Performance Management 101: What it is, Why it Works, and How to Embrace it
According to Gallup,“only two in 10 employees say their performance is managed in a way that motivates them to do outstanding work.” Clearly, traditional ways of evaluating employees aren’t working. They’re too rooted in hierarchy, which makes employee progress rigid and slow-moving.
Especially considering the importance of attracting and retaining top talent, companies must do better by their employees. This has led to the emergence of a revolutionary approach to employee development called ‘performance management,’ which focuses much more on learning, not just accountability.
Performance management is an ongoing process with an aim to raise performance by setting individualized goals, reviewing progress, and developing people through learning opportunities. 89% of human resource professionals agree that performance management is superior to annual or biannual reviews.
But there’s work to be done to make it effective. Here we take you through what we mean by performance management and how you can make the shift to an effective model that focuses on open communication and a bottom-up approach.
What is performance management?
Performance management is a culture of setting employee goals collaboratively and understanding how those goals align with the team’s and organization’s larger objectives. Employees and managers meet regularly to update goals, assess how they’re being met, and uncover opportunities to help the employee reach them.
As organizations work to get it right, transparency, coaching, and reward become the three pillars on which the foundation of performance management needs to be laid.
- transparently aligns individual and team goals with the broader business strategy.
- encourages managers to become performance and progress coaches (instead of bosses).
- presents opportunities to recognize and reward high-performing employees.
Why performance management is replacing annual appraisals
Performance management is fast replacing traditional methods of appraisal, and for good reason. It presents multifold benefits, from driving employee engagement and retention by reducing stress to identifying training needs and filling in those gaps.
Traditional appraisal methods can actually make performance worse. An annual check-in often feels more like a painful revisitation of past issues that have either been resolved or are not relevant anymore. Plus, when managers are not trained and don the supervisor hat once a year, it makes for awkward conversations and strained relationships.
Performance management overcomes this by building a learning culture and making reviews a natural part of an employee’s life cycle at an organization. Not only that, organizations can rake in other benefits to boot:
- When feedback is built into the regular workflow with ongoing performance management, it feels natural and therefore less stressful.
- Performance management allows greater transparency by enabling big-picture conversations in which employees see the role they play in helping the company achieve its objectives.
- Annual appraisals are often subjective, which opens the door to biases, such as gender bias. When performance is reviewed in an ongoing manner, you make better people decisions.
- 90% of companies that use performance management have seen engagement levels shoot up. When employees are continuously learning, they are more engaged and more productive.
How you can embrace a performance management model for the long term
Performance management isn’t a one-and-done deployment. Organizations tend to doubt their impact when they don’t see quick results. But it’s because they are only skimming the surface and expecting big changes. To really experience its benefits, organizations need to embrace performance management and bake it into the company’s ethos.
To understand what performance management really is, organizations need to first understand what it isn’t so they don’t fall prey to common challenges and mistakes.
- First, it isn’t enough to just share your goals with employees. Leaders need to speak to those goals repeatedly so that employees see themselves as part of the big picture.
- Second, performance management also isn’t about establishing key points during the year to deliver feedback. Feedback is most effective when relevant to their current performance situation, in the moment of need, and a quarterly review just doesn’t make the cut.
- Third, organizations think setting goals and measuring success is enough. But many use outdated ranking systems and scoring methods actually do more harm than good, and it feels unfair to employees.
Now that we have identified the common mistakes, we lined up the vital components to establish a true performance management system:
Motivate employees through individual goal-setting
Organizations that connect employee goals to company objectives, invest in managers, and have a performance-based reward system are 84% more likely to be seen by employees as fair and equitable. With an agile rhythm of setting individual goals, employees see themselves as furthering the larger business objective. Here’s how to set a cadence:
- Get employee buy-in. When you set goals collaboratively, it increases the likelihood of them achieving them.
- Update goals weekly or even in real time so that they always remain relevant to current projects and priorities.
Create a feedback loop with regular performance reviews
A feedback loop is a part of the natural work cycle. It takes the pressure off, makes feedback less scary, and is actually more effective in boosting performance. Here’s how to employ best practices for providing feedback:
- Make feedback objective and timely. It should feel like a guiding light rather than a personal attack. Constructive feedback helps improve performance and keeps employees engaged.
- Schedule weekly check-ins and updates, where meaningful conversations take place and managers can take stock of how an employee is feeling. It is an opportunity to personalize the meeting and learn about what motivates them and areas they find challenging.
Adopt incentive management as a tool to recognize hard work
Incentive management is a system that links rewards to high performance. A meaningful distinction across performance levels motivates employees to work harder because they know their efforts are going to pay off. Here’s how to embrace incentive management:
- Make compensation levels transparent, and establish clear connections between performance levels and rewards.
- Profit-sharing plans motivate employees to work toward company goals because they know that if the company benefits, those earnings are shared with employees.
Build a culture of open communication with a bottom-up management style
A bottom-up management style embraces low authority and promotes high accountability. The mindset shift from boss to coach creates room for more questions, richer conversation, and greater development. Here’s how to create a bottom-up organization:
- Give employees access to company information so that all parties are looped in, and people have the authority to make decisions that make their work efficient.
- Encourage employees to propose their own targets so they can create a roadmap for how they plan to achieve those targets.
Map out succession plans to help employees upskill
Succession plans are valuable in developing employees and keeping talent in the pipeline. It is a way of investing in employees and retaining them in different roles within the company. Here’s how to make room for succession plans:
- Provide opportunities for career planning conversations that will help employees think about their future within the company.
- Identify high-performing employees so you can help them plan their growth according to their specific needs.
Lean on performance improvement plans to help struggling employees
A performance improvement plan does not have to be a downhill path ending in termination. It is a blueprint to put the employee back on track and give them a real opportunity to grow with clear directions and expectations. Here’s how to implement performance improvement plans:
- Set clear goals and expectations at the outset so that the employee knows what is required to meet the desired outcome.
- Offer ongoing support in the form of coaching and training if skill gaps have been identified.
Invest in L&D to set performance management as a foundation of the company culture
As mental health and employee support come into deeper focus in a post-pandemic world, the role of L&D becomes critical in keeping the workforce functioning well. 82% of employees report positive behavioral changes in recently trained managers, indicating the value of learning performance management. Here’s how to put L&D at the heart of your performance management strategy:
- Provide access to learning opportunities in a healthy, up-to-date learning management system and give employees the tools they need to level up.
- Encourage a culture of collaboration through peer-guided learning and peer reviews. Human connection is the need of the hour, and collaboration can boost performance by making learning fun and engaging.
Effective performance management is the future of work
With remote work becoming the norm, employees are physically separated and will be lost at sea if managers only check in with them once a year. If your organization is still doing performance appraisals the outdated way, you are falling behind. The number of companies conducting annual or semiannual reviews fell from 82% in 2016 to just 54% in 2019.
Organizations can use performance management to ensure employees are engaged, happy, and that their growth is aligned with that of the company. In 2021 and beyond, performance management is the tool you need to adopt to become a true Learning Organization.
The remaining chapters of this guide cover:
- Replacing Your Annual Review Process With these Performance Appraisal Guidelines
- The Right Way to Go About the Performance Management Cycle
- 3 Best Practices For Building an Effective Incentive Management Program
- How to Create a Performance Improvement Plan That Leads to Less Firing
- 15+ Performance Management Templates