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How to measure the effectiveness of performance management

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Is your per­for­mance man­age­ment sys­tem deliv­er­ing val­ue? Fol­low these 6 steps to mea­sure its effectiveness.

Organ­i­sa­tions typ­i­cal­ly invest a sig­nif­i­cant amount of time (and there­fore mon­ey) in per­for­mance man­age­ment activ­i­ties. Indeed, Deloitte recent­ly cal­cu­lat­ed that their 65,000 employ­ees were spend­ing a total of 2 mil­lion hours a year com­plet­ing forms, hold­ing meet­ings and assign­ing and analysing rat­ings. There­fore it’s essen­tial that you know how to mea­sure effec­tive­ness to get the most from your invest­ment in per­for­mance man­age­ment soft­ware and appraisals and to under­stand how to mea­sure performance.

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Step 1 — Do your research and bench­mark best practice

If you are going to objec­tive­ly assess the qual­i­ty of your per­for­mance man­age­ment sys­tem, an impor­tant first step is to under­stand what excel­lent’ looks like. Spend some time read­ing the lat­est research into per­for­mance man­age­ment trends and best prac­tice and look at some case stud­ies of organ­i­sa­tions who have suc­ceed­ed with it. To help with this, we’ve cre­at­ed an eBook on effec­tive per­for­mance man­age­ment which sum­maris­es a wide vari­ety of research and case stud­ies into an eas­i­ly digestible guide. You can get it for free here.

Step 2 — Be clear on your organisation’s goals for per­for­mance management

Whilst there are a num­ber of guid­ing prin­ci­ples that have come to light in recent research into per­for­mance man­age­ment (for exam­ple the impor­tance of hav­ing reg­u­lar future-focused check-ins’, giv­ing fre­quent feed­back and decou­pling per­for­mance mea­sure­ment from devel­op­men­tal per­for­mance dis­cus­sions), how effec­tive your per­for­mance man­age­ment process is will ulti­mate­ly depend on what you are look­ing to get from it. That’s why its essen­tial to be 100% clear on what your organisation’s goals for per­for­mance man­age­ment are; some­thing that should be dis­cussed and agreed with your senior leadership.

A sur­vey con­duct­ed by eRe­ward in 2014 found that the most com­mon goals for per­for­mance man­age­ment were:

  • to improve organ­i­sa­tion­al performance
  • to align indi­vid­ual and organ­i­sa­tion­al objectives
  • to devel­op a per­for­mance culture
  • to improve indi­vid­ual performance
  • to align indi­vid­ual behav­iour to organ­i­sa­tion­al values
  • to pro­vide the basis for per­son­al development
  • to inform per­for­mance pay decisions

Step 3 — How To Mea­sure Per­for­mance: estab­lish­ing your suc­cess measures

Once you are clear on your goals for per­for­mance man­age­ment, the next step is to estab­lish what suc­cess should look like for each of those goals. Here are some suc­cess mea­sures for some of the above com­mon per­for­mance man­age­ment goals to show you how to mea­sure the effec­tive­ness of your sys­tem against your per­for­mance man­age­ment goals:

Per­for­mance Man­age­ment GoalExam­ple Suc­cess Measures
Improve organ­i­sa­tion­al / team performance
  • Increase in prof­itabil­i­ty of organ­i­sa­tion / teams
  • Growth in rev­enue or oth­er mea­sures such as cus­tomer satisfaction
Improve indi­vid­ual performance
  • Qual­i­ty and fre­quen­cy of employ­ee-man­ag­er per­for­mance conversations
  • % of employ­ees with objec­tives set
  • Qual­i­ty of objectives
  • % of high and low per­form­ers in the organisation
Encour­age per­for­mance development
  • Amount of per­son­al devel­op­ment activ­i­ty being undertaken
  • Fre­quen­cy and qual­i­ty of feed­back being given
Increase employ­ee moti­va­tion and engagement
  • Employ­ee engage­ment sur­vey results
  • Impact of per­for­mance reviews on employ­ee moti­va­tion levels
  • Employ­ee turnover rates
Inform per­for­mance pay decisions
  • Abil­i­ty of man­agers to dif­fer­en­ti­ate per­for­mance for pay purposes
  • Sat­is­fac­tion lev­els / per­ceived fair­ness of per­for­mance relat­ed pay awards

