The Ultimate Guide to Employee Performance Management

Employee performance management (PM) is a core competency that many organizations seek to develop as a way to empower employees to succeed, boosting morale and retention among their workforce. Every business must find a way to set goals, manage performance, and ensure that major milestones and goals are met. Even the savviest organizations are constantly improving their employee programs and finding new ways to connect. Performance management practices today continue to evolve along with the latest workplace trends such as remote and hybrid work and dispersed teams.

Performance management has moved far beyond simply following up on commitments. A survey conducted by Learnkit showed that 89% of employees expect their employer to take an active interest in their learning and development. With competition among employers increasing as the COVID-19 pandemic transitions to recovery, there’s no better time for business leaders to evaluate employee needs. A company that can align its business processes with the needs of individual contributors and teams can develop a world-class work culture.

In this ultimate guide to employee performance management, we’ll review performance management models and best practices to better understand how these tools work. The needs of the modern workforce will continue to drive businesses to improve their approach to workplace management. One of the biggest takeaways for company leadership should be the need to commit to a continuous process of learning and improvement. We hope you find some excellent ideas to help your employees do their best work.

In this post, we’ll discuss:

What is Employee Performance Management?

Employee receiving individual development plan for performance improvement

You will often hear employees referred to as “human capital,” and the best companies realize that their workforce is one of their most valuable assets. Performance management refers to the set of practices that a company uses to ensure it can meet its stated goals. Typically found as part of the human resources (HR) department, the structure of performance management processes will vary based upon the needs of each business.

Typical resources in the performance management toolkit include performance reviews, individual development plans (IDPs), and education reimbursement. There is often a mix of employee benefits and corporate processes that help workers find the right kind of support for their unique situation. Today’s performance management has become very employee-centric, focusing on improving motivation, supporting employee success, and collecting more valuable feedback. As we’ll discuss later in this post, performance management can be enhanced with the use of workforce analytics and a commitment to continuous improvement. No process will ever be perfect, and it’s important to refine your approach based on employee feedback and emerging industry best practices.

Why is Employee Performance Management Important?

Team celebrating performance achievements in the office

Performance management may be supported by HR, but it’s the responsibility of the entire organization to make the process work effectively. Middle management plays a particularly important role, being in a great position to collect feedback and understand where improvements can be made. When performance management is done right, it motivates employees to demonstrate their best effort while developing new skills.

Performance management is important to business success for several reasons. We’ll review some performance management models later in this post, but these benefits are possible regardless of the specific approach used:

  • A Clear Vision. When performance management is supported by all levels of the organization, it becomes a clear framework for everyone. Transparent performance measures and clear communication from leadership make it much easier for employees to focus on their work. A poor performance management structure can cause significant anxiety if there is an unclear connection between performance and compensation or job growth.
  • Improved Performance Measurement. Most employees are delighted to see their achievements recognized as part of reaching major company goals. When a company focuses on employee development practices, it’s often possible to gain incredible insights about employees and workplace culture. More oversight generally leads to better performance measurement across the board.
  • Increased Motivation. When employees feel confident that their contributions will be recognized, it can significantly increase motivation. All workers desire to have their voice heard and will often contribute excellent feedback when given the opportunity. When employee feedback is used to drive positive change, employees feel as though their opinions and insights are valued. Employee performance management should give every employee the chance to improve their skills and work alongside a diverse and motivated group of peers.
  • Effective Communication. Collecting regular feedback should be a leadership priority for any effective performance management program. Employees that work in a strong work culture are often empowered to self-correct undesirable behaviors. This gives all workers excellent performance benchmarks by observing the performance of those around them. Companies that are transparent and share performance data make it easy for employees to understand how their performance measures up, which can also be a key employee success motivator.

The Stages of Performance Management

Employee discussing employee performance management plan with leadership

One of the best ways to document an employee performance management process is as a cycle. As mentioned previously, a PM framework should always be an iterative process that uses feedback and data to improve upon the approach. The team at Clear Review has broken performance management into four distinct phases that work together to define the overall process.

