How Companies Can Implement the Right Performance Appraisal Methods?

As per a 2024 survey conducted by Gallup, only 14% of employees today believe that their performance reviews help them become better. As unfortunate as it may sound, this fact alone underlines the need for the implementation of effective performance appraisal methods.

A well-designed performance appraisal process not only evaluates past performance but also motivates employees and better aligns their goals with organisational objectives.

In light of the same, let’s explore what performance appraisal is and get a detailed insight into the sundry popular techniques of carrying it out. If you happen to be an HR professional or manager, this guide is sure to help you choose and implement the best employee appraisal methods for your organisation. So, without any further ado, let’s get cracking, shall we?

What is Performance Appraisal?

Performance appraisal, in simple words, is the process of reviewing someone’s job performance during an assigned period. It forms an important part of the overall performance management system. For when appraising, managers check whether employees meet what is expected of them and contribute to the organisation’s targets. They also highlight spots where improvements are needed.

The performance appraisal process typically includes:

• Setting performance standards as per the performance appraisal methods used
• Measuring actual performance
• Comparing actual performance against standards
• Providing feedback to employees
• Planning future performance goals

The process, as a whole, allows organisations to manage talent, raise employee productivity, and make the right choices about promotions, rewards, or training.

What is the Purpose of Performance Appraisal?

Find some of the primary purposes of performance appraisal techniques mentioned below for your convenience…

• Providing Feedback: When an effective performance appraisal method is put in place, employees get constructive feedback on their work, their sundry strengths, and weaknesses.
• Identifying Training Needs: These techniques reveal skill gaps and help organisations devise training programs to address them.
• Supporting Career Development: These also help employees make better choices with respect to their careers. For once, they are made aware of their strengths and aspirations, and they are in a much better position to make decisions regarding their future.
• Making HR Decisions: The data that appraisals reveal helps HRs make better decisions with respect to promotions, salary increments, transfers, or terminations.
• Motivating Employees: When your work gets the recognition and direction it needs, you are bound to perform better.
• Aligning Organisational Goals: Performance appraisals make certain that an employee’s individual objectives stay in line with the company’s long-term strategic goals.

Modern vs Traditional Performance Appraisal Methods

Performance appraisal methods have undergone major changes over the years. While traditional ways include an annual review and are mainly based on subjective opinions, modern performance appraisal methods insist on giving regular feedback and measuring progress based on targets and multi-source evaluations.

For an in-depth look at the distinctions between the two, please refer to the table below…

A Look at All the Traditional Performance Appraisal Methods

All the major traditional employee appraisal methods are mentioned below for your understanding…

1. Ranking Method

The ranking method is one of the oldest performance appraisal methods. It involves comparing employees directly to each other and ranking them from best to worst based on overall performance. The focus is on relative performance rather than absolute standards.

How it Works:

1. The manager is supposed to create a list of all employees within a department
2. Each employee is then compared to every other employee based on specific criteria
3. Employees are ranked in order, with the top performer receiving the highest rank and the lowest performer receiving the lowest rank
4. The results are reviewed and finalised, often used to identify top performers for rewards or low performers for improvement plans

2. Paired Comparison Method

The paired comparison method involves comparing each employee with every other employee in pairs on specific criteria. For each pair, the better performer is identified.

How it Works:

• Prepare a list of all employees to be compared
• Form all possible pairs of employees
• For each pair, decide who performed better on the chosen criteria
• Each time an employee is judged better, they receive a point
• After all comparisons, employees are ranked based on their total points

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3. Grading Method

For the grading method, employees are divided into set performance categories or grades, such as A, B, C, or Excellent, Good, Average, Poor, based on their overall performance.

How it Works:

• Set clear criteria for each grade
• Assess each employee’s performance against the criteria
• Place employees into the appropriate grade based on their evaluation

4. Graphic Rating Scale

Graphic rating scale uses a list of traits relevant to job performance, such as punctuality, teamwork, etc., and rates employees on a numerical scale for each trait.

How it Works:

• Determine which traits or behaviours are important for the role
• Create a scale, for example, 1 to 5 or 1 to 10 for each trait
• Supervisors rate each employee on each trait
• Sum or average the ratings to get an overall score

The performance scores from the graphic rating scale method can be used in the 9-box grid, a talent management tool, to turn them into strategic talent insights for better promotion, development, and succession planning. Here’s how…

• In addition to the abovementioned, evaluate potential separately. For example, leadership ability, learning agility, etc.
• Plot employees on the 9-box grid using performance scores from the rating scale and potential
• Make use of the grid to identify talent and guide promotions

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5. Checklist Method

For this performance appraisal technique, a checklist of statements about job-related behaviours is prepared. The evaluator is then asked to check off statements that apply to the employee in question.

How it Works:

• Develop a list of statements describing desirable or undesirable behaviours
• The supervisor checks off each statement that applies to the employee
• The number of positive checks is totaled to assess performance

6. Essay Method

In the essay method, supervisors are required to write a detailed narrative describing an employee’s strengths, weaknesses, and overall performance.

How it Works:

• The supervisor writes a comprehensive description of the employee’s performance, highlighting strengths, weaknesses, accomplishments, and areas for improvement
• The essay is reviewed with the employee during the appraisal meeting

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7. Critical Incident Method

The critical incident method is one of those performance appraisal methods that focuses on keeping track of specific instances of productive or unproductive employee behaviour that are critical to job success.

