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15 Effective Employee Evaluation Methods for Performance Improvement

By Preethi Jathanna

Senior Writer for HR and Remote Work

A lot is being done to attract, nurture and retain employees through employee engagement and employee appreciation since they are assets to any organization. However, there’s another critical element that needs to be considered in the mix - employee evaluation. One of the best ways to nurture talent is to consistently evaluate employee performance and provide healthy feedback. Employee evaluation methods can be pivotal in helping employees understand the pluses and minuses and keep them motivated to give their best. When deciding what are methods to evaluate employee performance, you need to consider what best fits your organizational goals and long-term vision of how your workforce should look like. 

To make it easy, here are our top 15 effective employee evaluation methods that can help organizations in taking the right measure in identifying top performers, nurturing great talent, and bridging gaps. 

1. Why Is It Important to Evaluate Employees?

A periodic assessment of an employee or employees is vital to measure the results of their efforts and contributions towards organizational goals. Regular evaluations of their job performances can help them understand where they stand against set benchmarks, what gaps need to be addressed through training and development, and what kind of roadblocks, if any, need to be covered so they can reach their maximum potential.    

On the other hand, employee evaluation is also beneficial to an organization on the whole as it gives you a broad perspective of their performances and how that impacts overall business goals for growth. This is also helpful when it comes to implementing restructuring policies and employee succession plans. 

2. What Are the 5 Different Ways of Evaluating Employee Performance?

2.1. Critical Incident Method

Critical Incident Method

As one of the primary employee evaluation methods, this one is typically used only in cases where performance for a completed project or assignment has either been exceptionally good or exceptionally bad. The system includes a mix of consistent real-time feedback, quality analysis and incident review to arrive at a conclusion. 

The critical methodology is one of those employee evaluation methods that need to be conducted only in critical situations that warrant the need for immediate resolution in order to avoid potentially damaging consequences or loss for the company. 

2.2. BARS Method

The behaviorally anchored rating scales (BARS) method is one of the most commonly used employee evaluation methods. The method evaluates employee performance based on behavioral instances that have been rated on a numerical scale. 

Each level of performance corresponds to various statements that describe typical behavioral traits on a BAR scale that the employee exhibits. The responses are then measured against pre-set standards that align with the job role and level. The objective nature of this methodology makes it a good choice where large teams or groups exist.

2.3. 360-Degree Feedback Method

This method includes gathering feedback from multiple sources instead of just the employee’s direct reporting manager or team lead. These sources could be peers within or outside the team, department, or division such as vendors, clients, customers, and coworkers who can provide valid inputs in relation to employee performance. This can prove beneficial since the feedback carries different perspectives from a wider range of people so managers or leads can make more sound evaluations. 

The 360-degree evaluation is best suited when there are diverse teams, and the nature of work involves a lot of cross-collaboration.

2.4. Management by Objectives (MBO) Method

This collaborative evaluation method involves the interaction from both the manager and the concerned employee who plan, strategize and create SMART objectives that are specific, measurable, achievable, realistic, and time sensitive. Once clear goals have been set in place, these goals need to be reviewed and any issues that may crop up need to be resolved on a periodic basis over a fixed evaluation period. 

The MBO  evaluation method focuses more on tangible goals, KPIs and targets achieved instead of other aspects such as communication, teamwork, and more.  Simple, yet effective, the MBO method lets you monitor issues or causes and their direct consequences over a period of time which makes for great case studies too. 

2.5. Human-Resource (Cost) Accounting Method

Human-Resource (Cost) Accounting Method

The human resource (cost) accounting method is used to evaluate an employee’s performance by the financial benefits that the company has gained through his or her efforts. This is calculated by comparing the employee’s cost to the company and monetary gain. The company references parameters such as employees’ average service value, overheads, and more. They also factor in elements such as the revenue generated, new clients secured increased subscriptions and other non-monetary aspects.  

Through this method, you get a clear picture of the cost vs value of each employee and the financial impact that it has on an organization. Small businesses and startups can gain more from this since staff strength is smaller and it’s much easier to analyze employees one-on-one.

3. 10 Employee Evaluation Methods to Help Your Workforce Go to the Next Level

3.1. Identifying KPI

Identifying KPI

Key Performance Indicators or KPIs is a quantifiable measure of performance that can be tracked over a set period to identify the degree of efficiency when it comes to employee performance. When it comes to setting primary KPIs, it’s important to factor in parameters that directly align with the team goals, individual job roles, goals, and the overall big picture. This is a great way to provide accountability and boost productivity.

3.2. Creating Behavioral Checklist

A behavioral checklist is an easy and convenient way to review an employee's performance where a lot of areas need to be covered and feedback should be brief. A typical checklist includes rating-based questions or statements related to behavioral facets of the employee that are relevant to the job. The employee rating is given based on the number of positive ticks.

This kind of evaluation is best used for larger team sizes and in situations where too much explanation is not needed on parameters and broader categories are being covered such as communication, teamwork, or collaboration for the evaluation. 

3.3. Provide 720-degree Feedback

720-degree feedback, assessment or survey, is simply a 360-degree assessment carried out twice over. The first round is done to set targets, solicit inputs and then determine a time period to meet the objectives. In the second round that's usually conducted after a short interval,  the manager or lead offers feedback and suggestions on the goals achieved or any gaps to be covered. This method is beneficial so you can use the results to formulate training and development plans for individual employees that are specifically tailored to address their areas of improvement. 

