Types of Performance Appraisal Systems: A Detailed Guide

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Hitendra Rathore

Senior editor

Parul Saxena

Chief editor

Last updated: May 21, 2021

Synergita

Synergita : No. 1 In Performance Management Software

“Any business or industry that pays equal rewards to its goof-offs and eager beavers sooner or later will find itself with more goof-offs than eager beavers.”

-Mick Delany

Performance appraisal is a critical piece of the performance management process. It can build a performance-driven work culture, raise employee morale and enhance employee engagement.

There are many methods that organizations can use to appraise performance. The most appropriate approach would depend on the nature of the business and the different roles in the organization.

It would also depend on how much time and resources are available for the exercise and the objectives for undertaking it in the first place. In this article, we will explore a variety of traditional and modern appraisal systems, their strengths and their limitations.

What is Performance Appraisal?

Performance appraisal, quite simply, is a system of periodically measuring the work quality, output and efficiency of the employees by comparing their performance with predefined qualitative and quantitative standards.

Performance appraisal also takes stock of the employee’s skills, achievements, and growth or the lack thereof. It does not just measure the employee’s performance concerning targets, but also their behaviour at the workplace.

Based on this, employees are given feedback and guidance. Organizations decide salary revisions, bonus allocations, promotions, demotions, and even terminations, in this manner. Training needs to develop competencies and enhance performance are also identified.

Importance of Performance Appraisal

Performance appraisal benefits the organization as well as the individual employee:

  • Performance Management: It is an opportunity to ensure that personal and team performance goals are met adequately, in a systematic manner.
  • Resource Optimization: Organizations can manage and align all their resources by extracting the highest level of performance.
  • Goals Alignment: Organizational goals and individual career goals can work in a synchronized manner and not against each other.
  • Communication: The regular exchange of feedback can help the employer and the employee set clear expectations from each other and can bridge any gaps in communication.
  • Objectivity: The approach is measured, documented and therefore, objective. The scope of personal bias and prejudice is minimized.
  • Motivation: It is essential to acknowledge excellent performance to keep an employee motivated.
  • Competency Development: Performance appraisal is an excellent opportunity to recognize potential and build competencies through training and development.
  • Career Development: It is an excellent opportunity for employees to receive counsel on how they can develop their careers.
  • Recruitment and Selection: It can give organizations insight into their recruitment and selection processes and identify areas of improvement.
  • HR Programs and Policies: It is also an opportunity to understand which HR policies and programs are working for the organization and those that are not.
  • Manpower Planning and Forecasting: Potential promotions and exits can be predicted and factored in at the time of resource planning.
  • Decision-Making: Organizations can make more informed and fair decisions about salaries, bonuses, promotions, and terminations.
  • Employee Engagement: The regular dialogue between the employer and the employee may create a culture that encourages employees to exchange ideas and information freely.
  • Employee Retention: Employees are bound to remain loyal to an organization that recognizes excellent performance and shows interest in their career development.

Types of Performance Appraisal Systems

While there is much value that can be derived from a performance appraisal system, it hugely depends on choosing one that is the best fit for the organization, its workforce, its culture and line of work.

There are various methods for conducting performance appraisal. They are typically referred to as Performance Appraisal Systems. Some of them have been around since a while. However, there are newer methods as well.

Traditional Methods of Performance Appraisal

The following are the different types of conventional methods of employee appraisal:

1. Checklist Method

The evaluator is given a checklist containing a list of statements or questions about various traits of the employee. Each statement or question is required to be rated merely as “Yes” or “No.” The same issue or comment may be framed differently and may be repeated more than once in the checklist. This indicates the consistency of the evaluator’s responses.

A more recent version of this method requires that each statement or question be assigned a specific weight depending on its importance. Some items may be weighted equally while some may be weighted more than others. Based on the answers and the associated load, a score is calculated.

Advantages of Checklist Method

  • It is an easy exercise for the evaluator as it does not require too much thought.
  • The evaluator does not have to go into any details to justify answers, which saves a lot of time and effort.

