Performance Management

What Is Performance Management?

Performance management is the process or system by which an organization measures and improves performance within its workforce. An organization may use performance management to monitor performance on an organizational,departmental, team, or individual level, although the term most commonly refers to individual performance.

What Are the Essential Parts of a Performance Management System?

Within a typical performance management system, managers are responsible for tracking and developing performance with their own team members and then reporting to the higher leadership team. In the past, the performance management process often consisted of a round of annual performance reviews for each employee.

However, as research reveals the effectiveness of frequent feedback, many companies have dropped the annual review model and adopted a system of regular manager check-ins and informal feedback sessions. This approach helps employees understand and align with company goals and objectives regularly, making small adjustments over time instead of relying on one larger yearly course correction.

Common elements of a performance management system include:

• Planning
• Rating system
• Manager one-on-ones
• Goal-setting and tracking
• Peer feedback
• Rewards and recognition
• Performance improvement plans

It’s important to break down and understand each of these elements in depth in order to build a robust performance management system in your organization.

Planning

Before a manager conducts a performance review, it’s important to understand your goals for the position. What do you expect an employee in this position to achieve? These should be written in the job description and reiterated to the employee during onboarding and in each performance review.

Rating Systems

Managers should also have access to a fair rating system and use it to evaluate employee performance. Allowing each manager to use their own system can leave the review process open to bias.

Instead, it’s a good idea to have one rating system applied consistently and objectively to every employee at the same level. This system should be clearly communicated to both managers and employees so they understand what to expect and what criteria are being used to rate their performance.

Manager One-on-Ones

One-on-one meetings are the primary way managers communicate their observations about employee performance and their expectations for moving forward. Many companies use a coaching model in which employees and managers conduct more frequent “check-ins.”

These meetings can be conducted at any interval you wish, such as weekly, monthly, or quarterly, or on a per-project basis. The point is to check in frequently enough to keep employees informed about how they are doing and address performance issues in a timely manner.

Goal-Setting and Tracking

Goal-setting gives employees something tangible to work toward as they attempt to improve. It also helps employees understand what success looks like.

Goals should be specific, measurable, achievable, and time-bound. It can also be helpful to have a way to track each employee’s progress toward the goal so they can celebrate each “win” along the way.

Peer Feedback

Employees interact with more than just their managers on a daily basis. Consequently, it can be helpful to have peer feedback to help them understand how they can work more efficiently and collaboratively with their teams.

Having peer feedback can be useful because it helps employees understand their performance from all angles and see how it affects the organization as a whole. When incorporating peer feedback, make sure to use a consistent template, encourage honesty, and limit feedback opportunities to people the employee works with regularly.

Rewards and Recognition

Only one in three employees feel that they receive recognition or praise for doing good work on a regular basis. Having rewards and recognition for meeting performance goals can help keep employees motivated and on track toward success.

Fortunately, recognition doesn’t have to cost anything. According to Gallup, nearly a quarter of employees agree that their most memorable recognition has come in the form of acknowledgment from the company’s CEO.

Many also value public recognition in the form of shout-outs, awards, and certificates. This important part is that it’s regular, authentic, and individualized.

Performance Improvement Plans

Performance improvement plans are reserved for employees who are consistently missing the mark. These plans clearly address employee expectations, provide specific short-term goals, and tell the employee what support they will receive from management.

Although performance improvement plans aren’t meant to be used as a disciplinary tool, it’s also important to outline the consequences an employee will face if they don’t improve. To keep employee morale high, make sure to approach this process positively, encourage the employee to seek support, and avoid public criticism.

Benefits of a Strong Performance Management Strategy

When done right, performance management provides many benefits for both the organization and its employees. Here is a glimpse of how the right performance management strategy can positively impact your company.

Reaching Organizational Goals

Your organization’s ability to reach its goals depends on how well employees perform in their individual roles. A strong performance management system helps employees improve their everyday performance through consistent feedback, goal-setting for improvement, and training opportunities to develop new skills.

Not only does this help employees do better in the role they have, but it can also address skills gaps within the organization as a whole. Filling those gaps can help you future-proof your workforce and ensure the company has what it needs to maintain a competitive edge in the market.

Improving Employee Satisfaction

A strong performance management system aligns each employee’s goals with the broader organizational mission. This, in turn, helps employees see how their daily tasks contribute to the company's success.

Understanding that their work is important can help improve employee engagement, giving them a sense of purpose and pushing them to improve.

When they do reach their goals, they are more likely to feel satisfied both personally and professionally.

Research shows that this can have positive effects on the organization, as just a 10% increase in employees’ connection to the mission and goals of an organization can lead to an 8.1% decrease in turnover and a 4.4% increase in overall profitability.

Keeping Employees Motivated

What is performance management if not a way to keep employees motivated toward improvement? Having goals gives employees something tangible to work toward and can inspire feelings of success and achievement when those goals are met.

Furthermore, when those achievements are acknowledged both publicly and privately, it can make employees feel like their personal contributions truly matter. This may not only help employees avoid burnout but also lead to increased retention.

Building a Positive Work Culture

A robust performance management strategy can help HR professionals and managers build a positive culture in the workplace. Moving from an annual review process to more frequent coaching and check-ins can make talking about employee performance a little less daunting for both parties.

Instead, performance reviews will be much more focused on collaboration between managers and their direct reports. Rather than dreading negative feedback, employees can look forward to setting goals together and garnering support for overcoming roadblocks.

This mindset encourages a culture of transparency and feedback, which can help employees feel a sense of psychological safety and job security.

Ensuring Fair Rewards and Promotions

Good performance management helps employees gain an objective view of their performance and understand exactly what they need to do to improve. A consistent and objective rating system gives employees a clear pathway to rewards and promotions and assures them that these incentives are not based on subjective criteria.

Common Performance Management Goals

Goal-setting is the backbone of any good performance management strategy. While every employee’s goals will be different, here are some common ones managers use and a few examples of specific goals that fall into each category:

• Collaboration: Increasing the number of joint projects or having more frequent check-in meetings with colleagues
• Self-management: Improving efficiency by time-blocking an employee’s schedule or increasing productivity by prioritizing tasks
• Problem-solving: Reducing the amount of time it takes to resolve customer complaints by 25% or leading two new projects over the next six months
• Creativity: Submitting two new ideas on the next project or improving the team’s workflow to increase efficiency by 15%

When it comes to employee performance management, remember to help employees set specific goals. For example, “better time management” might be too vague, whereas “reduce overtime by 10% in the next 45 days” is much clearer and easier to achieve.

Tips for Improving Performance Management

Building an excellent performance management process doesn’t happen overnight. It requires a willingness to constantly evaluate what is working and improve on what isn’t going well. Here are several suggestions to help you do just that.

Understand Employees’ Needs

Remember that your performance management system is meant to help your employees improve at work. Consequently, it’s important to develop a system that meets their needs and delivers coaching and feedback in a way that’s truly helpful and can be well-received.

Make sure to ask your employees what they need in order to feel supported, and use that as a starting point to build an effective system for your organization.

Provide Continuous Feedback

Waiting until the end of the year to provide employees with valuable feedback means a lot of missed opportunities to help employees recognize and correct issues in real time.

Timely feedback ensures that evaluations are much more relevant to the moment and helps keep employees motivated, as they’ll be able to see and celebrate the immediate effects of their improvements and achievements.

Ensure Managers Are Fully Equipped

It’s important to ensure all managers understand the performance management rating system and are equipped to have coaching conversations with employees.

Consider hosting formal training for managers on how to observe employee performance, collect feedback, motivate employees toward success, and have difficult conversations if performance doesn’t improve.