Employee Performance and Appraisals: Best Practices Handbook

Author ProFlow Learning Centre, 1 month ago |

Employee performance and appraisals systems use a process where managers evaluate the work output and behaviour of an employee and provide them with feedback on how to improve or better use their talents, skills and resources.

Many people think that performance appraisals are only used for promotions and pay increases. However, employee appraisals can be used for many other important applications other than just giving rewards or admonition. 

Many companies benefit from employee performance and appraisal systems when used to clarify or shape employee responsibilities. It may also be used as a basis to make the company adapt to new business trends and practices.

Performance Assessment: An Overview

Managers are generally tasked to handle the performance review or appraisal process of their direct reports. The traditional process involves the manager writing down all their opinions of the employee’s performance in a form usually provided by the upper management.  

Performance appraisal forms are designed to provide the employee and the company a good picture of how the employee works. However, the traditional way of appraising an employee’s performance is mostly based on the manager’s perception or memory of recent events. This makes traditional performance appraisals subjective for reasons that it’s mostly based on opinions.

To make the employee’s appraisal an accurate representation of a person’s performance at work, managers have to put accurate metrics in place. Here is where performance management comes in. Performance management system defines the roles of employees and measures how well they achieve their goals.

Employee performance management incorporates a feedback system where managers and their direct reports communicate goals regularly. Managers using this system define measurable goals based on the needs of the organisation. 

What is an Employee Performance Appraisal?

Performance appraisals sometimes go by other names, such as performance reviews and performance evaluations. Regardless of how it is called, these appraisals are commonly used to evaluate an employee’s performance at work along with his or her overall contributions to the organisation.  

Traditionally, managers do performance appraisals to help determine whether an employee deserves a raise or a bonus. To accurately appraise the performance of an employee, many managers take advantage of the company’s existing feedback system. If none is present, the first step is to build one. 

Managers will seek the input of the employee through self-appraisal, and they discuss the result of the evaluation in what usually is a formal meeting or a special 1:1 session. Ideally, the whole process is a responsibility shared equally by both parties. 

Usually, it is the managers who lead the process but employees are also required to become actively involved. These days, performance appraisal has become a part of a much bigger management process. 

What is Employee Performance Management?

By definition, performance management refers to the process that involves identifying, measuring and developing an employee’s performance in an organisation. On the other hand, performance appraisal mostly refers to the actual process where the manager creates the performance review and sits down with his or her direct report to talk about the assessment.

The key difference between performance management and performance appraisal is that the former pertains to everything that transpires between the manager and his or her direct report, from evaluation to performance improvement.  

These days, many companies are doing away with traditional performance reviews. Managing the performance of employees currently follows different strategies, policies and practices. Organisations are also starting to get very creative with the way they check employee performance. 

For example, aside from the usual performance review, managers also include goal-setting and monitoring as part of the process. Companies are challenged to create a performance management system that doesn’t just accurately measure an employee’s performance but also attract and retain key employees. 

What Makes an Effective Employee Performance Appraisal?

Many managers get very uncomfortable when measuring employee performance and appraisals. Maybe that’s one of the reasons why they need months to get it done. Some managers might even put off making employee evaluations altogether because they don’t have any data to work with.  

The reason for the issues around employee appraisals might have something to do with the method used. Managers are encouraged to use a process that will effectively appraise employee performance not just to make their jobs easier but also to ensure that the employee’s contribution to the company is correctly measured. 

Employees who are given erroneous or delayed performance reviews may turn into unmotivated members of the team. They may lose their confidence and it could damage their morale. They could be thinking that their manager or the company doesn’t care enough to give them an accurate and timely assessment of their work. These are the employees who rely on performance reviews to shape their future in the organisation.

To help managers in creating a sound evaluation of their direct reports, read through the suggestions and methods we have below. Organisations are encouraged to veer away from the traditional performance appraisal process, which is mostly subjective, and focus on fact-based performance appraisal methods instead.  

