Using Performance Management in the Workplace

Updated July 21, 2022

Performance management allows managers and supervisors to assess whether or not employees are meeting their work objectives. It also helps identify areas of excess, waste and low levels of efficiency. Furthermore, those in charge of performance management programs can use the results to align workers' skills and competencies with organizational goals.

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What is performance management?

Performance management is the act of consistently assessing and providing feedback to individual employees related to their roles and responsibilities. A performance management system helps managers communicate employee expectations to ensure everyone understands what it means to be successful in their position. While providing suggestions for improvement is crucial, it is equally important to provide positive feedback both for morale and learning purposes.

Related: Why Performance Management Is Important for Your Team

Benefits of performance management

A performance management system that remains consistent throughout all departments supports ongoing accountability. Instead of encouraging employees to meet organizational objectives only at review time, consistent performance management promotes a continual call for progress. When carefully implemented, a performance management system leads to improvements in performance and productivity rates. Additionally, you will notice improvements in communication, reduced stress regarding underperformance and happier teams. If people clearly understand what is expected of them to grow in their job, they can take the steps necessary to achieve their own career goals.

With a good performance management system in place, your organization can reduce employee turnover rates, improve production and potentially increase profit margins.

How to create a performance management system

While annual performance reviews can certainly be beneficial, it should not be the first time individuals are hearing about positive or critical feedback. Instead, consider building a performance management system that operates as a cycle in which you provide micro-feedback and appreciation throughout the year. To create this cycle, you must have the right inputs, including the following:

  1. Define expectations for every position clearly. Every role must have its own job description that outlines the expected responsibilities, including a management chain of command. Ideally, each person will receive their own role and responsibility along with that of the next level up so they know what it takes to earn a promotion. Define what it means to fail, succeed and exceed expectations in each role.

  2. Train managers for performance management. Managers should be able to implement the performance management system on their own individual teams. This means they should be responsible for providing consistent positive and critical feedback so their teams know how to grow in their role.

  3. Provide resources for growth. Your new hire orientation and training must set individuals up for success, and most importantly, the work environment should facilitate favorable outcomes instead of working against them. If they are given critical feedback, for example, they should also be given resources to build on their areas for improvement.

An effective performance management system will do the following:

  • Clarify job duties and expectations.

  • Increase both individual and group productivity levels.

  • Strengthen worker capabilities to their fullest potential via strong feedback and coaching.

  • Drive behavior that aligns with organizational objectives, values, and mission.

  • Improve communication at all levels.

  • Provide a solid basis on which to make operational human capital decisions.

Related: Ways To Conduct Employee Performance Appraisals

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Managing your performance feedback system

While setting up a good performance management cycle is the first step in the process, it also requires consistent upkeep and oversight. Here are a few stages you can follow to maintain a strong system:

1. Plan

Properly assessing employee performance starts with explaining what's expected of them. During new hire orientation and training, make sure to set aside a period of time to explain in detail what each job duty requires. Also, explain the different levels of satisfaction at which the worker can complete each duty. A guideline gives the employee a clear idea of how to exceed your expectations.

For example, you have hired a new accountant. One of the key responsibilities is to send overdue invoices to clients on the first of each month. This job duty has three levels of satisfaction at which the worker can perform it:

  • Poor: Fails to send overdue invoices to clients on the first of each month.

  • Satisfactory: Sends overdue invoices to clients on the first of each month and updates the accounting software to reflect the sending of these notices.

  • Distinguished: Sends overdue invoices to clients on the first of each month, updates the accounting software to reflect the sending of the notices, and makes a new list of clients who are behind on their invoices and sends this list to the accounting department's supervisor.

With clear expectations in place, it becomes much easier for workers to be successful in their roles.

At first, it may seem that the planning stage only occurs when a new employee goes through training. Since the performance management system is meant to be a cycle, the planning stage should occur on a regular basis with each employee. It is during the planning stage that you can discuss the employee's strengths and weaknesses and possibly add job responsibilities based on those strengths. Every time you add a job responsibility, make sure to provide a clear idea of how to exceed your expectations for that specific job function. 

It's also during the planning stage that you will explain to employees how their job duties contribute to the achievement of organizational goals. The planning stage is a great time for showing appreciation, as well. You can discuss the improvements you've noticed in the employee and how those improvements have benefited the company as a whole.

