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Performance Management Vs. Performance Appraisal

high potential
Post Hire
Author:
Pratisrutee Mishra
May 26, 2024

As we step into the time crunching session of performance evaluation, It is about  time we clear misconceptions and rectify misconducts. To start with, we can look into the usage of terms like 'performance appraisal' and 'performance management'. Interchangeable usage of these terms may affect your evaluation strategies, talent development efforts, and even confuse your workforce. 

Some reasons why HR departments often use it synonymously is because of semantic blur (similar context and sound of words), lack of awareness, historical prevalence, and modern day combination utility. 

There are many intricate details that pinpoints the difference between performance management and appraisal. Hop on and let us take you on a virtual ride down the path of clarity on performance management vs performance appraisal. And to also help you understand how the seamless integration of both the methods can help you and your organization.

What Is Performance Management?

Performance Management is an ongoing process of employee evaluation often conducted in short intervals. This improves the engagement of the workforce as they feel noticed in their job role. It involves setting clear expectations, aligning individual goals with organizational objectives, providing continuous feedback, and evaluating results. 

Performance management ensures that employees’ skills and potential are not only acknowledged but also elevated with the right learning and development planning. It leads to overall individual success and satisfaction, as well as organizational evolution. By fostering a culture of growth and accountability, performance management enhances productivity, engagement, and employee development.

Objectives of Performance Management

Performance Management, unlike the traditional appraisal system, aims to capture the raw information about employee performance. This helps in tracing a much more accurate profile of all contributions made by the employee. Moreover, performance management reviews suggest training requirements and the right orientation of employees in a team.

An effective Performance Management process fulfills the following broad purposes:

Enhancing Productivity

Aligning individual goals with organizational objectives ensures relevant contribution, ultimately boosting productivity. When employees’ goals are linked to business priorities, 46% of respondents report effective performance management, compared with 16% at companies that don’t follow this practice.

Employee Development

Performance management facilitates skill development, identifies training needs, and supports career growth. Companies with effective performance management systems are 60% more likely to outperform their peers in the past three years. 

Motivation and Engagement

Regular feedback and recognition boost morale of the employees, leading to higher job satisfaction and retention. Engaged employees are 87% less likely to leave their roles.

Improves Communication

It is observed that when teams communicate effectively, they may increase their productivity by as much as 25%. And 46% of performance management leaders believe their managers are good at joining dots of organizational expectation and employee ability. 

Approaches for Conducting Performance Management

There are many approaches to performance management used all around the globe. This varies on the basis of team size, nature of industry, and work culture. Here are some basic models known for its effective use for performance management, which one resembles yours the most?

Traditional Model:

The annual performance review remains relevant for many organizations. It works well for teams with long-term, yearly goals and fixed plans. However, employees must stay with the organization for at least a year to receive feedback or improvement suggestions.

Bi-annual Model:

This approach breaks the traditional model into two sections, evaluating employees twice a year. It strikes a balance between regular feedback and manageable review cycles. The common shortcoming in this model is, they may miss out on the high productivity phases of the employees. Using right performance evaluation tools such as psychometric assessments in these models may improve its efficiency.

Continuous Conversations:

Here, ongoing discussions around performance and development are encouraged. This ensures real-time feedback and recognition, ultimately contributing to employee engagement. However, to employ this model it requires  strategic planning, as regular managerial check-ins may be time consuming for the leaders as well as the team. 

Performance Roadmaps:

Performance Roadmaps help to create clear performance expectations and goals. These roadmaps guide employees toward success and help managers provide targeted support. It can help employers track the progress as well as the prospecting direction of work to be mapped. However, this process suffers from the disadvantage of data inaccuracies.

Mentorship Programs:

Pairing employees with mentors who can offer guidance, share best practices, and foster growth is also an approach shared by many organizations. By the time of the review process,  the individual mentors can share their experiences of working with the employee, highlighting their strengths and weaknesses at work. However, this process can be biased on the side of both employees as well as the mentors depending on their perception of each other.

All in all, it is clear that no matter what models you may have at your organization, use of the right tools is what makes them work. Online post-hire assessments that significantly contribute to performance management as it fits in well with all performance management models. It makes the process less hectic or time consuming. It also holistically assesses your employees potential and capacity for improvement. Some highlights of post-hire assessments are as follows: 

  • They measure multifaceted abilities, including personality traits, cognitive aptitudes, and potential of the employees.
  • By providing standardized and objective information, they add an evidence-based approach to the selection process.
  • They help assess suitability for specific job roles and predict potential job performance.

Performance-Management Programs

Performance management when done right, plays as a strategic workforce planner. It enhances right orientation of employees, encourages performance, and assures short term and long term goal alignment. Moreover, it fosters a culture of continuous improvement in the workplace. Here are some key aspects of performance-management programs:

Setting Clear Expectations:

Organizations establish clear expectations for employees. This involves defining roles, responsibilities, and performance standards. Employees need to understand what is expected of them and how their work contributes to overall organizational success.

