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How to measure the effectiveness of performance management

by | Jul 19, 2017 | Practical Guidance

Measure Performance Management

Is your performance management system delivering value? Follow these 6 steps to measure its effectiveness.

Organisations typically invest a significant amount of time (and therefore money) in performance management activities. Indeed, Deloitte recently calculated that their 65,000 employees were spending a total of 2 million hours a year completing forms, holding meetings and assigning and analysing ratings. Therefore it’s essential that you know how to measure effectiveness to get the most from your investment in performance management software and appraisals and to understand how to measure performance.

Step 1 – Do your research and benchmark best practice

If you are going to objectively assess the quality of your performance management system, an important first step is to understand what ‘excellent’ looks like. Spend some time reading the latest research into performance management trends and best practice and look at some case studies of organisations who have succeeded with it. To help with this, we’ve created an eBook on effective performance management which summarises a wide variety of research and case studies into an easily digestible guide. You can get it for free here.

Step 2 – Be clear on your organisation’s goals for performance management

Whilst there are a number of guiding principles that have come to light in recent research into performance management (for example the importance of having regular future-focused ‘check-ins’, giving frequent feedback and decoupling performance measurement from developmental performance discussions), how effective your performance management process is will ultimately depend on what you are looking to get from it. That’s why its essential to be 100% clear on what your organisation’s goals for performance management are; something that should be discussed and agreed with your senior leadership.

A survey conducted by eReward in 2014 found that the most common goals for performance management were:

  • to improve organisational performance
  • to align individual and organisational objectives
  • to develop a performance culture
  • to improve individual performance
  • to align individual behaviour to organisational values
  • to provide the basis for personal development
  • to inform performance pay decisions

Step 3 – How To Measure Performance: establishing your success measures

Once you are clear on your goals for performance management, the next step is to establish what success should look like for each of those goals. Here are some success measures for some of the above common performance management goals to show you how to measure the effectiveness of your system against your performance management goals:

Performance Management Goal Example Success Measures
Improve organisational / team performance
  • Increase in profitability of organisation / teams
  • Growth in revenue or other measures such as customer satisfaction
Improve individual performance
  • Quality and frequency of employee-manager performance conversations
  • % of employees with objectives set
  • Quality of objectives
  • % of high and low performers in the organisation
Encourage performance development
  • Amount of personal development activity being undertaken
  • Frequency and quality of feedback being given
Increase employee motivation and engagement
  • Employee engagement survey results
  • Impact of performance reviews on employee motivation levels
  • Employee turnover rates
Inform performance pay decisions
  • Ability of managers to differentiate performance for pay purposes
  • Satisfaction levels / perceived fairness of performance related pay awards

In addition to agreeing on success measures related to specific performance goals, it is important to define some measures for your performance management processes (i.e. the actual mechanics). You’ll want to know how easy your employees and managers find the processes and tools to use, how time-consuming they are, how well they are being implemented, what proportion of people are following the processes and whether people are demonstrating the necessary performance management skills.

Step 4 – Evaluation of Performance Management System

Once you have established your success measures, it’s time to start collating data and evaluating. To truly know how effective your performance management is, and to understand how to improve it, you will need a combination of both qualitative and quantitative data. Looking at quantitative figures such as company or team profitability or employee engagement levels in isolation will not help you to understand the direct impact that performance management has had on them – other factors will also be at play. Methods of getting useful qualitative and quantitative performance management data include:

  • Carrying out a dedicated survey of a selection of employees and managers on their views and experiences of the performance management process and tools and how they have contributed to achieving the desired goals
  • Asking specific questions relating to performance management in your existing employee attitude surveys
  • Conducting interviews with a sample of employees and managers about their experiences of performance management
  • Focus groups
  • Extracting data and reports from your online performance management system (if you have one)
  • Reviewing a sample of objectives and personal development plans for quality

Step 5 – Take action on the results

Once you’ve analysed the results, you should have a clear idea of how effective your performance management processes are and which aspects could be improved. If the results are not as good as you had hoped, don’t be disheartened as you are not alone. A 2014 study found that only 8% of companies reported that their performance management process drives high levels of value, so there’s definitely room for improvement. The key to improving your performance management is to involve a variety of senior managers, managers and employees in discussions on how those improvements can be made. This will help you to get buy-in to the improved process and greater ownership from those who have to implement it. Here are 5 suggested steps to make this happen:

  1. Summarise the results and areas for improvement into a presentation that can be easily digested by those outside of HR.
  2. Consult senior management on the results. Obtain their support for making changes and seek their ideas for how improvements can be made.
  3. Run focus groups with a variety of managers and employees from different areas of the organisation. Discuss the results with them and ask for their suggestions for improvement.
  4. Decide on what actions should be taken to address the issues discussed and draw up a proposed action plan. Discuss this with your senior management and manager/employee focus groups to get their feedback.
  5. Make any required amendments to the action plan based on the feedback received, then implement the plan.

Whilst involving people in the redesign of your performance management processes is essential, they probably won’t be able to provide all the answers. Sometimes you’ll need to present them with options based upon best practice from outside of the organisation. To learn about the latest best practice in performance management, download our free eBook here.