What is a performance appraisal?

A performance appraisal, also called a performance review, is an evaluation method that employers use to measure
an employee’s contributions to their company. According to Investopedia, performance appraisals can occur
whenever an employer deems it necessary. They may occur to congratulate an employee and justify a pay raise,
identify areas for employee improvement or outline reasons for termination decisions. Performance appraisal is a
process for evaluating and documenting how well an employee is carrying out his or her job. It is part of a
company's performance management system. Performance appraisals are based on the employee's progress against
goals set once a year with his or her manager. Appraising an employee's performance is pivotal to the organization's
ability to enhance productivity and improve the methods to achieve better outcomes. These are often annual reviews
where an employee's contribution is compared to a structured set of desired results or objectives.

Performance appraisals assist in identifying individuals who are performing well and those who are not, as well as
the reasons for their poor performance.

Benefits of providing effective performance appraisals

Here are some potential benefits of providing effective performance appraisals within your business, according to
Chron, the Houston Chronicle news website:

Improves communication between leadership and staff members

By communicating with your employees about the potential you see in them as well as the improvements they can
make, you help foster a healthy professional relationship with your staff members. Employees feel valued as you take
the time to help them seek improvement within your company.

Minimizes confusion about job duties

Performance appraisals help employees gain clarification on their job requirements and what is expected of them
within your company. This allows employees to feel satisfied with their jobs.

Provides employees with a goal-driven mindset

Performance appraisals inspire motivation to meet job goals employees may have forgotten about after working at
your company for a long period of time. Not only can this enhance their productivity, but it can also increase their job
satisfaction by giving them a goal to strive for.

Reduces employee turnover rates

Performance appraisals might help reduce employee turnover rates because you set clear expectations and give
employees the opportunity to grow within your company. because of this, they may be reluctant to leave your company
for another opportunity.

Creates opportunities for career advancement within the company

By conducting performance appraisals, your employees may improve their job performance to the point where they
are ready to take on more senior roles within your company.
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Factors to consider for performance appraisals

The factors you use to evaluate your employees can vary depending on the role they have within your company, but,
there are some common factors that apply to all roles. According to http://www.whatishumanresource.com/, here are
some factors to consider for performance appraisals:

1. Punctuality

Punctuality refers to the degree to which an employee is on-time for work. You may choose to include attendance in
this performance factor.

2. Accountability

Accountability refers to the process by which employees take responsibility for their actions if an error occurs and
understand how their job affects the productivity of the rest of the office.

3. Quality of work

Quality of work is a factor that allows you to assess the overall quality of the work they contribute to your organization.

4. Quantity of work

Quantity of work is a way of measuring productivity within the workplace. Measure the quantity of work by
comparing the number of tasks they complete in a given time frame to the needs of the company.

5. Time management

Time-management is the process by which employees meet deadlines and allot specific amounts of time to certain
tasks.

6. Teamwork

Teamwork refers to the degree to which an employee works well with their co-workers.

7. Reliability

Reliability can encapsulate factors such as punctuality, productivity and work quality to assess how dependable your
employees are.

8. Communication abilities

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The degree to which an employee is able to communicate with their coworkers, superiors or subordinates may be an
important performance appraisal factor. This includes verbal communication, written communication and
interpersonal communication.

9. Leadership capabilities

Especially for those seeking management positions, leadership capabilities show how well a person can lead a team
and model exemplary behavior on the job.

10. Skills and job expertise

Another potential factor is the amount of industry knowledge and skills that an employee demonstrates in their daily
job duties.

Benefits of Performance Appraisals

Companies can keep their staff interested and encouraged to work more by conducting performance appraisals on a
routine basis. Some of the advantages of performing a performance evaluation are as follows:

Creates Career Growth Opportunities

Employees can improve in their jobs with the help of performance appraisals, especially if they want to rise to a higher
position within the organization. A performance assessment can assist employees in developing a professional
development plan.

Improves Employee Performance

Giving feedback encourages employees to perform better. When a manager gives positive feedback, employees are
motivated to perform in a better way. Because performance reviews are frequently used to evaluate how incentives
are distributed, they can help motivate and recognize employees for their efforts.

Boosts Employee Engagement

Employee engagement and retention can be increased by incorporating them in the performance appraisal process on
a routine basis. Employees will be more likely to perform well when they can see how their actions influence the
organization as a whole. Regular performance reviews also demonstrate to employees that their employer cares about
them and is ready to take the time to offer them the guidance they need to succeed.

Helps Determine Training Requirements

Companies can use performance appraisals to see which employees require additional training and to choose what
subjects to re-train in. If several employees are struggling to achieve a daily target, for example, an employer may
offer a seminar on how to work more productively or consider cutting down the target.

