An effective performance evaluation measures an employee's progress and demonstrates the supervisor's interest in the employee's personal development. It can also highlight training needs and provide the employee with a focused opportunity to discuss workplace interests, problems, and goals.

A solid plan for a performance evaluation starts with the manager identifying the goals that, if met, will increase the organization's value. These goals may not only include concrete, fact-driven goals such as increased productivity and revenue, but also abstract, intangible goals such as improved employee morale and engagement. Once the key goals for the organization’s success have been identified, the manager should use the appraisal as an opportunity to assess and align their employees’ performance so that those goals can be met or exceeded.

Common objectives of effective performance evaluations include:

Clear expectations and performance standards, along with achievable goals, will increase retention and improve morale. Employees are often more engaged in their jobs, and therefore perform better, when they understand what is expected, how to meet those expectations, and how their performance is tied to the success of the business

Public agencies. Federal agencies are required to establish a performance appraisal system (5 C.F.R. § 430.204). Some states have similar requirements.

Discrimination. Performance evaluations present legal risks of both intentional and unintentional discrimination. Unintentional discrimination may occur if the review process has a disproportionate impact on protected classes.

To avoid charges that the procedure is biased, merit-rating systems and the pay differentials that result from them should be based on job-related factors—that is, on objective evaluation of performance relative to specific requirements of the job. The following steps will help protect an organization against charges of discrimination:

Employers may consider auditing their evaluation system on a regular basis to ensure fairness.

At-will employment. Performance appraisals have become the subject of lawsuits ranging from discrimination claims to lawsuits alleging that an appraisal program created an employment “contract.” The employee handbook should make it clear that the description of appraisal and discipline programs is “advisory” and may be altered at management's discretion. Please see the Employee Handbooks section.

Defamation. Defamation is a false statement about a third party that causes them some type of injury, including harm to their reputation. If a performance evaluation is less than stellar in any way, it is crucial to include information that supports the reasons for the evaluation so that it will not be considered false.

Retaliation. Employers should take care not to use a performance evaluation to retaliate against an employee for exercising a right or enjoying a benefit to which they are entitled under federal and state law. Employees are protected from retaliation under Title VII for reporting or assisting in an investigation or for opposing any practice that is unlawful under that title. Please see the Discrimination section.

Privacy. State privacy laws may prohibit employers from engaging in certain activities related to performance evaluations. For example, in some states employers may not require employees to submit to polygraph tests. Laws may also govern how employers handle employee information in order to prevent identity theft.

Traditionally managers have been responsible for establishing performance goals, but some employers involve the employees in the process of creating them in order to attain increased buy-in and commitment to them. A human resources department is vital in overseeing the implementation of the entire appraisal process.

Most organizations review individual employees on the six-month or one-year anniversary of their hire dates. A few review all employees at the same time in a year. It is a bother to be engaged in merit reviewing for some employees during every month of the year, but an annual review of all employees can disintegrate into an across-the-board increase. Employees at top administrative and executive levels are often reviewed near the end of the calendar or fiscal year since their salaries and bonuses are closely related to the profit status of the organization. Employers should try to comply with the appraisal schedule. Otherwise, employees may conclude that employers do not value employees' job performance.

Alternatively, based on their cost-benefit analyses, some companies have moved toward an approach of providing continuous, real-time feedback throughout the year such as holding weekly check-ins. This approach may lead to increased engagement and more effective feedback. A hybrid method is to tighten the feedback schedule to one that occurs more frequently. More frequent discussions may assist employers with remote workforces in which managers and employees do not work side by side.

Some employers combine a performance evaluation with a self-review by the employee. The primary purpose of a self-review is to gain the employee's perspective of their performance. Some self-reviews contain a section in which the employee suggests ideas for improving job performance and career development. Perhaps as important, the review also allows the employee to share areas of interest and success so that the employer can encourage personal growth and support employee development.

However it is implemented, employers should provide employees with a clear understanding of the performance evaluation process and the training that their evaluators receive.

