Modern Methods & Types of Performance Appraisal

Modern Methods of Performance Appraisal

It is seen that many companies claim performance appraisal to be a time-consuming and ineffective process even after spending a lot of time on it. But what they fail to realize is that these problems are associated with the traditional methods of performance appraisal used by them, which focuses more on measuring the past work of employees rather than improving their future performance.

For companies to raise productivity and improve their results, the employee performance appraisals are a must. But what are performance appraisals in HR?

What Is Performance Appraisal?

Performance appraisal refers to an annual or biannual process that involves the setting of quantifiable goals and objectives for the evaluation of an individual’s performance. It assesses the overall performance and productivity of employees according to the pre-determined targets for that particular year.

The Performance appraisal process also facilitates the evaluation of employees’ skills, specialization, and shortcomings according to which their wage raise and promotion are determined.

Main Objectives of Performance Appraisals In HR

Let’s look more closely at the primary objectives of performance appraisals:

  • Promotions
  • Confirmations
  • Training and Development
  • Compensation Reviews
  • Competency Building
  • Improve Communication
  • Evaluation of HR Programs
  • Feedback and Grievances

Types Of Performance Appraisals

Managers aren’t the only ones that participate in an appraisal. It’s more like an exponentially rising curve where each vertex represents individuals, their colleagues, and supervisors who provide value to the performance evaluation process and assist them in progressing along the curve.

Let’s get some insight into the different types of performance appraisals:

Types Of Performance Appraisals
Types Of Performance Appraisals

➡️ 360-Degree Performance Appraisal

The 360 Degree feedback method entails handing out a form with questions about a colleague’s performance, which employees must complete. During performance evaluation after the quarter/year, the manager can take this input into account.

➡️ General Performance Appraisal

This strategy entails regular collaboration between the employee and his boss and ongoing goal-setting and achievement. At the end of the year/quarter, the employee’s ability to do justice to the overall process is analyzed.

➡️ Administrative Performance Appraisal

Because the employees involved have specific skills, this appraisal technique emphasizes technical performance over any other component of job performance. They are evaluated based on their abilities and the activities that they do.

➡️ Manager Performance Appraisal

A manager’s performance should be evaluated as well, and this involves on-the-job performance and relationship management with prospects. In most cases, anonymous surveys are received, which are subsequently evaluated.

➡️ Employee Self-Assessment

Employees do not find this strategy very effective since no one can deal with grading themselves. In this method, the contrasts between the self-assessment form and the one filled out by the manager are reviewed.

➡️ Project Evaluation Review

This strategy entails evaluating team members’ performance at the end of each project. It helps the team to grow as each project progresses.

➡️ Sales Performance Appraisal

A salesperson is evaluated based on his or her ability to sell and the achievement of previously specified financial targets. Goals set for sales should be practical, and the manager and employees in charge should map out strategies to achieve them.

You can identify the best strategy for your business by the number of different positions within it, the amount of time you have to devote to the performance review process, and the goals you want to achieve.

Over the years, a large variety of performance appraisal methods came into existence, some of which were more suited than others in meeting the demands of a dynamic business environment. As the times have changed, modern business organizations are gradually shifting to the new and much-improved methods that have revamped this process.

So let’s have a look at modern performance appraisal methods:

Modern Methods Of Performance Appraisals

Organizations can improve employee performance by using the ideal performance appraisal method. A smart system for reviewing employee performance can make the entire experience more successful and satisfying.

To keep employee performance appraisals from turning into meaningless jargon, HR managers should redesign their traditional performance appraisal methods and experiment with one of these six modern performance appraisal methods.

Modern Methods Of Performance Appraisals In HR
Modern Methods Of Performance Appraisals In HR

➡️ Management by Objectives (MBO)

Management by objectives (MBO) is an appraisal process in which managers and employees collaborate to create, plan, organize, and communicate goals to focus on during a specified appraisal period. Following the establishment of clearly defined goals, managers and employees meet regularly to discuss their progress and explore the possibility of reaching those targets.