Disadvantages of Checklist Method

  • This method, however, is impractical in larger organizations where there are a variety of job roles.
  • Creating a checklist for every part may prove to be a very time-consuming task. It will lead to a considerable investment in terms of time, effort and even cost.
  • The options of “Yes” and “No” can be very limiting. An employee may display a particular trait/behaviour most of the time but may have failed to do so on some occasions as well.
  • It is difficult to understand why a particular response may have been selected and what was the thought process behind the selection.

2. Critical Incidents Method

The evaluator’s ratings are based on the employee’s response to critical incidents. The evaluator maintains a log of all the essential events that have occurred during the evaluation period and the employee’s reaction to that incident. Based on the effectiveness or ineffectiveness of the response, a rating is provided. Flanagan and Burns developed this technique.

For example, an airline runs out of a particular type of meal on the plane while operating a specific sector. Customers are annoyed. This is a critical incident and employees may respond differently to the same event. One flight attendant tries to appease a customer by apologizing profusely and offering alternatives. Another flight attendant does not do anything to comfort the customer and leaves the customer annoyed.

Advantages of Critical Incidents Method

  • It measures an employee’s performance based on actual behavior to critical situations and does not focus much on the personality of the employee. One might say that this method measures what matters most.

Disadvantages of Critical Incidents Method

  • Evaluators are more prone to provide ratings based on events that may have occurred closer to the end of the evaluation period and may not remember much about the employee’s performance during the earlier part of the evaluation period.
  • Maintaining logs for each employee, especially in a large organization can be quite challenging and time-consuming. The evaluator may forget to note a particular incident.
  • More importantly, this method is susceptible to subjective judgments on the part of the evaluator, about the criticality of an event and what constitutes “good” or “bad” behaviour.

3. Essay Method

In this method of employee evaluation, the evaluator writes a detailed description or an essay on the employee’s performance during the evaluation period. It is also known as the Free Form Method. It is the simplest type of evaluation.

The essay may talk about the employee’s performance, understanding of the organization’s policies and procedures, strengths, weaknesses and his or her potential. Factors such as the relationship with co-workers and interpersonal skills may also be considered. Usually, this method also involves citing specific incidents and examples in support of the assessment. This is a widely-used qualitative assessment, traditionally used in combination with other methods.

Advantages of Essay Method:

  • It is more personal.
  • One can understand the thought process behind the evaluator’s assessment.
  • The information can be very insightful.
  • Since there is no fixed format, this method is simple, and evaluators do not need much training.
  • If used in combination with another method, it may give more insight into the answers or ratings of the evaluator.

Disadvantages of Essay Method:

  • This method relies heavily on the writing skills of the evaluator.
  • There are no checks in place to eliminate subjective opinions or biased judgments.
  • The evaluator’s relationship with the employee may affect the evaluation.
  • There is minimal scope for objectivity as it is entirely up to the evaluator, what he or she includes or excludes from the essay.
  • The evaluator’s mood at the time of writing the evaluation may affect the quality of the assessment.
  • Also, if an evaluator does not take enough time to prepare a comprehensive evaluation, or qualifies it quickly, an employee may find himself or herself, short-changed.

4. Forced Distribution Method

This is a method that has been widely used in large organizations since the late 1990s. General Electric first used it in the 1980s. Tiffen introduced it. It assumes that employee performance conforms to a standard distribution curve or a bell-shaped curve as it is commonly known. In other words, it believes that employee performance conforms to a normal statistical distribution, i.e., 10, 20, 40, 20 and 10 percent.

It was introduced to eliminate an evaluator’s tendency to rate most employees highly. It is based on the principle that in any organization some employees may perform exceedingly well compared to others, some would play reasonably well, and some would not be able to accomplish nearly as well as the others. All employees cannot act similarly.

All employees are required to be slotted across three categories of performance- high, average and poor- on the bell curve. Those rated highly usually receive rewards, promotions and other kinds of recognition. Those rated poorly are typically put on performance improvement plans or terminated. They may not receive bonuses or salary increments.

