Performance Evaluation Guide: Purpose and Benefits

A performance evaluation is a formal process that companies use to assess their employees’ performance and assign compensation and promotions based on that review.

A formal performance evaluation usually includes monitoring work output and results, providing feedback on job-related performance, and setting new goals. The purpose of performance evaluations is to help the organization justify its personnel decisions.

Similarly, the employee subject to a performance evaluation is motivated to perform satisfactorily and inspired to reach new, higher performance levels. 

A standard procedure for evaluating performance is to set criteria for a given level of performance. Based on the criteria, one considers the performance above and below the expected and determines whether the gap between expected and actual is acceptable, reasonable, or unjustified. A meeting might occur to discuss discrepancies between performance standards and employee performance.

A performance evaluation, if conducted correctly, helps to determine what else needs to be done to improve performance. This article discusses the purpose of performance evaluations and how it benefits organizations.

person holding pencil near on white paper near laptop computer
Photo by Scott Graham on Unsplash

What Is Performance Evaluation?

Performance evaluation measures an individual’s work and communicates that information to the company’s stakeholders.

It is done to give critical feedback to the individual, alert them to any potential weaknesses or areas for improvement. And offer strategies for improvement. The purpose of a performance evaluation is to commend the individual for a previous job done correctly and to point out areas of improvement.

During the process, an employee’s skills, achievements, and progresses toward meeting the organization’s set goals are assessed, and feedback is provided. Companies utilize performance evaluation to make critical judgments, or analyze whether an employee performs at their best. And ascertain whether the employee is qualified for a bonus, or promotion.

Typically conducted annually, semi-annually, or quarterly, performance evaluation is a must-have strategy for every firm that wants to improve productivity in the workplace.

The format and structure of performance evaluations depend on the company’s culture, policies, and procedures. While a company may imbibe the rating scale or self-assessment checklist, another may utilize formal observations.

The key is to discover which method works best for your company and utilize that particular method to assess all your employees. Using two different methods for different employees may give room for discrimination and bias. 

Benefits of Performance Evaluations

Performance evaluations are a tried and true means of evaluating employee performance.

Performance evaluations have many benefits, including helping an organization connect performance objectives with development opportunities and quickly responding to employee performance changes or concerns.

Here are a few of the benefits of performance evaluations.

For employers/the organization

1. Acknowledgment of excellent work

Performance evaluations are an excellent opportunity for employees to acknowledge the hard work of employees, provide positive feedback and motivate them to perform better.

Doing so shows the employees that they’re valued and appreciated. It also boosts employee morale and encourages them to work better. 

2. Protection from litigation

In rare cases where employees (former or current) have an ongoing legal lawsuit against a company, clear documentation of the employee’s performance is required.

A practical example is when an employee is denied promotion or terminated and feels cheated. The performance evaluation document can indicate that the employee’s services or work at the company are below standard.

Other benefits of performance evaluations for the organization

  • Improves relationships with subordinates.
  • Gives insight into an employee’s job progress and work on their teams.
  • Provides an opportunity to gauge employees’ work with the company’s goals and communicate the organization’s objectives to the individual.
  • Helps the organization make termination, increment, and promotion decisions based on employee work.
  • Avenue to identify training needs and areas for improvement.
  • Improves workers’ motivation and job satisfaction.
  • Provides an opportunity to re-assess work goals and clarify work expectations of individuals and teams.
  • Creates a sense of belonging for employees and promotes better employee relationships with managers.

For employees

1. Avenue for Growth and development

Performance evaluations are a valuable tool for employers to communicate unique and vital messages about the individual’s development and growth. It’s an opportunity for employees to discuss their career goals and what they need to do to improve their performance in the workplace ultimately.

By identifying the employee’s strengths and weaknesses, both parties (the manager and the employee) can develop a growth plan for the employee. This will help improve the employee’s skills, help them achieve their career goals, and ultimately, benefit the company.

