Difference Between Performance Management and Performance Appraisal

Many HRs will accept that the difference between performance management and performance appraisal seems unclear. Sometimes the two have no dividing line.

But if we have to give the shortest difference, the would be:

Performance management focuses on identifying skills gaps, offering feedback and training to address them, whereas performance appraisal measures past performance for decisions about promotion, hiring, and compensation.

Moreover, hundreds of studies suggest that companies that integrate both assessments report greater productivity and improved employee satisfaction. Consequently, HRs use this duo as a tool to combat turnover in companies.

So, when performance management and performance appraisal deal with employee performance, what makes them different processes, you ask? That’s what this blog answers in crisp, simple language. Read on!

What is Performance Management?

Performance management is the process by which individual employee goals are set, worked on, and monitored. The goal is to improve employee performance and contribute to the success of each employee and, consequently, the company. 

It focuses not only on objectives related to job functions but also on:-

• motivation,
• perceptions of the work environment,
• relationships with colleagues,
• flexibility needs for work-life balance, and
• many others.

All these ultimately influence performance in one way or another.

Key Objectives of Performance Management

• Performance management has several important objectives, such as identifying areas for improvement:
• Align the work of each employee with the company’s objectives.
• Establishing clear goals that are in line with the overall strategy.
• Provide ongoing feedback so employees understand what is expected from their roles.
• Empowers decisions in recruitment, selection, training, development plans, and talent management.
• Identify areas for improvement within the business and in the employees’ daily lives.
• Detect and resolve potential problems in internal processes and compliance policies.
• Improve the company’s overall performance by building a productive work environment.

In short, performance management is a continuous approach to improving employee performance and productivity. Consequently, this holistic approach improves the performance of the company as a whole.

What is Performance Appraisal?

Performance appraisals typically allow HR, with the use of past performance data, to assess how well an employee’s work aligns with the set job criteria. It is a structured and regular review system built within the company that empowers management to make fair decisions on who to promote and who to assign more training. During the way of performance appraisal, HR gets more insights into employees’ strengths, areas for improvement, and the overall productivity of the organization.

Unlike performance management, performance appraisals are held at long time intervals (annually or biannually) to gain insight into their contribution to the company. This also helps companies make decisions on performance-based promotions or increments.

Key Objectives of Performance Appraisal

Performance evaluation in a company is important for several reasons, explained below:

• The fastest way to evaluate the job fulfillment of predefined goals.
• Helps identify employees’ strengths and weaknesses for improvement.
• The most effective approach to making decisions on promotions, new responsibilities assignments, or recognition based on performance.
• Managers provide feedback to employees that helps improve their performance and professional growth.
• Allows the company to identify and retain rising stars and potential leaders.
• Provides useful information that can be used for other tools, such as the 9-box grid or job analysis.

Limitations and Criticisms of Performance Appraisals

Often, the performance appraisal approach faces criticism with the blame for being biased or inconsistent. Sometimes, favorable employees are rewarded, and the best talents are ignored. This is because this approach usually focuses too much on recent work rather than overall performance. As a result, the process ends up demotivating employees, especially when the feedback feels unfair or subjective.

Difference Between Performance Management And Performance Appraisal

Here are the other dividing lines that clearly set the difference between performance management and performance appraisal.

HR and Managers

• Performance management is a collaborative process between managers and employees. HR usually has a role in tracking the performance of both.
• Performance appraisal is a top-down process typically managed by HR, but a large part of the process requires validation from managers.

Past and Future

• Performance management does not at all focus on the past. It focuses completely on the present performance, and if lags are found, the evaluation helps to map out ideal training and development programs to meet a combined goal of a company.
• Performance appraisal formats measure past performance by using historical data and ranking systems to gauge employees’ progress toward their objectives.

Overall and One Aspect

• Performance management is designed with overall performance evaluation in mind and focuses on aligning every employee’s skills with the organization’s long-term goals.
• Whereas performance appraisal is a formal evaluation process that assesses an individual’s performance over a specific period that helps management decide who to promote and who to assign more training to.

Ongoing and Periodic

• Performance management is an ongoing and continuous process that occurs throughout the year. Tracked by performance management software, monitored by HR professionals.
• Performance appraisal is typically conducted annually or biannually as a formal review of an employee’s performance.

Complete vs. Focused View

• Performance management necessarily hangs on goal setting, continuous feedback, and coaching and provides insights on development opportunities, too.
• Performance appraisal is an evaluation process that offers a more structured visualization of an employee’s performance at a specific point in time.

Growth and Rewards

• It is a comprehensive process focused on improving employee productivity that keeps the company on smooth, profitable roads.
• Performance appraisal evaluates past performance that helps decide rewards and recognition for each employee.

Proactive vs. Reactive

• If you’re looking for a proactive approach to finding ways to engage employees, performance management has you covered.
• Performance appraisal approach measures past performance against goals, hence it is a reactive approach to identify employee weaknesses.

Methodologies Employed

• Performance management uses real-time feedback, coaching, and goal setting.
• Performance appraisal uses forms, ratings, and comparisons to pull relevant information.

Engagement vs. Frustration

• A good performance management system promotes engagement and transparency. It encourages a growth mindset.
• Poorly managed appraisals can cause frustration or loss of motivation if they seem unfair or biased.

Table – Performance Management vs. Performance Appraisal