What is performance management and why is it important?

A performance appraisal is supposed to objectively assess employees, but this long entrenched corporate practice can only show a small part of what an employee truly contributes if it’s done through the narrow lens of a traditional yearly review. For a clearer, more comprehensive look at what employees bring to the table, performance management is the key.

What is performance management?

Performance management is a method of reviewing employee performance and development to ensure sustained effectiveness and alignment with company objectives. It goes beyond annual performance reviews, as it is a continuous process of information gathering, monitoring, and feedback.

By constantly observing and assessing employee performance on a regular basis, talent can be carefully nurtured to improve the capabilities of every individual, and mistakes can be addressed as soon as possible. It enables a more dynamic approach to performance reviews compared to a rigid yearly assessment.

It is important to keep in mind that performance management is a collaboration between employees and management. The worker should be involved in the process. They should feel empowered to contribute their unique perspective, and they should be made comfortable enough to be able to accept constructive criticism.

While there are different methods of implementing performance management, it generally includes smart planning where goals and metrics are established, conscientious coaching that fosters dialogue between managers and employees, and thorough reviewing that is data-based and objective.

Why is performance management important?

The perfect workplace is one where every single member of the organisation is working at their optimal level with care and enthusiasm every single day. However, there is no such thing, with some employees performing better than others. Even the best workers have their off days as well, and they can also experience a decline in their work for various reasons.

Performance management provides the support employees need to enhance their skills and motivate them to improve throughout the course of their time with a company. It can also detect early signs of performance issues then prompt immediate action to address the problems before they get worse.

Employees who are doing well get the recognition they deserve, inspiring them to keep up the good work. Acknowledging the quality and effort workers put into their jobs lets them know that they are valued in your organisation. It can be easy to take for granted star employees who dedicate themselves to your company, and they might not even know themselves how much value they bring.

What are the main benefits of performance management?

Companies and employees both benefit when performance management is properly implemented. The three main benefits are:

Employee Engagement

The regular feedback and coaching that employees receive through performance management keeps them engaged at work. They are directly influenced towards constant self-improvement and productivity. In contrast, traditional performance appraisals that are done once a year creates a great distance between employees and management, fostering a workplace environment where the worker has little to no reason to go beyond putting in minimal effort.

WIth only 9% of UK workers feeling enthusiastic about their job, improving employee engagement in your business would be a big advantage over the competition.

Employee Retention

The consistency in which managers and employees are in supportive conversation with one another through a performance management system naturally builds a relationship between the two parties. Employees are encouraged to be more invested in the company when they feel like the company is investing in them. As a result, they are more likely to stay with the company, knowing that they are valued and have a bright future with the organisation.

Turnover rate in the UK is expected to hit 35.6% in 2023, a 9% increase since 2019, so retaining employees is becoming more important.

Leadership Development

There are employees that, under proper tutelage with performance management, will eventually step up to become effective leaders in your company. From having explicitly defined roles and performance metrics to jumpstart training to the well-directed mentorship that challenges employees to stretch their skillset, you are setting up a leadership pipeline that will have immense ROI.

What are effective performance management methods?

There are different ways to implement performance management. Here is a brief overview of the most popular methods that are proven to be effective:

• Management by Objectives (MBO)

Employees and managers agree on specific objectives to achieve within a specific period with the help of the SMART method. Progress on these goals and the feasibility of achieving them are discussed periodically between employees and managers.

• Assessment Center

Employees are tested on a variety of activities such as job-related simulations, interviews, informal group discussions, and psychological exams. Observers take note of the participants’ performance and are evaluated on behaviours that are relevant to their jobs. This method is particularly helpful for identifying potential leadership capabilities.

• Human Resource Accounting

Employees are evaluated based on their monetary value to the company. Quality of work, results, and skills are weighed against salary, training, and other overhead costs to see how much an employee is worth to an organisation. Small businesses can use this method, as each member’s work has a large impact on success and failure.

• Behaviourally Anchored Rating Scale (BARS)

Specific behaviours that are expected from a specific job are used as standards to measure an employee’s performance. Standards are called BARS statements and are given a numerical rating. It combines qualitative and quantitative assessments for a well-rounded performance management method.

• Graphic Rating Scale

Also known as a Likert scale, a graphic rating scale lists all the traits and behaviours that are desirable for each role, and employees are rated on each of these items on a numbered scale. Job knowledge, punctuality, and accountability are some common attributes that are measured in this method.

Get Started on Performance Management Today

With how much employee performance contributes to the success of a business, you cannot afford to take half measures in evaluating the impact of every employee. Performance management gives you a clear picture of how much value every member of your company is providing on a regular basis, allowing you to pivot dynamically to enable high performers and support the employees that need it the most.

Implementing a performance management system, however, is no easy feat, with multiple methods that have their pros and cons. The HR Dept can help with our tailor-made procedures and training programmes. Contact us today to get started.