How to evaluate a performance management system

How well is your performance management system actually working? Is it generating meaningful results for individual employees and the organization as a whole? These are questions many managers and HR leaders have asked themselves.

After all, if you’re going to invest time, money, and resources into your performance management process, you want to know that it’s making a positive impact.

But monitoring performance is often nuanced and tricky – and it can be tempting to write off process problems as people problems.

Here’s what you need to know to evaluate your existing performance systems, identify areas for improvement, and move toward an approach that allows your organization to reap the benefits of effective performance management.

Why your performance management system matters

According to research from Gallup, only 2% of CHROs from Fortune 500 companies strongly agree that their performance management system inspires their employees to improve.

Some people view performance management as more of a disruption to their daily work than a valuable tool for growth and improvement. They see it as a tick-the-box exercise – something that employees and managers must complete to keep HR happy.

A lack of interest in performance management becomes a bigger issue when combined with outdated systems for performance measurement and management. Ineffective performance management systems can lead to:

• Low employee morale and high disengagement: When employees treat performance management as an obligation, it becomes more about compliance than an opportunity to make an impact or grow in their role. Meaningful conversations about goals and progress are necessary to avoid this disconnection. According to Culture Amp data, employees are 3.6x more engaged when they have a voice in setting their own goals and aligning them to the company initiatives. It’s critical to make time for these conversations.
• Missed growth opportunities and stagnant employee development: Workers are eager to learn and grow, with 67% of employees saying they want to develop their skills and their careers. Yet, 46% say they lack career support from their managers. When your performance management process doesn’t emphasize and encourage employee development, it can stall growth not only for individuals but also for your entire organization.
• Employee turnover: With no room to grow and advance, many employees feel like the only way up is out. Lack of support for career development is a key reason why people leave their jobs. Culture Amp data shows that employees without consistent development opportunities are 2x more likely to leave within a year. If you’re eager to reduce employee turnover, it’s worth taking a good, hard look at your performance processes.
• Unclear expectations: Gallup research shows that only 47% of workers strongly agree they know what’s expected of them at work. Set your employees up to thrive by providing clear expectations and performance metrics to help them understand what success looks like in specific roles. A structured approach to performance management guides companies in offering this type of support.
• Poor manager-employee relationships: The relationship between managers and their direct reports carries a lot of weight, with managers accounting for 70% of the variance in team engagement. But, if managers aren’t trained or equipped to listen to employee feedback, craft performance improvement plans, and have effective development conversations, workers understandably become frustrated – and employee retention may suffer as a result.
• Goal misalignment: Only 23% of employees say they feel educated on company goals. To get your people fully on board with what your organization is working to achieve, be sure your employee performance management process not only clarifies expectations and objectives for individual performance but also connects the dots between those contributions and the broader company goals. This fuels a sense of purpose and also ensures that everybody has their sights set on the same horizon.

A solid performance management system addresses all of the above and helps you improve the performance of your entire organization.

Despite its value, performance management is an area where many organizations come up short. According to research from the Society for Human Resource Management, while 93% of employers say driving organizational performance is a key objective of their existing performance systems, only 44% say their program is meeting that objective.

5 key signs your current performance management system isn’t working

The stakes are high. So, here’s the inevitable next question: How can you evaluate whether your current performance measurement and management systems are working for you? Are these systems supporting employee growth – or silently stalling it? Here are five telltale signs to watch out for.

1. Your performance metrics are dipping

Data doesn’t lie, so look to the numbers as your first clue. There are plenty of employee engagement and performance metrics you can track and analyze, including:

• Employee engagement: Represents the levels of enthusiasm and commitment employees feel toward your organization.
• Revenue per employee: Ratio that describes the amount of revenue each employee generates at the company.
• Turnover rate: Quantifies the number of employees who have left the organization within a specific period.
• Turnover probability: Indicates the likelihood that employees will leave your organization within a specific timeframe.
• Employee lifetime value: Estimates the total net value an employee brings to an organization throughout their tenure.
• Employee Net Promoter Score (eNPS): Measures whether someone would recommend their company as a great place to work.

Engagement metrics can call your attention to trends or problem areas, but you’ll need to do some deeper digging to discover the “why” behind any changes you’re seeing in the numbers.

2. You hear complaints from employees and managers

It’s worth rounding out the data with qualitative insights from your employees and managers. Ask people at every level of the company how the performance systems are working for them, and really listen to their responses. Ask other leaders what they’ve heard from their teams.

For example, your people leaders might mention that they’re receiving a significant amount of employee feedback that mentions dissatisfaction with your performance appraisals. Or, perhaps you’ve heard managers commiserating that they’re struggling to have effective employee performance and development conversations.

Anecdotal evidence can be another solid clue that your current system is broken or falling short. Supporting your data with qualitative findings (or vice versa) helps you build a deeper understanding of the areas you need to focus on as you overhaul your approach to performance management.

3. Your performance reviews are universally dreaded

Performance appraisals have long been a staple of the performance management process. And, they certainly still have their place in performance measurement and management.

