How to create an effective employee performance management process

Employee performance is something every company should care about and actively manage. It’s the process by which organizations can actively influence employee output, while creating greater alignment between the work employees do and business objectives. It’s also a way to motivate employees, help them learn and grow, and improve business outcomes. Traditionally this happens through the process of setting goals and regularly evaluating employees’ progress against them.

Although employee performance management is important, organizations often struggle to get it right. Cadence is a good example of where many struggle. While 70% of organizations report that they conduct performance management on an annual basis, most employees say that they want feedback about how they’re performing in real time rather than just once a year. Meanwhile, 77% of human resources leaders in a LinkedIn survey say that annual reviews aren’t an accurate representation of employees’ work and 55% of employees in a SHRM study say that they don’t help to improve their performance.

Given findings like these, organizations would be wise to find better ways to manage employee performance and get results. Below, we take a closer look at what performance management is and why it’s so important. We also review the different stages of the performance management process, how to implement that process successfully, and how organizations can optimize and expand their performance management capabilities over time to maximize effectiveness.

Table of contents

Chapter 1: The basics of performance management

• What is performance management?
• Why performance management is important
• The business case for effective performance management

Chapter 2: The stages of employee performance management

• Stage 1: Plan employee performance goals
• Stage 2: Implement the plan over time
• Stage 3: Track employee performance toward goals
• Stage 4: Assess and review performance at regular intervals
• Stage 5: Revise goals if needed

Chapter 3: How to create an effective performance management process

• Assess your current performance procedure
• Define your goals for the performance management process
• Plan each stage of performance management

Chapter 4: Important considerations for your performance management process

• Leverage performance management tools
• Involve stakeholders during planning
• Train managers on your new process
• Educate employees on what to expect

Chapter 5: Growing your performance management capabilities

• The power of performance management software
• Routinely collect and analyze management data

Chapter 1: The basics of performance management

Organizations have been using performance management practices for decades. In fact, the first examples of performance management at the enterprise level date back to the 1950s. And while a fair bit has changed since then in terms of how companies approach it, the fundamentals of performance management remain largely the same.

What is performance management?

At its core, performance management is the process of continuously aligning your workforce with your business goals. Perhaps more importantly though, it’s about providing feedback, identifying opportunities for improvement, setting or resetting expectations, and agreeing on priorities. All of that should help companies motivate their employees and drive greater engagement, while paving the way for the personal development they need to advance their careers and better serve the needs of the business.

Ultimately, employee performance management is a way of fostering a high-performance work culture by promoting and rewarding desired behaviors. While that can certainly happen on a formal basis through periodic reviews, to be effective, performance management also needs to happen in real time. According to a recent Adobe study, for example, 80% of employees prefer to get feedback immediately rather than waiting to hear it in an annual review. For that reason, organizations are increasingly adopting an always-on approach to performance management that goes beyond annual review cycles so that managers and employees can talk about performance year round.

Why performance management is important

Performance management is one of the main tools organizations have for nurturing employees so that they can grow within the organization, take on new responsibility, and move up the ranks. That’s especially true when used in combination with individual development plans that help formalize that process.

For that reason, performance management often plays a critical role in long-term succession planning as well as in informing an array of other business decisions. That includes everything from compensation and promotion decisions to determining who to lay off during difficult times.

Fundamentally, employee performance management is also a way to assess the quality of your workforce overall and determine how successful your organization is at attracting and retaining top talent.  

The business case for effective performance management

As noted above, many organizations struggle to get performance management right. In our State of Performance Management report, almost 90% of organizations have a performance management process. Yet less than a quarter report getting useful or highly useful results.

Meanwhile only 20% of employees in a Gallup study say that their performance is managed in a way that motivates them. Ultimately, that means that at most organizations, performance management isn’t achieving what it’s supposed to, namely inspiring employees and helping drive better business outcomes.

By refining their approach, following best practices, and using the right tools, organizations can make meaningful advances to their performance management process and achieve results. Ultimately, that can go a long way toward helping create a motivated and engaged workforce and improving the organization’s bottom line.

Chapter 2: The stages of employee performance management

Employee performance management revolves around setting goals and evaluating how effective employees are at achieving them. Below we take a closer look at the five different stages that typically make up the employee performance management process.

Stage 1: Plan employee performance goals

Goal setting is the first step in an effective performance management process. Employees should work with their managers to brainstorm, refine, and document a set of objectives that they would like to achieve during a predetermined time frame, such as the upcoming quarter or year. While most will likely be focused on supporting the organization’s overall business objectives, one or two may be focused on the employee’s professional development.

