13 Effective Performance Appraisal Methods: Boosting Employee Success and Growth

Introduction

Being a manager in any corporation comes with all sorts of responsibilities. You are in charge of leading your team to new heights and ensuring that all the requirements of the projects you’re in control of are being fulfilled.
Additionally, you are also required to maintain harmony within your team and take care of employee grievances that might arise during their association with you. You are supposed to do all of this within constraints of time, technology, and budget. And, one of the many responsibilities of a manager is performance appraisal.

What is performance appraisal?

Performance appraisal serves as a structured and recurring practice aimed at evaluating an individual’s job performance in alignment with predefined job expectations. This comprehensive assessment involves a subjective evaluation of the employee’s strengths, weaknesses, overall value to the organization, and potential for future growth and development.

Performance appraisal is a review of the people who report to you. In large organizations, you can be in charge of anything between 2 and 20 people at a single point in time.
Periodically, you are required to review their performance over a specific period, based on which they might be given salary hikes or performance-based incentives.
When thought about in this way, performance appraisal sounds like a simple process. However, it is a way more complex process. When you carry out performance appraisals, you review the performance of humans.
Every one of your employees has gone through different situations in the past. Maybe their performance doesn’t show on paper since they were unlucky and one of their major clients backed out at the last moment. Maybe they have been ill for a significant part of their employment. As a manager, you should account for all of these considerations when you review your employees.
Traditionally, performance appraisals were carried out using a rank or point-based method. However, these methods do not entirely capture the intricacies of modern employment. This is the reason why modern methods of performance appraisal are slowly replacing every traditional method of performance appraisal.

Here are 13 traditional and modern performance appraisal methods:

1. Rating Scales Method
2. Essay Appraisal
3. Ranking Method
4. Paired Comparison
5. Critical Incident Method
6. Confidential Report System
7. Checklist Method
8. Field Review Method
9. Management By Objectives
10. Assessment Center
11. 360 Degree Appraisal
12. Cost Accounting Method
13. Psychological Appraisals

1. Rating Scales Method

 The Rating Scale appraisal method is a traditional performance appraisal method that is extremely popular. It isn’t just a traditional method of performance appraisal of employees, but a very popular method of any type of performance appraisal.

• Every time you dial into a customer care hotline or take a cab ride, you are asked to rate the provided service. For employees, this method of performance appraisal is a little less one-dimensional but works on the same fundamental idea.
• The manager rates the employee based on several different criteria, such as dedication, punctuality, problem-solving ability, etc.
• The scale is generally from 1 to 5 or 1 to 10. Based on the manager’s rating and their relative weightage to the employee, decisions regarding the employee’s place in the company are taken.
• The most significant advantage of this method of performance appraisal is its simplicity. The manager needs to do nothing more than the just rate the employee on a set of parameters. There is generally little to no writing involved, and comments might be optional.
• However, this simplicity can also be the greatest drawback of this method of performance appraisal. Since ratings are generally unitary, the employee’s salient features and characteristics that are not covered by the survey might never come to the fore.

2. Essay Appraisal Method

This performance appraisal method is also known as free-form appraisal method. This is a traditional appraisal method in which your manager will compose an essay based on your performance in the previous year or quarter. Since this essay is free-form, the manager can include several different features of your work.

• However, most managers in a company will generally follow a particular format for this essay’s composition. The manager may talk about the amount of knowledge you have regarding the job’s core subjects and your understanding of your company’s process, policies, and objectives.
• They may also write about your relationship with your peers and seniors, alongside how professional you are. Your attitude toward the work that you are given will generally be covered, and the targets you achieved during the last quarter or year will be listed.
• A drawback of this method of performance appraisal is that it is very subjective. Managers who are not great writers may not be able to articulate their thoughts as well as they might want to. This could put the future of the employee at stake.

3. Ranking Method

The Ranking Appraisal performance method is very commonly used in medium and small-sized companies.

• In this method, managers will rank all the employees under them in order of their perceived performance. This method of performance appraisal is quantitative only to the extent that a rank is a number. No points are given to employees in this method.
• The ranking method is primarily a comparative method that can be useful if the company requires cost-cutting or gives out awards such as employee of the month, quarter, or year.
• However, the drawbacks of the ranking method are also evident. The greatest drawback is the relative nature of the performance appraisal. If all the employees under a particular manager have performed well, there might still be a few who have been ranked low.
• This can be addressed through comments, but it does expose a major flaw in the ranking method. It can also create an atmosphere of animosity among employees, with each trying to one-up the other. Such an atmosphere is unhealthy for any company and must be avoided at all costs.

