Difference Between Performance Management and Performance Appraisal

Khyati Sagar

Senior Writer

Difference Between Performance Management and Performance Appraisal

Now that you have a basic idea about the differences between  performance management and performance appraisal, read on to understand more about them, along with the various types and the detailed comparison between performance management and appraisal.

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What Is Performance Management?

Performance management is a continuous process focusing on various aspects, such as planning, tracking, and assessing the employee’s performance against the organizational goals. It is not a one-time process, rather a continuous process that can yield long term results.

Performance management also analyzes an employee’s overall performance and commitment to the organization, and it is meant to boost employees’ efficiency and effectiveness. Both employees and managers are actively involved in the process of performance management.

They set the objectives, assess the performance or progress, and provide training and regular feedback to the employees so that they can work on improving their performance.

Apart from these, performance management enables the organization to implement employee development programs, such as awards or recognition.

Performance management offers employees and employers a chance to set combined goals and achieve them together. Typically, the goals they set align with the mission and goals of the organization. 

A good performance management system helps to serve the objective of both parties, the employee and the company grow and develop sustainably.

What is Performance Appraisal? 

Performance appraisal refers to the systematic process of evaluating and documenting the employee’s performance at work against the requirements and expectations of their role. The manager or the supervisor offers constructive feedback to the employee to aid their professional development. 

Performance appraisal helps understand the employee’s strengths and weaknesses while identifying the scope for improvement. Companies use performance appraisals to evaluate employees’ skills, capabilities, and achievements and make crucial decisions like bonuses, increments, termination, etc. 

Performance appraisals are also called employee appraisals, performance reviews, or performance evaluations. In most organizations,  performance appraisals are conducted annually.

The performance appraisal outcomes are documented based on which feedback is provided to the employees. It helps them understand their performance and where they need to improve. 

After a particular period, employees also get curious about their position in the organization. A survey conducted by Reflektive shows that more than 92% of employees look for feedback more than once a year. Hence, performance appraisals are an ideal way to discuss their role and identify potential future contributions openly. 

While performance appraisals and performance management are often used interchangeably, it is important to understand the differences and key parameters in performance management vs performance appraisal systems. 

How Do Performance Appraisals Work? 

The human resources department of an organization usually leads performance appraisals. By providing constructive feedback about their performance, appraisals help employees accelerate their career and professional goals. In case they fall short of expectations, the manager or the supervisor identifies areas for improvement and offers a supportive hand.

Also, as most companies function on a limited supply of funds, performance appraisals help determine incentives and bonuses and ensure that the performing employees get the rewards they deserve. 

Companies also determine the need for additional support and professional employee training. In most organizations, performance appraisals are bidirectional, meaning employees can share their thoughts on culture, work-life balance, and other expectations. 

So, performance appraisals help close the gap between the employee and the management and set the context for a constructive future. One must understand that performance appraisals are not the only time management; employees evaluate or discuss employee contributions.

Constant exchanges help build strong relationships between the employee and the management and lower the anxiety that develops at the very thought of annual reviews and performance appraisals. 

Types of Performance Appraisals 

Though performance appraisals are typically used to refer to the process of managers and supervisors evaluating their subordinates and staff, there are several types of performance appraisals. Following are some of the other types of performance appraisals. 

There are several methods for conducting a performance appraisal. Some of them are tested, tried, and proven methods, and we list them under the traditional methods of performance appraisal. And there are relatively newer methods that have evolved of late. 

Traditional Methods of Performance Appraisal

There are many traditional methods of performance appraisal that include the following:

Traditional Methods of Performance Appraisal

  1. Checklist Method

    In the checklist method, the questions are based on the traits of an employee. The manager or supervisor awards a “Yes” or “No” to every question. It is easy, straightforward, and less time-consuming when compared to other methods. It is not so effective because it takes extra effort and time to comprehend why a particular response is made.

  2. Critical Incidents Method

    Developed by Flanagan and Burns, the Critical Incidents method of performance appraisal evaluates the performance of employees based on their response to critical incidents. Because this method is based on the employee’s behavior, it is highly prone to subjective judgments.

    Also, it is a highly time-consuming process, particularly when the organization is large and there are many teams involved.Critical Incident Method

  3. Essay Method

    The essay method remains one of the easiest forms of employee evaluation. The evaluator writes an essay about the employee’s performance during the evaluation period. Here, there is an option to read the thoughts behind the evaluator’s assessment. It requires basic writing competencies and is sometimes subject to judgments and subjective opinions of the evaluator. 

