The Definitive Guide to Performance Management

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Not Just Performance Reviews

If your idea of performance management is only conducting annual employee performance reviews, you may be missing out on effective ways to align employee and company goals. By swapping out infrequent check-ins with a plan for ongoing communication around performance, you can create a clear path to success that defines objectives, expectations, and feedback methods.

Performance management is a holistic strategy that impacts your company policies, culture, and outcomes. It lets employees know if they’re on the right track, informs about why their work matters, and shows how they’re moving the business forward. Performance management also gives employees answers to questions like, “Am I good at my job?” “Am I important?” and “Am I easily replaceable?” so they aren’t left wondering … and possibly leaving for another opportunity.

The State of Performance Management Today

Unfortunately, effective performance management is uncommon within most organizations. According to research by Gallup, just 2 in 10 employees say they strongly agree that their performance is managed in a way that motivates them to do outstanding work. This means traditional approaches—like annual performance reviews—aren’t meeting all the needs of employees or organizations when it comes to achieving goals.

Organizations are recognizing their shortcomings, too.

Only 2% of companies believe their performance management approach delivers exceptional value.

MERCER’S 2019 GLOBAL PERFORMANCE MANAGEMENT STUDY

And an HR Institute Research Report found that only 27% of HR professionals say their managers are skilled at overall performance management.

That means employees are going to work with unclear job expectations, minimal coaching from managers, unfair accountability practices, and a lack of opportunities for development. These working conditions can hurt productivity and employee retention.

The Foundational Elements of Performance Management

Before you can implement a performance management strategy, you need to make sure your organization has the correct pieces in place for success. These are the four foundational elements of performance management.

Leadership

It’s said that people don’t quit companies; they quit bosses

As a result, organizations must better equip their leaders to manage performance. Start by offering ongoing training on topics like effective communication, motivation, recognition, and coaching. By consistently upskilling managers, they’ll be better equipped to tap into the strengths of each employee.

If an employee believes they’re not being treated fairly or equally, they’ll be more likely to slack off or leave.

It’s imperative that leaders manage and measure performance consistently.
Training on spotting and overcoming their own unconscious biases
Remove bias and subjectivity from reviews with double-blind assessments

Our perception of another person often has more to do with our own experiences and worldviews than with anything that person has done. This is called the idiosyncratic rater effect, and 62% of a manager’s rating on a performance review originate from personal factors rather than the employee’s actual performance. Remove bias and subjectivity from reviews with double-blind assessments.

Communication

Organizations can prevent or remedy many performance problems

According to the Society for Human Resource Management (SHRM), organizations can prevent or remedy many performance problems with two-way conversations between managers and employees. Each side should have a complete understanding of what output is required, when it is required, and how it should be delivered. This starts with having clear expectations and goals established, which will serve as the groundwork for feedback as well as transparency on company decisions.

In addition, organizations need to develop a culture of feedback. An article by Forbes identified three trends in performance management, one of which is continuous real-time feedback. It states that:

By changing the approach to include more continuous feedback and employee check-ins, it can be easier to provide the needed real-time resources for improvement and growth.

Incentives and Compensation

This is not just salary and bonuses
What other value does your total
compensation package provide? Company
perks? What is your compensation strategy?

Salary is only one piece of the puzzle. You don’t want people to stay only for the pay—otherwise you retain the wrong people for the wrong reasons and are unlikely to meet expected performance outcomes.

Company Culture

There is no one-size-fits-all answer for creating and implementing a company culture

Companies known for engaged employees, like Google, Meta, Nike, and Netflix, have several things in common. According to a Gallup survey, these organizations use their culture and values to guide business decisions. Instead of being hollow words, culture and values are put into action every day. These companies also focus on wellbeing and are willing to adapt as their workplaces change. They acknowledge that an employee is a whole person, especially with remote and hybrid arrangements blurring the lines between work and home in many industries.

There is no one-size-fits-all answer for creating and implementing a company culture. Instead, each company needs to determine what works best for them and their employees. Identify your company values and how you embody those values every day. Also, pay attention to employee wellbeing. When you take a holistic approach, you can avoid or reduce employee burnout that can impact performance.

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Creating Your Performance Management Strategy

Once you have the foundation to support performance management in place within your organization, it’s time to create and execute your strategy. Effective systems typically include three basic steps.

