HR Guide: How to Upgrade Performance Management

When we hear ‘performance management,’ we often think of annual employee reviews or appraisals. However, effective HR practices for managing employee performance are much more than that. 

Today, performance management has transitioned from a once-in-a-fiscal-year evaluation to a robust, continuous process encompassing four stages: goals & development planning, ongoing evaluation sessions, continuous development, and recognition. It's a powerful system that helps managers foresee performance gaps and other potential risks (attrition, disengagement, etc.) and course-correct to reinforce high-performance behaviors.

This article examines the key elements of effective performance management and discusses best HR practices to upgrade an organization's performance.

What is Performance Management?

Performance management is the process of ongoing communication and feedback between employees and managers to ensure optimal employee performance throughout the year. It is a collaborative system where both parties work together to establish performance expectations, set goals, define how performance will be measured, and conduct reviews and appraisals, while also addressing any issues or setbacks that arise along the way.

Why Should HR Evolve Performance Management Systems? 

Work today is more unbounded than it has ever been. Few organizations put restrictions on where employees work and how they manage their work. This leads to greater productivity and fulfillment among workers but also challenges HR in effectively managing employee performance.

While HR should encourage more ownership and autonomy, they also need to guide performance management structures to sustain optimal employee performance for the long term. This means accounting for an organization's shifting priorities and goals, which traditional performance management approaches fail to do. A continuous and ongoing process of setting goals, communicating job responsibilities and expectations, and developing employees is thus necessary to ensure strategic goal achievement remains top-of-mind.

HR Guide to Improve Performance Management

The goal of any credible performance management strategy should be to:

• Help employees improve their work.

• Increase employee engagement through coaching and development.

• Boost organizational productivity and business output.

Key steps HR can take to guide effective performance management include:

    1. Reviewing the current performance management system

Most organizations already have some form of performance management (though they would benefit from regular refinement). However, some companies lack a formal strategy altogether. Both cases call for a benchmarking of current approaches. This provides a baseline against which organizations can measure progress as they tweak their employee evaluation strategy or roll out an entirely new framework. Key actions for HR include:

• Have regular feedback sessions with employees and managers to understand what aspects of the current system work well, where challenges exist, and why. 
• Audit policies and procedures to identify gaps or inconsistencies. For instance, are performance appraisals being conducted consistently? How often do they lead to promotions or a boost in compensation, and what are the criteria used? Do some employees miss reviews altogether?

2. Implementing a performance management strategy 

An effective performance management strategy includes frequent, ongoing two-way sessions between employees and managers. These ideally include: 

• Goal-setting sessions: Employees and managers should mutually establish goals and performance expectations that align with the objectives of the organization. These goals should be communicated both verbally and in writing for clarity.

• Development planning sessions: They need to create and agree upon a development plan (including coaching, training, and resources) to help employees succeed.

• Feedback sessions: Managers need to hold frequent feedback sessions to discuss the employee’s progress towards meeting the established goals. If there are issues or setbacks, they need to be addressed promptly.

• Employee review sessions: A final employee evaluation session at the end of the fiscal year can help track their overall performance and outcomes, which can further guide the recognition plan.

    3. Developing an action plan for recognizing and rewarding high-performers

Most organizations base their reward programs on annual performance evaluations. Those with slightly more structured systems might carry out bi-annual or quarterly reviews. Typically, these approaches involve managers combing through past emails and spreadsheets to identify high-impact behaviors and inform promotion and compensation decisions. This is neither effective nor holistic since it prevents employees from gaining meaningful praise or qualitative feedback in the moment.

Organizations should instead recognize and reward high-performance moments as they unfold. High performance constitutes behaviors that lead to desirable business outcomes. HR must define the recognition criteria, design the approval structures, and ensure employees have equal opportunities to deliver their best.

Conclusion

Traditional performance management practices have evolved with AI, automation, and cloud computing technologies. Still, most systems continue to emphasize employee evaluation and recognition on a quarterly, biannual, or annual basis. Businesses need to adopt a more holistic approach that involves holding feedback sessions throughout the fiscal year to track the progress of the goals and expectations set at the beginning of the evaluation period.