The Definitive Guide to Performance Management

Performance management wasn’t designed to be a painful process. As HR professionals, we want to empower employees to do their best work, pave the way for growth, and encourage engagement. Unfortunately, there’s often a disconnect between intent and execution when it comes to the performance management process.

For years, companies have held to the yearly performance review, forcing employees and managers alike to wade through a lengthy, ineffective process all in the name of boosting performance and increasing engagement. Yet this process has effectively done the opposite, leaving many employees “going to work every day and facing unclear job expectations, little coaching from their manager, unfair accountability practices and a lack of opportunities for development.”

So if the traditional performance management definition isn’t working, why don’t we just change it? You wouldn’t be alone in asking that question. In fact, many businesses are already set to abandon performance reviews altogether.

But here’s the catch: If you ditch performance management, you lose one of the better ways to gauge things like performance, engagement, and career development. Not only that, but your employees still want the feedback, work objectives, and growth opportunities that can come from performance management done right. In other words, performance management doesn’t need to be tossed—it needs to be fixed. By improving a few key elements, you can create a more effective system that encourages employees, boosts efficiency, and increases engagement. Some companies have already realized this and are making huge improvements. We’re about to help you do the same.

Four Elements of an Effective System

Frequency

Traditional performance reviews happen once a year, giving managers and employees a single session to cover the previous 12 months, forecast the next 12 months, and—oh yeah, what about a raise?

It seems a little crazy to expect people to fit all that into a single review each year, but that’s the schedule many businesses still use today. In fact, we’ve estimated that more than 55 percent of companies still stick to the annual performance review system. If yours is among them, consider this:

On this schedule, it may take an organization months to complete all of the reviews, months to process all of the feedback, and then months to do anything with that feedback—by the time they’re finished with the whole cycle, it’s almost time for another round of reviews. That’s probably why 77 percent of employees in non-management and non-HR roles don’t see consistent organizational changes based on their feedback. And if employees don’t see change from these reviews, then how much change will managers see in employee performance?

Another issue with annual reviews is that they force managers and employees to think too far into the past, and in doing so, they lose both perspective and impact. When recalling events from that long ago, details become fuzzy at best, praise can feel lackluster, criticism may seem vindictive, and solutions are dismissed as nothing but hindsight. What we should be talking about is where employees are at the moment, and where they can go in the future. After all, if we want people to move forward, it helps to point them in that direction.

Instead…

Practice an early and often review schedule. Cut the interval between formal reviews in half, and encourage managers to meet once a month or more often with their employees, just to touch base, record progress, and note issues for follow-up. Did you know that 61 percent of employees prefer to receive feedback as projects are completed or in informal meetings with their managers? Exchange feedback more frequently and more casually takes pressure off of managers and employees alike, and they’re able to be more open and honest.

Plus, when people receive feedback little by little throughout the year, they actually have an opportunity to put it into practice. Great basketball coaches don’t meet with their teams once a season—they stand on the sideline during every game, providing ideas, suggestions, and encouragement in the moment when it’s most needed. With a constant stream of feedback, players can improve their performance while the game is still on the line.

Treat your employees like the star athletes on your team, and they’ll have the resources they need to succeed.

Time

When you waste time, you waste money. And traditional performance reviews can waste hours. In fact, in 2014, Deloitte conducted an audit of its own system and found their performance reviews took up nearly two million hours every year! On the other hand, there are many companies who spend almost no time at all on performance management. We found in our own survey of almost 2,000 small and medium-sized businesses, about 73 percent of HR representatives spend ten hours or less every six months doing performance reviews.

What these numbers show is that businesses, small and large, are all over the map with how much time they invest in performance management—and many of them have yet to find the magic number. Obviously, you don’t want to waste inordinate amounts of time jumping through hoops that benefit no one. But if your process is ineffective, then any hours you devote to it, no matter how few, are still wasted. 

