Performance Appraisal vs. Performance Management: Most Powerful When Together
"Performance management ... is the most important system any CEO can have in the organization—no matter how big or small," says Arijana Koskarova, CEO of Creative Hub and Forbes Business Council member.
Why? Because performance management underpins organizational and employee success.
What's less clear, however, is the difference between performance appraisal vs. performance management: they are different but related aspects of the performance function in an organization.
Your organization will benefit from performance management and appraisals to bring out the best performance of your people and drive a high-performance culture.
This article describes how performance management is different yet similar to performance appraisal. We also explain how to combine performance management with appraisals for robust, high-performance results.
📈 What is performance management?
Performance management is the process of making sure that your organization's employees meet their objectives. It involves identifying, measuring, managing, and developing the performance of your people as a collective.
The key characteristics of performance management are:
- It is proactive and forward-looking.
- It is holistic and strategic in its perspective.
- It is an ongoing process that adapts to organizational needs.
🎯 Objectives of performance management
1. Set realistic expectations:
- the targets to be achieved by individuals and teams;
- the timeframes associated with targets;
- a linkage between targets and organizational priorities.
2. Increase organizational productivity by using a collective view of performance to plan training, create better role assignments, and motivate low-performing employees through constructive performance improvement plans.
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3. Improve job satisfaction by identifying areas of discontent amongst employees and finding ways to address them, for instance, through training or making role changes.
4. Reduce turnover by seeking out the underlying causes of discontent and tackling them.
5. Establish clear communication between individuals and teams.
6. Boost employee engagement by providing a framework for people to learn and grow. Growth potential is a crucial motivation for younger employees, highlights Gallup's research.
🙌 What is performance appraisal?
Performance appraisal is the periodic measurement and evaluation of the performance of individual employees in your organization.
The key characteristics of performance appraisal are:
- It is reactive to historical information.
- It is operational and focused on individuals.
- It is applied periodically and works within well-defined rules.
✍️ Objectives of performance appraisal
Performance appraisal works within the framework of performance management and has the following objectives:
- Evaluate performance through a performance measurement system that's fair, accurate, and comprehensive.
- Analyze performance by identifying employee strengths and weaknesses, counseling poor performers, and creating plans to train and develop employees.
- Provide regular employee feedback through review systems.
- Facilitate promotion, hiring, and compensation decisions based on what's learned through employee evaluations.
- Promote recognition by identifying high-performing employees.
- Set individual employee goals and targets to provide clear objectives and an understanding of expectations for your people.
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🔍 The 11 key differences between performance appraisal and performance management
While performance management and performance appraisal work together to form a complete performance function in organizations, they differ in several fundamental ways, as follows:
Process vs. system
Performance management is a process that's fluid and evolving and has few links to bureaucracy.
Performance appraisal is a system that has a well-defined framework and an associated bureaucracy.
Who runs it?
Performance management is a collaborative dialog process between multiple stakeholders, including managers and employees, with less directional orientation.
Performance appraisal is a top-down approach traditionally run by HR. It's typically cascaded across an organization, with managers carrying it out to their direct reports.
Growth vs. evaluation
Performance management targets the growth and productivity of employees. In contrast, performance appraisal involves evaluating employees and informing compensation decisions.
Past vs. future
Performance management focuses on the present and future. It maps out training and development programs based on feedback from employee performance.
Performance appraisal focuses on the past by using historical data and ranking systems to gauge employees' progress toward their objectives.
Proactive vs. reactive
Performance management is proactive in finding ways to engage employees while aligning employee goals with company objectives.
Performance appraisal is reactive in identifying employee weaknesses through performance evaluations based on previously-set goals. Managers can decide to update employee goals as a result of the reviews.
Holistic vs. operational
Performance management takes a holistic approach by considering the relationship between employees and the organization with a view to fostering better engagement.
Performance appraisal is operational and follows performance procedures specific to the employee under evaluation.
Strategic vs. individualistic
Performance management is strategic in its vision and keeps organizational goals and company growth objectives in mind.