4. Paired Comparison Method

The Paired Comparison technique is yet another appraisal method using which employees can be ranked by comparing them to one another. However, this method is significantly more complex and time-consuming.

• The primary feature of this type of performance appraisal method is that each employee is compared with every other employee by making pairs.
• This method works with the manager to determine whether every employee has performed better or worse than every other employee.
• Depending on the relative rankings of the employees of a team, a final ranking may be determined. This is done after much consideration and evaluation of which employee has done better than all other or most other employees.
• However, this method also suffers from the same drawbacks as the previous method described in this list. If all employees have done well, ranking an employee doesn’t bode well for the morale of the employee or the team. It also creates internal competition within teams.
• Also, most organizations are made of multiple teams and managers. Each manager can provide a ranking in the direct reports, but this will only create a set of rankings. It can be challenging for a company to make decisions based on different rankings given by different managers.

5. Critical Incident Method

In this method of performance appraisal, managers will log the critical incidents that a particular employee was involved in. Critical incidents don’t just have to mean negative incidents in which the employee’s performance was below par.

• Critical incidents do not happen regularly and might even require employees to think on their toes. There is no specific definition of critical incidents; rather, they depend on the manager’s thinking.
• During the course of a typical day, a manager might observe exceptional dedication or hard work from an employee. In such a case, the manager will note this down in a journal and provide a recollection of the event during the performance appraisal process.
• The critical incident method suffers from a host of different limitations. Among these, the most severe limitation is that regular work might not be rewarded. Suppose an employee has gone through a month or quarter without any critical event, but outputs have been constant. In that case, the manager might not necessarily have any critical events to talk about in the appraisal. This is the reason that this method of performance appraisal is only sparsely used.

6. Confidential Report System Method 

The Confidential Report System method is a traditional method of performance appraisal but is not generally used by private organizations. Most commonly, this method is used by public or governmental organizations.

• In this method, the employee’s appraisal is handed over to the senior management in sealed envelopes.
• Nobody but the writer of the appraisal and the senior management is authorized to open these envelopes. Even the employees who are the subject of the assessment are generally not provided free access to the review. Instead, they might be allowed to look at their appraisal once, with critical points redacted.
• This method enables managers to be candid about the conduct of their employees.
• However, the fact that employees are not allowed to access their appraisals freely can also be detrimental. If employees do not get to look at how their managers perceive them, it becomes hard to take corrective measures to improve lousy performance.
• The secretive nature of this performance appraisal method ensures that employees also do not get to see their ratings or preempt the extent to which their performance-based bonuses might rise.
• While this method is efficient because it allows managers to be more open, it isn’t the best method of ensuring employee productivity.

7. Checklist Appraisal Method

The Checklist Performance Appraisal method is perhaps the least time-consuming performance appraisal example among traditional methods of performance appraisal.

• In the checklist method, all managers will be provided with a standard checklist with questions. The answers to these questions will be either yes and no type or multiple choice. The checklist might also contain statements, and managers will be required to answer with the extent to which they agree with these statements.
• The checklist method is used widely since it takes up less time and allows all employees to be measured on the same scale.
• The drawback of this method of performance appraisal is that it is not subjective enough. No level of detail in a questionnaire is enough to judge the activities and tasks performed by an employee in a corporate setup.
• Hence, this method can lead to dissatisfied employees who might have performed well but still did not get their worth. It can also lead to disappointed managers who believe that the questionnaire does not cover all employee performance domains.

8. Field Review Method

The human resources department may find a reason to believe that a manager’s review is biased or inflated. In that case, they may take it into their hands to conduct an accurate assessment.

• They may call the employee in for an interview and ask a set of predetermined questions to assess their talents and abilities.
• Based on the interview, the employee is given a rating by the human resources team. The managers’ review isn’t entirely ignored, but its weightage in the employee’s overall review certainly decreases.
• This method is generally not used widely. This is because it is frowned upon by managers, who consider this an interference of the staff in the matters of their team and department.
• Besides, this method is also much more time-consuming than other methods.

9. Management By Objectives Method

In a modern corporate setup, management by objectives is one of the most common methods of performance appraisal. Management by objectives mainly consists of four steps.

