Performance appraisal is a structured HR tool for systematically evaluating the work performance and behavior of employees. It serves as a basis for personnel decisions such as salary increases, promotions, development measures and certificates. According to Section 82 (2) BetrVG, employees are legally entitled to have their services discussed — fair, objective assessment criteria are decisive.

What is a performance appraisal?

Performance appraisal (also known as employee or personnel appraisal) is a systematic process for evaluating the work performance, behavior and competencies of employees over a defined period of time. In contrast to potential assessment, which assesses future development opportunities, performance appraisal focuses on results that have already been achieved.

Companies use performance reviews to systematically record how well employees perform their tasks, where strengths lie and what development needs exist. The results flow directly into personnel decisions: from salary adjustments to promotions to individual continuing education planning.

As part of performance management, performance appraisals are a central control tool for HR managers. They create transparency about individual contributions to the company's success and form the basis for targeted personnel development.

Objectives and benefits of performance reviews

Performance appraisals pursue multiple goals and offer specific benefits to various stakeholders in the company.

For employees: feedback, development, transparency

Employees receive structured feedback on their work through performance reviews. This transparency enables a realistic self-assessment: How are my services perceived? What are my strengths and where is there room for improvement?

The reconciliation between self-image and image of others is particularly valuable. Many companies therefore integrate self-assessments into the process in order to make discrepancies visible. These findings serve as a basis for individual development plans and show concrete prospects for professional development.

For managers: management, talent identification

Performance appraisals are an indispensable management tool for supervisors. They provide a structured framework for employee interviews and help identify development needs at an early stage. Systematic assessments also show which team members have particular potential for higher tasks.

Through regular assessments, managers keep track of their team's performance development and can intervene in a targeted manner when support is needed.

For the company: performance improvement, personnel decisions

At company level, performance appraisals are used to manage overall performance. The collected data enables well-founded personnel decisions: Who gets promoted? Who receives which pay increase? Who should join the talent pool?

According to a Gallup study, however, only 14 percent of employees draw motivation from their performance reviews. This shows that a well-designed assessment process is crucial to achieve the desired goals and avoid demotivation.

Legal basis: What does the BetrVG say?

In Germany, the Works Constitution Act (BetrVG) regulates central aspects of performance appraisal and grants both employees and the works council specific rights.

Section 82 (2) BetrVG: Discussion of the performance appraisal

According to Section 82 (2) BetrVG, employees may demand that the assessment of their performance and career development opportunities in the company be discussed with them. This right enables employees to actively demand transparency about their evaluation and address potential misunderstandings or miscalculations.

Employees may invite a trusted works council member to this interview, who can take on an important monitoring and correcting function. The member of the works council is subject to confidentiality unless released from this obligation by the employee concerned.

Section 94 (2) BetrVG: Participation in assessment principles

According to Section 94 (2) BetrVG, the works council has the right of participation in drawing up general assessment principles. This means that if an employer wants to introduce a standardized appraisal system (e.g. assessment forms, evaluation catalogues, criteria for target agreements), the works council must agree.

Important: The works council cannot force the introduction of assessment principles itself — the initiative lies with the employer. However, once the latter has decided on a system, he must involve the works council. In case of doubt, the conciliation board shall decide in accordance with Section 76 BetrVG.

Participation does not extend to the specific assessment of individual persons — this remains the task of the manager. However, the method used must comply with codetermined principles.

Right of appeal and appeal

According to Sections 84—86 BetrVG, employees have a right of appeal if they feel disadvantaged or treated unfairly as a result of an assessment. You can start by talking to your manager. If this does not result in an agreement, the works council may appeal to the conciliation body.

In addition, according to Section 83 (1) BetrVG, employees have the right to view their personnel file, which usually also contains records of performance appraisals. In the event of demonstrably unfair or discriminatory assessments, employees can request that the assessment be removed from the personnel file.