Advantages of Forced Distribution Method:

  • The advantage of this method is that it is simple. It is mainly considered suitable for organizations with large workforces.
  • It has limited scope for bias on the part of the evaluator.
  • It may encourage healthy competition among employees.

Disadvantages of Forced Distribution Method:

  • While this is a popular method and companies such as Wipro, Infosys and ICICI have been known to use it, and it is often questioned whether the bell curve is an appropriate representation of human behaviour.
  • It is criticized for dehumanizing employees and treating them like machines. It is also said that this system unnecessarily pits employees against each other.
  • It is not a very transparent method of performance evaluation, as the evaluator’s reasons for slotting the employees into either category may not be clear.
  • This method is criticized for serving an older and outdated definition of management. Microsoft, Google, and Adobe have ditched this method in favor of other ones.

5. Confidential Reports

This is a method typically adopted in government organizations. The evaluator is required to prepare a detailed and descriptive report containing his or her assessment of the employee’s performance and submit it to a higher authority in a sealed envelope. The feedback is not discussed with the employee. It remains confidential. It is usually used to decide on promotions and transfers.

This method of employee performance evaluation requires that the employee is assessed on the quality of work, character or conduct, skills, knowledge, attitude, interpersonal relationships, leadership skills, discipline, integrity, etc.

Advantages of Confidential Reports:

  • It can help government organizations take decisions on transfers and promotions.
  • It can be used in situations where business decisions have to be made quickly, without much discussion.
  • It is a detailed and qualitative assessment.

Disadvantages of Confidential Reports:

  • This method does not aim to improve performance but is solely used to take business decisions.
  • Feedback is rarely discussed with the employee.
  • It is highly open to subjective judgments, opinions, and biases.
  • While it is widely used, this method is often criticized for promoting bureaucracy and red-tapism in government organizations. The distribution of power in this method is highly uneven.

6. Straight Ranking Method

One of the oldest and simplest forms of formal performance evaluation, this method requires evaluators to rank all the employees from the highest to the lowest, according to their performance and they are worth to the organization. It is used to let employees know where they stand in comparison to their peers. Those that are highly ranked receive may be rewarded with promotions, bonuses and other forms of recognition. Those who rank poorly may be put on intensive performance improvement programs or may be terminated.

Advantages of Straight Ranking Method:

  • This method can be useful to identify the employee of the month. It may be used to determine candidates for promotions or rewards. For example, an organization may use this method to rank their salespersons according to the sales that they made.
  • In the event of a layoff, it may help determine which employees should be retained and which ones could be laid off.
  • It can also be used as a motivational tool, to let employees know how their performance rates in comparison to their colleagues in a similar role.

Disadvantages of Straight Ranking Method:

  • The limitation of this method is that it does not account for the complex nature of human beings and the fact that human behaviour varies from person to person.
  • More importantly, the reason for receiving a certain rank may not be apparent to an employee as no reasoning is typically provided for the ranking.
  • It does not give a person much insight into how he or she can improve their performance.

7. Paired Comparison Method

Here, employees are compared, one-by-one, with each other. This is usually based on a single trait or performance parameter. The number of times an employee fares better than the other is noted, and rank is awarded accordingly.
This number of pairs for comparison can be determined with the formula N (N-1)/2, where N is the total number of employees to be evaluated.

  1. Example: Suppose that there are five employees- A, B, C, D, and E. The total number of pairs to be evaluated would be 5(5-1)/2, which would be equal to 10. The following ten pairs would be compared:
    1.   A and B
    2.   A and C
    3.   A and D
    4.   A and E
    5.   B and C
    6.   B and D
    7.   B and E
    8.   C and D
    9.   C and E
    10. D and E

The result from each comparison is then populated in a table, and the final rank is determined by how many times an employee was picked over the other.

Advantages of Paired Comparison Method:

  • This is a better version of the Straight Ranking Method and may be used for similar reasons.

Disadvantages of Paired Comparison Method:

  • In large organizations, this method can be time-consuming and impractical.

8. Rating Scale

This is one of the most traditional forms of employee evaluation, and it is said that this method is used even today by organizations such as Dell and Airtel. However, today this method has been updated to suit more complex business environments. However, we will discuss that later.

