Performance mechanism is a method of assessing the contribution of employees at different levels of the organization during a particular period of time. This is necessary to evaluate the contribution of the employees during the past year and to provide feedback for improvement. Performance appraisal is also vital to deciding the appropriate compensation decisions. It also helps decide on promotions and helps the superior determine the appropriate training that may be necessary to enhance the employees’ performance

Performance evaluation also helps build confidence as the employee has an opportunity to voice his opinions and his grievances to his superior.

There are a number of methods of performance appraisal. No single method can be considered ideal in all circumstances. The methods of performance appraisal can be broadly classified into two categories: traditional and modern methods.

Traditional methods are the relatively older methods of performance appraisal. These methods are based on studying the personal qualities of the employees. These may include knowledge, initiative, loyalty, leadership and judgment.

The Traditional Methods are:

Unstructured method: In this method, the appraisal process does not follow any specific structure. It is based on the description of the employee by the superior. The unstructured nature of this method makes this extremely subjective.

Straight ranking method: In this method, the superior is asked to rate all the employees doing a specific job from best to the poorest based on a specific criterion. While it is easy to select the best and the worst employee, selection of employees who are mediocre is difficult. This model also suffers from subjectivity.

Paired comparison method: The paired comparison method involves comparing each employee with every other employee in the group. Based on the comparison a ranking system is developed. This ranking system is considered more reliable as it is based on a systematic method of comparison and evaluation.

Man-to-man analysis: In this method, the performance of the employee is based on certain factors that are selected. The factors can include initiative, leadership etc. A scale is developed for each factor and each individual is evaluated according to the scale. However, there is considerable difficulty in developing a scale.

Grading method: In this method, the performance of the employee are determined in advance and defined as categories. The categories can be Grade ’A’ for an outstanding performance, Grade ‘B’ for an excellent performance, ‘C’ can be for average and ‘D’ for poor etc.

Checklist method: In this method a checklist consisting of objective statement is prepared such as
1. is the worker regular at work
2. does the employee command respect among his subordinates
3. Is the employee helpful to his peers

Questions such as these are used in rating. The superior has to say ‘yes’ or ‘no’ to each question. The difficulty in this method lies in constructing such a checklist.

Free essay methods: This method involves writing an essay by the superior on the employees’ performance. It is an open ended process and suffers from subjectivity. Some bosses may not be good in essay writing and may not be serious in their essays. Comparing two individuals on the basis of the essays on them is also not easy.

Critical incidents method: This method uses critical incidents such as accidents, major lapses on the part of the employee to rate his performance.

Field review method: In this method a Human resources specialist conducts the appraisal by asking a series of questions about the employee to the superior. After the session is over the specialist makes notes based on his interaction with his superiors. These notes are approved by the specialist and are placed in the employee’s file.

Confidential report: This method involves preparation of a confidential report by the superior on the employee’s performance. The disadvantage of this method is the obvious subjectivity and secrecy which results in low credibility of this method.

Modern Methods:
Modern methods were devised to improve upon the traditional methods. Modern methods attempt to remove the shortcomings of the old methods such as subjectivity, bias etc. Some of the modern methods are:

BARS (Behaviorally anchored rating scales): In this system scales are devised based on aspects of the employees’ behavior. The superior is asked to rate the performance of the employees on the basis of these scales.

MBO: MBO stands for management by objectives. MBO appraisals are based on predetermined objectives which are decided and agreed upon by the superior and the employee. It is a process of goal setting and feed back. This process introduces greater objectivity in the evaluation process. The employee is aware of what is expected of him and is able to focus attention towards the goals.

Psychological appraisals: These appraisals involve assessment of the intellectual abilities, emotional stability, reason and analytical skills, sociability etc. These methods can be useful when taking decisions about placement of employees, development and training.

360 degree feedback:
This method enables the employee to receive feedback from his superior, his peers and his subordinates. This feedback provides information about the skills and behavior of an individual. The information is based on assessment from different angles and is more objective.