Performance management is a set of business processes used to monitor and evaluate the performance of employees in a company with the aim of improving the overall work performance and culture. Diligent and systematic performance management enables businesses to create an environment where employees persistently improve their work, qualitatively and quantitatively, and benefit the company. It helps inculcate good performance as a habit among employees that automatically passes on to the new employees, leading to steady and healthy growth for the company and its employees. Besides, flawless performance management helps in leadership succession planning, enabling companies to identify the strengths and weaknesses of employees and pick out the best future leaders from their human assets.
Businesses widely adopt performance management software to streamline operations, enhance overall business performance, and develop healthy work culture. The performance management software market is expected to reach USD 5.82 billion by 2027.
There are numerous inefficiencies in traditional Performance Management practices that pose enormous challenges as discussed later, and companies that follow the old system need to consider an "Overhaul" of their performance management system. Studies suggest that 81% of HR leaders are making changes to performance management.
So, how to enhance performance management for your business? To understand this, let’s first learn what performance management constitutes.
Essential Elements of Performance Management
Performance management is complex and includes numerous functions and stages. Here are the most crucial elements of performance management.
SMART Goals
The most crucial element of performance management is setting SMART goals, goals that are Specific, Measurable, Achievable, Relevant, and Time-bound. Goals are the benchmarks for evaluating performance. Thus, the performance goals must be clear and not vague. There should be well-defined metrics to measure these. The set targets should be reasonable or achievable for an average employee and not exorbitant/unrealistic, and there must be a well-defined timeframe for achieving each goal.
Goals must also be well-documented and recorded. Moreover, the goal-setting must be dynamic, and goals should ideally be routinely revised and updated quarterly or monthly, as needed, for best results.
Developing Strategy
Companies must develop a detailed performance management strategy covering all crucial aspects and stages of performance management, including planning, monitoring, feedback, and rewards. There is no perfect policy, and the processes that work well for one company may not prove successful for others. Thus, the performance management strategy must also be relevant and customized to match the specific business needs.
Studies indicate that 95% of managers are not satisfied with their organization’s performance management system. Thus, it is vital to study the market trends, seek inputs from employees/managers, develop & customize the strategy, and modify/update the policies over time depending on the results.
Monitoring and Measuring Performance
Based on the SMART goals and designed performance management policies, employees’ performance needs to be measured or evaluated routinely by the assigned human resource personnel through the set parameters and techniques (discussed later). Moreover, a detailed analysis of performance data helps provide great insights for decision-making. However, the performance management lifecycle data must be kept confidential to maintain employees’ trust in the system.
Employee Participation
To ensure success, companies must also involve employees in strategic planning and process development phases of performance management. This helps understand the pain points, needs, and hindrances faced by the employees that impact their performance. Employee participation can help companies generate innovative and valuable ideas for developing a customized performance management strategy for their specific business needs. Moreover, when employees are involved in designing the performance management processes, it also assures that they will trust the system and positively engage in these processes.
Feedbacks
“By feedback, we understand the information given by a person (manager, colleague, customer, etc.) verbally or via another medium (360-degrees feedback, apps, etc.) about aspects of someone's performance or working behavior, with the aim of enhancing that person's work performance,” as quoted by a Whitepaper on Feedback Culture.
For flawless performance management, feedback is essential. It includes frequent feedback by the managers to the respective employees and managers’ reviews taken from the employees. Performance management may not give the best results without a two-way feedback process. Hence, large organizations/businesses commonly leverage the advanced 360-degree feedback system, which involves gathering employees’ feedback from their subordinates, peers, supervisors, and self-evaluation from the employees themselves.
Motivation and Development
The ultimate purpose of performance management is constant improvement and not to judge or humiliate the employees. Researches suggest that 22% of employees have called in sick rather than face a performance review, 35% have complained to their peers, and a shocking 15% have even cried during the performance review process. Thus, performance management processes must be designed in such a way as to ensure that the exercise does not demotivate the employees, make them feel low, or lose their confidence. Upon identifying deficiencies in the employees’ performance, it is thus essential to provide them ample opportunity to improve through personalized training, coaching/mentoring, and development programs.
Compensation and Rewards
For long-term results of performance management, companies must make sure that the employees are compensated or paid based on their performance. Additionally, extraordinary performance must be rewarded to set standards and examples for other employees. Fair, performance-based compensation and rewards motivate employees and help develop the perfect growth-oriented culture.
