10 Methods of Performance Appraisal For Reviewing Employees

By Indeed Editorial Team

Published 2 August 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Regular performance appraisals help employees understand whether they're meeting the organisation's benchmarks and growing in their careers. Giving performance appraisals can also help the business learn whether employees deserve promotions or higher salaries. Different performance appraisal types are suitable for employees with different responsibilities and organisations of different sizes. In this article, we define the term performance appraisal and list ten common methods for reviewing employees.

What is a performance appraisal?

A performance appraisal is an assessment of an employee's contribution to the business for a set period. Performance appraisals consider the employee's output, attitude and behaviour. An employee's manager, supervisor or team leader usually conducts their performance appraisal. As businesses usually conduct performance appraisals once a year, they're sometimes called annual reviews.

Related: What Is a Performance Review and Why Does It Matter?

10 methods of performance appraisal

Here are the 10 most common methods of performance appraisal:

1. Traditional method

The traditional method of performance appraisal sees a manager sharing their feedback on an employee's performance. The manager may consider different elements that contribute to an employee's performance, including their output, adherence to deadlines, attendance record and work ethic. Managers may suggest strategies to improve the employee's performance before the next performance appraisal.

This performance appraisal method can be useful for businesses of any size and in any industry. Considering the employee's impact on their colleagues and the way customers and clients respond to them can help the manager overcome unconscious bias and deliver a more objective review.

Related: How to Write Employee Review (With Examples and Tips)

2. Management by objectives method

The management by objectives (MBO) method is a collaborative performance appraisal method that encourages managers and employees to work together to help the employee meet performance targets. The manager and employee agree on specific, measurable, achievable, relevant and time-based (SMART) goals for the employee. They meet periodically to discuss the employee's progress. At the next performance appraisal meeting, they discuss whether the employee has met their goals and set new ones for the next period. An employee who's met their goals may receive a bonus or promotion. If they're yet to meet their goals, the employer may encourage further training.

The MBO method suits businesses of all sizes and can evaluate employees at any stage in their careers. Its focus on achieving tangible and measurable goals can motivate employees to grow in their careers. This method can also strengthen the relationship between a manager and an employee, as it encourages them to interact regularly. It works well for evaluating achievements and mastery of hard skills, rather than soft skills.

Related: SMART Goals: Definition and Examples

3. Self-appraisal method

The self-appraisal method encourages the employee to analyse their performance. They may share their milestones and acknowledge their strengths and weaknesses. Businesses often ask employees to complete a self-appraisal form. Managers usually review these forms and schedule meetings to discuss them with their employees one-on-one. During these meetings, they may plan strategies for overcoming the employee's weaknesses and achieving more milestones.

Any size business in any industry can use the self-appraisal method. This method is a good performance appraisal tool, as it encourages employees to reflect on their performance and how they could improve. It's ideal for appraising employees with some experience in their role, as they understand their job requirements best.

Related: How to Write a Self-Evaluation (Step Guide and Examples)

4. Peer review method

The peer review method asks an employee's colleagues to evaluate their performance. These reviews can be very effective as people who work closely with an employee usually understand their strengths, weaknesses and contributions.

The peer review method is ideal for assessing team members, as this type of performance appraisal reveals whether an employee has positive relationships with their team and contributes a fair share. Asking several colleagues to share their opinions can help the company overcome bias.

Related: 6 Qualities That Make a Great Team Player

5. Customer or client review method

The customer or client review method asks customers or clients to share feedback on their experiences working with a specific employee. A manager reviews responses from customers or clients and discusses them one-on-one with the employee. They may use the feedback to improve the way the employee interacts with customers.

Customer and client review methods are ideal for evaluating people in customer-facing roles in sectors, including retail, sales and hospitality. These reviews provide insight into the way people outside the company perceive employees. They can also help the business understand whether an employee meets or exceeds customer service benchmarks. Collecting several customer or client reviews can overcome any bias shown by members of the public.

Related: 12 Good Customer Service Examples

6. 360-degree feedback method

The 360-degree feedback method is a multidimensional performance appraisal method that considers feedback from everyone the employee interacts with. Managers, colleagues and customers can all share their views on an employee when businesses use this performance appraisal method. This method combines elements of the traditional, peer review and customer or client review methods.

The 360-degree feedback method suits businesses of any size or industry. Collecting feedback from different sources helps the employee receive an unbiased and comprehensive review. Receiving objective feedback can motivate employees to improve their performance. The quality of the feedback may vary depending on how well the sources understand how to constructively review someone.

Related: 360 Performance Reviews: What They Are and How They Work

7. Assessment centre method

The assessment centre method evaluates employees based on their performance in a variety of tasks. During the pre-assessment period, the employees learn why they're taking part in the assessments. There may be ice-breaker exercises to help the employees feel more comfortable. In the assessment phase, a coordinator leads the employees in role-playing exercises, informal discussions and decision-making challenges. There's often a post-assessment phase where the coordinator reviews the employees' performance.

The assessment centre method suits service-orientated businesses, manufacturing firms, educational organisations and consulting firms. Companies often use this performance appraisal method to identify future business leaders. It's one of the more expensive and time-consuming performance appraisal methods, so it may suit large, successful businesses best. It's highly customisable, as businesses can adjust the exercises to test different skills and reveal different aspects of an employee's personality. This method also helps employees understand more about their performance and how others view them in real-time.

Related: A Guide to Assessing Employees (With Importance and Tips)

8. Human resource accounting method

The human resource accounting method compares an employee's performance to their cost to the business to show their value. A successful performance review using this method shows the employee's performance is equal to or greater than the amount they cost the business. An employee's work quality, interpersonal skills and service value all contribute to their performance. The employee's salary and the cost to recruit, hire, train and develop them are all factored into their cost to the business.

The human resource accounting method is an excellent performance appraisal method for businesses with tight budgets, such as small businesses and start-up companies. Using this type of method can help you determine if the individual's performance aligns with the pay.

9. Behaviourally anchored rating scale method

The behaviourally anchored rating scale (BARS) method assesses an employee's qualitative and quantitative contributions. The manager ranks an employee's performance against standards called BARS statements. They can then see how an employee's behaviour compares with the behaviour the company expects.

The BARS method can help businesses of all sizes evaluate employees across the organisation. Businesses often favour this method because it sets clear standards and gives objective results. Automating the process with a performance management system can make this appraisal method more efficient.

Related: The Performance Management Process: Your Ultimate Guide

10. Negotiated appraisal method

A negotiated appraisal method uses a mediator to coordinate the meeting between the manager and the employee. The manager offers feedback on the employee's strengths and constructive criticism. The employee may respond to the feedback they receive and ask for advice on how to improve their performance. A mediator can help the manager and employee communicate effectively and dispel any tension that occurs.

The negotiated appraisal method suits businesses of all sizes. It can also help businesses review employees with any profession or experience level. This performance appraisal method can improve the relationship between the manager and the employee.

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