1. What is a Performance Appraisal?
  2. What is the Basic Purpose of Performance Appraisal?
  3. What is an Example of a Performance Appraisal?
  4. How Performance Appraisals Work?
  5. Types of Performance Appraisals
  6. Methods of Performance Appraisals
  7. What are Performance Appraisals Used for?
  8. Benefits of Performance Appraisals
  9. Criticisms of Performance Appraisals
  10. Tips and Techniques to Improve Performance Appraisals
  11. How Employees Can Make the Most of Performance Appraisals
  12. Common Questions About Performance Appraisals

Performance appraisals play a BIG role in your career— they impact promotions, salary hikes, and overall growth.

But do you truly understand what they are, how they work, and how your employer evaluates you?

If not, you could be missing out on valuable opportunities. That’s why we’ve created this guide to break down the key concepts of performance appraisals in the workplace.

We’ll cover important topics like – what is performance appraisal, its types, key benefits, and common criticisms. Plus, we’ll share practical tips to help you make the most of your appraisal and accelerate your career growth.

What is a Performance Appraisal?

So, what is performance appraisal?

Basically, it is a structured evaluation where employers assess an employee’s work, skills, and contributions. It helps in making decisions about –

What is the Basic Purpose of Performance Appraisal?

The main purpose of a performance appraisal is to –

  • Assess employee performance
  • Provide feedback
  • Identify areas for improvement
  • Support decisions on promotions, salary hikes, and training

What is an Example of a Performance Appraisal?

A manager rates an employee’s performance using a rating scale, provides feedback on strengths and weaknesses, and discusses goals for the next evaluation period.

Other names for performance appraisal

Performance appraisal is also known as:

  • Employee evaluation
  • Performance review
  • Annual review
  • Employee assessment
  • Performance rating
  • Staff appraisal
  • Job evaluation

Note: Different organizations may use different terms, but the goal remains the same.

Fun fact - Companies that give employees regular feedback have 14.9% higher engagement compared to those that rely only on formal reviews.

How Performance Appraisals Work?

Understanding performance appraisals is important if you want to grow in your career.

Here are the six steps in the performance appraisal process:

  1. Setting goals – Employers define job expectations and performance goals.
  2. Monitoring performance – Work progress is tracked throughout the review period.
  3. Collecting feedback – Managers, peers, or employees themselves provide input.
  4. Evaluation & scoring – Performance is assessed using rating scales or other methods.
  5. Appraisal meeting – The manager shares feedback and discusses improvements.
  6. Decisions & actions – Results may lead to promotions, salary hikes, or training.

Note: The appraisal process may vary across companies based on policies, roles, and industry standards.

Types of Performance Appraisals

Are you wondering how many types of appraisal are there?

Well, there are a few, but they are often divided into four main categories.

So, what are the 4 types of performance appraisals?

  1. 360-degree feedback – This method gathers input from multiple sources, including managers, peers, subordinates, and even self-assessments, to provide a well-rounded evaluation.
  2. Self-evaluation – Employees assess their own performance in various areas, such as job responsibilities, attitude, and workplace behaviour.
  3. Negotiated appraisal – A mediator facilitates the evaluation process, focusing on an employee’s strengths while addressing areas for improvement in a constructive manner.
  4. Peer review – Colleagues, team members, or workgroups assess an employee’s performance based on collaboration, teamwork, and overall contributions.

Note: Many organizations use a mix of these appraisal methods for a more comprehensive evaluation.

Fun fact - Traditional performance reviews can cost companies between $2.4 million and $35 million for every 10,000 employees.

Also read: How to Write a Self-Appraisal?

Methods of Performance Appraisals

Many people often confuse the types of performance appraisals with the actual methods used to assess employee performance.

While appraisal types refer to the overall approach, methods focus on the specific techniques used to evaluate employees.

Here are some common methods:

1. Rating scale method – Employees are rated on various performance factors, such as teamwork, productivity, and communication, using a numerical or descriptive scale.

