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What is an Effective Performance Management

System?

What comprises an effective performance management


system? What is a performance management cycle and
how can it motivate great performance?
Performance management isn’t an easy field to navigate. It’s constantly evolving, hence
the need for an effective performance management system. New performance manage-
ment trends emerge every year and, unfortunately, all too often, human resource
departments get it completely wrong.

This leads to employees left feeling deflated, unmotivated and unengaged. Managers
are frustrated at the poor levels of team and individual employee performance. Thank-
fully, more and more companies are now waking up to the importance (and resulting
benefits) of effective performance management systems. The first step towards revital-
ising and improving your existing performance processes is to understand what an
effective performance management system is.

To do this, we will address the following questions throughout this article:


What Is Performance Management? (Performance Man-
agement Defined)
When discussing performance management, many people will immediately think of the
annual performance review process. But the performance appraisal is only one compo-
nent of what is considered to be performance management. One of the best definitions
of performance management is provided by Michael Armstrong in his Handbook of Per-
formance Management, which carefully and plainly lays out the Armstrong performance
management cycle:

“Performance management is the continuous process of improving performance by set-


ting individual and team goals which are aligned to the strategic goals of the organisa-
tion, planning performance to achieve the goals, reviewing and assessing progress, and
developing the knowledge, skills, and abilities of people.”

A key point here is that performance management is a continuous process — not


a once-a-year “one-off” activity. Quality performance management should, therefore,
bring together a number of different, integrated activities to form an ongoing”perfor-
mance management cycle”, as shown below.

What Are the Stages of the Performance Manage-


ment Cycle?
The first stage of Armstrong’s performance management cycle is the“Planning” phase
for the forthcoming period. Planning should involve:

 Agreeing on SMART objectives


 A personal development plan
 Actions to be taken in the coming months
 A review of the employee’s job requirements, updating the role profile where
necessary.

Historically, organisations tended to carry out this planning stage once a year. However,
with the business environment becoming increasingly agile and fast-moving, many
organisations are adapting their processes to set“near-term” objectives every three
months. The organisation’s goals and values should feed into performance planning to
ensure that individual performance aligns with the overall strategy of the organisation.
Specifically, each SMART objective should contribute to achieving one or more of the
organisation’s goals.

Personal development planning, meanwhile, should consider what behaviours, skills or


knowledge the individual needs to develop to successfully achieve their objectives and
uphold the organisation’s values.

Traditionally, organisations have placed a lot of their emphasis on the“Review” part of


the cycle — often because a performance assessment is required for reward purposes.
However, we have always advised that it is the“Act” and“Track” stages that are the most
important. These stages are where performance is actually delivered and results
achieved. Individuals need to be encouraged to schedule in regular time to work on
achieving their objectives and personal development plans.

Similarly, managers need to be checking in with their staff regularly. They must give fre-
quent, effective feedback and use coaching skills to help their team members overcome
challenges and identify opportunities for learning and performance improvement. If this
is left until an end-of-year review, it is too late — objectives and development plans may
end up only partially achieved.

Notice that in the above performance management cycle, there are no arrows between
the four stages. This is because, in reality, the stages do not flow one after the other.
Act and Track should be continuous throughout the year. Reviews may take place at
any point, and planning may take place several times during the year and be re-visited
as the needs of the business change.

What Does the New Continuous Performance Manage-


ment Cycle Look Like?
Since 2015, this philosophy of continuous performance management has been adopted
by leading organisations such as Deloitte, Adobe and General Electric. All these major
names have ditched the traditional once-a-year performance appraisals in favour of reg-
ular”check-ins” and frequent (or real-time) feedback.

These regular performance discussions are typically developmental and future-focused.


They provide team members with an opportunity throughout the year to explore what
has gone well and how success can be replicated, any challenges faced and how they
may be overcome — and to agree on actions both the individual and manager need to
take to develop the individual and further improve their performance. Such check-ins
are also a great opportunity to address employee development while offering training
opportunities and regularly reinforcing performance expectations.
Here is how this Continuous Performance Management process typically looks in lead-
ing organisations:

Performance Management Process: The Basic Elements


Necessary for Effective Performance Management
There are a few basic elements involved in building an effective performance manage-
ment framework, including:

Setting Goals

You need to set goals the right way. They need to be meaningful and understood.
Employees should have context as to why these individual goals matter and how they
are furthering organisational objectives. Employees will care much more about their
roles and be much more engaged when they know — and truly understand — how their
job matters.

