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March | Strategic Planning | Read time: calculating...

Performance management: Why planning, monitoring, reviewing and rewarding is key for operational efficiency

Are annual performance reviews a waste of time? The frequent feedback model relies on managers and employees to have conversations around performance, business goals and career development. Read why performance management has been adopted by GE, Adobe and Microsoft, to name a few.

The Origins of Performance Management

Although viewed as a relatively new business concept, performance management has its origins from the early 1900s in the form of performance reviews, which some credit WD Scott for inventing. However, it wasn’t until the 1950s and ‘60s that the majority of large businesses widely adopted a formal system which was established on measuring goals and objectives. 

In the ‘90s, leading businesses identified that linking organisational goals with the goals of departments, teams and individuals could improve operational performance.

Performance management is both a method and a process. The method, assuring that a set of activities and outputs meet an organisation’s goal, and the process that guides decisions regarding terminations, disciplinary actions, development needs, promotions and remuneration. 

However, performance management is a much broader proposition, the overarching purpose of which is to improve individuals, team performance and the efficiency of the organisation. 

Performance Management vs Performance Reviews

A quiet revolution has been taking place in businesses including Adobe, Deloitte, GE, Dell, Microsoft and Netflix. Annual performance reviews are largely being cast aside, much to the relief of, well, almost everyone those businesses. The idea to replace it: development and performance management.

The annual performance review has been a staple of all ‘serious’ companies since as early as the 1940s, many using a U.S. military created a merit-rating system to flag outstanding and poor performers. However, the 2017 McKinsey Global Survey found that 54% of respondents said their performance reviews had no positive impact on performance. 

It seems that, while annual performance reviews have become part of the culture at many firms, most managers also dislike having to participate in a process that, for some larger teams, can eat up around 210 hours (5 weeks!) in preparation and formal meetings.

Annual performance reviews are also likely to raise anxiety in employees. According to Mary Poffenroth, STEM faculty and innovation consultant at San Jose State University, “When humans are overwhelmed, we don’t operate at our best.” She goes on to explain, “The annual review caused a lot of unnecessary anxiety and stress, which set both employees and managers up for failure.” 

Sure, the annual performance review is widely unpopular, but can switching to a frequent feedback model provide more benefit to a business and its employees?

The frequent feedback model relies on managers and employees to have conversations around performance, goals and development at regular intervals.

Frequent feedback needn’t be a formal or technical process. Supervisors will do well to focus on big picture performance development goals and give feedback on areas that have the potential to increase business-related outcomes, as well as the employee’s development in their career.

This model of feedback comes off the back of the “Agile Manifesto,” created by Silicon Valley software developers in 2001. This way of thinking about performance outlined several fundamental values, such as “responding to change over following a plan.” Agile emphasises principles such as collaboration, self-organisation, self-direction, and regular reflection on how to work more effectively.

By opening up a more holistic dialogue between managers and employees, rather than the ‘goals from the boardroom’ top-down model, we can start identifying star performers and accelerate them in suitable streams, rather than await the annual review to identify potential future leaders.

The old-world annual performance reviews also present issues with identifying poor performers. By waiting until the end of the year to flag struggling employees, failure is allowed to go on for too long without intervention. Waiting to address a poor performer doesn’t help them, the company or their co-workers, who may become resentful about the lack of action taken or let their unrewarded high performance slide.

Frequent check-ins give a reference point, without the much-maligned employee rating system. Let’s imagine you were hiking in unfamiliar territory and only checked your compass once in the whole excursion. You can see how easy it would be to stray from the initial goal. Conversely, frequent check-ins allow for course corrections to avoid catastrophe. 

One area that many in HR and Legal will be quick to point out is that the old scaled or numerical value reporting of employee performance is critical to identifying where salary incentives may be applied. The tried and tested models reduce the potential for payment disputes or even a wrongful termination lawsuit.

Salary reviews are an essential part of the review process, and companies such as Gap and GE still have annual pay reviews, using this performance data to help inform any payment decisions on an annual or quarterly basis.

Moving to a performance management cycle

Organisational transformation can take time, and going ‘numberless’ presents some risks for companies. Firms such as Deloitte and PwC have wound back their fully numberless employee feedback models in some areas to reach a middle ground – offering quarterly ‘performance snapshots’ or scoring across multiple competencies, respectively.  

In testing the waters with performance management, GE first launched a pilot, with about 87,000 employees in 2015, before adopting the changes across the company.

There are four stages to consider when it comes to implementing a performance management cycle: Plan, Monitor, Reward and Review.

1. Plan

In the planning phase, managers and employees will sit down together to set performance expectations and goals for groups and individuals. 