  4. Forced Distribution Method

    In this method, the employees are categorized under high, average, and poor on the bell curve based on their performance. Those brought under high are usually eligible for rewards, incentives, promotions, and bonuses, and those rated as poor should work on improving their performance or be terminated.

    The scope of bias is limited, and the method is relatively simple. While this is an advantage, there is no room to understand why an employee is slotted under a particular category.

  5. Confidential Reports

    Commonly used in government organizations, the manager or the evaluator is expected to submit a detailed review of their subordinate in a sealed enclosure. The feedback is kept confidential and helps the organization make important decisions like promotion, transfers, and incentives. Because there is no transparency, this method is subject to judgments and subjective opinions.Forced Distribution method

  6. Straight Ranking Method

    In this method, the employees are assessed based on their peers. The evaluators rank the employees in the order of their performance and importance to the organization. It serves as a motivation for the employees to perform well when compared to their counterparts. The straight ranking method also helps the organization in human resource planning and management.

  7. Paired Comparison Method

    In the Paired Comparison method, the employees are evaluated in pairs based on a single attribute. The number of times an employee ranks better is noted and ranked accordingly. Though it is a more effective and strategic method than the straight ranking method, it gets more complex in large organizations.

  8. Rating Scale

    The Rating Scale method is one of the most commonly used performance evaluation techniques.  Here, the employees are rated from one to ten, one being the lowest and ten being the highest. Employee performance is assessed based on various attributes like attendance, professionalism, skillset, etc.

    There are chances for subjectivity as what good means to someone can mean average for the other. It is relatively easy to conduct and more effective than other ranking and comparison techniques of performance management. 

  9. Graphics Rating Scale

    The Graphics Rating scale is also called the Liner Scale, and here, the appraisal process evaluates employees based on their traits and attributes, including consistency, attendance, and so on. A five-point rating scale is used, with “one” representing the lowest and “five” representing the highest.

  10. Field Review Method

    The Field Review method aims to evaluate biases and seeks more standardized reviews and ratings from various evaluators in the organization. The HR personnel finally aggregates the rating and leads a discussion with the supervisors.

    The involvement of HR personnel helps reduce bias and subjective judgment, which is a challenge in many of the traditional methods listed above.

  11. Forced Choice Method

    In the Forced Choice method of Performance appraisal, the evaluator assesses the employee’s performance based on a set of positive and negative statements. Each of them carries a weight, and the evaluator has to choose a “True” or “False” as an answer to the statement.

Modern Methods Of Performance Appraisals

Lately, many newer methods are being used for performance appraisals. Some modern methods of performance appraisals include the following:

Modern Methods Of Performance Appraisals

  1. Management by Objectives

    While traditional methods of performance evaluation focus more on assessing the traits of an employee, the Management by Objectives or MBO method focuses on evaluating the performance of an employee. 

    Here, employees and their supervisors consult with one another set specific goals for the employee, and agree on a set of metrics to evaluate them. The scope of employee involvement in the MBO method is higher, creating room for meaningful exchanges. Employees feel more accountable as they are part of the goal-setting process.

  2. Behaviorally-Anchored Rating Scale (BARS)

    Here the employee behavior is evaluated and rated on a scale ranging from “Outstanding” and “Excellent” to “Average” and “Unsatisfactory.” Assume that an employee is required to submit a report within a week. BARS evaluation for this deliverable is based on the time of delivery.

    If the employee makes the submission beforehand, then they are rated outstanding. If they submit on the last day, they are awarded excellent. If they submit right at the last minute, they are awarded a good, and so on. It limits the scope for bias, and the method is easy to interpret.

  3. Assessment centers

    This is a more complex performance evaluation method and includes a wide range of simulations and tests, including psychometric tests, group discussions, interviews, and so on. 

    In the Assessment centers method,  a team of supervisors, HR personnel, and psychologists conduct the performance appraisal. The employees are assessed for interpersonal skills, conflict resolution skills, change management behavior, and so on. As it is more complex than the other methods, it is expensive and time-consuming.

  4. 360-Degree Feedback

    As the name suggests, in the 360-D feedback method, employees are evaluated based on feedback from several stakeholders like supervisors, peers, subordinates, and themselves. The ultimate objective here is to assess the employee’s skillsets and determine training needs. As there is more than one evaluator involved in the 360-degree Feedback method, there is limited bias, and the feedback is holistic.

  5. 720-Degree Feedback

    The 720-degree Feedback method extends the scope of the 360-degree feedback method to seek feedback from not just the internal stakeholders but also the customers, clients, suppliers, etc., who function outside the organization.

    The evaluation is more comprehensive and adds greater value to the assessment. The only disadvantage is that it is hard to follow up with them to get feedback on time. 

