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What is performance management?

Performance management is about more than just yearly performance reviews that check a box. If you’re committed to improving the current and future work of your employees and the company’s growth according to business objectives, this guide will tell you everything you need to set up a successful continuous performance management process.

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What should your performance management process include?

Performance management can’t just be a once per year thing if you want to see actual growth in your employees. Here’s everything your performance management process should include to be successful.

Long-term career pathing

One of the most important parts of performance management is understanding how the employee hopes to move their career in the future. This can mean rising vertically through the company or perhaps integrating new skills and knowledge with non-linear pathing. Setting a career path doesn’t have to dictate every move the employee makes, but it can help clarify decisions about leadership roles, training opportunities, and even the types of projects assigned to the employee.

Short-term goal setting

Short-term goal setting uses the employee’s strengths and current skills along with the manager’s resources to find new ways to help the employee achieve success in their current projects. Whether it’s identifying and working through roadblocks or finding the right internal resource to answer questions, short-term goal setting gives employees and managers a starting place to improve the employee’s performance every day.

Recognition

An important part of maintaining and improving the employee performance is providing verbal and/or written recognition of the employee’s strengths and contributions to the team. Showing appreciation for the employee’s skills and hard work can go a long way toward improving employee engagement and reinforcing good performance–and it’s a lot less expensive than bonuses or raises (but those are good motivators, too, when appropriate).

Open communication and feedback between managers and employees

When communication is a cycle of nearly everyday feedback, it becomes a casual part of the workday, rather than a Big Conversation that happens only at the designated performance review times. When managers keep lines of communication open in daily or weekly conversations, employees are more likely to respond well to more difficult conversations about how to improve performance.

Employee coaching models

Coaching employees means asking good questions and listening effectively to help the employee come to answers or solutions to their problems. It also includes following up on goals, projects, and hopes to help the employee through tough times and capitalize on successes. Become familiar with several coaching models and use them to help frame discussions and movements forward.

A cycle, not a box to check

When planning your new performance management process, think about taking a cyclical view of managing performance. The path to improvement isn’t a straight line or a one-time fix but rather a cycle that repeats and pushes the employee farther along–even if there are some stumbles along the way. Whether you use the Plan Act Monitor Review cycle or one that fits closely with your company’s values and goals, treating performance management as an ongoing process rather than a single yearly task can help managers embrace their role as a coach, mentor, and manager.

Performance management software to keep you on track

Performance management software is a tool designed to help managers write accurate job profiles and expectations, create relevant objectives that align with the company’s goals and mission, document performance, and write appraisals.

The best performance management software will also improve employee engagement through transparency, recognition, SMART goal-setting, and feedback. Each team member can see how they contribute to the organization’s mission and how employee development programs align to business goals.

What performance management isn’t

There are a few common misconceptions about what performance management is and features performance management software should include. Performance management is not:

  • A yearly performance review
  • An annual employee survey
  • Conducting job-critical skills training
  • Ranking employees based on their productivity (and firing the least productive )

These are general tasks that help management understand the current state of the corporation. They fall short of the future-facing priority of continuous performance management. Because of this, your performance management software likely won’t include survey tools, learning management, or a ranking system.

Features of performance management software

Employee performance management software helps align your workforce to corporate objectives, measure and evaluate individual employee performance, and continually measure organizational results. The software digitally tracks all activities that ensure employee goals are consistently met in an effective and efficient manner.

Traditionally, companies conduct performance reviews at least annually. However, it’s important for employees to receive continuous feedback in order to understand how they perform and contribute to corporate goals and how they can take the next steps in their career development. This means aligning and assessing performance regularly by gathering feedback from a direct manager, team members, peers, and indirect managers.

An employee performance management system will offer the following functions, which the company and manager can use to gain insight into an individual’s overall strengths and potential:

Coaching management

Managers use coaching management tools to organize the goals of each of their reports, build career plans, track training and assessments, and store communication and employee evaluation. Many modern coaching management features also provide a place for reports to message and interact with their manager directly via chat.