Goals should ideally be larger in scope (achievable in 3-6 months) and fit SMART criteria (specific, measurable, attainable, realistic, and time-bound). The department leader should work with each employee to identify three-five key performance objectives critical to the employee’s job position.

This is also a suitable time to review and update an employee’s job description, roles and responsibilities. It’s also worth investigating any training or performance development programs that might be useful in the long term objectives of the company and the employee’s career.

While the point of this planning is for performance management purposes, it’s not uncommon for the topic of salary, bonuses and rewards to be raised. It’s worth stressing here that regular feedback model is designed to improve performance. The conversation should remain focussed on development while explaining that performance metrics will be used to support annual pay decisions. If rewards are discussed, be sure that it’s clear what bonus is to be expected for satisfactorily meeting each goal.

2. Monitor

The monitor phase is where frequent feedback comes in full. Supervisors need to be mindful that ‘feedback’ doesn’t mean catching people out when they’re off-task or slipping behind; feedback goes both ways.

An employee needs to feel comfortable to give feedback to a manager about obstacles to agreed goals, solutions for their challenges and accurate progress reports. 

Positive feedback is also a powerful motivator. Catch people doing the right thing and acknowledging it publicly where appropriate can do more for productivity and culture than a monetary reward.

It’s vital to document in detail the advances, challenges, solutions and notable situations throughout this time, in relation to the goals that were laid out in the planning phase.

While there are many performance management tools, such as automated surveys, to monitor progress, be cautious of relying too much on them. Changing the culture to prioritise face-to-face communication sets employees and managers up for success, with the ability to have fluid dialogue. As business priorities evolve, so too will the conversations, so a standard check-box form can’t take the place of genuine human feedback.

3. Review

Remember how we set SMART goals in the planning phase? ‘T’ being for ‘time-bound’ means setting a date for checking on progress. There’s a clear pass/fail here in terms of the timeframe being met; however, that is not the only relevant data.

One component of the Review phase is employee self-assessment. Using the agreed-upon goals in the planning phase, employees can reflect on their performance before discussing it in a manager-led appraisal – what went well, what could be improved, what were the unforeseen challenges were.

Rather than focusing on a singular incident or overall perceptions, as a reviewing manager, you’ll need to make use of documentation made throughout the monitoring phase. Managers should avoid assessment of issues not covered by the performance plan or not specifically addressed with the employee. 

As regular feedback was given throughout the process, the meeting will likely be a short one. But it does provide a clear, holistic view of their performance over the time the goals have been being pursued. Documentation should be signed off by the manager and employee before

Properly conducted performance management helps to ensure that employee job performance aligns with company standards and policies while offering each employee recognition for their accomplishments and opportunities to improve weaknesses.

4. Reward

How will you reward employees for their performance and acknowledge their contribution to the business’ success? Meaningful rewards can help motivate employees to exceed their goals and double down on their commitment to the cause. Unappealing or poorly thought out rewards, on the other hand, may make them feel unappreciated or even search for another job.

If rewards were discussed in the planning phase, and expectations were met or exceeded, stay true to the agreement. Even a small short change here can damage the trust of the process.

Using the performance management cycle to counter underperformance

Employers must understand that issues concerning underperformance must be managed both appropriately and sensitively. There are many reasons for underperformance, including issues outside the workplace, which is why clear procedures are important. 

Poor performance may include not meeting the expectations in a role, through to non-compliance with policies and unacceptable behaviour that impacts co-workers. Everything from rudeness to a negative attitude or even micro-management might fit under the umbrella of underperformance. 

The performance management cycle can be a useful framework for addressing the issues, so long as we’re approaching the subject matter with sensitivity. A supervisor can start with a one-to-one for planning what the employee’s goals are in the workplace, and broadly asking if there are other factors that may be affecting their performance. Should the issues be personal in nature, it may be best to refer them to a professional counselling or assistance service.

In the regular feedback model, rather than starting from an accusatory point of view, allowing the employee to identify where they believe their strengths and weaknesses are, and setting goals with guidance helps build a culture of empowerment instead of a paternalistic one.

Getting clear on expectations, developing a work plan, and identifying compelling incentives are all powerful parts of managing underperformance. Then through regular monitoring and casual reviews, we can track the progress transparently.

Are you thinking of implementing a performance management cycle in your organisation?

Keogh is a leading consulting firm that specialises in amplifying human potential. We work to build culture by design, develop leadership in the digital age and smooth the process of organisational transformation. To learn more about performance management with a frequent feedback framework, please don’t hesitate to get in touch.

Jump to a section

1. The Origins of Performance Management
2. Performance Management vs Performance Reviews
3. Moving to a performance management cycle
4. Using the performance management cycle to counter underperformance
5. Are you thinking of implementing a performance management cycle in your organisation?