June 20, 2022
25 min read

What is Employee Performance Management in 2022?

Employee performance management is not just about improving and measuring the performance of the employees. It is also about aligning individual objectives with that of the business and vice versa.

Managing people can be tricky. Turning them into reliable result-achieving employees is difficult. You have to keep them satisfied, keep them entertained, and make sure they have a reason to keep putting in the right amount of effort. To define performance management, it's good to start with the definition of performance first. In business, performance is the ability to execute tasks and deliver results. This ability is essential both on an individual level and a company level.

You can't have a well-performing company with inefficient employees. On the other hand, even the best selection of top talent would not guarantee overall performance without proper alignment. When managing performance, you need to focus on your employees while keeping your corporate goals in mind.

In this article, we explain what employee performance management is, why it is important, and how you can incorporate it into your company processes.

Table of contents

  1. Employee performance management definition
  2. What are the main features of the employee performance management process?
  3. Why is employee performance management important?
  4. Stages of the employee performance management cycle
  5. Benefits of employee performance management
  6. Employee performance management challenges
  7. Useful tools for employee performance management
  8. Conclusion

Employee performance management definition

We mentioned above that performance counts on all levels. That said, it's important to distinguish between enterprise performance management and people performance management.

Enterprise performance management (also known as strategic or corporate performance management) considers the organization's performance as a whole. Employee performance management is focused on the people and how their effort contributes to the company goals.

At Effy.ai, we are all about people, and that's why we focus more on employee performance management in this article.

People performance management is a set of initiatives that empower employees to do their best and achieve their individual goals in the broader context of the company goals.

Good performance management implies that everyone in the organization has a single source of truth about the corporate goals, the overall performance, and ways and means to contribute to that overall performance as an individual.

Sounds reasonable, right? Like anything else that involves people, there's more beneath the surface than you'd think. We reveal more in the chapters below.

What are the main features of the employee performance management process?

Thinking of performance management as a process is critical because it involves multiple activities, often at the same time. It is also carried out in real-time, with adjustments made on the go as new data becomes available.

Here are five important traits of the performance management process:

  1. Continuity
  2. Adaptability
  3. Transparency
  4. Objectivity
  5. Frequency

Let's get over these features in detail and see how each contributes to the value of performance management.

Performance management is a continuous process

Effective performance management requires a variety of ongoing activities that overlap in time and depend on each other. You need to evaluate progress on goals often enough to identify potential obstacles on time. The alternative is to wait until the annual review only to find out that it's too late.

Also, from the employees' perspective, it's much better to report on issues as they occur, knowing that any time is a good time for feedback. People interested and engaged will consider this a part of their contribution. Knowing that someone is ready to listen and think of adjustments will motivate them to participate.

The performance management process is adaptable

There isn't a one size fits all solution. Performance management should serve the needs of your organization and your employees. It is up to you to build a performance management system around the right tools that work for you.

You don't have to come up with unique ideas. The employee management practices you already apply can often be integrated into a performance management system with some adjustments.

The performance management process is transparent

As a manager, you have to clear all doubt and confusion related to corporate objectives and their link to personal goals. Employees should be aware at all times of what they are supposed to be doing and why. Also, it might be a good idea if they have a vote on the how.

Getting lost in a pile of backlog tasks with unclear priorities can be a real nightmare. A transparent performance management process makes clear what is important. It creates a more productive environment that allows employees to deliver optimal results.

Objective and relevant metrics are paramount

Performance metrics won't do much for you if they are not objective or relevant. Your employees must see the connection between their role and the selected metrics. People will not easily accept result measurements they consider unfair on unrelated. We hardly need to explain what that could do to the work environment.

Another negative example is the selection of metrics that motivate personal performance but don't relate to overall progress at the company level. As a manager, make sure that performance metrics are selected wisely and inspire people to do meaningful work. Otherwise, your employees will pursue numbers at all costs and demand their rewards even if their work does not contribute to success.

Performance management requires frequently repeated activities

Frequency is a direct result of making performance management a continuous process. We mentioned that progress towards goals should be monitored all the time. The information you get along the way opens up opportunities for regular check-ins.

