Performance Evaluation: Definition, Characteristics, Steps

Performance Evaluation DefinitionPerformance evaluation is the process of evaluating how effectively employees are fulfilling their job responsibilities and contributing to the accomplishment of organizational goals.

To appraise performance effectively, a manager must be aware of the specific expectation for a job, monitor the employee’s behavior and results, compare the observed behavior and results to expectations and measure the match between them.

In most cases, a manager should also provide feedback to employees, a process that can produce strong reactions.

Performance evaluations are extremely important to an organization, although they may be difficult to conduct. They tell organizations whether their selection methods are right.

They demonstrate where training, development and motivational programs are needed and later help to assess whether these have been effective.

As a matter of fact, many organizational policies and practices are evaluated, in large part, through their impact on performance.

Performance evaluations, after all, are the basis on which managers make decisions about compensation, promotion, and dismissal.

They also use feedback about people’s performance to recognize them for a job well done and motivate them.

In short, without a good judgment of the employee’s performance, managers find it very difficult to identify and encourage organizational effectiveness.

It is because formal Performance evaluations are so important that most organizations systematically carry them out.

Definition of Performance Evaluation

Performance evaluation means many things to many people. It is a measurement process; it is an exercise in observation and judgment; it is a feedback process.

It is a control device, which is used by the organization to accomplish its predetermined goals.

Performance refers to an employee’s accomplishment of assigned tasks. Performance means doing a job effectively and efficiently.

Performance evaluation is the process by which manager or consultant examines and evaluates an employee’s work behavior by comparing it with preset standards, documents the results of the comparison and uses the results to provide feedback to the employees to show where improvements are needed and why.

Performance evaluation is that part of the performance assessment and management process in which an employee’s contribution to the organization during a specified period of time is assessed.

Performance evaluation is the assessment of an individual’s performance in a systematic way.

Such appraisal also has been called employee rating, employee evaluation, performance review, performance evaluation, and results appraisal. It is widely used for administering wages and salaries, giving performance feedback, and identifying individual employee strengths and weaknesses.

Performance evaluation is a systematic process of evaluating how well employees are performing their jobs. The appraisal is based on results obtained by the employee in his/her job, not on the employee’s personality characteristics.

It is a developmental tool used for all-round development of the employee and the organization. The performance is measured against such factors as job knowledge, quality and quantity of output, initiative, leadership abilities, supervision, dependability, co-operation, judgment, versatility, and health. Assessment should be confined to the past as well as potential performance also.

Performance evaluation is a system of review and evaluation of an individual or team’s job performance. An effective system assesses accomplishments and evolves plans for development.

Performance management is a process that significantly affects organizational success by having managers and employees work together to set expectations, review results, and reward performance.

Its goal is to provide an accurate picture of past and/or future employee performance. To achieve this, performance standards are established.

“Performance evaluation is the systemic evaluation of the individual respect for this performance on the job and his potential for development.” – Beach

According to Gary Dessler, “Performance evaluation means evaluating an employee’s current and/or past performance relative to his performance standards.”

According to Keith Davis, “Performance evaluation is the process by which organizations evaluate individual job performance.”

Performance means to do something and appraisal means to decide the value of the work done.

Thus Performance evaluation means deciding the value of the work done by an individual. Traditionally Performance evaluation has been used as a control mechanism for salary administration, reward, promotion, and punitive actions.

Performance evaluation;

  • is the systematic evaluation of the performance of employees and to understand the abilities of a person for further growth and development,
  • is a process of evaluating an employee’s performance of a job in terms of its requirements,
  • is the process of evaluating the performance of employees, sharing that information with them and searching for ways to improve their performance,
  • provides the basis for assessment of employee contributions, coaching for improved performance and distribution of economic rewards,
  • refers to the outcome of the behavior of employees.

Thus, Performance evaluation means deciding the value of work done by an individual. It is a process by which organizations evaluate individual job performance.

Each employee should receive a thoughtful and accurate appraisal. The success of the process depends on the supervisor’s willingness to complete a constructive and objective appraisal and on the employee’s willingness to respond to constructive suggestions and to work with the supervisor to reach future goals.

Characteristics of an Effective Performance Evaluation

Performance evaluations measure progress and help a person set professional goals. The annual Performance evaluation is something employees and managers alike often fear.

Yet, it can be a source of motivation and reward if both parties are knowledgeable about how a Performance evaluation works.

This is also an opportunity for an employee to share with his/her manager about professional goals and career aspirations.

