As an employer, understanding how your employees perform is a vital part of ensuring a successful company. Holding regular reviews with your staff can help you boost performance. And understand what exactly is stopping improvement.
There are different types of performance appraisals you can undertake–each with its own set of benefits. Failure to hold regular reviews can stop employees hitting their potential, as well as decrease workplace morale.
In this guide, we'll discuss what a performance appraisal is, why they’re important, and which type of review benefits your workplace.
What is a performance appraisal?
A performance appraisal is a regular review which highlights the abilities and development of an employee. They’re also known as a performance evaluation or annual review.
Performance appraisals are used to help understand how your employees work, as well as rate their actual performance. And are commonly used as a way for the employee and employer to set out goals for the year ahead
They’re typically carried out on an annual basis. However, you can hold them semi-annually if this works better for your company.
As an employer, you must understand the importance of annual reviews, to both you and the employee.
Why are performance appraisals important?
Performance appraisals are a hugely important element to a company's success. They make up a crucial aspect of your performance management process.
Appraisals are used to review past performance and progress. This helps you when discussing career development of your staff. They are a key part of justifying pay increases, too.
Understanding how an employee is performing and what they're struggling with can assist you with growing leadership skills.
What are the benefits of a performance review?
An effective performance appraisal can highlight both strengths and weaknesses to help improve the future performance of an employee.
But further than that, there is a range of benefits when undertaking performance appraisals with employees. For example:
Identifies employee performance
The appraisal process is a powerful tool for employers to understand an employee's performance. Providing constructive feedback to your employees will give them extra confidence in the role.
On the flip side, an employee appraisal allows you to create a clear performance plan for employees who are struggling.
For the management team, how your team is performing is crucial to the success of the business. As well as, aiding to improve the overall company's culture.
Creates clear structure
Performance appraisals allow employees to have open and structured communication with management. Communication is key to creating a structured workplace.
By having open dialogue, clear and achievable goals can be set. If employees feel the goals are manageable, they're more likely to do all they can to achieve them.
Helps create clear training policies
A performance appraisal can help management create unique and effective training policies. By discussing an employee's goals, you can plan a training pathway that fits their requirements.
A clear training policy helps to improve an employee's skills, allowing them to improve performance.
Boosts employee productivity
Successful reviews motivate employees and leave them feeling that their employer has confidence in them.
Creating a happy and confident workforce will lead to an increase in employee motivation, productivity, and quality of work. As well as, improving the relationship between you and your employees.
Reward high-achieving workers
Performance appraisals are the best time to recognise employee achievements and top performers in your company. Making employees aware of their good performance is key to company growth.
This process is the ideal time to decide who qualifies for pay rises, promotions, and bonuses. Showing appreciation is crucial to creating a happy workforce.
What are the basic functions of performance reviews?
As an employer, you must understand the basic functions of performance reviews before undertaking one.
Effective reviews follow three basic functions:
- Employee feedback: Providing positive and negative feedback to your staff helps them understand what their strengths and weaknesses are. Feedback is a crucial part of employee development.
- Create training requirements: Creating a clear training plan encourages employees to reach their goals and ensure constant development.
- Accurate data: The review should leave employers with accurate data about their employees. This helps to make tough business decisions moving forward.
How does the performance appraisal process work?
There are six modern performance appraisal methods you can choose when following performance appraisals. Selecting the right performance appraisal method is key to a successful assessment process. You can choose from:
360-degree feedback is a way to evaluate an employee's performance using information collated from peers, customers, and managers.
This type of performance feedback eliminates any bias in reviews. And will provide feedback on an employee's skill set in depth. 360-degree feedback has four components:
- Self-appraisal by the employee.
- Managerial reviews.
- Peer reviews.
- Customer reviews.
The main advantage of this method is that it allows the employee to increase self-awareness for their performance. It also encourages employee development and goal setting.
Management by objectives
Management by objectives is a form of performance appraisal which is focused on goal setting. The employer and employee set achievable objectives over a set appraisal period.
This period of time can be monthly, three-monthly, or six-monthly. During this review period, meetings should be held to discuss progress or any other issues the employee is facing.
This type of performance appraisal should include the following:
- Both parties must agree on 5-10 manageable goals.
- Goals should be signed off during the review.
- Each goal needs to include a clear description and plan of how it will be achieved.
- Decide how progress will be measured and how often.
- Document a list of actions to follow if progress isn't being made.
- Ensure the goals set are related to the company's objectives.
Behaviorally anchored rating scales (BARS)
BARS is a type of performance appraisal which measures employees' performance. This form of review measures each employee based on a defined pattern of behaviours. BARS offers both qualitative and quantitative performance metrics.
BARS uses performance ratings from five to nine, with five being poor and nine being good performance. For example, it can be used in a customer-facing role. If an employee has poor body language when speaking to customers, they'd be scored a five.
There are many benefits to using the BARS performance appraisal method. For example:
- Produces reliable appraisal results.
- Ensures the goals set are relevant to the employee's role.
- Employees know exactly where they need to improve.
- Decreases any chance of bias and ensures complete fairness throughout the performance appraisal.
However, there are also negatives you need to be aware of before choosing this method:
- Hard to make promotion decisions, especially if the results aren't positive.
- Demands more time from managers.
- Time-consuming to successfully create and implement, especially for small businesses.
Assessment centre method
The assessment centre method of performance appraisal enables employees to understand how others observe their work. This means they can understand the way they work can affect their ongoing performance.
This method combines role plays, presentations, and group activities. The main advantages of this form of performance appraisal are:
- Improves employee knowledge and efficiency.
- Can be tailored to fit different roles and business needs.
- Offers a clear insight into an employee's personality traits, such as problem-solving.
Psychological appraisals are used to discover the potential of employees. Rather than focusing on their past achievements, psychological appraisals outline future work.
This method is used to analyse the following seven major components of an employee's performance:
- Interpersonal skills.
- Cognitive skills.
- Intellectual traits.
- Leadership skills.
- Personality traits.
- Emotional quotient.
Human resource accounting method
This form of performance appraisal focuses on an employee's performance through the monetary value they bring to the company.
The review takes into account the average service value, quality, and overhead costs of each employee. The main advantage of this method is being able to measure the cost and value an employee brings to your company.
Do you need to document employee performance reviews?
As an employer, you must document performance reviews–no matter which method you use. Ensure both parties sign off the document, as this avoids disputes in the future.
When documenting an appraisal, include the following:
- Set future development goals for the employee (as well as a training plan).
- Use an overall employee rating (which includes strengths and weaknesses).
- Document employee achievements and previous goals which have been met.
- Include your company's culture, objectives, and values. (This'll ensure both parties are aware of what the company is trying to achieve).
Get expert advice on performance appraisals with Peninsula
For all businesses, undertaking a performance appraisal is key to understanding the output of your employees. A performance appraisal helps in creating clear and successful training plans.
Failure to carry out performance reviews can leave you behind your competitors. As well as ensuring you're not getting the best out of your employees–which could lead to a dip in productivity and quality.
Peninsula offers expert advice on how to carry out a successful performance appraisal. Our HR services can help you understand the different types of reviews you can carry out.