Performance appraisals are vital for any organization to help determine an employee's contribution and an acceptable remuneration for that effort, in terms of salary hikes or promotions (in some cases, both). Proper performance appraisal methods also help companies understand where their employees stand, their skills, abilities, and possible shortcomings.
45% of HR leaders do not think annual performance reviews are an accurate appraisal of employees’ work (Source). To ensure that performance appraisals add real value, implement a mix of traditional performance appraisal methods and some modern performance appraisal methods that have proven to be useful.
What is Performance Appraisal?
Appraising an employee's performance is pivotal to the organization's ability to enhance productivity and improve the methods to achieve better outcomes. These are often annual reviews where an employee's contribution is compared to a structured set of desired results or objectives.
Performance appraisals assist in identifying individuals who are performing well and those who are not, as well as the reasons for their poor performance. To measure one's performance, there are plenty of traditional as well as state-of-the-art methods that organizations use. Let’s look at some of them in detail.
Traditional Methods of Performance Appraisal
Here are some of the methods used traditionally:
- Ranking Method
- Essay Appraisal
- Paired Comparison
- Checklist Method
- Critical Incidents Method
It has been the practice to carry out a point-based or rank system to determine if employees have satisfied the organization's requirement for productivity during a specific period. Concerns with using the traditional method of performance appraisal are that they are not detailed enough to evaluate modern types of employment fully.
Modern Methods of Performance Appraisal
However, organizations could also use modern performance appraisal methods to garner more accurate and valuable information on employee performance. Ultimately, these methods could improve the organization's performance, such as:
- Assessment Centres
- 360-Degree Appraisal
- Cost Accounting Method
Let's look at how these different performance appraisal methods work and why some may be ideal for implementing in your organization than others.
Here are the 10 Best Performance Appraisal Methods
The ranking method is possibly one of the oldest employee performance appraisal methods. The process involves assessing an employee according to a set of parameters compared to all the other employees. Essentially, this places them in order of the most to the least productive.
Although the ranking method has been around for quite some time, its advantages are limited and do not result in extremely useful outcomes. It is implemented in different variations, and each variation has its own benefits. Take a look:
- It is simple and quick to accomplish.
- It is a less time-consuming process.
- It yields a numerical rating for the employees, which can be directly linked to compensation adjustments or staffing concerns.
While the process is simple and the results are easy enough to understand, there are limitations:
- This method does not account for the ratio by which one employee is doing better than the other.
- When the number of employees is high, this traditional performance appraisal method will likely have more inaccuracies.
- Individual attributes and skills differ. This method does not take behavior and such factors into account.
Another traditional performance appraisal method is essay appraisal. Here, a manager draws out a relatively detailed essay about an employee's performance. Several questions could be presented to the manager, who would then reflect the employees' performance in a written report. These types of appraisals generally address quite a few aspects of an employee's contribution in their role.
These essays are intended to explain and record an employee's strengths and limitations in the workplace, as well as to identify problem areas and devise a strategy to address them.
Let's look at the advantages associated with Essay Appraisal:
- When it comes to a small team, this method does have the advantage of leveraging the manager's involvement in the employee's professional affairs.
- Since the essay approach is significantly less organized and rigorous than traditional rating scale methods, the appraiser can analyze any issues or characteristics of performance that is important to an employee's job role or overall company progress.
- This method strategy provides supervisors with freedom of expression and critical analysis.
Some of the downsides associated with essay appraisal are:
- If the team is large, this method may not have the required insights to form accurate opinions on which to base actions.
- A large part of this method also relies on managers to be adept at written communication. Therefore, a well-intending manager who is extremely happy with an employee's performance may be unable to convey that information effectively.
- It puts the employee's position at risk while giving the organization incorrect data, possibly throwing any performance management attempts into complete disarray.
This method involves comparing employees against each other, meaning one-on-one. This method traditionally selects a particular trait on which to focus. The process is quite simple. The designated 'rater' selects slips with two names on them, then proceeds to mark the one they believe is the better one. The number of times the employee's name gets marked for specific traits decides how high up on the list they will be.
The formula to determine how many pairs are possible for the number of employees is N (N–1)/2, where N = total employees being assessed.
Advantage: If only a few employees need to be rated, the paired comparison method is a good option. This is to the fact that it compares two employees at a time rather than all employees.
Disadvantage: Other than being extremely effort-intensive, this method may not be feasible at all in a large organization. With a large number of employees, it can be time-consuming.
Managers are provided with a set of questions. The questions can be yes/no type, statements, or even multiple-choice questions. The respondents can then select how much or how little they agree with that statement.
Advantage: Unlike many of the other traditional methods, this employee performance appraisal method is not very time-intensive. It is a commonly used method as it saves time and measures all the employees against the same criteria.
- It can be challenging to create an adequately detailed questionnaire to get results accurate enough for a corporate environment.
- It can also be relatively inefficient, especially when measuring several different job roles using the same set of questions.
- Furthermore, creating separate questionnaires for each job category can turn out expensive.
