Employee performance appraisal is critical for any organization. It helps the management to track employee performance which is directly linked to organizational growth. It helps in boosting employees’ motivation, productivity, and commitment to the organization.
What is Performance Appraisal?
Performance appraisal is an annual process that involves the setting of clear quantifiable goals and objectives and assessing individual performance. It evaluates the employee’s performance and productivity against the pre-determined set of objectives for that year. It also helps to evaluate employee’s skills, strengths, and shortcomings and motivation. The results of this performance appraisal process determine the employees' wage raise and promotion.
Main Objectives of Performance Appraisal
- Training and Development
- Compensation Reviews
- Competency Building
- Improve Communication
- Evaluation of HR Programs
- Feedback and Grievances
For a detailed understanding of the Objectives of Performance Appraisal read: 8 Essential Objectives Of Performance Appraisal
Performance Appraisal Methods: Traditional and Modern Methods
Performance appraisal methods are categories into two types. Traditional and Modern methods. Though each category has its own strengths and weaknesses. But there is no single appraisal method that is universally used in the performance appraisal process.
Since one method may be suitable for one organization and non-suitable for others.
List of Traditional and Modern Methods
Traditional Methods emphasizes more on the rating of the individual’s personality traits, such as initiative, dependability, drive, creativity, integrity, intelligence, leadership potential, etc. On the other hand, Modern Methods are more inclined towards job achievement and evaluation of work results. Modern Methods suit best for the organizations today, which is faced paced and relies on performance, results and employee productivity.
In this blog, we shall discuss about the modern methods of performance appraisal.
Here are the 7 Most Effective Modern Methods of Performance Appraisal
1. Management by Objectives (MBO):
The term Management by Objectives was first termed by management guru Peter Drucker in his 1954 book, The Practice of Management
This method focuses on improving the performances of the organization by defining clear objectives that are both agreed by the employees and the managers.
The objectives set should be challenging yet achievable. Both managers and employees should review past performance and pinpoint the problems. The information acquired then should be used to address organizational goals and needs.
The practitioners of MBO believes that it helps in employee motivation and commitment. It also builds healthy communication between the management and employees.
Steps in MBO (Also called MBO Process Cycle)
In the first step, MBO emphasizes on goals that are measurable, tangible and achievable keeping the organizational mission in mind.
The second step is to translate these objectives into the employees.
In the third step, the employees are allowed plan their own objectives.
In the fourth step, the progress of the employees is monitored.
The fifth step is to evaluate and reward employees. Honest feedback is given and also new strategies for goals not achieved are established.
2. Psychological Appraisals:
This is one of the most interesting and intuitive appraisal methods. This method assesses the employees’ potential for future performance rather than their past one. It focuses on employees' emotional, intellectual and other personal characteristics affecting his/her performance.
This method suits the best for the workforce today. Employees now are quite vulnerable and often fall in the pit while balancing their work and personal life. This method understands that aspect and allows employees to shine in the future.
3. 360 Degree Feedback:
360-degree feedback is a systematic collection and feedback of performance data for employees collected from all his/her peers, supervisors and even customers.
This is one of the most widely used appraisal methods. Since, the participation of the managers, peers, customers are involved, this method gives an overview of the performance reviews collectively. This helps in the performance appraisal process to have a diverse outlook.
4. Assessment Centre Method:
In this method, employees are assessed to participate in activities like in-basket exercises, role-playing, discussions, computer simulations, etc. Where they are evaluated in terms of their persuasive ability, communication skills, confidence, sensitivity to the feelings of others, mental alertness, administrative ability, etc.
This entire exercise is done under the trainer who observes the employee behavior and then discusses it with the rater who finally evaluates the employee’s performance.
5. Behaviorally Anchored Rating Scale (BARS):
Behaviourally Anchored Rating Scales are designed to bring the benefits of both qualitative and quantitative data to the employee appraisal process. BARS compare an individual’s performance against specific examples of behavior that are anchored to numerical ratings.
It compares an individual’s performance against specific examples of behavior that are tied to numerical ratings of 5 to 9. Behaviorally Anchored Rating Scale is usually represented as a vertical rating graph. These behavioral anchor points are collected using Critical Incident Techniques (CIT), which are procedures used for documenting human behavior that is of significance in a particular arena.
6. 720 Degree Method:
In this method, wherein the assessment is done not only by the stakeholders within the company but also from the groups outside the organization. These external groups who assess the employee’s performance are customers, investors, suppliers and other financial institutions.
It is one of the most crucial modern methods of performance appraisal because this is the only group that determines the success of the organization as a whole.
Nowadays, companies use the modern methods of performance appraisal which have a broader scope than the traditional methods and provides a more accurate and comprehensive evaluation of an individual.
7. Cost Accounting Method:
Some may find this method a little harsh and for others, it may be a very practical appraisal method.
This method evaluates the employees’ performance from the monetary output an organization yields from their input. This is ascertained by analyzing the cost involved in retaining the employees with the benefits an organization yields from his her input.