Formal system of review and evaluation of individual or team task performance.

The term “performance appraisal” refers to the regular review of an employee’s job performance and overall contribution to a company. Also known as an annual review, performance review or evaluation, or employee appraisal, a performance appraisal evaluates an employee’s skills, achievements, and growth, or lack thereof.

Companies use performance appraisals to give employees big-picture feedback on their work and to justify pay increases and bonuses, as well as termination decisions. They can be conducted at any given time but tend to be annual, semiannual, or quarterly.

Key Takeaways

• A performance appraisal is a regular review of an employee’s job performance and contribution to a company.
• Performance appraisals are also called annual reviews, performance reviews or evaluations, or employee appraisals.
• Companies use performance appraisals to determine which employees have contributed the most to the company’s growth, review progress, and reward high-achieving workers.
• Although there are many different kinds of performance reviews, the most common is a top-down review in which a manager reviews their direct report.
• Employees who believe that the evaluation’s construction isn’t reflective of their company’s culture may feel dissatisfied with the appraisal process.

How Performance Appraisals Work

Performance appraisals are usually designed by human resources (HR) departments as a way for employees to develop in their careers. They provide individuals with feedback on their job performance, ensuring that employees are managing and meeting the goals expected of them and giving them guidance on how to reach those goals if they fall short.

Because companies have a limited pool of funds from which to award incentives, such as raises and bonuses, performance appraisals help determine how to allocate those funds. They provide a way for companies to determine which employees have contributed the most to the company’s growth so that companies can reward their top-performing employees accordingly.

Performance appraisals also help employees and their managers create a plan for employee development through additional training and increased responsibilities, as well as to identify ways that the employee can improve and move forward in their career.

Ideally, the performance appraisal is not the only time during the year that managers and employees communicate about the employee’s contributions. More frequent conversations help keep everyone on the same page, develop stronger relationships between employees and managers, and make annual reviews less stressful.

Types of Performance Appraisals

Most performance appraisals are top-down, meaning that supervisors evaluate their staff with no input from the subject. But there are other types:

• Self-assessment: Individuals rate their job performance and behavior.
• Peer assessment: An individual’s work group or co-workers rate their performance.
• 360-degree feedback assessment: Includes input from an individual, supervisor, and peers.
• Negotiated appraisal: This newer trend utilizes a mediator and attempts to moderate the adversarial nature of performance evaluations by allowing the subject to present first. It also focuses on what the individual is doing right before any criticism is given. This structure tends to be useful during conflicts between subordinates and supervisors.

There are many performance appraisal apps that have been developed to help companies automate the evaluation process.

Criticism of Performance Appraisals

Performance appraisals are designed to motivate employees to reach and/or exceed their goals. But they do come with a lot of criticism.

An issue with performance appraisals is that differentiating individual and organizational performance can be difficult. If the evaluation’s construction doesn’t reflect the culture of a company or organization, it can be detrimental. Employees report general dissatisfaction with their performance appraisal processes. Other potential issues include:

• Distrust of the appraisal can lead to issues between subordinates and supervisors or a situation in which employees merely tailor their input to please their employer.
• Performance appraisals can lead to the adoption of unreasonable goals that demoralize workers or incentivize them to engage in unethical practices.
• Some labor experts believe that the use of performance appraisals has led to lower use of merit- and performance-based compensation.
• Performance appraisals may lead to unfair evaluations in which employees are judged not by their accomplishments but by their likability. They can also lead to managers giving underperforming staff a good evaluation to avoid souring their relationship.
• Unreliable raters can introduce a number of biases that skew appraisal results toward preferred characteristics or ones that reflect the rater’s preferences.
• Performance appraisals that work well in one culture or job function may not be useful in another.

What are performance appraisals used for?

Performance appraisals are used to review the job performance of an employee over some period of time. These reviews are used to highlight both strengths and weaknesses to improve future performance.

What are the benefits of a performance appraisal?

When executed correctly, performance appraisals can pay off big. Among other things, they are capable of boosting employee morale and engagement, clarifying expectations, helping to get the best out of staff, and incentivizing hard work and dedication.

It’s not just companies that benefit, either. Open lines of communication make it easier for employees to raise concerns, express themselves, find their right path, feel appreciated, and be rewarded when they do a good job.

When should a performance appraisal take place?

Performance management is an ongoing process. Throughout the year, managers are encouraged to engage with employees to establish goals, note progress, and provide feedback. Formal reviews or appraisals often take place on a yearly or quarterly basis.

What is a 360-degree appraisal?

Standard performance reviews include an employee and their manager or supervisor. The 360-degree version also solicits input from the employee’s colleagues or co-workers.

The Bottom Line

Communication between employees and their manager or supervisor can be very rewarding. Performance appraisals are capable of boosting morale and output, benefiting all parties.

That’s assuming they go well, though. Sadly, many performance appraisals aren’t executed in the most effective way. In many cases, they may be rushed or simply follow a set framework that perhaps doesn’t always benefit every type of industry or person. Poorly handled appraisals can be counterproductive. Without a bespoke approach and careful consideration of how to structure meetings and set reasonable targets, the performance appraisal process can potentially cause all types of problems.

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