Performance Management Vs Performance Appraisal: Understanding The Key Differences
Managing Performance: More than Just Appraisals: Performance management is a continuous process focusing on improving employee skills and contributions, beyond annual performance appraisals.
Appraisals: Just the Tip of the Iceberg: Performance appraisals are a part of performance management but mainly serve as formal evaluations usually conducted once or twice a year.
Feedback: The Fuel for Employee Growth: Regular feedback through performance management helps guide employees toward success, ensuring ongoing development.
The difference between performance management and performance appraisal can be a bit blurry for both managers and employees alike.
Though the two terms are often used interchangeably, these two processes serve distinct purposes. Knowing when and how to use each approach can make a world of difference in managing and supporting employee growth effectively.
Let’s get into the nuts and bolts of these two drivers of performance.
What Is Performance Management?
Performance management is a strategic, ongoing process designed to improve employee performance over time. Rather than focusing solely on past achievements, it prioritizes regular feedback, goal-setting, and coaching to help employees reach their potential while aligning their work with organizational goals.
It uses a mix of a manager's perception and data points collected through performance management tools which highlight long term trends.
Objectives of performance management
The primary objectives of performance management include aligning individual performance with company objectives, fostering long-term employee growth, and promoting continuous improvement.
This approach benefits both employees and the organization by supporting skill development and encouraging employees to meet and exceed expectations.
For example, if a sales team aims to increase revenue by 20%, performance management ensures that each member understands their role and receives regular feedback to help them contribute to the team’s goal.
Approaches to performance management
Companies often use specific goal setting frameworks for performance management. Some good examples of these are things like SMART goals (Specific, Measurable, Achievable, Relevant, and Time-bound) or OKRs (Objectives and Key Results) to set clear, measurable goals that align with company objectives.
Performance management also involves regular check-ins, coaching, and mentoring to ensure ongoing support and improvement. Managers may use tactics like weekly check-ins or employee feedback platforms to foster continuous communication, making it easy for employees to adjust their efforts to align with expectations.
Examples of performance management in action
Several companies have effectively implemented performance management systems to enhance employee development and alignment with business goals. Some high profile examples include:
- Adobe’s “Check-In” System: Adobe replaced traditional annual reviews with a “check-in” system, encouraging continuous feedback between managers and employees. This approach allows Adobe to maintain regular dialogue around goals, feedback, and employee progress without formalized rating scales. As a result, employees receive real-time performance insights and areas for growth.
- Eli Lilly’s Focus on Individual Development: Pharmaceutical giant Eli Lilly uses a personalized performance management approach that combines regular feedback, development plans, and mentorship. Managers work with employees to set clear, personalized goals that align with both individual career aspirations and company objectives, fostering engagement and motivation.
- Deloitte’s Project-Based Reviews: Deloitte introduced a project-based performance review system where feedback is given at the end of each project or quarter rather than on an annual basis. This approach allows managers and team members to discuss specific project outcomes and improvement areas while memories are fresh. By focusing on regular, project-specific feedback, Deloitte helps employees develop skills relevant to their roles and adapt quickly.
Methods of Performance Management
Performance management is a proactive approach meant to ensure that employees have the support and resources they need to succeed in their roles, which benefits both the individual and the organization.
Here are some of the most common methods for performance management.
Regular check-ins and feedback
Frequent conversations between managers and employees allow for timely feedback, ensuring that employees stay aligned with expectations. This approach helps prevent small issues from becoming larger problems.
Some things to touch on in your regular check ins include:
- Celebrate Wins: Acknowledge recent achievements, no matter the size. Positive reinforcement can boost morale and motivation.
- Discuss Challenges: Identify any obstacles or roadblocks and brainstorm solutions together. This shows support and helps remove barriers to performance.
- Skill Development: Explore areas for growth or new skills the employee may want to develop, aligning with both their career goals and company needs.
- Provide Constructive Feedback: Offer specific, actionable feedback on areas where they can improve based on recent performance and trends in their productivity. Keep it constructive to foster a positive atmosphere.
- Gather Feedback from the Employee: Ask for their input on the role, team, or any tools/resources they need. This opens up a two-way dialogue.
