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Managing Employee Performance


For most organizations in the United States, performance reviews are used to support decisions related to training and career development, compensation, transfers, promotions, and reductions-in-force or employment termination. Generally, the performance review process includes setting clear and specific performance expectations for each employee and providing periodic informal and/or formal feedback about employee performance relative to those stated goals. Recent trends, however, include a less formalized process focusing on more feedback and coaching, rather than a time-consuming paper trail. See Performance Management that Makes a Difference: An Evidence-Based Approach and Viewpoint: A New Way of Looking at Performance Management.

The performance management process is often linked with other organizational systems such as:

  • Strategic planning. Many long-term workforce planning models use performance management measurements to assess the "quality" of the workforce and whether the organization is attracting and retaining talented workers.
  • Total compensation. Most organizations use performance measurements as the basis for pay-for-performance compensation processes.
  • Individual and team development. An individual development plan (IDP, also known as a career development plan) is often used in conjunction with the performance review process as a final documented step to assist employees in goal setting and individual development that will serve to advance their career and promotional opportunities.
  • Succession planning. Performance data over time are vital inputs for long-term planning for future organizational leadership.
  • HR technology systems. Many organizations use software applications to manage the processes associated with goal setting, performance review and performance improvement plans. See Performance Management Platforms Keeping Pace with Appraisal Trends.

The HR department is key to efficient administration of the performance management system. Having an educated HR team that is well-prepared to train the organization's managers and to assist them when issues arise is critical. See Performance Management Training

Legal Issues

Federal, state and local laws that prohibit discrimination in terms and conditions of employment all apply to a covered organization's performance management policies and practices. Accordingly, organizations should take all appropriate steps, based on advice from counsel, to ensure that both the design and the implementation of their performance management systems do not run afoul of equal employment opportunity laws and regulations.  

While private-sector employers are not required to have performance appraisal systems, federal agencies are, under 5 CFR 430.204. See Performance Management, Legal Citations. State laws for public employers may also make similar requirements.


Organizations can prevent or remedy many performance problems by ensuring that two-way conversations occur between managers and employees, resulting in a complete understanding of what is required, when it is required and how everyone's contribution measures up. Everyone benefits when:

  • The employee knows exactly where he or she stands in relation to achieving goals and reaching performance milestones that contribute to career development, promotions and more.
  • The manager gains insights into the motivations of the people working for him or her through the required conversations.
  • The organization retains motivated employees who understand their role and the roles of others in contributing to the overall success of the organization.

Elements of Performance Management

Effective performance management systems typically include the following three broad elements: goal setting, performance review and a performance improvement process. Employers may use a multitude of options in the execution of the performance management process, but an effective system will incorporate the three basic elements in some form.

Element one: Goal setting

Goal setting is a process of establishing objectives to be achieved over a period of time. It is the performance criteria an employee will be evaluated against. Performance goals for individual employees should ideally align with organizational goals.

Common types of goals include the following:

  • Job description goals. Goals may be based on the achievement of a pre-established set of job duties from the description. These goals are expected to be accomplished continuously until the job description changes. Examples might be financial, customer oriented, or process- or system-oriented goals.
  • Project goals. Goals may be based on achievement of a project objective. These goals may be set for a single year and changed as projects are completed. Job description and project goals are "what" needs to be accomplished.
  • Behavioral goals. Goals may be based on certain behaviors. These goals are expected to be accomplished continuously. Behavioral goals are "how" things need to be accomplished.
  • Stretch goals. Goals that are especially challenging to reach are sometimes referred to as stretch goals. Stretch goals are usually used to expand the knowledge, skills and abilities of high-potential employees

In addition to focusing only on a few major goals during a single year, the goals should be SMART:

  • Specific, clear and understandable.
  • Measurable, verifiable and results-oriented.
  • Attainable, yet sufficiently challenging.
  • Relevant to the mission of the department or organization.
  • Time-bound with a schedule and specific milestones.

Finally, effective goals should be participative. Both manager and individual should be involved in the development of goals to ensure understanding and commitment. Goals should be documented, available for review, managed on a continuous basis and acknowledged. Goals should be flexible enough to account for changing conditions.

Examples of effective goals include statements such as these:

  • Increase revenue by 10 percent during the first quarter.
  • Reduce office expenses by 25 percent as compared with the prior year's actual costs.
  • Decrease employee absences from three days to one day per quarter.

