Measuring Employee Performance: Best Methods and Metrics
Employee performance drives your company’s productivity and profitability. But instead of measuring just the financial results like old-school organizations, focus on measuring productivity, quality of work, and time management skills.
Annual performance reviews have been criticized for a while, but 63% of employers still conduct them annually. Modern companies use software to track performance metrics in real-time. Instead of holding employees accountable for the past, real-time tracking helps intervene at the right time.
In this guide, we’ll talk about the most commonly used performance measurement methods and metrics. Pick the method and metrics that suit your company’s needs.
Methods For Performance Measurement
Measuring performance can seem daunting, especially if your company employs hundreds of people.
While measuring and tracking performance is certainly cumbersome on a spreadsheet, performance management software makes the process a lot more efficient and faster.
Before you start measuring employee performance, it’s worth spending some time finding the right performance management solution.
With that in mind, let’s talk about some common performance measurement methods.
Self-Assessment and Goal Setting
This method involves allowing employees to assess their own performance. Create a survey with questions that allow employees to assess themselves. Include questions about skill sets important for their job and how they think they have grown over the last year.
Encourage them to set goals based on the current assessment. For example, if an employee rates their ability to meet deadlines at 7/10, they can set a goal to meet all deadlines the next quarter.
Use measurable OKRs (objectives and key results) to focus on the most critical outcomes you want employees to focus on. OKRs help break down big objectives into smaller, measurable key results that are less overwhelming.
Management by Objectives (MBO)
MBO is a strategic approach designed to improve the performance of the business as a whole. Improving employee productivity is an important component of MBO, where managers set clear performance goals and periodically discuss progress.
Managers use the SMART goals framework to set objectives that tie into the company’s goals. At the end of a review period (quarter, six months, or year), managers measure employee performance based on the objectives they achieve.
You can use various performance KPIs and OKRs to track progress. Reward employees who perform well by offering salary hikes or promotions. Offer training to employees who consistently fail to meet their objectives, and ask them what you can do to help them achieve their objectives.
360-Degree Feedback
360-degree feedback involves asking an employee’s peers, team members, manager, juniors, and clients to provide feedback on select topics.
You can have everyone rate the employee on a scale of 1 to 10 for questions that cover all aspects of employee performance.
Feedback from people in the employee’s work environment provides various perspectives about the employee’s performance.
Behaviorally Anchored Rating Scale (BARS)
If you prefer a performance appraisal method that offers both qualitative and quantitative benefits, use BARS. The method measures employee performance against numerical ratings.
Each level on the BAR scale has various statements that describe desirable behaviors. Employees who exhibit more of these behaviors get a higher rating.
The first step in applying BARS involves creating critical incident techniques (CITs). CITs compare employee performance to specific behavior examples, which are tied to a numerical scale ranging between 5 and 9.
After formatting CITs for consistency and removing redundancies, randomize and assess the CITs for effectiveness. Use the remaining CITs to create BARS, and then start performance evaluation.
Assessment Center Method
The Assessment Center Method, introduced by the German Army, is a standardized evaluation technique for behavior based on various evaluations like interviews, psychological tests, and simulations.
This method helps assess current performance and predict an individual employee’s future performance.
The assessment involves discussions, problem-solving exercises, role play, and other exercises. Employees are judged based on their performance during these exercises.
Performance Metrics That Tell A Story
Performance measurement methods provide a framework to assess employee performance.
On the other hand, performance metrics help quantify employee performance and enable you to track and compare employee performance over time and with that of other employees.
"We need to do a better job of understanding employee performance," Taylor Goucher, Head of Growth at Connext said. "Creating measurable and useful metrics to measure employee performance and then using the data to make informed decisions about how and where employees are working and what they can do to be better."
Below are some of the most commonly used performance metrics.
Productivity
Productivity metrics measure output. Since output is easily quantifiable, productivity metrics are easier to measure and track than qualitative metrics. But not all productivity metrics are relevant for all departments and industries.
It’s best to use performance metrics alongside other types of metrics for a thorough analysis of job performance. Below are some employee performance metrics you can use to track performance levels.
Sales
Sales as a performance metric works best for companies with a simple customer journey. If you’re a B2B SaaS company with a complex customer journey, your sales cycles might be longer. Lower sales frequency and luck can impact the sales figure and distort your evaluation.
Process Metrics
If you’re a software company with a long sales cycle, use process metrics to measure performance. Examples include:
- Number of calls made to leads
- Number of active leads
- Number of demos given to prospects
Customer Experience Metrics
Customer experience metrics help evaluate the performance of employees based on how they contribute to improving the customer experience.
For example, a support agent can be evaluated based on the average handling time (the time spent on calls with customers, including holding time) and the first-call resolution (the number of calls in which the agent solved the customer’s problem during the first call).
Customer Feedback
Instead of evaluating performance yourself, you can request customers to review employee performance. Some companies request ratings from customers on the phone, others online surveys and email follow ups. These ratings measure the quality of the employee’s interactions with customers and reflects how the employee is supporting your customer experience.
Quality of Work
Work quality is harder to quantify than output but just as important. Here are some metrics that quantify employee work quality.
Peer Feedback
Peer feedback is part of the 360-degree feedback method.