Traditionally, based on this method, employees may be rated typically from 1 to 10, 1 being the lowest and 10 being the highest or various performance parameters, such as the quality of their output, attendance, reliability, professionalism, etc. A score is calculated based on the ratings and awarded to each employee. The score will then determine the overall performance of the employee.

Advantages of Rating Scale:

  • The advantage of this method is that it easy to conduct and can be applied to most job roles.
  • Organizations can mainly use this method to quickly obtain feedback from customers about their interaction with their employees.

Disadvantages of Rating Scale:

  • There is scope for subjectivity here. While seven may be “average” to someone, it may mean “good” to someone else. Everyone may not be on the same page regarding what each rank stands for unless it is communicated.

9. Graphics Rating Scale Method

Also known as the Liner Rating Scale method, performance appraisal forms are printed out, that list various performance traits of an employee, such as consistency, attendance, dependability, etc. A five-point scale may be used. Ratings can be based on numbers such as 1-5, 1 being the lowest and 5, the highest. However, a more conventional approach is using more detailed performance characteristics ranging from “Unsatisfactory” to “Outstanding” and “Rarely” to “Always.”.

For example, when asked the rate the knowledge of an employee, an employer may have to choose from the following options:

“Poorly informed about work duties,” “Occasionally unsatisfactory,” “Can answer most questions about the job,” “Understands all phases of the job,” “Has in-depth knowledge about all aspects of the job.”

In this manner, each question may have different rating values. A score for the employee is then calculated based on the ratings received. Organizations such as Maruti Suzuki have been known to use this method.

Advantages of Graphics Rating Scale Method:

  • This method is excellent in understanding the various traits of the employee concerning multiple aspects of the job.

Disadvantages of Graphics Rating Scale Method:

  • This method can be open to biased ratings unless a reason is required to justify each rating.

10.Field Review Method

This is a neutral approached aimed at eliminating the evaluator’s biases from performance evaluation and obtaining more standardized ratings from various evaluators within the organization. HR personnel is appointed to discuss the performance of an employee with his or her supervisor. The supervisor’s observations are noted, and a rating is agreed upon, accordingly.

Advantages of Field Review Method:

  • The benefit of this method is that the intervention of the HR personnel limits the scope of bias on the part of the supervisor.
  • Supervisors tend to rate most of their employees highly. This can be checked to an extent.
  • It can also be ensured that all supervisors understand the rating scale similarly and the ratings are more consistent and standardized, across the board.
  • The HR team is in a better position to complete the performance appraisal process on time. Usually, they have to follow up with the supervisors and employees to ensure that the deadlines are met.

Disadvantages of Field Review Method:

  • The disadvantage of this method is that this is a very time-consuming process.
  • HR personnel may have a limited understanding of the technicalities of the job role, and that may affect the evaluation.
  • The intervention by the HR personnel could be viewed as interference.
  • Supervisors may not be very forthcoming about the challenges about their teams in fear of exposing any issues with their management capabilities.

11. Forced Choice Method

In this method of employee appraisal, the evaluator is given a set of statements, some of them positive and some of them negative. They are required to rate how much a statement applies to the individual that they are evaluating. In some cases, they are just given two options- “True” or “False” to choose from, to convey the validity of the positive or negative statement.

The statements may carry varying levels of weight depending on their importance. There may be scores associated with the comments. This is not made known to the evaluator. They are simply required to provide their responses to the statements. The HR team determines the final rating based on the score. J. P. Guilford developed this method.

Example of these statements are:

Positive Statement: The employee can be depended upon to finish the assigned task on time.

Negative Statement: The employee does not understand instructions well.

Advantages of Forced Choice Method:

  • This is a more objective approach to evaluating employee performance as the statements are pointed and direct and do not leave room for any ambiguity.
  • Also, the evaluators are not aware of the score or the weight of the several statements. The final rating is arrived at by the HR team.

