30  Performance Management and Appraisal

30.1 Performance Management vs Performance Appraisal

Two terms are often confused — performance appraisal and performance management. The distinction matters in NTA stems and in practice. Performance appraisal is the periodic, formal evaluation of an individual’s job performance. Performance management is the broader, continuous process that includes goal-setting, ongoing feedback, development, recognition and reward — of which appraisal is one event.

TipPerformance Appraisal vs Performance Management
Dimension Performance Appraisal Performance Management
Scope Narrow — evaluation Broad — entire performance cycle
Frequency Periodic (annual / half-yearly) Continuous
Focus Past performance Past + present + future
Approach Backward-looking Forward-looking
Owner HR Line manager + HR + employee
Outcome Rating, reward, action Capability + engagement + results
Coverage Individual Individual + team + organisation
Authors Traditional HR Aubrey Daniels (1980s); Michael Armstrong
NoteAubrey Daniels — origin of the term

Aubrey Daniels popularised performance management in the 1970s/80s as a behaviour-management technique. Michael Armstrong (CIPD) later standardised the term in textbooks as the integrated cycle of plan → act → monitor → review.

30.2 Definitions

TipWorking definitions
Author Definition
Edwin Flippo “Performance appraisal is the systematic, periodic and impartial rating of an employee’s excellence in matters pertaining to his present job and his potential for a better job.”
Dale Yoder “All formal procedures used in working organisations to evaluate personalities, contributions and potentials of group members.”
Wendell French “The systematic and periodic process that assesses an individual employee’s job performance and productivity in relation to certain pre-established criteria and organisational objectives.”
Michael Armstrong “Performance management is a continuous process of identifying, measuring and developing the performance of individuals and teams and aligning performance with the strategic goals of the organisation.”
Aguinis “A continuous process of identifying, measuring and developing performance in organisations by linking each individual’s performance and objectives to the organisation’s overall mission and goals.”

30.3 Objectives of Performance Appraisal

TipTwin objectives — administrative and developmental
  • Administrative (evaluative) objectives — promotion, transfer, demotion, dismissal, salary increment, bonus.
  • Developmental objectives — training needs, coaching, career planning, skill gap closure, feedback.
  • Other: validation of selection · workforce planning · legal documentation · communication of expectations.

30.4 Performance Management Cycle

The standard cycle (Armstrong; Aguinis):

flowchart LR
  P[1. Plan<br/>set goals] --> A[2. Act<br/>do the work]
  A --> M[3. Monitor<br/>ongoing feedback]
  M --> R[4. Review<br/>appraisal]
  R --> D[5. Develop<br/>training, reward]
  D --> P
    classDef default fill:#003366,color:#ffffff,stroke:#ffcc00,stroke-width:3px,rx:10px,ry:10px;

TipAguinis’s six-step performance management process
  1. Prerequisites — knowledge of mission, strategy, job.
  2. Performance planning — results + behaviours + development plan.
  3. Performance execution.
  4. Performance assessment.
  5. Performance review.
  6. Performance renewal and recontracting.

30.5 Traditional Appraisal Methods

TipTraditional appraisal methods
Method What it does Notes
Ranking Rank employees from best to worst Simple but no detail
Paired Comparison Compare each pair; tally wins n(n-1)/2 comparisons
Forced Distribution Rate on a forced curve (e.g., 20-70-10) Popularised by Jack Welch at GE — “vitality curve”
Graphic Rating Scale Rate each trait on a scale Most common; subject to halo error
Checklist Yes/no checklist of behaviours Simple
Critical Incident Record critical events of good/poor performance Flanagan (1954)
Essay / Free-form Narrative description Subjective
Confidential Report Closed report by superior Old Indian-government method (ACR)
Field Review HR specialist interviews appraiser and appraisee Reduces bias
NoteForced distribution — Jack Welch’s vitality curve

Jack Welch at GE (1980s-90s) popularised the 20/70/10 forced distribution: top 20 % rewarded richly, middle 70 % developed, bottom 10 % terminated annually. Called the “vitality curve” or “rank-and-yank”. Influential but heavily criticised — Microsoft, GE itself and Adobe abandoned it.