Performance appraisal methods

There are various ways in which performance reviews can be carried out. The choice of method depends on who makes the assessment and which perspectives should be included.

Downward assessment (supervisor evaluation)

The classic form is downward assessment, in which a manager evaluates the performance of a person subordinate to her. This form is the most widespread, as supervisors usually have the best overview of tasks and goal achievement.

However, this method involves the risk of one-sided views. Managers don't always see how employees act in a team or work with colleagues.

Upward evaluation

During the upward appraisal, employees evaluate their manager. This form is often used for leadership development and gives supervisors valuable feedback on their impact and leadership quality.

Since power relationships can make an honest assessment difficult, upward assessments should always be carried out anonymously.

Sideways assessment (peer review)

In the sideways assessment, colleagues at the same hierarchical level rate each other. This method is particularly suitable for recording teamwork, willingness to cooperate and work behavior among colleagues.

A trustful working atmosphere is a prerequisite, as otherwise there is a risk of conflicts or strategic assessments.

360 degree feedback

The 360-degree feedback combines all of the perspectives mentioned above: supervisors, colleagues, employees and, in some cases, customers provide feedback. In addition, a self-assessment is carried out.

This method provides a comprehensive picture and reduces one-sided distortion. However, it is complex and requires a distinctive feedback culture within the company. HR analyst Josh Bersin emphasizes: 360-degree feedback should primarily be used for development purposes — not for salary decisions or promotions. The latter remain the task of the direct manager.

Self-assessment

During self-assessment, employees rate their own performance. This method is usually used as preparation for employee interviews and enables a comparison between self-image and external image.

The advantage: Employees actively reflect on their work and can articulate their own development needs. However, self-assessment should always be combined with an external assessment, as self-assessments are naturally subjective.

Which criteria are assessed?

Transparent, measurable assessment criteria are the basis of every fair performance review. They must apply equally to all employees in comparable positions.

Work output (quality and quantity)

The evaluation of work results is at the core of every performance appraisal. Both quantitative aspects (e.g. number of processes processed, degree of goal achievement) and qualitative factors (e.g. error rate, customer satisfaction) are taken into account.

It is important that performance indicators are defined in advance and communicated with the employee. This is the only way to make an objective assessment.

professional expertise

Professional competence comprises the necessary knowledge and skills to perform the duties of the position. This also includes the willingness to continuously learn and master new requirements.

When requirements change rapidly (e.g. as a result of digitization), willingness to learn is a particularly important criterion.

Soft skills (ability to work in a team, communication, problem solving)

In addition to professional competencies, soft skills play a central role. These include:

• Ability to work in a team and willingness to cooperate
• Communication skills (internal and external)
• problem-solving skills
• Self-initiative and self-employment

These criteria are more difficult to measure than work results, but they are often just as important for team success.

Commitment and willingness to perform

Commitment is reflected in the motivation with which employees tackle their tasks. Flexible responses to new challenges, reliability and a sense of responsibility are typical indicators.

However, care should be taken with this criterion: Commitment must not be equated with excessive overtime. A healthy work-life balance is not a sign of lack of motivation.

Practical implementation: This is how the performance appraisal works

A successful performance appraisal requires careful preparation, clear criteria and a structured approach.

Checklist: Preparation for managers

Managers should thoroughly prepare for assessment interviews:

Before the interview:

• Collect documentation: specific examples of strengths and areas of improvement
• Review the objectives of the last assessment period: Have they been achieved?
• Obtain a self-assessment from the employee (if provided for in the process)
• Prepare positive aspects AND constructive criticism
• Consider development goals for the next period (consider SMART criteria)

During the call:

• Create a quiet, undisturbed atmosphere
• Start with positive aspects
• Give specific examples (no general statements)
• Actively listen and give space for the employee's perspective
• Agree on development goals together

After the interview:

• Document the assessment in writing
• Record agreed measures
• Arrange follow-up appointments

Define objective criteria

Objective, measurable criteria are the basis of any fair performance appraisal. This principle applies not only to the evaluation of existing employees, but also to the selection of personnel.

