What is Performance Appraisal? The HR’s Guide to Master the Process

“Performance Appraisal”

Does this term make you anxious?

You are not alone. A survey of 1000 millennials reveals that 22% of employees have called in sick rather than face a performance review, while 58% of HR leaders believe that their performance reviews are ineffective.

But what if performance appraisals could be an opportunity to unlock your employee’s true potential and enhance their productivity?

Imagine this: You walk into your appraisal meeting feeling excited, not anxious. Your manager celebrates your milestones, offers you constructive criticism and discusses your future career trajectory.

Sounds pretty good, doesn’t it?

This guide will help you achieve exactly that – a positive performance appraisal experience!

What is Performance Appraisal?

Performance appraisal assesses an employee’s performance and contribution to the organization. This determines their upcoming financial appraisals, promotions, rewards or respective improvement plans.

Performance appraisal is also called performance review and performance evaluation.

Performance Appraisal Definitions

Many authors have defined the term in various ways.

For instance, Rue and Byars describe it as “a way of determining and communicating how the employees do their jobs and coming up with a plan for improving the process of carrying out work responsibilities.”

Similarly, Livy defines performance appraisal as “an essential part that gives updates on the performance of the employees and helps in identifying training needs and comes up with plans for employee development.”

 Now that we have covered that, let’s understand the importance of this process. 

Why are Performance Appraisals Important?

Performance appraisals are valuable assets that assist HR in developing every functional area of human resources. They play a significant role in:

Human resource planning

A well-crafted performance appraisal system accurately analyzes the firm’s workforce, identifying their strengths and weaknesses. This helps promote and train employees and plan succession.

Recruitment and selection

Performance appraisal helps recruit the right candidates by comparing the desirable traits of the top performers with those of the potential candidate pool.

Training and development

They assist in identifying common skills gaps and training needs and developing personalized training plans based on gathered data.

Career growth trajectories

Performance appraisal data helps assess employees’ strengths and weaknesses, aiding managers in framing their team’s career trajectories.

Internal employee relations

This data helps make critical decisions regarding employee promotions, demotions, layoffs, and terminations, severely impacting workplace culture and internal communication.

With the critical role played by performance appraisal in sustaining organizations and their long-term productivity clear, let’s discuss the performance appraisal process.

Performance Appraisal Process 

The most basic problem is that performance appraisals often don’t accurately assess performance.

– W. Edwards Deming.

Surprisingly, this is true and is one of the key reasons employees dread them, and employers fail to harness their complete potential.

The secret behind creating an impactful appraisal process is designing the correct activity sequence.

An ideal performance appraisal process usually passes through the following essential stages:

Identify specific performance appraisal goals

Establish clear and measurable employee goals that align with the organizational objectives. Make these goals SMART (Specific, Measurable, Accurate, Relevant, and Time-bound).

Establish performance standards and communicate them

Establish standards against each performance criterion and ensure employees are aware of them for accurate evaluation.

Examine the actual performance

Gather relevant data from review sessions, achievements, peer reviews, customer feedback, etc., and evaluate employees’ performance against pre-defined standards.

Provide constructive criticism

Critically examine employees’ performance and provide honest feedback during review sessions. It’s essential to highlight the strengths and areas of improvement while mentioning their impact organization-wide.

Discussing the consecutive action course

Conduct a one-on-one meeting with the employees to discuss their appraisal results. This meeting should be a two-way communication where employees can collaborate to create a development plan and enhance their performance levels.

To simplify this, here is a checklist of the activities that follow in an appraisal process.

Appraisal Process

With this checklist, you can guide your employees in the right direction, leading to higher business profitability and employee satisfaction

Also Read: Performance Appraisal vs Performance Review. 

When should a Performance Appraisal take place?

This is an important question that directly affects the effectiveness of your appraisal process. Most organizations conduct performance appraisal sessions annually or semi-annually.

Activities like coaching, mentoring, and regular feedback sessions continue throughout the cycle.

A study reveals that 63% of high-growing companies conduct performance appraisal sessions twice a year!

Also, performance appraisal sessions must be flexible enough to accommodate the rapid changes in the market, so it’s advisable for high-tech organizations to hold one once every three months.

New hires have an appraisal session after finishing their probation period, or within 30 to 90 days of joining.

To make this process more consistent, it’s advisable to have a yearly review session and regular monthly check-ins. 

What are the different methods of Performance Appraisal?

