Importance of a Performance Appraisal

 

                                                Figure 1 - Importance of Performance Appraisal

A job is the factor that shapes the hopes, needs, and especially survival of a human life.

Here, the sacrifices made from the beginning of a job to the end of the job, the experience and knowledge we gain, and our inherent skills all affect the success of the job, and with that help, we can achieve all the goals we want.

But how does the organization recognize the experience knowledge, inherent skills, and practices possessed by an employee?

What are the related measurements?

Through this blog, let's bring out those factors and requirements.

                                                Figure 2 - Importance of Performance Appraisal

What is Performance Appraisal?

The performance appraisal process is a continuous evaluation of the employees based on their performance. It considers both the quantity and the quality of their work and evaluates them based on pre-defined parameters by managers and HR.

Performance appraisal highlights the employee’s skillset and helps them receive the recognition they deserve. Performance appraisal is a task which were conducted annually, where the performance of employees was evaluated. However, the changing work culture has resulted in companies undertaking continuous performance reviews and providing feedback.

The reporting manager usually provides feedback to the employee by providing an overview of their overall performance. They also help the staff understand whether they have achieved the targets and goals set for them the previous year. (Pocket HRMS, 2023)

 

Traditionally, performance appraisals include:

A face-to-face meeting between the manager and staff member. This is used to discuss past performance and expectations for the future

A review of any previously set objectives

Setting new objectives for the employee to work towards over the next review period

A written record of the discussions between the manager and the employee

Appraisals are often used in conjunction with other performance assessment tools, for example:

 

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.

        

                                                                   Figure 3 - MBO

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 the feasibility of achieving those set objectives.

This performance appraisal method is used to match the overarching organizational goals with the 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.

 

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:

            1. Self-appraisals

Self-appraisals offer employees a chance to look back at their performance and understand their strengths and weaknesses.

2. Managerial reviews

Performance reviews done by managers are a part of the traditional and basic form of appraisals.

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.

4. Subordinates Appraising manager (SAM)

This upward appraisal component of the 360-degree feedback is a delicate and significant step.

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.

                                                          Figure 4 - Assessment Centre Method

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 center 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 center 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 into the employee’s personality (ethics, tolerance, problem-solving skills, introversion/extroversion, adaptability, etc.)

 

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 the 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.

The 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

 

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:

Extract measurable, objective data about not just an employee’s performance but also potential

It can be deployed easily when compared with other performance appraisal methods

Offer introverted or shy employees a platform to shine and prove their potential

 

 6. Human-Resource (Cost) Accounting Method

The 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 the 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 the 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 (Kiss flow, 18.09.2023)

    Figure 4 - Performance Appraisals

Key Objectives of Performance Appraisals

 

1. Set Employee Goals

For successful performance appraisals, employees should be aware of the expectations of the company.

Hence, companies provide their staff members with relevant goal setting as per their expectations for their staff.

2. Motivate Performers

With the help of a performance appraisal, you can motivate the better performers further by helping them understand the exact expectations of the company.

The management can share their exact requirements with the staff and be assured that they will achieve their targets on time.

3. Boost Confidence

A performance appraisal helps employees to identify the impact their work makes on the organization.

It helps them realize their work is appreciated by their management, which boosts their confidence.

4. Meaningful Recognition

It is a well-established fact that recognition for their work helps employees feel engaged and satisfied with their work.

            Hence, it is essential to recognize the staff for their work.

5. Counsel Under-performers

While it helps to motivate the achievers, one should not forget the strengths and weaknesses too.

It is essential to counsel the under-performers to understand what is keeping them from undertaking their tasks well.

6. Transparent Evaluations

Since performance reviews are subject to internal and external bias, it is necessary to undertake them transparently to ensure a fair judgment.

Human beings are inherently biased and the same will affect the judgement of the managers while evaluating their staff.

7. Recognize Training Needs

            The performance review process considers the employee’s training effectiveness too.

Hence, determining the overall training requirements is included as an objective of the performance appraisal process.

8. Plan Recruitment

With the help of frequent performance appraisals, you can understand whether your employees are being stressed out by excess work.

Consequently, you can develop a recruitment plan to hire more staff to ensure an adequate workforce.

9. Improve Productivity

A robust performance appraisal system ensures improved overall productivity in the organization since it sets the performance goals for each employee.

10. Simplified Promotion

            Performance appraisal helps us understand the employees who would be ideal for promotions.

