Ensuring that the performance of employees is well aligned with the company goals is essential for the business to succeed. And to do the same, we often see companies using various performance indicators for evaluating employee performance. And the two approaches often taken by organizations to boost employee productivity and business growth are performance management and performance appraisal. They include various metrics reflecting how far employees have come in achieving company goals. 

Although they are two concepts used interchangeably, they are certainly not the same. Both have some similarities and come under the same umbrella of performance management systems. However, they are two varied concepts with separate focus points. To help you understand their differences better, we are going to make a detailed comparison of performance appraisal vs performance management. But first, let us define the two concepts.

What Is Performance Management?

Performance management is managing and improving employee performance throughout the organization. It refers to the collection of activities like setting standards, assigning responsibilities, providing necessary resources, evaluating employee development programs, endorsing rewards or corrective actions, etc., that an organization undertakes to increase the productivity of its employees. Furthermore, it is a continuous process used by HR departments to effectively implement human resource management objectives and identify ways to boost future growth. 

Performance management is a strategic tool focusing on the relationship between overall employee contribution and organizational goals. It aims to plan, track and assess employee performances to ultimately motivate them to improve their productivity and increase business growth.

Key Performance Management Metrics

Performance metrics give insight into how an employee is performing. The data in these insights also offer guidance on how to improve an employee’s performance over time. Below are some of the key performance management metrics.

1. Quality assessment 

This metric assesses how well an employee has been performing and sets management goals accordingly. Performance quality is critical for all teams, be it sales, human resources, or finance departments.

An effective way to reach quality metric goals is by collecting 360-degree feedback from other team members, customers, peers, and subordinates and also by conducting continuous task reviews.

Once the managers have assessed the performance quality, they can assign personalized objectives for each team member in relation to the organization’s goals. The employees can then accomplish each of them with the guidance and support of the managers.

2. Job functions

This metric is an extension of the first one. It refers to identifying the employee’s suitability for a particular job based on their performance concerning that job’s key responsibilities. Some parameters that determine this metric include innovation, creativity, consistency, initiative, time management, attention to detail, and so on.

Although it may be difficult for employees to meet all these requirements at once, since the process is ongoing, they must try their best to achieve them through self-motivation. Also, the managers must provide constant support and guidance to do the same.

3. Problem-solving skills

An efficient employee will be able to prioritize tasks, meet deadlines and suggest creative ideas to solve problems. They will have great problem-solving skills that greatly benefit their team. Employees who do not possess this talent can try to learn from those who can do the same. 

This skill is often achieved through constant training, understanding, and self-learning. Collaboration and teamwork also greatly influence improvement in problem-solving skills.

4. Timeliness

Employees who meet their deadlines on time are always the most motivated. Therefore, managers must prioritize employees' punctuality while maintaining their schedules.

Also, it is essential to analyze the reasons behind employees’ downfall in performance. It might be due to health issues, burnout or lack of motivation. By understanding the problem and finding ways to better the situation, managers can allow employees to take ownership of their tasks.

What Is Performance Appraisal?

Performance appraisal is the process of evaluating employee performance regularly. It is a tool used by employers to evaluate employees' past and present performance to assess their progress toward goals, accomplishments, and rewards. It also includes the evaluation of their present and future potential. Essentially, it is an integral part of the comprehensive performance management system.

Performance appraisal is a continuous feedback loop that considers performance against goals and standards and any other information relevant to the ongoing evaluation. They are conducted in formal settings where the employer and employee discuss the current status of the employee’s performance. They are conducted annually, semi-annually or even quarterly, depending on the organization's policies.

Key Performance Appraisal Metrics

Conducting and tracking employee performance appraisals are based on certain qualitative and quantitative metrics. Below are some of the key performance appraisal metrics.

1. Work efficiency

Deadlines, resources, and work quality are three critical things employees must keep in mind to meet the organization’s goals. Employee efficiency is a key factor in determining whether you can promote them. 

And to calculate the same, first, you need to measure the output given during a selected timeline. Then, measure the input value by calculating the time taken to complete the required tasks. You can divide the output value by the input value to get a per-hour figure. By initially determining the desired input-output ratio, you can compare the efficiency of your employees.

