Published 05 October, 2021

Top 6 Performance Appraisal Methods (5 mins Read)

Performance appraisal is an annual process where an employee’s performance and productivity is measured against a fixed set of goals. This process is extremely crucial for the organizations to boost the employee productivity and improve the results. However, the annual review’s biggest limitation is its emphasis on holding the employees accountable for what they did last year, rather than focusing on improving their current performance and their future goals. That’s why most of the organizations are moving to a much more frequent, development based conversations between the managers and the employees.

But, why the traditional thinking has shifted is

 (1) Today’s tight labour market creates a lot of pressure to keep the employees happy and groom them for growth. (2) The fast changing business environment requires a lot of agility, which calls for regular check-ins with the employees. (3) Prioritizing improvement ahead of accountability results into a nice teamwork.

Organizations can enhance the employee performance within their company with the right performance appraisal method. An excellent employee performance review method can make the overall experience very effective and rewarding for both the employee and the employer.

Let’s have a close look at the six latest performance appraisal methods:

  1. The 360 Degree Feedback Method

The 360 degree feedback is a performance appraisal method which evaluates an employee using the feedback collected from the employee’s circle of influence like managers, peers, customers and direct reports. This method eliminates any kind of bias in the performance reviews and also offers a good understanding of the employee’s competence.

This method is ideal for the private sector organizations rather than the public sector companies as peer reviews at public sector organizations are quite lenient. Top companies like RBS, G4S and Sainsbury’s use 360 degree feedback to measure their employee’s performance.

  1. The Management by Objectives (MBO) Method

Management by objectives (MBO) is a method where the managers and the employees both together plan, identify, organize and communicate the objectives to focus on during a set appraisal period. Once clear goals are set, the managers and the subordinates both periodically discuss the progress made and debate on the feasibility of achieving the set objectives.

After the end of each review period (annually, half-yearly or quarterly), the employees are judged on their performance. Success is rewarded accordingly with promotion and a pay hike and failure is dealt with transfer or further coaching, feedback and training. This process usually focuses on the tangible goals and the intangible aspects like commitment, interpersonal skills etc. often gets overlooked.

This method is ideal for measuring the performance of the senior management like directors, managers and executives for a business of any size. Walmart uses an extensive MBO approach to manage the performance of the top, middle and the first line managers.

  1. The Behaviourally Anchored Rating Scale (BARS)Method

The BARS method brings out the quantitative and qualitative benefits both in a performance appraisal process.  BARS compare the employee’s performance with specific behavioural examples which are anchored to numerical ratings.
Each performance level on a BAR scale is anchored to multiple BARS statements which describe the common behaviours that an employee routinely exhibit. These statements act as an yardstick to measure an individual’s performance against the set standards which are applicable to their role.

The first step in BARS creation is the generation of critical incidents which depict typical workplace behaviour. The next step is editing the critical incidents into a common format and removing any redundancies. Thereafter, the critical instances are randomized and assessed for the effectiveness. Finally, the effective critical incidents are used to create BARS and evaluate the employee performance.

This method is ideal for businesses of all sizes and all types of industries can use BARS to assess the performance of their entire workforce from the entry level executives to top level executives.

  1. The Assessment Centre Method

The assessment centre method was actually introduced as early as in 1930 by the German Army but it has been polished and tailored again to fit in to today’s environment. This method ensures that the employees get a clear picture of how others observe them and the impact that it has on their performance. The biggest advantage of this method is that it not only assesses the existing performance of the individual but also predicts the future performance of the individual.

During the assessment, the employees are asked to take part in various social simulation exercises like informal discussions, in basket exercises, fact finding exercises, decision making exercises, role plays and other exercises which ensures success in a particular role. The one major drawback of this approach is that it is a time consuming and cost involving process which is quite difficult to manage.

This method is ideal for the service based companies, manufacturing companies, educational institutions and consulting firms to identify the future leaders and managers. Philips, Microsoft and many other companies use the assessment centre method in order to identify the future leaders for their companies.

  1. The Human Resource (Cost) Accounting Method

The human resource (cost) accounting method determines the employee’s performance by the monetary benefits he or she yields to the company. It is determined by the cost of retaining an employee (cost to company) and then comparing that with the monetary benefits (returns) an organization has received due to that particular employee.

When an employee’s performance is measured based on this cost accounting method, various factors like quality, unit wise average service value, overhead cost, interpersonal relationships and many other similar factors are also taken into account. It’s high dependency on analysing the cost and benefits and the memory power of the reviewer is a big disadvantage of the human resources accounting method. This method is ideal for the startups and small businesses where the performance of a single employee can make or break the success of a company.


  1. The Psychological Appraisal Method

The psychological appraisals come in very handy in order to determine the hidden potential of the employees. This method actually focuses on analysing an employee’s future performance rather than the past achievements. These appraisals are used mainly to analyse seven major areas of an employee’s performance such as cognitive abilities, interpersonal skills, personality traits, intellectual traits, leadership skills, emotional quotient and other related skills.

Qualified psychologists conduct a variety of tests (in depth interviews, psychological tests, discussions and much more) in order to assess an employee effectively. However, it is a rather slow and quite a complex process and the quality of the results is very much dependent on the psychologist who conducts the entire procedure. Specific scenarios are taken into account while performing the psychological appraisal. For instance, the way in which an employee deals with an aggressive customer can be used to appraise his/her persuasion skills, behavioural response, emotional response and much more.

This method is ideal for the large enterprises which can use the psychological appraisals for various reasons including team building, development of the leadership pipeline, conflict resolutions and much more. Procter & Gamble, Ford motors use psychological appraisals to determine the personality and performance of their employees.


The traditional performance appraisals have already been abandoned by more than a third of the companies in the U.S. That’s why choosing the right modern performance appraisal method very wisely is more critical than ever since as it reflects what you think of your employees and how much you care about the morale of the employee. Once you’ve found the ideal performance review method according to your needs, the next step is to implement it properly in order to eliminate critical performance gaps and address the pressing issues which make a big difference for the company.



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