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In HR Management Last updated: August 24, 2023
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Performance appraisal or performance review is a systematic method of evaluating and documenting an employee’s performance. It is a subjective method of finding out the strength and weaknesses of the employees as well as their behavior and attitude towards contributing to the organization’s goals. 

Generally, performance appraisal is conducted by the managers or immediate managers, and the report is submitted to the CEOs of the company so that they can make decisions for the organization’s benefit.

A specific criterion is to be set for evaluation because every employee is not the same, which is why in this article, we will discuss how to conduct the best performance appraisal and tools to help with the whole process.

Importance of Performance Appraisal


Following best performance appraisal practices at an organization creates a healthy relationship between employees and the business. It helps them understand how they perform per the expectations and business goals and how their performance contributes to the organization’s success.

The best performance appraisals encourage employees to prioritize and complete work on time. It benefits organizations and employees by increasing rapport between management and employees. It increases job satisfaction, loyalty to the employer, and employee morale, thus increasing productivity.

Best Practices for Effective Performance Appraisal


Effective performance appraisal is critical to employee and organization success. Here are a few tips to help you follow permanence appraisal best practices:

  • Create an effective performance appraisal management system, from interviews of potential employees to counseling, training, and identifying the best performers.
  • Train managers on evaluating the performance of employees based on various factors and giving valuable feedback to them regularly.
  • Motivate employees to participate in the whole performance appraisal process actively. Encourage them to receive and give feedback, question, challenge, discuss goals, etc.
  • Managers should be trained to provide constructive and correct feedback. Wrong feedback can create confusion and bias situation. They should consider how employees can interpret their feedback.
  • Instead of following all employees’ performance evaluation criteria, evaluate them based on their job ranks. It will make it easy for managers to provide specific and meaningful feedback.
  • Managers would create a safe place for employees by making them comfortable and listening to them. 

Performance Appraisal Methods


The following are some of the performance appraisal methods:

#1. 360-Degree Appraisal

360-degree feedback is one of the performance appraisal methods where employees learn about their strengths and weaknesses. This method involves questionnaires from colleagues or clients of the employees.

The best part of this method is the secret’s name is encoded so that the managers can get all the feedback of their employees anonymously about their personality, behavior, etc.


  • Employees learn what their colleagues think about them (without knowing their names) and how their behavior affects others.
  • It instills employee confidence as the feedback clarifies the relationship between them.
  • There is anonymity in this method which helps the employees to share feedback freely.

#2. Management by Objective


It is a modern performance appraisal method where the employee and the manager are engaged in setting goals and achieving them in a specific period. It is beneficial when employees are involved in setting goals, as they are more likely to achieve them.

Employees are judged based on their results at the end of the period, and their success is rewarded with a promotion or pay raise. This evaluation process helps the organization accomplish its goal and the evaluation process.


  • This method increases an employee’s involvement and commitment, thereby increasing the employee’s confidence in the job.
  • Employees can use their education, skills, and experience for the organization’s goals.
  • Management provides regular feedback and recognition to an employee on an objective basis, boosting their morale and making them feel their presence in the company.
  • Managers can communicate directly with their employees and express their expectations to them.
  • Employees can also share their work-related problems and innovative ideas.

#3. Phycological appraisal


This method of performance appraisal determines the hidden talents of an employee. It means that the organization focuses on future performance, not its past performance. Organizations can set their goals by analyzing the potential of their employees.

This method collects information through in-depth interviews, psychological assessments, and other information-gathering techniques to thoroughly understand an employee’s emotional, intellectual, and social traits.

The major components of the analysis are interpersonal skills, cognitive ability, intellectual traits, leadership skills, personality traits, emotional quotient, and other related skills.


  • It provides valuable insight into the employee, which reflects their potential for future work.
  • Employees can share their present problems, which may lead to more significant issues in the future.
  • By gaining insight into prospects and performance, organizations can create a positive and productive workplace for their employees.

#4. Behaviorally Anchored Rating Scale (BARS)


The behaviorally anchored rating scale method provides qualitative and quantitative performance appraisal advantages. This method compares the performance of employees with specific examples and then rates their behavior on a scale.

Each level of the rating scale consists of several statements that employees make during their work. It compares the performance of an individual with the general standard level to determine whether the employees are competent.


  • Managers can assign tasks to employees by viewing their ratings on the BARS.
  • It provides accurate feedback and not just analysis of others’ statements. 
  • Organizations can see the employees’ potential by comparing them with the standard level. It helps them ascertain whether the employee is capable of the role.

#5. Human Resources Accounting Method


The human resource accounting method is a performance evaluation method that focuses on the organization’s cost. It measures and analyzes the monetary benefit that an employee generates from his work for the company.

Organizational compares it with the financial benefits offered to the employee to ascertain whether it benefits the organization. Unit-wise average service price, quality, overhead cost, interpersonal relationship, and many other factors are considered while analyzing the cost performance of the employee. 


  • It measures the cost and value in monetary terms that employees give to organizations.
  • This method builds employee confidence as they recognize their value to the organization.
  • It gives the organization the most accurate, valuable, and reliable financial information. They find out where to improve to increase the company’s cash flow.
  • When organizations are fully aware of the value of their employees, they can utilize their human resources in the best possible manner.

#6. Paired comparison method

The paired comparison method is a complex but traditional method of performance evaluation. Organizations compare their employees to one another in a team.

