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Measuring Performance Management Effectiveness: 5 Steps to an Effective System

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How do you mea­sure the effec­tive­ness of your per­for­mance man­age­ment process­es? Below, we explore how to effec­tive­ly mea­sure organ­i­sa­tion­al per­for­mance to keep your com­pa­ny and your employ­ees on track.

Organ­i­sa­tions invest a sig­nif­i­cant amount of time (and there­fore mon­ey) in per­for­mance man­age­ment activ­i­ties. Indeed, before their per­for­mance man­age­ment revamp, Deloitte cal­cu­lat­ed their 65,000 employ­ees were spend­ing a total of 2 mil­lion hours a year com­plet­ing forms, hold­ing meet­ings and assign­ing and analysing rat­ings. CEB found man­agers spent an aver­age of 210 hours per year on per­for­mance man­age­ment, find­ing that a com­pa­ny of 10,000 peo­ple spent $35 mil­lion a year on per­for­mance reviews alone. Yet so many of us — man­agers and employ­ees alike — are dis­sat­is­fied with the qual­i­ty and effec­tive­ness of our per­for­mance man­age­ment systems.

If this sounds famil­iar, it’s time you took action and began mea­sur­ing the effec­tive­ness of your per­for­mance man­age­ment system. 

Below, we out­line five steps that will have you on the road to mea­sur­ing per­for­mance in a mean­ing­ful way.

Step 1 — Do Your Research and Bench­mark Best Practice

If you are going to assess the qual­i­ty of your per­for­mance man­age­ment sys­tem objec­tive­ly, an impor­tant first step is to under­stand what​”excel­lent” looks like for your business.

Spend some time read­ing the lat­est research into per­for­mance man­age­ment trends and best prac­tice. Look at some case stud­ies of organ­i­sa­tions who have suc­ceed­ed after revi­tal­is­ing their per­for­mance man­age­ment sys­tem. To help with this, we’ve cre­at­ed a free eBook on effec­tive per­for­mance man­age­ment, which sum­maris­es a wide vari­ety of research and case stud­ies into an eas­i­ly digestible guide.

Want to see how our Performance Management Software works?

Step 2 — Be Clear on Your Organisation’s Goals for per­for­mance Management

A num­ber of guid­ing prin­ci­ples have come to light in recent research into per­for­mance man­age­ment — such as the impor­tance of hav­ing reg­u­lar future-focused check-ins”, giv­ing fre­quent feed­back and decou­pling per­for­mance mea­sure­ment from devel­op­men­tal per­for­mance dis­cus­sions. But how effec­tive your per­for­mance man­age­ment process is will ulti­mate­ly depend on what you are look­ing to get from it. 

For this rea­son, it’s essen­tial to be 100% clear on what your organisation’s goals for per­for­mance man­age­ment are. This is some­thing that should be dis­cussed and agreed with your senior leadership.

A sur­vey con­duct­ed by eRe­ward in 2014 found 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 Organ­i­sa­tion­al per­for­mance: Estab­lish­ing Your Suc­cess Measures

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

Per­for­mance Man­age­ment Goal

Exam­ple 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
  • Per­cent­age of employ­ees with objec­tives set
  • Qual­i­ty of objectives
  • Per­cent­age of high and low per­form­ers in the organisation

Encour­age per­for­mance development

  • Amount of per­son­al devel­op­ment activ­i­ty undertaken
  • Fre­quen­cy and qual­i­ty of feed­back 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 they use, how time-con­­sum­ing they are, how well they are imple­ment­ed, what pro­por­tion of peo­ple are fol­low­ing the process­es and whether peo­ple are demon­strat­ing the nec­es­sary per­for­mance man­age­ment skills.

Step 4 — Eval­u­a­tion of Your 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 per­for­mance man­age­ment 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 only 8% of com­pa­nies report­ed that their per­for­mance man­age­ment process dri­ves high lev­els of val­ue. More recent­ly, two-thirds of organ­i­sa­tions sug­gest­ed their per­for­mance man­age­ment sys­tem was inef­fec­tive. 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 to make improve­ments. This will help you to get buy-in to the improved process and greater own­er­ship from those who have to imple­ment it. 

How to Improve Your Per­for­mance Man­age­ment System

Here are five sug­gest­ed steps to improv­ing your per­for­mance man­age­ment processes:

  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 to make improvements.
  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.

While 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. For this rea­son, you should make it a pri­or­i­ty to remain up-to-date with per­for­mance man­age­ment trends, know­ing that the field of HR is ever-evolving.

We have helped hun­dreds of organ­i­sa­tions improve their per­for­mance man­age­ment sys­tems by mov­ing away from annu­al appraisals. We can help you improve con­ver­sa­tions and encour­age great per­for­mance in your organ­i­sa­tion. Get in touch today to dis­cuss how our per­for­mance man­age­ment soft­ware can help you.