There's nothing more fundamental to the success of an organization than employee performance. Maybe that’s why there is a seemingly endless number of performance appraisal processes for evaluating, measuring, driving, and developing employee performance.
In this article, we'll review 14 of the most common performance evaluation methods from traditional methods of appraisals like competency assessments to more extreme appraisal techniques like human resource accounting.
For every approach, we’ll also share when it is most effective and appropriate to use. Choosing the right performance appraisal approach isn’t about picking favorites, it’s about serving the unique needs of your employees and your organization.
When building out a complete performance management system, organizations will often choose to combine a few of the following appraisals. Be sure to think about what outcomes are most important to your organization when considering the following system examples.
Performance check-ins are often confused with other types of performance reviews, but they’re not the same. Performance check-ins happen more often, they are more informal, and they give managers the opportunity to build rapport and find out what employees are working on between cycles.
Check-ins can have set agendas or be completely open-ended. Most often, employees and managers will discuss progress towards company goals, overall performance since the last check-in, and the employee’s aspirations.
The primary role of check-ins is to create a consistent time and space for discussions of long-term performance. In the bustle of the day-to-day, it can be hard for managers and employees to ever sit down and take a long-term view of performance.
When to use check-ins
Check-ins can be used effectively at most companies. They are most often deployed between more intensive appraisal processes to spread out performance discussions throughout the year without overburdening employees and the organization. Check-ins are also important if your employees are setting long-term goals, like career goals. More frequent check-ins help to ground long-term goals to shorter-term actions.
Narrative Appraisals or Essay Appraisals
As its name suggests, the narrative performance appraisal is created when a manager writes a freeform essay about the employee’s performance over the review period. Essay appraisals allow reviewers to discuss anything they feel is pertinent to the employee without being locked into certain questions.
In a perfect world, this approach allows managers to focus on exactly what an employee needs to hear and provide the most relevant feedback. However, in the real world, managers don’t always express themselves clearly and essay appraisals can leave employees feeling confused on where they stand.
The narrative appraisal is customized to each employee which makes it nearly impossible to make comparisons across employees.
When to use essay/narrative appraisals
Essay appraisals are best for employees with loosely defined jobs or who are doing very individualized creative work. If it's hard to quantify the inputs and outputs of employees’ work or you feel like every employee would need their own custom appraisal questions in order to get relevant feedback, the narrative appraisal could be right for you.
Narrative appraisals are also a way for great managers to shine. If your managers are willing to write clear, thoughtful feedback to each of their reports, it is worth formalizing that process.
360 feedback involves getting broad feedback from an employee’s coworkers. This can mean peer reviews, self-reviews, manager-reviews, secondary manager reviews, or upward reviews. The idea is to increase the sources of feedback in order to get a more accurate and holistic view of employee performance. Often 360 feedback will be open-ended or thematic with the employee’s manager reviewing and aggregating the feedback into a single more cohesive picture of performance.
When to use 360 feedback
360 feedback is a great option for when employees regularly work collaboratively on different teams. When an employee’s primary role is working with others outside of the view of their manager 360 reviews can bring to light feedback that might not otherwise be raised. Peers are often hesitant to give negative feedback outside of a formal context—360 reviews provide that context.
One key to successful 360 reviews is to train everyone in the organization on delivering effective feedback. Sometimes non-managers are less experienced giving feedback and what they share can be more destructive than constructive.
Competency assessments measure an employee’s capabilities against their critical job skills. These assessments show the gaps between where an employee needs to be and where they are now.
Competency assessments often flow naturally into a concrete learning plan focused on the competencies with gaps. This type of appraisal can be conducted in a variety of ways including through observation, interview, or form. The key is to choose the right competencies for every role at your organization.
When to use competency assessments
Competency assessments are great for jobs where success is dependent on well understood skills. It usually helps to have many employees in a similar role, so that you can begin to understand the competencies that matter through experience.
