Although there are times when employee assessments can feel challenging for both parties, they play an important role in helping employers and their employees to set goals, plan for the future, review past challenges and celebrate milestones and achievements.
Despite this, far too many employers put these off or don’t conduct performance reviews regularly enough. This is largely because they don’t know how to conduct them properly and therefore can’t find value in them, or they find their employees are reluctant to be open and honest.
However, once you realize the potential of regular employee assessments for everyone involved, you’ll regret not embracing them sooner.
So, whether you’re looking to implement performance appraisals for the first time, you want to overhaul your company’s current approach or you just need a little extra support along the way, this guide is for you.
- What is a performance review?
- What is the purpose of a performance appraisal?
- Why is performance appraisal important?
- How often should performance evaluations be conducted?
- How to avoid bias in a performance appraisal
- How to conduct a performance appraisal
- 10 performance appraisal methods
- What is the difference between performance management and performance appraisals?
- Final thoughts
What is a performance review?
A performance review, sometimes called an appraisal or employee assessment, is a meeting between a manager and employee to assess their performance. This helps staff to understand what they’re doing well and how they can improve.
An employee assessment also gives the individual a chance to share their feedback about the business and their role.
What is the purpose of a performance appraisal?
Careful and thorough performance reviews are crucial to the success of any organization.
First and foremost, they’re used to assess the performance of an individual, identifying any strengths and weaknesses they possess. They also help employees to set goals and gives them an opportunity to learn how they can improve. It also gives both employers and employees a chance to suggest or request any training that might be helpful to them.
But more than this, they also help employers to create a more productive and happy team while nurturing a strong company culture that encourages progression.
Additionally, it’s a celebration of their success and can, on occasion, be used to pave the way for a promotion or pay rise.
What’s more, employee performance appraisals are crucial for checking in on projects and workloads and maintaining positive managerial relationships. They’re a chance to give the employee a voice and ensure they feel valued and seen.
It’s also worth mentioning that performance appraisals are a two-way street, and it’s an employee’s opportunity to give feedback on the business and how they’re finding their role. They might have some helpful insights into how their manager can better support them and their progression, as well as more general ideas on how the workplace can be improved as a whole.
Finally, a performance appraisal can be the perfect time to resolve any problems either on the part of the employee or employer.
Why is performance appraisal important?
When it comes to assessing the importance of performance appraisals, the numbers speak for themselves.
Did you know that 40% of workers are actively disengaged when they get little to no feedback? This is bad news, given that low employee engagement and reduced productivity costs companies a staggering $450-500 billion each year.
This seems crazy, given that regular communication and performance reviews could be all it takes to help your business and staff succeed. In fact, employees whose managers regularly communicate with them are almost three times more engaged than those who don’t.
But just in case you’re still not sold on the power of performance reviews, here are a few other key benefits:
- Finding out how your business can improve and create a happier, more satisfied workforce
- Identifying areas for further training
- Improving the performance and profitability of your business
- Resolving any grievances in a calm and timely manner; these meetings offer a good chance to hold difficult conversations in a formal setting
- Offering fair assessments for pay increases and promotions
How often should performance evaluations be conducted?
A lot can happen in a year; therefore, annual reviews are not going to be reflective of an entire 12 months of work. Despite this, 71% of organizations still only conduct annual reviews.
But how often should you be assessing your employees?
Well, with the new generations populating the workforce and expecting frequent feedback, it’s beneficial to hold performance appraisals every three months.
However, if you’re struggling with three-month evaluations, you should at least consider six-month performance reviews instead, and remember the importance of on-the-spot recognition throughout the year.
How to avoid bias in a performance appraisal
We’re all human, and unfortunately, this means that we all have our biases, whether we’re aware of this or not. But bias in an employee appraisal can be damaging to both parties, and the review should always be focused on real information and results.
In order to overcome bias, you must give yourself permission to be human and recognize that you have limits. You should also be careful not to ignore your biases but instead acknowledge them and try to move past them.
It’s also a good idea to get a strong, clear and uniform structure in place that ensures everyone has a fair and shared review process. You can do this by focusing on metrics and relying on data to help you move past your bias and focus solely on the results.