As noted above, the first step of an effective performance appraisal is identifying the goals of the organization, then determining how employees can be best deployed to help attain those goals. The link between a job's key responsibilities and the employee's performance goals should be clear so that employees understand what is expected from them. In turn, the link between the employee's performance and the organization's success should also be clear, as an employee understanding how they fit into the big picture can provide a greater sense of purpose to the daily tasks being performed on the job. A performance appraisal that focuses solely on an employee’s friendly demeanor and punctuality is shallow and ineffective for both the employee and employer if the appraisal can’t tie those traits directly to success in and for the organization as a whole.

Identify the key behaviors that will add value to the organization. Start with the big picture. Does the organization need to grow or does it need to recharge and regroup after a period of financial hardship or significant change? Does the organization need to be aggressive or conservative? Is the organization branching out into new business territory or building loyalty with an established client base? The answers to some of these questions may need to come from the executive team or the company’s mission statement.

Next, consider how the organization’s needs affect each supervisor’s specific department? Are creative thinkers willing to take risks and accept challenges needed? Are reliable workers who thrive on stability and prefer routine tasks needed? What are the specific traits and the key behaviors that are required from an ideal employee to help the organization succeed?

Link any abstract expectations directly to concrete examples in the job. If key expectations have been identified and communicated on an abstract level (e.g., “maximize revenue, improve brand loyalty, provide best-in-class customer service”), it’s important to ensure that there is a clear and logical link between those expectations and the key tasks and responsibilities in each employee’s job.

Employers should start by creating a job description that accurately reflects the job's responsibilities. The critical job responsibilities, as documented in the job description, should be linked to the organization’s objectives in a clear and understandable way. For example, employees who work in a sales context may understand that increasing revenue means completing more sales, but employees in an information technology context may be unsure how they can “increase revenue” until they understand that they can help reach this same goal by eliminating employee or customer downtime due to network outages.

Criteria should be as objective as possible, such as meeting project deadline, budget numbers, or sales goals, and reviewed for any wording that may indicate bias.

Set reasonable performance standards and achievable goals. Finally, once the organization’s larger goals have been identified and linked to the specific tasks of each employee, it is time to determine the extent to and means by which each employee should meet these goals in order to be successful—or exemplary.

For some roles, these goals may be numbers driven (e.g., meeting a production quota, achieving a particular customer response time or rating, or not exceeding a set number of mistakes, incorrect orders, or damaged products). For other roles, these standards may be task, project, or initiative driven (e.g., timely completion of research duties, successful management of a one-time company data migration, or proposal of an initiative to renegotiate a vendor contract to cut costs).

Many organizations follow the SMART model for performance goals. Under this model, objectives should be specific, measurable, attainable, relevant to the mission of the department or organization, and time-based with a schedule.

Note: During the actual performance appraisal, employers should also encourage employee involvement in tracking success, setting their own goals, and identifying any steps that they can take (including seeking and completing additional training) to further improve performance.

Now that the key behaviors have been identified, the next step is to ensure that employees actually know and understand what those behaviors and expectations are. One reason employees fail in their tasks is because the performance model has not been made clear. What behaviors does the organization want its employees to focus on and maintain? How is success measured? Does each individual understand which behaviors are critical to success?

As with the goals of the company, a general idea of these expectations may come directly from the organization’s executives or from the company’s mission statement, with each manager then tailoring the larger goals to the specific roles within the department.

It is preferable that the performance evaluation not be the first time that employees learn of these expectations; however, if the goals and needs of the company and the department are shifting regularly, the performance evaluation can certainly provide an opportunity to reevaluate how the employee can best adapt to any changing needs going forward.

As noted above, managers must also be familiar with the performance targets of the business in order to motivate their subordinates and be able to give appropriate performance feedback. Managers should, in turn, be held accountable for their ability to motivate people to perform better. A standard for measurement of key behaviors and ability to reach targeted goals should be used.

Objectively apply standards to each employee.After identifying what the company needs to succeed; linking those company needs to the specific roles of each department, job, and employee; and considering some reasonable and meaningful standards by which success may be measured, a manager is now ready to apply those standards to existing staff.

