Performance evaluations of employees can be pretty polarizing. Not everyone is fond of getting feedback, even if it’s a constructive one. But others love to get some feedback and use it to improve and become more productive. Others may be terrified of receiving negative feedback on their work. Then there’s everyone in the middle, including those who just want it to be over with as soon as possible.
So, with the employees welcoming feedback and evaluation differently, how you can streamline the entire process to ensure that every employee loves getting feedback? There are several challenges to executing a performance evaluation process, but the benefits of performance evaluations outweigh these challenges.
A performance evaluation process includes a company-specific evaluation form, performance measures parameters, and guidelines for delivering feedback with disciplinary procedures. Executing the performance evaluation process effectively can enforce the predetermined boundaries of performance and promote effective communication.
Let’s see in detail how to work on the most authentic performance evaluation process for your organization and build a more productive work environment.
Also Read: positive ways to improve work performance
What is Performance Evaluation?
Performance evaluation refers to the structured and productive procedure for measuring an employee’s work and results based on their work, tasks, and duties. Furthermore, it is used to determine how much value an employee adds to a company in terms of increased revenue compared to industry norms and overall employee return on investment (ROI).
All firms want to master the art of “winning from within.” They achieve this by focusing on improving the internal aspects of their employees using a structured performance evaluation procedure.
They leverage this activity to track and analyze employee performances frequently. The companies work to build the best employee appraisal system with these aspects. This system must be fair, detailed, and easy to implement, leaving no scope for any sort of inefficiencies.
Employees should, in theory, be graded annually on their work anniversaries, based on which they are either promoted or given a fair salary boost distribution. Besides the appraisals, it also helps give proper feedback to the employees and ensures a fair and honest system implementation across the organization.
Why do we Need an Employee Performance Evaluation System?
Both the employee and the employer benefit from performance assessments. It’s a great initiative to give feedback, recognize good work, and set goals for further job productivity and performance. It’s also a great opportunity to have open and honest discussions about where you’re falling short and how you might improve.
Here are a few reasons for setting up a performance evaluation system in your organization.
1. Employee Training and Development:
Employee assessments are significant because of the necessity for employee training and development.
The first step in deciding the type of training employees require is to assess their strengths and weaknesses. Employee training is done to help them learn new skills, while development helps them improve their present and future performance.
An employee evaluation exercise determines what type of training people require to execute their job tasks after learning about their strengths and weaknesses.
An examination also reveals growth plans that benefit both the employee and the organization. Professional development workshops for finance managers to improve their business communication abilities are one example.
2. Appraisals and Promotions:
Employee appraisal, promotions, and role improvements require honest, detailed, and effective employee assessments. What’s better than conducting employee performance evaluations to find the ideal people for the role?
Performance evaluations examine how and what a worker is accomplishing in comparison to previous assessments of their skill sets, knowledge, initiative, and commitment to the company’s mission.
This record shows whether or not an employee is ready to take on more responsibilities and what they can do to develop further.
Detailed evaluations also help managers if several candidates are fighting for a promotion, but only one spot is available, and they are asked to justify the decision.
3. Salary Reconciliation and Discussion:
It’s an employee’s basic nature to ask for more salary every year. Even though it is the norm to increase employee salaries, the percentage of increase must be justified.
That said, employers want to feel like they’re getting their money’s worth, while employees want to see their earnings grow with each year of dedication.
Private businesses base compensation decisions on individual merit and the company’s financial performance. Government employment may feature stepwise increments in the position represented by a predetermined classification. As the across-the-board designation rises, the employees receive better benefits.
However, different methods of performance appraisals are used to determine if an employee gets a raise based on achievement and seniority, as well as whether a lump sum incentive is appropriate.
A performance appraisal form does not give directions, but it surely points the employers in the right direction.
4. Career Goals:
Not only do employers need performance evaluations, but employees also need them. It helps employees understand whether they have picked the right professional path.
The feedback a worker receives on the strengths and weaknesses is crucial in setting a future course. This helps both the organization and the employee to utilize their interests and talents in the right environment and grow further.
5. Employee Strengths and Weaknesses:
Every employee brings a unique value to the organization. This also means that not every employee is perfect. They have some strengths and weaknesses that must be addressed effectively.
Hence, organizations must evaluate their employees’ strengths and weaknesses on a regular basis. Employers will be able to better match employee qualifications to job assignments as a result of this.
Employee evaluations examine individual employees’ strengths and limitations, as well as the aggregate talents of employees in a department or team.
