Companies invest significant resources into managing their talent pool, and conducting a performance appraisal for each employee is a key component of human resources development efforts. Each employee’s job performance and overall contributions to the corporate mission is evaluated as part of an annual review of the individual’s skills, growth, and job-related achievements. The review is typically performed by the employee’s immediate supervisor or someone who has direct knowledge of the employee’s day-to-day activities and job milestones. Performance appraisals are part of both feedback and incentives programs.

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How Companies Use Performance Appraisals

An annual employee review is a form of feedback system because it is an opportunity for supervisors to discuss an individual’s achievements, strengths, and potential as well as areas that may need improvement. When handled professionally, the performance appraisal provides employees with a big-picture perspective of their role in the company and how each team member contributes to common goals. Companies also use the annual appraisal as one measure for awarding bonuses, pay raises and achievement plaques. When employees fail to meet performance standards, the annual review may be used in deciding demotion or termination.

Employee appraisals are usually conducted annually although some organizations prefer semi-annual reviews. New employees may be subject to quarterly staff reviews. Reviews are helpful in budgeting for payroll and other benefits for current employees. These reviews are also helpful in creating a talent development strategy so that each deserving employee is given appropriate opportunities to be trained for bigger responsibilities or retrained for other jobs that may be a better fit than their current one.

Types of Performance Appraisals

Conducting a performance review is a process rather than an isolated task. The daily routine should include frequent interactions between managers and their team for informal feedback sessions, helping to build trust among team members while fostering confidence in employees’ abilities. This will help to make the annual review less stressful no matter which appraisal strategy is used.

Self-assessments may be used as part of annual reviews. Employees are given a series of questions and are asked to rate their performance or reaction to specific job-related situations.

Peer assessments may be used to generate feedback for specific projects. Each individual will be asked to rate co-workers based on a set of benchmarks, and management may use part of the peer reviews in conducting their own appraisal and interviews of the employees.

An appraisal model called the 360-degree feedback assessment includes feedback from the individual as provided in a self-assessment, input from peers culled from peer reviews and reviews by supervisors. This is a very detailed type of employee evaluation, but it covers the perspective of all relevant stakeholders. When input from customers, vendors and other third parties are part of the performance review, this is called a 720-degree feedback assessment.

Effectiveness of Performance Appraisals

Employee reviews are intended to boost talent development efforts, boost employee morale while enhancing company productivity. It is inevitable for reviews to be stressful and time-consuming exercises that do not deliver the expected results. Forbes reports that there are positive strategies to adapt to improve the process, foremost of which would be to base the evaluation on the individual’s past performance rather than rate it against the performance of their peers. The research, conducted by the Columbia Business School, emphasizes that managing subjectivity factors when conducting performance appraisals will help to make the process fairer and the results more palatable to employees.