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What is Performance Appraisal? A Guide on Methods, Objectives & Process

9 min read

Most employees and managers don’t fully utilize the appraisal process. No wonder they get paltry raises and zero recognition. It leads to resentment against the organization. 


Because everyone remembers about it on the final day of the review cycle. This final day is often an output of what happened during the entire year. Companies use appraisals to pay bonuses, raise salaries, or even fire people. They can be conducted during any time of the year. Generally, an appraisal is annual or semi-annual. 

What is Performance Appraisal? 

Definition of Performance appraisal is simple to understand. It is a method to evaluate the job performance of employees in the organization. It is known by different names like performance review, performance evaluation, performance appraisal process, etc. It is a final assessment of employees’ performance and what they’ve contributed to their organization. Based on this assessment, they are rewarded or put on an improvement plan. 

If you’d like to take the guesswork out of performance appraisal at your workplace, check out this guide. It will help you understand the meaning, methods, objectives, and examples of PAM, so you can utilize their full potential. 

It is a systematic process that assesses employee performance and productivity concerning pre-established organizational objectives 

What is Performance Appraisal Process?  

Often, a performance appraisal process is conducted once a year. However, it does involve mid-year performance reviews, even quarterly reviews.  

steps for an appraisal process

Performance Appraisal Objectives 

There is no specific performance appraisal format for setting objectives. But here are some examples to give you an idea: 

  1. To maintain compensation records of employees along with wage structures, timely raises, benefits, etc.  
  2. To understand and take into account the strengths and weaknesses of each employee. Use them to assign relevant objectives. 
  3. To understand, assess, and utilize the potential of every employee in the organization. It is a vital step for employee development and growth. 
  4. To provide constructive feedback to employees based on their performance during a cycle. 
  5. To influence workplace habits of employees positively by establishing a great company culture. 
  6. To review, implement, and retrain training programs for the workforce to keep them upskilled and relevant in the market. 

Methods for Performance Appraisal 

There are several performance appraisal methods. Here are some examples of performance appraisal methods: 

1. Management by Objectives (MBO) 

MBO is a model that helps organizations strategize and improve the performance of their employees. This process measures the quantitative and qualitative output of employees from a business of any size. 

Please check out the Management by Objectives guide to see more. 

2. 360-degree Feedback 

Employees collaborate with folks from different departments for work. During the normal feedback process, this element is ignored. Only direct managers are asked for feedback. It leads to employees not getting full credit and recognition for their work. 

360-degree feedback is solving this challenge by pulling in feedback from different stakeholders. It involves: 

  • Self-appraisals 
  • Managerial Reviews 
  • Peer Reviews 
  • Reviews from other Managers 
  • Customer Reviews 

To know more about the world of 360-degree reviews, please check out this guide. 

3. Assessment Center Method (ACM) 

The ACM method helps employees get a clear picture of what others think about them, and the impact it has on their performance. It not only assesses existing performance but predicts future performance by predicting the scope of dependency of employees on each other. 

During the process, employees participate in exercises, discussions, solving decision-making challenges, and other activities to predict and ensure success. No wonder this method is time-consuming and expensive. 

4. Behaviorally Anchored Rating Scale (BARS) 

BARS focuses on both the qualitative and quantitative benefits during an appraisal process. Numerical ratings are assigned to employees based on their performance. Each rating belongs to the performance band in the system defined by the organization.  

It helps in identifying top, moderate, and poor performers. Based on their current status of performance, a development or improvement plan is put into action for the employees. 

5. HR Cost Accounting Method 

The human resource (cost) accounting method analyzes employees’ performance through the money or other benefits they bring to the company. It’s simple – an employee’s value is equal to the money they make for the company. For example, if an employee wants 50,000 as the monthly salary, he should be generating more than the amount for the organization as revenue. 

Cost accounting methods for evaluating performance involve several factors. For example, service value, quality, overhead cost, revenue generated, etc., are considered during the final appraisal process. 

Performance Appraisal Examples 

A performance appraisal process focuses on several fundamental components: 

  • Communication 
  • Teamwork 
  • Problem-solving attitude 
  • Quality of work 
  • Punctuality and dependability 
  • Outputs a.k.a results. 

No matter what the situation, either praise or give constructive feedback. Bashing an employee will do no manager any good. Here is a sample template for performance appraisal that you can use: 

1. Positive Performance Appraisal Example 

“Hi {Name}. After assessing your performance during the entire cycle, we’re happy to reward you for the efforts you’ve put in to achieve the objectives we decided during the start of the year. Here’s a detailed description of your new salary and benefits. If you were expecting something more, please let us know. We’d be happy to discuss this further.” 

2. Constructive Performance Appraisal Example 

“Hi {Name}. I’ll be using ‘we’ instead of ‘I’ as I believe this is a team effort. 

After assessing your performance during the entire cycle, we understand things haven’t gone according to the plans. We couldn’t achieve the goals we set for ourselves at the start of this cycle. I’d like to discuss the reasons to understand your side of things in a better way. 

I’d also like to discuss a performance improvement plan (PIP) with you for the next 2 months. To win back the trust of this company, I’ll help you improve every day. We aren’t abandoning you. We expect you to come out of this positively. If you have any questions, please let me know.” 

If you want to know about a sample performance appraisal phrase, this blog contains 86+ examples of phrases and sentences you can use for employee feedback. 

To end… 

Choosing the right performance appraisal system is difficult. However, it is the key to unlocking the productivity of your employees and improving employee utilization.  Once you’ve decided upon the ideal performance review method for your organization, it is important to implement the process neatly. This is where a robust performance management system like Keka will help you eliminate automation gaps and address performance issues with ease. 

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    Meet the author

    Keka Editorial Team

    A bunch of inspired, creative and ambitious youngsters- that’s Keka’s editorial team for you. We have a thirst to learn new subjects and curate diverse pieces for our readers. Our deep understanding and knowledge of Human Resources has enabled us to answer almost every question pertaining to this department. If not seen finding ways to simplify the HR world, they can be found striking conversations with anyone and everyone , petting dogs, obsessing over gadgets, or baking cakes.


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