This article is designed to give you a good overview of the background, aims, considerations and best practice that you need to know when implementing or restructuring your performance management procedures. Whether you are thinking about a different approach to performance management, or simply curious about its history or implementation, this document should be useful.
It is not designed to be an exhaustive source, and the aim is not to tell you exactly how you should be running every aspect of your process. That should vary from organisation to organisation depending on what is best for you.
However, we aim to offer some sound advice, much of which we have learned through years of HR experience.
Performance management covers many areas, so we have split this document into three parts, and divided it into easy to view sections. If you have any questions or comments, feel free to get in touch.
How can you measure Performance Management?
Setting the right Objectives– things to consider.
1. How can you conduct and measure Performance Management?
We have established that as an idea, Performance Management is an incredibly useful tool for all kinds of organisations. However, in practice, as with anything worth doing, it requires some careful consideration and planning before you go leaping in.
Most organisations have some kind of HR or Performance policy in place, but in order for any Performance Management system to work consistently and effectively, companies must plan how they implement the policy into their structure, what they wish to achieve from it, and what form the new system will take. Before implementing anything, it is important to decide upon a company-wide and clearly communicated plan of what goals your organisation aims to achieve. According to Acas;
‘Plans need to be explained and understood at each level and employees need to be able to ask questions to understand the contribution they can make and be able to feedback their ideas’.
(Page 8 – How to manage Performance)
That is what good Performance Management is all about – including all employees in the process so each of them feels a part of, and a loyalty to, the organisation as a whole.
Performance Management can take a number of forms, which can be combined, or used individually, depending on what best fits your business. The two very important things to remember however are;
The process must be on-going and thoroughly understood by everyone taking part
There must be a combination of information gathering and practical use of that information. There is no benefit in holding appraisals, getting a great picture of how an employee/team is working, and then simply filing it away. The results are a jumping off point to start implementing improvement.
Performance Appraisals (Sometimes referred to as 170-degree appraisals)
This is the most traditional form of Performance Management. Most organisations have some kind of appraisal system in place, usually taking place annually. Appraisals are a valuable part of the performance management tool kit, however they should be viewed as simply part of your overall performance management system.
Assessing your staff performance once a year is a very big job, and if there is no other system in place to monitor goals in an on-going way throughout the year, annual appraisals can be limited. There is also a tendency to view annual appraisals alone as a ‘top-down’ structure, and staff can also often view them simply as ‘ticking boxes to keep HR happy’. It is good practice to use annual Performance Appraisals alongside other forms of Performance Management.
360-Degree Feedback (or Multi-Rater Feedback)
This is a Performance Management model designed to avoid the problems encountered in a ‘top-down’ model. 360-Degree is so named as feedback comes from a selection of peers, managers or clients, chosen by the individual being appraised as well as the individuals manager. The individual also assesses themselves, and the results of both their feedback and that of their peers is usually discussed between the individual and their manager at an appraisal meeting. It is best practice to use this information to make informed decisions about the progress and goals that an individual employee should work on throughout the year. 360-Degree Appraisals are designed to be a positive form of Performance Management which encourages the individual, as well as those appraising them to be open and honest. It is also important to keep anonymity during the 360-degree appraisal process in order to ensure reliable feedback.
Learning Development and Personal Development Plans (PDP’s)
Increasingly popular, learning development is a very good way of improving organisational performance. Again, this is a system that can be used in conjunction with other Performance Management tools, for example, 360-degree appraisals, where an employee’s training requirements can be highlighted and discussed. Learning and Performance Development reviews can lead to drawing up a PDP which sets out any action that needs to be taken. Often, Learning Development takes place separate from appraisals in order to encourage frank and focused discussion.
The term Performance Management has taken on new meaning in many organisations as it now often includes talent management. This is due to the increasing necessity and desire within organisations to identify talent within the business, and to nurture and develop that talent. This is a great way of making the most of your existing workforce, and encouraging and fostering leadership skills. However, it is very important to make sure all Talent Management procedures are inclusive and encouraging to all employees.
This is a robust and ongoing way to manage performance, and if implemented properly can be a positive and very useful tool. It is best practice to use Goal Setting alongside Annual Appraisals, and to keep communication and monitoring of these goals on-going throughout the year. Goals can be decided for each individual based on the information gained at Annual Appraisal, and can be drawn up to fit alongside the company’s visions and values. It is common to conduct goal reviews on a quarterly basis, and they can often be successfully linked to PRP and CRP (see below).
