By: Ber Leary on June 29th, 2022

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The Leader’s Guide to Performance Management Strategy

Business Management & Strategy | Employee Relations

Employees often shiver when they hear the words “performance management”. It evokes images of stuffy meeting rooms, where you feel like you’re in high school again as a manager looks over your file and assigns you grades.

Performance management shouldn’t be like this. In an organization with a top-tier performance management strategy, employees actually look forward to their reviews, and they come away feeling engaged, focused and energized.

In this guide, we’ll look at how to build a performance management strategy that gets the best from your team. First, let’s look at how performance management works in some organizations.

Table of contents

  1. 3 levels of performance management
  2. Optimizing your performance management cycle
  3. Dealing with below-expectation performers
  4. Getting the most from performance management

3 levels of performance management

Performance management strategies vary greatly from company to company. Each office has its own approach to things like:

  • Review frequency
  • Performance scoring
  • Goal setting
  • Performance plan ownership
  • Incentives and rewards

When you look at these strategies from a high level, you see three distinct approaches: reactive, proactive, and strategic.

Reactive performance management

This is the type of performance management that employees dread. The one that involves sitting in a stuffy meeting room every year, listening nervously as your boss runs through your file.

In this approach, the conversation focuses entirely on what has happened in the past. Did you meet expectations? Did you exceed expectations? Did you fail in any areas? The manager will then assign scores to each aspect of the employee’s performance.

Because these sessions are backward-looking, they don’t affect any of the employee’s plans for the future. The only real outcome is that the employee might receive a higher or lower pay increase.

Proactive performance management

A more proactive style of performance management involves looking equally at the past and the future. Manager and employee go through the employee’s file together and look at success and failures. Once they’ve discussed the past, they’ll look at how to tackle the challenges ahead.

Usually, the manager will set some goals for the employee over the coming year. Both parties will then looking training and support requirements to help ensure that the employee can meet their targets.

Reviews are more frequent in this model, with biannual meetings and informal check-ins every few months. If the employee is not on track to attain their goals, their manager will look at ways to offer additional support.

Strategic performance management

In a strategic approach, performance management focuses entirely on the future. Rather than grading the employee’s past performance, these performance reviews focus on questions like: where do we need to go? And, how can we get there?

There are no ratings or descriptors of past performance. Instead, review sessions offer a chance for dialog about achievements and lessons learned. This is a springboard for conversations about the future: about the organization’s goals, about the individual employee’s role in the broader strategy, and about opportunities to develop the employee’s strengths.

This process is an ongoing conversation, with biweekly formal meetings and regular catch-up sessions. Coworkers can also offer feedback. Ultimately, the goal is to keep the entire team moving forward and focused on the most important goals.

Improving your performance management strategy

Performance management is about making sure that everyone is working in the right way towards the right goals.

Reactive performance management does not achieve this. You’re always looking back on what the employee has achieved in the past, rather than guiding them towards success in the future. The proactive model is a significant improvement, although it still leaves a lot to the individual employee.

With a strategic performance management strategy, you know that everyone is pulling in the right direction all the time. Your team is focused, knows what to prioritize, and can ask if they need further support or training. And, if any performance issues arise, you can move quickly to remedy them before they become a problem.

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Optimizing your performance management cycle

People are constantly evolving. Every day, your team members learn, grow, develop, and acquire new skills. They also face challenges—both at work and in their personal lives—that pull them in unexpected directions.

That’s why your performance management strategy must keep evolving too. Rather than charting out an end-to-end process, think of a continuous cycle in which each phase influences the other phases.

Phase 1: Goal setting

Employee goals must always reflect the organization’s broader goals. When these goals are in alignment, you know that the people in your team are working to carry your company in the right direction.

In most organizations, there are multiple levels to each goal. These levels can include:

  • Organizational level: Goals focused on growth and business development. These goals might include expanding into new markets or improving offerings to clients.
  • Team goal: Large-scale targets that help move the company toward its organizational goals.
  • Supervisor goals: Goals that will help local managers make day-to-day decisions that align with broader aims. These goals also help supervisors prioritize their training initiatives and recruitment requirements.
  • Individual goals: Targets for employees to hit. These goals should be achievable, attainable, and play to the employee’s strengths.

So, for example, imagine a firm of financial advisers that wants to grow its client base. Market research reveals that younger investors don’t trust traditional investment products, and instead want to put their money in digital products like cryptocurrency.

