Grace Smith
December 28, 2023

According to Gartner, 81% of HR leaders are changing their organization’s performance management system. This is because of the increasing emphasis clients place on outputs.

Management tries to enhance the performance management process by reducing employee efforts. What this results in is an even further decline in workforce performance. Now, that's quite a conundrum, isn't it?

The problem lies in the perspective and angle from which the whole performance management is observed. And the solution lies in rearranging the methods and designing the right performance management process for your organization. Let us untangle this paradox, and set things straight for once, shall we?

What does performance management have to do with company success?

Employee performance is directly proportional to the quality of output you receive. And how do you ensure efficient and consistent employee performance? By implementing a performance management system.

Nearly 50% of managers fail to see the value in their company’s performance management process. That’s most likely because the company may not being following a proper process. When done the right way, performance management brings in a plethora of benefits for your organization.

1. Organizational goal alignment

Good performance management aligns individual and team goals with business goals. Employees are more willing to work hard and advance the organization when they understand how their job fits these aims.

2. More work gets done

Performance management motivates and holds employees accountable by setting objectives, providing feedback, and acknowledging achievements. Knowing what is expected of them and being helped to meet them makes employees more productive.

3. Finding and fixing weaknesses

Performance management includes regular assessments and comments to identify problem areas. By teaching, mentoring, and coaching in these areas, the organization can enhance the overall competence and productivity of its employees.

4. Leads to greater employee engagement and satisfaction

When rewarded and given proper feedback, employees feel appreciated and are more engaged. More engaged employees stay with the firm, lowering unnecessary employee turnover. Happier employees improve workplace morale and corporate culture as well.

5. Succession planning and talent development

Performance management organizes the search for talented employees, aiding in succession planning. Employers can develop future leaders by fostering these managerial qualities in them. This ensures leadership transfers to the right person, and constant position filling also occurs.

6. Data driven decision making

Performance management approaches gather essential data about employees' talents and weaknesses. This data can then be used to make efficient promotions, training, and resource allocation decisions, all of which improve organizational efficiency.

Types of Performance Management Systems

There are multiple performance management systems or methods in place, most of which are used by companies in combination to find their right fit. Understanding them helps you come up with your own cocktail of these systems:

1. Traditional performance evaluation

Once a year or every other year, managers review employee’s work using established criteria. In an official review meeting, personnel are ranked and given comments. This approach is utilized by many companies but has been criticized for prejudice and infrequent use.

2. 360 degree feedback

This strategy collects input from supervisors, coworkers, colleagues, and occasionally outside users. This thorough feedback helps employees understand their jobs and improve as people. The all-round feedback helps in all-round employee development. 

Also read: 360-degree feedback examples to improve employee engagement and performance.

3. Management by objectives

Managers and employees define clear, quantifiable, and achievable goals in MBO. Regularly, personnel are evaluated on their progress toward these goals. This strategy aligns goals to encourage and focus the employees.

4. Continuous performance management

Continuous performance management emphasizes real-time coaching and evaluations of employees. Managers offer regular counsel and rapid feedback to employees. This method emphasizes flexibility and adaptation, so staff can solve problems and make adjustments quickly.

5. Behavior-anchored rating scales

BARS uses emotional and numerical data for performance management. Here, number scores correlate with success behaviors. This provides a deeper understanding of employee behavior and performance. This strategy aims to reduce subjective performance reviews.

6. Balanced scorecard

The balanced scorecard ensures that each employee's achievement supports organizational goals. It evaluates people on learning and growth, business processes, customers, and finance. Organizations can provide a complete review by examining several success areas.

7. Ranking method

This ranking method involves ranking employees from the best to the worst. This strategy is used to discover promising or underperforming employees. However, it might make individuals feel competitive and may not inspire collaboration, as it can sometimes be a bit too harsh.

Key Elements of Performance Management

A strong performance management system fulfills the organization's goals and helps people flourish with a few key components. The key features of a sound performance management system are:

1. Clear expectations and goals

Clear, measurable goals help employees achieve company goals. SMART (specific, measurable, achievable, realistic, time-bound)  goals give a proper and realistic idea of the goals employees have to achieve. The manager should clearly communicate the same with the employees.

2. Regular feedback and communication

Make sure management and employees regularly discuss and provide suggestions. Discuss performance, triumphs, issues, and growth opportunities openly. Giving employees timely feedback helps them see their progress and improve.

3. Performance measurements

A proper system to measure the level of performance of employees is essential for companies to analyze the effectiveness of their methods. A performance management system helps the management come up with processes and methods to measure and quantify the improvement in the process correctly. 

Design a Performance Management Process in 10 Easy Steps

Designing the right performance management process for your organization is no rocket science. But it's not a cakewalk either. The key lies in understanding your company and your employees inside out. Once you are done with that, confidently move on to the designing process by following these steps:

#1 Be clear on your goals

Before you get on with the actual process of designing a performance management system, make sure that you have a clear idea of the goals that are to be achieved. It can be anything from increasing the company's revenue to decreasing customer complaints. Whatever it is, make it a priority to understand the goals before going forward. 

#2 Collect intel from your stakeholders

When you plan the performance management criteria, it is super important to take in things from the perspectives of relevant stakeholders. Listen to what the HR managers and employees have to say. After all, they are the ones who are responsible for turning the wheel of the operation. 

#3 Set up the performance standards

Planning without efficient implementation drains you out of the efficient output. Set up clear measurement standards against which employee performance will be evaluated. Identify the KPIs and put in place a proper performance measurement system. 

#4 Communicate performance expectations with employees

No matter how exquisite and grand your objectives are, the inability to properly communicate the same with employees will give you zero results. So, make sure that every employee has a crystal clear idea of what is expected of them. 

#5 Make feedback a priority

Once you have communicated what is expected of each employee, the next step is to give and collect timely feedback. Encourage executives and employees to speak often. 360-degree comments from several individuals may be best for a complete evaluation.

#6 Train staff and supervisors

Give management training on giving constructive feedback, setting goals, and conducting performance evaluations. Teach employees about job reviews, their duties, and how to participate.

#7 Set SMART goals

Help your employees set SMART goals—clear, measurable, realistic, relevant, and time-bound. SMART objectives provide workers with direction and make progress visible.

#8 Review review review

Review the work done by employees every day using the selected criteria. Comment on what worked and what may be improved. Encourage employees to discuss their goals and fears in two-way talks.

#9 Recognize achievements

Hardworking employees should be appreciated and rewarded. This can be in the form of appreciation, bonuses, hikes, or anything else that makes them happy. Award and reward schemes motivate employees to perform well.

#10 Make alterations 

Review your performance management strategy regularly. Get management and employee feedback to identify issues. Always accept adjustments to improve the system and make it fairer.

Results take time, but they are worth it

Implementing a new performance management process and getting results from it can be a long-term process. But just like how Rome wasn't built in a day, anything great takes time. As we mentioned earlier, you need to know your firm and your employees like the back of your hand before you get on with the process. If not, coming up with right goals could be a challenging process.

The foundation on which an excellent performance management process is built is knowledge of the goals and objectives your organization is looking forward to achieving. If your company goals and the mindset of employees do not align, no matter how good of a performance management process you build, it might not last long.

Let ThriveSparrow help you analyze your company and employees so that when you come up with a performance management process, it is solid and foolproof.