Performance Related Pay (PRP)
In many companies, Performance Management is linked to pay thresholds. This is obviously not always the case, and is not necessarily the right thing to do in all organisations. However, the idea behind PRP is to show staff that performance is important, and to motivate them with bonuses or pay increases based on their performance and achievements. The intention is to provide a fair reward based on merit. If you chose to implement this kind of structure, it is imperative that you ensure your performance monitoring structure is really well implemented and fair throughout the organisation. It is also important to consider that there can be potential problems with this system. For example, if staff are aware they need to hit a certain sales threshold in order to qualify for PRP, then you must ensure they stick to both ethical and company standards in the pursuit of reaching this threshold.
Competence Related Pay (CRP)
This is similar to PRP, but links an individual employee to an individual competence using a competency profile or framework. Although PRP and CRP work for some companies, there are many critics of a pay related Performance Management structure. The main criticisms tend to be that there are more important things to consider than money to motivate staff, and that these systems can mean attention to goals being short term. Also, many argue that this type of arrangement is often subjective, and that it can seriously inhibit a sense of teamwork. While in some companies, this approach to performance management has worked well, there are companies who have had problems with this structure. There is also research that suggests money may not be the best motivator for staff, but that things like training, a good work-life balance and flexible working may in fact be better motivators than a cash reward.
So how do you measure the information gained from performance management systems?
There are several different kinds of measurement, but here a few examples to give you an idea of the things you need to take into consideration when assessing the information you have gained:
Individual Output Measures:
This is a list of pre-set objectives. Answers and achievements can then be measured against a set of agreed standards, for example, they may be marked between 1 and 5. Staff may also receive commendations for their work.
Individual Input Measures:
This is a system by which performance can be measured relative to an employee’s competencies. By looking at the individuals skills, experience, and how effectively they apply these skills to their job role, you can assess performance. This also includes the acquiring and development of new skills, knowledge sharing and communication which improves the work and productivity of the team.
2. Setting the right Objectives– things to consider
Once you have decided on the best Performance Management System for your organisation and appraisals are complete, you need to make sure you use the information you have gained in a way that best benefits your organisation. That means setting goals and objectives that are both realistic and challenging. They must also be communicated clearly and easy to monitor and report upon throughout the year. You can either set individual goals for each employee, or if appropriate, set goals for a group or team. Whichever way you decide to go, you must make sure the goals you set are meaningful, and that you can keep track of progress. You also need to ensure that the employee working on the goal set has the opportunity and encouragement to report on their progress or any problems encountered in an open and honest way.
It is useful to consider the SMART acronym when setting goals and targets. They should be;
Specific: Goals must state specifically what they employee needs to achieve.
Measurable: You need to keep track of the goals set, so you know when each goal has been achieved.
Achievable: Although goals should be challenging, they also need to be realistic. Is the employee really capable of achieving the objectives set?
Relevant: Make sure the goals you set are relevant to the person or team. Again, communication and on-going progress reporting is necessary to make sure the goal set remains relevant, and that you are able to change or amend it if the situation changes.
Time-bound: It is important to set dates and time frames in which to complete goals and objectives. These time frames can be flexible, if on discussion there is a good reason to change the timescale. However, completion dates must be set, and communication kept constant.
As well as these considerations for goal setting, there must be an agreed set of competencies against which the employee can be assessed. These competencies should be the set of behaviours an employee needs in order to perform their job role to the best of their ability.
Competencies need to be decided right at the start, (when considering implementation of a Performance Management System) and work best if they are set to reflect the values and culture of your organisation. Once competencies for assessment have been decided, it may be useful to put them together within a ‘competency framework’.
The Acas guide ‘How to Manage Performance’ suggests that a well-designed competency framework is a must, especially for larger organisations as it helps in a range of HR areas, including;
‘performance management, learning and development, career and succession planning and recruitment and selection’. (P.14)
The way you set up your competencies is dependent on what your organisation wishes to achieve. The key is to be clear, and make sure everyone understands what is expected of them, and why, in a broader sense, this is the case. This is the backbone of all good Performance Management structures; Communication.