Fun fact - 86% of organizations use ratings as part of their performance review process.

2. Management by objectives (MBO) – Performance is evaluated based on specific, measurable goals set between employees and managers, focusing on results.

3. 360-degree feedback – Employees receive evaluations from multiple sources, including supervisors, colleagues, subordinates, and clients, for a comprehensive review.

4. Checklist method – A checklist with key performance criteria is used by managers to assess whether employees meet expectations.

5. Critical incident method – Managers track significant instances of outstanding or poor performance over time to provide detailed feedback.

6. Ranking method – Employees are ranked in order of performance, from highest to lowest, to identify top and low performers.

7. Behaviourally anchored rating scales (BARS) – Combines rating scales with specific behavioural examples for each performance level, making evaluations more objective.

8. Assessment centre method – Employees participate in simulations, role-playing, and exercises to assess their skills, decision-making, and leadership abilities.

9. 720-degree feedback – An advanced version of 360-degree feedback that includes follow-up evaluations to measure progress after initial feedback.

10. Human resource accounting method – Employees' performance is assessed based on their contribution to the organization’s profitability and overall value.

What are Performance Appraisals Used for?

Here are the different uses of performance appraisals:

  • Evaluating employee performance – Measures an employee’s strengths, weaknesses, and overall job performance.
  • Providing constructive feedback – Helps employees understand what they are doing well and where they need improvement.
  • Determining promotions & salary hikes – Assists in deciding pay raises, bonuses, and career advancements based on performance.
  • Identifying training needs – Highlights areas where employees need additional skills or training programs.
  • Setting future goals – Helps employees and managers align personal and company objectives for career growth.
  • Recognizing top performers – Rewards high-performing employees, boosting motivation and job satisfaction.
  • Supporting workforce planning – Helps HR decide on hiring, role changes, and succession planning.

Fun fact - 75% of Gen Z employees would consider quitting if they don’t receive regular feedback.

Benefits of Performance Appraisals

Performance appraisals help both employers and employees in many ways. Here are some key benefits:

For Employers:

  • Boosts employee retention
  • Improves workplace communication
  • Guarantees fair decision-making
  • Builds a strong work culture
  • Tracks progress easily

Fun fact - Companies that prioritize employee performance are 4.2 times more likely to outperform their competitors.

For Employees:

  • Increases job satisfaction
  • Creates clear career paths
  • Encourages personal growth
  • Provides performance validation
  • Reduces workplace confusion

Criticisms of Performance Appraisals

While performance appraisals have many benefits, they also face criticism from both employees and employers.

So, what are the challenges of performance appraisal?

  • Bias & unfair ratings – Personal opinions or favouritism can influence evaluations, making them less objective.
  • High stress & anxiety – Employees may feel pressured, leading to fear rather than motivation.
  • Unclear performance criteria – Vague evaluation methods create confusion about expectations and goals.
  • Limited growth opportunities – Some appraisals focus only on past performance instead of helping employees improve.
  • Workplace tension – Negative feedback can strain relationships between employees and managers.
  • Time-consuming for employers – Preparing and conducting appraisals requires significant effort from managers.
  • Doesn’t always reflect true performance – Some employees excel daily but struggle to showcase their work in formal evaluations.
  • One-size-fits-all approach – Standard methods may not work well across different industries or job roles.

Effective Performance Appraisals = Fair + Transparent + Focused on Employee Development

Tips and Techniques to Improve Performance Appraisals

Here are some performance appraisal best practices for employers:

  • Set clear goals – Define measurable objectives so employees know what is expected of them.
  • Provide regular feedback – Don’t wait for annual reviews; give ongoing feedback to encourage improvement.
  • Use multiple evaluation methods – Combine self-assessments, peer reviews, and manager feedback for a balanced review.
  • Be fair & unbiased – Avoid favouritism and ensure all employees are evaluated equally.
  • Focus on growth – Suggest training and career development plans instead of just pointing out weaknesses.
  • Document performance – Keep records of achievements and challenges to support fair appraisals.

