Performance Management
Masterclass

Week 2

How to measure the effectiveness of performance management

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 what value your organisation is getting from your investment in performance management and understand whether that time is being effectively spent.

There is plenty of research out there which looks at the effectiveness of various performance management approaches, from objective setting through to ratings, across different organisations. However, what is clear from the wide variety of conclusions reached is that what proves to be effective in one organisation will not necessarily work in another. The question that therefore needs to be asked is:

How well do our performance management processes meet our own organisation’s goals for performance management?

Last week we looked at how to define those goals. This week, we’ll focus on practical ways to help you measure them.

Establish your success measures

The first step is to establish your success measures for each of your organisation’s goals for performance management. Here are some example success measures for some of the common goals that we looked at last week:

Performance Management GoalExample 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 of agreed objectives
  • % of objectives successfully achieved
  • Quality and frequency of manager feedback
Encourage performance development
  • % of personal development plans successfully implemented
  • Behaviour / competency achievement levels
Increase employee motivation and engagement
  • Employee engagement survey results
  • Impact of performance reviews on employee motivation levels
  • Employee turnover rates
Inform performance pay decisions
  • Satisfaction levels / perceived fairness of performance related pay awards

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

Start evaluating

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

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 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. Therefore, over the remainder of our Performance Management Masterclass, we’ll be giving you specific ideas for how to make your performance management more effective, based on the latest research and our own experiences of working with a wide variety of organisations.

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