What is the difference between performance management and performance appraisals?

1. Career development
2. FAQ: What Is the Difference Between Performance Appraisal and Performance Management?

By Indeed Editorial Team

Updated March 31, 2021 | Published February 15, 2021

Updated March 31, 2021

Published February 15, 2021

Performance management and performance appraisal work together to manage and improve a company's human resources. Performance management evaluates employees as a whole, while performance appraisal focuses on individual job performance. Together they meet the company's missions and objectives and develop a plan for the future of the company. In this article, we explain the difference between performance management and appraisal and answer common questions about how they work.

What is the difference between performance management and performance appraisal?

Performance management and appraisal have distinct differences that provide insight into their intentions. Performance management and performance appraisal, sometimes called evaluation or assessment, work in conjunction to form a clear view of a company's employee performance.

The key differences between performance management and performance appraisal are:

Management focuses on the present and the future

Performance management uses employee performance data to plan future training or development programs. Its goals are to increase productivity, job satisfaction and motivate employees.

Appraisal focuses on the past

Managers consult historical data and their ranking system to guide employees to better performance. Appraisals seek to correct past mistakes and develop employee skills.

Management is proactive

Performance management develops new and innovative ways to engage employees or boost their motivation. Its future-focused goals align with the company's objectives to plan and create strategies for the business.

Appraisal is reactive.

Employee evaluations intend to identify employee weaknesses and develop their strengths. After rating or ranking employee performance, goals or targets are set for the employee to meet before the next appraisal.

Related: What Is Business Performance Management? (With Performance Metric Examples)

How are performance management and performance appraisal alike?

Performance management and performance appraisal work together to provide a blueprint that improves performance, productivity and job satisfaction. Although they have separate intentions, performance management and appraisal share common objectives.

Here are the similarities between performance management and performance appraisal:

They create targets

Management and appraisal both aim to set job expectations, provide measurements for expectations and assess the success of the goal. Each creates company targets or individual goals to meet current or future intentions.

They identify obstacles

The management process and the appraisal system are designed to find the barriers that affect performance then develop strategies to eliminate or reduce obstacles and meet targets.

They measure success

Both strategies review the achievements of targets to determine their effectiveness or when to set new targets or goals. Measuring success lets a company know how it performed well and provides the structure for future success for both the company and the employee.

They make a difference in daily employee performance

Employee appraisals form the basis for performance management to meet company goals or objectives. Individual performance evaluations and company-wide strategies work to enhance employee job performance, reduce job losses and maintain the health of the business.

Related: Helpful Metrics To Measure Success

What is performance appraisal?

Performance appraisal is an operational system that rates or ranks employees according to job performance, attendance or behavior. Appraisals are a top-down assessment given by immediate management or supervisors to address issues and set performance targets. Appraisals take place annually or biannually, depending on the organization's policies. A rigid rating system analyzes an employee's past performance to identify issues and set goals that address irregularities. Appraisals address key performance issues such as productivity or job satisfaction and are customized to the individual employee. Employees may experience impacts on compensation or job roles based on their evaluation.

There are central objectives of performance appraisal:

Apply a measurement system

Measurement systems ensure employees' evaluations are fair and accurate across several spectrums of employment. This ensures a comprehensive evaluation and analysis of an employee's entire job performance. Customizing the measurement system allows management to address specific employee concerns before or during the appraisal.

Analyze performance

Analyzing performance helps managers Identify employee strengths and create plans to train or develop employees. The identification of employee weaknesses presents an opportunity to plan strategies to overcome or manage them.

Provide regular feedback

Aside from annual appraisals, managers provide regular feedback so employees know if and when they meet performance goals. Regular feedback increases employee motivation and keeps employees on track.

Set goals and targets

Setting employee goals provides the employee with a clear objective and understanding of expectations. Meeting goals might mean earning rewards or accolades that improve morale, boost job enthusiasm and enhance performance.

Read more: 5 Performance Appraisal Objectives

What is performance management?

Performance management is an ongoing, strategic process that considers the performance of all human resources. It is a comprehensive, forward-looking and flexible tool for managing and developing employee performance.

Performance management concerns the present and future performance of the company and how that relates to employee performance. Rather than looking at the past as the appraisal does, management seeks to find ways to improve the business going forward and help its employees excel.

Typically, performance management covers a specific period of time and involves management, supervisors or other stakeholders. Performance management determines how employees perform as a whole to form strategies to improve performance through training or development programs. Training and development programs can increase motivation, productivity, reduce job loss or meet company missions.

Performance management seeks to meet specific objectives:

Increase productivity

Analyzing employee performance as a collective presents an opportunity for HR to make decisions about training programs or the assignment of job roles. Increased employee productivity has positive results for employees when provided with the tools to perform better. Satisfied and motivated employees meet company objectives, a positive benefit for the business.

Improve job satisfaction

Employees who are happy with their job are less likely to miss work or leave the job entirely. Performance management that identifies dissatisfaction has the advantage to create changes or introduce training that explains employee expectations and provides the education to perform their job.

Reduce absenteeism

Absent employees mean a reduction in productivity that affects overall company performance. Reducing absenteeism takes burdens off other employees or managers while addressing the reasons employees miss time.

Reduce job turnover

Frequent job turnover affects business by reducing production, increasing costs due to job training and lowering morale among employees. Performance management identifies the causes of job turnover and sets goals to address the reasons and reduce its likelihood.