Performance management describes the systematic process of enhancing employee effectiveness through goal setting, performance assessment, ongoing feedback, and personal skill development, aligning individual performance with organisational objectives.
If you’ve ever been involved in an employee review, or sat down for a strategy meeting between an employee and a member of management, then you’ve already experienced performance management. These tend to be the most conventionally cited examples, yet the reality is that performance management goes well beyond an annual one-on-one with the boss.
A subdiscipline within workforce management, performance management is a set of processes aimed at developing an employee so that they can perform their job effectively. It relies on ongoing communication between the employee and their supervisor, supporting the strategic objectives of the organisation by optimising work effectiveness and efficiency. The goal of performance management is to improve employee performance in a way that is constructive and enduring – it is a continuous process that, when applied correctly, can produce continuous improvement.
Performance management systems can take many forms, and yours will likely be unique to your company’s values, culture and goals. Nevertheless, most follow a similar structure. Common components and actions of a performance management system include the following:
- Creating clear job descriptions
- Recruiting qualified candidates
- Interviewing candidates
- Further meeting with and testing candidates to determine strengths
- Selecting the most qualified candidates based on ability and cultural fit
- Extending job offers to qualified candidates and negotiating terms of employment
- Welcoming new employees to the company
- Orienting and integrating new employees into the company and culture
- Negotiating performance- and accomplishment-based standards
- Providing further training and education
- Delivering direct feedback
- Conducting regular performance-development discussions
- Creating employee recognition and reward systems
- Offering career development and promotional opportunities
- Assisting with exit interviews to determine cause of departure
Performance management is not a single event or tool. It’s not an employee review, survey or self-evaluation, and it’s not the technologies that exist to promote improved performance. Performance management is something much bigger than all this: While it does encompass and include various actions and their associated resources, performance management itself is a process – one that continues to take effect through the entirety of the employee journey.
For an organisation to be successful, it needs to have a clear idea of what its employees are doing. Without this knowledge, it is much more difficult for management to guide employees and accurately direct their efforts. Performance management creates a system designed to establish roles and responsibilities, recognise individual strengths and weaknesses, communicate feedback, reward exceptional behaviour and promote ongoing innovation. In short, performance management is important in that it gives teams and individuals the support and feedback that they need to do their best.
Performance management exists to optimise employee performance, so it naturally delivers on all the benefits that come from having a workforce that is reaching its potential. This includes increased productivity and revenue. More specifically, though, performance management helps address three major problems that most organisations face:
- Engaging employees
If your organisation prefers to conduct appraisals and employee reviews on a yearly basis, you might be waiting too long to provide essential feedback. Unfortunately, operating without feedback tends to negatively impact engagement. More regular, consistent communication and training improves employee engagement, which in turn has a positive impact on absenteeism, turnover, safety incidents, product and work quality, and customer experience. - Retaining top talent
Employees who feel as though they are working in a vacuum, with no real feedback or development, are less likely to remain personally committed to an organisation. On the other hand, organisations that promote frequent discussion to evaluate performance, workshop solutions and deliver education enjoy increased employee loyalty. Essentially, when employees see that you are willing to invest more time and effort into them, they are incentivised to invest more effort into your organisation. This means that they will be more likely not only to remain with the company for longer, but also to continually work to improve their performance. - Developing internal leadership
Recruiting outside agents into leadership positions can be costly and time consuming. And should a new hire not end up fitting in well with the company culture, all that investment may end up going to waste. Promoting proven internal employees to leadership positions mitigates much of that risk. Through effective performance management, you can groom your top employees for future management positions, providing training and feedback designed to help them develop the right leadership skills. - Future-proofing workforce skills
By identifying skill gaps and focusing on continuous learning and development, organisations prepare their employees with the adaptability and competency that they need to face changing industry demands and technological advancements. This proactive approach keeps the workforce relevant while promoting a culture of learning and growth. - Improving overall organisational performance
Each of these benefits feed into a single, primary advantage: contributing to the enhancement of overall organisational performance. By aligning individual goals with those of the business and providing regular feedback, the company can ensure that every employee is working efficiently towards the same objectives. This alignment leads to better decision making, more effective problem solving, and a more cohesive and productive work environment – ultimately driving organisational success.
Since performance management is understood to be an ongoing process, it would be inaccurate to visualise it as a sequence of steps. Instead, think of performance management as a cycle – one that is constantly repeating itself, while also adapting to incorporate new discussions. Here, we take a closer look at the four phases of the performance management cycle:
The first phase of the performance cycle is focused on planning. Here, organisations and employees work together to establish expectations. Performance expectations may cover a wide range – everything from hours spent in the office through to compliance with company policies – but they usually fall into one of two categories: results and actions. Results are what the employee produces or accomplishes, and actions are the methods and behaviours that are demonstrated during the process.
With expectations firmly in mind, work together to establish SMART (Specific, Measurable, Achievable, Relevant, Time-Bound) goals. These SMART goals should each contribute to various company objectives, but they should also relate to personal development for the employee.
Identify the actions that should be taken within the next few months. Then review the performance expectations within the employee’s job requirements and make updates where necessary. Remember that this should be a collaborative effort between management and the employee: working together to construct a personal development plan that can help guide future action and show the commitment that both sides have to improving performance.
During phase 2, employees review their goals and take the necessary steps to achieve them. This phase is a continuous one, occurring throughout the year as employees work with management to implement and follow their personal development plans.
The tracking phase tasks management with monitoring employee progress, while also providing support wherever necessary. Committing to regular feedback allows management and employees to identify problems and make course corrections quickly, rather than waiting for these issues to become unmanageable.
In this phase, management is responsible for identifying and mitigating any potential blockers that might be standing in the way, as well as offering professional development resources, training and coaching to help ensure employee success.
