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Types of Performance Appraisal

January 24, 2018

Female supervisor holding a clipboard and smiling discusses performance with female employee.

Rethinking the employee performance review is at the top of many executive teams’ agendas, according to Harvard Business Review. Several factors account for this trend.

  • One Deloitte manager said that the review process is “an investment of 1.8 million hours across the firm that didn’t fit our business needs anymore.”
  • A Washington Post writer called it a “rite of corporate kabuki” that undermines creativity, causes mountains of paperwork and serves no real purpose.
  • Others described annual reviews as a last-century practice and blamed them for a lack of collaboration and innovation.
  • Supervisors and subordinates despise the appraisal process — “a perennial problem that feels more urgent now that the labor market is picking up and concerns about retention have returned,” the Harvard Business Review added.

The greatest limitation of the annual employee performance review undermines organizations at their core. “With their heavy emphasis on financial rewards and punishments and their end-of-year structure, they hold people accountable for past behavior at the expense of improving current performance and grooming talent for the future, both of which are critical for organizations’ long-term survival,” according to the Harvard Business Review. “In contrast, regular conversations about performance and development change the focus to building the workforce your organization needs to be competitive both today and years from now.”

The following sections explore various types of performance appraisal and how organizations can make the process more innovative and relevant.

Goals for Employee Performance Reviews

There are five goals of a performance appraisal system, according to Inc.

  1. To improve the company’s productivity
  2. To make informed personnel decisions regarding promotion, job changes and termination
  3. To identify what’s required to perform a job (the goals and responsibilities of the position)
  4. To assess an employee’s performance against the goals of the position
  5. To work to improve the employee’s performance by naming specific areas for improvement, developing a plan aimed at improving these areas, supporting the employee’s efforts at improvement via feedback and assistance, and ensuring the employee’s involvement and commitment to improving his or her performance.

These goals work in conjunction with each other. For instance, once companies identify what’s required in a position, they can assess and improve an employee’s performance, which then helps organizations make informed personnel decisions. All of the goals align with enhancing company productivity.

The goals should be approached as part of a wider conversation. “All of these goals can be more easily realized if the employer makes an effort to establish the performance appraisal process as a dialogue in which the ultimate purpose is the betterment of all parties,” according to Inc. “To create and maintain this framework, employers need to inform workers of their value, praise them for their accomplishments, establish a track record of fair and honest feedback, be consistent in their treatment of all employees, and canvass workers for their own insights into the company’s processes and operations.”

Types of Performance Appraisal

  • Traditional: A traditional performance appraisal involves a manager sitting down with an employee and discussing performance for the previous performance period, which is typically a single year. Performance is rated and the discussion centers on the manager’s observations of the employee’s abilities and performance of tasks in the job description. Ratings are often tied to salary percentage increases.
  • SelfAppraisal: Self-appraisal refers to employees taking responsibility for their performance and development goals by assessing their own achievements and failures. Employees prepare themselves for discussing these points with their managers. Self-appraisal can be used with or alongside other types of performance appraisal, but cannot substitute for an assessment of the employee’s performance by a manager.
  • EmployeeInitiated Reviews: This review system informs employees that they can ask for a review from their managers; it is not, however, meant to replace a conventional review process. The review system can promote an attitude of self-management among workers. While adherents contend that it promotes regular communication between employees and their managers, critics say communication is dependent on employees’ initiative, which is less than ideal for employees who are quiet or lack confidence.
  • 360Degree Feedback: This refers to feedback provided by the manager, different people or departments an employee interacts with (peer evaluation), external customers and the employee. It also includes employee-generated feedback on management performance. In 360-degree feedback, an employee’s performance is observed by those who work most closely with that employee. The feedback itself can be provided informally or included in the performance review.

Talent, Innovation and Performance

Harvard Business Review identified three business reasons why companies are abandoning the traditional performance appraisal. Each reason offers insight into how to reformulate the performance appraisal to make it more effective and relevant.

  • Talent: There is competitive pressure to upgrade talent management efforts. Not only does development lead to better workers, but retaining skilled workers is more difficult if talent management is another “dissatisfier” that drives employees away. Annual reviews are firmly on that list, because the process is reviled and the focus on numerical ratings interferes with the learning that people need and want. Organizations need to move away from that focus and concentrate on developing people instead.
  • Innovation: Innovation in business is what agility is to the employee performance review. As part of GE’s business strategy based on innovation, the company borrows agile techniques for performance management. Now, instead of only end-of-year summary discussions, the goal is to push frequent conversations with employees and managers. These “touchpoints” revisit two basic questions: “What am I doing that I should keep doing? And what am I doing that I should change?” This process takes annual goals and replaces them with shorter-term “priorities.”
  • Performance: Eliminating appraisals’ focus on individual accountability makes it easier to foster teamwork, improving overall performance. This is the case at retail companies like Sears and Gap. Employees work together to keep shelves stocked and manage customer flow. In these environments, traditional appraisal systems don’t enhance performance at the team level or help track collaboration. Gap supervisors still provide year-end assessments, but only to summarize performance discussions that occur throughout the year and to set pay increases accordingly; goals are short-term. Gap reports far more satisfaction with this performance process and the company has had the best-ever completion of store-level goals.

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