The different methods of performance appraisal are as follows:

Traditional methods

• Rating scales method
• Essay appraisal method
• Ranking method
• Paired comparison method
• Critical incident method
• Confidential report method
• Checklist method
• Graphic rating scale method
• Forced distribution method
• Forced choice method

Modern methods

• Assessment centers
• Behaviorally Anchored Rating Scale (BARS)
• Human resource accounting method
• Management by objective
• Customer feedback method
• 360-degree performance appraisal
• 720-degree performance appraisal

To know more about these techniques, read this blog.

Tips and Techniques of Performance Appraisal 

Although performance reviews have been in place for generations, until recently, very little effort was given to understanding whether the process motivated employees or irritated them.

– Susan M Heathfield.

True to this statement, here are a few best practices in performance appraisals that will improve the quality of your sessions and employee outcomes. 

Frequent feedback

Introducing regular review sessions, where employees receive frequent feedback on their performance instead of annually. Many organizations like Adobe, Accenture, and Amazon have introduced this and improved their appraisal process making it more employee-centric and growth oriented.

360-degree feedback system

In this system, employees’ performance is evaluated by all internal stakeholders, i.e., their superiors, subordinates, and peers. This method makes the appraisal discussions more comprehensive and fairer. Deloitte introduced the ‘Check-in’ system where team members and leaders review employee performance.

Performance review app

Performance review apps give employees a personalized appraisal experience. Employees can access their appraisal reports, analyze their progress toward goals, and make necessary adjustments to improve their performance ratings. General Electric introduced its app, “Touchpoint”, allowing employees to track their progress toward goals and request feedback.

Employee goal setting

Employees are asked to set measurable goals for the year. Managers closely monitor their progress and, upon identifying any deviations, schedule one-on-ones with the employees to help them achieve their goals. IBM and Google have introduced goal setting and OKRs, which are the new future of performance appraisal systems.

Implementing these techniques will help organizations quickly adapt to the new market conditions.

Now, let’s understand the critical benefits performance appraisals offer organizations and employees.

Benefits of Performance Appraisal 

Performance appraisal offers numerous benefits to all the involved parties: the appraiser, the appraise, and the organizations. Let’s discuss them below. 

Benefits for the appraise:

• Increases motivation and job satisfaction.
• Clarifies duties to meet desired expectations.
• Provides an opportunity to receive support and training to exceed expectations.
• Improves internal communication between managers and employees.
• Enhances the sense of purpose and value as they relate to organizational goals.

Benefits for the appraiser:

• Helps identify strengths and weaknesses of individual employees.
• Simplifies linking individual objectives with organizational goals.
• Clarifies managerial expectations and employee potential.
• Serves as an opportunity to reprioritize targets.
• Enhances the feeling of mutual trust and understanding among managers and teams.

Benefits for the organization:

Improve organizational productivity by:

• Increasing sense of cohesiveness and loyalty.
• Training managers to guide their teams.
• Enhancing communication of organization’s purpose and values.
• Identifies key performers, helping in successful succession planning.
• Creates a culture of continuous improvement and positive feedback.
• Reduces overall employee attrition.

It’s clear that performance appraisal serves many important purposes. However, it also has certain flaws. Let’s discuss them in the next section.

Criticisms of Performance Appraisal 

A few of the criticisms levied against performance appraisal are discussed below. 

Lack of objectivity

Few of the traditional appraisal methods, like rating scales, measure the attitude, appearance, and personality of employees, which have little to do with their job performance. These personal opinions make the assessment somewhat subjective.

Tip: To avoid such a situation, define each employee’s SMART KPIs, making the system more subjective.

Halo error

Halo or Horn error occurs when the appraiser’s overall positive or negative impression influences the entire review process. This leads to an inaccurate rating of the employees’ overall performance.

Tip: Using BARS reduces the likelihood of Halo effect, as employees are rated based on multiple factors and not a single incident.

Personal bias

Stereotyping or personal bias influences the appraisal process, decreasing morale and impacting the company’s brand image. For example, mild-spoken employees are often harshly appraised for their work, while outspoken employees don’t receive the same treatment.

Tip: Train managers on unconscious bias awareness and mitigation and encourage them to focus on observable behaviors and outcomes.

Central tendency error

Central tendency error occurs when the appraiser gives an average rating to every employee irrespective of their extra efforts and achievements, reducing the system’s overall credibility. This promotes a feeling of discontent among the top performers and leads to high attrition.

Tip: Communicate the appraisal guidelines to employees and encourage managers to rate all employees based on their efforts.

Thus, these common criticisms sometimes degrade the entire system’s credibility, but following the remedial measures helps organizations avoid these common problems.