In this situation, goal-setting exercises might produce a set of goals like this:

  • Organizational goals: Increase our market share among under-35s
  • Team goal: Develop capacity for supporting customers who wish to invest in cutting-edge financial products, such as cryptocurrency
  • Supervisor goal: Work with the learning team to develop and deliver an in-house training program on cryptocurrency
  • Individual goal: Complete cryptocurrency training module and integrate this knowledge into customer interactions

All of these goals are connected to each other. The individual employee focuses on their own development, but they are helping the firm to achieve large-scale strategic goals.

Also, employees understand why their work is an integral part of the mission, which helps to increase engagement levels.

Phase 2: Performance review

When you have clear goals, the performance review becomes a dynamic, forward-facing conversation. Rather than judging the employee’s past efforts, you can talk about how the team can work together to deliver future success.

You can still develop a structure for these conversations—your HR team or an expert HR consultant can help to develop a framework. Items you’ll need to cover include:

  • Performance to date: Past performance can teach your employee about what went well and what went less well. It allows you both to focus on the employee’s strengths, so you can develop and hone those abilities. It can also help identify any weak spots, which can be addressed through coaching.
  • Goal-setting: Setting goals should be a collaborative process. Managers and employees can work together to find goals that support the employee’s long-term career path plan while also supporting the organizational strategy.
  • Training and development needs: Growth-oriented goals can only be achieved if the employee has full training and development support from their leader. Ideally, each goal should be tied into a specific and attainable professional development program, such as a training course, mentoring or certification.
  • Motivation: Employees work better when they know how close they are to getting their bonus. The performance review is a good chance to talk about how the employee is tracking and what they need to do to achieve the maximum possible incentive.

However you approach this conversation, remember that the goal is to make your team feel empowered. They should emerge from reviews feeling energized and ready to deliver your organizational objectives.

Phase 3: Support and development

The employee will need support throughout the year to help them achieve their stated goals. Their needs will vary depending on the goal: some might need access to training resources, while others will need support with challenging new projects.

It’s the leader’s job to provide appropriate support and professional development where required. To make this step work, you must:

  • Link all training plans to goals: All training and development plans should connect to a specific employee goal. Both leader and employee should understand how this development will help the employee attain their goal.
  • Be flexible with options: Different people have different training requirements. Some employees want one-to-one learning, others prefer eLearning modules, and some benefit most from practical experience. Work with each individual to find a development plan that plays to their strengths.
  • Carve out time for development: Long-term development can often slip down the list of priorities, especially when things get busy. Try to ringfence some time for each person so they can stay on track to achieve their goals.

Professional development is a core component of your Total Rewards strategy, so investing in development will result in higher engagement and increased employee satisfaction. Plus, you’ll keep your team moving towards attaining those organizational goals.

Phase 4: Regular Check-ins

Things don’t always go according to plan, of course. Goals shift, priorities change, and development needs can evolve over time.

That’s why it’s so important to keep communicating with your team members. Some best practices here are:

  • Have regular informal chats: Encourage managers to have catch-up conversations with their team members. Find out how they feel about their performance objectives and professional development program, and take action on any feedback.
  • Perform regular training assessments: You can use online forms and pulse surveys to find out if employees are satisfied with their current professional development pathway. Listen out for suggestions of ways to offer improved support.
  • Respond quickly to any feedback: If an individual employee seems to be going off-course, sit down with them to talk about next steps. It’s in everyone’s interest to make sure that all team members are moving in the right direction.

Reactive performance management strategies can often allow problems to fester. The employee might not have a review scheduled for another six months, which means that their leaders might not identify an issue before it’s too late.

Regular check-ins help ensure that leaders and employees never take their eye off the ball. Everyone is working towards the same goal, no matter when the next review is scheduled.

When you meet for the next performance review, you can return to phase one. Talk about what you’ve learned, set new goals, develop an appropriate training plan, and then keep moving.

Dealing with below-expectation performers

Performance management is often a positive, collaborative thing. Employers and employees make plans together, and then they both work to deliver success.

But sometimes, things don’t work out so well. No matter how much support you offer, an employee might consistently fail to meet expectations.

You have the option of dismissing the employee, but this leaves you with the hassle and expense of finding a replacement. Plus, it’s possible that the organization or leadership is to blame. If that’s the case, then you might find that more employees fail to match expectations.

That’s why it’s a good idea to have a process in place for dealing with disappointing performances. Here are a few best practices to consider:

1. Speak to the employee

The first step should be to speak with the employee and try to learn more about why they’re struggling. This is not always easy, especially if the employee has concerns about their job security.

