There are two primary methods for conducting performance appraisals: based on absolute or relative standards.

Absolute Appraisal Methods

Common methods of conducting an absolute appraisal are critical incident, BARS (Behaviorally Anchored Rating Scale), and a graphic rating scale.

Critical Incident

A critical incident appraisal focuses on the essential behaviors that determine whether a task is done well or poorly. Documentation in this case involves briefly summarizing situations (incidents) that demonstrate either successful or unsuccessful behavior and outcomes. The critical incident appraisal method is more intensive for the appraiser since it involves more attention to detail. This is especially the case since incidents should be recorded as they occur and be representative of the appraisal period rather than based on memory and written when preparing for the appraisal. However, this level of details if more valuable to an employee and may better support development. A variation on this is asking or tasking employees with recording their critical incidents, similar to a self-assessment.

Graphic Rating Scale

One of the simplest and most common appraisal methods is the graphic rating scale. A graphic rating performance appraisal form lists job behaviors, competencies, skills and results and provides five (more or less) rating options ranging from unsatisfactory to exceeds expectations. The appraiser selects a performance rating for each criteria and totals the values. The positive is rating scales are relatively easy to develop and complete and yield quantitative data that can be used to compare performance relative to prior appraisals or other employees. The downside is the method doesn’t provide a level of detail that supports specific corrective action. Another drawback: performance factors tend to be vague and open to interpretation—for example, quantity of work, quality of work, initiative—and performance ratings can be subjective.

BARS

The Behaviorally Anchored Rating Scale or BARS appraisal method combines aspects of the critical incident and graphic rating methods. Like the critical incident method, BARS focused on behaviors that constitute significant performance dimensions of a job. It differs from the typical graphic rating scale in that it focuses on job specifics rather than vague work statements. For example, instead of a rating that might be open to interpretation—for example, “Answers phone promptly and courteously”—a BARS approach would break it down into two component actions: “Answers phone within 3 rings.” and “Greets caller with “Hello. This is [name]. How may I help you?”^[1]

Implementing BARS involves identifying the primary job behaviors and developing a 3–7 (or more) point rating scale that anchors the rating to specific descriptions of effective and ineffective behavior. The benefit of BARS is that it yields both qualitative and quantitative data. The quantitative data makes it possible to compare and rank relative employee performance. The level of detail in behavior descriptions also helps to avoid differences in interpretation across raters and employees. The downside of BARS is the complexity of development and maintenance, with each position requiring a set of evaluation criteria and rating descriptions.

Relative Appraisal Methods

A second category of appraisal methods uses relative or comparative standards. Common methods in use include ranking and paired comparison and forced distribution.

Ranking

Ranking methods include individual ranking and group order ranking. These methods involve placing employees in relative performance (or perceived value) order from top to bottom or ranking them on a “curve” (bell curve). Group ranking—also referred to as stack ranking or forced distribution—involves placing employees in categories—for example, top 20% and bottom 10% that was championed by former General Electric CEO Jack Welch. Former CEO Welch imposed a 20/70/10 discipline where managers were forced to identify their top 20%, middle 70%, and bottom 10% of employees annually. GE focused rewards and retention efforts on the top 20% and fired the bottom 10%.

According to Welch, “‘sprinkling’ financial rewards over a much larger group is a mistake.” Instead, the middle 70% should be coached and trained to move into the top.^[2] This technique was and remains controversial. A survey of human resource professionals surveyed “reported that forced ranking resulted in lower productivity, inequity and skepticism, negative effects on employee engagement, reduced collaboration, and damage to morale and mistrust in leadership.”^[3] Human resource management perceptions are supported by field research. Wharton School of Management Associate Professor of Management Iwan Barankay’s research demonstrated that when people are rated relative to others, performance declined. Further, rating accuracy was questionable, with ratings having “as much to do with who the rater was (people gave higher ratings to those who were like them) as they did with performance.”^[4]

Paired Comparison

The paired comparison method bases evaluations on an employee’s performance relative to his or her peers in selected job skill categories. For example, if you have five employees, you would compare their performance in each category individually, assigning a plus or a minus to indicate relative strength or weakness, as illustrated in Table 2. An employee’s evaluation would be the sum of their pluses and would be the basis of a relative ranking. This method is unwieldy for large numbers of employees and suffers from the vagueness and subjectivity of a graphic ranking system.

Management by Objectives

An additional appraisal technique that represents a significant departure from the manager-centric approaches discussed above is a hybrid appraisal/management technique referred to as management by objectives (MBO). The MBO concept was introduced in management consultant, educator, and author Peter Drucker’s 1954 book The Practice of Management. What’s particularly powerful about using MBO is the clear connection between individual goals and organizational goals. The development of MBO is a process in which objectives “cascade down through the organization.” That is, “the organization’s overall objectives are translated into specific objectives for each succeeding level in the organization-divisional, departmental and individual.”^[5]

A second key differentiating factor is the participative management aspect of MBO. Specifically, performance objectives (evaluation criteria) are discussed and agreed to by management and the employees. In theory, this approach results in employees who not only have a clearer understanding of expectations but greater buy-in. The greatest potential of MBO is developing goals and objectives that are aligned with not only the organization’s objectives but the employee’s personal goals and objectives.

Although MBO is a complex and time-consuming method that must be undertaken as an organizational initiative, it has the potential to address some of the relevance and motivation issues of other appraisal methods. DeCenzo, et. al. report that “studies of actual MBO programs confirm that MBO effectively increases employee performance and organizational productivity.”^[6]