Performance appraisals are an opportunity for companies to address shortcomings, recognize wins, and strengthen their workforce. When conducted effectively, appraisals can uncover development opportunities and provide justification for compensation decisions.
While performance appraisal systems vary across companies, consistency within the organization is key to driving business growth and strengthening company culture. This guide explores the core elements of performance reviews, the different types of appraisals, and practical examples.
What is a performance appraisal?
A performance appraisal is a formal evaluation where a manager reviews an employee’s job performance over a set period, typically annually or semi-annually. The main purposes of these reviews are to:
- Measure performance against established metrics and expectations.
- Highlight employee strengths, contributions, and accomplishments.
- Address areas for improvement and any performance concerns.
- Establish objective criteria for pay raises and bonuses.
Unlike informal feedback shared in day-to-day interactions, performance appraisals follow a structured process and are recorded in the employee’s file. Managers use them to inform decisions about career development and compensation. For employees, they offer a clear path forward, boosting retention and motivation.
How does a performance appraisal work?
While every company can tailor its annual performance appraisals to fit its needs and culture, the following steps provide a strong foundation:
- Set a structured protocol: Performance appraisals should follow a clear system, rather than being an off-the-cuff conversation. While the discussion can remain conversational, sticking to a protocol ensures fairness and consistency across employees.
- Identify who to include: Not every employee may require a formal review. Focus appraisal resources on teams and individuals whose performance has a direct impact on company growth.
- Develop a performance plan: Before the review, establish measurable metrics such as sales targets or project completion rates. These provide an objective framework for evaluation. If standards aren’t set yet, collaborate with employees to define expectations and key performance indicators, updating them as roles evolve.
- Give the review wider context: Link performance discussions to the company’s broader strategy and the employee’s own development. Explain how meeting specific goals impacts business success, and clarify how exceptional performance can lead to recognition, promotions, or bonuses. This approach shows employees the outcomes of their work and ties achievements to career growth and compensation.
Types of performance appraisal
Just as the way you conduct appraisals should reflect your company’s needs and culture, so should the model you choose to implement. Here are some of the most common and effective types:
- 360-degree feedback: This employee appraisal method provides a holistic view of job performance. In addition to management’s perspective, the company gathers feedback from peers, direct reports, and even clients. For roles where customer interaction is key, this can reveal insights other stakeholders might miss. It also uncovers situations where an employee meets targets but may be difficult to work with—information that’s crucial for strong team dynamics and long-term success.
- Management by objectives: This method focuses on results by collaboratively setting clear, measurable goals that align with company objectives. During the review, it’s easy to evaluate whether an employee delivered. For example, an SEO specialist might have an objective to increase organic search traffic for their client base by 25% over six months. These types of goals provide clarity and make performance evaluation more straightforward.
- Behaviorally anchored rating scales: This technique assesses performance using specific behaviors tied to job responsibilities. For instance, a UX designer at a tech company might receive a score of five for consistently integrating client feedback and reducing project revisions. This method offers concrete, observable criteria for evaluating performance.
- Narrative appraisal: This qualitative approach involves management writing a detailed summary of an employee’s strengths, weaknesses, and accomplishments. While harder to standardize across an organization, narrative appraisals allow for nuanced assessments tailored to individual employees.
Performance appraisal examples
Here are some hypothetical appraisal examples that highlight specific employee behaviors and how you might assess them.
Punctuality
Is the employee on time for work, meetings, and deadlines?
- Positive appraisal: Betty is always on time and prepared for meetings. This punctuality extends to her projects—she never misses a deadline and often delivers error-free work early.
- Negative appraisal: James has been late for several meetings this quarter, which has set the agenda and project back. This creates a domino effect where others must spend time bringing him up to speed, hurting the team’s productivity.
Accountability
Does the employee take ownership of their tasks and assignments, accepting responsibility for all outcomes?
- Positive appraisal: Carlos consistently takes ownership of his work and proactively addresses potential problems before they escalate. After failing to update a client file, resulting in a delivery delay, he personally reached out to the customer, ensuring the relationship stayed strong.
- Negative appraisal: Este has missed three deadlines so far this year. Instead of taking accountability, she blamed external factors, such as the administrative process, undermining trust and slowing progress.
Communication
Does the employee collaborate effectively and share information with management, peers, and clients? Do they listen actively to understand and solve problems?
- Positive appraisal: Robert communicates exceptionally well. During weekly meetings, he takes notes, helps set the agenda for the next meeting, and often summarizes key points to keep projects on track and aligned.
- Negative appraisal: Rebecca’s delayed responses to management and coworker requests have created bottlenecks. Her slow reply to a sales assistant allowed a client to fill an urgent order elsewhere, resulting in lost revenue.
Ensure fair rewards with Oyster
To be effective, performance appraisals must be tied to clear benchmarks and compensation strategies. Oyster’s Salary Insights Tool helps companies align performance outcomes with competitive pay in every market, while Global Payroll ensures accurate, compliant compensation delivery worldwide. Integrating proven performance appraisal systems with Oyster’s tools helps build trust and strengthen company culture.
Book a demo with Oyster today to learn more.
FAQ
What are the benefits of a performance appraisal?
Performance appraisals provide employees with valuable feedback that boosts engagement. They highlight strengths, reveal areas for improvement, and align employees with company goals.
What is a performance management model?
A performance management model is a system that integrates continuous feedback, not just a one-time evaluation. Regular check-ins, combined with formal appraisals, foster ongoing collaboration between managers and employees and make it easier to track progress.
What are the drawbacks to performance appraisals?
Performance appraisals are sometimes considered a one-sided rating system that can be inherently biased. Many experts recommend supplementing annual review with ongoing feedback that fosters continuous growth throughout the year. Companies can also combine multiple perspectives, as with 360-degree feedback, and use clear, objective metrics to guide evaluations.
About Oyster
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