What is performance management and how to do it right?

Performance management is a series of ongoing management processes that lead to the setting of clear goals and expectations and then monitoring and evaluating employees' work to ensure they are regularly delivering effective performance.

The main goal of performance management is to create a productive and organized workplace where employees enjoy working.

The most important aspects of good performance management are;                            

• To align the company's vision with individual  goals,
• Promote commitment to achieving results (beyond established standards),
• Ensuring accountability and professional development.

Performance management is not just about the development of individuals and teams, but also the entire workplace system that must bring out the best in teams and individuals.

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

1.Onboarding can set the standard

Performance management starts with great onboarding. With onboarding, you want to ensure that an employee is integrated into the company as quickly as possible, receives all the resources they need to deliver value from their first day of work, and that they feel welcome and excited about the company.

Great onboarding is also the first signal an employee receives about the company culture, including how performance-oriented the company really is.

There is a big difference between:

• an employee has to wait a week or two (or God forbid, even longer) to receive business cards, an email account and be introduced to important people in the company,
• Setup of software accounts, business cards, etc. before the first day, a clear schedule for onboarding and preparation for the first tasks

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

2.Planning and setting professional goals

Aligning an employee's goals and activities with the company's vision, mission and corporate goals 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. When goals at different organizational levels (individual, team, company) are not aligned, it is almost impossible to achieve peak productivity and performance.

One of the most popular techniques for aligning and monitoring goals are the so-called Objectives and Key Results (OKRs).

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

It must be clear what tasks and activities an employee has to do every day and what work they have to do. This should actually be clearly stated in the job description.

Goals, tasks and activities should of course 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 demanding than the previous ones.

An important point in promotions is that a promoted employee understands that he will not be successful in the new position if he does the same things as before. When you get promoted, you always have to separate yourself from them

3.Delivery standards, monitoring and feedback

After getting a clear picture of the goals, tasks and activities, you can set standards.

In agile management, there are several conditions that must be set to ensure that a task is completed as superiors expect. Simply put, these are:

• Definition of “ready” – Do we have everything we need to do the job and do we understand it?
• Acceptance Criteria - What is required for the work to be accepted?
• Definition of “done” – What must be done for a task to be considered completed?
  

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

First, you must ensure that the tasks fall within (or slightly beyond) an employee's area of competence and that the employee also has all the resources (information, equipment, approvals, understanding, etc.) necessary to complete the task.

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

It's also good to show an example of a job well done and coach an employee when expectations aren't met. Coaching can take place as part of regular progress checks, meetings or check-ins.

4.Efficiency and time management

When delivery standards are about quality, we must not forget about quantity. We're not talking about standards that exist on an assembly line in a factory; however, in today's world of distractions, efficiency and excellent time management are important aspects of good performance.

Time management is a process of planning and organizing time in the most productive and efficient way possible. If an employee uses the working time available to him intelligently, he can complete more tasks in a given time (depending on the definition of "done" and acceptance criteria).

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

When it comes to excellent performance management, task delegation, and time management, HR and time management apps can be of great help. The purpose of time management apps is to help managers better understand their employees' time.

Using these tools, you can help your 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 assessment. Below are some examples of metrics you can use time tracking software to determine:

• 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 review

Monitoring is a very important aspect of performance management. It's about ensuring that the agreed results are delivered and all set 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 as part of reflective discussions. In addition, every interaction also represents an opportunity for employee development.

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

Of course, sometimes it happens that an employee does not comply with the agreed work standards, which must lead to consequences that have been made clear from the start.

Failure to take action when performance is poor typically results in a toxic company culture and substandard execution of tasks.

It is important to be clear about how performance will be 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 when conducting performance reviews, such as: E.g.:

Poor preparation

Performance reviews shouldn't just be a formality. It is a difficult management task that requires gathering all available information, good preparation, a constructive conversation atmosphere, a coaching mentality, documentation of important details, etc.

Not being open and specific

The biggest challenge with performance reviews, aside from poor preparation, is being political and not providing honest feedback with concrete examples and ideas on how an employee can improve.

Being vague, overly sensitive, or pushy and aggressive always leads to suboptimal results. The tone of the conversation should show that the manager cares about the employee's improvement, but also directly show where there is still room for improvement.

Personal preference

Lack of skills and poor preparation is one aspect that leads to poor performance reviews. 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. i.e. you don't treat all employees the same, but rather give preference to employees you like more than others.

Recency effect

A psychological bias that causes us to evaluate performance based on recent events or to give too much weight to recent performance without taking into account the entire period in which it was performed.

6.Development and improvement

An important part of performance management is establishing a career development plan. A company can only grow if its employees grow. You've probably heard this famous anecdote before:

The CFO asks the CEO: "What happens if we invest in the development of our employees and then they leave us?" The CEO's response: "What happens if we don't invest in the employees and they stay?"

So every employee should have a clear plan for their personal and professional development, from possible promotions to acquiring new skills and taking on new tasks.

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

7.Compensation and rewards

Last but not least, performance management is closely related 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 studies on how good money is as a motivator, with very different results. Nevertheless, we can say with certainty that it is an important factor in employee motivation.

In practice, this means that the remuneration must be tailored to a specific activity. It must also be clear when and how an employee is entitled to variable compensation or bonuses. Setting a variable compensation system is a science in itself, but if the goals, KPIs and variable compensation are not aligned, employee performance will rarely be 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 manner,
• personal development and coaching of an employee,
• and in the final step, providing rewards depending on KPI results and ratings.

The glue through all these phases is a good relationship and deep trust between employees and their managers.

Check out Icehrm's performance management system to conduct effective performance reviews and to track every goal of your employees.