Why do Organisations Need Effective Performance Management Systems?

When it comes to making sure your employees are delivering what your company needs, an effective performance management system is arguably the most important ingredient. 

Elements of an effective performance management include the entire process from setting employee goals through to tracking and measuring performance as well as feedback. This means that performance management also affects and drives many other key HR functions such as rewards and compensation, some of which are entirely dependent on accurately tracking performance to identifying top talent. Subsequently, performance management also affects learning and career development as well as succession and workforce planning. With such a strong impact on HR and business success as a whole, it’s important that companies know how to create their own effective performance management system.

The Purpose of Performance Management

Getting performance management right can have a huge impact on the success of your other HR initiatives. Accurately tracking employee performance means you can reward achievements when they happen and identify top talent for succession opportunities. This, in turn, means employees are motivated and feel valued by your company and they’re much more likely to stay, which is great news for your retention stats – you can save money and better utilise the talent you have already invested in by recruiting from within. You can also make sure you’re investing your rewards and benefits budget accurately by ensuring you only reward the right talent and thus helping you to distribute it in the most efficient and effective way.

These are just a few of the ways that performance management can positively impact both your employees and your company. You can see how performance management has a cyclical effect within companies and can drive positive impact both directly and indirectly. Many of the areas that an effective performance management system improves can subsequently have a further positive impact on other areas and so on.

To have this type of permeating impact, the top 2 goals of an effective performance management should be to:

#1. Engage and Motivate Employees

Employees that are engaged and motivated are more productive, more likely to stay and ultimately more likely to make your company successful. Whether it’s saving money on high turnover, producing future leaders or simply keeping morale high for positive company culture, you see the effects when your employees are motivated and engaged. While there are many ways in HR to engage and motivate employees, for example with rewards, the best way is with performance management. In fact, many of the other ways to engage and motivate employees are reliant or only truly effective when combined with an effective performance management system.

#2. Better Decision Making and Planning

Performance management isn’t just about your employees; it can have a direct and positive effect on the way you run your business too. In order to make the right decisions for your workforce including which employees to invest in or how to give that promotion, you need to have a clear and accurate insight into employee performance and development. Investing in the wrong training programs for the wrong employee or not being able to reward your best talent means you’ll end up making poor decisions, wasting money and losing great assets.

Developing an Effective Performance Management System

Attributes of a successful performance management system are:

•     Goal setting – defining and setting goals for employees, teams and more.
•     Performance tracking – creating a measurement and rating system to track performance.
•     Feedback – employee appraisals to continue the performance tracking process.

When it comes to deciding on which goals to set for your employees that will align with your company’s needs, defining a measurement and rating system, creating a feedback process, and an overall performance management strategy will depend on your business. There is no one-glove-fits-all approach to performance management, so you’ll have to find out what works best for your company size, industry, culture, workforce characteristics, needs, resources, and constraints. You’ll need to think about what your most successful employees have in common; what they have achieved and how. You’ll also want to think about what your company needs and therefore what you value most in an employee.

For example, some companies may value expertise above all else. This is common in oil and gas industries, for example, where the most valued and successful employees are those with years of knowledge and experience under their belt. If this is something that your customers or management values in employees, then your performance management system should be focused on cultivating expertise with learning, development, and retention.

You may want to focus on setting learning-based objectives and planning clear learning paths during goal setting, such as achieving a new qualification. You may also track and measure learning and development closely, such as the number of learning hours completed. Feedback and appraisals will closely track learning and development progress and will also make sure to ask employees about where they see their careers going to help develop clear career paths that will engage and retain employees to ensure long-term expertise.

Performance Management Best Practices

While it’s true that every performance management system should be tailored to each company, there are some commonalities between the best performance management systems. Making sure performance management includes these themes can help to ensure that it achieves two keys to success: Employee Retention and Motivation, and Better Decision Making and Planning.

Continuous Conversation

There needs to be an open dialogue between employees and managers. A continuous feedback loop that goes beyond the annual review can help to make sure that employees stay on track and managers are also taking note of employee needs. With more frequent performance tracking and feedback, employees are much more engaged and managers can ensure they continue to be motivated to achieve their goals and perform well.

Accountability

Both employees and managers should be accountable and responsible for performance tracking. Give them the tools to be proactive with managing performance, for example, a self-service portal for employees to get an overview of their learning progress or current goals. Providing managers with a clear overview of the same means they can see the minute employees fall off track or reward achievements as soon as they happen. It also means that both parties are more likely to arrange one-to-ones and follow through with coaching opportunities to ensure they meet targets.

Transparency

Just as with accountability, providing a clear explanation to employees of how performance is measured, what is expected and what their current progress is can all be extremely motivational. This level of transparency is vital for making sure employees see the system is fair, and it also means managers can more easily identify their best performers and track ongoing performance. At the top level, analysis is made much clearer and therefore decision making is more accurate.

Meaningful

Employees will only stay engaged if their goals and the performance process makes sense and is meaningful to them. Learning goals and training paths are great, but only if the training is relevant and makes sense to employees. Soft skills, for example, are becoming much more popular, but they don’t make sense to everyone. Enrolling employees on communications courses and setting goals to achieve based on this might make sense for your business, but it won’t always be meaningful to employees and they, therefore, won’t engage or work towards achieving them.

Consistency

Finally, accurate performance tracking and management can only be achieved through consistency. Outline a clear template for everything from your goal setting to your feedback and appraisal meetings. Inconsistency at any stage, especially when it comes to measuring performance, can look unfair to employees and also makes for inaccurate decision making.

Implementing a Successful Performance Management System

Ready to start employing performance management best practices to engage and motivate your employees and make better business decisions? You need a superior performance management tool that can help you every step of the way. With SuccessFactors Performance & Goals, you can set SMART goals that align with your business needs, track performance across the metrics that matter to you and deliver clear, consistent feedback and coaching to employees to help them develop. Combine with the rest of the SuccessFactors suite and you could transform the entire employee experience. Contact us today to find out more or book your free demo to see it in action.