Performance appraisal systems: how to measure and improve employee performance
How a performance appraisal system works, annual versus continuous appraisal, the benefits of 360-degree feedback, and how to keep appraisals fair.
In short
- Set measurable goals and criteria, choose an appraisal method and follow performance continuously.
- Compare annual and continuous appraisal, and use 360-degree feedback to gather views from several sources.
- Turn appraisal results into bonus decisions and training and development plans that address weaknesses.
Your employees' performance is what lets your company develop and grow, so it needs continuous follow-up, ongoing development and regular appraisal to show where its strengths and weaknesses lie.
This article explains what a performance appraisal system is, how it works and why it matters.
It also compares annual and continuous appraisal and asks which is better, and explains what 360-degree feedback is and what it offers.
Finally, it covers why appraisal should be linked to training plans, what employees gain from being appraised, how to avoid unfair appraisals, and how Dawmt helps with performance appraisal and detailed reporting.
What is a performance appraisal system?
A performance appraisal system is part of human resources (HR) management. It tracks employees' performance and their strengths and weaknesses, and shows whether each employee is working towards the company's goals. Performance is judged against criteria and measures set by the direct manager or by the company's HR team.
Performance is measured annually, every six months, or at other regular intervals that the company or its managers decide.
How performance appraisal works in a company
To make your appraisals accurate and fair, and to turn them into higher productivity and continuous development, follow these steps:
Set goals and criteria
Before anything else, set the goals you want to reach and the criteria you will appraise against. Make sure the criteria are measurable and objective, for example quality of work, productivity, communication and teamwork.
Choose the appraisal method
Once the goals and criteria are set, choose how you will appraise. Options include self-appraisal, where employees assess themselves using forms; appraisal by the direct supervisor; peer appraisal; and 360-degree feedback, which is covered in detail below.
Follow up continuously
Next, follow up on employees against the criteria, goals and method you chose. As you do, carry out ongoing appraisals and give employees direct feedback they can act on to keep improving.
Link results to decisions
Once follow-up produces results, link them to decisions: pay bonuses and incentives for good results, and put development and growth plans in place where results fall short or problems appear.
Read more: What to look for in HR software
Why performance appraisal matters for companies and employees
A performance appraisal system matters to both companies and employees, and it supports progress and growth in several ways:
- Better performance
Continuous appraisal identifies strengths and weaknesses so they can be worked on, and over time performance improves noticeably. The improvement grows the longer appraisal continues regularly and its results are acted on.
- Better decisions
Continuous appraisal produces data and results that the company can study and analyse, so its decisions rest on evidence and are more accurate.
- A view of the future
Appraising performance regularly helps the company build a picture of where its employees, and the company itself, will be after a given period at this level of performance. It also helps anticipate risks and mistakes before they happen and prepare possible solutions, which makes appraisal a strong safeguard against many problems and gives the company a clearer view ahead.
- HR development
Appraisal lets the HR team draw up precise development and growth plans for employees, which leads to higher productivity.
- Better communication
Appraisal opens communication between employees and managers and encourages the exchange of views, advice and guidance. This improves communication across the company, between employees and their managers, and makes the workplace healthier and more cooperative.
See also: What to look for in HR software
Annual versus continuous appraisal: which is better?
Performance appraisal falls into two types, annual and continuous. Each has its own meaning, process, benefits and drawbacks, and each affects the company and its employees differently. Here is how they compare, so you can choose what suits you:
Annual appraisal | Continuous appraisal |
|---|---|
Assesses the employee's overall performance across the whole year. - Gives a full review of the year, which helps with development and with tracking the changes over that year. - Can be quite inaccurate and prone to error, because it relies on memory over a long period. | Runs regularly, quarterly or every six months, and sometimes more often. - Gives immediate feedback for ongoing improvement, makes it possible to adjust goals, and produces positive results faster. - Takes some effort to keep it going and keep its results accurate. |
Neither type is better than the other. Each meets the aims of appraisal in its own way, and a company can use both to get the most focus and the best results from its appraisals.
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360-degree feedback: what it is and what it offers
As mentioned above, one appraisal method is called 360-degree feedback. It draws on many sources and opinions, combining several appraisals of the same employee:
- Self-appraisal: the employees assess themselves using forms or by answering a set of questions.
