Performance appraisal challenges and solutions in the workplace

Performance appraisals can feel like a dreaded annual event for employees and managers alike. In fact, receiving an unfair performance appraisal can be so demoralizing that up to 85% of employees consider quitting. 

But don’t let that steer you away from the importance of performance appraisals. Companies that use a continuous performance management approach have seen a 66% success rate in implementing year-round productivity enhancements. In contrast, companies without such systems had a 35% failure rate in implementing productivity improvements.

Overcoming performance appraisal challenges is crucial for employees' future growth and development. In this article, we closely examine the common performance appraisal challenges and the solutions to help you navigate these hurdles effectively. 

What is a performance appraisal process and why is it important?

“Performance appraisal is a periodic and systematic process whereby the job performance of an employee is documented and evaluated.”

A performance appraisal assesses an employee’s work, including accomplishments and contributions. Its purpose is to determine rewards and training needs. Appraisals can be conducted annually, quarterly, or monthly.

Implementing a performance management system is key to improving employee morale and performance because feedback acts as a motivator for people. And when individual performance improves, it directly benefits the organization. For instance, constructive feedback brings a 36% improvement in employee performance.

But there are both benefits and challenges of performance appraisal systems as outlined below.

Common performance appraisal challenges

Performance appraisals can be a valuable tool for organizations to assess employee performance, but they are not without their challenges. Despite their importance, they can also be a source of frustration for managers and employees. Let’s explore some common performance appraisal challenges and how they can impact the accuracy and fairness of the process.

1. Recency error

Recency error occurs when recent performance is given undue weightage over the employee’s overall performance. 

For instance, an employee who performed well throughout the year may receive negative feedback based on a recent error. At the same time, an employee who performed poorly the whole year may receive positive feedback based on their current performance.

Recency errors are short-sighted—they ignore the whole year's performance and lead to inaccurate feedback.

Source: 99firms

2. Biases

Personal bias can severely impact the fairness of performance appraisal. Managers may rate employees unfairly based on social or cultural backgrounds, personal judgments, and information received from colleagues. Such biases could bring out completely inaccurate ratings, with some employees receiving undeservedly high or low ratings.

Some managers intentionally increase ratings to boost morale, while others may hand out lower ratings to motivate employees to improve.

Also, if a highly skilled employee impresses the manager in one work domain, they may receive a high rating, even if they’re not fully competent in other areas. All these lead to flawed appraisals.

3. Inefficient feedback systems

Performance appraisals are complex, and errors are inevitable. Out of these, distribution error is fairly common. It happens when evaluators generalize the workforce and give them similar ratings. 

For instance, imagine there are 1000 employees. The evaluator may review them in three ways:

1. Severe: This is where the appraiser reviews a majority of the staff as below-average performers.

2. Central: In this, the appraiser rates almost everyone equally. Everyone gets an average rating.

3. Lenient: Here, the evaluator gives everyone an above-average rating.

Similarity errors can also influence appraisals. When managers feel more comfortable with people who are similar to them, they may rate such employees higher than the rest.

Further, proximity errors occur when ratings are influenced by surrounding ratings. For instance, if an employee receives a high rating, there is a high chance that the next employee also gets a high rating. The opposite may also happen; the appraiser may give the employee a low rating to compensate for the high rating.

4. Lack of managerial guidance and/or employee resistance

New managers may commit errors during performance appraisals, which indicates a lack of competence. They may not understand how to rate the differing competencies or are not guiding team members effectively in navigating the process. 

Sometimes employees resist the appraisal process for fear of how negative reviews will impact their career in the organization. This happens because of a lack of communication regarding the purpose of the appraisal and how they will be used. 

How to overcome performance appraisal challenges?

Studies suggest that about 22% of employees called in sick on the day of their annual performance review just because they were too anxious to face it.

You see, if not done correctly, performance appraisals can do more harm than good—it can cause unnecessary worries. However, there are ways to overcome the challenges and make the appraisal process more productive and less intimidating. Here are four solutions that can help you achieve that goal.

1. Employ a 360-degree feedback system

If you’re looking to make performance appraisals less intimidating and more productive, then the first step is to establish a frequent feedback system. It means providing employees with regular feedback year-round instead of just once in a formal appraisal meeting.

