We often see the terms ‘performance management’ and ‘performance appraisal’ used interchangeably, and this has led to a common misconception that these terms mean the same thing. But these are actually totally different concepts that just happen to fall under the umbrella term ‘performance management system.’
But while performance appraisal can be a part of performance management, it is not the same thing. To stamp out the confusion, we’re going to define these terms, take a look at their similarities and differences, as well as take a look at a couple of different types of performance appraisal and the techniques used.
But first, let’s briefly define what performance management and performance appraisal are.
Performance management refers to the activities and tasks undertaken by managers and employees to ensure that employees meet their goals in a timely manner, and that these goals are aligned with the objectives of the organization.
Performance management monitors the efficiency of their employees and their effectiveness in reaching their goals. Performance management is a more holistic approach, as it monitors employee performance with the needs of the employee and the objectives of the organization in mind.
Meanwhile, performance appraisal is simply about evaluating the performance of an employee. The appraisal process usually begins with feedback forms being given to an employee, so they can provide feedback on their performance.
This is then returned to their manager who will give a final review. Performance appraisal also focuses on evaluating the competency of the employee such as how much initiative they take, how responsible they are, their skills, strengths, weakness, how committed they are to the core values of the organization, and their training needs.
Basically, both performance management and appraisal are concerned with the performance of the employees, and HR tools like PulseHRM are great tools for performance management and appraisal. Not only do they provide tools that allow you to continuously monitor the performance of your employees, but they also allow you to set configurable KRAs (Key Result Areas) and Team Specific KPIs which come in handy for performance appraisals.
The Similarities Between Performance Management and Performance Appraisals
When it comes to execution, there are some similarities between performance management and performance appraisals, and this may be where confusion arises.
Both performance management and performance appraisal involve setting targets and clear expectations, setting guidelines by which you can measure success, the reviewing of targets, exploring barriers that affect performance, and finding solutions as to how employees can meet their targets.
The Differences Between Performance Management and Performance Appraisals
There are also a few differences between performance management and performance appraisals. Let’s take a look at them in more detail.
Frequency: Performance appraisal is about looking back at the past performance of employees. Most organizations only conduct appraisals once or twice a year, and it is an activity separate from the daily duties of employees. Meanwhile, performance management is focused on the present and the future, and is a proactive, continuous way of managing an employee’s performance.
The goal is ensuring that employees achieve their targets in real time, and there should be no need for corrective action if goals have been set accordingly. Performance management is something that happens continuously every day and is part of the day-to-day running of a team.
Responsibility: Performance management concerns both employees and their line managers, and other stakeholders can play an important role too. These can be people who have a direct impact on the employee’s performance like other team members or other managers.
Performance management should be tailored to each individual’s work. Meanwhile, performance appraisal is normally a standard procedure carried out by the HR department in an organization alongside direct managers.
But this will depend on the employee’s role and experience in the organization. Some organizations have appraisal systems that let joint targets to be set by employees and their managers, and these can be reviewed frequently. However, performance appraisals are not concerned with real-time targets, which is why many employees prefer working in a performance management system alongside giving appraisals.
Structure: The performance appraisal process is generally more formal and structured, but it does still allow for flexibility in key performance areas that vary between employees. But when it comes to rating parameters, it can be quite a strict process with more general ratings for every employee.
Meanwhile, the performance management process is more flexible when it comes to evaluating performance. There are certain guidelines in order for employees to achieve optimal performance, and these can be tailored to every employee depending on their roles and skills.
Types of Performance Appraisal
There are also different types of performance appraisals that give you a few options as to how you structure your appraisals with employees. Let’s take a look at some.
360-Degree Appraisal: This method of appraisal involves handing out a questionnaire with questions regarding an employee’s performance for them to complete. You can then use this to structure your feedback and evaluate their performance during their appraisal.
Technological or Administrative Performance Appraisal: This method focuses more on the technical aspect of an individual’s role, and is often used for employees who have specialized skills. This type of appraisal evaluates the skills they have and how they use these skills to carry out their duties.
Manager Performance Appraisal: It’s not just team members that need appraisals, but managers too. A manager’s performance appraisal should not only focus on how well they perform their role as a manager, but if you work in a client-based organization, how well they manage their relationships with clients as well.
Self-assessment: This isn’t the most popular appraisal technique, as individuals do find it hard to evaluate themselves. But with this method, a self-assessment sheet is compared with one completed by a manager and then discussed in the appraisal.
Project Evaluation: This method involves performance appraisal at the end of every project carried out by the team, rather than having an appraisal at the end of every year. This helps teams evaluate their completed projects before moving on to the next one.
Techniques Used in Performance Appraisals
As well as different methods of performance appraisals, there are also different techniques employed in these appraisals. Let’s take a look at a couple.