How to conduct a performance appraisal
So how should you go about conducting a performance appraisal? These steps might need to be tweaked slightly depending on the appraisal method you use, but when it comes to an employee evaluation, there are certain dos and don’ts that you should be aware of:
1. Keep track of employee performance
There are several ways you can track and document employee performance to assist you in your performance appraisal. You can watch employees as they work on a day-to-day basis, and you can ask them to regularly update you on their progress - perhaps asking for weekly or monthly roundups.
You can also set up self-monitoring or collaboration tools to help employees stay on track and allow you to see what they’ve been up to.
2. Ask great questions
Too often, performance appraisals have little impact, and this is because managers are asking the wrong questions. Generic or broad questions could leave you both confused and without any real, meaningful takeaways.
But by asking specific, targeted questions, you can dive deeper into their individual performance. These questions might include:
- What strengths help you do your job effectively?
- What will you focus on in the next quarter to help you grow and develop?
- Which job responsibilities do you enjoy/dislike the most?
- What are some things I could do differently to be a better manager to you?
By asking the right questions, you invite conversation and honest feedback that will help both you and your employees to improve in the future.
3. Set clear goals
An important part of the appraisal process is goal-setting. Before the meeting, consider what you expect from your employee and see how these translate into achievable goals.
You should also discuss and collaborate with them to create clear goals that you both agree on. Be sure to set SMART goals that are specific, measurable, actionable, relevant, and time-bound.
These goals should also push you as a manager to think about how you can support your employee to reach these new goals - for example, by offering more training.
4. Communicate tactfully
Offering constructive criticism or trying to tackle a disagreement with an employee can be tricky. However, if you communicate carefully and tactfully, things will go a lot smoother.
It’s always a good idea to ask for permission first, for example, saying something like ‘may I offer a suggestion here?’. You should also remind them that your feedback is an investment in their progress.
Always be empathetic when giving less than complimentary feedback and use a sandwich approach, giving a compliment or strong point on either side of the negative.
5. Provide feedback continuously
A staggering 80% of Gen Y workers prefer on-the-spot recognition over formal reviews, and a further 63% of Gen Z said they appreciate timely, constructive performance feedback throughout the year.
As these groups now make up a huge part of the workforce, it’s clear to see that continuous feedback is crucial. This also makes it much easier to have a productive employee assessment each quarter, as you’ll already have several positive talking points you can refer to.
6. Don’t make it too formal
Just because it’s called a performance appraisal, review or assessment, doesn’t mean it always has to be a very formal meeting. This can be more nerve-wracking to employees and can also make these meetings feel a lot more serious for employers.
By conducting more casual meetings, both parties can get more from the experience, and it can be much easier to set these up more regularly.
7. Provide specific criticism
Finally, looking once more at constructive criticism, you need to think carefully about how and what you’re going to say.
This can be a bit of a double-edged sword for employers. After all, you don’t want the employee leaving feeling sad and attacked. You also don't want to be so positive that you ignore any issues or areas that need improving.
So, when it comes to giving criticism, ensure that this is very specific and that you offer helpful solutions for how they can improve in the future.
10 performance appraisal methods
As well as using our tips and advice above, it’s also important to ensure that you’ve chosen the best employee review method for your team. Here are some of the best performance appraisal methods for you to choose from:
1. 360-degree feedback
A 360-degree method is used to provide feedback from a variety of different sources, giving an all-around appraisal. This is done by gathering managerial reviews, peers reviews and even customer or client reviews. These reviews are often responded to by each individual in a self-evaluation afterward.
This is a good technique as it helps with goal-setting, strengthens teamwork and accountability and reduces the risk of bias. That being said, with so many contributors, there isn’t always a great deal of detail about each point, and feedback often may come from raters who lack experience in this process.
2. Management by objectives (MBO)
The management by objectives (MBO) method requires managers to evaluate their employees on the basis of the results they achieve. MBO begins with those at the top setting goals; these then trickle down through the ranks so that all employee’s goals are designed to support the goals of their managers.
This can be a great technique because it helps build relationships between managers and employees; it’s also a much fairer way to assess employees. However, it can be difficult to quantify and measure goals, and additionally it tends to only focus on short-term objectives, not long-term goals and achievements.
3. Assessment center
The assessment center method of performance appraisal relies on a combination of role-playing, situational judgment tests, presentations, group activities, interviews, psychometric tests and more. These are typically used in performance appraisals as a way of evaluating how employees behave in situations that imitate real workplace scenarios.