Based on their business model and budget, companies can adopt various compensation and reward methods, including salary increments, promotions, incentives, profit-sharing & other bonuses, stock options, paid team trips, non-monetary rewards like performance awards, etc.
Performance Management Challenges That Businesses Face
Performance management is an inevitable human resource management (HRM) function, but not all businesses realize its importance wholly. Companies thus commonly face numerous performance management challenges, including:
- Employees and managers/leaders are not on the same page about performance goals as the goals are not clearly defined and communicated.
- Companies do not have a systematic, well-designed, and updated performance management system and processes, and there are no clear performance evaluation metrics or tools in place.
- Employees typically perceive the performance management processes as control and humiliation tactics instead of a mutually beneficial development exercise.
- Managers are themselves unaware and do not understand the purpose of performance management; thus, they cannot implement it properly.
- Employees cannot understand the performance benchmarks due to a lack of communication between employees and the management, which impacts overall performance.
- Managers sometimes fail to clarify roles, responsibilities, and expectations to the employees; this damages team performance.
- In the absence of rewards and recognition, good performers consider the performance management exercise as just an eyewash formality.
- New employees typically do not have a clear idea of the business and cannot understand their roles and performance parameters.
- When companies are not transparent in their work practices, employees cannot work diligently due to a lack of understanding of the work and its results.
- Accountability is not clearly defined; thus, for any deficiencies, managers blame the team members who blame each other when deficiencies surface, and it becomes impossible to figure out which team member is responsible for it. Without accountability, improvement is not possible.
- Companies fail to optimize authority and responsibility; the employees who are assigned responsibilities are not granted ample authority to perform well and vice-versa.
- People in authority are many times resistant to innovative ideas and change. It prevents employees with out-of-the-box thinking from using their creativity, providing suggestions, and performing exceptionally.
- Stubborn managers resist employee opinion and feedback and overlook employee voice, hindering overall performance improvement and organizational development.
- Personal biases can greatly influence performance evaluation in the absence of well-defined, transparent, and explicitly communicated performance metrics, benchmarks, goals, and strategies; this results in employee demotivation.
- Average and below-average performers can improve with mentoring and coaching, but companies fail to realize the importance of a personalized mentoring and training program to help employees enhance their performance.
- Companies fail to create the right work culture that supports diligent performance monitoring, improvement, and recognition; thus, the good performers gradually leave or get demotivated.
- Performance management processes are complex, prone to errors, and involve significant time and energy for the companies when done manually; it thus proves costly.
Businesses can solve these performance management challenges, streamline and control performance management processes, and enhance overall performance easily by adopting the best performance management practices and strategies discussed in the next section.
Top 5 Tips to Enhance Performance Management
Simple tricks and strategies can help companies revamp their performance management operations without much effort. Here are the top and trending tips that businesses must follow to enhance performance management.
Performance Management Must Be Continuous
The performance management process must go on continuously throughout the year, in a well-defined and systematic manner, to ensure consistent performance. It should not be random and must not miss the defined deadlines. Companies now realize that an irregular, random, or just annual performance management system is insufficient and does not serve the purpose. Studies indicate that companies with continuous performance management outperform others with more than a 60% increase in productivity, workforce motivation, and achieving the organization's top goals.
Businesses are thus switching to a continuous performance management system that ensures enhanced communication, timely feedback, a better understanding of changing expectations, employee motivation, and enhanced work culture. Moreover, continuous performance management remarkably boosts employee engagement. It helps build the right work culture where employees need to perform consistently and diligently all through the year. Companies thus must follow a monthly or quarterly performance management system as per their business needs, with a regular performance evaluation and scoring cycle, and consider the average scores of all months or four quarters for the annual performance appraisal.
Train the Managers
Managers set examples for their subordinates. If they lack the crucial management traits, they cannot enhance their team's performance. Moreover, if the managers do not understand the crux of performance management processes, they cannot implement these rightly and effectively. Thus for effective performance management, managers need to be trained on crucial managerial skills and the significance of various stages of the performance management lifecycle. Here are the top skills that managers must learn:
- Mentoring
- Time management
- Team building
- Goal setting
- Strategic thinking
- Participative management
- Providing constructive feedback
- Emotional intelligence
- Active listening
Communication Is the Key to Effective Performance Management
Another valuable tip for enhancing performance management is improving communication at all levels, between managers and their subordinates, peers, and more. When managers communicate effectively, employees share their views and apprehensions; this helps the managers understand the employees better. Consequently, employees also develop trust for the managers and the company. It ultimately motivates the employees to perform better. Studies indicate that regular communication between employees and their managers can enhance employee engagement by nearly three times.
