HR 101 Guide

Chapter 05

Performance Management

Grow Employees and Your Organization with Performance Management

Most people dread anything having to do with performance management; they either equate it with nerve-wracking annual reviews or see it as a cumbersome, meaningless hoop to jump through. And it’s not all perception. In research by BambooHR, close to half of companies said that a performance review is used “as a formality that accompanies the employees’ annual raises.”

But if you want happy and motivated employees, managers who know how to coach and mentor team members, and an organizational culture that focuses on cultivating talent and growth, then you need performance management.

In this chapter, we’ll discuss the following aspects of performance management:

What Is Performance Management?

You might only think of annual reviews when you think of performance management, but there’s more to it than that. While reviews and performance ratings can certainly play a part, they’re not the only ways that organizations should be measuring and improving employee performance.

Other aspects of performance management include:

Manager one-on-ones
Peer feedback
Performance improvement plans
Goal-setting and tracking
Rewards and recognition programs

No evaluation system can create great managers and engage employees on its own…[Performance evaluations] lay the foundation for a great conversation.”

—Gallup

Why Does Effective Performance Management Matter?

At its core, performance management should help organizations and employees improve. At the organizational level, performance management helps leadership measure employee contributions, recognize their value, and make changes to better support them in their roles. For employees, it helps them see their own strengths, reach their goals, and grow as employees and individuals.

However, the biggest challenge with performance management is getting it right. In research by BambooHR, we found that three out of four HR pros are critical of performance management reviews; they see reviews as actually hurting engagement and being inaccurate measures of performance.

On the other hand, as top HR executives argue in an article for Harvard Business Review, “even when companies get rid of performance evaluations, ratings still exist. Employees just can’t see them. Ratings are done subjectively, behind the scenes and without input from the people being evaluated.” So are you damned if you do and damned if you don’t?

The key is to remember that performance management is not just a single meeting or evaluation, as we mentioned above, but involves several processes and initiatives that should be on-going. Performance management doesn’t end when a manager turns in their evaluation of an employee. As Gallup explains, “No evaluation system can create great managers and engage employees on its own…[Performance evaluations] lay the foundation for a great conversation.”

If you want happier, more engaged employees, more effective managers, and a workplace culture that supports and champions its employees, performance management is vital—you just have to build it the right way.

How to Build an Effective Performance Management Program

Frequency: More Is Better

In case it’s not already painfully clear, just doing annual reviews isn’t enough anymore—they are inefficient and insufficient. Who can remember a whole year’s worth of projects, let alone provide a detailed accounting of their successes and failures? Yet, we not only expect it of employees, we expect managers to be able to remember everything their team members did, too.

If you want effective performance management reviews, just do them more often and have more informal check-ins as well—we recommend having formal reviews every six months and check-ins every month.

Gallup reports that “traditional performance reviews and approaches to feedback are often so bad that they actually make performance worse about one-third of the time.” Because managers aren’t consistently giving feedback, “the result is that it feels like an unnecessary rehashing of a painful time or praise that comes far too late—an afterthought.”

The same research by Gallup also criticizes annual performance reviews for trying to jam too much into one conversation; it’s impossible for managers to adequately cover compensation, career mentorship, advice on how to improve, and possible disciplinary actions for each of their team members without spending hundreds of hours.

But this is easy to fix. If you want effective and efficient performance management reviews, just do them more often and have more informal check-ins as well—we recommend having formal reviews every six months and check-ins every month. That’s what employees want, too. According to our research, 61 percent of employees prefer receiving feedback as projects are completed or in informal meetings with their managers.

Regular check-ins and informal performance conversations have a far greater positive effect on employee engagement and performance.

When managers provide weekly feedback, team members are:

Five times more likely to feel they received meaningful feedback
Three times more likely to feel motivated to do great work
Twice as likely to be engaged at work

More frequent check-ins also spread the load for all the different conversations that take place between managers and employees, giving employee development the time and attention it deserves.

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Feedback: Focus on Strengths and Structure

Giving feedback is at the heart of the performance management process, and it drives employee development. How managers communicate with employees has a direct effect on how well you’re able to train and retain top talent.

So what should that look like on the one-on-one level?