Disadvantages of Forced Choice Method:

  • A significant problem with this method is that it may be a very time-consuming process to create such evaluation forms for a large organization with a variety of job roles and levels.

12. Grading Method

Grades are defined such as “Above-average,” “Average,” “Below-average” or “Outstanding,” “Satisfactory” and “Unsatisfactory.” There may be more than three grades. Based on these grade definitions, evaluators are required to judge the performance of the employees and allocate a grade appropriately.

Grading Method Advantages:

  • This is a simple and less time-consuming method
  • It makes a clear statement to the employee about how they have fared.

Grading Method Disadvantages:

  • This method is slowly dependant on just the judgment of the evaluator.
  • Grades have a broad spectrum and may not take the more delicate aspects of employee performance into consideration.
  • Moreover, managers are always likely to grade their employees highly. This system may not need them to go into the reasons for awarding a particular grade.

13. Performance Tests and Observations

The employees are made to undergo a test. The test could be written or oral. They could be required to demonstrate how they would handle a specific situation. This is done to assess the knowledge and the skills of the employee.

Pros:

  • This method may encourage employees to study and keep themselves updated.
  • A piece of sound theoretical knowledge can help them do their jobs better.
  • It gives organizations an excellent opportunity to take stock of the knowledge and skills of their employees and also assess training needs.

Cons:

  • Sound knowledge does not always translate into excellent practical performance. Not everyone may be adept at applying their knowledge and skills in realistic scenarios.
  • This method does not take into account what the employee has already accomplished, but it is more focussed on what the employee is capable of achieving.
  • Also, some people may be good at something but may not be able to perform in a written or oral test, if they cannot express themselves by writing or speaking very well.

14. Group Appraisal Method

Employee performance is not just evaluated by the immediate supervisor but by a group of evaluators. They may include the employee’s immediate supervisor, the head of the department and other such business heads related to the job role.

The immediate supervisor gives a background to the other members of the group about the employee, his/her role, its characteristics, requirements and performance standards. The group then, together, evaluates the performance of the employee and makes recommendations accordingly.

Advantages of Group Appraisal Method:

  • The advantage of this method is that it eliminates the scope of personal bias to a large extent. The evaluation is not done arbitrarily.
  • Evaluations are more well-rounded and better informed.

Disadvantages of Group Appraisal Method:

  • A disadvantage of this method could be that it may be challenging to arrange. All members of the group may not be easy to assemble. Their availability could be an issue. They may not be able to be away from their immediate business for long periods.

Modern Methods of Performance Appraisal

Listed below are the current methods of employee appraisal:

1. Management by Objectives (MBO) Method:

Conceived by the legendary Peter F. Drucker in 1954, in his book ‘The Practice of Management,’ he called this concept “Management by Objectives and Self Control.” Douglas McGregor further endorsed it with a few improvements. Organizations rapidly adopted this approach, and it has been reinvented several times over the years. It has come a long way since it was first introduced. It remains one of the most popular methods of performance appraisal even today. It is not just a method of performance appraisal but a management system in itself.

MBO was born from the need to overcome the challenges of traditional appraisal methods, that were believed to be not very collaborative, gave limited employee control and were heavily susceptible to the biases and subjectivity. McGregor also pointed out that MBO takes away much of the focus from the personal traits of the employee and focuses more on the employee’s actual performance.

The process of MBO can be broadly explained in these steps:-

1. Define Organizational Goals

Organizations evaluate their strengths, weaknesses, opportunities, and threats and decide what they want to accomplish in a certain period. In this way, they define organizational goals.

2. Define Employee Objectives

Based on the goals of the organization, the manager and the employee consult with each other and jointly set individual performance goals for the employee. These goals are meant to be specific, measurable, achievable, relevant and time-bound. They are also commonly known as SMART goals. The manager and the employee then agree on the purposes and document them. They agree on the performance standards that would form the criteria for measuring the employee’s performance concerning goal achievement.

3. Performance Review

The manager and the employee meet periodically, say quarterly, to review the progress. Challenges are identified, and steps to overcome them are established.

