Performance appraisal methods are an integral aspect of human resources performance management. Employee performance can significantly affect your business' success, so selecting the appropriate performance appraisal method is a critical part of your performance management system. There are a number of performance appraisal methods, but three common methods are 360-degree feedback, forced distribution and management by objectives.
One of the most comprehensive performance appraisal methods is the 360-degree feedback method. This type of performance appraisal incorporates feedback from every employee with whom the evaluated employee works. Colleagues, supervisors, managers and even upper-management workers are evaluated by their superiors and subordinates. For a 360-degree feedback appraisal to be effective, training is required for employees who have little or no experience evaluating the performance of their co-workers, particularly when front-line employees may think their opportunity to provide feedback is an invitation to voice personal opinions rather than objective and constructive feedback to improve another employee's performance. Another important aspect of 360-degree feedback is the determination of what to include in the feedback when it's shared with the employee receiving the evaluation.
The forced distribution method of performance appraisal is used by many large organizations. This method requires the supervisor, manager or director to rank employees according to evaluations of performance, aptitude and suitability for promotion or continued tenure with the organization. It also fosters a competitive work environment, which has its good and bad side. The forced distribution method made popular by former General Electric CEO Jack Welch is referred to as the 20-70-10 formula. This version ranks employees who show promise as the top 20 percent of company employees, average employees who make up roughly 70 percent of the workforce and the 10 percent of employees whose performance falls below company expectations. Forced distribution—or differentiation, as Welch calls it—is a simply understood concept despite the polarity of opinions about it. Welch sums up forced distribution as "differentiation based on the principle that the team with the best players wins."
Management by Objectives
According to Roslyn Shirmeyer, contributor to SAM Advanced Management Journal, nearly one-third of employers rely on management by objectives (MBOs) to evaluate employee performance. MBOs determine which goals are essential for employee performance and the steps necessary to achieve those goals. The employee's performance is evaluated according to timeliness and completeness. Other methods may involve employee-to-employee performance, which may be difficult to measure when performance levels are unequal or difficult to evaluate in an equitable manner.