Performance appraisal is individualistic and considers employees and their past performance, one at a time.
Ongoing vs. infrequent
Performance management is continuous and ongoing, utilizing real-time performance updates and a continuous feedback approach.
Performance appraisal is infrequent, typically occurring once or twice per year with a focus on ratings and evaluations.
Qualitative vs. quantitative
Performance management has a qualitative orientation, using judgment and metrics to form views based on organization-wide feedback systems.
Performance appraisal has a quantitative orientation, deriving evaluations based on scores and rating scales with a view to producing a final measurement.
Flexible vs. rigid
Performance management takes on a flexible approach and adapts to changing organizational needs and goals.
Performance appraisal is more rigid and inflexible, adhering to the rules of the evaluation system. Plus, it is mainly confined to information about an employee's past performance.
Organizational metrics vs. employee KPIs
Performance management metrics aim to track overall employee productivity in an organization and include:
- Work efficiency—outcomes achieved over a time period relative to the resources required to produce them.
- Quality of work—varies by industry, e.g., Net Promoter Scores in a customer-facing environment or the number of complaints and returns in a customer-centric environment.
- Teamwork and collaboration—qualitative assessment through surveys, relative proportions of high-performing vs. low-performing employees, and how well teams communicate.
- Training—completion rates, competency scores, and results of formal assessments (if relevant).
- Timelines—time to completion for major initiatives and delays.
Performance appraisal metrics focus on individual employees and often take the form of role-specific Key Performance Indicators (KPIs). Let's take some examples:
- For a sales role, some KPIs include the number of qualified leads generated, trial conversion rates, sales bookings per month, or the number of monthly onboarding and retention calls.
- For a customer service role, one would look at customer feedback ratings, average time spent on customer queries, or the number of callbacks on customer resolutions.
- For a marketing role, some KPIs are the number of content marketing pieces produced, click-through rates on email campaigns, growth in newsletter subscribers, or customer churn rates.
- For a consulting role, critical KPIs would be the number of billable hours, client feedback scores, growth in high-value assignments, or measures of timeliness and turnaround on client projects.
👀 4 Similarities between performance appraisal and performance management
Noting how performance management and performance appraisal differ, they also share core similarities such as.
They set targets and goals and review progress toward them
Performance management harnesses employee performance to meet organizational goals. It sets targets for people and teams in an organization as a collective. Plus, it ensures a strong linkage with corporate priorities.
Similarly, performance appraisals set targets and goals for individual employees, guided by the framework provided by performance management. These individual goals are most effective when they're SMART, i.e., specific, measurable, achievable, realistic, and timely.
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They identify issues and obstacles to performance and try to mitigate them
Performance management leverages its organization-wide perspective to understand where there are deficiencies. A performance management strategy will include planning training and other initiatives to address weaknesses and improve outcomes.
For example, the company can invest in competency-based training for critical roles if there is a skill gap.
Performance appraisal considers individual employee strengths and weaknesses and creates customized plans to train and develop people.
They measure performance success
Both performance management and performance appraisal measure success using metrics, KPIs, and other ways of tracking progress against objectives.
They focus on making a difference in the day-to-day performance of your people
Ultimately, the performance function of your organization—whether through organization-wide performance management or employee-specific performance appraisals—aims to make a difference in the performance of your people and your organization as a whole.
They both focus on filling your organization with high-performance teams that:
- Work well together.
- Display high levels of engagement.
- Understand performance expectations.
- Have the confidence and competence to achieve great results.
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🆚 Performance appraisal vs. performance management in a nutshell
💡 7 Tips for combining performance management and performance appraisal to get the best results
As we've seen, performance management and appraisal play essential roles in your organization.
Together, they drive a performance culture and high-level outcomes for your people and your organization.
So, how can you combine the core elements of performance management and performance appraisal to get the best results?
Here are a few tips:
- Bring a more collaborative approach and multiple perspectives to your performance process rather than the top-down orientation of traditional performance appraisals.
Tip #1: Solicit views from others, not just managers, including peers, other managers, and even customers.
