Introduction to Employee Performance Management

There is no one-size-fits-all definition of employee performance management, but it can be summarised by how you manage the relationship between employees and the value they provide to your organisation through communication from managers and the support you provide to help them succeed.

Performance reviews help to manage expectations and create objectives to work towards, which sets performance standards and increases employee accountability.

Company culture influences how you approach performance management. Traditional approaches might set employees individual, specific targets early on–and analyse how their performance matches up to these targets over a defined period. A more agile, ‘horizontal’ culture prizes collaboration and risk-taking and a freer more ‘hands-off’ approach, which can inspire innovation – and demands less intervention from management.

Regardless of your company culture, performance management is fundamentally about supporting your employees in reaching specific goals. You can create a better rapport with your employees by checking in regularly, tracking progress, and providing continuous feedback. In return, they’ll feel more seen – helping to galvanise productivity and employee retention.

Basics of Employee Performance Management

A successful employee performance management system should be able to:

  1. Establish organisational objectives
    Setting goals and analysing the results is fundamental to effective performance management. This helps employees focus on what’s important in their day-to-day tasks, with specific individual objectives aligned with wider business objectives. KPIs (key performance indicators) help to formulate the process, providing a quantifiable measure of performance over time for a specific objective–which can be adjusted and improved upon as required.
  2. Clarify expectations
    Performance management clarifies exactly what is expected of managers and employees. Expectations need to be realistic. An underperforming employee needs time to improve, and goals should be established in a way that’s fair and accountable.
  3. Define your benchmarks for performance
    Traditionally, performance benchmarks are predicated on time, quality and output. These are essential for managing performance, as failure to meet these benchmarks can flag up underlying issues, such as insufficient resources, friction or underperforming teams, poor individual effort, or unrealistic expectations.
  4. Create channels for effective communication
    Communication is key for effective performance management. A company with a culture of communication yields better-engaged employees and reinforces the connection between individual objectives and business objectives. This will involve regular one-to-ones with managers, performance reviews and appraisals, and round-the-clock channels on tools like Slack and Teams.

Performance Appraisal Techniques and Methods

Performance appraisal should be a continuous, adaptable process. That helps employers and managers work toward the same goals while managing clear expectations. Here are six contemporary approaches to performance appraisal:

  • 360-Degree Feedback: This approach evaluates an employee’s performance from the people they work with—other employees, managers, and sometimes, clients. This provides a more robust and holistic understanding from several different perspectives.
  • Management by Objectives (MBO): A more traditional approach, MBO measures performance against the specific objectives decided by management and employees. An appraisal measures the effectiveness and productivity of an employee based on how they’ve achieved these defined objectives within the agreed timeframe.
  • Behaviourally Anchored Rating Scales (BARS): A process that combines qualitative and quantitative approaches, BARS evaluates specific behaviours as a benchmark in evaluating employee performance. Behavioural statements are anchored to a numerical value, and the employee’s behaviour is matched against these statements, providing a more balanced view overall.
  • Psychological Appraisals: Helps determine the future and hidden potential of employees. The process analyses several traits, such as interpersonal skills and intellectual traits, and provides a psychologically-influenced view of potential hidden talents and future behaviour.
  • Self-Evaluation: Employees assess their performance based on agreed criteria. This process can encourage self-reflection and personal development, but without clear, tangible benchmarks, risks being ineffective due to subjectivity.
  • Assessment Centre Method: Evaluate employees through a holistic series of exercises that emulate real-world challenges. It’s often reserved for senior management, and used for jobs they’re applying for–or when making hiring decisions.

Tools and Software for Employee Performance Management

ADP Performance Management is an all-in-one solution for employee performance management. ADP saves time by automating performance evaluations and aligning employee goals with the wider strategic objectives of your organisation. The software ensures progress tracking across the company and improves annual reviews by strengthening regular communication between managers and employees. Everything is totally visible, with real-time insights on goal assignments and progress.

ADP also offers outsourced personnel support, dedicated HR guidance, and full-service assistance for small to medium-sized businesses.