Goal setting is and should be a collaborative process, which involves meeting with
employees and being transparent about company goals, direction and obstacles. Armed
with this information, employees can create goals which complement organisational
objectives and make daily decisions to further these objectives. Furthermore, when
employees are put in the driver’s seat and allowed to develop their own goals (before
having them approved by their line manager), they experience a heightened sense of
autonomy and ownership over their work. Inevitably, this results in improved employee
performance.

Transparent Communication and Collaboration

Employees want — and deserve — their managers and leaders to be open and authen-
tic at all times. They don’t want to be kept in the dark when their companies are going
through hard times, especially in the midst of a COVID-19 pandemic. They want to be
kept abreast of pertinent information. On top of this, they want real-time communication
while building healthy relationships with their colleagues and managers. This will involve
regular feedback and honest discussion — even when such communication is difficult or
uncomfortable.

Employee Recognition
An effective performance management system should prioritise employee recognition
and reward. Employees should feel valued and appreciated for the work they do and the
effort they put in. If employee recognition is not a priority, this will most likely have
a negative bearing on your voluntary turnover.

Honest and regular feedback and reviews are needed — the more frequent and precise
the feedback, the better individual performance. It’s that simple. Employees want regu-
lar insights into their work, and the better-informed employees are regarding their per-
formance, the better able they are to improve and excel.

Employee Development

No ambitious top performer wants to remain at a company long-term without honing and
developing skills. Advancement and development are important to employees — not to
mention, companies stand to benefit when employees are more skilled and capable.

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So What Exactly Is Effective Employee Performance Management?

Having all of the elements of the performance management cycle in place is very impor-
tant, but this will not necessarily lead to effective performance management for your
organisation. There are many other factors in play, such as:

 Having buy-in from leadership and senior management to performance


management
 Ensuring the performance management cycle is continuous and not an annual
process
 Ensuring performance conversations and reviews are meaningful and not”tick-
box” exercises
 Implementing easy to use performance management software which supports
effective performance management and gives you visibility of performance man-
agement activity
 The skills and willingness of your managers to deliver effective performance
management on a day-to-day basis.

What Makes Performance Management Systems Ineffec-


tive and Uninspiring?
Tragically, only around 14% of organisations report being happy with their current per-
formance management systems. If you’re not vigilant, performance management
processes can often become inefficient and counterproductive.

Below are a few ways this can happen:

Your System Isn’t Fair or Accurate


This often occurs when annual reviews are favoured over more continuous performance
management. After all, how can an employee be fairly and accurately assessed and
treated when their entire year’s performance is summarised in one sitting? Can man-
agers remember all pertinent events from as far as a year ago — and how will the
employee receive the appropriate levels of feedback, motivation, support and recogni-
tion? In fact — how can the annual review be fair if there is no existing and trusting rela-
tionship between employee and manager?

Managers Treating Employee Performance Management as a “Box-Ticking”


Exercise

This happens when managers go through the motions, perform reviews and give feed-
back, but they are simply paying lip service to the process. These managers might take
a useful tool, such as personal development objectives, and do the bare minimum with
employees, without revisiting and revising them. This is a huge warning sign of an ineffi-
cient performance management system. If your managers are checked-out, your
employees will soon follow suit.

Paper and Pen Systems are Still Being Used

Businesses these days can grow so quickly that paper-and-pen systems become redun-
dant. These days, technology is more affordable, simpler and more accessible than
ever before. To be truly effective, companies need to invest more in easy-to-use,
streamlined technology.

Your system is focused more on appraisal than on coaching — one way to get employ-
ees to dread performance discussions is to make them feel they are going to be judged
by their manager every time they have a conversation. Rather than tearing employees
down, managers should be a coach. They should be supportive and encouraging, rather
than dictatorial and impatient.

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