Benefits of Performance Appraisal

Does performance appraisal benefit anyone?

Performance appraisal is an integral (being an essential part of a whole) part of the performance management system. Writes Mohan Bangaruswamy, explaining how a balanced and holistic approach greatly benefits an organization.

My answer to the question whether the performance appraisal system benefits anyone is—“it depends”. A good performance appraisal process is an integral part of the performance management system and it works seamlessly with the other components. This article takes a holistic approach to performance management and gives an overview of the components.

In my opinion, a performance management system has the following components and interfaces

Goal-setting.
Regular reviews.
Annual appraisal.
Development process
Linkages to other systems.

Goal-setting

This process is the foundation for a good performance management system.

It brings in the clarity required to deliver the required results.

organization’s expectations are set in the form of “key result areas” (KRAs), along with strong indicators of the required standards (also termed “measures of performance”).

The benefits of giving clear directions are many. It helps increase productivity by enabling people to focus on the requirement;

It minimizes frustration and enables employee satisfaction.

Regular reviews

Reviews are a critical component of the system.

Reviews give timely feedback to the individual.

It is important to schedule formal reviews during the course of the year. These can be half-yearly or quarterly depending on the need.

Structured mid-term reviews enable the organization to take stock of the performance during the given period.

It gives the individual an opportunity to discuss his/her achievements during the given period and to look at areas of improvement. In a dynamic environment, it is important to keep abreast of market situations. Reviews can be utilized to make midcourse correction in the KRAs.

It is possible that the macro environment has changed and that some of the objectives have to be reviewed.

For example, certain sectors in the economy may be doing extremely well and the organization may see a need to review sales numbers based on these indicators.

Reviews need to be structured on a regular basis to ensure that there are no surprises in the annual appraisal.

Regular and structured reviews are a critical component of the performance management system and this is essential to ensure that the performance management system is not the same as the annual performance appraisal.

As a part of this sub-system, we have processes such as coaching, mentoring, performance improvement plans, etc.

Annual appraisal

A typical appraisal system could be designed on one of the following

Confidential report: The report is written by the supervisor and is, typically, not shown to the individual. Decisions, such as promotions and changes in compensation are made, based on this report.

Report by supervisor that is shown/given to the individual and discussed.

Self-appraisal by the individual, value-added comments by the supervisor and a discussion: In this system, the individual writes a self-appraisal vis-à-vis KRAs set at the start of the year. The manager adds his or her comments. Organisations follow one of the following methods of ratings—

(a) rating given by the manager or

(b) the individual and the manager give ratings and the organisation has a mechanism to deal with differences between the two. There is an opportunity for the individual and the manager to discuss the contents of the appraisal.

People working in the software industry or in a project environment may raise a question about the relevance of the annual appraisal. Then there are also professionals who work with different project teams during the course of the year. In this case we could have reviews signed-off at the end of each project. These could be collated at the end of the year to look at overall performance and linkages to other systems.

Development plan

This pertains to the training and development sub-system. A part of the development plan stems out of the annual appraisal. This is the result of the areas of improvement that emerge from the appraisal and competencies required for new roles, if relevant. A good training and development process will also take the necessary inputs from the organisation’s business plan. This is required if the organisation is investing into new business or entering new markets.