Performance Feedback and Coaching

Employees should feel comfortable providing feedback of their own. This needs to be a two-way conversation. And one that emphasises a manager's and employees’ strengths while recognising areas ripe for development. Fostering a spirit of transparency, openness–and most importantly–showing emotional intelligence is essential to being an effective coach in the workplace.

Setting goals and key performance indicators (KPIs)

Setting clear goals and KPIs is essential to managing employee performance. Set specific, quantifiable goals that are tied to your organisation's objectives. A goal is the eventual purpose you hope to achieve, while a KPI is a metric that lets you know how well you’re working towards it. KPIs are then used to gauge how effective those targets are.

For example, a customer support team are tasked with the goal of increasing customer satisfaction. A KPI could be the improvement of customer ratings, with a definable target, achieved through feedback surveys.

Whatever your KPIs are, you need to ensure they're SMART. That stands for:

  • Specific: be clear about what each KPI measures, and why it’s important to your organisation.
  • Measurable: the KPI must be measurable to an agreed standard.
  • Achievable: it needs to be realistic and teams should be able to deliver on the KPI.
  • Relevant: your KPI should measure something important and relevant to your business objectives
  • Time-Bound: Your KPIs need to be achievable and set within a defined and agreed period.

Real-world applications of employee Performance management

Manasquan Bank previously used paper-based performance reviews, a two-step process where employees would perform self-evaluation, and managers would complete a final review. According to Erica Connor, HR Manager, that was a waste of both paper and time.

ADP’s tool provides the functionality to have everything in one place, in a handy dashboard which is “pivotal” to their business and time-saving, especially at the end of the year when time is a precious resource. Read more case studies about how ADP provides clients with tools, data and dashboards to streamline the performance review process.

Continuous Improvement in Performance Management

Continuous improvement and evaluation helps us asses how our efforts are working over time. It’s how we measure the effectiveness of our performance management strategy and helps us understand what is and isn’t working.

By analysing real-time performance data, we can identify growth opportunities, and make the required changes to processes and personnel. The Plan-Do-Check-Act (PDCA) cycle is the gold-standard model for continuous performance management improvement. There are four stages:

  • Plan: determine goals and the steps needed to achieve them.
  • Do: implement the changes.
  • Check: evaluate the results.
  • Act: standardise the change or begin a new cycle, based on the results.

Performance Management in Remote and Hybrid Work Environments

Remote and hybrid performance management comes with its own set of challenges. This might include communication gaps, anxieties about employee engagement and balancing employee flexibility with productivity.

This requires a new raft of processes and ways of thinking that provide consistency and fairness for all employees, regardless of where they work.

Well-thought-out communication strategies encourage a community while leveraging technology to work for the whole team. This might involve video conferencing and task management apps like Slack and Trello, where you can set clear achievable goals and benefit from cross-team accountability.

Legal and Ethical Considerations in Performance Management:

Equity is central to a fair and balanced workplace culture. When evaluating performance, fairness and transparency should be top-of-mind. Procedural fairness is a cornerstone of businesses, and reputational consequences shouldn’t be overlooked. Managers should be subject to regular objective evaluations, too. Everyone should be assessed without personal biases.

Businesses need to provide equal opportunities to all employees, including making adjustments for disabled people. A successful company will invest in training on privacy and anti-discrimination laws on how to deal with performance management.

Future Trends in Employee Performance Management

Employee performance management looks very different in 2024. Nifty workforce solutions and a people-centered approach make the process fairer, and more accountable, increasing productivity. The result? Happier teams and a way to boost your bottom line.

Performance management is stepping up to meet the ever-changing demands of the future of work. Traditional annual reviews are being replaced by continuous, regular feedback. The metrics used to evaluate employee success are becoming more holistic, focusing on team collaboration and wider strategic success. Agile goal-setting, well-being assessments and regular check-ins with a distributed workforce are all signs of things to come.

Effective performance management recognises individual talent and how it aligns with organisational goals. It’s a crucial thing to get right. And companies who do find that employee performance management isn’t just a way to assess employees. It’s an opportunity for businesses to grow with their employees towards excellence.

ADP Performance Management automates the process, creating precise, actionable goals, while saving time and money. It’s the easiest way to align employee performance with company goals and motivate your entire workforce.