Set rational targets:
Target setting is the first stage of performance management. You need to set out clear objectives for the employees to achieve. These objectives should be challenging yet possible to achieve. They should also be relevant to his task and not vague. The measurements should cover his job description well and should be tailored to the tasks assigned to him. At the start of each assessment period, an employee should be communicated his objectives and briefed on them. Good organizations make target setting an interactive process for employees where their views are as important as their managers. Some even invite employees to set their targets.
You will also have to set standards of performance like Excellent, good, average, below average and poor. You can devise your own standards according to company specifics.
Some elements that you can judge your employees on are communication, interpersonal, attitude and focus. However, there are job related targets too like the number of sales gained, number of complaints gained etc. At times numerical data is enough to evaluate the performance. However, the most practiced approach is to invite the manager of the employee to evaluate him on a number of issues. This could be a form or an interview.
One job evaluation approach that has gained much repute is the 360 degree feedback mechanism. In this system, not only the manager grades the employee, his peers, coworkers and he himself also fills the evaluation form. This reduces the personal bias and politics in the evaluation process.
Working on evaluation:
What you do after you evaluate the performance of your employees makes all the difference. Employees who have achieved their targets need to be appreciated and recognized for their work through monetary and non monetary forms. Training and development needs of those employees who have not been able to be fulfilled so that they are at par. However, much of that is what an organization does not want to do so, it might have to give up on those employees who have not been able to improve their performance because in the end the work of all individual employees translates into company performance on the whole.