Digital platforms such as Aivy use scientifically validated assessments to objectively measure competencies, soft skills and cultural fit — free from unconscious bias. The same philosophy can be applied to performance appraisals: Instead of purely subjective assessments, standardized criteria, clear indicators and data-based methods can increase fairness.

Best practices for objective criteria:

• Define measurable goals (e.g. KPIs, project results)
• Evaluate behavioral descriptions instead of personality traits
• Communicate criteria transparently in advance
• Regular calibration between managers to ensure consistent standards

Avoid assessment errors: halo effect, recency bias & co.

Even with objective criteria, unconscious perceptual distortions can falsify the assessment. The most important errors of assessment:

Halo effect: A positive characteristic (e.g. sympathy) outweighs all other reviews. Consequence: A person is rated well in all areas, even if there are objective weaknesses.

Recency bias: Only recent events are taken into account; older benefits are lost. This results in an incomplete assessment of the entire appraisal period.

Severe/mild error: Some reviewers generally rate too harshly, others too mildly. This leads to unequal treatment between teams.

Similarity error: People are rated better if they are similar to the person making the assessment (e.g. similar educational background, common interests).

Contrast effect: Employees are rated in comparison with each other, rather than measured against objective criteria.

Avoidance strategies:

• Training for managers on typical assessment errors
• Documentation of specific examples over the entire assessment period
• Calibration meetings where managers reconcile their assessments
• Use of standardized evaluation forms

Formulate constructive feedback

How feedback is formulated decisively determines its effect. Constructive criticism should:

• Be specific (examples instead of general statements)
• Describe behavior, not rate the person
• Be formulated in a solution-oriented way
• Be done promptly (not months later)

Example of destructive criticism: “You're unreliable.” Example of constructive criticism: “In Project X, you exceeded the deadline by three days. Let's talk about how you can create more realistic timelines in the future.”

Common questions about performance appraisals

What is the difference between performance and potential assessment?

The performance appraisal assesses the work currently performed — i.e. the current situation. She asks, “What is the person doing now?” The potential assessment, on the other hand, assesses future development opportunities and analyses the target state: “What could the person achieve in the future?”

Both aspects complement each other and are often discussed in a combined employee interview. While performance appraisal is the basis for salary adjustments or bonuses, potential assessment is used for succession planning and identification of talent for development programs.

What methods of performance appraisal are there?

There are various types of assessment, which differ according to who carries out the assessment:

• Downward assessment: Supervisor evaluates employees (classic form)
• Upward assessment: Employee evaluates manager
• Sideways assessment: Colleagues rate each other
• 360 degree feedback: Comprehensive assessment from all perspectives (supervisors, colleagues, employees, possibly customers)
• Self-assessment: Employee evaluates herself

The choice of method depends on the goal: Should performance be comprehensively recorded (360 degrees) or is it a question of rapid positioning (downward assessment)?

How often should a performance appraisal be carried out?

Traditionally, performance reviews are carried out once a year, often as part of the annual review. However, modern, agile organizations are increasingly focusing on shorter cycles: quarterly assessments or continuous feedback.

The trend is moving away from rigid annual cycles towards flexible, regular check-ins. Josh Bersin speaks of a “performance management revolution,” in which continuous feedback supplements or replaces the annual assessment.

In addition, event-related assessments can be useful: after project completion, when changing roles or after the probationary period of new employees.

Which assessment criteria make sense?

Useful assessment criteria are measurable, transparent and equally applicable to all employees in comparable positions. Typical criteria include:

• Work quality and quantity: Results, efficiency, goal achievement
• Professional expertise: Knowledge, skills, willingness to continue education
• Soft Skills: ability to work in a team, communication, problem-solving skills
• Commitment: Commitment, reliability, initiative
• Flexibility: Adaptability to new requirements

Important: The criteria should be communicated with employees in advance and be based on the specific requirements of the respective position.