Performance evaluation can be used to share and disclose whether your employees have excellent competency in one type of task and present difficulties in another one.
Performance Evaluation Process Methods an organization can Use
Organizations can improve employee performance by utilizing the appropriate performance appraisal methods and processes. A solid employee performance review strategy can make the process more efficient and rewarding.
Here are the top six performance appraisal and evaluation methods companies use today.
1. Management by Objectives
Management by objectives (MBO) is an appraisal process completed by managers and employees. They collaborate to identify the goals for the review, organize them, and communicate with other stakeholders.
They come together for a short while before the appraisal period and work in cohesion to implement the plan to meet the ends.
Following the creation of the defined goals, managers and subordinates meet on a regular basis to review progress and discuss how to easily and effectively achieve them.
The general practice of this type of performance management appraisal technique is to connect broad company goals with personal objectives effectively.
Most companies use the SMART method to determine whether the established goals are specific, measurable, attainable, realistic, and time-sensitive.
How Does This Work and Which Companies Can Benefit from This Approach?
For this arrangement to work, the employee and manager share a common ideology about building the evaluation procedure. Together they plan (define the objectives, set control points, and choose the timelines) and monitor (check, reassess, and get feedback) the performance evaluation process.
After planning and monitoring, the team will collect the results, give ratings, and discuss the outcome further. This ends with collecting feedback, which is sent to both the participant employees and managers.
They can then use the feedback to improve the process further and make changes accordingly.
The Management by Objectives (MOB) process fits well with organizations that need to measure the qualitative and quantitative output of the senior management along with the directors and executives.
2. 360° Feedback
The 360-degree feedback performance evaluation process is a multidimensional appraisal system for employee review and assessment based on feedback.
The employee feedback comes from the inner circle in the office, including supervisors, colleagues, and customers, and from pan-organizational reports. This strategy will eliminate bias in performance reviews and provide a clear picture of a person’s abilities.
There are five aspects connected to this performance evaluation method.
Employees can use self-appraisals to reflect on their performance and know their strengths and limitations. However, it is essential to conduct self-appraisals with proper forms and procedures. Without them, it can easily lead to a biased exercise.
Review by Managers:
Managerial performance evaluations are an integrated and conventional method of appraisal. These evaluations must accompany managerial reviews and ratings of the employees connected with high-level managers’ evaluations of a team or program.
Review by Peers:
Coworkers and peers have a unique perspective on an employee’s performance as they are devoid of hierarchical limitations. This makes for candor and relevant evaluating members.
These evaluations aid in determining an employee’s capacity to work effectively with others, take the initiative, and contribute consistently. At the same time, peer enmity and biases can also drive the evaluation process in the wrong direction.
Subordinates Appraising Manager (SAM):
This one is the most controversial but also the most significant component of the 360-degree performance evaluation process. Both the managers and their superiors share a common view about the subordinates.
They feel that subordinates bring a unique and often critical perspective to the table. The subordinate evaluations are particularly useful for obtaining information on managerial and supervisory practices.
Customers and clients who use the product built by an organization are also considered in this arrangement. More importantly, those customers included in the review exercise stay in touch with individual employees on a regular basis.
Their inputs help evaluate an employee’s performance and production more accurately.
How Does This Work and Which Companies Can Benefit from This Approach?
The 360-degree employee performance evaluation system is executed in a questionnaire format where the stakeholders are asked a series of questions associated with their role and designation.
In this method, a supervisor’s performance evaluations can assist with developmental tasks. Moreover, it uses peer feedback, which is at the heart of teamwork excellence, and customer service review focuses on the quality of the team’s or agency’s output.
Before deciding which sources are acceptable, the goals of performance appraisal and the specific components of performance that will be evaluated must be specified.
This method of evaluation is best suited for private organizations more than public organizations. This is because private companies are more likely to pay attention to peer and client reviews. Both of these are more lenient in a public setting.
3. Assessment Center Method
Employees can receive a crystal clear review and performance analysis, including how others perceive them. This further helps determine how it affects their performance using the assessment centre method.
The major advantage of this method is that it can measure an individual’s current performance and predict future work performance.
The assessment centre employee performance appraisal and evaluation method are often used in selection procedures to assess candidates’ appropriateness. This method consists of a series of tests and practical simulations designed to determine whether a person is the right fit for a specific job or shows optimal performance.
Within the method, the organizations include intelligence exams, psychological testing, and simulations are frequent in this evaluation model. Besides this, role-playing is also an integral part of the evaluation.
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There are two major components of this evaluation model.