However, only one in five employees report that their performance reviews are transparent, fair, or inspire better performance. That’s proof that something needs to change to increase employee engagement in the process and ensure your reviews are getting results (and not just generating paperwork).

Whether you hear groans from people leaders when it’s time to start the process or notice it takes numerous nudges to get employees to submit their self-reviews on time, pay attention to signs that show people think of your performance review cycle as a hassle instead of a help.

Then you can make strategic changes to improve your reviews. For example, research shows that implementing Culture Amp improves employees’ perceptions of fairness in their performance reviews.

4. Skill gaps are widening

A successful performance management system isn’t just about measuring performance – it’s about improving it. And, when 87% of companies say they currently have skill gaps (or expect to within a few years), your processes should emphasize upskilling your employees for your company’s needs and the future of your industry.

If your organization’s skill gaps are only becoming more pronounced, take that as a red flag that your performance system isn’t adequately emphasizing development or aligning employees’ strengths and desires with your company’s objectives.

5. Your high performers are leaving (or coasting)

If you notice that your best people are disengaging or walking away, it’s a sign that your system may not be giving them what they need. The last thing you want is for your top performers to feel unrecognized, unchallenged, and unappreciated. Research shows that high-performing employees thrive in environments where their opinions are valued and receive continuous feedback and recognition from leaders.

Finding the right fit: What to look for in a modern performance management system

As you’ve read this article, you may have started evaluating your current performance management system in your head. Chances are, you’ve recognized some (or even many) of the signs that your current system isn’t working as well as it could. So…now what?

Start by getting specific about what isn’t working. Which areas of your process are causing problems? For example, perhaps the data shows you that your employees think your reviews lack fairness. Zoning in on defined sticking points like this one will help you focus your efforts as you refine your system and make strategic improvements, such as holding review calibration sessions.

You’ll get plenty of clues about where your process is falling short from your bigger engagement surveys. As you review the results, pay close attention to the indicators we highlighted above.

However, you may also want to run a deep dive survey focused specifically on employee performance and development. This will give you richer employee feedback and insights you can use to improve your process in the most meaningful and relevant ways.

Once you have a better grasp on what you’re trying to fix, you’re in a better spot to find a technology platform that meets those needs. Speaking generally, we recommend looking for the following features and functionality in your new and improved performance management system:

• Integrates with your existing tech stack and communication channels
• Easy to implement and use
• Scalable and customizable
• Provides rich insights and data for executive reporting
• Links performance with engagement metrics
• Facilitates equitable performance management with bias-reducing features
• Supports goal setting and tracking for employees and managers
• Offers clear, personalized development plans for employees
• Promotes a culture of continuous feedback and improvement
• Enables 360 feedback (manager, peer, and self-reflection)

Ultimately, effective performance management is part process and part platform. So, look for a solution that supports the improvements you’re making to your approach.

Looking to the future of performance management: What’s next?

The world of work is changing fast – and that means performance management is too. Understandably, you don’t want to revamp your performance system only for it to be obsolete or antiquated in a few years.

Let’s take a look at what the future holds for performance management so you can refine a process and choose a system that’s not only up-to-date but ahead of the curve:

• Shift from “me” to “we”: One of the biggest shifts we expect to see is that performance measurement will shift from “me” to “we”. What we mean by this is that leaders will look less at individual performance and more at what’s happening at the team level. Individual performance reviews will still be part of the process, but individual ratings will be contextualized through the lens of the team. Why? Nobody (not even your highest performers) can operate at full capacity all of the time. This perspective embraces that reality by allowing leaders to plan rotations and ensure that different employees take the lead at different times.
• Increased appetite for real-time and continuous feedback: Again, performance appraisals still matter, but they can’t be the only place or time for performance conversations. In 2018, an impressive 94% of employees said they want their managers to address performance issues and development opportunities in real-time – a number that’s likely only increased since. And, when Gallup data shows that 80% of employees who have received meaningful feedback in the past week are fully engaged, modern performance management processes are likely to keep communication channels open and make development a continuous exercise (instead of a calendar-based initiative).
• Continued emphasis on data-driven decision making: While there’s plenty of room for qualitative insights and anecdotal evidence, these can’t be the foundation of your performance processes. Instead, turn to your data. 78% of HR leaders say their organization relies more heavily on talent data to make decisions compared to four years ago. We expect organizations to continue tapping into data to gain a deeper understanding of employee performance, personalize development plans, and optimize their resource allocation. Plus, as AI and machine learning continue to get smarter, they’ll become even more helpful in analyzing data and identifying patterns.

Is your performance process due for a performance review?

A clunky or outdated performance management process could be holding your people and your organization back. But it can be tough to determine what aspects of your current approach are working and what may need an overhaul.

That’s why it’s worth taking a step back to evaluate your performance process. Are you achieving the outcomes you want? Do employees and managers find the process and its outcomes useful, or just time-consuming?

By asking the right questions and embracing a more flexible and data-driven approach, you can transform performance management into an opportunity for growth, organization-wide.

Ready to see how Culture Amp can help you build a performance process that actually performs?

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