Performance Appraisal Method: Understanding and Choosing the Right One for Your company

In today’s dynamic business landscape, organizations need to consistently evaluate the performance of their employees to foster growth, improve productivity, and retain top talent by using effective Performance Appraisal Method.

A well-structured performance appraisal system provides a framework for assessing employee performance and aligning it with the organization’s goals. Let’s delve deeper into the concept of performance appraisal systems and understand their significance for modern business houses.


Performance appraisal is a vital component of the performance management process in organizations. Performance appraisal is a process that helps organizations to evaluate the job performance of their employees. It is an essential tool for any organization that seeks to achieve long-term success.

The process enables managers to evaluate the performance of their employees regularly. The purpose of performance appraisal is to provide feedback to employees, help identify areas for improvement, and ensure that the organization’s goals and objectives are met.

In this article, we will provide a comprehensive guide to the traditional and modern methods of performance appraisal along with the factor affecting the appraisal system with remedies.

Performance Appraisal Methods

There are variety of method used by organization for performance appraisal of their employees. In fact, each company may have their own unique system of appraisal. Usually performance appraisal has two bases:

  • Appraisal of employees according to trait, attributes and general behavior on the job, commonly known as trait approach.
  • Appraisal of results, work and goals or target achieved by the employees, known as appraisal by result.

These two approaches are not mutually exclusive and can be used according to the requirement and in combination.

For easy understanding, various methods of employee appraisal are classified as follows:

  1. Traditional Performance Appraisal Method.
  2. Modern Performance Appraisal Method.

Traditional Performance Appraisal Method

Traditional Method of Performance Appraisal is also known as Trait Approach. It is based on the evaluation of Traits in a particular employee or person. This system may list 10 to 15 personal characteristics such as ability to get along with people, competence, judgement, initiative and leadership etc.

There may also be added work related characteristics such as job knowledge, ability, to complete an assignment, success in carrying out plans, efforts in cost reduction etc.

It was observed in past few years under traditional method of performance appraisal that personal trait have outnumbered work related characteristics. The rater appraises subordinates on the basis of these standard and gives his rating.

List of Traditional Performance Appraisal Method

  • Confidential Report.
  • Graphic Scale.
  • Paired Comparison.
  • Grading System.
  • Check List Method.
  • Critical Incident Method.
  • Free Essay Method.
  • Group Appraisal Field.
  • Field Review.
  • Nomination.

Confidential Report

In most of the Government department and enterprises, performance appraisal is done through annual confidential reports. These reports differ from department to department and from level to level. The confidential reports written for a unit of one year and relates to the performance, ability and character of the employee during the year.

In this system of appraisal very casual attitude found among the raters while filling the confidential reports of their subordinates or employee working under them. The report is not data based but subjective. No feedback is provided to the employee being appraised and therefore, its credibility is very low. The method is focused on evaluating rather than developing the employee.

Under this system, the employee will never known his weakness and the opportunity available for overcoming that weakness. So, confidential report is considered as not a suitable Performance Appraisal System.

Ranking Method

Ranking is the oldest and simplest method of appraisal in which a person is ranked against others on the basis of certain traits and characteristics This is just like preparing ranks of various examinees in an examination. In the ranking method, various persons are given ranks on the basis of their traits. This is very simple method when the number of persons to be ranked is small because ranking has to be given on the basis of traits, which are not easily determinable, not like marks in an examination.

Paired Comparison

Paired comparison method is a slight variation of ranking system designed to increase its value for use in the large groups. In this method, each person is compared with other persons taking only one at a time. Usually only one trait, overall suitability to perform the job is Considered. The rater is provided with a bunch of slips each containing a pair of names. The rater puts a tick mark against the person whom he considers the better of the two, and final ranking is determined by the number of times that person is judged better than others.

Grading System

In this method, certain categories of abilities of performance are defined well in advance and persons are put in particular category depending on their traits and characteristics Such categories may be definitional like outstanding, good, average, poor, very poor, or may’ be in terms of letters like A, B, C, D etc. with A indicating the best and D indicating the worst. The actual performance of the employees is measured against these grades.

Critical Incidents Method

In this method, only critical incidents and behavior associated with these incidents are taken for evaluation. This method involves three steps. A test of noteworthy on the job-behavior (good or bad) is prepared. A group of experts then assigns scale values to them depending on the degree of desirability for the job. Finally, a checklist of incidents which define good and bad employees is prepared.


