56 Performance appraisal including 360 degree performance appraisal

56.1 Concept of Performance Appraisal

Performance appraisal (PA) is “the systematic evaluation of an employee’s performance and potential for development” (Heyel). It is the means by which managers communicate to employees how they are doing, link past performance to consequences (rewards, training, promotion, separation), and set the stage for the next cycle. Modern firms have moved from annual ratings to continuous performance management (CPM) — regular check-ins, ongoing feedback, and forward-looking development conversations. 360-degree appraisal — feedback from supervisors, peers, subordinates, customers and self — is now widespread for leadership development, though less so for pay decisions.

56.2 Objectives of Performance Appraisal

Multiple Objectives

Administrative — basis for pay, promotion, transfer, demotion, separation.
Developmental — identify training needs; mentor; coach.
Communication — clarify expectations; provide feedback.
Motivational — recognise high performers; correct poor performers.
Legal — document for HR decisions; defend against bias claims.
Strategic — align individual goals with organisational strategy.
Validation — assess effectiveness of selection and training.

56.3 Process of Performance Appraisal

Six-Step PA Process

Establish performance standards — set goals (often via MBO / KPI / OKR).
Communicate standards to employees.
Measure actual performance.
Compare actual with standards.
Discuss appraisal with employee — feedback.
Take corrective / developmental action — training, transfer, reward, separation.

56.4 Traditional Methods of PA

Traditional PA Methods

Method	Working
Straight Ranking	Rank employees from best to worst
Paired Comparison	Compare each employee with every other; count of wins
Forced Distribution (Bell-curve)	Force ratings into a normal distribution (e.g., top 10 %, middle 80 %, bottom 10 %) — popularised by Jack Welch at GE
Graphic Rating Scale	Rate on traits / behaviours on a 1-5 or 1-10 scale
Checklist	Yes/No items; weights known to HR but not rater
Critical Incident	Record specific exceptional and unsatisfactory incidents (Flanagan)
Essay / Narrative	Free-form written appraisal
Confidential Report (ACR)	Sealed report by superior — common in government
Field Review	HR specialist interviews superior to make appraisal

56.5 Modern Methods of PA

Modern PA Methods

Method	Working
Management by Objectives (MBO)	Peter Drucker (1954); set specific measurable objectives jointly; evaluate by achievement
Behaviourally Anchored Rating Scale (BARS)	Specific behavioural anchors at each scale point
Behavioural Observation Scale (BOS)	Frequency of specific behaviours
Assessment Centre	Multi-method, multi-rater appraisal using exercises (in-basket, role play, group discussion) — for executive selection / promotion
Psychological Appraisal	Tests, interviews to assess long-term potential
HR Accounting	Treat employees as assets; monetary valuation
360-Degree Feedback	Feedback from supervisor, peers, subordinates, self, customers
720-Degree	360 + external stakeholders (clients, suppliers) — repeated cycles
Balanced Scorecard	Four-perspective evaluation (Kaplan-Norton 1992)
OKRs (Objectives and Key Results)	Andy Grove (Intel), popularised by Google — ambitious goals + measurable results
Continuous Performance Management (CPM)	Frequent check-ins; real-time feedback

56.6 360-Degree Appraisal

360-Degree appraisal is “a multi-source, multi-rater feedback system”. The employee is rated by:

Five 360 Feedback Sources

Source	What they assess
Superior	Performance against goals; managerial competencies
Peers	Collaboration; team-work; technical competence
Subordinates	Leadership; coaching; communication
Self	Self-perception; areas for development
Customers (internal/external)	Customer-orientation; responsiveness

56.6.1 Advantages

Advantages of 360

Comprehensive view of performance.
Reduced bias from any single rater.
Behavioural development-focused.
Identifies blind spots.
Reinforces desired competencies.

56.6.2 Limitations

Limitations of 360

Costly and time-intensive.
Anonymity issues.
Anchored to relationships, not always to performance.
Misuse — overemphasis on opinions vs facts.
Resistance from managers and employees.
Not ideal for pay decisions; better for development.

