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The performance appraisal system is always questioned in terms of its effectiveness and the problems of reliability and validity. It is always difficult to know whether what is appraised is what was supposed to be appraised. As long as subjective judgment is there this question cannot be answered perhaps, the following steps can help improve the system.

a) The supervisors should be told that they themselves will be evaluated on the basis of how seriously they are performing their duties.

b) To perform assigned task of evaluation in a better way superior should be provided with better training of writing report.

c) To carry out job evaluation studies and prepares job descriptions/roles and prepares separate forms for various positions in the organization.

d) The system should be designed in such a way that it is neither difficult to understand nor impossible to practice.

e) The supervisor should monitor whether the improvement in performance in the areas found weak is taking place or not and, if not, help the employee to achieve the required improvement.

f) Finally, reviewing, the appraisal systems every now and then help updating it, and making appropriate changes in it. This is the most important factor in making performance appraisal effective, with the passage of time necessary changes in tasks, abilities and skills to perform has to be made. If changes in the format are not considered the reports may not generate the kind of result needed to satisfy appraisal objectives.

The following measures could also be adopted for improving the effectiveness of an appraisal:

a) Behaviorally Based Measures: The research strongly favors behaviorally based measures over those developed around traits.

b) Ongoing Feedback: Employees like to know how they are performing the duties assigned to them.

c) Multiple Raters: If a person is evaluated by a large no of superior then chance of getting more frequent information increases

d) Peer Evaluations: Peer evaluations are conducted by employees’ co-workers, people explicitly familiar with the jobs involved mainly because they too are doing the same thing, they are the person who know the co-workers’ day to-day work behavior and should get a chance to provide the management with some feedback.

The systematic study of performance appraisal practices in India is very limited. According to few studies in India the performance appraisal is mainly undertaken for three objectives such as (i) to determine increments in salary; (ii) to assist organizational planning, placement, or suitability; and (iii) for training and development purposes. Other objectives of appraisal were: informing employee where they stand in organization, follow-up interviews, etc.

Every company uses different criteria to evaluate their employees. There are basically three groups of criteria being used for appraisal purpose: (i) evaluation of qualitative characteristics, such as, intelligence, reliability, honesty, leadership and attitudes, abilities, etc., evaluation of actual performance- qualitatively and quantitatively; and evaluation of development and future potential and development by an employee during the period under consideration. Evaluation criteria vary from company to company. There is vast deviation in periodicity of appraisal of employees. Few companies appraise annually, some appraise halfyearly, and a few quarterly; however, annual appraisal is most common among many.

Few innovative performance appraisal practices are:

• Managerial personnel are allowed to challenge or appeal appraisal decisions made by evaluator. 
• Employee management skills are important in performance appraisal. 
• Personnel department gives a clear instruction of policy and its implementation.
• Evaluation to be made only on the basis of performance of employee at work. 
• It has also enhanced role clarity in the Organization.

The performance appraisal practice by Dabur India Limited is as follows:

The main purpose of performance appraisal system is to evaluate the performance of employee, promote their employees and to make necessary arrangement for their training needs if required.

Employees are evaluated by how well they accomplish a specific set of objectives that have been determined to be critical in the successful completion of their job. This approach is frequently referred to as Management by objectives.

The latest mantra being followed by organizations across the world being – “get paid according to what you contribute” – the focus of most of the organizations is turning to performance management and specifically to individual performance.

1. The focus of the performance appraisals practice in todays environment is changing by concentrating more on career development relying on the dialogues and discussions with the superiors.

2. Performance measuring, rating and review systems have become more thorough, structured and individual employee specific than before.

3. Appraisal through a 360-degree feedback system takes place

4. In India, the performance appraisal processes are faced with a lot of poblems, the most important is the need of quantifiable indicators of the performance.

The emergence of following trends related to Performance appraisal practices can be seen in the global scenario: 360 degree feedback, Team performance appraisal, Rank and yank strategy.

1) 360 Degree Feedback: It is also known as ‘multi-rater feedback’, where the feedback about the employees’ performance comes from all the sources that come in contact with the employee on his job.

2) Team Performance Appraisal: In this method each employee performance is measured as a team member as well as individually.

3) Rank and Yank Strategy: It is also known as up or out policy where the performance appraisal model is prepared in which best-to-worst ranking methods are used to identify and separate the poor performers from the good performers. Then certain plans are chalked out for improvement. Some of the organizations following this strategy are Ford, Microsoft and Sun Microsystems.

Performance appraisal technique is very beneficial for an organization for taking decisions regarding salary fixation, demotion, promotion, transfer and confirmation etc.But,it is not freed from problem In spite of recognition that a completely error-free performance appraisal can only be idealized a number of errors that extensively hinder objective evaluation.

