Performance Management Vs Performance Appraisal: Key Differences

Performance indicators are used by organizations for evaluating how the teams have been performing so far. Performance metrics reflect how far have the employees come in achieving a company’s goals. These metrices serve multiple benefits, such as higher productivity and engagement, and lower attrition rate.

Performance management and appraisal is important for giving employees their due share of appreciation with appraisals or assigning them new goals for business development and growth.

What Is Performance Management?

Performance management is an all-encompassing process designed to meet an organization’s strategic objectives. This ongoing process between employees and direct managers consists of identifying goals, clarifying expectations, setting objectives, submitting feedback & reviewing results. It’s an ongoing process, where both parties communicate frequently to accomplish strategic objectives.

Performance management system don’t just eliminate the possibility of underperformance but also helps manage appraisals, remunerations, transfers, performance and more. The strategic approach towards performance tracking and management helps achieve the desired organizational objectives.

What Is Performance Appraisal?

Performance appraisal is the process of evaluating the contribution of employees and ensuring the due recognition and appreciation for their hard work.

Appraisals go a long way in boosting employees’ overall productivity and in turn achieving an organization’s growth. Performance appraisal acts as an incentive to work hard and turn into a valuable individual contributor.

To initiate the appraisal process, HR teams and direct managers assess how well an employee has been able to contribute to the growth of an organization.

Various other qualities too are assessed here like consistency, team contribution, quality, and skills. In fact, these parameters help decide whether to give pay hikes, promotions or bonuses.

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Comparison Between Performance Management vs Performance Appraisal

Performance management and performance appraisal involves processes aimed at achieving organizational growth and employees’ better performance. Let us go through key differences between performance management vs performance appraisal for a better grip on the technicalities that separate one from the other.

Basis of Comparison	Performance Appraisal	Performance Management
Meaning	Analysis of employees’ performance	Managing the human resources
Purpose	Determining compensation	Developing employee growth strategies
Orientation	System involving assessments	Processes to get the best out of employees
Flexibility	Rigid following set procedures	Supple as per organizational goals
Type of Tool	Operational Tool	Strategic Tool
Aim	Improving employee efficiency	Reaching business development goals
Ownership	Human resources department	Team managers/multiple stakeholder
Time-frame	Annually	Regular & ongoing
Nature	Retrospective	Forward-looking
Approach	Individual employee-based	Based on team values

Key Performance Management Metrics

Performance metrics give insights about how the employees have been performing. The data in these insights offer guidance about evolving such practices that may improve an employee’s performance over time. Let us go through some of the key performance management metrices.

Metric 1 – Assessing Quality

Use this metric to assess how well an employee has been performing and set performance management goals accordingly. Quality metric is of immense importance to all teams, be it the sales department, human resources, or finances.

An effective way of meeting the quality metric is to collect three-sixty-degree feedback from other team members, customers, peers, and subordinates. Aside from 360 degree feedbacks, managers can continue with ongoing task reviews for managing employee performance.

Based on reviews about the quality of work done, team heads can set goals accordingly. You can list down personalized objectives for every team member, aligned to the organizational goals.

Employees in turn would accomplish them one by one with full support from managers who would encourage them to learn from their mistakes and believe in the learning curve.

Metric 2 – Job Functions

This is an extension of the first metric. Based on your key responsibility areas, these parameters determine an employee’s suitability to the job function, how well they have performed and which areas need improvement.

Some of these parameters include innovation and creativity, consistency, and initiative. Other important metrics to asses job functions are time management and the attention to detail.

An employee may or may not be able to meet these all together at once. However, the process is an ongoing one, the managers need to remember this and employees too need to never forget the principle of high self-motivation.

Metric 3 – Problem Solving Skills

An effective employee can prioritize tasks and meet deadlines. Not just that, an effective employee would suggest creative ideas for any problem.

Effective employees are dedicated professionals with good problem-solving skills. Those who do not seem effective to you can work alongside the top performers to learn new skills.

Often, this skill is developed over time requiring constant collaboration and training.

