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Why is Performance Management Important?

Team building circle with team members putting their hands together.

What is per­for­mance man­age­ment? What are the ben­e­fits and impor­tance of per­for­mance man­age­ment? Find out how per­for­mance man­age­ment improves lev­els of employ­ee engage­ment, employ­ee reten­tion and com­pa­ny pro­duc­tiv­i­ty while enhanc­ing your bot­tom line.

CEOs, com­pa­ny direc­tors, influ­encers and big names in busi­ness reg­u­larly preach the impor­tance of effec­tive per­for­mance man­age­ment — the act of engag­ing with an employ­ee to review their ongo­ing work­place per­for­mance and devel­op­ment. The per­for­mance man­age­ment process com­bines infor­ma­tion gath­ering through mon­i­tor­ing goal com­ple­tion, feed­back and dis­cus­sions. By analysing suc­cess­es, strengths, learn­ing from mis­takes and exam­in­ing poten­tial for growth and devel­op­ment, busi­ness­es can devel­op tal­ent, enhance indi­vid­ual per­for­mance and weed out prob­lems. But this is eas­i­er said than done.

There are a num­ber of per­for­mance man­age­ment process­es, tools and approach­es com­pa­nies can take to inspire, mon­i­tor and man­age employ­ees. An effec­tive per­for­mance man­age­ment sys­tem requires com­mit­ment and ded­i­ca­tion from the human resources depart­ment and man­agers and employ­ees. Below, we’ll explore why we should have employ­ee per­for­mance reviews at work (although not out­dat­ed and inef­fec­tive annu­al appraisals), how per­for­mance man­age­ment is chang­ing and the over­all impor­tance of per­for­mance man­age­ment to busi­ness success.

The Aim of Any Good Per­for­mance Man­age­ment System

There are many dif­fer­ent approach­es, tools and tech­niques involved in per­for­mance man­age­ment. No two per­for­mance man­age­ment sys­tems will look the same. Just like com­pa­ny cul­ture, your per­for­mance man­age­ment sys­tem will be unique and spe­cif­ic to your val­ues, your goals and your pur­pose. How­ev­er, every good per­for­mance man­age­ment sys­tem seeks to work towards the improve­ment of the over­all organ­i­sa­tion­al per­for­mance, while sup­port­ing per­for­mance, pro­duc­tiv­i­ty and the well­be­ing of its employees. 

Ulti­mate­ly, every per­for­mance man­age­ment sys­tem should ensure the achieve­ment of over­all organ­i­sa­tion­al goals and ambi­tions while align­ing them with employ­ee goals. In this way, per­for­mance man­age­ment and busi­ness objec­tives entwine with employ­ee well­ness and morale.

Why Do We Have Per­for­mance Appraisals at Work?

Every com­pa­ny wants its ranks filled with enthu­si­as­tic, ambi­tious employ­ees who per­form their roles per­fect­ly and always exceed expec­ta­tions. The real­i­ty, how­ev­er, is human beings are flawed. Some days, we might be moti­vat­ed to per­form, while on oth­ers, we might encounter prob­lems and obsta­cles that impede our progress and productivity.

We need per­for­mance appraisals to show employ­ees they have sup­port, to offer train­ing and devel­op­ment and to deliv­er reward and recog­ni­tion. When per­formed reg­u­lar­ly, per­for­mance reviews also allow com­pa­nies to pick up on seri­ous per­for­mance prob­lems, mean­ing they can be set right imme­di­ate­ly, rather than esca­lat­ing into more com­plex problems.

