Performance management: What it is and how to make it effective

It is self-evident that a company’s employees are critical to the success of the company.

We all know that presenteeism is a massive handicap for a company, whereas a company with a fully functioning, engaged and ambitious workforce is set to fly.

But it’s not as simple as recruiting the best talent, and keeping them. Employees and employers alike are frustrated when an employee’s hard work isn’t directed at the cross-organizational objectives.

In this scenario, the employer is paying for work adjacent to their goal or purpose, and the employee has spent their valuable time on something that isn’t objectively useful for their firm.

To achieve company success, the organization has to ensure that its employees are all headed down the same road, on the same journey, toward the same goal. Performance management ensures that the employees all head toward that established, identical endpoint.

Many of us will identify the traditional, regular annual or semi-annual workplace appraisal as performance management, but many experts now label this process as reductive and even counterproductive as a performance management system.

It is certainly no more than one facet of a multi-pronged approach to managing an employee’s performance, which should unite a number of different but corollary activities into an ongoing performance management cycle.

It shouldn’t be a book we open and close once a year – successful performance management is a constant and evolving process.

Read on to explore the most up-to-date performance management techniques, examples, and objectives.

What is performance management?

In short, performance management should be an ongoing process, whereby an organization’s employees are on a continuous cycle of improvement and growth toward playing their part in delivering a company’s objective.

By setting both individual and team goals (both of which should be aligned with the overall end goal of the company), employees can be assisted in their journey of progression, planning, reviewing, and assessing their progress as time goes on. This fosters a culture of constant betterment, where employees are ever-improving and evolving in their knowledge, skills, and abilities.

Performance management is facilitated by both the employee and their manager.

By supporting an employee towards the accomplishment of strategic objectives (which are both personal and appropriate for company-wide growth), the manager helps the organization as a whole to remain competitive and at the forefront of their industry, and also helps the employee to achieve individually and systemically. It is not based on one activity; instead,

Performance management should comprise a group of activities that the company, manager, and employee should approach holistically.

HR is the department primarily involved with ensuring that the relationship between employees and the value they deliver remains positive.

This focus on organizational performance is aided by well-run Performance management processes, helping to maximize the employee value creation process in their deliverance of company-wide objectives.

Performance management processes are broad, but usually consist of:

• Establishing endpoints or goals which individuals and teams, and the whole company systemically, can play their part in working towards.
• Improving performance across the board, from employee level through individual teams to across the organization.
• Ensuring accountability, as employees are made responsible for progress or lack of it through linking positive performance to rewards and career progression and negative performance to appraisal and termination of contracts.

Performance management is often reduced to annual appraisal and performance improvement plans created to tackle underperformance, but it should be so much more.

At its best, performance management creates a holistic set of processes to pave a two-way street between employee and management.

It unites the best principles of good people management practice, including learning, development, performance measurement and organizational development.

Types of performance management

As mentioned above, the first type of performance management to come to mind for many of us will be the traditional annual appraisal. These often come part and parcel with negative sentiments of subjective judgment.

Since the pandemic in particular, however, many companies have reevaluated their approaches to performance reviews, considering how annual appraisals have negatively impacted employee engagement and organizational culture.

Instead, many have moved towards forms of continuous appraisal. The inherent flaws of the annual review are thus mitigated, and Continuous Performance Management (also referred to as Agile Performance Management) has become a growing trend in HR-related specialisms – especially as we are quickly developing the sorts of automatic online processes that enable this constant appraisal to be quick and easy.

Examples of performance management

It’s all very well to discuss the future of performance management as being a constant process, but what companies are undertaking this revolution, and how?

Let’s look at two corporate giants and how they’re tackling Continuous Performance Management.

Google is renowned for its innovative approaches, and for being at the forefront of future-friendly corporate process growth and development. Google’s performance management process relies, as you might expect from this tech giant, on data and analysis. They also ensure managerial training levels are high.

This was the first step of the overhaul. Google initially launched a system set on assessing their managers. This, in turn, led to a solid future development and training process for management to undertake – the first step in setting up both their management, and the employees they manage, for success.

Secondly, Google uses a goals system. It is called Objectives and Key Results (OKRs), and it has subsequently become popular across a range of diverse industries.

Originally pioneered at both Google and Intel by John Doerr, OKRs work by uniting the objective with the key results you’ll use to measure progress. This ensures in short that your goals are directly linked to day-to-day work.

The Objectives set are directly linked to three Key Results which facilitate your journey to the Objective. For example, an OKR for sales might go something like this:

Objective: Hit our Sales Target, finishing the year with strong sales figures.

Your results for this objective might be:

Key result 1: Hit £400,000 monthly recurring revenue

Key result 2: Close 100 new customers

Key result 3: Acquire £1 million of new bookings

The OKR process, established at Google back in 1999, is still used today, and the company has grown from 40 employees to almost 140,000 across its parent company, Alphabet.

