Performance Reviews

6 Ways to Structure an Effective Performance Appraisal System

By on November 22, 2022

In its most fundamental sense, a performance appraisal system involves the periodic measurement of an employee’s performance at work compared with the requirements of that particular individual’s job and the broader goals of the team, the department, or the company they belong to. But having an effective performance appraisal system goes far beyond that in terms of its usefulness to a company. 

An effective performance appraisal system is crucial for the overall well-being, performance, culture, and growth of an individual employee and the organization. It helps managers, teams, departments, and organizations answer questions about delegation, promotions, churn rates, hiring, termination strategies, etc. 

What are the types of performance appraisal?

Performance appraisal systems typically follow one or more of these methodologies.

Different types of performance appraisal

The 360-degree performance appraisal –

where information on an employee is gathered from various sources before the final performance review meeting. Those sources include managers, peers within and outside the team, clients, etc. 

The checklist method –

where, as the name suggests, a checklist is used to evaluate an employee on specific criteria objectively. This performance review approach is now considered outdated and too vague as it does not leave room for a more holistic evaluation.

Negotiated appraisal

where a mediator is used to help assess the employee’s performance at the performance review meeting.

Peer assessment –

where, as the name suggests, an employee’s peers (team members, other co-workers, etc.) are the ones who review their performance. This method can be used on its own or become a part of a 360-degree performance appraisal system.

Self-assessment –

this is where, as the name says, employees rate themselves on their performance relative to the department or team/s goals, behavior, attitude, etc. As with peer assessment, this method is typically part of a 360-degree performance appraisal system.

What is an effective performance appraisal system?

An effective performance appraisal system, or performance review as it is also called, should give you clear answers to the questions we mentioned in the above section. It should be organized, streamlined, and structured, yet allow room for evolution and not be a completely static system. 

To create an effective performance appraisal system, there are a few key aspects you need to focus on:

  • Setting clear goals for individual employees, teams/departments, or the company.
  • The goal-setting process should be collaborative and consider employees’ perspectives.
  • Make allowances for and create an atmosphere that fosters regular check-ins and discussions between line managers and employees. Do not just restrict those conversations to an annual performance review meeting.
  • Another critical aspect of an effective performance appraisal system is using the right performance appraisal software. You want to pick a tool that is easy to use, clear, and not clunky. 

Advantages and Disadvantages of Performance Assessment Systems

There are several advantages of having effective performance appraisal systems in place. Here are a few advantages of performance assessment systems:.

  • Gives employees a clear indication of how they perform versus the expectation of the organization and the job requirements.
  • The results of performance review meetings can be used to determine future delegation, promotion, compensation, hiring, and termination strategies for teams and departments.
  • It can help identify gaps or challenges in employee/team/department-level performance. When this is used in conjunction with employee training & development programs, it allows organizations to deal with such challenges effectively.

However, there may be a few disadvantages, too, of performance appraisal systems and performance review meetings. For instance, it can sometimes rely too heavily on the measures or goals identified in the performance appraisal system. If those goals aren’t created collaboratively and constructively, it could lead to more harm than good. Some goals, especially those concerning employee behavior and attitude, could prove harder to judge since they are subjective. Managers who conduct performance review meetings also may, sometimes, need help to do these effectively. They may need to gain the skill set required to complete performance reviews systematically, balancing the objective with the subjective and keeping the company’s goals in mind.

Six steps in structuring an effective performance appraisal system

To avoid falling prey to the disadvantages, there are a few aspects that companies can consider when creating effective performance appraisal systems. Here are six such strategies that you can implement in your organization.

Steps in structuring an effective performance appraisal system

1. Train the manager:

It is essential to train the line managers who conduct the performance review meetings and overall performance appraisals on how to conduct them effectively and how to provide constructive feedback that can help employees grow. A poorly conducted performance review meeting, at best, adds little value to your company. But at its worst, it can end up causing unnecessary harm. Consider training your managers to handle challenging conversations about poor performance with employees.

2. Use holistic methodologies:

Using limiting and objective methods to conduct performance reviews could leave you with ambiguous reviews that are of no use. This is where the 360-degree performance appraisal comes in. By seeking inputs from various sources, from employee self-assessment to peer reviews, client feedback, etc., the 360-degree performance appraisal system ensures you have a complete picture of how an employee has been performing and how they fit into the company’s future. 

3. Encourage regular reviews:

Although your primary performance review meetings and performance assessment process can typically be annual, semi-annual, or quarterly, it is essential to keep communication channels open to employees throughout the year. For example, if employees seek feedback on their performance after completing a significant project, having a conversation with their manager can help prepare them for the final performance review meeting.

4. Streamline the performance appraisal process:

Your managers should be approachable and accessible throughout the year to have conversations with employees about their performance. However, you can also streamline the process by setting up dates and times for catch-up meetings between employees and managers. This will make it more effective and, once again, work towards a more optimized performance appraisal system and final performance review meeting.

5. Use the right software:

As we mentioned earlier in the piece, while there are several steps you can take internally as a company, using the right tool should also be an integral part of the way you structure your performance appraisal system. Use performance appraisal software that gives you real-time coaching, feedback, and more, like UpRaise’s app, for employee success

6. Develop adjacent programs: 

It would be best if you considered including other programs alongside a performance appraisal system. For example, a company might implement a rewards program to encourage employees to meet specific objectives. When done correctly, a rewards program can help improve employee morale and make employees achieve their career goals. 

Finally, a well-rounded performance appraisal system should continue after the final performance review meeting. How you structure your employee training and development programs and reward & recognition programs should also reflect and be in sync with your performance appraisal process.

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