How do you perceive the performance appraisal process of an organization today? If you think it is an opportunity for annual review discussion with higher-ups, you are still held back in the traditional era. But, like every other facet such as technology, work culture, etc., the appraisal framework is continuously evolving.
The reason behind this change is the myriad setbacks businesses experienced while following the conventional methods. As a result, both companies and employees are no longer willing to accept the old practice.
Gallup also reveals that only 14% of employees strongly agree with their annual performance reviews.
Therefore, companies are set to transition from a traditional appraisal system to a continuous and more inclusive framework.
This blog enumerates the advantages and disadvantages of traditional appraisals and the new methods surfacing today.
But before that, let’s first understand:
1. What is a performance appraisal?
Employee Performance appraisal is a process by which companies assess how well employees have performed their jobs in a given evaluation period. Companies typically conduct it semi-annually or annually.
It helps an organization evaluate an individual’s skills, achievements, and growth. Telling resources how they have contributed to an enterprise’s growth makes them feel valued and inspired. They then accept the feedback and take initiatives to enhance their performance.
2. What are the objectives of a performance appraisal?
A performance appraisal aims to help employees understand their progress over a given period and at the same time enhance organizational efficiency. It also helps resources evaluate their shortcomings and form an action plan to overcome them and improve further. Moreover, enterprises use performance evaluation to select competent resources for higher posts and additional responsibilities.
A company implements a performance appraisal to fulfill various objectives as follows.
- Assess an employee’s potential based on pre-defined criteria like quality of work, versatility, leadership ability, etc., and leverage it for future purposes
- Improve the quality of deliverables and overall efficiency by enabling employees to course-correct their setbacks and upskill themselves.
- Set goals and milestones for the following quarter or year based on the performance evaluation
- Garner inputs for decisions regarding salary, incentives, promotions, transfers, and terminations.
- Identify training and development need for individual employees based on skill gaps.
- Enhance employee engagement, satisfaction, and retention by rewarding high-performers, exchanging feedback, and providing fair growth opportunities.
Given the motive of the appraisal framework, let’s understand the various methods adopted by businesses:
3. Popular methods of traditional appraisals
Companies adopt different appraisal methods to evaluate employees based on the business structure, organization policies, company goals and work culture.
Here is a rundown of the most prominent ones:
I. Bell curve method
The name of this appraisal method derives itself from the normal distribution curve (also called symmetrical bell curve) used in Statistics. It’s a performance appraisal method that ranks and rates employees in the form of a bell-shaped scale, which looks like:
High Performers – 20%
Average Performers – 70%
Low (or Poor) Performers – 10%
This appraisal system works on the fact that a very limited number of employees can exceed performance expectations. Managers use it to reward the star performers who set high benchmarks. Also, it helps formulate a performance improvement plan or planned attrition strategy for average and poor performers.
II. 360-degree feedback
This appraisal method solicits reviews on employees’ performance from various viewpoints. It is a feedback process that helps managers get an insight into how juniors, peers, and seniors perceive an employee. As this performance evaluation method is not linear in nature and collects reviews from employees at all hierarchical levels, it is called 360-degree feedback.
III. Client appreciation letter
A letter of appreciation addressed to a particular employee from a client in return for rendering excellent services is called a client appreciation letter. Though not exactly a performance evaluation method, these letters have a significant influence on an employee’s appraisal. They are the tangible proofs of exceptional performance that managers can’t overlook and have to consider while reviewing individuals.
IV. Going an extra mile
Some resources have a myriad of capabilities and skills that they display in different ways and go beyond their call of duty. This assessment method recognizes those who “walk an extra mile” in any way to contribute to the organization’s profit. It makes employees feel valued for their exceptional effort and encourages them to excel further in their performance.
It is a performance evaluation method where the company prepares a checklist of an employee’s traits in the form of statements. The line manager then checks either the “Yes” or “No” column against each trait to indicate whether the employee displays it or not. The HR department collects this filled checklist from the manager and evaluates the employee’s performance as per the responses.
4. Pros and Cons of traditional performance appraisals
The overhaul of the traditional performance assessment systems is the need of the hour. Nevertheless, one can’t deny the popularity that conventional appraisal frameworks have garnered for so long.
