What Approach To Employee Performance Appraisals Works The Best?

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When performance appraisal time comes around, everyone gets stressed out. How do you run an effective employee performance appraisal process that satisfies everyone? In this article, we break down some of the key terms, best practices, and process steps that you can start following today.

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How Are You Approaching Performance Appraisals?

Regardless of whether you're doing a performance appraisal in a traditional way, allowing self-assessment, or conducting a thorough, 360-degree appraisal (one of the most valid and reliable measures of performance), it is important for HR to take the right approach to reduce stress.

However, despite HR’s best efforts, performance appraisals often demotivate employees, mainly due to these four listed reasons:

  • One appraisal per year is not enough. Feedback only works if it’s given at the right time(s).

  • It’s not always clear which factors influence an evaluation. This lack of transparency leads to a perception that ‘this boss just doesn’t like me’.

  • Employees are different, but standardized evaluation systems are not. This lack of personalization means that employees have less control over whether their efforts can, realistically, affect the company’s success which, in turn, demotivates them.

  • Everyone just wants to get it all over with, so feedback is often not as thorough or valuable as possible.

(For more on this subject, read our article on ‘Performance Reviews: What Demotivates Employees and How to Avoid That’)

How Do You Build Better Performance Appraisals?

Clearly, performance appraisal time is rarely a great time of year for anyone. But it doesn’t have to be that way. It is possible to take an alternative approach to employee performance appraisals.

How? Well, to answer this question, it’s worth identifying the real purpose of a performance appraisal. A skeptic might say that they exist simply to separate the wheat from the chaff and avoid paying employees the bonuses they were promised, but that’s not a fair characterization.

While the CIPD says that the purpose of a performance review is, "to identify areas for growth and improvement and inform suitable development plans; or inform administrative decisions on contractual aspects of employment (such as pay, bonuses, promotions or redundancy)," this is only half the story.

Sometimes, performance appraisals falter precisely because employees don’t really understand why they’re doing them. Or, worse yet, they believe they are either a box-ticking exercise or an excuse to tell an employee that they are doing poorly.

However, when handled well, performance appraisals are part of a broader approach to giving better feedback that enables better performance.

When performance appraisals are part and part of a holistic approach to performance management (for example, some companies use performance management software to help with this process) 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.

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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 organization’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

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)

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.

4. Identify opportunities for learning and development

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 organizations 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

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

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.

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.

10 Tips for Conducting a Productive Performance Appraisal

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.

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5 Mistakes to Avoid During Performance Appraisals

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 organization.

Other Factors Affecting Performance Appraisals

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 realize 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 organizations 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).

Employee Performance Appraisals For Organizational Excellence

While this blog post is fairly extensive, we highly recommend that you take a look at our helpful performance review template and guide, to find out more about these elements, including:

  • How to create a productive atmosphere that facilitates an open, transparent, and constructive discussion

  • Why it’s important to provide a reason for the review, in order to create motivation for new projects and objectives.

  • Why it’s important to look back, together, and discuss performance.

  • How to evaluate, consult and put procedures in place

  • What you should ask an employee to elicit their suggestions and concerns.

  • How to agree on objectives so employees relate to the objectives being set

  • The importance of deciding on a course of action and planning its implementation

  • How to finish on a positive note to boost motivation and confidence.

Performance appraisals matter because they help develop your employees. And, in turn, they help boost the performance of your business more generally. After all, employees who are motivated to do their best work, often do exactly that.

Better Appraisals Better Performance

Performance Cycle