Some of these problems are as follows:

1. Biasness in rating employee: It is the problem with subjective measure i.e. the rating which will not be verified by others.

Biasness of rater may include:

(a) Halo Effect: It is the propensity of the raters to rate on the basis of one trait or behavioral consideration in rating all other traits or behavioral considerations. One way of minimizing the halo effect is appraising all the employees by one trait before going to rate on the basis of another trait.

(b) The Central Tendency Error: It is the error when rater tries to rate each and every person on the middle point of the rating scale and tries not to rate the people on both ends of the scale that is rating too high or too low. They want to be on the safer side as they are answerable to the management.

(c) The Leniency and Strictness Biases: The leniency biasness exists when some raters have a tendency to be generous in their rating by assigning higher rates constantly. Such ratings do not serve any purpose.

(d) Personal prejudice: If the raters do not like any employee or any group, in such circumstances he may rate him on the lower side of the scale, the very purpose of rating is distorted which might affect the career of employees also.

(e) The Recent Effect: The raters usually retain information about the recent actions of the employee at the time of rating and rate on the basis of recent action taken place which may be favorable or unfavorable at that point of time.

2. The superiors may be unsuccessful in conducting performance appraisal of employees and post performance appraisal interviews.

3. The performance appraisal is mostly based on subjective assessment.

4. The performance appraisal techniques have a low reliability and validity in terms of result.

5 Ratings an employee on the negative side may disturb interpersonal relations and industrial relations system.

6. Appraisers opinion on the performance of the employee may lead to setback on production.

7. An organization may give emphasis to punishment if an employee has not done a good job rather than providing training.

8. Few ratings are based on guess work.

Various other problems of performance appraisal are:

• There was a significant relationship between rating by superior and performance after promotions. 
• Appraisal reports were completed within a short period of time. 
• The circumstances were very unpleasant in feedback interview. 
• The Subordinates were not given suggestion in a manner which may be helpful to them.

An effective performance appraisal system can be of benefit to three parties they are for organization, for appraiser and for appraisee.

1) For the Organizations: Following are the benefits of an organization. 

• It leads to better performance throughout the organization, due to successful communication of the objectives and values of the organizations, sense of being close to the organization, loyalty and improved relationships between managers and staff. 
• Overall improvement in the duties performed by each employee of the organization. 
• Due to performance appraisal of employee new ideas for improvement in their work is generated.  Long-term plans can be generated. 
• The need for training and development can be identified more clearly. 
• A traditions of nonstop improvement and success in the organization can be formed and maintained. 
• Career development plans can be chalked out for capable employee to enhance their performance in future.

2) For the appraiser: Following are the benefits to the appraiser: 

• It gives an opportunity to the appraiser to develop a general idea of individual jobs and departments. 
• For every new or difficult situation new idea is generated for improvement or for overcoming that problem
• It gives an opportunity to integrate team and individual objectives and targets with departmental and organizational objectives. 
• It gives an opportunity to explain the amount of work expected by manager from teams and individuals. 
• It gives an opportunity to focus more on targets. 
• It enables to form more productive relationship with staff based on mutual trust and understanding.

3) For the Appraisee: Following are the benefits for the appraisee:

• Increased motivation. 
• Increased job satisfaction. 
• Increased sense of personal value. 
• Increase in morale of an employee. 
• It gives an opportunity to know their strength and weaknesses. 
• It gives an idea about areas of their improvement. 
• There will be a chance to subordinate to express his views even after performance appraisal 
• An employee should express his emotional needs and his value system which is considered to be important today.

The performance appraisal system of one organization may vary from other organizations,

though some of the specific steps that an organization may follow are as follows:

1. Establish Performance Standards: It begins by establishing performance standards i.e. what they expect from their employee in terms of outputs, accomplishments and skills that they will evaluate with the passage of time. The standards set should be clear and objective enough to be understood and measured. The standards which are set are evolved out of job analysis and job descriptions. Standards set should be clear and not the vague one. The expectation of the manager from his employee should be clear so that it could be communicated to the subordinates that they will be appraised against the standards set for them.

2. Communicating the Standards Set for an Employee: Once the standards for performance are set it should be communicated to the concerned employee, about what it expected from them in terms of performance. It should not be part of the employees’ job to estimate what they are expected do. Communication is said to be two ways street, mere passing of information to subordinate does not mean that the work is done. Communication only takes place when the information given has taken place and has been received and understood by subordinate. . If necessary, the standards may be tailored or revised in the light of feedback obtained from the employees.