Instead…

You need a Goldilocks solution for your organization. Not too long, not too short—just right. Performance management does take time, but if that time is spent wisely it’s worth the investment. The key is to spend time on the pieces that really matter—the human pieces—rather than the process pieces

Things like email reminders, data processing, and report maintenance are all steps that a good software solution can streamline for you. Automating processes like this will take a burden off of everyone’s schedules and leave time for the steps that matter most: solving problems and developing your people.

Accuracy

Do you think you’re a good judge of people? Could you say which employees are top performers and which need some nudging in the right direction? You’re an HR professional—of course you know people!

Except you might not know them as well as you think you do. We don’t mean to burst your bubble, but a mound of research in the last fifteen years or so has shown us that people are actually pretty bad at judging each other accurately, particularly when it comes to performance. In fact, our perception of another person probably has more to do with our own experiences and worldviews than with anything that person has done. This is called the idiosyncratic rater effect.

In one study, researchers examined the ratings of managers, subordinates, and peers to get a sense of the idiosyncratic rater effect within a 360-degree performance review system. They found that an average of 62 percent of a rater’s score on a performance review came from personal idiosyncrasies (factors like the rater’s own beliefs and experiences) instead of the subject’s actual performance.

That’s because people judge from what they see as reality. For example, if you are taller than Miguel, then you might believe Miguel is very short. He might be average height, but not according to you. See why this is a problem when we’re assessing someone’s work performance?

Instead…

Short of replacing your workforce with a metal robot army, there’s no way to eliminate subjectivity from your performance management system. But that doesn’t mean you should throw out this ebook and give up forever. Don’t work against subjectivity; learn to work with it.

Instead of comprehensive questionnaires with scales of one to ten, stick to simple, open-ended questions that get to the heart of the matter. For example, instead of asking managers how they feel about an employee, ask what they would do if that employee were offered a new job somewhere else.

Condensing the performance review to fewer, more meaningful questions can also cut down on the inaccuracies that come from question fatigue. When someone is overloaded with a twenty-question survey, do you really think they’ll answer Question 20 as thoughtfully and accurately as Question 1? Keeping things brief will allow you to capture their sincere thoughts and opinions, while asking deeper questions will give you a clearer picture of personnel value and engagement.

Purpose

For pretty much as long as it has existed, we’ve tried to use the performance management process as a measuring stick for what employees do and how well they do it. But, as we just discussed, this measuring stick is so subjective that it’s almost impossible to judge accurately.

Then, add the weight of compensation decisions. One of the most commonly cited reasons for holding a performance review is to discuss raises. Actually, over 47 percent of companies indicated that their performance review is used “as a formality that accompanies the employees’ annual raises.”

Now, this may seem like a natural pairing: performance and money. If you perform better, you’ll get paid more.  But whenever money is part of the conversation, accuracy and honesty suffer.

For employees, their salary is at stake, and they may do or say what they need to in order to earn that raise (even if it’s not actually what they think). They may not evaluate themselves, their managers, or others honestly. And it’s impossible to grow when you don’t have a foundation of honest mutual feedback.

Besides, monetary rewards may not even be the best way to inspire better performance. Dan Ariely, a renowned economist, and three of his colleagues performed a study with some MIT students. They gave the students a bunch of games that required creative thinking, motor skills, and a fair amount of concentration. The students were offered three levels of monetary performance incentives: a small reward, a medium reward, and a large reward. The best performers would get the largest reward and so on.

The results are probably not what you expect. If the task involved only mechanical skill, the rewards worked as expected: the higher the reward, the better the performance. But once the task called for even basic cognitive or creative skills, a larger reward led to poorer performance. Ariely insists that this is because monetary incentives narrow a person’s focus to just the reward, like a race horse with blinders. But a lot of creative, cognitive work requires peripheral thinking—the ability to look all around for the best solution.

While a carrot might work for some employees, it may not be the best way to encourage higher performance. Especially if you are combining those conversations with evaluations.

