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It is that time of the year when the past years performance of an organization is measured against defined budgets. It is an opportunity for an organization and its managers to reflect on what went right and what could have been done better. While it is important to assess the performance of an organization it is even more important to measure the success of its managers and employees.

Measuring the performance of the employees is done with a performance appraisal. Performance appraisal is a powerful tool that allows an organization to align its resources in the right direction. It not only highlights the performance of the individual but also that of an organization as a whole.

Let us take an example of Joginder Singh and Co, a Non Banking Financial Company in the business of consumer loans. As a business, they foresee themselves to be a Rs. 100 crore group by 2008. In order to achieve the organizational goals it is important to align the goals of its constituent elements i.e its managers and employees. Therefore the management of Joginder Singh and Co. decided to set the goals of business managers and functional heads in line with the organizational objectives.

On periodical intervals everyone at Joginder Singh and Co. is appraised based on the defined targets and budgets. It’s an opportunity to review performance and set new benchmarks. It’s also an opportunity to review the organizations “Human Capital”. Organizations these days use the performance appraisal as a tool to align organization competencies and individual competencies. What started out as a method for justifying an employee’s salary in the 1980’s and 1990’s is now one of the most essential system of an organization.

Performance appraisal is a structured formal interaction between the senior and the sub ordinate to determine what was set as a goal for the employee and what has actually been achieved. This appraisal can be done yearly or half yearly depending upon the needs of the organization. The outcome of this appraisal can be used as a tool to identify areas of improvement for the employees thus developing them as a true asset for the organization.

There are many opinions on the usage and validity of this system. While many experts argue that the linking of the performance appraisal to the reward or incentive schemes limits the scope of developmental values of appraisals others feel that it is the life line of all organizations.

The performance appraisal system of Alrose limited, a manufacturing unit of chemicals is a fine example that linking the performance appraisal to rewards might not be always fruitful. Alrose Limited does the appraisal of its employees once a year and the outcome of this appraisal leads to increments and promotions. Since all employees know that their increments rest on this exercise none of them come forward to define the problems that they face in their working which sometimes slows or reduces their productivity. Neither are the managers who are responsible for appraising the employees willing to address the need for areas of improvement and training. This has lead to fall in production, high rejection of products by the consumers and customers, high attrition and dissatisfaction amongst its employees.

On the other hand modern experts strongly argue that performance appraisal must be linked to the reward system, which when used competently may lead to high success and profitability of the organization. When it is not done so the employees might feel that the whole system is a sham and not be motivated to perform better or higher. Jankidas Vallabh and Sons follows the practice of linking the appraisal results to the rewards and compensation. Rewarding an employee for his performance in the past year and addressing to his training needs may motivate him further to excel in his area of expertise. The result is energetic and loyal workforces aiming to achieve their goals in line with making the company perform better.

An effective performance appraisal is one which is a conjunction of two systems:
Evaluation and Feedback. The purpose of evaluation is to find out the difference between what was set as a target for an individual to achieve and what has actually been achieved. It brings forth the gap between the targets and the actual. The purpose of feedback system is that the assesee has to be informed about his or her performance and the assessor has to be made aware of the problems that the employee maybe encountering in the performance of their duties.

One of the best ways to appreciate the performance appraisal systems is to look at it from the employee as well as the organizations perspective. What does the employee want out of this system?


What does an organization want to achieve from performance appraisal? From the organization's viewpoint, one of the most important reasons for having a system of performance appraisal is to establish and uphold the principle of accountability. The chief cause of organizational failure is "non-alignment of responsibility and accountability." In most organizations there is an overlap of work being carried out. This gives the employees a perfect chance of blaming the other person for any mistake or failures. Performance appraisal assigns roles and responsibility to one and all across the organization. In case where non alignment is not so severe the organization continues to perform albeit so poorly that it resembles a poorly maintained engine which is costly, ineffective and unreliable.

We’d like to leave you with a thought….as a manager or an investor should you not know what your organization is doing and what is everyone’s role to make that happen.

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