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How To Create an Effective Performance Management Process

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Performance management is crucial for any organization that wants to thrive. In fact, many HR leaders are changing their performance management approach to meet the evolving needs of their employees and organizations.

Traditional performance management approaches involve annual performance reviews. However, many companies are moving toward more frequent and continuous feedback systems that emphasize coaching and development rather than evaluation.

An effective performance management process helps employees understand what’s expected of them, and enables companies to develop and retain top talent. Several notable companies—such as Netflix, Microsoft, Adobe, and Deloitte—have abandoned the traditional annual assessment system, and many others are following their lead.

In this article, we delve into the key steps that comprise an effective performance management process. We also explore the significance of continuous performance management and how it can benefit employees and companies.

Finally, we provide tips for improving employee performance and introduce performance management tools your company can leverage to streamline its processes.

Management process

What is performance management?

Performance management, as applied in the workplace, is a continuous process that involves defining job roles, setting performance expectations, and establishing performance standards.

It also involves ongoing monitoring, giving feedback, identifying areas for improvement, conducting performance appraisals, and delivering consequences. Performance management aims to help employees understand what’s expected of them and provide them with the resources and support they need to meet those expectations.

One essential aspect of performance management is supporting learning and employee development. Lorman reports that 87% of millennial employees believe their company should support their growth and development. By implementing a robust performance management system, companies can create a continuous learning and development culture, enabling employees to reach their full potential while striving  to achieve the organization’s goals.

Importance of employee performance management

Performance management is crucial for employees and companies for several reasons.

  • Better employee retention. 49% of executives have reported seeing higher organizational turnover in recent years. Performance management can help companies retain top talent by providing employees with clear expectations, resources for growth, development opportunities, and a space for feedback and employee recognition. When employees feel supported and valued, they’re more likely to stay with the company. This can lead to lower turnover rates and higher levels of institutional knowledge within the organization.
  • Improved work performance. Performance management can help improve work performance by setting clear expectations, providing feedback, and identifying areas for improvement. Setting performance goals and ironing out a transparent review process can lead to increased productivity, better quality of work, and more efficient use of resources. By aligning individual employee performance with companywide goals, companies can have everyone work toward the same objectives.
  • Increased employee engagement. Workers are nearly four times as likely to be engaged if they report receiving “meaningful” feedback from their bosses the previous week. Employees who feel valued and appreciated are more likely to be engaged in their work and committed to organizational goals. This can lead to higher levels of job satisfaction, better employee morale, and increased motivation to perform well.
  • Talent development and retention. Companies can offer employees opportunities for growth and development through performance management, allowing them to acquire the skills and competencies required to meet future challenges. This helps enhance their competitiveness in the marketplace and boosts innovation and creativity within the organization.
  • Aligned individual and companywide goals. By setting clear expectations and providing feedback, companies can help employees understand how their work fits the larger picture of organizational goals. This can lead to increased collaboration, better communication, and a shared sense of purpose among employees.

The performance management cycle

To build a successful team, you should establish a strong performance management process that helps employees understand what’s expected of them and enables them to reach their full potential.

Let’s look at each step involved in the performance management cycle. Understanding these stages allows you to develop an effective performance management system to build a high-performing team.

5 stages of the performance management cycle:

  1. Planning
  2. Monitoring
  3. Developing
  4. Rating
  5. Delivering consequences
Performance management cycle

1. Planning

The planning stage of the performance management cycle is crucial, as it sets the foundation for the entire process.

During this stage, companies should define job roles, set performance expectations, and establish performance standards. This involves identifying the skills and knowledge required for each position and defining the responsibilities of each employee. The planning stage may also include identifying resources or training initiatives employees need so they can meet the established standards.

Setting employee goals is an essential aspect of the planning stage. These goals should be specific, measurable, attainable, relevant, and time-bound (SMART), providing employees with clear objectives. For example, a SMART goal in sales might be to increase sales by 10% in the next quarter.

Companies can use templates or sample goals for employees to help guide the process of setting SMART goals. These resources can give employees a clear understanding of what’s expected of them and how managers will measure their performance.

2. Monitoring

The monitoring stage of the performance management cycle provides employees with regular feedback about their performance before their annual performance evaluation. This stage involves ongoing monitoring and measuring employee progress against the standards established in the planning stage.

Regular check-ins can help employees stay on track and provide the resources and support needed to meet their goals. These don’t need to be formal performance evaluations. They can be casual check-ins to deal with real-time challenges, concerns, or issues.

Providing constructive feedback is essential during check-ins, with acknowledgement of areas of strength and improvement. You can use this feedback to identify any issues or challenges employees may face and provide guidance on addressing them.

Coaching is another effective way to help employees develop skills and overcome challenges. Coaching involves providing employees with one-on-one support to help them identify and address any issues preventing them from reaching their full potential. Employees can develop new skills, better understand their strengths and weaknesses, and improve their performance through coaching.

