Performance management: Stages, benefits, and best practices
One of the biggest takeaways from this year’s SHRM conference had audience members raising their eyebrows. The headline was clear: Employees dread annual performance reviews, and they're riddled with inconsistency, bias, and a lack of transparency.
Conferees learned some staggering statistics: In a survey of 1,500 office workers, 34% percent of millennials reported being driven to tears by a performance review, and 57% reported that annual reviews made them feel they were in competition with their coworkers.
Modern HR teams are shifting away from the traditional annual review, and at Rippling, we’re seeing it firsthand through our work with leaders at over 16,000 businesses. In this article, we’ll share some of those learnings, including:
- What performance management is and why it matters
- How performance management is transforming into an always-on process
- The benefits of transitioning to a contemporary performance management strategy
- The principles of the performance management process
- Performance management best practices
- The best software to help improve your performance management
What is performance management?
Performance management is the process of communicating feedback between managers and employees. It’s usually facilitated by HR leaders to reach organizational objectives. In the past, performance management focused mainly on looking backward, using only past experiences to shape future systems.
Thankfully, this is changing. The modern HR performance management approach is all about continuously gathering and implementing feedback. With cutting-edge performance management technology, organizations can better anticipate issues based on current performance and make timely adjustments to keep employees on the right path.
Types of performance management
First, let’s compare traditional performance management to the always-on approach that is beginning to gain popularity.
Traditional performance management
The traditional process for reviewing and managing performance is linear and mostly static—everything revolves around the annual review.
Typically, this kicks off at the beginning of the year, with managers setting objectives for employees. Throughout the year, management may conduct performance appraisals, but the final moment of evaluation and feedback isn’t delivered until a meeting at the end of the year.
The biggest pitfall of waiting a whole year to review performance and provide feedback is that it does not provide a straightforward way for employees to get ongoing feedback on their work and make adjustments as needed.
The end-of-year review cycle may also promote recency bias and fail to capture the whole scope of an employee’s contributions throughout the year, which is understandably demotivating for employees.
Modern, always-on performance management
Always-on performance management leaves Jurrasic-era software behind for modern, agile solutions that managers can customize based on individual employee needs.
In this approach, larger annual reviews such as 360 assessments are still relevant, but they’re also accompanied by frequent milestone reviews.
This cyclical process is all about iteration. This means managers listen to employees frequently, and goals are revamped regularly to ensure everyone is always working toward organizational goals and company-wide key performance indicators (KPIs).
Why performance management matters
Performance management is a significant contributor to organizational success in four main areas.
Improving employee productivity
The most apparent result of effective performance management is, of course, increased employee productivity.
Employees who are classified as highly productive say that, at work, they:
- Understand their managers' expectations
- Receive continuous constructive feedback on their performance
- Are encouraged to develop their skills
- Get recognized for great performance
By setting clear expectations, giving regular feedback, and providing employee recognition, managers using an always-on performance management program can help employees reach peak productivity and motivation.
Boosting worker retention
A sound performance management system fosters employee engagement and a positive work environment, reducing turnover. In fact, the number one predictor of employee retention is a positive work environment.
We don’t have to tell you that replacing employees is expensive and time-consuming. Up to two times the employee's salary can be spent replacing a worker. Performance management has far-reaching benefits not just for employees but also for HR leaders and businesses as a whole.
Creating upward mobility for employees
An effective performance management system builds a structured framework outlining each employee’s professional development path.
Regular performance reviews, during which workers are invited to collaborate with managers on goal setting and skill development, enable employees to see their road to advancement.
This visibility into upward mobility is highly motivating and boosts retention.
Driving business results
Lastly, effective performance management not only improves individual performance but also boosts business performance.
By aligning employees’ individual goals with company goals, smart performance management ensures everyone is working toward organizational goals set by leadership.
4 stages of the performance management process
Whether sticking with the traditional review cycle or shifting to an always-on approach, performance management typically has four key stages: planning, monitoring, developing, and rating and rewarding. During the planning stage, managers and employees work together to set clear, achievable goals and KPIs aligned with the organization's overall objectives. In the monitoring stage, managers track and observe employee performance. The developing stage is all about enhancing employee skills through training, coaching, and support. In the last stage of the performance management cycle, employees are evaluated and rewarded based on their performance and achievements.
4 principles of always-on employee performance management
Modern, always-on performance management adheres to four key principles:
1. Set clear organizational goals
It’s key to set strategic employee goals (using SMART framework) on a rolling basis, check in on progress regularly, and refine objectives so they’re aligned and actionable.