- Update on Team/Company Changes: Briefly inform them of any recent changes within the team or organization that might affect their role or the work they can expect to be doing.
- Set Next Steps: Summarize the key points from the check-in and outline agreed-upon next steps or action items.
Developmental plans and coaching
Personalized development plans and coaching sessions help employees build skills, address weaknesses, and prepare for future roles within the organization.
This is an important aspect in improving employee satisfaction with performance management, as a Gartner study shows that only 46% of employees currently feel supported by their organization in their professional development.
Increasing learning and development budget
L&D budgets typically vary by organization size. You might think that the average training cost per employee is higher at larger companies where there’s more resources and a greater need for succession planning. But in actuality, a breakdown from WorkRamp shows that development budgets are greater on a per employee basis at smaller orgs.
- $16.1 million at large companies, for an average of $481 per employee
- $1.5 million at midsize companies, for an average of $751 per employee
- $459,177 at small companies, for an average of $1,420 per employee.
Increasing the budget and empowering employees to take advantage of training opportunities puts you in a position to develop employees in ways they value.
“We offer every employee an unlimited learning budget for conferences, courses, and anything else that would help them hone in their skills,” says Justina Raskauskiene, HR Team Lead at Omnisend. “This allows our employees to create a personalized training program for themselves, helping them focus on specific areas of improvement. In return, the company gains a significantly more engaged and skilled workforce, while the learning budget itself acts as a tool for employer branding.”
What Is Performance Appraisal?
Unlike performance management, performance appraisal is a structured, periodic evaluation of an employee’s past performance. This is also called the performance review and it's just one part of a performance management cycle.
Typically conducted annually or semi-annually, it provides a formal review of achievements, strengths, and areas for improvement, often leading to administrative decisions regarding raises, promotions, or disciplinary actions.
Like performance management, there are specific tools developed for this employee evaluation process and which can be helpful in making these assessments resonate with employees.
How does performance appraisal work?
Performance appraisals typically involve four key steps:
- Gathering Data: Managers collect data on employee performance, including metrics, achievements, and relevant feedback.
- Goal Review: The employee’s performance against previously set goals is evaluated.
- Appraisal Meeting: Managers and employees discuss performance, strengths, and areas for improvement.
- Feedback and Goal-Setting: The appraisal typically ends with setting goals for the next evaluation period.
Performance appraisals focus primarily on assessing past performance, providing employees with constructive feedback, and setting expectations for future performance.
Intersections Between Performance Management and Performance Appraisal
While distinct, performance management and performance appraisal often intersect and complement each other in practice.
Performance appraisals as a component of performance management
Performance appraisals can serve as a component within the broader framework of performance management.
For instance, a formal appraisal may be conducted annually within a continuous performance management process, allowing managers to make informed decisions while supporting long-term employee development.
Shared goals between the two approaches
Both performance management and performance appraisal share the goal of improving the ability of employees to achieve their goals. They help identify strengths and areas for growth, though they approach this goal differently.
Performance appraisals offer a formal assessment, while performance management provides ongoing guidance and development. Together, they create a comprehensive approach to employee performance.
Types Of Performance Appraisals
Performance appraisals can take many forms, each offering unique insights into an employee’s work, skills, and potential areas for improvement. Here’s a look at some of the most common appraisal types.
Behaviorally Anchored Rating Scale (BARS)
The Behaviorally Anchored Rating Scale (BARS) method uses both quantitative and qualitative data to evaluate employee performance. In BARS, specific behaviors are rated on a scale that represents various levels of performance for a given job role.
For example, a customer service representative might be rated from "needs improvement" to "exceeds expectations" based on specific, observable behaviors like response time or tone in interactions with customers.
This method provides a balanced view by combining numerical ratings with clear behavioral descriptions, making it easy to see where an employee excels or needs improvement.
Management by Objectives (MBO)
Management by Objectives (MBO) is a popular performance appraisal method where managers and employees collaborate to set specific, achievable goals. In an MBO process, objectives are clear, measurable, and often tied to broader organizational goals.
For instance, a marketing team may set an MBO to "increase lead generation by 15% over the next quarter." Regular check-ins ensure that employees stay on track, with the final appraisal focusing on whether the objectives were met.
