Everything you need to know about the advantages and disadvantages of performance appraisal. Performance appraisal may be viewed as a systematic and objective process of assessing an individual employee’s job performance and productivity at specified intervals of time in relation to certain pre-established criteria and the organisation’s objectives.

Performance appraisal always involves the following –

1. setting work standards, 2. assessing employee’s actual performance relative to those standards and 3. providing feedback to the employee with the aim of motivating him or her to eliminate performance deficiencies.

Performance appraisal also seeks to assess employee’s behaviour, accomplishments and potentials for future improvement, and points of his strength and weakness.


Although performance appraisal lays emphasis on the assessment of individual employee’s performance, the process may also be made applicable to a group of employees or a team.

In this article we will discuss about the advantages and disadvantages of employee performance appraisal.

Learn about the Advantages and Disadvantages of Performance Appraisal of Employees

Advantages and Disadvantages of Performance Appraisal of Employees

Performance appraisal means evaluating an employee’s current and/or past performance relative to his or her performance standards. It is designed to help employees understand their roles, objectives, expectations and performance success. Appraising performance assumes that performance standards have been set and feedback is given to the employees to help them eliminate performance deficiencies or continue to perform above par. It is an integrated process of setting goals, training and developing employees, appraising their performance and rewarding them.

Advantages of Performance Appraisal: Top 9 Benefits

Advantages of the performance appraisal are as follows:


1. Right Placement:

Performance appraisal is beneficial for assessing strengths and weaknesses of an employee. It enables to find out areas / tasks in which the employee is competent. Basically, the process is useful for identifying true potential and interests of the employees. Such analysis helps HR Department to assign right jobs according to the skill and competencies of employees.

2. Assistance to Improve Performance:

The manager / team head shares evaluation result with the respective employees. Such feedback is useful as it enables employees to focus on improving their strengths. The managers also suggest ideas and methods through which employees can overcome their weaknesses. Thus, the process helps in personal & career development of employees.


3. Acts as a Motivator:

The process involves recognizing & rewarding employee’s efforts and performance. It boosts their morale and confidence. Further, greater awareness of one’s true potential motivates employees to give their best performance. The organization acknowledges efforts of employees by giving higher salary, higher responsibilities, certificates and other monetary and non-monetary benefits. These benefits and recognition also motivates other employees to perform better at their job.

4. Planning and Designing Training Programmes:

The assessment of strengths and weaknesses of employees is useful for HR department to plan and design training programmes. The employees are provided with right training at right time to overcome their weaknesses and to develop their strengths. The content and method of training can be modified according to the human resource requirements.


5. Improves Employee and Management Relationship:

Performance appraisal is also an opportunity for the employees to discuss work related problems with their superiors & to find out ways to resolve them. Promotions and transfers are done on the basis of performance of employees. The fair promotion and transfer policies improve relationship between employees & management. It also facilitates good work atmosphere which directly benefits the final output.

6. Human Resource Planning and Development:

Performance appraisal is useful for taking inventory of quality of human resources available in the organization. This information helps in future planning and development of human resources. As per the assessment, the HRD can plan to recruit new employees or develop the quality of existing workforce in the organization. This ensures that organization has required quality and quantity of manpower to carry out its activities.


7. Improves Employee Communication with Managers:

Performance appraisal is also an opportunity for the employees to convey their needs and expectations to superiors. Further, employee can seek guidance of their managers to improve performance and also for career advancement. In short, the process gives a platform to improve employee communication.

8. Personal Development:

Appraisal facilitates acknowledgement of employee’s efforts and achievements. This motivates employees to learn and acquire new skills that aid them in personal and career development. This process boosts employees’ confidence and encourages them to take challenging tasks. During appraisal, managers also suggest ideas and methods to improve their attitude, behaviour, mental ability, emotional stability and so on.


9. Promotion and Transfers:

Performance appraisal is beneficial for identifying talented employees in the organization. This information helps the organization in grooming and developing competent employees. The organization acknowledges the efforts and achievement of employees through promotion, deputation, transfer etc. Performance appraisal ensures that promotion and transfer is only offered to employees based on merit and experience, not on the basis of seniority and favouritism.

Disadvantages of Performance Appraisal: Top 11 Disadvantages

Disadvantages of the performance appraisal are as follows:

1. Time Consuming Process:


Every manager or supervisor is responsible for preparing performance report for his team members. He is required to fill up an appraisal form for every team member and note down strengths, achievements, weaknesses and other observations of his team members. The process includes lot of procedures and is a time consuming process.

2. Inexperienced Evaluators:

Sometimes, appraisal may not be conducted by skilled or trained managers. The evaluation process may not be carried out properly owing to lack of knowledge and experience of evaluator.

