The success of a company, irrespective of size, is majorly based on the performance of the employees. Hence, it becomes imperative to track the performance of the employees. Although performance management and performance appraisal are often used interchangeably, they are indeed different terms that play different roles in tracking and enhancing the success chart of any company or organization.

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What Is Performance Management?

Performance management is a continuous process that focuses on aspects like planning, monitoring, and evaluating employee objectives in an attempt to enhance employee performance. This helps employees to put in their best efforts to achieve company goals. 

Performance management does not aim at enhancing every skill. Good performance management only intends to improve the specific skill sets that align with the company’s interests and goals. It evaluates the overall contribution of an employee towards the organization to enhance the productivity and effectiveness of the employee. Crucial career aspects like bonuses, promotions, dismissals are closely related to this process.

Objectives of Performance Management

The major objectives of performance management are as follows:

  • Defining the company's goals.
  • Setting realistic expectations for managers and employees.
  • Establishing clear communication between individuals and teams.
  • Defining a performance plan by setting performance benchmarks.
  • Shape individual training and performance plans.

Approaches for Conducting Performance Management 

The two approaches used for conducting performance management are:

  • Behavioral approach- This approach is best suited for situations where individual results are difficult to measure. The behavioral approach identifies and measures behaviors to evaluate employees. This approach is mainly used for assessing individuals working in a team, support staff, HR professionals.
  • Result-oriented approach- This approach is used when the outcome is more important than the execution. The employees are evaluated based on objective criteria. A result-oriented approach is used for evaluating sales professionals, call center employees, etc.

Example of Performance Management

The performance management process of Facebook strongly stresses on peer to peer feedback. This feedback is used in semi-annual reviews to evaluate the functioning of teams. Facebook also has internal software that provides real-time feedback ensuring that issues are solved before they turn into problems.

What Is Performance Appraisal?

Performance appraisal, also known as performance review/evaluation, is the identification, documentation, and evaluation of an employee’s performance to comprehend whether an employee is enhancing the productivity of a company or simply being a liability. Performance appraisal is conducted in a systematic procedure involving the following steps:

  • The remuneration of an employee is measured and compared with the company’s targets and plans.
  • The factors responsible for the performance of an employee are assessed and evaluated.
  • The employees are guided by the employers to enhance their performances.

Objectives of Performance Appraisal

The major objectives of performance appraisal are as follows:

  • Keeping records to decide stipend structure, bonuses, etc.
  • Assigning the right tasks to the right employees after evaluating their strengths and weaknesses.
  • Identifying and evaluating the potential of an employee for further growth and development.
  • Providing feedback and positively impacting the working habits of employees.

Benefits of Performance Appraisal

Undertaking a proper performance appraisal plan can help a company/organization in the following ways:

  • Deciding upon the promotion or dismissal of the employees.
  • Deciding upon the salary/stipend structure of the employees.
  • Boosting employee development.
  • Establishing clear and effective communication between employers and employees.
  • Motivating employees.

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Example of Performance Appraisal

Here is an example of the performance appraisal of an employee:

ABC company has done significantly well in the last few months. There has been a considerable reduction in overhead costs and the production has improved by 39%. Undoubtedly, it is because of the employees who managed to achieve their goals. Based on the feedback we have received so far, it is evident that our employee Samaira Chaudhuri has made notable contributions to this project. 

Employee name - Samaira Chaudhuri

Position - Marketing Manager

Employer name - Nishant Ray

Department - Marketing

Review period - January 8, 2021 - April 7, 2021

Samaira has shown clear communication in expressing her expectations and ideas. She efficiently organizes meetings and seminars, and effectively conveys her messages to the clients. 

Samaira has shown commendable levels of dedication and perseverance in achieving company goals. She has improved her productivity by 79%

Performance Management Vs. Performance Appraisal

Performance management and performance appraisal are distinct terms. Here are the key differences between performance management and performance appraisal:

1. Rectification Vs. Growth

Performance appraisal evaluates previous performances and effectively communicates how an employee has worked in a current task. It does not provide a strategy for future growth.

Performance management, on the other hand, focuses on expending time and resources on employees for the growth of the company.

2. Learning Vs. Application

Performance appraisal evaluates an employee's mistakes and communicates how an employee could have given better efforts. 

Performance management, on the contrary, guides employees so that they can perform better in the future.

3. Occasional Vs. Continuous

Performance appraisal takes place not more than twice a year. 

Performance management contrastingly is a continuous process that might be a part of day-to-day conversations between managers and employees.

4. Quantitative Vs. Holistic Approach

Performance appraisal typically uses a quantitative approach. 

Performance management, however, uses a mix of both qualitative and quantitative approaches to enhance employee performance.

5. HR Vs. Managers

Performance appraisal is usually undertaken by the HR department. 

Performance management, on the other hand, is conducted by managers and supervisors, and multiple other stakeholders involved in the ongoing process.

6. Inflexibility Vs. Flexibility

Performance appraisal is inflexible, while performance management is inflexible.

7. Operational Tool Vs. Strategic Tool

Performance appraisal is an operational tool for increasing employee efficiency. 

Performance management is considered a strategic tool.

A blend of both performance management and performance appraisal works best for a company’s interests. 

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