Performance management is an essential part of managing and growing your employees’ career potential. Determining how best to accomplish this is another story. There are several performance appraisal methods employers can utilize to aid in performance management. Some are simple and straightforward, like rating performance on a scale, while others are used to provide a complete full-circle picture of performance. Whichever performance management process you choose, be sure to implement it regularly, and include your employees’ feedback.

What is a Performance Appraisal?

Performance appraisals, also known as employee performance reviews, are regular reviews of employees’ job performance. But more than that, performance appraisals are a way to have ongoing, open conversations with your employees about their jobs. The goals of an employee evaluation are to make sure your employees are performing at their best, have what they need to do their job effectively and quickly address any issues that might arise. To ensure these goals are met, performance appraisals must occur several times a year and be supported by HR and management. The result of regular performance reviews can equal a staff that is made up of highly productive and loyal employees.

Benefits of Performance Appraisals

Regular employee evaluations help keep your employees engaged. When employees are part of the performance management process, including setting performance goals, their productivity increases. According to Gallup, teams that are highly engaged show 14% more productivity versus teams with low engagement. And, employees who are not engaged, cost their company about 18% of their annual salary.

Performance management can also help employers look at the big picture of how their companies are doing. For example, if regular performance evaluations show a decrease in overall job satisfaction, employers may need to review company culture initiatives. Or, if employees are continually under-performing, more training may be necessary. Aligning employee and company goals gives businesses the ability to compete and grow.

How to Create a Performance Appraisal Process

Developing a performance management process can help provide a great overall experience for managers and employees.

  1. The first step is the planning stage, where both the manager and employee set goals. Performance goals should be challenging, rewarding, enthusiastic and daring. Managers can guide employees about the goals they wish to set for themselves, the department and the company as a whole. Include the “why” behind the specific goals. Will they drive profits, improve workflows, or move the employees forward along their career paths?
  2. The next stage involves one-on-one meetings or check-ins with employees. This part of the process gives managers an opportunity to coach employees, keep them on track and offer encouragement for a job well done. It’s been found that 43% of highly engaged employees receive feedback once a week and turnover rates are 15% lower at companies that implement regular feedback. One-on-ones should be a two-way street where the manager asks the employees for their feedback.
  3. After setting goals and meeting with employees, the next step is monitoring the employees’ performance and reviewing it against the goals they’ve set. Performance management software can simplify this part of the process. Managers can track and approve employee goals from quantitative ones, like quotas, to qualitative ones like communication. Employees can also view their progress as well as see their task lists and due dates.
  4. The next stage is to measure how efficiently the goals were met. Using performance management software, managers can look at completed task lists, track comments and view completion dates. Managers should also pay attention to any goals that were not achieved and figure out the reason why. Measuring goal achievement gives employers the ability to see where gaps exist and figure out how to fill them. Did your employees have enough support to meet goals? Did they have enough training? Were the goals attainable or unrealistic? Taking all performance data into consideration, you can assign your employees an overall performance score, which can play a huge role in compensation management.
  5. Once you’ve planned, monitored, reviewed and measured performance, the last step of the process to determine if a reward or compensation is due. Many companies tie performance to salaries, pay increases and bonuses. A compensation management system, synced with performance management, allows managers to automate increases and bonuses based on merit.

5 Performance Appraisal Methods

Once you have established a performance appraisal process, you’ll want to determine which of the different methods to use or you may use a combination of methods.

Management by Objectives (MBO)

Management by objectives (MBO) is a performance appraisal method that uses clearly defined objectives agreed upon by both management and employees. With MBO, managers and employees work together to set clear goals, determine a path to achieve them. They also meet regularly to discuss progress and if the goals can be met.

The benefit of using the MBO strategy is that managers can help align employee goals to organizational goals. For example, if a company has a goal to increase revenue, an employee goal might be to set higher sales goals. Plus, since the employees participated in setting their goals, they’re invested in achieving them.