Characteristics of an effective Performance evaluation are;

  • Explain the appraisal process.
  • Clarify job expectations.
  • Review and update job skills.
  • Review accomplishments and goals.
  • Final steps and rewards.

Explain the appraisal process

In the appraisal meeting between a manager and employee, the manager should first explain the purpose and the process of the Performance evaluation.

Generally, a Performance evaluation is conducted to clarify job expectations, set goals for improvement of weaknesses and reward for accomplishments and overall performance.

The manager’s job is to explain the steps involved during and after the Performance evaluation.

Clarify job expectations

A mutual understanding of job expectations is essential to an effective Performance evaluation. Absence of mutual understanding, the appraisal meeting could spiral downward because the manager and employee might be working from completely different viewpoints.

A review of the job description, and employee skills, qualifications and responsibilities should precede the actual Performance evaluation.

Review and update job skills

It is important to review the skills of employees and update accordingly. Manager discusses any improvements necessary, and praise the employee for acquiring the new skill.

The manager determines what additional skills the employee can learn during the next evaluation period by setting reasonable goals for professional development. The employee should feel free to provide input throughout the Performance evaluation.

Employees should be provided with a self-appraisal form. If this is the case, the employee will come to the Performance evaluation meeting with the completed self­appraisal.

Review accomplishments and goals

Accomplishments throughout the evaluation year will be enumerated. If there are quantifiable goals established for the review period, the manager and the employee determine if the goals have been met.

Often, a “management by objective” technique is used to track specific, goals, progress and completion of each quarter. Using this technique simplifies the Performance evaluation because there are intermediate assessments made during the evaluation period.

Final steps and rewards

An overall appraisal score may be discussed during the meeting or it may be calculated after the manager has had an opportunity to consider the employee input.

In addition, the manager should indicate whether or not the employee will be entitled to an increase in pay or bonus, if applicable. Many employers use a scale that determines a percentage increase in Performance evaluation scores.

Whenever possible, the manager should inform the employee of the type or amount of increase to expect for his/her performance during the year.

What are the Objectives of Performance Evaluation / Appraisal?

Performance evaluation can be used both for evaluating the performance of employees and for developing them. If many serve two-fold purposes- telling the employee where he stands and using the data for personnel decisions concerning promotion, pays, etc.

The HR developmental objectives focus on finding individual strengths and weaknesses, developing healthy superior-subordinate relations, and offering appropriate training and counseling to the employees.

Overall performance evaluation of employees is done in order to achieve the following objectives:

  1. To effect promotions based on competence and performance.
  2. To confirm the services of probationary employees upon their completing the probationary period satisfactorily.
  3. To assess the training and development needs of employees.
  4. To decide upon a pay raise where (as in the unorganized sector) regular pay scales have not been fixed.
  5. To let the employees know where they stand insofar as their performance is concerned and to assist them with constructive criticism and guidance for the purpose of their development.
  6. To improve communication, performance evaluation provides a format for dialogue between the superior and subordinate and improves understanding of personal goals and concerns. This can also have the effect of increasing the trust between the rater and the ratee.
  7. Finally, performance evaluation can be used to determine whether HR programs such as selection, training, and transfers have been effective or not.

7 Steps of Performance Evaluation Process

7 Steps of Performance Evaluation Process

  1. Job Analysis.
  2. Establishing performance standards.
  3. Communicating the standards.
  4. Determining the actual performance.
  5. Matching the actual with the desired performance.
  6. Discussing results.
  7. Decision making.

1. Job Analysis

The first step in the process of performance appraisal is job analysis.

Defining the job and analyze for making sure that employer and subordinates agree on his or her duties and job standards.

2. Establishing performance standards

The second step in the process of performance appraisal is the setting up of the standards which will be used to as the base to compare the actual performance of the employees.

This step requires setting the criteria to judge the performance of the employees as successful or unsuccessful and the degrees of their contribution to the organizational goals and objectives.

The standards set should be clear, easily comprehensible and in measurable terms. In case the performance of the employee cannot be measured, great care should be taken to describe the standards.

3. Communicating the standards

Once set, it is the responsibility of the management to communicate the standards to all the employees of the organization.

The employees should be informed and the standards should be clearly explained to them. This will help them to understand their roles and to know what exactly is expected from them.

The standards should also be communicated to the appraisers or the evaluators and if required, the standards can also be modified at this stage itself rendering to the relevant feedback from the employee or the evaluators.