This coaching can be done by managers or external advisors, depending on the organization’s resources and goals.

3. Developing

The developing stage involves taking what you’ve learned from the monitoring stage and identifying areas for improvement. It also involves developing performance improvement plans to provide employees with the resources and support they need to improve their performance and meet long-term goals.

This may include workshops, mentorship, the latest software tools, or other resources that help employees develop their skills and grow in their careers. For example, a company might offer a workshop on leadership development or provide mentorship programs that pair junior employees with more experienced colleagues. Companies might also provide access to software that helps employees work more efficiently by using automation to streamline their workflows.

High-performance teams are built on collaboration, effective communication, and continuous improvement. Encouraging teamwork and collaboration through group projects, mentorship, or brainstorming sessions can boost employee engagement and productivity.

4. Rating

The performance management cycle’s rating stage involves performance appraisals—typically once a year. This stage allows stakeholders to come together and evaluate an employee’s performance over a set period. Companies should identify areas of strength and improvement, providing employees with feedback acknowledging their accomplishments and identifying areas for development.

While the traditional rating system is standard for many organizations, some companies have adopted alternative evaluation methods. For example, the 360-degree feedback system, which gathers feedback from multiple sources, including peers, managers, and subordinates. This approach provides employees with a more comprehensive understanding of their strengths and areas for improvement and allows for a more well-rounded evaluation.

In general, frequent feedback and reinforcement is highly effective for influencing desired behaviors, as B.F. Skinner discovered in his experiments related to operant conditioning. In contrast, the annual rating is helpful for documenting performance and providing a springboard for discussion of long-term goals.

5. Delivering consequences

The final stage of the performance management cycle involves delivering consequences. While it’s not always the easiest stage (especially when employees aren’t fulfilling their job descriptions or meeting their goals), this step is important because it holds employees accountable for their performance.

If an employee isn’t meeting performance expectations, the consequences may include progressive counseling, warnings, or other disciplinary actions. On the other hand, if an employee is performing well, they should be recognized and rewarded.

Rewarding good performance can take many forms, including monetary compensation, companywide recognition, time off, or other incentives. Providing employees with meaningful feedback and recognition can increase their engagement and help them feel valued and appreciated. This can support employee engagement and retention.

Tips for improving employee performance

Improving employee performance is an ongoing process that requires continuous effort and attention. We provide some tips for improving employee performance.

  • Set clear and measurable expectations. Employees should understand what’s expected of them & how you’ll measure their performance. Setting clear and measurable expectations helps get everyone on the same page and working toward the same goals.
  • Provide continuous feedback. Providing employees with regular feedback helps them understand how they’re performing and what they need to do to improve work performance. It also helps them feel supported, listened to, and valued.
  • Have multiple sources of feedback. Feedback from multiple sources—including managers, peers, subordinates, and even clients—can provide a more well-rounded picture of an employee’s performance.
  • Make performance collaborative. Encouraging collaboration and teamwork can help employees learn from one another and develop new skills.
  • Provide the right resources and support. Providing employees with the resources & support they need to do their jobs effectively is essential for improving performance.

Performance management tools to consider

Many performance management tools can help organizations automate and streamline their performance management process. Companies can consider using these tools.

  • Performance management software. Performance management software can help organizations automate their performance management process, including goal setting, performance tracking, and reporting. Lattice and BambooHR are popular choices.
  • 360-degree feedback tools. 360-degree feedback tools can provide employees with feedback from multiple sources, including managers, peers, and subordinates. Jotform offers templates you can have employees fill out to provide feedback.
  • Learning management systems. Learning management systems (LMS) can provide employees with access to training and development resources, including courses, webinars, and other educational materials. Forbes has a list of the best LMS choices.
  • Employee engagement platforms. Employee engagement platforms can help organizations improve employee engagement by providing employees with opportunities for collaboration, recognition, and feedback. Bonusly and Nectar are two examples.
  • HR analytics tools. HR analytics tools can help organizations track and analyze performance data to identify trends and areas for improvement. Crunchr, Qualtrics, and Tableau are some popular options.

Solidify your performance management system with help from Upwork

Effective performance management is essential for any organization to thrive. It helps employees understand what’s expected of them, provides them with the resources and support they need to meet those expectations, and makes sure their performance aligns with companywide goals.

By following the key stages of the performance management cycle and implementing the tips and tools discussed in this article, companies can improve their performance management process and help their employees reach their full potential and stay engaged.

If you need help developing a performance management strategy, consider working with performance management specialists on Upwork. These freelancers have the expertise and experience to help you create and implement a performance management system that meets your organization’s unique needs.

Professional performance management specialists are experts in developing, implementing, and improving organizational performance management systems. They work with companies to develop performance management strategies, identify areas for improvement, and create plans to help employees achieve their goals.

They also help organizations establish performance metrics and goals, develop performance improvement plans, and provide training and coaching to employees. They can even conduct employee performance evaluations, analyze data and feedback, and recommend improvements.