Answering the Big Performance Management vs. Performance Appraisal Question

Performance management and performance appraisal are terms that are often intertwined in the field of employee development. Both are different approaches, each with their own meaning. But how exactly are they different?

In this article, we'll break down these two processes, how they work, what role they play in driving employee development and company success, and how you can use them together.

Understanding the role of performance management and the performance appraisal process

Performance management and performance appraisal go hand in hand - that's clear. But before we get into the why and how, let's first get clear on the definitions.

What is performance management?
Think of performance management as proactive action. Effective employee performance management learns from the past, considers the present and adapts to the future.

Traditionally, performance management is about linear planning of employee careers, but modern performance management as we know it today is more strategic. It looks at the entire performance process and actively and continuously optimizes it. We call this agile or continuous performance management.

Continuous performance management is a great system for skill improvement and professional development. Setting achievable goals and providing regular feedback makes it easy to identify areas for improvement and provide training opportunities to promote employee growth and development.

Performance management goals
Performance management is a comprehensive approach to employee development and performance optimization. It focuses on continuous improvement, goal adjustment, feedback loops, professional development and creating a growth mindset that empowers employees to strive for excellence and contribute to the success of the company.

What are performance reviews and how do they work?
Performance reviews are a snapshot of how far you have come at specific points in this ongoing performance management process. Think of the performance appraisal system as a type of review.

Performance appraisals, often referred to as performance reviews or performance evaluations, are used to provide a structured assessment of an employee's work-related performance. These appraisals 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 about salary adjustments and promotions or providing performance feedback. Ultimately, appraisals are a tool for recognizing employee growth and development.

Objectives of performance appraisal
Performance reviews serve a specific purpose within the broader scope of performance management. The main goals of every performance review are to evaluate past performance, document employee performance, provide feedback, and identify opportunities for improvement to set employees up for success - until their next performance review!

Types of Performance Appraisals
Performance reviews come in a variety of forms, each offering a unique perspective on an employee's strengths, weaknesses, and overall contribution. 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.

As a reminder, a performance appraisal is a retrospective assessment. While valuable, it is only one piece of the performance management puzzle. To align employee performance with organizational goals, managers must incorporate the performance appraisal process into performance management.

Key Differences Between Performance Management and Performance Appraisal
When you combine performance management with performance appraisal methods, something wonderful happens. However, there are some differences between these two procedures. Below are tips to help you understand these differences:

Flexible vs. rigid
Performance management is a flexible and adaptive approach that adapts to the evolving needs of the company and the development of the employee. Tailored strategies and an individual path are key.

The performance appraisal, on the other hand, is structured somewhat more rigidly. That doesn't mean they aren't personalized - but they follow a set format so managers don't have to improvise the process and follow a specific evaluation standard.

Individualistic vs. comprehensive approach
Performance management takes an individualistic approach and recognizes that every employee is unique. It personalizes the path of skills development and aligns individual goals with company goals.

Performance appraisal, on the other hand, is a more comprehensive process. This assesses the broader aspects of an employee's performance - the focus is on overall performance rather than individual details.

Process vs. system
Performance management ensures an ongoing process aimed at continuous improvement. It is a never-ending, forward journey where each step leads to the next.

In comparison, a performance appraisal is more systematic and periodic. They are events on a calendar that occur on specific dates to meet a certain standard.

Qualitative vs. quantitative
Performance management often leans toward qualitative assessments that focus on behavioral characteristics and overall performance. This evaluates how employees approach their tasks and responsibilities and acknowledges nuances.

In comparison, performance appraisals can be more quantitative. Here, performance is evaluated based on measurable metrics, concrete results and data - the focus is on the numbers.

Past vs. future performance
Performance management takes a proactive approach to improving employee performance. Current performance management is future performance management.

A performance appraisal, on the other hand, evaluates past performance. It is a review that captures key performance indicators without actively improving them. However, the hindsight that a performance appraisal provides informs the next steps of performance management.

Growth vs. Valuation
Performance management focuses on growth, development and learning. It cares for employees for whom ongoing support promotes growth and success. Job satisfaction and employee engagement increase when you invest in your employees' performance.

In contrast, performance appraisal is primarily an evaluation and documentation exercise. It takes a snapshot of performance at a specific point in time and analyzes it. The entire performance management process is derived from this.

Proactive vs. reactive
Performance management is proactive, it continuously promotes employee efforts and aligns them with company goals. There is always a next step, there is always a movement forward.

The performance appraisal, on the other hand, is reactive and is carried out at certain intervals. These are checkpoints on the performance management journey where managers and employees respond (adjust) 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 activities 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 management 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 each other.

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 each other.

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 performance 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. Tips by IceHrm!