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5 Effective Performance Appraisal Methods

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methods of performance appraisal

Appraisal, within an organizational setting, involves assessing the value, quality, or excellence of employees. 

Performance appraisal refers to a methodical assessment of an individual’s work by their supervisors or those familiar with their job performance. Performance appraisal is also known as merit rating, where an individual is ranked relative to others in terms of their performance. The primary objective of this merit rating is to determine an employee’s suitability for promotion.  

Nevertheless, performance appraisal is a more encompassing term for such activities, as its scope goes beyond just assessing eligibility for promotions. These activities may encompass training and development, salary adjustments, transfers, dismissals, and more, in addition to promotions. 

Importance of Performance Appraisal in an Organization 

The importance of performance appraisal for the human resource department of an organization are:  

1. Human Resource Planning 

When evaluating a company’s human resources, it’s essential to have data to identify individuals with potential for promotion or addressing internal employee relations issues. By conducting performance appraisals, HRs can identify any shortage of employees prepared for managerial roles. A well-structured appraisal system provides an overview of the organization’s strengths and weaknesses in terms of its human resources, supporting these efforts. 

2. Recruitment and Selection 

Performance evaluation ratings can be valuable in predicting the performance of job applicants. For example, successful employees within a company may exhibit specific behaviors during essential tasks. These observations can serve as benchmarks for evaluating applicant responses in behavioral interviews. 

3. Training and Development 

Performance appraisal should highlight an employee’s specific training and development needs. For instance, if an employee’s evaluation reveals a deficiency in technical writing skills required for their job, additional training in written communication may be necessary. Identifying deficiencies that impact performance allows for the development of training and development programs that enable individuals to build on their strengths and mitigate their weaknesses.  

4. Career Planning and Development 

Career planning is an ongoing process in which individuals set career goals and determine how to achieve them. On the other hand, career development is a formal approach used by organizations to ensure that qualified individuals with the right experience are available when needed.   

Performance appraisal data are crucial for assessing an employee’s strengths and weaknesses and for gauging their potential. Managers can use this information to counsel subordinates and help them create and implement their career plans. 

5. Compensation Programs 

Performance appraisal results serve as a basis for making informed decisions regarding pay adjustments. Recognizing and rewarding behaviors essential for achieving organizational objectives is central to a company’s strategic plan. To promote good performance, a company should establish a dependable performance appraisal system. 

How Performance Appraisals Work? 

A typical performance management process follows five steps.  

process of performance appraisal

 

1. Performance Planning 

Before beginning the performance review cycle, reviewing performance expectations of employees is important. This includes the behavior employees are expected to exhibit and the tasks they must accomplish before the appraisal cycle. The behavioral and result expectations in a performance plan are: 

  • Behavioral expectations:

It refers to what is expected of employees in the key competency areas. Managers should make their teammates understand how behavioral aspects will affect their overall rating and performance standards.  

Example: This includes following the norms and cultures of an organization and working collaboratively in a team.  

  • Result expectations  

The results to be achieved by the employees must be tied to the organizational goals. Result expectations can be tied to improving current job performance or preparing ways for career advancement.  

Example: This includes completing the KRAs and KPIs tied to the performance.  

The most critical steps in performance planning is the alignment of organizational and individual goals.  

  • Organizational goals must be translated into more refined goals & expectations at the unit, team, and individual levels. 
  • Every level can develop their goals and align them to organizational objectives. 
  • For employees involved in jobs characterized by continual changes nearer-term goals must be set to ensure they are achievable. 
  • Feedbacks should be given and appraisals must be performed when employees reach key milestones.  

 2. Ongoing feedback 

During the performance planning process, managers should have set both behavioral and result expectations. Employee performance in both these areas should be measured and continuous feedback should be provided in the case of exceptional and ineffective performance. However, this does not happen frequently because many managers are not aware of providing constructive feedback that minimizes employee defensiveness. To make ongoing feedback effective, it must be treated as a two-way communication and the responsibility should be equally shared between managers and employees.

