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What is Performance Management?

5 min read
Performance management is about continuously supporting your employees to reach individual goals, so that your business achieves its wider objectives. Don't think of it as a one-off annual review, or a list of personal objectives that never change - instead, think of a multifaceted set of processes and behaviours to encourage high performance. And the very best systems create a close link between successful employees and successful companies.

What’s the objective of a performance management system?

It’s about reaching a common understanding between employer and employee about what good looks like and how an employee can contribute to the organisation’s overall success. You’re basically linking higher employee performance standards with better business results and overall employee experience.

What does a performance management system look like?

The system boils down to giving employees regular, candid feedback on how they’re performing against their individual goals, and evolving those objectives as they’re reached or become irrelevant due to changing business priorities. It also means giving constant and job-specific coaching in between major reviews.

Practically speaking, your performance management system might include a few different, interconnected processes and documents:

  • Personal achievements – a list of major successes in an employee’s career aligned to the company’s strategic objectives
  • Individual goals and objectives matched to someone’s job description and required competencies
  • 360 Feedback from peers, direct reports and managers
  • Self-assessment – the employee’s view of their own performance
  • Personal development plans with actions and objectives for the employee
  • Performance reviewannual or quarterly, usually led by a manager
  • Leadership development programs to nurture your current leaders and identify your future ones

What you use will depend on your organisational structure and job-specific skills and competencies.

What is a typical performance management process?

In most companies, the above processes would run on a yearly cycle. You list an employee’s achievements and set objectives with them at the start of the year, and 12 months later you’re able to sit down with them and analyse how they’ve done, as well as set new objectives for the coming year. It normally follows this routine:

  1. Planning – this’ll include setting SMART objectives (Specific, Measurable, Agreed, Realistic and Timely), as well as other types of development planning
  2. Implementation – this is where the employee gets down to business and tries to achieve their objectives, with consistent coaching from their managers and the wider organization
  3. Monitoring – a good performance management system allows for employees to log progress at any time, and reach milestones on their way to bigger targets
  4. Review – this is a more formal sit-down between a manager and employee, where they look at how things are going and either maintain or evolve individual objectives

This model of annual check-ins has been jettisoned by many big brands who have preferred to go for more regular reviews, as frequently as every quarter.

By shortening the performance management cycle, it allows employers to get closer to their employees and avoid issues festering for months before there’s an opportunity to deal with them.

This idea of ‘continuous performance management’ is about having more regular discussions as to what’s going well and how it can be continued, as well as what could be improved. It’s a 2-way conversation where employees feel empowered to share feedback on their progress and the support they’re receiving.

What makes an effective performance management system?

  • Fair, consistent and constant – from the vice president of sales to a junior sales rep, everyone should feel as though the system will assess them even-handedly and reward their successes
  • Proven methodologies – you should use measures that have been tested and validated outside of your organisation, so as to avoid any biases or favouritism
  • Senior buy in – if execs aren’t signed up to your performance management system, it’ll eventually fail, as employees recognise their objectives aren’t tied to the business’ goals or their successes aren’t properly recognised
  • Clear communication – employees should understand what’s expected of them and how they fit into the company’s wider goals
  • Facilitates continuous development – if it’s a box ticking exercise, it won’t work
  • Suited to your organisation – your employee performance management should be suited to your industry and structure, as well as taking into consideration your current appraisal system and performance periods
  • Linked to rewards – you can integrate performance-based rewards as part of your system, a powerful way of rewarding good work
  • Trackable – managers and employees should have 360 feedback software that allows them to log how they’re doing and get an idea of how they’re tracking against objectives

What else can you do with a performance management system?

The number one objective is to improve employee performance standards. But you can connect your performance management system to bonuses and pay reviews. In this way, you can incentivise employees to be more engaged in performance management processes. Though keep in mind that financial reward is only one part of what drives employees to succeed and shouldn’t be the only reason to engage.

Read more about Performance management and 360 feedback programs

Best practices: 360° feedback eBook