1. Leaderless Group Discussion: This type of discussion involves members of a group sharing ideas and opinions on an issue without a designated leader. These discussions are used to assess interpersonal and leadership qualities within the group while taking note of productivity and leadership emergence.
This discussion has a role in the performance evaluation exercise as it allows us to discuss a real-world situation. The applicants’ behaviour is examined as the meeting progresses to see how they interact and what leadership and communication abilities each person demonstrates.
2. Role-Playing: Another form of exercise conducted in this method is role-playing. The participants are involved in the form of assessment centred around unique and situation-based tasks. A candidate takes on the role of the position holder and must interact with another person in a work-related context.
A trained role player is used, who reacts to the candidate’s activities and rates the performances based on some predetermined criteria and from experience.
In this method, the candidates are examined for the qualities required for a certain position using the assessment centre technique. The participating candidates must demonstrate their leadership qualities in the examination of an executive position. If the function is organizational, the examination will be more focused on organizational attributes.
How Does this Work and Which Companies Can Benefit from this Approach?
Besides these two activities, this performance analysis process in HRM is executed in three phases.
• Pre-Assessment: This is the phase where the people managing the review model will identify the objectives for review and design the simulation exercises. Be it for the role-playing component or the leaderless GD; the managers will also decide the rating model and find the reviewers and competencies for the assessment.
• During Assessment: This is the phase when the managers will explain the purpose and policies of the performance evaluation system. They might use competency exercises, and their related matrices to conduct the discussions, exercises, and strengths/weaknesses.
• Post-Assessment: Once the assessment exercises are complete, we need to collect and review the responses from the participants. This is followed by evaluating the results and sharing the feedback with the employee participants. As everything is complete, the managers are supposed to recommend or provide the right training to help the participants achieve the intended results.
Furthermore, this type of assessment method is ideal for educational institutions, service organizations, and manufacturing units. Companies wanting to find the right leadership in their organization can also use this method.
4. Behaviorally Anchored Rating Scale
BARS, or Behaviorally Anchored Rating Scales, is an innovative method for performance management based on scale defining the behaviour with different “statements” as a reference point.
These statements and the scales are different from the traditional rating scales and help measure an employee’s performance against particular examples of behaviour given a number rating to gather data.
In performance appraisal, the BARS manifest qualitative and quantitative benefits. Here the performances and productivity of an employee are compared to particular behavioral standards associated with the numerical evaluations in BARS.
These statements serve as a measure for comparing an individual’s performance relevant to their role and designation of employment.
How Does this Work and Which Companies Can Benefit from this Approach?
The BARS method and performance evaluation system need five steps to complete. These steps are.
1. Collect the Critical Incidents or Responses:
These will be the five-point scale parameters defined according to the situation. If it’s a one-question response, the incidents can be Never, Not Often, Sometimes, Usually, or always.
These parameters can also consist of different individual statements, again, based on the situation or question.
2. Identify the Dimensions for Performance:
This will define the applicability of the performance. In other words, which of the responses will qualify as satisfactory performance and which will not?
3. Reclassify the Incidents:
The next step is to reclassify the dimensions set and assess their value to the outcome.
4. Assign the Scale Values:
Generally, the scale values are given from 1 to 5. The best response is at Five, and the least wanted response is at One. At the end of the evaluation, the scale helps provide a definite answer to the situation set for the analysis.
5. Final Instrument:
The evaluation sheet in the BARS method is called an instrument and it contains the questions and responses which demand a response from the participants.
Companies and organizations use behavioural anchors to build and implement a holistic mechanism for measuring the impact and usefulness of each position with business goals. This method provides a complete profile for each individual, guiding them through the whole employee life cycle.
Besides the performance evaluation and appraisal, the BARS method is also used for talent acquisition, career pathfinding, succession management, and learning & development.
The best aspect of the BARS method is that any organization can employ it for performance analysis irrespective of the industry, strength, size, and type of workforce.
5. Psychological Appraisals
Psychological evaluations are useful in understanding an employee’s hidden potential, but they are also good at doing many other things. And besides talent finding, they are utilized to help an employee find the right path and improve future performance.
It helps build the required strategy to build the required traits in an employee. These are.
- Interpersonal skills
- Cognitive abilities
- Intellectual attributes
- Leadership skills
- Personality traits
- Emotional quotient
To accurately analyze an employee, qualified psychologists undertake a number of tests. The requirement of a psychologist is a complicated thing, which a lot of companies cannot fulfill.
Moreover, it is a lengthy and complicated technique, and the quality of the results is heavily dependent on the psychologist who performs it.
