Performance appraisal is an important process used by the organisation to evaluate employee contribution. They also provide constructive feedback and plan for further growth. In today’s fast-paced and hybrid workplaces, performance evaluations can lead to strategic enhancements such as engaging employee success, aligning with business goals, recognizing outstanding performance, and developing future leaders. Employee feedback is continuously changing, adapting to new technology and trends. In the blog, we will explore the different methods of performance appraisal, the benefits, and the challenges of conducting performance appraisal.
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Performance appraisal, or performance review, is a formal process in which the management evaluates an employee’s job performance. Faculty reviewers typically provide the appraisal, periodic, annual, or as needed for probationary appointments. Performance assessments can be an important human resource management activity. This helps to determine employee contributions in achieving the organisation’s goals and provides performance feedback to employees, identifying areas for improvement, and helps in career planning.
The main objective of performance appraisal consists of:
- Employee development: You can use it to recognise your strengths and weaknesses to assist in professional development.
- Goal alignment: To ensure that the goals of employees align with those of the organisation.
- Rewards: It is considered a basis for your bonuses and promotion.
- Constructive feedback: Improves two-way communication between managers and employees.
- Legal record: To keep a record in case of any disputes, and to support the employment decision.
Today, many organisations are using appraisals to increase engagement, build accountability, and help establish a culture of continuous performance improvement.
A good performance appraisal system usually includes:
- Setting meaningful goals: Clarifying reasons for the appraisal process, retaining purpose.
- Involving employees: Including self-assessments and discussion of feedback.
- Performance metrics: Proper and consistent metrics are used for evaluating all employees.
- Appraisal training: Making sure managers have the skills needed to provide honest performance reviews.
- Documentation: Effective documentation throughout the performance history will help in decisions.
- Taking follow-up actions: Setting goals and creating development plans after reviews.
1. Expectations
The manager and employee both get together at the beginning of the review cycle to agree upon and set performance expectations, including performance goals and key performance indicators (KPIs). In this step, they make sure that the employee clearly understands their role as well as the organization’s priorities.
During the engagement period (the appraisal period), the manager will observe, track, and document the employee’s work-related activities. This includes looking at the outputs, the minutes of meetings attended, the behaviours and contributions of the employee in meetings/projects, etc.
3. Gather Feedback
Feedback from colleagues, subordinates, clients, etc. (the source is determined by the appraisal method) is demanded so that the manager can obtain multiple perspectives that will contribute to a more rounded view of performance.
4. Conduct Evaluation
The manager then conducts a qualitative assessment of performance by comparing individual performance to the agreed-upon expectations. The manager will score/rate behaviours, outcomes, and competencies using established guidelines, rubrics, or scoring systems.
5. Document Results
All evaluations, scores, comments, and observed behaviours are formally documented. The format of the documentation may vary; However, it is critical to retain it for future reference.
6. Appraisal Meeting
The manager and the employee arrange a private, one-on-one meeting to discuss the evaluation results. This meeting should be open and constructive, and discuss areas of achievement as well as areas for improvement.
7. Development Plan
Based on the feedback and review, a personalised plan is created, with steps for skill enhancement. This development plan includes goals, a timeline, and other required resources.
8. Follow-Up
To review the progress of the action, periodic check-ins are scheduled, and goal adjustments are made if needed. Regular follow-ups help maintain momentum, reinforce accountability, and ensure continuous alignment with evolving business objectives.
1. Self-Appraisal
The employee reviews their performance in work accomplishments, challenges, and opportunities for professional growth. It encourages self-awareness and accountability, but may lack objectivity if not guided by clear criteria.
2. Peer Review
Workers evaluate one another’s performance, promoting collaboration and peer development. It can encourage team cohesion and mutual respect, though it may be influenced by interpersonal relationships.
3. Managerial Review
It is a traditional top-down method of evaluation, where supervisors assess their direct reports. The report often serves as the basis for subsequent Human Resource decisions such as pay increases and job sitings. While efficient and authoritative, it may overlook day-to-day contributions unnoticed by supervisors.
4. 360-Degree Feedback
For a better understanding and performance overview, feedback from multiple sources, like managers, peers, and customers, should be taken into consideration. This method offers a well-rounded view of performance but requires careful management to ensure honest and constructive input.
5. Project-Based Review
These are mainly used in project-based environments. The evaluations are based on performance during the assignment, tasks, and project deadlines. It highlights an employee’s adaptability and effectiveness in dynamic settings, but may miss long-term performance trends.
There are several methods for conducting performance appraisals. Below are the popular methods that are used to evaluate:
1. Rating Scale Method
A large number of employee characteristics can be rated on a predetermined scale for example, punctuality, teamwork, or communication. This technique is easy, quick, and widely used. However, it may be prone to bias if raters are not properly trained or if the criteria are too vague.
2. Behavioural Anchored Rating Scales (BARS)
In this method, the rating scale is often combined with behavioural examples to reduce the subjectivity. For example, if a customer gives 5 as a rating, then it means that the issue has been resolved without any interruptions. BARS increases reliability by clearly defining performance levels with specific behaviors, making evaluations more objective.
3. Management by Objectives (MBO)
Employees and managers collaboratively set performance goals and objectives. Evaluation of performance is based on whether the objectives are met. This method encourages employee involvement and accountability, leading to greater motivation and alignment with organizational goals.
