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Performance Management System: Key Features, Components and Types

Understanding the tools and techniques to make the most of your performance management system

Using a performance management system can bring a wide range of benefits to your company. Customizable templates and scheduled reporting means that managing individual and team performance doesn’t have to be a time-consuming process. 

Advantages to using a performance management system include:

  • Clarity regarding individual, team and company-wide goals so that everyone is aligned.
  • Real-time monitoring of progress towards achieving goals and understanding what drives performance.
  • Ongoing feedback to strengthen relationships while boosting motivation and engagement.
  • Developing individual and team talent stacks to create a workforce capable of creative solutions and innovations.

Let’s take a closer look at the key features and components of a performance management system that you can use to optimize workflow and get the best results from individuals and teams.

1. Setting goals and aligning individuals and teams with the organization

Creating dynamic goals within a performance management system is a must. Goals which align employees ambitions with the company’s core mission are far more likely to be achieved than those set in isolation. 

The ability to modify these goals throughout the development cycle can be achieved through feedback in conjunction with data analytics, so that goals are always achievable. The role of HR and management is to help employees see the nexus between their personal goals and the overall organizational strategy. This link enhances the sense of meaning in an individual’s career.

Setting big hairy audacious goals

Setting ambitious goals which make employees think big is a great way to enhance motivation and engagement. These big hairy audacious goals are particularly effective for motivating the high performing employees in an organization.

Using the SMART goal method for more achievable objectives

For the more pragmatic goals relating to the day-to-day workload of employees, SMART goals are the way to go. An acronym for Specific, Measurable, Achievable, Relevant, and Time-bound, these goals help individuals and teams focus on delivering the measured results related to ongoing projects and other duties.

2. Tracking progress towards objectives in real-time

Effective leadership is not about making speeches or being liked; leadership is defined by results not attributes.

Peter Drucker, management consultant

One of the core elements of the performance management process lies in the ability to track progress towards the completion of objectives in real-time. This is best achieved by setting clear metrics to measure success and failure which are understood by everyone involved in the objective at hand. 

Performance management tools allow users to set these metrics, then reduce them to easy to interpret measurements that can be easily tracked. This data can then be reviewed on a regular basis, allowing for real-time feedback and creating the framework through which problems can be spotted and addressed.

Common methods used to measure performance include:

  • Objectives and Key Results (OKRs). Role-related goals with tangible expected results can be tracked via objectives and key results (OKRs). Metrics relating to output, sales and other measures can be easily tracked via this method.
  • Key Performance Indicators (KPIs). Key Performance Indicators are versatile metrics which HR leaders and managers can apply to a broad range of expected outcomes, including for the development of soft skills and other measures relating to employee performance and development.

Integrating goals into performance management tools with customizable reporting

Understanding how well progress is being made towards objectives requires the use of key components of a performance management toolkit. These include:

Dashboards for KPIs and OKRs

Managers and employees alike can use real-time dashboards within their performance management app to track their KPIs and OKRs. Since these dashboards can be tailored by the user, they can be set up to focus on specific metrics and goals to keep employees aligned with the most important tasks.

Today Screen function for daily insight

A Today Screen allows users to view a snapshot of the day’s expectations. Current objectives can be seen alongside other responsibilities – for instance, any upcoming meetings or reviews – to assist with time management.

Data analytics and reporting

Performance management tools provide a comprehensive range of information. Using the data analytics and reporting feature allows managers to break this information down and view what matters the most to performance. Customizable reports can be automated and scheduled to save valuable time and energy.

3. Conducting frequent performance appraisals and reviews

Just as tracking and updating objectives needs to be considered as a continuous process, so too should managers and HR leaders make ongoing feedback a core component of their performance management strategy. 

These ongoing conversations help coalesce a number of important factors which drive better performance, from how effectively employees are meeting their goals, to what new training they require to be able to improve their contribution to the company. 

A report from Gartner highlighted the importance of ongoing, forward-looking feedback:

“Gartner research shows that organizations that make performance reviews forward-looking, not backwards-looking, can expect to improve employee performance by as much as 13%. Those that provide ongoing, not episodic, feedback could get a boost of as much as 12%. The third key plank of performance management is peer feedback, which can enhance performance by as much as 14%.”

This feedback can be framed through a variety of mechanisms which can be implemented in an ongoing manner:

General appraisals

Regular one2ones and check-ins should be used on a weekly basis to allow managers and team leaders to connect with employees on day to day concerns. These appraisals should cover a general approach to performance-related issues, for instance:

  • Any issues delivering on goals and objectives, including obstacles to success and a lack of resources necessary to perform duties.
  • Well-being issues which might be impacting upon an employee’s ability to deliver results.
  • Problems with other team members and colleagues which need to be addressed, and a general discussion of an employee’s role within their department.
  • Building rapport and enhancing relationships with staff. Allow time to discuss non-work topics to better understand what motivates employees outside of the workplace.

