Performance Appraisal in HRM

Performance Appraisal in HRM Methods, Objective, Characteristics

What is Performance Appraisal?


Performance appraisal is a part of a company’s process of understanding their employees better and giving them feedback to help them improve their performance. While several employees find performance appraisal to be unnecessary if done right, it can have several benefits for the organization. Let us learn more about performance appraisal in HRM.


Performance appraisal in HRM is a process of analyzing an employee’s worth as well as contribution to the job. Getting an objective evaluation of an employee’s performance will help a company identify any existing problems in the workplace. This will help the HR department to solve those problems quickly and with ease.


Performance appraisals are used for an employee’s development. It helps the management to make decisions regarding promotions, job transfer & terminations. This systematic approach also gives employees an insight into their current capabilities, whether they have scope to learn and grow, “where they currently stand” with their boss & their long-term plans with the company.


The entire performance appraisal process can be formal or informal depending on the call that the HR department takes. Decisions regarding the format of performance appraisals are entirely dependent upon the particular organization.


Are you an HR professional looking to save time? Check out the StartupHR toolkit. A complete toolkit to help you save money and resources. It comes with the largest collection of ready to use HR documents with templates, calculators, policies, and more!

Download Performance Appraisal Documents


The Ultimate Guide to Accelerate Your HR Productivity

Download Here
Download Appraisal Documents


    Download Performance Appraisal Documents

    The Ultimate Guide to Accelerate Your HR Productivity

      Definition of Performance Appraisal in HRM


      Performance appraisal is a process where the employee’s performance, contributions & skills are evaluated against his/her job requirements. This provides a uniform platform to measure financial rewards, selection for promotions, or assignments to important projects for each candidate.


      Performance Appraisal in HRM creates a healthy competition between colleagues. It also helps employees compare and improve upon their skills if needed. Appraisals are usually held annually in most companies.

      How Performance Appraisals Work?


      Every company has a different approach to their performance appraisal. Some companies hold an annual review process, which may have assessment sessions annually, semi-annually, or quarterly.


      Some companies also adopt a method of one-on-one check-ins, which are considered less formal than the annual assessments. Managers are able to provide frequent feedback to their employees in this system. These check-ins help the employees to periodically check their performance and re-evaluate their goals if needed. This approach works well on agile and collaborative projects.


      Different methods are best suited for different companies. Some organizations also base their appraisals based on the kind of projects their employees are currently working on.

      Process of Performance Appraisal in HRM

      Process of Performance Appraisal in HRM

      Modern Methods & Types of Performance Appraisal in HRM


      Different companies use different methods to conduct their performance appraisal calculations. Also, it depends on the job role and the type of company it is. A few of the common methods doing performance appraisals in HRM are:


      1. Graphic Rating Scale Method

      This method is based on the idea of rating employees based on individual characteristics. For example, some organizations may choose to evaluate employees based on quality and quantity of work, decisiveness & emotional stability.


      Employees are rated on a fixed scale (say 1-10), based on the extent to which they meet each of the desired criteria. The average of all the scores constitutes the overall score of the employee.


      Graphic scales are practical; they are cost-effective and can be developed quickly. They also help in measuring a particular objective effectively. However, the appraisal in such cases largely depends upon individual perspectives. This may lead to disputes or non-uniformity in evaluations. Furthermore, personal bias can also play a role in it. You must be careful to define each character as clearly as possible.


      2. Ranking Method

      The name of this method explains exactly what it is. The Human Resources team ranks each employee on a list based on factors decided by the human resource department. Hence, the best performers are on the top, and the worst performers rank at the bottom.


      This simple method of ranking employees can be modified in several ways. One of these methods is the paired comparison ranking style wherein employees are compared in pairs of two against each other. The number of times one employee is preferred over someone else is recorded. The top employee is the one with the highest number of preferences.


      The grading scale method can be combined with ranking. The employees with the best overall score on the grade scale (from 1-10) rank at the top of the list. The ranking method is preferred because it is simple, efficient, and requires little time and money. However, personal bias and favoritism may cause major disruptions in objective evaluation.


      3. Checklist Method

      Employees are evaluated by making use of a checklist in this method. The checklist can have a variety of different factors that the human resource department has chosen to be important. The employees are then judged based on those factors The employers must select between the yes/no options in those checkboxes.


      Items in the checklist carry a numerical value based on their importance to job performance Therefore, the appraisal score is calculated by adding up the scores of all these individual factors.


      For example, Behaviour Based appraisals are done by using the checklist method. This happens by having a pre-set personality and behavioral checkpoints. If an employee meets them then they are considered for an appraisal.


