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The difference between a potential review and a performance review

Recruitment | 6 Min Read

The difference between a potential review and a performance review


Performance and potential reviews are often used interchangeably, but these are two completely different concepts. While performance evaluation focuses on employees’ performance over a period, the potential review aims to evaluate candidates’ latent skills and talents.

Both performance and potential review play an important role in career development and growth. They are used to hire skilled candidates, determine appropriate compensation, identify high-potential employees, develop L&D programs, and plan succession.

This blog looks at vital differences between performance and potential review and their uses.


What is a performance review?

A performance review is a tool used to evaluate employees’ accomplishments over a period, which is usually a year. Performance evaluation includes both qualitative and quantitative aspects of the role. The review generally measures how successful the employee was in completing their tasks, which is evaluated against a set standard for the job role.


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Objectives of a performance review


Common objectives of a performance review are:



Setting goals

Assigning employee goals and targets is a primary objective of performance evaluation. Setting up goals helps employees know and understand what is expected from them. It also allows managers to measure workers’ performance levels easily.

For assigning targets, last year’s performance review should be taken as a basis. Also, clearly describe the areas of improvement and the aspects to be evaluated in the following evaluation cycle. Finally, consider your employees’ opinions to avoid burdening them with unachievable expectations. It is imperative to discuss the time, resources, and other help they need to accomplish set goals.

Counsel and motivate employees

According to research by Great Place to Work, 37% of employees said personal recognition would encourage them to work better.

Performance reviews are a perfect time to let employees know what they are doing right and the areas they need to work on. On the one hand, the discussion helps you motivate hardworking employees to aim higher and, on the other, understand why some were lacking in certain areas or underperforming.

The insights thus gained help you plan targets better and allot your resources where needed. For example, an employee might need additional aid to complete a task, which might be allotted to them for the coming performance cycle.

Plan for raises and promotions

Raises and promotions are often tied with the performance review. As you measure an employee’s performance by reviewing their goals for the previous period, it is easier to identify team members who are high performing. It makes raises and promotions forthright.

Staff planning

Performance evaluation helps you recognize the well-staffed departments and the ones that require additional talent to get the job done. In addition, regular performance reviews help you pinpoint roles where employees are being stretched thin or working beyond their bandwidth, helping build a case for hiring more employees.

Plan learning and development programs

Another area where performance evaluation helps is ascertaining the employees that need additional training to upgrade their skills. After recognizing several workers’ training needs, you can easily plan your learning and development (L&D) programs depending on the group size and budget.


What is a potential review?

Potential review can be defined as identifying qualities and abilities in a candidate or employee that they may possess but still need to develop fully. Potential evaluation helps organizations decide if a candidate is worth hiring or not. Apart from helping in hiring, potential evaluation is often a part of a performance review. A worker’s talent and skills are identified to chart a career path for them or prepare them for new responsibilities.

Indicators of potential

  • Ability to act objectively without getting influenced by emotional/personal bias.
  • The capability to think beyond the conventional solutions to a problem.
  • The skill to manage complicated situations and challenges.
  • The ability to examine a situation from multiple viewpoints.

Objectives of a potential review


Potential review is mainly done to fulfill the following objectives:


Identify the candidate with the most potential

Recruiters must not judge a candidate just based on their technical skills. They also need to assess a candidate’s other traits, which is where potential review comes in. It helps HRs shortlist candidates who show the most potential and would be an excellent fit for the organization.


Identify high-potential employees

The potential review helps you identify employees with the inherent talent to take up senior roles. Such employees can be easily trained for suitable promotions.


Identify training needs

Performance review and potential evaluation help you plan a training program for your employees. The potential review enables you to identify areas that require training. This helps grow and develop employees’ skills and makes them loyal to the organization invested in their development.


Plan succession

Potential evaluation helps you identify high-potential (HIPO) employees. In addition, by recognizing such employees who can fill vacant positions, the potential review makes it easier for an organization to arrange and carry out succession planning activities.


Assist employees in the personal development process

A potential review also helps employees become aware of their areas of strength. This allows them to plan their personal development effectively by discussing training and upskilling plans with their employers.


Difference between potential and performance review

Organizations use performance reviews to evaluate and rate employees’ performance and contribution toward the company’s goal. An employee who meets the set goals or targets is recognized through rewards and appreciation. The rewards can be in the form of salary hikes or promotions. Thus, performance appraisal acts as a link between employees’ careers and the organization’s goals.

Potential review, on the other hand, is used to identify an individual’s latent skills and talents. Identifying these skills helps an organization prepare the individual for higher responsibilities or decide if the candidate is a good fit. Thus, the potential review is a tool for hiring and succession planning.

Here is a look at other critical differences between performance and potential review:

Past vs. future-oriented

Performance review considers employees’ achievements for the past year. It measures them against goals set at the end of the previous performance appraisal. Furthermore, managers set targets for the next cycle depending on the past year’s accomplishments. This makes performance evaluation both a past and future-oriented activity.

On the other hand, a potential review is a future-oriented activity and sometimes a part of a performance review. The potential review helps managers ascertain the hidden talent and skills of employees. Which is then used to chart employee career progression, prepare training programs, and plan promotions and successions.


Performance review is usually an annual cycle. Employees’ accomplishments over time are measured against a standard or the previous year’s performance.

The potential review usually takes place during the hiring process to gauge a candidate’s organizational fit or later either as a part of performance evaluation or as a stand-alone process for succession planning or L&D programs.


Performance evaluation is a tool used by managers to know who in their team is meeting targets, who are falling short, and the reasons behind it. On the other hand, a potential review is mainly used by recruiters to make better hiring decisions and plan training and development programs.

Data required

To conduct a performance review, managers need data from previous reviews as employees are measured against it. In this way, managers check the growth shown by a particular employee.

As for a potential review, no data is needed from the previous review. Instead, HRs can rely on assessment tests to appraise a candidate’s potential and make appropriate hiring decisions.


How Mercer | Mettl can help

Whether you are looking to conduct an annual employee performance review or need help with a potential candidate appraisal, Mercer | Mettl has a host of solutions for you. With Mercer | Mettl, you can quickly and accurately assess candidates, run performance reviews, and evaluate strategic employee development and training needs accordingly.

If you are looking for a solution for potential review, Mercer | Mettl’s pre-employment assessments are the answers. These assessments enable you to ascertain and measure candidates’ core traits and acquired skills. The assessments include personality, behavioral, cognitive, and communication skills assessments, among others. They ensure you get well-rounded insights into candidates’ potential, skills, and talents. With Mercer | Mettl, you can:

  • Curate customized assessments
  • Schedule and invite multiple candidates
  • Get real-time results and customized reports

As for performance reviews, Mercer | Mettl’s 360 Degree Feedback Tool takes care of it. The review mechanism differs from conventional assessment software as it uses a multi-rater approach. The tool collects ratings from multiple sources, like peers, managers, and clients. Apart from making the performance evaluation seamless, the 360 Degree Feedback Tool also helps you:

  • Identify gaps in skills as perceived by other stakeholders
  • Identify high-potential (HIPO) employees
  • Get a holistic overview of an employee’s performance



Both potential and performance appraisal are essential for an organization that wants to get the best out of its employees. Using them to hire, develop a training plan, and plan succession can help you achieve your organizational goals.



What are performance appraisals used for?

What are the benefits of performance appraisal?

Originally published December 14 2022, Updated December 14 2022

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About This Topic

Employee engagement is a process by which companies undertake specific activities to interact with employees and engage them. The activities include employee development, team building, skills development, trainings etc.

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