6 Practical Performance Appraisal Methods for the Modern Workforce (With Examples)

What is Performance Appraisal?

A performance appraisal is a regular and structured method of assessing an employee's job performance with predetermined job expectations. It involves a subjective analysis of the individual's strengths and areas for improvement, their value to the organization, and their potential for future growth and development.

What is the definition of a 360-degree appraisal?

A 360-degree appraisal is an all-encompassing employee evaluation method. It collects anonymous input from coworkers, supervisors, and subordinates to provide employees with comprehensive and helpful feedback on their performance.

Employee Performance Appraisal

The employee performance appraisal process is crucial for organizations to boost employee productivity and improve their outcomes. Performance appraisals are an annual process where an employee’s performance and productivity is evaluated against a predetermined set of objectives.

Performance management is super important, not only because it is the determining factor in an employee’s wage rise and promotion but also because it can evaluate an employee’s skills, strengths, and shortcomings accurately.

However, the performance appraisal is rarely put to good use since existing performance appraisal methods fail to internalize employee performance results. To prevent performance appraisals from becoming nothing more than empty buzzwords, HR managers need to revamp their existing process and try implementing one of the six modern performance appraisal methods that are listed below.

Free Template

Employee Performance Appraisal Template

Get Template

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.

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 objectives to focus on during a specific appraisal period. After setting clear goals, managers and subordinates periodically discuss the progress made to control and debate on the feasibility of achieving those set objectives.

This performance appraisal method is used to match the overarching organizational goals with objectives of employees effectively while validating objectives using the SMART method to see if the set objective is specific, measurable, achievable, realistic, and time-sensitive.

At the end of the review period (quarterly, half-yearly, or annual), employees are judged by their results. Success is rewarded with promotion and a salary hike whereas failure is dealt with transfer or further training. This process usually lays more stress on tangible goals and intangible aspects like interpersonal skills, commitment, etc. are often brushed under the rug.

Incorporating MBO into your performance management process

To ensure success, the MBO process needs to be embedded in the organizational-wide goal setting and appraisal process. By incorporating MBO into the performance management process, businesses can improve employee’s commitment, amplify chances for goal accomplishment, and enable employees to think futuristically.

Ideal for:

Measuring the quantitative and qualitative output of senior management like managers, directors, and executive (business of any size)

Common reason for failure:

Incomplete MBO program, inadequate corporate objectives, lack of top management involvement

Steps to implement a successful MBO program:

1. Every manager must have 5-10 goals expressed in specific, measurable terms
2. Manager can propose their goals in writing, which will be finalized after review
3. Each goal needs to include a description and a clear plan (list of tasks) to accomplish it
4. Determine how progress will be measured and how frequently (minimum quarterly)
5. List down corrective actions that will be taken if progress is not in accordance with plans
6. Ensure that goals at each level are related to the organizational objectives and levels above/below

Did you know?

Retail giant Walmart, uses an extensive MBO participatory approach to manage the performance of its top, middle, and first-line managers.

2. 360-Degree Feedback

360-degree feedback is a multidimensional performance appraisal method that evaluates an employee using feedback collected from the employee’s circle of influence namely managers, peers, customers, and direct reports. This method will not only eliminate bias in performance reviews but also offer a clear understanding of an individual’s competence.

This appraisal method has five integral components like:

1. Self-appraisals

Self-appraisals offer employees a chance to look back at their performance and understand their strengths and weaknesses. However, if self-appraisals are performed without structured forms or formal procedures, it can become lenient, fickle, and biased.

2. Managerial reviews

Performance reviews done by managers are a part of the traditional and basic form of appraisals. These reviews must include individual employee ratings awarded by supervisors as well as the evaluation of a team or program done by senior managers.

3. Peer reviews

As hierarchies move out of the organizational picture, coworkers get a unique perspective on the employee’s performance making them the most relevant evaluator. These reviews help determine an employee’s ability to work well with the team, take up initiatives, and be a reliable contributor. However, friendship or animosity between peers may end up distorting the final evaluation results.

4. Subordinates Appraising manager (SAM)

This upward appraisal component of the 360-degree feedback is a delicate and significant step. Reportees tend to have the most unique perspective from a managerial point of view. However, reluctance or fear of retribution can skew appraisal results.

5. Customer or client reviews

The client component of this phase can include either internal customers such as users of product within the organization or external customers who are not a part of the company but interact with this specific employee on a regular basis.

Customer reviews can evaluate the output of an employee better, however, these external users often do not see the impact of processes or policies on an employee’s output.

Advantages of using 360-degree feedback:

• Increase the individual’s awareness of how they perform and the impact it has on other stakeholders
• Serve as a key to initiate coaching, counselling, and career development activities
• Encourage employees to invest in self-development and embrace change management
• Integrate performance feedback with work culture and promote engagement

Ideal for:
Private sector organizations than public sector organisations as peer reviews at public sector organizations are more lenient.

Common reason for failure:

Leniency in review, cultural differences, competitiveness, ineffective planning, and misguided feedback

Did you know?

