Most employees undergo a performance appraisal every year, but 30 percent say these reviews have either no impact or a negative impact on their performance. The same study found that 43 percent of employees said the reviews didn’t help them understand what they need to do to improve performance.
While improving performance is certainly one goal to keep in mind, the objectives of a performance appraisal go beyond that.
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Performance appraisals can also be good for setting employee goals, deciding who gets promoted, supporting a salary increase, and other business objectives. When you’re conducting a performance appraisal, keep these goals in mind to help you give a more effective review and make the most of the time you spend doing it.
1. Help employees set goals
One of the most important objectives of a performance appraisal, after improving performance, should be to help employees set goals for the coming year. Employees need to know what you expect them to do and whether the goals are geared toward customer service, operations, or professional development.
The goals you help employees set should be specific, measurable, achievable, relevant, and timely (SMART). For example, a SMART goal related to professional development could be to earn a credential in the next six months by attending a certification course.
2. Motivate high performing employees
Performance appraisals are a great opportunity to let employees know what they’re doing right and how they can do more of it. The process itself will let you communicate to employees what superior performance looks like, whether that’s short resolution times for customer service calls or thinking fast in a crisis.
Since most people want to be high performers — it usually leads to a raise and/or a promotion — giving your employees this information will leave them with something to aim for. They’ll also be looking for examples in their own work to point to once they know what “high performing” means in your organization.
3. Counsel underperforming employees
It’s not an ideal situation, but the performance appraisal process also gives you an opportunity to counsel employees who aren’t meeting company standards. Maybe an underperforming employee hasn’t set goals, or maybe they need to better learn their job or skills related to their job. If this is the case, you can help them come up with an action plan to improve their performance.
In a situation like this, you’ll want to point out the employee’s strengths as well as their weaknesses. The employee likely knows that they’re not up to par, and as a manager, you’ll need to work with them to find out why their work isn’t satisfactory and formulate a plan to help them improve.
4. Support for raises and promotions
A lot of companies already tie performance appraisals to raises and promotions, as pay is often in line with an employee’s performance. When you take the time to measure how an employee is doing and review whether they’ve met the goals set for the previous period, it’s much easier to determine how much you’ll boost their pay or if they’re ready to move to the next level in your organization.
Performance appraisals enable you to identify which team members are performing the best. This might be easier in a department that uses hard numbers to measure performance, like sales or customer service. But you’ll see a common theme among most top performers, like high-quality work and the desire to continuously improve. You should be able to reward them accordingly.
5. Plan for new hires
If you’re conducting regular performance appraisals and noticing a common theme, such as employees being stretched too thin, this can help you build the case for hiring additional employees. You can figure out which departments are well staffed and which ones need more talent to help get the work done.
Performance appraisals can also help you identify the hidden gems in your organization who have the potential to move up or even be a benchmark for future hires. For example, if an employee is regularly meeting goals that you’ve set in previous reviews, you can use the results to gauge how well they execute on those goals.
6. Determine overall training needs
Part of the performance appraisal process will be to determine which employees need individual training. As you do this, you can plan the overall training budget and prioritize training for the entire organization. This can also help you measure how effective your current training practices are.
For example, you might notice that most of the finance department is struggling to understand how to best use the new billing software, even though the IT team has already run a training workshop. In that case, it might make sense to arrange for a group training customized for your organization and led by a third party that can better explain how to use the software.
7. Create a paper trail
Almost no one likes to think about this, but if you have to terminate an employee or transfer them to another department, they could legally challenge the decision. A performance appraisal can be a form of evidence that the employee was treated fairly, particularly if the employee complains about discrimination. For example, if the performance appraisal notes that the employee hasn’t been meeting sales quotas, that can help the company’s lawyer defend a claim if the employee sues the business.
There are several objectives for performance appraisals. When you’re preparing for an appraisal, keep all of these goals in mind so that you can make sure you’re using the time wisely and providing employees with an effective review.