Critical Incidents Method
This employee performance appraisal method focuses on fundamental behaviors that impact how a job is carried out. Critical incidents refer to incidents that either positively or negatively affect how a job function is performed. For example, in customer service, 'level of empathy' could be on the list.
The process starts with listing specific behaviors that affect the job role. A panel of experts then sets about placing weightage on these particular behavior incidents. The next part is creating a checklist. Here, the 'rater' chooses and marks whether the employee's specific behavior leans towards good or bad.
The thought behind this method lies in outlining exceptional behavior. The theory is that under normal circumstances, employees with the same skill-set should have the same output.
An advantage of this method is that it is behavior-focused and personality-focused.
On the negative side, it can be challenging to keep track of behavior throughout the day for the entire year and note down these specific behavior patterns.
Management by Objectives (MBO)
In the simplest terms, Management by Objectives is a method of creating an objective set of goals. The manager does this in collaboration with employees. The goals are then discussed and reviewed at specified intervals. MBO is one of the most sought-after and commonly implemented performance appraisal methods.
There are four main parts to this employee performance appraisal method:
- Goal Setting: The manager and employee figure out what goals they must set. These would consist of outcomes that both parties feel need to be achieved.
- Performance Standard: This is the standard that determines what is required to meet these goals. In other words, to what extent these parameters must be satisfied to achieve these goals.
- Comparison: A comparison is drawn between when the goals were set and a predetermined point in time, for example, three or six months down the line. Managers and employees can see what changes have come about.
- Periodic Review: This is where the employees and managers discuss the employee's development. The manager can then inform employees of what improvements are still required, which goals they have met or exceeded, and how to achieve these goals.
Although MBO is widely used across many organizations today, it comes with its fair share of merits and demerits. Let's look at them:
- Appraisals can be more fair, detailed, and equitable because MBO emphasizes quantifiable goals.
- It raises employee awareness of the company's objectives. The majority of the time, employees are concerned with their own goals and the environment in which they operate. However, with MBO, they are proud to be a part of the organization's aims. This boosts their motivation and dedication.
- MBO frequently reveals areas where employees require additional training, resulting in career advancement.
- While the MBO method is considered adequate, the objectives set must be both realistic and quantifiable.
- Another fact is that it takes time and effort to ensure its correct implementation. It is also likely that every role will need an MBO explicitly designed.
Behaviourally Anchored Rating Scales (BARS)
Behaviorally Anchored Rating Scales rate an employee's specific behavioral traits that relate to performance. Each statement or question has additional statements that describe the extent to which that employee displays that particular behavior. One of its distinguishing features is that it also considers an employee's intangible characteristics and maps them to a rating scale. There are five parts to creating an effective BARS appraisal system:
Identifying Critical Incidents: A set of behavior or critical incidents that impact the job role must be identified.
Creating and Reallocating Performance Dimensions: Various performance dimensions are put together, such as behaviors that impact a particular part of the employee's role. Those creating the surveys must also pool in their thoughts. They must finally reallocate these behaviors into categories based on what the majority feels best determines the specific areas of the job role.
Quantifiable Scaling: It is then required to understand the effectiveness of that behavior and put it against a scaling system.
The Final BARS Instrument: The data collated is then compared to vertical scales. These can be used to compare the areas in which the employee has scored adequately and where they need improvement.
Let’s dig into some benefits associated with BARS and any downside this may have:
- It is efficient both qualitatively and numerically.
- Bugs are unlikely to arise because BARS is meticulously constructed. It's unlikely to make a mistake when comparing an individual to the performance dimensions. This precision only contributes to the test's trustworthiness.
- It effectively eliminates bias to a great extent.
- This method is extremely personalized to each individual and hence takes a lot of time. It can be quite costly with respect to the time that is spent.
- Some performance dimensions can appear to be strikingly similar, or even completely overlap. This makes it difficult to grade people on these dimensions, and discriminant validity may be compromised.
The OKR Method
This modern performance appraisal method has gained immense relevance in recent times.
In essence, the OKR method (Objectives and Key Results Method) is a performance management tool that outlines, communicates, and measures goals within an organization, thereby allowing all the employees to work towards a common goal. However, different levels of the organization set different goals and track different metrics.
There are five main benefits of this performance appraisal method:
- Focus Driven: Having the factors that matter most outlined and that information passed on to every employee ensures that focus is maintained on achieving that goal.
- Engaged Employees: Having a clear idea of what you are setting out to achieve makes it easier and more meaningful for workers to understand what their effort is going towards.
- Autonomy: The knowledge that each member of the team is working towards achieving what is best for the whole team and thus the whole organization allows individuals to work on their own and attempt to contribute the most towards that goal.
- Performance: This was the reason the tool was developed; performance sees a sharp rise when employees are told and shown the reason their effort is required. Most employees know that if their company does well, their jobs are safe, and they are likely to get more out of a job. It is natural to work harder towards something that you know you are making a difference in.
