The Top 10 Performance Appraisal Methods for Startups & Small Businesses

Performance Appraisal

Performance appraisal is a systematic process that evaluates an individual employee’s performance in terms of his productivity with respect to the pre-determined set of objectives. It is an annual activity, which gives the employee an opportunity to reflect on the duties that were dispatched by him, since it involves receiving feedback regarding their performance. It also evaluates the individual’s attitude, personality, behaviour and stability in his job profile. There are various applications of appraisals like compensation, performance improvement, promotion, termination, test validation, and much more. Various performance appraisal methods are followed by organisations to ensure fair appraisals to their employees. Appraisals facilitate communication between the management and the employees, which helps in conveying the expectations of the management to the employee and vice versa. The frequency of appraisals varies. Most MNCs offer them annually, some opt for shorter cycles like half yearly, or quarterly, or even monthly, if the employees performs exceptionally at his job. It is subjective to the performance appraisal method that is used, and the purpose of the appraisal. In case of startups, it has been observed that shorter cycles are preferred, so that they can motivate their employees more frequently to perform better.

The criteria for performance appraisal methods are based on various aspects like productivity, quality of work, duration of service and training. Productivity is measured mostly in the case of manufacturing i.e. the number of units manufactured or delivered by the employee. In case of quality of work, precision of the work done is taken into consideration. Duration of services is used as a criterion by Government entities, where they assume the longest serving employee to be the deserved one for an appraisal. When an employee is hired in an organisation, his appraisal is subjective to the speed at which he grasps things and information he is exposed to.

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The top 10 performance appraisal methods based on the above-mentioned criteria are listed below:

1. Assessment Centre Method:

The purpose of this method is to test candidates in social situations. It can be used by startups for evaluating employees serving at senior level. This method of evaluation is helpful for assessing managers, who have to deal with their subordinate, peers and supervisors for day-to-day business. It helps employers understand the capacity and the capability of the individual in social settings. It involves using situational exercises like an in-basket exercise, role-playing incident, business game and many other similar exercises. It gives the employer an insight to the personality of the employee like openness, tolerance, introversion/extroversion, acceptability, etc.

2. Behaviourally Anchored Rating Scale:

This is latest a modern appraisal technique, which has been developed recently. It is claimed that the Behaviourally Anchored Rating Scale method is one of the most equitable technique compared to other methods of appraisals. It is a combination of narrative techniques like essay evaluation and quantifiable techniques like rating scale. It is comparatively more expensive than other techniques, but it usually guarantees precision and effectiveness.

3. Critical Incident Technique:

This technique is similar to the essay evaluation method. It involves making statements that describes both the positive and the negative reactions to stimulus by the employee at his work place. The statements are recorded cumulatively in a given period of time, so that one can evaluate how good the employee is at his job. His proficiency will be determined by how he deals with his day-to-day activities. The appraiser in this method is usually the direct supervisor or manager under whom the employee is serving. This technique is not only used for performance appraisals but also utilized in job interviews. The interviewer gives scenarios to the interviewee and asks them, how they would react to the given scenarios.

4. Essay Evaluation:

The essay method is an affordable and effective way of appraising employees, especially in startups. This method involves writing a detailed descriptive essay of the performance by the employee’s direct supervisor or manager. The essay concentrates on describing the various strengths, weaknesses, attitude and behaviour of the individual towards job duties. This method is less structured and thus gives the appraiser an opportunity to explore and describe niche qualities or shortcomings of the employee that need to be worked on. It is far less complicated to execute compared to the other methods, only if biases could be kept at bay.

5. Human Asset Accounting Method:

This is a very commercial and practical performance appraisal method for organisations. In this scenario, the human capital is associated with the amount of revenue that individual generates, or the number of happy customers, or the number of leads generated in sales. It is a fair process from the point of view of the organisation and the employee, because it directly indicates the profitability of the company. This method is adopted by most startups, since it is easy to execute and track. Therefore, the amount of business generated by an employee determines whether he deserves to be promoted or terminated.

6. Management By Objective:

A rather interactive and fair form of appraisal, the Management By Objective method is less time consuming and of course cost effective. The technique involves setting up of objectives and goals for the employee either by the employer, or his manager, or both employee and employer. This performance appraisal method helps the employee to perform better, because he is well aware of his goals and already knows the quality and quantity that needs to be delivered. It has been observed that when both employee and employer together decide the objectives, the probability of the individual meeting the goal is much higher. This is a fair method of evaluating because the employee knows the odds that he is measured against. It doesn’t involve giving constant feedback to the employee, because he is being constantly self introspective, thereby saving time and efforts of the employer.

7. Paired Comparison Method:

This method bears more relevance and importance in startups/SMBs, which have small teams. It compares each employee with every individual present in the same team and depending on their comparative performance to the employee who has performed the best, appraisals are given. It is considered reliable because it follows a systematic method of comparative evaluation. This technique is most apt when, the organisation plans on giving appraisal only to the best employee in the team.

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8. Rating Scale:

This performance appraisal method can be used by startups and small businesses that are scaling and are trying to set up processes in place. It is process-based and involves the organisation to set pre-determined objectives that employees are expected to meet. Individuals are then rated by their supervisors or managers. It is similar to the grading system that is usually followed in schools, but is effective and systematic. Employees are evaluated for their skills, teamwork, communication skills, precision, etc. And they are expected to meet a basic score. If they do not meet the score then they are sent for performance improvement training which would help them cope up with their shortcomings.

9. Trait Focussed Appraisals:

This technique is useful for reinforcing positive work ethics and culture in the organisation. It considers attributes like helpfulness, dependability, punctuality, etc for being appraised by the organisation. It motivates employees to be competitive in a fair manner and yet be available for helping out colleagues if need be. Startups should consider giving their employees trait focused appraisals once in a while, because it reinforces positive culture in the organisation.

10. 360 Degree Feedback:

This method involves getting a feedback about the employee from every individual who interacts with him during his working hours. They can be his peers, his subordinates, his superiors, customers who have interacted with him and even he himself would be interviewed about his perception of himself and his duties at the workplace. This performance appraisal method would be very useful for startups, because the best way to review an employee’s overall performance and get an insight about his behaviour, personality and attitude this is the best method to follow. Although it is a little time consuming, but it is cost effective and precise. It keeps biases out of play due to multiple opinions, so that the review isn’t affected by biases of one person.

Appraisals are the means to an employee’s career development. Therefore, effective performance appraisal methods not only help the employee grow, but also the organisation. If the employee is given feedback regularly and frequently, the organisation will be at the receiving end of the profit too. Performance reviews are important because they help identify and set goals for the employee, recognize performance over time, guide progress, identify the problem areas or weaknesses, improve performance and discuss career development in the company. Companies should give promotions and appraisals frequently because it keeps the employees motivated to perform better, thereby maximizing the efficiency of the employee, and the productivity of the company.

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Feel free to share your thoughts on performance appraisal methods for startups and SMBs in the comments section below.

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Uma Roychoudhuri
  • Posted at 7:07 pm, July 20, 2017

    I love this

    Posted at 1:41 am, October 20, 2018


  • koech kipyegon
    Posted at 1:39 pm, November 14, 2018

    Very informative. kindly do a sample report on rating scale performance appraisal

  • john kidali
    Posted at 6:35 am, February 4, 2019

    Good information.

  • Dr Chilakapati Vijaya Raghavacharyulu
    Posted at 11:10 am, March 10, 2019

    Good analysis.

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