Appraisal systems are increasingly being used to measure performance within organisations.
(a) Describe the benefits of performance appraisal systems for:
(i) the organisation; (4 marks)
(ii) the line manager; (4 marks)
(iii) the individual. (4 marks)
(b) Describe the following approaches to measurement used in performance appraisal systems:
(ii) factor comparison;
(iii) points rating.
Professional accountants, in their management role, need to understand and be familiar with current performance appraisal practices.
Appraisal and evaluation of performance are increasingly being used in organisations especially in the service sector and the professions. Whilst not difficult to understand, these practices have their complications. It is important that professional accountants understand the technicalities and the issues involved.
(a) A performance appraisal system has benefits for the organisation, the line manager and the individual employee:
The organisation benefits having:
o standard information about its employees
o standard documentation to assist with recruitment, promotion and training
o a facility to assist staff development
o a means of planning accurately human resource needs
o a system that provides motivation making clear to employees what is expected of them
The line manager benefits having:
o objective guidelines which staff activity and effort can be assessed
o a better understanding of staff needs and aspirations
o a basis for improving relationships with staff
o an understanding with individual staff members, especially through the appraisal interview
The individual benefits having:
o an opportunity (albeit in practice on a semi annual or annual basis) to discuss his work objectively with the manager
o performance can be objectively evaluated\
o a basis upon which training and development needs can be discussed
o relationships with the manager can be improved because of the communication mechanism built into the appraisal process
o clarification of duties and responsibilities
o a clear understanding of his or her role or position in the organisation
(b) Approaches to measurement used in appraisal systems are based either on an analysis of the whole job, or on the sub division of a job.
Involves evaluating the whole job. Firstly, decisions are made on what grades there will be (A B C). Then a decision is made on where each job fits into the organisation. This method requires particular knowledge and is subjective.
This method involves sub-dividing the job to be evaluated. Qualitative factors such as technical knowledge and responsibility are selected and given a financial value in pounds. Each factor in each job is then evaluated as a percentage of the financial value. A simple, unscientific method. Does not suit office type jobs.
Probably the most scientific method. Different schemes involve either evaluation of the whole job or sub division of a job. Again, qualities required (skill, responsibility etc) are listed. Each job is divided into between eight and twelve such qualities. Points are allocated to each factor and added to give a total score. This is a flexible, reasonably fair, and most used system.
A derivative of this method is associated with HAY MSL. This is a form of points rating based scheme, but is based on three fundamental measurements ñ understanding, problem solving and accountability. Each is sub-divided in turn for points allocation along the lines of the points rating system.
Widely regarded as a fair and reasonably scientific system, the HAY system has been widely used for appraisal systems involving higher management.