Performance appraisals have been part of performance management since the very beginning. Once or twice per year, you would sit down with each employee in your organization, discuss where they needed to improve, and then decide whether they deserved a raise or not. It’s no wonder that they weren’t all that effective.
Today’s performance appraisal methods have changed a great deal. There’s no longer a one-size-fits-all approach. They also don’t involve the carrot and stick motivation method quite so much. Unsure how to institute effective appraisals within your organization? Struggling to implement something that’s both effective and works to build a positive corporate culture?
Regardless, the old annual review method is dead and it’s time we let it go. There are better options out there. In this guide, we’ll explore some of the most effective modern performance appraisal methods and help you determine which is the right option for your needs. You might find that several methods work, depending on company structure.
Why Is a Performance Appraisal Necessary?
Let’s start with the basics – why is it necessary to appraise employee performance in the first place? When done properly, appraisals can offer quite a few important benefits, including the following:
- Align employee performance with organization goals
- Improve employee performance in key areas
- Build competencies and close skills gaps
- Align employees with corporate culture
- Help create a plan for employee growth and development over time
- Identifying tasks and duties they can improve
Of course, the current performance appraisal methods fall short of achieving those goals. They’re punitive, backward, and cumbersome. They’re also not well suited for a world in which businesses strive to create positive cultures that support both personal and professional development.
The Problem with Outdated Performance Appraisal Methods
If performance appraisals have been part and parcel of performance management for so long, why are they changing now? The truth is that they have long been ineffective. The old performance management model itself is being replaced with new, more agile methods that can deliver critical benefits and keep pace with the speed of business.
The reason for this is simple – no matter what the past performance appraisal method you followed, it was backward-facing. It focused exclusively on past performance and very little on improving future work. Whether we’re talking about rating scales, checklists, the forced-choice method, critical incidents method, behaviorally anchored rating scales – they all fall short of the idea.
Does that mean it’s impossible to achieve something better? Not at all. It just means that you need to change how you think about performance appraisals. Thankfully, several different options can help you achieve the improvements you want to see while simultaneously building a more competent, confident, engaged workforce. We’ll explore some of those methods below.
The Most Effective Modern Performance Appraisal Methods
While there are many potential paths you can take to achieve employee performance improvement, they’re not all equal. We’ve done a lot of the legwork for you and created a list of the most promising options, capable of delivering critical performance improvements, but also fostering better employee engagement, alignment with brand values, and resulting in employee growth and development over time.
We’ll begin with one of the most effective, and one that different industries are adopting very quickly. The 360-degree feedback model stands the conventional performance appraisal process on its ear. It offers dramatic differences and can create significant improvements, all while being future-focused and non-punitive. How does it work? It’s pretty simple, actually.
First, you might be more familiar with this as the peer review model, although that’s only one component of the process. In this appraisal method, everyone who interacts with the employee regularly provides feedback. That should include coworkers/peers, as well as managers and subordinates.
HR then takes the information provided and uses it to inform their appraisal of the employee in question. Note that this method works best when you apply it to everyone in the organization and when you anonymize all feedback. That encourages honesty from those who might otherwise not share negative feedback for fear of reprisals.
There are quite a few benefits to the 360-degree feedback performance appraisal method, including:
- Multiple levels of transparency
- Effective performance analysis is possible
- Multiple points of view on employee strengths and weaknesses
- Everyone involved feels valued
Nevertheless, you need to consider a few things here. You must carefully plan and structure this performance appraisal method to avoid the potential for people using it to pursue grudges or to “put down” rivals for higher positions.
MBO (Management By Objective)
This performance appraisal method works particularly well when paired with frequent check-ins and conversations. By “frequent”, we mean weekly or at most biweekly. Monthly or quarterly check-ins are often too infrequent unless you’re measuring very long-term objectives.
There are other benefits to frequent check-ins, too, such as the ability to provide immediate, actionable feedback that employees can inculcate into their daily routines right away for real-time course correction. With that being said, you can also use the MBO method to reach career-oriented goals, so longer-term objectives are not off-limits.
In the MBO method, the manager and employee work together. It’s a collaborative process that helps empower the employee while ensuring good communication between both the manager and the worker. The manager lays out specific objectives and then the two discuss how the employee will reach them, including how they will measure their own progress toward those goals.
At each check-in, the manager and employee will discuss progress toward achieving goals, key milestones along the way, and other pertinent information. The employee can also provide feedback in terms of what resources, tools, or help they might need to reach specific objectives.
Some of the benefits offered by the MBO method include the following:
- Empowering employees to control their performance
- Setting career-oriented goals that help workers grow with the company
- Develops a trusting, solid relationship between manager and employee
- Real-time course correction is possible
- Actionable, future-facing feedback is given
- Employees can work toward goals they feel have value
However, note that this model doesn’t work well with intangible goals, such as improving interpersonal skills and the like.
BARS (Behaviorally Anchored Rating Scale)
The BARS method is pretty similar to older performance appraisal methods, but there are some key differences here. We recommend combining it with frequent check-ins and developing a real conversation between managers and employees. Because this method uses a rating scale, it can sometimes dehumanize employees. Check-ins and other personal interactions help to add the human factor back into the equation.
With the BARS method, managers review employee behavior based on how close to specified behavioral examples they are. Each of those examples is anchored to a specific numerical rating. This way, the employee rating is derived from their ability to emulate particular examples.
There are several benefits here, including those not present with other methods, such as the MBO process. They include the following:
- Ability to gauge progress toward intangible goals, such as intrapersonal skills
- Improved feedback to employees based on clearly-defined behavioral examples
- Setting clear standards for employee performance and improvements
- Ensuring consistent evaluations
However, there are issues with this model, as well. Perhaps the most important is that personal bias can skew the results if the assessment is performed manually. Performance management software is recommended to avoid bias.