4. Providing Feedback

At every performance review, the employee is given feedback on his or her performance. Employees learn what they are doing right and what they can do better to achieve the goals that have been defined before the end of the evaluation period.

5. Performance Appraisal

At the end of the evaluation period, the achievements of the employee are measured. A rating is awarded to the employee based on what he or she has managed to achieve.
Joint goal-setting and ongoing feedback and review are the essences of MBO.

Advantages of MBO Method:

  • The emphasis is on the performance and not the personal traits of the employee.
  • It can be an excellent team-building exercise. Employees fulfill individual goals to achieve team objectives which in turn meet organizational objectives. The entire organization works together as a team towards the achievement of common objectives.
  • The manager and the employee have more meaningful exchanges. The system of ongoing review and feedback allow the manager to coach and counsel the employee. The manager and the employee communicate effectively and more often.
  • There is limited scope for any role conflict or any ambiguity. Lines of authority, responsibility, and accountability are clear.
  • When employees are a part of the goal-setting process, they are bound to be more motivated to work towards them due to an increased feeling of ownership.
  • Employees learn self-control. They know what their objectives are and what they need to do. They are in a position to be in more control of their performance.
  • This method aims to build a performance-driven culture. Clear performance expectations, regular feedback, a better relationship with the management and fair evaluations are bound to make employees more productive.

Disadvantages of MBO Method:

  • Setting measurable targets and particular objectives may not be possible for all kinds of jobs. For example, they may not apply to blue-collar workers.
  • It is the high-level executives that take to this method quickly as they are more invested in the growth of the organization. Operational-level employees may not show an interest in this activity.
  • This is a very time-consuming process and requires a lot of effort. Goal-setting and regular performance reviews need a lot of time and patience.
  • This system will not work unless the organization, the management, and all the employees are committed to making it work. Lack of commitment from any one of them will render the whole process to be useless.
  • This system also tends to fail because more often than not there is a lack of complete trust between the manager and the employee.

2. Behaviourally-Anchored Rating Scale (BARS):

Every job role has some essential tasks. There is a full range of behaviour that can be expected from a group of employees that perform those tasks. These behaviours are rated for each employee. They are anchored to points on a rating scale which may indicate the character of the response. Examples of such traits would be, “Outstanding,” “Excellent,” “Good,” “Average” or “Unsatisfactory.”

For example, an employee is required to file all documents received from new joiners in the appropriate files. The BARS evaluation for this task could be-

5. Outstanding Performance: The papers are presented immediately upon receipt.

4. Excellent Performance: The documents are filed within an hour of arrival.

3. Good Performance: All articles are submitted on the same day.

2. Average Performance: Has to be reminded at least one to do the need.

1. Unsatisfactory Performance: Claims to have filed the papers even when they have not been submitted.

Advantages of BARS Method:

  • This method is optimally centred on the behaviour of the employee.
  • The numerical ratings are straightforward and not open to much individual interpretation.
  • Employees know exactly what is expected of them and can immediately implement corrective steps.
  • It eliminates the scope of bias.

Disadvantages of BARS Method:

  • Creating a BARS instrument is a time-consuming process.
  • It can be challenging and costly to create one for every role within the organization.
  • One may miss out on covering the full range of possible behaviours, which may confuse evaluators.
  • Gathering data regarding critical incidents and making a careful note of the various types of reactions can be a chore and managers may become careless about it over time.
  • The BARS instrument has to be continuously monitored and maintained to incorporate any changes in jobs.

3. Assessment Centres

Typically, assessment centres are used to gather a group of employees from the middle management to senior management levels and put them through various job-related simulations over 2-3 days. They may include psychometric tests, interviews, group discussions, in-basket exercises, and presentations. These assessments may be carried out by a group of evaluators consisting of senior managers, psychologists, and HR professionals.

The assessment centre aims to identify employees that have the potential to take on the executive or supervisory roles. The rigorous method of appraisal is used to measure managerial, technical and behavioural competencies of high-potential individuals in the organization. They are mostly assessed on conflict management, strategic planning, their organizational skills and also their interpersonal skills, among others.