Managers: Giving Feedback

When giving feedback, managers should focus on strengths, not weaknesses. Employees just don’t respond to managers who solely focus on their weaknesses—they rank it as #5 in worst bad boss behaviors. On the positive side, Gallup finds that focusing on employee strengths doubles the number of engaged employees, and it makes them more productive, reduces their stress, and boosts their overall well-being.

During formal performance reviews, like an annual review, managers need to have clear context and criteria to be able to evaluate employees fairly. It’s not just that open-ended questions can make for vague answers that don’t give specific feedback or praise; they also invite gender and racial bias. Without a common set of guidelines for what the expectations are, people go with their gut, which means they rely on their often flawed emotional perceptions.

Researchers with the Stanford VMware Women’s Leadership Innovation Lab studied how ambiguously-framed reviews disadvantage women. When leaders and managers were not given proper context or criteria for evaluation, “women were more likely to receive vague feedback that did not offer specific details of what they had done well and what they could do to advance...Men were more likely to receive longer reviews that focused on their technical skills, compared to shorter reviews for women that were more concerned with their communication skills.” The same was true for badly framed oral performance reviews, showing that bias is not dependent on the format of the review but how it’s structured.

Simply learning their strengths makes employees 7.8 percent more productive, and teams that focus on strengths every day have 12.5 percent greater productivity.”

—Gallup

While it may be impossible to completely eliminate subjectivity, you can still limit it by doing the following:

Create a rubric that constrains evaluations. Suggested by the Stanford team, this involves creating a standard that managers will use to measure all team members. You’ll determine what criteria of performance will be assessed and what’s expected of employees.
Require evidence-based assessments. To make a rubric effective, you also need to require managers to back up their assessments with evidence based on employee outcomes.
Simplify the questions. Instead of having big, broad questions that prompt long, subjective answers, limit feedback subjectivity by asking simple, multiple-choice questions that ask for a choice of action rather than a feeling. At BambooHR, for example, we ask managers to complete the phrase: “If this employee got a job offer elsewhere, I would...”
Reduce the number of questions. Survey fatigue is just as real for managers answering 10 or more question evaluations as it is for customers getting bored and dropping out of surveys. Ask too many questions and you’ll end up with subpar, surface answers.
Check your results for bias. Another suggestion by the Stanford team is to examine your reviews for patterns that suggest your assessments are still favoring some employees. “By looking for uniformity—or patterns of variation—you may find additional ways to remove bias.”

Grow your employees’ skills and reach your organizational goals with employee development plans.

Employees: Receiving Feedback

Much of how employees will feel when receiving feedback depends on your workplace culture. And it’s less about whether you have a highly driven or fairly casual culture. Openness, transparency, and genuine concern for employee well-being can be had in any workplace, helping to build trust and good will.

The next question, then, is how can you make sure that employees not only trust the feedback they’re getting but also act on it? While you can’t control how people feel, you can certainly control how feedback is presented.

Here are some tips for giving feedback that prompts employee action:

Do it right away. Putting it off just means that managers will forget about it and employees won’t see it as being relevant anymore. As we mentioned before, 61 percent of employees prefer receiving feedback as projects are completed, meaning they want to get it while the experience is still fresh.
Do it face to face. While in-person feedback might be tricky if a manager leads a remote team, there’s no reason they can’t give their feedback over a video call. Whatever the case might be, speaking face to face makes feedback more personable than an emotionless email. Additionally, a face to face meeting makes misunderstandings less likely, as employees can ask questions or ask for direction right away.
Make it a two-way conversation. Speaking of employees, they should be an active part of a performance improvement conversation. Managers may be the ones giving feedback, but they don’t need to have all the answers. It can be an opportunity for managers to ask questions and listen to their employees, too. For example, managers can ask:

— What are areas where you feel you’re performing well?
— How can I help you better succeed in the future?
— What could you have done to prevent that outcome?

Be specific. This might seem like a no-brainer, but it takes effort to pinpoint the specific behavior or action that’s causing a mistake (or that’s working).

— Example 1: “You’re not really getting it right. Try harder, okay?”
— Example 2: “I noticed you get a little flustered when customers ask you about our competitors. Here’s a cheat sheet you can use that shows how our product compares to our competitors’ offerings. Try referring to it on your next call.”