2. Potential for bonus or promotions

Most companies reward top employees with pay increases and bonuses. A good performance evaluation may also create room for career advancement within and outside the company. This may include more engagements, promotions, or attainment of other leadership positions.

3. Improved communication

Performance evaluations provide an opportunity for employees to converse with their managers freely.

During the process, employees can air out their displeasure and complaints, and the manager has the opportunity to criticize the employees’ shortcomings constructively. 

Other benefits of performance evaluation to the employee

  • Recognition for excellent work performance boosts self-esteem, job happiness, commitment, and drive for ongoing growth.
  • It’s a chance to review work objectives and discuss what has worked well and needs improvement.
  • Opportunity to propose development areas for improvement and explain potential underperformance.
  • Avenue to voice any complaints or discuss issues at work.
  • Opportunity to talk about future advancement and professional aspirations.
  • Builds rapport with the manager and encourages the development of that connection through open communication.

The Purpose of Performance Evaluations

1. Assessment of employee’s performance

The primary purpose of performance evaluations is to assess employee performance and determine whether or not they’re meeting the set goals.

Through performance evaluation, organizations can identify employees who are contributing towards achieving the organization’s goals and those whose performance is subpar. This way, the organization can determine what strategies to put in place to improve the productivity of their employees.

2. Goal Establishment

Performance evaluations are a great way to compare past progress and goals with future progress and set new goals for the future. During the review, the employee’s progress toward achieving goals is measured, and new target goals are set.

Performance evaluations also create an avenue for realigning employees’ focus to the business’s goals and ensuring everyone is on the same page.

3. Assessment of opportunities for promotion and pay increments

Performance evaluations provide insight into an employee’s strengths and contributions to the company’s goals. This helps managers determine an individual’s eligibility for promotions, career advancements, or bonuses.

Instead of hiring new employees to fill higher positions, most organizations reward outstanding employees with promotions. This comes with more responsibility and greater compensation. It is a great way to improve employee morale while saving the organization some bucks that would have gone into the recruitment process.

4. Makes employees feel valued

Positive feedbacks and recognition go a long way. Performance evaluation allows employees who consistently carry out their duties as expected to be commended for their excellent job performance. This can lead to an increase in employee satisfaction, thus enhancing their performance on the job.

Performance evaluation is also an avenue to address shortcomings and offer constructive criticism to employees. It gives them a chance to learn from their mistakes, improve their performance and become better employees. 

5. Understand training needs

Performance evaluation gives managers insight into areas where employees need formal training. Instead of simply dismissing employees for subpar performance, making them undergo training can turn them into stronger business assets.

Offering training to increase skills can boost the job performance of someone who is already a strong team and cultural fit. 

6. Resolve problems

A formal performance evaluation provides an opportunity to understand an employee’s challenges – inability to meet deadlines or failure to cooperate with a teammate. It’s also an opportunity for managers to address their grievances and point out the employee’s deficiencies.

Addressing these issues can lead to better management of everyday tasks, improved morale, and engagement at the workplace. 

Final Words

The purpose of performance evaluations is to ensure that employees uphold the standards established for the roles they were hired to fill. It is also a great way of ensuring that management is doing a reasonable job meeting employee expectations. And ensuring continuous improvement across the company.

Employees and management alike provide feedback during performance evaluations. This feedback is not only valuable for implementing appropriate development plans, but it can also help to identify areas that need special attention. Ultimately, the goal is to ensure that all employees feel comfortable speaking candidly with their managers. 

Performance evaluations provide the organization with a chance to analyze the productivity and effectiveness of their employees. And develop strategies for bettering performance in the short and long run.

Performance Evaluation Guide: Purpose and Benefits

Abir is a data analyst and researcher. Among her interests are artificial intelligence, machine learning, and natural language processing. As a humanitarian and educator, she actively supports women in tech and promotes diversity.

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