In recent years, the annual performance review has come under a huge amount of scrutiny. As a process, it’s painful for everyone involved, and many believe it to be ineffective and inaccurate. In fact, almost 95 percent of managers are dissatisfied with how their company conducts performance reviews.
This dissatisfaction has led to some companies doing away with annual reviews completely. However, these companies have not stopped measuring employee performance. On the contrary, they are considering a continuous feedback model with more frequent check-ins on performance, goals, and development. And some of the top-performing companies have already adopted this new model.
This article discusses five reasons why assessing employee performance is absolutely vital for both employee and employer (beyond compliance requirements). We’ve also provided links to articles that offer more guidance and tips on how to improve performance management processes in different areas.
1. Enable employee growth and development
Managers who don’t accurately and attentively measure employee performance are going to be out of touch with their employees’ successes and failures. Thus, they will struggle to provide constructive feedback and praise.
Without useful feedback, employees will be less able to improve, grow, and develop – which is what they want most. Based on Culture Amp’s research, we found that people who stay with an organization are 24% more likely to say that they have had access to the learning and development they needed.
Performance measurement without performance development is not going to improve performance. It would be like trying to increase room temperature by measuring it. On the other hand, performance development without performance measurement is ineffective as well. Think about the same room in which you turn up the heat while not knowing that all the windows are open while it’s freezing outside.
To increase employee satisfaction and enable people to continuously grow within their role, constructive feedback on their performance is a must. In fact, in a study on giving and receiving feedback, 92% of the respondents agreed with the assertion, “Negative (redirecting) feedback, if delivered appropriately, is effective at improving performance.”
People want to know how they’re doing, and accurately measuring employee performance helps you deliver targeted, specific feedback if it’s done right.
If you’re looking for some tips on how to get started, check out this article on employee feedback examples.
2. Create goal alignment and company growth
Employees perform better when they have goals to strive for and work towards. Measuring employee performance helps to calibrate those goals by providing insight into where someone is doing well and could be stretched and areas that are not a strength yet. Based on performance feedback, self-reflection and business needs, employees should then set their own goals – not the manager or the company. And the key to doing this right is to have employees align them to the team and company goals.
Goal-setting is a conversation about what the company needs and what the employee can contribute.
When goals are set without employee input or employee performance data, they can be too ambitious or too easy. When goals are too ambitious and out of reach, people can become burnt out and it can decrease self-efficacy, increase turnover, and lead to unethical behaviors.
On the other hand, when employees have goals that are too easy, the company is not tapping into their full potential. And from an employee perspective: if they are unable to grow by stretching themselves, they will quickly become disengaged, feel bored or even stuck. By now, the dangers of this situation are well known: lower levels of productivity, less innovation, and higher chances of turnover. Even when an ambitious goal hasn’t been reached, employees might still have grown substantially in the process of trying to reach it. It is crucial to communicate if the goal is meant to be a stretch goal and how success is determined.
Managers who regularly measure employee performance and meet with employees about their project, goals, and growth, are less likely to be confronted with burnt out or disengaged employee and more likely to have employees who meet the team and organizational goals.
This article provides a guide for one-on-one meeting questions to help you explore development and goal progress with direct reports.
Want to learn more about performance management?
Check out our eBook: Raising the standard for performance management
3. Better understand your company performance
When you know how well your employees are performing, you can predict how well your company will perform. Measuring employee performance and engaging your employees in regular feedback will give you a window into how your people strategy and prevailing organizational culture affect engagement, and consequently, performance.
This is extremely powerful. With this feedback, you will be able to improve your company’s bottom line and make it a more enjoyable and productive place to work.
How your employees are performing on goals and expectations, is also a reflection on your company. For example, let’s say that a number of your employees are not performing well. It would be tempting to believe that this was an issue related to their level of motivation and conclude that they need to be coached in order to improve.
However, so much of employee performance is tied to employee engagement, which, in turn, is driven and shaped by company culture. The most important aspects that a company can impact are company culture and the systems put in place (e.g. the performance measurement and development processes). So if employees aren’t performing well, it may be time to assess if the company has deeper issues, rather than the individual.
This article delves into how you can start to make connections between organizational culture and business results.
4. Know who to build your culture around
Connecting employee performance data and employee experience data, like onboarding, exit, and employee engagement survey data can provide insights into what makes your top-performing employees successful. This gives you the insights you need to help other employees become better performers, as well as the insights to keep your top performers and build your culture around them.
Without performance measurement, cultures are often built around the average performers since they make out the bulk of your employees. However, this can lead lead to top performers exiting because the environment doesn’t fit their needs, or to potential top performers not even getting hired to begin with: Either because they are too different from the norm or because the average employee might not want to hire them because it might make them look bad.
Dive deeper into the connection between performance and onboarding data in this article that explores how InVision identified three key performance risk factors.
5. Create a fair culture of recognition
A fair performance management process, specifically performance measurement, is crucial for all things related to compensation and employee role trajectories (e.g. promotions, stretch goals, internal role changes, terminations).
Resources are limited and should be tied to performance, so you want to make sure that compensation decisions are fair and that top performers are getting the recognition they deserve. On the other hand, low performers need feedback and targeted coaching, so that they can improve their performance. Improving individual performance not only helps employees contribute to the company’s success, but it also helps with employee morale. When employees think that low performers are tolerated without consequences, it can cause frustration: “Why should I even try if employee X is freeloading?”
Since the livelihood of people depends on it, it is crucial to design a fair performance management process that is science-backed, ensure that potential biases are recognized and ideally mitigated, and that employees perceive the process as transparent in both review process as well as the resulting decisions.
While the traditional performance review (rightly) often comes under fire, the measurement of employee performance is still a must. Only with this information can a business successfully operate, grow, and provide the best for its people.
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