Performance management has evolved in recent years.

Many organizations have moved from traditional models—rooted in the annual

review—to more modern approaches. Discussing performance in real time has many benefits, but just changing the cadence isn’t enough.

The right approach, process, and tools make it possible to drive employee and team performance for business success.

The best performance management programs humanize performance, empower managers as coaches, and keep performance and
growth top of mind.

In this blog, we’ll help you better understand what performance management is, why it matters to your business, and how to build an
effective performance management program.

What is performance management?

Performance management is the process an organization uses to motivate, measure, and develop performance of its individuals and
teams to support the organization's goals and objectives. Performance management can focus on the performance of the organization
overall, teams or departments within the organization, or an employee’s individual job performance.

Performance management definition

Performance management is defined as an ongoing, communication process in which managers help employees by:

Clarifying expectations
Identifying and setting goals
Providing feedback
Reviewing results
Determining developmental opportunities

Effective modern-day performance management is a strategic approach that weaves together touch points throughout the employee
experience and aims to improve and motivate employee performance.

How performance management impacts employee performance

Your employees have unique responsibilities, strengths, contributions, and experiences that help (and sometimes hinder) performance.
How they go about achieving their goals might look a little different.

Performance management impacts employee performance by ensuring employees have clear goals and priorities, an
understanding of where their performance falls, and frequent feedback and coaching from their managers.

How performance management impacts team performance

Many businesses have shifted from rigid organizational hierarchies to more effective and agile team-based models and cultures. Team
performance increases accountability and ownership of individual performance through transparent, aligned, and shared goals.

Performance management impacts team performance by helping people leaders build positive relationships between team
members and create a culture of feedback that motivates employees to work better together.

How performance management impacts organizational performance

Workplaces need to bring people, processes, and systems together to get work done. When individuals and teams understand how and
why their contributions impact organizational outcomes, they’ll be more likely to continue contributing to business success.

Performance management impacts organizational performance by helping businesses promote transparency, alignment, and
collaboration so that all employees and teams are working together to reach a common goal.
History of performance management
Performance management has taken many shapes over the years. And traditional approaches across organizations usually followed this
framework:

Set goals at the beginning of the year

Work on those goals throughout the year
Review performance at the end of the year
Determine compensation and bonuses based on performance

Employees were categorized as high, middle, or low performance workers, and contributions were measured by output versus outcomes.
These systems were built to suit workplaces at the turn of the 20th century—but work environments were much different then.

Continuous performance management

As businesses have evolved over time, so has performance management. Today, organizations are leveraging their talent as a
competitive advantage and prioritizing innovation and critical thinking over execution.

This evolution has inspired a shift from annual appraisals and goal management to continuous performance conversations and feedback.
A continuous approach allows leaders to capture real-time data and coach toward ongoing progress.
Peter Cappelli, Director of the Center for Human Resources at The Wharton School of Business at the University of Pennsylvania, outlines
three reasons for adopting a continuous performance management approach.

Employees want ownership over their development.

As millennials continue to monopolize the workforce, businesses will be forced to create cultures that encourage employees to design their
own paths to success. Continuous performance management gives managers the opportunity to coach employees in real-time and reflect
on current work to help determine where they should focus going forward.

Managers want teams with a unified purpose.

High performing teams are made of talented employees who feel supported by their managers, peers, and senior leadership. While
individual goals are important, team goals help businesses grow and drive ongoing performance for the long-term.

Businesses need to be agile and tech-savvy.

The future of work is unpredictable. To stay the course, organizations need access to technology and systems that help their:

Leaders quickly review, adjust, and adapt their strategies as needed

Teams set, align, and track progress on goals
Employees understand their impact with clearly defined and transparent goals

Why is performance management important?

A study by Harvard Business Review Analytic Services found that more than half of business leaders chose productivity as a primary
business goal for their organization's investments in performance management, employee engagement, and development. Yet only 31%
say they’ve actually improved productivity as a direct result. This is where performance management comes in.

The connection between organizational performance and business success

Better performance across the organization means a better chance at hitting organizational goals and achieving key business outcomes.
When performance is measured and discussed continuously, it builds engagement and vice versa. Put simply, when employers prioritize
collaborative, transparent, and supportive performance management practices, employees are more engaged and ultimately more
successful.

Purpose of performance management

It’s clear that performance management is an essential part of business success. There are many reasons for performance management.
When designed and implemented correctly, your performance management cycle has the power to:

Clarify and reinforce expectations and accountabilities

Align goals under the organization’s vision and mission
Engage and retain top performers
 Develop and grow employees, personally and professionally
Encourage critical thinking, agility, and creativity
Motivate employees toward success

Building an effective performance management program

Besides the people who make up your organization and the process or system you use to manage performance, an effective program is
made up of the following key elements.

1. Clearly defined ownership.

Like other workplace initiatives, performance management is not solely an HR function. Performance management programs require
ownership and involvement of all employees in order to be effective. Buy-in should start with senior leadership, but that’s not where it
ends. Make sure you explain the unique benefits and components of the program to employees, managers, and leaders.

2. Shared accountability.
If you’re moving toward a model of continuous conversations, it’s important that both managers and employees are delivering on what’s
expected of them. Ownership is only the first step. To create shared accountability:

Employees should regularly contribute and collaborate on goals and meetings

Managers should provide frequent feedback and coaching
Leaders should continuously communicate and advocate for your performance plan

3. Regular communication.
Communication is critical to successful implementation and adoption of any talent initiative. Leaders, managers, employees, and HR
business partners (or communities) should understand the intent of your program and how they contribute to its success. Customize your
message and be sure to communicate frequently and consistently.

4. Individual approach.
Employees have different ways they like to be motivated, receive feedback, and be recognized. People leaders should take note of these
preferences, individualize their approach to employees' matters, and coach them to better behaviors. When employees feel their individual
contributions and strengths are valued and understood, they are more likely to be engaged and perform better.

5. Consistent training and support.

You can’t expect employees to jump into a new program and figure it out on their own. Whether you’re adopting a new philosophy, using a
new tool, or setting new expectations, you need consistent training for employees and managers. When training employees, you want to
focus on the behaviors and skill sets you want them to understand and adopt. These can include:

Conducting an effective one-on-one meeting

Asking for and receiving critical feedback
Developing shared individual and team goals

6. Growth mindset.
Employees perform better when they adopt a growth mindset—a belief that they can always improve and achieve more. When they do,
employees:

Put in more effort

Seek feedback to improve
Find role models to learn from
Take smarter risks
Set better goals
Pro Tip: Connect performance management and employee engagement.
In a recent survey, 81% of respondents strongly agree that highly engaged employees perform better. And organizations have been
capitalizing on improving employee engagement for years. Engagement and pulse surveys allow organizations to collect employee feedback
that helps them build better employee experiences. But what about employee performance?

Your performance management program should demonstrate value to your business. When you think about your engagement survey
feedback, consider how perceptions have or have not changed toward elements that drive performance—like feedback, career growth,
and open and honest communication.

If perceptions have improved, you should attribute those outcomes to your performance process. If not, consider perceptions related to
other performance management elements, such as:

Goal alignment
Clear performance expectations
Real-time recognition

3 steps to improve your performance management process

Your performance management strategy should empower employees with frequent coaching, feedback, and opportunities to develop their
knowledge and skills to help them reach their full potential for individual, team, and business success.

Here are three steps to help guide your performance management process.

1. Conduct an audit of your current performance management process.

In order to design a successful performance management program for the future, you need to assess your past and current experience.
Yet only 22% of organizations have updated their performance management approach within the past year. HR leaders must review and update
these practices frequently to keep up with industry, marketplace, and workplace trends.
Ask yourself:

Do our processes and systems align with the pace of our business?
How does our current process help us achieve our org-wide goals?
What gaps or blindspots do we have with our current process or system?

2. Make sure employees are a key element of the process.

Rather than performance management happening to employees, they should be a critical part of the process through shared goal setting,
multidirectional feedback, and continuous conversations.

Ask yourself:

Do our employees have what they need to perform at their highest level?
How are we helping coach employees to leverage their strengths?
What other support or training do they need to own their performance?

3. Create an agile approach.

Annual goals can become quickly dated if organizational changes occur. Keep your biggest business objectives and key results top of
mind and updated on a regular basis. Build a process that gives you a detailed view of real-time employee performance so managers can
take action and actively retain and develop their team.

Ask yourself:

Do our managers have what they need to be successful performance coaches?

Are we using the right tools to help us adapt and adjust organization-wide goals?
Do employees understand how their goals align with business outcomes?

How Fossil Transformed Their Performance Management Process

 Fossil Group saw immediate progress when it evolved its company-wide performance approach—however upon further analysis it
found that 35% of individual goals were misaligned or lacked impact on strategic priorities.

Here’s how they adapted for business success:

> They moved to continuous performance conversations and feedback by implementing informal “check-ins” that could be
launched and customized by any employee, at any time.

> They built intuitive goal conversation templates to organically include opportunities to discuss and collaborate on setting clear,
aligned, and motivating goals.

> They brought performance conversations full circle by building recognition toolkits for managers and launching an online peer-
to-peer recognition program to keep the conversation going.

6 performance management best practices for redesigning

your program
As businesses continue to transform how they do work, so will their performance management processes. Rather than manage and
evaluate employees through annual employee performance reviews, organizations are prioritizing motivation to help their teams reach their
potential.

Here are 6 best practices for redesigning performance management to move your program forward.

1. Shift from top-down to shared ownership.

Continuous performance management is about shifting to a model that positions managers as coaches. This approach lets teams drive
performance, while managers and leaders coach along the way.

2. Move from annual reviews to frequent performance conversations.

Annual employee performance reviews are subject to bias because they rely on the memory and recollection of past performance and
behavior. More flexible, two-way conversations (or check-ins) allow more frequent, real-time conversations throughout the year where both
the employee and people manager shape the agenda and discussion.

One-on-one meetings should happen monthly to allow managers and employees to discuss performance and other important topics
frequently. These meetings can cover a variety of topics and should always be:

Developmental and future-focused

Transparent and timely
Inclusive of the employee voice
Aligned with employee aspirations

Performance conversations should be devoted to performance and occur at least quarterly.

3. Expand feedback from manager-employee to 360.

Whether feedback is positive or corrective, it shouldn’t have to wait until the end of the year. In fact, 71% of employees prefer immediate
feedback and 72% said their performance would improve if their managers provided corrective feedback.

Managers don't always have a direct line of sight into their employees’ performance or developmental needs to provide constructive
feedback—which can create bias. Manager-employee feedback is key, but adding peer feedback can help paint a bigger, clear picture of
performance.

Employees should seek out 360 feedback and participate in self evaluations. This will help shift everyone in the organization to feel more
comfortable sharing feedback and motivating performance.

4. Transition from evaluation to development.

68% of millennials who feel they’ve had development opportunities at work in the past year plan to stay at their organization for at least
another year. Employee development helps managers understand what motivates employees and makes them tick. Not only that, effective
development programs can help upskill or reskill employees to become more valuable contributors to team and organizational objectives.

5. Drop stale celebrations and recognize the human behind the work.
Traditional performance management approaches offered compensation (or pay-for-performance) as a way to reward high performers.
But today’s workforce isn’t motivated by monetary benefits alone.

While compensation conversations are still important, organizations are separating pay from performance and emphasizing positive feedback
and recognition to increase engagement and motivate performance. Recognition should go beyond employees' individual contributions and
celebrate the behaviors that support and reinforce your organization's mission, vision, and values.

6. Ditch the antiquated paper process for digital tools.

Organizations are employing workers of all types—from remote to gig and hourly to salary. No matter the makeup of your organization,
you need technology that links teams and their performance. With the right digital tools:

Employees can set goals, schedule check-ins, provide feedback and recognition, and stay connected between check-ins
Managers will have greater visibility and transparency into goal progress and performance, employee recognition, and feedback
Organizations won’t be dependent on "seeing" employees to understand their performance and how it does (or doesn’t) impact
business

Components of a successful performance management

system

A strong program and effective process for performance management are foundational aspects to leveraging your talent for business
success. In order to support, enable, and empower your efforts, you need a next-generation performance management system.