Establishes Clear Expectations

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Managers might reiterate their expectations for staff during performance appraisals. This aids employees in
understanding their everyday tasks as well as what their employer expects of them.

Enhances Team Communication

Performance appraisals provide managers with a scheduled, defined period to review how each employee is
performing overall, allowing for a smooth flow of conversation with no interruptions. Managers can coach employees
and provide tips on how to enhance their productivity during these sessions. This time is also set up for employees to
ask questions and address any issues they may have.

Helps In Goal-Setting

Employers can assess how effectively an employee met their objectives and provide input on what kinds of objectives
should be set for the next quarter. Creating a goal management system that is updated regularly ensures that staff is
progressing and contributing to the organization’s goal.

Helps Highlight Areas For Improvement

Employers that conduct performance reviews regularly can identify areas that require improvement before they harm
the firm or become permanent. Employers frequently offer suggestions and actions that employees might do in the
future. Employees can continue to develop and become the best they can be as a result of this.

Develops Team Bonding

Managers and staff can use performance appraisals to synchronize their goals and brainstorm together. Meetings
regularly might help to strengthen ties and make the boss appear more accessible. Peer reviews allow people to know
how much their colleagues value them.

Helps Communicate The Company Vision Clearly

Employees frequently overlook why they are working or how their actions make a big difference in the day-to-day
functioning of the company. Employees can recall why their effort counts by obtaining feedback on tasks they've
done. Managers can use performance appraisals to reinforce the organization’s values and the goals that employees
are striving toward.

Performance Appraisal – Purpose

Employee assessment or appraisal is done periodically for fulfilling several purposes as given below:

i. To provide employees with the feedback on their performance for further improvement.

ii. To categorize the employees as high, moderate and low performers.

iii. To identify the need for employee training.

iv. To decide on the criteria for organizational rewards.

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v. To take personnel decisions such as monetary, non-monetary benefits, disciplinary actions, etc.

vi. To facilitate communication and reciprocity between employees and management.

vii. To plan for future requirements of human resources.

viii. To have a good human resource policies and selection techniques.

ix. To enhance employee performance through counselling, coaching and motivation.

Performance Appraisal – Importance: Assessment of Employee Performance, Improvement of Performance,

Performance appraisal provides important and useful information relating to employee’s skill, knowledge, ability and
overall job performance. This information helps in decision making in areas like promotion, training and development,
wage and salary determination and so on.

1. Assessment of Employee Performance:

Performance appraisal helps supervisors to assess the work performance of their subordinates. The strength,
weaknesses and potentialities of employees, level of performance are disclosed through performance appraisal.

2. Improvement of Performance:

The performance of employees is continuously scanned and reviewed. This creates a psychological pressure on
employees to perform well, as well as motivates the employees. Performance appraisal helps to improve the
performance of the employees.

3. Designing Training and Development Programme:

Performance appraisal helps in designing training and development programme for the employees. Training and
development programme are designed considering the existing skill, knowledge, capability and performance of the
employees as disclosed by performance appraisal. This enables to improve the performance of the work force.
Performance appraisal also helps to assess the effectiveness of training and development programme by analysing
employee performance before and after training.

4. Determination of Pay:

Often the pay structure of employees is linked to performance of employees and their productivity. Bonus and
increment of salary is determined on the basis of performance of employees.

5. Decision Regarding Promotion and Transfer:

Performance appraisal helps in decision making regarding promotion and transfer. Performance appraisal on a
continuous basis helps to evaluate the improvement of employee performance, their skill, knowledge, capability so
that they can be allotted a new job.

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Performance Appraisal – Sources: Manager, Peer Appraisals, Subordinate Appraisal, Self-Appraisal,
Customer Appraisal and 360° Appraisal

After choosing a particular appraisal system or a set of systems to assess the performance of employees, it is necessary
to decide whom to use as the appraiser. The primary sources are managers, peers, subordinates, self and customers.

1. Manager/Supervisor Appraisal:

Here, performance appraisal is done by an employees’ manager and often reviewed by a manager one level higher.

(i) Most people opine that performance appraisal must be done by the immediate supervisor or manager who is most
familiar with the employee’s performance.

(ii) The supervisor is probably best to relate the individual’s performance to objectives of the organizations.

(iii) As the manager/supervisor is responsible for reward (and punishment) decisions, supervisor’s feedback is highly
relevant.

(iv) When managers do not have time to fully observe the performance, they can rely on performance records of the
employees.

(v) Getting the appraisals reviewed by the supervisor’s supervisor (next higher person), reduces the chances of
superficial or biased appraisals.

