A Fresh Approach to Performance Management: Strategies, Benefits, and Best Practices

Much like Wu-Tang’s greatest hits album, the saga continues for HR professionals and business leaders trying to create a performance management process that not only drives better results for their organizations but also engages managers and employees in a meaningful way. 

While many companies are moving away from the “annual disappointment review” to a more frequent cadence, in a lot of cases, this is leading to more frequent but not more meaningful conversations between managers and employees. This is typically due to a lack of sophistication in the performance management tools that are being used to facilitate, track, and support conversations. 

Unfortunately, many performance management systems are still very manual, requiring a lot of time spent documenting throughout the year. But, the good news is with the advent of new AI technology being woven into performance management software, there is an opportunity to provide a more insightful experience for managers and, subsequently, a more enjoyable experience for employees during 1:1’s and formal reviews.

But let’s start with defining the performance management practice and its key elements. Then we will dive into leveraging the right technology to make this practice effective.

In This Article

What is Performance Management?

Performance management is the process that governs how and when managers meet with their team members to have conversations about the quality of their work as it relates to the expectations of their position, as well as areas to develop for current and future business needs. Managers will also use these conversations as an opportunity to set goals and clearly outline success criteria so employees can understand what it means to be a high performer.

Ideally, this is a continuous process where managers regularly provide employees feedback and help clear any roadblocks that keep them from progressing toward goal completion. Especially in businesses that are fast-paced or in high growth mode, this frequent calibration can help keep employees aligned with business or strategy changes.

Why is Performance Management Crucial for Businesses?

Having robust performance management is critical to making sure employees stay aligned to the company’s goals. With tight economic conditions and a shortage of critical talent, there’s a need to do more with the resources already available. A good performance management program will also improve team managers by challenging them to foster meaningful interactions with employees — and equipping them with the right data to be successful.

Key Elements of the Performance Management Cycle

A comprehensive performance management system has several key elements that need to be in place for the program to be successful. They encompass not only planning but also development and feedback. The key elements are defined in detail below.

Planning and Goal Setting

The performance management process needs to start with clear goal setting. Once the company has laid out its goals for the upcoming fiscal period, managers need to start mapping their team’s goals alongside corporate goals to drive clarity with each member of their team. 

Clear goal setting helps motivate employees and makes them feel more involved in organizational success and, as a result, more satisfied in their job. It is critical that individual goals are mapped back to team, department, and company goals so employees can understand the impact of their tasks and managers can easily justify performance ratings at the end of a cycle. 

Goals should also be outcome-driven, not output-focused. This not only makes it easier to quantify value from contributors but also gives flexibility to team members in how they can achieve different outcomes. Outcome-driven development goals also drive better engagement in learning/upskilling activities because employees can draw a direct line between completing a development activity and how it impacts their career.

Monitoring and Continuous Feedback

Performance management is not a “set it and forget it” process. Once goals are codified, managers need to monitor their teams’ progress and create opportunities for discussion and feedback. This serves two purposes: first, it allows for course correction if either the business has shifted strategy or the employee is not making the progress they should. Second, continuous feedback fosters better engagement. Face-to-face discussions are usually best, but don’t let a busy schedule get in the way of shooting out a note that could help someone move things forward.

Developing Talent

Every performance management plan should have a talent development component. This should be a multi-faceted plan that not only helps employees perform in their current positions but also prepares them for advancement. Development is one of the biggest drivers of retention and something most employees expect but don’t necessarily get from their manager or company.

Development plans also need to be personalized to be effective. People learn in different ways, so managers need to have access to different types of learning to cater to the members of their team. This can include things like online courses, mentorships, and gig or project work.

Performance Reviews

A formal review is still an integral part of the performance management process because it helps draw a line in the sand for goal achievement and resetting expectations. However, there should be no surprises in the formal review. During the goal-setting stage, there should be a clear explanation of how employee performance will be measured, and continuous feedback throughout the fiscal period should have the manager and the employee on the same page. 

It is imperative that the performance review process doesn’t change mid-cycle. There should be consistency in a given cycle from goal setting to review, and any changes should be held until the next cycle. The schedule for review, as well as any impact on compensation, should be clearly laid out for employees as well to avoid unnecessary stress.

For overall talent review, calibration is a useful process for level setting across teams and departments, and helping managers understand how to rate their employees in relation to other teams. It also gives team leaders insight into how other leaders perceive the value of their team members to aid in their evaluation. 

However, calibration should not be focused on making sure the company hits a distribution curve, but rather that reviews are going to be consistent across teams, meaningful for employees, and a driver for improvement going forward.

