What is Performance Appraisal? A Guide on Methods, Objectives & Process

What is a performance appraisal?

A performance appraisal is a review of an employee’s job performance. It takes into consideration their work, their contribution to the company, but also their interaction with others, and their work ethic. Appraisals are part of a company’s performance management initiative, and help managers measure an employee’s progress against pre-defined goals and targets.

A performance appraisal can be conducted annually, semi-annually, or quarterly. Some also call it a performance review. While the terms can be used interchangeably, a performance review can also be conducted monthly or even weekly. Appraisals usually refer to reviews organized at longer time intervals.

Types of performance appraisals

Performance appraisals differ based on who is conducting them. A classic appraisal is performed by managers and leaders. Sometimes the HR department can be involved as well.

Recently, businesses have been trying different approaches to appraisals, by including the employees themselves in the process.

A self-assessment, for example, is one when the employee evaluates their own performance. They’re usually given a questionnaire or a scale that they can use to analyze their work.

A peer assessment is one where an employee’s coworkers evaluate their performance. The 360 reviews, which has gained popularity in recent years, includes an evaluation from both coworkers and managers.

Finally, the negotiated appraisal, where a mediator is present during the review, is useful when a conflict exists or could arise between the employee and the manager. The key is to allow the employee to present their assessment first.

Companies may use one or many types of performance appraisals. For companies that do bring in multiple perspectives, the goal is to get a varied perspective on the employee’s performance that can be used to create a holistic understanding of that person’s impact.

Tips to conduct a successful performance appraisal

A performance appraisal should be an ongoing process. If you set aside only one day or week each year to collect data, analyze it, and draw conclusions, you’re in for a disaster.

Engage with your employees as often as possible. Give feedback and be open to receiving it, and make notes of progress and other things that stand out to you. This will ensure that, when it comes time for a formal appraisal, you have clear and representative examples of that employees’ performance from throughout the year—not just from recent memory.

Here are some more tips to help you run a successful performance appraisal.

1. Be clear with your expectations

If you want to avoid distrust and dissatisfaction, the first step is transparency. How do you define a top performer? What are some behaviours that are not aligned with the company values and, therefore, you won’t tolerate them? Create the definition of a top performer, and then clearly communicate that to everyone in your team.

Remember, your employees are human, so asking for perfection is unrealistic. Set goals they can reach without burning out.

2. Always give constructive feedback

Constructive feedback is a must. Everyone makes mistakes at some point and your employees are no different. If you criticize for the sake of criticizing, nobody wins. Your employees won’t learn how to correct their mistakes, they won’t improve, and neither will your business.

Sometimes you might see the cause and the solution right away. Perhaps you notice someone is always failing at tasks requiring certain technologies. The answer could be a quick course to help them learn those skills.

Other times, the causes and solutions are not so easy to figure out. For instance, if an employee misses work a lot or doesn’t deliver projects on time, there are various things that could be happening.

They might be burned out or they might feel the tasks are too difficult. There might be issues with other teammates, or the tasks may simply be unclear. In this case, you need to be open to dialogue. Find out why these problems started happening and work with the employee to find a solution.

3. Look at past performance appraisals

To truly see progress or problems that appeared recently, you need to look at the entire context. Without doing that, you can see the performance on a certain project, but you won’t see the growth or the commitment of that person long term.

Review past performance appraisals, and make notes of positive contributions and areas of improvement throughout the year. This will ensure that performance appraisals aren’t just a snapshot in time, without the appropriate historical context.

4. Decide how you want to incorporate peer assessments

If you decide to run a peer assessment or a 360 review, keep the subjectiveness factor in mind. Don’t make big decisions based on the coworker's opinions of one another. Instead, look for worrying patterns.

For instance, if everyone is always complaining about the behavior of one person, that might be a red flag. Start investigating their work, their performance, and their relationships, before drawing any conclusions.

5. Be open to feedback

Don’t let the appraisal be a one-way process. Engage in a dialogue with your employees and see what they feel is working and what isn’t. How do they truly feel about the review process? What about their work? Use this opportunity to create a safe space for sharing thoughts.

Performance appraisal examples

How you phrase your appraisals makes an enormous difference.

Only highlighting the negatives and having an accusatory tone will result in disengaged, unsatisfied employees who are more likely to quit when they get the chance.

Instead, lead with the positives and help them learn from their mistakes and you’ll watch people grow and perform better each day.

You can start by looking at their attendance, then at their capacity to bring innovative ideas, their communication skills, their time management, and so on. The categories you choose will depend on the employee’s job and the company’s goals.

An example of such a report that looks at attendance, time management, collaboration with the team, communication, and problem-solving could look something like this:

“You always come to work on time. You follow your work schedule closely and are always available during working hours.

During the past year, you delivered all your tasks on time. You always have a good sense of the deadlines and the time required to perform a task.

In terms of teamwork, you work fairly well with others. You take your teammates' opinions into consideration and everyone feels like they can talk to you. However, your performance when working with a team seems to be lower than when working solo. Try to improve this aspect of your work in the future, perhaps by improving your communication with others.

When it comes to problem-solving, you do your research thoroughly. You try to come up with the most practical solutions and take all potential scenarios into account. I would suggest, again, trying to improve communication with your team. Sometimes, you end up spending more time on finding a solution when you could be asking others for help.”

Take the subjectivity out of performance reviews with people analytics

Performance reviews are a useful, but often challenging process. Reviewers need to be fair and transparent, but also offer constructive feedback that helps the employee grow. Unfortunately. Many performance reviews are subject to subjectivity and incomplete data. People analytics can help with that.

Using a people analytics platform, managers can gather key data points that help to create a detailed, informed, and objective picture of their team’s performance. This takes the guesswork out of performance reviews, and makes them more applicable and actionable for the employee.

Of course, it’s not only individual contributors that need their performance review. Manager performance reviews are equally—if not more important—for the business. People analytics platforms help companies collect and analyze data about their managers’ impact on the people around them. This includes KPIs like retention, engagement, and productivity. By doing so, companies can reliably identify their top leaders, and those that may need additional coaching.

All of this data, of course, ties directly into strategic compensation planning. With people analytics, companies can draw a clear line between individual performance and merit increases, helping them make better decisions about who should get a raise, and when.