- Aligned Goals: As is with many of the other points, a cohesive effort is likely to be made when every member of the team knows that the other is also working towards the same goal and thus the growth of the company and the team.
Although the approach itself has a few flaws, the organization's ability to apply it and the way it is implemented might lead to problems such as:
- The urge to create extra goals when you have big intentions is strong. When OKRs do not line with each other, however, difficulties develop.
- OKRs can be inflexible at times. Also, some of the OKRs are frequently out of date.
Another modern method of performance appraisal involves assessing an employee from all around. It involves collecting feedback on specified parameters about an employee from their peers, subordinates, managers, and others who may interact professionally with them. It also requires the employee to complete a self-evaluation. In simpler words, all-rounded feedback from everyone the employee is associated with.
The report is then generated using average ratings from the respondents and can, in turn, be compared with the employee's self-evaluation. It is then used to create an action plan for them. Their performance is then reviewed periodically. According to Forbes, 89% of HR leaders agree that ongoing peer feedback and check-ins are key for successful outcomes.
360-degree appraisal is widely adopted by many leading organizations for the following reasons:
- It’s a systemized and sophisticated way of collecting reviews from various stakeholders involved in an employee’s work lifecycle. Considering the views from people of all cadres, the HR team can form a holistic assessment for their employees.
- When a group can recognize all of their personal and team positives and negatives, they have the knowledge and drive to make meaningful changes.
- Employees that receive this kind of feedback have the opportunity to receive more and more regular input from a number of sources.
Even the best appraisal method comes with some drawbacks:
- While this is an excellent employee performance appraisal method and is likely to provide a more holistic advantage, the respondent's bias towards that employee could be a concern.
- A 360-degree performance appraisal can take a long time to complete. It takes time for the appraisers to meaningfully respond to the queries, and it takes time for managers or HR to look over the material and analyze it.
Cost Accounting Method
It is an efficient and practical modern method of performance appraisal and evaluation. The cost of that employee executing their job function, such as salary, benefits, and others, is compared to the monetary value they bring to the organization.
For example, a sales executive paid 'x' amount makes sales of 'y' amount. The difference between the two is the value of that employee's performance.
These are some of the factors taken into calculating the cost of the employee's service:
- Value of production or service in units
- Quality of service
- Accidents, damages, and such costs
- Relationships with others
- Cost of supervision, such as manager, etc.
While this method can be quite clinical, it may not work to measure all types of jobs. For example, it may be challenging to estimate the worth of a teacher's contribution to specific students. Basing their performance solely on their students' grades is not the best way to grade their value.
Performance management and the Darwinbox Edge
Empower your people to constantly push their boundaries, so that they are set up for excellence and your business is set up for success. Darwinbox offers a robust and state-of-the-art performance management suite capable of providing wide-ranging functionalities to help you get a deeper understanding of your workforce. Listed below are some of the many outstanding features that provide an edge to Darwinbox:
- Feedback in real-time:
Feedback is integral to a good performance of an employee. To keep this process real-time, it's critical to give and receive feedback easily and efficiently. Technology has undoubtedly become the driver in an ever-changing landscape, and employees should be able to share feedback promptly and discreetly. Even when there is a reluctance to share critical input, individuals should be able to do it safely and securely using highly configurable technologies.
With Darwinbox’s robust performance management suite, it is easier than ever to conduct regular check-ins, maintain automatic performance Journals, and deliver continuous feedback – both internal & external 360° feedback.
- No More One-Size-Fits-All
In an ever-evolving business world with distinct business models, organizations should feel free to adopt a framework that fits them best. Darwinbox gives you the power to choose any one or combine multiple frameworks that result in an unprecedented impact on your performance curve.
- Mobile-first Performance:
To make your business win, ensure that your HR is not spending a lot of time in manually getting the work done. With Darwinbox, you can bring all your performance management functionalities to your palm via our mobile-first approach. You can now experience end-to-end performance management on your mobile, which can be accessed literally anywhere.
- Seamless Integrations:
While switching to a new performance suite can be daunting, it won’t be as tough if integration and data flow is made seamless. Darwinbox allows data to flow between Career Planning, Learning, R&R, Feedback, etc.
If you want to create an exuberant experience for your workforce, sign up for a demo today and learn how upgrading to a smart performance management system can help you stand out.
The importance of timely and honest performance appraisal is such that 80% of Gen Y say they prefer on-the-spot recognition over formal reviews and 63% of Gen Z say they want to hear timely, constructive performance feedback throughout the year.
Given the plethora of performance appraisal methods that are available, it is good to find one that best suits your organizational goals and industry. With technology becoming increasingly accessible and intelligent, organizations do not need to spend too much of their valuable time to create and implement performance appraisal methods. The methods chosen could be a combination of one or more. It is vital to ensure that the employee performance appraisal methods are being used consistently and implemented adequately.
With adequate analysis combined with industry experience, organizations like Darwinbox can be great partners to work with. With darwinbox, leverage your performance management system and empower your workforce to achieve your organizational goals.