Performance appraisal: What it is, Methods & Advantages

 Organizations use performance appraisal as a critical process to evaluate the performance of their employees. It involves a systematic review of employee performance, including their strengths, weaknesses, and room for growth. This process can significantly impact the employee’s performance and career development as well as the organization’s overall success.

 This blog will go over the definition, objectives, process, methods, advantages, and disadvantages of performance appraisals

What Is a Performance Appraisal?

The term “performance appraisal” refers to the regular review of an employee’s job performance and overall contribution to a company. Also known as an annual review, employee appraisal, performance review, or evaluation, a performance appraisal evaluates an employee’s skills, achievements, and growth, or lack thereof.

Companies use performance appraisals to give employees big-picture feedback on their work and to justify pay increases and bonuses, as well as termination decisions. They can be conducted at any given time but tend to be annual, semiannual, or quarterly.

What Is the Purpose of Performance Appraisals?

Performance appraisals are usually designed by human resources (HR) departments as a way for employees to develop in their careers. They provide individuals with feedback on their job performance, ensuring that employees are managing and meeting the goals expected of them and giving them guidance on how to reach those goals if they fall short.

Because companies have a limited pool of funds from which to award incentives, such as raises and bonuses, performance appraisals help determine how to allocate those funds. They provide a way for companies to determine which employees have contributed the most to the company’s growth so that companies can reward their top-performing employees accordingly.  (HAYES, 2023)

Types of Performance Appraisals

Performance appraisals can be broken down into four distinct significant types:

1. 360-Degree Appraisal

The manager gathers information on the employee’s performance, typically by questionnaire, from supervisors, co-workers, group members, and self-assessment.

2. Negotiated Appraisal

This type of appraisal uses a mediator to help evaluate the employee’s performance, with a greater emphasis on the better parts of the employee’s performance.

3. Peer Assessment

The team members, workgroup, and co-workers are responsible for rating the employee’s performance.

4. Self-Assessment

The employees rate themselves in categories such as work behavior, attitude, and job performance.

Note that some organizations use several appraisal types during the same review. For instance, a manager could consult with the employee’s peers and assign a self-assessment to the employee. It doesn’t have to be a case of either/or.

 

Methods of Performance Appraisals

Performance appraisals come in many forms. Managers and human resources staff responsible for these appraisals need to choose the best methods based on the size of their organization and what sorts of responsibilities the employees fulfill.

1. 720-Degree Feedback

You could say that this method doubles what you would get from the 360-degree feedback! The 720-degree feedback method collects information not only from within the organization but also from the outside, from customers, investors, suppliers, and other financial-related groups.

2. The Assessment Center Method

This method consists of exercises conducted at the company's designated assessment center, including computer simulations, discussions, role-playing, and other methods. Employees are evaluated based on communication skills, confidence, emotional intelligence, mental alertness, and administrative abilities. The rater observes the proceedings and then evaluates the employee's performance at the end.

3. Behaviorally Anchored Rating Scale (BARS)

This appraisal measures the employee’s performance by comparing it with specific established behavior examples. Each example has a rating to help collect the data.

4. Checklist Method

This simple method consists of a checklist with a series of questions that have yes/no answers for different traits.

5. Critical Incidents Method

Critical incidents could be good or bad. In either case, the supervisor takes the employee’s critical behavior into account.

6. Customer/Client Reviews

This method fits best for employees who offer goods and services to customers. The manager asks clients and customers for feedback, especially how they perceive the employee and, by extension, the business.

7. Field Review Method

An HR department or corporate office representative conducts the employee's performance evaluation.

8. Forced Choice Method

This method is usually a series of prepared True/False questions.

9. General Performance Appraisal

This method involves continuous interaction between the manager and the employee, including setting goals and seeing how they are met.

10. Human Resource Accounting Method

Alternately called the “accounting method” or “cost accounting method,” this method looks at the monetary value the employee brings to the company. It also includes the company’s cost to retain the employee.

11. Management by Objective (MBO)

This process involves the employee and manager working as a team to identify goals for the former to work on. Once the goals are established, both parties discuss the progress the employee is making to meet those goals. This process concludes with the manager evaluating whether the employee achieved the goal.

12. Performance Tests and Observations

This method consists of an oral test that measures employees' skills and knowledge in their respective fields. Sometimes, the tester poses a challenge to the employee and has them demonstrate their skills in solving the problem.

13. Project Evaluation Review

This method involves appraising team members at the end of every project, not the end of the business year.

