In a study, 27% of respondents confirmed that timely criticism or praise from their managers helped them perform significantly better on the job. This process of providing a structured review of an employee’s past performance and providing strategies to improve future performance is called performance management.

Performance management definition

Performance management refers to the quarterly/half-yearly/annual formal communication between a supervisor and subordinate that is conducted to assess the achievement of role-based objectives, identify critical areas of concern, clarify employee expectations, provide feedback, and set objectives for the future. 

Definition aside, what is performance management?

Well, when we talk about performance management, we aren’t referring to just one process. Essentially, the performance management process involves end-to-end management of the on-the-job performance of an individual, right from the time a job is allocated to the time an employee exits the job.

So, when we say performance management, we’re referring to the following processes:

• Understanding the unique requirements of each role.
• Choosing people who are well suited for that role.
• Identifying and outlining the expectations from the role.
• Discussing the goals and objectives that should be achieved both in the short-term and the long-term.
• Appraising the performance of the worker against set standards.
• Searching for and identifying the areas that have the weakest performance & isolating the reasons why.
• Identifying the unique strengths of the individual and developing a strategy that leverages these strengths to perform better on-the-job.
• Rewarding good performers with compensation and non-monetary awards.
• Providing helpful notes, advice, and criticism to employees who are poor performers.
• Developing programs to improve the weak areas of the worker.
• Providing the tools that make the job easier.
• Planning for the employee’s career development within the organization.
• Taking decisions about internal movements and firing due to poor performance.
• Helping staff seamlessly exit the company and conducting exit interviews to understand the reason for performance-related attrition.
• Using the information gathered from the above processes, to help the new worker avoid the same mistakes and perform optimally.

Importance of performance management to the organization

Performance management offers unique benefits to the company. Here are a few reasons why you need to implement performance management:

It helps set achievable goals

The performance management process brings to light which company goals are achievable by staff and which are not. Managers can use this information to ensure that their staff is aware of the expectations they need to meet. There is greater clarity about work to be done.

In fact, it makes strategic objectives much easier to achieve, since all employees will know what is expected of them and will align their performance with the rest of the company.

It helps managers identify the training requirements of their employees

Performance reviews highlight the specific functions and tasks that workers are bad at. Supervisors can now know if particular expertise is missing across the team/department or if it is a skills issue with an individual employee. They can provide the required training and ensure every employee is equipped to do their job.

It enables supervisors to recognize and reward good performance

80% of Gen Y employees state that they prefer on-the-spot recognition for a job well done. They feel this helps them become more fulfilled and dedicated members of the company.

Performance management helps managers compare how far an employee has come in their role and how their performance fares against established standards. It is now easier to recognize good performers and ensure their work is rewarded.

It is very useful in planning for employee professional development

Since most performance management cycles take the entire year’s progress into consideration, it becomes easier for the supervisor to assess how suited a subordinate is for a particular promotion or professional development opportunity. 

Career growth planning and succession planning can now be done more mindfully, ensuring the greater success of the decisions taken.

It is one of the best tools to reduce workforce attrition

Employees are humans, and performance management plans are ways to give employees another chance to learn, grow, and prove their mettle. This automatically reduces attrition.

The performance management process

Objective/Goal identification

Before any performance management process can begin, the senior management must identify the strategic goals the company needs to achieve.

This information trickles down to respective departments, where the departmental heads analyze what the short-term (weekly, monthly, quarterly) goals and long-term (half-yearly, yearly) goals of each team are. Team leaders then allocate work to individual employees, who they believe have the competencies needed to complete the job to satisfaction.

These goals and objectives tell supervisors what staff performance should be measured against.

Performance Planning

In the second stage, team heads plan how to implement the jobs that have been allocated to employees. Here, three things are planned:

• Results – the results that supervisors want their employees to achieve at the end of the performance management cycle.
  • Behaviors – the set of on-job behaviors that employees must display, which are relevant to their roles. (For example, top-level employees need to display greater resilience and adaptability compared to entry-level employees, since their roles involve more risk).
  • Developmental plans – the tools, skills, and training that staff needs to be provided to equip them to perform the allocated roles.

Based on these, team leaders provide individual employees inputs or send them to training, which they believe will help them on-the-job.

