Performance appraisals: Your guide to unlocking team potential

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How should your average organisation handle the objectives of performance appraisals? For many, it may seem simple, but it can quickly spiral out of control. What is already a stressful time for employees is now a stressful time for just about everyone.

How do you run an effective employee performance appraisal process that satisfies (and doesn't stress out) everyone? In this article, we break down some of the key insights, best practices and process steps that you can start following today.

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What is a performance appraisal?

A performance appraisal is a conversation, typically between an employee and their line manager, to discuss their performance and how things are going. It is part of a larger performance management cycle typically managed by HR at a given organisation.

Performance appraisals are mainly used to give an employee a sense of how they're performing, but also to communicate any changes (promotions, pay raises, etc.). Overall, it is often viewed as a critical touchpoint in the employee lifecycle.

Types of performance appraisals

What are the different types of performance appraisals in the workplace? We've rounded up the main ones to help you get to know them better...

  • Self-appraisal: This type of appraisal involves an employee evaluating their own performance. Self-appraisals can be a valuable tool for employees to identify areas where they can improve and set self-determined goals for future development.

  • Peer appraisal: This appraisal type involves employees evaluating the performance of their peers. Peer appraisals can provide valuable feedback to employees from a different perspective than their manager.

  • Manager appraisal: A manager appraisal involves a manager evaluating the performance of their direct reports. Manager appraisals are typically viewed as the most formal and traditional type of appraisal.

  • 360-degree appraisal: This involves collecting feedback from a variety of sources, including the employee themselves, their peers, their manager and other members of the organisation. 360 reviews offer a more holistic view of employee performance.

Benefits of performance appraisals

Some of the top benefits of running great performance appraisals include:

Improved employee performance

Performance appraisals provide employees with feedback on their strengths and weaknesses, which can help them improve in their work.

Increased employee engagement

When employees feel that they are recognised and that they are being given opportunities to grow, they are more likely to engage in their work.

Reduced employee turnover

Employees who feel that they are being treated equitably and are progressively growing and developing are more likely to stay with their employer.

Improved decision-making:

Performance appraisals can provide leaders with valuable information that they can use to make better decisions about employee training, promotion and compensation.

Enhanced communication

Performance appraisals can provide a forum for open and honest communication between employees and managers.

How should performance appraisals be managed?

When performance appraisals are part and part of a holistic approach to performance management the benefits are clear:

  • Performance reviews become a sound basis for salary and promotion.

  • They allow you to set clear goals for visible progress which, in turn, results in better performance.

  • Indeed, studies have shown that employees who are developed and supported in line with their abilities stay with their companies longer.

Regardless of the type of performance appraisal you want to run, it is important for HR to build out a programme and manage a process to help things run successfully.

However, despite our best efforts, performance appraisals often have a demotivating effect on employees. We might chalk this up to one of four key reasons:

  1. One appraisal per year is not enough.

  2. It’s not always clear which factors influence an evaluation.

  3. Employees are different, but standardised evaluation systems are not.

  4. Feedback is often not as thorough or as valuable as possible.

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7 steps to facilitating great performance appraisals

Performance appraisals can be a helpful tool to improve employee engagement, aid staff development, and measure employee performance as part of an effective talent management strategy. This is true only when they are handled correctly.

So, we have pulled together a 7-step approach to facilitate great performance appraisals, based on our own personal experience as well as research into industry best practices…

performance appraisal cycle

1. Co-create ‘SMART’ goals in line with company objectives

The best performance goals are aligned with the organisation’s broader objectives, the general purpose of the department that the employee works in, and are SMART (Specific, Measurable, Achievable, Relevant, and Time-bound).

When these goals are co-created between employees and managers, employees are more likely to buy into them and, therefore, more likely to attempt to achieve them.

2. Meet regularly to discuss agreed goals and performance

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Many performance appraisals are challenging because, since they happen so infrequently, employees and managers have forgotten what happened at the beginning of the appraisal period (typically a year ago). So, they become based on our human (and fallible) memories as well as the prevailing feeling at the time.

Take the stress out of performance reviews by meeting and documenting these meetings, as well as notable employee achievements regularly.

3. Gather data and share insights for improvement (using a valid, reliable appraisal tool)

Personio feedback performance appraisal
Use company-wide standardised forms and rating scales and a visual analytics tool to understand performance

Some appraisals rely on data only (they address questions like, ‘Did you achieve your KPIs, what are the numbers?’). Others include the human contribution (answering questions like, ‘How do you work with others? Do you embody our company’s values).

The best ones balance both aspects. This is where an HR software like Personio can play a huge role, by helping balance all of those elements in an automated, customisable and engaging way for your employees.

4. Identify opportunities for learning and development

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Nobody is perfect, and we all have room to improve. That’s why professional development is so important. As we said in our blog post about ‘How Can Strategic Professional Development Get the Best Out of Your Employees?‘, ‘84% of employees in best-performing organisations are receiving the training they need compared with 16% in the worst-performing companies’.