3. Measuring of the Actual Performances: It is one of the most crucial steps of performance appraisal process. It is very important to know as how the performance will be measured and what should be measured, thus four important sources frequently used by managers are personal observation, statistical reports, oral reports, and written reports. However, combination of all these resources gives more reliable information. What we measure is probably more critical to the evaluation process than how we measure. The selection of the incorrect criteria can result in serious consequences. What we measure gives an idea about what people in an organization will attempt to achieve. The criteria which are considered must represent performance as stated in the first two steps of the appraisal process.

4. Comparing Actual Performance with Standards Set in the Beginning: In this step of performance appraisal the actual performance is compared with the expected or desired standard set. A comparison between actual or desired standard may disclose the deviation between standard performance and actual performance and will allow the evaluator to carry on with the discussion of the appraisal with the concerned employees.

5. Discussion with the Concerned Employee: In this step performance of the employee is communicated and discussed. It gives an idea to the employee regarding their strengths and weaknesses. The impact of this discussion may be positive or negative. The impression that subordinates receive from their assessment has a very strong impact on their self esteem and, is very important, for their future performances.

6. Initiate Corrective Action: Corrective action can be of two types; one is instant and deals primarily with symptoms. The other is basic and deals with the causes. Instant corrective action is often described as “putting out fires”, where as basic corrective action gets to the source from where deviation has taken place and seeks to adjust the differences permanently. Instant action corrects something right at a particular point and gets things back on track. Basic action asks how and why performance deviated. In some instances, managers may feel that they do not have the time to take basic corrective action and thus may go for “perpetually put out fires.

Thus the appraisal system of each organization may differ as per the requirement of that Organization.

Performance appraisal in any organization is undertaken to meet certain objectives which may be in the form of salary increase, promotion, recognizing training and development needs, providing feedback to employees and putting stress on employees for better performance.

An employee in an organization may think that performance appraisal is basically used by the organization to blame employees and to take corrective actions. An employee may feel that performance appraisal is introduced in an organization for punishment in such a case well thought out performance appraisal may results into failure. If the objectives set in a more positive, problems may arise as they may not all be achievable and they may cause conflict. For Example, an employee who is likely to be appraised will never discloses his loopholes as it may affect his appraisal. Thus the objective of performance appraisal should e clear and specific. Thus including objectives into the appraisal system may draw attention to areas for improvement, new directions and opportunities

1. Salary Increase: Performance appraisal plays an important role in making decision about increase in salary. Increase in salary of an employee depends on how he is performing his job. Evaluation of an employee takes place on a continuous basis which may be formally or informally. In a large as well as in small organizations performance appraisal takes place but it may be in a formal or informal way. It shows how well an employee is performing and to what extent a hike in salary would take place in comparison to his performance.

2.Promotion: Performance appraisal gives an idea about how an employee is work­ing in his present job and what his strong and weak points are. In comparison to his strength and weaknesses it is decided whether he can be promoted to the next higher position or not. If necessary what additional training is required. Similarly it could be used for demotion, discharge of an employee and transfer.

3. Training and Development: Performance appraisal gives an idea about strengths and weaknesses of an employee on his present job. It gives an idea about the training required by an employee for overcoming the limitations that an employee is having for better performance in future.

4. Feedback: Performance appraisal gives an idea to each employee where they are, how they are working, and how are they contributing towards achievement of organizational objectives. Feed works in two ways. First, the person gets view about his performance and he may try to conquer his weaknesses which may lead to better performance. Second, the person gets satisfied after he relates his work with organizational objectives. It gives him an idea that he is doing a meaning full work and can also contribute in a better way.

5. Pressure on Employees: Performance appraisal puts a sort of stress on employees for better performance. If the employees are aware that they are been appraised in comparison to their performance and they will have positive and acceptable behaviour in this respect.

There are various factors which may influence the performance appraisal system in any organization. There are some factors which introduce bias whereas; some other factors hinder purposeful assessment.

Such factors are as follows:

1. Value System of Evaluator: The task of evaluator is to assess the work of subordinate and write reports of the same. They are projected to do this for some purposeful assessment. It happens that evaluator sometime judges the performance on the basis of their own value system. Each person has his own value system and socio-cultural environment. Mostly, it is found that the reports are influenced by the evaluator’s value-system. This subjective element has lot of impact on final report.

2. Dominant Work Orientation: The performance Appraisal Report of a subordinate is prepared by a superior is found to have an impact by the dominant work orientation of the superior officer. Sometimes there is more emphasis on certain aspect of the work as compared to other aspect which may be equally important by the superior. It introduces subjectivity performance appraisal system.

A superior may evaluate the subordinate on the basis of following elements:

a) Inclination for work of dynamic nature.

b) Liking for routine work and strict maintenance of.

c) Importance on inter-personal relations and rank.

d) Emphasis on qualities which do not have much functional utility; and

e) Emphasis on consistency to some philosophy.