Suppose you have an employee named Sara who is struggling to hit his sales targets. Instead of waiting till the end of the year to address this, you can give feedback within a week or a month. This will not only help her improve her performance but send a message that you wish to see her succeed. 

Apart from improving performance, frequent feedback has other benefits. For instance, it helps them identify their strengths and weaknesses. So they will know where to focus their efforts.

Besides, when employees receive feedback regularly, they become more receptive to it making them more responsive during the actual appraisal meeting.

Incorporating a 360-degree feedback system is just one of the many ways to improve your performance appraisal process. If you're considering implementing this approach, a tool like GROW from EngageRocket can be an excellent solution. With GROW, you can automate appraisals and provide regular feedback to your employees, making the entire process less intimidating and more productive. 

2. Customize performance assessment based on teams' competencies

Performance appraisal is not a one-size-fits-all process. Each organization has its unique needs and should design an appraisal system that fits the competencies of different teams or even individuals. 

To have a more accurate result, a performance appraisal should consider objective, measurable outcomes. For example, commercial teams may have sales and customer resolution as competencies to appraise as they provide a clear insight into the employee’s strengths and weaknesses. 

71% of employees who were applauded by their managers felt more motivated to contribute, based on a study. Remember, the goal of performance evaluation is not to punish employees but to uplift them. Train your supervisors to be helpful and guiding—to instill a sense of accomplishment and the need to improve among employees. 

3. Implement a tool to automate the appraisal system

Although well-designed 360 appraisals can provide valuable insights into employee performance, it can be rigorous to implement without the right tool. The complexity of setting up the appraisal cycles, selecting reviewers and reviewees for each person, and designing the question list are potential blockers that can hinder an effective appraisal system.

That being said, there are tools such as Engagerocket's GROW and PerformAI that are designed to enable continuous performance review, so cycles can be automated as needed. 

EngageRocket's tools also come equipped with a real-time analytics dashboard, so data can be filtered and segmented for gaining more meaningful insights at the team level or for specific employee segments.

4. Provide guidance to appraisers/reviewers

To ensure a seamless and fair process, there should be a framework to follow in giving feedback. It should emphasize the key factors they should consider while conducting the performance appraisal. 

For example, in cases where they need to enter a Likert Scale of 1-5, it needs to be stated what the scale stands for. In cases where reviewers need to fill open-ended questions, provide guidance on how feedback should be given, e.g: to not include personal attacks, provide examples that support the observation, or frame the phrases in an empathic manner.

Conclusion

Performance appraisals are crucial for organizations, but they come with multiple challenges, like the recency effect, biases, and lack of competency. By using the above solutions, you can get a grip on the strengths and weaknesses of your employees and provide them with sufficient training to inject the boost of motivation they need. This will help improve their performance and ultimately translate to the success of your organization. 

If you're interested in a tool that can simplify and automate the appraisal process while providing comprehensive feedback, consider GROW from EngageRocket. With features such as 360-degree feedback and peer evaluations, GROW can help you develop your employees' skills and identify areas for improvement. Contact us today to learn how GROW can benefit your organization.

About GROW

For those seeking a comprehensive tool to assist in this process, GROW by EngageRocket is an ideal choice. With 360-degree feedback and peer evaluations, GROW offers a seamless and automated appraisal system to help you develop your employees and scale your business. 

FAQs

1. How do you overcome performance appraisal errors?

To overcome performance appraisal errors, implement a 360-degree feedback system. This involves providing employees with regular feedback throughout the year instead of just once during a formal appraisal meeting. You can implement personalized performance assessments and use objective, measurable outcomes. 

Use various evaluation criteria to avoid errors like the halo effect. Train appraisers to eliminate errors and emphasize key factors they should consider during the performance appraisal. After all, performance evaluation aims to uplift employees by identifying their strengths and weaknesses and providing them with the necessary support to improve their performance.

2. What is the biggest challenge faced while conducting performance appraisal?

Performance appraisals face several challenges that can impact the accuracy and fairness of the process. These challenges include biases, such as personal or cultural bias, the recency error, where recent performance is given too much weightage over an employee's overall performance. Then there are inefficient feedback systems and a lack of competence in the appraisal process by new managers or employee resistance to the process. Ensuring a fair appraisal process requires proper training of appraisers, clear standards, and communication between managers and employees about the purpose of evaluations.