Con­tin­u­ous Per­for­mance Man­age­ment vs. Annu­al Appraisals

As men­tioned, there is more than one way to approach per­for­mance man­age­ment. Cur­rent­ly, there are two main approach­es when it comes to eval­u­at­ing per­for­mance and man­ag­ing tal­ent progression:

  1. Con­tin­u­ous per­for­mance man­age­ment (oth­er­wise known as Agile Per­for­mance Management)
  2. Tra­di­tion­al annu­al appraisals

65% of com­pa­nies are still using annu­al appraisals over a con­tin­u­ous per­for­mance man­age­ment sys­tem. This tra­di­tion­al approach of annu­al per­for­mance reviews entails a time-con­­sum­ing for­mal review that takes place once or twice a year. Dur­ing this review, an employee’s per­for­mance over the last six to twelve months is assessed and future tar­gets or objec­tives are set. Although they remain fair­ly preva­lent, annu­al per­for­mance appraisals are not an effec­tive per­for­mance man­age­ment process. Giv­en the exten­sive paper­work involved and the for­mal, back­­wards-look­ing nature of the reviews, they are also pret­ty uni­ver­sal­ly detest­ed by man­agers and employ­ees alike.

Con­verse­ly, con­tin­u­ous per­for­mance man­age­ment involves reg­u­lar, year-round check-in meet­ings com­bined with fre­quent real-time feed­back with the aim of improv­ing per­for­mance on an ongo­ing basis. Agile per­for­mance man­age­ment has tak­en off in recent years, as tech­nol­o­gy advances and our under­stand­ing of human psy­chol­o­gy and moti­va­tion improves. Fur­ther­more, busi­ness­es are recog­nising the prob­lems inher­ent with annu­al appraisals and are keen to move to new ways of man­ag­ing their talent.

But why is per­for­mance man­age­ment impor­tant at all? Why is it vital to mon­i­tor staff? What is the pur­pose of per­for­mance man­age­ment? What are the busi­ness ben­e­fits of the con­tin­u­ous per­for­mance man­age­ment cycle?

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Explor­ing the Impor­tance of Per­for­mance Man­age­ment and Con­tin­u­ous Feedback

Below we’ll cov­er the ben­e­fits and impor­tance of per­for­mance man­age­ment with regards to pro­duc­tiv­i­ty, indi­vid­ual per­for­mance and employ­ee engage­ment. We’ll explore how per­for­mance man­age­ment can help with employ­ee reten­tion, recruit­ment and pro­duc­tiv­i­ty while help­ing to accom­plish strate­gic objectives.

Per­for­mance Man­age­ment Encour­ages Employ­ee Reward and Recognition

Reward­ing and recog­nis­ing your employ­ees can be huge­ly ben­e­fi­cial to your busi­ness. A sur­vey by Amer­i­can Express revealed a third of com­pa­nies believe reward and recog­ni­tion sys­tems result in bet­ter staff reten­tion, while half also attribute greater moti­va­tion to offer­ing incen­tives. Mean­ing­ful reward and recog­ni­tion sys­tems can only oper­ate in busi­ness­es where there is an accu­rate and vis­i­ble process of per­for­mance feed­back and dis­cus­sions. Con­tin­u­ous per­for­mance man­age­ment enables man­age­ment to iden­ti­fy activ­i­ty and efforts wor­thy of praise or reward. In turn, this pro­motes a growth mind­set among your team members. 

Con­tin­u­ous per­for­mance man­age­ment allows man­agers to see when employ­ees go above-and-beyond. It helps them track progress against goals and per­son­al devel­op­ment and make informed deci­sions about addi­tion­al com­pen­sa­tion, such as pay-ris­es or bonus­es. Mean­ing­ful reward sys­tems are immense­ly impor­tant for employ­ee happiness. 

Here are a few key sta­tis­tics to consider. 

Per­for­mance Man­age­ment Helps to Boost Employ­ee Engage­ment and Productivity

Engaged employ­ees stay longer, active­ly involve them­selves in the work­place and pro­duce bet­ter results. Improv­ing lev­els of employ­ee engage­ment is key to boost­ing pro­duc­tiv­i­ty and max­imis­ing ROI. Per­for­mance man­age­ment, done well, is a vital tool for hav­ing engaged employees.

But how can we use per­for­mance man­age­ment to improve lev­els of employ­ee engagement?