Psychologists taking the tests and analysis create and define different scenarios to perform the appraisal analysis. The way employees respond to a specific situation can be assessed to identify their core competencies, skills, and talents.
How Does this Work and Which Companies Can Benefit from this Approach?
Organizations wanting to follow this methodology need to hire a psychologist to conduct the evaluation. The evaluation procedure and the situational analysis are completely in the hands of the psychologists, and it is their prerogative first to observe the workings of the company and then set the procedures.
If you want to know how to evaluate the performance of an employee with this method, implement and experience it first-hand. Following this method, managers and supervisors will get measurable responses objectively presented to assess the employee’s performance and potential.
It is often implemented with ease, and the major benefit is that introverted and shy employees will also get an equal opportunity to express their skills with this method.
Lastly, large and small-scale organizations can use this method based on the affordability of hiring the right person. Using this method, the leadership can help build a leadership pipeline, complete team-building exercises, and resolve conflicts easily.
6. Human Resource (Cost) Accounting Method
For some companies hiring an employee is all about the costs and benefits of having that one person working there. For them, this performance evaluation process method is perfect. This method evaluates an employee’s performance in terms of the monetary advantages the individual lends to the company.
It is calculated by comparing the expense of maintaining an employee (CTC) with the monetary benefits (ROI) derived from that employee.
In the cost accounting method, some of the general parameters used are;
- Unit-wise average service value
- Overhead costs
- Interpersonal interactions.
Because this method is purely based on an individual’s cost-benefit analysis, the strong reliance on money is not ideal for every organization.
How Does this Work and Which Companies Can Benefit from this Approach?
Organizations using this approach usually employ four different cost accounting methods.
1. Historical Cost Method:
To determine the worth of a human resource, the total of all costs connected to human resources is added together. These expenses include the costs of an organization’s human resource recruitment, selection, training, placement, and development.
So, this accounting method includes the acquisition cost and learning cost, and both of them are self-explanatory. Besides the simple explanation, working with this method is also easy.
2. Present Value Method:
The future earnings of employees are estimated up to the period of retirement and then discounted at a discount rate. The discount rate is generally the cost of capital calculated with the present value method.
Another version of this method is the economic value method. This measures the employee’s current worth based on the predicted future service until the day of their retirement.
This method is more precise because it takes into account the employee’s contribution to the company over the entire period. Moreover, the probability of the employee leaving the company in the midst of their death is also considered.
3. Replacement Cost Method:
This method considers the cost of replacing an existing human resource with an equivalent and capable of providing equal services. Hence, the name replacement cost.
It is a realistic calculation model that defines the employee’s abilities and responsibilities regarding their contribution and the manifestation of the same in the next best candidate.
As a result, we are looking at a logical and representative method, which can easily provide real-time value.
4. Asset Multiplier Method:
Under this method, there is no direct relationship between the cost of human resources and their benefit to the company.
The real value of human resources is determined by a variety of factors, including employee motivation and attitude toward work and the organization.
This method is easy to understand and gathering data or information about the variables included is also easy.
With these four accounting methods, human resource accounting is made easier and more approachable. The purpose of using this method is to ensure effective management and gathering of information.
Besides evaluation, we can use these methods to acquire, develop, and retain human resources in an organization.
Based on the understanding of the four methods and the main accounting exercise, this performance evaluation process is good for companies that value their employees to the highest degree. So much so that the contribution of one employee can make or break the company.
How to Ensure a Smooth Implementation of the Performance Evaluation Process?
Performance evaluations help with multiple aspects of building and retaining a productive workforce. The methods and processes implemented under the evaluation exercise need to be precise, accurate, and efficient enough to make a difference in the organization.
If not, then it only allocates resources to a process that does not give you the intended results. Employees and managers alike sometimes dread the annual performance evaluation. However, if both parties are aware of how a performance review works, it can be a source of motivation and reward.
As we have already discussed how a performance evaluation process works, here are some things to remember while working on the same.
1. Make it a Two-Way Conversation
Performance evaluations should not only be more regular, but they should also be more interesting. Employees and managers should contribute equally to the discussion, and employees should be just as committed to planning as managers.
Besides this, there isn’t a one-size-fits-all method for all performance meetings. In every meeting, the main participant shall work to foster trust, dissipate fear, provide clarity, and demonstrate business goal alignments. In other words, the tabled discussions should not always be about performance and metrics.
Instead, you can devote some time to talk about other things as well, including;
- Challenges to employee engagement
- Understanding the organizational goals and objectives.