Managers should work towards building a functional employee performance management system. For example, they can use the 360-degree performance appraisal. It is one of the newest review methods used in today’s workplace and many other methods will be discussed below. 

Employee performance and appraisal process

Effective Performance Appraisal Management Methods

It is extremely important for organisations to choose the right employee performance and appraisals process for their employees. Choosing the right one will most likely improve employee productivity and boost organisational outcomes.

In most companies, an employee’s performance review is among the many determining factors in wage increase or job promotion. But because performance management is being practised in many industries these days, the same evaluation can also be used to gauge the employee’s strengths, weaknesses and skills to turn them into more productive members of the organisation. 

Here are some of the most common employee performance appraisal methods used by companies today. Carefully go through each of them to find out which method will work for your organisation best. 

360 Degree Performance Appraisal

The 360-degree review is one of today’s most popular employee performance appraisal methods. It integrates a review process that comes from different directions or members of the organisation, thus its name. 

This performance appraisal method provides employees with different feedback from different sources, such as the manager, a handful of peers, co-workers, staff members and even customers. In many cases, employees can respond to the feedback they obtained through a self-assessment method.

The company’s existing feedback process fuels this type of employee performance system. Here, employees receive confidential and anonymous feedback from the people who work alongside them. 

Around 12 people fill out the feedback form with questions that cover a wide range of competencies in the workplace. The feedback will also include rating scales and written comments. The employee under evaluation will answer the same form as well. 

What it is for:

Some managers use the 360-degree employee performance method to get a good understanding of the employee’s strengths and weaknesses. This system assesses the obtained results and formats it in a way that helps managers create the ideal development plan for the employee.

This feedback method is effective in measuring not just workplace competencies but also employee behaviours. Since the method relies greatly on employee feedback and perception, it helps enhance one’s listening, goal setting and planning skills. 

The 360-degree employee performance and appraisals method is also ideal for measuring areas that are rather subjective, such as leadership, character and teamwork. However, for it to be effective, managers should properly communicate to the employee why and how the feedback will be used. 

But when properly executed, the process becomes useful in obtaining well-rounded feedback for the employee. This benefits the team best, as members may possibly evaluate each other, thus giving the manager a better view of how the employee works with the rest of the team. 

The 360-degree performance appraisal also intends to help managers with organisational and personal improvement. The data obtained from the feedback and appraisal process can be used for career development.

The other advantages of the 360-degree employee performance and appraisals method include reduced risks of discrimination and better training assessment. Certain companies that also involve customers in the review process may expect to obtain relevant data to help improve customer experience. 

What it will not do:

But even with its popularity, the 360-degree employee performance appraisal method has its limitations. For example, it is not very effective in assessing job requirements and performance objectives. It shouldn’t be used for technical and job-specific skills, including attendance and sales quotas. 

This only shows that this appraisal method can only be used in one part of the company’s performance measurement system. If used solely to measure the overall performance of the workplace, it may cause issues in the organisation. Same is true if it is implemented in a hasty and incomplete manner. 

Furthermore, the feedback used by this method is kept anonymous. This may give the employee under review limited information as to why they receive particular feedback. This may have a detrimental effect on the employee, especially when their feedback comes from people who are inexperienced with the process.

Another downside of the systems is that it may focus too much on the employee’s shortcomings or weaknesses instead of his or her wins or strengths. To make it work on both ends of the spectrum, a larger degree of data processing and collection is necessary. 

Management by Objectives

Peter Drucker conceptualised Management by Objectives or the MBO principle. This employee performance and appraisals method focus on how well employees achieve the goals the organisation has set for them. 

However, employees won’t be evaluated against the goal. Instead, they are encouraged to participate in the goal-setting process. Studies show that employees who are involved in the goal-setting process of the company tend to be more motivated. Since they have a say in the process, the goals that will be created will be challenging yet achievable. 

MBO is a strategic performance management model that uses top company objectives to determine specific employee goals. It also allows employees and managers to clearly see what has been accomplished so far. 

