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4 Steps to Effective Employee Performance Management

Laura Handrick
Laura Handrick Contributing Writer
Updated Jan 23, 2023

Rather than sticking to traditional forms of employee performance management, like annual reviews, managers are best served giving ongoing, real-time feedback.

Keeping abreast of how your employees are performing is a key component of being a manager. However, while managers can provide the resources, tools, insights, vision, values, inspiration and leadership, it’s up to the employees themselves to manage their own performance.

Your staff will perform better when they understand and buy into the overall purpose and vision of the company, the goals of their department, the objectives of their team, and their role within each. Once they have that understanding, regularly getting their feedback and providing data to let them know how well they’re doing will go a lot further than subjecting them to quarterly performance review meetings or dangling the carrot of a raise at the end of the year, after their annual review.

What is performance management?

“Performance management” is a broad term that describes the process of managing worker performance in a traditional, industrial way. It considers the employee or worker to be the performer, producing work deliverables that need to be tracked and managed.

Here are some simple examples to illustrate:

  • Call center: Suki takes inbound calls to help customers solve software problems. Her managers believe that 50 calls a day should be taken over the phone, documented and resolved to the client’s satisfaction. It’s up to Suki’s manager to “manage her performance” at that level. The manager does so by tracking the length of her calls, her call volume and her client feedback scores.
  • Car dealership: Mike’s manager tracks his sales volume every week to see if he’s bringing in the required revenue while ensuring customers are satisfied. Mike’s manager meets with him daily to discuss and “manage his performance.” When he performs well, he earns a bonus on top of his commission.
  • Distribution: Bill manages warehouse performance in terms of workers’ speed and accuracy as they fill orders on the line. He observes daily metrics, talks with employees who are falling behind, and hands out bonuses to employees who work faster and make fewer mistakes.

What are the benefits of performance management?

Performance management is good for businesses from all sides. It isn’t just a means to improve profit margins; it helps people in the company at all levels. Let’s look at specific benefits for employees and employers to get a feel for the big picture.

For employees

  • High morale: Well-executed performance management grants direct benefits to employees. At the top of the list is positive morale. Overly structured reviews can create a sense of anxiety in many employees. The less structured, more fluid dynamics of performance management removes that stress from the equation and boosts morale.
  • Employee growth and development: Alongside that morale, performance management creates a persistent methodology to foster employee growth and development. When employees receive regular coaching and investment from management, rather than just a few to-do items and pointers during scheduled reviews, it creates a stronger relationship that can produce better developmental results.
  • Employee autonomy: Most of all, performance management boosts employee autonomy. The whole point is to give employees greater freedom of self-management. They can do things their own way, as long as it gets good results. This freedom allows many employees to thrive where they might otherwise be stifled by micromanagement.

For employers

  • Greater retention: Anything that boosts morale is likely to improve employee retention. Lower staff turnover means less time and energy has to go into recruitment, hiring, and training.
  • Higher engagement: The fluid style of performance management increases engagement between employer and employee. This gives management a lot more information and contact to use when selecting people for promotions and special tasks. When managers have a finger on the pulse of their team, they can make informed decisions about how to use personnel.
  • Better leadership: Performance management gives managers more opportunities to exercise leadership skills. The increased contact that stems from this review style allows managers to foster relationships and spend more time directly interacting with their team members. This improves communication and helps employers and managers understand how to reach employees for best results.

What is traditional performance management?

Traditional performance management plans are process-driven, not people-driven. You set goals, rate employees using an appraisal form, recognize top performers, and reprimand those who don’t cut it. And most employees don’t like it.

Regent found six reasons why employees resent traditional appraisals:

  1. Rating bias
  2. Appraisal hypocrisy
  3. Poor, informal feedback
  4. Poor communication during formal feedback sessions
  5. Rater errors
  6. Mismatch between rater appraisal and self-appraisal

Larger companies often attempt to systemize the performance management process using online tools that capture feedback and ratings. The Society for Human Resource Management reports that more employers each year are ditching formal performance reviews. They’re replacing annual review processes with more frequent one-on-one manager conversations and peer feedback.

What are some performance management mistakes?

The problem with traditional performance management is that it doesn’t inspire employees as well as newer forms of employee engagement do. That’s because it’s focused on top-down goals, inputs, outputs, metrics and measures. It punishes employees who don’t meet objectives by reducing their bonus opportunities or subjecting them to a reprimand, write-up, or retraining.

It simultaneously demotivates top performers, who are often forced to sit through quarterly or annual reviews where they get potentially biased feedback on their “performance” that misses the innovative ideas they’ve contributed. It fails to measure their overall value to the team and the company.

In contrast, newer forms of performance management focus on the employee as a person, empowering them to manage their own performance, often with significantly better results. In fact, the terminology is changing from “performance management” – a thing done to a person – to “employee engagement,” which is when employees manage their own motivation and performance while the company provides support, guidance, tools and encouragement.

Tips on how to manage employee performance

If you want to get the most out of your employees, do less managing and more engaging. Here are the steps of managing employee performance in a way that inspires and motivates workers to contribute their best efforts to your company.