Focusing on a specific set of competencies can lead you down the road of only recognizing employees who succeed in one specific type of way. Employees who drive great outcomes, but do so in unexpected ways, may find it difficult to progress when they are evaluated on competencies rather than outcomes.
In a grading/rating performance appraisal, managers use a numerical (1-5) or descriptive scale to record an employee’s performance in specific areas of their job. Companies such as Amazon and Deloitte use forms of rating scales. Because they are easy to fill out and create quantitative data, rating appraisals are very popular.
But anything worth doing is hard, right? One of the keys to rating appraisals is making sure managers aren’t just mailing them in, doing the minimum and getting them done without having the difficult and important conversations that need to accompany these types of appraisals. Ratings send a very clear message of where an employee stands, but they do a very poor job of telling an employee where they need to go.
When to use grading/rating appraisals
Rating scales work well at organizations that need to create more accountability. It’s impossible to spin a low rating. Just remember that if you want employees to up their game, you’ll need to do more than just tell them they are underperforming.
Stack Ranking Appraisals
Stack rankings and forced distributions are a controversial method of performance appraisals that rely on ranking employees against each other. Sometimes this is a top to bottom list and sometimes it’s into buckets of high-performing, low-performing and the middle with quotas for each. Rankings force managers to differentiate between employees to find out which ones actually have the highest performance. It also makes it very clear where employees stand in relation to their peers.
When to use ranking appraisals
Ranking appraisals can work great for competitive environments like up-or-out consulting firms. In these situations everyone knows they need to be a top performer to stay with the firm, so it’s healthier to make this process transparent and open.
Forced distributions can also be a useful approach in the short-term for organizations that have become stagnant and are being dragged down by low performers. Sometimes letting employees who have checked-out move on to a new job and brining in fresh talent is the best decision for everyone.
Rankings are not great for companies that are focused on innovation or creativity. Moments of creativity can be uneven and unpredictable. Pushing employees out after one underperforming year probably doesn’t make sense in that context. Ratings also aren’t great for organizations that need to be extremely collaborative, as it creates a tension and competitiveness between employees.
Project-based reviews are unique in that they focus on the most recent work an employee has completed. Project-based reviews have questions that are directly related to an employee’s contribution to a project. Feedback cycles can also be quicker for this appraisal type as projects often cycle more frequently than traditional review cycles.
When to use project-based reviews
Project-based reviews are best for companies that work on distinct projects one at a time (or almost one at a time). It’s best when these projects last from a few weeks to a few months. Typical examples are accounting audit teams, consulting teams, and some types of law firms. Project-based reviews are especially useful when organizations are bringing together new groups of employees for each project.
External and client appraisals involve bringing in third parties from outside the company to help with performance reviews. For employees that primarily engage with customers or clients, this can be the most important source of feedback. Gig-economy companies like Uber rely exclusively on client appraisals to manage their contract workforce.
When to use external/client appraisals
Client appraisals are great for service roles where an employees primary job is to interact with customers. External appraisals are also a good option for employees that work as closely with a client as they do with their coworker, like a consultant on site with a client for an extended period.
In checklist appraisals, managers are asked to answer “yes” or “no” to a series of questions or statements about an employee. These appraisals tend to be easy to complete and can help an employee know where they stand across a broad set of domains. Google famously uses this approach to review their managers. Employees answer yes or no for a long list of actions Google believes good managers should be taking with their reports. Read more about Google’s upward reviews in our article here.
When to use checklist appraisals
Checklist appraisals are binary and therefore best for traits where levels of gray don’t matter. Checklist are also great when you want to provide a lot of feedback in a lot of areas, and you need to keep the the appraisal easy to complete. Upward feedback is a good example of this.
Management by Objectives (MBO)
Management by objectives measures employee performance by how they achieve specific objectives. These objectives are decided on with equal input from both employees and managers. The objectives should align with organizational goals, and there should be effective communication on both the employee’s and manager’s part to ensure the objectives are met.