You can use this performance appraisal method to link organisational goals with employee goals efficiently. Analyzing objectives using the SMART goal setting method can determine whether the aim you’re setting is specific, measurable, attainable, realistic, and time-sensitive.

Employees are evaluated based on their performance at the end of the review period (quarterly, semi-annually, or annually). Progress is awarded a promotion and a raise, while failure is dealt with through transfer or additional training. This procedure typically emphasizes quantifiable goals, while intangible factors such as communication skills, devotion, etc. are sometimes overlooked.

Process Of Management By Objectives (MBO)
Process Of Management By Objectives (MBO)

👉 Useful for:

Monitoring quantitative and qualitative performance of senior management such as managers, directors, and executives.

👉 Tips To Implement: 

  • Every manager should have 5-10 goals that are specific and quantifiable.
  • Managers can write down their objectives, which will then be approved after evaluation.
  • Each goal must include a summary as well as a plan in place to achieve it.
  • Decide how frequently progress will be monitored.
  • Make a list of necessary steps to be taken if performance does not meet expectations.
  • Make certain that the goals at each level are aligned to the organizational objectives. 

💡 Interesting Fact:

Peter Drucker invented the phrase “Management by Objectives” (MBO) in 1954. Drucker emphasized that such a system is an ideal framework through which an organization may integrate its activities and harmonize its goals.

➡️ 360-Degree Feedback

360-degree feedback is a multifunctional performance appraisal system that assesses an individual by collecting input from the employee’s close circle, including managers, colleagues, clients, and direct reports. This strategy will not only reduce prejudice in performance evaluations but will also provide a clear picture of an individual’s ability.

360 Degree Feedback
360 Degree Feedback

This appraisal method has five essential components, which are as follows:

1. Self-Appraisals

Employees can use self-appraisals to assess their performance and identify their strengths and flaws. However, if self-evaluations are conducted without standardized forms or official procedures, they can become unreliable and unfair.

2. Managerial Reviews

Managers conduct performance evaluations as part of the traditional methods of performance appraisals. These appraisals must contain individual employee reviews provided by managers and senior managers. 

  1. Peer Reviews

As hierarchies are removed from the organizational picture, peers gain a unique view of the employee’s performance, making them the most appropriate appraiser. These evaluations aid in determining an employee’s ability to work effectively with others, take on initiatives and be a trustworthy contributor. Peer friendship or enmity, on the other hand, may wind up affecting the final results.

4. Subordinates Appraising Manager (SAM)

This upward appraisal component of 360-degree feedback is a critical and delicate phase. From a managerial standpoint, subordinates have the most distinctive insight. Hesitancy or fear of retaliation, on the other hand, can influence appraisal results.

5. Customer or Client Reviews

The client component of this phase might comprise internal customers such as product users within the organisation or external clients who are not a member of the company but deal with  individual employees on a routine basis.

Customer feedback can help better assess an employee’s performance; however, these external parties frequently do not notice the impact of methods or policies on an employee’s productivity.

👉 Useful For: 

  • Improving an individual’s knowledge of their performance and the impact it has on other individuals.
  • Assists in initiating mentoring, counseling, and professional development activities.
  • Encourages people to invest in their development and adapt to change.
  • Embed regular feedback into the workplace culture to increase engagement.

💡 Interesting Fact: 

In the 1950s, 360-degree feedback was brought into the business world. The Esso Research and Engineering Group was the first to use multi-source polls to evaluate their workforce.

➡️ Assessment Centre Method

Employees can have a clear image of how others perceive them and their influence on their performance by using the assessment center method. The key advantage of this method is that it assesses an individual’s current performance and predicts future work performance.

The method’s main disadvantage is that it is a time-consuming and expensive procedure that is hard to regulate.

👉 Useful For: 

  • Increasing a participant’s knowledge, speeding up their mental process, and increasing employee efficiency
  • It is adaptable to diverse roles, capabilities, and company needs.
  • Provides information about the employee’s personality traits.