In the 1930s, Germany used this method to appraise army officers. In India, Crompton Greaves and Hindustan Lever, have been known to use this method. Many organizations are waking up to the benefits of an assessment, and they are growing in popularity every day. They may conduct them in-house or choose to outsource them.

Advantages of Assessment Centres Methods:

  • It is one of the most effective methods to select employees for leadership roles.
  • The methods of evaluation are comprehensive and provide reliable insights.
  • Since a group of individuals usually conducts the tests, the results are generally unbiased.
  • Competency gaps are identified, and training needs are assessed.

Disadvantages of Assessment Centres Methods:

  • This type of performance appraisal is costly and time-consuming.
    Experts are required to conduct most of the tests.

4. 360-Degree Feedback:

Based on this method, employees are not just evaluated by their immediate supervisors, but also by their stakeholders within the organization, such as seniors, peers, team members, subordinates, even themselves. Survey questionnaires are usually used to collect feedback on the employee’s behaviour and performance. 360-Degree Feedback method is generally undertaken to determine training and development needs. It is not commonly employed to ascertain salary increments.

Advantages of 360-Degree Feedback:

  • Since a variety of stakeholders that the employee comes in contact with regularly are involved in this process, the feedback is usually well-rounded and insightful.
  • The self-appraisal also helps employees understand how they view themselves in comparison with how the various stakeholders perceive them.
  • Since there is more than one evaluator, the chances of receiving honest feedback, overall, are higher.
  • This method also creates a culture where employees treat all their stakeholders with equal respect.
  • This method establishes that every stakeholder plays an essential role in the employee’s journey.

Disadvantages of 360-Degree Feedback:

  • A team member may purposely rate the employee poorly to make his or her self look better in comparison.
  • Another possibility is that team members may do a favour for each other and give each other excellent rating.

5. 720-Degree Feedback

This method takes the concept of 360-Degree Feedback a step further. The employee is assessed not just by stakeholders within the organization but also by groups outside the organization. They include clients, suppliers, investors, etc. This gives the evaluator a more comprehensive picture of the employee’s performance.

Advantages of 720-Degree Feedback:

  • These groups play a huge role in the success of an organization. Therefore, feedback received from them may be of great value.
  • Also, this method is an opportunity to show them that the organization cares about their feedback.
  • The fact a modern method of performance appraisal such as this is used indicates that your organization follows current and updated systems and processes and may create a good impression.

Disadvantages of 720-Degree Feedback:

  • It may not always be possible to receive timely responses from customers, suppliers, and investors and it may not be okay to follow up with them for their reactions beyond a point.

6. Human Resource Accounting Method

All employees come with a cost. This does not just mean the value of their salary, but also the cost of their recruitment and selection, induction, on-boarding, training, relocation costs, other compensations, and benefits, etc. Even overheads such as laptops are factored into this cost.

The monetary contribution of the employee is calculated. The net contribution of the employee in terms of money is then determined by calculating the difference between the employee’s cost and gift.

Human Resource Accounting Method Advantages:

Human resources are a valuable asset to an organization. This method allows the organization to take stock of that asset and evaluate how much it is worth to the organization.

Human Resource Accounting Method Advantages:

  • Human resources are a valuable asset to an organization. This method allows the organization to take stock of that asset and evaluate how much it is worth to the organization.

Human Resource Accounting Method Disadvantages:

  • This is a relatively newer method and is still developing.

7. Psychological Analysis

A psychologist evaluates the employee based on psychological tests, interviews, and observation. Discussions with the supervisors and information obtained from other appraisal methods are also considered. This method is being increasingly adopted across organizations and is growing in popularity every day.

Advantages of Psychological Analysis:

  • This method attempts to understand the future potential of the employee based on his or her psychological profile.
  • This method does well to highlight the potential of the employee and does not fixate on the employee’s past performance entirely.

Disadvantages of Psychological Analysis:

  • One cannot just rely on this form of evaluation alone. Psychological tests do not always provide exact answers.
  • An employee’s past performance cannot be entirely ignored.
  • The tendency of individuals when attempting such tests is to try and give answers or conduct themselves in a manner that may appeal to the employer. This may affect the outcome of the evaluation.