Top private organizations like RBS, Sainsbury’s, and G4S are using 360-degree, multi-rater performance feedback to measure employee performance.

3. Assessment Centre Method

The concept of assessment centre was introduced way back in 1930 by the German Army but it has been polished and tailored to fit today’s environment. The assessment centre method enables employees to get a clear picture of how others observe them and the impact it has on their performance. The main advantage of this method is that it will not only assess the existing performance of an individual but also predict future job performance.

During the assessment, employees are asked to take part in social-simulation exercises like in-basket exercises, informal discussions, fact-finding exercises, decision-making problems, role-play, and other exercises that ensure success in a role. The major drawback of this approach is that it is a time and cost intensive process that is difficult to manage.

Advantages of the assessment centre method:

• Enhance a participant’s knowledge, boost his/her thought process, and improve employee efficiency
• Can be tailored to fit different roles, competencies, and business needs
• Offer an insight of the employee’s personality (ethics, tolerance, problem-solving skill, introversion/extroversion, adaptability, etc.)

Ideal for:

Manufacturing organizations, service-based companies, educational institutions, and consulting firms to identify future organizational leaders and managers.

Guidelines to implement assessment centre practice:

1. Use job analysis to determine the components of effective performance
2. Identify performance metrics that can be measured using this assessment center
3. Classify meaningful and relevant candidate behavior in the assessment process
4. Find assessment techniques that can ideally elicit ideal behavioral information
5. Spot assessors and assessee’s excluding immediate supervisors
6. Provide thorough training to assessors and reviewers
7. Maintain a system of performance records for each candidate
8. Review records and reward employee or provide training accordingly

Did you know?

Microsoft, Philips, and several other organizations use the assessment centre practice to identify future leaders in their workforce.

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.
Each performance level on a BAR scale is anchored by multiple BARS statements which describe common behaviors that an employee routinely exhibits. These statements act as a yardstick to measure an individual’s performance against predetermined standards that are applicable to their role and job level.

The first step in BARS creation is generation of critical incidents that depict typical workplace behavior. The next step is editing these critical incidents into a common format and removing any redundancy. After normalization, the critical instances are randomized and assessed for effectiveness. Remaining critical incidents are used to create BARS and evaluate employee performance.

Advantages of using BARS:

• Enjoy clear standards, improved feedback, accurate performance analysis, and consistent evaluation
• Eliminate construct-irrelevant variance in performance appraisal ratings by emphasis more on specific, concrete, and observable behaviors
• Decrease any chance for bias and ensure fairness throughout the appraisal process

Ideal for:

Businesses of all sizes and industries can use BARS to assess the performance of their entire workforce from the entry level agent to c-suite executives

Common drawbacks of BARS:

1. High chance for subjectivity in evaluations
2. Hard to make compensation and promotion decisions
3. Time-consuming to create and implement
4. Demands more from managers and senior executives

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. These appraisals are used to analyze seven major components of an employee’s performance such as interpersonal skills, cognitive abilities, intellectual traits, leadership skills, personality traits, emotional quotient, and other related skills.

Qualified psychologists conduct a variety of tests (in-depth interviews, psychological tests, discussions, and more) to assess an employee effectively. However, it is a rather slow and complex process and the quality of results is highly dependent on the psychologist who administers the procedure.

Specific scenarios are taken into account while performing psychological appraisal. For instance, the way in which an employee deals with an aggressive customer can be used to appraise his/her persuasion skills, behavioral response, emotional response, and more.

Advantages of psychological appraisals:

1. Extract measurable, objective data about not just an employee’s performance but also potential
2. Can be deployed easily when compared with other performance appraisal methods
3. Offer introverted or shy employees a platform to shine and prove their potential

Ideal for:

Large enterprises can use psychological appraisals for an array of reasons including development of leadership pipeline, team building, conflict resolutions, and more.

Common reasons for failure:

Absence of proper training, lack of trained professionals to administer reviews, and nervousness or anxiety of candidates can skew results.

Did you know?

Ford motors, Exxon Mobil, Procter & Gamble use psychological appraisals to test the personality and performance of their employees.

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.

Advantages of the human cost accounting method:

• Effectively measure the cost and value that an employee brings to the organization
• Help identify the financial implications that an employee’s performance has on the organization’s bottom line

Ideal for:

Startups and small businesses where the performance of one employee can make or break the organization’s success.

Implementation of human resource cost accounting method:

1. Identify the gap between the market and the current package of an employee
2. Determine the monetary and non-monetary value that an employee brings to the table
3. List down the things that an employee achieved in the review period (increase in the subscriber count, improvement in revenue, number of new deals won, etc.,)

A future-focused employee performance appraisal method

Choosing the right performance appraisal method is more critical than ever since it reflects what you think of your employees and how much you care about employee morale. Once you’ve found an ideal performance review method for your needs, the next step is implementing it properly to eliminate critical performance gaps and address pressing issues that impact ROI.