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The Complete Guide to Performance Appraisals

Roshan Nair

Appraisals are like half-time briefings—they give players a chance to reflect on their past performance and receive the feedback they need to adjust their strategy going forward. Just like these briefings can make or break a game, appraisals can make or break your organizational performance.

In essence, a performance appraisal system is a structured process for evaluating an employee's job-related skills, behavior, and accomplishments. It typically involves setting objectives and expectations, gathering and analyzing performance data, and providing feedback and support for ongoing improvement.

Whether you're a manager or an HR professional, it's important to understand how different types of appraisals work and how they may benefit your team. From objective rating scales to subjective 360 evaluations, each appraisal type has its own strengths and weaknesses. This guide will provide you with a comprehensive overview of the types of performance appraisals, so you can make informed decisions about which approach may work best for your organization.

Types of performance appraisals

Performance reviews are an essential tool for evaluating employee performance, providing feedback, and setting goals for improvement. There are various types of performance reviews that organizations can use, each with its own unique benefits and drawbacks. Let’s take a look:

1. Rating scales

The rating system is a performance appraisal method that involves evaluating employees on a predetermined set of traits, qualities, or competencies using a numerical or descriptive scale. The scales may be developed by the organization or collaboratively with the employee and supervisor and can be used to assess overall performance, identify areas for improvement, and set goals.

While they are easy to use, objective, and provide a quantitative measure of employee performance, they can also be limited by the subjectivity of the evaluator and their reductive nature.

2. Critical incident method

The critical incident method is a performance appraisal method that focuses on specific events or incidents that occurred during the appraisal period. The evaluator records the incidents that show exemplary or deficient performance, and these incidents are used to evaluate employee performance. The approach emphasizes observable behaviors and provides examples of specific situations where the employee demonstrated strong or weak performance.

3. Management by objectives (MBO)

This is an appraisal that involves setting specific, measurable, achievable, relevant, and time-bound (SMART) goals collaboratively between the employee and supervisor. The focus of MBO is on results-oriented performance rather than the process of performing tasks. The evaluation is based on the extent to which the employee has achieved the agreed-upon objectives.

4. Forced distribution

Forced distribution involves assigning employees into predefined performance categories based on a predetermined distribution. For example, a bell curve may be used where a certain percentage of employees must be rated as top performers, average performers, and low performers. However, this is widely regarded as a demotivating and unfair process, as some employees may be unfairly penalized due to the predetermined distribution, regardless of their actual performance.

While the above four methods are differentiated based on the mode or subject of evaluation, performance appraisals can be further classified into three distinct types based on the evaluator's identity. These include the following:

5. Self-assessment

Self-assessment is a performance appraisal method where employees assess their own performance and provide feedback to their supervisors. This approach involves the employee reflecting on their performance, identifying their strengths and weaknesses, and setting goals for improvement. The self-evaluation is then compared to the supervisor's evaluation to identify any discrepancies and potential areas of improvement.

They are excellent at promoting employee self-awareness, increasing engagement, and encouraging employee ownership of their performance. However, self-assessment can be influenced by employee biases or lack of objectivity.

6. Peer assessment

This is an appraisal method where employees are evaluated by their colleagues or peers. Peers provide feedback on an employee's performance, behavior, and work-related skills based on their own observations and interactions. However, peer assessments can be influenced by bias or favoritism and may not be suitable for all employees or roles, particularly those where peer relationships are strained or non-existent.

7. 360-degree feedback

360-degree feedback is a performance appraisal method that involves gathering feedback from multiple sources, including supervisors, peers, subordinates, and customers. The feedback is typically collected through surveys or questionnaires and provides a comprehensive view of an employee's performance. While they may negate the effects of bias on performance appraisals, they need to be complemented with continuous feedback and regular 1:1s in order to function effectively.

How to conduct a performance appraisal process?

  1. Set performance goals: Establish clear, measurable, and achievable goals for each employee in line with the company's overall objectives.
  2. Provide ongoing feedback: Regularly provide constructive feedback to employees throughout the evaluation period to help them improve their performance.
  3. Make preparations: Review relevant data, such as job descriptions, previous evaluations, and performance metrics, to prepare for the appraisal.
  4. Conduct the appraisal: Conduct a private meeting to discuss the employee's performance, strengths, and weaknesses. Provide specific examples and focus on behaviors, not personalities.
  5. Follow up and document: Set goals for improvement and develop an action plan to achieve them. Follow up regularly on the action plan and document the appraisal process and outcomes for future reference.

Common pitfalls to avoid in your performance appraisals

  1. Rater bias: Be aware of common rater biases and avoid letting them influence evaluations in your organization. For example, an evaluator may rate an employee more favorably if they share similar backgrounds or interests. One way to combat this is by mandating evaluators to provide specific examples and feedback instead of vague or generic statements.
  1. Poor preparation: This can lead to incomplete or inaccurate evaluations. It is essential for managers to gather relevant data and information on the employee's performance and prepare thoroughly for the appraisal meeting. This includes reviewing past performance evaluations, setting clear goals and expectations for the employee, and identifying areas of strength and weakness to discuss during the meeting.
  1. Unclear criteria: Unclear criteria can lead to confusion and frustration for employees, particularly if they are unsure of what is expected of them. It is important for managers to provide clear and actionable feedback that outlines the employee's goals, expectations, and performance criteria. This includes discussing specific examples of what the employee has done well and areas where improvement is needed.
  1. Insufficient follow-ups: Setting clear goals for improvement is critical, but it is equally important to follow up regularly to ensure that progress is being made and the employee is receiving ongoing feedback and support. This approach helps ensure that the employee has the necessary resources and support to meet their goals and can help prevent performance issues from reoccurring in the future. With clear and specific feedback, employees can better understand their strengths and weaknesses and how they can improve their performance.

Why every company needs a customized approach

You don’t have to go through different performance appraisal methods to find the one that suits your organization the best—you aren’t thrifting for cheap tees at Walmart. The right choice for you may not be one method but an amalgamation of several appraisal systems. This may differ depending on what aligns best with your organization’s unique goals, values, and culture. 

Most importantly, performance appraisals aren't just about improving your bottom line—they're about helping your employees thrive and grow into their true potential. That’s why an effective performance appraisal system is not a one-size-fits-all solution; it requires continuous refinement to stay relevant and mutually useful to the organization as well as its workforce.

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