A Strategic Guide to Effective Performance Management

Gone are the days of the once-yearly performance review. Instead, today’s employees are seeking out workplaces that engage them through ongoing conversations, rewards and recognition, regular feedback and open & honest communication. 

It needs to be said that traditional performance management processes are too rigid and don’t take into account the nuances of today’s modern workforce. Few managers can gauge an employee’s performance when taking into account things like remote/hybrid setups and multiple teams spread across the world. 

To make it easier for you, we have developed a go-to guide to performance management that you can use to implement a strategic performance management system that will get the best out of your workers so your organisation can continue to thrive.

What is performance management?​

Performance management is the process whereby the job performance of an employee is documented and evaluated. Traditionally, this would be once-yearly, however, performance review frequency can vary from every three months to a year. 

A performance review entails identifying employee strengths and weaknesses and setting future goals and feedback. It is the company’s total approach and strategy towards performance improvement and is not only important for the overall success of an organisation, but it’s essential for the employee as many growth opportunities are tied to this process. 

What is Effective Performance Management?

Today’s performance management is much more than just an annual review and off-the-cuff feedback. Instead of being a competitive evaluation, it is an engaging and ongoing process that focuses on training, development and regular conversation between managers and employees. 

Organisations with an engaging workplace and effective performance management system designed for today’s workforce have a crucial advantage. 

Along with giving consistent feedback, organisations with an effective performance management system are also utilising key performance indicators (KPIs) and management dashboards, peer review, 360-degree feedback, and the use of employee management software.

Creating an effective performance management system is essential in:

• Identifying short- and long-term goals;
• Setting clear performance expectations;
• Improving employee productivity and performance;
• Increasing employee engagement and retention;
• Aligning employee performance with the organisation’s objectives;
• Recognising training and development needs.

Effective performance management will look different depending on your specific industry and organisational structure. However, there are two approaches that are universal in managing people’s performance:

Behavioural approach

In this approach, you evaluate your employees based on their behaviours and effort. This approach works well if your employees are working as part of a team or collaborative environment. You will devise your feedback for the individual based upon their current behaviours, communicate with the individual about their desired future behaviours, and provide them with training or mentoring to bridge the gap between where they are to where they want to be.

Results-oriented approach

This approach is ideal when performance metrics are easy to quantify, for example, meeting sales quotas, clocking billable hours, and leveraging data-driven insights obtained from your HR software. In this approach, you focus on the quality and quantity of the end result.

5 steps for the Performance Management Process

Performance management success factors depend on five key elements:

• Planning and expectation setting

• Monitoring

• Development and improvement

• Periodic rating
• Rewards and compensation

With these five key elements in place, managing poor performance is easier as this system encourages success and nurtures a true sense of worth at work for your employees – which is essential in improving individual performance.

Let’s take a closer look at these five elements and how they contribute to the overall success of your performance management system:

1. Planning and expectation setting

First off, goals need to be set along with the means by which those goals will be evaluated. When planning and expectation-setting, be very clear in your goal-setting and have a specific timeframe that can be adhered to. 

2. Monitoring 

In the second step in the performance management process, managers use performance management tools to track the ongoing progress of their employees easily and efficiently. One of the best tools to help you track employee performance is HR project management software. At EI, we recommend Employment Hero which gives you access to a full suite of annual progressive performance review documents and a place where you can record ongoing performance review conversations and feedback.

3. Development and improvement

Once you have monitored your employees for a specific period of time, you will need to encourage further improvement and development. If an employee is on target with their goals or has met their goals, managers can further encourage ways in which to help the employee exceed above and beyond their original intended goal. Successful performance review management of today focuses on continuous improvement; always striving for more and helping employees find further ways to reach their potential. 

4. Periodic rating

Today, performance managers should avoid an annual “judgement day” when working on strengthening their performance review system. Instead, feedback and ratings should be given periodically between the setting of the goal and the evaluation of that target. Companies are removing rating systems because they want managers to talk to employees about their development more than once or twice a year. According to a study from Bersin by Deloitte, after a company removes ratings, managers talk to their teams significantly more often about performance (three or four times a year instead of only once). This results in more engaged employees, less absenteeism and greater development. This is especially relevant when it comes to managing millennials and Gen Z in the workplace.

5. Rewards and compensation 

In many ways, the rewards and compensation stage is the most important HR principle and factor in performance management success. Employees today aren’t solely focused on their career trajectory in the workplace. Instead, they are craving a workplace that recognises and rewards their efforts and makes them feel valued and appreciated for the work that they are doing right now. In order to do this, managers must think of endless ways to reward and recognise their employees even when they haven’t met their performance targets. 

Performance management best practices

Contemporary performance management is a business process that is at the core of the success and continuity of an organisation. It ensures that individual goals align with organisational goals to create and sustain improved performance in employees. 

