What is Performance Management and Why Does Every Business Need It
Performance management is critical to business success, pure and simple.
Every business needs to take the time to evaluate employees, provide constructive feedback, and consider how each employee contributes to company goals. At its core, that is what performance management is all about.
It is easy to get caught up in the daily flow of work, whether you are the business owner, manager, or supervisor. Yet one of the most important factors in business success (and individual success for that matter) is regular, positive constructive feedback on employee performance.
Here are some statistics to put the value of performance management in perspective:
- 85 percent of employees say they have higher engagement if they have weekly manager check-ins
- Employee performance can increase 10 percent or more with feedback
- Only 10 percent of U.S. workers felt engaged after receiving negative feedback on the job
- Nearly 30 percent of employees began looking for a new job after a negative review
- 45 percent of HR leaders struggle to develop effective midlevel leaders, impairing succession planning
- 55 percent of workers believe annual reviews don’t improve their performance
- Turnover costs 6-9 months of an employee’s compensation to recruit and train a replacement
- 45 percent of middle market firms do not have an ongoing training system to address the skills gap
- 61 percent do not have systems in place for internal career advancement
- 96 percent of employees say they want regular feedback
- Only 42 percent trust their boss—a smaller percentage than trust strangers (58 percent)
The good news is that performance management does not need to be a time-consuming, complicated process. And chances are that if your process feels time-consuming and complicated you agree with the vast majority of organizations (92%) that believe the process is not worth the effort.
In fact, evidence is growing that more frequent, specific feedback can be more effective than traditional annual reviews and performance appraisals. Think of it in terms of steering a boat. Small course corrections and regular trimming of sails generally provides a faster and more pleasant path to your destination than sudden dramatic course corrections. These frequent, sometimes subtle changes amplify momentum rather than struggle against it.
When feedback on employee performance is frequent and positive there is greater opportunity to course correct and increase engagement. Everyone wins in this scenario, particularly if the process is streamlined.
What are the benefits of performance management?
No matter the size of your organization, a regular performance management routine will provide real benefits, including:
- Clearer understanding of how each employee contributes to the company’s strategy and goals
- Stronger team spirit
- Greater insight into potential process improvement
- Timely feedback and opportunity to adjust
- Lower burnout and employee turnover
- Early warning of problems
- Transparent, consistent, and fair feedback loop
- Better hiring decisions
These benefits are all achievable and more than offset the cost of putting a regular performance management process in place.
What are key elements of performance management?
The core elements of performance management are:
- Communication and agreement on precise requirements and goals for upcoming period. This sets clear expectations, identifies training needs, and gives both employee and manager specific metrics to use in measuring actual performance and provides great input to future planning processes.
- Detailed communication of review cycle and impact of each review on compensation, advancement, and continued employment. This sets performance standards and time frame for goals, and makes clear the influence of strong performance on the employee’s paycheck and future opportunities with the company.
- Consistent method of rating individual performance against preset and agreed upon goals. This defines the scale used in assessing performance and is usually also paired with a description section where the manager and employee can provide specific feedback.
- Easy access to previous reviews to aid in assessing progress. Past performance reviews can provide insight into current performance, perhaps showing improvements in some areas and consistency in others. They help managers spot trends, evaluate performance goals, and provide context to help understand current performance.
- Input from both manager and employee. Effective performance management assessment gathers input from both the employee and manager. This allows each to see the other’s perspective and is best used as the basis for conversation and planning for the upcoming period.
- Secure record of all evaluations and supporting documentation. It is imperative that all performance appraisals and supporting documents be stored securely and available for review. This supports succession planning, legal review, and ongoing performance management.
- Reporting and analysis. A common and consistent rating system provides data that can be used in succession planning, hiring optimization, managerial review and more.
Businesses of all sizes can benefit dramatically from regular performance management with these key elements. As organizations grow, they may also want to include peer reviews, multi-level reviews, 360-degree reviews, project completion-based review, and succession planning.
How do I define an effective performance management process?
Traditional appraisals are done annually, and sometimes included quarterly updates for specific goals or objectives. These employee appraisals determine compensation (including bonuses) and identify individuals that may be next in line for promotion. More recent performance management approaches have increased frequency and focused on leveraging positive performance for increased employee productivity. You can define an effective performance management process that supports your organizational goals as well as individual goals.
Automate to accelerate performance review value
Performance management has real value to your business and its employees. Technology takes the drudgery out of creating the content, scheduling reviews, sending notices, collecting feedback, securely storing documentation, and searching records. It also makes it much easier to move from annual performance review to more frequent performance appraisal, feedback, and improvement. And it can tap into digital timecards and scheduling for proof of attendance and compliance with clock-in/out rules. If your current process depends on paper or spreadsheets, it is a good candidate for automation.
For example, you could use technology to:
- Schedule performance reviews for all employees based on hire date or other milestone
- Easily generate and email digital performance review surveys that require both ratings and text-based answers on key performance criteria
- Enable employee to complete review online and optionally attach supporting documents
- Notify manager when employee has completed review, enabling manager to complete the manager-side review with the employee survey for reference
- Enable access to previous performance reviews and supporting documentation
- Track survey completion by employees and managers
- Schedule manager/employee review (in-person or virtual)
- Store performance review and supporting documents for reporting, analysis and future reference
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