What is performance management?

Performance management is a critical element of running a successful business with employees. Yet many managers lack a clear understanding of what it involves, or how to implement it well. If your company has no in-house HR support, it can feel like a daunting task when left to managers to navigate. What’s worse, if you’re managing an employee who is performing poorly, it can sometimes feel easier to bury your head and ignore the issue. However, not only does this typically make the problem worse, but research shows that businesses with performance management programmes are 1.5 times more likely to financially outperform their industry peers.

What is performance management?

Performance management refers to the process of aligning individual and team objectives with the overall goal of the business. This means making sure that staff understand their roles within the business, including what’s expected of them, and are well supported so that they can meet these expectations.

Whilst it can be easy to think of performance management as an appraisal, it is not. It’s also not a one-off activity and instead should be viewed as an ongoing cycle of goal setting, providing feedback and assessing performance. It should mix accountability with development.

CIPD defines performance management with the following three points:

• Establishing objectives for individuals and teams to see their part in the organisation’s mission and strategy.
• Improving performance among employees, teams and, ultimately, organisations.
• Holding people to account for their performance by linking it to reward, career progression and termination of contracts.

Why is performance management important?

Employees reporting systematic performance management are more likely to rate their performance positively than employees with no performance management tools in place. So why is it beneficial?

• It motivates staff: helping them to understand what’s expected of them and gives them the resources they need in order to succeed.
• It boosts employee engagement: It can help make staff feel valued and understand how they are performing. This in turn leads to greater workplace satisfaction, which contributes to an improved company culture.
• Highlights potential business risks: through effective performance management, you can identify when an employee may be under-performing and if they need support to get back on track.
• Helps meet company objectives: As it can turn company objectives into actionable steps on an individual level through individual objectives. These can then be monitored for results.
• Improves retention: A good performance management programme can demonstrate to staff how they can develop within the business and contribute to its success.

What does performance management involve?

There are several key components to a well-structured performance management programme. These include:

• Setting clear objectives: Staff need to understand what success looks like and can only do this via clear, measurable goals that are aligned with the wider company objectives.
• Give regular feedback and communicate: It’s vital to have ongoing dialogue between managers and employees. Remember that feedback should always be constructive, timely and specific, focusing on strengths and areas for improvement.
• Hold appraisals: However you conduct these, whether it’s formal reviews or ongoing meetings, these meetings provide an opportunity to assess performance against objectives, reflect on progress and plan for future development.
• Set up a training and development plan: Investing in your employees’ training and development not only helps them to perform better, but will help with retention. It demonstrates your commitment to your staff, and ultimately growing your business.
• Recognise and reward staff: By recognising achievements, this boosts staff morale and motivates them to continue to perform well.
• Address underperformance as soon as it occurs: A key part of successful performance management is identifying and addressing under-performance. This can be done through training, support or by more formal processes. Do not ignore the issue.

What happens when you ignore poor performance? 

Ignoring poor performance only pushes the issue further down the line, and can make the problem worse in the longer term. It can result in a number of negative consequences for other employees and the business itself. These include:

• Decreased productivity – poor performance can be a result of inefficient processes, bad time management or just lack of motivation from the employee.
• Goals that are missed – if an employee is repeating missing goals this can lead to poor performance. It’s important to understand why they might be failing to achieve the goals (are they unrealistic, do they have the relevant support needed? Have the goals been clearly communicated for example? Has the employee received feedback on their achievements?)
• Poor client / customer service – if your employee is underperforming, this can lead to a poor experience for your clients and ultimately impact the business and its reputation.
• Pressure on co-workers – if a member of the team is under-performing, it can often impact co-workers who take up the slack. This has a knock-on effect on their motivation and morale levels, leading to a wider collective of unhappy staff.

Performance management is essentially the vital process that supports both employees and businesses in achieving their goals. By building a strong foundation where employee performance is successfully managed, you can build a strong foundation for a thriving and high-performance team.