Various performance management models have been tested and implemented by organisations of all industries, but the most effective performance management consists of the following best practices:

SMART goals

Planning and setting realistic goals and understanding what steps need to be taken to reach these goals is even more critical in today’s workforce. Poorly designed goals can lead to poor employee performance and behaviours. In order to effectively goal plan in the performance management process, you should follow the S.M.A.R.T rule:

• Specific: Vague goals lead to inconsistent results. The better you define your goals, the greater chance you have at achieving the results that you want.
• Measurable: Your goals should be set in a way that produces visible, tangible results. When measuring your goals, it’s helpful to use metrics that can be quantified.
• Achievable: Goals and objectives should be reasonably attainable, taking into account common/practical challenges such as time, money and labour. 
• Relevant: Goals must be applicable to the employees involved in achieving them.
• Time-bound: Setting a date for when you want these goals to be achieved helps motivate your employees without pressuring them. 

Focusing on SMART goals helps you to implement an effective performance management system for more strategic employee outcomes.

Performance improvement plan

A performance improvement plan is a document that outlines what problems you’re encountering with an employee’s performance and what you need to do to address it and improve it. 

Follow these suggested steps to developing a performance improvement plan:

1. Plan: Begin by clearly identifying the specific area/areas in which the employee needs to improve their performance.
2. Meet with your employee: Next, explain to your employee what they need to do to improve their performance and how they can do this. Offer them the relevant training and resources and give your employee a reasonable time to improve their performance. Finally, explain to them what will happen if their performance hasn’t improved by the set date/timeframe. You and your employee should sign and keep a copy of the plan.
3. Monitor: Monitor your employee’s performance while the plan is in place by regularly checking in with your employee and discussing their progress. 
4. Review: Meet at the date/time set out in the plan to review your employee’s performance. After this meeting, you should update the plan to ensure it stays current. 

You can use this performance improvement template provided by Fair Work Australia to help guide you. 

Best Practice in Managing Underperformance

Managing unsatisfactory performance and behaviour can be challenging for both managers and employees. Failure to address underperformance promptly and appropriately can have a negative effect on workplace culture and employee productivity. Similarly, if an employee has engaged in gross misconduct, you may have reasonable grounds to incite disciplinary action. Failure to follow a lawful and reasonable dismissal can prolong an employee’s bad behaviour and create a toxic workplace. 

The best way to address underperformance is to do so straight away. It will make it easier to review issues and avoid serious problems that can negatively affect your organisation. Here’s an easy process to managing employee underperformance:

1. Identify the problem: Write down examples of the behaviour or action causing the issue, when it has occurred, why it’s an issue and how the action or behaviour needs to change/improve. 
2. Assess and analyse: If upon assessing an employee’s performance you come across an issue, consider how serious the problem is, how long it has been going on, and the gap between what’s expected and what’s being delivered. Once you have assessed the problem, meet with your employee to discuss it. 
3. Agree on a solution: After discussing the problem, you and your employee should work together to find a solution.
4. Monitor and review: Once you have a solution in place, make sure that you continue to follow up on your employee’s progress and offer any support or training that you may have offered them. 

Remember, it’s likely to be more cost-effective and efficient to work on improving an employee’s performance than it is to replace them.

Workplace culture

Traditional performance appraisals have been abandoned by more than a third of U.S. companies. One of the biggest reasons for this is that it makes employees feel like they’re being held accountable for what they did in the past year at the expense of improving performance in the here and now. By making it harder to align individual and organisational goals through outdated performance review practices, employers risk damaging workplace culture and productivity. For many organisations, the performance review is viewed as something they just have to do. But in recent years, more business managers have been realising that the traditional performance review process does not inspire, equip or improve employee performance. It also costs a lot of money. According to Gallup, as much as $2.4 million to $35 million a year in lost working hours for an organisation of 10,000 employees to take part in performance evaluations – with very little to show for it.

Performance management systems that create a positive workplace culture incite honest feedback, frequent conversations and mentorship, and produce a continual learning environment that encourages employees to openly collaborate.

Embracing a modern approach to performance management yields positive results for employee productivity and workplace culture

Overall, creating an effective performance management system that promotes employee productivity and positive workplace culture delivers far better results than the old-school approach of favouring once-a-year reviews with little to no ongoing support. Today’s performance management process empowers peer-to-peer feedback and favours fair, transparent and continuous communication. Leveraging employee data and performance via employee management software can help companies to track performance and provide continuous feedback loops that help employees align with their goals and carry the business to greater success. 

Ready to maintain business success through performance management?

Contact Employment Innovations for a strategic and effective performance management solution. 

About Employment Innovations

Employment Innovations is one of Australia’s leading providers of employment services designed to increase productivity and ensure compliance. Its services and solutions include all the tools that every Australian small to medium sized employer needs – including workplace advice, legal services, payroll solutions, migration, human resource management and HR software.

Disclaimer

The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact Employment Innovations for advice.