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Annual reviews, quarterly performance appraisals, and regular check-ins between managers and employees take up a lot of time but are indispensable for companies that want to get the best out of their employees.

So what's all the fuss about performance management?

Here I’ll answer the following questions:

Let’s dive in.

What Is Performance Management?

"Per­for­mance man­age­ment is the con­tin­u­ous process of improv­ing per­for­mance by set­ting indi­vid­ual and team goals that are aligned to the strate­gic goals of the organ­i­sa­tion, plan­ning per­for­mance to achieve the goals, review­ing and assess­ing progress, and devel­op­ing the knowl­edge, skills, and abil­i­ties of peo­ple." - Michael Armstrong (Armstrong's Handbook of Performance Management)

Important here is that performance management should be an ongoing process and not something that's limited to the annual performance review. It requires a system that allows managers to efficiently track, assess, reward, and, where needed, correct employee performance as part of their day-to-day activities.

Below, we'll look at why continuous performance management is important and how some methods for implementing a continuous performance management system in your organization.

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Why Is Performance Management Important?

The TL;DR here is that effective performance management, when properly structured as part of a wider talent management strategy, is core to an organization's continued success.

Here are the benefits of performance management done properly.

Keeps everyone aligned and on track

A good performance management system consists of various mechanisms that allow managers and leadership to continuously monitor the performance of their teams and provide continuous feedback. 

This means managers are regularly checking in with employees, making a conscious effort to identify problems as they arise, and keeping everyone on course.

This can happen through structured performance reviews and appraisals as well as more casual conversations such as weekly 1:1’s. Managers act as guides, coaches and mentors to help get the best out of their team members.

On the tech side, performance management software can help set goals and track the progress being made toward them in real-time. 

You can also combine with other tools such as time tracking apps and even instant messengers like Slack where team members can share progress and their daily priorities and tasks.

Allows for just rewards and adjustments

Fundamentally, performance management is about a combination of goals and metrics.

The organization will have goals it wants to achieve, and these should cascade down the organization to team and individuals. 

When an individual meets or exceeds their goals and contributes to the overall success of the organization, they should be rewarded.

Many companies adopt a pay-for-performance model that uses salary, bonus and other incentives to incentive employee performance.

On the flip side, underperformance triggers actions to address the problem.

It drives development conversations

Your performance management strategy should sit at the heart of your wider talent management strategy

Effective performance management helps an organization better understand its talent and what’s needed to achieve its goals from a talent perspective.

If an employee is lacking a certain skill or wants to learn something new, HR can adapt its employee development initiatives accordingly. When team performance is hindered because it lacks someone with a specific skill, recruiters can hire specifically for that profile.

Human resources can play a proactive role in a company's performance management by setting up professional development plans to help ambitious employees skill up, or helping teams prepare for new and challenging projects.

It makes employees feel respected and heard

According to a study performed in over 150 countries, 96% of employees would like to receive feedback more regularly. 

Regular feedback lets high-performers know their work is appreciated while offering low-performers the chance to quickly course-correct.

The best way to go about this is to develop a performance management process with review moments at set frequencies. 

This can include a quick daily recap, weekly team performance feedback, monthly reviews, a quarterly performance review, and annual reviews.

By creating a rhythm like this, the review process becomes an inherent part of both manager and employee activities, rather than this extra thing that needs to be done.

Employees know that it's not just allowed but even expected of them to bring up concerns.

Related read: Best Performance Appraisal Software for Skill Development

Further tips for effective performance management

Involve team members in goal-setting

A great way to make employees feel invested is by letting them set their own individual goals to help the team reach its target.

Always failing to reach targets imposed by someone else is demotivating, whereas always easily reaching them can create complacency. The best targets are those that challenge employees and require them to dive in and/or further develop their skills. 

Managers can help guide them to set goals they'll feel proud of reaching and even offer them some development opportunities to grow their skill sets. 

The latter can be especially interesting when working with high-achievers who may want to take on more responsibility. 

And, if you want to take it a step further, this type of goal setting can also be extended to the entire team. After all, your team members know their work, the challenges it brings, and the opportunities it holds better than anyone else.

When everyone is working toward the same goal, the metrics tracking employee performance should reflect that. Rather than solely measuring the individual performance of an employee, set metrics that motivate people to collaborate in order to reach the team goals.

Similarly, performance reviews should address an employee's individual performance but also how their actions impacted the performance of the team.

Create A Morale-Boosting Common Sense Of Purpose

People feel empowered when they're contributing to something bigger. That's why it's crucial for managers to communicate the organizational goals and set targets that are clearly in line with them. When that's not the case, employees feel like they're merely chasing numbers to boost their boss' ego.

While specific targets will be different across company levels, they'll ideally support the targets of the level above and build on the targets of the levels below them. This means that when managers set goals, it's important they keep this flow in mind and communicate to their team where these goals fit into the bigger picture.

Setting targets like this also makes it harder to manipulate information just for the sake of reaching a target. After all, the people above and around you need to build on your work and if it's not solid, the whole performance flow will start to crumble.

Wrapping Up: The Importance Of Performance Management

A great performance management system proactively involves employees in the goal-setting process while making sure all goals are in line with the company's overarching target.

Companies are moving away from annual performance reviews to continuous performance management. This means regular feedback moments that allow managers to spot and address problems quickly, keep everyone motivated and on track, and guide employees in their personal growth.

Ultimately, this will boost employee engagement and help ensure company productivity in the long-run. It's a no-brainer.

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Some further reading to help you create an effective performance management system:

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By Finn Bartram

Finn is an editor at People Managing People. He's passionate about growing organizations where people are empowered to continuously improve and genuinely enjoy coming to work. If not at his desk, you can find him playing sports or enjoying the great outdoors.