Metric 4 – Timeliness

Employees that adhere to timelines are always the most highly motivated of the lot. It therefore is of considerable importance for direct or line mangers to seek punctuality from their employees in terms of maintaining schedule.

Also, it is advisable to analyse the reasons behind an employee’s mediocre performance. It could be a health issue, burnout, or even lack of motivation.

Taking these factors into consideration would give you an opportunity to see where lies the trouble and give the employee an opportunity to take task ownership.

Key Performance Appraisal Metrics

Employee performance tracking and appraisals are based on certain qualitative and quantitative metrics.

Metric 1 – Work Efficiency

An employee must keep the timeline, resources, and quality of work in mind to meet the organization’s expectations. Higher work efficiency is one of the key factors to be considered at the time of promotion.

You need to select a timeline and measure the output given during this time. For input value, measure the time taken by employee to finish the tasks.

Now divide the output by input for per-hour figure. You can assign here specific value to the input-output ratio and use it for comparing employee efficiency.

Metric 2 – Teamwork

Team players don’t just exhibit a strong commitment towards work but also contribute positively towards uplifting team’s efforts.

Qualities of a Team Player:

• Participation in brainstorming sessions
• Volunteering in team projects
• Sharing credit
• Supporting ideas of other teammates
• Taking responsibility proactively

Metric 3 – Communication

Someone with poor communication skills would not able to issue clear directives, create communication mails with grammatical errors. There can also be a few employees who are unresponsive to requests from colleagues.

In contrast, a good team player with excellent communication skills would:

• Write mails with correct tone and messaging
• Performs timely follow-up on emails, customer enquiries and voice mails
• Show responsiveness towards colleagues and managers
• Give quality feedback to peers
• Share concepts and ideas freely.

Metric 5 – Goal Accomplishment

This metric requires that a team has specific goals, which can be aligned to the company’s objectives. It is important that team leads assign goals to individual team members along with the milestones.

Assign goals that are both measurable and specific and make sure that employees’ feedback or concerns are always heard. Sometimes you can also set stretch goals to just see an employee’s willingness and enthusiasm to see how far an employee can go to meet expectations.

These goals need to be regularly discussed to eliminate every bottleneck. As the procedure to deploy this metric gets complete, it is now time for you to start assessing an employee’s performance for appraisal purposes.

Performance Management Vs Performance Appraisal: In-Depth Comparison

In Terms of Frequency

Performance management is a proactive approach that defines the company’s expectations from every employee. In line with this, employees are assigned individual tasks along with their contribution as a team member.

Performance appraisal unlike performance management happens once or twice a year and is a reactive approach in nature. The activity is distinct, conducted by the human resources department and doesn’t in any way interfere with tan employee’s daily functioning.

In Terms of Structure

Performance management is a more flexible approach compared to performance appraisal. Performance appraisal sets rigid evaluation parameters that can’t be changed.

On the other hand, performance management is a flexible process and indices can be altered for optimal performance.

Responsibility Wise

Responsibility-wise, performance management involves direct involvement of all stakeholders, team heads, line level, and skip-level managers. Performance appraisal, on the other hand, involves only HR team heads, direct managers, and respective employees.

Difference Between Performance Management and Performance Appraisal: Summing Up

Performance management and performance appraisal are processes that determine an employee’s commitment towards reaching organizational development goals.

Both these processes together contribute to achieving higher employee efficiency, team productivity and company’s performance.

• The process of managing an organization’s human resources is known as performance management whereas the process of evaluating their performance is known as performance appraisal.
• Performance management is a system whereas appraisal is a process.
• Performance management follows a practical approach, unlike appraisals that are based on fixed metrics.
• Performance management is a strategic solution or tool. Performance appraisal is an operational solution or tool.
• Performance management is the responsibility of team leads & managers; performance appraisals are conducted by the human resources department.
• Performance management is an ongoing process, but performance appraisal is not. It occurs once or twice a year.

Companies are proactively making business decisions as per the changing market conditions. Presently companies have their focus on performance management than appraisal given the ability of the former to improve the overall business performance, efficiency & productivity.

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