Hard to imagine a modern systemic company with a mature HR function lacking a performance appraisal procedure. Appraisal formats and the idea behind this concept can vary greatly from company to company. Different models, multiple interpretations of it by HR professionals, and individual approaches sometimes required for specific companies contribute to it.
According to Gartner-CEB, managers spend 210 hours a year on performance management, and employees spend 40 hours a year. The primary reasons for this are poor performance appraisal process. Let’s look into a Performance Appraisal is and how to implement it effectively.
A performance appraisal not only evaluates how employees perform their current activities. As part of the Performance Management System, it allows effectively managing the entire company through balanced business planning and an alignment with the company’s strategy, vision, and mission. It also takes into account each employee's personal values and behavior.
How to implement a ‘working’ performance appraisal and avoid mistakes?
Step 1. Define your goals
First, you need to define what an ‘efficient performance’ in your company is and set the goals for your appraisal process. What criteria indicate that an employee/a group of employees is performing efficiently?
Competencies and goals/KPIs/OKRs are essential for personnel performance management.
There should also be a monitoring cycle for these criteria. The recommended competency assessment cycle is six months/a year; for goals, KPIs/OKRs—depending on the position/role level: the more junior the position and the faster the operations, the shorter the assessment period. For example, for a CEO, CMO, or CHRO level manager, due to the strategic nature of their work, the assessment period should be one year (including the attainment of the company-wide objectives); for middle management—six months/a year; for non-management employees—a month/a quarter.
Step 2. Decide on the group for evaluation
Next, you need to understand whom you would like to assess: which roles, positions, groups of employees.
The main recommendation: if you are running a Performance Appraisal for the first time and your company is large, do not try to cover all employees at once (especially if there is no way to complete all stages in an automated performance evaluation solution). It is best to start with executive positions or those whose activities impact the company’s performance. After that, you can ‘spread’ the assessment to all personnel.
Each group of employees might have an individually set appraisal periodicity and a separate list of evaluation criteria.
Step 3. Create competency criteria
Knowing what and whom you will assess, you need to establish performance criteria specifically for your company and the identified groups.
You can develop a Competency Model by determining ‘specifically your’ competencies. Your aim is to describe goal-oriented behavior that will help your employees achieve results as efficiently as possible.
The Competency model is a list of competencies (standards of behavior) to achieve the target result of a process (within a position/role).
💡 Developing competencies involves:
- Looking at the activities performed by the most efficient employees.
- Analyzing the processes.
- Determining what knowledge, skills, abilities, experience, motives, and personal values are necessary for efficient work.
- Describing the desired behavioral patterns for efficient performance.
It's helpful to use in this process facilitation tools, in-depth interviews, focus groups, observations, and analysis. During creation of competency criteria, it's necessarily to involve the company’s employees. And not only at the stage of performance analysis but also at the stage of drawing up pattern descriptions.
Competencies can be:
Depending on competencies and positions/roles/areas you plan to assess, create the relevant competency model:
You can also make a list of standardized goals/KPIs/OKRs or create a ‘library’ of them. You may tentatively divide goals/KPIs/OKRs into:
A library of goals/KPIs/OKRs is appropriate for individual ‘ongoing’ operational processes. It can define the goals/KPIs/OKRs (including general descriptions) standard for all or some employees. Project-specific KPIs/OKRs depend on a project.
The library may also include a list of PPIs (Process Performance Indicators). You need to cascade them down to the level of each participant in these processes within the operating activities. They show what result each participant in the process must achieve to ensure the effectiveness of the entire process).
Creating a list/library of standardized goals/KPIs/OKRs involves analyzing the strategy, strategic and operational objectives of a company, processes, and projects. It also describes target results and respective indicators for performance evaluation.
You must review the list/library of standardized goals/KPIs/OKRs annually taking into account the company’s operational objectives.
In addition to competencies, goals, KPIs, OKRs, you can also establish other criteria, such as quality of work criteria, SLI (service level indicators), etc., to be used in a performance appraisal.
The main recommendation when defining performance criteria: they should be relevant specifically to your company, its corporate culture, and strategy. You may use third-party libraries of similar competencies and KPIs but customize/adjust them to fit your needs without fail.
Step 4. Design evaluation system
Having an idea of efficient performance, measurement criteria to be used, positions/roles whose performance will be regularly evaluated, and monitoring cycle, you decide how to carry out an employee performance appraisal system:
The appraisal process consists of the following steps:
💡 Pro tip: you should use the same criteria for both self-assessment and assessment by other respondents.
💡 Pro tip: don’t skip the feedback stage as it is crucial for the appraisal quality and impacts leadership and corporate culture development.
The roles involved in the performance appraisal process are:
Some methodologies also involve other roles like customers, colleagues, or subordinates of an appraisee.
As a rule, you carry out a Performance Appraisal at the employee-manager level, i.e., the manager who sets goals, determines the direction of the employee’s work and evaluates his/her performance. The employee performs a self-assessment at the respective stage (e.g., evaluates the competency development level and the extent to which the goals have been met).
For managerial positions, you can also use a more objective 360-degree performance appraisal to assess the competencies (values-based behavior). It shows the ‘place’ of a manager in the company and the quality/pattern of his/her interaction with others.
Do an all-round appraisal at the level of:
All appraisal participants should rate an employee on the same criteria and scale. Based on the results, the employee’s profile is ‘drawn’ from the point of view of these criteria (e.g., competencies). This profile serves as a starting point to devise a development plan.
You can conduct a 360-degree performance appraisal in a scaled-down format, for example, without one of the respondent groups. Self-assessment and evaluation by the supervisor are required anyway.
An Assessment Center (AC) is another performance appraisal method for managerial positions.
The AC is a group assessment method that looks at an employee’s behavior when performing a set of exercises. These include group interaction, role-playing games, interviews, individual written assignments, tests, etc. AC participants undergo them simultaneously/in parallel.
The AC’s advantage is that it allows ‘observing’ an employee’s behavior in the conditions as close as possible to real work situations.
Step 5. Start the process
Finally, once you are clear about the criteria, target audience (participants), frequency, and appraisal methodology, you can start the Performance Appraisal process.
What is worth paying attention to here:
So, now you are familiar with key steps in effective performance appraisals.
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In this guide, you will find:
- OKR principles
- Formulas & scores
- OKR methodology
- Step-by-step guide
- Free OKR templates
- Common mistakes
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