Performance management and performance appraisal are terms that often intertwine in the realm of employee development. Both are distinct approaches, each carrying its own significance. But how exactly are they different?

In this article, we'll break down these two processes, how they function, their unique roles in nurturing employee growth and organizational success, and how you can leverage them together.

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Understanding the role of performance management and the performance appraisal process

Performance management and performance appraisals go hand in hand — that's a given. But before we begin to understand why and how, let's make sure we're clear on definitions.

What is performance management?

Think of performance management as applying foresight. Effective employee performance management learns from the past, looks at the present, and adapts for the future.

Traditionally, performance management is about the linear planning of the employee journey, although modern performance management, as we see it today, is more strategic. It looks at the entire performance process and actively optimizes it on an ongoing basis. We call this agile or continuous performance management.

Continuous performance management is a great system for skill enhancement and career progression. Mapping out attainable goals and ensuring regular feedback makes it easy to spot improvement needs and provide training opportunities to better support employee growth and development.

Objectives of performance management

Performance management is a comprehensive approach to employee development and performance optimization. It focuses on continuous improvement, goal alignment, feedback loops, professional development, and creating a growth mindset — empowering employees to strive for excellence and contribute to the organization's success.

What are performance appraisals and how do they work?

Performance appraisals, on the other hand, are a snapshot of how far you've traveled at specific points in time within this ongoing performance management process. Think of the performance appraisal system as applying hindsight.

Performance appraisals, often referred to as performance reviews or performance evaluations, serve as structured assessments of an employee's work-related performance. These evaluations can occur at various intervals, typically annually or semi-annually, and focus on reviewing an employee's past performance.

They serve several important purposes in the professional world — especially when it comes to making decisions on salary adjustments and promotions or providing performance feedback. Appraisals are ultimately a tool for recognizing employee growth and development.

Performance appraisal objectives

Performance appraisals serve a specific purpose within the broader spectrum of performance management. The primary objectives of any performance appraisal are to evaluate past performance, document employee achievements, provide feedback, and identify areas for improvement to set up employees for success — until their next performance appraisal!

Types of performance appraisals

Performance appraisals come in various forms, each offering a unique perspective on an employee's strengths, weaknesses, and overall contributions. Here's a closer look at some widely used methods:

  • 360-degree feedback: In this method, feedback is collected from a range of sources, including supervisors, peers, and subordinates. More on this method later.
  • Management by objectives (MBO): Here, specific objectives are set for the employees, and their performance is evaluated based on achieving these objectives.
  • Rating scales: This method employs a scale, typically from 1 to 5, to rate different aspects of employee performance.

Remember: A performance appraisal is a retrospective assessment. While valuable, it's just one piece of the performance management puzzle. To align employee performance with organizational objectives, managers must merge the performance appraisal process within performance management.

Key differences between performance management and performance appraisals

When you combine performance management with performance appraisal methods, magic happens. That said, several differences set these two processes apart. Here are ways to understand their distinctions:

Flexible vs. rigid

Performance management is a flexible and adaptable approach that molds itself to the organization's evolving needs and the employee's growth path. Tailored strategies and a customized path is key.

Performance appraisal, in contrast, are slightly more rigid in structure. That doesn't mean they aren't personalized — but it follows a set format so managers don't have to improvise the process and follow a certain evaluation satndard.

Individualistic vs. comprehensive approach

Performance management takes an individualistic approach, recognizing that each employee is unique. It personalizes the journey for skill development and aligns individual goals with organizational objectives.

Performance appraisal, on the other hand, is a more comprehensive process. It evaluates the broader aspects of an employee's performance — the focus is on their overall performance, not individual details.

Process vs. system

Performance management ensures there is an ongoing process that emphasizes continuous improvement. It's a never ending forward-moving journey where each step feeds the next.

In comparison, a performance appraisal is more systematic and periodic. They are events in a calendar, fixed to certain dates to keep up a certain standard.

Qualitative vs. quantitative

Performance management often leans towards qualitative assessments, focusing on behavioral traits and overall performance. It evaluates how employees approach their tasks and responsibilities and appreciates nuances.

Performance appraisal, in comparison, can be more quantitative. It assesses performance using measurable metrics, concrete outcomes, and data — the emphasis is on the numbers.