As a manager, you can use these to exchange feedback, discuss problems and possible solutions, and propose improvements. Frequent conversations keep managers and employees connected and naturally contribute to transparency and alignment.

Why is employee performance management important?

Effective performance management is important because competition is fierce across all sectors nowadays. Constant awareness of strategic goals helps with alignment. Employees are aware of how their goals and targets contribute to the strategic objectives set on a company level. This way, the company's success becomes an individual success and vice versa.

With good performance management, employees get a sense of achievement and value because they see how the things they do daily matter in the long run. This leads to better employee engagement and improved readiness to deal with challenges.

Performance management vs performance appraisal

Performance management can easily be mistaken for the practice of recurring performance appraisals. As a matter of fact, performance management evolved from the traditional annual performance reviews. The ever-increasing competition, however, puts greater demands on optimal performance nowadays.

It no longer makes sense to wait for an entire year before reviewing employee performance. Before you figure out what might be going wrong (if anything), it might be already too late. Market forces can kick you out of business much sooner. That's why organizations have shifted towards continuous employee performance management.

Many companies have abandoned performance appraisals. Although it isn’t gone completely, more organizations opt for more frequent discussions about targets, goals, and metrics. This presents opportunities to share concerns and act accordingly on the go.

Stages of the employee performance management cycle

We have already described performance management as a process. It is often described as a cycle, typically with four or five stages. The taxonomy here doesn't seem to be unified, though. Here we describe five distinct phases:

  1. Goal definition
  2. Execution
  3. Measurement
  4. Evaluation
  5. Rewarding

Keep in mind that the stages of the performance management cycle don't follow one another in a strict pattern. Some of them take place over longer periods that overlap.

Define goals

This classic planning stage defines what managers and employees will be striving to achieve for a considerable time ahead. Again, relevance and transparency are critical here. This is your opportunity to set a sound foundation for your performance management program.

Performance planning includes the objectives for your employees and teams and the means to measure performance and quantify success. Input from your employees is another important factor. People are more likely to be deeply invested if they take part in defining their own goals.

Execute

As the name suggests, actual stuff is getting done during this phase. As employees do tiny bits every day to complete short-term goals, managers monitor the progress and watch the performance metrics.

Open communication is critical here. The opportunity to discuss progress and roadblocks with your employees is priceless. Use it every time you can. Timely feedback, both upwards and downwards, helps to smooth out things as you go. It also helps to identify employee development opportunities for your workers as this phase reveals their strengths and weaknesses.

Finally, this phase is the primary reason we discuss continuous performance management. It stretches in time and involves nearly everyone in the organization.

Measure

In this phase, managers collect data about the progress towards the goals. Early indications allow you to identify issues and troubleshoot without jamming the whole process. Some decisions are made as you go, but a more thorough analysis is needed with data piling up.

The measurement phase of the performance management cycle overlaps with the execution phase. This is to the extent that can make both stages barely distinguishable. Once again, we are talking about continuous performance management. Also, this is the reason some authors describe a four-stage cycle.

Review employee performance

After a good amount of work has been done and you have enough data available, it's time to sum it up and evaluate employee performance. This stage is more distinct because it requires time allocation aside from the daily routine.

While it's practical to observe how employees deal with daily challenges, it's always good to create a setting that leaves the daily stuff out for a while once it's time for evaluation. Also, there's common agreement that quarterly evaluations are better than annual ones because they present more opportunities for troubleshooting and correction.

How can Effy help?

Performance reviews are a stage where automation can make a big difference. People management tools like Effy.ai can help you save time and effort. You can organize your performance reviews with customizable cycles and adapt the system to your company's processes.

At Effy.ai we help you develop your business by developing your people. Our platform supports various templates to kickstart the review cycle with ease. To learn more about the Effy capabilities, you can request a demo here or sign up for free.

Employee performance management by Effy

The most important thing in a performance appraisal is the fair discussion of all factors, including those that the employee can't control. There are plenty of external and internal causes that can have negative influence on performance. Make sure you rule these out before making hard decisions on employee development.

