Don’t Underestimate the Importance of Performance Management

Charts measuring performance

Some would argue that performance management (PM) isn’t necessary in today’s business landscape. I would argue the opposite. Too often, managers are poor communicators. They fail to set specific objectives and expectations. They leave people wondering how they’re doing in their role. 

Once your PM practice is firing on all cylinders, they’ll know.

Effective PM processes help address communication gaps, set clear expectations, and drive employee development. 

Traditionally, PM has involved one-sided performance evaluations completed by managers. This approach may lack transparency and fail to capture a comprehensive view of employee performance – especially if an employee and their supervisor rarely talk. PM should be a regular part of work, and employees should never be surprised by their feedback.

Years ago, I helped the company change their processes to match their culture by having employees evaluate their own performance.. We implemented a behavior-based form that the employee completed on their own. The manager then reviewed it, offered their opinions and feedback, including input from others who worked closely with the employee. This process not only documented feedback necessary for performance reviews, it forced managers and employees to talk more openly.

Establishing Key Performance Objectives (KPOs):

To make PM more dynamic, organizations can incorporate Key Performance Indicators (KPIs) into the process. KPOs are specific objectives that employees are accountable for and can be built into the performance review form. By reviewing KPOs and providing frequent status updates, managers can ensure ongoing feedback and make necessary adjustments throughout the year.

To maintain a consistent feedback loop, I recommend a mid-year check-up and a final review at the end of the year. This ensures a minimum of two discussions annually, fostering continuous improvement and preventing surprises during formal evaluations. Some organizations even assign weights to different performance categories based on their relative importance.

Linking Performance to Compensation:

Tying performance to compensation is an important aspect of PM. Employees should understand the connection between their performance, merit increases, and bonuses.’’

One of the businesses that I consulted with asked me to talk with all the employees to see if they understand why they are paid what they’re paid, why they got a bonus if they got one, and how their rating tied back to the review process. No one seemed to understand how their compensation rate increased, and some didn’t seem to care. We implemented a behavior-based review so employees could see how their earnings could increase based on merit. Transparent and well-communicated compensation frameworks based on performance can motivate employees, incentivize high performance, and align individual goals with organizational objectives.

Despite differing opinions, performance management, or PM, remains a vital component of business success. It bridges communication gaps, sets clear expectations, and drives employee development. By adopting dynamic PM approaches, incorporating KPOs, ensuring regular feedback, and linking performance to compensation, organizations can create a culture of continuous improvement, engagement, and achievement.