Employee Performance Appraisal

The employee performance appraisal process is crucial for organizations to boost employee
productivity and improve their outcomes. Performance appraisals are an annual process
where an employee’s performance and productivity are evaluated against a predetermined set
of objectives.

Performance management is super important, not only because it is the determining factor in
an employee’s wage rise and promotion but also because it can evaluate an employee’s skills,
strengths, and shortcomings accurately.

However, the performance appraisal is rarely put to good use since existing performance
appraisal methods fail to internalize employee performance results. To prevent performance
appraisals from becoming nothing more than empty buzzwords, HR managers need to
revamp their existing process and try implementing one of the six modern performance
appraisal methods that are listed below.

Modern performance appraisal methods

With the right performance appraisal method, organizations can enhance employee
performance within the organization. A good employee performance review method can
make the whole experience effective and rewarding.

1. Management by Objectives (MBO)

Management by objectives (MBO) is the appraisal method where managers and employees
together identify, plan, organize, and communicate objectives to focus on during a specific
appraisal period. After setting clear goals, managers and subordinates periodically discuss the
progress made to control and debate on the feasibility of achieving those set objectives.

This performance appraisal method is used to match the overarching organizational goals
with objectives of employees effectively while validating objectives using the SMART
method to see if the set objective is specific, measurable, achievable, realistic, and time-
sensitive.

At the end of the review period (quarterly, half-yearly, or annual), employees are judged by
their results. Success is rewarded with promotion and a salary hike whereas failure is dealt
with transfer or further training. This process usually lays more stress on tangible goals and
intangible aspects like interpersonal skills, commitment, etc. are often brushed under the rug.
To ensure success, the MBO process needs to be embedded in the organizational-wide goal
setting and appraisal process. By incorporating MBO into the performance management
process, businesses can improve employee’s commitment, amplify chances for goal
accomplishment, and enable employees to think futuristically.

Ideal for:

Measuring the quantitative and qualitative output of senior management like managers,
directors, and executive (business of any size)

Common reason for failure:

Incomplete MBO program, inadequate corporate objectives, lack of top management

involvement

Steps to implement a successful MBO program:

1. Every manager must have 5-10 goals expressed in specific, measurable terms

2. Manager can propose their goals in writing, which will be finalized after review

3. Each goal needs to include a description and a clear plan (list of tasks) to accomplish
it

4. Determine how progress will be measured and how frequently (minimum quarterly)

5. List down corrective actions that will be taken if progress is not in accordance with
plans
 6. Ensure that goals at each level are related to the organizational objectives and levels
above/below

Did you know?

Retail giant Walmart, uses an extensive MBO participatory approach to manage the
performance of its top, middle, and first-line managers.

2. 360-Degree Feedback

360-degree feedback is a multidimensional performance appraisal method that evaluates an

employee using feedback collected from the employee’s circle of influence namely managers,
peers, customers, and direct reports. This method will not only eliminate bias in performance
reviews but also offer a clear understanding of an individual’s competence.

This appraisal method has five integral components like:

1. Self-appraisals

Self-appraisals offer employees a chance to look back at their performance and understand
their strengths and weaknesses. However, if self-appraisals are performed without structured
forms or formal procedures, it can become lenient, fickle, and biased.

2. Managerial reviews

Performance reviews done by managers are a part of the traditional and basic form of
appraisals. These reviews must include individual employee ratings awarded by supervisors
as well as the evaluation of a team or program done by senior managers.

3. Peer reviews

As hierarchies move out of the organizational picture, co-workers get a unique perspective on
the employee’s performance making them the most relevant evaluator. These reviews help
determine an employee’s ability to work well with the team, take up initiatives, and be a
reliable contributor. However, friendship or animosity between peers may end up distorting
the final evaluation results.
4. Subordinates Appraising manager (SAM)

This upward appraisal component of the 360-degree feedback is a delicate and significant
step. Reportees tend to have the most unique perspective from a managerial point of view.
However, reluctance or fear of retribution can skew appraisal results.

5. Customer or client reviews

The client component of this phase can include either internal customers such as users of
product within the organization or external customers who are not a part of the company but
interact with this specific employee on a regular basis.

Customer reviews can evaluate the output of an employee better, however, these external
users often do not see the impact of processes or policies on an employee’s output.

Advantages of using 360-degree feedback:

 Increase the individual’s awareness of how they perform and the impact it has on
other stakeholders

 Serve as a key to initiate coaching, counselling, and career development activities

 Encourage employees to invest in self-development and embrace change management

 Integrate performance feedback with work culture and promote engagement

Ideal for:

Private sector organizations than public sector organisations as peer reviews at public sector
organizations are more lenient.

