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.

What Is Performance Management?

A performance management process involves a supervisor and employee communicating continuously throughout the year, with the aim of meeting the organization's strategic objectives.

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.

How Do Performance Appraisals Work?

Designed by human resources (HR) departments, performance appraisals help employees advance their careers by providing feedback on their job performance. They ensure that the employees manage and meet the expected goals and give them proper assistance by guiding them on how to reach the target if they fall short.

Given the limited funds to award incentives, companies can easily determine how to allocate those funds by checking out the top performers through performance appraisals. They help understand which employees have been major contributors to the company's growth and are the most deserving. 

Performance appraisals assist employees and managers in creating a plan for employee development via additional training while identifying ways of improvement. 

It is important to note that performance appraisal isn't the only time when employees and managers discuss the employee's contributions. Frequent conversations help keep all team members on the same page, strengthen relationships between managers and employees, and reduce the stress of annual reviews.

Types of Performance Appraisals

Usually, performance appraisals involve supervisors evaluating their staff. However, the term performance appraisal covers the following types as well:

  • Self-assessment: An individual rates their behavior and performance. 
  • Peer assessment: An individual's coworkers rate their performance.
  • 360-degree feedback assessment: Performance review is collected from an individual, peers, and supervisor. 
  • Negotiated appraisal: It is a relatively new approach wherein a mediator is involved. It attempts to moderate the negativity that can be a part of the performance evaluations by allowing the subject to present first.

Criticism of Performance Appraisals

Although performance appraisals are developed to encourage employees towards their goals, they often come with a lot of criticism.

Differentiating individual and organizational performance gets difficult, and many employees report general dissatisfaction with the performance appraisal processes. 

Some other issues with performance appraisals are as follows:

  • A feeling of distrust that causes issues between subordinates and supervisors.
  • Employees tend to tailor their input so as to please their employer.
  • It can lead to unfair evaluations when employees are judged by their likability. 
  • It can lead to unreasonable goals that demoralize employees and push them toward unethical practices.
  • It can also lead to lower use of merit-based compensation.
  • Performance appraisal can also cause managers to evaluate underperforming staff well to avoid souring their relationships.
  • Unreliable raters can introduce several biases.  

What Are Performance Appraisals Used for?

A performance appraisal examines an employee's job performance over a while. The final review highlights both weaknesses and strengths to encourage future performance.

When Should a Performance Appraisal Take Place?

Performance appraisals are usually done to give employees big-picture feedback on their work. It turns into increases, bonuses, or termination decisions. They can take place any time but are usually annual, semi-annual, or quarterly.

Contrastingly, performance management is an ongoing process that continues throughout the year to motivate employees to establish goals, regulate progress, and achieve more than the set target. 

What Is a 360-Degree Appraisal?

Standard performance feedback involves an employee and their supervisor. Contrastingly, a 360-degree appraisal is a complete version as it solicits input from the employee's coworkers, the employee, and their supervisor/manager.

What Is Performance Appraisal?

A performance appraisal consist of an evaluation of an individual's performance and contribution to the organization. Companies use employee performance appraisals to identify the best performers, review progress, and reward top performers. 

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.

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%.

What is Performance Management?

Performance management is a corporate management tool. It allows managers to scrutinize and assess their employees' work. It helps create an environment wherein employees can perform to the best of their abilities and present the highest-quality work efficiently and effectively.

It allows viewing individuals in the context of the broader workplace system while focusing on accountability and transparency. It fosters a clearer understanding of expectations.

Understanding Performance Management

Formal performance management programs enable both managers and employees to see expectations, career progress, and goals while analyzing how an employee's work aligns with the company's vision. 

Performance management uses traditional tools like constructing and measuring goals and milestones. They define effective performance and develop procedures to measure the same. Unlike the traditional paradigm of annual reviews, performance management makes every interaction a part of the learning process. 

Managers use performance management tools to recommend new courses, adjust workflow, and make decisions to help employees attain their objectives and ultimately help the company perform optimally. 

For instance, generally, a manager gives the staff target revenue volumes they must reach within a period. But in a performance management system, he would also offer guidance on how to attain those numbers. 

A consistent focus on accountability promotes a healthier and more transparent work environment. Performance management puts forth concrete rules, clearer expectations, and lesser workplace stress. 

Performance-Management Programs

Several performance-management software options are available, but template customization makes them all the more effective. The universal elements of effective performance-management programs are as follows: 

  • Aligning every individual's activities with the organization's goals. It helps employees comprehend how their objectives contribute to the organization's achievements.
  • Devising specific job-performance results. An individual can easily find answers to questions like— What effect should my role have on the company? What should be the interaction level amongst clients, peers, and supervisors? 
  • Concocting measurable performance-based expectations. It is a must to give employees a complete idea of how success is measured. Enlisting expectations for results, actions, and demeanor or values help improve both the quality and quantity of work.
  • Describing job-development plans while involving supervisors and employees. Employees must have a say in what things they wish to learn and how their knowledge can benefit the company. 
  • Regular meetings for discussions rather than awaiting annual appraisal. 

Performance Management Vs. Performance Appraisal

Performance appraisals evaluate the employee's performance in light of his previous performance. In performance management, an employee's performance is proactively managed in order to ensure their accomplishment of all the company's goals, visions, missions, and core values.

Performance management and performance appraisal are distinct terms. A blend of both performance management and performance appraisal works best for a company’s interests. Here are the key differences between performance management and performance appraisal:

Performance Management 

Performance Appraisal 

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

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 ensures that the employee has accomplished the set goals or not. It also guides them with blockers on the way. 

Performance appraisal only evaluated employee’s performance objectively for the year and gave final feedback.

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

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

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

Performance appraisal takes place not more than twice a year. 

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

Performance appraisal typically uses a quantitative approach. 

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

Performance appraisal is usually undertaken by the HR department. 

Performance management is flexible.

Performance appraisal is inflexible. 

Performance management is considered a strategic tool.

Performance appraisal is an operational tool for increasing employee efficiency. 

Add Necessary Skills to Your Resume Today!

A good resume is what makes a candidate or an employee stand out in the crowd of other applications. Certifications, apart from being proof of self-learning, can also add a star to your resume. Don’t let the pandemic come in the way of your career growth. Learn necessary skills from SimpliLearn and get yourself certified.


1. Is performance management part of performance appraisal? 

No, the performance management process has several steps, and performance appraisal is one of them. 

Performance management is the process of letting an employee know about their progress and guiding them with career blockers. On the other hand, performance appraisal objectively evaluates an employee's performance and gives feedback. 

3. What are the 3 types of performance management? 

The three types of performance management are a balanced scorecard, management by objectives and budget-driven business plans.

4. What are the five stages of performance management? 

The five stages of performance management are planning, monitoring, developing, rating and rewarding. 

5. What are examples of performance management?

Some examples of performance management include appraisals, key performance indicators and management dashboards.

Learn from Industry Experts with free Masterclasses

  • Kickstart Your 2023 Project Management Career With Our PG Program in Project Management

    Project Management

    Kickstart Your 2023 Project Management Career With Our PG Program in Project Management

    22nd Sep, Friday9:00 PM IST
  • Unlocking the Potential of AI in Project Management: Tips and Techniques

    Project Management

    Unlocking the Potential of AI in Project Management: Tips and Techniques

    3rd Apr, Wednesday9:00 PM IST
  • Unlock Project Management Career Success Secrets for 2024

    Project Management

    Unlock Project Management Career Success Secrets for 2024

    10th Jan, Wednesday9:00 PM IST