Individual Objectives and Goals:

Performance management involves setting individual objectives and goals that align with team and organizational targets. These goals should be specific, measurable, achievable, relevant, and time-bound (SMART goals).

Ongoing Feedback:

Regular feedback is crucial. Managers provide constructive input to employees throughout the year. Real-time feedback helps employees understand their progress, make necessary adjustments, and stay motivated.

Evaluation and Results:

The performance management process culminates in an annual performance appraisal. Managers evaluate employees based on their achievements, contributions, and alignment with organizational goals.

Career Decisions:

Promotions, bonuses, and other career decisions are linked to performance management. High-performing employees are identified and recognized, and are also rewarded appropriately.

Examples of Performance Management

Performance Management isn’t a one-size-fits-all solution. Industry context, organizational culture, and employee needs, all influence the effectiveness of these practices. By continuously adapting and refining performance management, companies can drive growth, innovation, and employee satisfaction. Some challenges of performance management are as follows:

Importance of Fair Systems

Fairness ensures buy-in from all stakeholders and encourages active participation in the process.

Best practice: Establishing a performance management system perceived as fair by employees and managers is critical.

Balancing Formality and Flexibility

Overly rigid systems can stifle creativity and adaptability, while overly informal approaches lack accountability.

Best practice: Using the natural difference between performance appraisal and performance management can help you build a form of effective combination model. Furthermore, choosing the right employee assessment tools guarantees a bias free and flexible approach to both performance management and performance appraisal processes.

Linking Goals to Business Priorities

Many companies struggle to create this alignment, resulting in fragmented efforts and misaligned priorities.

Best practice: Right identification of managers who can align individual goals with broader business objectives is pertinent. It is true, when employees understand how their work contributes to organizational success, they are more motivated and engaged.

Effective Coaching

Some organizations still rely heavily on infrequent, formal performance reviews, missing out on the benefits of real-time feedback.

Best practice: Regular coaching and feedback outside of annual reviews leads to better performance outcomes. Managers who provide ongoing guidance help employees improve continuously.

Differentiation and Rewards

Some companies hesitate to differentiate, fearing it might demotivate low-performing employees. However, failing to recognize top performers can lead to attrition and disengagement. 

Best practice: The bell-curve method of identifying performance ranges can help you differentiate the types of performers in three distinct categories (high, low and average). Use of high potential assessments can help you find your hidden gems. High performers should be recognized and rewarded appropriately. 

Industry-Specific Considerations

Different industries have different performance management and appraisal methods that they ideally follow. For example, Manufacturing companies may employ multiple performance management systems tailored to different employee groups (e.g., sales, production, executives). Similarly, Tech startups often prioritize continuous feedback and agile goal-setting due to their dynamic environment. Also, Healthcare organizations face unique challenges related to patient care, where performance directly impacts outcomes.

What Is Performance Appraisal?

The difference between performance management and performance appraisal can be subjected to various aspects including scopes and goals. While performance management forecasts the future potential of the employee, performance appraisal often looks at the past merits and achievements of the workforce. It plays a key role in evaluating an individual’s achievements, strengths, and areas for improvement.

How Do Performance Appraisals Work?

Performance appraisal and management, both follow specific steps to evaluate employee performance. It steps up from goal setting to feedback sessions, and therefore, understanding how the process works is essential for effective performance appraisal. The framework that influences both performance appraisal and management is as follows: 

  • Purpose: Performance appraisal focuses on evaluating an employee’s past performance over a specific period (usually annually). It aims to provide feedback, identify development needs, and make decisions related to promotions, bonuses, and career growth.
  • Components: Performance appraisals typically include discussions between employees and their managers, self-assessments, peer feedback, and ratings based on predefined criteria.
  • Frequency: They occur periodically (e.g., annually, quarterly) and are often formalized through structured meetings.

Types of Performance Appraisals

Different organizations use various methods to conduct performance appraisal and management. Some common methods of appraisal are the comparative, bell-curve, and attribute method, as well as the behavioural, result-based, and the quality based method. Each one of these works for specific objectives and could also be an ideal fit for some industry or some size of workforce. To read more about these types, head over to 'blog'.

Criticism of Performance Appraisals

While performance appraisals have their benefits, they also have their fair share of  criticisms. Understanding these drawbacks helps us improve the process:

  • Subjectivity: Appraisals can be influenced by biases, personal opinions, and favoritism.
  • Stress and Anxiety: Employees often feel anxious about the appraisal process.
  • Focus on Past Performance: Traditional appraisals emphasize historical performance rather than future potential.

In order to aid these disadvantages of performance appraisal, it is necessary for HR professionals to adopt sophisticated HRTech. Tools like engagement surveys, job satisfaction surveys, post employment assessments, can be a very impactful alternative to traditional performance appraisal systems.

When Should a Performance Appraisal Take Place?

Timing matters! The frequency of performance appraisals determines how accurate your performance evaluations would be. It can vary based on several factors, including industry, organizational size, and leadership preferences. Let’s explore these considerations:

Industry

Manufacturing and Traditional Industries often follow annual appraisal cycles. This allows managers to evaluate an employee’s performance over a year. The focus is on consistency and aligning performance with long-term goals.