The rater is given this checklist for rating. The basic idea behind this rating is to apprise the people who can do well in critical situations because in normal situation, most employees work alike. This method is very useful for discovering potential of employees who can be useful in critical situation. Such a situation may be quite important for the job.

Graphic Scale Method

Graphic scale, also known as linear rating scale, is the most commonly used method of performance appraisal. In this method, a printed appraisal form is used for each appraisee. The form contains various employee characteristics and his job performance. Various characteristics include initiative, leadership, dependability, cooperativeness, enthusiasm, creative ability, analytical ability decisiveness, emotional maturity, etc. depending on the level of the employee.

Free Essay Method

Instead of using structured forms for performance appraisal, some companies use free essay method, or sometimes, combines this with other methods. In essay method, the rater makes a free form open-ended assessment of the employees on certain parameters in his own words and puts down his impression about the employee.

Field review Method

In the field review method, an employee is not appraised by his direct superior but by another person, usually, from HR department. The basic idea is that such a person may take more objective view in appraisal as he is not under pressure as the superior of the employee may be. The rater, in this case, appraises the employee based on his records of output and other quantitative information such as absenteeism, late coming, etc. the rater also conducts interviews of the employee and his superior to ascertain qualitative aspects of job performance. This method is more suitable for promotion purpose.

Check List Method

A checklist of statements that describes the characteristics and performance of employees on the job. The rater checks to indicate whether the behavior of an employee is positive or negative to each statement. The performance of the employee is rated on the basis of numbers of positive checks. There are three of check lists that can be used:

(A) Simple check list: The simple check list may contain such questions:

(i) Is the employee hardworking ? Yes/No

(ii) Is he regular on the work ? Yes/No

(iii) Does he co-operate with his supervisor ? Yes/No

(iv) Does he maintain his equipment well ? Yes/No

The Manager or supervisor’s bias remains in the method because he can distinguish between positive and negative question. It is not possible to put all the questions in the check list because it will become lengthy.

(B) Weighted Checklist Method: This method is used particularly with the objective of avoiding scope of personal prejudices. In this method, weights are assigned to different statements to indicate their relative importance as follows:

TraitsWeightsPerformance Scale (1-5)
Knowledge of work1.0
Interpersonal Relations2.0
Leadership Potential1.5
Weighted Check Methods Chart

(C) Forced Choice Checklist: In this checklist, five statement are given for each trait, two most descriptive statements, two least descriptive statements and one neutral statement.

The rater is required to tick one statement each from the most descriptive and least descriptive one. The aim is to minimize the rater’s personal bias. For example, you may check the below statement:

  1. Make little effort and take little initiative- Most/Least
  2. Is punctual and careful- Most/Least
  3. Lacks the ability to make people feel at ease- Most/Least
  4. Good Organizer- Most/Least
  5. Loyalty or Dishonesty- Most/Least

Group Appraisal

Under group appraisal method, employees are assessed or rated by a group, consisting of their manager and four other person who have adequate knowledge of their performance. The immediate manager of the employee explain the nature of the employee’s duties and responsibilities. The group then discussed the standard of performance for the job, the actual performance of the employee and the cause of their particular level of performance and advice for future improvements, required if any.

This method is also not considered as suitable for appraisal of employees because the judgement is influenced by the appraiser.

Nomination Method

Under nomination method, appraiser is asked to identify the exceptionally good and exceptionally poor performer from the group of employees, who are then singled out for special treatment. In this system, the rater only focuses on most high or low performance ignoring the rest. So, this system is also become useless in the modern environment.

Modern Performance Appraisal Method

Modern performance appraisal methods focus on continuous feedback, collaboration, and employee development. It aim to foster a culture of open communication, employee engagement, and continuous improvement, moving away from the traditional top-down, annual review approach and create a positive and engaging work environment.

List of Modern Performance Appraisal Method

  • Assessment Centre.
  • Behavioral Anchored Rating Scale.
  • Appraisal by results or Objective.
  • Human Resource Accounting.
  • 360 Degree Performance Appraisal.

Assessment Centre

The concept of assessment centres was initially applied to military situations in the Germany army in 1930’s and the war office selection board of British army in 1960’s. The concept travelled from army to business during 1960’s.

An assessment centre is a central location where managers come together and participate in a number of simulation exercises, on the basis of which they are evaluated by panels or raters. The evaluation process goes though 2 or 3 days.

