What Is Performance Appraisal?

on Performance Appraisal, Employee Engagement, Employee Experience


Performance appraisals are a tricky thing to run well.

Get it wrong, and you’ll encounter discontentment, stress, accusations of bias, and general bad feeling flying round your workplace faster than you can blink.

Get your approach right, however, and they could help many employees feel supported and listened to, as well as helping employees engage more with their wider workplace. This doesn’t mean your employees will love appraisals. Realistically speaking, they won’t; but you can absolutely have a positive thing that people don’t 100% enjoy.

This guide will run you through:

  • What performance appraisals are
  • The benefits of performance appraisals
  • How to use performance appraisals to increase employee engagement
  • Different styles of performance appraisal you can use

What Is Performance Appraisal?

At its simplest, a performance appraisal is a review of how well an employee has performed over a defined period (yearly performance appraisals are the most common, though you can and arguably should run them more frequently than this).

The term covers both the process of appraising performance itself - sitting in a room, working out who’s performed above, according to, and below expectations - and the meeting that you have with each employee to discuss this. How you run both will have a huge effect on employee morale and performance.

What Benefits Do Performance Appraisals Offer?

If you’re being entirely transactional about it, performance appraisals help you understand what return you’re getting from the investment in your employees. If you’re upholding your end of the bargain by paying them each month, are they doing the same by doing their job to the best of their ability?

It’s also likely your organization uses performance appraisals as the basis of some sort of reward scheme - top performers get a bonus, whilst lower-end employees are flagged for further attention.

Performance appraisals - graph showing performance over time

Sound harsh and a bit impersonal? You’re right - which is why it’s important to avoid this approach altogether.

With a bit of planning, you can set your performance appraisals up as something more than the ‘stick’ part of a juvenile, badly thought-out carrot-and-stick approach to employee motivation.

By looking beyond the immediate - the “did they meet their targets?”and “are they pulling their weight?” style questions - you can use your performance appraisals as a force for fundamental positive change in your organization and even (dare we whisper it) as a way of improving employee morale, not sapping it away.

So, discounting the approach above, here are some benefits of a solid performance appraisal process:

  • A closer relationship between employee and manager: people work better for people whom they trust. A manager who uses the performance appraisal to check up on their employees’ well-being will likely have closer bonds with their team.
  • A boatload of cost savings: let’s say that instead of identifying those that might jump ship at the employee review stage, you just, you know...let them leave. You’d have hiring costs coming out of your ears. A well-run performance appraisal can help you address key issues and perhaps entice them to stay - significantly cheaper, and a positive outcome for all.
  • Aggregated data: all data is valuable data these days. Take a holistic approach to looking at performance appraisal, and you’ll be able to identify trends that help you understand the position your workforce is in. If an entire department is ‘underperforming’ for example, you might want to look at whether they have enough resources (functioning equipment, staff, competent line managers) to do their job well. Performance appraisals help sort individual low-performance cases from ones created by structural weaknesses in your organization, and give you the opportunity to sort out both appropriately.
  • A positive employee experience: if you do them right, your employees will appreciate the company checking in with them and making sure everything’s alright. If you do them poorly, they’ll end up being a major source of stress for your employees, and a massive drain on productivity - but don’t worry, that’s wher this article is designed to help!

How To Use Performance Appraisals To Increase Employee Engagement

We mentioned at the top of the article that performance appraisals can be a useful - though not necessarily loved - way of increasing employee engagement.

The secret?

Creating a workplace culture where feedback is a regular, inbuilt process that everyone in the organization receives on a regular basis. This involves:

  • Making sure every employee has regular, informal catch-up sessions with their line manager. These can be short - a weekly 20-minute slot should work fine - and should simply provide a space for employees to bring up any concerns, and for line managers to pass on any feedback.
  • Visibly holding senior execs to the same processes as on-the-ground employees. No-one loves going through a time-consuming appraisal meeting to determine their reward compensation, only to see the higher-ups being gifted large end-of-year bonuses without having to do so.
  • Providing ways for employees to highlight good work by their coworkers - your employee engagement app is perfect for this. Many companies also set up a scheme that lets employees thank each other via gift vouchers, chocolates, or a bottle of something nice. Feedback is as much about celebrating successes as finding ways to improve. A culture of feedback should be a culture of celebration!

You could also choose to run biannual, or even quarterly, performance reviews so that they’re not such a Big Thing. Having a big meeting once per year is intimidating; splitting it into smaller, more regular ones creates familiarity with the process and makes everyone feel a little more comfortable.

Finally, for your performance appraisals to really work for your employees, your employees should be involved in defining what they consider ‘good performance’ from the outset. More on that below.

What Should A Performance Appraisal Meeting Consist Of?

