Methods Of Performance Evaluation in HRM

It is a very important topic – which method you should use for the annual performance evaluation of the employees. Right now, different approaches are being taken for this purpose from time to time. As an HR specialist, I am going to talk in detail about some methods for Annual Performance Evaluation.

Performance Evaluation in HRM

Figure 1 – A Good Annual Performance Evaluation Can Lead To Happy Human Resources

Annual Performance Evaluation

Annual Performance Evaluation is the process by which you can find out the performance of an employee to achieve organizational goals within a year.

Annual Performance Evaluation is conducted to motivate employees or provide correction, training & development within the organization.

It promotes a well-balanced work-environment, good management-employee relationship as well as good performance overall within the organization.

Another name for Annual Performance Evaluation or just Performance Evaluation is Performance Appraisal.

According to Beach, “Performance evaluation is the systematic evaluation of the individual respect for this performance on the job and his potential for development.”

Following is a set of methods you can use for annual performance evaluation. De Cenzo and Robbins say, “too many jobs have vague performance standards and the problem is compound when these standards are set in isolation and do not involve the employee.” So the method you choose should be clear, precise and communicable.

Performance Evaluation in HRM

Figure 2 – KPI and MBO are two most important tools for Annual Performance Evaluation

Tools For Annual Performance Evaluation

Before proceeding to the Methods for Annual Performance Evaluation, you should know about various tools you may use for employee annual performance evaluation:


KPI or Key Performance Indicators are the most important tools when you try to evaluate an employee. These are a set of particulars you need to measure for understanding the total performance of the employee. Like the number of new clients per month – for a salesperson, it is a KPI.


MBO is Management By Objectives, the art to evaluate performance by setting up some goals for the employee and seeing how well that carry out the objectives. This is a newer approach by Human Resource Management and helps you quite well to understand an employee’s performance.

Performance Management Frameworks

Performance Management Frameworks can also help you for evaluation of an employee. One of the modern and effective approaches is the Balanced Scorecard or BSC which has four perspectives for organizational development – Financial, Customer, Internal Process and Learning & Growth.


Personal Development Plan or PDP exclusively works with one employee’s overall works and making a strategic plan to develop the performance. It can be a great tool to understand the overall performance of an employee for a year.

These are some basic tools you can use for performance evaluation or performance appraisal.

Performance Evaluation in HRM

Figure 3 – Ranking Method and Graphical Rating Method are very popular for Annual Performance Evaluation

Annual Performance Evaluation Methods

There are many methods you can follow for measuring annual performance or performance appraisal. The history follows the first introduction of performance appraisal at the time of World War II among the military forces. Right now, there are many techniques you can follow rather than the old man-to-man rating system.

Let’s see some of the methods that are quite popular.

Ranking Method

The ranking method is as it sounds. Mostly it is used among the sales force to determine the best performer among them. There are three types of ranking methods. They are –

I. Simple Ranking Method

In this method, you should find out the hierarchy of the sales force according to the sales they have made. It can be units or the amount.

When you make the list from the most sales to the least sales, then you can announce the most sales as the highest performer.

ii. Paired Comparison Method

Paired Comparison Method lets one employee be compared with another at a time. After comparing with all other employees, a hierarchy is set and the best performer is announced.

Not everywhere it is followed, as there are possibly vague indicators of performance to come forward.

iii. Forced Distribution Method

Forced Distribution Method for performance evaluation needs a scale set predominantly depending on various elements of performance. Mostly 1-5 scale is set.

All the employees need to be evaluated individually to the scale compared to other employees.

Graphical Rating Scale Method

The Graphical Rating Scale method is pretty popular all over the world.

In this method, you need to set up employee evaluation points at different sectors like communication, work, and attendance on a scale of 1-5.

Then you can provide scores on each of the sectors and get a collective score.

With this evaluation method, you can easily have annual performance evaluation within time.


Figure 4 – Checklist Method is Easy to Use for an Evaluator

Checklist Method

The method is similar to the Graphical Rating Method but not quite the same. If you are looking for an easy method for all the employees, it is the Checklist Method.

But the method needs quite a lot of time to develop.

It is a set of questions with Yes/No answers.

The points of the questions are simple – attendance, work relations, achievements happened or not, etc.

If the evaluator can take information and put it on the survey then the performance comes out quite easily at last.

It is one of the most used methods for annual performance evaluation all over the world.

Essay Method

The method requires feedback from the line manager or supervisor of an employee in a detailed form.

On the elements of working methods, success rates, employee behavior, attendance, and everything else – the manager gives a detailed view in written form.

If the manager is biased, then it may be problematic from time to time.

That is why it is not followed everywhere.

Critical Incidents Method

This is a different kind of approach. In this method, you need help from the line manager or the supervisor of the employee. He or she needs to take records of the employee at two points –

A.If the employee made some impact with a positive performance

B.If the employee made any kind of impact with a negative approach

If the records are kept correctly, they can show the employee’s development since he/she has been recruited.

As a result, the total picture of real scenarios can be taken into consideration to announce the evaluation of performance.

The method has been criticized from time to time for having limitations like increasing anxiety among employees.


MBO or Management By Objective is a method followed by most organizations right now. It is a comprehensive scientific method that gives an employee a list of objectives when he starts working.

The evaluator, at the time of the annual performance evaluation, measures the success according to the list of objectives given to the employees.

The method shows quite clearly the real performance of an employee.

360 Degree Feedback

The feedback approach is one of the most recent ones. It has been developed in the United States to measure the performance of employees from all sides.

In this method, you need to take feedback from colleagues, superiors, and all others who work with an employee in oral and written form.

The method collects the perspectives of others and measures the whole performance in this way. As a result, a 360-degree feedback approach is created and gives a good understanding of how others are taking the employee.

Right now, it is a very good approach to understanding the development and growth of an organization.

These are the most used methods for Annual Performance evaluations all over the world.

Frequently Asked Questions

1. How do you monitor and evaluate performance?

The process is to follow these six steps-

  • Establishing Performance Standards
  • Communicate AKA deliver the standards
  • Measure the Performance by the Employees
  • Comparison between the standards and the performance
  • Feedback
  • Positive action or correction

3. How do you evaluate an annual performance review?

Evaluate an employee’s annual performance review –

  • Setting Performance Standards
  • Deliver the Standards
  • Oral, written and direct reports
  • Comparison of actual and standard of performance
  • Discussion
  • Training and development, promotion or correction

3. How does the organization conduct the performance evaluation?

An organization conducts performance evaluation through following stages – Establishing performance indicators and standards, Delivering the standards to the employee, Conduct survey to gather information of actual performance of the employee, Compare the performance and standards, Provide feedbacks to the employee, Take necessary actions like promoting or correcting.

4. What are the tools for monitoring and evaluation?

Following are some tools for employee monitoring and evaluation –

  • KPI or Key Performance Indicators
  • MBO or Management By Objectives
  • Performance Management Frameworks like Balanced Scorecard (BSC)
  • PDP

5. What do you say in a performance evaluation?

If you are an appraiser, then you can convey following points in a performance evaluation:

  • Discuss about Achievements
  • Define Points needed to be corrected
  • SWOT analysis and presentation of the employee
  • Communication and conduct of the employee within the organization
  • Achievements of organizational goals and objectives by the employee
  • Need for training & development for the employee

Figure 5 – If you need a good workforce, then you should perform regular performance evaluations of the employees


If you are looking for methods to evaluate an employee’s annual performance, then you should pick up the best method. Right now, many organizations are using different methods from time to time to find out the best one that suits them. You can try different approaches from time to time too.

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