30.6 Modern Appraisal Methods

30.6.1 Management by Objectives (MBO)

Peter Drucker introduced MBO in The Practice of Management (1954); George Odiorne extended it (1965). Superior and subordinate jointly set specific, measurable objectives, periodically review progress, and reward based on objective achievement. (Detailed in Topic 1.)

30.6.2 360-Degree Feedback

Pioneered at General Electric (1990s); the term 360-degree feedback was coined by Mark Edwards and Ann Ewen (1996). Inputs from supervisor, peers, subordinates, self, and sometimes customers and vendors.

Tip360-degree feedback — sources
Source What they see
Supervisor (top) Strategic and results
Peers (side) Collaboration, teamwork
Subordinates (bottom) Leadership, fairness
Self Self-perception
Customers (180° / external) Service delivery

180° = supervisor + self; 270° = + peers; 360° = + subordinates; 540° = + customers + vendors.

30.6.3 Behaviourally Anchored Rating Scales (BARS)

Patricia Smith & Lorne Kendall (1963) — anchors each numerical rating with a specific behavioural example drawn from critical incidents.

30.6.4 Behavioural Observation Scale (BOS)

Gary Latham & Kenneth Wexley (1977) — frequency of observed desirable behaviours rather than a single rating.

30.6.5 Assessment Centre

Multi-method evaluation by multiple assessors. Used originally for selection but extended to appraisal of high-potentials. (Detailed in Topic 24.)

30.6.6 Human Resource Accounting (HRA)

Measures the value of human resources in monetary terms. Methods:

  • Historical cost (Flamholtz)
  • Replacement cost (Likert)
  • Present value of future earnings (Lev-Schwartz, 1971)
  • Economic value (Stochastic Rewards Valuation Model)
  • Standard cost

30.6.7 Balanced Scorecard Cascade

Individual scorecard linked to team and organisational BSC. (Detailed in Topic 27.)

30.6.8 Continuous Performance Management

Modern shift — Adobe (Check-in, 2012), Deloitte, Microsoft, Accenture, GE moved away from annual ratings to continuous, conversational feedback. Catalysed by Deloitte’s 2015 HBR piece “Reinventing Performance Management” (Buckingham-Goodall).

30.6.9 OKRs

Andy Grove (Intel)/John Doerr (Google) framework — Objectives + Key Results. (Detailed in Topic 27.)

30.7 Errors in Performance Appraisal

TipCommon appraisal errors
Error What happens Example
Halo effect One positive trait colours all others Punctual → also assumed competent
Horn effect One negative trait colours all others Late once → assumed lazy
Central tendency Rate everyone in the middle Everyone gets 3/5
Leniency error Rate everyone high Everyone gets 5/5
Strictness error Rate everyone low Everyone gets 2/5
Recency error Recent events dominate Last quarter > full year
Primacy effect First impressions dominate Strong start, weak finish overlooked
Similar-to-me bias Favour those like the appraiser Same school, same hobby
Contrast error Rate relative to other recent ratees After a star, average looks poor
Stereotyping Group-based assumptions Gender, age, ethnicity
Spillover effect Past ratings influence current Last year’s 5 → this year’s 5
Personal bias / prejudice Personal feelings interfere Affection, dislike
Status effect Higher-status jobs rated higher Manager > clerk
Attribution error Failure → person’s fault; success → external Fundamental attribution error

30.8 Reducing Appraisal Errors

TipStrategies to reduce appraisal bias
  • Train appraisers (Rater Error Training, Frame-of-Reference training).
  • Use multiple raters (360°).
  • Use behaviourally anchored scales (BARS / BOS).
  • Calibration meetings.
  • Document with critical incidents.
  • Use rating diaries.
  • Separate evaluation from development conversations.
  • Provide ongoing rather than annual feedback.

