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Performance Appraisal: What HR’s Should Know. Objectives, Types, Importance and Processes

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The process of understanding the employees working at your organization better and giving them constructive feedback to improve their performance is termed as performance appraisal. Also known as an annual review, employee appraisal, or performance evaluation, performance management and appraisals are the keys through which you can make sure your organization is on the right track.

Usually, managers carry out this process to justify the incentives and bonuses given to the employees or a letter of termination. The type of performance of each employee will help you understand the method you need to choose for that particular employee’s performance improvement.

A Gallup survey found that employees who have had a conversation with their managers frequently are 2.8 times are more likely to be engaged.

Appraisals can be conducted at any point in time within organizations but are usually done annually, semi-annually, or quarterly.


Benefits of performance appraisal for the organization

Frequent employee assessment can make a huge difference in the performance of employees and the organization. They provide helpful insights into the actual work done by the employees and helps managers make a calculated guess on how such deviations can be tactfully handled.

  • It helps you recognize the current performance of the employees and appreciate them.
  • Annual Performance Review will help you determine the specific areas where the skills of the employees can be improved
  • Performance Appraisal forms can help managers benchmark the performance and find out the strength and weaknesses of their workers.
  • Individual performance of employees sees a major improvement with regular and timely employee performance reviews.

How does performance appraisal work?

Every organization has a limited pool of funds from which they allot bonuses and incentives to the workers whose actual performance is according to the standard set by the direct manager.

Appraisals also assist the managers and the employees to make a development plan to be followed by all the employees. This can include training the workers and assigning additional responsibilities to overcome their shortcomings.

Ideally, annual appraisals should not be the only time where communication between managers and employees should take place. Frequent evaluation helps the manager to know about the actual work being done by the employees and the employees to know where they need to work on to meet the standard.

Process of performance appraisal

1. Establishing Performance Standards

The process of appraisals begins with establishing performance standards. Appraisals are used for different purposes by different organizations ranging from motivating the employees to controlling their behaviour.

Through job analysis and job descriptions, managers need to determine the output, accomplishments, and skills that need to be evaluated.

2. Communicating Performance Expectations To Employees

Once you set the performance standards, communicating those expectations to the employees is the next step. Proper communication of the standards is important to avoid any appraisal problems.

You need to ensure that the standards are properly understood by all the employees in your organization. Mere transference of the standards set will not ensure that the workers properly understand them enough to execute.

Positive feedback of the standards should be taken from the employees as verification that they have understood them and will be able to achieve them. These standards should be open to any changes or revisions if provided by the employees.

After all, communication is a two-way street!

3. Measurement Of Actual Performance

This is the third step involved in the appraisal process. It involves measuring the  performance of the employees on the basis of information obtained through personal observation, oral reports, statistical reports, etc

You need to ensure that the evaluator should be unbiased towards the measurement of a particular employee. The measurement should be purely based on facts and figures and should have a backup to it. At the end of the day, a biased review will only harm your organizational goals.

4. Compare The Actual Performance With The Desired Standards

The fourth step is comparing the difference between the actual performance of the employees and the standards set by the organization.

If there are any deviations post comparison, you have to take appropriate measures to bridge the gap and achieve your goals.

5. Discussing The Appraisal With The Employees

The fifth step is discussing the results of the appraisal with the employees. A mere comparison of the performance is not enough. 

You have to communicate the shortcomings of the employees to them so they can improve on it. This is one of the most challenging jobs of the managers as they have the task to present the shortcomings in such a manner that it is taken as constructive criticism by the employee and not the other way around. 

An intensive discussion about the reports with the employees could go a long way to achieve future goals. The outcome can be both positive and negative which is why it is important to communicate the results in a pragmatic manner.

6. Initiating Corrective Action

The final step in the process is taking appropriate and corrective actions when necessary. The areas that require improvement are identified and then suitable actions are taken to improve them.

Corrective actions are of two types:

One can be an immediate action- wherein the organization immediately starts working on the shortcomings to balance the deviations. These are usually concerned with the KPIs of the company that is crucial for the smooth functioning of the organization.

And the second one is a process where the deviations are properly understood, and the action for its corrections is discussed and applied carefully so that they do not occur again. 