8. Customer Feedback

This method ties employee performance directly to customer feedback. Organizations are increasingly employing this method to evaluate the performance of their sales force.

Pros:

  • The evaluation received in this manner may be more dependable as it would depend on the customer and the service that the customer has received from the salesperson.

Cons:

  • It may be possible that the feedback may not be entirely reliable as customers could have their moods, biases, and prejudices that may colour their judgment. For example, a customer may harbour prejudice towards people belonging to a specific religious group, and that may come in the way of evaluating the employee’s performance somewhat.

New Trends In Performance Appraisal

We may be entering a new age of performance appraisal. The biggest and most reputable employers in the world are reimagining performance appraisal. Organizations like Accenture, Adobe, Amazon, Deloitte, Google, and Netflix have adopted unique approaches to performance appraisal intending to fuel performance as opposed to evaluating the past. Here’s what they are doing:

  • Accenture

While he was the CEO of Accenture, Pierre Nanterme, redefined the role of leadership as selecting the right people for the proper position. He believed that if leaders focussed on choosing the right person as opposed to spending time measuring and evaluating performance, a performance appraisal system would not be as necessary. He aimed to create a culture that ditched micromanagement in favour of hiring the right person and giving that personal freedom and authority to lead and innovate.

Accenture has ditched their performance rating system in favour of a system through which employees receive regular feedback from managers following assignments on an ongoing basis.

  • Adobe

Adobe has ditched its formal rating and ranking system, as well as forms and surveys and implemented a process of continuous feedback and improvement called ‘Check-In.’ The input is not documented or recorded in any form.

  • Amazon

A unique feature of Amazon’s employee appraisal process is the ‘Anytime Feedback Tool.’ Using this tool, employees can share positive or negative feedback about their colleagues. The input goes directly to the manager of the person that the feedback is about. Only the manager is aware of the identity of the person who has shared the feedback.

  • Deloitte

Deloitte has adopted a simplified approach to performance appraisal. At the end of every project, managers are required to provide a ‘Performance Snapshot.’ The questions are:

  1. Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus. The question must be answered on a five-point scale ranging from “strongly agree” to “strongly disagree.”
  2. Given what I know of this person’s performance, I would always want him or her on my team. This uses the same five-point scale.
  3. This person is at risk for low performance. This question must be answered by selecting either “Yes” or “No.”
  4. This person is ready for promotion today. This question must be answered by selecting either “Yes” or “No.”

These Performance Snapshots is discussed over ‘Check-In’ meetings.

  • Google

Every six months, employees are required to participate in a peer review. For each performance objective or critical result, employees must mention what the reviewer must do more of and what they can do differently. Managers collect these peer reviews and sit together to discuss where each employee falls on a five-point rating scale ranging from “Superb” to “Needs Improvement.” They do this together in a collaborative manner and justify their choice of rating to each other.

  • Netflix

Netflix believes in fostering a “grown-up” culture. They have annual 360 reviews, where employees can provide feedback about anyone- coworkers, subordinates, team members, etc. They merely have to mention their input in a single text box. They typically structure their feedback by suggesting what the employee must stop doing, followed by what the employee must stop doing and what the employee must continue doing. The input is NOT anonymous. It is automatically shared with the manager and HR partner.

Conclusion

As you may have seen, traditional methods of performance evaluation are more focussed on the personality traits of an employee. The modern techniques place more emphasis on the results of the employee’s performance. Of the two ways, the advanced techniques of performance appraisal are more objective. However, this does not mean that the traditional methods of performance appraisal are now redundant.

No single method works best for any organization. Organizations must carefully evaluate the nature of their business, their workforce, and their objectives before they choose a performance appraisal system or maybe even a combination of them.

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Hitendra is the Digital Marketing Executive and Content Analyst at SoftwareSuggest and loves helping people plan, optimize and launch marketing & content strategies. While digital marketing is his primary job function by day, hitendra also enjoys spending time with his family and listening to music.

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