2. Act

Effective performance management is about much more than assessing the success of a project once it's finished. It's about being actively involved in everyday tasks and projects to guide employees on the many ways in which they can become more efficient and productive in their roles. Your level of involvement might vary depending on your management style, which is certainly acceptable.

Being involved with your team’s day-to-day tasks on some level gives you an opportunity to share positive feedback regarding your team’s work. Plus, it becomes the perfect time to encourage greater progress by cheering on your team. Some other benefits of employee recognition include:

  • Increases confidence

  • Solidifies your expectations

  • Builds trust

  • Establishes healthy relationships

3. Monitor

Organizations often have difficulty deciding how to monitor and measure employee performance. Some job duties are measurable according to objective indicators of performance such as volume of sales, product production levels or profitability. It is important to note, however, that objective indicators can lead to potential problems. First, there's a good chance that not all employees are performing the same job duties, meaning you can't compare one employee to another. Also, not all employees may have access to the same resources to perform their job duties.

Let's say that Yasminda and Henry are both given a minimum production quota of 100 a week. Yasminda, however, is working in a part of the plant with modern production equipment. Henry is working in a part of the plant with older equipment that doesn't produce a high volume of product in as little time as what Yasminda can produce. If Yasminda meets the minimum quota by Wednesday each week and Henry meets it on Friday, this doesn't necessarily mean Yasminda is performing better than Henry. 

Resource-intensiveness problems are another issue among monitoring performance based on objective indicators. Collecting meaningful data requires extensive metrics, which can translate into major resource implications, especially the higher the number of metrics being used to collect the information.

The inherent difficulties accompanying the use of objective indicators to measure performance has resulted in many companies taking an alternative route. This route consists of evaluating employees based on their most meritorious accomplishments. It also involves assessing those accomplishments to determine how they benefited the company as a whole. With this type of measuring, you don't face the limitations often encountered when using objective indicators to assess performance. This route of measuring also takes into consideration other areas of performance not measurable by objective indicators, such as team leadership.

4. Reward

As you review each individual’s accomplishments, you can reward them with a gift of appreciation. It is pertinent to create a reward system that applies across the entire organization to promote fairness.

You can implement this reward system based on a numerical rating system that you use to rank your employees based on their objective indicators or meritorious accomplishments. A seven-point rating scale is usually sufficient to differentiate employee performance levels effectively. Falling onto the scale as a one or two-pointer will qualify the employee as a bottom performer. Three-, four- and five-pointers qualify as middle performers. Six and seven- pointers qualify as top performers. Ideally, you will have a different point scale for four different levels of workers—new hire (first six months), entry-level, first-level management, and second-level management.

You will assess employees based on each role. Below is a sample rating system:

7 – Consistently performs according to a 'role model' standard.

6 – Almost always performs according to a 'role model' standard.

5 – Performs at the 'role model' standard about 50% of the time and at the 'meets expectations' level about 50% of the time.

4 – Performs consistently at that the 'meets expectations' level.

3 – Performs at the 'meets expectations' level about 50% of the time and at the 'below expectations' level about 50% of the time.

2 – Almost always performs at the 'below expectations' level.

1 – Consistently performs at the 'below expectations' level.

Using the rating system above, let's say Rohan has five job duties he is responsible for and he receives the following ratings. 

  • Manage projects: 6.

  • Report to supervisor: 7.

  • Upload data to Excel: 6.

  • Create reports: 5.

  • Communicate report findings with clients: 6.

To determine his overall performance score, we will add his total number of points and divide by the number of job duties — 30/5 = 6. During his performance review, you would share with Zachary that he has received an overall performance score of six. 

5. Review

The review stage of the performance management cycle consists of sitting down with the employee and reviewing what happened during the latest assessment. You can praise the employee for his or her top ratings and provide encouraging feedback on how to improve the lower ratings. Using the reward system you have created, you can also distribute rewards during this time using your rating system.

A carefully-crafted performance management system is essential to helping your employees improve in their positions. It also enables you to identify where to offer promotions and rewards. Additionally, a performance management system that operates as an ongoing cycle will keep your supervisors and managers actively involved in all operational processes throughout the entire year. This is key to minimizing waste and improving operational efficiencies.

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