1. Focus on the overall business objectives by aligning goals.

Start with what your business is about. When you share what you’re trying to accomplish – your vision, mission and objectives – you invite the employee to be part of the solution.

Employees are motivated when they understand and agree with what the company is about and how they can make a difference. They want to be part of the big picture and understand how they affect the bottom line.

In a traditional business setting, performance is managed from the top down: The senior executives establish company goals, department managers refine them into team goals, and supervisors work with their direct reports to map out specific work-related goals, often tied to a weekly, monthly or quarterly timeframe.

A more productive way to integrate the employee into the process – to engage and motivate their performance – is to share what the goals are, and then ask the employee how they can best contribute to the achievement of those goals.

You can then work on providing resources they may need and setting measurements the employee can buy into. Many businesses use a goal-setting form or process that breaks down company objectives into measurable departmental, team and individual goals.

2. Regularly talk to your staff about work performance.

Once your employees have agreed on how they can help you, your department and the company achieve its goals, don’t stop there. The conversation has just begun; to maximize performance, the lines of communication need to remain open. A good manager does this naturally.

In a traditional performance management process, the performance goals are documented on a form and may not be revisited for six months to a year. There’s little value in that. In fact, by the time you get to the year-end review, the company may have changed direction entirely, and the original goals may no longer be relevant.

Here are some examples of engaging employees to manage performance in real time.

  • In a restaurant: At the end of the shift, a manager may huddle with the team to ask what went well. She may then ask what didn’t go well and get input from the team members on what they recommend be done differently for the next shift.
  • In a plumbing business: At the end of the day, the supervisor may ask each service person how the day’s jobs went. Are there any tools they’re missing? Training they need? Follow-ups with customers to be scheduled? It’s the dialogue that gets employees thinking about how they can improve their day-to-day performance.
  • In an accounting department:Just before the month-end processing, the manager can meet with the team to determine what they need to ensure the process goes smoothly. Afterward, they can debrief on what went well and what needs to be changed (software, processes, approvals).

These examples of performance management are not discussions had at the end of a sales month, fiscal quarter or calendar year based on lofty corporate goals that lack context, like “increase market share 5%.” They happen before, during and after work events – a shift, a day’s call schedule, a manufacturing run. They’re related to the work happening now.

These manager-employee conversations may or may not be documented formally, although many modern performance management systems provide a place to record notes from these one-on-one and small team meetings. The purpose of the ongoing dialogue is to manage performance continually, not from the top down but with the performers themselves.

3. Measure and adapt.

The secret to ensuring peak performance is to track worker progress so that you can reward great performance or course-correct in real time. Research shows that employees are motivated by being part of a team and seeing goals realized.

To manage employee performance, you should measure and track it, but in a public and collaborative (non-punitive) way. Then, use that data to inform and inspire your employees.

Here are some examples of how different company types could measure performance:

  • Corporate: A corporate project team can measure their progress with software using a “percentage completed” chart. Individuals can track their progress with this metric as well.
  • Small business: A small company running a marketing campaign can track the number of likes it gets on each Twitter post.
  • Brick-and-mortar business: A restaurant could track the number of appetizers customers add to their orders.
  • Nonprofit: Volunteers raising money for a cause often track their progress using a graphic of a fully charged battery or a thermometer, or they may post a wall chart showing a funding line going up.

Nearly everything a person can make, create, do or provide can be tracked – customer satisfaction scores, number of referrals, lines of code written, viewer ratings, units sold, revenues and more. What matters is that your metrics and measurements reflect the contributions of your team and the individual performance of workers within the group. If your team members don’t buy into the metrics, it won’t inspire them to perform at their best. To get the best performance from your team, you have to help them feel engaged in the work and committed to the success of your organization.

4. Consider a performance management system.

Performance management software exists to standardize how you document and disseminate information related to performance management and reviews. The system can help you schedule interactions between management and employees. It’s also a means to track all of the important metrics that are being explained to the employees. Many of the best HR software providers offer performance management as part of their suite of features.

The system can facilitate collaboration between groups, making important information highly visible to all parties that need to see it. In short, a performance management system is the software that makes it easier to put everything together and keep track of it.

You have many options for this software, but a few features can make or break the experience of using the system. One of the most important features to look for is an employee self-service portal. This is where employees can exercise autonomy in reviewing their metrics, staying up to date on company information, and utilizing resources available through the portal.

Other great features of this software include time and attendance management, an employee database, and leave management. Keep an eye out for these functions as you decide which system is right for your company.

Image Credit: fizkes / Getty Images
Laura Handrick
Laura Handrick Contributing Writer
Laura Handrick, MA, SPHR, is a professional with more than 30 years experience in HR, training, organizational development, and innovation management give her insight into business management, technology best practices, and labor law compliance. Having served at the executive level in Fortune 100 firms and international franchise organizations, Laura is passionate about helping businesses grow and scale. She has written over 100 long-form articles on topics ranging from software selection to performance management and shared her expertise in over 75 publications including the Wall Street Journal and Fast Company. Laura has a master's degree in instructional technology, is certified as an international franchise executive through the IFA, and as a senior professional in human resources through SHRM.