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For organizations who haven’t yet pursued performance management and performance appraisal activities, it may be easy to use the two terms interchangeably. That would be incorrect. The difference between performance management and appraisal is subtle, but distinct. Find out why distinguishing between the two and mastering each is critical to your organization’s success.

What is a Performance Appraisal?

A performance appraisal (also called a performance evaluation) is one small step in a performance management system. An appraisal refers to the process of evaluating an employee’s past work and accomplishments with the purpose of rating their performance. Performance appraisals are often done by a manager or supervisor and aim to give employees a score of some kind to establish how well they have performed in the past year.  For some organizations, the data might then be used to help decide things such as an employee’s pay rate, whether they’re eligible for a promotion or even if they should continue being employed by the company.

When organizations conduct performance appraisals outside of a performance management plan, they tend to be paper-based and very structured, leaving little room to convey an employee’s true progress and the nuances of their position or what may have transpired within the organization over the past year.

For example, if a performance appraisal has a set of questions such as, “how many projects did you complete? Did you complete more projects than last year?” The answer may be “no” because a much larger project may have taken more time to complete than previous projects. On paper, it might look like that staff member was not progressing because they completed less projects than the previous year; however, when you know all the details, that really isn’t the case. For this reason, performance appraisals can be detrimental to employee morale and have adverse effects on long-term performance management activities.

Performance Appraisal Methodology

There are several methods for scoring staff members in a performance appraisal, including: being ranked according to their performance levels in general or against another employee; rated on a scale of some kind (1-5 or 1-10, etc.); rated based on a checklist of yes or no, or a checklist with a scale such as below average to excellent.

While there are several ways to carry out a performance appraisal, the commonality is that the focus is on a staff member’s past performance vs. present and future performance. This technique for evaluating employee performance does not provide recommendations for improvement and, many times, is not an ongoing process (usually occur once per year).

What is Performance Management?

Unlike performance appraisals, a performance management system looks at the present and the future of an employee’s position with the organization and provides ways for employees to do better in their role with the future in mind. Performance management can be defined as “all activities which enable staff to perform to the best of their abilities.”

Performance management can mean everything from HR’s activities in choosing the right candidates, to giving staff access to training and courses to build core competencies, to assigning a mentor that will give feedback, and more. In contrast to performance appraisals, performance management is an ongoing process of evaluating employee performance and providing constructive criticism to encourage and support the progress of staff toward organizational goals.

Tips for a Successful Performance Management System

Outline expectations: when staff know exactly what is expected of them, they’ll know what they’re working toward and how to approach their daily responsibilities.

Establish ways for staff to progress: whether it’s mandatory training, courses through an e-learning platform or matching staff with a mentor who can give them feedback, it’s important to continue to build employee skill sets and align them with your organization’s core competencies.

Have ongoing performance check-ins: unlike performance appraisals which only declare a score for past performance, ongoing performance management check-ins establish ways to stay on track toward goals, provide corrective advice, sharpen current skills or gain new ones, and most importantly, help employees feel valued and comfortable in their position.

Implement individual development plans: in order to stay motivated, keep progressing and be valuable assets to your organization, employees need to understand their career path clearly. Be sure to develop individual plans for employees which outline the steps you’re anticipating, provide goals and milestones and create a clear plan for succession and promotion.

Learn more about best practices for competency-based performance management on our blog.

The Problem with Performance Appraisals Alone

Performance appraisals are an important piece of the performance management plan; however, appraisals alone are not enough to elicit change and progress within an organization. Successful organizations create strategic performance management plans which include appraisals but are supported by competency-based assessments, training programs and e-learning initiatives as well as succession and promotion planning.

When done without an overall performance management plan, performance appraisals typically cause high stress and low confidence for staff. Without objectives or a strategic plan, appraisals do not move employees toward higher performance or closer to reaching organizational goals.

Performance Appraisals as Part of a Performance Management System

As part of the performance management system, performance appraisals can play a vital part in discovering areas that need improvement, aiding management in deciding on corrective actions to take to get staff on track and meet company goals. Ultimately, the two activities should be used together to increase performance among staff and to improve the effectiveness of your organization.

(Want to learn how employee performance management software can help you optimize your staff and drive results for your organization? Contact us today for a free consultation.)