Beginner’s guide to performance appraisal in the workplace

Performance appraisal is one of the most widely studied topics in the domain of management. Research on performance appraisal dates back at least as far as the early 1920s and has continued to the present day.

Performance appraisal is a pivotal process within any organisation's performance management framework. Its essence lies in evaluating and scrutinising individual employee performance, providing constructive feedback aimed at enhancing their capabilities and aligning with organisational objectives.

In this article, we will navigate through the fundamentals of performance appraisal, its underlying purpose, different types of appraisals, advantages and disadvantages of appraisal schemes, how to craft efficient appraisal systems, how to seamlessly implement them and how to evaluate their influence on employee performance.

What is a performance appraisal and what is its purpose?

Organisations committed to maximising performance will also involve employees in identifying their work objectives so they can contribute their ideas. This has a major impact on people’s motivation.

During a performance appraisal, the employee's performance is measured against specific job requirements and expectations. This evaluation helps identify areas of strength and areas that need improvement. It provides an opportunity for supervisors to provide feedback and guidance to employees, helping them enhance their skills and performance.

Performance appraisals typically involve a combination of objective and subjective measures. Objective measures include quantifiable data such as sales figures, production output, or customer satisfaction ratings. Subjective measures, on the other hand, rely on the evaluator's judgment and observation of the employee's behaviour, communication skills, teamwork, and overall attitude.

Good appraisal schemes also include behaviours, providing a rounded view of performance, based on what is done, and how it’s done.

The process of conducting a performance appraisal usually begins with the setting of performance goals and expectations. These goals should be specific, measurable, achievable, relevant, and time-bound (SMART). By establishing clear objectives, employees have a clear understanding of what is expected of them, which helps align their efforts with organisational goals.

Once the performance period is over, supervisors or managers gather relevant data and evidence to evaluate the employee's performance. This may involve reviewing work samples, analysing performance metrics, soliciting feedback from colleagues or clients, and conducting one-on-one meetings with the employee to discuss their performance.

During the appraisal meeting, the evaluator provides feedback to the employee, highlighting their strengths and areas for improvement. This feedback should be constructive and specific, focusing on behaviours and outcomes rather than personal characteristics. It is essential to maintain a supportive and open dialogue, encouraging the employee to ask questions, seek clarification, and provide their perspective on their performance.

Performance appraisals serve multiple purposes within an organisation. They provide a formal mechanism for recognising and rewarding high-performing employees, motivating them to continue their excellent work. They also identify areas where additional training or development opportunities may be needed to enhance an employee's skills and capabilities. Many organisations use this opportunity to recognise people by providing recognition for their achievements. This could be demonstrated by a ‘Thank you’ from the manager, a voucher which they can spend on something they value*, or even additional time off. This reinforces what the company values, and help to retain a high level of performance.

Furthermore, performance appraisals can help identify employees who may be struggling or underperforming. By addressing performance issues early on, organisations can provide the necessary support and resources to help these employees improve their performance and contribute more effectively to the organisation.

Overall, performance appraisals play a crucial role in fostering a culture of continuous improvement and professional growth within an organisation. By providing employees with regular feedback, setting clear expectations, and recognising their achievements, organisations can create an environment that encourages high performance and employee engagement.

How does performance appraisal work?

The assumed mechanism behind performance appraisal draws from three key theories: social comparison theory (Festinger 1954), feedback intervention theory (Kluger and DeNisi 1996), and equity theory (Adams 1965).

Social comparison theory suggests that individuals tend to evaluate their own performance by comparing it to that of their peers. Observing others' achievements often acts as a motivator to improve one's own performance.

Feedback intervention theory suggests that when individuals receive feedback indicating a gap between their aspirations and their current performance, they are inclined to exert more effort to close that gap and achieve better results. This theory underlines that informing employees about performance gaps compared to organisational standards and their colleagues can motivate them to strive for better outcomes.

Lastly, equity theory highlights how employees compare inputs and outcomes with their peers. High-performing individuals might be motivated by the perceived fairness of recognition and rewards, while underperformers may feel incentivised to improve upon seeing the differential treatment between high and low performers. This helps foster an environment where everyone aims for higher performance standards.