Another big corporation tackling Continuous Performance Management head on is Adobe.

Having calculated that they were investing 80,000 hours of managerial time in performance reviews annually, they discovered that employees left those reviews feeling demoralized. Morale was lower and turnover was increasing. So they decided to scrap the system.

Instead, they jumped into a performance management system that built from the ground up, by training managers how to perform quick check-ins rather than these annual onslaughts, and to offer real, actionable advice.

They then allowed management the space to structure these frequent check-ins as they saw fit, with managerial discretion over salaries and promotions too. The company also taps into the workforce regularly via ‘pulse surveys’ – so that the leadership team can ensure that individual managers are leading their teams successfully.

Why is performance management important?

However big or small your company, it’s crucial to understand what staff are doing, how, and why.

To effectively lead employees in any sort of actionable way, it’s important to have a system in place. A system should allow you to define employee roles and their strengths and weaknesses, as well as provide constructive, actionable feedback, instigate interventions, and reward positive employee behaviors.

An incentive management process should go hand-in-hand with this, allowing a company to both review and reward positive employee behaviors as well as manage poor behavior.

The three pillars of talent management involve:

• Maintaining employee engagement
• Retaining talented employees
• Promoting into leadership from within

Performance management enables all three of these pillars to be actioned.

What are the main stages of the performance management cycle?

A successful performance management structure should be ongoing, and therefore cyclical. Below we will outline the process.

Step 1: PLAN

The first step of the performance management Cycle is to plan. This involves setting out SMART objectives (explained below), agreeing a Personal Development Plan (explained below), and updating the role’s profile.

Step 2: ACT

Step two is to act. This involves achieving the objectives you had laid out, carrying out your roles, and implementing the Personal Development Plan.

Step 3: TRACK

The crucial third step is to track progress. This involves measurement against the objectives set, receiving regular feedback, overcoming any obstacles, and receiving and training and coaching.

Step 4: REVIEW

The final step in the cycle is to review the employee’s achievements against the objectives set. You will identify learning opportunities, discuss career goals and attainment, and agree actions. From here, you begin again on the second cycle, returning to PLAN.

Thus an employee’s development is permanent, growth is entrenched in company culture and personal and systemic goals can be realized.

What are SMART objectives?

SMART is an acronym, standing for specific, measurable, achievable, relevant, and time-bound.

S – Specific and Stretching. Primarily standing for Specific, the first of the SMART goals ensures that your objective is specific, and not vague, so it is tangibly achievable.

Vague goals are an unhelpful starting point, and will rarely result in increased employee productivity. Specific goals must be understood by manager and employee, and results must be clear and attainable.

Need an example? A sales goal, for example, might go something like this: ‘increase monthly sales for the next quarter by 20%’. The goal ‘increase sales’ is not specific – how much of an increase, and by when? An employee and the manager should both know where they stand, and when results are expected by.

The second S, ‘Stretching’, has been adopted by some corporations as an add-on to Specific. Motivation tends to be increased when goals are a stretch for the employee, creating higher levels of attainment. But the degree of stretch is important – over-ambitious targets result in the opposite, with a plummet in employee morale.

M – Measurable. Both the employee and their manager should have an agreed system for viewing what successful completion of the objective looks like. It’s best if the objective is trackable too, so both parties can envision how far along the line to success the employee has traveled.

A goal like “reduce overheads by 10% within this financial year” is a good example of a measurable and trackable goal, as reviews each quarter can check in on progress.

A – Achievable. The A usually stands for Achievable. This part of the acronym comes hand-in-hand with the second S – Stretching.

As previously mentioned, an unachievable goal has the opposite outcome to what is desired, by negatively impacting employee satisfaction and investment levels.

As well as Achievable, some companies include “Aligned” and “Agreed” under this letter. Aligned implies that the goal should be aligned upward through the organization, fitting with the end goals of the corporation at large, and Agreed implies that both manager and employee should agree on the objective.

If an objective is imposed and not mutually taken on, the employee feels little ownership over the objective and is thus unlikely to take pride in its attainment. If the employee can, within parameters, set their own goals, they are much more likely to be achieved.

R – Relevant. Alongside vertically “Aligned” through the company, an employee’s objectives should be relevant – both to what they need to achieve and to what the company ultimately needs to achieve.

There is no point in setting objectives of personal growth which have little impact on company growth, so the overall goals of the organization should be represented in the objectives undertaken on a personal level.

A key aspect of this is that organizational goals are transparently understood throughout every level of a company, so that individuals know which direction they can plan to move in order to satisfy company objectives and their own goals for personal growth.

Some organizations also use “Realistic” for R. This is similar to “Achievable”, though, so isn’t necessary if using Achievable as the A.