Tech Startups and Dynamic Industries prefer more frequent appraisals, such as quarterly or biannual reviews. Agile environments benefit from ongoing feedback and adjustments.

Healthcare and Service Industries look for a balance between regular check-ins and formal appraisals. This is because patient care and service quality impact performance expectations.

Organizational Size

Large Corporations often conduct annual appraisals due to the scale and complexity of managing a large workforce. Formal appraisal processes ensure consistency across all departments in the big organizations.

Small and Medium-Sized Enterprises (SMEs) may opt for biannual or quarterly reviews. Flexibility of appraisal systems allows for tailored approaches based on individual needs.

Leadership Preferences

Top-Down Leadership: Hierarchical organizations tend to follow annual cycles. Leadership decisions drive the timing and structure of appraisals.

Collaborative Leadership: Organizations with participatory leadership may adopt continuous feedback. Managers and employees jointly decide when to assess performance.

Objectives of Performance Appraisal

Now that we know how performance appraisal methods differ during various stages and the nature of an organization, it is important to understand the underlying goals. What change does performance appraisal aim to bring? It is simply:

  • Feedback: To help employees understand their strengths and areas for improvement.
  • Development: To identify training needs and career growth opportunities.
  • Reward Decisions: To influence promotions, bonuses, and salary adjustments.

Benefits of Performance Appraisal

With the above goals, performance appraisal benefits the team and the organization by bringing a change. It positively pushes the workforce towards upskilling, supports growth strategies and team plannings. The performance appraisal does so by: 

  • Encouraging Extrinsic Motivation: Recognition and feedback boost employee morale.
  • Ensuring Alignment: Connecting individual goals with organizational objectives.
  • Checking Legal Compliance: Documentation for legal purposes (e.g., terminations, promotions).

Examples of Performance Appraisal

There are many successful performance appraisal chronicles that we have mentioned in our ‘blog’. To illustrate how performance appraisals work in practice, here are some more examples of modern day performance appraisal:

PwC’s Game-Based Psychometric Assessment:

Objective: To overcome the challenge of identifying existing talent that aligns with their culture. 

Solution: Developed an in-house game-based psychometric assessment that models the company’s values. It measures an individual’s personal values to understand their fit within the workforce.

Impact: It enhanced employee appraisal experience, reduced test-taker anxiety, and generated more natural candidate responses. HR leaders reported an 80% satisfaction rate using the tool. 

Maruti Suzuki Kataria Automobile’s Employee Appraisal:

Objective: To determine the effect of performance appraisal on employee motivation.

Approach: Used psychometric assessments to understand intrinsic motivations. It focused on feedback and productivity.

Results: Improved performance appraisal,  employee performance and satisfaction, and increased productivity in the organization.

Performance Management Vs. Performance Appraisal

The difference between performance management and performance appraisal starts from the very base of its purpose in the organization, to goal-setting acrobatics and feedback tightropes. The table below would be a quick summary of this blog at a glance:

Conclusion

In the war between performance appraisal vs performance management, the best practice would be to find that sweet spot of balance and keep the workplace rhythm alive! 

While Performance Management is the big picture—aligning goals, feedback, and development and can be the ongoing dialogue that fuels progress, Performance Appraisal is no less of an annual encore, evaluating past performance. It is the applause that echoes through career paths.

Balance and right usage of HRTech is the key. It is true that too much appraisal can set us in for a bad trip; and too little management may pose a loss of high potential employees. 

Contact us at assessment@pmaps.in or 8591320212 to seamlessly integrate HRTech assessments for performance management and performance appraisal at your organization this financial year-end session.

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PMaps - Frequently Asked Questions

Learn more about this blog through the commonly asked questions:

Is performance management part of performance appraisal?

No, in fact there is always a debate between performance management vs performance appraisal. The fact that remains silent is that performance appraisal is a part of vast and continuously processing performance management. Learn and utilize the difference between performance management and appraisal to its fullest to earn accurate workforce metrics.

How are performance management and performance appraisal related?

Performance management is the process of letting an employee know about their progress and guiding them with career blockers. On the other hand, a performance appraisal can objectively evaluate an employee's performance and give them constructive criticisms and feedback. So while assessing your workforce metrics remember to not choose between performance management vs performance appraisal, rather integrate both wisely to give efficient results.

What are the 3 types of performance management?

The three types of management models that clarifies the difference between performance management and performance appraisal is as follows: 

  1. Balanced Scorecard: This performance management tool tracks performance across financial, customer, internal processes, and learning perspectives.
  2. Management by Objectives (MBO): In this method, managers and employees set and achieve specific goals collaboratively, enhancing performance management.
  3. Budget-Driven Business Plans: This approach focuses on meeting financial targets and managing resources effectively.

What are the five stages of performance management?

The five stages of performance management are planning, monitoring, developing, rating and rewarding. The process flow is a clear indicator of quality between performance appraisal vs performance management.

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