Everything you need to know about performance management

How do you manage your employees’ performance? It’s a big job, and it can look very different in each company, but if a business is enjoying success, you can be sure that its leaders have an exceptional handle on performance management. It’s a careful balance of formal and informal procedures, but you will always find that robust systems and processes underpin the way successful companies manage their staff.

In a recent survey of employees by the Development Academy, the good news reported was that nearly four out of five people are happy and satisfied in their current roles. But perhaps unsurprisingly, of the one in five who were unhappy, 75% of them were looking for new roles.

While some staff turnover is inevitable, if your most valued staff are actively seeking new roles then investing in your performance management is one of the most powerful things you can do to convince them to stay.

In this article, we’ll discuss why performance management is so vital to retaining and developing your employees, and why it’s worth investing adequate time, money and resource in your people management. We’ll also take you through some of the latest trends for 2022 so you can consider applying them to your own company.

We’ll explain the four stages of a performance management cycle, and we’ll show you what effective performance management looks like. And if you’d like to discuss this in more depth, be sure to look out for our upcoming roundtable insights.

What is performance management?

Firstly, it’s crucial to understand the definition of performance management, and why it matters to your business. Managing performance is about monitoring and enhancing the results of your employees, and it should always be aligned with your strategic objectives as a firm. It should be a positive endeavour with a focus on achievements, strengths and accountability, but there is inevitably a need to communicate and discuss the not-so-good feedback sometimes too, and this should be handled carefully and sensitively.

While making sure your staff are on a trajectory of continuous improvement is no mean feat, the benefits are huge. A team that is meeting objectives and smashing targets is a motivated one, and this is important for building a positive culture of collaboration.

At the very least, a performance management strategy for each person should consist of regular two-way communication between supervisor and employee, appraising their performance based on objectives and KPIs. These KPIs and objectives should be realistic and mutually agreed, so that the employee feels included in the process.

Why is performance management important?

An effective performance management cycle takes considerable time and money to achieve, but it’s an important investment. On an individual level, when an employee is aware of their strengths and weaknesses and feels supported in their development, they feel more secure in their role, clear on their goals, and satisfied that they are doing a good job.

Without a performance management system in place, workers can feel that they are ‘drifting along’, without a clear idea of what good performance looks like. This can be incredibly demotivating. Conversely, an employee who is performing well can be easily recognized and rewarded – leading to far greater personal motivation and better results.

On a group level, a well-run performance management system can show managers at a glance how their team is performing, both individually and collectively. This is valuable business intelligence as it enables managers to spot particular areas of strength and weaknesses, along with potential issues, very early on. Good performance management enables early identification and intervention to avoid business failures.

Trends in performance management for 2022

The commercial landscape has been changing rapidly since the beginning of the pandemic. Workers have had to adapt quickly to new systems and new rules and regulations.

The pandemic has presented challenges and opportunities for employers, not least in the area of performance management, and it has forced some changes which arguably have been long overdue anyway. Perhaps one of the biggest changes is that many employees have moved to either full-time home working or a hybrid of home and office working. Remote working needs to be factored into an employees’ goals and objectives, and any that were set before the pandemic need to be reviewed with this in mind.

The so-called Great Resignation following the pandemic came as an unwelcome surprise to many employers. Those who were treating their employees poorly, ignoring them or not rewarding hard work, fell victim to a mass exodus thanks to the huge demand for talent. Unsatisfied, unrewarded workers who for a long time had ‘put up and shut up’ found the motivation to move on, either having been headhunted by competitors or setting up on their own. Some left their industry altogether in favour of a new challenge.

Covid-19 has highlighted that effective performance management is a key part of retaining the key staff you have invested in, and it’s also an essential way to ensure your team is happy and satisfied in their work. The pressure on employers to create a positive culture with plenty of rewards and motivation for their best people has only grown. Great performance management is a key factor in retaining your most valued talent.

As part of a robust performance management system, companies must not just fixate on results and objectives; employees must also feel listened to and appreciated. They appreciate managers who will empathize with them, care for their mental health as well their physical health, and also help them to avoid burnout or excess stress. A good performance cycle doesn’t just include an annual review and not much else. It must include regular and meaningful two-way communication and feedback (both formal and informal).

So, how do you boost your performance management metrics as an employer in 2022? The role and importance of accountability is growing, and the OKR Methodology (Objectives & Key Results) is building in popularity as a way to align and implement growth strategy, from an organizational point of view right down to an individual point of view.

And then there is the role of trust in an organization, which is gaining far greater importance as employees change the way in which they work to adapt to a hybrid model of working. According to Forbes, ‘many aspects of human lives are unclear while working remotely, so having faith while all of us are struggling is wise’.

There are some tried-and-tested performance techniques that have stood the test of time. Setting SMART (Specific, Measurable, Achievable, Measurable and Timed) objectives is by no means a new idea, but it has been proven to work and it is one of the best ways to sense-check an objective.

Something that is being adopted in many Silicon Valley businesses is ‘appreciative inquiry’. This is a performance management technique that focuses on positive achievements and strengths, rather than weaknesses and failures. The idea is that this positive approach to performance reviews leads to the employee feeling happy that they are growing, achieving and being played to their strengths, rather than being expected to achieve in areas that do not come easily to them. It doesn’t ignore failures, but it enables individuals and teams to get into a more positive mindset with a focus on success, strengths and achievements. Expect to see this technique deployed more and more as performance management trends evolve.