2. Peer Appraisals:

With many firms going in for self-managing teams, peer appraisal is becoming popular. It is performance appraisal
done by fellow employees/colleagues. Employees of equal rank who work together are asked to evaluate each other.
It is mainly used when the immediate supervisor is unable to observe the work behaviour of his subordinates directly.

Peers are an excellent source of information in a job where the supervisor does not always observe the employee.
Peers have expert knowledge of job requirements and opportunity to observe their colleagues in day-to-day activities.

Advantages:

(i) Co-workers offer more constructive insight to each other so that, as a unit, each will improve.

(ii) The recommendations tend to be more specific regarding job behaviour.

Disadvantages:

(i) There are chances for friendship to bias ratings.

(ii) When evaluations are used for administrative purposes, it is uncomfortable to be both a rater as well as a ratee.

Though peer appraisal is effective, it is not used frequently for several reasons:

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(i) Peer appraisals are considered as simply a popularity content.

(ii) Managers are reluctant to give up control over the appraisal of their subordinates.

(iii) Employees receiving low ratings from their colleagues may retaliate.

(iv) Mostly stereotype ratings are used.

It is not advisable to use peer appraisal for administrative decisions such as promotion or bonuses when peers are in
competition with one another such as with sales persons. Further, employees must safeguard confidentiality in handing
review forms as any breach of confidentiality can create interpersonal rivalries and hostility among fellow workers.

3. Subordinate Appraisal (Upward Feedback):

It is an appraisal of assessing the managers by their own subordinates. It is claimed that subordinates are in a better
position than anybody else to assess their manager because they are in frequent touch with them. Subordinates are in
a unique position to observe most of performance-related behaviour of managers.

(i) The dimensions which could be ideally assessed are leadership, oral communication, delegation of authority,
coordination of team efforts and interest in subordinates. However, the subordinate may not be able to appraise the
managers in respect of specific job tasks such as planning and organizing, budgeting, creativity, and analytical ability.

(ii) Because subordinate appraisals give power over their managers, managers will hesitate to approve such appraisals
for administrative purposes. However, they may accept these for developmental purposes.

(iii) To avoid potential problems, subordinate appraisals could be submitted anonymously.

(iv) As with peer appraisal, subordinate evaluation could be used for developmental purposes.

4. Self-Appraisal:

Nowadays many firms ask their employees to evaluate themselves on a self-appraisal form. It is done before
performance interview.

Merits:

(i) It is beneficial when managers seek to increased employee’s involvement in review process.

(ii) This helps the employees to judge their strengths and weaknesses to discuss about barriers to effective
performance.

(iii) This works well when the manager and employee jointly establish future performance goals.

(iv) When used with other methods, self-appraisals can be a valuable source for appraisal information.

The major problem is that employees usually rate themselves higher than their supervisors or peers. Hence, it could
be used mostly for developmental purposes rather than administrative purposes such as pay-rise, promotion etc.
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5. Customer Appraisal:

In service industry, the supervisors, peers and subordinates do not have the Opportunity to observe employee
behaviour. It is only the customers who observe employees’ behaviours directly. Hence, customer appraisal could be
the best source of performance information in service industries.

Customer evaluations of employee performance is appropriate when an employee’s job requires direct service to the
customer and When the firm is interested in gathering information on customers’ preferences of goods and services.
Customer evaluations are useful not only for evaluating the employee but also to suggest changes in other HRM
activities.

The limitations are-

(i) customers’ objectives cannot be expected to correspond completely with the organization’s objectives, and

(ii) it is costly and time-consuming.

In addition to the above, some firms use Committee appraisal. It is an extension of peer appraisal. The team or
committee usually consists of employee’s immediate supervisor and a 3 or 4 other supervisors. Committee appraisal
may reduce problems of bias on the part of individual raters. It also provides a chance to include different facets of
an employee’s performance observed by different appraisers.

6. 360° Appraisal:

This is a performance appraisal system which includes self-evaluations as well as evaluations from the supervisors,
subordinates, peers and customers.

This is generally done for development rather than for pay raise. The general appraisal process is to collect the
appraisals, from all the sources on time and the computerized systems compile all the feedback into individualized
reports that go to the raters. The employee concerned may meet with his or her supervisor to develop a self-
improvement plan.

What are Performance Appraisals Used for?

Commonly, organizations, team leaders, supervisors, and managers do performance appraisals to cover the following
aspects:

 Setting goals
 Providing feedback
 Allowing employee self-development
 Allocating rewards and giving recognition
 Gathering information to make staffing and business decisions
 Motivating employees to improve productivity
 Developing training programs and development initiatives

What are the Seven Elements of Performance Appraisal?

