Peter Drucker once described customers as the “most important stakeholders.” While this may be true, your customers are dependent on one thing.

No, it’s not your product (though that’s definitely important). It’s actually your employees. Without your employees, products won’t get made, customers won’t learn about those products, and there will be no one there to sell or deliver those products, or provide customer service to them after they’ve purchased.

While your customers may be your most important stakeholders, in a business or organization, your employees are your biggest asset. Their performance, mindset, attitude, and loyalty can make or break your company’s performance and determine whether or not you will have any customers to sell to.

Because of this, you will want to ensure that your employees are meeting expectations, and improving in necessary areas. Performance management aims to foster the best possible employees so your organization can thrive well into the future.

What is performance management?

Performance management is a process that allows managers to assess their employees’ work and support of business objectives. The goal of performance management is to track and improve the skills employees need to perform their necessary job duties.

Elements of performance management include giving performance appraisals, utilizing key performance indicators (KPIs) and management dashboards, peer review, 360-degree feedback (multiple individuals from managers to subordinates assist), and the use of employee management software.

A similar term, performance appraisal, also focuses on goals and self-improvement, but is focused on the individual and does not take the strategic goals of the organization into account.

Performance management is not only important to the organization, it’s essential for the individual as many growth opportunities including bonuses, promotions, and ultimately dismissals, are tied to this process.

Effective Performance Management

Effective performance management will look different depending on your specific industry and your organizational goals. However, there are two approaches you can take to get started.

Behavioral Approach

This works well when your employees work (and achieve) as part of a team and measuring individual results is difficult to do. In this approach, you evaluate your employees based on their behaviors and effort. Feedback looks like identifying current behaviors, communicating desired future behaviors, and providing training or coaching to bridge the gap between where they are and where you would like them to be.

Results-oriented Approach

This approach is ideal when performance metrics are easy to quantify such as meeting a sales quota, clocking billable hours, or reaching certain call statistics. In this approach, you focus on the quality and quantity of the end result.

Performance Management Process

A performance management plan consists of a five-step process. Let’s take a closer look at the five steps.

1. Plan

While employees’ goals and responsibilities are outlined in the job description when they come on board, it’s essential to review this information with them regularly. Clearly set and communicated goals will help your employees understand what is expected of them and when they are falling behind.

2. Monitor

Management should be monitoring their employees’ performance continuously. If you only check in once or twice a year, a slight veer off the prescribed path could have lasting impacts on one’s performance. That’s why staying in constant communication with your employees, and keeping an open environment for feedback is essential all year long.

3. Develop

If you have identified areas of improvement for your employee, you can work with them to provide training, mentoring, educational courses, or other materials that can help them get back on track or fill any skill gaps.

4. Rate

Without a rating scale, it can be difficult to recognize whether employees are improving from their development plan. Additionally, with a rating scale that is communicated to employees, they know where they currently stand, and what is needed to move them to the next level of performance.

5. Reward

While every step of the process is necessary, the reward may be the most important. Positively reinforce employees who are hitting their goals or working towards them. Recognize them for their hard work and for striving to be better and do better for the organization.

This can be in the form of bonuses, thank you cards with token gifts, public recognition, or through an employee rewards program. It not only inspires the employee who is being recognized but motivates others who may need an extra incentive.

Remember that the performance management process is a cycle that must be continuously employed throughout an individual’s time at your organization.

You’re never “done” with performance management and this should be conveyed to your employees when they join the company, and then communicated to them throughout their employment. Without open communication throughout the process, employees may become complacent in their lackluster job performance or disengaged.

Performance Management Best Practices

This concept and process have been around for years and thankfully, there’s no need to reinvent the wheel. There are a number of performance management best practices that you can incorporate into your plan.

1. Re-evaluate goals regularly. If there’s anything the COVID-19 pandemic has taught us, it’s that societal shifts can demand a new approach to business. Goals may need to change and clinging to old decisions in a new world could cause you to penalize (and lose) good employees.
2. Employ SMART goals. In order to be achievable, goals must be clearly defined and communicated, and Specific, Measurable, Actionable, Relevant, and Time-bound. Employees will be more likely to achieve goals when they are properly crafted.
3. Utilize the objectives and key results methodology. The OKR methodology can help your team set, communicate, and track organizational goals. This will foster accountability among your employees.
4. Have performance conversations throughout the year. Performance management conversations should not reveal any surprising information to the employee or manager. Ideally, managers are having open conversations with their team members about performance throughout the year, and performance reviews should serve as a check-in documenting performance over a specified time period. When you communicate regularly with each of your employees, they learn to expect constructive feedback and look forward to these encounters.
5. Standardize and automate your process. All employees should follow the same performance management process, and be held to an even standard. In addition to making the process fair, there comes a tipping point when you may have too many employees to manage throughout a continuous cycle, and having a set process and automated software solution to manage performance reviews can be a helpful asset.

While creating a performance management plan in your organization will take some time and effort, it’s a necessary process for a thriving organization. Knowing which employees are excelling in their roles and reaching (or exceeding) goals, which employees need more support is priceless information.