What is a Performance Appraisal System?


The practice of performance appraisal has been around for many years — in fact, it’s rumored to have been invented as early as World War I, but it wasn’t widely used until the 1950s. Since its debut, performance appraisals have come a long way… today, there is even performance management software available to streamline the process for you.

Compare Top Performance Management Software Leaders

Performance Appraisal System


Performance appraisals are comprised of preset standards which are used to measure employees’ work behavior and the results are provided as feedback for the employee. An appraisal system helps employers with the decision-making process involved in employee promotion and compensation, or perhaps in an unfortunate situation, termination. A performance appraisal system falls under the umbrella of performance management software and these platforms are typically used in conjunction with each other.

Do You Need a Performance Appraisal System?

An appraisal system will evaluate an employee’s performance against a list of set objectives and will identify the strengths and weaknesses of employees. The software automates this process to ensure it is done on a regular basis and in a fair, timely manner. Sixty-eight percent of employees who receive accurate and consistent feedback feel fulfilled in their jobs.

To decide whether your business could benefit from implementing an appraisal system, ask yourself the following questions:

How Do You Currently Evaluate Employee Performance?

Take a moment to think about how you are currently evaluating your staff’s performance. Do you have a specific methodology you use? If so, do you feel it suits your business? Do you have a follow-up plan for negative reviews? Do you feel you have enough time and information at hand to conduct thorough and accurate evaluations?  Only 27% of workers strongly agree that the feedback that they receive helps them do their work better.

Can Your Current Performance Appraisal System Be Improved?

Carefully noting each employee’s performance and providing constructive feedback is an arduous task with many steps involved. It’s fair to say that each manager can’t follow the exact same method and put in an identical amount of effort. On top of the basic execution factors, appraisals have an element of sensitivity involved due to the critical nature — a great deal of intention and care must be taken in order to make sure that reviews are productive. For context, a TriNet study of over 1,000 young professionals found that respondents felt that they couldn’t do anything right following performance reviews.

Do You Already Have a Performance Management System?

This question is far more simple to answer than the latter. If you’re already using a performance management system, it may come with a performance appraisal module. In that case, you’re all set to get started. If you’re using a performance management system that doesn’t come with a performance appraisal functionality, perhaps that is a module you can add to your preexisting system. Contact your software provider for more information.

Standardizing the appraisal process is a great way to give all of your employees a fair chance at development and improve employee productivity within your company. Keep reading for an explanation of performance appraisal software features.

Compare Top Performance Management Software Leaders

Performance Appraisal System Features

Performance appraisal software works with performance management software to produce employee reviews. In other words, the features below gather data that play a part in each employee review. They are features you should look for in a comprehensive performance appraisal system.

Performance Evaluation System

The performance evaluation system automates the entire performance appraisal cycle and ensures timely completion. Other functions within the module you could look for are self-evaluations, competency-based assessments, 360-degree feedback or weighted scale ratings. This is the core performance appraisal feature and step one to automating your appraisals.

Compensation Management

One of the larger purposes for performance appraisals is to aid in the decision-making process involved in compensation. The software can work with the business objectives and goals, then align employees’ compensation accordingly. This could mean a raise in pay, or just a reward or bonus.

Reporting and Analytics

An analytics dashboard provides an overview of all of the company’s metrics. Using those metrics, you can compare performance appraisals across the entire workforce. The comparison will help you identify company-wide performance trends and issues, and forecast next year’s workforce budget. The reporting function will notify you when anything falls out of place, or something strange happens.

Goal Management

Only about 50% of the workforce strongly feels that they understand work expectations. This problem is easy to solve with a goal setting and tracking software module. Managers can set short and long term goals for each employee that align with the company mission. Employees must have a clear set of objectives as for what is expected of them, and if they are not achieving their goals, the system will record and report that in their reviews.

Learning and Development

The learning and development function can become useful after a negative performance review or when you are simply looking to further educate your staff. With this function, you should be able to build your own training courses and keep track of an employee’s progress. This facilitates ongoing coaching and personal development.


Most performance appraisal systems are cloud-based, otherwise known as Software as a Service (SaaS), but on-premise or hybrid solutions are available as well. You will want a cloud-based solution if you plan on doing appraisals on-the-go. Many organizations are opting for cloud-based solutions. According to Flexera, 94% of enterprises use cloud software services and 45% of enterprises take the hybrid cloud approach.

Compare Top Performance Management Software Leaders


Appraisal forms must be customizable to work with your individual business style. We’ll get into different types of appraisal forms later.


It’s convenient to have a system that lets you integrate with other HR tools such as payroll, messaging or recruiting applications. Streamlining all of your software features creates a straightforward user experience.

