Performance appraisals have been a customary practice in organizations of all kinds for decades. In fact, according to OPM.gov, the first law on appraisal established for the U.S. Civil Service Commission (now the U.S. Office of Personnel Management, or OPM was established in 1912. In 1923 the Classification Act established a graphic rating scale which was started in 1924 and used until 1935.
Since that time, a wide range of variations in performance appraisal or employee evaluation processes have emerged. Today’s most popular modern performance appraisal methods include:
With so many options to choose from, how do you choose which one would work best for your organization? That begins with an understanding of how each of these approaches work and their pros and cons.
There is no one “right” or one-size-fits all approach to performance appraisal. The approach you choose will be based on your organization, the type of work it does, and its culture. Here we take a look at some of the modern methods of performance appraisal with examples to help you determine which options might work best for you, your managers, and your employees.
Objectives and key results (OKRs) are one of the newer types of methods being used to evaluate performance. They’re focused on identifying quantifiable measures to evaluate performance. OKRs are designed to evaluate company and team performance, not performance at an individual level. The objectives are the “what” of performance; the results are the “how’s” which are measured in terms of milestones which are either achieved or not achieved.
Companies that have chosen to use this method include Google, LinkedIn and Zynga; it’s a popular method among technology companies. OKRs are also often used by start-up organizations, especially those that have experienced problems with execution as they’ve grown.
The benefits of using OKRs is that it helps employees focus on achieving team and organizational outcomes by working together toward common goals.
There are some cons, however. One of the greatest potential downfalls is that the wrong key performance indicators (KPIs) are used to measure the targets. Measures can be leading, lagging, or based on output, but they need to align directly with OKRs. OKRs, in turn, need to align directly to department, division or organizational goals and objectives.
Management by Objectives (MBO) is a performance appraisal approach that preceded OKRs, yet the two are similar. As the name sounds, MBO like OKRs is also focused on objectives. But objectives are focused at the individual level. The process involves managers and employees working together to create specific objectives related to their performance in support of organizational goals. The use of SMART objectives—specific, measurable, achievable, realistic, and time-sensitive—help to ensure that metrics are meaningful.
As with OKRs, companies choose to use MBO to help engage employees in the goal-setting process to boost the odds that the goals will be achieved.
The benefit of MBO is that it is outcome-focused and related to measurable indicators of success. One downfall can be that, if not embedded within the entire organization, it may lack leadership commitment and support.
The 360-degree feedback approach to performance appraisal is based on gathering input from a variety of sources—not just the employee’s direct supervisor. These inputs may come from peers within or outside of an employee’s department, their customers, vendors—anyone who can offer direct insights into their performance. For supervisors and managers, direct reports are used as an input to their performance appraisal.
Companies that choose to use 360-degree feedback as their performance appraisal method value input and recognize that a wider range of input, provided more frequently, can benefit employees and the organization. Netflix is an example of a company that has revamped their performance appraisal process by doing away with annual performance evaluations in favor of 360-degree reviews.
The primary benefit of 360-degree feedback is that it provides a wide range of inputs and perspectives about an employee’s performance, unlike traditional performance management.
There are downfalls, though. One downfall is that those asked for input may be hesitant to offer constructive feedback, especially if that input is not anonymous. Another downfall can be the potential damage to working relationships when evaluated employees feel that feedback has been harsh or unjustified.
There has been much criticism of traditional performance appraisals which tend to be conducted on an annual basis. That length of time between formal reviews, critics say, is not timely enough to offer maximum value to employees. Consequently, some organizations have begun to take a more continuous feedback approach to performance evaluation providing more timely information to employees about both the positive aspects of their performance and opportunities for improvement.
Adobe is an example of an organization that does quarterly check-ins with employees. Deloitte does weekly check-ins and has team leaders do short reviews after every project or quarter, whichever is more frequent.
Uber is probably the best example of an approach to performance appraisal that truly is continuous—drivers can review their performance ratings at the end of each service based on input from customers.
The benefit of continuous feedback is that employees are kept well informed about how they’re doing and are able to make adjustments to their approaches and processes based on feedback. The primary downfall is the added amount of time that may be required by managers and supervisors. However, technology can help here by automatically capturing and supplying reports to streamline and simplify the evaluation process. In addition, continuous feedback approaches also are often aided by technology that allows employees to view performance data themselves throughout the year to determine how they are doing in real time.
Stacked ranking is an approach that was famously used by Al Dunlap while working for Sunbeam. Dunlap was notoriously known as “Chainsaw Al.” He was responsible for laying off thousands of workers through a process whereby managers had to rank their employees—those who ranked at the bottom were let go. Dunlap didn’t originate the ranking method of performance appraisal, though. It was actually originated by GE’s Jack Welch in 1982, and has also been used (but discontinued) by Microsoft and Goldman Sachs. It’s a controversial approach, but one that is still used by some companies like Amazon.
A stacked ranking approach works well for competitive organizations or organizations focused on pulling themselves out of a declining or poor performance situation. They do not work well in organizations that value a collaborative culture and teamwork as the approach can create tension between employees.
Some companies are eliminating the formal performance evaluation process altogether. Companies that have eliminated performance reviews, according to reports from organizations like SHRM, include Adobe, Deloitte, and GE. In truth, though, most companies that say they have ended performance evaluation have really just eliminated traditional performance appraisal processes in favor of one of the more modern alternatives to performance reviews discussed here. Fortunately, there are many advantages of modern methods of performance appraisal.
Traditional approaches to performance management are focused on formal meetings between supervisors and employees that generally occur on an annual basis. Modern and advanced methods of performance management occur more regularly, incorporate input from multiple sources, are often aided by technology and directly involve the employees being evaluated.
It would be disingenuous to suggest that there is one “best” approach to performance appraisal. The best approach will be unique to each organization and will depend on its culture, competitive positioning and other factors. What’s important for organizations is to seek a solution that lets you streamline and automate your existing performance management process while helping you grow into the performance strategy you aspire to.
A good performance review should focus on observable, measurable and objective performance outcomes, and offer alignment between individual, team, and overall organizational goals. Modern methods of performance appraisal also often are based on real-time reports that can be generated through automated performance management systems.
There are numerous best practice examples to point to in terms of how various companies have applied the modern performance appraisal methods we’ve discussed here. We’ve highlighted some of the companies with the best performance management practices. As you consider which of the modern methods of performance appraisal might work best at your company, their experiences and best practices can supply useful insights.