What is performance management?

Performance management is a method of tracking professionals’ work performance and developing their skills so they can contribute effectively toward department and company goals.

Performance management involves three phases that encourage individuals to improve their performance level:

  • Planning. Establishing and measuring individual goals that also align with company objectives allows HR to assess a professional’s improvements.
  • Check-in. Managers and team members should meet regularly to engage in two-way conversations about areas for improvement and progress.
  • Review. Frequent check-ins throughout the year prepare managers and professionals for quarterly or biannual performance reviews. These meetings help managers accurately assess people’s progress, achievements, and performance.

Common steps in performance management

  1. Setting expectations. Performance management begins with establishing clear, specific, and measurable expectations for your people. This involves defining job roles, responsibilities, and performance goals. 
  2. Continuous feedback. Regular feedback is essential for professional growth and development. This entails ongoing communication between managers and team members to discuss progress, address concerns, and offer guidance. Timely feedback ensures that people can make the necessary adjustments to meet performance expectations.
  3. Performance evaluation. Regular performance evaluations are an important part of performance management. During these evaluations, team members are assessed based on their performance against the established expectations.
  4. Professional development. HR leaders and managers can collaborate with individual contributors to create development plans—which may include training, mentoring, and additional responsibilities—to enhance skills and competencies.
  5. Recognition and rewards. Recognizing and rewarding exceptional performance maintains people’s motivation and engagement.

Why is performance management important?

Providing professionals with practical ways to better their work performance through consistent, corrective feedback empowers them during their development journey. A well-planned, standardized approach to performance management can increase:

  • Retention. Performance management creates a more satisfying work experience for people and challenges them in a positive way—keeping them engrossed in their work and boosting retention.
  • Employee engagement. When professionals see that their efforts are recognized and rewarded, they become more engaged and committed to their work and the organization.
  • Productivity. Clear performance expectations and regular feedback improve individual as well as organizational productivity, increasing revenue.

Implementing a performance management strategy that encourages individuals to achieve more and increase their contributions can foster their autonomy and motivation.

What can HR leaders do to establish effective performance management?

HR leaders can use the following performance management best practices to help individuals sharpen their skills and develop their careers:

  • Decide on a framework. Identify a performance management method that addresses relevant goals and accurately fits the individual positions under evaluation. For example, HR may implement a 360-degree review to gauge personnel development while using management by objectives (MBO) to assess supervisors’ achievements. 
  • Take a positive approach. Treating people with goodwill and empathy sets the groundwork for check-ins that can inspire positive growth. Rather than leaving a professional with a load of unhelpful, negative feedback, managers should clarify expectations and coach individuals on how to progress. 
  • Train managers. Managers are the key players in ensuring successful performance management. The way they interact with team members can either inspire them to elevate their performance or demoralize and deflate them. Educating managers to coach their people can positively impact engagement and productivity.  
  • Be consistent. Routine employee-manager check-ins enable both parties to maintain a connection. Bite-sized, informal meetings allow professionals to keep a finger on the pulse of their work performance: When the quarterly performance review rolls around, they can readily digest the feedback they receive.

Tracking performance management metrics

Keeping an eye on the appropriate metrics can make it easier to track the impact of a performance management strategy. Key employee performance metrics to monitor include:

  • Work efficiency. Measuring how much work a person can complete within a certain period of time can indicate what can be rewarded and where there’s room for improvement.
  • Revenue per employee. Calculating how much revenue a professional generates within a particular time period can give a more accurate picture of their performance.
  • Errors. If a team member is committing a large number of errors and the quality of their work is suffering, it can be a sign that they’re struggling and need more training and support. 
  • Absenteeism. Measuring how often and for how long a professional is absent from work can demonstrate their impact on a team and their productivity.
  • Overtime. This is an important metric for managing performance as it can help employers prevent burnout within their organization. If someone regularly works more than their standard hours it can indicate that they have too much to do or that they feel a lot of pressure to overachieve.

Performance management tools

There are a variety of tools available to help HR leaders and organizations manage performance effectively:

  • 360-degree feedback software. This type of software gathers feedback on professionals from their colleagues, managers, and other members of the organization to provide a comprehensive view of their performance.
  • Performance appraisal software. These platforms help managers automate performance evaluations, set goals, and track the progress of professionals.
  • Learning management systems (LMS). When a person is struggling to perform at their best, they may need additional training to support them. LMS platforms are an excellent tool for delivering training and development programs that can enhance their skills.
  • Employee recognition software. Recognition at work can strongly influence people’s performance. Employee recognition software makes it easy to establish a culture that acknowledges and incentivizes people who consistently meet or exceed performance expectations.

How does performance management improve company culture?

A performance management system that empowers people to reach their potential is a core component of company success. Providing individuals with regular encouragement, support, and direction enables them to become contributing, thriving members of the company. As a result, these engaged professionals can help build a healthy, flourishing work culture.