Performance appraisal system features

Benefits of Using a Performance Appraisal System

Recognition is the number one thing employees said their managers could give them to inspire them to produce great work. Using a performance appraisal system ensures your employees receive recognition for their achievements, amongst these other benefits:


There is a great deal of visibility that comes with using a performance appraisal system, given that both the employees and managers have access to the tool. Everyone will have a clear view of goals, ongoing projects and feedback. This level of transparency will instill trust on both ends, encourage open communication and provide clarification.


Real-time feedback on a regular basis will allow your employees to recognize their weaknesses and leverage their strengths. This will provide your employees with the self-development that they deserve and your company needs; you will thrive off of each other. In the event of a less-than-desirable performance review, don’t worry too much — you can assign the employee learning courses which will bring them up to speed.


Software provides insight that you wouldn’t have access to with a traditional performance review. Analytics help you make well-informed, data-driven decisions based off of the metrics and figures it provides for you. Appraisal histories, or records of past performance reviews, create a comprehensive narrative for each employee. Having all of this information at the tip of your fingers provides insight you may have not otherwise realized, and shows you the “bigger picture.”

Reduces Stigma Surrounding Reviews

Finally, a performance appraisal system reduces the stigma surrounding reviews. Last on the list, and maybe the most important for employees, is that performance appraisal software reduces the stigma surrounding reviews. Clear objectives and more frequent check-ins take weight off of the looming once or twice-a-year review with your manager.

Popular Types of Performance Appraisals

Often, businesses make the mistake of only using performance reviews to build a case for termination. Another common mistake is choosing the wrong method of evaluation for your business. In both cases, performance appraisals are not being used correctly. In order to utilize performance appraisal to their full ability, you’ll want to make sure you choose the most relevant evaluation form for your business, and use it consistently. Below we’ll explore some of the most popular appraisal methods.

Checklist Method

This is the most basic appraisal form and it is just what it sounds like: a checklist. The checklist method is objective but can be overly vague as it doesn’t leave room for explanation, just a simple yes or no. This approach is very straightforward and can be perceived as outdated to some, and classic to others.

360 Degree Appraisal

A 360 degree appraisal is a continuous process that involves everyone on the staff as opposed to only a manager or superior conducting reviews. In recent years, this method has become one of the most applauded, as it reduces subjectivity in performance reviews. It takes into account the wide variety of factors involved in assessing the performance of an individual, making this a very dynamic and inclusive method. In the customer service industry, you can include customer reviews of employees — the goal of this appraisal type is to create an all-encompassing account of each employee.

Management by Objectives

MBO involves both the managers and employees of an organization identifying measurable goals and end results. The last step of the MBO process is the performance appraisal. The appraisals strikes a contrast between the actual and the predetermined standards. This tactic is good for organizations that are looking to take a group approach.

Assessment Center Method

In this method, employees are put in a social-related situation and do exercises like role-playing, or a group assignment where coworkers solve a problem together. These techniques are effective in sales training or any position that requires employees to work directly with clients. The exercises can reveal employees’ personalities and are productive in competitive environments. But beware that this method can be very stressful for introverts or low performers.

Behaviorally Anchored Rating Scale

BARS rates employees according to their performance and specific behavioral patterns. It’s designed to bring the benefits of both quantitative and qualitative data by combining the benefits of narratives, critical incidents and quantified ratings. This method is considered to be more objective and works well when interpersonal communication is an important part of the job.

Human Resource (Cost) Accounting Model

This method analyzes an employee’s performance based on the monetary benefits that employee brings to the company. It compares the cost of paying the employee to the contributions the organization has obtained from that specific employee. To be clear, the cost accounting model only takes financial factors into account — you will not gain any understanding of the employee themselves with this strategy.

Compare Top Performance Management Software Leaders

Final Thoughts

Performance appraisals have been around for over a century and the practice will likely never stop changing. As our workforce has evolved, we have realized that feedback should be given more frequently and every organization will have to go through the process a bit differently. It’s key that you tailor the process to satisfy your business needs.

Any organization that is hoping to improve their employee review process can benefit from a performance appraisal system. If you have any remaining questions about what a performance appraisal system is, let us know in the comments.

Madeline ReinboltWhat is a Performance Appraisal System?


Join the conversation
  • EVIE JOHNSON - March 11, 2020 reply

    That is great to read. Thank you so much for sharing it with us.

    Madeline Reinbolt

    Madeline Reinbolt - March 17, 2020 reply

    Thanks, Evie! I’m so glad this article had useful information for you.

Leave a Reply

Your email address will not be published. Required fields are marked *