      The checklist method makes it easy to evaluate employees as their supervisors have to simply choose between yes/no. It also helps the employees receive clear and direct feedback. However, it may not be easy to design an effective checklist and assign a weight based on the importance of factors.


      4. Management by Objectives Method(MBO)

      MBO is considered to be one of the most systematic methods in performance appraisals. The idea is to give each employee a set of objectives that have to be achieved by them. During the performance appraisal, the supervisors will evaluate the extent to which the objectives have been achieved.


      This is a strong method of evaluation. The employees have been clearly instructed as to what is expected of them. It also helps the company to set benchmarks and standards for growth. However, a lot of time and effort goes into determining the objectives and evaluating them.


      5. 360-degree Feedback Appraisal

      This approach is basically a group performance review. The data regarding an employee’s behavior is collected by his/her close subordinates. An employee’s colleagues might be able to review his/her performance under a variety of situations and circumstances, which might have escaped the employer. This allows for holistic, full-circle, multi-tiered feedback regarding a person.


      This method is useful as it eliminates subjectivity. It also promotes an atmosphere of open culture, self-development and better communication. However, every company must develop an effective system and procedure to utilize this method.


      6. General Performance Appraisal in HRM

      General performance appraisal is one of the most common types of performance appraisals. In general, a manager sets goals and targets for an employee and urges them to achieve it. This pushes the employee to achieve them and encourages them to grow.


      The manager calls a meeting and sets certain goals for an employee. Once the employee achieves those goals, they review it and set newer goals. This method is an ongoing conversation between the employee and the manager throughout the year. The manager can also recommend development plans and key growth areas.


      7. Technological Performance Appraisal

      In this method of performance appraisal, the employee’s technological capabilities are judged and also the Technological skills are kept at the forefront of all the other skills that are not related to the employee’s job.


      Here the focus is on how easily the employee adapts to new technology, how aware the employee is of the technology around them, and how much technical knowledge they have.


      8. Sales Performance Appraisal

      A salesperson is closely linked to the financials of an organization. Therefore, this kind of appraisal has a direct impact on the sales of a company. Here, the employee is judged based on the revenue they bring into the company. Here the focus is on what the employee achieves in contrast to how they are or how they behave.


      The manager should discuss goals and deadlines for sales. This way an employee can have a goal to achieve.

      Performance Appraisal Objectives


      Performance appraisal can be conducted for various reasons. Human resources is one of the most important resources that a company has. Therefore, every company should understand where their employees stand in terms of performance and productivity. Here are some more objectives of performance appraisals:


      1. Provide Feedback:

      Appraisals are an effective way to give feedback to employees Also, managers to communicate clearly regarding employee objectives and expectations. An employee can learn about what he/she can do to improve their future performance.


      In addition, Some tips for employee feedback

      1. Performance Outcome

      2. Quarterly Reviews

      3. Give feedback on a 1-2-1 basis


      2. Downsize or Right-Size:

      The COVID pandemic is one of the many harsh realities that might force an organization to downsize. In such a situation, appraisals are a way to make sure that the most productive and talented individuals can be retained in a company. It is also an effective way to know which employees are non-performers.


      3. Promote The Right Person:

      Appraisals give an organization objective and data-driven tools to make good promotion decisions Also, It helps the most talented individuals retain the position of the highest importance.


      4. Set Goals & Measure Goals:

      The annual appraisals are also an effective way to set future goals for the employees. This ensures maximum productivity and superior performance.


      5. Improve Work Performance:

      An employee can only improve if he knows how to Objectives of a good appraisal include highlighting the specific area of improvement for every employee.


      Some tips improve performance:

      1. Keep your eyes on the deadline

      2. Also, Improve project evaluation skills

      3. Set Goals as well as Personal Benchmarks


      6. Determine Compensation Changes:

      An appraisal system works as a determining factor in increasing compensation, pay raises, etc. Also, It ensures that people who work harder get paid better.


      7. Encourage Coaching & Mentoring:

      Managers are usually expected to coach their team members Also, appraisals help the managers to identify the areas where mentoring is required.


      8. Employee Training and Development:

      Individual skills are evaluated during an appraisal. Also, this helps employees to identify if they need to acquire more skills and competencies to contribute to the company. It also helps an organization to plan the up-skilling training for their employees.


      9. Provide a Legal Defense For Personal Decisions:

      A company can be held accountable for any decision that they take, even firing or promoting an employee. Therefore, conducting a performance appraisal will help the company prove a point if their decisions are ever challenged.


      10. Encouraging Coaching & Mentoring:

      Teaching and coaching are part of managing employees. It is part of being a good manager. Performance appraisals will help them understand where an employee is lacking therefore where they can train and help employees to do better.