👉 Tips To Implement:

  • Identify the elements of effective performance using job analysis.
  • Determine which performance indicators can be evaluated using this assessment center method. 
  • In the evaluation process, classify significant and relevant candidate behavior.
  • Find assessment methods that can extract optimal behavioral information.
  • Assessors and reviewers should receive extensive training.
  • Maintain a performance record system for every individual.
  • Examine records and, if necessary, reward or teach employees.

💡 Interesting Fact: 

The German Army first used the assessment center method in 1930 to identify their future leaders. 

➡️ Behaviorally Anchored Rating Scale (BARS)

In a performance appraisal system, behaviorally anchored rating scales (BARS) bring forth theoretical and practical benefits. BARS compares employee performance to specified behavioral traits that are numerically rated.

Each performance level on a BAR scale is supported by several BARS statements that explain common behaviors that an employee shows regularly. These statements serve as a yardstick for comparing an individual’s performance to preset standards relevant to their function and employment level.

Behaviorally Anchored Rating Scales (BARS)
Behaviorally Anchored Rating Scales (BARS)

👉 Useful For: 

  • Having clear criteria, better feedback, precise performance assessment, and consistent evaluation is a plus.
  • Minimizing construct-irrelevant variance in employee performance ratings with a greater emphasis on specific, tangible, and verifiable actions
  • Eliminating the possibility of biases and ensuring fairness throughout the performance appraisal process.
  • BARS can be used by businesses of all sizes and sectors to evaluate the performance of their entire staff.

👉 Tips To Implement: 

  • The first stage in developing BARS is to generate critical incidents that illustrate normal workplace behavior.
  • The next step is to modify these critical incidents into a uniform structure and remove any redundancies.
  • Following normalization, the critical instances are randomized, and their efficiency is evaluated. 
  • The other critical incidents are used to generate BARS and assess job performance.

➡️ Psychological Appraisals

The hidden potential of employees is determined through psychological appraisals. This strategy is intended to analyze the future performance of an employee rather than their previous work. 

These assessments investigate seven key elements of the employee’s performance: communication skills, thinking abilities, intellectual characteristics, leadership qualities, personality traits, emotional intelligence, and other relevant skills.

It is a pretty slow and intricate process, and the quality of results depends greatly on the individual who manages the procedure.

👉 Useful For: 

  • Gather quantifiable, objective data not only about an employee’s performance but also about their potential.
  • Provide a stage to shine and demonstrate their potential to introvert or shy employees.
  • Psychological appraisals can be used in large organisations for various purposes, including leadership training, team building, resolving conflicts, and more.

💡 Interesting Fact: 

Psychological appraisals are used by companies like Ford Motor Company, Exxon Mobil, and Procter & Gamble to assess the personality and performance of their workforce.

➡️ Cost Accounting Method

The cost accounting approach evaluates an employee’s performance by examining the monetary benefits that he or she provides to the organisation. It is calculated by comparing the expense of maintaining an employee (cost to the company) with the financial benefits (contributions) derived from that employee.

When cost accounting methods evaluate an employee’s performance, criteria such as unit-wise average service value, quality, overhead costs, interpersonal communication, and more are considered. The disadvantage of the cost accounting method is that it is highly dependent on the cost-benefit analysis and the reviewer’s recall power.

👉 Useful For:

  • Determining the cost and value of an employee’s contribution to the company.
  • Managing the overall impact of an employee’s performance on the company’s bottom line.
  • Useful for startups and small enterprises where one employee’s performance can make or break the company’s success.

👉 Tips To Implement:

  • Determine the disparity between the market and an employee’s existing compensation package.
  • Measure the monetary and non-monetary impact of an employee’s contribution.
  • Make a list of what an employee accomplished during the evaluation period.

The Bottom Line

Picking the right performance appraisal method is more important than ever because it indicates your attitude toward your employees and how concerned you are about their wellbeing. 

Once you’ve selected the best performance review method for your purposes, the following step is to effectively execute it to address important performance gaps and solve critical issues that influence employee performance.

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