3. Employee Input

Employee inputs are used across organizations to judge how employees rate themselves. It can be in the form of self-rating or by asking employees to make statements of their key results or most meritorious accomplishments before the appraisal cycle. The benefits of employee inputs are: 

  • Enhances employees’ ownership and acceptance 
  • Reminds managers about the results achieved by employees 
  • Improves communication and understanding 

 4. Performance Evaluation 

Competency models have emerged as a basis for performance management systems in many organizations. This model articulates the knowledge, skills, abilities, and other characteristics needed to achieve organizational objectives. Some techniques used to identify key competencies are:  

  • Job observations 
  • Interviews 
  • Focus groups 
  • Surveys 

Competency model measures technical, leadership, and interpersonal skills needed to excel in a workplace. These models not only communicate what is needed in an organization but also provide a basis for developing integrated human resource systems such as staffing and recruiting.  

Defining competencies help to: 

  • Differentiate between employees who perform more or less than others. 
  • Analyze or reflect on different levels of responsibility, complexity, and difficulty that characterize employee’s jobs.  
  • Make employees understand what is expected of them. 
  • Provide uniform standards to managers for employee evaluations. 

Some competency models are developed at organizational levels and apply to all jobs. The example to illustrate such situations is mentioned below. 

A large-scale organization prepares a competency model for the entire company. However, three sets of performance standards were developed for these competencies each at professional, managerial, and administrative jobs.  

Decisions need to be made upon what kinds of competencies and performance standards should be developed and customized to measure employee performance. Managers should be able to evaluate their employees effectively using the competency models.  

5. Performance Review 

Performance review helps the manager judge how the employee has performed during the rating period. Usually, there are yearly rating periods, but a few companies follow a half-yearly appraisal cycle. During the performance review meeting, managers should discuss the reviews, narratives, and rationale for the evaluation given. It is also a good time to plan the career advancement steps with the employees and understand their career path.  

How to Organize a Performance Appraisal Process 

 

performance appraisal process

An appraiser must possess the necessary skills and training to conduct a performance evaluation with an employee. Part of the reason for the bad impression of the performance review process is the experience of being criticized throughout the process.

An evaluation of performance is supposed to be the exact opposite. It should inform the employees how they performed during the rating period without making them conscious. The language and tone of the managers also decide how employees will decipher the message.

Once a message is sent, the recipient’s interpretation of it depends on the language used by the sender. This can involve body language, word choice, and even voice inflection. A performance appraisal is intended to offer constructive criticism, so it is essential that the right words and conduct be utilized throughout.

The general instructions for conducting a performance appraisal process include:

1. Using appraisal matrix 

An appraisal matrix is a visual tool used in performance appraisals to evaluate an employee’s performance against a set of predetermined criteria. It typically consists of a grid with two axes: one representing the employee’s performance level and the other representing the importance of the criteria being evaluated. 

2. Providing overall assessment 

An overall assessment can provide employees with a holistic view of their performance, highlighting their areas of expertise and areas where they may need to improve. This information can help employees to set goals for themselves and to identify the resources and support they need to develop their skills and knowledge. 

3. Defining performance standards 

Establishing clear performance standards provides a shared understanding of expectations among employees, managers, and the organization as a whole. This clarity helps align individual efforts with organizational objectives, ensuring that everyone is working towards the same goals. 

4. Proper appraisal and documentation 

Without proper appraisal and documentation, performance assessments can be subjective and biased. This can lead to unfair or inaccurate evaluations, which can have negative consequences for employees, such as missed promotions or salary increases. 

5. Identifying performance improvement or enhancements methods 

Identifying performance improvement or enhancement methods is necessary to achieve organizational goals, boost productivity, and improve employee engagement and satisfaction. 

6. Obtaining signatures and comments 

Obtaining signatures and comments in the performance cycle is an important step in ensuring that the performance appraisal process is fair, accurate, and transparent. It also provides an opportunity for managers and employees to have a dialogue about the employee’s performance and goals for the future. 

