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What Is Performance Appraisal?

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Many companies use the performance appraisal to evaluate how well their employees do their jobs. The performance appraisal – also called employee appraisal or employee review – takes many forms and requires varying degrees of participation from managers and workers. While many companies find performance appraisals an invaluable part of their success, some organizations are abandoning the reviews for better forms of evaluation.

What Is a Performance Appraisal?

A performance appraisal is a tool employers use to evaluate employees’ work performance. Employers use performance appraisals for numerous reasons.

The results of a performance appraisal can assist managers in determining whether to retain an employee or terminate his employment. Employers also can use performance appraisals to gauge the productivity of their employees and determine which workers to promote.

Employers often use the results of performance appraisals to determine which employees have earned a salary increase. They also use the tool to gauge the effectiveness of company goals and the necessity of certain positions within an organization.

When conducted objectively, performance appraisals can help employees understand their strengths and weakness, and improve their work performance. Effective performance appraisals require dialogue from the appraiser and the worker.

Performance appraisals can provide motivation for employees to adjust their work habits, with the goal of promotion or higher incomes. They also provide information that the employer can use to assess how well they support their workers’ needs. For instance, during the appraisal process an employer may learn that his employees need more training or equipment upgrades to improve their performance.

Performance appraisals usually cover several aspects of an employee’s work performance, and can vary according to a company’s goals and an employee’s position. For example, a call center may evaluate the punctuality, cooperation and customer service skills of its customer service representatives. An automobile dealership might focus its employee appraisals on how staff meet sales goals.

Typically, managers conduct performance appraisals of their direct subordinates. For instance, a district manager for a fast food chain may conduct performance appraisals of his restaurant managers. In turn, the restaurant managers might conduct performance appraisals with their cooks, waiters, cleaners and assistant managers.

Performance appraisals also provide documentation to protect employers against lawsuits brought by workers who have displayed discipline or performance problems. For example, if an employee has a record of excessive tardiness, the employer can address the problem during the worker’s performance appraisal. If the employer decides to terminate the employment of the worker for tardiness later, they can use the performance appraisal to prove a history of the problem.

Most employers conduct performance appraisals one time per year, often at the end of a quarter or the end of the calendar year. Some companies use end-of-year performance appraisals to determine who will receive bonuses and the amount recipients will receive. However, some companies provide performance review quarterly or even monthly.

How Do You Evaluate Staff Performance?

To evaluate staff performance, an organization must have processes and standards in place on which to base its appraisals. For example, a company must have established work hours, sales goals, training, procedures and conduct policies. Without established standards and processes, an organization has no basis by which to evaluate performance.

Performance standards must clearly define what an employer expects from employees. For instance, a company might require its information technology help desk workers to respond to at least 10 help requests per day. Likewise, a company might require its middle management staff to hold monthly meetings with their employees and a manager might require his workers to submit progress reports every Friday. To use standards as a measurement of performance, they typically must apply to every team member.

Throughout the year, appraisers must document the problems and accomplishments of their employees. For example, a manager might keep track of the amount of time an employee takes for lunch, along with instances in which the worker exceeds expectations. During the performance review, the manager might praise the worker for exceeding goals 10 times in a month, while asking him to limit his lunch breaks to one hour.

Appraisers who notice a pattern of a worker’s exceptional performance might use the appraisal process to recommend her for a promotion or pay raise. Likewise, an appraiser might use the appraisal to warn a poorly performing employee that he might lose his job if his performance does not improve.

Managers must also establish individual goals with each worker. For example, a manager might encourage a salesperson who sells $100,000 worth of product per month to set a goal of $110,000 per month. Appraisers can incorporate individual goals into the performance appraisal process by comparing the results between current and past appraisals.

To incorporate standards and goals into performance appraisals, companies and managers must document expectations in writing. Likewise, employers must standardize training programs and provide written materials to trainees. Typically, employers ask workers to sign documents to indicate their understanding and compliance of policies and procedures. For instance, during orientation sessions, human resources professionals often go over company policies with new hires and ask them to sign a document to confirm that they have received and understand the information.

Daily communication, or lack of communication, often affects an employee’s work performance. When employees perform well, they should receive immediate praise for their efforts, and when they fall short of expectations, their supervisors must immediately express their disapproval. Equally important, organizations must establish standards that encourage two-way communication. Meaningful communication can affect the daily work life of employees and positively impact their performance appraisals.

In preparation for a performance appraisal, the appraiser must review the employee’s records to refresh her memory of past actions that might affect the review. She might review the worker’s attendance record, past goals and documentation specific to the employee’s job such as sales reports. Based on recorded data, the appraiser must write a performance review to give to the employee. The written appraisal should include goals, a detailed evaluation of the worker’s performance and reasons the appraiser reached a certain conclusion.

Before writing a performance appraisal, some managers seek the input of other managers who have a professional connection with the worker, and some ask the employ to provide a self-evaluation of their performance.

An appraiser should present his appraisal during a private meeting with the worker. He should give the employee a copy of the written appraisal and verbally explain its reasoning. Appraisers must give the worker ample time for feedback, and should actively listen to all concerns. During performance reviews, appraisers should query employees, ask them if they are content in their jobs, if they like working for the organization and if they believe they have opportunities for advancement. Most appraisers take notes of performance appraisal meetings and add them to their employees’ files.