MBO is particularly effective for goal-driven roles, as it directly aligns employee performance with company success.
Assessment center method
The assessment center method is an interactive way of evaluating employee performance by simulating real-world situations.
Employees participate in exercises such as role-playing, problem-solving, and group activities, which assess skills like leadership, decision-making, and teamwork.
For example, a sales employee might go through a role-play negotiation scenario to assess their ability to sell and interpersonal skills. This method helps employees understand how their performance impacts the business and how they are perceived by others. It’s often used for leadership development and positions requiring strong interpersonal skills.
Critical incident method
The critical incident method evaluates an employee’s performance based on past incidents that had a significant impact on their role or the organization. Managers document both positive and negative incidents, like a time when an employee successfully resolved a customer complaint or failed to meet a deadline.
By focusing on specific incidents, this method provides a detailed view of an employee’s actions during key moments, helping to identify patterns in behavior. It’s a useful method for roles that require quick decision-making and adaptability.
Rating scales
Rating scales are one of the most widely used appraisal methods, employing numerical or descriptive scales to measure specific aspects of employee performance, such as productivity, teamwork, and problem-solving abilities.
For example, a manager might rate an employee's communication skills on a scale of 1 to 5, where 1 is "needs improvement" and 5 is "outstanding." This method provides a structured way to evaluate performance across various criteria, making it suitable for both technical and non-technical roles.
Self-assessment
In self-assessment, employees are asked to evaluate their own work, strengths, and areas for improvement. This method promotes reflection and self-awareness, as employees analyze their performance and set personal goals.
Self-assessments encourage employees to take ownership of their performance and can reveal insights that managers might otherwise overlook, fostering a sense of accountability and engagement.
Checklist method
The checklist method uses a list of statements that describe various aspects of employee performance and behavior, which the manager then checks as "yes" or "no." This method is simple and straightforward, focusing on whether specific tasks or behaviors have been observed.
A checklist for a project manager might include statements like "meets project deadlines" or "communicates effectively with team members." It’s a practical method for evaluating basic job responsibilities but may lack the depth of other, more detailed appraisals.
Peer assessment
In peer assessment, colleagues rate an individual’s performance, providing insights into how the employee is perceived within the team. This method is valuable for roles that rely heavily on teamwork and collaboration, as it highlights interpersonal skills and group dynamics.
For example, peers may assess a team member’s reliability, communication style, or ability to contribute positively to projects. Peer assessments can promote accountability and offer a balanced view, as feedback comes from those who work closely with the individual daily.
360-degree feedback assessment
360-degree feedback is a comprehensive evaluation method that gathers input from multiple sources, including the individual, their supervisor, peers, and sometimes even clients.
This method offers a well-rounded perspective on performance, particularly for leadership roles or positions that involve cross-functional collaboration.
A project manager might receive feedback from team members, their supervisor, and other department heads to get a full view of their effectiveness. The 360-degree feedback method fosters a culture of openness and continuous improvement by considering multiple viewpoints.
Negotiated appraisal
In a negotiated appraisal, a neutral third party or mediator facilitates the evaluation process, focusing on what the employee is doing well rather than just areas for improvement. This method helps reduce tension and defensiveness by fostering a more positive and constructive conversation between the manager and employee.
The mediator’s role is to guide both parties through a balanced review, ensuring that strengths are recognized and any performance issues are addressed in a supportive way. This method is particularly useful for managing conflict and promoting employee buy-in.
Differences Between Performance Management And Performance Appraisals
Although they are related, performance management and performance appraisals differ in several key areas:
Timing and frequency
Performance management is continuous and happens in real time, with frequent check-ins and feedback, while performance appraisals are typically annual or semi-annual.
Focus areas
Performance management focuses on future development, while performance appraisals assess past performance.
Decision-making
Appraisals often drive administrative decisions, like raises or promotions, whereas performance management is more about development and skill-building.
FAQs
How often should performance appraisals be conducted?
Typically, annual or semi-annual appraisals are most common.
How does performance management support employee development?
By offering continuous feedback and guidance, performance management fosters skill-building and growth.
Can performance management and appraisals work together?
Yes, appraisals can be part of a performance management strategy, providing formal assessments within a continuous improvement framework.
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