This modern approach is crucial because it shifts performance evaluations from backward-facing to forward-looking and ensures goals are iterative and always relevant to organizational objectives as well as the individual’s professional journey.
2. Establish progress milestones
Milestones can make ambitious employee objectives feel much more manageable by breaking them down into smaller steps.
Milestones can be positioned as a lead-up to an ultimate payoff, whether that’s a raise or just a celebratory performance meeting, which creates motivation and momentum.
On the employer side, HR leaders and managers should use milestones (learn how to automate them here) as progress markers for tracking achievements and adjusting strategies as needed.
3. Encourage continuous feedback
In addition to self-reported performance evaluations and observation of goals and milestones hit, colleague feedback provides some of the most powerful insight into employee performance.
So, striving to get this high-value feedback should be a key part of your performance management strategy.
Most folks who conduct performance reviews are familiar with 360-degree reviews. This approach develops a comprehensive look at performance by collecting feedback from everyone a worker interacts with: team members, direct reports, peers, and even clients or customers.
Conducting 360 assessments seems time-intensive, but with the right tools, it doesn’t have to be. Plus, the ROI is there if you know how to conduct them effectively:
- Async surveys are one way to solicit this type of feedback.
- When sending surveys, include basic instructions recipients can follow to leave constructive feedback.
- Review responses to form a holistic view of employee productivity that can be acted upon.
4. Act on feedback and implement improvements
Feedback is really only valuable in performance management if it leads to action. To do this, you’ll want to transform employee feedback into a structured, practical plan to improve upon weak points and capitalize on existing competencies.
This is when managers can partner with HR to adjust their employee engagement strategy, ensuring each worker gets the specialized training, resources, expectation setting, and recognition they deserve.
Performance management best practices
To summarize, here are four best practices to enhance your performance management system:
1. Set continuous and dynamic goals
Don’t revolve everything around the annual review. Instead, adopt a flexible approach to goal-setting. Continuous and dynamic goals allow for real-time adjustments based on business needs.
2. Cultivate a culture of peer feedback
Colleague feedback provides some of the most powerful insights into employee performance. By fostering a culture where employees provide constructive feedback to each other, you can improve collaboration, trust, and team dynamics.
3. Promote employee-driven development plans
Empower employees to take ownership of their professional development by involving them in creating personalized development plans.
4. Incorporate technology
Technology and automation can streamline the entire process and provide real-time insights.
Drive results with Rippling’s performance management system
We know the following to be crucial:
- Effective performance management is about continuous processes, not isolated events.
- Most companies want to align performance management with their culture, not revolve it around their tools.
That’s why our Performance Management, which includes Goals and Review Cycles, focus on enabling you to integrate performance reviews seamlessly throughout every stage of your unique employee lifecycle.
You probably already know that building a culture and system of continuous performance improvement can require a lot from HR leaders, managers, as well as team members.
But with the right tools, it doesn’t have to be difficult. Effective performance management is invaluable in cultivating a high-performing team. This is where Rippling comes in to streamline and modernize your performance management system.
Performance management FAQs
What is an example of performance management?
Performance management can be anything that encourages employees to perform their best. Examples range from constructive feedback, professional development, goal setting, or employee recognition.
What is the main function of performance management?
The main function of performance management is to align employee performance with the organization’s overall objectives while fostering professional development and improving productivity.
What are the 3 Ps of performance management?
The 3 P's of performance management are planning, progress, and performance.
- Planning involves setting clear, measurable goals and expectations for employees.
- Progress refers to the ongoing monitoring and feedback to ensure employees are on track to meet their goals.
- Performance focuses on evaluating outcomes and rewarding achievements, ensuring employees contribute effectively to the organization's success.
What problems do performance management software tools solve?
Performance management software tools help solve several challenges by automating and streamlining the performance review process. These tools:
- Improve goal tracking by providing real-time visibility into employee progress.
- Enhance communication through integrated feedback systems that encourage continuous feedback and collaboration.
- Reduce administrative burden by automating tasks like scheduling reviews, documenting performance data, and generating reports.
- Ensure transparency by offering clear metrics and criteria for evaluating employee performance, reducing biases, and increasing trust in the process.
Ready to implement a world-class performance management process? Request a live demo or view a video tour of the platform.
This blog is based on information available to Rippling as of October 4, 2024.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.
