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Performance appraisal methods are the way to determine employee skillsets, growth, and progress in your company. They’re also commonly known as performance evaluation methods.
It’s important to go about performance appraisal for employees regularly to stay current on your employees’ contributions to your company.
There’s a need for an evaluation process for both your business and employees. That’s because the process helps both understand employee strengths. You’ll know who to delegate to, who to promote, who to train, lay off, and so forth.
This post discusses the purpose of a performance appraisal, its benefits, some methods, and examples of how to apply them. Get ready to discover the power of performance appraisal methods in optimizing your organization's performance and maximizing employee potential.
Let’s get started!
What are performance appraisal methods?
Performance appraisal methods refer to the systematic approaches organisations use to evaluate and assess the performance of their employees.
These methods provide a structured framework for measuring and analyzing various aspects of employee performance, such as job knowledge, skills, productivity, and overall contributions to the organization.
Performance appraisal methods serve as a means to gather objective and subjective feedback, set performance expectations, recognize and reward achievements, identify areas for improvement, and make informed decisions regarding promotions, rewards, and training opportunities.
The purpose of a performance appraisal
Performance appraisals aim to help organizations gauge employee productivity and determine their value. They also help employees assess their performance and identify areas they need to work on.
Advantages for the business
Here are some benefits your business stands to gain from a performance appraisal.
- Companies perform appraisals to sometimes determine which employee in the team is up for a promotion based on their overall performance.
- Evaluation helps organizations reveal which employee deserves better compensation, for instance, a salary raise or a bonus, and so forth.
- Businesses can identify their employees' weaknesses and figure out how to help them. This could be through setting up training programs.
- Based on a performance appraisal, a company may discover that they need to change certain aspects of their selection processes so they can end up with better employees.
- Performance appraisals also help employers provide feedback to their employees on their performance, strengths, and weaknesses.
Advantages for employees
Employees also benefit from performance appraisals. Here’s why they value appraisals and why you should do them.
- It makes them feel recognized by the organization. This is especially so when they get rewarded or commended for their achievements. In fact, if you have platforms for employee advocacy, you can get employees to write about their promotions on social media too.
- By identifying their weaknesses, they can identify areas of their duties they need training on. This fosters career advancement.
- Performance appraisals allow employers to discuss potential long-term goals with their employees.
- Employees become more motivated when they’re aware of what their objectives are. These are revealed more clearly during performance appraisals
- Employees look forward to appraisals as they can be eligible for promotions or bonuses. Happy employees can become brand ambassadors and help with ambassador marketing to grow your brand.
7 performance appraisal methods to follow in 2023
Now that you know why your business needs performance appraisals regularly, here are some modern methods of performance appraisal you should try in 2023.
1. 360-degree feedback method
It’s also known as a multi-rater feedback method and is an objective performance appraisal method. Here, a human resource administrator collects feedback about an employee from their work circle.
This includes their manager, supervisor, team members, customers, and other external parties they regularly interact with.
And why is this method effective?
This method gives a holistic view of the employee’s performance which helps in the appraisal process
It’s also less biased since it does not rely on information from a single source. If the feedback provided by most people aligns, it makes it more reliable for the human resource administrator.
Some components of a 360-degree performance review include:
- Self-assessment: Here, the employee is given a chance to look back on their processes and understand their capabilities. Certain questions are asked and they can respond to these based on the recollection of their processes.
- Manager assessment: The employee’s immediate supervisor reviews their performance and submits their review. Reviews from other senior managers the employee may have worked under are also considered here.
- Peer reviews: These are assessments from team members and close colleagues. This part of the review helps assess how well employees work as part of a team, how driven and motivated they are when performing tasks, their reliability, timeliness, and more.
- Subordinate review: Subordinates should be able to give feedback on their senior. These can get sensitive, as fear may be involved.
- Customer reviews: These are reviews from internal customers that directly relate to the business or any external clients who interact with the employee regularly.
Here are examples of questions you can ask your selected participants for a more effective appraisal outcome:
1. What three words would you use to compliment [employee name]?
2. What would you say is [employee name]’s greatest weakness? Remember to keep your criticism constructive.
3. What core values do you see [employee name] regularly demonstrating?
4. Do you believe [employee name] is driven and motivated in the way they perform their tasks?
5. How does [employee name] demonstrate [company value] in the workplace?
2. HR accounting method
This performance appraisal method can either be cost-based or value-based.
