Performance Appraisal- is one of the major keys to effective management.

What Is a Performance Appraisal?

The term “performance appraisal” refers to the regular review of an employee’s job
performance and overall contribution to a company. Also known as an annual
review, employee appraisal, performance review or evaluation, a performance
appraisal evaluates an employee’s skills, achievements, and growth, or lack thereof.
Companies use performance appraisals to give employees big-picture feedback on
their work and to justify pay increases and bonuses, as well as termination decisions.
They can be conducted at any given time but tend to be annual, semiannual, or
quarterly.12
KEY TAKEAWAYS
 A performance appraisal is a regular review of an employee’s job
performance and contribution to a company.
 Performance appraisals are also called annual reviews, performance reviews
or evaluations, or employee appraisals.
 Companies use performance appraisals to determine which employees have
contributed the most to the company’s growth, review progress, and reward
high-achieving workers.
 Although there are many different kinds of performance reviews, the most
common is a top-down review in which a manager reviews their direct report.
 Employees who believe that the evaluation’s construction isn’t reflective of
their company’s culture may feel dissatisfied with the appraisal process.
What Is the Purpose of Performance Appraisals?
Performance appraisals are usually designed by human resources (HR) departments
as a way for employees to develop in their careers. They provide individuals with
feedback on their job performance, ensuring that employees are managing and
meeting the goals expected of them and giving them guidance on how to reach
those goals if they fall short.
Because companies have a limited pool of funds from which to award incentives,
such as raises and bonuses, performance appraisals help determine how to allocate
those funds. They provide a way for companies to determine which employees have
contributed the most to the company’s growth so that companies can reward their
top-performing employees accordingly.
Performance appraisals also help employees and their managers create a plan for
employee development through additional training and increased responsibilities, as
well as to identify ways that the employee can improve and move forward in their
career.
Ideally, the performance appraisal is not the only time during the year that managers
and employees communicate about the employee’s contributions. More frequent
conversations help keep everyone on the same page, develop stronger relationships
between employees and managers, and make annual reviews less stressful.
Types of Performance Appraisals
Most performance appraisals are top-down, meaning that supervisors evaluate their
staff with no input from the subject. But there are other types:
 Self-assessment: Individuals rate their job performance and behavior.
 Peer assessment: An individual’s work group or co-workers rate their
performance.
 360-degree feedback assessment: Includes input from an individual,
supervisor, and peers.
 Negotiated appraisal: This newer trend utilizes a mediator and attempts to
moderate the adversarial nature of performance evaluations by allowing the
subject to present first. It also focuses on what the individual is doing right
before any criticism is given. This structure tends to be useful during conflicts
between subordinates and supervisors.32
There are many performance appraisal apps that have been developed to help
companies automate the evaluation process.
What Are Some Criticisms of Performance Appraisals?
Performance appraisals are designed to motivate employees to reach and/or exceed
their goals. But they do come with a lot of criticism.
An issue with performance appraisals is that differentiating individual and
organizational performance can be difficult. If the evaluation’s construction doesn’t
reflect the culture of a company or organization, it can be detrimental. Employees
may report general dissatisfaction with their performance appraisal
processes.4 Other potential issues include:15
 Distrust of the appraisal can lead to issues between subordinates and
supervisors or a situation in which employees merely tailor their input to
please their employer.
 Performance appraisals can lead to the adoption of unreasonable goals that
demoralize workers or incentivize them to engage in unethical practices.
 Some labor experts believe that the use of performance appraisals has led to
lower use of merit- and performance-based compensation.
 Performance appraisals may lead to unfair evaluations in which employees
are judged not by their accomplishments but by their likability. They can also
lead to managers giving underperforming staff a good evaluation to avoid
souring their relationship.
 Unreliable raters can introduce a number of biases that skew appraisal results
toward preferred characteristics or ones that reflect the rater’s preferences.
  Performance appraisals that work well in one culture or job function may not
be useful in another.15
What Are Performance Appraisals Used For?
Performance appraisals are used to review the job performance of an employee over
some period of time. These reviews are used to highlight both strengths and
weaknesses to improve future performance.
What Are the Benefits of a Performance Appraisal?
When executed correctly, performance appraisals can pay off significantly. Among
other things, they are capable of boosting employee morale and engagement,
clarifying expectations, helping to get the best out of staff, and incentivizing hard
work and dedication.
It’s not just companies that benefit, either. Open lines of communication make it
easier for employees to raise concerns, express themselves, find their right path, feel
appreciated, and be rewarded when they do a good job.
When Should a Performance Appraisal Take Place?
Performance management is an ongoing process. Throughout the year, managers
are encouraged to engage with employees to establish goals, note progress, and
provide feedback. Formal reviews or appraisals often take place on a yearly or
quarterly basis.
What Is a 360-Degree Appraisal?
Standard performance reviews include an employee and their manager or
supervisor. The 360-degree version also solicits input from the employee’s
colleagues or co-workers.
The Bottom Line
Communication between employees and their manager or supervisor can be very
rewarding. Performance appraisals are capable of boosting morale and output,
benefiting all parties.
That’s assuming they go well, though. Sadly, many performance appraisals aren’t
executed in the most effective way. In many cases, they may be rushed or simply
follow a set framework that perhaps doesn’t always benefit every type of industry or
person. Poorly handled appraisals can be counterproductive. Without a bespoke
approach and careful consideration of how to structure meetings and set reasonable
targets, the performance appraisal process can have its drawbacks.
EXAMPLE:
Imagine you're a manager in a retail store, and you're conducting a performance
appraisal for one of your employees, Mark. Mark has been working as a sales
associate for the past year.
During the appraisal meeting, you discuss Mark's performance in various aspects of
his job. You talk about his sales numbers, customer service skills, and teamwork.
You note that Mark consistently meets and exceeds his sales targets, often providing
excellent customer service and receiving positive feedback from customers.

You also address some areas for improvement, such as Mark occasionally arriving a
few minutes late for his shift and not consistently following the store's merchandising
guidelines.

In the discussion, you and Mark set specific goals for the next year, including
improving his punctuality and adhering to merchandising standards. You offer to
provide additional training or support to help him achieve these goals.

Furthermore, you discuss potential opportunities for career advancement within the
store and whether he's interested in taking on more responsibilities or pursuing
leadership roles.

This performance appraisal helps you acknowledge Mark's strengths, provide

constructive feedback, and work together to create a development plan that benefits
both him and the store's overall success.
PERFORMAN CE APPRAISAL VS. PERFORMANCE MANAGEMENT
*Performance appraisal* is an organized way of evaluating the performance and
potential of employees for their future growth and development. It is a system that
focuses on individual job performance and is conducted by the human resource
department of the organization ². Performance appraisal is inflexible and reactive in
nature ².

On the other hand, *performance management* is a strategic tool that evaluates

employees as a whole ². It is a continuous process that focuses on aspects like
planning, monitoring, and evaluating employee objectives in an attempt to enhance
employee performance ⁴. Performance management is flexible and proactive in
nature ¹.

In summary, while performance appraisal is a system, performance management is

a process. Performance appraisal evaluates individual job performance, whereas
performance management evaluates employees as a whole. Performance appraisal
is inflexible and reactive, while performance management is flexible and proactive.