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The importance of performance management in the workplace

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Businesses are powered by people, so it stands to reason that when individual team members perform better, the business as a whole performs better. That’s why many businesses are going beyond annual performance reviews and placing a higher degree of focus on performance management strategies.

Here’s what you need to know about employee performance management in order to improve, empower and streamline the performance of your employees.

What is employee performance management?

According to Investopedia, performance management in a business context is “a corporate management tool that helps managers monitor and evaluate employees’ work.” Rather than relying on once-a-year performance reviews, through a structured performance management plan, managers are able to help their workers learn and improve throughout the year. Setting goals, defining good performance and measuring employee performance are all key aspects in a performance management program.

Why is a performance management system important?

According to McKinsey & Company, employee performance management helps bring employees, resources and systems into alignment to achieve strategic objectives. Businesses routinely set objectives, but if employees aren’t on board and invested in achieving these goals, it’s unlikely they’ll ever be achieved. A performance management system can also provide early warning signs of potential problems. While many companies use annual performance reviews, this strategy is often more reactive than proactive and, unlike an ongoing performance management program, allows a great deal of time to pass before any corrective action occurs. Ongoing performance management provides several critical advantages.

Low Performers Stop Dragging Down the Company

The most obvious benefit of proactive performance management is the identification of underperformers. Employees can become underperformers for many reasons – even well-qualified employees may fail to live up to their potential without support.

Imagine you hire a new employee who has all the qualifications you want, including the right education, impressive work history and relevant past achievements. However, the employee flounders at your company. Maybe the employee is unclear on the job responsibilities, or maybe he or she is experiencing burnout. No matter the cause, the employee isn’t engaged, and performance is consequently suffering. Performance management can help put workers like this back on track.

According to Gallup, only 23 percent of employees are engaged at work. This means the majority of workers could benefit from programs designed to increase employee engagement. Performance management can be part of the solution.

Employers Develop Talent

When you place a job ad, you have a good idea of what you’re looking for in the ideal job candidate – but you might not find the perfect worker. Some applicants may have the drive you want, but not the experience. Others may have the experience, but not the right attitude.

Performance management can help you develop talent. By providing ongoing feedback and support, employers can help their workers grow, develop new skills and reach individual and company objectives.

Workers Receive the Support They Crave

According to the American Staffing Association, 70 percent of Generation Zers, 84 percent of Millennials, 79 percent of Generation Xers and 79 percent of Baby Boomers say professional development and training are important considerations to them when they accept a new job. However, only 39 percent say their current employer is helping them improve their current skills or gain new skills.

Most workers want to succeed in their jobs. They want to qualify for raises and promotions, but they also want to feel good about the work they’re doing. However, to do all this they need support. By implementing a performance management program, an employer can identify who needs help and what kind of training and development opportunities will boost their performance.

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Costly Turnover May Decrease

Turnover, whether voluntary or involuntary, is a major cost for employers. A poor performance management system can ultimately lead to higher turnover, costing companies significantly more in the long run.

The following scenarios illustrate how a lack of performance management can lead to turnover:

  • A company is underperforming. Although the workforce is well-trained, many of the employees are failing to live up to their potential. For years, the company has done nothing to assess these workers or help them improve. Now, the company is in crisis. If it can’t improve its profits, it may have to close or sell. The company calls in a consultant who identifies low performers and terminates them. Although this extreme action is necessary at this point, the company could have avoided such measures if it had given workers more support earlier on.
  • A company hires new workers who are eager to learn the ropes and rise through the ranks. However, they receive little feedback and no support. As a result, they are unable to improve. They feel they are underperforming, which hurts their self-esteem because they want to be successful. They also realize they’re not earning promotions, raises or retention-boosting employee benefits. Eventually, they decide to quit in search of employers that will provide them with better career support.

Annual Performance Reviews Can Be Too Little, Too Late

Although annual performance reviews are a staple in many companies, they often provide insufficient support on their own. By the time the annual review rolls around, poor performers will have already cost the company in labor costs, lost revenue or investment into employee training. Conducting regular performance management can reduce the financial toll that these workers may take on the company.

Annual performance reviews are also stressful for workers. If they’re unsure of where they stand in the company or don’t know how they’re performing from the perspective of their supervisor, they’ll likely be nervous. Or, if they think they’re doing well and receive a negative performance review, they may become unmotivated in their position and their performance level and productivity may drop. A year-round performance management program facilitates communication with employees about expectation and performance, preventing these effects.

Annual performance reviews are useful as a formal performance assessment in conjunction with a year-round performance program, but they don’t replace the need for ongoing and proactive feedback. This is where an effective employee performance management system can help.

How to Leverage Effective Performance Management

To make your employee performance management program successful, focus on assessment and improvement throughout the year.

Your employee performance management process should consist of the following six steps:

  1. Determine your goals. Do you want to expand the company’s service offerings this year? Do you want to achieve solid growth over the next five years? Since a performance management system should align worker performance with company goals, determining organizational goals is the first step in developing a system.
  2. Identify your performance standards. Once you’ve defined your goals, you can identify the employee performance standards that will help your company achieve them. Performance standards establish job, performance and behavior expectations for all employees. Standards should be measurable, specific and simple in order to avoid miscommunication or noncompliance.
  3. Select your metrics. Measuring employee performance is a critical element of performance management. The specific metrics you use will depend on your company, but they may relate to revenue, sales, goals achievement or other quantitative measurements.
  4. Communicate with employees. Transparency is key. Since the entire point of performance management is to give workers the support and guidance they need to improve, workers need to know exactly what you expect of them. Developing clear expectations and performance standards goes hand in hand with effectively communicating with employees.
  5. Assess performance. You should provide performance assessments on an ongoing basis and give employees regular feedback. Although this may include some formal meetings – such as in an annual performance review – you can also provide informal feedback throughout the year. If there are any issues, address them immediately. If workers are succeeding, let them know.
  6. Make adjustments to improve performance. If workers are not meeting your expectations, determine what resources could help them improve. For example, they may need mentorship or additional training.

Does your HR team need support?

Performance management in the workplace can give workers the support they need. But, the human resources teams spearheading these programs may also need additional support.

Higginbotham is here to help with our full suite of HR services, including HR consulting, HR outsourcing, payroll services and onboarding services. Learn more and talk to a member of our team to see how Higginbotham can help streamline your company’s human resources processes.

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