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Performance Appraisal System

A performance appraisal system helps a business determine potential managerial candidates, adjust the pay rate for each position based on performance and analyze employee performance to determine if further training is needed or if dismissal is appropriate. It takes time to develop a performance appraisal system that your company can use, but it is important as a human resource professional to learn how to administer an effective employee evaluation process.

Organizations use a variety of methods for evaluating an employee performance. There are many type of performance management methods and understanding how each of them works will help to determine the best one to use within your organization. Each type has pros and cons, however, an assessment of your workforce, management system and business environment will make the decision easier for management.

Management by objectives

Management by objectives, or MBO, is a type of performance management system that requires the manager and employee to identify employee goals as they relate to the overall business objective. For example, a customer service representative’s objectives may include increasing customer retention by 15% over the next 12 months. The employee determines how best to achieve this goal and establishes a timeline for the tasks she needs to accomplish to increase customer satisfaction. Often MBOs track progress on a quarterly basis, which is one of the benefits of using this method. Regular feedback is an effective motivator for many employees.

Forced Distribution

The forced distribution method is one that receives criticism and praise due, in part, to the popularity of GM. Forced distribution requires managers to determine three groups into which their employee fall according to performance. The three groups include performance rankings, usually called “20-70-10”. This means an organization has 20 percent of its workforce in the top rank, average performers comprise of 70 percent of the workforce and poor performers comprise 10 percent of the work force. This method is difficult to promote in small businesses because they don't have enough employees and this is a very regimented system utilized in larger corporate environments.

360 Degree Feedback 

The use of a 360 degree feedback appraisal system is ideal for businesses that value the input of employees concerning the effectiveness of supervisors and managers. This type of performance appraisal method solicits input from employee of all roles who interact with the employee being evaluated. Everyone from executive leaders to frontline workers receive anonymous and carefully considered feedback from coworkers. Using a 360 degree feedback method requires training on how to evaluate others. Individuals who don't have experience composing appraisal statements may need additional training pertaining to evaluating the quality of work rather than the employee's personality or popularity. Nevertheless, this is a very effective way to get a good reading on your management talent by obtaining commentary from the people who frequently interact with managers.