Performance appraisal: A complete guide to the process

What makes a good performance appraisal?

When done correctly, the performance appraisal process encourages an open dialogue between employers and employees, resulting in better employee engagement and ultimately, better outcomes. But performing appraisals can be a complex and time-consuming task, with many steps in the process.

This guide walks you through the entire appraisal process, including how often to run appraisals, how they affect pay, and how to improve your process.

What is a performance appraisal?

A performance appraisal is a formal review of how well an employee has performed over a set period, such as 6 or 12 months. During the appraisal, a manager measures the employee's work against agreed goals and the standards for the role. Then, they give feedback, discuss what's going well, and identify where more support or improvement is needed.

The performance appraisal process, also called the employee appraisal process, covers the steps involved in preparing for the review, giving feedback and agreeing on next steps. It gives managers a consistent way to assess performance while helping employees understand what they’re doing well and where they can improve.

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The six steps of the performance appraisal process

1. Establish performance standards

Start by agreeing on what good performance looks like for the role. Use the job description, team priorities and organisational goals to set a small number of clear standards that you can assess.

Be specific about what you expect. Replace vague expectations like “show more initiative” with clear targets such as “suggest one process improvement each quarter”. This makes performance easier to assess and gives the employee a clearer understanding of what’s expected. Include results, such as meeting sales targets, as well as behaviours like collaboration and customer care.

If your organisation already uses SMART goals or OKRs, use them to guide the appraisal rather than setting separate targets. Keep expectations realistic by matching each one to the employee's responsibilities and available resources.

2. Communicate performance standards

Share the standards with employees before the review period begins, explaining how each one will be assessed and what evidence will count. Make sure they know when the appraisal will take place, and give them time to ask questions about unclear or unrealistic expectations.

Document the process so employees and managers can refer back to it. The record should include who is responsible for what, when the review will happen, how ratings are decided, and what each rating means. This helps managers apply the same standards across teams.

Also, avoid waiting until appraisal season to explain what success means. Instead, revisit goals during one-to-one sessions and update them when responsibilities or business priorities change.

3. Measure actual performance

By the time appraisals come around, most managers are working from memory, and what they remember best is the last few weeks. This is called recency bias, and it means one good or bad month can decide a rating for the whole year.

To avoid this, use short notes as you go so you’re working from a full record when the review comes around. Once you have that record, back it with numbers for each key area of responsibility, such as KPIs (key performance indicators) or customer satisfaction scores.

Figures like these keep the appraisal objective and give a truer picture of performance. The employee’s own self-assessment should sit alongside them, since it shows what the numbers can’t.

4. Compare actual performance to performance standards

Set the evidence against each standard and decide whether the employee met it, exceeded it or fell short. Use one rating scale across the organisation, so a rating means the same thing whichever manager gives it. If several managers appraise similar roles, a short calibration meeting helps make sure the same work gets the same score.

Then compare the employee's self-assessment with your own view, because the gaps between the two often make the best talking points. In Eletive, managers and employees answer the same assessment questions. Our Performance Assessments then show both sets of ratings side by side, so you can see where your views match and where they differ.

5. Discuss the results and give feedback

The appraisal meeting gives you and the employee a chance to discuss their performance. Let them share their perspective first, then talk through your assessment, starting with what went well.

When offering feedback, it’s important to focus on results-based statements that connect specific behaviours to their outcomes. Consider using a specific example to paint a clearer picture with words, rather than making broad generalisations.

If you're stuck for words, our performance review phrases give you examples for both strengths and areas to improve.

6. Decide on a follow-up plan

Finish by agreeing what happens next, and write it down so you can both refer back to it. That means goals for the next period, plus development actions such as training, coaching or a project that stretches their skills.

If performance fell short, agree an improvement plan with specific targets, the support you'll give and a date to review progress. Then book regular check-ins so you can track the plan between appraisals.

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Performance appraisals vs salary reviews

A performance appraisal assesses how an employee is doing and where they can improve. A salary review looks at their pay and whether it should change.

The two can inform each other, but they serve different purposes.

Your organisation may use appraisal results to determine pay rises and bonuses, or make those decisions through a separate salary review. Whatever your approach, explain how performance affects pay so employees know what to expect.

Where possible, keep the two conversations separate. The CIPD, the UK's professional body for HR, recommends separating performance-related pay discussions from those focused on development. Its cited research suggests that managers may assess performance differently when deciding pay than when discussing how an employee can grow.

Performance appraisal vs performance management

While an appraisal reviews an employee's performance over a set period, performance management covers the ongoing work of setting expectations, giving feedback and helping employees develop.

The two work best together. Regular conversations give managers a clearer picture of performance and help employees address challenges before their next appraisal. Read our complete guide to performance management to learn more.

