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1. Performance appraisal theory
In this file, you can ref useful information about performance appraisal theory such as
performance appraisal theory rates, small performance appraisal theory, performance appraisal
theory calculator … If you need more assistant for performance appraisal theory, please leave
your comment at the end of file.
Other useful material for you:
• performanceappraisal123.com/1125-free-performance-review-phrases
• performanceappraisal123.com/free-28-performance-appraisal-forms
• performanceappraisal123.com/free-ebook-11-methods-for-performance-appraisal
I. Contents of getting performance appraisal theory
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The equity theory, developed by John Stacey Adams, says that satisfaction is based on a person's
perception of fairness. Applying this theory when conducting a company's performance
appraisals involves balancing the assessment of an employee's contribution to his job with the
compensation and other rewards associated with his success. In general, highly-paid and
rewarded employees tend to be the most motivated to continue performing well on the job.
Understanding Theory
In the 1960s, John Stacey Adams, a behavioral psychologist, developed the equity theory. This
theory describes the relationship between the perception of fairness and worker motivation.
People typically value fair treatment. Successful entrepreneurs recognize this and structure their
small-business workplace to reward people according to their contributions. They also recognize
that people have needs. Other theories help explain how to understand these needs. Psychologist
Abraham Maslow’s need-hierarchy theory, developed in the 1940s, states five levels of personal
needs: physiological, safety, belonging, esteem and self-actualization. Business school professor
Victor Vroom developed the expectancy theory in the 1960s, demonstrating that motivated
employees produce more. Behaviorist B. F. Skinner also worked in the 1960s to understand how
reinforcement works. He concluded that negative reinforcement leads to negative outcomes.
Effective small-business managers can apply these observations to managing performance by
motivating their employees through positive reinforcement and appraising them fairly on at least
an annual basis.
Setting Expectations

2. According to equity theory, an employee's perception of the fairness of his work's input and
outcome influences his motivation. Effective performance management systems enable a small-
business manager to clarify job responsibilities and expectations, develop an employee's
capabilities, and align an employee's behavior to the company's strategic goals and values. An
employee typically feels satisfied with the outcome of his effort, including his pay, when the
compensation matches what he feels he puts into the job. If an employee perceives that others get
more for doing less, he typically becomes less motivated to work hard. Managers create a
productive work environment by communicating job requirements clearly and establishing fair
and consistent performance objectives for all employees.
Achieving Balance
Effective small-business managers avoid underpaying and overpaying employees. They monitor
performance and compensation regularly to achieve a productive balance. If cuts need to be
made due to economic conditions, they distribute the decreases throughout the company. To
remain motivated, employees typically need to be able to provide input to their performance
plan, modify their goals if conditions change, and seek career development opportunities.
Communicating Clearly
It's not easy to make equitable decisions while supporting performance improvement. Managers
typically evaluate their employees, calibrate ratings and decide on rewards. These rewards
include pay increases, promotions, flexible work schedules or stock options. Justifying these
decisions becomes the focus, rather than relaying constructive feedback that can enhance
performance and foster career development. Successful small-business managers clearly
communicate company goals and make sure employees understand their role in achieving
business objectives. By recognizing the effort, loyalty, commitment, skill and enthusiasm that an
exemplary employee displays, an effective manager acknowledges accomplishments, establishes
trust and builds a productive workforce. A worker's sense of achievement tends to build loyalty
and enables him to feel secure about his future with the company.
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III. Performance appraisal methods

3. 1.Ranking Method
The ranking system requires the rater to rank his
subordinates on overall performance. This consists in
simply putting a man in a rank order. Under this method,
the ranking of an employee in a work group is done
against that of another employee. The relative position of
each employee is tested in terms of his numerical rank. It
may also be done by ranking a person on his job
performance against another member of the competitive
group.
Advantages of Ranking Method
i. Employees are ranked according to their performance
levels.
ii. It is easier to rank the best and the worst employee.
Limitations of Ranking Method
i. The “whole man” is compared with another “whole man”
in this method. In practice, it is very difficult to compare
individuals possessing various individual traits.
ii. This method speaks only of the position where an
employee stands in his group. It does not test anything
about how much better or how much worse an employee
is when compared to another employee.
iii. When a large number of employees are working, ranking
of individuals become a difficult issue.
iv. There is no systematic procedure for ranking individuals
in the organization. The ranking system does not eliminate
the possibility of snap judgements.
2. Rating Scale
Rating scales consists of several numerical scales
representing job related performance criterions such as
dependability, initiative, output, attendance, attitude etc.
Each scales ranges from excellent to poor. The total
numerical scores are computed and final conclusions are
derived. Advantages – Adaptability, easy to use, low cost,
every type of job can be evaluated, large number of
employees covered, no formal training required.
Disadvantages – Rater’s biases

4. 3. Checklist method
Under this method, checklist of statements of traits of
employee in the form of Yes or No based questions is
prepared. Here the rater only does the reporting or
checking and HR department does the actual evaluation.
Advantages – economy, ease of administration, limited
training required, standardization. Disadvantages – Raters
biases, use of improper weighs by HR, does not allow
rater to give relative ratings
4. Critical Incidents Method
The approach is focused on certain critical behaviors of
employee that makes all the difference in the
performance. Supervisors as and when they occur record
such incidents. Advantages – Evaluations are based on
actual job behaviors, ratings are supported by
descriptions, feedback is easy, reduces recency biases,
chances of subordinate improvement are high.
Disadvantages – Negative incidents can be prioritized,
forgetting incidents, overly close supervision; feedback
may be too much and may appear to be punishment.
5. Essay Method

5. In this method the rater writes down the employee
description in detail within a number of broad categories
like, overall impression of performance, promoteability
of employee, existing capabilities and qualifications of
performing jobs, strengths and weaknesses and training
needs of the employee. Advantage – It is extremely
useful in filing information gaps about the employees
that often occur in a better-structured checklist.
Disadvantages – It its highly dependent upon the writing
skills of rater and most of them are not good writers.
They may get confused success depends on the memory
power of raters.
6. Behaviorally Anchored Rating Scales
statements of effective and ineffective behaviors
determine the points. They are said to be
behaviorally anchored. The rater is supposed to
say, which behavior describes the employee
performance. Advantages – helps overcome rating
errors. Disadvantages – Suffers from distortions
inherent in most rating techniques.
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