No matter what type of business you run or how good your staff are, most managers or owners would agree that there is always room for improvement. It would help if you also considered that the world of business is constantly changing with new technology, systems, and processes coming into play and needing to be adapted to.
It is, therefore, essential that an organisation has some structure in place for ensuring that any goals are met and that employees are performing to the best of their abilities. You will often hear the term performance management used concerning this and other factors relating to your business performance.
But what exactly is performance management? How does it work within a business? Are there different ways of doing it, and how effective are they?
What is performance management?
As the phrase suggests, performance management is about managing performance. In this case, the individual performance of any employee. It is usually a continuous and real-time assessment with management, a line manager, or human resources staff communicating with their employees throughout the year. There may also be an annual appraisal at the end of the year.
Robust performance management aims to ensure that any strategic goals are being met and that your employees perform to the best of their abilities and meet any expectations detailed in their job description. Expectations may include such factors as targets in productivity or sales.
Annual reviews will involve reviewing past work of any type, discussing issues, and setting new goals and objectives. They can also include identifying any training and development or support needs a particular staff member may have, to help them work towards agreed objectives.
Stages and elements of the performance management cycle
Performance reviews are very much about ensuring that your staff are working as efficiently as possible and working together to achieve success for the organisation. Something which in turn ensures that your business is competitive. It is also about identifying any performance problems.
While it is usually a constant review process over the course of a business year, each cycle of performance management can be broken down into stages. Some businesses may customise these stages for their own reasons, but, generally speaking, we can identify four main elements of any cycle.
1. Planning
To assess and manage performance, there need to be some identifiable targets to aim for. The planning stage of performance management involves setting out organisational and individual objectives across any cycle.
These could include productivity targets (a certain amount of a product made), sales targets (how many sales you are expected to make), or even include learning and training objectives.
Any overall performance goals must be realistic and achievable. It is also crucial that they – or progress towards them – can be measured. To help with this, all goals should be S.M.A.R.T:
S – Specific: The goal(s) should be set out in detail and easily understood. For example, a salesperson may be set a target of selling 1000 units in a year.
M – Measurable: There should be a way of measuring progress – or lack of – towards that goal.
A – Achievable: There is no point in setting unrealistic goals. The objective should challenge your employee without seeming impossible. For example, if the average sales per salesperson in Year one is 750 units, setting a target of 2000 units would seem unrealistic.
R – Relevant: Any target or objective should be relevant both to the goals of the business and the individual’s role within the organisation.
T – Time-bound: When you set out goals, specify what time period you expect them achieved within. Even when your whole performance management cycle is over a year, you may choose to break down targets into smaller periods, such as quarterly.
2. Monitoring
To give feedback on any performance, you need to be able to assess that performance. The monitoring stage – which is constant and consistent – involves monitoring any actions and results and giving some ongoing feedback to help employees reach objectives.
And again, while the whole cycle may be over a year, monitoring can be broken into smaller segments. This is especially pertinent when it comes to offering feedback. Decide on regular meetings, perhaps on a monthly or quarterly basis. Use these meetings to:
- Review performance up to that point and note any good performance, performance improvement, or negatives.
- Note any milestones or accomplishments.
- Highlight if attaining overall goals are on schedule.
- Identify any issues and discuss solutions.
- Identify if any support is needed to get things back on track.
- Discuss whether any changes need to be made to the final goals.
3. Reviewing
At the end of any particular cycle (usually a year), management or supervisors will carry out a performance appraisal for that period. They will look at what objectives were set out, whether they were achieved, why they were not achieved (if applicable), and what can be done to improve that performance in the next cycle.
Reviews should be collaborative, with both management and employees having input. This helps each party understand the other’s needs more. Ensuring collaboration helps your staff to:
- See how their role within the company contributes to results and success.
- Feel more involved in the process and the company culture.
- Be more likely to be satisfied with both the performance management process and its results.
- Identify development opportunities, especially when there is underperformance.
- Be more motivated to maintain the high performance or improve performance that fell short in any way.
4. Rewarding
If your employees are meeting expectations or even going beyond them, then the company benefits. Sales and revenue, and thus profits, will be up, so it seems only fair that there is some form of reward.
Rewards not only increase motivation, but they can also increase the value the employee places on themselves. Without rewards, they may lose motivation, as they will not feel valued by the business. Rewards can include:
- Pay rise
- Productivity or other bonus
- Promotion
- Extra days off
- Awards (such as Employee of the Year)
Ideally, there should be some scaling in rewards rather than a one size fits all scheme. And special awards (possibly with prizes or monetary bonuses) can also help increase motivation and competitiveness. For example, the salesperson who has the highest number of sales in a year might win a holiday.
How does performance management work?
One factor is needed, perhaps above everything else, to ensure that your performance management process works. That factor is direction. Without direction, your employees have no idea what is expected of them or when they meet your requirements (or indeed fall short of them).