30.9 Feedback — Pendleton’s Rules

David Pendleton’s classic feedback model (1984):

TipPendleton’s six-step feedback model
  1. Check the learner wants and is ready for feedback.
  2. Ask the learner: what went well?
  3. Tell the learner: what went well? (reinforce)
  4. Ask the learner: what could be better?
  5. Tell the learner: what could be better? (developmental)
  6. Agree an action plan.

Variants — SBI (Situation-Behaviour-Impact, CCL), GROW (Goal-Reality-Options-Will, Whitmore 1992), AID (Action-Impact-Desired).

30.10 Goal Setting Theory — Locke & Latham

Edwin Locke and Gary Latham’s A Theory of Goal Setting and Task Performance (1990) — high performance follows when goals are:

TipLocke-Latham five principles
  • Clarity — specific and measurable.
  • Challenge — difficult but attainable.
  • Commitment — believed in by the performer.
  • Feedback — progress is visible.
  • Task complexity — manageable cognitive load.

SMART goals (George Doran, 1981) and OKRs are operationalisations.

30.11 Indian Practice — ACR to APAR

Confidential Report / ACR (Annual Confidential Report) — closed, one-way report by superior. India moved to APAR (Annual Performance Appraisal Report) from 2009, making it an open, two-way document with self-appraisal, reviewing-authority and accepting-authority — following the 2nd Administrative Reforms Commission recommendations.

30.12 Linking Appraisal to Reward

TipPay-for-performance schemes (preview of Topic 25 / 32)
  • Merit pay — annual increments tied to ratings.
  • Bonuses — variable pay tied to performance.
  • Profit-sharing.
  • Gainsharing (Scanlon, Rucker).
  • ESOPs / Stock options.
  • Spot recognition / awards.

30.14 Practice Questions

Q 01 Appraisal definition Easy

Edwin Flippo defined performance appraisal as "the systematic, periodic and impartial rating of an employee's excellence in matters pertaining to his present job and his ___ for a better job."

  • APay
  • BPotential
  • CBehaviour
  • DPersonality
View solution
Correct Option: B
Potential — present job and potential for a better job.
Q 02 PA vs PM Medium

Performance appraisal is to performance management as:

  • AAn event is to a process
  • BA process is to an event
  • CStrategy is to tactics
  • DTactics is to strategy
View solution
Correct Option: A
Appraisal is an event within the broader, continuous performance-management process.
Q 03 MBO Easy

Management by Objectives (MBO) was introduced by:

  • AGeorge Odiorne
  • BPeter Drucker
  • CDouglas McGregor
  • DHenri Fayol
View solution
Correct Option: B
Peter Drucker, *The Practice of Management* (1954). Odiorne extended it in 1965.
Q 04 Halo Easy

An appraiser rates an employee high on all factors because she is punctual. This is:

  • AHorn effect
  • BHalo effect
  • CCentral tendency
  • DLeniency
View solution
Correct Option: B
Halo effect — one positive trait colours all others.
Q 05 BARS Medium

BARS — Behaviourally Anchored Rating Scales — was developed in 1963 by:

  • ASmith & Kendall
  • BLatham & Wexley
  • CLocke & Latham
  • DFlanagan & Burns
View solution
Correct Option: A
Patricia Smith and Lorne Kendall (1963).
Q 06 360° Medium

The 360-degree feedback method takes input from:

  • AOnly the supervisor
  • BSupervisor and self
  • CSupervisor, peers, subordinates and self
  • DOnly external customers
View solution
Correct Option: C
360° = supervisor + peers + subordinates + self.
Q 07 Vitality curve Medium

The 20/70/10 "vitality curve" — top 20 % rewarded, middle 70 % developed, bottom 10 % fired — was championed by:

  • AJack Welch (GE)
  • BSteve Jobs (Apple)
  • CBill Gates (Microsoft)
  • DLou Gerstner (IBM)
View solution
Correct Option: A
Jack Welch at GE, 1980s-90s — "rank-and-yank".
Q 08 Critical incident Medium

