Performance Appraisal vs Performance Management: Major Differences

Performance Appraisal vs Performance Management: Major Differences
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Performance appraisal and performance management are two employee performance evaluation methods.

Performance management is the traditional approach to evaluating the performance of an employee. The increased competitive nature of the economy and rapid changes in the external environment has forced many organizations to shift from reactive performance appraisals to the proactive performance management to boost productivity and improve organizational performance.

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The basic difference between performance appraisal vs performance management lies in the scope.

Both performance appraisals and performance management entail setting performance targets, reviewing the achievement of targets, and devising ways to enable employees to meet targets. Both these systems establish clear expectations on what an employee is expected to do, set the guidelines on what constitutes successful job performance, and strive to identify barriers to effective performance.

Performance appraisal is, however, a limited and reactive function of evaluating past performance, undertaken once or twice a year. It is a distinct staff activity with no direct intervention to the employee’s day-to-day work.

Performance management is a continuous and on-going proactive mechanism to manage the performance of an employee and ensure that the employee achieves the set targets on a real-time basis, without reviews or corrective actions at some point in the future. It is a line activity and remains ingrained in the employee’s day-to-day work.

In some organizations performance appraisal becomes part of an overall performance management system. The appraisal takes place at periodic intervals and becomes the basis to make corrective actions and set further targets.


In performance management, the manager of the supervisor assumes the role of a coach or mentor whereas in performance appraisal, the supervisor acts as a judge.

Some performance appraisal techniques such as Management by Objectives (MBO) allow for joint setting of targets, by the supervisor and the employee, with frequent reviews, and thereby come close to performance management. Such methods, however, still fall short of the real-time management and monitoring of targets offered by performance management.


The performance appraisal tends to be more formal and structured. Although most performance appraisal systems allow customization of key performance areas or what constitutes performance based on the employee, the system nevertheless remains rigid with laid down procedures and rating parameters binding on all employees equally.

Performance management is a comparatively more casual and flexible method of evaluating an employee’s performance. Like performance appraisals, it establishes guidelines on what constitutes optimal performance, but since the application is real-time, it allows for considerable relaxation or changes to such guidelines depending on the specific job situation and circumstances of the time.

Performance management remains customized for the individual employee’s actual work, whereas performance appraisal is usually standardized based on the employee’s designation, or at best on the employee’s job description rather than on the employee’s actual work exigencies.

Merits and Demerits

Performance Appraisal vs Performance Management

Comparing performance appraisal vs performance management, both lead to an increase in organizational productivity, though performance management allows for real-time changes to boost productivity.

The real-time monitoring and correcting of performance in performance management help improve employee performance much better compared to the traditional performance appraisal system.

Performance management allows for linkage of performance to both long-term and short-term corporate goals. For instance, if the organization has a short-term aim to increase margins by ten percent during the season, such a linkage comes only in the next year’s performance appraisal, or the linkage might not come at all. Employees tend to receive favorable reviews and bonuses even when the organization fails to achieve such short-term goals.

  • Performance management that focuses on actual results and on-the-job performance promotes team work. Most performance appraisal systems focus on individual achievements and focus on results rather than methods, prompting employees to place individual goals over team goals.
  • Performance management helps in the successful implementation of initiatives such as Total Quality Management.
  • Performance management eliminates rater bias, a major shortcoming of performance appraisals. In a performance appraisal the employee’s future depends not just on performance, but also on the goodwill of the supervisor.
  • Performance management focuses on actual performance instead of memories of past performance. As such it removes from the evaluation distortions that could have either helped with performing the job better or special circumstances impeding performance.
  • Performance management eliminates stress arising from the impending appraisals.
  • Performance management concentrates on the immediate and most relevant concerns, whereas performance appraisal forces looking into the past, which in many causes would remain irrelevant and force time away from pressing concerns.

The apparent advantages of performance management notwithstanding, performance appraisal also has its uses and advocates.

Performance management and performance appraisal reflect the notions of ‘hard’ and ‘soft’ HRM. Performance Management entails controlling the employee’s activity, and is a “hard” and “top-down” approach which might not go down well with highly skilled and achievement-oriented employees who value autonomy. Performance appraisals allow for such autonomy, indicating a “soft” approach.

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This post is part of the series: Tips for Writing Performance Appraisals

This series covers the dreaded performance appraisal – loathed by employees and managers alike. Learn how you can make the performance appraisal process more effective, and also find alternatives to what many consider “a broken system.”

  1. Employee Performance Appraisal: A Free, Downloadable Form
  2. Written Performance Appraisals: Components and Effective Examples
  3. Searching for the Right Phrases to Use on Performance Appraisals?
  4. How Reliable Are 360 Degree Performance Appraisals?
  5. The Difference Between Performance Appraisal and Performance Management