    While we have listed the commonly used types of performance appraisal methods, a detailed explanation and review of each of the methods can be used to gain more insights into the topic.

What Are Performance Appraisals Used For? 

Performance appraisals have varied objectives, and they help align employee performance with the vision and mission of the organization. 

Well-planned performance appraisals can be used to accomplish the following tasks in an organization. 

Performance Appraisals Application

  1. Identify Candidates for Incentives

    Performance appraisals help lead discussions on the career goals of the employees, organizational culture, and work-life balance. They help identify potential candidates for incentives and promotions. An unbiased appraisal ensures that deserving candidates receive the reward for their contribution. This keeps the employees motivated and boosts their performance.

  2. Human Resource Planning

    Beyond helping employees identify their scope for improvement, performance appraisals also help organizations evaluate the strength of their workforce. Human Resource Planning also helps identify if there is a shortage of skills and recruit more people wherever necessary.

  3. Training and Development Programs

    Training and development help employees align with the expectations of their role and the vision of the organization. Though performance appraisals are not intended to train employees, they help identify the need for employee training and development.

    By evaluating the strengths and weaknesses of the employees, organizations can design training programs that help employees build on their strengths and overcome their weaknesses.

  4. Promotes Employee Engagement

    Involving employees in the review process strengthens the engagement between the employee and the management. When employees get to decipher and learn how their performance impacts the business overall, they feel motivated to perform better.

  5. Foster Team Bonding

    Performance appraisals help strengthen the bond between managers and employees. By reiterating the vision of the organization, managers help employees align themselves with the expectations. With periodic meetings, managers become more approachable, which in turn strengthens the bond between the employee and the manager.

  6. Improves Employee Performance

    Performance appraisals and feedback help employees improve their performance. When they are appreciated for their good work with rewards and bonuses, they feel motivated to work, eventually improving their overall performance.

    Also, as performance appraisals focus on identifying the gaps and working out strategies to bridge them to the company, employees better understand their expectations. This helps them improve their performance and leverage their strengths to accelerate their personal and professional goals.

When Should A Performance Appraisal Take Place? 

Typically, performance appraisals are conducted to offer feedback on the employee’s performance. It helps make decisions on incentives, bonuses, or termination decisions. They are usually conducted once a year, once in six months, or quarterly and this varies depending on the organization’s policy. 

Given this, performance management is a continuous process conducted throughout the year to set goals, track milestones, measure progress, and achieve the target. The next section extends our discussion to elaborate more on performance management vs. performance appraisal to help you understand what differentiates between performance appraisal and performance management systems. 

Difference Between Performance Management and Performance Appraisal

Though performance management and performance appraisal are used interchangeably, they are technically different and serve related yet different purposes. 

An important difference between performance appraisal and performance management systems is that performance appraisals are conducted annually, semi-annually, or quarterly and help evaluate employees’ performance in contrast to his/her previous performance.

At the same time, performance management is an ongoing process that evaluates the employee’s performance against the vision, mission, and goals of the organization. 

To forward the company’s interests and strengthen the alignment of the employee with the company, well-thought-out strategies to handle the performance appraisal system and performance management process are key.

Some of the major differences between performance management and performance appraisal include the following. 

Difference Between Performance Management and Performance Appraisal

  1. Approach

    Performance Appraisal is an organized approach used to evaluate the performance of employees against their previous accomplishments. Performance management is a more comprehensive approach that helps manage the employee’s performance against the company’s vision

  2. Scope

    Performance appraisal is about evaluating an employee’s performance and potential for growth, while performance management is a comprehensive process of managing the human resources of the enterprise.

    Performance appraisal stops with evaluating employee performance and so has a limited scope. On the other hand, performance management is holistic and extends the scope to focus on the goals and objectives of different teams in the organization. 

    In simpler terms, performance appraisal applies to individual employees, while performance management applies to a team, business unit, department, or project.

  3. Past vs. Future

    Performance appraisal focuses more on the employee’s past performance and offers feedback on what he/she could have done better. On the other hand, performance management sheds more focus on enhancing present and future growth than on past performance. 

  4. Objective

    The objective of performance appraisals is to offer feedback based on the evaluation, unlike performance management which intends to identify if the employee has accomplished his goals.

    The latter helps them to overcome obstacles and challenges they endure in their commitment to achieving their job performance goals.

  5. Timing

    Performance appraisals are conducted at the end of a performance period, while performance management happens through day-to-day exchanges. Performance management is an ongoing process, whereas performance appraisals help evaluate the employee’s performance against predetermined goals and standards. 

    So, performance appraisals are conducted annually, semi-annually, or quarterly whereas performance management is a continuous process and involves conversations between the employee and employer. The latter helps make more timely decisions.