3.4. Allow Self-evaluation

Self-evaluation is an excellent way to get employees to reflect and center their thoughts on how to improve performance and stay motivated to explore their potential. It gives the employee an opportunity to steer a conversation on their opinions and convey insights on their own performance with their managers. This provides a different perspective and helps the manager to make a more informed review as well.

3.5. Introduce a Rating Scale

Introduce a rating scale

A rating scale is one of the most common employee evaluation methods used in an organization since they are easy to fill out and quantity centric. The scale is usually set on criteria such as targets met, quality of work, adherence to guidelines, teamwork, and more. The results are either graded on a 1-10 scale, letter range or as a choice between Satisfactory to Excellent in specific job areas. 

Ratings provide a clear summary of an employee’s performance and this kind of evaluation method can be helpful when it comes to creating accountability by comparing employee scores. 

3.6. Regularly Take Performance Tests

Regular performance tests can provide real-time inputs of employee performance which makes it much easier to provide relevant feedback on the spot. Besides conducting annual or bi-annual reviews, it would benefit an organization as a whole to ensure that employee performances are measured and analyzed on a fortnightly or monthly basis. 

This also helps the employee understand what’s going well and what needs to change in case of any gaps. These tests could be formatted as written tests or multiple choice questionnaires to help evaluate employees in various areas of their job function and also if their efforts are aligning with overall organizational goals. 

3.7. Peer Assessment Method

This assessment method centers around peer reviews shared by an employee's coworkers, team members, and others who have interacted through different channels for projects. This especially can help provide insights into what skills and capabilities can be leveraged for further growth, succession planning, restructuring, or team-building. 

It also helps in covering aspects that exist on a broader level and may not be limited to the job role and specific nature of work that the employee does. This helps to have a better understanding of how to chart an employee’s progression plan or provide added responsibilities if he or she fits the bill. 

3.8. Implement Psychological Testing

Psychological testing such as the Myers-Briggs Type Indicator (MBTI) test can be pivotal in the evaluation of employment performance for career advancement or succession planning. These tests are designed to measure human behavior and traits that have a significant impact on the work given and how it can contribute to the success of any organization. 

Performance evaluation methods in an organization typically focus on skills, competencies, and results. However psychological evaluations can provide important insights into employee readiness to take on new changes, cultural mindset, how it aligns with the organization, and if there are any issues that prevent them from giving their best. 

3.9. Performance Check-ins

Performance check-ins are typically conducted as a series of scheduled conversations between employees and managers on projects, work plans, progress, and set goals across the year. These could be set on a weekly or monthly basis depending on the employee's strength and the organization. Since this type of open-ended evaluation covers real-time work inputs, it works in helping to gauge employee morale, their plus points, and minuses when it comes to working on a project.

Unlike traditional annual reviews, these check-ins are conducted in an informal setting and encourage employees to pitch in their views or suggestions instead of being reviewed through a one-sided approach. This helps them forge more positive and meaningful bonds for enhanced productivity. 

3.10. Use Competency Assessments

Use competency assessments

Managers can use competency assessments to evaluate an employee’s performance based on their key job skills. These assessments can be done through questionnaires, interviews or observation to identify if there are gaps that need to be addressed to help employees reach their maximum potential.

This employee performance evaluation method is helpful for job roles that are more skill-centric as against outcomes or achievements.

4. What are the Examples of Performance Evaluation?

4.1. Netflix

A great example of leveraging the 360-degree method is Netflix. The company restructured the way it approached the performance appraisal process by taking off annual evaluations and introducing more periodic appraisals on an informal and transparent basis. Employees now get a clearer idea of what they are doing right or not through colleagues and managers through one-on-ones. 

4.2. Google

Google is a case in point when it comes to using the best employee evaluation methods. Managers are reviewed on the basis of a checklist that employees tick a Yes or No. Employees on the other hand are assessed using a mix of OKRs, self-assessment, and 360-degree evaluation methods, post which a rating scale is used to give the final ratings to employees to complete a holistic evaluation of their performances.

4.3. Adobe and Deloitte

When it comes to performance check-ins, Adobe and Deloitte both did away with cumbersome annual appraisals and stack rankings to conduct quarterly check-ins and weekly check-ins respectively that give a more unbiased and clearer review of employee performances. 

You can also take a look at our detailed article on performance evaluation and performance appraisal examples here

5. FAQs

5.1. What are performance appraisal tools?

Performance appraisal tools are used in the performance appraisal process of a company  to evaluate performance of their employees. Some of these include the BARS method, critical incident, MBO and others listed above. 

5.2. What is the most effective method of performance evaluation?

While the most effective performance evaluation methods are those that align with organizational needs and goals, the Behaviorally Anchored Rating Scale (BARS) Method is known to be one of the most effective performance evaluation methods. 

5.3. What is a modern method of performance appraisal?

Modern methods of performance appraisal unlike traditional methods incorporate different elements such as regular feedback on monthly or bi-monthly basis, peer reviews, open-ended conversations with employees and use of advanced technology that’s not restricted to just filling of forms. 

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