Performance appraisal management

Many companies have moved from the annual employee performance appraisal model to more frequent performance assessment periods including weekly and monthly. A performance appraisal module gives companies a centralized location to store, analyze, and track changes in their employee performance from year to year and across appraisal periods.

Goal-setting, alignment, and management

Goal tools help managers and individuals write goals and track their performance toward them in a centralized and consistent manner. Today’s tools prompt individuals to update their progress toward goals, solicit feedback from the managers, and compare progress to benchmarks.

Feedback management

Feedback management tools collect and organize real time feedback around employee goals or performance metrics, giving both the employee and their manager a place to document updates and thoughts regarding goals.

Competency management and skill assessment

Employee competencies and skills management tools track certifications, skills tests, and licenses that keep the organization compliant with local and state regulations. These tools can also be used to understand an individual’s most valuable skills, plan training, and map succession within the organization.

Development planning

Career mapping and development planning are key components of any employee engagement plan, and robust performance management software will include tools that support human resources teams and managers in planning long-term career moves with individuals.

Performance and productivity analytics

Analytics tools help companies determine whether their efforts are paying off. Performance and productivity analytics aggregate performance metrics and employee productivity KPIs to better plan for the next steps and assess the success of current projects.

Pay for performance

Many companies base bonus and commission rates on individual performance toward and above goals. Pay for performance modules in performance management systems help teams tie pay directly to accrued metrics and progress toward goals.

Talent profiles

Human resources and management teams need quick access to deep information about their employees. Talent profiles give a detailed view of an individual’s skills and proficiencies, without needing to comb through reams of performance reports. These tools can help HR professionals build job descriptions, manage succession planning, and even understand where their teams lack vital skills.

Multi-rater functionality

Performance management tools that include multi-rater functionality provide the context for multiple perspectives on an individual’s performance. These tools can be used to conduct 360 reviews — where peers and members of other teams can provide feedback on performance — as well as give review capabilities to multiple levels of the organization.

Mobile capabilities

As with everything in tech today, portability improves both the manager and employee experience by giving them the freedom to complete performance tasks outside of the office, on a commute, or at home. Mobile capabilities also bring performance conversations to a context where many individuals are more comfortable sharing honest feedback: their phone apps.

Reporting and analytics

No modern app is complete without reports and analytics that provide insight into the tool’s effectiveness, the employee’s performance, or the company’s improvement. These modules are a must for proving the worth of the HR tool to a CFO or CEO and can give actionable insight for teams to use when planning future initiatives.

Trends in performance management tools

Assess, coach, repeat

Modern PM software isn’t just for human resources — it’s for employees, managers, and leaders. Today, there are more than one billion knowledge workers worldwide. And these employees become more valuable over time as their knowledge of the industry and the organization’s policies increase. Consequently, performance management has shifted from a competitive performance evaluation model towards ongoing coaching and employee development.

According to HR expert Josh Bersin, “Companies that provide high levels of development planning and coaching to their employees have a third less voluntary turnover and generate twice the revenue per employee of their peers. These are huge returns.”

This shift is supported by performance management systems that offer coaching tips and features for managers such as:

  • Automated coaching tools
  • Assignment of a coach within the system
  • Communication and documentation tools to track employee performance
  • Links to on-demand related coaching information
  • Workflows to track coaching and mentoring activities

These tools provide a digital record as well as data about how meetings impact performance, engagement, and turnover.

Agile goals

Business priorities change quickly and frequently. A goal set at the beginning of a year may not hold relevance for the company or individual weeks or even months later. As the entire performance appraisal process evolves, it’s best to think of your workforce as a valuable sports team: regular feedback, communication, and coaching will create high levels of performance. To facilitate high performance and employee engagement going forward, it’s necessary to have modern systems that encourage employee feedback, frequent check-ins, collaborative assessments, skill development, and social recognition.

End-to-end talent management

Recruitment, onboarding and training, performance management, and learning and development are tightly woven together. Because of this, one of the biggest trends in HR software is the shift from standalone or best of breed solutions to integrated product suites. Touchpoint solutions for payroll or recruiting provide tailored functionality for specific tasks and niche problems. However, a single vendor solution offers a seamless user interface, easy access to data across the system, and comprehensive analytics.