So, it is crucial to understand the upsides that kept them in trend so far while also understanding why their large-scale acceptance is gradually fading now.
Here’s a rundown on the advantages of the traditional appraisal system.
I. Standardizes rewards and recognition
Detailed one-on-one performance appraisal meetings on yearly performance data help managers compare resources’ progress against the set parameters based on their job roles. Accordingly, they can identify high-performing candidates after a thorough analysis and felicitate them. For instance, for an organization following bell curve method to appraise employees, the rewards for 20% of high-performing resources are standardized across the firm. It adds a layer of uniformity and negates chances of discrepancies.
II. Evaluates and quantifies performance
Traditional appraisals help evaluate and quantify an employee’s performance. Managers can use a numerical scale to rate and rank employees as per their level of performance. Thus, it facilitates decisions regarding salary increments, promotions, and other benefits based on resources’ rankings. For example, the checklist method allows managers to evaluate and count the number of requisite traits for appraisal. They can then categorize the employees into high, average, or poor performers based on the total percentage of the traits present.
III. Proven and time-tested
A traditional performance appraisal is a proven and time-tested method. Though various modern performance evaluation methods like continuous assessment, performance-based compensation, etc., have gained popularity recently, many organizations still stick to the traditional appraisal systems. The primary reason is a high level of trust in the traditional approach and skepticism towards the efficiency of modern review methods.
Below listed are some of the reasons why the traditional appraisal system is slowly becoming obsolete.
I. Time-consuming, inefficient, and rigid
According to research, an average manager spends around 210 hours (approximately five weeks) doing formalities involved in traditional appraisals.
It is because they involve large amounts of tedious paperwork, given their lower frequency of occurrence. The traditional appraisals are also rigid in nature as they fail to cover any facet or aspect beyond evaluation criteria. For example, the checklist method evaluates an employee only on the basis of the traits in the list.
So, if a resource has an outstanding skill or trait beyond the list, it’s overlooked; thus, making this method rigid. Further, as managers tend to focus on more recent activities and achievements, they may sometimes fail to consider the employee’s exceptional performance in some initial projects. Thus, missing out on important accomplishments can deprive some employees of well-deserved benefits..
II. Leaves minimum scope for improvement
As traditional appraisals occur once a year, employees don’t get regular feedback. Consequently, they spend a considerable amount of time and effort without knowing whether they are heading in the right direction or not. If there are performance issues, employees don’t get enough leeway to work on their shortcomings.
Therefore, it leaves no scope for continuous improvement, making them feel overwhelmed during the appraisal. They may even feel disappointed and dejected, which in turn reduces their engagement. If the management fails to track it on time, it can eventually result in unplanned attritions as well.
III. Can lead to biased assessment
Often, line managers tend to favor the resources who have worked closely with them for a long time as compared to others. For example, an employee works on a project for nine months under a given project manager. However, just three months before the appraisal time, they are shifted to a new project under a different manager. In this case, the new manager may overlook the performance of the past nine months and favor the ones working closely with them since the beginning.
It may result in a biased evaluation of a resource’s performance. Moreover, often managers get lenient while rating seniors under their span of control. They, thus, give comparatively poor ratings to juniors under the pretext of not having enough data about them. Thus, it creates a hostile atmosphere at the workplace and leads to unnecessary internal discrepancies and conflicts.
IV. Imbalance between disparate teams’ evaluation
When people work collectively as a team, they often tend to reduce their individual effort when compared to working alone. It results in decreased employee engagement and organizational effectiveness.
This natural psychological occurrence is “social loafing”. It makes it challenging to identify the contribution of an individual in the group.
To understand it better, let’s consider two teams working on two different projects. If a team is high-performing in all aspects compared to the other, its individuals will also get a higher rating. On the contrary, a high-performing individual in the other team might still get a relatively lower rating due to being a part of the low-performing team. It, thus, results in an imbalance while evaluating disparate teams.
Now that we know why the traditional performance appraisal is becoming obsolete, let’s look at what their future is.