When to use MBO
MBO can be applicable to many organizations. The most difficult part is the communication needed between employees and managers. If your staff is already communicating well, it should not add much of a workload or cost. Some criticize MBO for being too focused on goals at any cost and missing more human elements of work, but effective communication through the process will make sure that employees’ more personal needs are met alongside the organizational goals.
Behaviorally Anchored Rating Scales (BARS)
Behaviorally Anchored Rating Scales, also known as BARS, is a type of performance management scale that uses behavior “statements” as a reference point for rankings. BARS measures employee performance against specific examples of behavior that are given a number ranking.
For example, a pizza place could use a Level 1 ranking to describe an employee who “is often late, receives regular customer complaints, and takes >10 minutes to make a pizza” while a Level 5 ranking would describe an employee who “is never late, receives multiple stellar customer reviews, and makes a pizza in under 5 minutes.”
BARS is helpful because it combines qualitative and quantitative assessments. The behavioral definitions can also aid in eliminating ranking bias.
When to use BARS
Because of the time-consuming nature of coming up with behavioral statements for every position, BARS is best for larger companies with the resources to create an excellent scale. It’s also best if a company has groups of employees with very similar jobs that can use the same rating scale.
Critical Incident Appraisals
For critical incident appraisals, managers keep a log of specific examples of both negative and positive behavior exhibited by employees. The standard for behavior can be based on company values or an employee’s job description. A continuous log makes sure that performance reviews focus equally on performance across the year and focus on concrete moments rather and general sentiments. It’s important that the descriptions of these incidents are made as they occur.
When to use critical incident appraisals
Critical incident appraisals are simply descriptions of events and that can make it hard to compare employees or make decisions based on them. They can also be overwhelming and hard to interpret as a whole if they aren’t paired with some analysis.
Human Resource Accounting / Cost Accounting
Also called cost accounting, human resource accounting analyzes an employee’s performance through the monetary gains they bring to the organization vs. their cost. Assuming you could have perfect measurement, this could be the ideal appraisal approach. Unfortunately, it can be very hard to perfectly understand all the costs and benefits an employee has on an organization.
When to use Human Resource Accounting
Human resource accounting is most useful when employee contributions and costs are measurable. This can happen in situations where executives are judged on their P&L or for positions like sales where the ultimate measure of success is revenue generated.
Psychological appraisals are unique in that they look forward to an employee’s future performance rather than focusing on their past. In this appraisal, psychologists look at the employee’s internal traits and qualities that could affect their performance in the future. The psychologists can look at specific scenarios when performing their tests to discover how an employee is likely to perform in similar scenarios in the future.
When to use psychological appraisals
While useful, psychological appraisals can be time-consuming and costly, especially for small organizations. They can be used in specific scenarios, such as determining which employees should be pushed toward leadership roles or managing reorganizations of the org chart.
Frequently Asked Questions
What is the best form of performance appraisal?
The best performance appraisal is the one that serves your organization’s needs. If you’re just getting started, consider a narrative appraisal with a few simple ratings questions that focus on overall performance.
What type of performance review provides the best feedback?
Checklist appraisals can provide a broad array of feedback quickly, however, for the best overall feedback, it is hard to beat a well-written narrative review. Unfortunately, not all managers will take the time to write comprehensive and thoughtful narrative reviews.
What is the best way to evaluate employee performance?
If you’re looking to generate useful quantitative data on employee performance, consider using ratings appraisals that ask simple questions managers likely already have conviction around. Good questions include, “Is this employee ready for promotion?” and “How hard would you fight to keep this employee at our organization?”
What should I include in a performance evaluation?
One thing to include in every performance evaluation is space for context and ways for the employee to improve their performance going forward. It’s important that employees have enough information to understand their feedback and know what to do with it.
What is the most common performance appraisal method?
Formal check-ins, narrative appraisals, and competency assessments are the three most common appraisal methods used today.