Performance appraisal is the impartial, periodic and systematic evaluation of an individual in matters relating to his present job and his potential and capability for a better job. It is the process to measure the past and present performance of employees both quantitatively and qualitatively against the background of their environment of work, the background of their expected role performance and about their future potential for the organization.
Performance appraisal is sometimes called merit rating, but there is a slight difference between them. Merit rating is a narrower term which focuses on employees’ knowledge, skills, abilities, etc for deciding salary increment. On the other hand, performance appraisal focuses on the employees’ performance and their future potential.
Benefits of performance appraisal
There are many benefits of performance appraisal and some of them are as follows:
- An effective performance appraisal helps in periodic and systematic evaluation of employees’ performance which helps in placing the employees in the jobs which are most suitable for them.
- It can be used for promotion and transfer of employees.
- Performance appraisal helps in analyzing the training and development needs and assesses the existing training programs’ effectiveness.
- It assists in career planning, human resource planning and succession planning.
- It motivates employees to make their performance much better, so that their ratings can be better than others.
- If the appraisal is impartial then it helps in improving the confidence of the employees and prevents grievances.
Process of performance appraisal
The process of performance appraisal consists of six steps and they are:
- Establishing of standards.
- Communicating those standards to employees.
- Measuring the actual performance of employees.
- Comparing the actual performance with the standards.
- Discussing the report with all the employees.
- Taking appropriate actions where required.
Methods of performance appraisal
There are many methods of performance appraisal which are broadly divided into two categories – traditional methods and modern methods. Traditional methods include graphic scales, paired comparison, grading system, critical incident method, etc. Some of the modern methods are human resource accounting, management by objective, 360 degree performance appraisal, behaviorally anchored rating scale, etc.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software
Most WantedFinancial Terms
- Most Important Financial Ratios
- Debt-to-Equity Ratio
- Financial Leverage
- Current Ratio
- Interest Coverage Ratio (ICR)
- Solvency Ratio
- Receivable Turnover Ratio
- Return On Capital Employed (ROCE)
- Debt Service Coverage Ratio
- Accounts Payable Turnover Ratio
Have 10 minutes to relax?Play our unique
Play The Game