Performance Appraisal Examples 

Performance appraisal can go both ways and depends on how a manager handles the situation. Here is an example of a constructive performance appraisal example.   

Performance Appraisal Example: 

We can begin the review by examining the progress you made on each project this quarter. Is that a good sound?

First off, all of the projects you have worked on over the past four months have all been completed on schedule and within budget. One project, as I can see, was completed early. All of them were executed with success.

Excellent work. You have met all of the requirements that ABC Company has for a project manager.

Let’s examine some potential areas for you to better hone your project management abilities.

A few team members in Projects A, B, and C stated in the first few meetings that they were unclear of what to start working on and felt that they were participating in the project at the last moment. Could you please work on honing your project management skills so they can kick-off on time?

Six Modern Performance Appraisal Methods 

 

performance appraisal methods

The methods of performance appraisal can be divided into two approaches: Traditional approach and Modern Approach 

1. Traditional Approach 

  • Critical Incidents: 

In this method the employer or manager evaluates an employee on the basis of “certain events” known as critical incidents where the employee did something really great or something not so great things at work.

This basically involves three steps:

  1. A list of all the noteworthy (positive or negative) things related to the on-the-job behaviour of employee will compiled in a list.
  2. A team of experts will be given the responsibility to entitle a weightage or score to each incident.
  3. Based on this list the employees will then be evaluated.

The evaluator should maintain a digital or physical journal to store the information of different incidents. This method is extremely useful for the growth of an employee since it gives detailed information unlike other performance appraisal methods.

  • Checklist Method

It is a structured approach to evaluating employee performance using a predetermined list of statements or questions. The appraiser simply checks “yes” or “no” to indicate whether the employee exhibits each characteristic or behavior. However, the weight assigned to each statement is not revealed to the reviewer. The HR personnel provide final rating considering all the sets of statements. Therefore, this is known to be an objective-based technique to conduct performance appraisals.

  • Behaviorally Anchored Rating Scale

This method has been developed recently and is claimed to be one of the effective methods among all the appraisal methods listed. It is a combination of traditional essay evaluation and rating scale. It is more expensive than other methods and guarantees precise results.

In this method the employee’s behavior and performance are analyzed and used for evaluating overall performance of an employee. It consists of various scales that are volunteered by multiple BARS statements which further explain the employee traits. Based on the performance and behavior of an employee, they are anchored as good, average, or poor.

The BARS method is the most preferred performance appraisal method as it enables managers to gauge better results, provide constant feedback and maintain consistency in evaluation.

2. Modern Approach 

  • Management by Objectives

It is a process in which a manager identifies the desired objectives to be achieved and gives each individual a major area of responsibility in terms of results expected from him/her and uses these measures as a guide to access the contribution of each individual employee. This method basically uses the SMART technique to ensure that the assigned goals are Specific, Measurable, Achievable, Realistic and Time-sensitive.

It is less time-consuming and cost-effective compared to the other performance appraisal methods. With this method of Management by objectives you can easily find out whether the stated objective is achieved or not in a given time period. Also, the managers can easily determine whether the employee will be rewarded or needs to be trained further to improve performance.

This technique mainly involves four significant steps: Goal Setting, Evaluation Standards, Analysis, and Periodic Review.

  • 360-degree Feedback

This is somewhat time-consuming method since there are multiple scales involved in evaluating the performance, but it’s worth a try. In this method, the feedback of the employee is collected by the people who interact with him in the organization including his superiors, peers, subordinates, and also from customers. The feedback is usually taken by a questionnaire designed for this purpose. This method is very useful for startups. Take a look at this detailed info-graphic on the 360-degree performance appraisal process

This technique helps managers to get insights from a different perspective and conduct an unbiased performance review. The step-by-step process involves the following components:

  • Self-review
  • Peer Review
  • Managerial Review
  • Client Feedback

All these stages ensure that not just the managers but the employees as well are aware of how they are performing and guide each other while trying to improve individual performance.