Graphic Rating Scale: This technique rates employees on a fixed scale according to the skills and qualities their job role requires of them. The final score then classifies employees into various tiers and helps to evaluate their performance at the end of the year.
This scale should be clear and easy to understand, as quantifying the appraisal process makes it simpler. However, there are disadvantages to this technique as some individuals may not like to be evaluated in this way, especially when some evaluators can be quite rigid.
But while this scale can identify the top performing individuals and concerning individuals, it’s not the best for identifying individuals whose performance is average.
Essays: Also known as the ‘Free Form Method,’ this technique is based on a facts-based performance description of employees, and results in a document pointing out different instances of employees achieving or falling short of their targets with the evidence to support it. This technique is qualitative rather than quantitative and can be quite a difficult technique to employ. This technique requires detailed knowledge of roles and responsibilities in order to be used successfully.
Checklists: Put simply, this technique includes drafting a checklist with ‘Yes’ or ‘No’ statements you tick off regarding the performance of an employee. The evaluation of the person doing the rating, i.e. the manager, may differ from the evaluation of the HR department. This is also not a detailed evaluation of employee performance.
Critical Incidents: This technique involves preparing a list of important incidents that highlight the behavior of an employee. These incidents will determine if this is the best or worst behavior of an employee, and they will then be evaluated on that. However, one big drawback of this technique is that it can lead to bias.
Work Standards Approach: This technique revolves around fixed standards set by the organization. This encompasses required skills, duties, and the values and standards of the organization. Each team member is then evaluated based on these standards, and defines the terms of their roles clearly. However, this is a very general technique for individual appraisals.
Ranking: This technique involves managers ranking employees and then evaluating them. The employees can be ranked chronologically in either increasing or decreasing order. However, this is not an ideal technique to use when evaluating large teams.
Objective-led Management: Otherwise known as Management by Objectives (MBO), this technique involves setting objectives for employees, and their appraisal will then be based on whether they achieve them. This is quite a rare technique to use in appraisals.
Is Performance Management better than Performance Appraisals?
Some employees may find that annual performance appraisals are a difficult process, especially because performance appraisals are concerned with evaluating past performance and are rarely objective-led.
Appraisals can often be emotionally charged, as some employees and even managers can find them a stressful experience. Individuals may be very aware that they are being judged, and may not view this in a constructive light. Some appraisals also center around the future of the employee in the organization, which can again lead to individuals feeling overwhelmed.
If communication in the appraisal is poor, then this may lead to low confidence between the manager and the employee. The conversation can typically be overshadowed by reassurances then what the manager needs from the employee in the next year. It can also be difficult for managers and employees to review the year that has gone by.
As most appraisals take place a few days after the employee’s anniversary of joining the company, it’s hard to align objectives with the needs of the company at the time, as team members will be undergoing appraisals at different times of the year. This often wide gap between appraisals makes it difficult to report on and evaluate how the team is performing as a whole.
Most appraisals also don’t involve any competency assessment or an active development plan that can be agreed upon by the employee and manager. This may lead to disillusionment amongst employees who feel like they’re not being listened to, and they are given little to no opportunities to develop.
However, with continuous performance management, the performance of an organization can improve dramatically.
It can lead to improved communication between employees and managers as communication is more frequent and this allows objectives to be shaped and remodeled to suit current circumstances and priorities. This makes achieving organizational objectives a more collaborative and inclusive effort.
Improved communication also means that employees and managers can have more confidence in what is expected of them. Both can engage in an informed conversation that is focused on achieving organizational and individual objectives.
Since performance management reviews take place more frequently this makes them less stressful than appraisals, as the discussion is proactive and centered around objectives rather than too much emphasis being put on individual performance. This leads to better outcomes all round.
Frequent performance management reviews also increase the chance of objectives being completed as they remain relevant to the current circumstances of the organization. This also means that underperforming areas in a project can have more focus and be addressed quickly.
Most performance management systems need employees and managers to commit to a development plan. This is where employees experience real personal development that allows them to become more engaged with the organization. It fosters team spirit and a sense of belonging in the organization. Development plans give managers and employees a concrete blueprint of where the employee would like to go to the company.
Final Thoughts
All organizations are different, with a varied set of objectives and values. Performance management makes sure that goals and objectives are clearly established and feedback is continuous. Appraisals are a part of the performance management process but can’t replace it completely. Performance management is multi-faceted and more flexible, especially when it comes to communication.
Performance management is much more holistic than appraisals, and isn’t limited by revisions to salary like appraisals so often are. Performance management is an effective way to manage employees goals, and encourages better employee engagement because individuals feel like their work is getting recognized.
It’s beneficial for all organizations to take a holistic approach to performance and engagement. Performance appraisals are mandatory as a way to check in with employees annually, but combined with good, continuous performance management they can really bring out the best in your employees.