The first example just makes the person feel bad without offering much help. The second example tells the person exactly what they’re doing and offers concrete, actionable help. Even if you’re giving praise, simply resorting to “good job!” won’t prompt lasting improvements. If you tell someone exactly what they’ve done right, then you’re also telling them how to replicate that success again and again.

HR can’t control how people feel when receiving feedback. But you can train managers to give feedback more effectively. It’s another way to ensure that employees act on the feedback and grow their strengths by setting goals.

Goal Setting: Grow Your Employees, Grow Your Organization

Individual performance goals are just as important in helping your organization improve as they are in supporting employee development. If you help employees set and achieve goals, they’ll feel more engaged by focusing on growing their strengths, and you’ll have a higher performing workforce that’s engaged to boot.

Gallup finds that focusing on employee strengths doubles the number of engaged employees and makes them more productive, reduces their stress, and boosts their overall well-being.

According to Gallup, “Simply learning their strengths makes employees 7.8 percent more productive, and teams that focus on strengths every day have 12.5 percent greater productivity.” The returns on the investment in employees’ talents are far-ranging: “higher levels of performance, profitability, productivity, and greater earnings per share for businesses.”

Setting and tracking goals will also help remedy a significant gap in the performance management process: the follow-up. In a study conducted by BambooHR, we found that many employees are dissatisfied with how managers and organizations respond during and after performance reviews.

67%

feel they are not heard during their reviews.

61%

say their companies don’t look for opportunities to provide career development afterward.

52%

say their companies don’t help them make and meet goals.

Here are some best practices for setting performance goals and using them to help employees feel more engaged and motivated to improve their performance:

Employees should set focused, relevant goals backed with a plan of action. Big, aspirational goals are impressive, but they can quickly get abandoned because they’re often vague or just too broad and overwhelming to realistically achieve. Instead, employees should drill down to the core of what they want to improve and break down that larger objective into actionable steps that will get them there.
Managers should help employees set goals. Whether this is done during one-on-one meetings or as part of a formal employee development plan, manager involvement can help employees feel heard and supported. Managers can check in on progress, provide guidance, and point employees to relevant resources, other mentors in the organization, etc.
Managers should help employees connect their personal goals with organizational objectives. Employees will be more effective and feel more engaged if they see how their efforts contribute to the greater success of the organization.
Goals should be flexible, not set in stone. Realities and circumstances change, and so should goals. As managers check in with employees, they should work together to figure out if the goals are still manageable, realistic, and relevant.
HR should provide career and professional development opportunities. Managers can do a lot to mentor and coach employees, but HR can implement broader training programs that benefit larger groups of employees.

Progress Tracking: Keep a Record of Performance, Goals, and Feedback

Better performance management means that everyone has to get more involved in the process:

Employees need to think more about how they want to grow in the organization.
Managers need to check in more often with employees and mentor their team.
HR needs to report to leadership about how the organization as a whole is performing while monitoring how individual efforts are adding up.

But without some kind of system for tracking all this information, you’ll quickly run into the same problem as with only doing annual reviews: no will remember what they did or said, and performance won’t improve.

You have to track performance externally, preferably through performance management software, which makes it easier to aggregate overall performance while giving managers and employees the option to track individual goals and feedback.

Additional key reasons for keeping track of your performance management process include:

To ensure a consistent, fair approach to performance management across the organization
To keep managers accountable for the evaluations they give employees
To keep employees accountable for their performance and track their progress on their goals
To track the effectiveness of and improve the performance management process
To measure employee performance companywide
To identify high performers and top talent for promotion

For more details on the importance of recordkeeping for performance management and more, read our chapter on reporting and analytics.

How Rewards and Recognition Fit In with HR Performance Management

As we’ve discussed, performance management is about helping employees to grow their skills in the workplace and beyond, so it might seem like rewards and recognition are ideally suited to make that happen, and they absolutely can when used in the right context. Recognition helps employees feel valued and acknowledges their progress or high performance, and rewards incentivize employees to reach certain goals.

