Performance appraisal is a vital process for businesses to increase employee productivity and outcomes and evaluate an employee’s strengths and weaknesses. In the past, they primarily used the process as a benchmark for promotions and salary increases. Now, modern methods offer more comprehensive and holistic evaluation tools that allow companies to track an employee’s performance more effectively.
While some employees may have negative perceptions of the appraisal process due to a fear of criticism, it is crucial for companies to provide constructive feedback and train their supervisors and managers to handle the process tactfully. There are many ways that companies can conduct a performance appraisal, including annual or bi-annual review meetings based on company policies.
Before diving into the modern performance appraisal types, let us first understand what modern methods of performance appraisal are and why they are necessary in today’s business environment.
What is Performance Appraisal?
Performance evaluation is the practice of analyzing an employee’s performance over a period. In the workplace, it is typically manifested as an annual or quarterly procedure that entails reviewing each employee’s performance and productivity.
The modern performance appraisal process can be incredibly advantageous for the organization. It helps to modify the performance appraisal processes to be more flexible to accommodate modern demands. This, in turn, helps in the following ways:
Setting clear company goals
Provide real-time feedback to all the employees in the workforce
Increase individual employee performance and productivity
Figure out the needs for professional training needs
Offer the employees accurate insights into counter-productive tasks
Align individual employee performance with the company’s business goals
What is the Purpose of the Performance Appraisal Method?
As per reports, 94% of employees believe that managers and team leaders should address mistakes in real-time instead of once a year. (source) The modern appraisal process has proven to be a win-win situation for both companies and employees alike.
Employees can use performance evaluation to understand how their performance affects corporate success. It also helps identify the good and bad performers and identify training and developmental needs..
Advantages for businesses
Determine departmental concerns that have an impact on job quality
Motivate your employees’ talents to boost production
Find ways to improve the working environment
Assist with strategic decisions on expansion planning, layoffs, and so on
Advantages for employee
Recognize an employee’s successes
Determine the potential for job advancement
Identify performance gaps
Need for Modern Performance Appraisal Methods
Workplaces have changed dramatically as a result of sophisticated technologies, and offices now require a better and more transparent appraisal approach. In general, older appraisal systems place a greater emphasis on grading an individual’s personality attributes, whereas the modern performance appraisal method places a greater emphasis on an employee’s accomplishments.
A Gartner survey shows that about 59% of employees consider traditional performance reviews to have low to no impact on their performance (source). That is why the modern method was created to address problems in traditional performance management.
These traditional methods, rather than focusing on future performance and effort, are more concerned with an employee’s past. Many employers regard the entire procedure as pointless!
On the other hand, current approaches have a good impact on appraisal system employees, and they can now confront the appraisal meeting with greater confidence and without feeling burdened by it. These innovative processes can readily satisfy modern company and employee demands. Companies now utilize the most recent method to ensure that the evaluation process is neutral. As per a Harvard Business Review report, about 70% of multinational companies are moving toward this. (source)
Importance of Modern Approach to Performance Appraisal
Improved communication: Continuous feedback, goal-setting, and 360-degree feedback encourage ongoing communication between employees and their supervisors. This helps to foster a culture of open and honest communication, which is essential for a healthy and productive workplace.
Developmental focus: Modern methods focus on helping employees reach their potential and develop their skills, rather than just evaluating their past performance. This helps to create a culture of learning and development, which can lead to increased productivity and retention.
Alignment with business goals: By setting clear goals and regularly reviewing progress towards those goals, modern performance appraisal methods help to ensure that employees’ efforts are aligned with the organization’s overall goals. Ithelps to drive business success and create a more cohesive and effective team.
Improved employee engagement: When employees feel that their efforts are valued and that they have opportunities to learn and grow, they are more likely to be engaged and motivated. It helps to create a positive work environment.
Increased fairness: Traditional performance appraisal methods can be subjective and may not accurately reflect an employee’s contributions. Modern methods, such as 360 degree feedback, help gather feedback from multiple sources, which can help create a more fair and accurate assessment of an employee’s performance.
7 Modern Performance Appraisal Types That any Organization can Follow
1. Management by Objective (MBO)
This method allows managers and employees to collaborate,identify, organize, and strategize the success objectives for the organization. The management outlines the intended objectives to be met, giving the employee a significant amount of responsibility for the results that are expected of them. The manager and employee review progress at regular touchpoints. The company can then use these progress indicators as a guide to determine the employee’s contribution.
While effective in assessing productivity rates, this technique typically stresses career-oriented and measurable goals. As a result, intangible aspects of an employee’s success, such as interpersonal skills or professional devotion, are sometimes overlooked.
