The terms “performance appraisal” and “performance management” are often used synonymously. But they are different. Performance management is a continuous, comprehensive and flexible approach to manage teams, organizations, and individuals, that involves the maximum possible dialogues between the sides involved. On the other hand, performance appraisal is a more limited approach that involves carrying out top-down assessments to rate the performance of their juniors at annual appraisal meetings. It sets standards and evaluates the past performance based on these standards, while performance management aims to manage real-time performance for ensuring that the output reaches desired levels.
Performance Management vs Performance Appraisal Infographics
Performance management and performance appraisal are two employee evaluation methods. While the appraisal is the traditional method in this regard, increased competition in the economy has forced several organizations to change from being reactive to proactive for boosting productivity and increasing organizational performance.
Companies today are undergoing big-time transformation to cope with the changing needs in the business environment. They are excelling in their business by building adaptive capabilities to proactively manage change. Traditional appraisal systems couldn’t meet the demands of the changing scenario because they were largely used as a mechanism for employee evaluation, where managers were often forced to make subjective judgments about the behavior and performance of employees against predetermined standards.
The key objective of a performance appraisal system is to exercise control over employee activities via disciplinary actions and management of promotions and rewards. Supervisors are expected to rate employees on certain parameters, ranging on a scale from unsatisfactory to outstanding performance. But these ratings are often prone to errors like the halo effect, bias, central tendency and others.
Performance appraisals were once a yearly activity to measure the level of accomplishment of an employee or an individual. The system, as already said, was mostly implemented on a top-down basis where the supervisors had a key role to play to judge the performance of employees without soliciting their active involvement. The appraisals were largely discredited because they concentrated mostly on an employee’s flaws and inabilities in the year gone by or looking forward to identifying the development needs of the staff and improving them. Performance appraisals, traditionally, were carried out in a bureaucratic manner and suffered from corruption and unnecessary delays. The appraisals were usually narrowly focused and functioned standalone, sans any effect on the overall vision or goal of the organization.
The side effects of performance appraisal systems generated much skepticism among managers and employees whenever the human resource (HR) manager started it.
Under the present circumstances, organisations have shifted their focus to performance management from performance appraisal as a result of globalization of business and internationalizing of HR activities. The functions of the HR manager have become far more complicated today because of the re-centring of the focus on the talent management by implementing development programs that enhance employee competencies.
Performance management focuses more on monitored behaviors and concrete results that are based on previously set smart objectives. Adoption of techniques like management by objectives (MBO) is established in terms of facts and figures. The superior play out the role of a facilitator or coach in the entire process. The objectives are decided mutually at the beginning of the performance season, which serves as a standard for evaluation. The company’s staff, in this method, offers feedback on their respective contribution by filling up an appraisal form.
Performance management is a far broader term when compared to performance appraisal because it deals with a range of activities that the latter is never concerned about. It’s a strategic system and an integrated approach that aims to build successful organizations by forging high-performance teams and improving individuals’ performance. The process is triggered when the company defines a job. Performance management puts emphasis on frontend planning rather than looking backward—unlike appraisals—and focuses on the ongoing dialogue instead of ratings and appraisal documents. Performance management, thus, is a continuous process.
The key difference between performance management and performance appraisal lies in the scope of execution. Both involve setting performance targets, reviewing whether they have been achieved or not, and preparing ways for enabling employees to meet them. Also, both systems set up clear expectations on what is expected of a particular employee, set clear guidelines on what comprises a successful job performance and strives to identify the barriers towards effective performance.
Performance appraisal, however, is a reactive and limited function that evaluates past performance, usually twice or once in a year. It’s a distinct staff activity that doesn’t interfere with an employee’s daily work.
Performance management, as already said, is an ongoing proactive mechanism for managing staff performance and ensuring that the employee attains the set target on a real-time basis and sans any review or corrective action in the future. It’s a line activity which remains ingrained in an employee’s daily work.
In several organizations, performance appraisal often becomes a part of the overall performance management system. It takes place at a periodic interval and forms the basis to take corrective action and assign further targets.
In performance management, the supervisor or manager takes up the role of a mentor or coach, while in the appraisal, the supervisor acts as the judge.
Some performance appraisal systems, like MBOs, allow the setting up of joint targets by the employee and the supervisor. It involves frequent reviews and hence often appears similar to performance management. But such methods often fall short in the monitoring of targets and real-time administration offered by performance management.
Performance appraisal systems are more structured and formal. Although most of them allow customization of the key performance areas or what comprises performance based on the employee, the system nonetheless remains rigid with certain laid down rating parameters and procedures that are equally binding on all employees.
Performance management, in comparison, is a more flexible and casual method to evaluate staff performance. Like the appraisal, performance management establishes guidelines on what should constitute optimal performance. But because of the application is real-time, it offers considerable relaxation or scope for change to such guidelines, depending upon the circumstances and the particular job situation.
