What is a performance management system?
A performance management system is more than just an annual performance review. Instead of being a once-a-year process, a performance review management system helps employees improve on an ongoing basis through a variety of different components that support employee growth, engagement and success.
A performance review management system typically consists of four main elements: goal setting, regular feedback, formal performance reviews and employee development or performance improvement plans (PIPs).
Goal setting
The first step in a performance review management system is setting meaningful and attainable goals for each employee. Creating goals sets performance criteria that employees will be graded on later in the performance review process. Try using the SMART goals system to set goals that are specific, measurable, achievable, relevant and time-bound.
Make goal setting a collaborative process to help create objectives that align with company strategic goals and values and an employee’s individual strengths and career goals. This step is especially important to keep employees engaged and productive because when an employee knows what their goals are, they’re more likely to stay at your company. In fact, according to an Indeed survey, 44% of people who left a job within the first six months said receiving clear guidelines to what their responsibilities were could have helped them stay longer.*
Related: Employee Performance Goals: Examples for Managers to Use
Regular feedback
Giving frequent feedback can help your employees improve in real time, instead of waiting for the annual or quarterly performance review to find out how they’re doing. Consider scheduling weekly one-on-one meetings with each employee to give feedback on job performance and progress toward goals. Make sure your feedback is both specific and prompt.
Provide positive and constructive feedback and offer specific ways for employees to improve. When giving constructive feedback, try saying something like: “I would love to see you do more of [this behavior, task, responsibility]. Here are some ways to get there.”
Formal performance reviews
A performance review, also known as an annual review, is an assessment that allows you to evaluate your employees’ success in the workplace. Through this formal review, you discuss each employee’s strengths and identify areas of improvement, then create a plan of action to meet improvement goals.
Common types of performance review methods (which you can mix and match) include:
- 360-degree feedback: With this method, you receive feedback from everyone your employee interacts with which may include peers, other managers, customers and vendors.
- Quantitative evaluation: This type of feedback is based on numbers and data, which may include sales numbers, customer satisfaction and quotas.
- Self-reviews: This gives employees a chance to reflect on their performance and gives employers a better sense of what employees have accomplished.
Related: Performance Appraisal Forms: A Guide for Managers
Employee development or performance improvement plans (PIPs)
The final step in the performance evaluation process is to offer career development opportunities for high-performing employees or implement performance improvement plans (PIPs) for employees who continuously fall short of goals.
Career growth is often an important part of employee happiness and engagement. An Indeed survey found that 24% of people started searching for a new job because there was no room for growth at their company.** Here’s how to create an employee development plan (with a template and examples).
For employees who aren’t meeting their goals, you may choose to implement a PIP. PIPs are usually the first step in a progressive discipline process that addresses employee performance level. They are usually formal documents that outline specific performance expectations and deadlines to meet them. Here’s how to create a PIP with a template and examples you can use to write your own.
Why implement a performance management system?
Performance management systems are useful tools for increasing productivity and overall employee satisfaction in the workplace. Other benefits of implementing a performance review system include:
- More opportunities for employee development
- Improved employee happiness
- More positive company culture
- Reduced employee turnover
- Improved management skills
- Ability to better identify training needs
Performance management helps your employees understand what level of work is expected of them, giving them a better understanding of what skills they need to work on and improve. This guidance often results in heightened employee morale and greater motivation to achieve goals. These reviews also help you build better relationships with your employees and develop more effective organizational goals.
How to conduct a performance review
Follow these steps to conduct an employee performance review:
1. Set expectations at the beginning of the year
The most effective performance reviews are a culmination of strategic planning sessions and check-in meetings throughout the year. At the beginning of the year, give your employees a clear understanding of what work is expected of them and a specific pathway to reach their goals.
2. Prepare for the meeting a few weeks ahead of time
A few weeks prior to the formal review, start preparing your materials, which may include:
- The employee’s own self-evaluation
- Specific examples to explain strengths and weaknesses
- Feedback from key individuals like peers and other leadership
- The goals and objectives identified at the beginning of the year
- Any notes you’ve kept about the employee’s behavior or accomplishments
It’s important to keep notes regarding your employee’s behavior (both positive and negative) throughout the year to make sure their review is based on facts and real examples, rather than memories and assumptions.
Related:Employee Evaluation Form
3. Establish the purpose of the performance review
A performance evaluation provides your employees with valuable information they will take with them after the meeting. This information may be certain skills they need to work on enhancing, a specific goal they need to reach for next quarter or their future opportunities for growth in the department and how to advance.
4. Create an agenda for the performance appraisal
Prior to the review, create an agenda of what topics you’ll discuss and ask the employee to provide their own agenda as well. A performance review is a conversation, so both parties should have the opportunity to talk about their concerns and objectives.
5. Discuss highlights and challenges
During the review, follow both agendas, making sure to discuss both highlights of your employee’s work and ongoing challenges that need addressing. Identifying shortcomings is just as important as recognizing their achievements.
6. Discuss a plan of action
Determine future goals and what steps the employee needs to take to get there, including the employee’s own career goals and your company’s plans. Constructively coach them during this process by providing guidance and solutions, then agree upon actions you both must take to participate in your plan of action together.
Related:How to Create a Performance Improvement Plan
Tips for conducting a performance review
Use these suggested tips to conduct an effective performance review:
- Spend ample time preparing. Reviews help increase employee productivity and morale, so it’s crucial to prepare ahead of time for the biggest impact.
- Use peer reviews lightly. Peer reviews help you see a broader perspective of an employee’s work ethic but are just one form of feedback, not the driving force of your review conversation.
- Provide significant feedback. Employees need to leave the review feeling confident that they understand how to improve their skills and knowing what their future outlook is with the company.
- Create a follow-up plan. Following up helps you and the employee stick to the plan of action you create during the review to ensure goals are met by the next review.
*Indeed survey, n=438
**Indeed survey, n=1,000
