Why Are Performance Appraisals A Must For Your Organization

Only half (52 percent) of all companies conduct annual performance reviews. Out of these companies, 55 percent of employees feel that performance appraisals are effective.

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This is an alarming statistic shown in a 2014 Forbes article.

Just imagine, only one out of every two working adults have their performance appraised regularly and half of them reckon that these appraisal sessions are not effective for their personal and career development.  

Not only that, research has only shown that both employees and managers view performance appraisals as an uncomfortable, or even unpleasant, procedure.

Rather than looking on the employee performance appraisal as yet another one of many tasks on a never-ending list, managers and business owners should take the appraisal process as a positive way to achieve many goals, both for the organization and for their employees.

1. Meeting Job Expectations

Every employee has a set of job descriptions and specifications that they are responsible for, and job expectations (key performance indicators – KPIs) that they must understand and achieve.  There are also times when requirements or factors, whether external or internal, can cause changes in job descriptions and KPIs. Companies should conduct regular communications with their employees to ensure that they understand their job descriptions and expectations. Performance appraisals are the best way to satisfy this communication requirement. Communications should be kept open and face-to-face so that employees are also encouraged to provide their own feedback or raise questions about performance expectations.

2. Achieving Organizational Goals

One fact that is especially true in resource-scarce Singapore: human capital is a company’s most valuable asset.  Your employee and their abilities, knowledge, and job performance are vital to achieving your company’s goals and success. Together with the employee, identify their professional goals and expectations, specific to both their job and personal development, so that these goals are aligned with your organization’s goals. With constant and well thought-out performance appraisals, evaluate and upgrade your employee’s abilities and knowledge against these goals, and both employee and organization will be well on the way to achieving their goals.

3. Employee Development

Human capital is any company’s number one asset, and employee development, both professional and personal, should be the company’s number one priority.  Through regular performance evaluations, you can keep a record of your employee’s strengths and weaknesses in conjunction with their job specifications. Act on these performance evaluation records to develop and offer the requisite action plan necessary to develop the employee both professionally and personally.  This keeps the employee motivated to constantly improve themselves, ensures them that the organization is sincerely interested in letting them grow and improve, and is a good motivator to retaining employees.

4. Better Utilization of Human Capital

Performance appraisals, when done correctly, are great ways to learn more about your employees. Besides technical skills and knowledge, you can also tune your organization’s employee appraisal process to learn more about the employee’s psyche and mental aptitude.  This can lead to positive changes where managers can use not only the skills profile, but also the psychological profile of an employee, to then match them to jobs, skill areas and departments that they can excel in. This again is a good motivator in keeping employees interested and retained.

5. Managing Succession Plans

Succession planning is key to ensuring a seamless continuation of expertise and executive leadership for your organization. Through performance appraisals, managers and supervisors can identify talented employees who possess the requisite expertise and leadership capabilities can be groomed to take on more senior roles and responsibilities in the organization.  Subsequent and regular performance evaluations should be conducted to ensure the employee’s goal achievements and professional development are on the right track, in preparation for their continuing path within your organization.

6. Maintaining Compensation Structure

Even though many factors contribute to a company’s compensation structure, monetary compensation is the most basic form of reward and motivation that employees expect and look forward to. By conducting performance evaluations correct, and studying the ensuing performance results, you can manage an employee’s pay raises, bonuses and other financial or non-financial rewards. This holds especially true in a meritocracy-based structure, which is a norm for most companies now. 

7. Bi-directional Feedback

The performance appraisal process, when correctly conducted, can become an important source of feedback both for the employee and the organization.  Managers and supervisors conducting the employee evaluation have a chance to hear out the concerns and suggestions of the employee involved. The employee, in turn, can receive feedback on the areas where he excels in, and areas that might require further attention. Feedback in both directions is essential for ensuring that the business and your employees can constantly seek to improve in areas that align with your overall organizational goals.

8. Employee Motivation and Retention

Besides determining the compensation structure, which is a basic motivator for most employees, performance appraisal results can be used to motivate employees in many other ways. Use these results correctly to understand more about the employee, whether it is their well-being, skills development, and even mental psyche. Your organization, especially the employee’s manager or supervisor, should actively develop action plans based on performance appraisal results to improve the employee’s skills, abilities, and other facets of their professional and personal development. This shows the employee that the organization takes a personal interest in them, and is a huge motivator for them to perform well and stay with the organization.

Article sources: 1 and 2

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