Performance Reviews

What is the difference between performance appraisal and performance management?

By on December 13, 2017

Usually performance management and performance appraisal are used interchangeably. They may have some similarities but they are definitely not the same!

For one, performance management is a comprehensive approach that involves the maximum amount of dialogue among all the stakeholders. Performance appraisal on the other hand is primarily a top-down assessment for grading/rating employees performance periodically. While performance appraisals have gained a unfavourable reputation, there are some methods that can help you get better at the process.

Performance management:

It is the process of managing and developing employee performance throughout the organization. It aims at planning, tracking and assessing employee performance for a specific period. The end result of performance management is to motivate employees and further increase their efficiency and effectiveness.

Performance appraisal:

The process of evaluating employee performance on a regular basis is called as performance appraisal. Although, unlike performance management, it is restricted to evaluating past performance and conducted once or twice a year, depending upon the organisation’s policies.

Thus essentially, performance appraisal is an integral part of a comprehensive performance management approach.

Here’s how to differentiate performance appraisal from performance management:

Performance Appraisal Performance Management
Evaluating the performance and potential of employees typically to determine compensation Managing and developing employee performance to foster growth within the organisation
Once or twice year Ongoing process
Conducted by HR department along with direct managers Multiple stakeholders are involved as the process is ongoing
Corrections are made retrospectively It is a forward looking process
Performance appraisal is a system Performance management is a process
Typically inflexible Completely flexible
More of an individualistic approach Can adopt according to the team’s values
Considered as an operational tool to improve the employee efficiency Primarily considered as a strategic tool

Scope of execution

There are some similarities between the two terms when it comes to execution. Both performance appraisal and performance management involve:

  1. Setting targets and clear expectations
  2. Setting guidelines about measuring success
  3. Reviewing whether targets were achieved
  4. Identifying barriers towards effective performance
  5. Determining ways to help employees meet these targets


Performance appraisal is a reactive function that only evaluates past performance of employees. In most organisations, it is usually conducted only once or twice in a year. It’s a distinct staff activity that doesn’t interfere with an employee’s daily work.

Performance management is a proactive, forward-looking process that manages employee performance in an ongoing manner. The intent here is to make sure employees attain their targets in real-time. Ideally there shouldn’t be a need for corrective action if the goals have been set according to the employee’s potential. This process does make a difference to how employees carry on with their daily tasks.

Many forward looking companies have made performance appraisal a part of their performance management process. It has helped them to take corrective action and assign further targets by combining the two.


Performance management involves both employees and their line managers. Additionally other stakeholders do play an important role. These other stakeholders can be any one who can positively impact employee’s performance. Customize the process according to each individual employee’s actual work.

Performance appraisal is typically a standard procedure conducted by the HR department in collaboration with direct managers. It depends upon the employee’s designation, experience and job description. Here, more often than not the supervisor or manager plays the role of a judge and has the final word.

In some companies, there are appraisal systems that allow setting up of joint targets by the employee and their managers. You can also review them on frequently which is why they appear quite similar to performance management. The only problem is that they are not able to monitor targets in real-time, a comfort offered by the performance management process.


Although the performance appraisal process is more structured and formal, it does allow customization of the key performance areas which vary from employee to employee. However, when it comes to setting rating parameters, it is quite rigid as these ratings are applicable for every employee.

In contrast, the performance management process is quite flexible at evaluating performance. While there are certain guidelines that constitute optimal performance, they can vary from employee to employee depending on their job description and capabilities.

We can see that performance appraisal is, in a way, an essential process that goes along well with performance management. It is safe to say that performance appraisal is just one piece of the larger puzzle of performance management.

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