The cost-based approach assesses an employee's monetary contributions to the business against the business’s retention costs. Retention costs include salaries, overhead, replacement, and retirement costs.
The value-based model weighs an employee’s monetary and non-monetary contribution to the company against their costs.
They both then gauge their performance based on this comparison. This performance appraisal method is especially ideal for small businesses where the business continuity depends on how well an employee performs.
In larger companies, this model aims at helping human resource managers plan more effectively. You can also use this appraisal method to determine how much more to pay an employee.
3. Self-evaluation method
This method puts the onus of evaluation on the employee and involves them in the process. Employees assess their contributions to the company against set metrics.
Here, the employee is in charge of their development. They can ask performance review questions about their roles and become aware of their processes.
This method has some benefits for the employee. While they’re evaluating themselves, they can identify some of their strengths and weaknesses and know what they need to work on more.
Other benefits include:
- Fewer discrepancies: If your self-appraisal is different from your supervisor's, you can discuss and identify discrepancies in the process.
- Higher engagement: Employees are more engaged in this process, which fosters collaboration between managers and subordinates. It also makes employees feel valued.
- Motivation: Self-evaluation helps with employee motivation, as they’re more in control of their failures and success.
- Personal and professional growth: Employees get time to self-reflect, and critique their own methods and behavior to gain insight.
While self-evaluation leaves the bigger appraisal task to employees, managers are also part of the process. After they’ve written their self-evaluation reports, employees sit with their managers to discuss them.
Some benefits of this appraisal method for managers include:
- Managers are able to assess performances from the employee’s perspective.
- Self-assessments highlight any misunderstandings between managers and their subordinates.
- Managers are also able to collect feedback about how to improve employee performance and motivation beyond remuneration.
Here are a few examples of employee self-evaluation questions you can share with your teams.
- What are your job responsibilities?
- Are there any tasks in your job description that you no longer perform?
- What’s the easiest/most difficult part about your job?
- What accomplishments are you most proud of?
- What makes you good at the work you do?
4. Management by Objectives (MBO) method
In this method, managers and employees set a specific appraisal period. They then identify employee performance goals to focus on during this period and communicate them to each other. They all then work towards these objectives and set up periodic meetings to discuss progress.
This performance appraisal method assesses if employee objectives are SMART (specific, measurable, achievable, realistic, and time-sensitive). Employee objectives are meant to align with the company’s overall long-term goals.
By the end of the set period, employees are evaluated, and success is rewarded with bonuses, promotions, salary increments, etc. Failures are met with either more training, transfers, and so on.
This employee performance management method of appraisal keeps employees committed as they’re clear on what they’re working towards. It works best for appraising employees in senior management positions.
If you’re wondering how to start with MBO appraisal, know that it doesn’t have to be specific initially. You can start with general objectives as you get clearer on your company goals.
Some digital marketing management by objectives examples include:
- Increase lead generation by 25% every month
- Increasing social media engagement rate by 5%
- Get website visitors to spend more time on your site by five more minutes etc.
- Improve LinkedIn prospecting rates by 30%
Other examples of human resource objectives include:
- Improve employee retention rate by 25%
- Improve employee satisfaction by 10%
- Set up employee training programs
5. Behaviorally Anchored Rating Scale (BARS) method
This method takes employee performance and compares it with behavioral patterns that are based on numerical ratings. This way, you’ll get both quantitative and qualitative results from your appraisal.
The first step towards creating a BARS is collecting critical incidents of typical workplace behavior. Then, edit them and remove repetitive behavior.
Reclassify remaining incidents and assign scales to them. For instance, on a scale of 1 to 5, 1 could represent does not meet set standards and five could represent exceeds standards.
Then, develop a set of incidents for evaluation of workplace behavior.
A practical example of a team leader performance assessment could be:
- Scale 1: Makes inappropriate comments
- Scale 3. Stays silent during a team altercation
- Scale 5: Moderates team members during the disagreement
6. Rating scale method
This method uses numerical ratings on items such as leadership skills, dependability, timeliness, organizational skills, etc. to measure the performance of employees. Some rating scale examples include Likert scales and star ratings.