2. BARS (Behaviorally anchored rating scale)
In this method, both qualitative and quantitative gains are achieved from the performance appraisal process. The Behaviorally Anchored Rating Scale (BARS) approach compares employee performance to particular behavioral examples that are numerically rated.
BARS excel in giving clear standards, improving feedback, and delivering accurate performance evaluation and continuous evaluation since it accesses both quantitative and qualitative types of measurement while also adding intangible traits of employees into the rating system. However, when done manually, this method is often affected by bias.
3. Critical Incident Method
In this system, the employer assesses the performance of an employee based on specific events called “critical incidents.” As per these critical incidents, an individual either excels or fails in any given activity. Throughout the procedure, the evaluator keeps a digital or physical diary in which the information from the many episodes is recorded.
This method, while labor-intensive, is beneficial to employees’ personal development. Employers can provide specific feedback to employees by keeping detailed records of both positive and opportunity-area milestones in their career trajectory. This improves the prospects for future development. During the scheduled progress or 1:1 meeting, these metrics can be easily reviewed.
4. Assessment Centre Method
This approach to performance evaluation evaluates employee performance in social circumstances. Employees are requested to participate in situational exercises such as simulations, role-playing exercises, or workgroups that are designed to emphasize their potential success in various positions and responsibilities.
This process is beneficial in terms of providing insight into the employee’s personal traits and characteristics that can influence their success. These characteristics are:
Introversion or extroversion
However, this method can lead to unhealthy competition among employees. Furthermore, because of the social aspect of the assessment, it has the potential to have negative consequences for low achievers.
5. Psychological Appraisals
This method is especially beneficial for discovering an employee’s hidden potential because it focuses on analyzing an employee’s future performance rather than previous work. Qualified psychologists conduct a number of tests on employees. In-depth interviews, psychological exams, and private discussions are a part of this performance appraisal appraoch. These tests are designed to assess an employee’s emotions, cognition, and other associated characteristics that may affect their future performance.
Although this method is thorough and insightful, it is clearly a time-consuming, complex, and costly process. Furthermore, the quality of the results is dependent on the psychologist who conducts the technique as well as a range of other influences that may affect the employee during testing (e.g., personal stress-related events); therefore, results can be uneven at times.
6. Human-Resource (Cost) Accounting Method
The cost accounting method evaluates an employee’s performance in terms of the monetary advantages they provide to the firm. This is often calculated by comparing the cost of maintaining an employee to the ROI obtained by the business from that specific person.
Many elements are included in this performance rating approach, including overhead cost, average service value, quality, interpersonal interactions, and so on. However, its fundamental disadvantage is its reliance on the quality of cost-benefit analysis.
7. 360 Degree Feedback
According to industry consensus, the annual performance appraisal system is obsolete and no longer useful. Employees must maintain constant communication with team leaders and supervisors. Continuous feedback procedures, such as 360degree feedback, help get unbiased feedback.
In this process, multiple raters are involved in evaluating an individual’s performance. Everyone in the organization who has engaged with the employee, including managers, colleagues, subordinates, and even consumers, shares their feedback.
Typically, this feedback is gathered using an online questionnaire created specially for this purpose. When every employee in a business evaluates their managers, peers, customers, and suppliers, as well as participates in regular self-evaluation, effective performance analysis with varying levels of transparency is ensured.
In conclusion, modern performance appraisal methods have come a long way from the traditional annual review process. These new approaches focus on ongoing communication and development rather than just evaluating past performance.
While there is no one-size-fits-all solution, these modern methods have shown to be more effective in helping employees reach their potential and drive business success. It is important for organizations to regularly assess and evaluate their performance appraisal process to ensure it aligns with their goals and meets the needs of their employees.
Frequently Asked Questions
Q1. What are the modern methods of performance appraisal?
Some of the most used Modern Methods of Performance Appraisal are:
HR accounting method
Psychological appraisal method
The 360-degree performance appraisal method
Q2. What is the Cost Accounting Method of performance appraisal?
This strategy assesses employees’ performance based on the economic output a business generates from their input. This is determined by comparing the costs of retaining personnel to the advantages that an organization derives from their contributions.
Srikant Chellappa is the Co-Founder and CEO at Engagedly and is a passionate entrepreneur and people leader. He is an author, producer/director of 6 feature films, a music album with his band Manchester Underground, and is the host of The People Strategy Leaders Podcast. He is currently working on his next book, Ikigai at the Workplace, which is slated for release in the fall of 2023.