The Hidden Signs You Need a Performance Management Process

The hidden signs you need a performance management process include rising turnover, stagnant productivity, low engagement and unclear growth paths that quietly undermine business success.

"Coaching between a manager and a subordinate should occur day-to-day, and not be reserved for a once-a-year event." Forbes

Performance management is something you hear about often, yet few businesses truly understand what it entails or when it should be introduced or reviewed. It's not just about running traditional annual appraisals — an effective performance management plan is a continuous cycle involving numerous initiatives.

Whether you're introducing performance management or reviewing what's already in place, it's vital to let managers observe, review and give feedback on team and individual performance, empowering people to improve and develop.

How do you know if you need performance management?

Some signs are obvious and easy to measure with basic people analytics, including turnover, productivity and sickness rates.

Others are less visible — employee engagement, development and motivation. These factors can be measured and discussed through a successful performance management cycle, but they're much harder to "see" without the right process in place.

Why do you need performance management?

Performance and engagement go hand in hand; one without the other rarely leads to sustainable business success. If your people perform well but you don't measure engagement, strong results may not last, and turnover could follow. Conversely, engaged but unmeasured employees may be missing training or development they need.

Consider these factors when planning performance management:

• Growth – as headcount grows and management layers form, it becomes harder to track how individuals and teams are performing.
• High performance – as numbers grow, understanding performance becomes essential for business success. You need a strategy with clear goals, measures, rewards and development to help people perform at their best.
• Engagement – performance management shows employees you listen and support them through feedback, training and development — often boosting motivation, retention, wellbeing and happiness.
• Retention – if turnover is high or rising, review exit interview feedback and assess performance-related terminations. Performance management helps you spot and address issues before they escalate.

Measure performance AND employee engagement

With the Great Resignation still simmering, understanding how your people perform and view their development is critical. Listening to feedback about personal growth and career aspirations may help you retain those considering a move.

A recent survey found two-thirds of UK workers plan a career change within a year, seeking a more progressive approach to work. Those planning to switch companies while keeping a similar role rose from 5% to 8% since July 2020. While you can't retain everyone, a vigilant, organized performance management process can help you keep more of your best people.

What should the performance management cycle include?

An effective performance management cycle should include several core elements. Missing these may signal your process needs updating:

• Objectives and key results (OKRs) – set collaboratively, not just once a year. OKRs connect short-term goals to long-term objectives, and should be measured and discussed regularly to drive motivation.
• Reviews or appraisals – a review of performance since the last appraisal or over a set period. These establish objectives, gather 360-degree feedback from managers and colleagues, and give employees a chance to share their own development needs. Feedback must be ongoing, not just annual.
• Employee surveys – gathering feedback through an employee engagement survey once every few years isn't enough. Regular pulse surveys measure satisfaction, wellbeing, motivation and culture — often revealing insights employees wouldn't share face to face.
• Training and development – should be continuous, not a once-a-year conversation. A reviewable plan ensures ongoing growth tailored to each person's needs.
• Technology – essential for remote and hybrid work. Systems must be user-friendly, engaging, cost-effective and support open feedback, with LMS systems incorporated where relevant.

Each business is individual

Deloitte scrapped traditional appraisals over five years ago after 58% of executives said their process failed to drive performance or engagement. Their existing appraisal system consumed nearly 2 million hours a year company-wide. Performance management techniques will always differ by business.

A performance management process is integral to the business and employee experience. Whatever tools you use, treat it as a continuous process that inspires and monitors your people. Success requires buy-in from leaders, managers and employees, shaped by your culture and values. If you're reinventing your process, take the opportunity to modernize rather than follow outdated, traditional routes.

Frequently Asked Questions

What are the hidden signs you need a performance management process?
Rising turnover, stagnant productivity, low engagement, unclear growth paths and difficulty tracking performance as headcount grows are key hidden signs.

Why is performance management important for employee retention?
It shows employees you listen and support their development, which increases motivation, wellbeing and loyalty, reducing the risk of turnover.

What should a performance management cycle include?
It should include OKRs, regular reviews or appraisals, employee surveys, ongoing training and development, and supportive technology.

How often should performance be reviewed?
Performance should be discussed continuously, not just once a year, with regular check-ins, pulse surveys and ongoing feedback.

Can performance management differ between businesses?
Yes, each company should tailor its performance management techniques to its culture, size and goals rather than following a one-size-fits-all approach.