What it is for:

MBO is geared towards performance improvement. It helps managers paint a clear picture of what a good, better and best performance looks like. Passing these goals over to the employees to determine whether they are realistic and achievable gives them a voice and a sense of identity in the workplace. 

Employees who achieve the goals they set for themselves feel proud of their achievements. Because of that, they become even more productive members of the workplace. On the other hand, those who fall short of the goal are likely to feel more motivated to achieve more. 

MBO is designed to encourage career growth. It gives employees the opportunity to move forward with their career because companies that use this employee performance and appraisals method are interested in enriching the skills of employees and providing them with many opportunities for improvement. 

What it will not do:

MBO is mostly a compensation-based employee performance and appraisal method. Most of the companies using MBO integrate the process into the organisation’s annual performance review that determines the employee’s pay increase. 

Such a model somewhat follows the traditional performance review that may or may not be applicable to the modern workforce. By nature, MBO follows the top-down approach, as the goals mostly come from the upper management and down to the employees. It may not be applicable to companies that are looking for a bottom-up or sideways process. 

Simply put, MBO is not for organisations that are trying to veer away from the traditional. Additionally, the goals created by this process are mostly safe goals. It’s the reason why employees are involved in their creation. Therefore, it isn’t for organisations that want to be more aggressive or aspirational than usual. 

Behaviourally Anchored Rating Scales

Also referred to as BARS, Behaviourally Anchored Rating Scales measures an employee’s performance with the use of numerical ratings. Performance levels are placed on a scale which acts as a yardstick to measure an employee’s performance against the standards set by the company. 

To prevent this method from being purely subjective, managers should integrate critical incidents into the process. Critical incidents refer to the performance-related struggles and successes of employees while doing their work. This makes BARS a functional method to assess the quantitative and qualitative aspects of an employee’s performance. 

The most important step in creating a BARS evaluation is generating critical incidents depicting the typical behaviours in the workplace. The evaluation must present these critical incidents in a common format without redundancies. Examples of critical incidents will be reporting to work early and greet customers with a smile.

What it is for:

This employee performance appraisal method is for companies that are looking for a simple system that can significantly evaluate employee behaviour. But since the whole system is based on behaviour, managers must have a clear understanding as to what behaviours may lead to organisational success. 

BARS is believed to be individualised and unbiased. Experts created it to make performance management unique for every position in the organisation. It works for entry-level employees all the way to top-level executives. 

What it will not do:

While BARS may seem to be very simple to use, it can be very difficult to create. The creation of critical incidents will be different for every role in the organisation. Therefore, it may be time-consuming to create several templates for the different positions present in the organisation. Small companies with each individual assuming a different role may find it too taxing and expensive to create. 

Additionally, BARS may be subject to leniency or bias. While there are guards in place to prevent the employee’s evaluation from being subjective, there may still be some room for errors in the rating scale.

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Factors Affecting Employee Performance Appraisal

While companies work hard to make sure that the performance appraisal method that they have in the organisation accurately reviews the work output and behaviour of the employee, there will always be several things to watch out for. 

Managers should monitor the factors listed below very well because they directly affect the results of the process. Always remember that employee performance and appraisals are very important for the employees as its results also affect how employees do their job in the future. 

Performance indicators 

The indicators managers used to assess an employee’s performance will make or break the review results. While the indicators used will mostly be in favour of the company, it will also help if managers also consider the skills of an employee and the present condition of the workplace during the selection process. 

Employee motivation

How employees do their job will be based on their motivation. A motivated employee will work with full energy and lots of excitement. They will take initiatives to start a task and will show interest in learning how to do it exceptionally well. These are the employees who expect to fare very well during the review. 

Knowledge 

The performance appraisal method used should also accurately assess the employee’s on-the-job knowledge, which is a combination of product and process knowledge. It follows that employees with limited knowledge will have lower ratings because of their restricted performance on the job compared to highly experienced and well-trained employees who show efficiency. 

Work output 

Strongly motivated and highly knowledgeable employees will most likely do well on the job. It’s important that managers find the best way to quantify the work output produced by such employees. Good examples of parameters that can be used are profits generated or customers served. 