3. Defective Rating or Personal Bias:

Managers avoid giving negative remarks or poor ratings as employees may not always view feedback in a positive manner. The managers try to avoid possible future conflicts or arguments with employees. Moreover, they also fear non- cooperation from employees in future.

It results in managers giving favourable ratings, so that work environment and relationships are not affected. Moreover, the evaluator’s personal relation with the employee also affects the process. Sometimes, managers may give higher ratings to favorite’s employees. They may also give low rating to deserving employees due to jealousy or fear that such employees might replace them.


4. Difficulty in Selection of Appraisal Method:

There are number of techniques to evaluate performance of employees. The appraisal technique must be selected on basis of the nature of organization, number of employees, work policies, budget etc. However, evaluators may not always select appraisal method that is suitable for the organization. They select appraisal method that is simple, less time consuming in order to reduce workload.

5. Central Tendency:

Managers have the tendency to give average rating to employees irrespective of their actual performance. It means average rating is given to both, the underperformers as well as the over performers. Generally, managers resort to this kind of behaviour in order to avoid displeasing other employees, future conflicts, jealousy and tension in the team. However, it is unfair for those employees who actually deserve high ratings but are given average score.

6. Horn & Halo Effect:

The behaviour to look only on negative aspects and ignore the positive aspects of a person is called as horn effect. It occurs when an appraiser makes his decision only on the basis of employee’s negative attributes. For instance, the appraiser gives overall low rating to an employee because he is overly focused on employee’s lack of communication and presentation skills.


He totally overlooks the fact that the employee is proficient in his job and completes tasks within the specified time. Halo effect is the opposite of Horn effect. In this, positive qualities of the employee are overshadowed by negative qualities of the employee. It means the appraiser gives high rating to employees also in those areas where he is not proficient.

7. Lack of Participation from Employees:

Employees resist performance appraisal system because they consider that the whole process of appraisal is only for pointing out their mistakes and criticizing their performance. Thus, they may not be actively involved in the evaluation process.

8. Spill Over Effect:

The behaviour to ignore employee’s current performance and to make decision on the basis of past performance and overall impression of the employee is termed as spillover effect. For instance, if the employee had a good performance during the last year, the supervisor by default rates him high even in the current year without considering his actual performance.

9. Attitude of Evaluator:


Mind set of manager also affects the evaluation process. The managers who are strict and have high expectations from his employees may give low ratings to all employees in spite, of good performance from employees. The lenient managers give high rating to all employees irrespective of their performance. Such evaluations are not valuable to the organization or the employees.

10. Inadequate Attention to Human Resource Development:

The main aim of appraisal system is to assess the performance of employees at current job so that they can be motivated and developed further. However, the performance reports may not be actually used by the managers to achieve this goal. The managers prepare these reports only to fulfil their duties and obligation of company policy. They may not always find time to evaluate actual performances of employees and to develop their abilities.

11. Expensive:

The organization has to allot huge funds for setting up assessment centres. Further, technical experts are to be hired to plan and design evaluation techniques. Sometimes, organizations also have to hire professional experts from outside to conduct the evaluation process.

Advantages and Disadvantages of Performance Appraisal of Employees

Advantages of Performance Appraisal:

Following are the advantages of performance appraisal:


1. This system provides information of great assistance in making and enforcing decisions about promotions, pay increase, layoffs and transfers.

2. It serves as a guide for employee’s development.

3. Performance appraisal puts a psychological pressure on workers to improve their performance on the job.

4. This serves to maintain fair relationship in groups.

5. This system avoids errors of nepotism, self-interest and discrimination while promoting and enhancing wages and salaries.

6. Personnel decision can be taken on the basis of this performance appraisal system


7. It is an efficient device for rating their personnel as it enhances proper control on sub-ordinates.

8. Timely, systematically, up to date, honestly and sincerely performance appraisal creates mutual understanding, trust and confidence among the supervisor – sub – ordinate relationship.

Thus, it has been seen that performance appraisal is an important tool of personnel management.

Disadvantages of Performance Appraisal:

The most problems involved in performance appraisal are as follows:

1. Errors in Rating:

Performance appraisal may not be valid indicator of performance and potential of employees due to the following types of errors:

(a) Halo Effect – It is the tendency to rate an employee consistently high or low on the basis of overall impression.

(b) Stereotyping – It implies forming a mental picture of a person on the basis of his age, sex, caste or religion.

(c) Central Tendency – It means assigning average ratings to all the employees in order to avoid commitment or involvement

(d) Constant Error – This tendency may be avoided by holding meetings so that the raters understand what is required of them.

(e) Personal Bias – Performance appraisal may become invalid because the rater dislikes an employee,

(f) Spillover effect – This arises when post- performance affects assessment of present performance. For instance, recent behaviour or performance of an employee may be used to judge him.