1. Plan

The planning phase is where a lot of the work happens in an employee performance management cycle. This step combines information from company-wide goals and values with the individual, personalized plan for each employee. It’s a good idea to use SMART goals when establishing goals for each employee or contributor. This acronym stands for:

  • Specific – A goal should be clear and unambiguous.
  • Measurable – There should be at least one clear measurement of progress.
  • Achievable – The goal should be realistic.
  • Relevant – It should be understood how the individual objective fits within the company, department, or team goals.
  • Timebound – There must be a clear deadline for the work to be done on the objective.

Other tools that are used during the planning phase are IDPs (individual development plans) and job descriptions that help clarify a person’s responsibilities and differentiate their work from and responsibilities from those of other employees. In fact, it’s a good idea to update job descriptions periodically, such as annually, to ensure that they’re up-to-date and reflect the employee’s current role and responsibilities. Some HR experts recommend updating job descriptions during performance reviews, as it can be done in cooperation with the employee and reflect the employee’s understanding of their responsibilities. Additionally, updating job descriptions each time a new responsibility is added, removed, or changed will ensure that it’s always accurate and complete.

2. Act

This phase refers to actions taken by the employee, management, and other resources to support day-to-day work performed at the company to implement the individual development plan. The IDP should always be used as a roadmap that is regularly reviewed alongside current priorities and achievements. The action phase can include activities like onboarding, continuing education, career development, and opportunities for advancement.

3. Track

A company’s human capital and performance management software is used to store information related to objective achievements. Modern platforms also have the capability to capture feedback for each employee based on their work with peers, subordinates, and other departments. Data in these systems may also be integrated with workforce analytics solutions to provide a comprehensive view of all employee data available across the company.

4. Review

Hosting regular performance reviews is a great practice for management and employees. It’s nice to have a regular and predictable schedule to allow everyone can take a step back and review their work. Some companies hold formal reviews on an annual or semi-annual basis, but it is helpful to encourage all employees and managers to hold more frequent discussions to review goals and discuss progress. Real-time feedback is often much more valuable than only sharing comments at the end of the year.

At this stage, business leaders may choose to recognize and reward employee achievements, which is treated as a separate phase in some performance management models. AIHR Digital, for example, uses a model with four phases including planning, monitoring, employee development, and rating & rewarding, while The Peak Performance Center describes a model with four phases including planning, monitoring, reviewing, and rewarding. Regardless of the model you use, the core activities and processes remain the same: The idea is to create a plan, act on it, measure progress, review results, and ensure that employees are recognized for reaching goals and rewarded for their success.

The review stage (or the reward stage, depending on the performance management model you’re using) also marks the completion of a cycle. This is the ideal time to reevaluate individual development plans and modify the activities that will take place in the following stages to ensure employee success. The cycle then begins again, providing a framework for continuous improvement.

Employee Performance Management Best Practices

Employee giving the okay sign with hand with coworkers working in the background

Business leaders and HR leaders can best empower employees to succeed by developing a unique employee performance management program that works best for the company’s employees and business processes. This can be a particular challenge for international businesses that have offices in several countries. In these situations, performance management programs can be designed with broad guidelines that fit the organization and allow for unique practices for each region. This allows companies to develop more targeted, relevant employee performance management programs that address the unique needs of different regions, departments, and markets, while also supporting the overall needs and goals of the company. To help define your employee performance management program, here are a few best practices that have been effective in many situations.

1. Encourage Real-time Communication

Business leaders can foster collaboration by providing tools and processes for communicating feedback and updates in real-time. This is very important today, with many companies adopting remote work or hybrid workplace environments. Encouraging employees to share information regularly and seek clarification can have a positive impact on your company’s work culture. This also helps reduce delays between teams and departments. It’s also recommended to develop clear goals for your performance management improvement initiatives and communicate these to employees regularly.