- Appraisal by the direct manager and other managers and superiors.
- Appraisal by colleagues who work with the employee.
- Appraisal by direct reports, if the employee holds a leadership position.
- Appraisal by partners, in some cases.
The employee gets a rounded appraisal that does not depend on a single point of view.
This method has several benefits.
Benefits of 360-degree feedback
The company and the team gain the following from this method:
- A fairer view: this method gives a fairer picture than any other, because it includes many opinions and appraisals from people in different positions across the company.
- Greater self-awareness: the detail and range of appraisals employees receive make them more aware of themselves and of their strengths and weaknesses.
- More trust and responsibility: the method builds trust between employees and managers and strengthens employees' sense of responsibility, because they know their appraisal, the details of their performance and what they need to work on most.
- More teamwork: everyone in the team shares in the appraisal, the work and the development plans, which strengthens cooperation and makes the team more cohesive.
- More credibility: appraisal from many angles and sources is more credible and more accurate.
- Help with planning: this type of appraisal gives HR a great deal of accurate detail for development plans and future plans that support the company's goals.
See also: Shift scheduling systems: how to manage shifts with Dawmt
Why appraisal should be linked to training and development plans
Performance appraisal is central to planning training and development. It identifies strengths and weaknesses, points to what may cause problems, and shows whether the team is moving towards the company's goals and needs. With that information you can build a complete plan to train and develop the team, support its growth, and deal with problems and weaknesses more easily.
It also makes the plan more precise and more useful, with a stronger and faster effect on the team and the company.
What employees gain from a performance appraisal system
Employees gain a great deal from a performance appraisal system, and it has a strong effect on their careers:
- Self-development
Regular appraisal helps employees develop themselves and know what they need to work on, so their performance keeps improving.
- Ongoing motivation
Seeing their performance improve over time is a strong incentive for employees to keep going and work harder.
- Clear communication
Appraisal makes communication between employees and managers clearer and grounded in reliable feedback, so employees can communicate better and more openly.
- A clearer career path
Appraisal shows an employee's career path, abilities, strengths and weaknesses, and helps build a full plan to strengthen their skills, which makes the path ahead clearer.
- Tracking progress
Employees can follow their own progress continuously, which improves their performance. Knowing the steps and stages they have been through makes them more confident and keener to keep developing.
Read more: Barcode and QR code attendance with the Dawmt Kiosk app
How to avoid unfairness in performance appraisal
An employee can be appraised unfairly or inaccurately, so you need safeguards to make sure no one in your company is treated unfairly. These steps help:
- Set clear, firm criteria and policies, and make sure everyone applies them precisely and without manipulation.
- Talk with employees regularly so you know their performance first-hand and can judge it correctly. Exchanging ideas also makes the appraisal more accurate.
- Use comprehensive appraisal methods such as the 360-degree feedback described above.
- Compare the employee's performance against the company's goals and decide whether it helps reach them.
- Avoid judging from your personal point of view, and rely on practical evidence and clear proof.
- Give employees the right to complain or appeal, take their complaints and appeals seriously, and set up a committee to review each complaint and discuss it with the employee, so that no one is treated unfairly or judged wrongly.
How Dawmt handles performance appraisal and detailed reports
Dawmt's HR system supports performance appraisal as part of an integrated HR system. It gives you tools to follow up on employees, set plans and criteria, and keep your company's policies in place, and it lets you create quarterly, six-monthly or annual appraisal cycles. It also produces detailed, regular reports with the information your HR team needs, and the system can be customised to suit your company and its goals.
Dawmt also has a mobile app for following up remotely, at any time and from anywhere. It makes communicating with employees easy and builds credibility and trust between employees and managers.
Sign up for Dawmt to run accurate, comprehensive performance appraisals within one integrated system.
Frequently asked questions
What makes a good appraisal system?
Clear criteria and goals, accurate and comprehensive appraisal methods, measurement that can actually be applied in practice, and regular feedback and discussion with employees.
How do performance indicators help improve work?
Performance indicators give you data on each employee and their work, including strengths and weaknesses. That helps your company make sound decisions and build precise development plans, which improves the work and its results.
Can technology be used in performance appraisal?
Yes. You can run appraisals through modern HR software such as Dawmt, which gives you an integrated electronic system that makes managing appraisals easier, faster and more accurate.