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Every successful performance appraisal system has these 7 essential elements or components:

1. Identified Goals and Objectives – These, along with a rating system and Key Performance Indicators
(KPIs), are key to help in defining and achieving an employee’s Objective Key Results (OKRs) and enable
the employee and the organization to measure performance effectively.
2. Continuous Feedback – Detailed, consistent, and proactive feedback is crucial to employee growth.
Hence, a performance appraisal process must ensure that ample feedback is given to employees for them to
know their overall contribution and impact on the organization.
3. Flexibility – In an effort to continuously improve an organization’s path to innovation and competitive
advantage, a performance appraisal system must be flexible enough to be open to changes. One way to do this
is by setting different Key Result Areas (KRAs) to fit each job description.
4. Data-driven Insights – Apart from reducing attrition rate, people analytics also help an organization’s
management pinpoint the overall relationship between an employee and a manager or team leader. This way,
proactive decision-making can be achieved.
5. Benefits and Rewards – A clear system for identifying the appropriate compensation, rewards, and
recognition must be incorporated into employee engagement initiatives. This paves the way for increasing
worker motivation, productivity, and a sense of belonging.
6. Self-evaluation – This element of a successful performance appraisal enables employee accountability
as they take charge of their own progress, monitor their performance, and challenge the rating or feedback
given to them.
7. Performance Improvement Plan (PIP) – Commonly given to employees who struggle meeting
business objectives, PIPs are also key to identifying the next steps to help empower employees with the right
tools and knowhow in order to improve their performance. This, along with the other elements, forms a
proactive appraisal process.

SUMMARY

Performance appraisal: Definition

Performance appraisal is defined as a process that systematically measures an employee’s personality and
performance usually by managers or immediate supervisors against the predefined attributes like skillset, knowledge
about the role, technical know-how, attitude, punctuality and so on.

Performance appraisal has many names across organizations, some call it performance evaluation, some prefer
performance review, merit rating, annual reviews, etc.

This process is carried out to identify the inherent qualities of an employee and the abilities and level of competency
of an employee for their future growth and development and that of the organization they are associated with. It aims
at ascertaining the value of an employee and his/her offering to the organization.

Performance appraisal helps managers and supervisors place the right employee to do the right job, depending on the
skill set they possess. Without an ounce of doubt, every organization needs a robust performance appraisal system.

There are various methods that are used by managers and supervisors to evaluate employees based on objective and
subjective factors, however, it can get a bit tricky, but to effectively evaluate an employee both factors are essential.

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Objectives of performance appraisal

Following are the objectives to conduct performance appraisal year after year:

 This is an essential first step towards promoting an employee, based on the subjective and objective
factors- performance and competency.
 To identify the training and development needs of an employee.
 To provide confirmation to those employees who were recently hired and are on their probation period.
 To take a concrete decision what should be the percentage of hike in the salary of an employee based
on the work done by them.
 To encourage a proper feedback system between the manager and employees.
 To help employees understand where they stand in the current year and what is the scope of
improvement.

Performance appraisal process

Step 1: In most organizations, the performance appraisal process means evaluating an employee every 6 months or
one year for the period an employee has continually worked with the organization. In modern times, the Human
Resources department sends out an employee survey for them to fill out to collect data related to their engagement
and satisfaction levels.

Step 2: The employee’s immediate manager or supervisor will then evaluate the quality of the employee’s
performance based on the work done in the previous year and then meet face-to-face to discuss the facts and figures.

Step 3: The feedback received from the survey can be kept anonymous. This feedback can be analyzed real-time by
using Question Pro’s Workforce platform, that measures, analyzes and activates data to get actionable insights.

For probationary employees, the probation period usually lasts between three to six months. Their evaluation is based
on whether they have come at pace with the work and culture of the organization and if they are ready to take up more
responsibilities.

Performance appraisal methods

There are 5 performance appraisal methods. Using one of these methods for performance appraisal can help
organizations gain partial information. However, combining one or more methods will lead to extracting better
information and accurate data. It is one thing to collect data and another to do something actionable with it.

