Performance Management. Two simple words that strike fear into the hearts of almost every leader and employee. However, performance management doesn’t need to be anxiety-provoking or cumbersome. In fact, the most effective performance management strategies are simple to understand and take little to moderate time to execute.
In simple terms, performance management, managed within a performance management system, is a process that your business uses to track individual employee performance over a period of time. And, as the name implies, the performance of each employee should be actively managed by their supervisor using clearly defined goals and metrics.
Learn more about what performance management entails in this guide.
5 Performance Management Best Practices
It can be easy to overcomplicate performance management with confusing individual goals or organizational goals, changing timelines for review, or infrequent communication. However, by following the 5 best practices below you can significantly increase the effectiveness of your performance management strategy.
1. Clear Standards, Clear Communication, Clear Outcomes
Employees should have a clear understanding of their performance rating at all times.
Communication is the cornerstone of any successful relationship, and have no doubt, employees and their supervisors are in a professional relationship. The most successful business relationships tend to include individuals who over-communicate, trade ideas and thoughts fluidly, and are comfortable challenging themselves and each other.
Highly successful employees also have leaders who:
- Prioritize one-on-one time with a clear agenda for the interaction,
- Provide coaching and actionable feedback directly tied to performance, and
- Provide instructions for employee improvement and goal-setting in all areas, even where the employee is performing well.
One-on-one sessions need not be long. Fifteen to twenty minutes weekly can be highly energizing and motivating for an employee and keep them informed of their progress toward their personal KPIs and overall business goals.
The importance of each employee having a clear understanding of their performance cannot be overstated, particularly when it comes to formal performance reviews. Whether your organization runs on a quarterly, bi-annual, or annual review cycle, the review process will be faster, smoother, and have lower potential liability if the employee is aware well in advance of their performance.
Imagine this scenario:
Throughout the course of the year, an employee has five one-on-one sessions with their manager. These are general check-ins without an agenda and none included a frank conversation about Employee’s poor numbers.
During the annual review, the employee is placed on progressive discipline and their incentive bonus is withheld. The employee then files a grievance with HR and states that they were never made aware that their performance was below standard, claiming that the manager is singling them out and bullying them. Furthermore, they claim that they are owed the incentive as the metrics were not clearly communicated.
How could this have gone differently if the manager had stayed on a regular communication schedule with the employee and provided continuous feedback regarding their key results? How would the employees’ performance have been affected if they were periodically updated regarding their numbers, and warned that underperforming would lead to the loss of their incentive bonus? How would they have reacted differently to this performance appraisal if they anticipated the outcome?
2. Leaders That Are on the Same Page
All leaders with direct reports should use the same logic and scale to determine performance.
How is it that leaders in the same organization, using the same rubric and tools, can have vastly different outcomes in determining employee performance? This scenario can easily happen if they are not approaching the issue with the same perspective.
Say, for example, that two leaders in the same department are using a 1-5 scoring system to measure success.
- Leader A believes that a score of 3 is indicative of an employee who performs in the middle of the pack, but certainly not the lowest.
- Leader A believes that a score of 3 is indicative of an employee who performs in the middle of the pack, but certainly not the lowest.
How will a well-performing employee score with each leader? Under Leader A the employee will score a 3 as they are a good performer displaying all the necessary competencies for the job, but not a standout employee. In other words, they are meeting goals. Under Leader B, the employee will score a 4 or above as they are a good performer and not close to progressive discipline.
This may seem like small potatoes to a leader but it’s a big deal to the employee, particularly if their compensation or promotability is in any way tied to performance evaluation. For example, consider the compounding effect of pay inequity when one team consistently scores higher and thus earns a larger raise or bonus. A savvy human resources team will recognize this trend and take steps to mitigate the damage and potential liability, noting that the two leaders’ teams have vastly different performance scores based on their leader, not their work product or quality.
To avoid this issue, leaders should calibrate with each other prior to each formal review cycle, especially if the organization engages in continuous performance management strategies.
Leaders should discuss their philosophical approach to scoring, what each score means to them in terms of performance, and any issues related to compensation or promotability based on score. They should then come to an agreement on which approach to adopt, and how they can optimize a scoring structure.
Many organizations tie review scores directly to annual compensation increases and bonuses. They may consider using this opportunity to financially reward top performers. Leaders should take initiative to ensure fairness within cohort groups and may consider stack ranking their employees — a practice of rating staff as top, average, or low performers. This exercise will ensure calibration is accurate across teams.