5. Openly discuss challenges affecting performance

How can underperforming employees improve if they don’t know what they’re doing wrong? Unless performance issues are addressed when they happen it’s likely that employees will forget they even happened: creating resentment when the issues are finally raised at appraisal time.

Without regular appraisals (informal ones are fine, too), it will be impossible for employees to improve over the course of a year. As our list of tips for conducting productive performance appraisals says below: be open, honest, and positive wherever possible.

6. Listen

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This is such an important point that it is listed on its own with one single word. While employee performance appraisals are a chance for managers to tell employees where they performed well or badly, they should also be a chance for employees to discuss what they feel they did well and why.

Good managers provide feedback. Great managers listen to their staff first and then use this feedback opportunity to help align goals and values, correct misconceptions, or, better yet, celebrate wins and provide inspiration for the future.

7. Update goals for the next appraisal period

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No matter what your performance appraisal cycle is, it’s always wise to leave employees at the end of a review cycle with a sense of hope and optimism.

Performance appraisal methods

Even if they haven’t performed as well as you would have expected, use this time to be realistic about what can and should be expected of them in the following appraisal period.



Management by objectives (MBO)

A goal-setting process that involves managers and employees jointly defining specific, measurable, achievable, relevant and time-bound (SMART) goals. Employees are then evaluated on their progress towards achieving these goals.

360-degree feedback

A method that collects feedback from multiple sources, such as managers, peers, reports and customers, to get a comprehensive and holistic view of an employee's performance.

Assessment centre method

A series of simulations and exercises designed to assess an employee's skills, abilities and potential.

Behaviourally anchored rating scale (BARS)

A method that uses specific behavioural examples to rate employee performance. Each behaviour is anchored with a description of what constitutes poor, average and excellent performance.

Psychological appraisals

A method that uses psychological tests and assessments to evaluate an employee's personality, cognitive abilities and emotional intelligence.

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10 best practices for productive performance appraisals

No matter how frequently you conduct performance appraisals, it’s always a good idea to make the most of them.

These tips for how to approach a performance appraisal with employees are based on a helpful blog post by Mark Wilkinson of Coburg Banks recruitment:

  • Actually do them

  • Be prepared

  • Set an agenda (and get your employee to contribute to the agenda)

  • Do them in a comfortable, safe space

  • Be positive

  • Be honest

  • Set SMART goals

  • Discuss their career development (the future, not just the past)

  • Do them often

  • Ask about your performance as a manager

When and how often should you run employee performance appraisals?

Many organisations run performance appraisals once a year for tenured employees. After the first year of employment, this is totally reasonable. For newer employees, it may make sense to run light-touch appraisals at the three, six and nine month mark.

Overall, you should run performance appraisals when you need them. This could mean once or twice a year, or very short performance appraisals run quarterly. The thing you want to avoid is "performance appraisal exhaustion" from employees.

5 mistakes to avoid during appraisal season

When a performance appraisal is done well it can be a healthy, helpful tool for both employees and employers – and one that isn’t full of unpleasant surprises.

However, as we cover in our HR lexicon article on staff appraisals, some factors might prevent an appraisal from going as well as it could. To approach performance appraisals with employees in an ideal way, avoid these things:

  • Spontaneous meetings or a lack of time. These are valuable. Schedule them regularly and give your employees enough time to receive and give feedback.

  • Poor preparation. Keeping continuous records helps give decent feedback. Unprepared managers make employees feel like they don’t care about them.

  • Providing unspecific statements or making accusations. Give productive feedback. Allow employees to know what went wrong, why, and how they can do better in future.

  • Setting goals without employees’ involvement. Setting only top-down goals don’t get the same level of employee buy-in. Rather co-create meaningful goals together.

  • Using career opportunities or salaries to apply pressure. Performance appraisals are about more than a carrot/stick approach. Ideally, an appraisal should be able to show ‘grey areas’ that need improvement and bright spots that may not necessarily lead towards promotion, but show how an employee is adding value to the organisation.

Other factors to keep top of mind

It’s also worth bearing in mind that the time of year can influence the impact, especially if your company operates in a global environment.

For example, doing an appraisal in June means that people in the Northern Hemisphere might be happy, bouncy, and preparing for a summer holiday, while people down South will be focused on getting as much done as possible in the middle of winter.

Since different countries also have different tax year-ends it’s also important to realise that a financial year might not coincide with a tax year – which has potential implications for budgeting.

Lastly, while appraisals are typically given by a manager to their employee, some organisations encourage 360-degree reviews, where employees can also provide feedback on their supervisors, for example.

As we describe in our blog post on What Is 360º Feedback and Why Does it Matter for Staff Performance?, these allow employees (often managers) to build up an informed self-view, which they can then compare with an external perspective (how others see them, their work, and their growth).

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Run performance appraisals with Personio's help

Performance with Personio, as part of our all-in-one HR software, means being able to run performance cycles across your entire organisation in minutes. Build your cycle, add the right people, include the right templates and you're off to a flying start.

Done in a completely automated way, Personio can help tie together all of your people processes by ensuring your appraisals happen and employees develop in kind. Learn more about our performance feature or chat with an expert today.

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