Performance management is about steering and influencing your employees’ performance. Their performance largely depends on the management and culture of your organization, and as HR professionals you can and should provide the necessary framework (click here for our full breakdown on organizational development).
In this article you will learn what to consider – because, as experts suggest, the performance management process as a whole needs an overhaul.
Performance Management Definition
Performance management, in short, means steering employee performance. It is about driving an employee’s individual development forward in order to utilize the potential of the organization to the fullest. Yearly target setting is outdated; today, having processes in place to measure performance continuously is key.
Performance Management Process
What creates high performance? Money? Not at all. Expressed in a formula: Performance = Skills x Commitment x Context.
There are four key components to consider in shaping your performance management process.
- Open communication
- Good leadership
- Employee skills and interests
All four are interconnected and in a best-case scenario will boost each other.
The Role of the Company Culture
In most companies, performance management is understood as a target agreement system, often in conjunction with variable remuneration.
The targets are thereby primarily quantitative targets, i.e. driven by turnover, or number of units (in manufacturing). There are only few soft targets, and as a result, performance management has little to do with an employee’s personal development. However, that is exactly what it should be: a culture that is focused on the employees themselves; an HR department that understands this, and explains to company executives that only someone who is given the opportunity to evolve both as an individual and professionally, will perform at their best – and achieve good results.
Show your employees that you have confidence in them. Entrust them with more operational and strategic responsibilities. That is the only way to ensure that they will find and implement suitable solutions for challenges within their areas.
Together with them, set ambitious, yet achievable targets that work towards the company targets. Your employees will then know what to aim for, and on what basis they will be assessed.
Performance Management Instruments
To be able to evaluate performance and potential, your target agreement processes have to be based on continuous interaction. Use apps and tools that facilitate ad-hoc feedback not only from the manager to the employee, but also between employees. Use surveys to find out what went well and what didn’t, and why.
Development discussions should be scheduled to occur not only once or twice per year, but more frequently. A 12-month performance can’t be measured in one single meeting; the cognitive performance ends at 2-4 months. Your feedback should:
- be given in suitable portions;
- relate to a specific occasion or event;
- occur frequently.
Download: Template for Performance Reviews
How do you strengthen mutual trust and increase satisfaction among all involved with a performancereview? This guide shows you how to conduct goal-oriented review meetings.
Performance Management Example
Your recommendation should be that feedback on target achievements is given in smaller packages. You can have 30-40 targets in the course of a year, both qualitative and quantitative. Example: An employee has just completed a project that they were in charge of. Their supervisor could now conduct a feedback meeting in which both together evaluate what went well and what not so well, and in which area(s) of project management the employee could improve.
This is documented and measured (for example in a later discussion in which the employee talks about any newly acquired competencies). In a digital world that is constantly changing and calling for new competencies, the performance management process, too, must follow. Every project and every interaction can be evaluated.
Ideally, the supervisor has a tool at hand to make notes that HR and the employee can view and process further. This provides transparency and comparability, both of which are essential to constructive communication.
In your role as HR professional, be an advocate for continuous dialogue between manager and employee. Managers should ask their team members: What do you need today? Where do you want to be? What do you require so you can perform well in the future?
Performance Management and HR
“People join companies and leave managers.” HR professionals should a) be aware of this correlation and b) explain it to managers, who often think the reason for people quitting is money, not bad management. As several studies prove, the opposite is the case. You can find this out by conducting professional exit interviews and running employee surveys.
They usually reveal: Appreciation and individual development create loyalty and motivate.
Ask: How do employees in your organization get promoted? How are competencies assessed, and how are they built?
How can HR create a pathway for good management? By recognizing first and foremost: Those who don’t like people cannot lead people. An individual with the best technical skills may not always take an interest in humans, may be a poor communicator, etc. Perhaps they are right for operations – but this can turn into a problem. Therefore, you as the responsible HR professional should offer training opportunities for those who have it in themselves to become a leader, and have both the capacity and the will to achieve this.
Performance management can result in change. And change management tends to fail, unless changes are professionally led by HR.
The Role of Remuneration
Away from single appraisals towards continuous exchange – that is one of the main principles of modern performance management. The other one is: to detach variable remuneration from the performance evaluation in the performance management process. Why? Because one has nothing to do with the other.
The reality, however, is often this: In a guiding and concluding discussion, managers put their employees into different categories – from high to low performers. Remuneration budgets are added accordingly. As the total available budget is limited, payouts need to be split. In the end, half of the employees are told: Your achievement level is merely ‘all okay’. When we talk about performance orientation, this is a difficult message, and the result is a disappointed employee.
Focus on the Human
For managers, feedback meetings are (another) burden. At least that is how they are perceived. A feedback discussion is often seen as an opportunity for critical review; however, it should be about goal-oriented advancement. What are the tasks that the employee will have in the future, and how can their competencies be widened? What equipment will they need for this? This is motivating for both: for the employee, because they feel that they are appreciated and taken seriously, and for the manager, because they can influence a team member’s positive development.
It is not about past performance – but about future development.
Performance management is about developing personnel and personality while maintaining a strong link to further building the technical competencies.
The manager and their employee should not set targets for the end of the year/half year, but milestones that relate to the individual. Which skills would the employee still like to acquire in order to position themselves more broadly, or more deeply? Do they have any ambitions, like learning a foreign language or something completely new? This should all be considered and be part of the targets.
What can I, as HR professional, do? Think big! Be disruptive when creating or reviewing your performance management process. Your managers will try and negotiate you down in any case; meaning that this way, you will eventually achieve what you want.
Don’t just build your HR instruments around existing structures, but dare to make bigger changes, too, when dealing with topics that are fully in line with the business targets. Are employees who perform at 100% capacity important for your business? So is your performance management, and your executive manager will have the same view. Every employee who leaves or does not perform to their full potential is a cost they don’t want.
If you and your executive manager agree on this point, then you will have the necessary backing and support to turn your performance management around successfully, and to create a culture in which employees can evolve and deliver results that will carry the organization forward.
Build a more Efficient Performance Management Process
Document performance appraisals in Personio or automate tasks like sending out reminders and calculate bonuses.