To aid in calibration, tools like a 9-box or 4-quadrant should be leveraged to standardize talent review across teams. Training and feedback on the methodology should be continuous to ensure managers are up to speed on how best to evaluate talent. AI-enabled software can also help collate work products and feedback to make rating suggestions and identify potential flight risks.

Recognition and Reward

Employee recognition is imperative to a well-oiled performance management machine —and an absolute necessity for companies that want to keep their best talent. This does not, however, mean that everyone likes to have their name read out in a town hall or blasted out in a company-wide email. It may not even mean being called out in a team meeting. Managers need to be given the appropriate guidance on how to recognize their employees in a way that is authentic, but also suited to how that employee will best appreciate that recognition. And in most cases, recognition costs nothing but a little time.

However, money talks, so rewards are also a necessary component. They may not be all strictly monetary, but something tangible the employee can take away can motivate those employees in meaningful ways. The important part of rewards is to make sure that there is a clear tie between the reward and a specific outcome so employees understand their successful performance, and team members understand where they can excel.

Recognition and reward need to be personalized to have the most impact because, much like different learning styles, employees have different motivations. For some, a shoutout from the department manager goes a lot further than a plaque or $300 gift card. For others, they may not need the recognition, but free tickets to a sporting event or to an exclusive company event get them excited about continuing their excellence. It falls to the manager, HR, and ideally, a comprehensive performance management system to understand what motivates the members of the organization.

Performance Management Strategies

Effective performance management requires transparent and continuous communication between all parties: HR, managers, and employees. Fortunately, there are a number of tools available that can help facilitate this communication, and augment it with the appropriate technology to make all participants’ lives easier.

Creating a Performance Management System

A performance management system is a set of tools that helps managers and employees execute the various tasks that comprise the performance management cycle. The system acts as a repository for information and a means of outlining different parts of the process. This can also include keeping people on task with different deliverables.

Leveraging Technology in Performance Management

The latest performance management software includes significant advancements in technology to assist managers and employees with tasks throughout the performance cycle. With connections to the larger talent management and development ecosystem, advanced software can use employee information from survey results, learning initiatives, career aspirations, and the flow of work to aid managers in goal setting, relevant feedback, and a more comprehensive review. 

This consolidated information also makes it easy for employees to track their efforts throughout the fiscal period and communicate specific initiatives to managers that they may want to highlight or need help clearing roadblocks. 

Generative AI advancements also help employees and managers craft their goals and their reviews by allowing them to prompt for specific copy that can be used for updates or to summarize the details of their work as it relates to their ongoing progress. This same technology can be used to generate guides for managers to drive effective meetings with their team members.

Similar intelligent technology that is being used in interviews to capture notes and summarize action items can also be leveraged for 1:1 and other review meetings to keep the conversation focused and engaging instead of worrying about note-taking. After the meeting, both sides have clear direction on the next steps and can even trigger follow-up meetings with automated scheduling. 

Training Managers for Effective Performance Management

Technology advancements require appropriate training for managers to receive the most value from performance management tools. However, technology is only the start, and managers need to be coached on the finer points of the process, like how to have the right types of conversations with employees based on whether they are poor, adequate, or high performers. 

All of the key elements of the performance management cycle are important, but continuous feedback and recognition are the most impactful and frequently forgotten. The right software can prompt managers to surface feedback, but they need to care personally to make the feedback meaningful and the recognition authentic. The process of performance management should be continuous, as should the training of managers to make them and their teams effective.

3 Benefits of Effective Performance Management

There are numerous benefits to an effective performance management process that can positively influence employee wellness and the company's bottom line. Here are just a few:

Enhanced Employee Engagement and Retention

A continuous and iterative review process gives employees what they crave: feedback, recognition, and visibility into new career opportunities. When an employee feels valued, they’re more engaged, which stops them from looking outside of the organization for their next career move. Having more engaged employees also eases the burden on managers — who typically have an overflowing plate — without having to worry about whether the direction they’ve given to their team members will be acted upon.

Improved Organizational Performance

By driving better alignment of individual goals to organizational goals, and creating a continuous feedback loop to keep employees on track, less time is spent on tasks that don’t contribute the necessary outcomes to the organization. An advanced performance management system also helps eliminate a lot of tedious administrative tasks, freeing managers and employees to focus on areas they can add more value.

Culture of Continuous Improvement

An effective performance management program keeps development front and center, integrating a learning mindset into the organization to help employees understand what skills they need to excel in today’s job and tomorrow’s role. It helps managers inject new skills and provides a mechanism to continuously elevate their teams so they can solve current challenges more efficiently and prepare for future challenges proactively.

