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What is performance management and how to do it right?

Performance management
Blaz Kos
10 minute read

Performance management is a series of ongoing management processes that lead to the setting of clear goals and expectations, and then monitoring and evaluating the work of employees to ensure they are performing effectively on a regular basis. 

The main goal of performance management is to create a productive and organized workplace where people love to perform.

The most important aspects of good performance management are: 

  • aligning the company's vision with individual goals, 
  • fostering a commitment to achieving results (beyond established standards), 
  • and ensuring accountability and professional development. 

Performance management is not only about developing individuals and teams, but also the entire workplace system, which must bring out the best in teams and individuals.

Good performance management should lead to a more motivated workforce, easier management, and ultimately higher productivity and a better bottom line. 

In this blog post, you'll learn how to properly use performance management to achieve maximum productivity and a thriving company culture.

1. Onboarding can set the standard

Performance management starts with excellent onboarding. With onboarding, you want to ensure that an employee is integrated into the organization as quickly as possible, receives all the resources they need to deliver value from the first working day, and also feels welcomed and excited about the organization. 

Outstanding onboarding is also the initial signal an employee gets regarding the company culture including how performance-driven the company really is.

There is a big difference between:

  • an employee having to wait a week or two (or God forbid even longer), to receive business cards, an email account, and to be introduced to key people in the organization,
  • having software accounts, business cards, etc. created before the first day, a clear onboarding schedule, and having everything else in place to start working on the first tasks.

In a way, a good onboarding process is an example of how things are managed in the company.

2. Planning and setting professional goals

Aligning an employee's goals and activities with the company's vision, mission and corporate objectives is the first step in performance management, along with excellent onboarding. 

It must be crystal clear how individual goals contribute to the growth of the company and vice versa. If goals are not aligned at the various organizational levels (individual, team, company), it is nearly impossible to achieve peak productivity and performance. 

One of the most popular techniques to align and monitor goals is called Objectives and Key Results (OKRs).

One aspect of alignment is that an employee clearly understands how their personal goals contribute to the overall strategic goals, and the other is that they must have a very clear set of tasks at the operational level. 

It needs to be clear what tasks and activities an employee needs to perform on a daily basis, and what work needs to be done. In fact, this should already be clearly written in the job description.

Objectives, tasks, and activities should naturally change over time, especially with promotions. Each promotion means that an employee has a new set of goals and activities on the calendar that are more challenging than the previous ones. 

An important point about promotions is to make sure that a promoted employee understands that they will not be successful in the new position if they do the same things as before. When you are promoted, you always have to let go of the past and take on new tasks and responsibilities.

3. Delivery standards, monitoring and feedback

After obtaining a clear picture of goals, tasks, and activities; setting standards comes into place. 

In agile management there are several conditions that must be set to make sure a task is completed as expected by the superiors. In simple terms, these are:

  • ·Definition of “ready” – Do we have and understand everything we need to do the work?
  • Definition of “done” – What needs to be done for a task to be considered complete?
  • Acceptance criteria – What is required for the work to be accepted?

These three questions provide a good framework for thinking about how delivery standards should be established and communicated to an employee. 

First, you need to ensure that the tasks are within an employee's area of expertise (or slightly above) and that the employee also has all the resources (information, equipment, approvals, understanding, etc.) needed to complete the task.

Then, you must clearly communicate what needs to be done, when (the deadline), and what the minimum acceptable quality is.

It is also good to show an example of work done well, and coach an employee when there is a gap in expectations. Coaching can be done as part of regular progress reviews, meetings, or check-ins.

4. Efficiency and time management

If delivery standards are about quality, we must not forget quantity. We are not talking about standards like those of a factory assembly line; nevertheless, in today's world of distractions, efficiency and excellent time management are important aspects of great performance.

Time management is a process of planning and organizing time in the most productive and efficient way possible. By making smart use of the available work time, an employee is able to complete more tasks (based on the definition of “done” and acceptance criteria) in a given period of time. 

Each employee's time is very limited, and it should be considered the most valuable resource.

When it comes to excellent performance management, delegating tasks, and time management, HR and time management apps can be of great help. The point of time management apps is to help management better oversee their employees' time. 

With the help of these tools, they can help their employees become more productive, make better decisions about their time, and reduce the time they spend on low-value activities.

Such software solutions can also provide important input data for a performance review. Here are some examples of metrics that you can obtain from time and attendance software:

  • Number of hours worked
  • Overtime worked
  • Number of absences for different reasons
  • Early birds and late comers
  • Time-allocation breakdown
  • Time spent on meetings, etc.