• In the first step, employees are informed of the goals they are expected to fulfill. These goals might be personal in nature or related to the project that the employees are working on. For each employee, a personalized set of goals is assigned.
• In the second step, the parameters on which the goals will be evaluated are determined. These parameters are dependent on the kind of goal assigned and might be continuous or discrete in nature.
• In the third part of management by objectives, the extent to which the employees attained the goals is compared to the previously agreed goal standards. This allows employers to decide why these goals were met, not met, or exceeded.
• Lastly, a periodic review is carried out, as a part of which managers and employees reporting to them discuss the employees’ development. The employees are informed of their shortcomings, strengths, and opportunities, enabling them to do better in the next stipulated period of time.

10. Assessment Center Method

An Assessment Center is an entirely different form of performance appraisal method. In the assessment center approach, employees gather together at a specified center to be assessed by their managers. They are given tasks, both group and individual, and evaluated based on their performance in these tasks.

• The tasks are generally designed by the managers in conjunction with the organization’s human resources team and senior management. The employees might be judged qualitatively or quantitatively or using a combination of both these types of measures.
• This approach, despite being an innovative performance appraisal process, suffers from several different limitations. The first of these limitations is that the process is very costly.
• While other methods of performance appraisal cost little to nothing, this form requires time to conduct separately. Hence, it also comes with the cost of the work that could have been completed at that time.
• In the assessment centre method of performance appraisal, an employee’s work over a sustained period matters much less than the employee’s performance during the assessment. Otherwise, great employees who have bad days can suffer due to this.

11. 360-Degree Performance Appraisal Method

The 360-degree appraisal is an appraisal method that involves multiple people when developing a comprehensive review of an employee’s performance. Every person who has had an interaction with an employee gets to give the employee a review.

• All the employee’s team members, including the employee’s manager and the employee’s juniors, all pitch in with their appraisal. The assessment may be wholly quantitative or a mixture of quantitative and qualitative metrics.
• Using the review of every person who interacts with the employee, the human resources team and the senior management can build a realistic assessment of an employee’s performance.
• The drawbacks that this method of performance appraisal suffers from are plenty. Firstly, this is a time-consuming method. With every employee having to review multiple other employees, the whole office’s productivity can suffer thanks to the time employees take to provide several appraisals.
• Additionally, this method can involve an element of quid pro quo. Employees might discuss how they will review each other and give everyone great reviews in anticipation of similar reviews from others.

12. Cost Accounting Method

This is one of the most objective performance appraisal types. In this performance appraisal method, all that matters to the employer is the profit you have generated for them.

• From the wages that you earn to the cost of the time it takes your manager to fill your appraisal, every penny is accounted for.
• Based on this accounting, the employer will reach a value for your contribution to the company’s profit. Based on the amount of profit or loss that you have led to, for the company, decisions will be made regarding your future, salary, promotion, and other considerations.
• This method clearly suffers from major subjectivity problems. When nothing but costs and profits matter, it is hard for companies to appreciate other salient features of your personality, your dedication, and your hard work.
• This appraisal method can also lead to a toxic atmosphere within the company, in which there is serious acrimony among employees, especially in businesses where client interactions are a daily feature of the job.
• Also, the weightage of the appraisal of the people who deal with the employee is significantly less, and monetary considerations matter much more.

13. Psychological Appraisals Method

Employees’ hidden potential can be discovered through various methods of performance appraisal. Instead of analyzing a worker’s past work, this approach focuses on their potential future performance. It is through these psychological evaluations that an employee’s abilities in seven different areas are examined, including their interpersonal abilities, leadership skills, emotional quotient, cognitive abilities personality traits, intellectual traits, and other related skills.

• This performance appraisal method can be used to gather objective and measurable data about an employee’s performance as well as his or her future potential.
• It is easy to deploy as compared to other methods
• It provides a stage for shy or introverted employees to shine and demonstrate their potential.
• Psychological evaluations can be used for a variety of purposes, including leadership pipeline development, conflict resolution, team building, and more.
• To make an accurate assessment of an employee, licensed psychologists use a variety of methods (including in-depth interviews, group discussions, psychological tests, group discussions, and more).

Conclusion

Every company has different needs and requirements from its employees. To pursue these requirements and encourage employees to do better for the company, all companies implement various methods of performance appraisal.
Over time, these appraisal methods continue to evolve and change with the needs of the company. An efficient performance appraisal method will cost less, take less time to carry out, and truly encourage employees to perform to the best of their abilities.
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