A simple guide to performance management

Elissa Dennis
9th December 2020
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What is performance management?

Performance management is the activities and processes that help an employee to achieve their objectives. At its most basic level it’s about getting the best out of people; helping employees to be effective and productive in driving the organisation in the direction it needs to go. Some of the components of performance management include setting objectives, monitoring progress against these and providing the support, feedback, and training necessary to ensure an employee can attain these goals.

Good performance management systems acknowledge the relationship between employee and employer, and the employee’s own life goals, motivations and aspirations. A system that encourages a win-win for employee and organisation can be extraordinarily effective and this is what Appraisd sets out to achieve.

Why is performance management important?

Performance management ensures all employees know what they are working towards, have the skills to make that happen and are working together to help the business get to where it needs to go. It is the tool that ensures any organisation’s most valuable asset is working to its full potential.

Think of it like the cox in a rowing boat. They provide the instructions to each oarsman, letting them know exactly what they need to do. They also provide the beat, the rhythm that ensures the whole team is working in harmony, following a shared goal. Of course, you can row a boat without a cox, but the result will be chaotic, ragged, and ineffective. Vital energy will be wasted, and it will be much harder to compete with other, more organised crews.

Oarsmen and women are happy to work to the same beat because they share a common goal. And even though it looks repetitive with no room for individualism, the truth is quite different: every pair in a rowing eight has subtly different strengths; some seats require particular finesse and a deft touch of the oar. The middle, also known as the engine room, provide consistent power but with lower impact on the direction of the boat. So, while everyone has their own goals, to be successful, these need to be aligned with the overall goal of the crew, just as employee and business objectives need to.

How does performance management work?

Determining how productive an employee is, is far from a new concept. Some historians believe the practice goes right back to the third century, when the Wei Dynasty emperors in China rated the performance of their family members. From these early beginnings, performance management has evolved. It has developed from a top down approach, where managers just looked at whether employees were achieving set targets to something much more collaborative where goals are mutually agreed, reviewed regularly and progress is tracked.

Today performance management is about creating goals that work for employees and drive a business forward. These goals must be clearly communicated to employees so they know what is expected of them and what they need to do to develop themselves, as well as adding value to the business as a whole.

How has performance management changed?

A decade ago, performance management largely consisted of an annual appraisal. This was the chance once a year for employers to go over an employee’s performance, reviewing how they had performed against their objectives. The chances are they would have been rated on how well they had done, and this rating would have been used to inform their annual pay rise or, for some, their bonus as well. Objectives for the next year would have been set as part of this process and that would have been it for the next 365 days.

This began to change in the early 2010s as companies began to see this approach wasn’t effective or efficient for an increasingly digitised workplace, where employees were used to having information at their fingertips whenever they wanted it. Waiting a whole year to talk about objectives that may have become irrelevant or outdated due to changing external and internal factors seemed archaic. Both employers and employees wanted something that was more agile, flexible, proactive, and inclusive. A new approach began to emerge – continuous performance management.

What is continuous performance management?

Put simply, this is about facilitating a continuous dialogue between employees and their line managers around their objectives. This could be done in variety of ways. Some organisations choose to do this through more regular reviews, for example twice a year or quarterly. This allows employees to focus on a much shorter time frame, making their goals feel more immediate and relevant. Other employers will choose to do regular 1-2-1s or check-ins between line managers and their employees to discuss progress, offer feedback and plan development.

Our own research in 2019 revealed a wide range of approaches:

  • 11% have monthly reviews
  • 20% have quarterly reviews
  • 20% have bi-annual reviews
  • 36% have annual reviews
  • 13% have reviews less than once a year or not at all

There is no right or wrong answer when it comes to how often you should hold reviews or check-ins, the important thing is finding the balance that works in your organisation. However, every successful approach requires an opportunity to:

  • Review objectives and adjust as necessary depending on relevant circumstances
  • Update progress
  • Offer timely, relevant, and useful feedback on performance
  • Make employees feel fully included in the process and have the ability to raise issues if they feel the process is going off track.

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What are the benefits of performance management?

As discussed, effective performance management is the glue that holds a business together, helping employees to perform to their full potential. Research from Gallup found that employees whose managers excel at performance management are more engaged than employees whose managers struggle with it.

This employee engagement is crucial. Employees that feel a connection with their workplace are happier, healthier, and more loyal employees. Further research from Gallup discovered engaged teams were 17% more productive than those that lack this connection.

However, this is not the only benefit. Effective performance management can positively impact other key metrics in an organisation, helping to create an inclusive, vibrant, and successful culture; a workplace where employees actively want to work. Here are some of the additional benefits of getting performance management right:

Reduced employee turnover

For nine years in a row, the Employee Retention Report has reported the number one reason why employees leave their jobs is due to a lack of career development. With effective performance management, that includes frequent conversations on development and career ambitions, employees can see clearly how they can get to where they want to go, encouraging them to stay with their current employer.

Reduced sickness absenteeism

According to the Health and Safety Executive, more than half of all workplace sickness absences are caused by stress, depression, or anxiety. Research has shown that unrealistic management expectations, overwork and looming deadlines are the main causes of stress for employees. Effective performance management provides employees with a platform to raise issues around overwork, deadlines, or expectations, allowing managers to act before the situation causes an employee to go off sick.

