Back to Resources

What is Performance Appraisal?

Concepts & Definitions Human Capital Management

What is a typical Performance Appraisal process?

Employee Performance Appraisal is the process of evaluating an employee based on their performance. Appraisal is used in the context of a standalone process and not linked to strategy or objective setting.

Appraisal systems were the precursor to today’s Performance Management.

Traditional Appraisal systems are:

  • ‍Typically based on a review of how a person completed their job for the prior year
  • Sometimes a pay review
  • Sometimes a review for bonuses
  • Sometimes an assessment of the employee for promotion
  • Typically conducted annually or less frequently
  • Typically paper based where HR is the custodian of the information.

Otherwise, they are conducted less formally and without any documentation.

Traditional Employee Appraisal Predominant in Australia

Several studies have been conducted in Australia that indicates that the predominant method of assessing employees in Australia is Appraisal.

Professor Alan Nankervis of Curtain University conducted a study of 992 Australian organisations in 2004. One of the outcomes was that only 2.4% of organisations reviewed their employees against Objectives, the remaining 97.5 were a mix of some type of appraisal.

Employee Performance Savings Calculator

How much could you save by implementing a performance management system?

Use Calculator

Typical Outcomes from Annual Appraisals

Annual appraisals or reviews are viewed by the staff and management as a difficult and painful process.

The annual appraisal is usually:

Not Linked to Organisational Performance

As there are typically no objectives in appraisal systems, there is no link to strategic or operational outcomes.

If the CEO’s objective was to increase margins by 3%, employees may have been told about it but they are not measured on this objective in their appraisal. Therefore there is no linkage in the appraisal review and no linkage at a team or department level. This situation has been illustrated many times where employees and managers have received favourable reviews and bonuses and yet the organisation has not achieved its goals and may be losing millions and yet still paying out bonuses to its managers and employees.

Appraisals therefore don’t address employee alignment to the strategy and rather just ignore the alignment issue altogether.

High Stress

Entering into an appraisal, both the employee and manager have elevated stress levels.

They both know they will be judged on the outcome of the appraisal and the fallout is often destructive rather than constructive. This is because it is not objective and is not based on any well considered evaluation criteria. The employees’ remuneration and future are at stake and the goodwill of the managers future resources are also at stake. This leads to high stress in the case of both individuals and this is a poor emotional state in which to have a thorough discussion about employee performance.

Low Confidence

Where the appraisal system is poorly communicated, both the employee and manager enter these discussions with low confidence levels. This is due to a lack of “rules” as to how to go about the appraisal process and a lack of understanding of the expected outcomes.

About the employee

As this process is infrequent, it is viewed by the employee as an opportunity to discuss remuneration, promotion prospects and other issues related to the employee. This means the discussion is dominated by employee content rather than measuring the desired objectives for the employee.

Get your personalised Performance Management demo

Get a Demo

Not about the future

As a consequence of “employee domination” the annual appraisal very seldom contains sufficient content about what the employer wants or expects the employee to achieve for the next performance period. This leads to vague definition of performance goals and perpetuates the system of poorly defined and executed appraisals.


As an annual review is so infrequent, both managers and employees find it difficult to remember what actually happened during the year. Both typically come to the meeting ill prepared with little meaningful content to discuss. This makes the appraisal more difficult and frustrates both the employee and manager.

No Alignment

Very often, the annual appraisal is performed on the employee’s anniversary which does not coincide with any particular performance period. This makes it near impossible to align the employee objectives with the organisations strategic goals as they are released or modified. If appraisals are conducted annually on the anniversary date, it is only possible to align at best only 50% of your staff with future objectives (assuming there is an even distribution of start dates across the employee workforce).

Low Visibility

Given that most appraisal systems are not automated, there is poor reporting and therefore low visibility as to who did or did not achieve their objectives. This means that an employees’ future is wholly dependent on their manager and the appraisal process. The CEO or other management does not have a view as to who achieved their objectives and who did not. The outcome for the CEO is that they do not have the ability to see failure as it is occurring. Instead, they see failure after the fact and radical adjustments are then required to repair the situation.

By using appraisal systems, the outcome for the line manager is that they have added pressure to fix a problem that have become a major issue and which would have been otherwise identified and fixed in a very timely fashion.


Given that annual appraisals are only conducted once yearly, most line managers only seriously think and plan once a year. The consequences are poor resource management, put-out-the-fire management and costly and reactive problem fixing on the fly.

Not Linked to Succession Planning

Given that most appraisal systems are manual and on paper, the data arising from an excellent performance typically does not find its way into the Succession Planning process. Employees are therefore often disillusioned to find that they have been passed over for further development or a promotion when they have performed strongly for several years. This is a primary cause for employees leaving the organisation.

No Development Planning

Most appraisal systems do not feature a competency assessment or an active development plan that both the employee and manager have mutually agreed to. Employees often get disillusioned and leave the organisation if they can see no personal development prospects or if personal development has not occurred in practice for the last several years, often despite numerous promises.

Broken Compliance

Given that most appraisal systems are manual, reporting is weak and therefore compliance reporting is not visible. This inevitably means that managers learn that they do not have to perform reviews and therefore they don’t because there is no negative consequence for them. Equally, employees learn that there is no consequence to not being reviewed, they lose faith in management and invariably look for somewhere else to work. Most manual appraisal systems suffer from sub 30% compliance and can get to this point after only 18 months of operation i.e. roughly one to one and a half performance periods.


In our view, Appraisal adds little value to the performance of an organisation and in some situations may actually be detrimental to organisations who wish to move towards Performance Management.

This is because line managers who have been conducting Appraisals have also seen little if any impact on departmental or team performance as a consequence of conducting these appraisals.

It must however be pointed out that even if appraisals don’t contribute to organisational performance, there is a contribution to employee satisfaction because they are at least reviewed as opposed to no review at all.

Ready to unlock the full potential of your workforce?

Our friendly consultants will guide you through a personal demonstration of our HR software.