2. Leverage Technology and Data

Each employee has unique needs and individual perspectives about work and life. When you add interpersonal behaviors that result from team and department structures, understanding the environment can be very complex. Fortunately, modern software platforms such as workforce analytics solutions can help employers understand the dynamics that are influencing performance and identify the factors that drive high-performance behaviors. Behavioral data collected from various inputs can be used to monitor and analyze advanced workforce metrics. Coupled with tools like surveys, it can help business leaders understand how employee sentiments connect to performance. This information can add an important dimension to traditional HR practices and enable more data-based decisions.

3. Develop Actionable Plans

Even the best organizational plans are worthless unless someone acts. Goals that are created at all levels of the company should be directly linked to individual performance plans. This can be a very challenging process but is well worth the effort by clarifying who is accountable for what tasks. Development plans should also contain actionable objectives. Feedback collected throughout the employee performance management cycle should also be turned into actionable improvements and initiatives.

4. Improve Workplace Design

Employee performance management is a multi-dimensional effort, and you shouldn’t focus only on employees themselves. Other environmental factors such as workplace design, company culture, and remote work policies can have a significant impact on morale and performance. Take time to improve your workplace design and give employees several different ways to connect and collaborate. Cross-functional workshops are a great way to bring employees together in complex companies with several management layers.

5. Focus on Employee Recognition and Incentives

One of the biggest mistakes that a company can make is failing to recognize employee contributions. It sounds simple but is very easy to overlook with the stress and urgent priorities that business leaders and human resources professionals face every day. Creating a formal employee reward program is an excellent way to empower employees to recognize one another and create a forum for recognition for all achievements — big and small, individual and team. Another constructive practice is to regularly review your employee incentives to improve upon or eliminate less popular offerings. A well-balanced collection of employee incentives can often be an excellent driver of retention.

6. Create Mentorship Opportunities

A lack of exposure to management is one of the main reasons that ambitious employees identify as a reason for leaving a company. A formal mentorship program may be helpful to involve other leaders in the development process for each employee. This is also a useful practice for coaching and mentoring individuals that have been promoted into leadership positions. Many leadership skills must be learned by taking action and making mistakes. Having resources available to answer questions creates a learning environment that can help all employees succeed.

7. Collect Continuous 360-Degree Feedback

The use of 360-degree feedback has become very popular recently as a way to gain a deeper understanding of performance. Employees working today must often interact with several departments and groups to get their work done. Collecting feedback in real-time after the completion of a major milestone or work project is useful for gathering the most accurate and relevant feedback as employees fresh off a project likely have opinions and suggestions for improvement that they may not remember as clearly later. Collecting, reviewing, and using feedback helps managers and employees understand more about their contributions and helps develop trust.

An Employee Performance Management Case Study

Team reviewing employee performance management plans and workforce analytics data

For an example of how these best practices work in the real world, let’s look at a case study of a large European bank that wanted to understand what was driving performance gaps between branches. By leveraging the Humanyze Organizational Health Platform™, the company measured data on corporate communications such as team communication patterns and physical activity within office locations, segmenting this data by compensation and tenure.

The data revealed that employees at the highest-performing branches had significantly more face-to-face interactions throughout the day. Analyzing communication patterns and work schedules revealed that employees at lower-performing branches were given less time to collaborate as a team and build trust. An analysis of office layout data at both branches revealed that a poor office layout was restricting communication patterns and limiting opportunities for collaboration at low-performing branches, providing the insights the company needed to make data-driven decisions to improve collaboration and subsequently boost performance.

Employee performance management is a complex subject that requires the focus of leadership, HR staff, and all employees to be effective. When employees are engaged with their work, they are more likely to give their best effort and contribute significant value to the company while achieving greater individual and team success. In turn, employee success motivates team members to do more, take on more responsibilities, and tackle more challenging projects, fostering a cycle of continuous improvement. By properly supporting their needs and providing numerous opportunities for mentorship and development, it is possible to create a truly unique and productive work culture. The future of performance management will certainly involve new tools and technology, but the fundamental practices are likely to stay relevant for many decades to come.

Further Reading on Employee Performance Management

Learn more about employee performance management by checking out the resources below.

Last Updated 15 September 2021