How to Build a Performance Evaluation System (+ Template)

It’s no secret that performance evaluations can be a source of stress for everyone involved.

Employees often dread the feedback process, while managers can find it challenging to deliver constructive criticism effectively. The tension it creates can lead to uncomfortable conversations, decreased morale, and even disengagement.

But what if we told you that much of this discomfort stems from flawed employee performance evaluation systems?

Many organizations fall into common traps when designing such a system, leading to evaluations that are ineffective, unfair, and ultimately detrimental to both the employee and the company’s success.

Mistakes like relying solely on annual performance reviews can leave employees feeling blindsided and managers struggling to recall specific instances of an employee’s performance.

Another common pitfall is using vague evaluation criteria. ‌How many times have you seen a performance review that relies on generic terms like “good communication” or “teamwork” without clearly defining what those qualities look like in practice?

This lack of clarity leaves employees unsure about what’s expected of them and makes it difficult for managers to give objective feedback.

These issues, along with other common pitfalls like a lack of clear goals, create a breeding ground for frustration and missed opportunities.

What you need is an effective performance evaluation system alongside a standardized performance evaluation form similar to the one in our template below. You also need to know how to use and build it around your own company and employees.

Let’s dive in.

What you’ll find in this article:

• What is a performance evaluation system?
• Why building a performance evaluation system is important
• How to build a performance evaluation system
• Make performance evaluations part of your growth process

What is a performance evaluation system?

A performance evaluation system (or a performance appraisal system) is a structured process used to evaluate employee performance and provide feedback.

Performance assessments also act as a guide for employee development. This helps employees:

• Understand their strengths
• Identify areas for improvement
• Align their efforts with company goals

Instead of sporadic, subjective feedback, a well-designed system serves as a consistent framework for measuring performance against clear criteria.

This might involve: Regular check-ins, self-evaluations, 360-degree feedback from peers and colleagues, and goal setting.

Why building a performance evaluation system is important

Who doesn’t want a workplace where everyone feels valued, motivated, and knows exactly how their work contributes to the bigger picture?

Despite this desire, 29% of employees haven’t been given praise for good work in over a year, if they even got any at all.

With a well-built performance appraisal system, you can drag that stat down while also creating a culture of growth, open communication, and shared wins.

Performance reviews can also act as a personalized growth plan for every employee. It gives you a framework for recognizing those everyday wins, identifying skill gaps, and providing targeted employee development opportunities.

For example, suppose you have a marketing team member who’s hit a creative roadblock. A performance evaluation can help pinpoint the issue and lead to solutions like specialized training or brainstorming sessions with ‌colleagues.

What’s more, a solid evaluation system helps keep everyone rowing in the same direction. When individual goals align with company-wide objectives, it creates a sense of unity and purpose, boosting individual and team performance.

How to build a performance evaluation system

Ready to ditch those outdated performance evaluations and create one that actually drives growth and engagement? It’s easier than you think.

Just follow these simple steps along with this template to build a system that works for your company and your employees.

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1. Review your current system (or lack thereof)

Before you dive headfirst into building a brand-new performance appraisal system, take a moment to assess your current approach.

Even if your current employee performance management process is as structured as a bowl of spaghetti, this step helps you identify existing processes, tools, and any challenges you’ve encountered.

In turn, this will help you build a new system that addresses your specific needs and challenges.

2. Define clear goals, expectations, and performance metrics

Now that you’ve taken stock of your current employee performance management situation, it’s time to set your sights on the future. What do you hope to achieve with your new performance evaluation system?

This is where you define the “why” behind your system. Are you aiming to boost employee engagement, improve communication, or align employee goals with company objectives? Maybe you’re looking to create a company culture of continuous feedback and development. Whatever your goals, make sure they’re clear, specific, and measurable.

Next up, you’ll want to define clear expectations for each role. What skills, behaviors, and outcomes are essential for success in each position? Think about the specific contributions each employee makes to the company’s goals.

For example, instead of a vague goal like “improve communication skills,” try something more specific like “Communicates effectively with colleagues and clients, actively listens to feedback, and clearly articulates ideas and concerns.”

To effectively measure progress towards those goals, you need to establish relevant performance metrics. These metrics will act as your yardstick for evaluating how well employees are meeting expectations.

The metrics you choose will depend on the specific roles and responsibilities within your company. For example:

• Customer support agents: Could be evaluated based on metrics like number of tickets closed, customer satisfaction ratings, and first-call resolution rate.
• Sales representatives: Might be measured on metrics like number of deals closed, or revenue generated.
• Marketing specialists: Could be assessed on metrics like website traffic, lead generation, and social media engagement.

Remember to differentiate between quantitative and qualitative metrics.

• Quantitative metrics are those you can measure numerically, like “number of sales calls made” or “website traffic.”
• Qualitative metrics are more subjective and focus on qualities or behaviors, like “communication skills,” “teamwork,” or “customer satisfaction based on interactions.”

And when providing feedback, make sure it’s meaningful. Employee evaluation comments that are targeted and actionable will have a great impact and sense of direction to your employees.