Objectives of performance appraisal


1. Providing Feedback

An appraisal is a good method to give and take feedback within companies. Employees understand what they need to work on to improve their performance and managers understand how to set the standards for the employees.

2. Downsizing The Organization

The Covid Pandemic is a big factor for the downsizing of organizations especially small and mid-size companies.  Appraisals in such cases can be a big help for the managers to evaluate which employee they should keep and which to let go of.

3. Promoting The Right Person

Appraisals act as a medium that can help you as managers justify to your superior why you want to promote an employee with an extraordinary report which you have collected after conducting the same. Promotion not only motivates the employee but also leads to employee development.

And we know for a fact that if the employees are happy and motivated, the productivity they show is immaculate.


4. Employee Training And Development

For effective business growth, it is important that periodic training and development sessions take place keeping in mind the company goal. If there are deviations in the performance of a concerned employee, he/she should be given the required training to overcome their shortcomings.

5. Provision Of Legal Defense

In case an employee puts your organization accountable for either promoting some other colleague above them or in case of termination of a particular employee, an appraisal report acts as proof to show why your company took that decision in the first place. 

In such cases, you can prove your point if your decisions regarding the evaluation are ever challenged.

6. Improving The Overall Organization

An appraisal can help you learn more about your employees and assist you in goal tracking with the statistics you get after the evaluation. It will also help the employees to know what they are lacking and the training they require to bridge the gap.  This will help you and your employees to achieve the organizational goals. 

Types of performance appraisal


1.  360-degree Feedback 

This is a type of appraisal where the employee is evaluated by their subordinates, peers, and co-workers. It works best for organizations that depend on teams’ cross-functional abilities. The survey questions need to be specific to the employee to help you get a proper insight into their performance.

2. Real-time Feedback

Real-time feedback is pretty self-explanatory. Instead of providing feedback to the employees once or twice a year, real-time feedback ensures that regular or periodic assessments of the employees are taking place to keep all the people within the organization completely updated. 

Through real-time feedback, you can nullify one major factor of weakening: lack of open and one-to-one conversations with the immediate superior.

3. Peer Feedback

Peer feedback is the process in which employees obtain information about the performance through their peers. It allows employees to understand their own work and compare it with the work of their colleagues. Productivity as a team increases by receiving feedback from peers.

4. Traditional Appraisals

Also known as individual appraisals, this is the most common type of method for employee assessment.  In this type of appraisal, the employees’ performances are evaluated on the basis of the facts and figures set by the manager of the company. This is then measured to find the deviation in actual performance.

Importance of employee performance appraisals

One of the main reasons for performance appraisal systems in the workplace is to merely know more about your employee – to know what your employees are capable of, what they find difficult to do, what they’re comfortable in doing, and what kind of work gets them in the mood or ticks them off.

These days performance appraisal software is easily available for use and helps you generate logical appraisals based on employee performances. This will ease your job to a great extent.

1. Know your employee

‍When you get to know your employee and their skillsets better, you can delegate appropriate tasks to them, which also means you can keep them at arm’s length from tasks you know they would not only be sub-par at but also tasks that will cause miserable moods.

2. Encourage your employee

‍When one renders an appraisal to their employee, it is crucial to make it as encouraging and well reckoned as possible. Everyone feels ecstatic when their work is appreciated and is accordingly driven to work better.

3. Apt appraisal

Like calculating large numbers with a calculator in your hands, you expect a correct and pertinent solution. An employee too will expect to be evaluated as correctly as possible. Let’s not forget to include making an employee feel good about the work he/she does and make them feel appreciated.

4. Computer accuracy

‍To help you evaluate your employees to the best of your ability, performance appraisal software is available online. Therefore, you can just channel your attention on encouraging and appreciating the work of your employee. Easy-to-use performance appraisal software can help your Human Resource team, customer service representatives, managers, etc. calculate the most befitting and relevant performance appraisals.

At sumHR too, our engineers are working hard in developing a performance appraisal module for our HR software. In case you are an HR manager or a person who participates in the performance appraisal process, do feel free to share your comments and requirements in the comments section below.

Be the HR Hero with sumHR. Book your free Demo here or start your 7 day free trial.

If you have any questions leave them below in the comment section and I will be sure to answer it.

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