Common performance management software applications

When choosing a performance management tool, there’s no one-size-fits-all solution. Different business sizes and types may need additional features, so it’s important to consider your company’s goals, needs, and industry.

That said, the market can be broadly divided a few ways:

Business size

  1. Enterprise: For large organizations, a performance management system that integrates with existing HR software or ERP systems is necessary. Large companies upgrading legacy applications should consider integrated suites from one vendor, or ensure new software will integrate seamlessly with existing systems, like payroll and onboarding.
  2. SMB: Thanks to SaaS deployments, small-to-medium-sized businesses can benefit from a robust performance management system. For growing SMBs, scalability is one of the most important factors to keep in mind — you don’t want to outgrow your system in a matter of months. As you scale, you’ll need to continually evaluate company goals and growth projections to ensure your vendor is still a good fit. If you find your system lacks the functionality you need, don’t continue to upgrade with the same vendor just to avoid having to transfer your employee data to another system.

Application type

  1. Best-of-breed: Do you already have comprehensive HR software in place, but find your performance management tool is subpar? If so, then a standalone system with more advanced functionality is necessary — especially if you’re satisfied with the majority of your HRIS. Just be sure that the new performance management software integrates with the existing platform.
  2. Integrated suite: If you want to improve your entire talent management process, create an efficient and effective performance management system from scratch, or upgrade from overwhelming spreadsheets, then an integrated suite with multiple modules is best. Consider a suite that includes modules for payroll, employee recognition, and applicant tracking.

How to create executive buy-in

To create executive buy-in for a new PM tool, you must build a compelling proposal. Luckily, talent management affects each individual department as well as the organization as a whole. To ensure successful adoption and long-term ROI, focus on what’s in it for your decision-makers. Below are a few ways to align your initiative:

CTO/CIO:

Your technology leadership team is an excellent resource to help you conduct a performance management system comparison. Involving them early on, as they can ensure the new technology will fit with existing systems and infrastructure.

If you’re replacing a self-developed or on-premise legacy solution, a modern talent management system can reduce infrastructure requirements, updates, and support, which frees the IT department to focus on more strategic organizational goals. Additionally, CIOs can determine if a new system aligns with the company’s growth and three to five-year technology lifecycle plan, ensuring it provides a return on investment.

The CIO will eventually manage your new system anyway, so make them an ally upfront. A strong endorsement from IT will give you a better chance of gaining buy-in from other execs.

CEO:

People build businesses, so developing a world-class workforce is a top priority for CEOs. A performance management system works as an accountability system for individuals, teams, and the organization. Once a CEO sets high-priority objectives, performance management software can ensure departments achieve those objectives. From company goals, departments and teams set their responsibilities, which then cascade into individual performance improvement plans.

Since your CEO is concerned about the big picture, highlight how performance review software helps align workforce skills, development, and performance. The software manages expectations for the results the company expects every single employee to achieve. And by defining clear roles, managers can see if employees perform above or below expectations and can identify where individuals should develop their skills.

CFO:

Document how the company will evaluate the effectiveness of your performance management system before you implement it. This will be the first thing your Chief Financial Officer wants to know. Identify the outcomes you expect from a successful system implementation, and how your company will measure them. In addition to presenting upfront costs, prepare to outline ways a performance management system will give back to the company — especially regarding the bottom line.

Mention that with performance management software, you can actively manage and track performance investments with metrics. Teams can also use reports and analytics from a modern system to calculate ROI for both revenue and talent growth.

Executives invest in solutions that help the company make money, avoid risk, or that serve long-term strategic purposes. Performance management software fits all of these criteria. Create a common language and shared perspective to connect the dots for decision-makers. Speak their language and use data to back up your proposal whenever possible.

Choosing the best performance management software

This analysis of the performance management market, prominent features, and current trends can be used as a starting point for your software purchasing decision, as well as a means to create buy-in.

If you need guidance choosing a solution, you can speak with one of our in-house tech advisors to get free personalized product recommendations by phone or use the TechnologyAdvice Product Selection Tool at the top of the page to find recommended products based on the features you need.

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