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 setting 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
Performance Appraisal Methods: Traditional and Modern Methods
Performance appraisal methods are categories into two types, Traditional and Modern methods. However, each class has its 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 emphasize rating 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 best suit the organizations faced with pacing and rely on performance, results, and employee productivity.
In this blog, we shall discuss 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 organization’s performances by defining clear objectives both agreed upon 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 believe 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)
MBO emphasizes measurable, tangible, and achievable goals in the first step, 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 to plan their 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
A psychological appraisal is one of the most exciting 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 their performance.
This method suits the best for the workforce today. Employees now are pretty vulnerable and often fall into 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. They are evaluated in terms of their persuasive ability, communication skills, confidence, sensitivity to others’ feelings, 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, which 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 compares an individual's performance against specific examples of behavior anchored to numerical ratings.
It compares an individual's performance against specific examples of behavior tied to numerical ratings of 5 to 9. The 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, the assessment is done not only by the stakeholders within the company but also by 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 performance appraisal methods because this is the only group that determines the organization’s success 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, which may be a convenient appraisal method for others.
This method evaluates the employees' performance from the economic 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 their inputs.