Teamwork 

Managers should also assess the employee’s performance within the team. In any organisation, teamwork is very important. This means that every employee should be a team player. Managers should direct all efforts towards the improvement of the team. Employees who work devoid of the team and those who negatively affect the team can expect to get a lower appraisal score.

Presence

Managers should also measure the employee’s presence in the work area, team meetings and organisational activities. While the process of checking one’s physical attendance is slowly fading during these times, it doesn’t mean that this factor shouldn’t be measured at all. Employees who are not always present or are usually tardy should be given ample markdown in their evaluation. 

Handling Employee Performance Feedback

Assessing how an employee worked is just one part of performance management. The other part consists of giving and receiving feedback. Regardless of what type of employee performance appraisal method is used, feedback will always be a crucial element. 

Managers must be keen on giving feedback that the employee can use for future improvement. The feedback should either reinforce or redirect, not intimidate. Managers should seek employee feedback as frequently as they give them, as there are a lot of things that they could learn from it. 

Managers should give reinforcing feedback to employees who are doing a great job to help maintain their positive behaviour. The goal is to verbally reinforce the helpful outcomes of the employee’s actions. 

Managers can also redirect feedback, which works the other way. Instead of encouraging the employee to continue what they’re doing, managers use this type of feedback to tell employees to do something else. They will be asked to stop doing what is not helpful and do another thing that can contribute more to the workplace.  

To learn more about feedback in the workplace, please read through this article about employee feedback and how it can be used to motivate, encourage and boost employee productivity. 

Creating Performance Appraisal Feedback

Receiving feedback is as important as giving feedback when it comes to employee performance and appraisals. Managers are responsible for communicating the evaluation results to their direct reports. So, they should be experts at handling performance appraisal feedback from employees and peers. 

Managers must strive to provide regular employee performance audits not just to give employees a fair assessment of how they’re doing, but also to easily manage goals, expectations and feedback from their direct reports. 

A performance review only becomes effective if employees are aware of their strengths and weaknesses. With that knowledge, managers may expect employees to either raise the bar higher or further improve themselves. 

How to Give Effective Performance Appraisal Feedback 

Managers can give effective performance feedback if they have up-to-date information about the employee’s position, goals and responsibilities. Managers must create a performance review tailored to the employee’s role. Therefore, the first step is to understand what the employee’s role in the workplace is and if he or she meets and exceeds expectations. 

The next step is to make sure that there is data available to further evaluate the work and behaviour of the employee. To achieve that, performance reviews should be done monthly, weekly or as frequently as needed. 

Managers should make note of the crucial elements needed by the performance appraisal method they’re using. The most common ones are productivity, interpersonal skills and teamwork. Creating a detailed report around each element will make it easier to provide feedback because there’s enough data to support the appraisal. 

Managers should also seek information from other sources, such as co-workers, staff and customers when applicable. Having more people contribute to an employee’s evaluation will make it less subjective. This also addresses possible concerns about bias, leniency and subjectivity. 

Once all data are in place, communicating the appraisal review to the employee comes next. Managers should seek balance in giving positive comments and constructive criticisms. All feedback should be clear and actionable.

Managers should remember that the meeting doesn’t end after they have given the employee’s appraisal review. They should also listen to what the employee has to say about their performance audit. In fact, managers must allow their direct reports to do as much talking as needed during these meetings. 

Be sure to address all the employee’s concerns about his or her review. Allowing employees to voice out their opinions makes them feel that their performance review is as important to you as it is to them. 

Employee Performance Review Examples

To further aid managers in providing employee performance review and feedback, here are more tips and concrete examples on how managers should prepare one. When it comes to employee performance and appraisals, proper phrasing or wording is crucial to convey the right message across. 

Most employees do not know what to do with their performance reviews after their managers have given it to them. What’s much worse is when the employee leaves the meeting unsure of what their managers feel about their performance. 

To help address that, here are some feedback examples that can help managers communicate the right things to their direct reports and guide them into doing the next steps. 