56.7 Errors in Performance Appraisal

Common Rater Errors

Halo effect — letting one positive trait colour all ratings.
Horn effect — letting one negative trait colour all ratings.
Central tendency — rating everyone in the middle.
Leniency / strictness error — uniformly high or low ratings.
Recency effect — recent events dominate the year’s rating.
Primacy effect — first impressions dominate.
Stereotyping — based on group membership.
Similar-to-me bias — favouring those like the rater.
Contrast effect — comparing to recently rated person rather than to standards.
Personal bias — likes/dislikes affecting ratings.

56.8 MBO and SMART Goals

Management by Objectives (MBO) — Peter Drucker, The Practice of Management (1954).

MBO Cycle

Joint goal-setting (superior-subordinate).
Operating plans for each subordinate.
Implementation.
Periodic review.
Final appraisal of results.
Cycle restart.

Goals should be SMART — Specific, Measurable, Achievable, Relevant, Time-bound.

flowchart TB
  PA[Performance Appraisal] --> TR[Traditional]
  PA --> MO[Modern]
  TR --> RA[Ranking, Paired]
  TR --> RS[Rating scales, Checklist]
  TR --> CI[Critical incidents, Essay, ACR]
  MO --> MB[MBO, OKRs]
  MO --> AS[Assessment centre]
  MO --> BA[BARS, BOS]
  MO --> S3[360 / 720 degree]
  MO --> BS[Balanced Scorecard]
    classDef default fill:#003366,color:#ffffff,stroke:#ffcc00,stroke-width:3px,rx:10px,ry:10px;

Distractor warning

PYQs ask: Halo effect = one positive trait spilling over; Horn effect = one negative trait. Don’t reverse them.

56.9 Practice Questions

Q 01360Easy

360-degree appraisal involves feedback from:

AOnly the supervisor
BSupervisor, peers, subordinates, self, customers
CFamily members
DHR only

View solution

Correct Option: B

**Multi-source, multi-rater** feedback.

Q 02MBOMedium

Management by Objectives (MBO) was popularised by:

APeter Drucker (1954)
BF.W. Taylor
CHenri Fayol
DMintzberg

View solution

Correct Option: A

**Drucker** — *The Practice of Management* (1954).

Q 03HaloMedium

**Halo effect** in appraisal is:

AOne positive trait colours all ratings
BOne negative trait colours all ratings
CRating everyone in the middle
DStereotyping

View solution

Correct Option: A

**Halo** — generalised positive bias; **Horn** — negative.

Q 04MethodsMedium

Match each appraisal method with its description:

	Method		Description
(i)	Forced distribution	(a)	Specific behavioural anchors at each scale point
(ii)	BARS	(b)	Force ratings into a normal distribution
(iii)	MBO	(c)	Multi-method exercises for executive evaluation
(iv)	Assessment centre	(d)	Joint goal-setting and review

A(i)-(b), (ii)-(a), (iii)-(d), (iv)-(c)
B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
C(i)-(c), (ii)-(d), (iii)-(a), (iv)-(b)
D(i)-(d), (ii)-(c), (iii)-(b), (iv)-(a)

View solution

Correct Option: A

Forced — bell curve; BARS — behavioural anchors; MBO — joint goals; AC — multi-method.

Q 05Central tendencyMedium

When a manager rates **everyone as average**, the error is:

AHalo
BCentral tendency
CRecency
DStereotyping

View solution

Correct Option: B

**Central tendency** — clustering around mid-scale.

Q 06SMARTMedium

SMART goals are:

ASpecific, Measurable, Achievable, Relevant, Time-bound
BStrong, Modular, Active, Real, Tight
CSimple, Measurable, Active, Reliable, True
DStrategic, Methodical, Aligned, Risky, Tactical

View solution

Correct Option: A

**SMART** — classic acronym.

Q 07Forced distributionMedium

Forced distribution (bell-curve) appraisal was popularised by:

ADrucker
BJack Welch at GE
CMintzberg
DMaslow

View solution

Correct Option: B

**Jack Welch GE** — "rank and yank".

Q 08Critical incidentMedium

The **Critical Incident** technique was developed by:

AJ.C. Flanagan
BDrucker
CHerzberg
DBass

View solution

Correct Option: A

**John C. Flanagan** — critical incident technique (1954).

Q 09RecencyMedium

Letting *recent events* dominate the yearly rating is:

ARecency effect
BHalo effect
CPrimacy effect
DCentral tendency

View solution

Correct Option: A

**Recency** — recent events overshadow rest of the year.

Q 10ACHard

Assessment centre uses:

AOne trait test
BMulti-method, multi-rater exercises (in-basket, role play, group discussion)
CSingle appraisal interview
DStandard checklist

View solution

Correct Option: B

**AC** — multiple exercises and multiple assessors.

Q 11OKRMedium

OKR (Objectives and Key Results) was developed at:

AApple
BIntel (Andy Grove)
CIBM
DMicrosoft

View solution

Correct Option: B

**Andy Grove at Intel**; popularised by John Doerr at Google.

Q 12Use caseMedium

360-degree feedback is best suited for:

APay decisions
BLeadership development
CDisciplinary action
DPromotion only

View solution

Correct Option: B

360° — best for *development*, not pay.

Q 13BARSHard

BARS stands for:

ABalanced Annual Rating System
BBehaviourally Anchored Rating Scale
CBonus and Reward System
DBehavioural Assessment of Rated Subjects

View solution

Correct Option: B

**Behaviourally Anchored Rating Scale**.

Q 14ErrorsMedium

When all employees get *high* ratings — likely error is:

ALeniency error
BStrictness error
CCentral tendency
DRecency

View solution

Correct Option: A

**Leniency** — generous rating; opposite of strictness.

Q 15Balanced ScorecardHard

Balanced Scorecard's four perspectives are:

AFinancial, Customer, Internal Process, Learning & Growth
BProfit, Process, People, Product
CCost, Revenue, Market, Position
DSWOT

View solution

Correct Option: A

**Kaplan-Norton 1992** — F, C, IP, L&G.

Q 16720°Hard

A **720-degree** appraisal extends 360° by:

ATwice as many raters
BAdding *external* stakeholders (clients, suppliers) and repeating cycles
CAdding family members
DReplacing supervisor

View solution

Correct Option: B

**720°** = 360 + external feedback + follow-up.

Q 17ProcessMedium

Arrange PA steps in order: (i) Communicate standards (ii) Set standards (iii) Discuss feedback (iv) Compare actual with standards (v) Measure performance

A(ii), (i), (v), (iv), (iii)
B(i), (ii), (iii), (iv), (v)
C(v), (iv), (iii), (ii), (i)
D(ii), (v), (i), (iv), (iii)

View solution

Correct Option: A

Set standards → Communicate → Measure → Compare → Feedback.

Q 18Similar biasHard

Favouring employees who *resemble the rater* is:

AHalo effect
BSimilar-to-me bias
CContrast effect
DLeniency

View solution

Correct Option: B

**Similar-to-me bias** — affinity bias.

Q 19ACRMedium

Confidential Report (ACR) appraisal is most common in:

AMultinational corporations
BIndian government / public sector
CTech start-ups
DHospitals only

View solution

Correct Option: B

**Government / PSUs** — ACR (now mostly APAR).

Q 20CPMMedium

Continuous Performance Management (CPM) emphasises:

AAnnual reviews only
BFrequent check-ins and ongoing feedback
CQuarterly forced ranking
DNo formal reviews

View solution

Correct Option: B

**CPM** — replace annual ratings with continuous feedback.

56.10 Quick Recall

Quick recall

PA process: Set standards → Communicate → Measure → Compare → Feedback → Action.
Traditional methods: Ranking, Paired, Forced distribution (Jack Welch GE), Graphic rating, Checklist, Critical incident (Flanagan), Essay, ACR (Govt), Field review.
Modern methods: MBO (Drucker 1954), BARS, BOS, Assessment Centre, Psychological, HR Accounting, 360°, 720°, Balanced Scorecard (Kaplan-Norton 1992), OKRs (Grove/Intel), CPM.
360° — sources: superior, peers, subordinates, self, customers. Best for development; not pay.
Rater errors: Halo (+) / Horn (−), Central tendency, Leniency / Strictness, Recency / Primacy, Stereotyping, Similar-to-me, Contrast, Personal bias.
SMART goals: Specific, Measurable, Achievable, Relevant, Time-bound.