14. Rating Scales

These ratings measure dependability, initiative, attitude, etc., ranging from Excellent to Poor or some similar scale. These results are used to calculate the employee's overall performance.  (Terra, 2023)

Benefits of Performance Appraisal for the Organization

These are the significant benefits and advantages of performance appraisals for the organization:

Boosts Productivity: Performance evaluation measures an employee’s contribution in terms of increased company revenue and job performance, compared to industry standards and employee return on investment.

Enhances the Manager-Employee Relationship: Following evaluations, employees can discuss concerns with their superiors, fostering constructive feedback that is instrumental in resolving grievances and improving team relationships.

Identifies Hidden Talent: Individuals often showcase their potential in the workplace. Performance appraisal helps uncover talents and skills that may be hidden within introverted personalities or those with limited communication abilities.

Evaluate the Effectiveness of Hiring Processes: An unfavorable evaluation may necessitate a reevaluation of certain aspects of the hiring processes.

Benefits of performance appraisal for employees

The benefits of performance appraisal extend beyond the organization itself. When used appropriately, performance appraisal provides employees with a powerful tool for self-assessment and performance improvement, devoid of external pressure. Some employees may perceive this evaluation method as pressure-inducing if they fail to meet pre-established objectives, but it is the organization’s responsibility to dispel this notion.

These are the significant benefits of employee performance appraisals:

Positive Impact on Team Morale: A positive evaluation for an employee can elevate team spirit and enhance overall group performance.

Encourages Personal Growth: It motivates employees to step out of their comfort zones, pushing them to achieve goals they may not have considered.

Fosters Communication: If approached as a two-way communication channel and the organization consistently listens to employee feedback, it helps employees feel heard and more engaged.

Clarifies Career Path: Performance appraisal assists employees in understanding their role within the company and gaining clarity about their professional future, setting them on a path to improve their skills.

Potential for Financial Benefits: A positive employee performance review can improve salary.

(Assessment, 2022)

Performance appraisals are used for several purposes, including:
1. To identify training and development needs
2. To set compensation and rewards
3. Providing feedback

Here are 5 factors to consider for a valuable appraisal:

1. A clear purpose for the appraisal including employee development
2. Recognition of targets met and achievements within the role
3. The time is reviewed as a whole, not focusing on individual events
4. A two-way flow of conversation both asking questions and listening
5. Agreed action plan following each appraisal. 

Conclusion

A performance appraisal, also known as the performance review or evaluation is a method by which the overall job performance of an employee is evaluated and documented by their employers. It is a management tool that aims to ensure the employees’ performance contributes to the business objectives and is a tried and tested approach to managing performance overall. Performance appraisals traditionally happen once a year, but this idea has been challenged as of late to have more regular conversations with staff members to ensure their job satisfaction and in turn, promote retention.

Performance feedback or appraisal remains a crucial aspect of the performance management cycle, but criticism has been expressed over recent months. Most of the criticism is justified, but the main purpose of the appraisal is to present employees with feedback on how they are performing to improve and progress within their chosen role. Limiting these appraisals to once a year, in turn, limits their effectiveness. It has been recommended that performance is integrated into regular conversations with line managers or senior members of staff to ensure employees are working towards their targets. What’s crucial is that meaningful and open conversations happen regularly, whether or not there is also an annual review.

To encourage effective conversations there needs to be a company culture of trust and openness felt throughout. Those who are in charge, either line managers or senior members of staff, also need to be trained to not only ask the right questions but also to listen to the concerns or feedback from employees. It has been found that employees who are receptive to these conversations are more likely to align with business objectives and also take responsibility for their own performance than someone who does not open up in these conversations. . (ViewHR, 2023)

References

Assessment, T., 2022. Smowltech. [Online]
Available at: https://smowl.net/en/blog/benefits-performance-appraisal/
[Accessed 10 Nov 2023].

HAYES, A., 2023. Performance Appraisals in the Workplace: Use, Types, Criticisms. [Online]
Available at: https://www.investopedia.com/what-is-a-performance-appraisal-4586834
[Accessed 10 Nov 2023].

Terra, J., 2023. What is a Performance Appraisal?. simplilearn, 23 Oct.Issue https://www.simplilearn.com/what-is-performance-appraisal-methods-process-article.

ViewHR, 2023. [Online]
Available at: https://viewhr.co.uk/performance-appraisals-adding-value/
[Accessed 10 Nov 2023].