The organization determines which employee performs best or worst on the team. All the employees compare and rank each other till the last person comes out. However, this method may discourage some employees.


  • This method measures the employee’s ability, skill, experience, and team working ability.
  • It benefits the institute where the number of employees exceeds the posts.
  • The paired comparison method allows managers to assign tasks according to the employee’s ability, as shown in the rank.

Benefits of Performance Appraisal 

Development Performance Self-Improvement Ratings Icon

Organizations conduct performance appraisals for the benefit of their employees and organizations; it helps them to know their employees in a better way. Supervisors find out their employee’s strengths and weaknesses through various evaluation methods. 

The benefit of the performance appraisal for employees

  • Performance appraisal helps employees grow as they learn about their strengths and weaknesses. They can work on their weaknesses, allowing employees to improve their efficiency and productivity.
  • An appraisal method gives appropriate feedback to the employee, which motivates them to do better than previously. Employees get the incentive for their performance based on performance appraisal as it shows which employee is working accurately and fast for their goal.
  • Regular performance reviews increase employee engagement, leading to a positive employee mindset.

The benefits of performance appraisal for organization

  • Performance appraisals help organizations determine which employee needs training for their task. For example, if their employees fail to meet the goal, they will set up a training program for their effectiveness.
  • The performance appraisal of an organization helps the manager to set up their limit of expectations from employees because this shows the capability of an individual. Managers can give the employees daily job responsibilities and tasks per their previous performances.
  • Performance appraisals help to set up the organization’s goals for the future so that managers can examine the previous results to understand how the current company is performing.
  • It also helps managers assign tasks to the most suitable employees based on their knowledge, ability, and skills. All these traits come off through performance appraisals.

Performance Review Softwares

Here are some of the tools to help you with the performance appraisal process:

#1. Leapsome

Leapsome is a centralized platform for performance management and development. It helps employees to grow and allows managers to become better leaders. Businesses can create a great place for work via this people enablement platform.



  • It provides performance and 360° reviews to evaluate competencies and track development, leading to success.
  • It allows setting goals by creating alignment and accountability across the organization.
  • It measures the culture of the company with employee engagement surveys to gain powerful insights.
  • It has customizable learning paths for onboarding and development to keep your company competitive.
  • It boosts employee retention with streamlined compensation and promotion processes.

Leapsome’s pricing starts at $8 per month per user, where you will get a multilingual platform (13+ languages), ISO 27001 certified & GDPR compliant, SSO and encryption, Dedicated customer support, and Effortless integrations.

#2. Zoho People

Zoho People is designed to improve employee performance, ensure streamlined HR processes, and improve retention. Zoho People allows its users to track and organize attendance, performance evaluations, and employee data, where managers can manage their staff from anywhere. The platform is Built on its cloud infrastructure with 24/7 monitoring and 99.9% uptime.

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  • The platform has an employee database management system that allows managers to keep records of all employees in one place.
  • Zoho People has all the effective HR management tools that keep employees up-to-date and productive such as Onboarding, Attendance Tracker, Leave Tracker, Keeping track of time, and handling shift Schedules.
  • It provides a Corporate Learning Management System (CLMS) to help managers easily create and manage their organization’s training programs to create courses, track employee progress, and support their team in mastering new skills.
  • The platform offers a case management system where employees can contact HRs smoothly. They can initiate queries, and HR can always sort, track, and resolve issues promptly.
  • It helps businesses eliminate the middleman through its feature, where employees can maintain their records, fill in their details, apply for leave, and submit approvals.

Zoho People offers five plans with a 30-day free trial: The essential HR plan ($0.72 per month), the professional plan ($1.44 per month), the premium plan ($2.16 per month), the enterprise plan ($2.88 per month), people plus ($5.41 per month). 

#3. Paycor

Paycor is an HR management platform that modernizes people management, from recruiting, onboarding, and payroll to career development and retention. This platform is rolling out plans that help to develop people, helping them achieve their potential and take the next steps in their careers.

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  • HRs can access, edit, or update all employee information in one place, including timecards, pay rates, contact information, and more.
  • They can save post-interview feedback automatically through an easy-to-use scoring feature.
  • HRs can Access the data and analysis needed to build and maintain a high-trust culture that directly impacts performance.
  • They can plan Compensation as the robust Analytics tools help them to monitor pay equity while analyzing compensation trends.
  • CFOs can create competitive pay practices that increase the chances of landing great candidates and motivating top performers.

Paycor allows finance leaders to analyze headcount, monitor turnover, and discover what factors are causing change across their workforce.


The evaluation process of an organization leads to better employee management. They get to know the strengths and weaknesses of their employee, and they can also organize the training program for more effectiveness.

An organization’s essential tool assesses the team’s performance and commitment toward the goal. This short-term evaluation leads to success in future goals and gives managers a sound stage to think about their capabilities, which sets the goals for the organization.

You may also explore some best employee monitoring software for more work productivity.

  • Kritika Singh
    I write SEO content, articles, website/funnel copy, email copy, FB Ads copy, and more for businesses who wish to increase their traffic, engagement, impact & conversions.
  • Narendra Mohan Mittal

    Narendra Mohan Mittal is a Senior Digital Branding Strategist and Content Editor with over 12 years of versatile experience. He holds an M-Tech (Gold Medalist) and B-Tech (Gold Medalist) in Computer Science & Engineering.

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