1. Self-evaluation: This is an important way to get insights from the employees, evaluate themselves.
You need to first get information about how an employee evaluates himself/herself, after conducting this
evaluation the management has an opportunity to fairly appraise an employee based on their thoughts.
2. 360-degree appraisal system: 360-degree feedback, an employee is evaluated by his/her
supervisor/manager, peers, colleagues, subordinates and even management. Inputs from different sources are
considered before talking to the employee face-to-face. In this process, each employee is rated according to
the job done based on the job descriptions assigned to them.
3. Graphics rating scale: This is one of the most commonly used methods by managers and supervisors.
Numeric or text values corresponding to values from excellent to poor can be used on this scale. Members of
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 the same team who have similar job descriptions can be parallelly evaluated using this method. This scale
should ideally be the same for each employee.
4. Checklists: The evaluator is given a checklist of several behaviors, traits, attributes or job description
of the employee who needs to be evaluated. The checklist can contain sentences or simply attributes and the
evaluator thus marks the employee based on what describes the job performance of the employee. If the
evaluator believes that the employee has certain traits it is marked positive otherwise it is left blank.
5. Essay method: This is also known as “free form method”. As the name suggests, it is a descriptive
method which elaborates performance criteria. A major drawback of this method is to keep biases away.

Advantages of performance appraisal

1. A systematic performance appraisal method helps the managers/supervisors to correctly identify the
performance of employees and also highlight the areas they need improvement in.
2. It helps the management place the right employee for the right kind of job. This is a win-win situation
for both the employee and the organization.
3. Potential employees who have done some exceptional work are often offered a promotion on the basis
of the result of performance evaluation.
4. This process is also effective in determining the effectiveness of the training programs conducted by
the organization for the employees. It can show managers how much an employee has improved after the
training. This will give actionable insights to the managers on how to improve the programs.
5. It creates a competitive environment amongst the employees in a good way. Employees try to improve
their performance and get better scores than their colleagues.
6. Managers use this as a platform to get first-hand feedback from employees to talk about their
grievances and how to handle them.
7. Keeping year on year record of appraisals gives managers a very good idea what is the pattern of the
growth rate of employees and which ones have a declining rate and what actions need to be taken to improve
it.

Disadvantages of performance appraisal

1. If the attributes being used in this method are not correctly defined the data collected won’t be useful.
2. Sometimes biases can be an issue in this system.
3. Some objective factors can be vague and difficult to pin down. There are no known scientific methods
to measure that.
4. Managers sometimes are not qualified enough to assess the abilities of the employees, thus be
detrimental to the growth of an employee.

Today’s Top Performance Appraisal Methods to Boost Productivity

Performance appraisal is a term many people dread hearing. While it is possible that an evaluation can lead to a raise
or promotion, it could just as easily lead to termination or just staying still. Worse, though, is usually hearing the
negative things about oneself.

However, evaluations are necessary for the success of the company. Employees need affirmation in the areas they do
well and know in which areas they need to improve. This does not mean that it must be a negative experience, though.

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Top Performance Appraisal Methods to Consider

Consider these ten performance appraisal methods to use in your company.

1. Trait Focused Method

The trait focused appraisal is one method that gauges characteristics such as dependability and punctuality. The idea
behind it is to build a positive culture and work ethics in a company. It has been known to build a friendly yet
competitive work environment while still displaying positive attributes such as helpfulness.

2. Essay Evaluation

The essay evaluation is quite different than checking some boxes on a sheet of paper. Instead, the appraiser writes a
full essay about the employee that describes in detail where the employee does well, where they should improve,
notable moments, their character, and more. It should explain why the appraiser has come to those conclusions as
opposed to just stating what is right or wrong.

3. Graphics Rating Scale

The graphics rating scale method is an extremely simple one. It is a linear scale that rates both personality and job
performance, usually on a scale of one to five. It is fast and simple yet straightforward and effective.

4. Management by Objectives

The management by objectives, or MBO, a method is one in which management and employees work together to
clearly define goals. They then work out a plan for the employee to reach those goals. After a period, management
and the employee meet back up to discuss progress.

This method is effective in that it is not just the manager laying out factors by which the employee is judged. Instead,
it is a team effort through which both the manager and employee can discuss their thoughts and feelings. As the
assessment is more of a team effort, the employee does not feel so scrutinized.

5. 360 Degree Assessment

The 360 degree appraisals are both ongoing and holistic, possibly the most thorough of all the types of performance
appraisal methods. It is not merely management giving feedback, nor even just management and the employee.
Instead, it is completed by multiple coworkers and managers that meet the employee, including oneself. Because it is
a compilation of evaluations, it is unbiased and gives a full view of the employee’s performance. The fact that it is
ongoing means that the employee does not have to wait for a yearly appraisal to see how well they are doing. They
consistently know what they are doing well and what they need to work on.

6. Psychological Appraisals

Psychological appraisals are a unique approach to performance evaluations. These are performed by qualified
psychologists who conduct different types of tests on an employee. The results of these tests are indicative of the

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employee’s future performance and leadership qualities. This type of evaluation is much more concerned with future
performance than past performance.

