Your company’s performance appraisal methods can either inspire your team or leave them feeling undervalued and frustrated. For performance appraisal to be effective, you need a method that fairly evaluates employees while helping them grow.
By improving your performance appraisal process, it’s possible to improve your performance appraisals so you gain deeper insights into team dynamics and see the growth potential of each individual. Read on to learn all about different methods for conducting performance appraisals so you can choose what works best for your organization.
What is performance appraisal?
A performance appraisal is a human resource management tool used to manage and assess the performance criteria and behaviors of employees. Through a structured assessment process, employers can uncover performance gaps. Performance appraisals are also an important basis for employee development, for example, in continuing education, compensation, or succession planning. Often, employers use regular feedback sessions for such a performance review.
As a rule, performance appraisals are carried out at least once a year as part of an appraisal interview using a form provided for this purpose. Here, all evaluation criteria are listed in a structured manner. In addition, the achievement of objectives from the annual target agreement is often evaluated within the performance appraisal.
What are key performance appraisal methods?
There are several methods for conducting performance appraisals, depending on your industry and your organization’s goals. Here are four of the most common methods:
1. 360-degree feedback
Who it’s for: It’s ideal for evaluating employees in leadership or managerial roles, or who work heavily with other teams or with different clients.
As the name hints at, this method collects performance evaluations from a wide range of sources, including the employee’s manager, peers, direct reports, and sometimes even clients or customers. This provides a well-rounded view of the employee’s strengths and areas for improvement because you’re integrating feedback from multiple perspectives. The goal is to assess not only individual performance but also how well the employee collaborates with others, communicates, and contributes to the overall team dynamic.
Feedback is usually gathered anonymously through surveys or questionnaires, which makes participants more comfortable with providing honest input. The results are then compiled and reviewed by both the employee and their manager in a formal meeting. This often comes with a personalized development plan to address any gaps or leverage strengths.
Pros:
- Comprehensive assessment
- Encourages more open and honest feedback compared to traditional top-down reviews
- More insights about team dynamics and collaboration
Cons:
- Can be time-consuming
- Anonymity can sometimes lead to overly critical or biased feedback
- Sometimes challenging to interpret diverse feedback
2. Management by objectives (MBO)
Who it’s for: It’s especially effective for roles with clear, measurable key performance indicators (KPIs) that can be tracked.
Management by Objectives (MBO) is a performance appraisal method that focuses on setting specific, measurable goals for employees. At the beginning of the appraisal period, managers and employees work together to set objectives that are aligned with the organization’s strategic goals. These objectives are clear, time-bound, and include key performance indicators (KPIs) to track progress.
Throughout the appraisal period, employees work toward achieving these predefined goals, with periodic check-ins to assess progress and make adjustments if necessary. At the end of the appraisal cycle, the manager evaluates the employee based on how well the agreed-upon objectives were met.
Pros:
- Clear framework for measuring progress
- Encourages employees to take an active role in setting and achieving their own goals
- Regular communication between managers and employees
Cons:
- Can overlook other important aspects of performance, like teamwork or soft skills
- Doesn’t consider changing business needs or unexpected challenges
- Employees may be too focused on their own goals, neglecting the bigger picture
3. Behavioral assessment method
Who it’s for: This is best suited for roles where soft skills are very important, such as team leaders or employees in sales and customer service.
This method focuses on evaluating employees based on their actions and behaviors in work-related situations, and not just based on outcomes or results. You’ll need predefined behavior-based criteria, such as problem-solving, teamwork, leadership, or communication. Employees are then assessed on how frequently or effectively they show these behaviors, which are considered essential for doing well in their role.
Managers observe and document specific examples of these behaviors throughout the appraisal period. During the evaluation, the employee’s behaviors are compared to a set of established standards, often using rating scales or checklists. This gives valuable insights into how employees approach their work, interact with others, and handle challenges.
Pros:
- Practical focus on behaviors that impact performance
- Gives concrete examples for feedback
- Promotes development of interpersonal and leadership skills
Cons:
- Can be subjective if behavior standards are not clearly defined
- May overlook quantitative performance metrics
- Time-consuming consuming because needs careful observation and documentation over time
4. Rating scales method
Who it’s for: Organizations looking for a simple, quick way to conduct appraisals
How it works: The rating scales method is one of the most straightforward and commonly used performance appraisal techniques. Employees are rated on a fixed scale for various performance criteria, such as job knowledge, communication skills, teamwork, and reliability.
For each criteria, the manager assigns a numerical rating, usually on a 5-point scale (1 = poor, 3 = average, 5 = excellent). The ratings are then totaled or averaged to provide an overall performance score for the employee. This allows managers to quantify performance in a consistent way. Written comments can also be included for more context and feedback.
Pros:
- Clear, structured approach
- You can compare between employees or across time periods
- Data can be analyzed more easily
Cons:
- Lacks depth needed for assessing complex roles
- Doesn’t give detailed feedback
- Potential for bias in ratings
What are common evaluation criteria in performance appraisals?