Instead…

Use your performance management strategy as a way to encourage, improve, and develop your employees and managers. Include career planning and development as part of the process. Find out what your employees want to pursue and learn, then give them a pathway to do so. Encourage your managers to talk to their employees and set goals together. Where do their employees hope to be next month? Next quarter? Next year? Once managers understand what an employee wants for their career, they can help move that employee forward in a way that aligns with company goals as well. Does Jessica want to work her way to a managerial position? Set a goal for her to lead the next big meeting. Would Eric like to move into strategic HR? Let him help with the next turnover report. You can also use the data you gather from your performance management system to fill company gaps with internal resources. Perhaps that means coaching an employee into a much-needed role, or transitioning a top performer across departments. Either way, it’s a win-win situation. Not only will you save time and money by skipping a big part of the hiring process, but employees will also be more engaged in work that matches up to their strengths and interests.

Qualities of a Good Solution

Hopefully you’ve made a few notes for what you can improve in your own performance management system. Maybe that list is short, maybe it’s long. Either way, it can be tough to know where to start when it’s time to make a change.

Luckily, there are plenty of performance management software solutions out there (and more sprouting up every day) that can help you automate processes, optimize reporting, analyze data, and strategize for the future. We are living in an age of nearly endless technology options—but that doesn’t mean every software is created equal. Take the time now to evaluate your options so you don’t end up with a “solution” that’s even more clunky and time-consuming than before. Before you commit to any software, learn about its implementation process, its adoptability, its features, and its reporting options. 

 Easy Implementation

What’s the point of a solution that takes up more time and makes things more complicated than your previous system? You’re a busy HR professional—you don’t have space on your to-do list for a lengthy, confusing implementation phase.

The best technology solutions will offer a seamless implementation process. Request a live demo or a free trial to take the software for a joyride, because if you can’t use it easily, how can you expect your managers and employees to do so? You should also be able to count on help from dedicated support specialists, video tutorials, and a library of instructional content. With a straightforward implementation process and the support to back it up, you will save time now and in the future.

Adoptability

If you’re in HR, you know how difficult it can be for your organization to buy into a big change, whether it’s in policy, procedure, or culture. Humans are creatures of habit; at first glance, any type of change may seem inconvenient at best and intimidating at worst. But for a new strategy or behavior to stick, you need your people to get on board.

You need a solution that eases the burden (both perceived and real) on your managers and employees to the point where there’s almost no barrier to entry. The software should be intuitive and even pleasant for them to use. If you can bring in a tool like that, adoption will naturally follow.

Purpose-Driven Features

Now that you’ve read all about some awesome performance management strategies, make sure you select a solution that supports your strategies. A long list of features might sound great up front, but if they aren’t going to empower you to make the changes you want, then the tool isn’t your best option.

Find a software company that believes in the same approach to performance management as you do. For example, if you want to incorporate career development into your performance management strategy, a tool that offers goal setting and tracking like BambooHR's could be a great option. 

Strategic Reporting

Finally, you need a tool that gives you the power to make real-world decisions based on your performance review data. After all, what’s the point of all the feedback from employees and managers if no one ever does anything with it? Instead of storing reports away in a filing cabinet, never to be seen again, it’s time to bring your data to the forefront.

The best solutions have tools to help you understand both small-scale and big-picture performance within your organization. You need to be able to view trends and feedback from a top-level perspective so you can make strategic choices for the future. At the same time, you also want to have the capability to scale down to individual employees and focus on what you can do to help them.

Conclusion

Long story short, (although, maybe it’s a little late for that) performance management doesn’t have to be the headache of the business world. It’s time to change your performance management definition, cut through the fluff of traditional performance reviews, and focus on what your people really want: valuable, timely feedback that they can use to progress in their careers. Then, find software that supports that mission.

When you do this, your people will succeed. And when your people succeed, so will your organization.

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