Performance Appraisal Definition, Elements and Types
Table of Contents
Performance Appraisal Definition
Performance appraisal is the regular evaluation or review done of an employee’s performance jobs and their general contribution to the business entity. This review is usually carried out to evaluate an employee’s skills and achievements, leading to growth or lack thereof.
Performance appraisal forms a large part of the decision-making process on whether advance pay increases, termination on redundancy, and other job bonuses are available.
Example of Performance Appraisal
A company, XYZ, has done significantly better over the last few months. Overhead costs have been greatly reduced, and production has increased by 39%. This can be attributed to the employees who had goals and objectives and have achieved them without a doubt. Given this information, a certain employee, David, has made some notable contributions to the success of this project.
Employee – David
Position – Finance Manager
Employer – Alice
Department – Finance
Evaluation period – June 2020 to December 2020
David has effectively shown clear communication and expression in carrying out financial duties, organizing finances for the firm, and updating books of accounts with utmost honesty and integrity.
He has shown commendable high levels of commitment and dedication in achieving the company at goals and his individual goals as well. He has improved his productivity in the company by 70%.
What are Elements of Performance Appraisal?
The elements of an effective performance appraisal are as follows.
1. The clear performance appraisal process
The appraisal process should be made as transparent as possible without any complexities. It should have a clear communication channel path with continuous checks on the work done by the employees as enforced by managers.
Employees should also be allowed to voice their opinions on how they would like to be assessed and in the best possible ways by managers. The goals and objectives should be an attainable and time-bound reflection on the company or organization’s needs.
2. Standardized and equity in performance appraisal
Performance appraisal must be applied equally to employees. Managers should adhere to rules, regulations, and processes in performance appraisal to promote confidence in the appraisal technique.
If, in any case, employees are evaluated by managers who do not adhere to the appraisal rules themselves, it becomes a punishing tool for the employees.
3. Appraisal as a review
If the appraisal occurs at the end of the year, it isn’t easy to carry out a meaningful performance appraisal. Any problems encountered by the employees should be addressed as they arise to render the method effective and efficient.
Providing periodic feedback to managers helps create a communication link and an easy way to ensure that the right paths to achieving the goals and objectives are followed. This also helps create a positive work environment for the free flow of information.
4. Appraisal as a tool for development
Performance appraisal should prioritize reviewing challenges experienced in the organization. From the challenges identified, amendments should be proposed, or consequently, find better ways for employees to work optimally in the organization.
The appraisal process should be flexible and focus on the employee’s past performance and other critical areas to ensure that appraisals are objective and not threatening to the employees.
5. Appraisal allowing employee feedback
The communication process is complete through the employees’ feedback and a manager’s listening ear. Managers should ask for feedback on the employees’ performance individually and collectively on how they view the operations of the company.
This also allowed managers and employees to brainstorm ways to increase the company’s performance.
6. Action plan
Any action or decision agreed upon by the employees, and their managers should be implemented, be it a raise, a promotion, better working tools, or disciplinary action. Managers are thus held liable to follow through on these actions to make the appraisal process complete and effective.
A manager who does not follow up on these actions loses credibility in the face of the employees.
What are Types of Performance Appraisal?
1. Management by objectives (MBO)
This is a performance appraisal type where managers and employees work together to plan, identify and communicate goals and objectives to subjugate their focus during the appraisal period. Periodic discussions are held by managers and employees on the progress of their work and difficulties resolved.
MBO appraisal matches the overarching goals with the employee objectives to effectively realize them using the SMART method, an acronym for specific, measurable, attainable, realistic, and time-bound.
Management by objectives performance appraisal is ideal for measuring the qualitative and quantitative output of employees, directors, and executives of any business size.
2. Assessment center
This method allows employees to get a clear picture of how they are performing. It assesses the current work performance of a single employee and forecasts the future performance of the job in question. It usually has three stages, as shown below:
It allows an employee to choose a rating method, provide a simulation of the exercise to be undertaken, and draft the review’s objectives in question.
- During assessment
It explains the purpose of the policies, strengths, and weaknesses and conducts discussions.
- Post assessment
This stage evaluates the collected feedback from reviewers and gives results the same. The results are communicated to the employees, and then any action is taken from the results.
An assessment center is ideal for consulting and manufacturing firms.
3. Psychological appraisal
This type of appraisal comes in handy to discover talents possessed by employees that have not yet been realized. It helps evaluate the performance of an employee future-wise.
Psychological appraisal evaluates personality traits, intellectual abilities, leadership traits and skills, cognitive thinking, emotional intelligence, and interpersonal skills. Many large businesses can use this method of performance appraisal.
4. 360- Degree feedback
This multidimensional appraisal type is used to review employees by using the feedback taken from employee circles of influence: peers and customers managers. It helps eliminate bias in performance and offers an understanding of single-employee competence.
5. Cost accounting technique
This method uses cost accounting to analyze an employee’s performance through any monetary yield the employee helps generate for the company. This method effectively measures the value an employee generates for the organization and helps identify the financial implications of an employee in their performance.
What is the Importance of Performance Appraisal?
Performance appraisal has the following benefits for the employees and organization at large:
- It creates the opportunity for employees to grow career-wise.
- Generally, it helps improve on performance and efficiency of doing work.
- It helps determine the need for training or retraining.
- Clarifies expectations and allows room for conversation.
- Helps identify areas of weaknesses and possible remedies for the same.
- It helps strengthen team spirit and bonds among employees and managers.
Which Factors Affect Performance Appraisal?
It is key when carrying out performance appraisals. If the process experiences communication breakdowns, it limits the appraisal reviews’ accuracy and effectiveness. Communication has to be periodic between managers and staff to ensure the goals and objectives are being adhered to.
2. Quantity and quality of work
These two factors ensure that the output is of the desired amount and value. Any breach of these two factors undermines the effectiveness of the performance appraisal.
3. Time factor
Time-bound projects are supposed to be completed before the deadline. If the time allocated is less, the employees hurry up to finish the work stipulated by managers and thus affect the quality of work done.
4. Leadership capabilities
Managers ought to have leadership skills to handle different types of employees, which is crucial to any organization. Lack of leadership skills may delay or create problems regarding clarity of goals and objectives, thus undermining performance appraisal quality.
5. Skills and experience
Highly experienced employees with more skill sets are likely to be more productive than those without experience or skills.
What are Barriers to Effective Performance Appraisal?
Managers often assume that their appraisal techniques are accurate and effective and ignore other techniques. This makes the appraisal method not work objectively.
These occur in biases and errors, which may greatly undermine the performance appraisal.
3. Central tendencies
Managers may sometimes mark all or almost all employees as average. This may result from a lack of knowledge of individual ratings or capabilities of the employees, carelessness, or indifference.
4. Halo effect
Managers may have certain inclinations to like or dislike a group of employees working collectively or individually. If a manager uses their dislike of an individual member to rank the entire group, it greatly reduces the performance appraisal quality.