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Performance Management

Published February 6, 2019 (last updated on February 29, 2024) | Adam Wyatt - Content Writer


What is performance management?

Your business’s workforce is probably its biggest expense, which means you’ll want them to hit certain targets and perform at the highest level. Performance management is a process focused on exactly this – evaluating an employee’s individual strengths, weaknesses and contribution to the company’s wider goals.

Performance management looks at an employee’s present and the future, celebrating wins, identifying opportunities for improvement, and giving them a clear path to reach their full potential.

This guide gives an overview of employee performance management and explains the advantages of using it effectively. It also offers practical tips about how you can build several proven performance management frameworks into your business.

If you want to make sure your workforce really is a force, read on!

The performance management process

Managing an employee’s performance includes all the measures taken by a business to ensure they are getting the best out of their employees. This can involve an in-depth analysis of an employee’s performance (normally compared against team and company goals), giving constructive feedback and co-creating plans with the employee to enhance their future performance.

In cases of underachievement, the performance management process can also involve more urgent processes, including performance improvement plans (PIPs), which often result in disciplinary procedures or even dismissal if employees fail to meet the expectations placed on them.

What are the benefits?

While performance management is not mandated by employment law, many businesses are realising the benefits that come with having robust performance management systems in place. These include:

 1. Provides clarity

Without a clear understanding of what their individual objectives are, employees can easily underestimate their contribution, become demotivated, or work haphazardly without a sense of intention.

A performance improvement plan not only makes your expectations clear, but also emphasises the importance of the employee’s efforts. Crucially, it’s a collaborative process that ensures team leaders and subordinates are on the same page when it comes to deliverables and goals. For things to work, everybody needs to be pulling in the same direction.

2. Enhances efficiency

A performance management strategy can help ensure your business’s workforce and resources are properly aligned with achieving its wider objectives and strategic goals. It can also help to identify responsibilities and company processes which may be creating inefficiencies.

In the broadest sense, performance management isn’t just about improving individual performances. It’s also about using information gathered from staff appraisals to fine-tune the functionality of your business as whole, one piece at a time.

3. Engages employees

When employees have clarity about what’s expected of them in their role, it allows them to self-assess and take charge of their own professional development. Goal setting can give employees a sense of purpose, which keeps them motivated, leads to greater job satisfaction, and reduces employee turnover.

 4. Improves decision-making

When analysing their team members, managers cannot help but interpret performance through a lens of unconscious bias. A performance management system will provide hard data about what an employee has and hasn’t achieved. This gives managers the facts, allowing them to make objective, data-backed decisions about how to improve their team.

6. Helps plan for training needs

The performance management process will invariably reveal that some employees require support with developing specific skills. Training sessions can be tailored to match the needs of underperformers, helping them to improve outputs in particular areas of their role.

Learning and development (L&D) and HR teams can also use the information gathered from performance reviews to effectively plan for training programs targeting individuals and different departments.

Performance management strategies

In order to maximise on the potential of your staff, your business should build a holistic, companywide performance management strategy. Your performance management strategy should aim to develop an environment which encourages continuous growth and a culture of high performance.

A well-rounded strategy will normally consist of several core phases:

  • Conduct formal employee appraisals, either annually or more frequently.

  • Set goals with key results that contribute to your wider business objectives.

  • Provide ongoing feedback through regular check ins.

  • Coach staff and offer career development opportunities.

  • Address poor performance as soon as you notice it.

  • Reward, recognise and praise high-level performance.

How can you manage employee performance?

Managing an employee’s job performance is hard and the simple fact is that there’s no ‘one size fits all’ solution. However, there are certain steps every business should take to ensure their performance management strategy has a strong chance of succeeding.

The first step is to use the job description for a vacant role to proactively establish what is expected of the new employee.

During the interview process, an employer can outline any baseline targets, goals and deliverables based on the job description.

Once hired, an employer can then compare the employee’s work against the performance criteria of the job description, determining if expectations and company standards have been met.

Ideally, individual goals should align with company objectives, and can be measured through key performance indicators (KPIs). KPIs can be included in the employee position description and will help to establish clear, quantifiable expectations about employee outputs.

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Annual performance reviews

Performance reviews are one of the most popular methods for managing employee performance. Employers use performance reviews to gain a comprehensive understanding of the employee’s contribution throughout a set time period.

Normally performance reviews are annual, analysing work over a 12-month period. However, they can be conducted more frequently, leading to a pro-active performance approach that prevents issues from escalating.

Most performance review processes include stages of planning, coaching, review, and feedback. To cover all stages, be sure to check off each action on this list:

✔ Provide the employee with specific details that support whatever claims you make, both positive and negative.

✔ Bring an agenda to the review and invite employees to do the same. Review all important parts of the appraisal, highlighting both struggles and successes.

✔ Offer feedback and coaching on how the employee can improve on their weaknesses. Also be sure to acknowledge their successes.

✔ Point out exactly what made each component a success. Employees can use this feedback to improve other areas of their performance.

✔ Highlight where the employee’s skills and performance align with the organisation’s goals and mission.

✔ Work together with the employee to create a plan for addressing shortcomings and improving their overall performance. Include specific goals and actions, removing any confusion or ambiguity.

✔ Wherever possible, link any goals or expectations to a tailored training program. It’s vital that the employee feels the progress you’re asking of them is achievable.

360-degree feedback

It is commonly believed that the manager or supervisor should be the primary source of evaluation, with most feedback coming directly from these positions. However, the 360-degree feedback process takes performance reviews one step further.

This type of feedback includes evaluations, observations, and comments not only from managers and supervisors, but also co-workers, customers and even subordinates. A self-evaluation is also an important part of the 360-degree feedback process.