Components of a performance management system

An effective performance management system has the following elements embedded:

• Management involvement (and buy-in) – managers need to have a clear idea of ‘what good looks like’, so that they can set realistic and achievable goals and objectives, and empower their staff to meet them.
• Goals and objectives – the foundation of any good performance management system is measurable goals and objectives that feed into and support the wider strategy of the business.
• Leading and development – staff must feel like they are continuously improving and that their learning and development are supported by the business. This is a win/win strategy – not only does the employee benefit and feel like they are moving forward, but the firm will also benefit from the employees’ enhanced skills and knowledge.
• Feedback and coaching – continuous feedback is crucial to the performance management cycle. The delivery of feedback – both good and bad – is a skill that managers should be trained in for maximum effectiveness. And employees also need continuous coaching to ensure they feel supported. A mentoring system can often be effective here.
• Ongoing communication – if your performance management process is as basic as one annual review per year, then it’s not enough. A series of ongoing formal and informal conversations should be scheduled throughout the year so that there is never too long left between check-ins. These can be in person, over the phone or on video call, but they should not be neglected.

Stages of a performance management cycle

Your performance management cycle should have four clear stages:

Planning

Performance management starts at the very top of your business. How can you set smart goals and objectives for your employees and teams if you are unclear about your goals as an organization? Start with the big picture – look at your business strategy and strength-test your goals to ensure they are ambitious enough, but also realistic and achievable.

The goals you set for your employees should directly support the achievement of these bigger goals. This all leads to a salient and easy-to-understand strategy from the top down. As part of your planning, you should ensure that your job descriptions across the company adequately support the business and are reflective of your expectations.

Monitoring

Monitoring the results of your staff consists of a blend of ongoing conversations, ensuring regular check-ins and assessment against targets. The monitoring should also include their mental and physical health, any particular challenges they have, any coaching, learning and development requirements they have and anything else they might need to feel supported and effective in their role.

Reviewing

A good tool for reviewing performance is the 360-degree feedback system. This is a process of self-evaluation and also evaluation and assessment by peers and colleagues at every level of the company. Together, the results build a clear picture of how an employee is regarded within the organization. The report will highlight clear areas of strength, along with areas that require further development and support.

Any performance review should include a self-assessment element along with an assessment by others – this helps to build a clear picture of where the employee is on their career trajectory.

Rewarding

Of course, key to any performance management system is a clear rewarding process. Employees must feel rewarded when they meet their objectives and deliver and above what has been expected of them. It’s not just about salary increases either (though a clear pay grade system can help people know which stage they are aiming for). Rewards can include many other things such as awards, extra time off, bonuses and promotions. Your company’s culture should make it clear that great performance is rewarded and appreciated, and never taken for granted.

How to measure performance management

Some achievements are easier to measure than others. If a factory employee’s KPI is how many products they can pack in an hour, for example, then this is easy to count and measure. But many achievements aren’t as easy to measure, even if they are no less appreciated and valued, such as an increase in team spirit or an employee regularly going out of their way to help a colleague.

Rigid formulas and matrixes might be useful for measuring certain elements of an employee’s performance, but it never provides the full picture. For this reason, it’s essential that your performance management system is centralized, with a record of every single conversation, achievement and event carefully logged.

It’s important to blend key results and goals with conversations, self-assessments, assessments by others and surveys to build a picture of the full person and their strengths and weaknesses. Using a combination of qualitative and quantitative data you can confidently assess where an employee is on their learning and development journey and establish whether they should be rewarded for their efforts.

There is a wealth of choice when it comes to performance management software, but do your research first and ensure that your chosen platform adequately supports your company’s objectives. Take your time when comparing the pros and cons of each platform, and request a free trial so you can familiarize yourself with your favourite to ensure that it’s going to be an asset to your firm.

What does effective performance management look like?

If a company is getting its performance management right, it’s creating an environment where people feel empowered to perform to the very best of their abilities. Excellent work is rewarded, appreciated and celebrated, and weaknesses and failures are identified and addressed early on to mitigate damage.

A positive culture of teamwork and celebrating success is a clear indicator of a well functioning performance management system. This in turn leads to an uptick in applications for vacancies – word spreads quickly when an organization is prioritising its employees’ learning and development.

Employees have clear job descriptions and feel supported, cared for and listened to. They act in a collaborative way and are offered regular training, coaching and feedback as part of their continued development. Every stage of the employee lifecycle is planned and administrated, from initial onboarding to a leaver’s interview.

Feedback is delivered consistently and clearly, with a focus on positivity and opportunities for change and improvement. Employees should feel trusted to get on with their work and respected and appreciated by their colleagues and peers.

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Related content: In partnership with Sage, UNLEASH today hosted a closed-door roundtable, bringing together HR professionals to discuss what’s next for HR in the post-pandemic environment. It was a lively and interactive discussion that looked at the revised role of HR, and how to set and align your strategic priorities for the coming months and years.

Look out for the insights piece, coming soon.