Whichever appraisal method you choose, it’s important to make evaluation criteria as objective as possible and to define exactly what is meant by each criterion. After all, performance appraisals have a demotivating effect on employees because the evaluation criteria in companies are not transparent.
In principle, companies are free to choose the evaluation criteria according to their needs. It is of crucial importance which characteristics are important in a person or for a position and which criteria are useful for their assessment. When collecting relevant data for the performance appraisal, it is useful to define certain categories and formulate concrete questions with reference to them.
- Performance: e.g. personal commitment, additional services rendered, frequency of ideas contributed
- Efficiency: Work rate, quick comprehension, timely work results
- Quality: Error frequency, quality of results, diligence
- Flexibility: Responding to changing work conditions, dealing with changing work areas
- Responsible action: Taking responsibility, dealing with resources
- Team ability: Contributing to the team, success in working together, frequency of communication problems
- Task management: Which tasks are taken over by the person? How well are they fulfilled (in terms of time and quality)?
- Independence: Are tasks handled independently? Are problems recognized and managed in a goal-oriented manner?
- Resilience: Is the employee able to work under pressure and to complete tasks optimally even under time pressure?
- Motivation: Is the employee motivated and committed? Does he/she strive for the best possible performance?
How do I rate my employees? 4 principles
A good performance appraisal method is an important element in strengthening the relationship between employees and their superiors. Employees receive the necessary input through their participation in the company, are shown strengths and aspects for improvement, and can have an open exchange about cooperation.
Here you will find 4 relevant principles, which will make it easier for you to start your appraisal with the right mindset:
- Fair – The employee appraisal always follows the same criteria defined in advance and is applied equally to all employees.
- Objective – The performance assessment is primarily based on facts, i.e. on evaluated performance data and experience of the management positions.
- Pre-work – The assessment should only be made after a detailed evaluation of the key figures regarding the productivity of the individual employee.
- Regularly – Performance evaluations should be carried out regularly to maintain a regular and intensive exchange between the management level and employees.
How do I write a performance appraisal? The core elements
It is important to learn how to integrate the performance evaluation into the daily work routine and how to set up the document correctly. The following elements will help you with the concrete conduction of an assessment letter:
Letterhead
- Name of the assessor and name of the company
- Contact details
- Date
- Subject of the appraised person
Main part
- Information on the company and job title of the employee* including the period of cooperation
- Description of the actual tasks and abilities of the appraised person
- Assessment of the quality of the work performance
- Evaluation of social competence, collegiality, etc.
End
- Wishes for the future
- Signature
Why is a performance appraisal so important for companies?
There is a long tradition of conducting performance appraisals in the workplace. Continuous improvement of competitiveness requires companies to maintain a constant dialogue with employees. Accordingly, assessing performance and providing feedback on the results to those being appraised is an ongoing task for managers and an indispensable part of the management process.
There are different reasons why companies conduct performance appraisals. In the past, it was mainly about performance monitoring, but now its focus has shifted to providing feedback and identifying potential. Accordingly, performance appraisals are often about:
Prove leadership skills
A fair and well-founded assessment, as well as a general interest in a continuous exchange with employees, is always a strong indicator of leadership competence. By making your employees feel that their questions, worries, and concerns are taken seriously and treated equally, and by basing your evaluation of performance quality thoroughly and on sound facts, you create a corporate culture of mutual respect and exchange.
Improve personnel planning
The regular assessment of the competencies of individual employees is an excellent method to delegate tasks to them in a targeted manner and to implement an optimal delegation of responsibilities.
Increase performance
Performance appraisals that recognize the potential of the employee and make suggestions for the targeted use of this potential are effective factors for improving the performance of employees. Frequently, coworkers can obtain a picture of their personal authority only in the concrete situation of the evaluation discussion. In order to ensure coworkers are aware of their strengths and can effectively tackle weaknesses together, it is imperative to have regular discussions that lead to a mutual exchange of ideas.
Ensure a good reputation
A Professional and well-prepared performance appraisal strengthens the relationship between the management team and the employee. Even after the person concerned has left the company, the joint work does not have to end there. Because a fair and comprehensible treatment will be remembered by employees, it will ultimately strengthen the reputation of the management and the company in a sustainable way.
Benefiting from digital appraisal forms
The Lumiform App & Software provides digital forms that help you streamline your performance assessment process. However, paper-based processes can be administratively burdensome. A lot of time is taken up by scanning documents and re-keying data for comparison purposes.
Lumiform’s flexible and digital form builder allows a performance appraisal to be created for the entire workforce using a consistent template. Changes to the appraisal form can be easily implemented and all employees have immediate access to the latest version. All responses and results are automatically bundled into one report and can be sent out immediately. The desktop software makes it child’s play to compare previous work results and performance with the current information.
Save time and paper on performance appraisals in your organization and reap the benefits of Lumiform’s app and desktop software every day:
- Get an overview of everything that happens in companies
- Get automatically generated reports – that saves you all the follow-up.
- Increase the efficiency of your internal processes: Through more efficient communication within the company, you solve emerging problems up to 4x faster than before.
- Save time through easier analysis of all data from your appraisal forms.