Performance Management is Much More Than a Yearly Review

May 19, 2016

Strategic People Management Part III

Editors’ Note: This is the third in a series of articles on strategic people management. The first was on recruiting, and the second was on employee training and onboarding.

The term “performance management,” comes attached to the weighted phrase, “performance review.” Although most companies agree that reviewing the work of employees is very important, both managers and workers are too often uncomfortable with the process of doing so. But reviews are only one part of a good performance management strategy—the most effective HR managers think of the concept in terms of an ongoing, year-round process.

The Society for Human Resource Management (SHRM) noted in a study that  performance management can be the “Achilles Heel” of HR departments. The study was written by Elaine Pulakos, PhD., executive vice president and director of the Washington, D.C., office of Personnel Decisions Research Institute. Pulakos wrote that many managers are reluctant to provide feedback, and many employees don’t feel performance review processes are handled well.

“Less than 40 percent of employees said their systems established clear performance goals, generated honest feedback or used technology to streamline the process,” the SHRM study found. “Difficulties arise because, at its core, performance management is a highly personal and often threatening process for both managers and employees.

Part of the problem might be an overemphasis on performance evaluations. As the art of performance management has evolved, researches have found the process should not be simply about one event. In the evolving art of managing performance, the evidence is strong that those who manage performance best, manage it most consistently.

According to Pulakos, “Ongoing feedback can be informal and should occur as part of the daily work routine. In fact, research has shown that in organizations where employees report higher levels of ongoing, informal feedback, performance levels are higher.”

In other words, the actual review should be only one part of managing performance. They might be the most visible single event in the process; but these events are most effective when they are a step in an ongoing effort to give feedback and guidance to workers. After all, performance is something that happens every day. Managing that work should have a consistency to it as well.

The value of performance management
Managing your human resources is of course tied directly to how staff members are performing. There is great value in making sure that your workers are a good fit, and that your company can continue to add more high-performing individuals. Additional growth is always possible; efficiency gains can exceed projections. 

A good performance management system helps set accurate expectations for employees and the company as a whole, supports teamwork, increases productivity, and improves overall morale. It also cuts back on job turnover, an especially crucial point in today’s tight employment market.
But most of all, performance management ensures that employees understand the value of their contributions to a company’s goals and objectives.

An ongoing process
The performance management process should start early, after the employee has come onboard. Managers should have a process for checking in regularly with new employees, to ensure they understand their job requirements, to reinforce best practices, and to prevent bad habits from forming.  

As employees settle in, managers should keep track of any problems or negative incidents that crop up. These should be documented carefully. And with both positive and negative events, feedback should be shared promptly, so that employees know what they’re doing wrong, and what they’re doing right.

It’s important to stress that the performance review should not be a time for surprises. Employees should already have a sense of how they’re doing through feedback being provided regularly. The performance review is not where they should be made aware of a problem—though certainly it can be a place where an issue is reviewed and both manager and employee can discuss how it was addressed.

The point of performance reviews
Performance reviews, also called performance appraisals, are helpful in evaluating and developing a manager’s team. Documentation measures how employees are doing their jobs as well as how well they understand the jobs they do. These meetings also provide feedback on best practices and ideally, provide motivation for workers to improve.

Preparing for a performance review is one of the most important steps of the process, from a manager’s perspective.  ITo prepare, a manager should allow quality time to write the review, based on observation, metrics, and the employee’s self-review when applicable. Don’t get bogged down in details; this is a high-level summary, not a list of tasks completed.

The review should also be scheduled to allow enough time to cover all material, and care should be taken that it is uninterrupted. The manager will aim to present a balanced picture of the employee’s work over the period being reviewed. Managers should be positive, give constructive criticism where necessary, be honest and direct, and give specific examples. Along with suggestions for improvement, managers should provide clear expectations to workers for the coming year.

Separate reviews from raises
Experience has been shown that when performance reviews and compensation increases are lumped together in one meeting, the employee retains much less information. Naturally, they are waiting to hear about the raise!  This is human nature and can be simply addressed by separating the two events. 

Another problem that has become common with the review process is having a five-star scale for making performance assessments. A four-star scale is much preferable. It’s human nature to put less-impressive performers at three-stars. This “C-average” grade becomes almost meaningless. By using a four-point scale, managers can’t take the easy way out and rate everyone in the middle. And employees with a string of three-star ratings will be harder to let go when and if performance issues dictate that their employment be terminated.

Delivering the bad news
Companies have a responsibility to identify top performers and help those who are a bad fit for the company to move on. A fundamental part of performance management is identifying the low-performers and making a decision about their future with the company. 

Most HR managers find this part of their job very challenging. A few rules are important to remember here. First, decisions to terminate an employee should never be made by one person alone. Employment laws must be considered carefully, to make sure there are no possible discrimination issues. Consulting a lawyer may be appropriate.

The company’s performance management system should provide metrics to back up the decision in nearly all cases. Again, documentation of issues or incidents is important—managers should remember that statements or reprimands can, in some cases, be part of a legal challenge. Take care to make sure anything said would stand up in a court of law.

Although we’d all prefer that such decisions not be taken personally, there’s really no way to avoid or ignore the emotional elements of such a meeting. Managers are advised to be prepared, have a checklist covering all the bases of termination, remain professional and calm, and continue to focus on the big picture.  

Metrics are necessary—and they identify your top performers
Metrics can be tricky—different industries will have different ways of measuring performance. For example, measuring an effective customer service representative is different than measuring the output of a salesperson. But even though some things can be difficult to measure, HR departments should have a system in place.  Leading insurance agents and brokers  often have HR consultants on staff who can  help your company develop the most effective performance review system, using appropriate metrics. 

The use of metrics also has a huge upside: they identify top performers. Although the discussion of performance management often goes to dealing with those who are not producing, good performance management systems should also focus strongly on top performers. These employees are essential to your company’s success. A good HR strategy should include a way to identify, and reward, such workers.

Overall, performance management, and performance reviews, should be viewed as a positive way to identify you best workers and encourage their growth. Alternatively, identifying workers who are a drag to your company, also has great value. As with any successful venture, part of leadership is identifying what works, and what doesn’t. Good performance management practices allow you to do that in an effective, transparent, and consistent way.