As a part of an organization, each employee is looking to grow in terms of status, finances and, skills. Over the past decade, companies have realized the importance of having a performance appraisal system for promotion and compensation decisions. However, most companies and employees are unsatisfied with the existing annual appraisal methods.
Did you know? 45% of HR managers believe the yearly reviews do not provide a complete picture of an employee’s performance.
Employees today are more self-aware and looking for ways that help them cultivate their skills and improve in real-time. For this, companies need to adopt a more hands-on approach to offer regular constructive feedback to employees. More than 94% of employees in a survey preferred to receive real-time feedback on their performance. To provide a more real and unbiased system for performance evaluation, there are five modern methods of performance appraisal that can be used.
- Management by Objectives (MBO)
- 360 Degree Feedback Method
- Assessment Center Method
- Human Resource Accounting Method
- Behaviorally Anchored Rating Scale (BARS) Method
These methods are effective in evaluating the qualitative and quantitative aspects of an employee’s performance. These methods should be implemented as a part of your digital performance management system to ensure a higher rate of success and derive maximum benefits.
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Table of Contents
Introduction
Edwin B. Flippo defines Performance Appraisal as “a systematic, periodic and so far as humanly possible, an impartial rating of an employee’s excellence in matters pertaining to his present job and his potentialities for a better job.”
In any organization, an employee is always looking for an opportunity for growth in terms of position and financial compensation. To ensure that each employee is given an unbiased opportunity to grow, organizations rely on Performance Appraisal methods.
Performance Appraisal is one of the most crucial processes in an organization. Not only does it help in evaluating the promotion and salary of an employee, but it also helps to gauge their skills, strengths and, shortcomings. However, companies seldom benefit from traditional annual performance appraisal methods.
The most important factor that current appraisal methods fail to accommodate is being continuous and consistent in review of employee performance. Yearly appraisals lack a continuous communication system to offer timely constructive and actionable feedback to employees. During annual appraisals, employees lack a chance to rectify or improve on their performance basis the feedback received. In fact, a survey found around 24% employee consider leaving their jobs due to inadequate feedback from their managers.
To ensure that they benefit from performance appraisal, companies need to adopt a modern and actionable method for appraisal. Let’s look at the top five modern methods of performance appraisal.
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Five Modern Performance Appraisal Methods
1. Management by Objectives (MBO)
In this method, managers and employees collaborate together to identify, plan, organize, and communicate objectives. This is usually for a specific appraisal period and objectives are validated using the SMART (Specific, Measurable, Achievable, Realistic & Time-sensitive) method.
After setting clear goals, managers and employee interact periodically to discuss the feasibility of achieving set objectives and the progress made. These measures of progress help analyze the contributions of an employee at the end of the review period. Success is rewarded with appraisals like salary hike or promotion, whereas others are re-evaluated for further training.
Pro: Success is measured on tangible and measurable goals with constant interaction between manager and employee.
Con: Intangible aspects like interpersonal skills are not considered.
Ideal for: Businesses of all sizes, evaluation for top-management positions like directors, executives, etc.
Used by: Retail giant Walmart extensively uses the MBO method for managing the performance of its employee across all levels.
2. 360-Degree Feedback Method
Considered a multidimensional method of performance appraisal, 360 degree feedback is gaining popularity lately. The method focuses on collecting feedback from everyone an employee interacts with like managers, customers, peers, etc. When data is collected from multiple sources, the chances of a manager’s bias affecting the appraisal are eliminated. Plus, it offers a clearer picture of the employee’s competence in terms of work.
Businesses understand that employees seek unbiased and objective feedback on their performance to stay motivated and engaged. A continuous 360 degree digital feedback method opens additional channels of feedback for the employee. The objective evaluation is seen as a fair evaluation and encourages the employee to improve their performance based on the appraisal. In fact, 8.9% greater profitability is seen when managers are offered feedback on their strengths.
Pro: Gives a clearer and unbiased review of the employee’s performance.
Con: Outside sources like customers may not understand how to provide constructive feedback.
Ideal for: Is suitable for businesses of all types. The private sector can especially benefit from this method.
Used by: RBS, G4S are some of the top companies employing 360 degree feedback system for appraisal.
3. Assessment Center Method
Introduced by the German Army in the 1930s, the concept of assessment center has been revamped to suit the current business scenario. The employees are assessed based on their performance like social-stimulating exercises like role-playing, decision-making, informal discussions, etc. The assessment evaluates the performance of employees to identify future leaders and managers.
The effectiveness of the Assessment Center Method allows employees to get a clear picture of their own performance and how others observe them. The impact of other’s perspective on their performance can also be realized from these exercises. It is easier to evaluate the current performance of an employee and also predict future performance.
Pro: The method can be tailored according to need, role, position, or objectives and give insight into an employee’s personality.
Con: Can be costly and, time-consuming.
Ideal for: Manufacturing, service-oriented, educational and consulting firms.
Used by: Philips and Microsoft use assessment center method to identify future leaders in their organization.
4. Human Resource Accounting Method
Also known as Human Resource Cost Accounting Method, it is used to evaluate an employee’s performance as per the monetary benefits they yield from the organization. This means the performance of an employee is compared against the salary & other costs the company pays to the employee.
The cost of retaining an employee in regard to their contribution is evaluated to get the cost of that employee for the organization. This method of performance appraisal considers factors like work quality, overhead cost, unit-wise average service value, interpersonal skills and, so on. The idea is to analyze how the contributions compare with regard to cost (recruiting, hiring, training and development) benefit the organization. In this method, the company appraises employees on the basis of cost to the company and the value they offer.
Pro: It is effective to measure the value an employee brings to the organization.
Con: There are no certain guidelines to define the cost and value that an employee offers. It may vary for each evaluator.
Ideal for: Startups & small businesses where each individual employee’s contribution holds significance for the company.
5. Behaviorally Anchored Rating Scale (BARS)
In this modern method of performance appraisal, both the qualitative and quantitative aspects of an employee are evaluated. BARS compares an employee’s performance with specific behavioral examples that are assigned a numerical rating. As per employee’s role and job-level, BARS has a set of predetermined standards called BARS statements. These statements are used as yardsticks to measure the performance on each BARS scale level.
BARS sets typical workplace behaviors as per a job role and evaluates an employee’s performance in comparison to these set standards. How an employee should behave in any given situation (critical incidents) is measured as per the expected behavior. The performance appraisal with BARS provides more accurate and unbiased results.
Pro: BARS sets clear standards and provides accurate and consistent performance evaluation that includes both the qualitative and quantitative aspects of an employee.
Con: Can be time-consuming if the process is not automated with a performance management system.
Ideal for: Businesses of all sizes and depth for evaluating entry-level to top management performance.
Conclusion
Organizations understand the importance of providing performance appraisal to employees. However, it sometimes neglect that employees are also humans and require guidance to stay motivated and improve. In the coming years, performance appraisal will become more human-centric. That means the human aspect of the manager-employee relation will be at the forefront.
A futuristic approach to your performance management system and performance appraisal can help establish a pro-active working environment. When you adopt a more realistic and human approach to judging your employee performance, they will be more satisfied with their work. And satisfied employees work to their best ability and contribute towards the organizational success.
