In recent years, the annual performance review has come under considerable 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 shares five reasons why measuring employee performance is vital for both employee and employer (beyond compliance requirements). We've also provided links to articles that offer more guidance and tips on improving performance management processes in different areas.
Below are five ways that measuring performance is essential.
1. Enables employee growth and development
Managers who don't accurately and attentively measure employee performance will 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, i.e., what they want most. Based on Culture Amp's research, people who stay with an organization are 24% more likely to say they have access to the learning and development they need.
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 also ineffective. Think about the same room where you turn up the heat while not knowing that all the windows are open while freezing outside.
To increase employee satisfaction and enable people to grow within their roles continuously, 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 tips on getting 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 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 set their own goals – not the manager or the company. And the key to doing this right is to have employees align their individual goals with 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 performance data, they can be too ambitious or easy. When goals are too ambitious and out of reach, people can become burnt out, decreasing self-efficacy, increasing turnover, and leading to unethical behaviors.
On the other hand, when employees have too easy goals, the company is not tapping into their full potential. And from an employee perspective: if they cannot grow by stretching themselves, they will quickly become disengaged, bored, or even stuck. By now, the dangers of this situation are well known: lower productivity levels, less innovation, and higher chances of turnover. Even when an ambitious goal hasn't been reached, employees might still have grown substantially while trying to achieve 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 projects, goals, and growth are less likely to be confronted with burnt-out or disengaged employees and more likely to have employees who meet the team and organizational goals.
This article provides one-on-one meeting questions to help managers explore development and goal progress with direct reports.
3. Better understand your company performance
When you know how well your employees perform, 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 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 to improve.
However, employee performance is strongly tied to employee engagement, which is driven and shaped by company culture. Companies' most impactful areas are the company culture and the systems (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 than the individual.
Learn how to 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 highest-performing employees successful. This gives you the insights you need to help other employees become better performers and the insights to retain 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 to top performers exiting because the environment doesn't fit their needs or potential top performers not even getting hired. Perhaps this is because they are too different from the norm, or 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, precisely performance measurement, is crucial for all things related to compensation and employee role trajectories (e.g., promotions, stretch goals, internal role changes, and terminations).
Resources are limited and should be tied to performance, so you want to ensure that compensation decisions are fair and that top performers get the recognition they deserve. On the other hand, low performers need feedback and targeted coaching to improve their performance. Improving individual performance 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 people's livelihood depends on it, it is crucial to design a science-backed fair performance management process, ensure that potential biases are recognized and mitigated, and take steps to make the process transparent in both the review processes and resulting decisions.
For some inspiration, check out this article on 20 employee recognition ideas that work.
Taking the next step
While the traditional performance review (rightly) often comes under fire, employee performance measurement is still necessary. With this information, a business can successfully operate, grow, and provide the best for its people.