Con­tin­u­ous per­for­mance man­age­ment cre­ates an ongo­ing dia­logue and an atmos­phere of trust, sup­port and encour­age­ment. It also helps devel­op a rela­tion­ship between employ­ee and com­pa­ny. If an employ­ee is aware that their man­ag­er and the busi­ness cares about what they are doing and is ded­i­cat­ed to help­ing them do bet­ter and progress their career — they are far more like­ly to engage with the company.

Con­sid­er a busi­ness where man­agers only speak to their employ­ees once a year about their progress. For most of the time, the employ­ee is not con­nect­ed to the direc­tion of the com­pa­ny or team. There is lit­tle con­se­quence, need or ben­e­fit to engag­ing. How­ev­er, when a com­pa­ny is con­sis­tent­ly engag­ing with its employ­ees, encour­ag­ing them to grow, and set­ting goals that stretch and devel­op them, there is a gen­uine con­nec­tion and increased like­li­hood of​”dis­cre­tionary effort.”

Per­for­mance Man­age­ment Helps to Cre­ate Employ­ee Devel­op­ment Strategies

Con­tin­u­ous per­for­mance man­age­ment means you are proac­tive­ly devel­op­ing employ­ees by cov­er­ing their devel­op­ment needs. With reg­u­lar catch-ups, you can pur­sue con­tin­u­ous per­for­mance improve­ment, as you fre­quent­ly meet to dis­cuss each employee’s per­for­mance, pos­si­ble devel­op­ment oppor­tu­ni­ties and devel­op­ment plans. By com­bin­ing this with flex­i­ble per­son­al devel­op­ment objec­tives, busi­ness­es can cul­ti­vate tal­ent in a way sim­ply not pos­si­ble with once or twice year­ly per­for­mance conversations. 

Use the infor­ma­tion you col­lect about an employee’s past per­for­mance and cur­rent efforts, and the dis­cus­sions you have, to grow their tal­ent. Use strate­gies that not only play to employ­ees’ strengths but also reflect the direc­tion the busi­ness is heading. 

Hav­ing a con­sis­tent under­stand­ing of your employ­ees’ abil­i­ties, an agile plat­form that allows you to reg­u­lar­ly shift pri­or­i­ties — and focus on new areas of devel­op­ment —pro­duces an envi­ron­ment where your work­ers are con­stant­ly mov­ing in a direc­tion that pro­vides the max­i­mum pos­si­ble ben­e­fit to your com​pa​ny​. By fail­ing to con­sid­er the impor­tance of per­for­mance man­age­ment, the employ­ee-busi­­­ness focus can become mis­aligned, goals can become irrel­e­vant and employ­ee poten­tial squandered. 

Per­for­mance Man­age­ment Allows for the Exchange of Feedback

The impor­tance of feed­back in per­for­mance man­age­ment can­not be over­stat­ed. Employ­ees want feed­back — and they want it reg­u­lar­ly. They need (and deserve) to know how they are per­form­ing and how they can improve. Fur­ther­more, they should have the oppor­tu­ni­ty to give feed­back on their com­pa­ny and man­age­ment. This is the only way com­pa­ny process­es can evolve and become more streamlined.

Per­for­mance Man­age­ment Cre­ates Clar­i­fi­ca­tion Con­cern­ing SMART Goals

It is sur­pris­ing and rather wor­ry­ing to hear that stud­ies have shown around 50% of employ­ees aren’t clear on exact­ly what their role with­in the work­place is or what long-or-short-term goals they are try­ing to achieve.

Lack of clar­i­ty is anoth­er rea­son why effec­tive per­for­mance man­age­ment is so impor­tant. The right per­for­mance man­age­ment process­es can elim­i­nate ambi­gu­i­ty and con­fu­sion about goal set­ting. Hav­ing reg­u­lar, future-focused con­ver­sa­tions through con­tin­u­ous review helps to ensure employ­ees are clear on every­thing they are sup­posed to be doing and what is expect­ed of them. Con­tin­u­ous per­for­mance man­age­ment also encour­ages employ­ees to be more involved, giv­ing them the auton­o­my to set goals rel­e­vant to them, their strengths and organ­i­sa­tion­al goals — thus pro­vid­ing employ­ees with added own­er­ship and moti­va­tion. All of this will help them take con­trol of their performance.