See Setting Goals and Objectives Training

Element two: Performance review

Performance review is the process of assessing an employee's progress toward goals. Strengths and weaknesses of all employees are recorded regularly so that the organization can make informed and accurate decisions regarding an employee's contribution, career development, training needs, promotional opportunities, pay increases and other topics. Performance review and evaluation involve the objective and subjective consideration of how to measure and evaluate employee performance results.

Recommendations for an effective performance review process include:

  • A feedback process that is continuous and timely throughout the review period so that employees know how they are doing and what is expected.
  • A dialogue that includes performance feedback measured against clear and specific goals and expectations established at the outset of the performance management cycle.
  • A process for acknowledging the outcomes of the performance review process that is documented between the manager and the employee.
  • A two-way individual conversation between the manager and the employee (preferably face-to-face) at least once a year.


Rethinking Stale Performance Management Practices

Ratingless Reviews and Pay Practices

How to Make Ratingless Performance Management Systems Work

Common Types of Performance Review Systems

Regardless of the type or format of the selected method to review an employee's behavioral and work expectations, clear definitions of each level of performance must be provided. Raters should be provided with examples of behaviors, skills, measurements and other performance factors to assist them in evaluating an employee. Several types of performance review systems are in common use. Each system has its benefits and drawbacks.

  • Ranking. Ranking systems list all employees in a designated group from highest to lowest in order of performance. The primary drawback is that quantifying the differences in individual performance is difficult and may involve drawing very narrow—if not meaningless—distinctions.
  • Forced distribution. The ratings of employees in a particular group are disbursed along a bell curve, with the supervisor allocating a certain percentage of the ratings within the group to each performance level on the scale. The actual distribution of employee performance may not resemble a bell curve, so supervisors may be forced to include some employees at either end of the scale when they would otherwise place them somewhere in the middle.
  • 360-degree feedback. This process collects information from the employee's supervisor, colleagues and subordinates about an individual's work-related behavior and its impact. Other names for this approach include multirater feedback, multisource feedback or group review. This form of appraisal is widely favored for employee development purposes.
  • Competency-based. This type of system focuses on performance as measured against specified competencies (as opposed to specific tasks or behaviors) that are identified for each position.
  • Management by objectives. Management by objectives (MBO) is a process through which goals are set collaboratively for the organization, various departments and each individual member. Employees are evaluated annually based on how well they have achieved the results specified by the goals. MBO is particularly applicable to nonroutine jobs, such as those of managers, project leaders and individual contributors.
  • Graphic rating scales. Graphic rating scale (GRS) appraisals list several factors, including general behaviors and characteristics (e.g., attendance, dependability, quality of work, quantity of work and relationships with people) on which a supervisor rates an employee. The rating is usually based on a scale of three to five gradations (e.g., unsatisfactory, marginal, satisfactory, highly satisfactory and outstanding). This type of system allows the rater to determine the performance of an employee along a continuum. Because of its simplicity, GRS tends to be one of the most frequently used forms of performance appraisal.
  • Behaviorally anchored rating scales. Behaviorally anchored rating scales (BARSs) attempt to assess employee behavior rather than specific characteristics. The appraisal tool generally contains a set of specific behaviors that represent gradations of performance and are used as common reference points, called "anchors," for rating employees on various job dimensions. Developing a BARS assessment tool is time-consuming and expensive because it is based on extensive job analysis and the collection of critical incidents for each specific job.

Common Performance Rating Errors

Regardless of the review system used, a variety of common rater errors exist. HR should take the lead to train managers on recognizing and ameliorating their effect on the system. Common errors include:

  • Lack of differentiation. Because raters often lack the confidence to defend their ratings or are reluctant to pass judgment, they may rate everyone pretty much the same. This approach can take the form of leniency (everyone gets high ratings), severity (everyone gets low ratings) or a universal feeling that everyone is doing just fine (and everyone gets rated in the middle). A reluctance to differentiate can often be attributed to poor training or the failure of an organization to clarify that performance-based judgments are a critical part of the managerial role.
  • Recency effect. When managers are not diligent in continuously measuring performance, providing feedback and documenting results, they often cannot remember the earlier part of the performance period. As a result, they weigh the most recent events too heavily.
  • Halo/horns effect. The "halo" and "horns" effects occur when an employee is highly competent or incompetent in one area, respectively, and the supervisor rates the employee correspondingly high or low in all areas.
  • Personal bias/favoritism. Some managers may allow their impressions of employees or their personal feelings about them to dominate the performance rating process.
  • Inaccurate information/preparation. Managers sometimes fail to take the time to solicit relevant information about the employee's actual performance from those who work most directly with the employee, resulting in an inaccurate assessment.