Reward and endorse for positive results

Recognition and proportional rewards are among the top factors of motivation. Positive results for the company should translate to positive results for the people. Good work should pay back, and it reinforces the base for future excellence when it does.

Just like performance appraisals, rewards should be fair. Let the top-performing employees be a good example and show the rest of what is achievable and what success looks like. Also, if the company gets disrupted by external threats, make sure people still get recognition for their effort.

Benefits of employee performance management

Benefits of employee performance management

Benefits of employee performance management

Establishing an effective performance management process has clear benefits for the organization. If carried out properly, performance management can bring improvements in the following areas:

  1. Fair reward system
  2. Clear goals to work towards.
  3. Employee motivation and engagement
  4. Continuous improvement

The list above is not meant to be exhaustive. You can break down any of these areas into subsets and expand the list.

Fair reward system

Handing out rewards randomly hasn't done anyone any good. Tying your reward system to performance makes perfect sense. You want to encourage meaningful work that drives results. Guarantee that good effort pays off, and employees will be willing to walk the extra mile.

Clear goals and better efficiency

It's easier to work on a series of short and mid-term goals instead of pursuing a single objective for a long time. Small, tangible steps indicate progress, and employees have a sense of achievement before the big milestones are reached. This helps to preserve motivation in times when tedious work takes its toll.

With effective performance management, employees know where to invest their effort because they know the importance of their individual objectives. This reduces the spending of time and resources on low-priority stuff.

Employee motivation and engagement

This one is a result of the previous two. Clear goals make it easier to know what to do and in what order. You can't expect employees to be invested in objectives they don't understand. Proper rewards are also a great contributor. The bottom line is people should know that what's expected is both doable and rewarding.

Continuous improvement

This is rooted in two things. The first is keeping an eye on the performance metrics daily. The second is being available for coaching and advice when people struggle with execution. Identifying issues and being able to intervene on time is critical. Your employees will appreciate the help. Furthermore, they will improve just by watching how you resolve issues.

Employee performance management challenges

Performance management requires a lot of attention and well-supported decisions at all stages. That said, it can be a challenging process. Here are the most common challenges managers have to deal with:

  • Settling on the right metrics - how you measure success is as important as your definition of success itself. Choosing the right set of metrics can be challenging, especially at a team level. Avoid settling with metrics that make teams compete instead of cooperating.
  • Setting adequate targets - balance is crucial here. Targets should be achievable, but hitting them should require a healthy dose of tension.
  • Clarity of personal and corporate objectives - the link between the two should be well explained and not obscured by confusing metrics.
  • Keeping up the dialogue - effective performance management requires managers to be available and accept bottom-up communication.
  • Working towards improvement - rewarding top performers is easy, but what do we do with the rest? How do we keep people engaged after delivering the news of suboptimal performance? These questions are hard to answer.

Useful tools for employee performance management

A decent performance management system implies that the managers have the right tools. Here are some of the most useful ones:

  • One on One meetings - having frequent 1-on-1s with your employees helps bridge gaps during the execution phase of performance management. They are a perfect means for discussing individual struggles and providing professional advice.
  • The 9 box model - is a great tool for assigning employees to different groups based on their performance and potential.
  • 360 degree feedback - this is helpful to figure out people's contributions outside the restraints of the performance metrics. For instance, a supportive employee who helps others would add value despite failing to meet personal targets. Gathering 360 feedback would help you figure out what's beneath the surface.
  • Performance reviews - regularity is vital here. Also, make sure you have a productive conversation and allow your employees to speak their minds. Performance reviews should be a step towards performance improvement, not a reason to give up.
  • Reward and recognition programs - there's nothing better than positive reinforcement. However, it can be weaponized against you. Ensure rewards are fair and pay attention to how results are being achieved.
  • Personal development plans - work on these after the performance is measured and areas for improvement are identified.

Conclusion

Employee performance management involves a range of activities, and challenges arise at every step of the cycle. To set a sound performance management system, managers need proper tools that enable the necessary decisions and actions at every step.

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