The best performance appraisal isn't a formal review at all. The best, most effective way to recognize employee performance is via instant affirmation or some sort of constructive word or action. When correction is needed, make it timely, quick, in private, and with all the empathy you can possibly muster.
We're adults in this thing called work, so treating our direct reports like children is counter intuitive and unproductive. When correcting behavior, keep it short, specific, non-punitive (except for those cases of offences of a terminable nature, like theft, harassment, or discrimination), and, most importantly, constructive.
Remember, the purpose of any kind of review is to increase quality production in fiscally responsible ways. Do not chastise; that's just nuts.
Assuming you, a leader, are doing your job right, the majority of recognizing is congratulatory. Like correction, congratulation is most effective when relevant, timely, and specific. Unlike corrective moves, congratulations are often most effective when made in public. (A caveat when recognizing people in public and calling out the good things they do. We humans crave positive affirmation to such levels that many of our co-sapiens will bristle when others receive positive affirmation and they don't.)
What's sad is the feeling of euphoria after receiving positive affirmation wears off quickly. On the other end of the scale, studies show that feelings of dread caused by poorly executed correction stick around much longer, possibly for days, weeks, months, or permanently.
This is why thinking culturally is so important. Punitive cultures are dreadful; happy cultures are friendly, supportive, and collaborative. Happy employees are productive.
Try This - A Research Study of Your Own
Conduct a test of 5-10 people you work with. (This test is for your eyes only; burn the results when finished.) These 5-10 people can be fellow workers, bosses, consultants; doesn't really matter.
Now, on a scale from 1 - 10 (known as a Likert scale in academic research circles, where responses are ranked on an ordinal scale but the intervals between values are not presumed equal; they're hunches), rate each of these people on a happiness factor (general well-being, positive attitudes, supportive, good natured) with 1 being a sour-puss to 10 being Pollyanna. Set that scale aside.
Now, think of those same 5 - 10 co-sapiens on their workmanship, measured by communication skills, openness to suggestion, and general effectiveness on the job. The way I place people on this scale, I think, "Would I hire this person if I started my own company?" Again, on a 1-10 Likert-type scale, with 1 being a waste of human potential and 10 walks on water, rate these people.
Generally speaking, happier people show up in the higher ratings on both measurements and grumpier people on the lower. So, what does this mean for leaders? Recognize and reward workers continuously for their good efforts, to move them from grumpy to happy, and productive, on your Likert scales. We can perpetuate great attitudes by practicing those good character traits ourselves.
I began this discussion talking about performance appraisals, those annual affairs that bring fear and dread to all. Many researchers suggest that worker productivity decreases for months after annual review time, even for those employees receiving relatively good reviews. For whatever reasons, annual review time is dark and foreboding.
How do we change that overall bad feeling associated with performance reviews? Answer: no idea. But, I can take a few stabs.
Annual performance reviews, especially in larger organizations, aren't going away anytime soon (although that would be nice). And, theoretically, if you, as boss-type, are doing your job right, affirmative support is continuous throughout time. But gee, because the likelihood of reviews going away any time soon is nil, the time we do spend reviewing should serve the higher purpose of making the world a better place (supportive, collaborative, and friendly, and, for the accountants, productive).
My humble suggestions are to keep reviews upbeat; focus on the positive. If you're doing your job right and correcting things as they happen, not in those once-a-year performance review encounters ("Glad to see you, valued employee number 40098!"), don't even hint to their existence when reviewing. Once those lapses of good judgment are discussed and corrected, forget about them (conjure up only if the indiscretion happens again).
During reviews, focus on what the person does well, and encourage them to do more of the same. And, possibly most important of all, don't preach from an authoritarian "I'm the boss and you're the underling," attitude. Nothing will send your fellow employees into negative-land with more divisive intent than for them to see themselves as serfs in the kingdom of better people than they.
The Baseline: Happiness
Great performance is a product of happy people. And happy people are a product of good leadership (hiring the right people, putting them in jobs best suited for their skills, and supporting them as they meander through the working world).
"Most folks are as happy as they make up their minds to be" - Abraham Lincoln.