2. Lack of Reliability:

Reliability implies stability and consistency in the measurement. Inconsistent use of measuring standards and lack of training in appraisal techniques may also reduce reliability. Factors like initiative are highly subjective and cannot be quantified.

3. Incompetence:

Raters may fail to evaluate performance accurately due to lack of knowledge and experience. Past appraisal interview is often handled ineffectively.

4. Negative Approach:

Performance appraisal loses most of its value when the focus of management is on punishment rather than on development of employees.

5. Multiple Objectives:

Raters may get confused due to too many objectives or unclear objectives of performance appraisal.

6. Resistance:

Trade unions may resist performance appraisal on the ground that it involves discrimination among its members. Negative ratings may affect interpersonal relations and industrial relations particularly when employees or unions do not have faith in the system of performance appraisal.

7. Lack of Knowledge:

The staff appraising performance of employees might not be trained and experienced enough to make correct appraisal.

Advantages and Disadvantages of Performance Appraisal of Employees

Advantages of Performance Appraisal:

These include the benefits to the organization, to the supervisor, and to the employee himself or herself.


1. Communicates corporate goals

2. Provides management with decision-making information on human resources

3. Provides objective basis for raises, promotions, training, and other personnel actions

4. Builds stronger working relationships

5. Improves overall organizational productivity

6. Provides documentation for inquiries on general promotion policies or individual claims of discrimination


1. Builds management skills

2. Develops and improves rapport with employees

3. Identifies and rewards high performers

4. Identifies performers needing improvement for coaching/training

5. Improves individual employee productivity

6. Identifies general training needs

7. Demonstrates fairness to employees Improves group morale


1. Finds out how they’re doing

2. Provides recognition for accomplishments

3. Allows for two-way communication on goals and performance

4. Encourages taking responsibility for their performance and progress

5. Helps set goals and direct efforts

6. Provides opportunities for career development and improvement

7. Assures fair individual evaluations


1. There will be an objective analysis of traits of both the superior and subordinate.

2. There will be a chance for the subordinate to express his views even after performance appraisal.

3» An employee shall express his emotional needs and his value system which is considered taboo till today.

4. It overcomes the communication barrier.

5. It will remove the inherent weakness of the appraisal system i.e., subjective assessment of vague and abstract performance targets, unclear guidelines for appraisal, etc.

Disadvantages of Performance Appraisal:

Though the performance appraisal is a very useful technique, it suffers from serious limitations too.

Some of its limitations are as follows:

1. Though it is a useful technique of efficiency rating but there are certain personal characteristics which cannot be expressed either in figures or in any other measures.

2. However systematic and objective system of performance appraisal is used in the organisation, it is impossible to eliminate personal and subjective element from it.

3. Generally, there is the presence of ‘a halo’ effect which leads to a tendency to rate the same individual first, which once have stood first.

4. Some people are more distinct while some are very liberal in assigning the factors, points or number to the employees. They are unable to maintain a fair distinction between two individuals. It also nullifies the utility of this system.

5. Sometimes the results of performance appraisals are not confirmed by other techniques of motivation, incentive wages plans and so on. Factors are introduced in the managerial appraisal because of a fact or bias in the person concerned conducting the appraisal.

Advantages and Disadvantages of Performance Appraisal of Employees

Performance appraisal may be viewed as a systematic and objective process of assessing an individual employee’s job performance and productivity at specified intervals of time in relation to certain pre-established criteria and the organisation’s objectives. Performance appraisal always involves the following – “1. setting work standards, 2. assessing employee’s actual performance relative to those standards and 3. providing feedback to the employee with the aim of motivating him or her to eliminate performance deficiencies.”

Performance appraisal also seeks to assess employee’s behaviour, accomplishments and potentials for future improvement, and points of his strength and weakness. Although performance appraisal lays emphasis on the assessment of individual employee’s performance, the process may also be made applicable to a group of employees or a team.

Advantages of Performance Appraisal:

Apart from contributing to the overall performance of the enterprise, performance appraisal is useful in various areas of organisation’s HR activities.

Some of the major HR areas in which advantages of performance appraisal can be obviously discerned are as follows:

1. Production and Productivity:

Where targets of performance or production per unit of time have been specified, employees try their best to achieve these and even go beyond within the specified time in expectation of consequential rewards. The employees usually also develop a spirit of competition, which ultimately results in enhancement of their productivity, thus assuring the organisation a minimum level of production. Similar phenomenon applies also to the processes where the piece-rate system is prevalent.

2. Employees’ Capabilities and Competence:

Performance appraisal makes it possible to identify the points of strength and weaknesses of employees. The organisation can conveniently adopt measures to rectify their deficiencies through suitable training and development programmes. Performance appraisal can also be helpful to employees in their career planning and development.

