Review of literature on performance appraisal

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In the wake of the industrial developments and to increase the productivity at the same time to maintain quality strategic tools are vital to evaluate the practices of the employees. Performance appraisal (PA) is an important management tool to assess employees’ efficiency in the workplace, and may be defined (Pearce & Porter 1986), as a structured formal interaction between a subordinate and supervisor that usually takes the form of a periodic interview (annual or semi annual) to evaluate the work performance. PA is intended to engage, align, and coalesce individual and group effort to continually improve overall organisational mission accomplishment (Grubb 2007). It provides a basis for identifying and correcting disparities in performance. Thus, it is activities oriented and is a rational, formalised, legitimate test using observation and judgment. Systematically, PA reviews each employee’s work performance during a specific period, evaluates and records it for future reference. Essentially, weaknesses and strengths of individuals are examined and discussed to identify opportunities in view of establishing improvement and skills development. Many authors (Oberg 1972, Colby & Wallace 1975) have pointed out the shortcomings of existing appraisal systems. They have noted that many appraisal systems are: (a) not relevant to organisational objectives, (b) subject to personal bias, and (c) are often influenced more heavily by personality than by performance. With a view to eliminate these shortcomings, an attempt with a computer based tool called Data Envelopment Analysis (DEA) is used in the present work to evaluate the performance. Nevertheless, several have agreed that well designed and properly used appraisal systems are essential for effective functioning of organisations (Slusher 1975).

For a long period, PA has been one of the most researched topic areas in the fields of Industrial- Organisational Psychology and Human Resource Management. The face of traditional Human Resource (HR) services in progressive organisations is currently undergoing a dramatic change. According to Renton (2000), the focus in future will be much more on guiding and implementing business strategy and much less on managing established HR functions. As a result, professionals in the HR field are increasingly being challenged to take a more strategic perspective on their role in the organisation. According to Becker, Huselid and Ulrich (2001), as HR professionals respond to this challenge, measuring HR performance consistently emerges as a key theme. Grote (2002) indicated PA enables managers to mobilise the energy of the people to achieve strategic goals. A PA system can tightly link strategy (mission, vision and values) with daily performance. Many companies pay close attention to the hard science of performance measurement, particularly the financial and operational sides, while successful companies play equal attention to the art, which is the softer aspect of selecting and applying performance measures (Singh & Finn 2003).

An effective PA programme should do more than set salary and promotion decisions on past performance. It should aid in the development of a performance improvement plan that utilises coaching from the department supervisor or manager to increase skills development. This puts it in the same category as training, which is all about looking ahead and developing practical programmes that result in improved performance. The interest is perceptible in as much as organisations appraise employee performance for a variety of purposes. PA forms the foundation for many HR functions, effectively setting the standards to drive recruiting efforts, and it is customary to use these criterion in hiring, promoting, evaluating and equitably compensating employees, and forming the basis for many employee training programmes (Gibson, Harvey & Harris 2007).

There is an obvious need for tools to improve the PA process. A great deal of effort has been made in this direction to develop suitable software tools, which can act as ‘consultants’ for managers. The advances in computer technology and the computer based techniques for handling information allow the development of decision support systems that can play a crucial role in the progress of a firm (Alexouda 2005).

Organisations are preparing reports or profiles periodically for each employee. The profiles include detailed information regarding wages/salaries costs, utilisation of resources, and outcome quality (e.g., cost per product, and reworking rates). These indicators are compared against performance in other organisations. Multiple factors involved profiling can effectively identify underutilisation of inputs, uncover problems with the efficiency and quality of work, and assess an individual’s performance (Sherman 1984). These profiles are designed to generate a specification, if the performance indicators for a particular employee differ from the average by a certain amount. And appraisal results are used, either directly or indirectly, to determine reward outcomes (Colby & Wallace 1975) as well as to identify the poor performers who may require some form of counselling, or training, or in extreme cases, demotion, dismissal or a decrease in pay. Since employees consume sizable portions of investment, the better management of employees can have a significant impact on the overall efficiency of the organisation.

This paper describes the use of DEA to improve methods of measuring employees’ efficiency for a small manufacturing industry. The objectives of current study are fivefold.

  • Evaluate and rank the employees based on their performance using the DEA
  • Determine the peer for each underperforming employee
  • Identify the weak factors of each inefficient employee
  • Set target values for all the output factors for the inefficient employees
  • Formulate recommendations and suggestions to the management, which should lead to enhancing employee efficiency

The structure of this paper is as follows. The first section presents the literature review, the traditional appraisal techniques with their advantages and limitations. The next section outlines the DEA and variant models. In the third second a methodology delineates the study site, the respondents, and the measures that were used to capture data. This section closes with an outline how these data were evaluated. In the fourth section the results explain the procedure for ranking employees. A discussion component, the fifth section, expresses how the study findings relate to the current relevant literature, and the last section offers conclusions in terms of the relevance of the study findings for HRM policies and practices in contemporary organisations.

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