Performance Execution

At this stage, the onus of performance lies on the employee himself/herself. The employer must create a conducive work environment where the creativity and effort of the staff flourish. This is where rewards and recognition matter. They act as a source of motivation to employees and push them to provide top-quality work.

Additionally, including events like team dinners, picnics, game nights, and so on to your yearly schedule can also help increase workplace motivation.

Performance Appraisal

Once the job is complete, supervisors analyze whether the worker’s performance met the company’s expectations or not. Depending on the type of appraisal technique used, other parties such as the employee’s subordinates, clients, suppliers/partners, and peers may also be asked for inputs.

Here, factors like target achievement rate, quality of performance, frequency of target non-achievement (compared to previous performance appraisals), attitudinal/behavioral traits displayed, and special achievements of the employee are assessed.

Performance Review

At this stage, the results of the appraisal are available. The supervisor schedules a meeting with the employee and has a conversation with him/her about these results.

During the review stage, the manager asks for reasons for non-performance. Together, the supervisor and subordinate identify critical issues that may be affecting the employee’s performance.

The conversation is focused on developing strategies to prevent mistakes or poor quality in future job performance. In addition to this, the two parties discuss the next cycle’s goals/objectives that the employee must achieve, and they plan for future training, mentoring, or coaching.

Performance Management

Finally, the supervisor and subordinate work together to implement the discussed solutions. If the employee can perform phenomenally, he/she is rewarded or granted additional responsibilities.

However, if the employee’s performance continues to worsen, he/she may be put on a Performance Improvement Plan (PIP). This is a record of all performance issues the employee is responsible for, with solutions and expectations. The objective of the PIP is to get the employee back to optimal performance. If the PIP goals are not met, it may be grounds for internal movement of the employee or firing.

Components of a successful performance management system

To implement effective performance management, companies have to ensure that:

• Employees: Employees are convinced about, and they buy-into their contribution to the company’s success. This is where goal planning and goal alignment help.
• Financing: Proper investment is made in training and equipping the team with all the competencies they need to do well on-the-job.
• Management support: Management in the form of direct supervisors, mentors, and CEOs are involved in the performance management program. They should provide timely, constructive feedback to employees and recognize superior-quality work.
• Managerial training: Supervisors become receptive to learning and put into action the feedback they receive from their subordinates.
• Continuous feedback: Performance management doesn’t get restricted to an annual event, but is done on an ongoing basis.

Top reasons why performance management goes wrong

• They don’t understand what performance management entails.
• They believe performance management will solve all corporate problems – but this isn’t the case.
• Managers are not properly trained in collecting and analyzing employee performance-related data.
• Effective performance management systems aren’t being used to consolidate, analyze, and disburse data.
• Other stakeholders aren’t educated about feedback best practices.
• Employees and managers don’t believe in performance management– they don’t take the process seriously, and this results in failed performance management.
• The wrong goals have been allocated to employees, and they aren’t equipped to succeed.
• Managers aren’t trained to review or provide feedback to employees. They don’t know when or how to recognize and reward hard work.
• Parties to performance management make the process too personal, making it unprofessional.

Tips to ace your performance management cycle

• Set SMART (Specific, Measurable, Attainable, Relevant, and Time-Bound) goals.
• Plan for performance by determining what exactly you expect from each employee, for each task, in their respective job roles.
• Make feedback an ongoing process – have daily huddles or monthly one-on-one meetings with subordinates to identify and iron-out issues as soon as they arise.
• Implement 360° appraisal – although more expensive, it is the most comprehensive technique available.
• Document every single action, decision, and performance. This documentation process provides insight into how employees took specific decisions, what they did or didn’t do, and whether they could have done something better.
• Train managers on how to humanely motivate their subordinates and provide criticism sensitively.
• Take employees’ feedback about the performance management system seriously and initiate changes as needed.
• Link performance with rewards – both monetary and non-monetary.
• Use the right performance management technology to handle the process more efficiently and to align employee performance to corporate objectives.

TalenX is an HR and people analytics software that assists corporate in effective and data-backed talent acquisition and management. From predictive hiring to workforce diversity management to training and development, this state-of-the-art platform can help HR make informed decisions, contribute towards strategy execution, and take the business a notch higher.