Performance appraisal is a formal standard procedure utilized by most companies to evaluate the performance of their employees. The objective of this process is to make sure that each employee’s skills, talents, and capabilities are in accordance with business objectives. This evaluation is often done through an individual performance appraisal conducted either on site or through a computer-based system. Performance appraisals are normally made at the end of a pay period or at the beginning of a new payroll period.
The 360-degree feedback provided by performance appraisals is intended to pinpoint the issues that may be affecting the overall effectiveness of an employee’s performance. The process consists of two main elements: judgment and assessment. During the appraisal, supervisors assess employees’ strengths and weaknesses. They also consider performance issues that have been identified through various means, such as directives from higher management down to the level of individual employees. Employees are then evaluated on their performance based on the criteria established. Higher ranking employees receive a higher weight for a given criterion.
The actual performance appraisal process follows a logical order. The first step is for the actual appraisal to identify potential problems and needs, such as gaps in knowledge, poor performance, underutilization of skills and talents, performance issues, weak leadership, lack of supervision, and so forth. Next, the appraiser will discuss these issues with the employee, present his findings, and offer recommendations on how to address the problem. From this point forward, the appraiser will review the employee’s performance, determine where improvements should be made, make a salary increase proposal, or provide a proposal to the management to implement any improvements recommended.
Employment practice law requires that an employee must be given the opportunity to present the reasons for the negative performance review. If an employee is not allowed a chance to express negative reasons, he has the right to request that his performance appraisal be nullified, or that the results of his appraisal be considered as nothing more than a reflection of what his superiors think. Federal regulations state that companies performing performance appraisals must give employees an opportunity to respond to reviews by providing a written statement to the company that identifies the causes of the review.
Another advantage of performance appraisal systems is that it helps small business owners understand clearly their own and their organizations’ goals and objectives. This enables small business owners to set goals and to monitor progress toward those goals and to establish a plan to reach them. By having clearly defined goals, employees know what to do and when to do it. Again, this enables employees to use the knowledge they gain about their own job and to apply that knowledge to their job performance.
Managers and owners of small businesses must not only create goals for their company, but they also need to know how to measure their success in reaching those goals. Small business owners may find the task of creating a formal appraisal process difficult. Small business owners must use caution, however. The Small Business Administration warns that failing to use an appraisal system may result in “unnecessary employee turnover,” resulting in an increase in the number of employees seeking unemployment. The SBA further warns that the Small Business Administration “discourages employers from making unrealistic claims about performance and may require supervisors to perform a far higher level of documentation concerning performance evaluations.”
One small business owner, Robert, tells us about an experience that proves the importance of an appraisal process. One day, after a meeting with his team, Robert noticed that all of his employees were aware of a common error made during appraisal assessments. At this point, Robert had four people on his team who were responsible for appraising the business’s performance. According to Robert, these employees “took it upon themselves” to make up fake answers to questions. “The results were disastrous,” Robert said. “Their appraisal reports actually showed that our company was not getting the job done.”
After finding out about the common error, Robert and everyone else in his team reviewed the performance reports of all employees and decided what areas needed improvement. Prior to the review, Robert had taken the time to prepare a comprehensive checklist that included objectives for each department, performance goals, and performance assessments. According to Robert, the next morning all of his employees were reviewing the checklist and it was apparent from the reviews that most employees thought the entire process was extremely cumbersome and tedious. When asked if they thought the performance checks improved the company’s performance, only one person said yes. After the employees were reviewed again, they discovered that the goal they set for themselves was actually counter-productive because the company was not improving as much as they thought it would.