Knowing the right performance appraisal method for a business is very important. During the performance appraisal process, managers and employees meet to discuss the employee's performance and progress in achieving their job-related goals. These evaluations are conducted regularly and provide an opportunity for managers and employees to connect with each other about what employees are doing right and what they can do to improve in their roles.

However, choosing the right performance appraisal method for your business is crucial, because every business is different and the appraisal method chosen is also different. In this discussion, we will discuss several performance assessment methods that you can choose based on the characteristics of your business organization.

 

The importance of employee performance appraisal

 

The employee performance appraisal process is very important for organizations to increase employee productivity and improve their results. Performance appraisal is an annual process in which employee performance and productivity are evaluated against a predetermined set of goals. Performance management is very important, not only because it is a determining factor in employee salary increases and promotions, but also because it can accurately evaluate an employee's skills, strengths and weaknesses.

To prevent performance appraisals from producing biased information, HR managers need to change existing processes and try implementing one of the six modern performance appraisal methods listed below.

 

6 Modern performance appraisal methods

 

With the right performance appraisal method, organizations can improve employee performance in the organization. A good employee performance appraisal method can make the entire experience effective and rewarding.

The following are the six most widely used modern performance methods:

 

1. Management by objectives (MBO)

 

Management by Objectives (MBO) is an appraisal method in which managers and employees jointly identify, plan, organize, and communicate objectives to focus on during a specific appraisal period. After setting clear goals, managers and subordinates periodically discuss the progress that has been achieved to control and debate the feasibility of achieving the set goals.

This performance appraisal method is used to effectively match overall organizational goals with employee goals while validating goals using the SMART method to see whether the goals set are specific, measurable, achievable, realistic, and time-sensitive. At the end of the review period (quarterly, semi-annually, or annually), employees are assessed based on their results. Success is rewarded with promotions and salary increases, while failure is overcome with reassignment or further training. This process usually places more emphasis on tangible goals and intangible aspects such as interpersonal skills, commitment, etc. often ignored.

 

How to incorporate MBO into your performance management process  

 

To ensure success, the MBO process needs to be embedded in goal-setting and assessment processes throughout the organization. By incorporating MBO into the performance management process, businesses can increase employee commitment, increase the chances of achieving goals, and enable employees to think futuristically.

 

MBO is ideal for:

Measuring the quantitative and qualitative output of senior management such as managers, directors and executives (businesses of any size)

 

Common reasons for performance appraisal failure with MBO:

Incomplete MBO program, inadequate corporate objectives, lack of top management involvement

Steps to implementing a successful MBO program:

• Every manager should have 5-10 goals that are specifically stated and measurable

• Managers can propose their goals in writing, which will be finalized after review

• Each goal needs to include a description and a clear plan (to-do list) to achieve it

• Determine how progress will be measured and how often (at least every three months)

• List corrective actions to be taken if progress is not according to plan

• Ensure that the goals at each level are related to the goals of the organization and the levels above/below it  

 

1. 360-Degree Feedback

 

360-degree feedback is a multidimensional performance appraisal method that evaluates an employee using feedback collected from the employee's circle of influence, namely managers, peers, customers and direct reports. This method will not only eliminate bias in performance appraisals, but also offer a clear understanding of individual competencies.

 

This assessment method has five integral components such as:

 

• Self-assessment

 

Self-assessments offer employees the opportunity to look back at their performance and understand their strengths and weaknesses. However, if self-assessment is conducted without a structured form or formal procedure, it can become malleable, variable, and biased.

 

 

• Managerial review

 

Performance reviews conducted by managers are part of the traditional and basic forms of appraisal. These reviews should include individual employee assessments provided by supervisors as well as team or program evaluations conducted by senior managers.

 

• Peer Review

 

When hierarchy is out of the organizational picture, coworkers gain a unique perspective on employee performance that makes them the most relevant evaluators. This review helps determine an employee's ability to work well in a team, take initiative, and be a reliable contributor. However, friendship or hostility among coworkers can distort the final evaluation results.

 

• Subordinate Appraising Manager (SAM) 

 

The upward assessment component of this 360-degree feedback is a complex and significant step. Whistleblowers tend to have the most unique perspective from a managerial point of view. However, reluctance or fear of retribution can make the assessment results not as expected.

 

• Customer or client reviews

 

The client component of this phase may include internal customers such as product users within the organization or external customers who are not part of the company but interact with certain employees on a regular basis. Customer reviews can better evaluate employee output, however, these external users often do not see the impact of processes or policies on employee output.

 

Advantages of using 360 degree feedback

• Increase individual awareness of how they are performing and the impact on other stakeholders. 

• Serves as the key to starting coaching, counseling and career development activities

• Encourage employees to invest in self-development and embrace change management

• Integrate performance feedback with work culture and drive engagement

 

Ideal for : 

Private sector organizations than public sector organizations because peer review in public sector organizations is more lenient.

 

 Common reasons for failure

 

Laxness in reviews, cultural differences, competitiveness, ineffective planning, and misdirected feedback.

 

• Etode assessment centre

 

The concept of an assessment center was introduced in the 1930s by the German Army, but has been polished and adapted to suit today's environment.The appraisal center method allows employees to get a clear picture of how others observe them and the impact it has on their performance. The main advantage of this method is that it will not only assess an individual's current performance, but also predict future job performance.