How to improve your performance appraisal process: 8 best practices

Gallup found that only 2 in 10 employees strongly agree their performance is managed in a way that motivates them to do outstanding work. So start by looking honestly at your own process, from its format and timing to how managers and employees talk to each other. Then work through these 8 best practices.

1. Align appraisals with organisational goals: Assess employees on the work that matters most to your organisation.

1. Use clear, measurable criteria: Apply the same standards to keep ratings fair and consistent.

1. Give regular feedback: Address performance throughout the year so there are no surprises at appraisal time.

1. Involve employees: Encourage self-assessments and involve employees in setting their goals.

1. Gather feedback from different sources: Combine self, peer and manager evaluations for a broader view of performance.

1. Use performance appraisal software: Automate admin, track progress and store past reviews.

1. Train managers: Give managers the skills to assess performance fairly and lead useful appraisal conversations.

1. Review the process regularly: Identify what works and adjust what doesn't.

360 performance appraisal

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360 appraisal is a process where employees receive anonymous feedback from the different people they interact with at work. A 360-degree appraisal allows managers, peers, and direct reports to give feedback on the performance and behaviour of an employee.

Related reading: What is 360 appraisal – and how can it improve performance?

When executed well, 360 appraisals can help managers and employees better understand their strengths and weaknesses and guide future improvement. While 360 feedback surveys should not replace performance reviews, they can be a valuable complement to the employee performance appraisal process.

Related reading: 360 feedback and performance reviews

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Maximising team performance through appraisals

Organisations can maximise group performance by taking advantage of their appraisal process. It’s important to set team goals that align with business objectives that everyone agrees on—this allows all teams to work together towards a common goal, rather than working in isolation.

In addition, managers can use team-based milestones to track progress and motivate everyone involved. If a team meets its objective before its deadline, managers should consider giving them recognition (through rewards or bonus schemes) to further incentivise collaboration between teams.

Related reading: OKRs – A complete guide to Objectives and Key Results

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How often should you run performance appraisals?

Most organisations run formal performance appraisals once or twice a year, with shorter check-ins at least once a quarter.

The right rhythm depends on how fast your goals change.

• Once a year keeps the admin light, but a year is a long wait for formal feedback.

• Twice a year adds a mid-year review, so you can adjust goals before the year is out.

• Every quarter suits fast-changing roles and short-term goals, though it takes more of your managers' time.

Whatever schedule you choose, give employees enough notice to prepare for each appraisal. You can also use regular check-ins and one-to-ones to track progress, address concerns early, and give feedback throughout the year.

Related reading: Template for one-to-one staff meetings with example questions

Different types of performance appraisal processes

Different performance appraisal methods can be combined to best measure employees' overall performance.

Common methods include traditional manager evaluations, 360-degree reviews, self-evaluations, checklists, rating scales and the balanced scorecard. Our guide to performance appraisal methods explains how each one works and when to use it.

No two businesses have the same needs, so the right mix of methods depends on your organisation's size and objectives.

Ready to improve your performance appraisal process?

At its core, a performance appraisal is an opportunity for employees and employers to sync around actual performance in relation to expected performance. If done correctly, it should help both employer and employee reach their full potential — whether it be career development or organisational growth.

Eletive makes performance assessments easier to manage, with tools that support meaningful conversations and ongoing development. Book a free demo to see how Eletive can support your organisation's performance management needs.

FAQs about performance appraisals

1. What are the five steps in the performance appraisal process?

The five steps in the performance appraisal process are setting performance standards, communicating expectations to employees, measuring actual performance, comparing results against the standards, and discussing the findings with the employee to agree on next steps. The final step typically includes feedback and a plan for improvement or development.

2. What should be included in a performance appraisal?

A performance appraisal should start with the goals and standards agreed at the beginning of the period. Then it should include evidence of how the employee performed against each one, along with a rating. Include the employee's self-assessment, strengths and areas for improvement, and a written plan for the next period.

3. What is the difference between a performance appraisal and a performance review?

A performance appraisal and a performance review usually mean the same thing. Both involve assessing an employee’s work, achievements and areas for improvement over a set period. The term used depends on the organisation.

4. What should you do if an employee disagrees with their appraisal?

If an employee disagrees with their appraisal, listen first and ask which specific evidence they see differently. Check it against your notes, and correct the appraisal if they're right. If you still disagree, record their view in the written appraisal and agree on a next step, such as a second review with HR.

5. How can employees prepare for a performance appraisal?

To prepare for a performance appraisal, re-read the goals you agreed on at the start of the period. Then gather evidence of your results, such as finished projects and feedback from colleagues. Be honest in your self-assessment about what didn't go to plan, and bring one or two development goals of your own.