Past vs. future performance

Performance management takes a proactive approach to improve employee performance. Present performance management is future performance management.

On the other hand, a performance appraisal evaluates past performance. It's a look back, capturing the performance metrics but not actively enhance it. However, the hindsights an appraisal provides feeds the next steps of performance management.

Growth vs. evaluation

Performance management emphasizes growth, development, and learning. It tends to employees where continuous care nurtures growth and success blooms. Job satisfaction and employee engagement go up when you invest in employee performance.

Performance appraisal, in contrast, is primarily an evaluation and documentation exercise. It's takes a snapshot performance at a particular moment, and analyzes it. Which informs the whole performance management process.

Proactive vs. reactive

Performance management is proactive, continually nurturing and aligning employees' efforts with organizational goals. There's always a next step, there's always a movement forward.

Performance appraisal, by comparison, is reactive and conducted at specific intervals. It's like check points along the performance management journey where managers and employees react (adapt) accordingly.

Examples of performance management and performance appraisals

So far, so good? Here are some examples to help you better understand the difference between performance management and performance appraisals:

Performance management

Performance management is an ongoing and forward-looking process, so performance management activities look like:

  • Conducting weekly one-on-one meetings to discuss goals, progress, and challenges;
  • Offering continuous feedback and guidance to help employees improve their performance;
  • Developing a customized training plan for employees based on their needs and career goals;
  • Aligning individual employee goals with the company's strategic objectives;
  • Recognizing and rewarding employees for their accomplishments in real-time;
  • Fostering a growth mindset, where employees are encouraged to learn and develop continuously.

Performance appraisal

Being retrospective assessments, performance appraisal activities look like:

  • Conducting an annual review meeting to discuss an employee's performance over the past year;
  • Focusing on evaluating past performance, documenting achievements, and areas for improvement;
  • Assigning a rating or score to each employee, based on performance over a specific timeframe;
  • Comparing employees' performance to predefined standards or benchmarks;
  • Using performance appraisal data for compensation decisions, promotions, or terminations;
  • Providing feedback on what was done right and what could've been better during the past year.

Remember: It's the combination of both approaches that helps create a well-rounded performance system.

Getting with the times: Modern performance management and appraisals

Modern methods of performance management and performance appraisals have evolved to be more rooted in continuous management practices. They work together to create a continuous performance management system. It's all about open communication, agility, and constant collaboration between managers and employees.

The 5 essentials of a modern performance management system

Modern thinking is understanding that performance management systems can't be a one-size-fits-all framework in order to be effective. Each activity, including appraisals, are tailored to the unique needs of employees.

That said, there exist key essentials to incorporate in your system to ensure your employees can thrive:

1. Keeping track and on track: Having a structure

While agility is key, improvisation isn't recommended. For performance management activties to be as effective as they can be, having a structure is non-negotiable. Managers then have something to work off of, giving them a solid foundation on which they can add the building blocks. A structure also helps motivate employees, empowering them in the next steps, and keeps everyone's on the same page.

Modern performance management software help with this thanks to templates, personalization, automation, and analytic dashboards.

2. It's about proactivity: Anticipating issues and finding solutions

In an effective and modern performance management system, managers proactively identify any issues or obstacles hindering employee performance. We're not just talking about spotting problems but taking action to fix them. By applying vigilance, it becomes easier to anticipate problems too in order to avoid them altogether. It's all about creating a space where your team feels comfortable talking about past, current, and future challenges they face and supporting them through it.

3. Putting a focus on training and development opportunities

Today, performance management is growth-minded. That means the system works not only to improve an employee's performance, but to support them in their professional development too. Companies who offer training and development opportunities boost employee engagement, productivity, and loyalty, making it a win-win scenario for everyone. A modern performance management approach invests in both the short and long-term employee life cycle.

4. Communication is king: Seeing the value in feedback

Feedback comes alive at any point of the performance management cycle, not just within the confines of performance appraisals. Modern practices appreciate the value of feedback, ensuring it to be frequent and employee-centric. By leveraging a variety of feedback methods like real-time feedback, self-assessment, and peer reviews, managers can get a more comprehensive view of an employee's strengths and areas for improvement every step of the way — and cater to less biased, more honest conversations.