5. What’s the way ahead for employee performance appraisals?
It is evident that traditional performance evaluation methods need to be changed to make them more inclusive, fair, and efficient.
Here are a few methods that companies can adopt going forward to make their performance appraisals fair and inclusive.
I. Continuous performance assessment
Continuous employee performance assessment is replacing traditional appraisals across the globe. Unlike a conventional performance review that takes place once or twice a year, it takes place throughout the year. It is a continual holistic process where the management gives regular feedback to employees. The processes involve establishing short-term goals and objectives, reviewing their progress, timely one-on-ones, and real-time feedback.
It helps the employees get better and regular insights into their performance and provides them with a fair chance to improve.
This appraisal method also facilitates more transparency in dialogue, autonomy, and task ownership. Accenture is one of the MNCs that have replaced annual performance reviews with a continuous performance assessment.
II. Roles given based on capability instead of seniority
As mentioned earlier, in the traditional appraisal system, the seniority level of an employee primarily determines job roles and promotions. However, the performance assessment culture is witnessing a large-scale change, and companies are switching to a flexible appraisal system. They are now assigning roles based on employees’ competency and performance rather than limiting them to the seniority level.
This method gives all the resources a fair chance to climb the ladder if they have the potential. Out-of-the-turn promotions are a good example of this where an employee gets promoted based on the performance and progress, not the years of experience or the time they spent in the company.
III. Compensation based on performance
Earlier, the hierarchical level or the designation of employees would determine their salary increments. Companies are, however, now adopting performance-based compensation. As the name suggests, it is based on performance and how effectively an employee fulfills organizational goals, instead of entirely depending on the years of experience.
In other words, the appraisal method is shifting from a quantitative to a more qualitative approach.
Rewarding employees’ efforts and achievements through bonuses, paid leaves, etc., is beneficial. When you look beyond providing annual salary increments based on seniority or designation, it motivates them. They, in turn, push their limits, put more effort, and contribute to the company’s growth in a better way.
IV. Move from relative to past vs. present rating system
Relative reporting is when the management compares the performance of two individuals against each other. However, this method is no longer popular. The reason is that it pits the individuals against each other in terms of rating. In the long run, it causes unhealthy competition among resources to climb the corporate ladder. Resources often become more self-centered and invest their time and energy only in improving their ratings instead of working towards the common goal.
As a result, the collaborative spirit and teamwork fade away, which hampers an organization’s efficiency. So, companies are parting with the traditional relative rating system. Rather, they now focus on an individual’s performance and compare it against their last year’s work rate to consider improvements. It also provides resources with a chance to understand the areas of improvement and take the appropriate measures to hone their skills.
V. Keep a limited span of control
The span of control, also known as the management ratio, is the number of employees that directly report to a manager. If the span of control for each line manager goes beyond a limit, it becomes challenging to supervise. It leads them to miss out on the individual employee’s details and overlook some important aspects. Further, providing timely feedback and conducting one-on-ones also becomes challenging.
It, thus, results in a disconnect between the manager and their team members. When stretched for long, it leads to a lack of clarity around goals and expectations, dip in engagement and performance. Therefore, the span of control should not exceed a desirable range, ideally for managerial positions. A limited span of control helps give managers better visibility and control over individual resources’ performance, making the assessment more accurate and efficient.
Performance appraisal for today’s workforce-led culture goes beyond yearly reviews and recognition. It has evolved and expanded, and enterprises are now employing an all-inclusive, continuous method to cater to individual development and growth.
Given the current work trends and the upheaval of traditional business culture, it’s time that you start transitioning to a more modern approach. The above-mentioned current appraisal methods can help you customize your framework and provide a conducive, growth-oriented environment for your workforce.
So, are you ready to transform your appraisal framework yet?
7. The Glossary
8. The SAVIOM Solution
SAVIOM has over 20 years of experience helping multinational clients manage their resources efficiently and effectively. With over 20 years of experience, this Australian-based MNC has a global presence across 50 countries and has helped 100+ clients meet their specific business goals. Saviom also provides tools for project portfolio management, professional service automation, and workforce planning software. So, SAVIOM can help your business to establish an efficient system geared towards your specific business challenges.