No matter what the nature of employee’s goals may be, they should always be SMART. That means:

• Specific. If they’re not, it can be hard to determine whether or not the employee has actually achieved them.
• Measurable. There should aways be a metric associated with the goal that can be used to determine whether or not it’s been achieved.
• Attainable. While goals should challenge employees and make them stretch so that they learn and grow, they also have to be realistic, or they won’t be achievable.
• Relevant. Be sure that every goal ties back to an overarching initiative that supports the broader organization. This is important not just for ensuring alignment but also helping employees understand how their work fits into the big picture.
• Time-based. Employees should set a date that each goal must be completed by to help prioritize what needs to be done when and to help drive further accountability.

Perhaps most important of all, the goals employees set should motivate them to grow professionally while deepening their sense of responsibility for the overall success of the business.

Stage 2: Implement the plan over time

Your employees aren’t ever going achieve all of their goals in a single day, week, month, or even quarter. Many goals take time and planning to implement. It’s important to work with employees to figure out how they can break their goals down into actionable steps that they can complete systematically over time.

It might even be helpful to have employees create work plans that outline all of the steps they’ll need to take and when each will need to be completed by to ensure they achieve the overarching goal on time. Helping employees develop a framework for thinking about how they can meet their goals can be incredibly helpful if they feel overwhelmed. While less-experienced employees typically require more guidance than their seasoned colleagues, being helpful and providing support throughout the process is useful for employees at all levels.

Stage 3: Track employee performance toward goals

Because most goals take time to complete, it’s important to track employees’ progress toward meeting them. This can be done informally through weekly 1-on-1s where employees update their manager about the progress that they’re making. The goal of these touchpoints shouldn’t be to go through every goal line by line, but rather to get a general sense of how things are progressing and where there might be potential obstacles that the manager can help sort out to keep the employee on track.

If the employee has created workplans for their goals, they can track their progress in those documents so that managers can see exactly where things stand. A good performance management system will also allow employees to track their progress while giving managers a holistic view of how all of their team members are doing.

Stage 4: Assess and review performance at regular intervals

Managers should talk to their employees about their performance and progress against goals on a regular basis. While that doesn’t have to be every day or even every week, performance should be something that’s regularly discussed. That includes providing real-time feedback — whether positive or constructive — and checking in to see if employees are on track to hit their goals. This can often be woven into regular, weekly check-in meetings as needed.

Ultimately, there shouldn’t ever be any surprises when the end of a review cycle comes around. If an employee isn’t on track to meet his or her goals, the manager should be aware of this and work with the person to address the issue. Likewise, if the manager isn’t satisfied with the work the employer is doing, they should tell the employee and give coaching and guidance to rectify the situation. That way, by the time a formal review comes around, everyone should be on the same page, and any potential issues should have long since been surfaced and hopefully addressed.

Stage 5: Revise goals if needed

Sometimes the goals employees set at the beginning of a performance management cycle no longer make sense later on. This could be because organizational priorities have changed and there’s something more important to focus on. Or it could be because something beyond the employee’s control has happened that means he or she will no longer be able to achieve a particular goal. Whatever the case, don’t hesitate to have employees revise their goals as needed to reflect the current situation.

Being flexible around goals and adapting them to what’s happening in the business is critical for ensuring that employees are set up for success. That way, they maximize their chances of not just meeting their goals, but also can be confident that their goals are truly relevant and impactful when it comes to supporting the business. That’s good for them and good for the success of the organization.

Chapter 3: How to create an effective performance management process

With an understanding of the five stages of employee performance management, let’s look at what you can do to ensure that you’re creating an effective performance management process that gets results.

Assess your current performance procedure

The best place to start when trying to optimize performance management at your organization is to look at your current process. Try to identify any gaps between your goals and the outcomes your current method deliver. Now think about the ideal process you’d like to have and the outcomes you think that would deliver.

As part of this work, look at a range of factors, including how, when, and how often you conduct performance reviews, feedback to employees, and how successful employees are at achieving their goals. You’ll also want to look at the insights the process yields and how helpful they are in strategic decision-making, such as identifying and nurturing top talent.

Define your goals for the performance management process

Next, you’ll want to identify goals for your performance management process. Depending on the organization, that could include:

• Increasing employee productivity, retention, or engagement
• Ensuring employees understand how their work aligns to the overall objectives of the business
• Identifying and developing top talent within the organization
• Incentivizing employees to grow and take on additional responsibility
• Promoting greater transparency and accountability and better communication

Plan each stage of performance management

In Chapter 3, we looked at the five stages of performance management. To bring that process to life, it’s important to have a well-defined plan for each of those stages. As part of your planning, you’ll want to define roles and responsibilities so it’s clear who is supposed to do what. You’ll also want to figure out appropriate timelines for each stage and have a clear view of what success should look like at each step along the way.

