What is performance appraisal (detailed aspects)

Performance appraisal is about formal review of an employee’s performance. Generally, this review is conducted annually and managers assess individual employee’s performance. This helps to identify if there are areas of improvement. In other words, if there are specific areas where the employee needs to improve. For instance, managers might communicate with employees if there is a need to improve communication skills or some other set of skills.  

Further, it’s important to note that performance appraisal is often linked with remuneration and promotion. For instance, if an appraisal is good enough, the employees are given a promotion and an increase in remuneration.

During a performance appraisal, the employee’s job performance is evaluated based on specific criteria. Overall, job assessment is about relevant job skills carried by employees. For instance, if it’s the job of an accountant, there is a need to assess if the staff is qualified in the field. For instance, do they have some professional qualification, degree, or something that proves their job knowledge?

Similarly, the is a need to assess the learning curve and if there are any improvements in the quality of work, productivity, communication skills, teamwork, and other relevant factors required in execution of the job.  

Further, it’s important to note that appraisal process may involve a self-assessment by the employee, feedback from peers and supervisors, and an evaluation by the employee’s manager.

The performance appraisal process is important for organizations because it can help to identify high-performing employees, determine areas for improvement, and provide feedback to employees to help them develop their skills and enhance their performance. It can also be used to set performance goals and objectives, provide training and development opportunities, and determine rewards and recognition for outstanding performance which motivates them to do more and achieve business success.

Performance appraisal methods

The companies/business can adopt different appraisal methods depending on the needs and suitability of their business operations.  Let’s discuss different types of appraisal methods and how to implement them.

Rating method

It’s a widely used appraisal method around the globe. The appraisal form is broken down into different skills. For instance, technical competence, reporting skills, communication skills, and more. Employees are given a rating for each skill based on their performance for the period under consideration.

The best part of this method is that employees can easily identify areas to improve. However, rating is a judgmental process and things might not be straightforward.

Critical incident method

This method involves keeping a record of the incident and events the employee has been engaged. It involves both events where an employee has performed exceptionally and poorly as well. These incidents are reviewed at the end of the appraisal period and employee performance is assessed based on the same.

Distribution method

It involves allocating employees to pre-determined slots. For instance, 10% of employees can be allocated to an exceptional category, 60% can be allocated to average and 30% can be allocated to poor-performing employees. However, the problem with this method is that it’s highly judgmental, and human emotions might interfere in making an allocation for the same.  

Benefits of performance appraisal

Following are some of the advantages of performance appraisal.

setting directions and goalsEffective appraisal interview leads to the identification of employees’ weak area and where they need to focus/improve.
Planning for the careerIf an employee successfully gets to know their area of strength or desire, this might help them to plan a specific career.
CommunicationAppraisal interview gives employees a chance to speak with senior management and open channel of communication.
Promotion and compensationPerformance appraisal enables senior managers to decide if the performance of the employee has been satisfactory and he/she should be promoted and compensated accordingly.
FeedbackEmployees receive feedback that helps them to set the direction of their efforts and ensure things remain as desired

Also read, interview questions for accounting.


Performance appraisal is an exercise conducted to assess the performance of employees. Generally, employees are assessed based on set criteria like technical competence, communication, reporting, and any criteria specific to the business.

There are different methods of performance appraisal that include the rating method, critical incident method, distribution method, etc.

There are several benefits of performance appraisal that include but are not limited to setting direction, goals, planning for the career, formal communication with the management, feedback, promotion, compensation, etc.

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