If stack ranking is done, it should remain completely confidential and only be used as an exercise for calibration, employees should not be privy to the stack rank but instead their accomplishments or areas of improvement should be addressed by means of constructive feedback during the review process.
3. Simple, Easy-to-Understand Success Metrics
Individual metrics for success should be stable, easy to understand, and easy to coach.
Measurements used to gauge employee performance should not take a math degree to understand. As a general rule, metrics and OKRs for individual success should be directly tied to actions within the employee’s scope of control, influence, and job description and should be fixed for at least half of the year.
At least 80% of the metrics should be objective, meaning there is little to no room for interpretation, and any subjective measurements should be tied to a performance quality that is imperative to the role.
Objective metrics are based on a standard scoring template that has been agreed upon. To this standard belongs a defined "unit" (number of sales calls, deals closed, clients retained).
Subjective metrics are based on subjective standards - such standards are based on criteria set by individuals (integrity, communications skills, teamwork). Unlike "objective metrics", these standards can change very quickly depending on the situation and scoring methodology.
For example, in a sales organization, 100% of the metrics could be tied to clearly defined financial goals, as the employee’s role is to sell and the organization may not place substantial value on soft skills such as teamwork or communication.
In a service organization, by comparison, it is common for most of the metrics to relate to soft skills, such as relationship-building, teamwork, or demonstrating integrity. In this example of subjective metrics, the individual leader’s view of these attributes may differ from other leaders in the organization. In this case, examples and definitions must be provided to employees well in advance of their performance review so that employees have the best opportunity to meet the standard.
At most, an individual contributor should be accountable to five performance metrics. The ideal number is three, as this is easier to coach and allows the employee to focus on what’s most important in the business.
Creating easily understandable metrics is key. The common vernacular should be used in the metric and in any definitions that accompany the metric. If a leader intends to provide coaching on a metric an employee is underperforming in, they should be prepared with specific examples of how the employee failed to meet the minimum expectations and requirements. The leader should then present alternative ways of performing that would have met the minimum requirements. If the leader is not able to coach this specifically, both the leader and the metric need to be deeply examined for their effectiveness.
When it comes to overall business performance, which is a culmination of all efforts within a business, metrics may require complex calculations in determining outcomes. This can be based on EBITDA (earnings before interest, taxes, depreciation, and amortization) or overall financial reporting.
It’s vital to ensure that employees understand which metrics they are judged on as an individual, and which are a representation of the whole. For example, an individual may be accountable for how many service calls they completed in an hour as an individual goal. EBITDA, an overall measure of the organization, is not attributable to one employee. The employee may have had an outstanding year and surpassed all targets, only for the business to miss revenue or growth targets. During performance conversations, focus on the employee’s contributions only.
The leader may address the overall company goals in a different venue. This approach will encourage employees to focus on what’s within their control to improve, as opposed to being overwhelmed by large company goals they may not be able to influence.
Lastly, at least some component of employee goals should be intentionally attainable, especially if goals are tied to salary increases or incentives. Targets, stretch goals, and BHAGS (big, hairy, audacious goals) are completely meaningless if the organization's employees have no chance of meeting them or if the organization has no intention of honoring the associated payouts. A sure way to demotivate employees at every level is to set unattainable goals that tie to compensation. Employees are smart; one cycle of this behavior will have your top performers job-hunting.
4. Presenting Performance Reviews
How to minimize anxiety about performance feedback during review cycles.
It’s inevitable that employees at every level will have some anxiety prior to their performance review. No one wants to hear that they’ve done a bad job or that they aren’t receiving a bonus or salary increase, but if there has been ongoing communication between leader and employee, the conversation should be fairly anticipated and go relatively smoothly.
When presenting a performance review, the leader should take care to block at least thirty minutes of uninterrupted time to discuss the review with the employee and the employee should do the same. Everyone is busy, but showing respect by giving your full attention to the matter at hand will have a deep and meaningful impact on the person receiving the review.
The leader should use the opportunity to primarily express their appreciation for the efforts of the employee, not focus on the items that need to be improved. Remember, the employee is already well aware of opportunities for improvement due to continuous performance management and excellent communication between themselves and their leader. This is a chance to look forward, not backward, and at least 80% of the conversation should be about the future, focusing heavily on the employee’s performance plan for sustainable improvement.
Take the time to discuss with the employee how they think they performed, their thoughts on how to improve, what they are proud of, and what they need from their leader in terms of support. Remember, this is a chance to discuss the employee and their performance, not a time for the leader to be the center of the conversation.