In addi­tion to agree­ing on suc­cess mea­sures relat­ed to spe­cif­ic per­for­mance goals, it is impor­tant to define some mea­sures for your per­for­mance man­age­ment process­es (i.e. the actu­al mechan­ics). You’ll want to know how easy your employ­ees and man­agers find the process­es and tools to use, how time-con­sum­ing they are, how well they are being imple­ment­ed, what pro­por­tion of peo­ple are fol­low­ing the process­es and whether peo­ple are demon­strat­ing the nec­es­sary per­for­mance man­age­ment skills.

Step 4 — Eval­u­a­tion of Per­for­mance Man­age­ment System

Once you have estab­lished your suc­cess mea­sures, it’s time to start col­lat­ing data and eval­u­at­ing. To tru­ly know how effec­tive your per­for­mance man­age­ment is, and to under­stand how to improve it, you will need a com­bi­na­tion of both qual­i­ta­tive and quan­ti­ta­tive data. Look­ing at quan­ti­ta­tive fig­ures such as com­pa­ny or team prof­itabil­i­ty or employ­ee engage­ment lev­els in iso­la­tion will not help you to under­stand the direct impact that per­for­mance man­age­ment has had on them — oth­er fac­tors will also be at play. Meth­ods of get­ting use­ful qual­i­ta­tive and quan­ti­ta­tive per­for­mance man­age­ment data include:

  • Car­ry­ing out a ded­i­cat­ed sur­vey of a selec­tion of employ­ees and man­agers on their views and expe­ri­ences of the per­for­mance man­age­ment process and tools and how they have con­tributed to achiev­ing the desired goals
  • Ask­ing spe­cif­ic ques­tions relat­ing to per­for­mance man­age­ment in your exist­ing employ­ee atti­tude surveys
  • Con­duct­ing inter­views with a sam­ple of employ­ees and man­agers about their expe­ri­ences of per­for­mance management
  • Focus groups
  • Extract­ing data and reports from your online per­for­mance man­age­ment sys­tem (if you have one)
  • Review­ing a sam­ple of objec­tives and per­son­al devel­op­ment plans for quality

Step 5 — Take action on the results

Once you’ve analysed the results, you should have a clear idea of how effec­tive your per­for­mance man­age­ment process­es are and which aspects could be improved. If the results are not as good as you had hoped, don’t be dis­heart­ened as you are not alone. A 2014 study found that only 8% of com­pa­nies report­ed that their per­for­mance man­age­ment process dri­ves high lev­els of val­ue, so there’s def­i­nite­ly room for improve­ment. The key to improv­ing your per­for­mance man­age­ment is to involve a vari­ety of senior man­agers, man­agers and employ­ees in dis­cus­sions on how those improve­ments can be made. This will help you to get buy-in to the improved process and greater own­er­ship from those who have to imple­ment it. Here are 5 sug­gest­ed steps to make this happen:

  1. Sum­marise the results and areas for improve­ment into a pre­sen­ta­tion that can be eas­i­ly digest­ed by those out­side of HR.
  2. Con­sult senior man­age­ment on the results. Obtain their sup­port for mak­ing changes and seek their ideas for how improve­ments can be made.
  3. Run focus groups with a vari­ety of man­agers and employ­ees from dif­fer­ent areas of the organ­i­sa­tion. Dis­cuss the results with them and ask for their sug­ges­tions for improvement.
  4. Decide on what actions should be tak­en to address the issues dis­cussed and draw up a pro­posed action plan. Dis­cuss this with your senior man­age­ment and manager/​employee focus groups to get their feedback.
  5. Make any required amend­ments to the action plan based on the feed­back received, then imple­ment the plan.

Whilst involv­ing peo­ple in the redesign of your per­for­mance man­age­ment process­es is essen­tial, they prob­a­bly won’t be able to pro­vide all the answers. Some­times you’ll need to present them with options based upon best prac­tice from out­side of the organ­i­sa­tion. To learn about the lat­est best prac­tice in per­for­mance man­age­ment, down­load our free eBook here.