      11. Improving Overall Organization’s Performance:

      Last but not least, performance appraisals will help the company to learn more about the employees and their requirements. It will help the employees to understand where they are lacking and where they are doing well. This will help them learn and grow quickly.

      SHTK banner

      Characteristics of an Effective Performance Appraisal System:


      When you are trying to adopt an effective appraisal system for your company, there are certain factors to be kept in mind. However, what works for someone else may not be right for your company. A good appraisal system satisfies these characteristics according to your requirements.


      1. Clear Objectives

      Employee performance appraisals should have a clear goal. There must be a predefined set of factors to evaluate employees based on their skill sets Which obviously must be clear what the managers aim to get out of these appraisals.


      2. Well Defined Performance Criteria

      Employees must have a clear idea of what they are being evaluated. Good appraisal systems have a set of procedures and standards for the performance of each individual. For instance, a fresh graduate cannot be evaluated against someone with years of experience.


      3. Accuracy & Reliability in Results

      An effective performance appraisal also helps a company to make clear, data-driven & informed decisions. The data (or results) of any appraisal must be reliable and valid, and they must be presented in an unambiguous manner. Accurate insights will also help a company gain the trust of its employees.


      4. Post Appraisal Interview

      Post appraisal interviews are important because they help the employees to get direct feedback from their superiors or managers. These interviews also help the managers decide if any training or skill development programs are needed. Employee grievances can also be addressed during this interview.


      5. Time-Saving

      A good appraisal system is one that saves time as well as cost. Also, this helps a company to get the maximum benefit. Instead of wasting all their time on managerial tasks, HR personnel could focus on other important jobs.


      6. Continuous Feedback

      Modern appraisal systems have done away with the annual performance review model. Instead, that model has been replaced with a system wherein managers give continuous (read- periodical) feedback to their employees. Also, this helps the employees fill in their weaknesses from the start and improve upon them.


      7. Focusing on What Matters

      A good appraisal system evaluates employees on various factors. However, an employee’s work performance and competency are of utmost importance. Subjective factors, such as personal behavior, attitude & personality come secondary to an employee’s skill set.


      8. Match Your Goals

      Appraisal systems should be designed according to the functioning of your company. For instance, if you are using a 360-degree feedback approach, feedback should be taken from only those who have worked closely with the employee overtime. It’s good to practise to be innovative with appraisals so they match your company’s working policy.

      Advantages & Disadvantages of Performance Appraisal


      It is often wondered why do HR departments conduct performance appraisals. The performance appraisal process is a complicated one. It needs to be done in a way that truly brings changes to the way the company functions. While it gives the managers a clear idea about their employees it is a tedious task that sometimes doesn’t bring any results or changes. Therefore, the question comes up as to whether you should conduct a performance appraisal in your company or not.


      Let us discuss the advantages and disadvantages of performance appraisal in HRM:

      Advantages and Disadvantages of Performance Appraisal in HRM

      Advantages of Performance Appraisal are:


      1. Find The True Potential of The Employee

      Performance appraisal helps the HR department and the company learn about the strengths and weaknesses of an employee. This process can, therefore, be used to truly learn about the employee’s interests and potentials. This analysis also helps the HR department to choose the right employees for a job. The HR department can even suggest the employee switch to a department that fits them better.


      2. Promotes Employee Development

      The quickest way to improve an employee’s performance is by providing them with specific feedback. The performance appraisal process includes giving employees feedback about their strengths as well as weakness. The employees can use this information to develop themselves further.


      3. Acts as a Motivator

      Employees crave feedback. When they receive that it can act as a motivator for them. Knowing their weaknesses can help employees give their best and improve upon the areas they’ve missed out on. After all this can work as a boost to the entire office or team.


      4. Focused Employee Training & Development

      Planning and development programs are important for any organization. The performance appraisal can show exactly where a majority of the employees lack in terms of training as well as in development. The HR department can then create programs according to those gaps. This will be more beneficial for the employees and will be a successful program of training and development.


      5. Improves Employee, as well as Management Relationship

      In general, the performance appraisal gives employees an opportunity to truly share and discuss the problems that they are facing in their role. This builds a healthy environment for both the manager and the employee.


      6. Promotion & Transfers

      It is difficult to make the correct decision about who to promote and who to transfer without any data. The performance appraisal can be useful for learning in which talents should be rewarded and which need to be pushed to do better. It ensures that the decision is made based on facts and figures rather than personal biases.


      7. Mentoring From Superiors

      Managers are a crucial part of any appraisal system. They are the ones handling the administrative as well as feedback work in an appraisal. Good managers are good mentors, meaning that they are able to guide their employees to reach their maximum potential. Managers must not only focus on the weaknesses, but they must highlight employees’ strengths too.

