A Definitive Guide to Employee Performance Appraisal Methods



Performance Management

The employee performance appraisal process is crucial for organizations to boost employee productivity and improve their outcomes. But although performance management is super important, it’s rarely put to good use. Many companies don’t put in their best effort to pick the best perfect performance appraisal method, which is why only 55 percent of employees believe theirs is effective.

A growing number of HR professionals report that existing performance appraisal methods fail to internalize employee performance results. In fact, performance appraisals are nothing more than an empty buzzword in some industries–just a formal way for companies to show that they have a standard procedure in place to measure individual competitiveness.

What are performance appraisals?

Performance appraisals are an annual process that involves evaluating employee’s performance and productivity against the pre-determined set of objectives for that year. It also helps to evaluate employee’s skills, strength and shortcomings. The results of this performance appraisal process determines the employees wage raise and promotion.

The objectives of performance appraisal varies from company to company and depending on the industry/company size, the appraisal method varies.

The need for modern performance appraisal methods

Traditional methods of performance appraisals such as annual performance reviews suffer from major limitations since they focus more on measuring past performance rather than improving future work. But on the contrary modern performance appraisal methods helps:

  • Define goals clearly
  • Provide real-time feedback
  • Enhance employee performance
  • Spot training and development needs
  • Offer insights on counter-productive tasks
  • Improve employee engagement and retention
  • Align individual performance with business goals
  • Transform the workforce into a strategic advantage

Traditional and modern performance appraisal methods

Although there is no such thing as universally accepted performance appraisal method, most organizations accept the Strauss and Sayles classification. George Strauss and Leonard R. Sayles classify performance appraisal methods into two categories: traditional and modern.

Listed below are the various methods that belong in those two categories:

performance appraisal methods

Traditional performance appraisal methods like appraisal templates, ranking, checklists, critical incidents, and more take a goal-oriented approach and evaluate work results. Modern methods focus on individual’s personality traits (creativity, integrity, goal-oriented approach, leadership qualities) and tend to be more objective.

Six 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. Now that the drawbacks of traditional methods are clear.

Here’s a close look at the six most-used modern performance methods:

1. Management by Objectives (MBO)

Management by objectives (MBO) is the appraisal method where managers and employees together identify, plan, organize, and communicate goals. After setting clear goals, managers and subordinates periodically discuss the progress made to control and debate on the feasibility.

This process usually lays more stress on tangible work or career-oriented goals. So, intangible aspects like interpersonal skills, job commitment, etc. are often brushed under the rug. This method is slightly expensive and time-intensive.

2. 360-Degree Feedback

Once-in-a-year performance appraisals are lackadaisical and don’t work. Workers need ongoing communication with team leaders and managers. A continuous process, like 360-degree feedback, can help employees stay motivated. This is one of the most widely used appraisal methods.

In 360-degree feedback, every employee in an organization appraises his/her managers, peers, customers, suppliers, and also does a self-evaluation. This method ensures effective performance analysis and Total Employee Involved (TEI). If not handled properly, this method can also suffer from the subjectivity of the appraiser.

3. Assessment Centre Method

The assessment centre method tests employees in a social-related situation. This concept was introduced way back in 1930 by the German Army but it has been polished and tailored to fit today’s environment. Employees are asked to take part in situation exercises like in-basket exercises, work groups, simulations, and role-playing exercises that ensure success in a role.

While it gives an insight of the employee’s personality (ethics, tolerance, problem-solving skill, introversion/extroversion, adaptability, etc.), it can also breed unhealthy competition among the workers and bears adverse effects on low performers.

4. Behaviorally Anchored Rating Scale (BARS)

Behaviorally anchored rating scales (BARS) bring out both the qualitative and quantitative benefits in a performance appraisal process. BARS compares employee performance with specific behavioral examples that are anchored to numerical ratings.

BARS Performance Appraisal method (Kissflow HR Cloud)

This performance appraisal method is said to be better than the traditional methods. BARS provides clear standards, improved feedback, accurate performance analysis, and consistent evaluation. However, when done manually it suffers from the usual distortions that are inherent in most review methodologies.

5. Psychological Appraisals

Psychological appraisals come in handy to determine the hidden potential of employees. This method focuses on analyzing an employee’s future performance rather than their past work.

Qualified psychologists conduct a variety of tests (in-depth interviews, psychological tests, discussions, and more) to identify an employee’s emotional, intellectual, and other related traits. However, it is a rather slow and complex process and the quality of results is highly dependent on the psychologist who administers the procedure.

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.

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How to improve your performance appraisal method

Whether you’re going to give workers a score, detailed feedback, or specific tips on how to succeed at their jobs, you need to narrow down on one approach that can help you achieve all these goals.

To make the most of your current performance appraisal methods, consider the following points:

1. Zero in on goals

You should design your performance management method based on what organizational goals you want to achieve. Even the best performance appraisal methods fail when they aren’t geared towards the core needs of a business. Similarly, the company goals and the rationale behind conducting performance appraisal shouldn’t be a secret to employees.

This way, they can clearly understand how their professional goals and contributions can be aligned well with the company objectives. They will also have a better sense of assessment that they go through and its impact on their long-term success.

2. Structure the information

Formalize the topics that you plan to discuss during the performance assessment. A standard structure makes it easier to ensure fairness and give employees valuable information.

A well-sketched performance assessment should include an overview of accomplishments, ways in which the employee could improve in the future, what type of skills they need to gain to better their performance, how progress is being made on specific goals, and what professional development opportunities may become available in the future.

3. Collect information in advance

Getting feedback from team members and supervisors will make your performance appraisal method much more valuable. Use digital forms to document employee feedback and automate the process so that you don’t have to revisit the step time and again. Instead, you can set the data to flow smoothly and route it through relevant stakeholders who are supposed to review the information.

Performance appraisal raw facts

Typically, the HR department runs an employee appraisal process to figure out how well employees are engaged with their work and what perks can better the chances their success.

performance appraisal methods facts

These numbers paint a rather convincing picture about the importance of performance appraisals. In order to benefit from all of its positive impacts, however, a company will have to do employee appraisal in the correct way.

A future-focused employee performance appraisal method

Performance tracking in recent years has become intelligent in many ways. Automated HR software allows HR leaders to roll out a modern performance appraisal method in a few minutes. Furthermore, all-in-one HR tools like Kissflow HR Cloud enables businesses to ensure global consistency in performance appraisals while offering room for local and role-specific variations. 

With Kissflow HR Cloud, businesses can eliminate critical performance gaps and prepare their organization for the future of work. Best of all, it enables organizations to address pressing issues like high employee turnover rates, low engagement, absenteeism, and a low overall ROI. Employee performance management can be even more exciting and valuable with an adequate solution and the right performance appraisal method. 

Sign up for a free demo of Kissflow HR Cloud and see how easy it is to level up your performance management process!

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