Performance appraisals try to do three things: measure performance, provide the basis for compensation and set goals for development.

One method of performance appraisal is the "forced distribution system." It was developed by Jack Welch at General Electric and is a system where supervisors are forced to rank their employees against each other. In the GE model, supervisors ranked 10 per cent of their employees as top performers, 10 percent as low performers, and the rest are in the middle. Compensation is based on the supervisor's ranking.

Lockheed Martin has developed a "performance-management system" which integrates the annual performance review into an ongoing process. In this system employees are involved in setting their own goals. Feedback is provided on a regular basis.

Lockheed Martin uses a forced ranking system which uses five categories rather than three. It is considered a kinder gentler version of Welch's. As a result, 70% of Martin's employees are rated as successful and 10% are rated as exceptional.

Another assessment tool is called the 360-degree assessment. It has been around for about a decade. It is traditionally used with executives and senior managers. The evaluations of performance come from peers, subordinates and outside customers and vendors.

Managers tend to use a performance appraisal system to justify compensation. But, compensation alone should not drive the system. A very key component is the performance of the employee and how well he/she did on the job. Oftentimes, a once-a-year discussion is not enough.

At Darden Restaurant support center in Orlando employees determine their goals with a supervisor at the beginning of the fiscal year. At the mid-year meeting the goals are reviewed and can be reevaluated and adjusted as needed.

Appraisal systems should strive for a balanced review of performance - what was done well as well as what was poorly performed. By setting goals and giving feedback on a regular basis employees will feel more comfortable.