Your employees’ colleagues are the closest to them in their working environment. Employees can offer excellent insights about their colleagues, but peer feedback should be handled carefully, professionally, and fairly.
It’s important to consider factors like bias and resentment during peer feedback. However, if you play your cards right, you’ll have deep insights into your employees’ performance.
Net Promoter Score (NPS)
NPS is an indicator of the likelihood of customers recommending your product to others. However, it can also act as an employee performance measurement tool.
You can assess the performance of your sales or account management teams, for example, using NPS. Team members who have more clients with a higher NPS are your top performers.
Number of Errors
Number of errors is both a quantitative and qualitative measure to track employee performance. It’s specifically useful to assess a development team’s work performance.
You can measure the number of errors per hundred lines of code. Similarly, you can measure the number of bugs fixed or use the brevity of the code as an indicator of performance and competence.
Time Management
Measuring output without factoring in quality, or vice versa, doesn’t tell you much. You want quality work within a specific window of time, and that’s why time management is critical.
To assess productivity levels in the context of quality, calculate the number of tasks completed during a month by an employee.
Suppose Alex completed 80 tasks in 160 hours (total working time per month). Employees in a similar role as Alex, on average, complete 120 tasks in 160 hours.
In this case, you should investigate why Alex is taking longer than others to complete tasks. Is he working on more complex projects? Is he dealing with any personal or professional challenges? Or does he need to manage his time more efficiently?
Performance Against Goals
When using techniques like MBO, measuring performance against specific goals is a great way to use employee performance evaluations to channel efforts in the right direction.
For example, when working on various priority projects, set goals to improve efficiency and communication. Measure employee performance against these goals instead of focusing on NPS or 360-degree feedback.
Make sure the individual goals you set for employees tie into the organizational goals. This helps employees track their progress and understand how their work contributes to achieving organizational goals.
Best Practices For Measuring Performance
Many large companies, including Deloitte, have abandoned traditional performance evaluations over the past decade in favor of new techniques which place a premium on customization, real-time feedback and constant learning. But when trying to modernize your approach and systems, don’t forget to stick to the following best practices.
Prioritize Your Goals
There are dozens of performance metrics. Instead of spreading yourself thin, focus on performance metrics based on the company’s high-priority goals and the role of the person whose performance you’re measuring.
For example, if accelerating growth is the company’s current priority, a sales manager should focus on metrics like the number of demos given and the quality of customer interactions.
Don’t Shy Away from Making Changes
Don’t be reluctant to tell your team that you’ll now evaluate performance using different metrics.
If you have reason to believe you need to change the performance metrics you were using to evaluate employee performance, then communicate that to your teams and educate around how the new metrics will better reflect their work in supporting company goals and spark professional development.
Communicate Often
Regular check-ins with employees help build trust. Continuous communication is also a critical element of continuous performance management.
Communication eliminates concerns about how the performance evaluation affects their job and gives you a chance to understand why an employee might be underperforming.
Use regular check-ins as an opportunity to offer help. Help could involve sharing insights into how high performers on the team are approaching their work or offering access to industry training programs.
Challenges For Performance Measurement
Measuring performance isn’t the most difficult part of performance evaluations. Here are some challenges related to performance evaluation that you should be mindful of.
Building Trust
It’s natural for employees to feel uneasy about performance evaluations. It’s your responsibility to build trust with them by not using evaluations to judge, control, or reward employees, you’re creating an environment where employees are scared of evaluations.
Instead, focus on offering learning opportunities, additional training, and support. Try to understand the reasons that led to poor performance and work with the employee to address those problems.
Budget Constraint
The best way to measure performance is by using performance management software. They help collect data and generate insightful reports that help make data-driven decisions.
Many companies are reluctant to invest in performance management software because they don’t have enough budget for tools that will enhance performance measurement.
While budget challenges are understandable, it’s important to remember that performance management software can save more money than its price, provided it’s used the right way.
For example, you can automate performance reviews, saving you a ton of resources, and the HR plenty of time.
Software also eliminates the need to manage and evaluate data on a spreadsheet. The best software solutions have built-in analytics tools that auto-generate reports to give you in-depth insights based on the collected performance evaluation data.
Skilled HR Team
The HR team plays a key role in designing the performance evaluation program.
The HR manager must identify the right team members to configure the performance evaluation application, communicate the details internally, and train leaders and employees for effective implementation.
A training session might help HR team members get off to a good start.
Alternatively, you might consider hiring an external consultant to support HR where needed.
Manager Buy-In
Support from managers is an important factor in the program’s success. Lack of proper effort from managers sends the wrong message to employees.
Discussing the performance evaluation program during leadership meetings can encourage managers to participate in evaluations more actively.
Leadership might even consider incentivizing ongoing feedback to reinforce managerial participation. For example, the leadership could recognize managers that offer consistent feedback to employees during meetings. Or the leadership could make consistent feedback one of the many considerations for promoting a manager to a more senior position.
Everyone Wins When You Measure Performance
Performance measurement doesn’t just help the company, it enables managers to understand areas where employees generally struggle and build more meaningful relationships with them.
For the employee, performance evaluations provide them with a way to find room for improvement and grow professionally.
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