How Employees Can Make the Most of Performance Appraisals

Employees can use performance appraisals as an opportunity to grow and advance in their careers.

Do you want to improve your performance for 2025?

Just follow these tips:

  • Prepare in advance – Keep track of achievements, challenges, and contributions throughout the year.
  • Set career goals – Use the appraisal to discuss growth opportunities and future career plans.
  • Request feedback – Ask specific questions about areas of improvement and ways to enhance skills.
  • Stay open to criticism – View constructive feedback as a chance to develop rather than as negative judgment.
  • Ask for training opportunities – Discuss skill development programs that can help you improve.
  • Follow up on feedback – Work on suggested improvements and check in with managers on progress.

When do performance appraisals take place?

Performance appraisals usually take place on a set schedule, such as:

  • Annually
  • Semi-Annually
  • Quarterly

Timing varies by company policies and industry requirements.

Note: Some businesses conduct them after project completion or during employee milestones.

Fun fact - According to SHRM, 71% of companies still hold performance reviews once a year.

When should a performance appraisal take place?

It should occur when enough time has passed to assess progress, provide meaningful feedback, and set future goals—typically at the end of a performance cycle or after key projects.

Fun fact - 76% of employees prefer monthly feedback over annual reviews.

How Effective are Appraisals?

Performance appraisals are a common tool in organizations, but their effectiveness is often questioned.

Here are some key statistics:

95% of managers are unhappy with their company’s review system

59% of employees say reviews don’t impact their performance

Common Questions About Performance Appraisals

1. What are the 5 performance ratings?

The common performance ratings are:

  • Outstanding – Exceeds expectations consistently.
  • Exceeds expectations – Performs above the required level.
  • Meets expectations – Meets job requirements effectively.
  • Needs improvement – Falls short in some areas.
  • Unsatisfactory – Performance is below acceptable standards.

2. What not to say in a performance appraisal meeting?

  • Avoid blaming others or making excuses.
  • Don’t compare yourself to colleagues negatively.
  • Refrain from demanding a raise without justification.

3. What to do if you are unhappy with your appraisal?

  • Discuss concerns professionally with your manager.
  • Request specific feedback for improvement.
  • Set clear goals for the next review.

4. How to ask for more hike in performance appraisal?

  • Highlight your achievements and contributions.
  • Show data supporting your request.
  • Be confident but respectful in your approach.

Wrapping up

And that's a wrap on our - what is performance appraisal guide.

Quick recap:

  • Performance appraisals help assess employee performance and guide career growth.
  • There are different methods and types of performance appraisals.
  • They offer benefits like better feedback and goal-setting but also face criticisms like bias and stress.
  • As an employee, you can make the most of it by preparing in advance and setting clear career goals.

But performance appraisals aren’t the only way to grow in your career. If you are looking for new opportunities, head over to Naukri.com and find your next big job!

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FAQs:

1. What is meant by performance appraisal?
Performance appraisal is a systematic evaluation of an employee’s job performance and contributions to the organization. It involves assessing skills, achievements, and growth against set objectives and providing feedback for improvement.

2. What are the 7 ways of appraising performance?
The seven ways of appraising performance include:

  1. Self-Appraisal
  2. Managerial Appraisal
  3. 360-Degree Feedback
  4. Peer Review
  5. Upward Appraisal (Subordinate Review)
  6. Objective-Based Appraisal (Management by Objectives - MBO)
  7. Behaviorally Anchored Rating Scales (BARS)

3. What is the basic purpose of performance appraisal?
The basic purpose of performance appraisal is to evaluate and improve employee performance, align individual goals with organizational objectives, and support career development by providing feedback and identifying training needs.

4. What is HR performance appraisal?
HR performance appraisal refers to the systematic process managed by the human resources department to assess employees' performance, provide feedback, and make decisions related to promotions, compensation, training, and development.

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