Today, the business world is more competitive than ever before, and you need to ensure that you maximize the value of the resources at your disposal. That is where performance appraisals can be helpful. This is a periodic assessment that you can use to let an employee know how he or she is doing. Providing your employees with feedback puts them in the best position possible to be productive for your company.
At the same time, you must understand how to deliver a performance appraisal effectively. There are different types of performance appraisal below, so figure out which works best for your company. Whatever method you choose, it can be beneficial to use an employee evaluation form.
What Is Performance Appraisal?
A performance appraisal allows you to let an employee know how he or she is doing. Your employee is probably eager for feedback on his or her performance, and you want to maximize the value of each employee for your business.
You can use a performance appraisal to justify (or deny) bonuses or raises. You can also create a track record of performance appraisals if you need to terminate an employment contract. Even though you can provide a performance appraisal at just about any time, most companies provide regular employee performance appraisals according to a set schedule. You might give employees performance appraisals quarterly, semi-annually, or yearly.
Importance of Employee Performance Appraisal
There are several reasons why you need to conduct employee performance appraisals. Some of the most important reasons include:
- Reward employees: You need to reward employees who are doing well. If you give your employees incentives and bonuses to work hard, they will be more productive for the company.
- Create a culture of transparency: You can also use performance appraisals to create a culture of transparency. Your employees need to know how they are being judged and evaluated. With regular performance appraisals, you provide them with that information.
- Foster employee growth and development: If you want employees to be as productive as possible, you need to provide them with educational and development opportunities. For example, you can use performance appraisal to provide employees with goals for the next evaluation, which can foster their development.
- Identify employees with potential: Nobody will stay with your company forever. When people in leadership positions decide to depart, you need other employees to replace them. With periodic performance evaluations, you can identify employees who might be right for those positions.
- Collect feedback: Feedback goes both ways. Just as you will use a performance appraisal to provide employees with information on what they can do to improve, it also allows employees to provide you with feedback. That way, you can implement changes that can improve your work environment.
- Improve retention: To reduce turnover rates, you need to conduct regular performance appraisals. If your employees feel like they have a say in their work environments, they will be more likely to stick around, increasing your retention rates.
These are just a few of the biggest reasons you must regularly conduct performance appraisals. There are different ways to conduct an employee appraisal, and you need to figure out which one works best for your company.
8 Modern Methods of Performance Appraisal
There are a lot of methods for appraising performance. You must evaluate each option’s benefits and drawbacks before deciding which is right for your company. Eight performance appraisal methods you may want to consider include:
1. Management by Objectives (MBO)
One of the first performance appraisal methods you might want to use is called management by objectives. Usually shortened to MBO, this is where employees and managers will work together to identify objectives during a specific period.
Then, after those objectives have been set, you will meet with the employee from time to time to decide whether the employee is meeting those objectives. This is a strong performance appraisal method because it allows the employer to have a say in how he or she will be judged. When you set goals with your employee, you need to focus on setting objective goals that are easy to measure. That way, it will be easy to evaluate that employee’s performance down the road.
2. Behaviorally Anchored Rating Scale (BARS) Method
Some employee performance appraisals are supposed to be quantitative as well as qualitative. One way to hit both areas is to develop a behaviorally anchored rating scale, or BARS.
This feedback method aims to compare each employee’s performance to specific behavioral examples located on the scale. The scale will provide a yardstick with which you can measure each employee’s performance.
You can use this feedback method to provide clear standards and correct employee behaviors while avoiding personal criticism. This is also a scale that allows you to remove bias and ensure the appraisal process is fair.
3. 360-Degree Feedback Method
Another popular performance appraisal method is called the 360-degree feedback method. In this method, you will collect feedback on an employee from everyone the employee comes into contact with. This includes customers, colleagues, superiors, and subordinates.
The goal of this feedback method is to eliminate bias during the performance appraisal and have a clear understanding of how the employee is performing. The biggest advantage of this feedback method is that it identifies opportunities for coaching, mentoring, and career development while increasing employee self-awareness. Remember that feedback from some areas will be more valuable than others, so you don’t necessarily want to weigh every review equally.
4. Assessment Center Method
Using the assessment center method, you will provide employees with a picture of how others observe them. Before the assessment, you will outline the objectives of the review process, design simulation exercises, and choose the debt rating method.
As the assessment unfolds, explain the purpose of the evaluation, conduct exercises with the employee, and identify strengths and weaknesses.
Once the assessment is done, you will collect feedback from all reviewers, decide whether the results are valid, and share feedback with the employee. One of the biggest advantages of this feedback method is that you can enhance the employee’s knowledge and customize the feedback method to fit different areas of your business. This could be a strong feedback method for service-based companies, manufacturing organizations, and educational institutions.
5. Human Resource Accounting Method
The human resource accounting method can be beneficial if you want to place a monetary value on each employee. Essentially, you will compare the cost of retaining that employee (his or her salary and benefits) against the revenue that that employee generates for the company.
This is a great option for startup companies, where one employee can make or break the entire business’s success. On the other hand, this performance appraisal method will overlook intangible benefits that the employee brings, such as interpersonal relationships.
6. Critical Incident Method
In the critical incident method, you will identify specific examples of behaviors that have occurred during the evaluation period. Then, the review will focus on actions and behaviors that took place during the incident that either led to success or failure. To get the most out of this appraisal method, there must be clear documentation of what happened during the incidents in question. Then, the manager can provide the employee with feedback on what was done well, what was done poorly, and what can ensure success in the future.
7. Psychological Appraisals
If you want to identify the hidden potential in employees, you may want to use a psychological appraisal. This method aims to identify which employees will perform well in the future instead of focusing on their prior work.
This appraisal is going to focus on the cognitive abilities, interpersonal skills, leadership abilities, intellectual traits, emotional awareness, and personality traits of each employee.
Psychologists can use a variety of tests to provide companies with a variety of information, but this is a slow and arduous process. This can also be a great way to offer introverted employees a chance to stand out.
8. Negotiated Appraisal
Finally, you might also be interested in a negotiated appraisal. During this evaluation process, a mediator will participate in the employee evaluation. The reviewer will share what the employee is doing well before proceeding to areas of constructive criticism. Then, the employee will also provide his or her perspective on issues.
The mediator is responsible for making sure everyone is heard and that there are no areas of confusion.
This might be the preferred performance appraisal method if there are concerns about tension or disagreement between the evaluator and the employee.
Best Performance Appraisal Method
Because there are so many types of performance appraisal methods, you might be wondering about the most effective performance appraisal methods for your company. Remember that the right performance appraisal method for one company might not necessarily be the right method for yours. Furthermore, you may want to choose certain performance appraisal methods for certain employees. Either way, it can be advantageous to use an employment evaluation template.
You need to consider the size of your company, the information you want to deliver, and how the employee will be most receptive to what you have to say. If you select the best performance appraisal method for your company, you can put yourself and your company in the best position possible to maximize the value of each employee.