Assessment Center Method
The assessment center method dates back to the 1930s, but for all that, it offers some pretty important advantages to modern businesses and organizations. It’s designed to provide a clear image of how an employee performs, but also to give the employee an idea of how others see their performance. Note that this method can also shed light on how an employee’s performance will evolve in the future, so it’s not just focused on the present.
In the assessment center method, employees take part in several different exercises. These can include role-playing, but also fact-finding, discussions, and situations in which they must make a decision. Based on the information gleaned from the assessments, managers can determine whether additional training is required, where an employee falls in terms of specific skills and competencies, and more.
Some of the benefits offered by the assessment center method include the following:
- Employees can immediately improve efficiency, decision-making capabilities, and more
- Assessment methods can be customized to different personalities, needs, and job roles
- Assessments shed light not just on competencies, but also on personality traits
With that being said, the assessment center method is time-consuming and can be costly.
Psychological Performance Appraisal Method
Often, the performance appraisal methods of the past fell short when measuring the human element. The psychological appraisal method was developed to help get around that issue. These appraisals are very well-suited to determining an employee’s potential, making them important tools for career planning and development.
In practice, a psychological appraisal will require a qualified psychologist, as well as many different tests designed to measure things that are tough to quantify with other methods, such as interpersonal skills, cognitive capabilities, personality traits, capacity for leadership, emotional intelligence, and more. The tests can be administered through interviews, discussions, psychological tests, roleplaying, and in other ways. Over time, an accurate picture of the employee and their potential will emerge.
Some of the benefits of the psychological performance appraisal method include the following:
- The ability to measure not just an employee’s current performance, but their future potential
- Works well with other performance appraisal methods
- Works well with introverted employees who might perform poorly in other assessment methods
- Helps with career planning and development, and can ensure the right talent is in key positions
With that being said, this is a slow, drawn-out process. It also requires a trained professional to administer reviews and interpret the results.
What to Look for in a Performance Appraisal Method
We’ve covered several different performance appraisal methods in this guide, and they are all very different. What should you look for in a method that will work for your business? It might be best to combine several different options to create a holistic system that supports not just the success of your organization, but also the growth and development of your employees.
We recommend beginning with the 360-degree method, as it incorporates multiple assessment steps, including a self-assessment, managerial reviews, peer reviews, and subordinate appraisals of management (upward-facing). In some situations, these reviews can even include feedback from customers or clients.
With that being said, it’s probably a wise idea to incorporate at least one other performance appraisal method. For instance, psychological testing can provide you with invaluable benefits and help employees find the right position within your organization, and then grow over time. That allows you to manage your talent, close skills gaps, promote from within, and avoid skills shortages, all while recruiting the right people for the future.
When it’s all said and done, there is no perfect performance appraisal method for every business or organization. There are simply too many variables for that to be possible. For instance, an SMB might need a very different performance management method, because a single individual could make or break the company’s success.
An enterprise-level organization might have the time and funding to invest in granular employee development. A medium-sized business might need to take a middle of the road approach that helps develop employees over time, but doesn’t require a massive financial commitment. Identify your goals and needs, and then move on from there.
Performance Appraisal Frequently Asked Questions
Below, we’ll explore some of the most frequently asked questions about performance appraisals to help you explore the topic in more depth.
- Why are old performance appraisal methods being phased out?
There are quite a few reasons businesses no longer use older performance appraisal methods. However, the most important reasons are that they are backward-facing and that they do not provide the opportunity for real improvement. In older methods, appraisals were done once or maybe twice per year. They focused on events that happened weeks or even months previously. As such, they can be used as object lessons, but they have little real relevance. They’re not things employees can use to inform their decisions today and tomorrow.
- What’s the best performance appraisal method?
There is no “best” option out there. It varies from organization to organization. You should base your decision on an in-depth understanding of your business goals and objectives, and how you want to develop your in-house talent. The truth is that many businesses find they need more than one performance appraisal method. Many choose the 360-degree feedback method as a base, and then build from there, adding methodologies that help them grow their employees, close skills gaps, and recruit the right people for future stability.
- Are manual performance appraisals better than automated options?
No. Manual performance appraisals are time-consuming, inaccurate, and subject to personal biases on the part of the manager. Even simply having “a bad day” can lead to skewed results in a purely manual appraisal situation. It’s a better choice to combine the expertise and personal knowledge of managers and leaders with the capabilities of advanced performance management software. This provides you with access to unbiased information and metrics, allowing your leaders to make informed, unbiased decisions that move the company forward but also strengthen your workforce.
- Is performance management more important than learning and development?
They’re two sides of the same coin. Without one, you cannot have the other. At eLeaP, we believe that L&D should be combined with performance management to create a holistic solution that fosters growth and stability for both businesses and their employees. By investing in L&D for your teams, you’re able to upskill team members, build more confident and capable employees, and foster a sense of teamwork and cohesion within the workplace. Again, performance management and learning and development go hand in hand. Attempting to extricate them creates an unbalanced workplace.
- What are the most important metrics to measure in performance appraisals?
In a broad sense, performance appraisals should be able to measure several key factors about employees and their performance. These include actual performance in real-world situations and scenarios, predictions on future performance, and the fit of specific individuals for their responsibilities and duties. Old-style performance appraisal methods fail to measure any of these very well, thus the push for new methods that offer a more agile approach and enable real-time course correction.
The performance appraisal is vital to organizational success. However, outdated methodologies offer little in the way of real value or traction in the workplace. Thankfully, there are better options that can move at the speed of modern business and allow real-time course corrections, while also fostering employee growth and development. Contact eLeaP for more information about how we can help.