Mar 01, 2023

Performance Appraisal Policy: Purpose, Importance, and Objectives

Evaluating the contributions made by each employee and more is an excellent way for any organisation, no matter how big or small, to determine how well it is performing. There will always be a concern about how well each employee performs, regardless of whether your company has hired 1000 people or just one. The Performance Appraisal Policy enters the picture at this point. So, everything relevant to the performance appraisal policy will be covered in this article today. We shall discuss the meaning, importance, and objectives. The more you know about an employee’s performance, the better equipped you’ll be to make decisions about who to promote, who to give additional responsibility to, and, most significantly, who to let go of. So, let’s start with the definition.

What is Performance Appraisal Policy?

Performance appraisal is also referred to as performance evaluations, performance reviews, or employee appraisals. The Performance Appraisal process involves comparing an employee’s current performance to the company’s stated standards, which were explained to the candidates during the hiring process. Also, after giving the employees feedback on their performance level, highlighting their strong and weak points, and outlining how they may enhance their performance in accordance with the needs of the firm.

Every organisation needs to understand how well its employees can perform and develop. The performance appraisal policy serves as a tool to assess the employees’ opportunities for professional growth. The employee’s relative value to the company, strengths and weaknesses, and potential for further development are all subjectively evaluated. You can learn what the employee does best and what needs to be improved if you conduct an effective performance appraisal. Moreover, appraisals are useful in determining how to fill new jobs in the organisational chart^[1] with current workers. A good employee would be one that not only works well in terms of work efficiency but also minimises issues for the company by showing up on time, showing up on days that they are supposed to and decreasing the number of events that are related to their jobs. There are firms that offer IT Recruitment services and also aid in the creation of performance appraisal policy documents.

Purpose

Because performance appraisal is the methodical assessment of an employee’s performance on the job and potential for improvement, we’ve listed a number of purposes for a performance evaluation policy:

Measure performance accurately: Every business organisation creates performance benchmarks or mutually agreeable standards so they may later evaluate each employee’s output against them. It allows every corporate organisation to precisely assess employee work performance, which is essential to meet their goals.
Evaluation: The correct evaluation of the way employees have performed their jobs and duties is one of the main goals of performance appraisal policies. An organisation can use this to keep track of each employee’s work performance, including the efforts they made and the results they were able to achieve. Evaluation can assist in differentiating workers based on their performance on the job as well as other traits like behaviour and personality.
Provide continuous feedback: Similar to how it is crucial for every employer to be aware of the accomplishments and performance of their workforce; it is crucial for employees to be aware of their own situation and the likelihood that they will achieve their goals. So, one of the significant goals of the performance appraisal policy is to give your staff the correct feedback.
Provide clarity of expectation and actual result: Every employee wants their bosses to provide them with a simple explanation of the tasks they must complete and what the company actually expects of them. It, however, is insufficient to generate the required response from them. As their employer, you should also let them know how successfully they performed the tasks or how they may have done better. The degree to which they are meeting your expectations should be made known to you.
Evaluate the effectiveness of HRM functions: The effectiveness of several human resource management tasks, including hiring, selecting, compensating, and providing employee training, can also be evaluated by an organisation using the performance appraisal policy.

Implementing a performance appraisal policy serves a variety of different goals. It benefits both the employee and the employer because it gives both sides a clear picture of how the other functions, as well as their strengths and weaknesses.

Importance of Performance Appraisal Policy

Because of its many uses in organisations and its effects on both individuals and the organisation as a whole, performance appraisal is crucial.

The following are reasons why the performance appraisal is important:

Training: The goal of a performance appraisal is to pinpoint a worker’s positive and negative aspects in his current position. This information can be utilised to create training and development plans suitable for helping employees overcome their deficiencies. In reality, many businesses utilise performance reviews to determine which training their workers need.
Feedback: A person will perform better if they receive criticism on their performance and attempt to correct any flaws. Employees receive feedback on their performance from performance appraisals. They are informed of their position. Knowing how one is working and how one’s efforts are contributing to achieving organisational goals helps one work more effectively.
Pressure on Employees: The psychological drive to perform well at work is increased through performance appraisal. When employees are aware that they are being evaluated based on certain criteria and that this evaluation will significantly impact their future, they are more likely to perform in a way that is acceptable and favourable.
Promotion: For promotions most businesses frequently combine merit and seniority. An employee’s performance is evaluated, revealing his strengths and weaknesses in the context of his current position. They can be used to determine whether he qualifies for promotion to the next higher job and also what additional training he will need. An employee’s transfer, demotion, or termination may be based on their performance appraisal.
Increase Pay: The performance appraisal is important when deciding whether to raise pay. Depending on how well he is doing his work, an employee’s income may rise. His performance is continuously evaluated, both formally and informally. Whenever there is a clear contract between both the employee and the manager who determines wage increments in a small business, performance appraisal may serve as an informal procedure.
The desire for Improvement: Employees’ drive for improvement is encouraged by performance appraisal. When workers believe that management judges them fairly and recognises individual achievement, their confidence and morale rise. Performance appraisal encourages higher levels of performance from workers by fostering a desire to be regarded highly.

Objectives

The objectives of the performance appraisal policy are as follows:

Promotion Decisions: That could be a good foundation for a promotion or job change. The one performing the best earns the promotion if merit is indeed the basis for promotion. The amount of frustration experienced by employees who are not promoted can be reduced if pertinent work factors are measured correctly.
Personal Development: The factors of both strong and weak employee performance can be found with the use of performance appraisal. A line manager can talk to specific employees to learn why they perform the way they do and what actions can be taken to enhance their productivity.
Feedback: An employee’s performance can be evaluated in order to determine how well he is performing at work. It explains to him how he might enhance his current performance and climb the “organisational ladder.”
Training and Development Programs: It can act as a manual for creating an effective training and development programme. Performance appraisal can let workers know how they’re doing and what abilities they need to work on to qualify for wage raises, promotional offers, or both.
Compensation Decisions: It may act as the foundation for wage increases. To discover staffs who really are functioning at or above expectations, managers need to conduct performance reviews. The idea that promotions should be granted based on performance rather than seniority is rooted in this payment strategy. Performance-based raises are given to the employee under merit schemes.

Conclusion

The formal processes required to assess the contributions, personalities, and potential of group members in a functioning organisation are all included in the performance appraisal policy. As was already noted, gathering the data required to make accurate and unbiased decisions on employees is a continuous process. We think that performance appraisal is very valuable for both employers and employees because they make it evident what each party’s strengths and weaknesses are. Get in touch with the Corphr team for the performance appraisal policy document.

Read our Article: Key Performance Indicators: Types, Importance and How to Measure it