Formal performance evaluation of employees is the HRM process by which the organization determines how effectively the employee is performing the job. It takes place primarily for white-collar, professional-technical, and managerial employees. It rarely is done for part-time employees, and only for about half of all blue-collar employees. Although the data are not entirely clear and criticisms in some cases are warranted, it appears that, if properly done, performance evaluations and feedback can be useful for most organizations and most employees.

1. Performance management is the process and actions taken to align employee performance and organizational goals. A tool in performance management is performance evaluation.
2. The purposes that a formal performance evaluation can serve include
   1. Development.
   2. Reward.
   3. Human resource planning.
   4. Validation.
3. For a formal performance evaluation to be effective, six steps must be taken:
   1. Establish performance standards for each position.
   2. Establish performance evaluation policies on when and how often to evaluate, who should evaluate, the criteria for evaluation, and the evaluation tools to be used.
   3. Have raters gather data on employees' performance.
   4. Evaluate employees' performance.
   5. Discuss the evaluation with the employee.
   6. Make decisions and file the evaluation.
4. Performance evaluation systems have problems because of
   1. Systems design and operating difficulties.
   2. Problems with the rater:
      1. Problems with standards of evaluation.
      2. Halo effect.
      3. Leniency or harshness rating error.
      4. Central tendency error.
      5. "Recency of events" rating error.
      6. Contrast effect.
      7. Personal biases.
   3. Employees' problems with performance evaluation:
      1. Employees don't understand the system or its purpose.
      2. Employees are not work-oriented.
      3. Evaluation may be below the employee's expectations.
5. Performance evaluation interviews that involve feeding back evaluation information can be effective if the evaluation information is meaningful, clear, and helpful. On the other hand, feeding back information can be quite stressful if the evaluation is considered unfair, inaccurate, and poorly designed. Selecting the best evaluation approach for the employees and managers to use is an important decision.
6. Properly performed, performance evaluation can contribute to organizational objectives and employees' development and satisfaction. These are goals of performance management.