Employee appraisal systems: pros and cons

Most small businesses have performance appraisals. Appraisals assess employee performance against objectives & guide employees on their future development.

When appraisal systems are managed well, people continually progress and achieve more. In this way, employee appraisal systems can make a significant contribution to the overall success of a business.

But what are the pros & cons of appraisal systems?

What are the different types of employee appraisal systems?

Appraisal systems come in many forms. The best known is the annual review. This is a

objectives that were set in the previous review. Some systems combine both ranking and narrative methods.

Evaluations also come in other forms. A 360 degree review aims to collect feedback from all an employee’s touchpoints, so their managers, colleagues, reporting team members and even customers. This method is not dependant on just one person’s view of the employee and the extra feedback elicited about the worker gives a more balanced view of them in their day-to-day role.

The self-evaluation method of review can be useful as an input in the appraisal process. Asking an employee to honestly appraise themselves can be enlightening for both the employee and the manager.

The best appraisal systems identify objectives and KPIs so that both manager and employee can agree goals and timescales that need to be met. Agreed and well-defined aims and goals provide an easy way of measuring success or failure.

More informal appraisal systems seek to provide much more frequent – even ongoing – appraisal of performance. Sometimes called one-to-ones or check-ins, these are regular meetings with a manager where performance can be checked and objectives re-evaluated if necessary. They're less formal than the annual appraisal, and can even encourage a coaching management style (rather than an authoritative or coercive one). 

The pros of performance appraisal systems

The biggest advantage of an appraisal system is that it allows feedback on how to

Appraisal systems are also designed to identify the training needs of individuals. When aggregated, this gives HR a view of the training needs within the organisation as a whole, identifying skills gaps and possible training opportunities.

Some companies use appraisal systems to determine pay increases and promotion. Based on performance according to a graded scale, pay increases can be awarded, with those scoring the highest receiving the largest pay increases.

Appraisals systems form a sound basis for HR decision-making. If an employee is under-performing to the extent that disciplinary processes need to be initiated, then performance reviews can measure and identify whether improvements have been made. Where they haven’t, the review can help inform the next stage of the HR disciplinary process.

Employee appraisal systems encourage and facilitate dialogue and communication. When they only happen once a year, then they aren’t so great for this. But where there are regular one-to-ones and check-ins, then employees and manager get a chance to set clear expectations and to talk about issues. Not only does more frequent discussion make for more opportunities to have problems resolved, but increased dialogue also helps to improve morale within a business.

The cons of appraisal systems

Critics of the appraisal system reason that companies should focus more on improving processes and systems than getting the workers to improve. They say it shouldn’t be for the individual staff members to work faster, more carefully, or more diligently; but that the company should adjust its methods of working and improve where the procedures are failing.

That aside, reviews and appraisals can be viewed quite negatively by employees. Some staff feel they are one-sided and judgemental. Traditional appraisal systems do tend to focus on the negative and generate criticisms of the employee from the person that is one step further up the hierarchy.

Managers too are often guilty of reviewing staff based on their personal characteristics, rather than on their achievements. Character traits may not be entirely relevant to the work the employee is doing, so criticisms can feel unjustified, especially if a worker is otherwise feeling that they are succeeding in their job. Self-appraisal goes some way to assisting with this, but it can be difficult for an employee to honestly assess themselves.

Scores-based appraisals can be demotivating, as it can be disappointing to be deemed average. Most employees are hard-working, good people who turn up on time, work diligently, achieve their targets and enjoy good relationships with their colleagues. But scoring employees will necessarily rate these good achievers in with the regular and typical workers. It will therefore make them “average”. It will make them a three out of five. But it can be dispiriting to be average. If you’re doing what is expected of you, why are you not better than a three? Why are you not a five?

Appraisal systems are often seen as being inconsistent. Even with a clearly set out appraisal system, it’s difficult to expect a number of managers to all operate in exactly the same way. Different managers will review people differently, and favouritism and prejudice can lead to inconsistency in how one reviewer appraises each of his subordinates.

Paper-based appraisal systems are time-consuming & inefficient, especially in smaller companies. Discover how to give effective feedback to your team to include in performance appraisals with our free manager's guide to delivering feedback.