Performance Tests and Observations
With a limited number of jobs, performance appraisals may be based on a test of knowledge or skills. These tests are particularly appropriate when a company relies on a pay-for-knowledge or pay-for-skills approach to compensation, rewarding employees primarily on the basis of the skills or job knowledge they have mastered. The test may be of the paper-and-pencil variety or may require an actual demonstration of The test must be reliable and validated to be useful. Even then, it is more apt to measure potential than performance. For the method to be job-related, observations should be made under circumstances that are likely to be encountered. Practicality may suffer if the costs of test development or administration are high.