Perhaps most important of all, think through how you’ll manage situations if things don’t go according to plan. If an employee hasn’t met their goals, for example, but feels their poor review doesn’t accurately reflect their work, how can you address that most effectively? Issues like these are particularly important and require careful planning when you consider that 85% of employee respondents in a Reflektive survey say they would consider quitting if they received an unfair performance review. Consider all the possibilities and how best to handle them should they come up.

Chapter 4: Important considerations for your performance management process

There are, of course, other considerations to take into account when developing or refining your performance management process. These include making sure you’re using the right tools, getting other people involved in the process, training managers so that they can help lead the process, and letting employees know what they can expect. Let’s look at each of those considerations in turn.

Leverage performance management tools

To be effective at performance management, it’s important to use the right tools and technology to support the process. According to a recent survey, 57% of companies use performance management tools and other technology to support their efforts. Meanwhile, among the companies that report being most effective at performance management, two-thirds report using some kind of technology to support the process.

The right performance management system can go a long way toward helping organizations optimize their performance management process. It should help align everyone around common goals, measure employees' performance, and use smart data to make better promotion and compensation decisions. Plus, it can be deployed to help implement year-round coaching so that employees are better positioned for success. Not only can technology like this help organizations evolve and improve their current processes, it can also be used to support employee and manager training.

Involve stakeholders during planning

It’s impossible to create a great performance management process if you’re trying to do so in a silo. Instead, engage different stakeholders across the business, including employees and managers from different departments, to get their input on how to craft a process that will yield meaningful results. This can include asking how often managers and employees should be talking about performance, how employees should be incentivized to not just meet but exceed expectations, and what the best ways to deliver feedback are.

Ultimately, you want to develop your employee performance management process to reflect the needs of your organization. The more you get other stakeholders involved in the process, the easier it will be to customize your approach so that it works for everyone involved.

Train managers on your new process

Anytime you roll out a new or updated performance management process, it’s important to take the time to train managers on how the process works. They need to be able to guide their employees through the process, answer their questions, and give them any other support they may need. Doing all of that requires that they have a thorough understanding of how everything works and what best practices to follow.

It's also important to help managers understand how they should be rating employees. If everyone has their own unique point of view on what constitutes a great job, for example, it’s going to lead to skewed results. Everyone needs to be operating from the same playbook to ensure that all employees are being evaluated fairly and consistently.

Educate employees on what to expect

Just as managers need training, employees also need to be informed about how the performance management process will work and what they can expect. Doing so will help relieve employees’ concerns, ensure they’re prepared, and alleviate any potential pain points.

Throughout the entire process, it’s important to be as open and transparent as possible. Employees should always have the opportunity to succeed; they won’t be able to do so if they don’t know exactly what your expectations of them are. Conversely, they should also be clear on the consequences of not meeting expectations.

Chapter 5: Growing your performance management capabilities

Throughout this article we’ve looked at the many benefits of effective employee performance management. To maximize those benefits, it’s important to expand your performance management capabilities over time. Having the right software and visibility to make data-driven decisions will help take your organization’s performance management capabilities to the next level.

The power of performance management software

Another significant benefit to the right performance management technology is that it helps fuel workforce intelligence. Look for a solution that offers predictive analytics to help you identify flight risks to help you prevent turnover and keep your top performers engaged. It should also provide insights into what motivates your employees and how they prefer to communicate, which can help managers give better feedback and deliver more personalized coaching.

The right performance management software will also give you a deeper understanding of your people’s performance by making it easier to get feedback from other stakeholders, including colleagues and other managers who work with the person. And many organizations will benefit from having a mobile app to enable managers and employees to manage goals on the go.

Routinely collect and analyze management data

Collecting and analyzing performance management data promotes the self-reflection every organization needs to grow and improve Start by looking for trends in the data over time. You might find, for example, that certain managers are particularly effective at cultivating talent. Or you might learn that employees are more motivated by public recognition than increases in salary. Use these insights to further personalize your approach to performance management.

Conclusion

The employee performance management process is critical to the success of every business. When done correctly, it’s not only a way of evaluating employees, but also helps to motivate them and ensure their work is aligned with business needs. The trick to getting employee performance management right is crafting your approach to meet both the organization’s and your employees’ needs.

Often, that means finding ways to make performance management an ongoing discussion throughout the year. It typically also means finding the right technology. By following the steps and advice outlined in this post, you can design an effective performance management process to help drive your business forward.