  • Assessment Center Method

An assessment center usually uses techniques such as examinations and exercises, assignments to a group of workers, social/informal activities, to evaluate an employee’s competency. Employees typically receive an assignment that is comparable to the position they would be expected to succeed in a promotion. The skilled assessors watch and assess workers as they do the tasks allocated to them and are assessed based on job-related qualities.

The primary competences evaluated at assessment centers include interpersonal talents, mental capacity, capacity for organizing and planning, inclination toward a career, etc.

Benefits & Criticism of Performance Appraisal 

The benefits of performance appraisal can be extended to the appraise, appraiser, and the company. Some of the pros and cons of this process include: 

Benefits Criticism 
Improved employee performance                            Create a negative experience for employees 

 

Increased employee engagement                                   Overwhelming for managers with a large team 
Enhanced employee retention  

 

Influence the ratings due to biases and errors 

 

Improved decision-making Stressful for managers and employees involved in the process 

 

Stronger company culture  

 

Unfair due to favoritisms.  

How Can Using a Performance Management Software Help? 

Keeping track of the performance of all employees can be tedious and error-prone in the absence of a performance management software. Having a performance management system that recognizes the best performer, helps managers connects with their team members, assists in scheduling 1:1 meeting, and gives ongoing feedback is critical for organizational development. Keka PMS is a one-stop solution that offers a complete package to rate and evaluate your employees’ performance.

With 360-degree feedback, 1:1 meetings, OKR setting, goal-tracking, and features for employee recognition, it is the only tool you need for an effective appraisal and performance evaluation process.  

FAQ

1. What is Performance Appraisal?  

The process of performance appraisal refers to evaluating an employee’s job performance. It is used to identify areas where the employee is doing well and areas where they can improve.  

2. What is Performance Appraisal important?  

The process of performance appraisal is crucial for enhancing employee performance, fostering engagement, boosting retention, facilitating informed decisions, and cultivating a stronger company culture. 

3. What is a 360-degree performance appraisal feedback method?  

360 degree performance appraisal encompasses performance reviews from multiple sources, including supervisors, peers, subordinates, and customers, providing a comprehensive assessment of an employee’s capabilities. 

4. How does the Management by Objectives (MBO) method work in performance appraisal?  

Management by Objectives involves setting mutually agreed-upon goals between managers and employees, regularly evaluating progress, and making adjustments as needed to ensure goal achievement. 

5. What are the advantages of the Assessment Center Method for performance appraisal? 

The Assessment Center Method offers a multifaceted evaluation, utilizing simulations, role-playing, and group exercises to assess an employee’s aptitude, leadership potential, and decision-making skills. 

6. Explain the Critical Incidents Method in performance appraisal.  

The Critical Incidents Method involves documenting specific instances of an employee’s behavior, both positive and negative, to identify patterns and areas for improvement or recognition. 

 7. What is the Checklist Method and how is it used in performance appraisal?  

The Checklist Method employs a predetermined list of job-related behaviors or competencies, allowing managers to rate an employee’s performance against established standards. 

8. How does the Behaviorally Anchored Rating Scale (BARS) work in  performance assessment?  

The Behaviorally Anchored Rating Scale (BARS) utilizes specific behavioral descriptors to anchor each performance rating level, providing a more objective and consistent assessment. 

 9. What is the purpose of Customer/Client Reviews in performance appraisal?  

Customer/Client Reviews provide an external perspective on an employee’s performance, particularly in client-facing roles, offering valuable insights into their effectiveness in interacting with external stakeholders. 

 10. How does the Forced Choice Method function in performance evaluation?  

The forced choice method presents a pair of performance statements and requires managers to choose the one that more accurately reflects an employee’s behavior, reducing rater biases, and enhancing objectivity.  

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    Meet the author

    Ayushi Singh

    Content Writer

    Ayushi Singh is a Content Writer at Keka HR holding expertise on HR-related topics. She is an avid reader and traveler. When she is not writing, you can find her sitting in a quaint cafe daydreaming about life in general.

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