During the assessment, employees are asked to take part in social simulation exercises such as in-basket exercises, informal discussions, fact-finding exercises, decision-making problems, role-playing, and other exercises that ensure success in a role. The main drawback of this approach is that it is a time-consuming and cost-intensive process, which is difficult to manage.

 

Advantages of the center assessment method

• Increase participants' knowledge, improve their thinking processes, and increase employee efficiency

• Can be customized to suit different roles, competencies and business needs

• Offers insight into employee personality (ethics, tolerance, problem-solving abilities, introversion/extroversion, adaptability, etc.

 

Ideal for: 

Manufacturing organizations, service-based companies, educational institutions, and consulting firms to identify future organizational leaders and managers.

 

Guidelines for implementing assessment center practices

• Use job analysis to determine effective performance components

• Identify performance metrics that can be measured using this assessment center

• Classify candidate behaviors that are meaningful and relevant in the assessment process

• Find assessment techniques that can ideally obtain ideal behavioral information

• Find appraisers and appraisers who are not direct supervisors

• Provide thorough training to raters and reviewers

• Maintain a performance record system for each candidate

• Review records and reward employees or provide appropriate training

 

Behaviorally Anchored Rating Scale (BARS)

 

Behaviorally anchored rating scales (BARS) provide qualitative and quantitative benefits in the performance appraisal process. BARS compares employee performance with examples of specific behavior anchored by a numerical rating. Each performance level on the BAR scale is anchored to several BARS statements that describe common behaviors routinely demonstrated by employees. These statements act as benchmarks to measure an individual's performance against predetermined standards applicable to their role and job level.

The first step in creating BARS is creating critical incidents that describe typical workplace behavior. The next step is to edit these critical incidents into a common format and remove any redundancies. After normalization, critical events are randomized and assessed for effectiveness. The remaining critical incidents are used to create BARS and evaluate employee performance.

 

Advantages of using

• Get clear standards, better feedback, accurate performance analysis, and consistent evaluation

• Eliminating irrelevant construct distinctions in performance assessment by placing greater emphasis on specific, concrete, and observable behaviors

• Reduce opportunities for bias and ensure fairness during the assessment process

 

Ideal for:

Businesses of all sizes and industries can use BARS to assess the performance of their entire workforce, from entry-level agents to c-suite executives. 

 

General weakness of BARs

• High chance for subjectivity in evaluation

• It is difficult to make compensation and promotion decisions

• Time consuming to create and implement

• Demand more from managers and senior executives

 

Psychological assessment

 

Psychological assessments are useful for determining an employee's hidden potential. This method focuses on analyzing an employee's future performance rather than their past work. This assessment is used to analyze seven main components of employee performance such as interpersonal skills, cognitive abilities, intellectual traits, leadership skills, personality traits, emotional intelligence, and other related skills. Qualified psychologists conduct various tests (in-depth interviews, psychological tests, discussions and others) to assess employees effectively.

However, this is a rather slow and complex process, and the quality of the results largely depends on the psychologist carrying out the procedure. Specific scenarios are taken into account when conducting a psychological assessment. For example, the way an employee deals with an aggressive customer can be used to assess his or her persuasion skills, behavioral responses, emotional responses, and more.

 

Benefits of psychological assessment

• Extract measurable objective data, not only about employee performance but also their potential

• Can be used easily when compared to other performance appraisal methods

• Offer introverted or shy employees a platform to shine and prove their potential

 

Ideal for: 

Large companies may use psychological assessments for a variety of reasons including leadership pipeline development, team building, conflict resolution, and more.

 

Common reasons for failure in this method:

The absence of proper training, a lack of trained professionals to carry out the assessment, and candidate nervousness or anxiety can make the assessment results less than optimal.

 

Human resource accounting methods

 

The human resource accounting method analyzes employee performance through the monetary benefits it produces for the company. This is obtained by comparing the cost of retaining employees (cost to the company) and the monetary benefits (contribution) that the organization has ensured from a particular employee. When employee performance is evaluated based on the cost accounting method, factors like unit-wise average service value, quality, overhead costs, interpersonal relationships, and many more are taken into account. Its heavy reliance on cost-benefit analysis and reviewer memory are weaknesses of the human resource accounting method.

 

Advantages of human cost accounting methods: 

• Effectively measure the cost and value an employee brings to the organization

• Helps identify the financial implications that employee performance has on the organization's profits

 

Ideal for: 

Startups and small businesses where the performance of one employee can make or break an organization's success.

 

Implementation of human resource cost accounting methods:

• Identify gaps between the market and current employee packages

• Determine the monetary and non-monetary value an employee brings

• List the things the employee accomplished in the review period (increase in the number of customers, increase in revenue, number of new transactions made, etc.,)

 

Conclusion

 

Choosing the right performance appraisal method is more important today than ever, as it reflects what you think about your employees and how much you care about employee morale. Once you find the ideal performance appraisal method for your needs, the next step is to implement it properly to eliminate critical performance gaps and address pressing issues that impact ROI.

Employee data is also very important in the performance appraisal process, therefore you must have a system that makes it easy for you to manage all employee data and integrated HR processes. If you don't have a modern HR system, you can try using payroll and HR software from Gajihub for the payroll calculation and recording process which is integrated with leave management processes, absences, tax calculations, and much more.

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