The process also ensures man­age­ment is in touch with the work being deliv­ered and able to iden­ti­fy when per­for­mance is drop­ping off as a result of lack of job clarity.

Why Do Per­for­mance Man­age­ment Sys­tems Fail?

With so many advan­tages of per­for­mance man­age­ment, why are so many man­agers and employ­ees dis­pleased with their exist­ing process­es? Why do so many per­for­mance man­age­ment sys­tems go wrong?

Lack of Communication

Per­for­mance man­age­ment sys­tems suc­ceed when com­mu­ni­ca­tion is authen­tic and trans­par­ent. Com­pa­nies should utilise an open-door pol­i­cy and encour­age clear lines of com­mu­ni­ca­tion through­out the organisation. 

They Set Inef­fec­tive Goals

Goal set­ting needs to be just. Goals can’t be too easy, or employ­ees won’t feel sat­is­fied — most peo­ple enjoy a chal­lenge. They want to be stretched and to devel­op new skills. Equal­ly, how­ev­er, goals that are too chal­leng­ing can be demo­ti­va­tion­al. Employ­ees will burn out try­ing to accom­plish them, or they won’t try at all, believ­ing them to be impossible.

Effec­tive goals should be set col­lab­o­ra­tive­ly, between man­ag­er and employ­ee. They should be SMART and tracked reg­u­lar­ly. On top of this, reg­u­lar meet­ings should be held to dis­cuss goal progress and what can be done to sup­port the employ­ee in this respect.

Your Man­agers Aren’t Engaged with the Process

Some­times, bad man­agers hap­pen to good per­for­mance man­age­ment sys­tems. The real­i­ty is, no per­for­mance man­age­ment sys­tem will be suc­cess­ful if the peo­ple involved don’t invest in the process, or will­ing to make it suc­ceed. If employ­ees sense their man­agers are apa­thet­ic about the per­for­mance man­age­ment sys­tem, they will mir­ror this atti­tude. Man­agers need to take con­trol and lead by example.

Many Com­pa­nies Col­lect the Wrong Per­for­mance Man­age­ment Data

Tra­di­tion­al­ly, per­for­mance man­age­ment has focused on data. It used to be the norm to use per­for­mance rat­ings. Unfor­tu­nate­ly, there is a big prob­lem with per­for­mance rat­ings. Stud­ies have found them to be far from moti­va­tion­al and they have been shown to impact per­for­mance negatively. 

Oth­er exam­ples of per­for­mance man­age­ment data include stack rank­ing sys­tems, which keep employ­ees in a per­ma­nent state of stress and pro­mote unhealthy com­pe­ti­tion between employees.

This isn’t to say all per­for­mance man­age­ment data is bad. It’s the type of data you col­lect that mat­ters. Rather than plac­ing a heavy empha­sis on your employee’s per­for­mance and what they are doing wrong, it is best to shift your atten­tion to the big­ger pic­ture. How often are employ­ees and line man­agers meet­ing to dis­cuss per­for­mance? How often is feed­back deliv­ered? How sup­port­ed and encour­aged do employ­ees feel in their roles? Track­ing this type of data is much more help­ful and will pro­mote a health­i­er, more pro­duc­tive work­ing environment.

These are just a few rea­sons why per­for­mance man­age­ment is as essen­tial now as it ever was. Some tools are moti­va­tion­al and tech­niques (such as stack rank­ing) will leave your employ­ees demo­ti­vat­ed and dis­en­gaged. It’s impor­tant to remain up-to-date with per­for­mance man­age­ment trends and to fre­quent­ly inter­act with your employ­ees to find out how you can improve your per­for­mance man­age­ment sys­tem to get the most out of your team.

Per­for­mance man­age­ment is vital but easy to over-com­­pli­­cate. Sim­pli­fy your per­for­mance man­age­ment sys­tems with Clear Review’s inno­v­a­tive soft­ware pur­­pose-built for agile goals, con­tin­u­ous feed­back and mean­ing­ful conversations.