Common reason for failure:

Leniency in review, cultural differences, competitiveness, ineffective planning, and

misguided feedback

Did you know?

Top private organizations like RBS, Sainsbury’s, and G4S are using 360-degree, multi-rater
performance feedback to measure employee performance.
3. Assessment Centre Method

The concept of assessment centre was introduced way back in 1930 by the German Army but
it has been polished and tailored to fit today’s environment. The assessment centre method
enables employees to get a clear picture of how others observe them and the impact it has on
their performance. The main advantage of this method is that it will not only assess the
existing performance of an individual but also predict future job performance.

During the assessment, employees are asked to take part in social-simulation exercises like
in-basket exercises, informal discussions, fact-finding exercises, decision-making problems,
role-play, and other exercises that ensure success in a role. The major drawback of this
approach is that it is a time and cost intensive process that is difficult to manage.

Advantages of the assessment centre method:

 Enhance a participant’s knowledge, boost his/her thought process, and improve

employee efficiency

 Can be tailored to fit different roles, competencies, and business needs

 Offer an insight of the employee’s personality (ethics, tolerance, problem-solving

skill, introversion/extroversion, adaptability, etc.)

Ideal for:

Manufacturing organizations, service-based companies, educational institutions, and

consulting firms to identify future organizational leaders and managers.
Guidelines to implement assessment centre practice:

1. Use job analysis to determine the components of effective performance

2. Identify performance metrics that can be measured using this assessment centre

3. Classify meaningful and relevant candidate behaviour in the assessment process

4. Find assessment techniques that can ideally elicit ideal behavioural information

5. Spot assessors and assessee’s excluding immediate supervisors

6. Provide thorough training to assessors and reviewers

7. Maintain a system of performance records for each candidate

8. Review records and reward employee or provide training accordingly

Did you know?

Microsoft, Philips, and several other organizations use the assessment centre practice to
identify future leaders in their workforce.

4. Behaviourally Anchored Rating Scale (BARS)

Behaviourally anchored rating scales (BARS) bring out both the qualitative and quantitative
benefits in a performance appraisal process. BARS compare employee performance with
specific behavioural examples that are anchored to numerical ratings.
Each performance level on a BAR scale is anchored by multiple BARS statements which
describe common behaviours that an employee routinely exhibits. These statements act as a
yardstick to measure an individual’s performance against predetermined standards that are
applicable to their role and job level.

The first step in BARS creation is generation of critical incidents that depict typical
workplace behaviour. The next step is editing these critical incidents into a common format
and removing any redundancy. After normalization, the critical instances are randomized and
assessed for effectiveness. Remaining critical incidents are used to create BARS and evaluate
employee performance.
Advantages of using BARS:

 Enjoy clear standards, improved feedback, accurate performance analysis, and

consistent evaluation

 Eliminate construct-irrelevant variance in performance appraisal ratings by emphasis

more on specific, concrete, and observable behaviours

 Decrease any chance for bias and ensure fairness throughout the appraisal process

Ideal for:

Businesses of all sizes and industries can use BARS to assess the performance of their entire
workforce from the entry level agent to c-suite executives

Common drawbacks of BARS:

1. High chance for subjectivity in evaluations

2. Hard to make compensation and promotion decisions

3. Time-consuming to create and implement

4. Demands more from managers and senior executives

5. Psychological Appraisals

Psychological appraisals come in handy to determine the hidden potential of employees. This
method focuses on analysing an employee’s future performance rather than their past work.
These appraisals are used to analyse seven major components of an employee’s performance
such as interpersonal skills, cognitive abilities, intellectual traits, leadership skills, personality
traits, emotional quotient, and other related skills.

Qualified psychologists conduct a variety of tests (in-depth interviews, psychological tests,

discussions, and more) to assess an employee effectively. However, it is a rather slow and
complex process and the quality of results is highly dependent on the psychologist who
administers the procedure.

Specific scenarios are taken into account while performing psychological appraisal. For
instance, the way in which an employee deals with an aggressive customer can be used to
appraise his/her persuasion skills, behavioural response, emotional response, and more.
Advantages of psychological appraisals:

1. Extract measurable, objective data about not just an employee’s performance but also
potential

2. Can be deployed easily when compared with other performance appraisal methods

3. Offer introverted or shy employees a platform to shine and prove their potential

Ideal for:

Large enterprises can use psychological appraisals for an array of reasons including
development of leadership pipeline, team building, conflict resolutions, and more.

Common reasons for failure:

Absence of proper training, lack of trained professionals to administer reviews, and

nervousness or anxiety of candidates can skew results.

Did you know?

Ford motors, Exxon Mobil, Procter & Gamble use psychological appraisals to test the
personality and performance of their employees.