How it Works:

• Supervisors keep track of important positive or negative incidents involving the employee
• These incidents are reviewed and discussed at the time of appraisal
• Finally, feedback is given, which is based on actual events and not general impressions

8. Field Review Method

In this appraisal tactic, an HR professional or external reviewer conducts interviews with supervisors to assess employee performance, rather than the direct supervisor alone.

How it Works:

• The HR representative interviews the employee’s supervisor and possibly others to gather detailed information about the employee’s performance
• They then compile the findings into a report
• The report is shared with the employee and used for development planning

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9. Bell Curve Method (Forced Distribution)

The bell curve method is a performance appraisal technique where employees are grouped into categories such as top, average, and low performers, based on a predetermined distribution that looks like a bell-shaped curve. Hence, the name!

How it Works:

• Managers rate all employees’ performance
• They assign a set percentage to each performance category, for example, 30% top, 65% average, 5% low, etc.
• They fit employee ratings into these categories to match the curve
• Finally, provide feedback and use results for rewards, promotions, or improvement plans

A Look at All the Modern Performance Appraisal Methods

All the major modern employee appraisal methods are mentioned below for your understanding…

1. Management by Objectives (MBO)

Management by Objectives (MBO) is one of the most used performance appraisal methods, where managers and employees set measurable objectives together. The performance of an employee is adjudged on the basis of their achievement of the set goals.

How it Works:

• Manager and employee jointly set clear, measurable goals aligned with organizational objectives
• Actions and resources needed to achieve each goal are then identified
• Regular check-ins are conducted to discuss progress and address obstacles
• At the end of the appraisal period, the extent to which objectives were met is assessed
• Feedback is given, and new objectives are set for the next period

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2. Behaviorally Anchored Rating Scale (BARS)

Behaviorally Anchored Rating Scale (BARS) mixes aspects of both qualitative and quantitative appraisal. It rates employees using numbers, but each number is linked to a clear example of behaviour. This is to make the evaluation more fair and understandable.

How it Works:

• Define critical job behaviours for successful performance
• Create specific descriptions for each performance level. For example, 1=poor, 5=excellent
• Supervisors evaluate employees by matching observed behaviour to the closest anchor
• Each behaviour is assigned a score, which is then totalled for an overall rating

3. 360 Degree Feedback

360-degree feedback derives job performance feedback from a range of sources, including supervisors, peers, subordinates, and sometimes clients or customers.

How it Works:

• Identify a group of people who interact regularly with the employee
• Use 360-degree feedback software to send feedback forms to all raters
• Collect ratings and comments from each source
• Aggregate and analyze feedback for trends and patterns
• Share results with the employee and create a development plan

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4. Assessment Center Method

The assessment center method is one of those performance appraisal methods that evaluates employees through a series of simulations, exercises, and role-plays that imitate real job challenges.

How it Works:

• Develop job-related simulations, group discussions, presentations, and role-plays
• Trained assessors observe and rate employees during each exercise
• Assess communication, leadership, problem-solving, and other relevant skills
• Compile results and provide detailed feedback to participants.

5. Psychological Appraisals

Psychological appraisals, as the name suggests, make use of psychological tests and interviews to evaluate an employee’s potential, personality traits, and suitability for future roles.

How it Works:

• Employees are required to complete standardized psychological assessments
• Psychologists or trained professionals then interview the employee
• The employee’s cognitive abilities, personality, motivation, and leadership potential are assessed
• A detailed report of the findings is then shared with all for development or succession planning

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6. Human Resource Accounting Method (Cost Accounting Method)

Human resource accounting method is an employee appraisal method that evaluates employees by putting a monetary value on their work, based on what they cost and how much they help the company.

How it Works:

• Identify all the cost components, including salary, training, benefits, and other expenses
• Assign these costs to individual employees or roles
• Assess the employee’s output or contribution
• Compare costs to the value generated to determine ROI
• This data can then be used for HR decisions on compensation, training, or retention

Tips for a Good Performance Appraisal Process

If you are looking to maximize the effectiveness of your performance appraisal methods, consider the following tips…

• Use Multiple Techniques: Use both traditional and modern performance appraisal methods together to get a balanced view.
• Train Evaluators: Managers should be taught not to rely on biases and stick to constructive feedback.
• Set Clear Goals: For any performance appraisal technique to work, it is important to make certain that employees understand expectations and metrics.
• Leverage Technology: You can make use of the sundry performance management systems and 360-degree feedback software to streamline data collection and analysis.
• Encourage Two-Way Feedback: You should allow employees to share their points of view during appraisal meetings.
• Maintain Confidentiality: Protect employee data and ensure fair treatment.
• Regular Check-ins: Feedback should not be limited to annual reviews. Performance conversations should rather take place weekly/monthly.

Conclusion

All in all, performance appraisal methods are tools of great significance when it comes to motivating employees, supporting progress, and driving organizational success.

If you, too, wish to build a high-impact performance appraisal process for your organization, start by selecting the right performance management system with chosen employee appraisal method that best aligns with your business needs. For all the technological aid you might need alongside it, remember we, at Techjockey, are just a call away!