The final stage of the performance management cycle brings the employee and management back together in a review setting. Here, they can discuss goal progress, assess training and development opportunities, review achievements, discuss advancement opportunities, re-affirm or re-evaluate career goals and evaluate the employee’s overall performance. This review is also an ideal time to work together to establish what steps should come next.
Again, relegating this phase to a yearly performance review may be an ineffective approach. Instead, implementing this phase more regularly in concordance with the other three phases can ensure ongoing improvement.
Performance management can and should be tailored to the specific needs of your organisation. However, successful businesses have identified several basic elements that help to contribute to performance management success. These elements include the following:
Although many will argue that performance management begins only after an employee has been hired, there’s a simple truth: Clearly identifying goals before a job has even been posted is fundamental to ensuring that you are setting future team members up for success. Promoting effective performance management at this stage involves creating clear job descriptions and using an employee recruitment plan that identifies the selection team.
When recruiting skilled candidates for interviews, evaluate their strengths, weaknesses and abilities, as well as whether they are likely to be a good fit for your established company culture. Meet with top candidates more than once, and use employee testing and assignments where appropriate to the position.
Once you have selected the best candidates, negotiate the terms of employment and finalise the hiring process.
Rather than waiting for employees to fully acclimate to their positions, make sure to incorporate performance management into the onboarding process. Their first days and months in a new position are when an employee will be introduced to the people and processes that they will be working with. Perhaps more importantly, it’s also when they will begin to get a feel for your company’s performance culture.
As new hires join your company, effective performance management will incorporate orientation for these new employees. It may also involve assigning mentors or taking other actions. The purpose of onboarding is to effectively integrate a new employee into your organisation and its culture.
The earlier that you can establish goals, the more quickly a new employee can begin improving their performance. Bring employees and their supervisors together early and often to negotiate requirements and accomplishment-based performance standards, outcomes and measures. Allowing employees to collaborate in setting their own goals and aligning them with larger company objectives leads to improved employee autonomy and ownership.
It is worth re-iterating that a yearly performance review may not be regular enough to effectively monitor and evaluate employee performance. Instead, effective performance management relies on a consistent cadence of meetings designed to help re-align employee goals, prioritise projects and identify and mitigate any blockers to employee progress.
Top talent is exceptional for a reason: It is underpinned by a continuous drive to improve. If you hire skilled individuals, but do not offer them any opportunities for professional development, they will likely suffer from boredom and eventually move on. Alternatively, if employees’ capabilities are improved, your organisation will benefit from the development of their additional skills. Help employees to create career paths within your organisation, and recognise that not every advancement is a vertical one: Allow for lateral movement as well as transfers to different locations.
Ensure that your performance management strategy includes robust employee development options, so that your most valuable resources don’t stagnate. This may include job shadowing and other training as needed.
It is natural to want to be recognised for a job well done. This is especially true for employees – when employee recognition is not included in performance management processes, employees tend to become dissatisfied and disengaged. Prioritise effective compensation and recognition systems within your organisation to reward your people for ongoing contributions.
Probably the most common theme in effective performance management is frequent feedback. Regular reviews and honest evaluations, along with quarterly performance development planning discussions, will give employees the insights that they need to improve, while also showing them that management is committed to their success.
Additionally, recognise that feedback flows both ways: Allowing employees to evaluate management is also essential in improving performance. Assisting in exit interviews, for example, will allow you to gather vital feedback on possible issues within your organisation that might be contributing to turnover.
Businesses of all sizes need a proper performance management tool with the right features. The system should streamline the performance management process, while easing it every step of the way. Some ideal tools include:
- Goal management:
An integral part of performance management is setting and managing goals. A ideal solution should have a place with several goal options, the ability to track the goals, and space to leave relevant notes about the goals. This can also be useful in the implementation of SMART goals, which can help employees to find a direction between performance reviews. - Adaptable performance review forms:
Reviewers need flexibility in the review process, regardless of whether the review is more simple or more comprehensive. Consistent and detailed forms can prevent any ambiguity to increase the quality and effectiveness of reviews. - Recognitions:
A rewards management system can help in the implementation of recognition systems such as performance pay and long-term incentive programmes. - Improvement plans:
Performance management systems should be able to automatically track employee performance, then implement a performance improvement plan if there is a decline in employee performance.
One of the elements that makes performance management so effective and sets it apart from traditional employee reviews is its regularity. Unlike those models that rely on annual or quarterly reviews, this method emphasises frequent, meaningful interactions between employees and their managers. The core of continuous performance management lies in its consistency – it is an active, rolling process that keeps goals, progress and personal achievements constantly in the spotlight. This approach ensures that objectives are set and reviewed periodically, monitored continuously and adjusted as needed.
As the needs of employees and their organisations continue to evolve at an ever-increasing pace, performance management must likewise evolve from static, episodic and isolated interactions into a single, ongoing conversation.
Traditional annual employee reviews have long been an integral aspect of workforce management, but today’s rapidly evolving business landscape demands more. Continuous performance management is an indispensable tool for aligning employee efforts with organisational goals, fostering constant improvement, and ensuring agility even in changing industries and markets.
ServiceNow HR Service Delivery plays a pivotal role in supporting this continuous performance management approach. Providing the necessary infrastructure and tools to facilitate ongoing conversations, feedback and development, HR Service Delivery systems enable managers and employees to track progress, set and update goals, and offer and receive feedback in real time. These systems are designed to streamline the performance management process, making it more efficient and effective. They also offer valuable data insights, allowing for more informed decision making and strategy development in managing employees – all from a single, centralised platform.
Experience first-hand how ServiceNow can transform your performance management strategy: Demo HR Service Delivery today!