In a competitive and ever-changing business environment it is critical to keep employees working productively. For companies to maintain or improve productivity, it is important to have an effective performance appraisal system that assesses employee performance and develops employee skill, knowledge, and experience. The key to creating an effective performance appraisal system is to identify critical functions, establish standards, provide feedback and provide a plan for performance development.

• Identifying Critical Functions

The foundation of a performance appraisal system is a thorough job analysis including the identification of the critical functions and competencies required for successful job performance. A functional job description details the principal duties and responsibilities of a position along with the percentage of time spent on each duty and responsibility. The functional description should also include summary of supervisory responsibilities and relationships, the minimum level of required education and experience – including certifications and licenses.

Each supervisor should periodically review the employee's job description for accuracy and completeness and make changes as required. The job description can then used to determine the essential functions and related tasks for which standards can be developed as a tool in performance appraisal.

• Establishing Standards

After a thorough review of each job description and organizational goals, performance standards should be developed for the employee's most critical tasks. Performance standards should be measurable and should demonstrate how well duties and responsibilities should be performed. The job description and performance standards create a foundation for discussion between the supervisor and the employee. It should be shared at the time of hire, during periodic performance assessment meetings or whenever standards and expectations change. Communication of performance standards is critical so employees understand what is expected of them.

• Providing Feedback

The next part of an effective performance appraisal is observation and feedback. There are many ways to assess whether performance standards are being met. Assessment techniques can include direct observations, meetings with staff members or feedback from others. Employees can be evaluated on cost objectives, quality and quantity of work as appropriate to the organization.

The evaluation of employee performance is intended to be a continuous process of communication between employee and supervisor. The process requires coaching, mentoring, and continuous feedback on performance requirements and results.

• Providing a Plan for Performance Development

The last part of creating a successful performance appraisal is the performance development plan. A performance development plan provides employees and supervisors the opportunity to work together to improve or build on the employee's performance enabling them to contribute to the organization's goals and objectives. This important component of the performance management process is designed to help develop the employee's work-related skills, knowledge and experience.

Development of employee skills, knowledge and experience is essential in today's competitive workplace. In order for the organization to be competitive, employees should have current information and the ability to use new technologies; therefore, continued education and training need to be part of every employee's job duties.

Performance development plans should be considered with the needs of the organization and the needs of the employee in mind. Supervisors should determine what new functions the employee will need to perform and what additional knowledge and skills the employee will need to develop in order to perform these new functions. When supervisors support and encourage the growth and development of their employees, they build employee motivation and commitment to the organization. The organization will benefit when the employees succeed in developing new skills, knowledge or experience.

In summary, is it clear to see that a good performance appraisal system is critical in this ever-changing business environment. It is a vehicle to promote productivity by identifying critical functions, establishing standards, providing feedback and providing a plan for performance development. Organizations that deploy effective employee appraisal systems will be able to retain and motivate good employees and, in doing so, will be able to rise to the top of their markets.

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If you are looking for more information on business management, you might be interested in some of the other articles I've written:

Qualities of an Effective Leader, Understanding the Concept of Opportunity Cost, Basics of How to Counsel an Employee for Improper Behavior, Understanding the Basics of Cost Accounting, Understanding the Importance of Organizational Behavior, Understanding the Use of Financial Ratios in Management of Working Capital