How to Optimise your Performance Management Cycle?

​‘Performance management is the continuous process of improving performance by setting individual and team goals which 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, Handbook of performance management.

Performance management is an essential component of your company and workplace culture as done well, it can measure and develop your people so they can perform at their best to achieve business objectives. It allows you to shape and align employee performance to business success and focus on a continuous cycle of specific areas.

The Performance Management Cycle

Each company will have a different approach to their performance management, but regardless of the industry, you firstly need to ensure established goals and a business strategy. Then you can align performance management to the overall strategy to ensure that what you want from employee performance matches what the business is seeking to achieve. 

During the cycle, employee performance must be planned, measured, and communicated with employees continuously. It may include goal planning for each role, and therefore individual, communication around the goals and how individuals can achieve them (including the support required from managers), and how you reward and recognise goal achievement.

What Comes First in the Performance Management Cycle?

Phase one is the planning phase, where you set your company strategy and goals for the year (or less). Then, the team and employee goal setting comes next. It’s is also an excellent time to review employee job descriptions and create development plans for each person. 

Goals for all roles must link to the business’s overall performance, and it can be motivational for employees to understand how they can contribute to the company in their role. Individual goals should also be SMART (specific, measurable, achievable, realistic, and timely). Personal goals can also be discussed and agreed upon, including the skills or training an individual needs to develop to meet their goals. 

Without clear company goals, there is little direction or vision for the people in the company, so this planning stage is crucial!

What is Phase 2 in the Performance Management Cycle?

Phase 2 is the monitoring phase in which employees work towards their goals in their everyday work. You need to ensure that their people can perform their roles and achieve their goals with the necessary tools and support. So, this is the time to ensure that training is in place for each individual according to the agreed review and ongoing communication is in play!

It’s not that you need to check in with your people every five minutes, but you should be holding regular one-to-ones to check on progress, find out how individuals are finding the work and help if there are any concerns. The meetings, which may be monthly, between employee and manager are beneficial to check achievements, progress against goals, challenges, and if the level of support is adequate. These meetings should be two-way conversations to give individuals to ask for help or discuss any roadblocks that have occurred. Ideally, you should use coaching skills to engage and provide feedback to an employee.

What Comes Next in the Cycle?

Next, it’s about reviewing the employee. Review meetings may be held once or twice a year to review overall performance to date, progress against goals, training, and career development. It’s an excellent time to gather feedback on the individuals using 360-degree feedback from peers, managers, and employees. Such feedback gives rounded input and lets the person discuss what they think they have done well or could have done differently.

In addition, during the review, you can also discuss your employee’s ideas or wants for their future development so that it’s forward-looking.

Don’t Forget about Reward and Recognition

So, while it’s important to create a performance management strategy and follow it by creating a continuous cycle of monitoring and reviews and working together with your people to develop them, you can’t necessarily expect success if you don’t also factor recognition and reward into the cycle. 

To motivate your people, you need to ideally link performance to reward during your annual performance management cycle. For example, one study found that employee engagement increased by over 40% when employees felt recognised for their work or input to the business.

And it doesn’t have to be about financial rewards. While salary increases and bonuses are an obvious way to reward individuals, they are costly. So, consider other ways to recognise someone who has achieved their objectives or gone beyond. For example, you may give them extra annual leave days, promotions, awards, or company announcements. Over time you can review your reward and recognition programs to assess which are most successful.

Does it Need to be a Continuous Performance Cycle?

Quite simply, yes! The performance management stages are continuous, and it’s not a case of completing one stage, forgetting about it, and moving to the next. All the phases should flow into one another and be reviewed throughout the cycle. For example, feedback should occur throughout the year, not just during a review meeting and goals are subject to change. If there’s a significant business change (COVID is a prime example), then the business planning stage will restart and likely impact the team and individual objectives.

How is Workplace Culture Affected by Performance Management?

There are several reasons why a continuous performance management process can contribute to employee motivation and engagement. For example, if employees feel like an annual appraisal meeting is the only time to discuss their goals, challenges, and development with their manager, how can they feel engaged throughout the rest of the year? There could be fear that they’ll be given the lowest rating and therefore be at risk of underperformance and no reward. 

Even those with the reputation with the toughest performance management measures have removed the rigid annual performance review, which impacted the whole year, which should help improve the culture to one of motivation and not fear. For example, General Electric used their yearly performance review to rank employees, and the lowest 10% were sacked until they changed it over ten years ago! Now, they don’t use the annual review to assess performance and make significant employee decisions. Instead, they use an app for continuous feedback and a much more rounded performance review over time.

There is no magic formula to create a successful performance management process, as each company will differ in what they need and what works for them. However, it is essential to remember that the cycle will evolve and be continuous and flexible to business change. Training managers on the process, giving ongoing feedback to employees, reviewing their goals and progress, and developing and recognising them should increase morale and engagement and create a culture that openly discusses individual development throughout the year. By planning, monitoring, reviewing, and rewarding your people, they will hopefully work hard, feel motivated and help you achieve your business goals.