7. BARS

BARS, or behaviorally anchored rating scales, is a comprehensive evaluation that measures quantitative factors by
numerical ratings. It is specifically effective due to it providing clear standards and feedback. It is also a consistent
evaluation and much more straightforward since it is stated in numbers.

8. Checklist Scale

The checklist scale is a very generic type of performance appraisal. It is literally a checklist of characteristics and
traits that the evaluator either checks or does not according to whether they believe the employee possesses them. Of
all those on the list, this one is most likely the least effective. However, it can be made more effective by making it a
weighted checklist because it then gives the employee a numerical goal to work toward.

9. Peer Review

Where a 360-degree review includes coworkers’ and management’s feedback from any and all levels, peer reviews
only include feedback from the employee’s peers. He or she is assessed according to how peers view their
collaboration, teamwork, and other skills. This information is not only helpful for the employee but also when putting
together teams or looking to fill leadership roles.

10. Self-Evaluation

Rather than being done alone, self-evaluation can be added to other appraisal methods. It is beneficial for several
reasons. First, the employee learns to do self-evaluations throughout the year so that they can improve all year. Second,
they become engaged in the process, and that makes them feel a little more invested. Finally, it opens a better
opportunity for communication between the employee and management.

As much as performance appraisal can be time-consuming and scary to some, it is necessary to perform them. If a
company does not, then employees do not know if they are performing satisfactorily. By completing performance
appraisal on a consistent basis, employees consistently have goals to work towards, all of which leads to greater
productivity.

Performance Appraisal Methods to boost Workplace Culture, merits and demerits of each method

Performance appraisals are vital for any organization to help determine an employee's contribution and an acceptable
remuneration for that effort, in terms of salary hikes or promotions (in some cases, both). Proper performance
appraisal methods also help companies understand where their employees stand, their skills, abilities, and possible
shortcomings. 45% of HR leaders do not think annual performance reviews are an accurate appraisal of employees’
work. To ensure that performance appraisals add real value, implement a mix of traditional performance appraisal
methods and some modern performance appraisal methods that have proven to be useful.

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To measure one's performance, there are plenty of traditional as well as state-of-the-art methods that organizations
use. Let’s look at some of them in detail.

a. Traditional Methods of Performance Appraisal

Here are some of the methods used traditionally:

o Ranking Method
o Essay Appraisal
o Paired Comparison
o Checklist Method
o Critical Incidents Method

It has been the practice to carry out a point-based or rank system to determine if employees have satisfied the
organization's requirement for productivity during a specific period. Concerns with using the traditional
method of performance appraisal are that they are not detailed enough to evaluate modern types of employment
fully.

b. Modern Methods of Performance Appraisal

However, organizations could also use modern performance appraisal methods to garner more accurate
and valuable information on employee performance. Ultimately, these methods could improve the
organization's performance, such as:

o MBO
o BARS
o Assessment Centres
o 360-Degree Appraisal
o Cost Accounting Method

Let's look at how these different performance appraisal methods work and why some may be ideal for implementing
in your organization than others.

Here are the 10 Best Performance Appraisal Methods

1. Ranking Method

The ranking method is possibly one of the oldest employee performance appraisal methods. The process
involves assessing an employee according to a set of parameters compared to all the other employees.
Essentially, this places them in order of the most to the least productive.

Although the ranking method has been around for quite some time, its advantages are limited and do not result
in extremely useful outcomes. It is implemented in different variations, and each variation has its own benefits.
Take a look:

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 o It is simple and quick to accomplish.
o It is a less time-consuming process.
o It yields a numerical rating for the employees, which can be directly linked to compensation
adjustments or staffing concerns.

While the process is simple and the results are easy enough to understand, there are limitations:

o This method does not account for the ratio by which one employee is doing better than the other.
o When the number of employees is high, this traditional performance appraisal method will likely
have more inaccuracies.
o Individual attributes and skills differ. This method does not take behavior and such factors into account.

2. Essay Appraisal

Another traditional performance appraisal method is essay appraisal. Here, a manager draws out a relatively
detailed essay about an employee's performance. Several questions could be presented to the manager, who
would then reflect the employees' performance in a written report. These types of appraisals generally address
quite a few aspects of an employee's contribution in their role.

These essays are intended to explain and record an employee's strengths and limitations in the workplace, as
well as to identify problem areas and devise a strategy to address them.

Let's look at the advantages associated with Essay Appraisal:

o When it comes to a small team, this method does have the advantage of leveraging the manager's
involvement in the employee's professional affairs.
o Since the essay approach is significantly less organized and rigorous than traditional rating scale
methods, the appraiser can analyze any issues or characteristics of performance that is important to an
employee's job role or overall company progress.
o This method strategy provides supervisors with freedom of expression and critical analysis.

