Admittedly, employee development often isn't at the top of the priority list for small businesses. However, to keep employees from feeling stagnant in their careers and unsure of how their performance compares to that of their co-workers, having a strong performance management process in place is critical.
Having such a process in place is crucial not only to employees' growth and development, it also impacts a company's bottom line. To create a valuable employee performance process, keep your company's mission and strategic goals in mind, as well as individual goals for each employee. The goals you set for your employees should tie in with your company's overall strategic goals.
What is a performance management process?
A definition of performance, in terms of human resources, constitutes standards by which employees are evaluated on their ability to complete tasks. The term process in "performance management process" pertains to the communication that is determined by managers and that takes place between managers and employees concerning an employee's performance and the employee's goals for their job position.
To best understand this concept, consider these examples:
- Attendance: If you own a limo service company and your limo drivers are consistently late, it affects customer service. Limo drivers must report to work on time.
- Communication: Clients who hire a marketing agency to mitigate damage caused by negative Google reviews expect clear communication so damage can be mitigated right away.
- Adaptability: If you run a medical practice, it's valuable to have nurses who can adjust their schedules on short notice to accommodate unexpected walk-in patients.
What are the steps involved in the performance management process?
The performance management process involves considerable planning. It's easier and more manageable to implement when the four steps below are followed.
An effective performance management process ideally occurs before an employee filling a position; it's the time when the management team evaluates the following aspects of a job position:
- A definition of the job
- The short- and long-term performance goals of that position (clear, measurable, attainable and relevant), such as for time management, productivity and adaptability
- What the performance evaluation of the position will look like.
Coaching falls in line with employee development and is commonly done in sales positions, but everyone in any job can benefit from it. As a manager, set time aside to provide constructive coaching to your direct reports.
In many companies, a formal performance review is held with each employee to assess their performance over time. That review generally includes giving and receiving constructive feedback. Some companies, however, offer a formal review twice a year.
During this step, recognize and reward employees for a job well done.
What are the benefits of the performance management process?
It may be unsettling to employees who are used to an annual evaluation to transition to this new process. However, by being transparent with your employees and communicating the benefits of a performance management process, they can be more accepting of it (and perhaps even excited about it).
The performance management process has benefits for both employers and employees:
- It can boost morale. Employees like to know when they are doing a good job. A performance management process provides more timely feedback and praise to employees who are performing at a high level.
- It can identify areas for improvement. Often, employers and employees get so caught up on their daily tasks that they forget to spot areas where improvements can be made. A revised process helps managers and employees identify and set new individual and department goals.
- It supports company expansion. In a case where certain employees are going above and beyond delivering excellent results, a performance review helps employers identify possible opportunities for company expansion by promoting staff members and hiring additional staff.
- Companies boost their employee retention rate. When companies implement a performance management process, it fosters honest communication between managers and employees. Employees understand how their performance compares with that of their co-workers, they can feel good about the work they do, and they feel appreciated through the feedback they receive from their supervisor.
Tips for implementing a performance management process
Performance management processes can do so much for an organization, but it's easy to see how their implementation can be bungled. These systems require a lot of changes and heavy commitment at all levels of the company. In a lot of ways, they are closely tied to company culture.
For the management process to have a real chance at success, it is important to disseminate it with a solid plan and a strong understanding of what works best. These tips can inform that understanding and cultivate a successful performance management process.
Get buy-in from team managers.
Performance management usually means adding to the overall workload. It can also mean increasing stress levels for employees across the board. For a company to overcome the natural resistance these changes can bring, the process has to be embraced from the top down. It is only when leadership truly understands and values the performance management process that they can instill enthusiasm in everyone else. Buy-in from all the company's managers is the first step in successful implementation of any new process.
Some Fortune 500 companies push the concept of top-down performance management through 360 reviews. Instead of analyzing an employee once a year to determine a raise, they keep feedback channels open every day. Many famous companies, such as Netflix, have dramatically employee satisfaction as a result.
A process can only create reliable benefits when it is implemented consistently. One of the challenges of performance management processes is that they tend to be flexibly applied by lower-level management. Each leader has a unique relationship with their team, and that can make it difficult to apply reviews the same way across the board.
Standardization is the trick to overcome this obstacle. Any part of the process that can be quantified or clearly defined will help with consistency. This prevents confusion among groups and enables the system to work and be adapted as intended. The Society for Human Resource Management provides templates that can help you standardize your reviews.
Instill processes with thorough review.
Change breeds success when it is carefully monitored. System reviews are not about scolding employees who might struggle to adopt changes. The reviews are meant to reflect the performance process itself. With each action or coaching plan, employees will either benefit or suffer under the changes. It is important to review every change independently to measure its impact.
This does not refer to employee reviews. The goal here is to review metrics and how changes to the process impact the company as a whole. Let's go back to the Netflix example where the company switched from traditional annual reviews to a 360-degree process. The new process allowed peers to review each other, employees to review themselves, employees to review management, and management to review immediate subordinates. It then measured employee satisfaction using quarterly surveys and found that it skyrocketed after this change.
