Performance Appraisal is a method to evaluate the performance of the employees in an organization over a fixed period. Management undertakes this exercise to understand an individual employee’s contribution in achieving the organizational goals.

Advantages of Performance Appraisal

Performance Appraisal has several advantages both for the organization and the employee. We will discuss those benefits in the below paragraphs.

Alings Organisational Goals with Individual’s Performance 

One significant benefit of the process of performance appraisal is that it integrates the organization’s goals with an individual’s performance. It helps to ensure that all individual actions align with the overall objectives of making a business profitable. The best way to define performance appraisal is to understand its contribution to the overall achievements of a company.

Improves Communication between Employees and Managers

The process of a performance appraisal system ensures regular communication between managers and employees. They work together to decide the criterion of performance evaluation. They also focus on ensuring that these criteria are in line with the short-term and long-term goals of the organization.

Motivates Employees

A comprehensive performance appraisal in HRM recognizes and rewards the contribution of an employee. An organization must always ask ‘what is linked with performance appraisal?’ to help motivate employees to perform better. A company should focus on creating training opportunities, career development, promotions, and rewards based on this systematic evaluation process.

Determines Promotions and Transfers

The results of the performance appraisal process determine the prospects of employees. Favourable reviews from managers and other stakeholders ensure better chances of promotion. It also influences a manager’s decisions of transferring employees to other teams or departments.

Helps in Designing Training Programs

One of the objectives of performance appraisal is to determine the need for additional training to improve employee performance. If managers find that employees lack a particular area, they can arrange for educational classes to help them address the issue.

Limitations of Performance Appraisal

Performance Appraisal also has several limitations both for the organization and the employee. We will discuss these issues in the below paragraphs.

Can be Biased

The reporting manager has a significant role in the performance appraisal of their subordinates, and it increases the scope of bias. It can demotivate employees who do not get good ratings because of the open prejudice from superiors.

Time Consuming

The traditional method of performance appraisal can lead to significant time wastage. Employees often complain of the time-consuming nature of the performance appraisal process. Employees would much prefer to utilize that time for focussing on the completion of their work.

Subjective  

The parameters of different performance appraisal methods are subjective and may not always be measured accurately. For example, in the Bell Curve Method of Performance Appraisal, it is very much possible that there may be more or less than 10% high performing candidates. In such cases, the entire basis of evaluation becomes skewed.

Contributes to a Stressful Work Environment

Managers may use the traditional performance appraisal methods as a tool to settle personal scores or exercise their bias against subordinates. Sometimes they may be very harsh in their criticisms even if they intend to provide constructive feedback. This can prove to be very stressful for employees. It can also affect their performance in a negative way.

How is Performance Appraisal Conducted

The HR department facilitates the performance appraisal process and conducts it periodically (six months to a year). They send out employee surveys to collect data about how satisfied they are with their current job roles. The responses are kept anonymous and submitted to the senior management for further evaluation. 

The immediate manager meets with the employee to discuss their performance over the evaluation period. The manager seeks clarity on the employee’s achievements and focuses on the areas where they can improve in the future. They also discuss the need for additional training modules to enhance skill levels. 

The management analyses the individual employee survey responses as well as the performance appraisal feedback from their managers. They use it to determine the final appraisal for the employees and decide on promotions, transfers, rewards or corrective measures for each employee.