By collecting feedback from all these sources, both you and the employee will get a comprehensive understanding of the employee’s performance. Certain team members or stakeholders may provide useful feedback that others cannot, offering a more complete picture of the employee’s impact.

Continuous performance management

Many busi­ness­es have come to realise that the traditional performance management model, centred around annual reviews, is inherently flawed. In the fast-paced world of modern work, they are turn­ing instead to con­tin­u­ous per­for­mance man­age­ment (also known as agile per­for­mance man­age­ment).

Con­tin­u­ous per­for­mance man­age­ment is defined as a series of ongoing per­for­mance man­age­ment process­es that take place through­out the year. It’s a holistic, continuous cycle which involves:

  • Planning (setting KPIs that indicate progress toward goals and key results).

  • Frequent check ins (open communication and coaching whenever needed).

  • Regular reviews (transparent feedback as often as is needed).

The continuous performance management cycle helps employers guide and coach their staff with real-time feedback before performance-related problems are reached. Plus, the interactive dynamic of this approach helps build an open and healthy relationship between managers and employees.

Management by objectives

Management by objectives is another framework for managing employee performance. This involves breaking down organisational objectives to identify what each person needs to achieve. For the most effective outcome, employees and managers should collaborate and work together to agree on new goals and objectives.

These goals and objectives should be specific, with quantifiable outputs and deliverables produced over a set timeline. However, employers should be wary of only measuring the quantity of an employee’s work. Remember, the quality of what they deliver is just as important!

If you decide to manage employee performance by objectives, it can be helpful to use a ‘top-down’ approach. This involves using the established organisational goals and values to shape individual goals. Employees following a top-down approach will understand how their contribution fits in with organisation as a whole and often work more effectively.

Managing poor performance

It’s an inescapable fact of performance reviews that not all evaluations will be positive. It’s simply not possible for all employees to always perform at high levels.

Management of poor performance calls for tactfulness and sensitivity, but you should also be direct and upfront. Here are some simple practical steps to follow:

  1. The best way to manage underperformance is head-on. Don’t procrastinate or dance around the issue, since the employee may fail to recognise there is a serious issue.

  2. Be specific with the employee about where their performance is lacking. For example, give examples of when they have not met your expectations and what you require in the future.

  3. It’s important to document all conversations about performance. This may begin with the employee receiving a record of your concerns, highlighting what they need to do and a deadline (often called a verbal warning).

  4. Follow up after an initial conversation. Check on the employee’s performance over the next several weeks and provide feedback and coaching to help them meet their goals.

  5. Employers can consider formal performance management processes if the underperformance issues continue. They may include written warnings and/or a performance improvement plan (a document outlining the issues, what is required and by when, as well as how they will be measured).

  6. You can look inwardly at how you handle tough situations. Strengthening your own communication and coaching skills may increase your chances of effectively inspiring and developing employees.

Strategy checklist

Are you ready to welcome a performance strategy into your organisation? This step-by-step performance plan will help:

Step 1: Planning

Meet with the employee to set initial performance objectives. Work together to set measurable goals that will help maximise the employee’s contribution to your overall business strategy. In order to ensure continuous improvement, you should revisit and reassess these goals periodically.

Step 2: Monitoring

Monitor employee progress frequently and avoid waiting until the annual performance reviews to conduct your evaluations. Ongoing informal feedback providing actionable suggestions will allow you to address any developing issues in real-time.

Step 3: Training

Simply highlighting an employee’s underperformance isn’t enough. It’s vital that you provide any training or support needed to address the employee’s weaknesses and elevate their level.

Step 4: Reporting

Share and discuss your findings with the employee so they are completely clear on any improvement plans. It’s best practice to document these discussions in a formal appraisal record.

Step 5: Celebrate wins

Positive reinforcement might be the key that unlocks your employees’ optimum performance. Don’t hold back when it comes to celebrating wins and vocalising your appreciation. If you want staff to maintain high standards, it’s crucial they understand that their efforts are valued.

Step 6: Reward

Giving performance-related incentives (such as bonuses or commission) can motivate staff to push the boundaries of their skills and capabilities. This is good for the employee’s professional development and good for the business.

Frequently Asked Questions

What is the first step to managing employee performance?

The first step to managing employee performance is the planning phase. Here, employees and managers sit together to create goals that help employees meet the company’s expectations.

What is a performance management policy?

A performance management policy can provide an outline of when and how unsatisfactory performance will be addressed. You may have a separate performance management policy, or it may form part of your disciplinary procedures policy.

What are SMART goals?

The SMART in SMART goals stands for Specific, Measurable, Achievable, Relevant, and Time-Bound. Meeting these criteria when setting employee goals helps ensure that your objectives are attainable within a certain time frame.

What is a PIP plan?

A performance improvement plan (PIP plan) is a structured performance management document outlining the steps employees must take to continue working at your business. Typically, a PIP plan spells out the specific objectives and goals an employee must achieve to keep their jobs, as well as the timeframe in which you expect them to be met (normally ranging from one to three months).

What is a KPI?

A key performance indicator (KPI) is a quantifiable measure of an employee’s performance over time for a specific objective. KPIs provide targets for teams to shoot for, milestones to gauge progress, and insights that help people throughout a business make better decisions.

From finance to HR, and marketing to sales, key performance indicators help every area of the business stay on track and move forward at a strategic level.

Create the conditions for success

Are you struggling to align employee efforts with your company mission? A performance management strategy can help create an environment and culture where everybody shares the same vision and works toward goals that help the business thrive.

Employsure are specialists in employment relations. We actively help over 30,000 Australian businesses get the very best out of their staff. If you have any questions or concerns, call our FREE Advice Line on 1300 651 415 today.

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