It’s a simplified performance appraisal method reviewers use to rate employees on a scale from poor to excellent.
It’s not as effective as the behaviorally anchored scales, which are more in-depth and specific. However, you can use it to perform a quick evaluation.
One downside to this method is that it does not take into account employee performance over time. It only captures their performance at the time of evaluation, which may not be an accurate reflection of employee growth.
Here’s an example of a rating scale performance appraisal.
Under this rating method, employees may be assessed by their supervisors, managers, subordinates, and sometimes even their customers—just like the 360-degree feedback method.
This all depends on the company or the role you play. The appraiser will then give their rating by choosing a number or item on the scale based on their observation of your work and their satisfaction.
For instance, the item in question could be “the attitude of an employee toward their customers.” An appraiser can choose any number on a scale of 1 to 10, 1 being poor and 10 being excellent.
7. Assessment center method
This method uses stimulating exercises like company simulations, psychological tests, role-playing, and interviews, to evaluate employee behavior.
Through these exercises, employers get to know each employee’s personality based on aspects such as adaptability, timeliness, and tolerance.
You’ll then be able to identify what your employees’ strengths are, whether they have great leadership skills, organizational skills, and so forth.
This method is also used in most hiring processes.
Here’s the process you follow when coming up with an assessment center.
- Pre-assessment: Here, you decide on the objectives of the performance appraisal, find reviewers, design exercises, and set the rating method.
- During assessment: Explain the purpose of each exercise before conducting them. Then, conduct the exercises and note each employee’s strength.
- Post-assessment: Collect feedback from your reviewers, evaluate them, and share them with your employees. If need be, provide further training to the employees who need it. You can use best online video editors to create training videos for your employees and share those with them to help them upskill.
This method is ideal for organizations in the service, manufacturing, and educational industries.
Here’s an example of an assessment situation for employees:
Performance appraisal methods: which one’s best for you?
Every business periodically assesses its employees' performance for various reasons. The struggle can be to identify which method gets the best results.
As discussed, each performance appraisal method has its distinct advantages and disadvantages. How you choose your ideal evaluation method will depend on your business and what you’re looking to get from your appraisal.
Whether you’re looking to improve employee retention, fill a role, or boost employee productivity, there’s a method for you. So, carefully consider your options and choose the right one.
Here are some frequently asked questions about performance appraisal methods.
What are performance appraisal methods?
Performance appraisal methods are systematic approaches organisations use to evaluate and assess the performance of their employees. These methods provide a structured framework for measuring employee productivity, skills, and achievements.
How should organizations choose the right performance appraisal method?
Selecting the appropriate performance appraisal method depends on various factors, such as organizational culture, job roles, and the desired outcomes. It is crucial to consider the specific needs of the organization and the nature of the work being performed when choosing an appraisal method.
How often should performance appraisals be conducted?
The frequency of performance appraisals varies among organizations. Some conduct annual appraisals, while others prefer more frequent evaluations, such as quarterly or biannual reviews. The frequency should allow for meaningful feedback and alignment with organizational goals.
How can performance appraisal methods contribute to employee development?
Performance appraisal methods allow managers to identify employee strengths and areas for improvement. Organizations can support employee growth, enhance skills, and foster continuous learning by providing constructive feedback and setting development goals.
How can organizations ensure fairness and objectivity in performance appraisals?
To ensure fairness and objectivity, organizations should establish clear evaluation criteria, provide training to managers on the appraisal process, encourage two-way communication, and maintain documentation of performance-related discussions. Regular calibration meetings can also help align evaluations across different managers and departments.
Can performance appraisal methods be customized to fit specific organizational needs?
Yes, performance appraisal methods can be tailored to align with an organization's unique needs and culture. Customization may involve modifying existing methods, combining different approaches, or creating new appraisal methods that reflect the organization's values and goals.
How can employees prepare for a performance appraisal?
Employees can prepare for performance appraisals by reviewing their job responsibilities, reflecting on their achievements and challenges, gathering relevant data or examples demonstrating their performance, and setting personal goals for future development.
How can organizations use performance appraisal data effectively?
Performance appraisal data can identify trends, track progress, identify training needs, and make informed decisions regarding promotions, rewards, and performance improvement plans. Analyzing and interpreting the data to derive meaningful insights and take appropriate actions is important.