This is why time-oriented goals are essential to the process. Every suggested change should be given a chance to succeed and then reviewed at length when the time period has lapsed. It creates a standard for judging elements of the process, and it reminds employees that the onus is on the organization as a whole. The performance process is not a cudgel to bludgeon people into compliance.
Obviously, timescales will depend on the change at hand. If you switch to a 360-degree review process, it will take weeks to months for the company to adapt and fully embrace the policy from top to bottom. If your change is small, like altering who should be cc'd on a formal request, it can be adopted and reviewed on a shorter timescale.
What are the different types of performance management systems?
According to TechFunnel, there are seven types of performance management system:
- General appraisal
- 360-degree appraisal
- Technological performance appraisal
- Employee self-assessment
- Management performance appraisal
- Project evaluation review
- Sales performance appraisal
Here's an example of a conversation to have when giving an employee mixed feedback:
Thank you for your hard work this past year. I'd like to start your review by going over the three main big projects you spent the year working on. I acknowledge that you did a lot more than these projects, but considering the importance of these projects surrounding our yearly business goals, I wanted to focus on them. Can we proceed?
First, I applaud you for staying in budget on all three projects and completing them ahead of their deadlines. Your timelines for them were on point. Well done. Per the other department managers' feedback, the communications and directions you provided their teams with were clear, detailed, and organized.
However, on the new product launch, the creative director felt like you were a bit demanding with your requests. For your upcoming projects, how can we work on establishing your needs in a more welcoming way?
Here's an example of the type of conversation not to have when giving a negative appraisal:
We have high standards at this company, and your big yearly projects had problems. Instead of waiting on me to give you direction, you started on your own. I also heard that your tone of voice was aggressive due to the lack of sleep you've been getting from your newborn child keeping you awake at night.
How does performance management fit into an organization?
Performance management ties into the bigger picture of an organization's viability. The benefits of an effective performance management process have been linked to administrative and developmental purposes such as these:
- Making smarter compensation decisions, such as salary increases and bonuses
- Identifying promotion opportunities
- Holding employees accountable for their actions
- Identifying opportunities where employees need further training
- Increasing employee engagement
Should you use a performance management system?
Some companies find that investing in performance management software is helpful. To help you decide if you should invest in one, ask yourself the following questions:
- How will my company measure employee performance?
- What is my budget? Can my company afford software?
- How will the system elevate employee performance?
- What data will the software provide that my company is currently lacking? Will it truly resolve issues with employee performance and retention that I'm currently experiencing?
Additionally, as you talk to software companies, ask for a demo or if a free trial is available so you can better assess if the software program is right for your company.
What are some popular performance management system tools?
We spoke to business owners and an HR professional about the performance management tools they use and what they like about them. Here are the programs they named.
Asher Primrose, director of human resources at Continued, said her company uses Namely for its human resources management system, goals management, and performance reviews. She chose Namely over other tools due to its user-friendly interface and the ability to customize performance reviews to fit the company's culture and processes.
"We also use it to set annual goals, which are easy to align and link to team and company goals, and [it] provides transparency across the company as to what we are all working on," Primrose said. "Goals then seamlessly integrate into performance reviews for evaluation. Reporting and tracking is super simple, with filtering by team, manager, and year. It includes visual charts and more that can be accessed by managers and department leads."
"It has been tremendously helpful in keeping tabs on individual performance and tracking progress. What's really cool about Samewave is its promise-based management software," said Wilde. "The idea behind it is modeled after the concept of social discipline."
Wilde added that with the platform, there is an open and transparent environment where each member sees the duties and responsibilities of one another. Everyone knows who's responsible for what, and a worker is held accountable not so much by higher-ups, but by their peers.
"Each role is interrelated, so the work from one person cannot move forward unless another member fulfills his/her part," Wilde said. "If the project hits a roadblock, everyone will know who's responsible. I can take a step back and evaluate the progress of each project and see the conversations taking place."
"We mainly use it for tracking performance, payroll, and onboarding training, but it has also become a great tool for enabling employees to provide feedback as well as give 'shout-outs' to each other for work well done," she said.
What are examples of companies with a good performance management process?
Valamis offered five real-world examples of companies that have implemented a performance management process to much success:
- Google: The company launched a project strictly dedicated to assessing managers. The pilot program was then carried over to employees to set them up for success.
- Facebook: This social media giant emphasizes peer-to-peer feedback with its performance management process.
- Cargill: This food producer and distributor created the Everyday Performance Management system, which incorporates daily feedback from managers to employees.
- Adobe: After discovering that company management was spending more than 80,000 collective hours each year on performance reviews with increased employee turnover, the software company implemented a system that implemented more frequent check-ins between managers and employees, with the company giving managers more leeway to lead their teams and employees.
- Accenture: This company found that offering a fluid performance management process that provides employees with ongoing, timely feedback from their management team to be a more effective solution than the one the company had been using for years.
Performance management templates
To help guide you as you change your company's performance management process, check out these free templates: