The winning combination of performance management and people strategy

Is your business still treating performance management strictly as a means of employee evaluation? If so, you may have noticed low morale, engagement and productivity among your workforce – or, worse yet, your company may struggle with heightened turnover.

But when performance management is viewed through a people strategy lens – as in, it supports and is a critical component of your people strategy – that’s when a shift occurs and the magic happens.

Key takeaway: Performance management delivers its greatest impact when it is designed as an ongoing people strategy system, not just a formal process for evaluating employee performance.

What is performance management?

Modern performance management is the structured process that organizations use to align how employees work and the results they achieve with business objectives.

It’s also important to note what performance management is not, any longer. It is not:

• A judgment of one’s performance as either satisfactory or unsatisfactory.
• A simple rating on a numbered scale.
• A single annual review.
• A compliance exercise, or a box to check.
• The sole justification for compensation.
• Something that employees should dread or find demeaning.

Instead, it should be a positive, motivating activity that serves as a strategic growth mechanism for both employees and the business.

For each individual employee, the idea is to support them and optimize their performance to extract the very best output from them. Then the ultimate goal is to drive the success of the organization while simultaneously helping employees reach their own personal goals and strengthening their engagement, morale and productivity.

Companies win, employees win.

What is people strategy?

Need a quick refresher on people strategy? This is your company’s plan for how it will support the needs and professional growth of your workforce over the employee lifecycle and leverage your people to grow the business and accomplish specific goals.

From the discussion on what performance management is, you can see how it is an incredibly vital part of any people strategy. These two concepts are very much intertwined.

Your people are your #1 asset and their performance is what makes your business successful – or not.

What are the core parts of performance management?

For performance management to be successful, it must include the following elements.

1. An understanding of strengths and competencies

To set employees up for success, find out:

• What individuals and teams know and do particularly well.
• How these skills align with organizational goals.
• How to optimize these skills and leverage them for the company’s benefit.

2. Clarification of expectations

Employees who understand the requirements and expectations of their jobs tend to do them better, with more confidence and ownership. There should be no ambiguity in what you want them to do and how you want them to do it.

3. Goal setting

Company and personal goals provide direction and focus.

• At the company level, for employees to be engaged and motivated it’s very important for them to understand how they fit into the overall picture of the organization and how their work aligns with and supports the company strategy.
• On an individual level, everyone wants to know what they should be working toward to get ahead and achieve their own personal ambitions.

4. Ongoing feedback and communication

The era of the single annual review is over. Now, it’s all about continuous performance management, meaning that feedback is integrated into daily conversations between managers and employees.

To be most meaningful, effective and empowering, feedback should be:

• Timely and “in the moment” (delivered as closely as possible to the action precipitating the feedback).
• Frequent.
• Relevant (tied to organizational goals along with the company’s mission, vision, values and culture).
• Two way, in that employees have the opportunity to share their own feedback for the organization on how it can better support the workforce.

Feedback can be offered during:

• Informal conversations.
• Coaching sessions.
• Regular check-ins or one-on-one meetings between managers and employees.
• More formal performance evaluations, conducted quarterly, biannually or annually.

Formal performance reviews still have their place, but they must be paired with regular, year-round discussion. In fact, topics covered during a formal review should never be a surprise, because managers and team members should be in constant communication. A sure sign of successful performance management is each party thinking: “We already know all this because we have talked about it before – this discussion is a recap and summary for moving forward.”

One of the benefits of regular communication is that it allows for proactive intervention and resets when needed – before performances issues drag on unaddressed for too long.

5. Employee development

It doesn’t serve employees or businesses well for people to remain stagnant, keeping the same position forever and never stretching themselves. A key part of performance management is developing employees – expanding their knowledge, teaching them new skills and encouraging their growth and advancement – so they can better serve the organization and find satisfaction in their careers.

Again – companies win, employees win.

6. Accountability

Let employees take ownership of their work and hold them accountable for achieving the results they have committed to.

Rewards and recognition – including salary raises, bonuses, extra perks, more responsibilities and promotions – are powerful motivators to meet goals and align with expectations.

When employees’ performance slips, that’s when performance improvement plans come into play.

The common denominator linking all these elements is strong leadership dedicated to building trust with their teams.

Why does performance management often fall short?

At many companies, performance management fails to live up to its potential because they treat it as an administrative task instead of a strategic tool.

What does “administrative performance management” look like in action?

• It’s an annual exercise centered on backward-looking feedback. Feedback that is delivered months after the fact, when no one remembers what happened during a particular instance and it’s no longer relevant, is not helpful or effective. Instead, this just frustrates employees.
• It relies on rating systems that demoralize employees and fail to offer insightful feedback.
• It’s robotic and task oriented, focusing more on the process and paperwork of managing performance instead of engaging with the people doing the work.
• It’s not tied to goals and doesn’t take a strategic, “preparing for the future” approach, instead focusing on the here and now.
• For employees, it often feels more punitive as opposed to motivating and development oriented.

None of these things build employee capabilities, reinforce a culture of development and improvement, or build trust – and aren’t likely to move the organization in the direction it needs to go.

Additionally, performance management can be diminished by ambiguity and confusion in the form of:

• Inconsistent manager execution, in which every leader is doing their own thing instead of adhering to a standardized process.
• Inconsistent documentation practices.

All these things can lead to:

• Low levels of trust between managers and employees.
• Performance disputes.
• Lack of clarity around goals, resulting in goal drift.
• Reduced engagement and morale.
• Decreased productivity.
• Higher turnover.

How does performance management evolve when aligned with people strategy?

When performance management is tied to people strategy, everything clicks into place. There is:

• Strategic alignment – performance goals connect directly to business priorities, so employees know what they are doing matters.
• Capability development – on-the-job experience, development opportunities and regular feedback build skills that are relevant to the organization’s future and the employee’s career.
• Cultural reinforcement – performance standards reflect company values.
• Servant leadership – managers are trained to provide constant feedback, reward desirable outcomes and coach employees to get them at the level they should be, all while demonstrating transparency, improving communication and building trust between leaders and employees.
• Organizational agility – continual conversations around performance and goals support adaptability to evolving circumstances.
• Organizational equity – everyone is on the same playing field and enjoys the opportunity to be successful, thanks to consistent processes and documentation around performance management.

It’s a shift in mindset from:

Evaluation to enablement and empowerment

Ratings to impact

Isolated review events to a continuous system of development and improvement

Individual key performance indicators to company KPIs and strategic alignment

HR-driven compliance to.a driver of engagement and productivity

Short-term results to long-term capability

Instead of simply saying “let’s rate employees,” it’s more about asking “how do we unlock performance across the workforce to advance the business?”

What are the positive impacts on businesses?

Viewing performance management through a people strategy lens benefits organizations in many ways. Its leaders can:

• Improve engagement, morale and commitment.
• Increase productivity.
• Drive discretionary effort.
• Prolong retention.
• Address performance issues proactively.
• Promote trust, communication and stronger relationships between managers and employees.
• Identify high performers and future leaders.
• Engage in succession planning and future-proof the company.
• Support career growth and progression.
• Encourage organizational clarity.

Key takeaways

• Performance management is not an isolated event or solely a means to rate employees for any other purpose than reward or discipline.
• When aligned with a defined people strategy, performance management becomes infrastructure that enables growth, reinforces culture and strengthens long-term business success.
• The core, must-have elements of performance management are knowing employees’ strengths and competencies, clarifying goals, setting goals, providing ongoing feedback, developing employees and holding employees accountable.
• The many benefits of strategic, future-focused performance management among the workforce include stronger employee engagement, greater productivity and improved retention.

For more information about the power of people strategy, download our free e-book: The ultimate people strategy playbook: Building a winning workforce.

Frequently asked questions