Performance appraisal and performance management are two terms that are frequently used synonymously in an organization. However, these terms are actually quite different from one another. Performance management is a broad, comprehensive and flexible approach that is used to manage individuals, teams and organizations. In this approach, there is a significant amount of communication between the various parties involved. In contrast, performance appraisal is the process in which top-down assessments are carried out to assess the performance of the employees on the basis of predefined standards at yearly appraisal meetings.

In this article, we will explain the two terms in detail and discuss the differences between them.

Definitions and explanations

Performance appraisal

In performance appraisal, the employees are evaluated by the manager on the basis of the overall contribution they make to the organization. It is carried out in a logical and systematic manner on an annual basis to determine the ability of an employee regarding accomplishment of tasks. It plays an important part in evaluating the skills and capabilities of an employee so as to distinguish the high performing employees from those who are not performing well, while also determining the reasons for their performance/non-performance.

Performance appraisal is carried out in an organized manner by evaluating the performance of the employees against predetermined standards. The findings of this process are documented and reviews are given to the employees regarding their performance throughout the year. This helps them in determining the areas they need to improve. Performance appraisals are important as they help employees know where they stand in an organization after a given time period.

Performance management

Performance management is an enduring process, the objective of which is to measure, manage, monitor and examine the performance of the human resource of an organization and the overall contribution they make to the organization. Performance management essentially tries to enhance the efficiency and effectiveness of the employees.

The objectives of the employees are established by the managers in collaboration with the employees, who then evaluate their progress, offer training and give feedback to the employees from time to time so that they can improve their performance. In addition, they carry out developmental programs for employees and reward them when they perform well.

This process enables the employees and the employer to work together to establish the goals of the employees in accordance with the organizational goals. This makes clear the objectives of both parties and helps in the achievement of the overall organizational goals as well as the individual development of the employees.

This shows that performance management is a more extensive process as it deals in a variety of activities. It is essentially a strategic system and a holistic approach that has the objective of developing successful organizations through high performing teams and individuals. The focus of performance management is on forward planning.

Difference between performance appraisal and performance management

The key points of difference between performance appraisal and performance management is given below:

1. Meaning

Performance appraisal is a method used to assess the performance of employees and to determine their potential for future growth. In contrast, performance management is a more holistic and integrated approach used to manage the employees of an organization.

2. Orientation

Performance appraisal is retrospective in nature as it considers the past performance of employees, over a given time period. Hence, it is past-oriented. Performance management is, however, future-oriented as it tries to develop strategies to enhance employee performance in the future.

3. Time frame

Performance appraisal is usually carried out every year, while performance management is an ongoing process.

4. Kind of process

Performance appraisal is a reactive process that only focuses on assessing the performance of an employee over the previous year, and offers feedback to the employees based on that. However, performance management is a proactive process that makes sure that the employee has achieved all the objectives, vision and mission of the organization.

5. Carried out by

Performance appraisal is usually a standard process that is carried out by the HR department, while performance management is carried out by the line managers.

6. Kind of structure

The performance appraisal procedure is usually quite formal and structured; however, it does permit some degree of customization regarding the key performance areas, which can vary from one employee to another. Nonetheless, the rating parameters are highly rigid and are the same for all employees. On the contrary, the process of performance management is highly flexible. There are a few guidelines that are used to determine optimal performance; however, they can vary from one employee to another, based on their skills and job description.

7. Type of tool

Performance appraisal is an operational tool as it adheres to specific standards for performance, and only concentrates on the performance of the employees. In contrast, performance management is a strategic process as it consistently measures the performance of employees and establishes new strategies to bring about the growth and development of employees.

Performance appraisal vs performance management – tabular comparison

A compassion of performance appraisal and performance management in tabular for is given below:

Performance appraisal vs Performance management
A process used for evaluating employee performance on a periodic basis A holistic process that seeks to enhance employee performance and help them grow
Retrospective; past-oriented Future-oriented
Time frame
Once a year Ongoing process
Kind of process
Reactive Proactive
Carried out by
HR managers Line manager
Kind of structure
Formal; structured Flexible
Type of tool
Operational Strategic

Conclusion – performance appraisal vs performance management

In the present times, companies are going through significant transformation so as to keep up with the changing needs of the business. They are improving their business performance by proactively adjusting to change. As performance appraisals are mainly used for evaluation of employees, they are unable to fulfill the requirements of the changing market.

In the present scenario, organizations have started to concentrate more on performance management, which is a more extensive term that deals with various activities that are not covered by performance appraisal. It is a strategic and integrated approach that has the objective of developing successful organizations through high performing teams and enhancing the performance of employees.

It is important for every organization to adopt a holistic approach to concentrate on the performance and engagement of employees. While it is necessary to carry out performance appraisals in organization, establishing developmental strategies for enhancing the performance and productivity of employees following the appraisal process is also vital as it would ensure improved productivity of the business.