Your people are your organization’s greatest resource. And, like any resource, they require investment. That’s where performance management comes in.
With performance management, you can turn an employee’s day-to-day work into metrics used to measure that employee’s performance over time, compare it against benchmarks, and set goals. Performance management goes beyond simple performance reviews, involving proactive analysis, improvement initiatives, and detailed reporting.
Through performance management, you can identify and support your top performers, improve performance across your entire organization, and even uncover potential candidates for succession planning. Employee engagement is twice as likely when organizations use modern performance management practices, and that engagement has a massive impact on all the success metrics your organization cares about.
In this guide, you’ll get a full breakdown of performance management, how it works, how you can use it in your organization, and even a look at future trends in this space.
Key takeaways:
- Performance management allows you to identify top performers, support all employees, and align their day-to-day work with your broader strategy.
- Your performance management strategy should help employees set clear goals, provide useful feedback, and empower them to grow.
- Various performance management models allow you to adapt this essential process to your organization’s culture.
- Performance management can be challenging when dealing with bias, underperforming employees, and resistance to feedback.
- Performance management is experiencing rapid change, especially as AI-powered platforms become more available.
What is performance management?
Performance management is a process through which elements of an employee’s performance (how well they work) are tracked, analyzed, and reported on, all to help them achieve their full potential. This is a proactive strategy, implemented through practices like regular performance reviews, transparent communication, and skills assessments. Performance management platforms and employee engagement tools are often used to automate and streamline essential parts of this process.
Performance management plays a key role in employee development and broader organizational success. It allows you to identify your top performers, employees who need support to reach their potential, and those who are struggling under the weight of their role.
Performance management ties directly into other talent management strategies, like upskilling—the building of new skills and the development of existing ones in your employees. It’s the system through which you get the information you need to develop strategies for improving performance across the board, and tying that performance to the company’s broader objective.
Your performance management strategy has an outsized impact on your company’s objectives. Not only do the activities that top-performing employees perform in their day-to-day work contribute more to your bottom line, but performance management also:
- Aligns individual performance with company goals.
- Enhances productivity and efficiency.
- Identifies training and development needs.
The key elements of performance management
A performance management strategy needs the following to have the greatest impact.
Setting clear goals and expectations
Even the most motivated employees will struggle if they don’t know what’s truly expected of them. An emphasis on role clarity, reinforced in an employee’s day-to-day work, can prevent misalignment and duplicated work. When everyone knows what to expect from an employee in a specific role—including that employee—they’re in a position to do their best work.
Supporting employees in setting clear goals is just as essential. Beyond closing day-to-day tasks and collaborating with teammates, employees need objectives for their self-improvement efforts. Two popular goal-setting frameworks within a performance management strategy are:
- OKRs, or Objectives and Key Results.
- SMART goals, or goals that are Specific, Measurable, Attainable, Relevant, and Time-bound.
Continuous feedback and communication
65% of employees want more feedback, and it’s no wonder. They need that feedback to know where they stand, what’s expected of them, and how they can improve their work. But few organizations have a robust system in place for that feedback, relying almost exclusively on infrequent performance reviews. Building a culture of open, transparent, and consistent feedback means employees feel prepared to receive constructive criticism from managers—knowing they can offer feedback to those same managers as well.
Building these feedback loops requires a consistent strategy that creates opportunities to give and receive feedback in everything you do. That includes peer reviews, engagement surveys, and employee recognition.
Performance reviews and appraisals
Performance reviews are usually a quarterly or yearly opportunity for managers to evaluate an employee’s work. The result of this review would allow the employee to learn what they should focus on until the next one, while giving managers a point of reference for evaluating future performance.
And while modern performance reviews still broadly follow this strategy, they’re typically templated more effectively, offered more regularly, and are fed with data from performance management platforms like 15Five.
In a broader performance management strategy, performance reviews become data points for evaluating an individual employee’s performance over time and identifying broader performance trends.
Employee development and training
Employees may bring a set of skills to your organization, but they shouldn’t remain static. Supporting the career development of each employee is an essential aspect of performance management. It motivates employees to improve their work and helps you chart each employee’s growth in your organization.
Have a system in place that allows you to identify development opportunities, build individualized plans for capitalizing on them, and give employees an end goal for that development.
Recognition and rewards
Employee recognition creates tangible, aspirational rewards for high performance. As solid as your performance management strategy is, it won’t be as effective without building in incentives for employees. That might include paths towards promotions, verbal recognition in public channels, annual bonuses, and even staff parties.
Performance management models and frameworks
You don’t have to build your performance management strategy from scratch. Here are popular frameworks you can base your strategy on.
Overview of popular performance management models
The balanced scorecard
The balanced scorecard (BSC) is a performance management framework from the Balanced Scorecard Institute, typically used to measure an organization’s overall performance across the following four areas:
- Financial: Generating revenue and using financial resources.
- Customer: Serving its customers (or other stakeholders) through its activities.
- Internal process: How effective operations and workflows are.
- Organizational capacity: Long-term improvement potential of the organization’s people, infrastructure, technology, and culture.