Two other important factors are collaboration and communication. Your staff need to know how they are performing throughout the cycle, and there must be constant communication as to what level their performance is at during any point of the cycle. It helps to follow some basic guidelines to get the most out of the process as a whole:
- Get to know each employee you are monitoring and assessing. Develop a relationship with them.
- Know the standards and performance indicators of your closest competitors.
- Spend time watching how your employees work and how teamwork develops.
- Encourage employee development and employee engagement.
- If possible, gather observations from others.
- Set out a clear and defined strategy and make it clear what time periods the strategy covers.
- Communicate your strategy and each employee’s place within it.
- Identify any training or knowledge gaps that may negatively affect that strategy. Make development plans to meet those needs.
- Also, identify your employees’ strengths and weaknesses. Where possible, utilise their strengths and address their weaknesses.
- Ensure there is a continuous feedback loop throughout the cycle.
- When it comes to any review, ensure there is two-way transparency and open communication.
- Encourage your staff to work collaboratively. Praise good performance but avoid being overly critical when there are shortfalls. Also, recognise when performance standards are kept high over longer periods.
- When it comes to annual reviews, be as positive as possible even if some objectives have not been met.
Types of performance review systems
Choosing what type of performance review template you implement will depend on several different factors. These include your goals, your type of business, how many employees you have, and your roles within your organisation.
The following list is not exclusive, nor do you have to choose just one review system. You may want to use a hybrid of more than one for different areas.
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Straightforward rankings
This is perhaps the most basic system and compares all your employees on a like for like basis. The major downfall of this system is that while it may highlight the employees at the top and bottom of any scale, it does not give an accurate ranking to all those in the ‘middle’.
It also may overlook particular strengths – and weaknesses – of the individual. Without ensuring that you methodically evaluate each employee, it could end up with the rater giving a subjectively unfair snapshot of employee performance. It also makes a basic mistake of starting from a baseline assumption that all employees are the same and overlooks many characteristics.
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Objective management
This system very much focuses on the idea of collaboration. At the start of any cycle, employee and manager or supervisor meet and discuss objectives and agree on a goal or a set of goals. There is also a time period identified and set as to when any goals set should be achieved.
This is a far more proactive system than the basic ranking alternative. It involves the staff member in setting goals, which gives them more encouragement to meet them. It involves a higher degree of planning and avoids any potential biases. It also makes the employee feel that they are more part of any team and the company culture.
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Grading system
This is another fairly basic method that is somewhat reminiscent of school reports. The manager divides up areas to be assessed upon, including communication, ability to work alone or as a team member, punctuality, etc. The manager then assesses the employee on each ‘skill’ using either alphabetical or numerical grading.
So, for example, a staff member could be graded ‘D’ (poor) for teamwork but ‘A’ (good) for communication. While this system may have merit as part of a hybrid process, if used alone, it is another system that is not wholly reliable, and that can also be subjective.
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360-degree system
360-degree feedback is a very widely used system. In fact, research points to more than 90% of the USA’s Fortune 1000 companies using it in some form. As the name suggests, this looks to view the employee’s performance from multiple perspectives that can include workmates, other managers, clients, and even the employee themselves.
Many companies favour this approach as it gives a more well-rounded assessment than most of the other systems. It can not only give management a good understanding of how an employee is performing, but it also can allow the employee to identify any strengths and weaknesses.
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Traits and behaviours system
This system works well if you want to look at basic performance data relating to a staff member and any traits and behaviours that contribute to their overall performance. For example, you could note that one employee shows great determination in succeeding at a task or another whose genuine friendliness contributes to their customer service skills.
However, this system can sometimes be subjective, and it may overlook some characteristics while focusing on competency in others, thus not giving you an accurate overall view. But it can help highlight certain abilities in carrying out specific or specialist tasks. In cases like that, this system can be more objective.
How does video change trends in performance management?
What part can video play in an effective performance management system? There are two things to consider here. Firstly, time is a precious commodity, and making time to have face-to-face discussions with an employee is not always possible when you have a busy schedule.
The second thing to consider is the changes in the way we work. Working remotely is becoming increasingly popular, and this is especially true in light of the COVID-19 pandemic. Remote working presents many challenges to companies in terms of technology, management tools, check-ins, and of course, performance management.
Using good video conferencing software such as the RingCentral Video suite is a great way of ensuring that regular communication – for any reason – is easy to achieve. Implementing these sorts of tools overcomes both scheduling meetings and the challenges of communicating with any remote workers.
The takeaway
Some form of performance management is essential to keeping or improving your organisation’s efficiency and productivity. Deciding which performance management system best suits your particular business will depend on many factors. And it may be that you choose more than one or a hybrid of some of the models available.
Performance measurement is not only about the results for your company. It can play a major role in helping your employees develop and obtain new skills and knowledge. Collaboration lies at the heart of any good performance management process and will encourage your staff to feel that they are more part of your overall plans and strategies.
Originally published May 03, 2021, updated Mar 14, 2024