  6. Flexible vs. Rigid

    Performance appraisal is pretty rigid and inflexible. It follows a template, standard, and set of rules. The parameters used to evaluate an employee’s performance are fixed, and the evaluator cannot move outside those parameters.

    But, the performance management system has room for flexibility, and the parameters can be customized for different teams and business units.

  7. Facilitation

    The performance appraisal process is usually conducted by the HR department of an organization with inputs and assistance from the finance team. On the other hand, performance management is handled by multiple stakeholders, including managers, team leads, and supervisors.

  8. Customization

    The process of the Performance Appraisal is more structured and formal, but it still allows customization of the key performance areas, which vary from employee to employee. Performance management is less structured as compared to performance appraisal.

  9. Individualistic vs. Comprehensive Approach

    A key difference between performance management and performance appraisal is that the latter is an individualistic approach, and the former is a holistic, comprehensive approach to employee development, performance evaluation, and employee monitoring.

  10. Corrections

    In performance appraisal, corrections are made retrospectively in contrast to performance management which follows a forward-looking and adopts a prospective approach.

  11. Core subject

    The core subject of evaluation in performance appraisals is the employee’s performance, while performance management also considers the employee’s behavior on a day-to-day basis.

  12. Quantitative vs. Qualitative methods

    The performance appraisal process takes a quantitative approach and is extremely data-driven. They evaluate employees based on a predefined set of metrics like attendance, output, customer satisfaction, compensation, etc.

    Performance management requires both qualitative and quantitative methods as it intends to collect behavioral data and subjective feedback. It is difficult to quantify the KPIs in performance management.

  13. Compensation

    Performance appraisal is often linked to compensation, salary hikes, and promotions, while performance management is broader, and compensation remains a minuscule subject.

  14. Communication

    The performance appraisal takes a top-down approach where employees submit the required documentation, take assessments, and the management makes decisions on compensation and promotions.

    Performance management involves two-way communication where employees also get an opportunity to share their opinions on job satisfaction and place requests.

  15. Lead time

    As performance appraisal has more to do with compensation and promotion, the implementation is immediate, and the lead time is short. On the other hand, performance management is more about skilling programs, rewards, and long-term engagement, which take more time to implement.

  16. Technology requirements

    Performance appraisal is relatively simpler and can be implemented using a ranking system. It does not require complex software solutions and technologies. But, performance management requires employee management software, performance monitoring tools, advanced analytics, rewards, recognition tools, etc. 

  17. Employee engagement

    Employee engagement is not emphasized in performance appraisal as much as it is done in the performance management process. The latter aims to boost employee engagement, so employees remain productive in all scenarios.

  18. System vs. Process

    Performance appraisal is a system with short-term objectives, while performance management is a process with a solid vision.

  19. Employee efficiency vs. Company goals

    Performance Appraisal is an operational tool that helps enhance the work efficiency of the employees in an organization. In contrast, performance management is used as a strategic tool that helps achieve company goals.

  20. Rating method

    Mostly, performance appraisals in organizations follow ranking and rating methods. On the other hand, with performance management, the usage of ranking methods is rare and not so common.

  21. Proactive vs. Reactive

    Performance appraisal is reactive as it intends to identify employee weaknesses by comparing their performance to predetermined goals. Performance management is proactive as it works out strategies to help employees align with the company’s goals.

  22. Growth vs. evaluation

    The prime intent of performance appraisal is to evaluate the employees and make compensation decisions. The objective of performance management is to enhance the productivity of employees and accelerate their growth.

Wrapping up

Though performance management and performance appraisals are different in approach, execution, and flexibility, blending the best of both helps drive performance and fast-forward the company’s interests. There are several types of performance appraisals, and you can choose one depending on the structure and goals of your company. 

Businesses use performance appraisal software to set goals, track progress, and offer employee ratings. Choosing the best performance appraisal software helps them stay ahead in the competitive landscape. 

Frequently Asked Questions

   

No, performance appraisal is a part of the performance management process.

The ultimate objective of performance appraisal is to evaluate the employee’s performance and offer constructive feedback, while that of performance management is to guide the employees to overcome their weaknesses and align themselves with the organization’s goals, mission, and vision.

No performance management is a continuous process where managers and supervisors guide employees toward the organization’s goal and mission. While performance appraisal offers feedback about employees' performance, performance management guides employees to overcome their weaknesses.

No, performance management is a broader approach and an ongoing process where managers and supervisors help employees align with the vision and mission of the business. On the other hand, performance appraisal is about evaluating performance and offering feedback. They are not the same though they are often used interchangeably.

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