Performance appraisal

What it means

Performance appraisal is a regular, structured assessment of how an employee performs their tasks, how they behave and where they are developing. It most often takes the form of a meeting with the manager once or twice a year, reviewing the past period and agreeing goals and development for the next.

Appraisals usually assess performance against measurable goals such as KPIs or OKRs, and competences such as cooperation, independence or quality of work. Some companies also gather feedback from colleagues, subordinates or clients, known as 360-degree feedback.

The Labour Code does not expressly require appraisals, but an employer may introduce them through an internal policy. They must be non-discriminatory and concern work, not private life, and employees have the right to see written appraisals in their personnel file.

How it works in practice

The outcome often feeds into performance pay, annual bonuses or promotion. To be fair, the criteria should be known in advance and the same for similar roles. Pay changes can then be backed by a specific appraisal, which also helps with pay transparency rules.

A written appraisal is also important evidence when addressing shortcomings. If an employer wants to end employment for unsatisfactory performance, it must first ask the employee in writing to remedy the shortcomings and give reasonable time. Appraisal records support this procedure.

For smaller companies we recommend a simple form and regularity rather than an elaborate system. Even a short conversation once a quarter with clear expectations and feedback noticeably reduces turnover and improves performance.

What to watch out for

The most common mistake is a once-a-year appraisal that comes as a surprise. If an employee has had no feedback during the year and learns at the appraisal about problems from ten months earlier, it feels unfair. The appraisal should summarise what has been discussed along the way.

Watch for subjectivity and bias among appraisers too, such as overweighting the last few weeks or favouring people the manager likes. Clear criteria, examples and comparing appraisals across several managers help keep things fair and reduce the risk of discrimination disputes.