Performance appraisal process: goals, reviews, calibration and increments

For many growing companies, the performance appraisal process happens once a year in a rush. Managers fill in forms in March, ratings are argued over in a long meeting, increments are announced in April, and nobody looks at goals again until the next March. Employees feel judged on memory rather than evidence, and good managers dread the exercise as much as their teams do.

A better process spreads the work across the year and links each stage to the next: goals agreed at the start, progress discussed every quarter, reviews based on those goals, ratings made consistent through calibration, and increments tied to the final rating. This guide sets out each stage and the decisions you need to make.

The performance appraisal process in five stages

A complete cycle has five stages. Smaller companies can run them lightly, but skipping one usually weakens the others.

1. Goal setting at the start of the year.
2. Check-ins every quarter.
3. Reviews: a self-review and a manager review, at mid-year and year-end.
4. Calibration of ratings across teams.
5. Outcomes: increments, promotions and, where needed, improvement plans.

Stage 1: setting goals

Goals are the foundation of a fair appraisal. If they are vague, the review will be a matter of opinion. Each goal should state what will be achieved, how it will be measured and by when.

• Keep the number small. Three to eight goals per person is enough. More than that and nothing gets real attention.
• Weight them. Weights that add up to 100% tell the employee what matters most, and they make the final goal score calculable.
• Link to company targets where it makes sense. A salesperson's revenue goal can sit under the company's quarterly sales target, so everyone sees the connection.
• Agree, then approve. The employee drafts, the manager reviews, and either may adjust before the manager approves. Agreed goals are much more motivating than assigned ones.
• Set a deadline. Goals should be approved within the first six weeks of the cycle. A goal set in October for a year that started in April is not much of a goal.

Stage 2: quarterly check-ins

Check-ins are short, regular conversations about progress. They replace the annual surprise with steady feedback.

Each quarter, the employee updates the progress and status of every goal, such as on track, at risk, behind or done, and writes a few lines on how the quarter went. The manager responds with comments and, where needed, agrees changes to goals that no longer make sense. A check-in should take thirty minutes, not a day.

Encourage feedback outside the cycle too. Peer praise for a job well done, or private feedback on something to improve, gives the review real material instead of the manager's recollection of the last month.

Stage 3: self and manager reviews

What is reviewed

A review form should have two parts: the goals, rated individually with their weights, and a short list of competencies, such as quality of work, teamwork, communication and ownership, with leadership added for people who manage others. A common weighting is 70% goals and 30% competencies, though roles where behaviour matters more may shift that balance.

Self-review first

The employee rates each item with a brief comment and writes a summary. This gives the manager the employee's view before forming their own, and it often surfaces achievements the manager did not know about. Optionally, the employee can nominate a few peers to give feedback.

Manager review

The manager rates each item next to the self-rating, with comments. A clear formula avoids debate: the goal score is the weighted average of goal ratings, the competency score is the average of competency ratings, and the overall score combines them by their weights. The rounded result is the suggested rating. If the manager proposes a different final rating, they should give a reason.

Use a simple scale

A five-point scale with clear descriptions works for most companies: for example, 1 for well below expectations, 3 for fully meets expectations and 5 for exceptional. Agree what each point means and share it with everyone before reviews start.

Stage 4: calibration

Without calibration, ratings depend on the manager. Some rate generously, some strictly, and employees in different teams are treated differently for the same performance. Calibration fixes that before ratings are shared.

• Compare against a guideline distribution. For example, 5% at rating 1, 15% at 2, 50% at 3, 20% at 4 and 10% at 5. Use it as a check, not a forced curve: a team that genuinely outperformed should not be pushed down to fit.
• Review performance and potential together. Plotting people on a simple grid of performance against potential helps identify future leaders and people who need support.
• Record every change. When calibration moves a rating from the manager's proposal, note why. The employee's manager should be able to explain it.
• Share once. Close the review stage, finalise ratings and share them with everyone at the same time. Staggered sharing leaks and causes unnecessary anxiety.

After ratings are shared, the employee should see the manager's comments and acknowledge the review, with space to add a response.

Stage 5: increments, promotions and improvement plans

An increment matrix

Link increments to final ratings through a published matrix, for example 0% for a rating of 1, 0-3% for 2, 5-8% for 3, 9-12% for 4 and 13-16% for 5. Managers propose an increase within the range for each person; anything outside the range needs a written justification. Promotions can carry an additional increase. The matrix keeps increments consistent and makes the budget predictable.

Approval and letters

Increment proposals should go through an approval chain, typically HR leadership and then the CEO, before anything is communicated. Once approved, issue an increment letter signed by the authorised signatory, and apply the new salary from the agreed effective date. Keep a salary history for each employee; it is surprisingly common for growing companies to have none.

Performance improvement plans

For someone rated well below expectations, a performance improvement plan gives a fair, structured chance to improve. A good plan states the reason, lists one to five measurable goals, describes the support the company will provide and sets a period of 30, 60 or 90 days. The manager and HR hold regular check-ins and record progress against each goal. The plan ends as completed, extended or not met, and the outcome should be documented clearly.

Common mistakes to avoid

• Goals set late or never updated. The review then measures nothing.
• Recency bias. Rating someone on the last two months. Quarterly check-ins and recorded feedback counter this.
• Ratings decided by the increment budget. Decide ratings on performance first, then apply the matrix.
• No explanation of outcomes. Every employee should know why they received their rating and increment.
• Too much process. Long forms with twenty competencies discourage honest input. Keep each stage short.

Running the cycle in one place

The performance appraisal process works best when each stage feeds the next automatically: approved goals become review items, final ratings drive increment ranges, and approved increments become salary changes and letters. Techno Team Via runs this cycle on your financial year, with weighted goal plans approved by managers, quarterly check-ins, feedback, self and manager reviews with a calculated suggested rating, calibration against a guideline distribution, increments within your matrix through an approval chain, and performance improvement plans.

If you would like to see it with your own rating scale and matrix, book a demo of Techno Team Via.