4. Determining the actual performance

The most difficult part of the Performance appraisal process is determining the actual performance of the employees that is the work done by the employees during the specified period of time.

It is a continuous process which involves monitoring the performance throughout the year.

This stage requires the careful selection of the appropriate techniques of measurement, taking care that personal bias does not affect the outcome of the process and providing assistance rather than interfering in employees work.

5. Matching the actual with the desired performance

The actual performance is matched with the desired or the standard performance. The comparison tells the deviations in the performance of the employees from the standards set.

The result can show the actual performance being more than the desired performance or, the actual performance being less than the desired performance depicting a negative deviation in the organizational performance.

It includes recalling, evaluating and analysis of data related to the employees’ performance.

6. Discussing results

The result of the appraisal is communicated and discussed with the employees on a one-to-one basis. The focus of this discussion is on communication and listening. The results, the problems, and the possible solutions are discussed with the aim of problem-solving and reaching consensus.

The feedback should be given with a positive attitude as this can have an effect on the employees’ future performance. The purpose of the meeting should be to solve the problems faced and motivate the employees to perform better.

7. Decision making

The last step of the process is to take decisions which can be taken either to improve the performance of the employees, take the required corrective actions, or the related HR decisions like rewards, promotions, demotions, transfers, etc.

Uses of Performance Evaluation / Appraisal

Performance evaluation serves two types of the objectives one is to make the evaluation decisions and other is to provide the need assessment source for the training and development if there is a gap between actual and expected performance.

For many organizations, the primary goal of an appraisal system is to improve performance.

A system that is properly designed and communicated can help achieve organizational objectives and enhance employee performance.

In fact, Performance evaluation data are potentially valuable for use in numerous human resource functional areas.

  1. Performance improvement.
  2. Compensation adjustments.
  3. Placement decisions.
  4. Training and development needs.
  5. Career planning and development.
  6. Staffing process deficiencies.
  7. Informational inaccuracies.
  8. Job-design errors.
  9. Equal employment opportunity.
  10. External challenges.
  11. Feedback to human resources.
  12. Compensation programs.
  13. Internal employee relations.
  14. Assessment of employee potential.

Performance improvement

Performance feedback allows the employee, the manager and personnel specialists to intervene with appropriate actions to improve performance.

Compensation adjustments

Performance evaluations help decision makers determine who should receive pay raises. Many firms grant part or all of their pay increases and bonuses on the basis of merit, which is determined mostly through Performance evaluations.

Placement decisions

Promotions, transfers, and demotions are usually based on past or anticipated performance. Often promotions are a reward of past performance.

Training and development needs

Poor performance may indicate a need for retraining. Likewise, good performance may indicate the untapped potential that should be developed.

Career planning and development

Performance feedback guides career decisions about specific career paths one should investigate.

Staffing process deficiencies

Good or bad performance implies strengths or weaknesses in the personnel department’s staffing procedures.

Informational inaccuracies

Poor performance may indicate errors in job analysis information, human resource plans or other parts of the personnel management information system.

Reliance on inaccurate information may have led to inappropriate hiring, training or counseling decisions.

Job-design errors

Poor performance may be a symptom of ill-conceived job designs. Appraisals help diagnose these errors.

Equal employment opportunity

Accurate Performance evaluations that actually measure job-related performance ensure that internal placement decisions are not discriminatory.

External challenges

Sometimes performance is influenced by factors outside the work environment such as family, financial, health or other personal matters. If these factors are uncovered through appraisals, the human resource department may be able to provide assistance.

Feedback to human resources

Good or bad performance throughout the organization indicates how well the human resource function is performing.

Compensation Programs

Performance evaluation results provide the basis for decisions regarding pay increases.

Internal Employee Relations

Performance evaluation data are also frequently used for decisions in areas of internal employee relations including motivation, promotion, demotion, termination, layoff, and transfer.

Assessment of Employee Potential

Some organizations attempt to assess employee potential as they appraise job performance.