4. Critical Incident Method
Focuses upon incidents of employee behaviours, both positive and negative, that are significant to job performance. It provides detailed insights into real on-the-job actions, but it requires consistent documentation and can be time-consuming.
5. Essay Evaluation Method
A qualitative method combined with descriptions written by managers about employee performance. This often includes many details about the employee, but it may lack consistency and objectivity. It allows for a personalized and comprehensive evaluation, though it depends heavily on the writing skills and fairness of the evaluator.
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Performance appraisals are not just tools for evaluating employee output; they play a strategic role in aligning individual performance with organizational goals. Here’s how they contribute to key HR functions and broader business strategy:
1. Risk Management
Performance appraisals serve as formal documentation of an employee’s performance over time, playing a vital role in risk management by providing legal protection in cases involving disciplinary actions, demotions, or terminations.
2. Compensation Decisions
Appraisal outcomes are often directly tied to compensation strategies. High-performing employees may be rewarded with bonuses, salary increases, or other incentives, while underperformance may lead to corrective actions.
3. Talent Management
Through performance reviews, organizations can identify high-potential employees who demonstrate leadership qualities, innovation, or exceptional problem-solving skills. These individuals can be placed in leadership development programs, helping to prepare future leaders from within.
4. Workforce Planning
Performance appraisals help managers understand individual and team skill levels. They reveal skill gaps that need to be addressed through training, hiring, or internal mobility. This information is crucial for organizing teams more efficiently and ensuring the right people are in the right roles to meet future business demands.
All organizations should ensure that performance appraisals are as follows:
- Non-discrimination: Bias based on race, gender, age, or disability has to be avoided.
- Objective: Use objective criteria that are standardized and validated by the criteria of evaluation.
- Transparent Communication: Appraisal process should be transparent, and the results have to be clear.
- Confidentiality: Feedback and outcomes should remain confidential.
- Documentation: Everything must be recorded in writing so that you can defend your decision in the face of an employment-related claim.
Failing to do the above-mentioned ethical considerations can lead to damage to the employer’s reputation.
- Increased productivity: Regularly reviewing and providing feedback will help the employees to stay focused. As a group, performance will start to improve.
- Improved employee retention: A performance appraisal system recognizes employees’ contributions and provides opportunities for ongoing career development, ultimately resulting in higher retention of top-performing employees.
- Identification of Development Needs: The appraisal process allows the management to identify employees who may still need support in developing certain competencies.
- Legal Evidence: To protect the organization from conflicts and to ensure good employment practices, a well-documented appraisal system is created.
- Feedback for improvement: Performance appraisals will provide employees with constructive feedback that helps them address issues and improve performance.
Even though appraisal processes have their important role to play, there are several challenges as well. Below are some of the challenges:
- Recency effect: Recent events may overshadow long-term performance.
- Stress and anxiety: Employees often feel that appraisals are judgmental.
- Maintaining one system: Using a single system for diverse roles can lead to inappropriate evaluations unless the criteria are role-specific.
- Irregular follow-ups: In some cases, the feedback may not always translate into actionable development plans.
- Bias: Personal preference will bias the evaluation process.
To overcome the obstacles described above, companies and organizations must invest in training, standardization, and actively involve employees in the process.
- Utilize multiple data points: Use quantitative, and rely on a combination of qualitative feedback.
- Follow up: Determine development action plans and then follow up on progress.
- Allow conversation: Give employees the chance to present their perspective.
- Create SMART goals: Specific, Measurable, Achievable, Relevant, and Timely.
- Review performance data: Make sure to look at the performance data and examples ahead of time. Confidently know what you’re talking about.
Performance reviews were traditionally conducted once a year. But a lot of businesses now use:
- Two Annual Reviews: The Evaluation process is conducted twice a year, in Mid-year and year-end.
- Quarterly Check-Ins: Frequent feedback sessions are conducted.
- Constant Feedback: Digital tools are used to have ongoing performance conversations.
This mainly depends on the business workflow and employee needs. Startups most widely get benefit from Agile and constant reviews.
- AI-Powered Reviews: Artificial intelligence tools analyze data to support objective evaluations.
- Real-Time Feedback Platforms: Software that enables instant recognition and correction.
- Employee-Centric Appraisals: Focus on well-being, purpose, and strengths.
- Rewards: Engaging appraisal systems using points, badges, and leaderboards.
- Inclusive Metrics: Broader KPIs that value collaboration, learning, and innovation.
Conclusion
Performance appraisals are more than just administrative tasks. They are a strategic tool used in the process to align individual performance with the organizational goals. When appraisals are conducted efficiently, they support better employee development, engagement, and long-term performance. In the coming years, companies will need to adapt to new trends and ensure fairness in performance appraisals. In this blog, you have gained knowledge about performance appraisal and the key methods used to evaluate them in detail.
Q1. What is the primary function of a performance appraisal?
The appraisal process evaluates and develops employee performance, as well as aligns specific employee contributions with business goals.
Q2. How is a performance appraisal different from performance management?
Performance appraisal is just one part of the broader ongoing process called performance management.
Q3. Who typically does a performance appraisal?
The direct manager does the appraisal with the possible addition of peer, subordinate, and client input through 360-degree feedback.
Q4. Can employees challenge their performance appraisal results?
Yes, many companies allow employees to give feedback and request clarification.
Q5. What tools are used in performance appraisals today?
There are many tools available such as, BambooHR, Lattice, Culture Amp, and Workday that automate the performance appraisal and management process.