With measurable KPIs, a performance appraisal system ensures that you have the necessary figures if anyone raises doubts about their colleague’s promotion.

The process of promotion also becomes easy and transparent with the deployment of a performance appraisal system in place.

11. Compliance

If employees are not provided a performance appraisal for any reason, they can challenge your decision.

Similarly, consistently poorly performing employees are fired from their positions, if they fail to perform their duties despite providing multiple training opportunities.

  

 

Advantages of Performance Appraisals

Performance Appraisal is a process of evaluating the performance of employees.

The following are some advantages to Performance Appraisers:

• ·         Helps managers to decide on salary increments and promotions.
• ·         Enables employees to know how they are performing in their jobs.
• ·         Helps managers understand the strengths and weaknesses of their direct reports.
• ·         Helps managers to decide on compensation packages.
• ·         Assists in the development of employees by providing feedback and coaching opportunities.
• ·         Aids in the creation of an employee development plan that’s tailored to each individual’s needs.
• ·         Provide documentation of efforts, goals, interventions, and more

·         Overall, performance appraisals are of huge benefit to most organizations.

 

Disadvantages of Performance Appraisals

There are several disadvantages of performance appraisals if you don’t do them in the right way. First, they can be stressful for employees.

The process of giving and receiving feedback can be uncomfortable for both parties and may cause resentment to develop over time if it’s not handled properly.

We encourage the use of self-appraisals so that employees feel like they have a voice in the process.

Second, performance appraisals are often subjective and inaccurate because they rely on managers’ evaluations rather than objective measures such as sales numbers or customer satisfaction scores to determine an employee’s success or failure in their job duties (and therefore his or her salary increase).

Using a performance management system can help ensure the equitable distribution of standards across your workforce when it comes to KPIs, goals, grading systems, and more.

Thirdly, many companies have found that their annual review systems don’t work very well because they’re unfair–for example, some employees receive raises while others do not; some receive bonuses while others do not; some get promoted while others stay put; and more.

Finally – last but definitely not least – these annual reviews are often not timely: they’re conducted months after the fact when everyone involved has forgotten what happened during that particular period of time (and possibly even changed roles within the company). To abate this, use a performance management system that integrates with your messaging systems and email to send reminders so they aren’t forgotten.

 

The Future of Performance Appraisal in HRM Methods.

Performance appraisal is an essential part of HRM. It’s a valuable tool for employee development, performance improvement, and productivity.

Performance appraisal can help employees get promoted if they are doing well.

It can also be used to identify training needs so that employees can be trained on the job or through external training courses if necessary. (Noel Diem, 2023)

                                                               Figure 6 - Conclusion

Conclusion

Annual Performance Appraisal is the traditional way of evaluating an employee’s performance. While most companies still employ an annual system of appraisal, it is less appreciated by employees.

A Performance Management System that facilitates a shorter frequency of performance review combined with components of rewards and recognition has proved to be more effective in the past few years.

Employees are looking for daily or weekly feedback rather than annual feedback for their performance and career development.

Companies that rely on continuous communication and feedback also have a higher retention rate. (Possible works, 2023)

References

Pocket HRMS.(2023). 11 Key Objectives of Performance Appraisal in 2023 [Online]

Available at:https://www.pockethrms.com/blog/objectives-of-performance-appraisal/

Accessed [21/11/2023]

Possible works.(2023). How Performance Appraisal Helps Improve Employee Performance? [Online]

Available at:https://possibleworks.com/blog/how-performance-appraisal-helps-improve-employee-performance/

Accessed [21/11/2023]

Jayson Darby.(10 NOVEMBER 2023). 8 Tips for Effective Performance Appraisals [Online]

Available at:https://www.thomas.co/resources/type/hr-blog/8-tips-effective-performance-appraisals

Accessed [21/11/2023]

Adam Hayes.(25 May 2023). Performance Appraisals in the Workplace: Use, Types, Criticisms [Online]

Available at:https://www.investopedia.com/what-is-a-performance-appraisal-4586834

Accessed [21/11/2023]

Noel Dem.(2023). Performance Appraisal in HRM Methods, Pros & Cons in 2023 [Online]

Available at:https://www.reviewsnap.com/blog/performance-appraisal-hrm-methods-pros-cons-2023/

Accessed [21/11/2023]

Anjali J.(September 24, 2020). Performance Appraisal [Online]

Available at:https://theinvestorsbook.com/performance-appraisal.html

Accessed [21/11/2023]