Some of the downsides associated with essay appraisal are:

o If the team is large, this method may not have the required insights to form accurate opinions on which
to base actions.
o A large part of this method also relies on managers to be adept at written communication. Therefore,
a well-intending manager who is extremely happy with an employee's performance may be unable to
convey that information effectively.
o It puts the employee's position at risk while giving the organization incorrect data, possibly throwing
any performance management attempts into complete disarray.

3. Paired Comparison

This method involves comparing employees against each other, meaning one-on-one. This method
traditionally selects a particular trait on which to focus. The process is quite simple. The designated 'rater'

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 selects slips with two names on them, then proceeds to mark the one they believe is the better one. The number
of times the employee's name gets marked for specific traits decides how high up on the list they will be.

The formula to determine how many pairs are possible for the number of employees is N (N–1)/2, where N =
total employees being assessed.

Advantage: If only a few employees need to be rated, the paired comparison method is a good option. This is
to the fact that it compares two employees at a time rather than all employees.

Disadvantage: Other than being extremely effort-intensive, this method may not be feasible at all in a large
organization. With a large number of employees, it can be time-consuming.

4. Checklist Method

Managers are provided with a set of questions. The questions can be yes/no type, statements, or even multiple-
choice questions. The respondents can then select how much or how little they agree with that statement.

Advantage: Unlike many of the other traditional methods, this employee performance appraisal method is not
very time-intensive. It is a commonly used method as it saves time and measures all the employees against the
same criteria.

Disadvantages:

o It can be challenging to create an adequately detailed questionnaire to get results accurate enough for
a corporate environment.
o It can also be relatively inefficient, especially when measuring several different job roles using the
same set of questions.
o Furthermore, creating separate questionnaires for each job category can turn out expensive.

5. Critical Incidents Method

This employee performance appraisal method focuses on fundamental behaviors that impact how a job is
carried out. Critical incidents refer to incidents that either positively or negatively affect how a job function is
performed. For example, in customer service, 'level of empathy' could be on the list.

The process starts with listing specific behaviors that affect the job role. A panel of experts then sets about
placing weightage on these particular behavior incidents. The next part is creating a checklist. Here, the 'rater'
chooses and marks whether the employee's specific behavior leans towards good or bad.

The thought behind this method lies in outlining exceptional behavior. The theory is that under normal
circumstances, employees with the same skill-set should have the same output.

An advantage of this method is that it is behavior-focused and personality-focused.

On the negative side, it can be challenging to keep track of behavior throughout the day for the entire year
and note down these specific behavior patterns.

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6. Management by Objectives (MBO)

In the simplest terms, Management by Objectives is a method of creating an objective set of goals. The
manager does this in collaboration with employees. The goals are then discussed and reviewed at specified
intervals. MBO is one of the most sought-after and commonly implemented performance appraisal methods.

There are four main parts to this employee performance appraisal method:

o Goal Setting: The manager and employee figure out what goals they must set. These would consist of
outcomes that both parties feel need to be achieved.
o Performance Standard: This is the standard that determines what is required to meet these goals. In
other words, to what extent these parameters must be satisfied to achieve these goals.
o Comparison: A comparison is drawn between when the goals were set and a predetermined point in
time, for example, three or six months down the line. Managers and employees can see what changes
have come about.
o Periodic Review: This is where the employees and managers discuss the employee's development.
The manager can then inform employees of what improvements are still required, which goals they
have met or exceeded, and how to achieve these goals.

Although MBO is widely used across many organizations today, it comes with its fair share of merits and
demerits. Let's look at them:

Merits:

o Appraisals can be more fair, detailed, and equitable because MBO emphasizes quantifiable goals.
o It raises employee awareness of the company's objectives. The majority of the time, employees are
concerned with their own goals and the environment in which they operate. However, with MBO, they
are proud to be a part of the organization's aims. This boosts their motivation and dedication.
o MBO frequently reveals areas where employees require additional training, resulting in career
advancement.

Demerits:

o While the MBO method is considered adequate, the objectives set must be both realistic and
quantifiable.
o Another fact is that it takes time and effort to ensure its correct implementation. It is also likely that
every role will need an MBO explicitly designed.

7. Behaviourally Anchored Rating Scales (BARS)

Behaviorally Anchored Rating Scales rate an employee's specific behavioral traits that relate to performance.
Each statement or question has additional statements that describe the extent to which that employee displays
that particular behavior. One of its distinguishing features is that it also considers an employee's intangible
characteristics and maps them to a rating scale. There are five parts to creating an effective BARS appraisal
system:

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 Identifying Critical Incidents: A set of behavior or critical incidents that impact the job role must be
identified.