3. Promotions and Transfers:

The potentials of employees revealed through performance appraisal enable the management to take objective decision about the employees deserving promotion and those who are unsuitable. The employees also become aware that their level of performance will be a deciding factor in their future advancement. Even where unions pressurise for adopting seniority criterion as the basis for promotion, it is conceded that there must be a certain level of efficiency in deciding promotion cases.

Performance appraisal also makes it possible for the HR professionals to identify the employees whose services could be more fruitfully utilised by their transfer to some other suitable jobs. Habitual low performing employees may, however, have to face termination of their services.

4. Compensation:

In many organisations, various categories of employees including supervisors, managers and executives are paid handsome additional compensation packages for their high level of performance as revealed by the appraisal. The additional compensation packages for high performing employees usually comprise performance-based lump sum bonus, enhanced annual increment and improved fringe benefits.

Such inducements act as a potential motivational factor not only for the high performing employees, but also for those whose level of performance is not up to the mark. The low performing employees start making efforts to improve their performance in expectation of higher earnings and improved facilities.

5. Selection:

Performance appraisal also enables the organisation to identify those employees whose potentials could be more fruitfully utilised for higher positions. It also reveals the unavailability of suitable candidates from internal sources, with the only option to look to the external supply.

6. HR Planning:

Information about points of strength and weaknesses of existing employees as revealed by performance appraisal is also useful while making plans in regard to human resources requirements of the organisation.

Such information will be helpful to the organisation in framing workable plans in regard to the present and future requirements of the organisation, adoption of an appropriate T&D programme for developing needed skills and capabilities of employees, determination of compensation packages and incentives, adjustments of workforce and taking decisions on other related issues.

7. Communication:

Performance appraisal is also useful in ensuring useful communication in the organisation. When the employees are convinced about the objectivity of their performance appraisals, they generally feel free in communicating with their superiors and peers about their strength and weaknesses.

Performance appraisals are also useful in making the process of identifying, measuring and developing the performance of individuals and teams and aligning their performance with the organisation’s goals more effective and acceptable.

Disadvantages of Performance Appraisal:

For the sake of easy understandability, it is desirable to give special attention to the major problems experienced in the course of application of the performance appraisal in a wider perspective.

These are briefly described below:

1. Lack of Clarity in Norms:

In some methods such as rating scales, employees may be rated as “poor”, “fair”, “good” or “excellent” in respect of each trait, for instance, “job knowledge”, “creativity”, “adaptability” and so on, but different raters often interpret the same degree on the scale and also the specific traits differently. Such a situation arises mainly on the account of ambiguity in the standards set. This often results in distorted ratings.

Appraisals laying emphasis on personal traits are more vulnerable to such a situation. The problem can be minimised by setting clear standards which can easily be understood by the raters.

2. Elements of Bias and Subjectivity:

Performance appraisals are done by human beings who may have their own biases and prejudices. In India, there have been numerous examples to show prejudicial approaches of the supervisors, managers and even executives in evaluating their subordinates’ performance based on considerations of caste, tribe, religion, language and region.

The bias may be positive in the sense of unreasonably helping a particular employee, and negative in the sense of harming an employee not liked by the appraiser. Appraisals may also be influenced by many other subjective considerations. As such, there is the need to adopt objective standards in every area of evaluation.

3. Leniency and Strictness:

Like lenient and strict examiners evaluating answer books in educational institutions, there are too lenient and too strict appraisers also in the business and industrial settings. Many of them develop such traits rather naturally. Thus, there is a great probability that too lenient appraisers rate even “average” employees as “very good”, whereas too strict appraisers may keep even “highly efficient” employees in the relegated “average” category.

More lenient appraisers may provide undue protection to inefficient employees at the cost of rightful claims of high performing ones. Too much strictness may also generate a demoralising effect on the motivation and morale of high performing employees.

There are also evidences to show the general impression about a particular employee influencing the ratings of the appraiser on all traits being evaluated. This is known as “halo effect.” This means that an employee about whom the rater has formed an unfavourable impression may be ranked very low on every trait even though he possesses potentials to be rated high.

On the other hand, a favourable impression about an employee may result in rating the performance of even an “average” employee as “excellent.” Objectively laid down standards will minimise the scope for too much leniency and too much strictness in appraisals and also reduce the scope of “halo effect.”

4. Central Tendency:

In many cases, the raters tend to avoid possible controversy or criticism by awarding middle level or average ratings. This tendency results in distorted ratings and especially denies the rightful claims of high performing employees in regard to enhanced compensation and benefits.

5. Element of Manipulation:

There are instances where managers and supervisors dominate over the entire process of performance appraisal and are in a position to manipulate things with a view to favouring employees of their own liking. On the other hand, there may be dominant employees, such as group or union leaders who exert undue pressure on the appraiser to accommodate them even when their performance has been consistently poor. In such cases, the option left before the raters is either to decline to be a rater or to manipulate things to accommodate them.