These elements bring subjectivity in the process of evaluation, influence the judgment of the superior and distort the evaluation of performance of the subordinates.

3. Loyalty: It plays a vital role in evaluating employee. An Employee shows loyalty due to many reasons such as common values, objectives, emotional needs, interests, caste, religion, language or region. Loyalty brings the superior and the loyal subordinate closer and closer to each other, and creates distance between those employee who are not loyal to their superior. This makes assessment of superior to be biased.

4. Level of Achievement: Subordinates evaluation may also depend on the level of achievement of the superior. If there is a vast difference between the level of achievement of the superior and Subordinate, then it can create problems of adjustment and purpose for which evaluation is done is not achieved.

5. Factors Hindering Objective Assessment: There are various factors which obstruct the objective appraisal of the performance of the subordinates.

These factors are as follows:

a) Superiority complex of the superior reporting officer.

b) Overall performance assessment do not take place only certain incidence are assessed.

c) Past-record of the subordinate.

d) Personality of the subordinate.

e) Ability of the subordinate to exercise influence at higher level.

Performance is always measured in terms of outcome and not efforts.

Performance Appraisal is needed in most of the organizations in order:

(1) To give information about the performance of employees on the job and give ranks on the basis of which decisions regarding salary fixation, demotion, promotion, transfer and confirmation are taken.

(2) To provide information about amount of achievement and behavior of subordinate in their job. This kind of information helps to evaluate the performance of the subordinate, by correcting loopholes in performances and to set new standards of work, if required.

(3) To provide information about an employee’s job-relevant strengths and & weaknesses.

(4) To provide information so as to identify shortage in employee regarding ability, awareness and find out training and developmental needs.

(5) To avoid grievances and in disciplinary activities in the organization.

(6) It is an ongoing process in every large scale organization.

Performance appraisals in an organization provide employees and managers with an opportunity to converse in the areas in which employees do extremely well and those in which employees need improvement. Performance appraisals should be conducted on a frequent basis, and they need not be directly attached to promotion opportunities only.

It is important because of several reason s such as:

1. Personal Attention: Performance appraisal evaluation, gives employee to draw personal concern from supervisor and talk about their own strengths and weaknesses.

2. Feedback: Employees on a regular basis get feedback of their performances and issues in which they lack, which needs to be resolved on a regular basis.

3. Career Path: It allows employees and supervisors to converse goals that must be met to grow within the company. This may encompass recognizing skills that must be acquired, areas in which improvement is required, and additional qualification that must be acquired.

4. Employee Accountability: Employees are acquainted that their evaluation will take place on a regular basis and therefore they are accountable for their job performance.

5. Communicate Divisional and Company Goals: It not only communicates employees’ individual goals but provides an opportunity for managers to explain organizational goals and in the manner in which employees can contribute in the achievement of those goals.

Performance appraisal system has been defined in many ways. The easiest way to understand the meaning of performance appraisal is as follows:

It is the systematic assessment of an individual with respect to his or her performance on the job and his or her potential for development in that job. Thus, performance appraisal is a systematic and objective way of evaluating the relative worth or ability of an employee in performing his job. The two aspects of performance appraisal considered to be important are: systematic and objective. The appraisal is said to be systematic when it evaluates all performances in the same manner, by applying the same approach, so that appraisal of different persons are comparable. Such an appraisal is taken from time to time according to plan; it is not left to probability. Thus, both raters’ and ratees know the system of perfor­mance appraisal and its timing. Appraisal has objectivity also. It’s important aspect is that it attempts at precise measurement by trying to remove human biases and prejudices.

According to Flippo, a prominent personality in the field of Human resources, “performance appraisal is the systematic, periodic and an impartial rating of an employee’s excellence in the matters pertaining to his present job and his potential for a better job.”

In the words of Yoder, “Performance appraisal refers to all formal procedures used in working organizations to evaluate personalities and contributions and potential of group members.”Thus performance appraisal is a formal programme in an organization which is concerned with not only the contributions of the members who form part of the organization, but also aims at spotting the potential of the people.”

It is a systematic way of judging the relative worth of an employee while carrying out his work in an organization. It also helps recognize those employees who are performing their tasks well and also- who are not performing their tasks properly and the reasons for such (poor) performance

 According to International Labor Organization, “A regular and continuous evaluation of the quality, quantity and style of the performance along with the assessment of the factors influencing the performance and behavior of an individual is called as performance appraisal.”

In short, we can say that performance appraisal is expected to result in an assessment of: development potential of the employees, training needs for the employees; capabilities of employees being placed in higher posts, behavior and obedience of the employees; and the need of the organization to evolve a control mechanism.