If there are financial ramifications, discuss them with the employee, and if they are receiving an unexpected bonus or salary increase, make a big deal out of delivering the news. This may be a minor part of the leader’s day but it’s likely a huge moment of accomplishment and pride for the employee. Don’t miss this opportunity to build rapport and connection with team members.
If this new approach is a major shift from the current way your organization presents reviews, observe how fast word travels of the change in protocol. You are likely to see a boost in morale even amongst those who have plenty of room for improvement. This should also positively influence the employee engagement and retention of your organization long term.
5. Tools of the Trade - Performance Management Software
Keep it Simple.
When deciding which performance management software to buy for your company, look for user-friendly, adaptable technology that works for your current and future business needs. Consider asking employees at several levels within the organization to sit in on demos and give input on the user experience.
For a curated list of top vendors in this space, have a look at the SSR performance management software buyer guide.
Remember, the folks who will be most immersed in this technology will be your front-line and manager-level employees as they tend to have the most direct reports. Employee performance management is already an emotional process, technology shouldn’t make it worse. To help them succeed include these factors in your software vendor vetting process:
- Process management: Does the tool help to manage timelines?
- User Interface: Is the tool intuitive for your front-line employees?
- Storage: Does the tool offer a history of past reviews?
- Cost: Is the tool affordable for the value?
- Growth: Will the tool work now and be a scalable solution as the workforce grows?
For many small to midsize businesses, a complex tool may not be necessary. Be wary of overcomplicating the process with time-consuming and cumbersome technology simply because it has all of the bells and whistles. Focus on agile, user-friendly technology that delivers value and ease of use for the employees who will use it the most. This may mean having different tools for different lines within your business, but do your best to ensure all tools meet the criteria above.
Signs Your Performance Management Process Needs Improvement.
It may be time to look at your performance management process if you are observing or hearing the following:
- The current process is viewed as overly time-consuming or too frequent.
- Employees don’t understand how they can affect their performance metrics.
- Employees dread performance reviews or see them as punishment.
- Excellent review scores never or rarely yield a financial incentive.
- Leaders see reviews as unnecessary.
- Metrics and KPIs that define success are constantly changing.
- Vastly different scores for similar work come from different leaders.
- Employees don’t have a good idea of what their scores will be at any given time.
- The available performance management tools are difficult to use.
- A mismatch between scores and overall company performance.
Getting Employee Feedback on the Performance Management Process
You may be asking yourself, how am I supposed to observe feedback employees give on my performance management practices?
Consider an employee survey about two weeks after the review process is completed. Divide the survey into categories of technology, metrics, reward/comp, and culture. Be prepared to act on the outcome of your survey and communicate with employees. Never send out a survey if the organization isn’t able to prioritize the concerns that will be expressed, this is highly unmotivating and will tank morale.
Taking a good, hard look at your organization's current philosophy and process may not be easy and may bring to the forefront challenging issues around compensation, expenditure, processes, or even the value of setting employee goals. But the end result is invariably a deeper understanding by the leadership of the organization's direction and momentum on these issues.
Not all decisions or changes in tactics need to or should be made at once, but opening a conversation on these topics will ensure continuity between leaders on the current direction the business needs to take.
Share Organizational Challenges and Limits
Many businesses, especially small businesses, may consider being slightly more open with employees regarding ongoing financial situations which may inhibit the ability to pay bonuses or high annual increases, even when their performance review scores are excellent.
If presented appropriately, this strategy and vulnerability can be incredibly powerful in uniting the employee base around a common purpose and strategy for business growth. In these situations, leaders should set future goals which would plan for financial compensation as the business grows and thrives. If done with integrity and sincerity, this strategy is a powerful tool in ensuring loyalty amongst employees.
Whether you’re brand new to performance management and reviews or you’ve been doing them for years, there’s always an opportunity to freshen your approach. The thoughts and recommendations above are best practices, but the reality is that no organization executes each component flawlessly. If you found while reading these tips that there’s a lot to work on in your business, you’re in good company.
A practical approach to efficient, modern performance management, like any other business process, is likely the most prudent. Start by taking an inventory of your current processes and the outcomes they produce. Then, determine which adjustment suggested above would have the greatest positive impact on the organization.
One of the toughest goals is to change negative perceptions within your organization. This takes time and effort and doesn’t happen overnight. Don’t get discouraged, these tips work, and what you can count on is that over time paying attention to the impact of communicating performance to employees will make your business run better, be more efficient, and be more productive. And who doesn’t want that?