Creating and Reallocating Performance Dimensions: Various performance dimensions are put together,
such as behaviors that impact a particular part of the employee's role. Those creating the surveys must also
pool in their thoughts. They must finally reallocate these behaviors into categories based on what the majority
feels best determines the specific areas of the job role.

Quantifiable Scaling: It is then required to understand the effectiveness of that behavior and put it against a
scaling system.

The Final BARS Instrument: The data collated is then compared to vertical scales. These can be used to
compare the areas in which the employee has scored adequately and where they need improvement.

Let’s dig into some benefits associated with BARS and any downside this may have:

Benefits:

o It is efficient both qualitatively and numerically.

Downsides:

o This method is extremely personalized to each individual and hence takes a lot of time. It can be quite
costly with respect to the time that is spent.
o Some performance dimensions can appear to be strikingly similar, or even completely overlap. This
makes it difficult to grade people on these dimensions, and discriminant validity may be compromised.

8. The OKR Method

This modern performance appraisal method has gained immense relevance in recent times.

In essence, the OKR method (Objectives and Key Results Method) is a performance management tool that
outlines, communicates, and measures goals within an organization, thereby allowing all the employees to
work towards a common goal. However, different levels of the organization set different goals and track
different metrics.

There are five main benefits of this performance appraisal method:

o Focus Driven: Having the factors that matter most outlined and that information passed on to every
employee ensures that focus is maintained on achieving that goal.
o Engaged Employees: Having a clear idea of what you are setting out to achieve makes it easier and
more meaningful for workers to understand what their effort is going towards.
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 o Autonomy: The knowledge that each member of the team is working towards achieving what is best
for the whole team and thus the whole organization allows individuals to work on their own and attempt
to contribute the most towards that goal.
o Performance: This was the reason the tool was developed; performance sees a sharp rise when
employees are told and shown the reason their effort is required. Most employees know that if their
company does well, their jobs are safe, and they are likely to get more out of a job. It is natural to work
harder towards something that you know you are making a difference in.
o Aligned Goals: As is with many of the other points, a cohesive effort is likely to be made when every
member of the team knows that the other is also working towards the same goal and thus the growth
of the company and the team.

Although the approach itself has a few flaws, the organization's ability to apply it and the way it is implemented
might lead to problems such as:

o The urge to create extra goals when you have big intentions is strong. When OKRs do not line with
each other, however, difficulties develop.
o OKRs can be inflexible at times. Also, some of the OKRs are frequently out of date.

9. 360-Degree Appraisal

Another modern method of performance appraisal involves assessing an employee from all around. It involves
collecting feedback on specified parameters about an employee from their peers, subordinates, managers, and
others who may interact professionally with them. It also requires the employee to complete a self-evaluation.
In simpler words, all-rounded feedback from everyone the employee is associated with.

The report is then generated using average ratings from the respondents and can, in turn, be compared with
the employee's self-evaluation. It is then used to create an action plan for them. Their performance is then
reviewed periodically. According to Forbes, 89% of HR leaders agree that ongoing peer feedback and check-
ins are key for successful outcomes.

360-degree appraisal is widely adopted by many leading organizations for the following reasons:

o It’s a systemized and sophisticated way of collecting reviews from various stakeholders involved in an
employee’s work lifecycle. Considering the views from people of all cadres, the HR team can form a
holistic assessment for their employees.
o When a group can recognize all of their personal and team positives and negatives, they have the
knowledge and drive to make meaningful changes.
o Employees that receive this kind of feedback have the opportunity to receive more and more regular
input from a number of sources.

Even the best appraisal method comes with some drawbacks:

o While this is an excellent employee performance appraisal method and is likely to provide a more
holistic advantage, the respondent's bias towards that employee could be a concern.

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 o A 360-degree performance appraisal can take a long time to complete. It takes time for the appraisers
to meaningfully respond to the queries, and it takes time for managers or HR to look over the material
and analyze it.

10. Cost Accounting Method

It is an efficient and practical modern method of performance appraisal and evaluation. The cost of that
employee executing their job function, such as salary, benefits, and others, is compared to the monetary value
they bring to the organization.

For example, a sales executive paid 'x' amount makes sales of 'y' amount. The difference between the two is
the value of that employee's performance.

These are some of the factors taken into calculating the cost of the employee's service:

o Value of production or service in units

While this method can be quite clinical, it may not work to measure all types of jobs. For example, it may be
challenging to estimate the worth of a teacher's contribution to specific students. Basing their performance
solely on their students' grades is not the best way to grade their value.

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