Why Staff Performance Appraisals Increase Profit

Estimated reading time: 7 mins

Performance appraisals are an important part of the human resources department of any company, but it has an even greater contribution to an organisation than what is usually considered. An effective appraisal not only eliminates work-quality problems and bad behaviour, it also motivates employees to contribute more. All this positive shift of attitude can directly affect the revenue and in turn, the overall profit a company makes.

Most companies these days ask their employees to provide a 360-degree feedback, which involves subordinates, peers, supervisors as well as the management. Regardless, this opportunity to receive and give constructive criticism can be extremely beneficial to turning the fortunes of a company for good and for the good. In this blog post, I explain the link between a good performance appraisal and the overall improvement in the fortunes of a company, especially the profit it makes.

Improved Communication and Engagement

I have seen it all too often, that managers and employees do not always get along that well. The problems in a lack of communication can be resolved by a performance appraisal. The employee will have a better idea of how to perform his or her job if the appraisal is used as a chance to describe on what criteria the performance is judged, using relevant and meaningful examples. Having a clear direction of what is expected from an employee makes it easier for them to execute tasks properly. This saving of time and improvement in overall results will have a positive effect on the cost to revenue ratio. You might say it’s a shame that communication issues are only resolved when it’s Performance Appraisal time, but it’s better here than not at all.

Shaping a Career Path

Performance appraisals are the perfect opportunities for businesses to address long-term goals that everyday to-do lists might be missing. Not only will an employee get an opportunity to be of greater value to the organisation, s/he will also feel pleased and appreciated. Helping employees improve in their career lights a certain feeling of stability and loyalty towards the company. Such professional growth will also help improve the overall results the employee achieves for the business and subsequently, promises improved profitability.

Encouragement for Good Work and Improvements

Celebrating all the good work done is perhaps the easy part of any performance appraisal. Noting down areas of improvement is perhaps not so. While no one is perfect, performance appraisals are an ideal time for the management to highlight areas of improvement diplomatically. Even the most perfect employee should benefit from additional training. Not only this additional training help the individual professionally, these added skills or improved skills will help him or her in performing tasks s/he previously deemed impossible. Improving the skills of your employees could mean not having to hire someone else to perform a task that could be managed internally with the existing team, contributing to savings in the end. It is important for you to be very specific, provide examples, and be clear in explaining what needs to be improved. Moreover, showing an employee that you care for their growth and development might just be the kind of motivation they need to transform from a good resource to a great resource.

Improved Decision-Making

It becomes easier for businesses to make informed decisions when the management has detailed information on an employee’s performance. Filling any open positions with existing staff will promote loyalty and strengthen the organisation. It will also save the company all added cost of hiring a new resource and training them. Knowing which resources can fill these positions will improve the speed of assigning projects. Appraisals are also important in figuring out which resources should be kept under the radar and closely monitored. There might be some bad eggs in the office – the kind of resources that are lazy and underperform on a regular basis. Improving such resources is important to ensure the projects are not delayed, leading to losses. Additionally, getting rid of such resources might also be essential to ensure projects run smoothly. For all such decisions, it is important to conduct performance appraisals.

The Need for Profitable Performance Appraisals

Modern businesses are revolutionary in how they function. All traditional approaches to performance management are broken and companies must create self-sustaining feedback flow that becomes effortless and feeds itself. Depending on the size of a company, annual appraisals of a few thousand people can take hundreds of thousands of hours. Most of the performance management systems in companies are just somewhat effective and do not achieve all set goals.  Most of the performance reviews leave employees less motivated and inspired, leading to increased staff turnover. In response, most of the progressive companies are now ditching these old-school annual performance appraisals and placing in feedback cultures with regular check-ins. Some of the leading companies that have adopted this culture of constant feedback include Adobe, Accenture, Juniper, Deloitte, Expedia, Microsoft, GE, Dell and Zappos. It comes as no surprise that these companies regularly attract the brightest and the best. Their employees receive feedback on regular basis, helping them improve themselves and become more productive much quickly. There is also an emergence of high performing organisations where all employees are taught to give great feedback and not just the leaders. These employees are also taught how to receive a feedback with equal grace and candour.

Why Powerful Feedback Cultures Are Less Implemented?

Despite the direct link of improved profitability to self-sustaining feedback flows, there are a few critical reasons behind organisations and leaders not adopting it:

  • Organisations are still sceptical of heavy investments in its culture and people. They are still stuck in the 1940s. They fail to acknowledge that their greatest asset are the people, not the products and services. As a result, they are not high performing organisations and usually tend to have depleting profits.
  • People are usually afraid of the disruptive nature of change. Creating cultural shifts in a company usually requires some effort from everyone. Without investment, there will be no substantial change. People tend to accept the status quo – not taking out the time to look at the processes to see where they are wrong, too afraid that it will be a waste of time and resources.
  • We tend to get stuck in a blame trap. It is easy for employees to point fingers at the management, blaming them for the failures in feedback. Being stuck in the blame traps means that we blame others, leaders and the organisation as a whole, not taking any responsibility ourselves. This is not a healthy approach and it does not allow anyone in the organisation to move forward.
  • We still think that a solid annual or six monthly review will be enough to change the company’s fortunes. In reality, it will not. In fact, when informal feedback is provided more regularly and outside the formal review process, it has a higher chance of improving the overall productivity.

Embrace the Future

While the concept of performance appraisal is very old, it is still as important as it ever was. The only thing that we need to do to make our performance appraisals ore profitable is to make them regular, shorter and less informal and more direct. We have to move from the trend of the 1980s in which there used to be annual performance management. There needs to be a frequent monitoring with regular feedback in companies of the future.  An important approach for managers and bosses is to think of issues from the employee’s point of view. Only then will they be able to provide meaningful information and feedback. For companies to remain competitive and ahead of the curve, it is important to move into the future with daily feedback in the company culture. Creating feedback flows is an integral part of how competitive and progressive organisations get things done effectively and create fully engaged and happy employees. This is when we reverse the push of giving feedback to the pull of receiving it, altering systems to create balanced flows.

Fixing the Performance Appraisal Feedback

To get ahead and stay there, it is important to make some radical changes to the company culture of our organisations. Fixing the performance appraisal process is about creating cultural cadence. This is more than just feedback training – this is about creating self-sustaining lows that become effortless and feed themselves. The outcomes of this will be:

  • Elimination of dependence on conventional performance appraisal systems.
  • Significant improvement in productivity.
  • Creation of a culture of commitment and accountability.
  • Evolution into openness and authentic transparency.
  • Allow employees to take full ownership of their work.


Staff performance appraisals, when done right, can have direct impact on the overall growth and profitability of a company. It is the only way to guarantee reduced turnover and improved productivity. What is important is that we look at how our organisations can adopt a culture of constant improvement and regular informal feedback. Have you experienced improvements in your company’s profits after a successful round of performance appraisals? Share your stories with us in the comments below. Do also check our other blog post on 4 Strategies for Worry-Free Performance Appraisals.

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