Performance-appraisal systems can become a key component of a small business's performance-management program. These systems consist of appraisal forms and instructions for supervisors to use in their annual evaluations of their employees' work. Although performance-appraisal systems offer several benefits, there can be disadvantages to the systems and the manner in which they're used.

Leadership Training

Before a business launches its performance-appraisal system or when it hires a new supervisor or manager, the company provides leadership training on how to effectively evaluate job performance. Leadership training consists of how to write a performance-appraisal document as well as how to conduct a performance appraisal meeting. However, one of the disadvantages of performance-appraisal systems is that the employer-provided training is woefully inadequate for preparing supervisors to provide unbiased feedback to employees in a manner that motivates workers to strive for higher performance ratings. Companies might train supervisors on the mechanics of a performance appraisal system and disregard the importance of using performance feedback to inspire team members.

Negative Approach

Supervisors and employees might come to dread performance-appraisal season. Supervisors who work for small businesses might feel the time it takes to prepare an employee's performance appraisal could be better spent on other job tasks. Small businesses often have to make do with limited staff or a smaller workforce. This puts supervisors in a bind when they have to devote too much time to preparing for an employee appraisal. Employees might fear receiving an appraisal that contains mostly neutral or negative feedback about their job performance -- not overwhelmingly complimentary feedback or positive strokes. Being on the receiving end of negative feedback is as nerve-wracking as being the supervisor who has to give negative feedback, which makes for an uncomfortable appraisal meeting. Also, in a small business, post-appraisal interaction between a supervisor and employee can be tense, particularly if the employee believes she was rated unfairly. The tense interaction between supervisors and employees is likely to be heightened because of the close proximity within which employees and supervisors often work in a small business setting. For many employees, news about a salary increase is about the only positive aspect of a performance appraisal. The dread with which supervisors and employees view performance appraisals puts a negative spin on the entire process.

Supervisor Bias

Intentional or unintentional biases can destroy the integrity of the performance-appraisal system. Biases occur when supervisors overlook poor employee performance during the early part of an evaluation period and focus solely on the most recent performance. Supervisor bias can occur when supervisors feel it's too much work to produce a quality performance appraisal, resulting in a less than properly constructed appraisal, according to Tulane University business school professor Jasmijn Bol. In addition, supervisors who were promoted from staff positions might have a difficult time rating the job performance of employees who were once their peers. This is a serious disadvantage of performance-appraisal systems that can have a lasting effect on an employee's status with the company, even to the point of termination if the supervisor bias is pervasive enough to render performance ratings that are abysmally low.


Performance appraisals don't always receive the priority they deserve. Employees must receive timely feedback to learn whether they're performing their job functions according to expectations. Absent informal or formal feedback provided by a performance-appraisal system, employees might not realize how they can improve their processes or their behaviors and attitudes about work. A supervisor's failure to conduct timely performance appraisals demonstrates poor leadership skills and can put a strain on the supervisor-employee relationship. This is particularly true when an employee's salary raise depends on finalizing the performance appraisal. Late appraisals mean untimely wage increases.