The success of this method hinges upon set goals that are specific and measurable because once the review period is over, the employee is judged on the results. An employee who successfully meets the set goals may receive a bonus or salary increase. One who doesn’t might be demoted or transferred.

360-Degree Feedback

360-degree feedback is a performance appraisal method that uses feedback from everyone who works with or around an employee. Managers, co-workers, direct reports, customers, CEOs, anyone who is in the employee’s circle anonymously gives their input, giving employees an idea of how their performance is viewed by others.

The benefit of using 360-degree feedback is it gives a well-rounded view of how an employee works with others. It can encourage team development as employees know who is and isn’t, pulling their weight. It also helps teams hold each other accountable and improve communication between them. It also helps to eliminate bias judgment, especially if the employee doesn’t have a great relationship with their direct manager. The reality is some co-workers don’t get along, whether it’s between manager and employee or employee-to-employee, and having multiple opinions about behavior helps guide the decision-making process come time for promotion or dismissal. Positive 360-degree feedback can propel employees to improve in areas their co-workers find lacking. When done correctly, 360-degree feedback can not only push an employee to improve but in some cases shine a light on areas an employee didn’t know was a weakness. The key to using 360-degree feedback successfully is just that, handling it correctly.

The feedback needs to be given anonymously and questions should be well-thought-out before given to staff. Use direct questions with yes or no answers, along with an opportunity to elaborate to keep data concise. The questions should refer to an employee’s leadership skills, interpersonal skills, the ability to problem-solve, motivation and efficiency. Encourage honest, objective feedback with constructive comments. And, 360-degree feedback should just be one part of your performance management process; don’t rely solely on it for promotion or dismissal decisions.

Rating Scale

The rating scale method is likely the performance review process with which many are most familiar. Employees are evaluated on criteria based upon a rating scale. Common examples of rating scales are ordered lists, i.e., poor, fairly poor, fairly good, good and excellent, numeric (1-5) and Likert scale – agree, strongly agree, strongly disagree and so on. Different criteria can carry different weights and the end score is totaled. The benefit of this type of performance review method is the process is fairly simple, thus it can be expedited.

On the other hand, it’s hard to sum up an employees’ complete performance, both qualitative and quantitative, by five specific answers.

Human-Resource (Cost) Accounting Method

The Human-Resource (Cost) Accounting method aligns performance with the monetary benefits an employee gives to the company. It really shows companies if an employee costs more than what they contribute. For example, an employee might find savings on supply or equipment costs, contributing to the company’s overall savings. Or, an employee might generate excess sales, increasing the company’s quarterly or yearly revenue.

Measuring human resource costs allows companies to monitor departmental costs, measure impact and overall success, predict future costs and calculate ROI for employees. Yet, as it completely focuses on cost, it doesn’t take into account any of the non-qualifiable benefits an employee might bring to a position, like great communication and teamwork skills.

Assessment Centre Method

The assessment centre method uses informal events, tests, exercises and assignments to assess employees’ competencies. Generally, this method is used to see whether an employee can take on another role or higher responsibilities in the future. The assessment centre method looks at traits and characteristics that are tough to evaluate on paper like interpersonal skills, intellectual capabilities, planning, organizing, motivation and so on. Knowing these characteristics can help an employer determine if an employee would be a good candidate for a management position or if he or she requires development to advance in their current career.

Arcoro’s Performance Management software can make your performance review process smarter and faster. Managers have a variety of paperless options to gain feedback from employees, including 360-degree feedback and DIY evaluation forms, rating scales, weighted sections and custom content. Set single or recurring evaluations for workers. All forms are mobile-friendly and automatically saved in our cloud-based software. Plus, with dashboards and widgets, both managers and employees can monitor and track goals, making sure everyone is clear about their objectives. The Performance Management module integrates with all our other software so you never have to worry about compatibility.

Schedule a Demo

Schedule a demo to see how it can work for your company.

Schedule a Demo

 performance reviews ebook