Performance Appraisal Meaning: Definition and Types

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.

A business may review its employees' performances by conducting performance appraisals. A performance appraisal can help a business discover the strengths and weaknesses of its employees so that it can identify ways they can improve their work. There are a variety of different methods a business can use to appraise its employees. In this article, we outline the performance appraisal's meaning, discuss why a business might conduct one, list eight types of appraisal, describe their benefits and challenges and offer some tips on conducting performance appraisals.

Performance appraisal meaning

Understanding the performance appraisal meaning when assessing staff abilities can help you determine how each member is doing. It's typically a review that a business conducts to discover how an employee can develop and grow. The human resources (HR) department or another senior level of management typically performs these assessments. Performance appraisals allow a company to understand what kind of contributions an employee is making to the company.

Management typically conducts performance appraisals according to strict assessment criteria, which might include assessing an employee's ability to reach their goals, their problem-solving skills and their initiative. Each employee typically attends a performance review at least once per year.

Related: What Is Performance Coaching? (Plus Benefits and Tips)

Why conduct a performance appraisal?

A performance appraisal allows a company to enhance its employees' productivity. It also helps the company provide valuable feedback to employees regarding how they can improve their work. HR or management can use the information that they gain from these appraisals to consider which employees to assign certain tasks to and which employees to consider for promotions. Consistent performance appraisals are also a significant tool for motivation, as employees may work harder if they know that they're under review.

Related: Measure of Performance: How to Evaluate Achievements at Work

8 types of performance appraisal

There are a variety of performance appraisal methods available to an organisation depending on its size and the duties of its employees. The following are eight different methods of performance appraisal that a business can choose from:

1. Negotiated appraisal method

In this type of appraisal, a third-party mediator is present. A business might choose this method if there's tension or conflict between the employee and the manager performing the review. This type of review ensures that a manager compliments the employee about the things that they're doing well before they discuss any criticisms.

2. Management by objective method

In this type of appraisal, the manager conducting the review and the employee work together to reach an agreement regarding which areas the employee can improve upon and how they can achieve their goals. After they've agreed on which goals the employee can pursue, they plan a process that outlines how the employee can reach their targets. At the next performance review, they discuss why the employee may not have reached their targets and plan ways for them to achieve them by the next review.

Related: Performance Improvement Plan Template (And How to Create One)

3. Assessment centre method

Through this type of performance appraisal, an employee can understand how other employees in the business perceive them. The primary aim of this type of review is to show an employee how their performance impacts the entire business. During this assessment, a reviewer develops exercises and role-playing situations for the employee to complete. They then assess the employee on their responses to determine how successful they are.

Related: What Is a Performance Indicator? (And How to Create One)

4. Self-appraisal method

This type of performance appraisal gives an employee the chance to reflect on their personal performance and to give themselves an honest review. An employee typically performs this type of review by themselves and records their answers on a form, which they then submit to management. This is a chance for the employee to be honest with themselves and management about their strengths and weaknesses so that they can become better at their job. Management may decide to follow up on the information they provide by scheduling a one-on-one meeting.

5. Peer-review method

A business may use this type of review when they want to understand how well an employee is working with their team. Management refers to the employee's colleagues to assess them. They then use their findings to judge how well that employee is working with others. There can be one or multiple employees performing the appraisal, all of whom work closely with the employee and understand their skills, contributions and attitude.

Related: The 15 Best Performance Review Questions (A Complete Guide)

6. Customer or client review method

This type of review involves consulting the customers or clients of a business. It gives a business a good idea of how its customers and clients perceive the company and its employees. A business might use this type of review if it wants to improve the relationships between employees and customers.

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

7. Behaviourally anchored rating scale (BARS) method

The BARS method of performance appraisal compares the performance of an employee with specified examples of behaviour. For example, the sales department might use a scale from one to five, where one describes an employee as being poor at communicating with customers and five describes the employee as an excellent communicator. A business can assess an employee in a broad range of areas to calculate their performance level. A manager may choose this method to measure the behaviour of an employee according to the standards that the business has set for the role they're in.

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

8. HR accounting method

A business might choose this type of review if it wants to determine the specific amount of money that an employee brings into the company. It can also use this method to understand how much it costs the company to have the employee working for it. With this data, a company can compare these two figures and assess that employee's overall financial worth. The aim of this method is to understand whether the service that the employee provides is worth the company's resources.

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

Benefits and challenges of performance reviews

The following are some advantages and challenges of conducting performance reviews:

Benefits

Some positive aspects of performance appraisals include the following:

  • develop the skills and performance of employees

  • increase the morale of employees

  • assist HR decision-making regarding topics such as promotions

  • offer rewards for the highest-performing employees

  • help with understanding goals and objectives

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

Challenges

Some challenges of performance appraisals include the following:

  • may create an unhealthy competitive environment in the business

  • can lead to stress in the workplace

  • often takes a long time to conduct and complete

  • may lead to the business adopting unattainable goals

  • may produce inaccurate results if using an unsuitable method

Related: What Is the Cost of Quality? (With Definition and Formula)

Tips for a successful performance appraisal

The following are some ways you can successfully conduct a performance appraisal:

  • Use a universal outline. Outlining each performance appraisal can help you give structure to each review you conduct. It can also give employees the chance to prepare for the interview.

  • Perform reviews more regularly. To get the best performance out of employees, consider holding reviews more often than once per year. This allows the employees to improve their work faster, and it also keeps them motivated to achieve their goals on time.

  • Record the interviews. Performance appraisals are an effective tool for monitoring the ongoing performance of an employee, so it's important that you maintain a record of all reviews. This allows you to understand how the employee has improved their performance since the last meeting.

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