According to the experts, a technique can be considered as assessment centre only if meets the following requirement:

  1. Multiple assessment techniques must be used and at least one of its techniques must be a simulation.
  2. Multiple trained assessor must be used.
  3. Judgment must be based on pooled information from all assessor.
  4. Evaluation must be made at a time separate from the observation of behaviour.
  5. Simulation exercise must be tested for their reliability, validity and objectivity first.
  6. The dimension, attributes, features or qualities evaluated by the programme must be determined by an analysis of relevant job behavior.

Behaviorally Anchored Rating Scale (BARS)

Behaviorally Anchored Rating Scale (BARS) is a powerful performance appraisal method that provides a structured and objective evaluation of employee performance. By anchoring performance levels with specific behavioral indicators, BARS offers clear feedback, promotes employee development, and facilitates effective communication between managers and employees.

Implementing BARS requires careful planning, training, and ongoing evaluation to ensure fairness, accuracy, and continuous improvement. With its unique advantages, BARS serves as a valuable tool for organizations striving to enhance performance management practices.

Appraisal by Results or Objective

One of the most promising tools of appraisal of employees, particularly at managerial level, is the system of evaluation of managerial performance against the setting and accomplishing of verifiable objectives.

The basic objective is that the organization is concerned with the achievement of objectives though the contribution of individuals rather than on the basis of their traits. It draws its roots from the management by objectives and appraisal programme consist of the following steps:

  1. Set organization’s Goals.
  2. Ser Departmental Goals.
  3. Discuss departmental Goals.
  4. Define Expected Results (Set individual goals).
  5. Performance Review: Measure the Results.
  6. Provide Feedback.

Human Resource Accounting

Human Resource Accounting (HRA) is a specialized branch of accounting that focuses on quantifying and reporting the value of human resources within an organization. It involves the recognition, measurement, and disclosure of the economic value of employees and their skills, knowledge, and abilities.

The concept of HRA recognizes that human resources are valuable assets that contribute to the organization’s success and should be treated as such. It seeks to go beyond traditional accounting methods, which primarily focus on tangible assets such as buildings, equipment, and inventory.

By incorporating human resources into the accounting framework, organizations gain a better understanding of the value of their workforce and can make informed decisions regarding human capital management. HRA helps organizations assess the return on investment in human resources, identify areas for improvement, and develop strategies to enhance the value of their workforce.

360 Degree Performance Appraisal Method

A 360-degree appraisal system is a performance evaluation method that gathers feedback from various sources, including superiors, subordinates, peers, and sometimes even external stakeholders. It aims to provide a comprehensive and holistic assessment of an individual’s performance, skills, and behaviors.

In a 360-degree appraisal, feedback is collected from multiple perspectives to offer a more well-rounded view of an employee’s performance. Traditional performance appraisals typically involve feedback from only a direct supervisor, which may not provide a complete picture of an individual’s strengths and areas for improvement.

How 360-degree appraisal System generally works?
  1. Selection of raters: Raters are chosen based on their relationship and interactions with the employee being evaluated. They may include supervisors, subordinates, colleagues, and even customers or clients.
  2. Questionnaire or assessment tool: A standardized questionnaire or assessment tool is designed to gather feedback on various aspects of the employee’s performance. The questions often focus on areas such as communication, teamwork, leadership, problem-solving, and job-specific skills.
  3. Anonymous feedback: To ensure confidentiality and encourage honest responses, the feedback is usually collected anonymously. Raters are asked to provide their assessments based on their observations and experiences with the employee.
  4. Data collection: The feedback is collected and compiled, preserving the anonymity of the raters. The data is then analyzed to identify patterns, strengths, and areas for improvement.
  5. Feedback session: A feedback session is conducted with the employee, where the results of the appraisal are shared. The employee receives a detailed report that summarizes the feedback received from different raters.
  6. Development planning: Based on the feedback, the employee and their supervisor or manager work together to develop a plan for professional development. This may involve setting goals, identifying training opportunities, or creating an action plan to address any identified areas for improvement.

However, it’s important to note that implementing a 360-degree appraisal system requires careful planning, clear communication, and a supportive organizational culture. It should be used as a tool for development rather than as a sole basis for rewards or promotions.