Performance appraisals must include specific information, particularly in areas that need improvement. For instance, if a customer service representative falls short of call quotas, the appraiser should include a statistical call report in the performance review. The appraisal should also outline steps for the worker to follow to increase call volume by a defined date.

Oftentimes, an employer conducts a follow-up meeting with an employee a few months after a performance appraisal, to revisit the appraisal results and gauge the worker’s progress in correcting problems.

When preparing a performance appraisal, a manager must not let personal feelings influence the process. Each employee must receive equally objective reviews. For instance, a sales manager must address strengths and weakness, even when appraising top performers. Likewise, appraisers should not allow workers’ personalities to influence their performance reviews, except when an employee’s personality creates discipline problems.

Appraisers must provide realistic expectations and goals, and understand how employees view organizational incentives. For example, if a manufacturing company has not given its assembly line employees raises for three years, management cannot realistically expect workers to increase their production performance.

What Are the Types of Performance Appraisal?

Organizations use various types of employee appraisals. Traditional employee reviews center on a manager’s observations and opinions about a worker’s performance. This type of appraisal may use a rating system – often numeric – which gives the employee individual scores in certain performance areas and an average of all individual scores. Often administered just one time each year, traditional performance reviews often determine whether an employ has earned a pay raise. For instance, a company may only offer pay raises to employees who score six or higher on performance appraisal that uses a 10-point scale.

Employee-initiated reviews enable employees to request a review from their supervisor at any time. This type of appraisal often promotes meaningful communication between workers and managers, and can help employees feel more confident and independent in their individual roles. Many organizations offer employee-initiated reviews, but also conduct traditional appraisals quarterly or annually.

Self-appraisals enable employees to evaluate their own performance. Some organizations ask employees to submit their self-appraisals as part of a traditional performance review process. A self-appraisal can help a manager understand an employee’s perspective, before the manager writes a formal review. For instance, a self-appraisal may reveal to a manager that her employee falls short of expectations because he needs additional training.

360-degree feedback performance appraisals incorporate the opinions of managers, the employee, the employee’s coworkers, and in some cases outside customers, in the review process. The method also enables an employee to provide feedback about the organization and her superiors. 360-feedback can produce a well-rounded performance review, because feedback from multiple sources often provides information that a single manager might miss, or the employee might feel reluctant to share. For example, a worker may hesitate to tell his manager that he is bored in his position, while his coworkers may suggest to the manager that he needs a more challenging job.

Management by objectives appraisals are similar to traditional reviews that use a rating system. The management by objectives review rates performance based on meeting previously defined goals. Oftentimes a manager and employee define the goals the employee must meet. For example, a saleswoman and her manager may set a goal to acquire five new customer contracts per quarter. To receive a favorable performance review, she must meet the goal.

Is a Performance Review Effective?

The effectiveness of performance reviews is a mixed bag. Some companies consider the performance appraisal a valuable tool in setting long-term goals, determining staffing needs and identifying valuable employees to promote, which helps them avoid costly searches to fill positions. The key to an effective performance review program often relies on the way manager and employees interact daily.

An effective performance review system relies on daily communication between management and employees and on enabling workers to participate in setting their performance goals. Some managers hold lunch meetings with individual employees as a way to encourage communication and enable meaningful feedback.

Organizations also must reevaluate the meaning of performance. For example, while a company’s salesforce might fall short of meeting a new customer goal, they may substantially increase the amount of revenue generated by existing accounts.

To achieve effective performance, an organization must avoid straying from its core values. For instance, a company revered for its customer service can lose business if it veers toward increasing revenue over customer satisfaction. Likewise, companies must be steadfast in maintaining internal company policies that enrich their employees’ work experience. For instance, if a company reduces its year-end holiday bonuses, worker performance might decline.

However, some organizations are abandoning performance appraisals. Many workers dislike receiving performance appraisals, because they do not believe the results adequately reflect their efforts. Some managers disapprove of the review process, because their appraisals sometimes produce little or no performance improvements.

According to a 2016 report by the Harvard Business Review, many companies are scrapping performance reviews because they produce dissatisfaction among workers, which can lead to turnover. Instead, organizations are adopting new methods to sustain and improve performance, including focusing on individual accountability, improving team performance and generating open discussion. Instead of conducting formal employee reviews, many companies have encouraged managers to hold regular group meetings, as well as one-on-one meetings with their workers to discuss job challenges and goals.

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About the Author

Michael Evans’ career path has taken many planned and unexpected twists and turns, from TV sports producer to internet project manager to cargo ship deckhand. He has worked in numerous industries, including higher education, government, transportation, finance, manufacturing, journalism and travel. Along the way, he has developed job descriptions, interviewed job applicants and gained insight into the types of education, work experience and personal characteristics employers seek in job candidates. Michael graduated from The University of Memphis, where he studied photography and film production. He began writing professionally while working for an online finance company in San Francisco, California. His writings have appeared in print and online publications, including Fox Business, Yahoo! Finance, Motley Fool and Bankrate.