Performance Improvement

How the Performance Appraisal Process Works

The performance appraisal process is a crucial part of the management of human resources in any organization. In fact, without a means of assessing employee performance, management would not be in a position to decide who the top performers are and how they differ from the less productive ones. Unless they are equipped with their crucial information, they would not be able to determine adequate compensation and reward structures leading to a lack of moraleaswellas overall dissatisfaction in the workforce that may well culminate in a high turnover rate.

This is why over the years; different tools have been designed to evaluate and eventually grade staff members as per their performance and abilities and improve team performance.

However, over time the performance appraisal process has also evolved with newer methods taking the place of the older more traditional ones.

Most performance related issues regarding an employee’s productivity generally come to the forefront during their performance appraisal and as a consequence they are also a direct reason for employee dissatisfaction especially for employees that have been categorized as chronic under performers and penalized accordingly.

Unfortunately, without appraising the performance of the employees it is almost impossible to figure out the quality of output of the organization’s human resources. This is why a well thought out performance appraisal process is not only considered crucial for the overall career development of the employee but also for ‘cutting out the chaff from the grain’

However, a performance appraisal system is by itself rendered irrelevant until and unless it is backed up, by a compensation package, commensurate with the performance of the individual employee. And alternately a ‘performance Improvement plan’ that would help low performing employees come up to standards. In their way, all employees would be motivated to do their utmost best. Remember, as a general rule when it comes to compensation and benefits each employee should be making or saving the business at least three times what their compensation is. Also, remember that employee’s perform differently so one employee may be making or saving the company more or less than someone in the same exact position and therefore, should be compensated accordingly.

Performance appraisal process steps

The Performance appraisal process consists of the following steps:

Developing Standards

This is the first step in the performance appraisal and evaluation process. In order for an employee to be assessed, there has to be a standard or ‘yardstick’ against which their performance would have to be measured. Certain pre-set criteria have to be developed beforehand and more ever they have to be both concise as well as easily measurable. They must keep the core aims of the organization in view while being achievable for the employee. However, it is imperative that the employee knows and understands these standards and also must be clear about these standards while realizing the importance of maintaining them for the successful progression of their career.

Communication of the Preset Standards

Simply having certain standards printed in a generic employee hand book that is handed over to the employee on the day they join is not conducive to sound HR practices.  It is essential that the employee both knows and understands quite thoroughly, the bench mark against which their overall appraisal will be based and for this reason it has to be mandatory for the organization to ensure that each and every employee is notified right from the start as to what is expected from them and what are the minimum performance standards along with the penalties for under performance. Similarly, the rewards for exceptional output also have to be clearly explained to them so that they remain motivated. Their written consent is required so that it confirms that they have completely understood that these standards are very important and should be included as part of their hiring procedures.

MBOs (Management by Objectives) 

This is one of the most popular approaches of the performance appraisal process. Their approach emphasizes the achievement of certain objectives for every employee, each of which may be set annually, bi-annually, quarterly, monthly or even daily as the case may be.

The employee’s assessment is essentially based around how many of these objectives they have been able to meet.  Typically, employee feedback is also taken before setting these objectives so they are also part of their own appraisal process. This is done to ensure that underperformance does not occur.

An employee would hardly be in any position to object after their goals have their written consent based on their personal assessment of their own abilities.

It is important to understand that the goals must meet the minimum acceptable standards of your business. Even though you are requiring the employee to provide input and agreement on the standard(s), do not agree to something that will lose the business money.


This is arguably the most important as well as the most difficult part of the entire performance appraisal process. This is because it does not just deal with performance appraisal issues based on pre-set standards, but many other variables including disciplinary issues, their behavior with their superiors, subordinates and peers, tardiness etc. The evaluator (who may be their line manager, immediate supervisor or even an HR team member) would have to base their evaluation after taking into consideration all of the above issues and they would also have to be prepared for any “post evaluation resentment” (If necessary). A way around this is for companies to ask the employee to ‘self’ assess’ himself. Later on, the evaluator(s) discusses the assessment with them and makes rectifications as and when necessary. However, the drawback of this approach is that it’s almost impossible for the employee to post himself in a negative light and therefore even the most underperforming individuals attempt to showcase themselves as being the stars of their team.  Any attempt to dissuade them later on creates resentment and often the organization has to fend off charges of lack of ‘fair play’.