6. Human-Resource (Cost) Accounting Method

Human resource (cost) accounting method analyses an employee’s performance through the
monetary benefits he/she yields to the company. It is obtained by comparing the cost of
retaining an employee (cost to company) and the monetary benefits (contributions) an
organization has ascertained from that specific employee.

When an employee’s performance is evaluated based on cost accounting methods, factors

like unit-wise average service value, quality, overhead cost, interpersonal relationships, and
more are taken into account. Its high-dependency on the cost and benefit analysis and the
memory power of the reviewer is the drawback of human resources accounting method.
Advantages of the human cost accounting method:

 Effectively measure the cost and value that an employee brings to the organization

 Help identify the financial implications that an employee’s performance has on the
organization’s bottom line

Ideal for:

Start-ups and small businesses where the performance of one employee can make or break
the organization’s success.

Implementation of human resource cost accounting method:

1. Identify the gap between the market and the current package of an employee

2. Determine the monetary and non-monetary value that an employee brings to the table

3. List down the things that an employee achieved in the review period (increase in the
subscriber count, improvement in revenue, number of new deals won, etc.,)

7. 720-Degree Performance Appraisal:

A 720-degree performance appraisal is when an employee “is appraised from 5 dimensions

and feedback or the appraisal meeting is conducted twice (pre- and post-feedback) to ensure
the efficient performance of the employee. Including the pre and the post feedback, that plays
a vital role, the 720-degree performance appraisal has seven phases.” The logic behind the
name is that if 360 degrees is a complete review that encompasses a holistic view of
performance, then 720 degrees is even more thorough, comprehensive and beneficial.

Important stages of the 720-degree performance appraisal process

According to the research, the following seven stages make up the 720-degree performance
appraisal process.

1. Pre appraisal feedback

Before a manager or supervisor sits down with their employee, feedback is collected from all
the notable and worthy touchpoints. Who does an employee interact with who could weigh in
on their performance in a meaningful way? Who has input that could help shape employee
progress and success? Managers and HR work to define who these valuable points of
feedback are and also work to set targets and goals to go over in the official appraisal.

2. Self-appraisal

How an employee sees themselves matters. Using a self-report questionnaire, employees fill
out a performance review on themselves, ranking and rating their strengths, weaknesses,
performance, and more. This is a useful discussion tool, as it helps managers and employees
both see gaps in communication or understanding and work to address them.

3. Co-worker/colleague appraisal

Feedback from peers can be very useful in helping employees understand their team impact
and contribution to the team dynamic. Cultural fit is just as much a measure of success as any
other metric that an employee is being reviewed on, so understanding how an employee
relates to and with their peers is an important factor in the assessment.

4. Customer appraisal

What do customers think of your employee? Customer satisfaction is key to the success of
any organization, and having an understanding of your employee’s ability to relate well with
and serve their customer base is indicative of their overall success in meeting your company
goals. Sometimes customers aren’t outside clients, but other business departments. An IT
department, for instance, services other employees and those employees are the IT teams
“customers.” These relationships are equally valuable to ensuring long-term business success.

5. Direct report and subordinate appraisal

Getting feedback from the people that your employee manages or oversees is useful in
analysing the organizational, communication, motivational, leadership, and delegation skills.

6. Manager or supervisor appraisal

This is one of the most common parts of any performance appraisal system – the
performance, responsibilities, and attitude of an employee being assessed by those who
oversee their projects and ultimately their job success.

7. Post appraisal feedback

Researchers of the 720-degree appraisal method note that this is its key differentiator between
this method and others. This step includes additional guidance to help employees meet their
goals and stay in regular communication with their managers.

Benefits of implementing a 720-degree performance appraisal method:

 More holistic and comprehensive feedback leads to a better understanding of

performance. Hearing from customers, teammates, managers, and other stakeholders
can help identify any performance gaps or places of improvement.

 Multi-dimensional feedback helps employees better cooperate and communicate more

consistently.

 Can greatly reduce appraisal barriers such as prejudice, bias, and discrimination.

These are much more common when employee reviews are conducted as feedback
between employers and managers only.

 Greater transparency – such as regular feedback and consistent communication with

other feedback channels, such as co-workers – leads to more engaged employees who
feel that they are valued, respected, and that their contributions and success matter to
the overall future of the organization. Better employee relationships are built on trust,
communication, and feedback and ultimately lead to better employee retention, which
reduces both costs and lost productivity for companies.

In order to get the most meaningful contributions from your employees, it’s important to
make sure that you have a performance management process in place, including an
effective performance appraisal method. It can be a process trying to find the right appraisal
method that works for your business, but it’s a key step to organizing your employee reviews
and growing their engagement and productivity.