Human Resources

Modern Performance Evaluations

The employee performance appraisal process is crucial for organizations looking to boost employee productivity. Performance appraisals are a process where employees’ performance and productivity are evaluated against a predetermined set of objectives.  Performance management is super important, not only because it is often a significant factor in weighing an employee’s wage increase or promotion, but also because it provides management a consistent benchmark with which to accurately measure an employee’s skills, strengths, and shortcomings.

However, the performance appraisal is rarely put to optimal use since many performance appraisal methods often fail to internalize employee performance results. Furthermore, managers often treat performance appraisals as a rote administrative task and hurry through them without always giving complete or accurate assessments of employee performance.  While treating the process with diligence is key, perhaps it’s also time for organizations to modernize their performance appraisal process.

Six Modern Performance Appraisal Methods

To prevent performance appraisals from becoming nothing more than an empty administrative exercise, companies should think about revamping their existing process and try implementing one of six (6) modern performance appraisal methods that many organizations today are utilizing.. A good employee performance review method can make the whole experience more effective and rewarding – for both the employees and the organization.

Management by Objectives (MBO)

Management by objectives (MBO) is the appraisal method where managers and employees together identify, plan, organize, and communicate objectives on which to focus during a specific appraisal period. After setting clear goals, managers, and their employees periodically discuss the progress made to control and debate the feasibility of achieving those set objectives during the appraisal period.

This performance appraisal method is used to match the overarching organizational goals with objectives of employees while validating objectives using the SMART method to see if the set objective is Specific, Measurable, Achievable, Realistic, and Time-sensitive.

At the end of the review period (quarterly, half-yearly, or annual), employees are judged by their results. Success is rewarded (e.g., promotion, salary increase, bonus, more favorable schedules, etc.), whereas failure is dealt with through further training, reassignment, demotion, or possibly even termination. This process usually puts more emphasis on tangible goals, while intangible aspects like interpersonal skills, commitment, personality, etc. are given less importance in the process.

360-Degree Feedback

360-degree feedback is a multidimensional performance appraisal method that evaluates an employee using feedback collected from the employee’s circle of influence namely managers, peers, customers, and direct reports. This method will not only help eliminate bias in performance reviews but will also provide a clear understanding of an individual’s competence and their perceived effectiveness by those with whom the employee regularly interacts.

Assessment Centre Method

The concept of “assessment centre” was introduced back in 1930 by the German Army, but it has been polished and tailored to fit today’s environment. The assessment centre method enables employees to get a clear picture of how others observe them and the impact it has on their performance. The main advantage of this method is that it will not only assess the individual’s existing performance, but will also predict their future job performance.

During the assessment, employees are asked to take part in social-simulation exercises such as in-basket exercises, informal discussions, fact-finding exercises, decision-making problems, role-play, and other exercises that are tailored toward evaluating skills necessary to ensure success in the employee’s position. The major drawback of this approach is that it is time and cost intensive and can prove difficult to manage across a large company.

Behaviorally Anchored Rating Scales (BARS)

Behaviorally anchored rating scales (BARS) bring out both the qualitative and quantitative benefits in a performance appraisal process. BARS evaluates employee performance using specific behavioral examples that are anchored to numerical ratings.
Each performance level on a BARS scale is anchored by multiple BARS statements which describe common behaviors that an employee routinely exhibits. These statements act as a yardstick to measure an individual’s performance against predetermined standards that are applicable to their role and job level.

The first step in BARS creation is generating critical incidents that depict typical workplace behavior. The next step is editing those critical incidents into a common format and removing any redundancy. After normalization, the critical instances are randomized and assessed for effectiveness. Remaining critical incidents are used to create BARS and evaluate employee performance.

Psychological Appraisals

Psychological appraisals are often used to determine the hidden potential of employees. This method focuses on analyzing an employee’s future performance rather than their past work. These appraisals are used to analyze seven major components of an employee’s performance such as interpersonal skills, cognitive abilities, intellectual traits, leadership skills, personality traits, emotional quotient, and other related skills.

Qualified psychologists conduct a variety of tests (in-depth interviews, psychological tests, discussions, and more) to assess an employee effectively. However, it is a rather slow and complex process and the quality of results is highly dependent on the psychologist who administers the procedure.

Specific scenarios are taken into account while performing psychological appraisals. For instance, the way in which an employee deals with an aggressive customer can be used to appraise his/her persuasion skills, behavioral response, emotional response, and more.

One way to achieve similar results without the expense and variability of hiring an individual to perform psychological appraisals is to use one of many standardized written psychological assessments that are designed to assess an individual’s characteristics and suitability for their current or future roles.  However, companies should use care to make sure the chosen test has been certified as being non-discriminatory by the Equal Employment Opportunity Commission (EEOC).

Human-Resource (Cost) Accounting Method

The human resource (cost) accounting method analyses an employee’s performance through the monetary benefits he/she provides to the company. The metrics are obtained by comparing the cost of retaining an employee (cost to company) and the monetary benefits (contributions) an organization has ascertained from that specific employee.

When an employee’s performance is evaluated based on cost accounting methods, factors like unit-wise average service value, quality, overhead cost, interpersonal relationships, and more are taken into account because not every role is easily tied to company revenue. However, this method’s high-dependency on the cost and benefit analysis, the subjectivity in assigning relative dollar values to roles, and the memory power of the reviewer is an admitted drawback of the human resources accounting method.

Takeaway for Employers

Choosing the right performance appraisal method is more critical than ever since it reflects how an organization values its employees and how much it cares about employee morale, development, and employees’ overall contribution to the organization’s success. Once you’ve found an ideal performance review method for your needs, the next step is implementing it properly to eliminate critical performance gaps and address pressing issues so that your evaluation process positively impacts employee performance and enhances your company’s overall operational effectiveness.

C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.