What is the difference between a Performance management vs performance appraisal system?

What is the difference and which is for you?

A performance appraisal system and performance management system are often discussed in the same breath but are they actually interchangeable? The purpose of this blog is to explain the difference between these two systems to help you determine whether you need a performance appraisal system or whether actually, a performance management system is more suitable for your needs.

Are the differences significant?

Some might say it’s semantics but actually, the difference between performance appraisal and performance management is highly significant. This is because a performance appraisal is very often seen as a once or twice a year tick-box exercise whereas performance management refers more to a continuous feedback process. The key differences that we se is that a performance appraisal evaluates that past whereas performance management is more about an ongoing process. Let’s explore the different processes first before we explore whether a performance management system is going to be more effective for your needs than a performance appraisal system.

Performance Appraisal vs. Performance Management

Performance appraisal and performance management are both practices that aim to assess, guide, and improve employee performance. While the two terms are often used interchangeably, they represent distinct processes with different objectives, scopes, and methods. Understanding their differences is crucial for organisations to optimise employee productivity and align individual goals with broader organisational goals.

Performance appraisal is a structured, formal assessment conducted periodically at the end of a performance period, to evaluate employee’s performance based on pre-determined criteria. The primary objective of performance appraisal is to measure past performance against set benchmarks, identify strengths and weaknesses, and provide feedback to employees. It often involves a rating system, written evaluations, and may be linked to performance based compensation.

In contrast, performance management is a continuous, holistic approach that integrates goal setting, performance evaluation, feedback, and employee development into an ongoing process. It focuses not only on past performance but also on improving future performance by fostering regular feedback, coaching, and skill development. Performance management aligns individual performance with organisational goals and focuses on employee progress and developmental plans through regular interactions, adjustments, and strategic planning. Typically, a positive performance management approach is linked with increased job satisfaction, performance improvement and employee engagement.

Key Differences

Timeframe

• Performance appraisal is a periodic event, typically conducted once or twice a year.
• Performance management is an ongoing process that involves continuous monitoring, feedback, and development throughout the year.

Focus

• Performance appraisal primarily assesses past performance and is retrospective in nature.
• Performance management is a forward-looking, continuous process focusing on skill development, and goal alignment.

Process and Approach

• Performance appraisal focuses on structured evaluations, rating scales, and formal feedback sessions.
• Performance management emphasises frequent interactions, coaching, regular feedback, and adaptive goal-setting.

Objective

• The primary goal of performance appraisal is to evaluate and document employee performance for rewards, promotions, or corrective actions.
• Performance management aims to enhance individual and team performance, drive engagement, and improve organisational effectiveness.

Involvement

• Performance appraisal is typically led by HR and managers, with limited employee participation in the evaluation process.
• Performance management encourages self assessment and active participation from employees, fostering collaboration between managers and individuals.

Advantages and Limitations

Performance appraisal provides a structured approach to evaluating employees and making objective decisions regarding promotions, salary increments, and training needs. However, its periodic nature can result in outdated feedback, limited opportunities for course correction, and employee dissatisfaction due to perceived subjectivity.

Performance management, on the other hand, creates a dynamic and flexible work environment that encourages growth and development. It helps employees stay motivated, aligned with organisational goals, and aware of performance expectations. However, it requires significant managerial commitment, continuous communication, and a well-structured system to be effective.

What is a performance appraisal system?

Many people understand now that performance appraisals can become lengthy paper-based discussions. The main focus of a performance appraisal process is on an employee’s past performance over the last year. A performance appraisal is typically conducted annually or perhaps twice a year and is more focused on assessing past job performance than focusing on the future. This kind of performance appraisal is really more of a performance review, it may include performance ratings and sometimes will include training or development plans. However, it is generally more of a snapshot in time and such a system manages that review process.

A performance appraisal system is often found within your HRIS platform or it may offer limited functionality, predominantly focused on objective setting and the appraisal form itself. Depending on the technology, many businesses have document based appraisal systems like share point where an appraisal form is uploaded. Such as system is better than paper on its own but lacks the ability for HR to interrogate the performance data and much of the narrative is buried within the PDF making it difficult to use for talent management or succession planning

What is a performance management system?

Performance management, on the other hand should be seen as more of a continuous process of improvement and such a system should be managed in such a way that it can boost employee engagement. The key performance management activities that should be included in such a system should be definition and agreement of key objectives, providing clear performance expectations for the following year. It should align these performance objectives with organisational performance making it clear to the individual how their own performance aligns with business key performance indicators and encourage timely feedback.

An effective performance management system should provide the opportunity for the manager and individual to discuss employee development, encouraging professional development and growth as a continuous process. It’s about encouraging future performance through regular one to ones and ongoing feedback as opposed to a point in time appraisal.

Purpose built performance management systems like Actus are incredibly powerful in terms of reporting and offer additional functionality around talent management, career mapping and succession planning. Actus also offers a fully integrated Learning Management Platform or LMS which makes it a powerful tool to enhance employee development, linking it all together in the same place. This really helps underpin a performance management strategy which is about continuous improvement and growth mindset.

Look for systems (like Actus) that can be employee led, with self assessment.

Furthermore, performance management should also include talent and career aspiration conversations and we believe this is something that can take place throughout the year, through meaningful conversations and continuous feedback between the manager and the individual which culminates in a far more meaningful appraisal at year end.

Why do performance management systems receive negative press?

Now of course, Performance Management has also been known to experience some negative press, but this is down to the bad application of HR process with a blinkered focus on rating scales to evaluate performance as opposed to createing a culture of continuous improvement. Fundamentally any such system should be an enabler of honest, performance based conversations between the employee and their manager that are part of an engaging, continuous process of growth

Why don’t you take a look at Actus Performance Management System

Actus has been purpose built as a performance management system that encourages ongoing performance and development conversations in your organisation which will increase engagement, motivation and ongoing performance as opposed to just completing a tick-box exercise. It is flexible, configurable and really easy to use, supported by a warm and friendly team who are on hand to help you get the most out of it. Why don’t you get in touch and take a look?

So if you are looking for a performance appraisal system or performance management system, we would respectfully suggest the focus on a performance management system because that is how you are going to get far better, ongoing holistic conversations in your organisation which will increase engagement, motivation and ongoing performance as opposed to just completing a tick-box exercise. You do however need to choose a performance management system like Actus which is not only easy and intuitive to use, but also offers HR expertise and support alongside it.