Here are the components that make up a successful performance management system and how to put your program and process into
action.

1. 1:1 performance conversations that build relationships and inspire growth.

Frequent one-on-one meetings allow managers to discuss employee performance and goals throughout the year. They are the foundation
of any performance management system, giving managers the opportunity to ask questions, tackle challenges their employees may be
facing, discuss organizational changes or decisions, and build a collaborative employee development plan.

2. Goals that clarify what matters and help measure performance.

Approaching goals with thought and intention allows managers to motivate employees and their teams by promoting and prioritizing the
right behaviors. Goals make it easy for employees to know if their performance is on the right track, how they align with the organization’s
goals, and illustrate how they contribute to team and business success.

3. Feedback that provides a comprehensive picture of employee performance.

Feedback helps managers narrow in on broader engagement efforts at the individual level by understanding how an employee is
impacting their peers and operating within the context of the team. It gives managers the ability to individualize their approach to employee
coaching to create a structured path for development, beyond evaluation.

4. Recognition that drives meaningful behaviors and celebrates employees.

Recognition is central to employees feeling good about the work they do. It motivates and empowers employees to repeat the behaviors
that matter most. When meaningful behaviors, achievements, and overall effort is recognized, it illustrates what is valued and celebrated
within the organization.

5. Talent reviews that allow managers to evaluate performance, growth, and risk.
These assessments enable managers to develop interventions to improve their team, engage high performers, provide stretch or growth
assignments, or determine areas of improvement. When high performers are recognized for their contributions and provided opportunities
to develop and grow, they are more likely to be engaged.

6. Employee development that builds and develops top talent.

Organizations who influence and nurture their workforce’s desire to learn are at least 30% more likely to be market leaders in their
industries. Offering the right learning opportunities for employees can engage employees at each level based on their needs and better
support your organizational vision.

Choosing the right performance management software

Choosing a performance management software that fits your workplace culture is essential to the success of your strategy. When looking for
technology to complement your people and team performance management process, you need a solution that can bring elements of an
effective system together.

Look for a provider that isn’t limited to standalone systems or tools. Instead search for one that supports and propels organizational
growth.

Here are 6 performance management software features you should look for.

1. Integrates with your HRIS.

HR is responsible for a lot when it comes to employee performance. Make sure your new performance management system integrates
with not only your existing HRIS, but other systems and databases to remove the administrative burden of getting started.

2. Customized to fit your culture.

For a performance management program to be welcomed and adapted by your employees, it has to feel like a natural part of your
organizational culture. That means your performance management software should be customizable to fit the needs of your organization
so that it becomes ingrained and integrated with other processes and traditions.

3. In-tool nudges and alerts.

Busy schedules are a big obstacle when it comes to effective and continuous performance management processes. Look for software with
in-tool and email notifications that notify and surface important insights and actions to managers.

4. Mobile app or access.

Help employees of every level track and motivate performance no matter where they work (and when). Make sure your performance
management software can be accessed from computers, tablets, and mobile devices.

5. Access to integrated performance tools.

The best performance management software allows you to integrate all your performance tools in one place—including goals, 1:1s,
recognition, feedback, and talent reviews. Find a software that allows users to access them all with one, simple login to decrease hassle
and increase usage.

6. Reliable service and support.

A user-friendly performance management system is great, but if your software partner isn’t accessible, responsive, and friendly when you
(or your employees) have questions, then it’s not the system for you. Look for a vendor that provides a dedicated support team, resources
and templates, and keeps you informed on the latest trends and research.

Conclusion

The state of performance management is always evolving—and will likely be at the top of many business leader and HR agendas for the
foreseeable future. To continuously achieve business success, organizations will need to adapt and adjust their approach to attract and
retain high-performing employees.

Changing focus from annual performance reviews to continuous performance conversations and creating a process that drives employee
engagement, employee and team performance, and business success will help:
Employees understand why their contributions matter and how to make a bigger impact
Managers coach successful teams by providing continuous feedback and building aligned goals
Leaders tie performance metrics to business outcomes to build a competitive workforce

To learn more about leveraging performance management to drive employee, team, and business success download this new report, The
Business Case for Modern Performance Management.