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The Anatomy of a Good Performance Appraisal System

Evaluation or appraisal letter is one of the most important factors in growing a small or start-up business because it allows you to have an overview of the areas in your company that requires improvement. When your company fails to conduct an appraisal on the overall performance of the business, then it would be impossible for the whole organization to measure whether their marketing strategies and business plans have effectively helped in the fulfillment of their organization’s objectives. You may also see performance sample.

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Having an effective and strategic appraisal system is a great way to coordinate your business resources with your action plans and align them with the mission and vision of your business.

What is a Performance Appraisal System

A good performance appraisal system can be considered as one of the most important components for the growth and success of a business. Oftentimes, the management will conduct an appraisal not only certain areas of the company but also on the performance on each of the members of their organization. According to an article that is published in, a performance appraisal is “an annual review of an employee’s overall contribution to the company by his or her manager. Performance appraisals, also called annual reviews, evaluate an employee’s skills, achievements, and growth, or lack thereof”. By conducting a performance appraisal, the company will be able to provide an honest feedback on the employee’s quality of work. It is used in determining the pay increase and bonuses of an employee, as well as if there is a need to terminate the job contract of an employee due to poor work performance.

Understanding the Significance of a Good Performance Appraisal System

While there are organizations who often misunderstood and mismanaged the appraisal system, as a business person who wants to flourish his business, it is important to understand that an appraisal system can be vital both to the performance management and human resource management. That is why it is important for all employers to have a better understanding objectives, purpose, and benefits brought about by a good performance appraisal system.

Below is a short list of the amazing importance of a good performance appraisal:

  • Since most small and start-up companies have limited financial resources, conducting an annual performance appraisal on their employees can help them determine how to allocate and distribute their funds to deserving employees who have consistently shown consistency.
  • Aside from identifying and resolving employee shortcomings, a performance appraisal is a great tool that helps both managers and employees in creating an employee developmental plan by providing them more training that is relevant to their job and increasing their responsibilities to mold them into better assets in the organization.
  • Although you can consider it as a part of their strategic planning, business experts view performance appraisal as an effective communication tool that keeps everyone on the same page in developing a strong employer-employee relationship, which makes annual performance review a little less stressful on both the manager and employee.

Characteristics of a Good Appraisal System

Every company set up a performance appraisal system to evaluate the performances of their employees and for their annual appraisal records. However, the company should look into the efficiency of their performance appraisal system. But no matter if your performance management and appraisal system have special features, it may not always work to your advantage. It is important to understand that a performance appraisal system should possess certain characteristics in order to make it effective.

Reliability and Substance

A good appraisal system should include consistent, dependable, and credible data and information. All these factors are crucial because they can be used to defend the company’s organization against potential lawsuits and legal challenges. In the case of any inaccuracy and invalidity in the evaluation, it can greatly affect the usefulness and reliability of your performance appraisal system.

Trust and Confidence

Trust and confidence are two of the most important characteristics of a good performance appraisal that are necessary for discussing the results of the evaluation in a straightforward and professional manner. If you think that the employee does not pass the performance appraisal, you can offer him some suggestions on how to improve and transform himself to be an asset to the organization.

Time-Saving and Practical

An effective performance appraisal system must be practical and time-saving. That is why it is vital for the company to systematize the appraisal form, technique administration, procedures, and ratings. Remember that a good performance appraisal system should bring a positive impact on your business.

Regular Feedback

One of the main characteristics that a performance appraisal system should have is to effectively facilitate regular feedback for the members of their organization. In order to motivate the employees to do well in performing their tasks, you have to keep the line of communication open in order to give them regular feedback on what the company expects of them and which areas or qualities that they need to improve.

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Objectives of a Performance Appraisal Letter

As we all know, a performance appraisal is considered to be a standardized approach that assesses the performance of the organization members so that the company management will have a clear picture in understanding the abilities and capabilities of their employees that are crucial to boost the growth and development of the business.

When conducting a performance appraisal on the employees, always keep the following objectives in mind:

  • To manage all the performance appraisal results in order determine the structure of the wage, compensation packages, salary increases.
  • To help the employees identify their strengths and weaknesses
  • To evaluate the potentially raw skills of the employees and help grow and develop for their career advancement.
  • To provide employees with an honest feedback about their performance and related status.
  • To review all the performance appraisal data and preserve the training and promotional programs essential for employee development.

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How Employees Can Benefit from a Performance Appraisal

Most of the time, an appraisal is used by the company to gauge the performance of the people who are working in their organization. One of the greatest benefits of having a performance appraisal is that it gives the department head and his subordinate to have a personal one-on-one talk of the issues that are currently experienced by the employee.

Motivation and Satisfaction

Conducting a performance appraisal on your subordinates can impact their motivation and satisfaction either positively or negatively. It is an essential tool that can be used to recognize the hard work and dedication of an employee. On the other hand, it also gives the management of the company an idea which of the employees have underperformance issues.

Target Employee’s Needs

Once the management is able to identify the specific areas that require improvement, then it will be easier for them to evaluate and come with a remedy to help address the problem. Aside from targeting needs, a performance appraisal can also be used as a powerful tool that helps achieve the career goals of every employee, which will ultimately result in job promotion and career advancement.

Training and Development

Considered to be an excellent opportunity, the performance appraisal provides both the supervisor and his subordinates to identify and mutually agree on the training and development needs of the employees. When evaluating the job performance of an employee, the presence or lack of work skills become apparent to the immediate head. That is why the need to train the underperforming employees becomes relevant and more pressing to help them improve their performance and know what is expected of them.

Build Strong Relationship

Performance appraisal can be used as an effective tool in building a strong employer-employee relationship as it gives both parties an opportunity to sit down and talk about performance. And since both the supervisor and the employees are busy running and taking care of the business, periodic employee appraisal allows both parties to create and develop a strong business relationship. And since it has been mentioned earlier that a performance appraisal opens the line of communication, employees can use it in sharing suggestions and ideas that are beneficial for the overall organization or applying for a job promotion.

Performance appraisals give the employer and employee the opportunity to sit down and discuss performance. In busy companies, where everyone is taking care of business, periodic meetings between supervisor and employee allow them to form or strengthen a relationship. Developing this rapport opens a line of communication for the employee to use in making future suggestions for the company or requesting for a promotion.

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Final Thoughts

Having an efficient performance appraisal is a great way for the management to probe into the potential career plan and growth of their employees, as well as help them to effectively set their own goals and make some improvements for the next scheduled appraisal period. By understanding the anatomy and importance of a good performance appraisal system, you can certainly make the best use for them.


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