Types of performance appraisals

There are various types of performance appraisals utilised in organisations. The most common types include:

1. Traditional Appraisals: These assessments, conducted periodically, offer a structured overview of employee performance. They provide comprehensive feedback and facilitate goal alignment. However, due to their infrequency, they might lack the ability to capture ongoing performance accurately. At Cobalt HR, we recommend a continuous conversation throughout the year, to ensure the feedback is prompt and regular.
2. 360-Degree Feedback: In this type, feedback is collected from multiple sources, including peers, subordinates, and supervisors, to provide a comprehensive view of employee performance. One advantage of this approach is that the appraisal is less vulnerable to bias. However, managing diverse opinions can be time-consuming and challenging. Despite this, 360-degree feedback gives a much deeper view of an employee’s performance, often from a customer’s perspective. To get the most out of this process, the 360 review would take place before the normal appraisal review. When reviewing performance, all the feedback can be taken into consideration, including the manager’s, employee’s, and those who provided feedback through the 360-degree approach. Following the appraisal process, a training and development plan would be agreed upon to maximise the opportunity of developing skills further.
3. Management by Objectives (MBO): MBO appraisals focus on setting and achieving specific objectives, aiding in clarity around goal setting and performance assessment. Yet, crafting measurable and attainable objectives can be complex and may limit flexibility.
4. Behaviourally Anchored Rating Scales (BARS): BARS appraisals use specific behavioural indicators to evaluate employee performance and provide more objective assessments. However, developing and maintaining an exhaustive set of behavioural indicators can be labour-intensive.

Developing an effective appraisal scheme

To develop an effective appraisal scheme, organisations should consider the following:

• Consider the organisation’s strategic and operational goals. What do the individuals need to do to support their achievement?
• Clearly define the objectives and criteria by which employee performance will be assessed, ensuring they are aligned with organisational goals.
• Ensure you have clear behaviours linked to company values, so you can measure performance based on how people are working.
• Train supervisors on how to conduct fair and unbiased evaluations, provide feedback effectively, and set realistic performance goals.
• Involve employees in the appraisal process by seeking their input, encouraging self-appraisal, giving valuable constructive feedback on their performance, and considering their perspectives.

How to implement an appraisal scheme?

Implementing an appraisal scheme requires careful planning and execution. Here are some steps to consider:

1. Clearly communicate the purpose, benefits, and expectations of the appraisal scheme to employees and supervisors.
2. Provide training and support to supervisors and employees on the appraisal process, criteria, and feedback techniques.
3. Schedule regular performance evaluations to maintain consistency and allow for continuous improvement.
4. Ensure proper documentation and record-keeping of performance appraisals for future reference and decision-making.
5. Ensure appropriate follow-up takes place after the process, eg. If you agree to provide training, make it happen.
6. Make sure you have a system of monitoring compliance. Managers must be committed to it, and all employees should have the benefit of it.
7. Use an employee engagement survey, to monitor manager performance, to ensure they are maximising the benefit from it.

Assessing the impact of appraisal schemes on employee performance

Organisations should evaluate the impact of their appraisal schemes on employee performance. This can be done through:

• Regularly review the effectiveness of the appraisal scheme by collecting feedback from employees and supervisors.
• Monitor performance metrics, such as employee productivity, job satisfaction, and retention rates, to gauge the impact of the appraisal scheme.
• Conduct surveys to gather employee perceptions of the appraisal process and its impact on their motivation and development.

Appraisal templates and support

Appraisal templates can simplify the appraisal process by providing a structured framework for evaluating employee performance. These templates typically include sections for setting goals, assessing performance against predetermined criteria, e.g. behaviours and documenting feedback and development plans.

Organisations can create customised appraisal templates or utilise pre-designed ones that align with their specific needs and industry requirements.

If you're looking for practical tools to streamline your performance appraisal process, ACAS (Advisory, Conciliation and Arbitration Service) offers free templates that can serve as valuable resources. These templates cover various aspects of performance appraisals and can be tailored to suit your organisation's specific needs.

You can access the ACAS free templates here.

If you require additional guidance in understanding and implementing performance appraisals, please do not hesitate to get in touch with us. Our expert HR advisors are always delighted to assist and offer tailored support to enhance your organisational appraisal strategies.