You can use a similar framework to evaluate employee performance, measuring their contributions across these four categories.
360-degree feedback
360-degree feedback is a model through which both employees and managers receive feedback on their performance. There are four elements to 360-degree feedback:
- Manager review: Managers are asked about the development of their direct reports.
- Self-review: Employees are asked about their own development.
- Upward review: Employees are asked about their manager’s development.
- Peer review: Employees are asked about a coworker’s performance and development.
By working across multiple levels of your org chart, 360-degree feedback creates a more holistic view of an employee’s performance than some other frameworks.
The continuous performance management model
Continuous performance management fills the gaps between performance reviews and builds a two-way channel for feedback between managers and their direct reports. In this framework, you create more opportunities for feedback and performance check-ins by:
- Increasing manager check-in frequency, meaning employees can expect more than just one check-in per quarter.
- Implementing skip level 1-on-1s, which allow employees to both receive and give feedback from leaders they don’t typically work with.
- Creating work portraits, through which employees can both assess their own performance and brief collaborators on their work style.
- Build a growth plan for each employee, and make charting that growth a priority.
- Use a performance management platform like 15Five to get continuous performance data and plan better initiatives.
The coaching model
In the coaching model, managers aren’t just expected to dispatch work or keep tabs on how their teams work. They become coaches with a direct impact on each employee’s performance. Conversations are structured to promote and support growth. Managers work with employees to find solutions to problems rather than just pointing them out when they happen. Finally, they make upskilling and career development a key priority in how they support their teams.
How to choose the right model for your organization
Here’s a quick way you can decide which performance management system suits your organization:
- Do your teams work with multiple managers? This type of hierarchy, known as a matrix management structure, is particularly suited to a model like 360-degree feedback.
- Do your managers have few direct reports? Then the coaching model may be your best bet, since managers have enough time to invest in each team member.
- Do you work in an industry where hard facts matter most? If you can directly tie employee performance to organizational goals with hard numbers, then the balanced scorecard model might work best for you.
- Are you new to performance management? Then the continuous performance management model may be best for gradually introducing different performance management strategies and testing them.
The performance management process
No matter which performance management model you pick for your organization, your process will usually involve the same four stages.
The 4 stages of the performance management cycle
Planning
In this stage, your performance management process focuses on helping employees set goals while defining clear expectations for their role. This can involve creating clearer job listings, building an internal database of roles and their expectations, and choosing a goal-setting framework you apply across the organization.
Monitoring
After initial goals and expectations have been made clear, performance management involves monitoring an employee’s performance as they do their work. That means having a healthy mix of quantitative metrics you can measure and qualitative feedback.
Reviewing
The reviewing stage involves performance reviews, engagement surveys, and other methods for collecting data that employees generate as they work, and using it to evaluate performance. Through these methods, you can identify areas for improvement for each of them.
Developing
Once you identify areas of improvement for employees, you can start building a plan for providing them with the right training. Training can be aimed at shoring up weaknesses or developing strengths, upskilling employees until they reach a stage where they can be considered for promotions and other career development opportunities.
Tools used in performance management
In most organizations, performance management is handled with data from HRIS platforms, spreadsheets, and other ad hoc methods. But two types of dedicated tools can streamline this essential process.
Performance management software
Performance management software like 15Five brings together everything you need to properly plan initiatives, monitor progress, review performance, and help employees grow. With 15Five, you can:
- Increase manager effectiveness through timely feedback and e-learning.
- Improve employee engagement with stronger surveys and better data.
- Manage performance across your organization with Best Self Reviews, better performance reviews, and more.
- Reduce employee turnover by identifying the reasons why employees leave and taking the right action at the right time.
Want to see what 15Five can do for your performance management strategy? Book a demo now.
Employee engagement tools
Employee engagement tools like Workleap and Lattice aren’t quite as comprehensive as performance management platforms, but they can still find a place in your strategy. Through these tools, you can standardize employee engagement surveys, improve the way feedback is shared throughout your organization, and have more structured growth conversations.
Best practices for effective performance management
With your performance management strategy, you can identify top performers, improve performance across the board, and support employees as they grow. But this kind of strategy requires investment, and part of that investment is continuous improvement through the following best practices.
Foster a culture of trust and transparency
Not every organization builds trust and transparency into its culture, and the results speak for themselves. Employees rarely feel like they can give managers any feedback, and they look at any feedback they receive with suspicion. That’s hardly conducive to building an environment where anyone can improve.
When trust becomes a core value in your company’s culture, it’s much easier to get a read on an employee’s performance, they’re more receptive to feedback, and they believe you have their best interest in mind. With transparency, you show your organization’s priorities through actions rather than just words, which helps create more trust.
Encourage two-way communication
In too many organizations, communication is a one-way street, flowing from leadership down the org chart. Your performance management strategy can only work if employees have as much of a voice as managers and leaders. Not only can their feedback help others improve, but they can also surface trends that you would otherwise miss.