- Feedback from peers, supervisors, customers, and managers.
- Messages delivered by the key leadership.
So, make it a diverse communication system rather than focusing on numbers and metrics. That said, when dealing with staff, the supervisor should avoid being overly negative or positive. Even to convey discontent, always choose the most humble and favourable way.
2. Align the Employee Performance Appraisal with the Future
Performance assessments have always focused on the past. It includes things like.
- How did the year go?
- What went well?
- What didn’t go well?
Employees can’t change the past, so being judged on events over which they have no control is a bit disconcerting and counterproductive if you are not allowing them to learn from their mistakes and improve the future.
Learned employees who understand and value the importance of constructive feedback can control and manage what happens in the future.
That is why the future should be the subject of the majority of your performance discussions. While it’s important to reflect on the past, managers and employees should also devote time to planning for the future.
3. Be Specific in the Review
Every performance evaluation review should be specific and detailed. Anyone can give general feedback to the employee based on one day’s work. However, after working on a performance evaluation system, you cannot generalize the results.
Instead, your employees want to hear specifically how they are performing and what they must do to make it better. Make sure to highlight the behaviour employees should start, stop, or change.
4. Prepare Well and Ahead
The discussions that follow a performance evaluation procedure should not be done impromptu. As a manager conducting the performance reviews, you need to prepare well for the same and jot down the topics that will be discussed with each employee.
Another thing that you can do is ask the employee to write down the things they have done in the last year, of which they are proud. Then match the things the employee has written with your points and areas that are to be discussed.
Executing the Employee Performance Evaluation
Evaluating an employee working in the organization is a process and a beneficial one. Its success and outcome depend on your execution. That said, here is the general process you must follow irrespective of the evaluation method you use.
Here is the general process to follow;
1. Choose the Right Method or Evaluation Form:
To ensure homogeneity throughout the execution process, you need to choose the right evaluation method and the following form. To ensure honest and unbiased evaluation, you need to consider the employees’ interests from several aspects, including legal, fair performance assessments, consistency, and objectivity.
Using a consistent assessment method for each evaluation is one technique to assure consistency.
2. Set your Goals:
The first step in any evaluation process is to establish the criteria by which supervisors will evaluate and rank the employees. The goals act as a beacon directing the supervisor and managers in the right direction, and they need to follow the right workflow.
To keep track of the goals, the HR and Admin departments can utilize modern-day solutions to build bespoke workflows. These workflows can keep track of the execution process and ensure that only the intended people have access to the entire exercise.
This is normally accomplished by goal-setting, which is usually chosen by the department head, the company president, or a combination of the two. It’s not uncommon for employees to set goals that are a mix of business and department goals.
The leadership must set the evaluation criteria according to the job role and responsibilities. Not every employee will have the same responsibilities. Hence, the evaluation criteria must also be specific to the job. They also need to build some quantitative measures to assess the performance.
3. Set Feedback Guidelines:
Providing the right feedback to the employee is an important part of the performance evaluation process. When you are working on the performance review system, make sure that everyone involved in the process understands what sort of feedback must be given, how to give it, and how to extract it from the employee.
Outline the expectations you have from an employee in terms of improvement. Your employees should very well understand that sort of behaviour and performance are acceptable.
4. Set a Schedule:
Always set a reasonable schedule for the performance evaluation methods. Make sure to gather all the resources and materials before the evaluation timeline starts and divide the process into appropriate segments.
5. Execution and Discussion:
As you execute the evaluation process and method, it must be followed by a 1-to-1 discussion between the employee and the managers. Execution, in the true sense, is the final stage of the performance evaluation process.
This is normally done in a face-to-face meeting, and it entails going over each goal that the employee and manager set together. And determining whether the employee has fulfilled the goal.
This is also a good time to go through the employee’s self-evaluation and get feedback from the management. If the employee’s performance is linked to remuneration or bonuses, the manager can bring it up with the employee.
In case the employee has not met the goals and completed the performance objectives, it is the right time to discuss and create an improvement plan that will guide the employee in the right direction and help them fulfil the goals.
A performance evaluation process is integral to nurturing an efficient and productive workforce. Every organization wants employees who are diligent with their work, are honest and can fulfil their goals. The completion of these goals and the entire process majorly depends on the right performance appraisal method.
Choosing the right method helps identify your behaviour and evaluation process towards your employees and your concern about their mental health, motivation to work, and morale.
Once you’ve selected the best performance review approach for your purposes, execute it to close important performance gaps and solve pressing issues that have an influence on ROI.
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