The Difference Between Rewards and Recognition

While often lumped together, there’s a notable difference between rewards and recognition, and that difference is especially important when talking about performance management:

Recognition is about giving praise or expressing gratitude for a job well done.
Rewards are tied to compensation: employees receive a prize or gift based on something they’ve accomplished, like getting a bonus for meeting a sales quota.

Tip: While both depend on an employee’s high performance, don’t mix rewards with performance reviews.

Why You Shouldn’t Tie Rewards to Performance Reviews

Make sure managers know to keep conversations about compensation separate from conversations about performance. And by compensation, we mean both basic compensation (e.g., salary raises) and rewards, which are a form of performance-based compensation.

Why? As Tom DiDonato, CHRO for Lear, puts it in an HBR article, “Performance reviews that are tied to compensation create a blame-oriented culture...They reinforce hierarchy, undermine collegiality, work against cooperative problem solving, discourage straight talk, and too easily become politicized.” In other words, you won’t get honest answers from your employees, and they won’t trust their managers to help them solve their problems.

When Lear made the change from a traditional, compensation-based review model to a quarterly review system that wasn’t tied to pay decisions anymore, they saw vast improvements in communication and transparency during performance management reviews. DiDonato notes that their “new system greatly improves the feedback process. Supervisors and employees say the sessions are less stressful and more productive than the old performance reviews. Managers are more comfortable giving feedback,…and discussions tend to focus less on specific accomplishments and more on people skills, which are so critical to overall company performance.”

By all means, reward your employees for achieving their performance goals. A fair, well-thought-out rewards program can be an effective way to motivate employees. But when you’re trying to build an honest, productive performance management process that actually helps employees improve, you need to stop talking about pay decisions during reviews.

For more details on how to handle pay decisions, read our chapter on compensation and benefits.

Performance reviews that are tied to compensation create a blame-oriented culture...They reinforce hierarchy, undermine collegiality, work against cooperative problem solving, discourage straight talk, and too easily become politicized.”

—Tom DiDonato, Lear CHRO

Why Recognition Matters

To be clear, it’s perfectly fine to praise employees during performance management reviews—as long as it’s not merely used to soften the blow for criticism. No one values praise when it’s just used as superficial cover for a conversation about what’s going wrong. When done right, however, recognition keeps employees engaged and satisfied with their work.

A 2017 report by the WorkHuman Institute found that the more recently someone has been recognized, the more likely they are to see meaning and purpose in their work. Those recognized in the last month were 29 percent more likely to agree that the work they do at their organization has meaning and purpose for them compared to those who have never been recognized.

This same survey found that the best results in employee job satisfaction and engagement come from a recognition program that’s tied directly to your organization’s values:

90%

of employees with a recognition program tied to core values report feeling engaged.

77%

of employees with a recognition program not tied to values report feeling engaged.

75%

of employees with no recognition program report feeling engaged.

In short, if a recognition program that isn’t based on organizational values has the same ROI as not having a recognition program, it’s worth the effort of actively building your recognition program on your core values. Without being tied to organizational values, a recognition program can quickly devolve into something more arbitrary and random rather than a program specifically designed to grow your employees and organization together.

To learn more about crafting an effective rewards and recognition program, read our chapter on culture and the employee experience.

Helpful Resources

Here are a few key links we mentioned throughout this article to help you with performance management.

Performance management:

— The Definitive Guide to Performance Management (BambooHR ebook)

Performance reviews:

— Performance Review Misperceptions (BambooHR infographic)
— More Harm Than Good: The Truth About Performance Reviews (Gallup article)
— Why Most Performance Evaluations Are Biased, and How to Fix Them (HBR article)
— Subjective Performance Reviews: If You Can’t Beat Them, Use Them (BambooHR article)

Meeting with employees:

— The Managers’ Simple Guide to a Successful One-on-One Meeting (BambooHR article)
— Employee Development Plans: 4 Winning Steps to Engaged Employees (BambooHR article)

Rewards and recognition:

— 3 Important Differences Between Reward and Recognition (BambooHR article)
— 5 Straightforward Ways to Make Recognition More Meaningful (BambooHR article)
— Bringing More Humanity to Recognition, Performance, and Life at Work (WorkHuman Research Institute survey report)

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