Benefits of Modern Performance Appraisal Method

Modern performance appraisal methods offer several benefits over traditional approaches. Here are some key advantages:

Continuous Feedback

Modern methods prioritize ongoing feedback, enabling employees to receive timely information about their performance. This immediate feedback helps individuals course-correct, make improvements, and stay aligned with organizational goals.

Improved Employee Engagement

Regular check-ins and feedback foster a sense of involvement and engagement among employees. They feel supported, valued, and motivated, leading to increased job satisfaction and commitment to their work.

Enhanced Communication

Modern appraisal methods promote open communication between managers and employees. This two-way dialogue encourages employees to share their thoughts, concerns, and ideas, fostering a culture of transparency and trust.

Personalized Development

By focusing on individual strengths, weaknesses, and aspirations, modern methods allow for personalized development plans. Employees can receive targeted training, coaching, and resources to enhance their skills and further their career progression.

Collaboration and Teamwork

Performance appraisal methods that incorporate peer feedback and recognition promote collaboration and teamwork. Employees learn from each other, share best practices, and appreciate each other’s contributions, leading to a more cohesive and productive work environment.

Goal Alignment

Modern methods emphasize setting clear and meaningful goals. Employees understand how their work contributes to the organization’s objectives, leading to improved goal alignment and increased motivation to achieve targets.

Fairness and Objectivity

Modern performance appraisal methods strive for fairness and objectivity by using data-driven assessments and multiple sources of feedback. This reduces biases and ensures a more accurate evaluation of employees’ performance.

Agility and Adaptability: Agile performance appraisal approaches allow for flexibility and adaptability in goal setting and performance evaluation. It enables organizations to respond quickly to changing business needs, adjust targets, and realign resources accordingly.

Talent Development and Retention

Continuous feedback, personalized development plans, and recognition programs contribute to talent development and retention. Employees feel valued and supported, making them more likely to stay with the organization and contribute to its long-term success.

Data-Driven Insights

Modern methods leverage technology and data analytics to provide valuable insights into performance trends, patterns, and areas for improvement. Organizations can use this information to make informed decisions, identify training needs, and optimize talent management strategies.

Implementing an Effective Performance Appraisal System

Implementing an effective performance appraisal system requires careful planning and execution. Here are some steps to consider:

  1. Clearly define the objectives and purpose of the performance appraisal system.
  2. Train managers and employees on the performance appraisal process and their roles.
  3. Establish clear evaluation criteria and standards.
  4. Ensure the system is fair, transparent, and consistent across the organization.
  5. Provide ongoing support, feedback, and coaching to managers.
  6. Regularly review and refine the performance appraisal system based on feedback and evolving organizational needs.

Trends in Modern Performance Appraisal Systems

Performance appraisal systems continue to evolve to meet the changing needs of modern business houses. Some emerging trends include:

  • Continuous Performance Management: Moving away from annual appraisals, organizations are adopting ongoing feedback and coaching models for real-time performance improvement.
  • Data Analytics and AI: Utilizing advanced analytics and AI algorithms, organizations can analyze performance data and generate actionable insights for better decision-making.
  • Employee-Centric Approaches: Performance appraisal systems are focusing more on employee development, well-being, and career growth, fostering a culture of continuous learning.


A well-designed performance appraisal system is vital for modern business houses to evaluate, develop, and engage their employees effectively. By aligning individual performance with organizational goals, providing regular feedback, and fostering a culture of continuous improvement, performance appraisal systems contribute to increased productivity, employee satisfaction, and overall business success.

You may also read: Performance Appraisal: Why it Matters for Organizational Success


1. How often should performance appraisals be conducted?

Performance appraisals should ideally be conducted annually, supplemented with regular feedback and coaching sessions throughout the year.

2. Are performance appraisals only for identifying poor performers?

No, performance appraisals serve multiple purposes, including recognizing and rewarding high performers, identifying training and development needs, and aligning individual performance with organizational goals.

3. Can performance appraisals be subjective?

Efforts should be made to minimize subjectivity in performance appraisals. Using objective criteria, standardized evaluation processes, and training managers on fair evaluation practices can help reduce subjectivity.

4. How can performance appraisals contribute to employee engagement?

Performance appraisals provide opportunities for open communication, feedback, and recognition, which are crucial for employee engagement and motivation.

5. Can technology replace traditional performance appraisals?

Technology can enhance the performance appraisal process by automating certain tasks and providing data-driven insights. However, human interaction and judgment are still essential for effective performance evaluations.

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