Performance management can remain customized for each individual employee’s actual work. But performance appraisal is largely standardized, depending upon the employee’s designation, or at best, the job description, rather than the individual’s actual work exigencies.
Merits and demerits
Comparing performance management with appraisal both lead to enhanced organizational productivity. But the former offers real-time changes for boosting output. The real-time monitoring and taking corrective action in performance management helps to better employee output compared to the conventional appraisal system.
Performance management enables linking performance to both short-term and long-term organizational goals. For instance, if the company has a short-term target for increasing profit margins by 10% in a particular quarter, such a link will come only in the following year’s appraisal. It, in fact, may not come at all.
In most cases, employees receive bonuses and favourable reviews, even if the organization fails to reach its short-term goals.
- Performance management, which focuses on the real result and on-job performance, fosters teamwork. The majority of the performance appraisal systems target individual achievement and focus on results instead of the methods, promoting the staff to put individual goals over team goals.
- Performance management helps to successfully implement initiatives like total quality management.
- Performance management eliminates the rater bias, which is a major drawback of a performance appraisal system. In the latter, the employee’s future is dependent not only on the performance but also on the supervisor’s goodwill.
- Performance management is concerned with the actual performance rather than records of past performance. Hence, it removes distortions from an evaluation that may have helped to perform the job better in special situations, impeding the performance.
- Performance management also eliminates the stress that crop up from upcoming appraisals.
- Performance management concentrates on the most relevant and immediate concerns, whereas the appraisal forces to look into the past, which in many cases remain irrelevant and takes the time away from the more pressing concerns.
Common outcomes of performance appraisal
Many recent researches suggest that annual performance appraisals are viewed as a difficult process by both employees and managers. Objectives, typically, are not set in appraisals. The CEO’s and the employees’ intent mostly differ. The typical outcomes are as follows.
- Emotionally charged: Appraisals involve high-stress levels for both employees and their managers. Both are aware that they’ll be judged on the result of the appraisal, which is usually destructive than constructive. The reason being the lack of predefined objectives or measures, and any evaluation criteria do not guide the employee review. The future of the employee is often at stake, which leads to high stress.
- Poor understanding of expectations: Both the manager and employee enter discussions with a low level of confidence if the appraisal is poorly communicated. The discussion is dominated by employee content instead of what the manager needs in the next year. Besides, both the manager and the staff find it difficult to recall what happened in the year gone by.
- Bad timing: The annual appraisal is usually executed a few days before the employee’s anniversary of joining the company. In this way, only half of the staff can be aligned with the company’s objectives in this way, assuming that there’s an even distribution of job commencing dates among the staff. With most appraisals not automated, there’s poor reporting and low visibility of who did and who didn’t do their job.
- Poor development opportunities: Most appraisals don’t have any competency assessment or an active development plan that both the manager and the employee have agreed to. Employees may get disillusioned and leave the company if they can’t see any development prospect.
Common outcomes of performance management
Organizational performance can increase dramatically when implemented correctly with the specific objectives tied to operational and strategic plans. Some of the other outcomes are as follows.
- Improved communication: The manager and employee communicate more frequently and agree on the changed objectives to suit current priorities and condition. This is a collaborative and inclusive process which ensures employee inputs.
- Everyone knows rules: An effectively communicated and well-structured performance management system allows both the manager and the employee to have better confidence levels because of the “rules” that clearly lay down what is being assessed. Both sides can forge an informed discussion and focus on achieving both business and personal objectives.
- Reduces stress: Performance management reviews take place more frequently, where the discussion centers round the performance of objectives, rather than being dominated by employer needs. Both the manager and employee can achieve better outcomes. An emotionally charged discussion tends to be displaced by the business-focused discussion to achieve the objective outcomes.
- Relevant appraisals: Frequent reviews lead to the modification and adjustment that suits the changing business conditions. It increases the probability of objectives retaining their relevance during the tenure of performance. Also, non-performing areas get more attention and focus, and the problems can be quickly addressed.
- Employee learning and development: Most performance management systems require employees and managers to commit to a development plan. Employees undergo real personal development and get more engaged with the company. They get a sense of belonging to the organization. Most of the systems provide a graphical compliance report. Thus, the setting up of development plans and objectives for employees can’t be ignored.
Each organization has its own structure and culture. Moreover, every industry is situated at a different geographical location and has its own environment. So there’s unlikely to be a perfect system which fits all. HR experts believe that there will be concerns about performance appraisals or performance management system because it’s based on a mutual agreement of added value between the management and the employee. The relation between the two is never constant. For instance, development versus rewards is a cause of concern.
In the words of management guru Kent D Miller, “Organizations must think in terms of total rewards and not just financial rewards if they are to enhance employee involvement, commitment, job satisfaction—and performance.”
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