They can be great for observing behavior, and they offer a benchmark for employee development plans. There’s also the opportunity for a more holistic performance appraisal process.
That being said, this method of employee assessment can be a lot more costly and time-consuming. This is because it typically takes place at assessment centers and usually lasts for an entire day.
4. Behaviorally Anchored Rating Scale (BARS)
The behaviorally anchored rating scale (BARS) is an employee evaluation method that rates individuals in accordance with their performance, as well as specific behavioral patterns. The idea is that this brings both the benefits of quantitative and qualitative data to the employee assessment process.
This is a good method as it can eliminate bias and ensure a fair evaluation as the appraisals remain the same no matter who is conducting them. It’s also more accurate and helps to give good objective feedback.
On the other hand, this method is another time-consuming and costly process that requires considerable effort to accurately create a scale for every role within the organization.
5. HR accounting method
The human resource (HR) accounting method is an employee evaluation that analyzes an employee’s performance based on the financial benefits they yield for the company.
Essentially, this is done by comparing the cost of retaining an employee with how much money they contribute towards the company, as well as how beneficial they are to the organization.
This method is good for measuring the cost and value of an employee and identifying the financial implications that their performance has on the bottom line. However, there is no well-set standard for this type of HR assessment method, and it can be dehumanizing.
6. Critical incident method
The critical incident review method is a way to evaluate employee performance using a performance management system. This method is used to gather facts, also called incidents, about an individual to determine how they can improve their performance, as well as offering a way to measure whether said employee is value for money.
The best way to do this is through KPIs; however, the critical incident method takes this further by placing emphasis on the narrative instead of just the numeric measurement. This helps to highlight different employee strengths and weaknesses, rather than focusing solely on numbers.
Just be careful, as it’s all too easy for the descriptive process to become confusing and meaningless if strict guidelines for measuring performance haven’t been set.
7. Forced distribution
The forced distribution method, sometimes referred to as stacked ranking or bell-curve rating, is used to evaluate employees by putting them into one of three categories, typically poor, good or excellent. There can be more categories if your organization wishes.
This method can help to boost productivity as employees work harder to stay in the good or excellent category. However, some employees might resent being categorized, and it could cause morale problems if employees aren’t put into the category they hoped for.
8. Psychological appraisals
A psychological appraisal is a performance review that assesses employees for their future potential rather than their past behavior. This method focuses on the employee’s intelligence, emotions and characteristics to determine how they can shine in the future.
This is a suitable method for the modern workforce as employee wellbeing is more important than ever, and assessing them for their future success can boost morale. That being said, some employees could be let down by placing sole focus on the future rather than their past achievements.
9. Continuous feedback
Continuous feedback is the strategy of encouraging regular feedback between managers and employees, rather than relying on a three-month, six-month or annual review.
This is a more modern form of employee assessment and is a human-centered approach to evaluating, improving and even promoting employees. This can help to strengthen relationships and offers real-time performance feedback.
Continuous feedback can also be ideal for remote teams that need remote performance assessments and don’t get much face time with managers and colleagues, as this helps them to feel that their hard work is not going unnoticed.
10. Profitability evaluation
Finally, a profitability evaluation is similar to that of the HR accounting method; it’s used to link employee performance to actual results, in particular, looking at the profitability of projects an employee has undertaken or how they contribute to the company’s bottom line.
This can be a more accurate way of measuring success and can reduce the chance of bias. However, in some smaller businesses, large profitability by a single person can be unheard of, which can make it hard to determine their success in financial terms, despite them contributing in other important ways.
What is the difference between performance management and performance appraisals?
It's worth taking a look at the difference between performance management and performance appraisals, as these are both important to the success of your employees and business.
Performance management is the ongoing process of proactively supporting and helping your employees to develop their performance and reach their goals. In contrast, the performance appraisal is essentially the end result of your ongoing support. It's a chance to assess an employee's progress and performance objectively after any given period.
Often, the two must go hand in hand for both to be successful.
Employees value regular feedback, and relying on annual reviews is simply not enough in today's working world.
Performance reviews are important for boosting employee morale and productivity and giving them the guidance and support to grow. This, in turn, has a direct contribution to the success and profitability of your company.
For this reason, you must ensure that you’re offering regular performance reviews and that you select the appraisal method that works best for you and the workforce.