Methods of performance appraisal

There are various methods of performance appraisal currently found being used throughout the world:


This is one of the oldest performance appraisal methods in the world and is still practiced in many government departments at all levels.

In fact, ACRs are very popular amongst bureaucracies. Basically, an ACR is an ‘Annual Classified Report” that a manager prepares with regard to their subordinate’s performance. They grade them as per a pre-set criterion and then passes it on to their superiors who in turn do the same for them till all the reports end up in the “Services and Administration Department” of the county, state or federal government (as the case may be).

This particular department is tasked with determining the rewards and penalties of the individual government employee/s.  As the term ‘classified’ implies, the reports are always strictly confidential and the employee/subordinate is not allowed to see it nor are they told anything about its contents as a general rule, this system is considered obsolete and seldom practiced in private institutions these days, but nevertheless is still quite popular in government bureaucracies that still continue to utilize this system.

Decision by superiors

Here the superior officer (who may be the immediate supervisor or line manager as the case may be) themself makes their own decisions regarding the performance of their subordinate. They conduct their own appraisal and informs senior management as well as the HR department accordingly. The subordinate’s input is neither solicited nor any reasons given to them as to why any specific decision been taken.

The problem with this system is that it is inherently prone to bias and favoritism. In addition, any system that does not involve a meeting between the person preparing the performance appraisal and the employee generally results in a disgruntled employee.


Mr. Ludwig is the regional sales manager of PQR Mutual Funds Company. He clearly favors Ms. Jill Hill (sales executive) over her colleagues. And as a result, he has given a very favorable opinion of her performance during the annual appraisal and recommended her for the position of assistant regional sales manager, even though the performance of many of her fellow sales executives was markedly superior to her own.

Ranking and grading methods

Under this system certain grades have been pre-set that determine the performance of the staff member. “A” grade may be the top while “D” may be unacceptable. Similarly ranks are assigned as per stipulated criteria for certain tasks. These ranks may range from ‘outstanding’ to ‘unacceptable’.


Mr. Stephen (sales executive) not only achieved their annual sales target of one million dollars but exceeded by almost five hundred thousand dollars. While another sales executive Mr. Larry managed to achieve sales of an unacceptable amount of fifty thousand dollars even though both the sales personnel had been given the same targets. As a result, Mr. Stephen was graded ‘A” and subsequently promoted and given a bonus as well as a hefty increase in their salary. While Mr. Larry’s performance was graded ‘D” and marked unacceptable and he was placed on a performance improvement plan.


This is a highly innovative method of performance appraisal. Under this system, the staff member himself decides what their own contribution to the organization has been and how they have helped it achieve its collective goals. The staff member evaluates their own strengths and weaknesses and gives feedback on the areas that they think require improvement along with their own ideas as to how they will bring about such improvements.

Through ‘self-appraisal” they also have the opportunity to share their long-term career development plans and ideas so that the organization understands them and helps them to achieve the same. However, the key drawback of this appraisal system is that each and every employee assumes themself to be an over achiever and attempts to justify the same. And it is then up to the line managers as well as the HR department (where applicable) to figure out the truth.

Checklist method

According to this technique, a checklist is prepared beforehand. In this list are defined a number of traits that are deemed desirable in a staff member. The checklist is in the form of ‘yes and no’ questions. As per this method the appraiser is only responsible for ticking the relevant boxes while the HR department does the actual evaluation.

Personal Essay writing 

As per this system of performance appraisal, the evaluator notes the description of the staff member’s performance in detail within a number of categories such as:

Leadership qualities of the staff member

The employer/manager checks to see if the employee has what it takes to be promoted and eventually handle their own team

Overall impression of performance

How they have been performing as a whole in all the spheres that cover their job description

Existing abilities and qualifications

If current abilities and qualifications are suitable for them to continue with the job or should they be placed on a performance improvement plan or re-assigned.


