Back to Basics: The Fundamentals of Performance Management
What is the purpose of performance management?
Most organisations have some form of employee performance management or performance appraisal process. Yet how many of us have genuinely considered why we do performance management? What is it really about? It is vital that we ask ourselves this question if we are going to make performance management a success.
Few of us would disagree that the fundamental purpose of performance management should be to improve the performance and engagement of employees. Yet, as we established in Part 1 of this eBook, this core objective has often been largely neglected in a desire to measure and rate employee performance in order to facilitate decisions about pay and promotions, or to identify poor performers and hold them accountable. Ironically, such a focus has culminated in a situation where annual performance appraisals frequently end up decreasing employee performance rather than improving it.
The five key principles of effective performance management
So if performance management should really be about improving employee performance and engagement, let’s consider what the key ingredients of this are:
1. Aligned, Near-Term SMART Objectives
For employees to perform to the best of their abilities, they need to understand in clear terms what is expected of them. Furthermore, for organisations to succeed, they need all their employees to contribute to the overall goals of the organisation. The most effective way to achieve this is for each employee to agree SMART Objectives with their manager that are aligned to the organisation’s goals.
SMART Objectives are not a new concept. However, organisations have traditionally tended to ask their employees to set long-term SMART objectives on an annual basis. The problem with this is that the objectives often become irrelevant as the business changes and they take so long to complete that employees lose motivation. Because of this, forward-thinking organisations are now encouraging their staff to work on near-term objectives, typically with a 1-4 months time frame.
Researchers have found that SMART objectives are more likely to be achieved if the employee takes ownership of setting their own objectives rather than being dictated to from above. Whilst the manager clearly needs to be involved in this process, Linda Hill, Professor of Business Administration at Harvard Business School advises that
“A manager’s job is to provide ‘supportive autonomy’ that’s appropriate to the person’s level of capability.”
2. Frequent Feedback
When it comes to reviewing performance, research has shown that the biggest factor in improving performance is giving employees effective and frequent feedback. A Corporate Executive Board (CEB) Study found that giving fair and accurate feedback during performance reviews improved performance by a massive 39%.
Yet feedback is most powerful when given frequently and ‘in-the-moment’, rather than at formal performance reviews or via a 360 degree feedback process. A study reported by consultancy Mind Gym found that getting fortnightly feedback is the optimum frequency for people to perform at their best.
3. Regular Support from Manager
For employees to succeed in their roles and genuinely improve their performance, they need support from their manager, and they need it regularly. A once or twice-a-year performance appraisal simply doesn’t cut it. A 2015 survey by TriNet found that 9 out of 10 millennial employees would feel more confident in their role if they could have more frequent performance conversations with their manager.
Another global study by Gallup found that employees whose managers have regular performance discussions with them are almost 3 times as likely to be engaged. This is hugely powerful considering that highly engaged employees perform better, are far more productive and can deliver 22% higher productivity for your organisation.
Of course it’s not just about the frequency of performance conversations, but also the quality. We need to educate and train line managers to have one-to-ones that support employees to overcome barriers to success, focus on the future as well as the past and which result in clear action points for both parties.
4. Employee Recognition
For employee performance and engagement to be maintained, we need to recognise employees’ successes. And there are significant rewards for organisations who make employee recognition a priority. A study by Bersin & Associates found that companies that practice a “high-recognition” culture have 30% lower voluntary turnover than average, and tend to outperform their peers in a variety of other metrics.
Whilst organisations have put significant time and effort over the last decade into perfecting their performance related reward processes, giving a regular “thank you” has been shown to be much more powerful than a bonus or pay rise. Today’s employees want to be acknowledged for their achievements and have their successes celebrated, so we need to incorporate processes that encourage this into our performance management.
5. Personal and Career Development
Discussing and agreeing personal development and career plans with employees is often paid lip service to in performance reviews, especially where the priority is placed on assessing and rating performance. Indeed, research has found that only 8 percent of organisations’ development plans are effective.
Yet, companies who don’t put aside regular time to discuss employee development are at risk of losing their key talent – enterprising employees will go elsewhere to find a company who does.
Personal development is also essential for increasing employee engagement – AON’s 2015 Engagement survey found that Learning & Development is one of the top 5 drivers of employee engagement globally.
In this second part of our eBook, we have established that the purpose of performance management should be to improve employee performance and engagement. We have also considered five key principles of performance management involved in achieving this. In Part 3, we’ll be exploring the key components of our recommended Continuous Performance Management framework.