On employees that exceed expectations

Employees who exceed expectations have to be recognised accordingly. This type of evaluation is ideal for employees with improved production levels or has performed a certain task that allowed the team to deliver more than what was expected. 

Communicating to the employee that he or she has done great work should be done properly. Some of the verbiages that resonate most to employees who exceed expectations are the following:

“I really appreciate how you solved the problem about our production issues by proactively suggesting a solution and leading the team in its implementation. You did a good job when you showed resilience and patience in teaching team members on how things should be done. I believe you have strong abilities related to this task, and I want you to share more of your creative ideas in the future.” 

On employees that meet expectations

Employees that meet expectations in a consistent manner are team players who have great potential to do even more. Managers should encourage them to not just continue what they are doing but to try to contribute more to the organisation as needed.

When communicating the performance review of these employees, managers may use the example below. Be sure to include specific instances to the verbiage below so that it becomes clearer to the employee what you’re talking about. 

“Among the things that I admire about your work is how you do things efficiently and deliver the expected results. I also saw that you have created a positive impact on this particular task because you made things easier for the rest of the team to reach their goals. Continue doing what you do and influence other people to do the same. I definitely want to see a lot more of that in the workplace.”

On employees failing to meet expectations

Managers have to handle employees who fail to meet expectations more carefully than those who exceed them. Since these are the employees that may be causing a negative effect in the workplace, their managers must properly coach them on how to set things right without directing an attack on their personality. 

To give feedback to these employees, managers should use words that are positive and constructive, not negative and demeaning. Managers don’t want to demotivate these employees further, causing them to falter even more in their next performance review. Here’s an example of how to communicate with these employees. 

“May I share with you some feedback about what I have observed about you? I see that you’re good at doing this job, but I think you can still improve on it. I’d like to show you the last evaluation where you’ve delivered satisfactory results. I’d love to see more of that. Maybe you can try to help more in completing the project than creating more processes. I’d like to see you improve in that area.” 

Setting Employee Performance Goals for Performance Review

Setting performance goals motivates employees to do better. It also provides managers with a good basis on how to evaluate their performance. However, managers should develop SMART performance goals in the workplace. 

Most of the goals that managers should focus fall in the areas of motivation, accountability, job satisfaction and productivity. Performance goals refer to the objectives that employees should achieve within a specific time frame. 

These goals are attached to the job position the employee holds. Managers usually determine these goals after considering the tasks and duties that an employee performs relevant to his or her position. 

Most performance goals add up to the overall goals set by the company. Managers communicate these goals to their direct reports. To be effective, performance goals must be clear, well-defined and easily measurable.

A lot of organisations use performance management systems to determine how well employees reach their goals. Oftentimes, this assessment becomes the basis for promotions, salary increase and department transfers. Here are tips on how managers should create goals for their teams. 

Know the company’s objectives

Individual and team goals must be always aligned with the company’s goals. Managers should connect all employee performance goals to the company’s mission, vision and strategy. To be effective, employees must see the connection between their role and the growth of the company. 

Managers should have a clear picture of the company goals and divide them evenly among employees. Employees will find it easier to achieve organisational goals if their managers break them down into smaller chunks and given along with clear goals and expectations.  

Encourage participation

Employee participation in the goal-setting process promotes motivation. Managers should let employees identify or even suggest job-specific goals that are applicable to them. Employees are likely to achieve these goals consistently because they have set it themselves and not the organisation. 

Managers should set time for individual goal setting with every employee for each performance period. They should also make sure that such goals match the objectives of the company. Once finalised, managers should help their direct reports create a plan on how to achieve them.

Track periodically

Managers should actively track the performance of employees to further motivate them. Doing so also encourages them to reach their goals and ensure their progress. Monitoring, reviewing and recognising on a regular basis may create a positive effect on the employee. 

Rewarding employees that consistently achieve goals boost morale. On the other hand, managers must work closely with employees who fall short to encourage them. But more importantly, managers must always be ready to revise or update the individual and team goals as necessary after a discussion with the employees.