The Critical Incident Technique for appraisal was developed in 1954 by:

  • AJohn Flanagan
  • BFrederick Herzberg
  • CEdwin Locke
  • DPatricia Smith
View solution
Correct Option: A
John Flanagan (1954) in *Psychological Bulletin*.
Q 09 Goal setting Medium

Edwin Locke and Gary Latham's Goal Setting Theory identifies all the following principles EXCEPT:

  • AClarity
  • BChallenge
  • CCommitment
  • DCompetition
View solution
Correct Option: D
Five principles: Clarity · Challenge · Commitment · Feedback · Task Complexity. Competition is not one.
Q 10 Forced distribution Medium

Forced distribution method rates employees:

  • AOn their own absolute merit
  • BOn a pre-determined frequency distribution
  • CThrough self-rating only
  • DBy a computer algorithm only
View solution
Correct Option: B
Forced distribution requires a pre-set frequency (e.g., 10 % bottom, 70 % middle, 20 % top) — like a curve.
Q 11 Pendleton Hard

Pendleton's feedback model starts by:

  • ATelling the learner what went wrong
  • BChecking the learner is ready and asking what went well
  • CReading the appraisal form
  • DSetting next year's goals
View solution
Correct Option: B
Step 1 — check readiness. Step 2 — ask the learner what went well. Learner-first principle.
Q 12 ACR → APAR Hard

In Indian government, the closed Annual Confidential Report (ACR) was replaced by the open Annual Performance Appraisal Report (APAR) from:

  • A2005
  • B2009
  • C2012
  • D2014
View solution
Correct Option: B
2009 — following 2nd ARC recommendations. APAR is two-way with self-appraisal.
Q 13 HRA Hard

The Lev-Schwartz (1971) method of Human Resource Accounting is based on:

  • AHistorical cost
  • BReplacement cost
  • CPresent value of future earnings
  • DStandard cost
View solution
Correct Option: C
Lev-Schwartz (1971) — present value of future earnings.
Q 14 Adobe Hard

The move from annual ratings to continuous "Check-ins" (2012) is associated with:

  • AAdobe
  • BGE
  • CIBM
  • DMicrosoft
View solution
Correct Option: A
Adobe's Check-in (2012) — landmark abandonment of annual ratings.
Q 15 Central tendency Easy

An appraiser gives almost everyone a "3 out of 5". This bias is called:

  • AHalo effect
  • BLeniency
  • CCentral tendency
  • DRecency
View solution
Correct Option: C
Central tendency — rating everyone in the middle.
Q 16 Aguinis Hard

Aguinis's six-step performance-management process begins with:

  • APerformance planning
  • BPrerequisites — knowledge of mission and job
  • CPerformance review
  • DReward distribution
View solution
Correct Option: B
Aguinis's step 1 = Prerequisites — knowledge of mission, strategy, job.
Q 17 BOS Hard

Behavioural Observation Scales (BOS) were developed by:

  • ASmith & Kendall
  • BLatham & Wexley
  • CLocke & Latham
  • DDrucker & Odiorne
View solution
Correct Option: B
Gary Latham and Kenneth Wexley (1977) — BOS measures frequency of desired behaviours.
Q 18 Recency Easy

An appraiser rates an employee based mainly on the last two weeks before the review. This is:

  • APrimacy effect
  • BRecency effect
  • CSimilar-to-me bias
  • DHalo effect
View solution
Correct Option: B
Recency effect — recent events dominate the rating.
Q 19 Pay-for-performance Medium

The Scanlon Plan is an example of:

  • AIndividual merit pay
  • BGainsharing
  • CProfit-sharing
  • DStock option plan
View solution
Correct Option: B
The Scanlon Plan (Joseph Scanlon, 1940s) is a gainsharing plan based on labour-cost savings.
Q 20 Match concepts Hard

Match the appraisal method with its origin:

(i) MBO (a) Latham & Wexley
(ii) BARS (b) Peter Drucker
(iii) BOS (c) John Flanagan
(iv) Critical Incident (d) Smith & Kendall
  • A(i)-(b), (ii)-(d), (iii)-(a), (iv)-(c)
  • B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
  • C(i)-(c), (ii)-(a), (iii)-(d), (iv)-(b)
  • D(i)-(d), (ii)-(c), (iii)-(b), (iv)-(a)
View solution
Correct Option: A
MBO — Drucker; BARS — Smith & Kendall; BOS — Latham & Wexley; Critical Incident — Flanagan.

30.14.1 Advanced Format Questions

AR 1Assertion-ReasonHard

A: 360-degree feedback uses multiple raters.
R: Self, peer, supervisor, subordinate and customer all provide input.

  • ABoth true; R explains A
  • BBoth true; R does not explain A
  • CA true, R false
  • DA false, R true
View solution
Correct Option: A
AR 2Assertion-ReasonMedium

A: MBO sets measurable goals jointly.
R: Drucker proposed MBO in 1954.

  • ABoth true; R explains A
  • BBoth true; R does not explain A
  • CA true, R false
  • DA false, R true
View solution
Correct Option: B
S 1Statement-basedMedium

Appraisal methods: (i) Ranking. (ii) Graphic rating scale. (iii) BARS. (iv) BOS.

  • AAll four
  • B(i) and (ii) only
  • C(iii) and (iv) only
  • D(ii) only
View solution
Correct Option: A
S 2Statement-basedHard

Appraisal errors: (i) Halo. (ii) Central tendency. (iii) Leniency. (iv) Recency.

  • AAll four
  • B(i) and (ii) only
  • C(iii) only
  • D(i), (ii), (iii) only
View solution
Correct Option: A

30.15 Quick Recall

ImportantQuick recall
  • Performance Appraisal (event, periodic) vs Performance Management (continuous process).
  • Aubrey Daniels popularised PM in the 1970s/80s; Michael Armstrong standardised.
  • Definitions: Flippo (excellence + potential), Yoder, French, Armstrong, Aguinis (continuous, strategy-aligned).
  • Two objectives: Administrative (reward, promotion) + Developmental (training, feedback).
  • Cycle: Plan → Act → Monitor → Review → Develop.
  • Aguinis 6 steps: Prerequisites → Planning → Execution → Assessment → Review → Renewal.
  • Traditional methods: Ranking · Paired Comparison · Forced Distribution (20/70/10 — Jack Welch GE) · Graphic Rating · Checklist · Critical Incident (Flanagan 1954) · Essay · Confidential Report · Field Review.
  • Modern methods: MBO (Drucker 1954) · 360° (GE; Edwards-Ewen 1996) · BARS (Smith-Kendall 1963) · BOS (Latham-Wexley 1977) · Assessment Centre · HRA (Lev-Schwartz 1971 — PV of future earnings) · BSC cascade · Continuous PM (Adobe Check-in 2012) · OKRs.
  • Appraisal errors: Halo · Horn · Central Tendency · Leniency · Strictness · Recency · Primacy · Similar-to-me · Contrast · Stereotyping · Spillover · Status · Attribution.
  • Reducing errors: Rater training · Multiple raters · BARS/BOS · Calibration · Critical-incident diaries.
  • Feedback models: Pendleton (6 steps) · SBI (CCL) · GROW (Whitmore 1992) · AID.
  • Goal Setting Theory — Locke-Latham (1990): Clarity · Challenge · Commitment · Feedback · Task Complexity.
  • India: ACR → APAR since 2009 (2nd ARC) — open, two-way.
  • Pay-for-performance: Merit · Bonus · Profit-sharing · Scanlon-Rucker gainsharing · ESOPs.
  • Modern trends: Continuous PM · OKRs · People analytics · Real-time feedback apps · Strength-based · Hybrid-work outcome-based · DEI + ESG metrics.