Reviewed and fact-checked by Sayantoni Das

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. 

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.

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.

How Performance Appraisals Work?

Human resources (HR) departments typically create performance appraisals as a tool for employees to advance in their careers. They give people feedback on how well they are doing in their jobs, ensuring that they are managing and achieving the goals set for them and assisting them if they fall short.

Performance evaluations assist in determining how to distribute a company's limited budget for giving out incentives, such as raises and bonuses. In addition, they give businesses a tool to identify the workers who have made the most contributions to their expansion so that they may appropriately reward their top performers.

Performance reviews also assist employees and their managers in identifying areas for improvement and career advancement, as well as in developing a strategy for the employee's development through extra training and more responsibility.

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.

What are Performance Appraisals Used For?

Performance appraisals serve a dual purpose for both organizations and employees. 

  • For organizations: employee assessments provide insight into an employee's contribution, enabling management to improve working conditions, address behavioral issues, recognize employee talents, support skill and career development, and improve strategic decision-making.
  • For employees: performance reviews are a way to recognize and thank them for their achievements, find opportunities for promotions or bonuses, help them get training or education to advance their careers, find areas where they can improve, encourage and involve them in their career development, and start conversations about long-term goals.

Performance appraisal also 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.

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.

Criticism of Performance Appraisals

Employees are encouraged to meet or surpass their goals through performance reviews. Nonetheless, they are subject to a lot of criticism. 

  • Differentiating between individual and organisational performance in performance reviews can be challenging. It can be harmful if an evaluation's design doesn't consider the organisation or company's culture. 
  • Performance evaluations can result in adopting unreasonable goals that demoralise employees or encourage them to engage in unethical practices.
  • Distrust of the appraisal can lead to problems between subordinates and supervisors or a situation in which employees tailor their input to please their employer.
  • According to some labour analysts, the usage of merit- and performance-based pay has decreased due to the use of performance reviews.
  • Employees may receive biassed evaluations due to performance reviews focusing more on their likeability than accomplishments.
  • Unreliable raters can introduce a number of biases that tilt assessment results towards desired traits or ones that reflect the rater's preferences, which can result in managers giving underperforming personnel a favourable evaluation in order to preserve their connection.
  • Performance reviews that are effective for one culture or job function might not be applicable to another.

What Are Performance Appraisals Used For?

A performance appraisal has two purposes: to aid the organisation's assessment of the value and productivity that different employees bring and to aid the company’s employees in growing in their respective jobs.

Company Benefit

Employee evaluations can influence an organisation's performance. They enable firms to:

  • Identify areas where management may enhance working circumstances in order to raise productivity and work quality. They give insight into how people are contributing.
  • Deal with behavioural problems before they affect the efficiency of your department.
  • Assist employees in their skills and career development.
  • Enhance strategic decision-making in scenarios that call for layoffs, succession planning, or internally filling available posts.
  • Motivate employees to contribute more by recognising their talents and skills.

Employee Benefit 

Performance reviews should benefit the employees who get them. The knowledge obtained by evaluating and debating an employee's performance can help you:

  • Acknowledge and thank an employee for their accomplishments and contributions.
  • Be aware of the chance for a promotion or bonus.
  • Recognize and advocate for the need for extra education or training to advance one's profession.
  • Identify the precise areas where skills might be strengthened.
  • Encourage an employee to feel invested in and active in their professional development.
  • A candid discussion of a worker's long-term objectives.

When Should a Performance Appraisal Take Place?

The process of performance management always continues. Managers are urged to meet staff members to set goals, track development, and offer yearly feedback. Although they can be carried out at any time, they usually happen annually, bi-annually, or quarterly.

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1. How often should performance appraisals be conducted?

The frequency of performance appraisals can vary depending on organizational practices, industry norms, and the preferences of managers and employees. In many companies, performance appraisals are conducted annually as part of the formal performance management process. However, some organizations may opt for more frequent appraisals, such as quarterly or semi-annually.

2. What are the challenges of performance appraisal?

Some common challenges of performance appraisals include; subjectivity and bias, overemphasis on recent events, time constraints, negative perception, lack of specificity, goal setting and measurement issues, inadequate training for managers, focus on negatives only, link to compensation, and resistance to change.

3. How effective are appraisals?

The effectiveness of performance appraisals can vary based on how well they are designed, implemented, and utilized within an organization. When adequately executed, performance appraisals can be a valuable tool.

4. What are the 5 performance ratings?

While the specific names and descriptions of performance ratings may vary across organizations, a standard five-point scale is as follows:

  • Outstanding/Exceeds Expectations
  • Above Expectations/Exemplary/Very Good
  • Meets Expectations/Proficient/Good
  • Needs Improvement/Developing/Partially Meets Expectations
  • Unsatisfactory/Does Not Meet Expectations

5. How do I write a good appraisal for myself?

Writing a self-appraisal can be a valuable opportunity to reflect on your performance, achievements, and areas for growth. Here are some tips to help you write a good self-appraisal:

  • Start Early
  • Review Goals and Objectives
  • Be Honest and Objective
  • Use Data and Metrics
  • Focus on Accomplishments
  • Discuss Challenges and Solutions
  • Use Positive Language
  • Align with Company Values
  • Include Learning and Development
  • Seek Feedback
  • Be Concise
  • Review your self-appraisal for clarity
  • Avoid Overconfidence

6. What not to say in a performance appraisal meeting?

During an appraisal meeting, it's essential to be mindful of what you say to maintain a positive and constructive atmosphere. You should avoid being offensive, excessive self-criticism, gossiping and making excuses, blaming others, and comparing yourself negatively.

7. What if I am unhappy with my appraisal?

If you are unhappy with your appraisal, it's important to handle the situation professionally and constructively. You should take time to reflect, clarify expectations, express your concerns and ask for specific feedback. You can also provide evidence, discuss development plans and seek opportunities for improvement.

8. How do I ask for more hike in performance appraisal?

Asking for a higher hike during the appraisal process requires careful preparation and effective communication. Compile a list of your accomplishments and exceptional performance during the appraisal period. You can also research industry salary benchmarks to understand what is reasonable to ask for. You should also demonstrate how your performance has positively impacted the team, department, or company's success. Keep in mind that not all salary requests may be granted, but having a well-prepared case will increase your chances of a positive outcome.

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