Performance management is the process corporations use to ensure productive employee activities and results. The usual goal is to incentivize actions that align with the company’s objectives.
Performance management systems can focus on the company, a specific department, or individual employee performance.
Here’s a detailed performance management definition for readers who wonder what performance management is. You can watch a learning video below if you’re interested. Otherwise, skip ahead.
What is Performance Management?
According to Berkley, UC, “Performance management is an ongoing communication process between a supervisor and an employee that occurs throughout the year, in support of accomplishing the organization’s strategic objectives. The communication process includes clarifying expectations, setting objectives, identifying goals, providing feedback, and reviewing results.”
Every performance management process has clear performance targets—to increase employee and senior management efficiency.
Let’s pick apart the quote and better understand why performance management programs are essential.
Performance Management System at a Glance
Performance management tools allow managers and supervisors to monitor and evaluate their staff’s work. However, keeping tabs is not enough for effective performance management.
Remember, it’s about “accomplishing the organization’s strategic objectives.” Since employees play a large part in that, this tool helps achieve that goal.
Since “clarifying expectations” is necessary, managers must ensure their teams understand what the management expects. If they don’t, job performance issues are the leader’s fault, not the employee’s.
Performance reviews aren’t here to pinpoint and dispose of the weakest links but to create training and development opportunities that benefit employees and managers.
Expectations must be apparent during the performance management cycle. The leader’s job is to ensure they are understood and agreed upon.
There must be a clear plan for “setting objectives” and a tracking system for “identifying goals.” The goals could be short—or long-term, but there should be no question about the expected or desired outcome.
Managers use performance management software for efficient tracking and measuring. Furthermore, managers and employees can participate in different performance reviews, depending on company goals. The most common types are organizational performance and individual performance.
5 Stages of Performance Management
The performance management process consists of 5 stages:
- Performance Planning – In the first stage, managers and employees discuss current performance, goals, work environment, and means to achieve them
- Employee Development – Through training opportunities, managers want to ensure that employees get the required skills and mindset
- Tracking – In the tracking stage, managers monitor employees to pinpoint improvements and any possible issues
- Performance Appraisal – In the performance appraisal stage, managers and employees review employee improvement using 360 feedback, self-assessment, interviews, etc.
- Reward – If performance management processes result in desired outcomes, managers reward employees
By assessing the 5-stage process, it is clear that continuous performance management is a two-way process.
Employee feedback is critical to the employee performance management process. Without it, employees can only guess how they’re doing. Is their work helping the company reach its goals?
Real-time feedback needs to be specific, timely, and given in a manner that will help and not hinder their performance. This means constant criticism isn’t the way to go.
Managers use performance conversations to reinforce whatever an employee is doing right before outlining anything they may be doing wrong when “reviewing results.”
Performance Management:
- Helps accomplish strategic organizational objectives
- Clarifies expectations
- Sets objectives
- Identifies goals
- Provides feedback
- Reviews results
Performance Management Systems Importance
Performance management matters because it helps keep employees on track for organizational goals. Ultimately, it matters in employee engagement, recruitment, retention, and productivity.
Let’s talk about beneficial areas.
Performance management:
- Encourages employees through employee incentive programs
- Boosts employee productivity and engagement
- Helps in the creation of development strategies
- Promotes an environment for feedback
- Encourages team building
Let’s take each of those and expand on why they matter.
1. Encourage Employee Reward and Recognition
The better you reward and recognize your employees, the higher your retention rate. Remember that a disengaged employee can be costly.
American Express found that of the 300 small and medium-sized enterprises (SMEs) and 500 employees surveyed, 51% of the employers said they reward employees for increasing motivation.
Here are some other key findings of that survey:
- 94% of the employers who responded said they reward their staff with gifts
- 34% of the above say those gifts improve retention rates
- 38% reward employees who are high performers
- 23% reward all staff
- 21% have an employee recognition process for long-term employees
- 37% of the employers who don’t have an employee recognition system do think their employees would work harder if they did offer them
- 89% of the employees received some reward from their employers in the past
- 33% of the employees felt that receiving rewards made them work harder
- 46% felt more valued due to the reward
- 44% think that their employers reward them for their dedication and hard work
So, rewards and recognition work, but how can a leader reward an excellent job if they fail to measure it? There is a definitive process to identifying an activity that merits a reward or recognition with every effective performance management.
With employee performance management in place, you can identify and reward good employees.
Statistics say that 83% of employees who work for a company with a good reward and recognition strategy are content to stay.
That matters.
If you want to learn more about employee engagement, check out our HR Certification Courses.
2. Boost Employee Engagement
First, what is employee engagement?
It’s not about how happy employees are about work or even the extent of their satisfaction with their jobs.
It means how emotionally committed they are to the organization they work for and its goals, how much they care about their work, and how much they care about the company they work for.
It’s not about the paycheck. It’s about what they can do to help advance the organization. When they care and engage, they will use discretionary effort.
Discretionary effort means employees go the extra mile without being asked. They are proactive and do it because they feel it’s necessary. They are willing to expend more effort and thus increase individual performance.
Engaged employees:
- Stay with the company longer and have individual goals
- Involve themselves to a greater degree in the workplace
- Produce better results
The above can lead to:
- A boost in productivity
- A better ROI
Since these are the kind of employees you want—not to mention the type of outcome you want—how can you turn your employees into engaged employees?
By using a continuous performance management process.
Managing employee performance creates an environment where employees feel at ease regarding open and timely feedback—a workplace with an air of support and encouragement that fosters trust.
Employees who believe their managers or supervisors—not to mention the company—have their best interests at heart will reciprocate. Knowing they have an employer with a performance management tool will help them improve their work and career development.
Implement an employee performance management system with clear objectives that provide consistent engagement. A system where employees are encouraged to grow and have clear goals can significantly increase the likelihood of expending a bit more discretionary effort.
However, this also means that there’s a difference between an ineffective and an effective performance management system. There’s no point in employee performance appraisal if the performance management cycle creates stress for employees.
Remember, performance management needs to lead to:
- A boost in productivity
- A better ROI
3. Create Development Strategies
The best performance management systems enable employees to track their progress without draining invaluable resources such as money and time. Creating the right strategy means that the company is taking a proactive approach to its employees’ development needs.
A leader constantly communicates with employees, taking allotted time to discuss the possible development needs and planning for them.
An effective performance management cycle isn’t a once-per-year or quarter deal.
Since you are measuring and collecting information about past and current performance issues, you have the perfect opportunity to develop strategies that develop your employees.
Thanks to the open communication you are fostering, you and your employee can start development planning to help their natural talents grow and evolve and align with your overall company goals.
That is a win-win proposition.
When an employee performance management system is in place that focuses on new and existing areas of development, both employees and the business are kept focused on setting and meeting goals.
Ultimately, managing performance can help your employees meet—and perhaps exceed—their potential.
Developing a performance management strategy may include the following:
- Analyzing the needs of your employee
- Identifying gaps in their skillset
- Prioritizing which skills need addressing
- Development planning and delivering any necessary training
4. Promotes an Environment for Feedback
Without real-time feedback, performance management collapses. Clear communication is critical to the process and how employees perform.
It isn’t about you as a leader offering feedback to your employees. It’s also about giving them a forum to share their feedback on the company, its goals, and performance in general.
Let employees express their opinions.
But be quick to share all the positive things about their performance before pointing out where they can improve.
And then devising one of the abovementioned strategies to help them do so.
This feedback interchange is imperative if you want your company and its processes to evolve into something even better than it is today.
Feedback should include:
- Unstructured Feedback – As the name implies, this is the feedback that occurs at every opportunity that presents itself
- Structured Feedback – This is planned and systematic, perhaps using the actual performance review
Employee Performance Management Programs
Every company should create a custom performance management program. Employee development in an IT company isn’t the same as in a grocery store chain. Although the goal is to improve and meet performance standards, not every company will have the same journey.
Nevertheless, there are some primary elements and goals that every performance management program should include.
- Sync employee development with company objectives
- Achieve specific outcomes on a day-to-day basis
- Create measurable and strategic goals
- Provide regular feedback in both employee and manager’s direction
- Instead of an annual review, create a year-round engagement
Conclusion
Every company should have an effective performance management cycle. It’s a tool optimized to offer continuous growth to employees.
Implementing clear-cut performance management systems will help your employees grow and flourish and help your company reach its goals while increasing performance management.
FAQs
Here are the most frequently asked questions about performance management:
What is effective performance management software, and why is it important?
Performance management software is a tool that enables organizations to streamline and automate performance appraisals, goal setting, and employee evaluations. This software helps organizations track employee performance, provide feedback, and align individual contributions with company goals. The importance of using such software lies in its ability to facilitate transparent communication, reduce administrative workload, and provide managers with real-time data, making performance management more proactive and data-driven.
Why is performance management important for organizations?
Performance management is critical because it allows organizations to establish clear expectations, track progress, and provide ongoing employee feedback. It ensures that employees are aligned with the company’s strategic objectives and that their contributions are recognized and developed. This process helps organizations identify top performers, address underperformance, and create a culture of continuous improvement. Furthermore, effective performance management enhances employee engagement, motivation, and retention by fostering professional growth and development.
How do performance appraisals contribute to employee development?
Performance appraisals are a vital component of your current performance management process, providing a structured approach to evaluating employee performance. Performance management appraisals typically include a review of the employee’s accomplishments, strengths, and areas for improvement over a specific period. By identifying gaps and offering constructive feedback, performance appraisals contribute to personal and professional development, helping employees understand where they stand and what steps are needed for career advancement. They also serve as a foundation for setting future goals and aligning them with organizational objectives.
What is the role of performance evaluation in achieving business goals?
Performance evaluation is vital in achieving business goals by systematically assessing individual and team performance against set criteria and objectives. Through regular assessment, managers gain insights into how effectively employees perform their tasks and contribute to overall business performance. These evaluations help identify skill gaps, training needs, and areas of improvement, allowing organizations to optimize their workforce and ensure that everyone is working toward common goals. Ultimately, effective performance evaluations support strategic decision-making and enhance organizational performance.
How does performance management software simplify performance appraisals?
Performance management software simplifies the appraisal process by automating tasks such as goal tracking, performance reviews, and feedback collection. It provides a centralized platform where managers and employees can access historical performance data, update progress, and document achievements in real-time. This eliminates the need for manual record-keeping, reduces the risk of errors, and makes performance appraisals more objective and efficient. With built-in templates and analytics, performance management software ensures that evaluations are consistent, fair, and aligned with the organization’s strategic priorities.
What are the benefits of using performance evaluations to improve employee performance?
Using performance evaluations helps managers provide meaningful and timely feedback, which is essential for improving employee performance. When evaluations are conducted with clear criteria and focus on constructive guidance, they empower employees to understand their strengths and areas for growth. This fosters a sense of accountability and encourages self-improvement. Performance evaluations help organizations identify high-potential employees, create tailored development plans, and set realistic goals. The insights gained from these evaluations can also inform promotion decisions and reward performance, ultimately driving higher productivity and job satisfaction.
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