Element three: Performance improvement plans

The use of a performance improvement plan (PIP) can range from employees who may be new to a role or who are unclear on performance expectations to employees who are regularly falling short of meeting performance expectations and whose performance may necessitate the beginning of a progressive discipline process regarding the performance level.

The document used to guide the process is a critical tool as it helps facilitate performance discussions, records areas of concern and ways to correct them, and serves as legal and decision-making documentation. The format of the PIP will vary by employer and should include the following components:

  • Employee information.
  • Relevant dates.
  • Description of performance discrepancy/gap.
  • Description of expected performance.
  • Description of actual performance.
  • Description of consequences.
  • Plan of action.
  • Signatures of the manager and the employee.
  • Evaluation of plan of action and overall performance improvement plan.

A statement regarding expectations for sustained or consistent performance should be included to ensure that true performance improvement has been attained. This documentation may also prove helpful in protecting the employer should performance fail to meet expectations and should further disciplinary action need to be taken. If the PIP is part of a progressive discipline process that may eventually lead to termination of employment, language in the document should specify that termination is a possible consequence of failure to meet expectations and that it may occur with or without the employee's signature on the PIP. The employee should clearly understand the consequences of not meeting the goals outlined in the PIP. See How to Establish a Performance Improvement Plan

Auditing and Evaluating the Performance Management Systems

An organization's leaders may believe that their performance management system is functioning as it should. However, as with any system of business practices, employees' perceptions and experiences with it may be very different.

Accordingly, HR must continuously evaluate the system to determine if it is effective and to identify opportunities for improving it. Perception is reality when it comes to employee and managerial acceptance of a performance management process.

A good way to determine whether the system is being used consistently and administered fairly is to conduct an independent audit of the way the appraisal system affects various groups of employees. Adverse impact on a protected class raises legal concerns, but adverse impact on any group should raise equity concerns. HR must take the responsibility for monitoring the system outcomes to make certain that all employees are being treated in a consistent and fair manner, and that the system is supporting organizational goals.

Common Problems

Many of the problems commonly associated with performance management systems are similar to those that beset any other organizational initiative, but with potentially much greater consequences.

Lack of top management support

If senior management does not send a message to managers and supervisors that the process of rating employee performance is a valuable use of their time, they are likely either to fail to commit the time or simply to fill out the forms but not engage in the important discussions with their employees. Unless senior management actively participates in the process and takes primary responsibility for it, managers and employees will remain unsure of its value.

Perception of the process as time-consuming "busywork"

Without an organizational commitment to the process and a clear understanding of how it contributes strategically to the organization's successful performance, managers will view it as "busywork" of little value and a waste of time.

Failure to communicate clear and specific goals and expectations

A manager's specific expectations must be clear for an employee to be able to implement an agreed-on goal. Goals can direct attention, increase persistence and motivate the development of strategies or plans to attain those goals. Clarifying and discussing the performance goals for the coming year is a valuable use of a manager's time and will help avoid miscommunication and surprises. Follow-up communications can be used to reinforce specific goals and to serve as reminders to employees about their progress.

Lack of consistency

In most organizations, some managers are perceived as "tough" and others as "easy." This inconsistency may result in varied interpretations of an organization's performance rating scale as applied to employees in different groups. Therefore, HR should train managers in using the rating system so that inconsistencies do not occur. Despite training and the best of intentions, differences in the interpretation and application of the rating scale are almost inevitable. Accordingly, some organizations apply higher levels of review to calibrate ratings across a larger group or even an entire workforce. Organizations can develop a calibration system to ensure consistency between raters, between different departments and between jobs.

Additional Resources

What You Need to Know About Performance Appraisals

Performance Appraisal: Self Appraisal

360 Degree: Manager Effectiveness Evaluation

360 Degree Feedback: Request for Leadership Behaviors

Performance Appraisal: Completed Appraisal Form

Performance Improvement Plan (PIP) #1

Performance Improvement Plan (PIP) #2