2. Teamwork

Employees do not work individually in an organization. They are required to have a strong commitment to work and contribute positively towards uplifting the team’s efforts. 

Some essential qualities of a team player are participating in brainstorming ideas, volunteering in team projects, sharing credit, supporting ideas, proactively taking responsibility, etc.

3. Communication skills

Communication skills are essential when it comes to working as a team. Only then can employees properly issue clear directives, create communication emails without grammatical errors, respond to requests, and interact with the team. 

An employee with effective communication skills can write emails with the correct time and messaging, perform timely follow-ups on emails, customer inquiries, and voicemails, show responsiveness towards their colleagues and managers, give quality feedback to their peers, and share concepts and ideas freely.

4. Goal accomplishment

This metric requires a team to have specific goals that align well with the company’s objectives. It is also important that the team assign individual goals and milestones to their team members that pave the way to meet the team's goals. The goals you assign for your employees should be both measurable and specific. 

Also, ensure that the feedback and concerns of the employees are heard. Sometimes you can also add stretch goals to see the willingness and enthusiasm of employees and how far they will go to meet expectations. You should also regularly have discussions about the goals to eliminate bottlenecks.

Performance Appraisal Vs Performance Management - Key Differences

Performance management and performance appraisal are two concepts that involve processes aimed towards achieving organizational growth and improving employee performance. The table below will compare performance appraisal and management to help you understand their differences.

Basis of Comparison	Performance Appraisal	Performance Management
Meaning	Evaluating the performance and potential of employees	Managing and developing employees and their performance
Purpose	Determine compensation	Increase the growth of the organization
Orientation	A system	A process
Flexibility	Not Flexible	Highly flexible
Type of tool	Operational tool	Strategic tool
Aim	Improve employee efficiency	Reach business development goals
Ownership	HR department	Managers and stakeholders
Time frame	Annually	Ongoing
Nature	Retrospective	Forward-looking
Approach	Based on individual employees	Team-based value

Performance Management Vs Performance Appraisal - An In-Depth Comparison

Now that you know the key differences between the two concepts let's compare performance appraisal vs performance management in terms of the characteristics below.

In terms of Frequency

Performance management is a proactive approach toward meeting a company's expectations from its employees. And to do so, employees are assigned individual tasks and their required contribution to their team.

On the other hand, performance appraisal happens only once or twice a year and is a reactive approach. The process is distinct, conducted by the HR department, and does not affect the daily functioning of employees.

In terms of Structure

Performance management has a flexible structure; you can alter its processes and indices for optimal performance.

In contrast, performance appraisal is more rigid, with standardized evaluation parameters that are unchangeable.

In terms of Responsibility 

All stakeholders, team heads, and line-level and skip-level managers are responsible for conducting the performance management process and have direct involvement in it.

On the other hand, performance appraisal only involves HR team heads, direct managers, and respective employees.

Summing Up

Every organization has its own goals, objectives, and core values. And performance management ensures that these objectives are established clearly and that there is a continuous feedback mechanism to ensure they are met. On the other hand, performance appraisals are part of the performance management process and the standardized system used to ensure employee productivity. 

Both performance management and performance appraisal determine employee commitment to the organization’s development goals. Together, they contribute to higher employee efficiency, team productivity, and company growth. They are two essential processes for determining an organization's continuous growth and success. Therefore, let us recap some of their differences.

• Performance management is a system, while an appraisal is a process.
• It follows a practical and flexible approach, while appraisals are rigid and are based on fixed metrics.
• Performance management is a strategic tool, whereas appraisal is an operational solution.
• It is done by team leaders and managers, while the HR department conducts appraisals.
• Performance management is an ongoing process, whereas appraisal occurs once or twice a year.

Both of these concepts go hand-in-hand. While performance appraisal is mandatory to discipline, manage and track employee performance, creating developmental strategies for improving employee performance and productivity after completing the appraisal process is also crucial. Therefore, it is best to adopt both approaches to get the best results.