To enhance communication, managers must conduct routine meetings, one-to-one or in groups, and discuss their expectations, employees’ understanding, and the outcomes of previous meetings. Through such meetings, managers can also involve employees in decision-making. It creates a sense of accountability and ensures that employees and the management are on the same page. Improved communication and trust enable employees to positively accept and diligently participate in the performance evaluation and management processes, thus improving the outcomes.
Adopt the Trending Performance Management Techniques
Performance management is evolving continuously to accommodate the changing needs of businesses, employees, and the market. With an aim to perform the best and stay ahead in the competition, today’s organizations are getting more employee-centric. Companies must realize that employees are their biggest assets and that happy employees will perform better. Thus, it is essential to analyze one’s business requirements and adopt the trending performance management techniques, as described below.
Management By Objectives (MBO)
This performance management technique involves defining clear objectives and comparing the actual performance with the predefined objectives over a specific time period. It requires managers to include employees and set explicit objectives collaboratively. Further, companies need to ensure that these objectives are regularly updated as per the changing market needs, competition, and experience. However, to ensure successful performance management through this technique, it is crucial to train the managers on various management skills, including effective communication, empathy, listening, and more.
360-Degree Feedback and Review
Another trending performance management tool that companies commonly leverage is 360-degree feedback and review. Here, the company gathers each employee’s feedback from all possible stakeholders, including the employee’s superiors, subordinates, peers, and sometimes even external stakeholders like the customers and clients. Evaluation of these inputs provides in-depth insights into what the employees, managers, and the company need to change and improve, to enhance the overall business performance.
Key Performance Indicators (KPIs)
KPIs (key performance indicators) are measurable performance evaluation benchmarks or metrics that enable businesses to measure employee performance. Companies set performance standards or KPIs for each category of employees according to their role in the company. They also define the timelines for achieving these goals. The employee’s performance is routinely evaluated, like quarterly or annually, based on the scores on these KPIs or parameters.
Personal Development Plans (PDP)
A personal development plan is a popular performance management technique widely used by companies. These are documented action plans that outline employees’ goals, strengths, weaknesses, what they need to change, and what skills & knowledge they require to improve their performance. This technique acts as a self-evaluation tool, enabling employees to understand and improve their performance and helping managers know what support the employees need for improvement.
Balanced Scorecard
A balanced scorecard is a performance management metric or technique that helps companies identify and improve their overall performance. It is a vastly used and successful performance measurement technique. This technique is customer-oriented and focuses on four broad and critical parameters/measures, including the customer perspective, internal perspective, innovation & learning, and financial perspective. These measures collectively enable companies to evaluate past performance and gather feedback to make better decisions for the future.
Leverage Performance Management Software
Manual performance management has numerous challenges. Implementing reliable performance management software can help companies streamline and control various performance management processes and reduce overall costs. Here are the top benefits of leveraging performance management software for your business.
- Facilitates the automation of comprehensive performance management processes under a single roof.
- Enables ease of access and updates.
- Assures enhanced accuracy due to the elimination of human errors.
- Software-based performance management allows dynamic goal-setting and modification as per the changing needs.
- Ease of gathering and recording continuous feedback.
- Helps bring all stakeholders together on one platform, enabling 360-degree feedback.
- Enhanced communication and collaboration for better performance management.
- Better employee engagement through transparency, feedback, and recognition.
- Offers detailed analytics for intelligent insights into the performance of the employees and the company.
- Empowers employees with self-evaluation tools and real-time feedback.
- Dashboards enable the ease of performance-related announcements and acknowledgments; these greatly help motivate the employees.
- Elimination of personal bias, ensuring enhanced performance management.
- Conservation of time and resources, increased workforce efficiency, reduced operational costs, and enhanced profitability.
Wrapping Up
Businesses must not underestimate the importance of performance management. Performance management is not a judgment or punishment tool. It aims to maintain and continuously improve employee performance to add value to both the business and the employees.
Effective performance management ensures improved employee behavior and performance and enhances employee loyalty and retention in the longer run. Streamlined performance management strategy and operations can help companies improve their overall business performance, create a healthy work culture, and boost profitability.
Modern HR software systems offer extensive performance management tools. These tools help businesses automate and control all stages of the performance management lifecycle, ensuring augmented results. Leverage the right performance management techniques as discussed above and adopt reliable software tools like performance management systems, performance appraisal software, or HR software to enhance the performance of your employees and businesses at all levels.