5. Performance monitoring and reviews

Monitoring is a very important aspect of performance management. It is about ensuring that the agreed-upon results are delivered and that all established standards are met. 

Traditionally, performance reviews were conducted at the end of the year, but in modern agile performance management, performance reviews are conducted at shorter intervals during reflection meetings. In addition, each interaction also presents an opportunity for employee development.

The basic idea of good performance monitoring and appraisal is not to micromanage and control employees, but to ensure that the agreed-upon work is done properly. 

Of course, it sometimes happens that an employee fails to meet agreed-upon work standards, which must lead to consequences that have been made clear from the start. 

Not taking any action on poor performance usually leads to a toxic business culture and second-rate execution of tasks.

It is important to be quite clear about how performance is measured and to document the performance appraisal process as clearly as possible. 

5.1. Common pitfalls in performance appraisals

Managers also need to be aware of and avoid common pitfalls in conducting performance appraisals, such as:

Poor preparation

Performance appraisals should not be just a formality. It’s a difficult management task that requires gathering all the available information, good preparation, a constructive discussion environment, a coaching mentality, documentation of important details, etc.

Not being candid and concrete 

The biggest challenge on performance reviews besides poor preparation is being political and not giving sincere feedback with specific examples and ideas on how an employee can improve. 

Being vague, overly empathetic, or pushy and aggressive always leads to suboptimal results. The tone of the conversation should be one that shows the manager cares about an employee's improvement, but also directly indicates where the room for improvement is.

Personal favoritism

Lack of skill and poor preparation is one aspect which leads to conducting a bad performance evaluation. The other is psychological biases, to which we are all susceptible. 

They cannot be completely avoided, but we must be aware of them and try to minimize them. One such bias is personal favoritism, i.e., you do not treat all employees the same, but give preference to employees you like more than others.

Recency effect 

A psychological bias which causes us to evaluate performance based on recent events, or to give too much weight to recent performance without considering the entire period for which the evaluation takes place. 

This is why annual appraisals are a poor way to manage performance and the evaluation periods ideally be much shorter.

Too much complexity

Too much feedback and information in one session leads to confusion and not knowing where and how to improve. 

This is another reason for frequent performance reviews that do not cover too many topics and keep feedback simple, concrete, and actionable. It’s better to give really good feedback on one thing, than to do so in an average way on ten things.

Different combinations of the pitfalls listed above can lead to these two disastrous ways of approaching performance reviews:

A judgment day

Some managers see a performance appraisal as a way to evaluate and criticize employees. They do not approach the appraisal with a coaching mentality, but rather view it as a mechanism to throw out every little thing that was done wrong. 

They may even go to a personal level and criticize a person rather than how a specific task was done. Of course, no one would be happy to receive feedback like this, and the chance that it will lead to actual improvement is very slim.

A pointless formality

It is also a major mistake to view performance management and appraisals as merely a formality. The impact of performance management can be minimal or nonexistent if it is not done properly. 

If there is no improvement after the performance review, the solution is not to treat it as an unnecessary bureaucratic process, but to improve and design it to bring real progress and growth.

6. Development and improvement

An important part of performance management is setting a career-development plan. A company can only grow if its employees grow. You have probably heard this famous anecdote:

The CFO asks the CEO, "What happens if we invest in developing our people and then they leave us?"  The CEO's response, "What happens if we do not invest in employees, and they stay?"

So, every employee should have a clear personal/career development plan, from possible promotions, to acquiring new skills, to taking on new responsibilities. 

It should also be clear what formal and informal educational activities are planned for the future, who the internal and external coaches of an employee will be, what online learning platforms are available, and so on.

7. Compensation and rewards

Last but not least, performance management is closely connected to compensation and rewards. As you probably know, employee motivation depends on:

  • intrinsic rewards (meaningful work, autonomy, personal development) and
  • extrinsic rewards (compensation, bonuses, promotions, etc.).

There are various different studies about how good money is as a motivator, with very different results. Nevertheless, we can definitely say that it is an important factor in employee motivation. 

In practice, this means that pay must be aligned with a specific job. It must also be very clear when and how an employee is entitled to variable pay or bonuses. Setting a variable pay system is a science in itself, but if there is a mismatch between goals, KPIs, and variable pay, employee performance is rarely optimal.

Now you should have a good overview of the entire performance management cycle, which consists of the following steps: 

  • goal planning, 
  • monitoring execution in an agile way, 
  • personal development and coaching of an employee, 
  • and in the last step, providing rewards according to KPI results and ratings.

And the cement through all these stages is a good relationship and deep trust between employees and their managers.

New ideas & Best tips
How to create a productive and organized working place, where people love to perform