What are the essential elements required for effective performance management?

Whatever approach to performance management an organisation decides to take, there are certain elements that must be included in order to create an effective, robust and collaborative process that works for managers, employees and the business as a whole.

Setting objectives

These are the bedrock upon which everything else in the process is built. Getting this right is key to ensuring employees have targets that are realistic enough for them to achieve but also challenging enough to allow for growth. These should always be set collaboratively; it’s vital that line managers and employees do this together so that both are completely aware of what is required and happy that the objectives provide sufficient direction and motivation. These should also align to the overall objectives of the organisation to ensure each employee contributes to the overall aims of the business.

The more employees are involved in the process and have the authority to put forward their views, the more engaged they will be in achieving these goals.

There are a variety of approaches when it comes to objectives. Some business will favour setting personal objectives for each employee, while others will prefer shared objectives, that go across teams or departments. Other companies use OKRs or objectives and key results. These were developed by tech companies in Silicon Valley, looking to promote greater creativity, encouraging employees to be as ambitious as possible.

There is no right or wrong answer here. The important thing is to find the approach that works best for your organisation and your employees.

Regular reviews

Whatever cycle you choose, it’s important that everyone knows when the reviews are and complete them on time. These are a vital opportunity for the progression made against objectives to be discussed. If circumstances have changed and the objectives need to be adjusted, regular reviews provide that opportunity, ensuring everyone remains aligned and on track to contribute to the success of the business.

These regular reviews allow line managers and employees to build a stronger, more transparent relationship where both sides are clear about what is expected of them. These also provide an excellent opportunity to discuss other issues, such as any worries around health or outside responsibilities. These reviews can dovetail neatly with workplace wellbeing, acting as an early warning system for anything going wrong.

Timely, relevant, and useful feedback

Knowing what is working well and what could be improved is an essential part of employee development. Receiving feedback from across the business highlighting successes when they happen is of huge benefit to employees. It shows them that what they are doing is being valued and appreciated and ensures no useful information is lost or forgotten.

Our recent research with employees and their attitude towards feedback revealed that only 9% would not want to work in an organisation that embraces a feedback culture. Feedback is especially important to younger employees who are starting out in their careers. They actively want to work in organisations that offer them timely, relevant, and useful feedback to help them develop and progress their careers.

Personal development

Effective performance management is all about giving employees the freedom, opportunity, and license to manage their own development. Encouraging employees to think about what they need to grow as employees, consider what training would be useful and the ability to ask for it creates workers who are engaged with the business and feel energised and enthusiastic. It treats them like adults, empowering them to make decisions about their future.

This emphasis on personal development can also extend to goals outside of work, using the same process to help them achieve important milestones. This approach may not work for all organisations, but it can build even stronger bonds between employees and the organisation.

What insights can performance management provide to a business?

Data, which provides useful insights into employee performance, is invaluable to an organisation. It can highlight a whole range of information that senior leaders, managers and HR teams can act upon to improve the business. Performance management data is especially useful, providing indications on:

  • Employee engagement – if employees are regularly updating their progress against their objectives and giving and requesting feedback, it is highly likely that they are engaged with what they are doing and are motivated and productive employees.
  • Effective management – if managers are completing their reviews on time and providing regular feedback to employees it shows that they are engaged with their team and involved in their development.
  • Employee retention/succession planning – employees who are requesting feedback and setting personal development goals are those that have a clear vision for their future and a desire to improve. These are the employees an organisation should be looking to keep and help to thrive.
  • Identifying training and development needs – if a number of employees are requesting training around a particular topic it could indicate a wider issue that exists across the organisation. By monitoring training requests, it is possible to spot these potential gaps and role out wider training programmes, ensuring no one misses out.
  • Workplace culture – if employees are regularly updating their progress against objectives, requesting and providing feedback and completing reviews on time it indicates that the organisation has an inclusive, supportive culture where employees have grasped the opportunity to share their views and ask how they can improve.

If any employees or managers are failing to complete reviews, update objectives or feedback when those around them are it could indicate there is a bigger problem. This could involve their role, their team, or their personal lives. This should be the trigger for those exploratory conversations to uncover what the problem is and try to rectify the situation before it turns toxic.

What is needed to make performance management effective?

Performance management is not a once and done process. It should be something that adapts and changes as the business and outside environment change too. Just think how much the world or work has changed over just the past 10 years, not withstanding the current challenges presented by the Covid-19 pandemic. What employees want today has changed, as has what employers need to do to be successful. The last year has told us how difficult it is to predict the future, but it does tell us to be ready for anything and open to change.

An effective approach to performance management must include:

  • Buy-in from key stakeholders across the business. They must agree and support the approach you choose to take and be ready to lead by example.
  • Collaboration with employees. They must feel the approach is there for their benefit and that their voice matters. Their suggestions for improvements should be encouraged to maintain their engagement.
  • An emphasis on completing reviews on time. Everyone should be clear that this is not a tick box exercise and that reviews are important for development and growth, no one should be exempt from this.
  • Training for managers and employees around areas like feedback to ensure everyone understands what is required of them and feels comfortable taking part in the process.