What their core strengths are as well as how to enhance them


An objective analysis of the employee’s weaknesses along with suggestions on how to improve them

Training needs

The gaps in the employee’ knowledge and skill set and what kind of training may be able to help him fill those gaps.

As far as appraisal methods go this is a very useful tool in understanding the employee, both at the JD level as well as gaining a psychological insight through the eyes of their immediate supervisor, however its main drawback is that it is entirely dependent on the writing and observational skills of the writer of the essay.

360-Degree Feedback 

This method is based on the structured collection of performance data of a group. This data   has to be derived from a number of stakeholders such as line managers, team members and even customers. Basically, all the people who may be in possession of any useful information on how an employee does a job may be part of the appraisal team. As an appraisal tool, 360-degree feedback is exceedingly valuable in terms of gaining a broader bird’s eye perspective of the employee thanks to its multi-source feedback. It helps in increasing self-development, customer satisfaction, team building as well as interpersonal skills.

However, collating feedback from so many different sources (including customers who may have little interest in the performance appraisal process of an organization) may mean that the data is skewed and therefore its results may not always be reliable.


Call center operators of most telecom and banking sector organizations are trained to be as helpful as possible to their customers. In fact, their conversations are recorded and the customer is asked to give feedback by pressing ‘1’ for positive feedback and ‘2’ if he or she is dissatisfied. In case of dissatisfaction the customer may be asked as to what it was in the answer to their query that led to their response.

All such feedback is taken into consideration when the CSR (customer service representative) has to be appraised. Unfortunately, few customers bother with qualitative feedback unless they are dissatisfied and as a result the feedback appears more negative than it actually should have been, had all customers given their feedback objectively.

Work Standards Approach

For many jobs, productivity is the most important factor. And for this reason, a ‘work standards approach’ is typically one of the most efficient ways of assessing employee performance where output is the pivotal concern.

This is a ‘results-focused’ method in which a minimum threshold has been pre-determined at a certain level and the worker’s performance assessment is based on their particular level.

 Example 1

If Mr. Smith, a salesman does not meet their allocated quota of one hundred thousand dollars’ worth of sales of bearer certificates per annum then he would automatically be assessed as an underperforming employee.

Example 2

Mr. John works in an LCD (liquid crystal display) TV manufacturing facility. The core focus of the company as far as Mr. John and their colleagues in the manufacturing plant are concerned, is how many units they can manufacture in a calendar year.  If their quota is fifty TV sets per month then their performance would be measured according to how far he has gone over their quota (High achiever) or has not managed to meet their quota at all (Under achiever).


The drawback of this system is that it does not make any allowances for any deviations from the standards.

Example 1

Mr. Smith always met their sales targets and, on many occasions, had even exceeded them; he had simply been having a bad year this time due to XYZ reason and so was not able to meet their quota.

In terms of manufacturing their method does not take into account any factors such as communication skills and team work other than high productivity.

Example 2

The main reason Mr. John had not been able to meet their LCD TV quota was because two of their team mates had been absent from duty and they were responsible for fitting many components in the TV sets. Mr. John and their other colleagues were forced to fill in for them as well; therefore, they could not meet their monthly targets.

Performance Tests & Observations

This method is based on a series of ‘skills and knowledge’ tests of the employee. These tests may be either written or practical tests. That is, an ‘on-the-job’ presentation of the employee’s skills at accomplishing their tasks.

These tests must be both reliable as well as independently vetted by objective stake holders so that they don’t lose their validity.

Final Step of the Performance Appraisal Process

Once the evaluation process has been successfully executed, the post evaluation follow up must take place so as to ensure that the entire process has not been a waste of time and effort.

If the staff member has been a stellar performer, then they may well be rewarded by being given recognition for his work.  High achievers may be rewarded through a pay increase or non-monetary (certificates, awards, inclusion in hall of fame etc.) means so as to ensure that they remain motivated and committed to continue with their performance. However, a pay increase is almost always the preferred method.

Alternately, if the employee is a chronic underperformer, it may well be deemed necessary to penalize them through a performance improvement plan.

Outcomes may include reduction of pay, eliminating any bonuses as well as any other penalty the organization deems fit to ensure that his performance comes up to acceptable standards.

In extreme cases, the final solution may be outright termination of their employment.

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