Performance Appraisal - Definition and Uses


What are Performance appraisals?

Performance appraisals are used to assess an employee’s performance and provide a platform for feedback about past, current, and future performance expectations. Performance appraisal is variously called employee rating, employee evaluation, performance review, performance evaluation, or results appraisal. Performance appraisals are widely used for administering wages and salaries, giving performance feedback, and identifying individual employee strengths and weaknesses.

Most U.S. employers use performance appraisals for office, professional, technical, supervisory, middle management, and nonunion production workers, and there are many reasons for this widespread use. Indeed,

performance appraisals can provide answers to a wide array of work-related questions, and by advancing a road map for success, poor performance can be improved. Even after a positive appraisal, employees benefit if appraisals help them to determine how to improve job performance. In addition, even though an employer may not need a reason to terminate an employee, as a practical matter, appraisals can provide justification for such actions should that become necessary.

However, appraisal programs must be carefully developed to fully capitalize on the talents and efforts of employees. For instance, research has indicated that a gap often exists between actual job performance and the ratings of the work. Poorly done performance appraisals lead to disappointing results for all concerned, and there is reason to believe that evaluations can cause bad feelings and damaged relationships if not managed well. Some believe that performance evaluations are an unnecessary part of work because of vague rating terms, self-interest, and/or deception on the part of rating managers. Managers need to display courage and honesty when they evaluate the performance of their workers. Indeed, performance reviews can be politically oriented and highly subjective in nature, which can adversely impact the relationships between managers and their employees. However, having no formal performance appraisal can weaken discipline and harm an employee’s ability to improve.

Uses of Performance Appraisals in Organizations

Organizations generally use performance appraisals in two potentially conflicting ways. One use is to provide a measure of performance for consideration in making pay or other administrative decisions about employees. This administrative role often creates stress for managers doing the appraisals and employees as well. The other use focuses on the development of individuals. In this role, the manager acts more as a counselor and coach than as a judge, a perspective that can change the overall tone of the appraisal process.

The developmental performance appraisal emphasizes identifying current training and development needs, as well as planning employees’ future opportunities and career directions. Figure shows both uses for performance appraisals.

Administrative Uses of Appraisals

Three administrative uses of appraisal impact managers and employees the most:

  1. Determining pay adjustments;
  2. Making job placement decisions on promotions, transfers, and demotions; and
  3. Choosing employee disciplinary actions and including termination of employment.

A performance appraisal system is often the link between additional pay and rewards that employees receive and their job performance. Performancebased compensation affirms the idea that pay raises are given for performance accomplishments rather than based on length of service (seniority) or granted automatically to all employees at the same percentage levels. In pay-for-performance compensation systems, historically supervisors and managers have evaluated the performance of individual employees and also made compensation recommendations for the same employees. If any part of the appraisal process fails, better-performing employees may not receive larger pay increases, and the result is perceived inequity in compensation.

The use of such appraisals to determine pay is common. Consequently, many people argue that performance appraisals and pay discussions should be done separately. Two major realities support this view. One is that employees often focus more on the pay received than on the developmental appraisal feedback. The other is that managers sometimes manipulate ratings to justify the pay they wish to give individuals or the amount the market or budget situation suggests should be given. As a result, many employees view the appraisal process as a “game,” because compensation increases have been predetermined before the appraisal. To address these issues, numerous organizations have managers first conduct performance appraisals and discuss the results with employees, and then several weeks later hold a shorter meeting to discuss pay issues.

Employers are interested in the administrative uses of performance appraisals as well, such as decisions about promotions, terminations, layoffs, and transfer assignments. Promotions and demotions based on performance must be documented through performance appraisals; otherwise, legal problems can result. To improve the administrative processes of performance appraisals, many employers have implemented software so that managers can prepare appraisals electronically.

Developmental Purpose of Appraisals

For employees, a performance appraisal can be a primary source of information and feedback that builds their future development in an organization. By identifying employee strengths, weaknesses, potentials, and training needs through performance appraisal feedback, supervisors can inform employees about their progress, discuss areas in which additional training may be beneficial, and outline future developmental plans. The manager’s role in performance appraisal meetings parallels that of a coach, discussing good performance, explaining what improvements are needed, and showing employees how to improve. It is clear that employees do not always know where and how to improve, and managers should not expect improvement if they are unwilling to provide developmental feedback.

Positive reinforcement for desired behaviors contributes to both individual and organizational growth. The purpose of the feedback is both to reinforce satisfactory employee performance and to address performance deficiencies. The developmental function of performance appraisal can also identify areas in which the employee might wish to grow. For example, in a performance appraisal interview targeted exclusively to development, an employee found out that the only factor keeping her from being considered for a management job in her firm was the lack of a working knowledge of cost accounting. Her supervisor suggested that she consider taking some night courses at the local college.

The use of teams provides a different set of circumstances for developmental appraisals. The manager may not see all of an employee’s work, but the employee’s team members do. Teams can provide important feedback. However, it is still an open question as to whether teams can handle administrative appraisals. When teams are allowed to design appraisal systems, they tend to get rid of judgment and avoid differential rewards. Thus, group appraisal may be best suited to developmental, not administrative, purposes.


Mathis, R., & Jackson, J. Human Resource Management (15 ed.). Mason: South-Western.