5. It's a continuous experience, not a stop-and-go journey

Ultimately, modern performance management systems are holistic to the entire employee life-cycle — from day-to-day to major milestones. It's not just about reserving assessments, adjustments, and support at a set period. If managers and employees wait for annual or semi-annual performance appraisal moments to seek clarity, flag issues, or provide feedback (just like the old school ways) then progress is slow and problems fester. The modern performance manegment mindset is one where everyone engages in regular discussions, addressing performance challenges as they arise, providing instant recognition for achievements, and adapting quickly to changing circumstances.

Ultimately, modern methods of performance management and appraisals aim to enhance the effectiveness of the performance management system by making activities more dynamic, holistic, and closely aligned with the ongoing, changing needs of both employees and the organization.

4 tips for combining performance management and performance appraisal for the best results

For managers to have the best insight into employee performance, they need to have both a solid performance management system and a structured performance appraisal framework that work hand-in-hand with eachother.

So, how can managers achieve this symbiosis? Here are a few tips:

Tip #1. Alignment and timing is key

Visualize performance management and performance appraisals as two paths trotting along in parallel of each other. Alignment means ensuring that performance appraisal moments correlate with performance management objectives and milestones. This means timing them along with a company's overall performance review, or ahead of salary assessments, so both appraisals and the performance management process feed into eachother.

Tip #2. Clear communication channels

Communication is the oil that keeps this machinery running smoothly. To make sure communication remains continuous, where feedback from performance appraisals feed the performance management process, there has to be clear channels where managers and employees can exchange. These channels should be available at all times, so everyone remains on the same page regarding what's expected even outside of appraisals.

Tip #3. Document everything

It's essential to document performance moments. In the case of performance appraisals, this means keeping track of key performance indicators (KPIs), achievements, and feedback given or received — kind of like a scorecard. But documentation doesn't stop there. Managers should also keep an agenda for every performance check-in. Keeping a digital paper trail of appraisals and throughout the performance management cycle ensures nothing gets lost, and managers and employees have past notes to compare and assess progress.

Tip #4. Establish post-appraisal actions and follow-ups

With continuous performance management, there is no end point — only beginnings of new chapters. This comes alive through post-performance appraisal actions and following-up throughout the performance management cycle. Once a performance appraisal is completed, managers must set out next steps through an action plan, such as assigning training to address employee development needs. To ensure action plans align with continuous management, there should be follow-ups for every action set out.

When should a performance appraisal take place?

As previously stated, timing of performance appraisals is a crucial aspect of performance management. The ideal formula is a mix of planned and ad hoc perfomance appraisal moments.

Planned performance appraisals

Following best practices of applying a structure, some performance appraisal moments should be conducted periodically to capture a snapshot of an employee's performance. Their timing should coordinate with performance management milestones, allowing for a systematic process:

  • Annual reviews: The most common timing is an annual performance review. This allows for a comprehensive evaluation, reflecting an employee's performance over a year.
  • Quarterly check-ins: For a more frequent touchpoint, quarterly reviews provide a more dynamic evaluation. They enable quicker response to performance issues and adjustments to goals.
  • Monthly appraisals: Some organizations opt for monthly reviews. This high-frequency approach ensures that performance is always top of mind and provides employees with immediate feedback and recognition.

The key here is consistency. Whatever timing you choose, sticking to a regular schedule ensures that employees and managers are on the same page about expectations and performance progress.

Ad hoc performance check-ins

Ad hoc performance appraisal moments, or performance check-ins, occur at need through the entire performance management cycle. These can be initiated by either managers or employees — be it to seek clarity, flag issues, or look for support. They are key to an ongoing process.

Check-ins don't have to be as involved or formal as planned performance appraisals, but it is a good idea to still follow best practices of having an agenda, keeping notes, ensuring next steps are set up, and feeding insights back into the performance management plan.

Performance management and performance appraisal: A match made in performance heaven

While not easy, distinguishing between performance management and performance appraisal is vital for effective workforce management. Understanding the strengths of both these processes will help you maximize your performance management strategy.

Both performance management and performance appraisal work hand in hand with each other, and are essential for employee development and organizational success. Balancing them allows managers to nurture current skills, address past issues, and prepare for future growth and success.

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