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Performance Management
Performance management and performance evaluation are often used interchangeably, but they are not the same. Read on to understand the ins and outs of performance management.

What Is Performance Management?

Performance management is the process of aligning employees’ performance output with organizational goals. This is achieved through performance evaluation, mentoring, performance planning and continuous feedback.

Performance Management vs Performance Evaluation

Performance management and performance evaluation are two distinct but related concepts in the workplace. Performance management is a continuous process that helps employees and organizations improve over time, while performance evaluation is a formal, periodic review of an employee's performance. Both are important for ensuring individual and organizational success.

Why Is Performance Management Important?

When done correctly, performance management has a significant positive impact on organizations and their employees. Here are just a few reasons performance management is critical to both the employee and organizational success.
  • Decrease turnover. Ensuring employees have the right tools to do their jobs is essential. They will be more willing to stay with their employer if they feel motivated and empowered. Performance management prepares employees for their respective roles by giving employees the resources necessary to get their jobs done. The more prepared employees are, the less likely they are to leave the organization, which leads to a decrease in turnover.
  • Increase productivity. The fundamental purpose of performance management is aligning employees’ output with organizational goals, and productivity is efficiently completing assigned responsibilities. Continuously providing useful feedback to employees and monitoring their daily progress undoubtedly increases the organization’s overall productivity. Productivity also increases when there is less operational disruption from decreased turnover.
  • Maximize return on investments. Performance management can be costly and time consuming, but the price of fixing employees’ operational errors and replacing separated employees is greater. According to Subscribe HR, getting performance management wrong can result in significant employee turnover, which can be very costly to your organization. When organizations invest in performance management, they proactively reduce cost in other areas (recruiting, employee engagement or compliance). This maximizes a return on their investments.
  • Boost employee morale. Employees are more likely to enjoy their jobs if they’re confident in the work they do. Performance management builds confidence by guiding employees once initial training is completed and focusing on their development. By maximizing confidence, organizations have less frustrating/frustrated employees. When the majority of an organization’s employees are happy, morale is high.

The Stages of Performance Management

Leaders must first understand the stages of the performance management process to successfully supervise the process. Leaders are instrumental in creating, managing and evaluating the process in order to achieve its target goals.

Planning

Because performance management is directly linked to achieving organizational goals, creating a plan to determine how success will be measured and developing a roadmap to success is fundamental. Leaders are responsible for identifying the training and development needs of the organization during the planning stage. They also need to determine which employees and/or departments are responsible for specific goals. All of these activities should be completed in the planning stage of performance management.

Monitoring

Creating an action plan for performance management is crucial work because a plan without action is bound to fail. There needs to be accountability, which is why monitoring becomes effective. There should be frequent feedback and follow ups on tasks assigned to employees. Frequent check-ins are the best way to confirm that employees will meet their goals on time as well as make needed adjustments. If there’s no one monitoring the performance management process, there will be no sense of urgency to put the plan into action, and the process becomes ineffective.

Reviewing

Performance evaluation/review takes place at the third stage of the performance management process. Though typically completed annually, it may be completed semi-annually. During the review stage, results of employees are evaluated against the agreed upon goals at the start of the year. Employees have the opportunity to also see how they contributed to the overall goals of the organization based on their work.

Rewarding

This is the final stage of the performance management process. Though all stages of the process are important, the rewarding stage is crucial and should never be neglected. Rewarding employees for achieving personal, departmental and organizational goals is effective to keep them motivated. Besides, celebrating wins no matter how small will be beneficial when working toward new goals.

How to Build an Effective Performance Management Process

Identifying the stages of performance management is important for all leaders in an organization, but it’s more beneficial when they collaborate to build an effective process. Though each organization is different and may have their own steps, the four steps below are helpful for HR partners tasked with establishing a performance management process for their organization.

Step 1: Identify Goals

During the planning stage, identify the objectives of the organization’s performance management. When creating the actual process, leaders need to identify specific goals that solidify the general objectives. For example, is the organization focused on implementing several new technologies for the next year or will they be increasing profit margins? Identifying the goals of the performance management process is key to its success. Goal should be based on the needs of the organization’s longevity. It would be pointless for a new organization to be focused on implementing all new technology within their first years of operations. That would not be an immediate need. Growth and profit increase would be more ideal.

Step 2: Communicate the Process

Communicating the performance management process to the organization is the quickest way to get everyone’s buy-in. Employees can't support a process they don’t understand. Clearly providing all the information they need to support performance management will prove beneficial to its success. Also, designating a point of contact for all general inquiries about the process so that employees can get their immediate questions answered fosters effective communication.

Step 3: Partner With the Right Stakeholders

Performance management isn't just HR’s responsibility. All leaders from the organization's core functional areas (finance, marketing, operations, legal, etc.) should be involved in the process. Each function is responsible for the success of the organization, so it is important for them to know their role in the process.

Step 4: Evaluate the Overall Process

Evaluating the performance management process is vital to measuring its effectiveness. Evaluation allows leaders to monitor and review the entire process and implement changes when readjustments are needed. Leaders should dissect the process to determine if they have implemented the best strategies to measure their main objectives. It is also an opportunity to confirm and/or adjust the responsibilities of key stakeholders. Based on the findings of the evaluation, leaders can confirm the magnitude of needed changes. Process improvement is a key component of performance management because goals will be constantly adjusted once achieved.

Tips for Improving Your Performance Management Effectiveness

Understanding and building a performance management process isn’t enough. Leaders should focus on improving its effectiveness. This is less challenging than they believe. Here are four examples of ways leaders can improve the effectiveness of their organization’s performance management process.
  • Use quantifiable metrics. Goals must be measured to determine the success of the process. If there aren’t any quantifiable metrics, measuring goals will be virtually impossible.
  • Re-evaluate goals as needed. The goals of the organization will change as it grows, so it’s important to align goals with new needs.
  • Ensure rewards are motivating employees. Employee motivation is an important aspect of performance management, as rewarding is the final stage of the process. It’s crucial that leaders don’t assume how employees should be rewarded. Always solicit employee feedback on how they would best feel rewarded.
  • Embed performance management in organizational culture. Communicate the importance of performance management as an organization by making it a part of employee onboarding, annual training and general employee communication.
Topics
Remone Robinson

Remone Robinson

Remone Robinson is a high-achieving Human Resources professional with extensive experience and success in talent management, strategic communication, and regulatory compliance across several industries. He is a motivated self-starter who draws on strategic planning and change management skills to enhance HR policies and operations. He has an extensive background in performance management, training & development, and diversity, equity, inclusion & belonging. Remone earned a Master of Science (MS) degree in Management and Leadership from Western Governors University. His passion and vision for HR led him to become a SHRM Certified Professional (SHRM-CP) from SHRM and a Certified Professional in Human Resources® (PHR®) from HRCI.
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Frequently asked questions
Other Related Terms
360 Review
9 Box Talent Review
Behaviorally Anchored Rating Scale (BARS)
Demotion
Employee Disengagement
Employee Engagement
Employee Evaluation
Employee Monitoring
Employee Morale
Employee Productivity
Extrinsic Motivation
Graphic Rating Scale
Intrinsic Motivation
Motivational Interviewing in the Workplace
Multi-Rater Feedback
OKRs
Organizational Development (OD)
Performance Improvement Plans
Performance Review
Promotions
Quiet Firing
Quiet Quitting
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