Work performance and appraisal

What are Good Goals for a Performance Review?

Goals are essential in any organisation. Through performance reviews, managers can encourage their teams or direct reports to achieve their respective goals to become more successful in their roles.

The goals included in performance reviews motivates and develops employees. If managers are clear with what the company expects from each employee, then the employee will become more focused and have a positive outlook. 

By considering employee performance and appraisals, managers can easily spot the weak areas of each employee and concentrate on their improvement. Here are a few critical goals that managers have to include in employee performance reviews.

Motivational goals 

Managers should clearly explain to employees what they expect from them. Both have to see eye-to-eye in order to understand the results and objectives that each party has to meet. Each has to develop the motivation to generate quality output.

Employee development goals

There are employee performance and appraisals tools that managers can use to help their direct reports in achieving professional and personal growth. The employee must provide their inputs about these goals, which will act as the basis for the manager. Managers must help the employee in achieving these goals in the future.

During the appraisal process, the manager and employee must talk about these goals and how to achieve them. The employee must show his or her commitment to achieving these goals while the manager commits to providing the support needed to fuel the employee’s career growth.

Training, development and education are key factors in this goal. To further help in the process, managers may set milestones that employees may use as a guide towards their objectives. This is helpful for employees who want to get a promotion. It will also benefit those who simply want a pay increase.

Productivity goals

Setting productivity goals allows the organisation to generate more results in a shorter time frame. Managers must accurately measure productivity goals and add specific parameters, such as the total number of sales or clients the employee has generated. 

Efficiency goals

Managers should include efficiency goals in their employee performance and appraisals checklists to ensure that their direct reports make fewer mistakes. With fewer mistakes, employees tend to accomplish more and generate higher outputs. 

Managers must provide precise measurements to assess efficiency in the workplace. But more importantly, this goal should encourage employees to think more strategically while working. This goal turns employees into problem solvers.

Communication goals

Communication goals may fall under self-development goals. Managers can help employees in acquiring this soft skill if it could benefit the team and the organisation as a whole. Communication may also boost one’s creative skills. Good communicators may lead people in developing a better approach to solving a problem.  

Leadership goals

Some companies are intent on building leaders within their ranks. To create a new breed of leaders, managers should appraise an employee’s behaviour and see if it aligns with what the company needs to succeed. 

Managers should duly measure all other employee behaviours, especially the ones attributed to good leadership. Good examples of such behaviours are time management, punctuality, attendance and project management. 

How to Fill in Goals for Appraisals

Managers should clearly define an employee’s goals before starting with the performance review. The appraisal should accurately represent what the employee has achieved during that period. Here are some tips on how to do that. 

Review past employee performance and appraisals

Make sure that the employee’s performance reviews are continuous. Managers should pull out the employee’s files and check their previous goals along with their past performance to measure how well they are improving or if they are failing. 

This can also be a good basis for re-evaluating the goals in case the goals become outdated. The manager should encourage discussion during any type of goal setting with employees. 

Take note of additional achievements

Managers must be the first to note if the employee exceeded expectations or if they met any other achievements during the evaluation period. These employees deserve recognition to encourage them to do even better in the next review. 

If the performance review intends to be the basis of a salary increase, then the employee’s achievements should be aptly included. Managers must note an employee’s big and small achievements in his or her performance appraisal record. 

Find areas for improvement 

No employee is perfect, even the best ones. So even if the employee has a long list of achievements, be sure to mention a couple more ways for them to further improve themselves. This is also important in keeping the employee’s ego in check. 

Conclusion 

The right and wrong way of doing employee performance appraisal will always depend on how it serves the organisation’s and workforce’s purpose. Companies should be ready to try different methods and processes in measuring an employee’s performance and stick to the one or several that work best for the organisation. 

Not all employees look forward to employee performance and appraisals review. Even to this day, a lot of people see performance reviews in a negative manner. It is upon the managers to make employees feel comfortable during the appraisal period because these reviews are still one of the best ways to give and receive invaluable feedback within the organisation.