as a guide for formulating a suitable training and development program. Performance appraisal can inform employees about their progress and tell them what skills they need to develop to become eligible for pay raises or promotions or both.
4) Feedback: Performance appraisal enables the employee to know how well he is doing on the job. It tells him what he can do to improve his present performance and go up the ‘organizational ladder’.
5) Personal development: Performance appraisal can help reveal the cause of good and poor employee performance. Through discussion with individual employees, a line manager can find out why they perform as they do and what steps can be initiated to improve their performance.