Employee self-assessments

Objective data on employee achievements only goes so far when it comes to shedding light on issues related to performance. Employee self-assessments offer another layer of insight to help HR leaders and managers make important decisions regarding the development of individuals.

Regular self-assessments can illuminate personal and professional hurdles employees are facing which otherwise might remain hidden from view. Problems at home, struggles with work-life balance, and mental and physical health concerns can all be brought to light through these self-assessments. 

With many employees working remotely – or adopting a hybrid work model – these issues can be much harder for managers to identify without the face-to-face interactions found when working in shared offices.

360 and peer-to-peer feedback 

A final feedback mechanism can be added to offer managers a holistic view of an employee’s strengths and weaknesses through canvassing of colleagues and peers. 

360 degree and peer-to-peer feedback provide insight into an employee’s performance by asking fellow team members and direct reports about their work habits. These feedback requests can be easily set up as regularly recurring surveys through customized templates to ensure delivery on a regular basis.

4. Motivating and engaging employees 

People often say that motivation doesn’t last. Well, neither does bathing — that’s why we recommend it daily.

Zig Ziglar, motivational speaker

A performance management system features several components which HR leaders and managers can use to boost motivation and engagement for employees.. These tools and techniques are easily embedded into day to day processes so that their positive effects can be felt without draining time and energy from crucial tasks.

Build a culture of feedback

A company’s culture should embody the values which matter most to its core vision. Ongoing feedback and regular constructive conversations should be one of the key pillars of your culture strategy.

By making these values a core element of culture and promoting them during the onboarding process and throughout the company’s branding, employees are more likely to act upon these principles.

Instigate awards and recognition programs

Employees perform to a much higher standard when they feel that their input into the organization is valued. Award and recognition programs can be built into the architecture of a performance management system so that the visibility of praise and rewards is maximized.

Peer-to-peer recognition programs add an additional layer of positive feedback beyond the recognition given by managers. The ability to celebrate the achievements of colleagues boosts overall confidence while encouraging a healthy degree of competition.

Conduct employee engagement and sentiment surveys

Regular surveys – for instance, Employee Net Promoter Score (eNPS) surveys – give HR leaders and managers a constant flow of feedback about how the workforce feels about their progress. These surveys can be customized so that questions can be tailored relating to specific company initiatives leaders may wish to track, or to cater for under-performing employees.

Through analysing the data gathered from such surveys over time, business leaders can better identify any departments which might be experiencing engagement issues that are inhibiting performance.

5. Employee development initiatives

Performance management for businesses isn’t just about keeping employees focused on achieving their current objectives. It’s also about ensuring they develop the skills and abilities to perform above and beyond the baseline expectations. 

The Harvard Business Review article, Give Your Employees Specific Goals and the Freedom to Figure Out How to Reach Them, emphasises the importance of building employee talent stacks. “As more aspects of work become automated, it is increasingly important for people to focus on building skills that support creative and innovative tasks only human beings can perform.”

Developing individual and team skill stacks not only creates new opportunities for employees within their current roles, it also expands their horizons creating scope for lateral promotions.

High performing companies understand the need to invest in employee learning and development. Performance management tools offer the necessary evaluation to pinpoint areas that can be improved through training.

Key features of performance management software you can use to develop employees include: 

Establishing Personal Development Plans and setting up performance improvement plans

Employee development begins when they first start at the company. The onboarding process should include the creation of Personal Development Plans (PDPs) which help HR leaders and managers understand the skills they are bringing to the organization, and the tools and resources they may require to enhance those skills and develop new ones.

These plans are invaluable reference points throughout an employee’s tenure, and can be augmented by performance improvement plans should they find themselves struggling to fulfil their duties. Aligning these plans to the broader strategy of the organization means that their personal and professional development is geared towards optimal return on investment.

Providing opportunities for coaching and mentoring

Employee development is naturally tied to coaching and mentoring, and HR leaders and managers should view this as a continual process. Tracking OKRs and KPIs, understanding absence and sickness patterns, and bringing the ongoing review process back to personal development plans all help guide decisions about learning.

Additionally, the use of a performance management suite’s people and skills databases allows HR managers to connect employees with complementary skills from across the organization. This allows companies to maximize how the various talents within their organization are used, connecting them via social intranet, forums and through dedicated channels in Microsoft Teams.

Dealing with succession planning

Performance management tools also allow leaders to identify those employees with the necessary soft skills to become great leaders themselves. Leaders who are cultivating employees for management positions can draw upon their performance management data to gain a clearer insight into a variety of relevant competencies.

Performance management tools:

  • Allow users to plan for career development conversations
  • Recognize and prioritize talent development opportunities
  • Give an clear overview of employee progress during their time with the company
  • Rank employees so that high potential employees are highly visible