- Apply a coaching mentality to the way you provide feedback.
Tip #2: Be supportive and encourage open, transparent dialog rather than an attitude of authority.
- Make performance appraisals more frequent and regular, not just once or twice per year.
Tip #3: Get regular feedback from your people on how they're tracking against their performance objectives. But don't stop there. Identify any challenges leading to lowered job satisfaction.
- Bring a more holistic perspective to performance appraisals rather than an operational mindset.
Tip #4: Look beyond performance ratings and scores and encourage the growth and development of your people.
- Make sure there's a strong link between the individual and company goals.
Tip #5: Align your people's efforts toward company objectives.
- Be more strategic and forward-looking rather than individualistic and backward-looking.
Tip #6: Look to your organization's future and your people's role. You can stay ahead of industry trends by upskilling and reskilling your employees.
- Break the link between performance appraisals and compensation.
Tip #7: Avoid subjective biases in assessing performance-based compensation and focus on employee development.
Fortunately, there's a tried-and-tested approach that captures many of these suggestions—360 degree reviews.
360 degree reviews incorporate multiple feedback perspectives, i.e., from colleagues, direct reports, managers, customers, and even the CEO. As a result, they provide a more unbiased, comprehensive, and holistic view of performance compared to traditional performance appraisals.
The benefits of 360 degree performance reviews include the following:
- Less subjective feedback—harnessing multi-directional feedback gives less potential for bias from a single manager.
- More development-focused discussions—diverse feedback uncovers areas that would otherwise be missed and promotes a broader range of options for employee development.
- More honesty—360 degree reviews are usually anonymous, encouraging more honest, open, and frank feedback.
Tip: To get the best results, you should include the right participants for the best results, i.e., those who can offer a wide range of relevant perspectives.
But adopted alongside a continuous feedback approach that provides real-time insights and more frequent engagement, 360 reviews can make a real difference to the performance of your people.
And HR leaders agree. Karen Dhillon, Head of HR at Howden Australia, explains:
"In my experience, employees are after feedback on a more regular basis rather than once or twice per year. [...] 360 degree feedback helps my people understand how they're contributing to the business overall and how they fit in with their teams."
In fact, many successful organizations have abandoned traditional performance appraisals in favor of continuous 360 degree feedback.
Netflix, for instance, adopted 360 degree feedback as a review process that's separate from their compensation discussions. The simple, honest, and regular performance conversations that 360 degree reviews encourage have been producing better results for Netflix's people, suggests Patty McCord, former Chief Talent Officer at Netflix.
➡️ Check out our seven steps to improve performance management at your organization and make it more effective, efficient, and fair.
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Driving high performance in your organization is vital for its success.
By understanding how to bring the best elements of performance management and performance appraisal together, you'll boost the potential of your people and your organization.
And Zavvy can help—our tools, frameworks, templates, and processes will make a real difference to the performance of your people and your organization.
Zavvy's 360 degree feedback tool and employee development software combine the essential elements of performance management and appraisal to build a powerful performance function in your organization.
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Can performance management add value to a business?
Yes. Performance management is essential for business success. It identifies, measures, and manages the performance function of a business. And when combined with an integrated performance appraisal system, it can add significant value by boosting employees' potential.
Can performance management improve the skills of an individual?
Yes, through a complementary performance appraisal system, performance management directs the training, upskilling, and growth of individual employees. A holistic performance management approach improves staff competencies and boosts their career potential.
Does performance appraisal affect the behavior of an employee?
Yes, it can. A well-designed performance appraisal system:
- Gives employees feedback on their progress toward objectives.
- Identifies their strengths and weaknesses.
- Recognizes their efforts.
- Incentivizes them to perform better—all of these influence their behavior.
How can a performance appraisal system be improved?
The best way to improve a performance appraisal system is to combine the core strengths of performance management and performance appraisal by adopting a continuous 360 feedback approach.
In contrast to outdated approaches, 360 feedback enhances performance appraisal by gathering multiple perspectives, reducing the effect of biases, and providing more candid feedback. The result will be more robust performance outcomes for your people.