There is a lot of confusion among business professionals when it comes to the difference between performance appraisal and performance management. Many people use the terms interchangeably, but they are actually two very different concepts. In this blog post, we will discuss the difference between performance appraisal and performance management, and help you understand which one is right for your business.
What is performance management?
Performance management is the process of setting goals and objectives for employees, and then measuring and evaluating their progress against those goals. It is a continuous process that should be happening all year long, not just once a year during the performance review.
The goal of performance management is to help employees improve their work performance and reach their full potential. Performance management includes activities such as setting clear expectations, providing feedback, coaching and mentoring, and offering training and development opportunities.
Objectives of performance management
The objectives of performance management are to:
- Improve individual and team performance.
- Encourage employee development.
- Facilitate communication between employees and managers.
- Help employees achieve their goals.
- Address performance issues early on.
Examples of performance management
A good performance management system helps employees understand what is expected of them, and gives them the tools and resources they need to meet those expectations.
Here are a few great examples of performance management:
At Adobe, managers spent nearly 80,000 hours a year on performance reviews. Unfortunately, the outcome of these reviews was not as great as they expected. Employees felt demoralized, leading to an increase in turnover numbers. To turn this process around, Adobe implemented a performance management system where there were more frequent check-ins, and managers had the leeway to lead effectively. By using this system, particularly the frequent check-ins, Adobe was able to see a 30% drop in involuntary turnover.
Google is known for its top-class work culture, but it wasn’t all built overnight. The company transformed its performance management process by leveraging ‘people analytics,’ a mix of qualitative and quantitative data on top of existing OKRs. Not only did this lead to a better employee experience, but it also boosted productivity. Some of the key tactics Google used include:
- Holding mid-point check-ins halfway through the annual performance appraisal.
- Using a holistic, 360-degree feedback process that includes self-evaluation.
- Conducting annual upward feedback surveys where direct reports rate their managers.
- Holding regular one-on-one meetings that developed psychological safety, a key to having a successful team.
With its 155,000 employee workforce, Cargill was struggling to keep its employees engaged and motivated. In 2012, the company ended their end-of-year performance appraisal that focused on the past. They replaced it with an ‘Everyday Performance Management System.’ Designed to be continuous, the end result helped improve the employee-manager relationship, with daily activity and feedback being incorporated into conversations that solve problems rather than rehash past actions. The system was a whopping success with 69% of employees claiming that they got feedback that was useful for their professional growth, and 70% stating that they felt valued because of the continuous performance discussions with their manager.
What is a performance appraisal?
A performance appraisal is a specific type of performance review that usually happens once a year. During a performance appraisal, an employee’s work performance is evaluated against predetermined standards.
Performance appraisals are often used to determine an employee’s eligibility for raises or promotions. They can also be used to identify areas where an employee needs improvement.
Objectives of a performance appraisal
The objectives of performance appraisal are to:
- Evaluate an employee's current level of job performance.
- Identify areas where the employee needs improvement.
- Set goals for the employee's future development.
- Provide feedback to the employee.
- Determine whether the employee is eligible for a raise or promotion.
Types of performance appraisals
A performance appraisal usually consists of a meeting between the employee and their supervisor. During this meeting, the supervisor will review the employee’s work over the past year and discuss their progress. The supervisor will also provide feedback on the employee’s performance and determine the extent to which they have contributed to the company’s growth and reward them if they have performed well. The supervisor may also chart specific training or development plans for the employee.
As you can see, performance appraisal and performance management are two very different concepts. Performance appraisal is focused on giving an employee a big-picture overview of their work and justify pay hikes and bonuses. On the other hand, performance management is focused on helping employees improve their work and reach their full potential.
Here are some types of performance appraisals:
Individuals evaluate their own job performance and behavior.
2. Peer assessment
Coworkers grade each other’s performance at work.
3. 360-degree feedback
People get feedback from many directions. This includes self-evaluation, as well as feedback from supervisors and peers.
Key differences between performance management and performance appraisal
Although performance appraisal and performance management are two different concepts, there are some key similarities between the two. Both performance appraisal and performance management involve setting goals, measuring progress, and providing feedback.
Performance appraisal is a one-time event that happens once a year, while performance management is a continuous process that should be happening all year long.
Performance appraisals are often used to determine an employee’s eligibility for raises or promotions, while performance management is focused on helping employees improve their work performance.
An employee's performance is evaluated against predetermined criteria in a performance appraisal, but performance management includes activities such as establishing clear expectations, providing feedback, coaching and mentoring, and offering developmental opportunities.
However, there are some other key differences between the two:
How are performance management and performance appraisal alike?
Despite all these differences, the two subjects have a few things in common. Both performance management and appraisals include:
- Setting targets and clear expectations.
- Understanding guidelines for measuring success.
- Evaluating the status of one’s progress and whether they have managed to achieve their targets.
- Identifying blockers to reach goals and coming up with solutions to reach them.
- Offering suggestions for improvement.
An ideal scenario would be to have a performance management tool that allows you to do both without any biases getting in the way. Consider Mesh - a simple way to set and align goals within your organization. Mesh enables you to visualize real-time progress across levels, teams, and employees. You even get data-backed drill-down views on an employee’s goals and strengths, which in turn can help you make informed decisions during appraisals. Want to know more? Check out this demo video.