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Why Your Company Needs Performance Management (+6 Components)

October 29, 2019

In today’s competitive hiring market, companies that take a hands-on approach to employee engagement and growth are leading the pack. 

That means the key to attracting and retaining top talent isn’t just in your hiring strategy. It’s integrated into the way your company manages employee performance every day – from the first time a new hire walks in the door to the day they exit. With that in mind, let’s talk about your performance management strategy.

What is performance management?

Let’s discuss what performance management is before going any further. 

Practically speaking, it’s an ongoing, continuous practice that incorporates goal-setting, performance reviews, check-ins, engagement surveys, and more.

If your organization were a machine, performance management would ensure all of the cogs were well oiled and operating at their highest capacity. Because your company is a living, breathing, human organization, performance management ensures not only that each employee is working as well as they can now – but also that they’re actively engaged, growing in their work, and invested in your company’s success.

What performance management means today

Performance management has changed dramatically in the past several decades. First, we’ve seen an overall shift in the way we think about employee engagement, a term that became top of mind for human resources leaders with the 1990 publication of the groundbreaking report, “From People to Profits, the HR Link to the Profit-Service Chain.”

With Gallup reporting 22% higher profitability in organizations with high employee engagement, HR professionals worth their salt have spent the past three decades focusing on engagement initiatives – starting with performance management.

More recently, technological developments like performance management platforms and software have majorly changed the game. Programs and processes that used to be cumbersome or ineffective – like generating engagement surveys, managing goals, and scheduling check-ins – can now be completed with just a few clicks, making it easier for HR leaders to collect human data, spot trends, and engage employees while maximizing the impact of performance management programs and processes.

What can performance management do for your company?

The numbers don’t lie – performance management pays off.

As Jamie Gruman and Alan Saks point out in their article “Performance Management and Employee Engagement,” performance management is the “Achilles’ heel” of an organization – it has the power to make or break employee performance and engagement. The accompanying price tag for HR leaders who don’t heed the call is high: Gallup estimates that the cost of poor management and lost productivity from disengaged employees in the U.S. is between $960 billion and $1.2 trillion per year.

So look to the bright side: when performance at a company is well-managed and employees are working at their full potential, organizations reap the rewards. Gallup notes that high-performing teams experience an average of 40% less employee turnover, a 37% reduction in absenteeism, and 48% fewer staff safety incidents than disengaged teams. This ultimately translates into higher profitability (22%) and productivity (21%).

Put another way, each employee costs a typical U.S. company, on average, $1,250. Is your organization making the most of that investment?

Let’s take a look at 6 steps you can take today to ensure you’re getting the most bang for your buck – engaged employees who go the distance for your company. 

6 components that should be part of your performance management strategy 

Gone are the days of the annual performance review. Modern performance management is comprised of a web of continuous, ongoing activities that help you assess and guide employee growth and engagement. 

1. Employee check-ins 

Employee check-ins are the heart and soul of a growth-powering feedback culture. These casual one-on-one conversations are typically between an employee and manager about the employee’s performance, progress toward their goals, and what they need from their manager to be successful.

Frequency matters. Check-ins should be performed weekly to create a comfortable tone and sense of ongoing, evolving conversation. This helps to create a fearless feedback culture where employees feel heard rather than simply managed, and can receive feedback thoughtfully.

This helps set up your performance reviews for success: Employees in workplaces with weekly check-ins are more than 400% as likely to say that their performance reviews led them to do better work than those in workplaces with no coaching culture and annual reviews.

2. Performance reviews 

Performance reviews are valuable opportunities to evaluate employee performance in the context of progress toward goals, working style and efficiencies, workplace behavior, and growth opportunities. From an organizational perspective, they allow you to assess employee potential and function; for workers, they highlight the areas of potential growth and challenges you want your employees to keep top of mind.

When we say annual performance reviews are out, we don’t mean you’re done with performance reviews altogether. On the contrary: HR leaders at organizations that conduct frequent performance appraisals are 1.5 times more likely to agree that they accurately reflect employee performance, compared with reviews performed only annually. To get the best bang for your buck, your organization should be performing them once per quarter. 

Related: Learn why shorter performance reviews end in better results between you and your employees, and download our free performance review template to help you more easily and smoothly conduct all future performance reviews. 

FREE: Performance Review Template Download Now →

3. Goal setting and management 

The importance of setting goals is neither secret nor new – as long ago as 1968, goal-setting thought leader Edward Locke demonstrated that over 90% of the time, setting specific, challenging goals led to higher performance than setting vague or low-bar goals. And if you’re here, you’ve probably sat through more than your fair share of seminars on SMART goals. The real question is, how is your organization putting those principles into practice?

To make sure goals are driving employee engagement, work with managers to ensure their employees’ personal goals are closely aligned with the organizational goals, and that progress toward these goals is part of their regular check-in conversations. Support this with a solid goal management software for transparency and accountability. 

4. 360 feedback 

Traditionally reviews have been top-down, featuring only a manager’s feedback on employee performance. But it’s far from a complete picture. That’s why you should be using 360 reviews, which incorporate feedback gathered from the employee themselves, as well as their peers, direct reports, and managers.

In the same way that triangulation allows for greater accuracy, these varied perspectives allow employees to get a full picture of their strengths and opportunities for growth. 360 reviews also require more self-awareness on the part of the employee, and a greater sense that their perspective is valued – a shortcut to boosting employee engagement

5. Engagement surveys 

With Deloitte reporting that 87% of organizations cite engagement as one of their top challenges, tracking employee engagement should be top of mind for HR professionals – which is why your organization should be listening closely to employees and using data to drive decisions.

Employee engagement surveys measure not just employees’ satisfaction, but also their commitment to your organization’s mission, trust in leadership, and value they place on their work. Administer these regularly – say, once a month. This not only makes employees feel their voices are valued and heard, but allows you to track trends and identify and address potential problem areas in your organization as they develop. 

6. Recognition and rewards 

It’s not just about creating a feel-good company culture: 80% of employees note that they feel motivated to work harder when their boss shows appreciation for their work. This means a little recognition can give your company a big productivity boost.

If recognition and rewards aren’t an active part of your company culture, look for ways to integrate verbal praise, leaderboards, and rewards systems. Offering recognition and rewards for goals met, values demonstrated, and work well done keeps employees engaged and working toward your organization’s goals. 

What to look for in performance management technology 

Ready to turn your organization’s performance management around and optimize employee engagement? Here are a few things to consider when looking for performance management resources:

Business/solution fit. Before getting into the specifics, take the time to ensure that your technology provider is a good fit for your company and its needs.
Tools and resources. What does this technology offer? What features will drive engagement?
Integrations and support. On the practical side, you want a performance management platform that will be easy to use and will integrate with your existing technology.

With these resources in hand, you’re ready to lead the pack. It’s time to make a change: start managing performance, and reap the rewards in optimal employee engagement, productivity, and profitability for your company.  

Find the best performance management software solutions for your needs on G2. 

See the Highest-Rated Performance Management Software →

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