Some steps you can take include:

  • Involve your HR professionals: If your in-house HR team doesn’t have performance management experience, you can look at working with an HR outsourcer to help you with this process.
  • Listen to feedback: Your employee may have some important feedback on issues that are holding them back, such as unattainable goals, poor support or bad organization. There might also be deeper cultural issues that impact performance.
  • Invite self-appraisal: Employees might not be aware that they have a problem. One way to educate them is to ask them to perform a self-appraisal exercise to see if they understand where they need to improve. 
  • Be sensitive about personal circumstances: An employee’s personal life might impact their ability to deliver goals. For example, someone with childcare issues might not be able to work late hours. If possible, try to reach an accommodation, such as offering remote work or flexible hours.
  • Focus on positives: What are the employee’s strengths? Which expectations have they exceeded? Use these details as a starting point for a conversation about how the employee can develop and start meeting your expectations.

Timely intervention can help rescue your relationship with the employee.

2. Give respectful feedback

The employee needs to know what they’re going wrong and how they can improve. They can only do this if they have focused, respectful feedback from their leader.

When offering difficult feedback, there are a few things to bear in mind:

  • Be intentional: Before speaking to the employee, define your objectives. The conversation will go more smoothly if you’re working towards a defined outcome, whether that’s helping them achieve a specific goal or working on some of their weaker skills.
  • Be specific: Be objective about the employee’s current performance. Talk about the specific areas where they are falling short and show them what they must do to meet expectations.
  • Be positive: The purpose of performance management is to help employees succeed. Focus on the positive aspects of the employee’s contribution. Look at ways to build on their strengths in the future.

Struggling employees are your biggest retention risks. Use your performance management strategy to nurture them back to success. That way, you’ll reduce staff turnover.

3. Review your goal-setting process

Goal-setting defines the way you manage expectations and measure performance. If your goal-setting strategy is misaligned, then you might be setting your people up for failure.

Each team member should have SMART goals. SMART stands for:

  • Specific: Each goal should have identifiable actions or events, i.e. completed sales or records processed.
  • Measurable: For each goal, there should be an objective metric. For example, you might measure sales goals in units sold or net revenue.
  • Achievable: Goals should be realistic in terms of the individual employee’s ability. It’s possible to set aspirational “stretch goals”, but you have to then support these with training and development.
  • Relevant: Each goal should link directly to the team’s goals and organization’s goals. The employee should understand how their goals are connected to the broader mission.
  • Time bound: Finally, every goal should have a realistic deadline. This encourages everyone to make their goals a priority.

It’s important that employees feel comfortable with their assigned goals. If the goal seems impossible, it can have a demotivating effect and the employee might become disengaged.

4. Review training and support

It’s also important to consider the way you support professional development. Are you offering the right kind of support? Is training relevant to the employee’s goals? Any issues here could impact employee performance.

Some questions to ask include:

  • Have we got the right onboarding process? If you notice performance issues with new hires, take a look at your onboarding. New hires might not be learning about your company’s vision and values.
  • Are we making time for training? Professional development plans often fall by the wayside when things are busy. But employees will struggle to meet their goals without development and support.
  • Do employees understand the link between training and goals? Employees might not always see how a training goal relates to their performance goals. Make sure you talk through the why of any development plan.
  • Is there a better development strategy? Consider all alternatives for developing people, including mentoring, job shadowing and online learning.

Remember, all training and development plans have the same goal: to help the employee succeed. Problems with training often manifest as poor performance.

5. Hold an exit interview

In some cases, there is no choice but separation. You may have to dismiss the employee for poor performance, or the employee might resign so they can pursue another opportunity.

If it comes down to it, then make sure you take some time to hold an exit interview. An exit interview can help you identify structural problems that might affect other team members. Ask questions such as:

  • Do you feel you had realistic goals?
  • Did you feel motivated by your goals
  • Were you offered the right kind of support?
  • Did your manager check in often about your development?

The outgoing employee might have some valuable feedback about your performance management strategy. You can use this feedback to improve the process for other people on your team.

Getting the most from performance management

The old-fashioned model of performance management is reactive. Leaders wait until their employees start falling short of expectations. Only then do they take action, and that action is often punitive, like withholding a bonus or pay increase.

Strategic performance management is all about creating an environment for success. Leaders and team members work together to keep moving towards the future without ever missing a step. When problems emerge, the team solves them together. 

This approach is the best way to boost employee engagement and reduce staff turnover. Best of all, strategic performance management will help your company pursue its long-term goals. 

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