An introduction to performance management, and why it's so hot right now.

Research shows that the old ways of providing employee feedback, such as yearly appraisals, have done their dash. According to Forbes, they can even decrease employee engagement and motivation.

If you are still wedded to the concept of yearly appraisal reviews, then read this list and weep:

- 62% of employees feel that their performance review was incomplete

- 48% don't feel comfortable raising issues with their manager in between performance reviews

- 61% feel that the process is outdated

- 74% feel that they would be more effective with more frequent feedback

- 68% of executives don't learn about employee concerns until the performance review

So why is performance management the new shining light for so many companies?

First, what is performance management?

In its most basic form, a performance management programme lets your employees know precisely their role in helping the business achieve measurable objectives like new sales, growth, compliance, and innovation.

It clearly sets out your expectations of what they need to achieve to be successful, seeks mutual agreement, so objectives are agreed and aligned, and determines the benchmarks against which employee effort is measured.

Lastly, it helps your employees succeed. They understand the goals they need to meet and know there is mentoring and training readily available if they are struggling.

And most importantly - it's a collaborative, dynamic, forward-facing, year-round effort. Not an annual retrospective round-up.

And why should you care?

Performance management is about doing better business. And Gallup says that "When organizations successfully engage their customers and their employees, they experience a 240% boost in performance-related business outcomes compared with an organization with neither engaged employees nor engaged customers."

For the employee, it links their work efforts with the organisation's mission and objectives, so they have purpose and can see how they add value. It provides clarity and direction, offers support where needed, and recognition where deserved.

For the business, the utilisation of objectives, standards, performance dimensions, and other measures, establishes what employee efforts and tasks add value to the organisation, and helps to identify work that's no longer useful.

How does performance management differ from performance appraisals?

Put simply, performance appraisals are reactive, while performance management is proactive.

Performance appraisals review an employee's past actions with a set time, and rates how they performed and ticks off the goals they met. Performance appraisals are HR-led, formal, operational tasks. They follow rigid parameters and are quantitative, not qualitative.

Whereas performance management looks beyond - at the employee's present and future, and what can be done to help their future performance and enable them to meet future goals. Performance management focuses on an employee's development and training. It's also a more informal, flexible, and strategic process, and is management-led with employee input.

What does the performance management process include?

To start with, it's not a one-off activity. Performance management is an ongoing cycle of communication between a supervisor and an employee that occurs year-round.

The process between manager and employee includes defining and clarifying expectations by role, setting straightforward task and performance objectives, identifying specific goals, providing timely feedback, reviewing the results, and providing coaching and training where needed.

What does the performance management cycle look like?

The performance management cycle or process has three stages:

1. Planning. The planning stage is a collaborative review of the overall expectations. It's a conversation about the development of performance objectives and includes setting up or updating individual development goals. The next step is developing a performance plan to provide the employee with a list of specific results and targets they should aim to achieve. Each outcome should support organisational excellence and the success of the individual employee.

2. Checking-in. Keep the plan on track with scheduled dialogues, where goals and objectives are the main topics of conversation. Check-in meetings provide a framework to ensure an employee is performing well and identify where additional coaching and support is required – if at all. And to exchange mutual feedback about obstacles and opportunities.

3. Review. At the end of the performance period, it's time to review the employee's performance against expected objectives, analyse how they achieved the objectives, and where support is needed so you have a clear view of the next steps. During the review stage, you should also discuss and establish new objectives for the next performance period.

And then it's rinse and repeat.

How do you create a performance management plan?

Developing an effective plan takes time and effort, but here's a quick outline of the steps to follow:

1. Establish a baseline. What does the business want to achieve, and how is it doing to date?

2. Define your objectives and goals. Take your big picture objectives and set the achievable, time-driven goals you need to meet to realise the desired outcomes.

3. Consult the team. A performance management plan requires input from leaders, managers, and employees. It needs to be robust, fair, measurable and rewarding.

4. Create a plan. It's time to put together an action plan that supports the agreed strategy and includes team and individual goals.

5. Get it out there. It's time to share. Communicate the plan, and the reasons behind it, with the organisation. Buy-in is everything.

6. Add KPIs. Key performance indicators set the benchmarks needed to measure the efforts and achievements of teams and individuals.

7. Monitor, monitor and monitor. Tracking employees' progress and achievements is critical. And if your plan is not delivering the results you expect, then refine, adjust, and improve.

How do you know if your plan is working?

Not only do you need to set KPIs to measure employee performance, but to gauge the success of the plan itself. Here are five KPIs you might consider setting for your actual programme.

1. Set KPIs for your objectives. These could include improving employee engagement, turnover and productivity.

2. Review participation rates. Performance reviews are crucial, but they also take time to complete. And they require commitment from managers and team leaders. Set a minimum expectation of how many reviews should be completed within a specified period.

3. Measure the time you regain. Your plan should save the time it takes HR to administer, process and return the results of the review process, and the time it takes for managers and employees to complete them. If one of your objectives is to increase productivity, saving time on performance reviews can have a significant impact.

4. Track the frequency of employee feedback. By moving to a continuous feedback model employee engagement can jump dramatically. A study by OfficeVibe found that 65% of employees actively stated they wanted more feedback than they were currently getting. A survey by TriNet and Wakefield Research says that 85% of employees would feel more confident if they could have more frequent performance conversations with their manager. And according to the Growth Divide Study, 94% of employees would prefer their manager gives them feedback and development opportunities in real-time, and 81% would prefer at least quarterly check-ins with their manager.

5. Rate the quality of feedback your employees receive. Getting more regular performance reviews is great, but the quality of feedback is important too. The TriNet and Wakefield Research survey also said that 59% of employees have complained that their manager was unprepared to give feedback.

5 examples of highly successful performance management plans

So, who would you expect to show up on a list of early adopters?

1. No surprises here – it's Google. Their performance management process relies on data and analysis and makes sure that their managers are well trained. Nice work!

2. If you guessed Facebook - well done. Their performance management process focuses on peer-to-peer feedback. They can identify where collaboration is happening and where it is not. Facebook has developed internal software to provide continuous, real-time feedback.

3. Then there's Cargill. This US food producer and distributor have over 15,000 employees. They ditched traditional performance appraisals to adopt a new performance management system and report that 69% of their employees stated that they received feedback that was useful for their professional development, and 70% felt valued as a result of the continuous performance discussions with their manager.

4. Amazing Adobe. They calculated that their managers were spending 80,000 hours a year on performance reviews, and staff turnover was on the increase. Taking on a performance management system resulted in many positive results, including a stunning 30% cut in attrition.

Summary

Given the success of the performance management approach, as opposed to traditional performance appraisals, it's small wonder that some of the world's best known and most respected companies are taking a fresh look at how they engage with their employees. With compelling reasons to change - like a drop in natural attrition rates and higher employee engagement levels – it's a force to be reckoned with. 

Hint:  Once you’ve developed your plan, a performance management system will deliver a rapid ROI for employees and the business!