Keep performance evaluations fair and consistent
Think of performance reviews as data points in your broader performance management strategy. If your performance reviews aren’t consistent, that data becomes flawed, and your entire strategy becomes less reliable. Not only that, but you’ll potentially create resentment in employees who feel like they’re treated unfairly in their performance reviews.
By having a robust performance review template and clear guidelines for using it, you can keep these reviews fair for everyone.
Align performance management with your overall business strategy
A primary goal of your performance management process is to align every employee’s work with your broader strategy. For example, you might emphasize developing employees to take on roles in a specific department ahead of that department’s expansion. Or maybe you’ll focus on upskilling employees in a specific discipline—like AI—to get ahead of market changes.
Employee performance is about more than just helping employees do their best work. It’s about helping them contribute to a larger mission.
Tailor performance management to fit organizational culture
The best performance management framework out there won’t work if it doesn’t fit your organization’s culture. An enterprise organization with multiple locations and teams of hundreds likely can’t realistically turn every manager into a coach. A small startup, however, would benefit more from a coaching approach than an unwieldy, top-down strategy.
Look to your organization’s core values. How can they be best represented in what you do to help employees perform at their best? Which framework fits that best?
Common challenges in performance management
Like any other strategy, performance management comes with its obstacles. Here are the most common ones.
Overcoming biases in performance reviews
Bias is human. It’s baked into the choices you make and the things you say. Some of this bias is conscious. Some of it isn’t. Making performance reviews fair and consistent means combating that bias.
Working to consciously identify and reduce these biases is essential to keeping your performance management strategy fair and equitable.
Handling underperforming employees
Not every employee can be a top performer. That is just a fact you need to accept when planning your talent management strategy. With that fact comes the challenge of knowing what to do when an employee underperforms regularly. How long do you provide them with development opportunities? How much coaching will you provide them?
Even a chronic underperformer can grow into a top player with enough support, but not all of them can.
Addressing resistance to feedback
People are naturally resistant to feedback, especially if it’s perceived as criticism rather than an opportunity for growth. This can make it difficult to have true, honest conversations about performance and career growth.
Building trust and transparency into your organization’s culture is the best way to address this.
Balancing short-term goals with long-term employee development
Your performance management strategy needs to balance short-term performance goals (like getting better at closing certain tasks) with long-term objectives (like upskilling into a new role). Knowing where to dedicate resources can be challenging, and this is a balancing act you need to perform carefully.
The future of performance management
AI-powered performance management
More of the tools HR teams rely on are launching AI features that can handle everything from helping managers write feedback to using predictive analytics for forecasting an employee’s future performance. Not only will this enhance your ability to plan and measure performance, but it will also give you better data to improve your strategy.
The shift from annual reviews to continuous feedback
Annual and quarterly performance reviews have been the traditional approach for decades, but they have their flaws. Being so infrequent is chief among them, as even a quarterly performance review gives managers and leaders little data to base their performance management strategy on.
More and more organizations are shifting towards continuous feedback, which introduces opportunities for feedback through engagement surveys, peer reviews, and more.
Separating compensation from performance reviews
Performance reviews have long been tied directly to compensation. As performance management evolves, these reviews will focus exclusively on skill development and long-term growth. This will allow organizations to focus on employee development without the constant pressure of compensation conversations.
An increased reliance on data
As more organizations learn to rely on dedicated performance management tools, every bit of feedback, every performance review, and every task becomes a data point. All that data feeds your performance management strategy, and your leaders learn to rely on that data. That means organizations will start centering their initiatives on data-driven decisions, and they’ll be able to show the impact of these decisions.
Performance management in different industries
While every performance management strategy will have similar elements and priorities, differences can arise across sectors. Here are just a few examples.
Manufacturing
In manufacturing, performance can almost exclusively be tied to quantifiable metrics, from quotas to production rates and downtime. Safety compliance, quality control, and equipment utilization can also play a role. Tracking these metrics can be challenging, especially in high-production roles and seasonal niches.
Retail
In retail, performance management often ties sales targets and customer service evaluations with broader customer buying analysis and regional performance. Challenges in this industry include high turnover rates and difficulties in gathering essential data.
Healthcare
Metrics like quality of care, patient experience, and operational efficiency are essential for performance management in healthcare. Stringent data protection regulations can make actually measuring this more challenging, and healthcare institutions often rely on legacy systems more than similar organizations, making proper performance management more difficult.
Technology and SaaS
Knowledge work can be difficult to quantify, and this is especially true in technology. Some roles, like software developers, can be accurately measured with quantifiable metrics. Others rely more on qualitative feedback. The high level of technological literacy in this sector means organizations are more likely to use dedicated performance management platforms.
Performance management: The best way to get more out of your people
Performance management is an essential strategy for investing in your most valuable resource: your people. By defining what performance means, measuring it over time, and analyzing performance trends across your organization, you can identify top performers, help employees who are struggling, and chart a growth plan for every employee.
Having the right technology can make a massive difference with this strategy, as can building trust and transparency into your organization. While there will be some challenges, investing in this strategy will have outsized benefits on your organization as a whole.
Want to see what a dedicated performance management platform can do for you? Book your 15Five demo now.