Take extra inspiration from the template and its examples of performance goals. ‌Use these examples as a starting point to create your own clear and concise performance expectations.

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3. Choose the right evaluation methods

Alright, now for the fun part: figuring out how you’re going to evaluate your awesome team. And guess what? There’s no one-size-fits-all solution. You’ve got a whole lot of evaluation methods to choose from.

The key, however, is to choose evaluation methods that align with your company values, objectives, and the specific roles you’re evaluating. For example, 360-degree feedback isn’t going to work that well if you are evaluating a remote sales rep who deals with outreach, but it would work for a Scrum team building the latest app.

With that in mind, here are some popular options:

• Self-evaluations: Give your employees the chance to reflect on their own performance, identify their strengths and weaknesses, and set personal goals for improvement.
• 360-degree feedback: Get the full picture by gathering feedback from multiple sources—peers, managers, and even clients or customers.
• Rating scales: Use numerical or descriptive scales to assess performance measures objectively.
• Objective-based evaluations: Focus on measurable outcomes and achievements, like sales targets, project deadlines, or customer satisfaction scores.

Speaking of rating scales, these can be very vague if you don’t detail the reasoning behind them. But when done right, they can help standardize the process and keep things objective. Check out the template, it also has some great performance evaluation examples.

4. Create the evaluation form

Now that you’ve chosen your evaluation methods, it’s time to build the actual evaluation form. This is where you’ll translate your chosen methods into specific questions and performance measures that will help you assess employees effectively.

Evaluation forms should include things like:

• Job knowledge and skills (here you can input your insights from employee training)
• Quality and quantity of work (according to the performance measures you’ve set up)
• Attitude and habits (arriving late/early, likability with other colleagues, team spirit, etc.)

While the template doesn’t provide specific questions for every role or level of role, it does offer various examples of evaluations that apply to a few key roles. You can use these examples as inspiration for how to structure your own form and organize the questions appropriately.

5. Establish a clear timeline and process

With the goals and questions in place, it’s time to map out the when and how.

First things first: How often will you conduct performance evaluations? Will you stick with the traditional annual review, or opt for a more modern approach with quarterly, or even monthly, check-ins?

There’s no right or wrong answer here. The frequency depends on factors like your company culture, the nature of the work, and the level of support your employees need.

Once you’ve nailed down the frequency, it’s time to outline the evaluation process itself.

This might involve steps like:

1. Communicating expectations to all employees.
2. Setting goals that align with company objectives.
3. Monitoring performance and providing ongoing feedback.
4. Conducting formal evaluations at the determined frequency.
5. Documenting performance, feedback, and goals.
6. Following up to discuss progress, address concerns, and offer support.

Of course, you can customize this process to fit your company’s needs. You might add steps like a performance improvement plan, development opportunities, or talent reviews.

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6. Keep things consistent

No matter how often you choose to do those evaluations or what your process looks like, consistency is key. You want to make sure everyone in the company goes through the same basic process, evaluated against the same performance measures.

Why is this so important? Well, it keeps things fair, helps reduce bias, and makes sure everyone’s held to the same standards.

Plus, it just makes the whole system easier to manage.

Pro tip: Consider drawing data from your employee training software to identify trends in your learners’ progress and follow up with the relevant courses they need.

7. Train your leaders on performance evaluation and feedback

Next up, we have to address a part of the employee performance evaluation system that often goes overlooked, which is training your managers and leaders.

Even with the best intentions, managers sometimes fumble when it comes to giving constructive feedback, setting clear goals, and addressing performance issues in a way that motivates their team.

And this isn’t just a hunch. The numbers from our latest survey back it up: 69% of managers are uncomfortable communicating with employees, and 77% of employees crave more constructive feedback.

Clearly, this disconnect needs to be bridged, which you can solve with proper training. Training gives your managers the right skills and knowledge they need to conduct performance evaluations that don’t fall flat or miss the mark.

8. Establish clear next steps

After you’ve done all the hard work of building an employee evaluation system, then what? Numerous companies fail to seize a valuable chance here because they view ‌performance evaluations as an endpoint rather than a beginning.

Instead, it should be a stepping stone in an ongoing journey of growth and development.

That’s why it’s so important to establish clear next steps after the evaluation.

Let’s say an employee is knocking it out of the park, exceeding expectations left and right. Time to celebrate! Recognize their contributions, offer them opportunities for growth. And maybe even throw in a bonus or two to show your appreciation and encourage them to keep up the fantastic work.

But what if an employee needs a little extra support to reach their full potential? That’s where a performance improvement plan comes in, as it can help them get back on track.

And don’t forget about using it to help you build an employee development plan. Even your top performers can benefit from training, mentoring, or other resources that help them level-up their skills and reach new heights.

Of course, there might be times when performance issues require more serious action, like a disciplinary process or even termination. It’s important to have a clear policy in place for these situations so that all actions are fair, consistent, and legally sound.

Make performance evaluations part of your growth process

Hopefully, you now have the tools, tips, and processes to build a rock-star performance evaluation system for your team—one that helps drive continuous growth and awesome results.

To take it a step further, incorporate the process into your growth planning process. Use it to help you drive better results for your company and your team.

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