Performance management drives employee behaviour to align with organisational goals and objectives. This alignment could happen when job responsibilities and expectations are clear, resulting in increased individual and group productivity; and better information is available to use for compensation and promotion decisions.
Unfortunately, performance management is seen as an unwelcome activity in many organisations. Managers often hesitate to provide candid feedback and have honest discussions with their employees and often fail to discriminate in the ratings they give. Leaders might fear reprisal or damaged relationships with the very individuals they count on to get the work done. On the other hand, employees feel that their managers are not good at discussing their performance and are ineffective at coaching them on how to develop their skills. Meanwhile, some other employees don’t believe they need feedback, or they’re confused about how the feedback affects future career prospects.
Overcoming these inherent challenges requires commitment from the top, a culture that says feedback and development matter, and a well-designed process. Here are 4 top questions CEOs should ask themselves to achieve effective and better performance management according to SHRM.
Performance management systems serve two primary purposes for organisations: employee decision-making and employee development. Clearly, these two purposes are related, but they are rarely supported well by a single system. When a performance management system is used for decision making, the appraisal information is used as a basis for pay increases, promotions, transfers, assignments or reductions in force. When a performance management system is used for development, the appraisal information is used to guide the training, job experiences, mentoring and other developmental activities.
Although it is theoretically possible to have a performance management system that assists in both decision-making and development, this can be difficult to achieve in practice. Research has shown that the purpose of rating (decision making versus development) affects the outcome. Ratings used for decision-making tend to be lenient, with most employees receiving ratings on the high end of the scale. Meanwhile, ratings for developmental purposes tend to be more variable, reflecting both employee strengths and development needs.
Today, many organisations use competency models as a basis for their performance management systems. Competency models articulate the knowledge, skills, abilities and characteristics deemed most important in achieving organisational goals. An advantage of competency models is that they typically include a full array of factors associated with success – technical, leadership and interpersonal. Competency models are especially useful because they communicate what is important to an organisation and also provide a common foundation for developing integrated HR management systems, such as staffing, training, promotion, succession planning and performance management.
When a company defines competencies in terms of behavioural performance standards and identifies the expectations associated with those behaviours, employees have a better understanding of what is expected and perceive the process to be fairer. Managers could benefit as well, because they have uniform standards to use in evaluating employees, thus increasing their ability to be consistent, transparent and fair.
Starting at the top and getting the commitment of upper management is a prerequisite for success. If the organisation does not have a strong performance management culture, the executive team might need to be educated on the critical role of performance management and the importance of their role in leading the effort.
Piloting a new system with the executive or higher-level management teams can be a useful strategy for gaining the support of these critical individuals. Equally important to success is ensuring that the performance management system is aligned with other HR systems in the organisation. Competencies used as the basis for performance management should be the same as those used for recruitment, staffing and training.
This alignment ensures that employees are being hired, trained and appraised on a consistent set of critical job requirements. This sends a strong message internally and externally about the behaviours valued by the organisation. Frequent and clear two way communication with constituents about the design and implementation of a new system is essential to gain buy-in. Extensive change management work might be necessary if a strong performance management system has not existed in the past or the current system is going to be radically changed.
Moreover, the communication needs to clearly and simply explain to employees the advantages and rationale for the new system. Supervisors must be adequately trained to understand the purpose of the evaluation and how to conduct it in an effective manner. Finally, companies with successful performance management systems understand the need to continuously review the system to ensure it is achieving the desired objectives.
The same criteria that ensure an effective management system also provide a defense in case there is a legal challenge related to an employee’s performance. Employees should be rated on factors that are relevant to their jobs. They must be informed at the beginning of the rating cycle about the expectations and the standards against which they will be evaluated.
There must be a standard, well-documented procedure for conducting the performance management process, with defined roles and responsibilities, and adequate training for both employees and managers. To substantiate their evaluations, managers should keep records documenting examples of both effective and (especially) ineffective employee performance.
Managers need to be held accountable for conveying performance information to employees in a timely manner. Performance evaluations should be reviewed by others, and employees need an appeals process in the event of a disagreement over their evaluation. And, if performance evaluations are used for decision making, such as compensation levels, the resulting decisions must be consistent with the evaluations.
All in all, an effective performance management system clearly defines expectations, helping to align employee behaviour with the culture and business needs of the organisation. With senior executive buy-in, the system can increase productivity and bring visible, value added benefits. A well-developed, legally compliant management system is an essential talent management tool for high-performing organisations.