If you’re in business for yourself, running what amounts to a one-person show, it’s safe to say that you will have a good idea of how well you’re doing. However, if your business has anything from 1,000 employees to just one person, there will always be a question of how well they perform.

That’s why it’s vital to have an objective means of evaluating employee performance. So today, we’re talking about performance appraisals. This article covers the definition of performance appraisals, the types of performance appraisal methods, the objects, the benefits, and even some tips on conducting such an appraisal.

The greater your understanding of your employees' performances, the better you can handle tasks such as who to delegate extra responsibilities to, who to promote, and, yes, who you should cut loose. The key to effectively using this tool is gaining a solid grasp of the entire performance appraisal process.

Let’s begin with a definition.

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What Is a Performance Appraisal?

A performance appraisal is a systematic and periodic process of measuring an individual’s work performance against the established requirements of the job. It’s a subjective evaluation of the employee’s strengths and weaknesses, relative worth to the organization, and future development potential.

Performance appraisals are also called performance evaluations, performance reviews, development discussions, or employee appraisals.

If you conduct a successful performance appraisal, you can get a handle on what the employee does best and identify areas that require improvement. Appraisals also come in handy for deciding how to fill new positions in the company structure with existing employees.

What Is a Performance Appraisal: The Types of Performance Appraisals

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

  • The 360-Degree Appraisal. The manager gathers information on the employee’s performance, typically by questionnaire, from supervisors, co-workers, group members, and self-assessment.
  • 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.
  • Peer Assessment. The team members, workgroup, and co-workers are responsible for rating the employee’s performance.
  • 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.

What Is a Performance Appraisal: The 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.

Methods of performance appraisals include:

  • 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.
  • 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.
  • 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.
  • Checklist Method: This simple method consists of a checklist with a series of questions that have yes/no answers for different traits.
  • Critical Incidents Method: Critical incidents could be good or bad. In either case, the supervisor takes the employee’s critical behavior into account.
  • 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.
  • Field Review Method: An HR department or corporate office representative conducts the employee's performance evaluation.
  • Forced Choice Method: This method is usually a series of prepared True/False questions.
  • General Performance Appraisal: This method involves continuous interaction between the manager and the employee, including setting goals and seeing how they are met.
  • 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.
  • 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.
  • 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.
  • Project Evaluation Review: This method involves appraising team members at the end of every project, not the end of the business year.
  • Ratings 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.

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What Are the Objectives of a Performance Appraisal?

Although we've already mentioned some of the objectives and methods of performance appraisals, let's clearly delineate them in their easy-to-understand section. First, a performance appraisal aims to:

  • Provide helpful information to help make decisions regarding transfers, promotions, terminations, etc.
  • Supply the necessary data to identify employee training and development program requirements.
  • Help make confirmation/acceptance decisions regarding employees who have completed a probationary period.
  • Help make decisions regarding raising an employee's salary, offering incentives, or changing variable pay.
  • Clarify expectations and facilitate communication between managers and subordinates.
  • Help employees realize their whole potential performance level.
  • Collect relevant employee data and keep the records for various future organizational purposes.

What Is a Performance Appraisal: The Importance of Performance Appraisals

Organizations need performance appraisals to accurately gauge every employee's performance and confirm that they are working in the right area and doing the job they were hired for. In addition, good performance appraisals increase efficiency and help cut costs.

Regular performance appraisals also help assure that credit is given where it’s due, which helps keep morale high.

The Benefits of Performance Appraisals

Here is a list of advantages that performance appraisals bring to the table:

  • They help supervisors plan promotions for solid, performing employees and dismiss inefficient workers.
  • They help the organization decide how to compensate the employees best. Also, companies can use performance appraisal records to help determine extra benefits and allowances.
  • They can call attention to employee weaknesses and help set up training programs in-house.
  • The performance appraisals can help make changes in the selection process which inevitably help hire better employees.
  • Performance reviews effectively communicate the employee's performance status and provide a great way to give feedback on how the employee is doing at their job.
  • Performance evaluations are a great motivational tool, providing a snapshot of the employee's efficiency. This snapshot, in turn, can incentivize the individual to improve their performance.

Suggested Tips and Techniques for Performance Appraisals

Here are three valuable tips and techniques to maximize the effectiveness of your performance appeals.

  • Document your appraisal sessions: Document your employee performance appraisal meetings and store the notes in your go-to database system. By documenting and keeping these notes, you will have easy access when you need them to make decisions about an employee or conduct follow-up meetings.
  • Use outlines: Create an outline template to be used for all your company’s performance appraisals. This practice promotes a consistent company-wide review structure and helps employees better prepare for the appraisal meeting.
  • Check in with your employees more frequently: Nothing is more dispiriting and frustrating for an employee who performs their jobs in a particular way, only to be told at the end of the year that they’ve been doing it all wrong and it will affect their performance reviews. Teams need to know if they’re doing well and on the right track, so consider conducting performance appraisals at shorter intervals.

Do You Want to Improve Your Performance?

The more knowledge and skills you possess, the easier it is to deliver an outstanding performance on the job. And, of course, an excellent performance appraisal gets you noticed, promoted, and most likely better compensation.

Simplilearn offers a full range of online classes and bootcamps that can give your skills that much-needed boost, regardless of what IT field you’re in. For instance, if you’re involved in the areas of Data Science and Business Analytics, Simplilearn has you covered.

Cybersecurity is a hot topic today, and if you want to improve your skill set or change careers, check out Simplilearn’s cyber security offerings.

Mobile computing has taken off over the last few years, which means a greater demand for software development, creating new apps and software for today’s devices.

Or perhaps you want to brush up on management skills. Simplilearn offers classes in both project management and quality management.

Whatever your needs, Simplilearn has a vast selection of IT-related classes designed to boost your skills to help you nail that next performance appraisal or even jump to a new career. So visit Simplilearn today, and get your start on a better path to success!

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Simplilearn is one of the world’s leading providers of online training for Digital Marketing, Cloud Computing, Project Management, Data Science, IT, Software Development, and many other emerging technologies.

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