Written appraisal. Experts suggest that before managers begin writing they should review their notes of the past year. These observations provide the basis for the evaluation. Then an outline is prepared listing achievements and areas that need improvement. Finally, the performance is measured against the standards of the job, and goals set during the previous review.

The key to a well-prepared, effective appraisal is objective, job-related data that support ratings. This can be accomplished by:

Input. Managers may seek input from both the employee themselves as well as peers or partners.

Bias. Allowing non-job-related factors to prejudice an appraisal is unfair to the employee and may be unlawful if based on characteristics such as race, national origin, gender, or religion. Employers should avoid having an appraisal influenced by other unrelated factors such as participation in employee after-work programs or physical appearance.

Strictness/leniency. Some reviewers might believe the performance standards are too low and therefore refuse to give high ratings, while others insist on giving everyone a high score.

Contrast. This happens when the employee is compared to other employees, rather than on the basis of an objective review of the job performance.

Limited focus. Focusing on recent performance instead of evaluating the entire performance period.

Review for consistency. If one supervisor rates his workers using a scale from 1 to 5, and a second supervisor rates her workers using a scale of below, meets, and exceeds expectations, it is difficult for employees to compare notes and understand how they are performing within the organization as a whole. It may also prove difficult to determine how workers should advance in the company or between departments if a consistent standard of appraisal is not used. Finally, if performance reviews are directly tied to wage decisions, consistency is particularly important, not only for ease of calculation, but also to avoid claims of wage discrimination.

The use of a standardized performance review form can be helpful, as these have been developed to promote consistency, objectivity, and to force supervisors to evaluate employees in specific areas. Some employers may require a standardized form, and also allow supervisors to complete a narrative appraisal to expand beyond the numbers and data. Whatever format is used, it should be thoroughly explained to all who evaluate employees so that everyone will use comparable terms such as “good,” “excellent,” or “poor” with the same meaning.

The performance appraisal meeting is an important part of the process. The best approach is for the manager to act as a coach to help the employee meet their goals. Here are some ideas:

Setting goals. At the end of the meeting, the manager and employee should establish goals for the next review period. (It may be appropriate for both to work together on an action plan to meet the goals, or it may be more appropriate for the employee to return at another time with a written action plan.) Goals that are action-oriented are preferred. For example, "We will have weekly meetings and you should come prepared to discuss production quotas, error rates, etc." Goals should also be capable of measurement: "We will increase output by 20 percent." In addition to new goals, the action plan should cover the employee's plans for improving problem areas. Having employees play an active role in the goal-setting process will help them feel more involved in the company and help foster a desire to perform well and achieve those goals.

Concluding the meeting. The goals should be recorded on the appraisal form. The employee is then asked to sign the appraisal to acknowledge receipt. If the employee disagrees with anything on the appraisal, they should have an opportunity to write a response. Generally, the time period is limited to a week. A copy of the response should be placed with the appraisal in the employee's personnel file.

Separate salary review. Traditionally, salary reviews and performance appraisals have been combined into a single event. While the two are intrinsically linked, a problem with this approach is that it promotes “tunnel vision.” All the employee focuses on is, “How much am I getting?” The employee's preoccupation seriously undercuts the impact of the counseling aspect of the exercise.

One way to avoid this is to separate the two events. Hold the performance appraisal first. Then, on another day, deal with the raise issue. If this is done, employees should be advised in advance that there will be two meetings.

While there is no question that individual job performance should be a major factor in the decision to grant a pay increase, it is only one of the many factors that must be taken into consideration. Other factors include:

The law does not require that merit or salary reviews be written. The Equal Pay Act requires all employers to maintain records explaining wage differentials of employees of different genders, which may include job evaluations.

If an employer claims that an adverse employment action is based on poor job performance, having a record of performance appraisals that support the employer's claims can be very useful in defending against charges of discrimination, retaliation, or wrongful termination.

Helpful information. Several tools to assist employers in the performance appraisal process, including policies, checklists, calculators, forms, and letters, are available on hero.blr.com^®.

Training for supervisors. A training presentation kit on how to conduct performance appraisals effectively is available under the Training tab at https://hero.blr.com/hr/training.