Performance Appraisal Comments Examples 

Performance appraisal comments depend on the situation, the flow of communication, and the employee receiving it. Here are a few performance appraisal examples: 

• Quality of work: “Consistently produces excellent work, meets deadlines, and eludes commitment to discipline and attention to detail.”
• Communication skills: “Effectively conveys ideas and information and fosters an open communication channel within the team and throughout the organization.”
• Teamwork: “Effectively collaborates with team members, positively contributes to team goals, and cultivates a positive organizational culture.”
• Problem-solving skills: “Approaches every challenge with a creative outlook, analyzes the problems thoroughly and comes up with unique solutions.”
• Initiative and motivation: “Displays a very high level of initiative and motivation in daily tasks, and often takes up additional responsibilities and always seeks growth opportunities.”

These examples are designed to simplify your appraisal process. For more ideas, refer to this blog. 

Post Appraisal Scenes

The discussion now shifts towards a scenario which is often left less discussed, the post-appraisal scenario. Employees often feel puzzled and vulnerable to their emotions.

Managers should approach the post-appraisal scenario with empathy and understand that the superior-subordinate relationship has transcended beyond authoritative one-way communication into more participative two-way communication.

Similarly, employees should become equal partners and be entirely accountable for their actions and behaviors. Hence, post-appraisal communication is one of the most crucial factors in performance appraisals.

Here is a checklist for both to ensure both employees and managers have the best post-appraisal conversations.

Manager’s checklist

• Thoroughly review the employee’s appraisal results and past meeting notes.
• Address the performance gaps and areas of improvement.

• Mutually set SMART goals for employees.
• Document the details of the meeting and share them with the employees.
• Offer specific and actionable feedback for the employees to improve their performance.
• Identify training, mentoring, or other developmental needs and address them.

Employee’s checklist

• Identify your own goals and aspirations and align them with team and organizational goals.
• Seek clarification on unsure points and ask for guidance for further progress.
• Express interest in professional growth and discuss new opportunities.
• Collaborate with managers and define actionable goals.
• Keep a record of the actions and goals discussed in the meeting.
• Follow up with managers to ensure you are on track of your goal progression.

While the post appraisal scene looks tricky, this checklist will help you sail through the course.

Wrapping It Up

In a nutshell, performance appraisal is one of the most prominent tools for organizational growth and productivity. Modern performance appraisal systems should help employees understand their true purpose and the organization’s aspirations.

Today’s employees seek clarity on the ‘What’, ‘Why’, and ‘How” of their daily activities. Thus, organizations should upgrade their performance management systems to manage the dynamic nature of work while engaging employees effectively.

But are you wondering how to do this?

Keka’s comprehensive PMS solution is the answer to this!

Keka’s PMS is designed to simplify the lives of both managers and employees. Its features such as, OKR setting, one-on-one meetings, goal tracking, and performance reports, help managers gather actionable insights into their workforce.

Moreover, with features like continuous feedback, 360-degree reviews, and easy-to-set SMART goals, employees can measure the progress towards goals and have simple appraisal discussions with their managers.

Find it hard to believe? Take a quick virtual tour, book a demo now! 

Frequently Asked Questions

What is performance appraisal?

Performance appraisal systematically evaluates an employee’s performance against pre-established criteria to assess their performance, identify their strengths and weaknesses, and support their growth.

How often should performance appraisals be conducted?

Performance appraisals should be conducted at least once annually or twice, depending on the work. However, recent practices reveal more frequent feedback and goal setting sessions.

What are the different methods of performance appraisal?

The different methods of performance appraisal are as follows:

Traditional methods – 

• Rating scales method
• Essay appraisal method
• Ranking method
• Paired comparison method
• Critical incident method
• Confidential report method
• Checklist method
• Graphic rating scale method
• Forced distribution method
• Forced choice method

Modern methods – 

• Assessment centers
• Behaviorally Anchored Rating Scale (BARS)
• Human resource accounting method
• Management by objective
• Customer feedback method
• 360-degree performance appraisal
• 720-degree performance appraisal

How can biases be minimized during performance appraisal?

The following techniques can help minimize instances of bias during performance appraisal:

• Use a clear evaluation criterion
• Train managers on unconscious bias
• Offer regular feedback sessions
• Encourage self-assessment practice

What are the benefits of various methods of performance appraisal?

The benefits of various methods of performance appraisal are:

• Enhances employee performance
• Clarifies role expectations and goals
• Identifies training needs
• Aligns individual and organizational goals
• Improves internal communication
• Facilitates career progression and succession planning