      Disadvantages of The Performance Appraisal Are as follows:


      1. Consuming Process

      First and foremost, performance appraisal is a time-consuming process. It requires resources, time and costs the company money. It requires the HR department to create the forms, ask everyone to fill them as well as analyze the results for specific feedback while going through the correct procedures.


      Sometimes, the organization has to hire professional experts from outside the company to conduct the evaluation process. The evaluation processes must be designed and also, implemented clearly &, because of this, the performance appraisal process becomes expensive for the company.


      2. Personal Bias or Incorrect Ratings

      It is possible that managers, in order to not look bad, give a decent rating to all employees. This can be the case with managers that try to avoid conflicts or arguments. Furthermore, personal bias can play a huge role in the ratings. Also, if a manager has a liking for an employee they will rate them better and visa versa. This can be the case even if they are a good employee. Generally, employers simply give an average out feedback to employees. This means the over performers and underperformers both aren’t rated correctly.


      3. Horn & Halo Effect

      The horn and halo effect is a human tendency to see only the good or the bad in a person. For example, an employer might just see that the employee is never on time and will rate the employee low on all the brackets because of that. However, he might not notice that the employee works for long hours every day and completes the work on time. This can affect an employee’s overall ratings.


      4. Spillover Effect

      This refers to human behavior. It means that while judging the employee for performance appraisal it is possible that the manager simply marks an employee high because of their past performances instead of their current ones. They rank the employee by taking into account the overall overview that they have of the employee.


      5. Attitude of Evaluator

      The mindset and the mood of the manager is also a cause of concern. If the manager has high expectations they might mark their employees lower. Thereby, making the team look lower than others on average. Also, this makes the process of evaluation and improving the performance in the organization a difficult task to achieve.

      Frequently Asked Questions (FAQ’S)


      1. When Does an Organization Conduct Performance Appraisal?


      Ideally, an appraisal is a continuing and ongoing process conducted together by meetings at regular intervals. In the entire working year, the managers are engaged with the employee to achieve goals, note the progress, and also give feedback. Appraisals usually take place every 6 or 12 months. The appraisal duration and procedure may vary from organization to organization. There’s also a case where if the company is experiencing a good amount of growth they may conduct quarterly reviews, to keep the employee closer to the organization’s goals.


      2. What is a 360-Degree Appraisal?


      360-degree appraisal is a performance assessment tool that an organization uses to gives 360 degree feedback to the employees. A normal appraisal includes just the employee and his manager, but in the case of the 360-Degree appraisal, there is the involvement of employees, managers, colleagues, and coworkers, and every aspect of the employee’s work is considered.


      3. What Should You Not Say in a Performance Review?


      There are few things you should never say in a performance review which are, that wasn’t my fault, yes, yes, yes”, this isn’t fair, this isn’t fair, I’m not good at that, etc. These phrases will definitely give a wrong impression of you as well as affect your review.


      4.What Should be Included in Performance Appraisal?


      These 3 major elements that should be included in performance appraisal are performance analysis, employee potential, and also employee deficiencies. Managers should consider relevant information for the reviews. Weakness, as well as strengths of the employee, should be taken into consideration. Most importantly managers should give proper time to the process and conduct it for namesake.


      5. How Many Types of Appraisals are there?


      1. The following are various Appraisals.
      2. The 360-degree appraisal.
      3. General performance appraisal.
      4. Technological performance appraisal.
      5. Employee Self-Assessment.
      6. Promotion as well as Sales Performance Appraisal.



      There you have it, the complete guide to performance appraisal in HRM. Performance appraisals are only as good as their implementation and the system in which they are performed. If it is done simply for the sake of doing it, then there truly is no advantage to it. However, if the process is implemented correctly then it can truly help the organization be more productive, more focused and also will help authority figures to make better decisions.

      Join a Community of 75,000+ HR Professionals


        No Comments

        Sorry, the comment form is closed at this time.

        Get a FREE DEMO

          Download FREE

            1000+ Business Documents

              6 Month HR & Payroll Software

                Startup Deals

                  Know More About 1800+ HR Documents

                    Free Sexual Harassment Policy

                      Get Instant Access

                        Know More about Lifetime Plan

                          Download Appraisal Documents

                            Download Brochure Gold Plan

                              Gold Plan Brochure 

                                Check your email for brochure.
                                Get Documents


                                  Want HR and Payroll Software?


                                    Upgrade to 3000 READY TO USE HR DOCUMENT

                                    and Get FREE HR & Payroll Software

                                      GET A DEMO

                                        Quit Making Boring HR Documents
                                        Know More