Performance appraisals: Your guide to unlocking team potential

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.

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.

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

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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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…

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.

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.

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.

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’.

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.

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.

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.

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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

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.

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.

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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Personio's all-in-one HR software can help your organisation seamlessly run automated performance cycles. Build cycles, add relevant employees, build out templates for self-evaluations and run your cycle. Let us show you how it works.

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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.