An effective performance management system is essential for evaluating and measuring employees’ work and helping them understand where they stand. People perform best when they feel valued, motivated, and supported, which is exactly what performance management aims to accomplish.

According to Gallup, only 2 in 10 employees say their performance is managed in a way that motivates them to do outstanding work. While most organizations use performance management systems in one way or another, many fail to recognize that employee performance management aims to promote positive workplace behaviors that drive productivity and success.

So, how do you create an effective performance management system that benefits both employers and employees?

This article will explain what performance management is, why taking it seriously is so important, and its key components. Continue reading to be inspired to improve performance management in your business and team outcomes.

Get familiar with performance management

Performance management is the process used to ensure a company connects its mission to the work of its people effectively and efficiently.

When performed correctly, performance management takes an organization from point A, its current state, to point B, the desired state of evolution.

Performance management used to be all about legal documentation, contract compliance, and risk mitigation in the past. Those are not very fun terms or the building blocks for a process meant to be popular with teams. But, as things are evolving, the focus is shifting.

You can now think of performance management as having two essential pillars:

👉 Evaluating the performance of employees

👉 Developing plans to help them grow

Components of the performance management process include:

1️⃣ Planning

2️⃣ Monitoring

3️⃣ Developing

4️⃣ Rating & rewarding

During a good performance management cycle, the four steps work together and build on top of each other to inform business and administrative decisions. And since they heavily influence other aspects such as purpose, autonomy, and mastery, they’re worth investigating more.

Why is performance management important?

Before digging into the elements of performance management, we need to understand the importance of a performance management system. An effective performance management system boosts team motivation and productivity while also helping to keep employees engaged.

Here are some of the top benefits of having a performance management system in place:

Improves employee engagement and productivity

According to McKinsey, up to 55% of employee engagement is driven by non-financial recognition. As a result, companies that invest in performance management and give their people continuous feedback, development opportunities, and recognition will increase their chances of high engagement and productivity rates.

Helps retain top talent

Employees are more likely to stay with the company if they see their management team working hard to develop them professionally, help them achieve their goals, and consistently reward their successes.

Sets clear expectations and goals

Performance management systems establish clear employee expectations and goals. When people managers and employees agree on deliverables and outcomes, the workplace environment becomes more agreeable. Clear objectives also help employees stay focused on what they need to achieve, which can increase productivity and improve performance.

Stimulates employee motivation

An effective performance management process boosts motivation, as everyone understands their role and contribution to the company’s success and is also offered opportunities for growth.

Helps identify training needs

While a solid performance management system ensures top performers are not overlooked, it also identifies underperforming employees who need additional support or training. Underperformers can benefit from training sessions that are specifically tailored to meet their needs so that the organization can enable them to improve their output.

Decreases micromanagement

Ultimately, a performance management system increases self-motivation and decreases micromanagement. Employees are more likely to be self-motivated when they know how their performance and productivity fit into the organization's short- and long-term goals and receive positive feedback for their efforts. This should thus lessen the desire to micromanage teams.

What are the components of a performance management system?

Here’s what it takes to achieve the desired performance state inside a company.

1. Planning

Objectives are set during the planning phase, and the success metrics get defined. This all happens following the company’s goals to ensure alignment and enjoy the benefits of compounded efforts.

However, this must be more than just a top-down process for it to succeed.

Teams and individual contributors need to have the opportunity to get involved, have their say, and buy into the whole process. This is a great way to avoid blind spots and build fairness into the entire process.

After planning, you should look at a roadmap ready to be implemented in the following quarters. Plus, everyone will know what performance expectations they're trying to fulfill and how they'll be evaluated.

2. Monitoring

Playing on the idea that what gets measured gets done, monitoring involves actively tracking and reporting the work done and potential hurdles. By doing so regularly, problems can be nipped in the bud. You can avoid a scenario where significant issues are only divulged at the end of the performance cycle when it's too late to do anything about them.

What’s more, monitoring reveals insights that can also be used to inform decisions and improve results.

3. Developing

During the monitoring stage, under or overperformance areas often come into focus, so development is when they get addressed. And while this is often a missing piece from the performance management puzzle, its absence comes at a high cost. 

This third stage offers the chance to develop a plan for ongoing education and training, lay out new assignments, and present the opportunity to take on more challenges. Plus, managers can offer coaching and feedback, creating the space for people to reach their potential and use all of their talents. 

4. Rating & rewarding

Finally, the last piece of the performance management process is comparing the outcomes against the goals set in the beginning. Now everything gets rated, and rewards and kudos are shared.

Plus, this is the perfect opportunity to learn lessons about what affected or increased performance and adjust the course for the following quarters.

If all this has got you reflecting on your performance management process and how it might fail your team, there is a way to turn it around.

Go for effective performance management with Mirro

Mirro is a powerful performance management platform that can help you achieve more than ever. It lets teams focus on what truly matters and deliver results by streamlining planning, goals, regular check-ins, and documentation.

Mirro is successful because it facilitates alignment with company goals all year round. It also encourages people to step into their power and fulfill their potential. 

Just imagine how powerful it would be to use Mirro and: 

✅ Align efforts with the organization's mission;

✅ Clarify responsibilities and expectations;

✅ Enhance personal and group productivity.

✅ Highlight all contributions to success.

✅ Offer support and regular feedback.

✅ Improve communication.

✅ Offer a data-informed base for making decisions.

Effective performance management depends on the quality of your tools, so switch to Mirro today. You'll notice the difference right away. Start your Mirro demo today if you're ready to switch to an effective performance management system!