How Automated Performance Management Makes an Impact

While the overall performance management process may not be “set it and forget it”, there are some benefits to be gained from automating certain parts of the process. Leveraging automated scheduling tools can keep managers from having to comb through team calendars to figure out how to coordinate 1:1 meetings among their six or seven direct reports. 

Automation of deliverable communication and follow-up will also keep managers and employees on task and on time. Automated note-taking during meetings will also make those meetings more meaningful for both sides, ensuring important topics are recorded while allowing space for more in-depth conversations.

Key Features of Performance Management Software

Performance management software can vary greatly in its sophistication, from glorified spreadsheets to AI-enabled performance intelligence that seamlessly integrates with the entire HR tech stack. However, there are some basic features that should be considered a minimum requirement to drive an effective performance management process:

• Dynamic goal setting: The first step in the cycle is goal setting, but the performance management system should be dynamic enough to create goals at all levels of the organization with different weightings and horizons to maximize the flexibility of load balancing and driving alignment to the varied teams in the organization.

• Consistent communication: A hallmark of great performance management is consistent communication, meaning the tool you choose should facilitate communication through multiple channels on a regular cadence or ad-hoc as needed to keep managers and employees aligned.

• Scheduling tools: Calendars are usually crammed, so let AI help by automating the review of calendars for open slots to schedule 1:1’s, mentor meetings, knowledge sessions, or talent reviews.

• Continuous performance evaluation: With consistent communication, the right performance management tool will allow for continuous evaluation of output so employees always know where they stand with their manager and against their goals.

• Recognition tool: Gentle reminders sent to managers about recognizing their employees formally or informally will help drive better management behavior and alleviate the stress of leaders who might be wondering if they’ve given appropriate recognition or if they’ve given it recently enough.

• Well-rounded feedback: Performance management software needs to not only facilitate feedback between manager and employee but also other stakeholders in the organization, including peers and other leaders. This gives managers a more comprehensive view of how their employees are perceived across the organization and empowers employees with multiple points of view. 

• Project performance tracking tools: Integrated information from the flow of work (systems like Jira or Asana) gives managers direct access to progress data from various team member projects to aid in performance evaluation without having to dig into other systems.

• Automated reminders and notifications: At this point, this is table stakes for any business software system, but the right performance management software will include integration of these automated notifications into common corporate communication tools like Microsoft Teams or Slack.

• Data security: Sensitive information about employees is being shared in a performance management system, so the appropriate controls should be in place to ensure unauthorized people can’t view personal data they shouldn’t have access to view. This should also extend to feedback, allowing submitters to choose the visibility of their feedback at the employee, manager, or leader level so they can be candid with their communication.

Performance Management Best Practices

Once you’ve chosen the right performance management software, there are some best practices that you can put in place to make sure you maximize the value from your investment and minimize the stress on participants in the performance management process.

A Well-Designed Performance Management Strategy

The first step should be identifying all the stakeholders in the process and clearly outlining the goals for the program as well as the benefits of executing the program effectively. You should note any concerns from the stakeholder group and create an action plan to address those concerns, then work on a rollout plan, which should include a communication cadence and training framework for the process and supporting software. 

All participants should understand the entire performance management system, including when they will be required to submit deliverables, how they will be communicating with their manager or team, and where they can find necessary resources should they have any issues or need to escalate a concern.

A Culture of Open Feedback and Communication 

Even a well-thought-out strategy may experience issues in practice, so the organization is best served to promote open and honest communications among all its employees and their managers. HR should regularly pulse their constituents to check on their understanding of the program and their feelings about its effectiveness. Employees should feel empowered to give feedback to their managers and to other leaders if they have concerns. Managers should also feel they can communicate transparently with their teams to do what’s best for employees and the company.

Access to Real-time Data to Monitor Development 

This is another baseline feature for business software, but there needs to be comprehensive training for managers and program administrators to understand how to access the appropriate data. The company should also instill a data-driven mindset into managers so they aren’t making strictly qualitative decisions as part of the feedback or review process. Flexible performance management tools will allow managers, leaders, and administrators to create dashboards and reports that will give them the data they need when they need it.

Evolving with Performance Intelligence

A culture of open communication, continuous improvement, and ongoing feedback can be facilitated with the right technology to create a performance management system that helps employees excel in their current roles and prepares them for the future. It also helps managers become stronger leaders and better aligned with corporate goals. Lastly,  it gives HR leaders the tools necessary to monitor the program and make adjustments to keep employees, and the company, on track.

Phenom is dedicated to helping organizations all over the world develop and retain their employees using skills as a backbone to maximize agility and measure performance at a deeper level. By combining AI tools with best practice performance management, we have created an innovative tool that empowers managers to get the most out of their teams while simultaneously empowering employees to get the most out of their careers. Find out exactly how we do this here.