Benefits of Performance Evaluation

The benefits of appraisals may be listed under three headings as follows:

Advantages to Appraiser

  1. It sharpens appraiser’s control over his own activities. A systematic appraisal will provide the executive with a better idea of his strengths and weaknesses in his department and so enable him to make more effective work assignments. Moreover, the appraisal activity will give him a new insight into his operations which may well lead to improvements in department and organization.
  2. Clear-cut responsibility for results: Sometimes there are differences in understanding on the part of the manager and his subordinate executives as to just what their authority and responsibilities are. Drawing up a checklist of the responsibilities of the subordinate as well as the scope of his position will reduce any possible misunderstanding as to performance goals.
  3. Perspective in sizing up subordinates: A systematic appraisal program means that there will be relaxed discussions with subordinate personnel regarding their strengths and weaknesses. This type of interview results in a more judicious evaluation and is far superior to the crisis discussion which takes place when something has gone wrong.
  4. An objective basis for discussing salary and promotion: When an employee comes to his office with a request for a wage raise or for promotion, the appraisal record and the last appraisal interview provide an objective basis for discussion. This will serve to avoid embarrassment.
  5. Aid to effective recruitment: An executive who follows systematic appraisal procedures will be able to discuss past hiring with the personnel department on the basis of tangible results. And he can be much more specific in setting up job specification when he has to go outside the company for staff recruitment.

Advantages to Appraisee

  1. How am I doing: The periodic review tells the subordinate where he stands in the organization? This is one of the most important results of the appraisal activity. The discussion of his record as a whole over an extended period enables the subordinate to see his job and his performance in that job in true perspective.
  2. Specific development of subordinates: The appraisal activity should help the subordinate improve performance. It is a guide for coaching and a basis for suggesting further training which will help the subordinate expand his presentation skills.

Benefits to the organization:

  • To plan and adjust compensation package for employees.
  • To identify training and development needs for the potential employee.
  • To provide a career plan for the employee.
  • To motivate the employees through an objective appraisal.

Disadvantages or Limitations of Performance Evaluation

In spite of the merits of Performance evaluation, it may create a negative experience if it is not done properly. The major limitations are as follows:

  1. Performance evaluations are very time consuming and can be overwhelming to managers with many employees.
  2. Sometimes, a strict appraisal may affect the goodwill between senior and junior. When different departments in the same company use different methods of appraisal, it becomes very difficult to compare among the employees.
  3. They are based on human assessment and are subject to rater’s errors and biases.
  4. PA can be a waste of time if not done appropriately.
  5. Many bosses do not wish to spoil their relations with subordinates by giving a poor appraisal. They provide higher grades which are not justified; this is an injustice to a really deserving employee.
  6. They can create a very stressful environment for everyone involved.
  7. The objective of the PA is to evaluate and develop employees. One PA system cannot achieve both objectives. The particular system of appraisal should clarify .before it is designed and should be discussed with all managers and employees to gain their commitment.
  8. Feedback is an important element of PA. Performance feedback lets employees know how well they have performed in comparison with the standards of the organization. While positive feedback is easily accepted, negative feedback often meets with resistance unless it is objective based on a credible source and given in a skillful manner. Managers are often uncomfortable discussing performance weaknesses directly with employees. Managers fear confrontation when presenting negative feedback. Many employees tend to become defensive when their weaknesses are pointed out. Employees tend to have an inflated assessment of their own performance.

Who are Responsible for Conducting Performance Evaluation?

Performance evaluations can be done by anyone familiar with the performance of individual employees. The following may be raters;

  • The immediate supervisor.
  • The peer.
  • Group Appraisals.
  • Appraisals by subordinates.
  • Multiple Raters.
  • Self-appraisal.
  • 360-degree appraisal or feedback.

The immediate supervisor

The immediate supervisor is the right person to make an evaluation of his subordinates. He or she is probably most familiar with the individual’s performance and, in most jobs, he has had the best opportunity to observe actual job performance.

The immediate supervisor is probably best able to relate the individual’s performance to organizational objectives. Immediate supervisor keeps performance log writing their employee’s accomplishment. These logs provide specific examples to use when rating performance.

The peer

Employees’ co-workers, explicitly familiar with the jobs involved, conduct peer evaluations mainly because they too are doing the same thing.

They are the most aware of co-worker’s day-to-day work behavior and should be given the opportunity to provide the management with some feedback.

Here coworkers provide input into the employee’s performance. Peer evaluations facilitate teamwork and satisfactory interpersonal skills among employees rather than impelling individuals to appear to be the best employee when under a supervisor’s observation.

Group Appraisals

In group appraisal, the judgment of the immediate superior is supplemented by the different slants of other executives.

TQM and other participative management approaches emphasize teamwork and team performance rather than individual performance.

Appraisals by subordinates

Here the subordinates evaluate their superiors.

Subordinates know firsthand the extent to which the supervisor actually delegates, how well he or she communicates, the type of leadership style he or she is most comfortable with and, the extent to which, he or she plans and organizes.