What are typical assessment errors?

Typical assessment errors include unconscious distortions that lead to unfair evaluations:

• Halo effect: A positive characteristic outshines other aspects
• Recency bias: Only recent events are rated
• Severe/mild error: Reviews that are generally too hard or too soft
• Similarity error: People who are similar to the appraiser are rated better
• Contrast effect: Comparison with other employees instead of objective criteria

These errors can be minimized through training, clear criteria, and calibration between managers. A documented assessment over the entire period helps prevent recency bias.

Which legal requirements do I have to comply with?

In Germany, the Works Constitution Act (BetrVG) regulates key aspects:

• Section 82 (2) BetrVG: Employees can request that their performance review be discussed
• Section 83 (1) BetrVG: Right of inspection of personnel files (including appraisals)
• Section 94 (2) BetrVG: Works Council has right of participation in assessment principles
• AGG: Prohibition of discrimination — assessments must be free from prejudice

In the event of unfair assessments, employees have the right of appeal in accordance with Sections 84—86 BetrVG. In extreme cases, they can challenge the assessment and request that it be removed from the personnel file.

As a manager, how do I prepare for an appraisal interview?

Thorough preparation is crucial:

• Collect documentation: Specific examples of strengths and areas of improvement over the entire assessment period
• Match goals: Have the goals agreed in the last period been achieved?
• Get a self-assessment: If provided for in the process, request the employee's self-assessment in advance
• Prepare positive aspects AND constructive criticism: Both sides should be supported with specific examples
• Consider development goals: Define SMART goals for the next period (Specific, Measurable, Achievable, Relevant, Time-bound)
• Create a conversation atmosphere: Organize a quiet, undisturbed space

What is 360 degree feedback and when is it useful?

The 360-degree feedback is an all-round assessment in which a person is evaluated from different perspectives: by supervisors, colleagues, employees and, if applicable, customers. In addition, a self-assessment is carried out.

advantages: Comprehensive picture, reduces one-sided views, shows blind spots

Disadvantages: Complex, requires a distinctive feedback culture, can lead to conflicts

When useful: Particularly suitable for leadership development, in agile teams and for potential analysis. Important: 360-degree feedback should primarily be used for development purposes — not for direct salary or promotion decisions. These remain the task of the direct manager.

Conclusion: Fair assessments as a basis for development

Performance appraisals are a central tool in performance management and serve much more than just performance monitoring. They create transparency, offer employees valuable feedback and are the basis for well-founded personnel decisions.

Fair, objective design is decisive for success: Clear criteria, transparent processes and trained managers minimize assessment errors and increase acceptance. Legal requirements such as the Works Constitution Act must be consistently complied with.

The trend is moving away from rigid annual assessments towards continuous feedback and agile performance management approaches. Companies that make this change benefit from more motivated employees and higher overall performance.

Objective personnel decisions — right from the start

Fair, objective evaluations are not only decisive in performance appraisals, but also when selecting new talent. The digital platform Aivy supports companies with scientifically based game-based assessments and questionnaires to objectively measure capabilities, potential, and cultural fit — validated by Freie Universität Berlin. Learn more about data-based, fair personnel selection: Aivy.

Sources

• Works Constitution Act (BetrVG). Federal Ministry of Justice, 2021. https://www.gesetze-im-internet.de/betrvg/
• State of the Global Workplace 2023. Gallup Inc., 2023. https://www.gallup.com/workplace/349484/state-of-the-global-workplace.aspx
• Bersin, Josh. The Performance Management Revolution. Josh Bersin Company, 2018. https://joshbersin.com/
• Employee appraisal as a tool for personnel development. Haufe Fachverlag, 2024. https://www.haufe.de/personal/
• Performance management in practice. German Society for Personnel Management e.V., 2022. https://www.dgfp.de/