T – Time-Sensitive. T stands for Time-Bound, or Time-Sensitive. SMART goals should always have a time-bound endpoint, for example “achieve x within this quarter” or “reach x% growth within this financial year”.

“Double sales” is a pointless objective, because how can the employee know whether they’re expected to double sales within this financial year or over their career with the company?

Objectives should either have a delivery date or a cut-off point for the targeted goal’s completion. This is crucial when it comes to reviewing whether the objective was successfully achieved.

You may find that a goal wasn’t a ‘Stretch’ if the employee achieved the target within the first month when it was a goal for the year, for example, or you may alternatively discover that a goal was almost not “Achievable” if the employee was putting in 110% and still only just managed to attain it.

What is a Personal Development Plan?

A Personal Development Plan, or PDP, takes into account what types of skills, behaviors, or knowledge bases the employee needs to develop or attain in order to successfully achieve their objectives and help on the organization’s journey towards completing their systemic goals.

The PDP puts in place clear and actionable learning to help the employee progress.

How to choose the right performance management techniques

Many performance management techniques can be engaged with in response to one issue. Choosing from an array of different approaches is a HR skill, and will also rely somewhat upon the scenario at hand.

The techniques you choose will typically target one of the following:

• Monitoring performance – via meetings and check-ins
• Progress checks – through updates, reviews and summaries
• Expectation setting – calibrating what’s required and how it can be reached
• Rewards and incentives – recognizing and rewarding success, tackling poor performance. An employee who looks set to acquire their goals quickly should be rewarded and encouraged to exceed the set goals.
• Professional development and training – further education via mentoring, coaching, conferences etc.

These techniques will help you manage the employee’s route to the SMART objectives laid out together through the PLAN stage of the performance management cycle.

Different techniques will work for different corporate philosophies, their structure, and their various sizes. What are the business’ needs? The techniques chosen should tap into this directly.

For example, a retail business will function differently from manufacturing. Smaller businesses might function better with face-to-face, personal, more informal assessment techniques, whereas this is unlikely to be the best approach for larger businesses, who will need to consider the subjectivity of the management involved, and how they can guarantee fair and equal assessment across the business.

They might even engage with performance management tech.

Useful tools for managing an individual’s performance management include:

• Personal Development Plans (PDP)
• Performance Appraisals
• Giving and actioning feedback
• Management by Objectives (MBO)

Useful tools for managing team performance include:

• Scorecards
• Peer reviews
• Metrics and KPIs (Key Performance Indicators).

What does effective performance management look like?

Effective performance management takes into account all of the bullet point processes we’ve mentioned throughout this article, but how these are assessed and engaged with can be a more nuanced and personal question.

An effective performance management framework relies heavily upon the two-way dialogue involved when setting goals, via transparent communication and collaboration between employee and manager.

Recognition, then, is crucial. When an employee achieves their stretch goals, this shouldn’t just be ‘what was expected’ – going above and beyond must be rewarded if a company is to maintain and encourage talent.

To grow employees, they must be encouraged to and supported in undertaking further education, skill onboarding and growth opportunities. This makes them a more valuable employee – great for them personally, and for the organization as a whole.

Effective performance management requires forethought, engagement and investment – both in terms of time and finances. Unfortunately, only 14% of businesses are actually happy with their performance management systems – so it’s truly worth working on it, creating a positive system of investment and recognition, rather than a system which breeds negativity, mistrust and despondency.

This study found a wealth of responses to the question ‘why do we conduct performance reviews?’ – from identifying low and high performers to encouraging the ‘right’ people to stay. But actually, it’s simple – performance management’s purpose is to align individuals with the organization’s strategy and ultimate goal. It’s as simple as that.

Why can performance management fail?

As mentioned above, the purpose of performance management has to be clear – and cross-organizational. Reasons that your performance management strategy can fail include:

• A lack of managerial buy-in. Those in positions of management have to understand the ‘why’ of performance management, and the motives for it. Without their express buy-in, performance management systems are likely to fail.
• Using an unfair system. An accurate, and equal, system of judgment is crucial for your performance management system. If individuals are being appraised in different ways across different departments, and these are not comparable, then mistrust and negativity can be bred. Assuring this is foundational.
• Failing to invest, emotionally and financially. Performance management should not feel like a ‘box-ticking’ exercise. People are the most important and transformational capital a business has, and identifying with them on a personal level, singling them out – whether for reward, incentivizing, extra training, or re-revaluation – is the most important way to engage with them personally, whilst also streamlining the journey towards the organization’s end-point.

Performance management is not a simple set of structures you can follow for guaranteed success. It takes subtlety, structure, and planning – but it’s the single most important thing you can do as a firm to build a system where every employee’s ability is maximized, and every brain within the organization is working toward a common goal.

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