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 Below, we’ll explore why we should have employee performance reviews at work (although not outdated and ineffective annual appraisals), how performance management is changing and the overall importance of performance management to business success.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:
- Continuous performance management (otherwise known as Agile Performance Management)
- 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?
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.
- 83% of employees working in an environment with good reward and recognition structures say they are content in their position.
- 69% of workers will work harder if they know their work is valued and appreciated.
- Businesses that have effective reward structures enjoy an almost 50% rise in employee engagement.
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 company. 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.
Find out how you can boost performance with Clear Review
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. Book a free guided demo of our software now.