Large firms use it, where managers have many subordinates. In the small firm, where managers have few subordinates, however, it is easy to identify who said what. Thus, considerable openness is necessary before subordinate appraisals can pay off. Pitfalls are obvious.

In most cases, subordinates are in no position to know what is really required to an executive. They may be too young or inexperienced to realize the extent of their superior’s responsibilities.

Multiple Raters

In multiple appraisals, the subordinate personnel is appraised independently by several other qualified officers. Staff personnel generally consolidate results of such multiple evaluations.

If a person has ten supervisors, nine having rated him excellent and one poor; we can discount the value of the one poor evaluation.

For individuals who have received ten appraisals during their first five or six years in the service, there is less chance that on one or two poor evaluations will seriously influence decisions made on the basis of these Performance evaluations.


Self-evaluation is the best method of Performance evaluation if it can be systematically introduced. It means the way in which an individual views him.

When employees evaluate themselves, defensive behavior is less likely to occur. As a self-development tool, it forces employees to think about their strengths and weaknesses and set goals for improvement.

360-degree appraisal or feedback

It is a process in which supervisors, peers, subordinates, customers and the like evaluating the individual. It is difficult for supervisors to have extensive job knowledge of each of their employees. Multisource feedback recognizes that the manager is no longer the sole source of Performance evaluation information.

Many managers simply do not know how their employees truly view them and the work they have done. When using 360-degree feedback for administrative purposes, managers must anticipate a potential problem.

Differences among the raters can present a challenge. Bias can just as easily be rooted in customers, subordinates, and peers as in a boss.

Really maintains that 360- Degree is better for development and feedback purpose rather than salary or other administrative uses.

What Are the Criteria of Performance evaluation?

There are a number of criteria which can be used to appraise the performance of different classes of employees in an organization.

An organization must decide what criteria it will use for evaluation.

Does it want a system based on evaluating individual traits, behaviors, or job results?

This decision depends in part on who is being evaluated and how the organization intends to use the Performance evaluation.


Trait-based information identifies a subjective character trait of the employee.

Early graphics rating scales evaluated workers on individual traits or personal characteristics which were presumably related to job performance. The initiative, attitude, creativity, aggressiveness, reliability, and personality are examples of traits on which employees have been rated.

One problem with trait rating is that the traits themselves are difficult to define and may be subject to varying interpretation by evaluators. Most of the traits are ambiguous and they are very vague to use when making performance-based HR decisions.


Behavior-Based information focuses on specific behaviors that lead to success.

Rating employees according to job behaviors is based on the assumption that there are effective and ineffective behaviors and that these have been identified for each job or type of job.

Behaviors are judged effective or ineffective in terms of the results the behaviors produce (either desirable or undesirable). Evaluating employees along behavioral dimensions is especially important for employee development purposes.

Job Result

It considers employee accomplishments. This approach works well for jobs in which measurement is easy and obvious.

Examples of job results indexes are the volume of sales in terms of money, the amount of scrap, and the quantity and quality of work produced. When such quantitative results are not available, evaluators tend to use appraisal forms based on employee behaviors and/or personal characteristics.

Results indexes such as turnover, absenteeism, grievances, profitability, and production rates can be used to evaluate the performance of organization units.

Guidelines for effective performance evaluation interviews

  1. Emphasize positive aspects of employee performance.
  2. Tell each employee that the evaluation session is to improve performance, not to discipline.
  3. Conduct the performance review session in private with minimum interruptions.
  4. Review performance formally at least annually and more frequently for new employees or those who are performing poorly.
  5. Make criticisms specific, not general and vague.
  6. Focus criticisms on performance, not personality characteristics.
  7. Stay calm and do not argue with the person being evaluated.
  8. Identify specific actions the employee can take to improve performance.
  9. Emphasize the evaluator’s willingness to assist the employee’s efforts and to improve performance.
  10. End the evaluation sessions by stressing the positive aspects of the employee’s performance.


Evaluation of an employee is one of the most universal practices of management. It is applied formally or informally to all employees.

Most organizations have some forms of Performance evaluation of their employees. Organizations require consistent levels of high performance from their employees in order to survive in a highly competitive environment.

Once the employees have been selected, trained and motivated, they are then appraised for their performance.

Performance evaluation is the step where the management finds out how effective it has been at hiring and placing employees. If problems are identified, steps are taken to communicate with employees and to remedy them.

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