Set goals

Setting goals is the process of identifying objectives that employees should achieve over a specific timeline. This is the performance part of performance management, and it’s the basis for evaluating employees. Managers can choose a variety of goal types. For example, project goals are “what” goals that outline specific projects or tasks. Behavioral goals are “how” goals that identify how an employee will achieve their project goals. And stretch goals expand and grow an employee’s knowledge, skills, and capabilities.

To gain the best level of understanding and commitment, the goal-setting process should include both the manager and the employee. Managers will best understand the company’s goals and how employee goals can tie into them. And employees will have valuable insights on whether expectations are achievable. Goals should be documented but flexible if conditions change that would impact achievement.

What does high performance look like in your organization and how do you define that? How does performance management help your employees grow their careers? Organizations should provide managers with clear definitions of behaviors, skills, and other performance factors to better assess employees. If guidelines aren’t set, organizations risk bias, such as proximity bias, or even personal bias, where managers allow their personal feelings about an employee to impact their rating process.

Review performance

Performance reviews assess an employee's progress toward achieving the goals they defined along with their manager. They are a clear and formal process to measure against goals and expectations. Managers can schedule regular one-on-ones with individual team members or handle performance reviews in organic ways.

Sixty-one percent of employees prefer to receive feedback as projects are completed or during informal meetings with their managers.

Reviews should identify employee strengths and weaknesses and address opportunities for promotions, key areas of improvement, and needed training.

During a formal performance review, ask questions that get to the heart of employee performance and development.

What experience, project, or action are you most proud of since the last review?

Which of our company values did you live best in the last few months?

What do you enjoy most about the work you do?

What skill or knowledge do people on your team or at the company rely on you to provide?

What project or goal(s) would you like to focus on next?

Create a plan for performance improvement

According to the State of Performance Management 2021 research report, 69% of HR professionals say the most common objective of performance management is to help employees learn and grow.

Once you’ve measured the employee’s performance against the benchmarks you’ve set, you can implement changes based on what’s needed. For example, an employee may need more training, better time management strategies, or a discipline process. It may also be possible that the goals and objects that were set need to be adjusted due to new information or circumstances.

Performance improvement plans should be clearly stated, including a description of the performance gap, a plan of action, and potential consequences if the employee’s performance doesn’t improve.

The Role of Technology

Every leader is different. No matter how much training and structure you provide to your managers, every employee will have a different experience. This poses the challenge of maintaining consistency and ease across the board.

Technology can be the answer.

The State of Performance Management 2021 research report found that three-quarters of organizations use technology to support performance management, yet only 29% of HR professionals say their organizations have performance management processes that are technology-driven to a high degree.

Another of the performance management trends identified in the Forbes article is using real-time performance data. To remain competitive in a talent shortage, organizations need to boost their employee experience with data-driven decisions that optimize performance, motivation, and development.

Consider what tech and tools you’re using to help support your leadership and employee performance management. How can technology help support your leadership to manage performance more effectively and consistently? Does your organization already have an HRIS with performance management tools included? Organizations are most likely to use performance management tools bundled into HR information systems.

When defining your tech stack, here are some useful tools and capabilities your company should consider when looking to improve performance management.

Reporting

Get a pulse on how employees feel and receive actionable data to improve company performance and engagement. Tech tools offer simple self- and manager assessments that start a dialogue. For example, managers can recognize employee contributions and strengths and compare their evaluation to the employee’s. It also helps identify misalignments between managers and employees.

360-Degree Structured Feedback

A 360-degree feedback tool collects structured input from anyone at any time within the organization. Managers can send requests to employees directly through the tool and the manager can control how, when, and where to share feedback and provide empowerment to act on that feedback. When you solicit feedback, as long as people are acting on it, it engrains a culture of giving and receiving valuable feedback. Soliciting feedback after rough processes or conflict can help quickly diffuse any tension and encourage a culture of constant improvement. It can also help suss out unconscious bias in a manager.

Shared Goals

You can use a shared goals tool to put employees and teams on the same page. Unfortunately, only around 50% of employees believe goals are tracked effectively in their organization. Visibility and transparency drive accountability. You can generate meaningful growth by incorporating learnings from Feedback and Assessments into employee goals, and measure improvements by tracking, updating, and commenting on goals regularly.

Conclusion

Performance management is more than just holding boring annual performance reviews. It’s about caring for and growing people and leaders that support the business. Good performance management is built through leadership, communication, and useful tech that can help you grow and retain engaged employees.

Ready to take your performance management to the next level? Learn more about BambooHR Performance Management software.

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