Two women in a performance appraisal setting

Regardless of how often you run them and how they are structured, all good, effective performance appraisals have a few traits in common. These include:

  • A review of performance based on pre-established goals that the employee has been involved in setting. Both employee and manager should have established well in advance what these should be, and ideally should have real-time visibility into their progress towards these.
  • A two-sided discussion about performance, with both manager and employee contributing in equal amounts. Performance appraisals shouldn’t simply consist of an employee being told how well they’ve done by their manager - it should be more interactive than that.
  • Time set aside to explore the reasons behind employee performance, and for the manager to be open to accommodations or tweaks in working procedure to help the employee perform at their best.
  • A discussion about how to move forward based on what the outcome of the appraisal, to include what goals should be implemented and how the company and line manager should support this.

Different Types Of Performance Appraisal

There’s no set way of doing your employee appraisals; but some work better than others. Below, we’ve listed a few of the most popular methods and their pros and cons.

When deciding between these methods, bear in mind the structure of your organization, the relationships employees have with each other and their managers (if you’re operating on a single line of command, 360-degree feedback might be difficult, for example), and your needs and capacity as an HR department.

1. Straight ranking appraisals

We’ll start with the simplest on the list. Straight ranking appraisals involve doing just that - ranking your employees in a big list, from best to worst performing.

You can probably see the issues with this approach straight away. It’s basic, cold, and overly-focused on numbers to the exclusion of everything else that makes a good employee. It’s also terrible for appraisals across your organization, because how can you compare across different departments, positions and locations?

Even if you used it as an appraisal tool for everyone in the same position - to rank your best performing salespeople, for example - you’re still likely to run into issues. Let’s say Mary has sold less than Jim in total because she works part time. She might well have sold more per hour she was on the clock. Or, perhaps Jim hasn’t sold the most this quarter, but is great at buoying up team morale and is super helpful to more junior members of staff.

None of the above intricacies are taken into account in straight-ranking appraisals, and they are terrible for employee engagement and motivation. Best move on.

2. Grading

One of the most common methods of performance appraisals, particularly when used in conjunction with a few of the other methods on this list.

The basic idea is simple: your manager grades you across a number of workplace criteria, usually a mixture of skills, competencies and behaviors. It’s worth bearing in mind that this is open to personal grudges, favoritism, or perceived injustices without a review process. Make sure you have a second adjudicator to review each management’s decisions if this is the road you’re going to go down.

If you want an organization-wide view of employee performance, you can then list people in terms of whose grades are highest. This is a common method of deciding on performance-related bonus payouts. It’s not perfect, as there’s no accounting for how stringent different managers will be when grading, but it’s a step above straight ranking.

3. Management By Objective

A more individual approach than the other two options above, management by objective involves manager and employee deciding on some individual KPIs for employees, then reconvening to discuss whether the employee has met these.

This is a great way of involving employees more in performance appraisals because it turns them from a top-down, imposed-from-above inconvenience into a way of employees defining ‘good performance’ on their own terms. It starts to turn performance appraisals from a major stress factor into an opportunity for positive employee engagement.

You don’t have to follow this method to the letter, but you should definitely involve your employees in setting their own goals. We can’t recommend this strongly enough.

4. 360-Degree Feedback

As the name suggests, 360-degree feedback involves gathering feedback from a variety of coworkers that interact with you on a regular basis.

This method is becoming increasingly popular, and with good reason. Over 85% of Fortune 500 companies use 360-degree feedback as part of their leadership development process.

Not only does it measure performance, but it also highlights whether an employee is an asset to your company in other ways; strong team players, supportive line managers, and those who always take on that extra shift last minute tend to get more well-deserved recognition here. It also encourages a ‘culture of feedback’ in your organization, where feedback can be seen as something natural and helpful, rather than a way of punishing those who haven’t quite performed as well in the eyes of a particular manager.

Of course, there can be downsides to this method if not managed properly. You’ll want to prevent your ‘culture of feedback’ turning into ‘I’ll say nice things about you if you say nice things about me’ - and, left unchecked, there’s always the possibility your employees will only ever ask people they work well with for feedback.

You’ll need to run it well for it to work rather than leaving it as a free-for-all, but when it works, it really works.

5. Elements Of Each

Your performance review, your way.

It’s not uncommon for organizations to take elements of each of the above methods and arrange them into a system that suits their workforce. You might, for example, incorporate positive 360-degree feedback as an employee goal in a management-by-objective setting, or perhaps use an employee’s own goals in a grading-style system.

You don’t have to do things exactly by the book; adapt what works, discard what doesn’t. The only rule you should absolutely stick to is keeping everything interactive. Discuss goals and key decisions with your employees directly, rather than imposing them from the top.

Do that, and you’re 50% there already.

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