Performance Management from Goal Setting to Measurement to Action

Measurement takes performance management out of the realm of speculation and argument into the realm of data, objectivity, and fairness. When you consider that unfair treatment increases the occurrence of employee burnout and stress by 230%, the importance of measurement is clear.

End-of-year performance reviews, however, are considered ineffective and a waste of time by everyone—employees (59%), managers (95%), and companies (94%)—even while managers spend more than 200 hours a year on this outdated style of performance management. Companies are moving toward informal, regular conversations about performance and development, with an emphasis on grooming talent, establishing short-term goals and priorities that keep a company and its employees agile, and coaching to solve problems. So how does measurement fit into this new way of assessing employees?

Get Started: Know Your Company’s and Your Team’s Goals

A basic rule of business is that you can’t measure what you don’t know. To judge whether an employee is performing well, you must know what the employee is supposed to be doing and why. For an employee to perform effectively, the employee must understand the individual, team, and company goals, roles, accountability, and measurement philosophy.

These questions will help you clarify goals:

1. What are the company’s goals, and which ones are you and your team accountable for? For example, the financial goal for you and your team should be wider than staying within budget because financial objectives have a direct relationship with other goals, such as customer metrics and performance management. Among other objectives, is the company interested more in speed or quality or quantity of production, number of customers or satisfaction levels, growth of current employees, or pool of potential candidates?
2. What are the most important customer metrics? Net Promoter Score measures the likelihood that a customer would recommend your product or service; customer acquisition cost and customer lifetime value measure the profit from each customer; customer satisfaction and retention ensure that existing customers return; and so on.
3. What are the goals for the employees you manage? Are you and the company concerned with employee growth, low turnover, quantity and quality of job seekers, and employee satisfaction? What is the percentage of high and low performers? Do you hire and promote internally, train people for new skills and responsibilities, and track compensation to make sure it conforms to industry standards? Do your goals for employees align with their individual strengths and career goals?
4. What are each employee’s goals? What motivates the employee—opportunities to learn, earn, or lead? Do you both understand company goals and individual expectations and accountability in the same way? From the employee’s perspective, what is frustrating and what is going well (for example, communication, resources, workload, and acknowledgment)? Do you have a regular check-in schedule? Do employees believe they are treated fairly?

TIP: Leaders must be open about their expectations, with specific feedback related to specific goals.

Measure: Know What Success Means

Measurement tells you when you and your employees are reaching (or exceeding) the understood goals and if your performance management is working. The following are among the most common measuring devices:

• A Balanced Scorecard (BSC) clarifies strategy, monitors progress toward fulfilling that strategy, and defines action plans. It requires strategy mapping, the selection of key performance indicators (KPIs), and the development of action plans.
• Lean Management identifies areas of waste and inefficiency and determines where most benefit might derive from improvements.
• Management dashboards monitor operational performance and are a gathering point for data from all over the company.
• Performance management software guides leaders and employees in conducting scheduled check-ins and conversations about performance by reminding leaders and employees of personal and company goals, tracking progress toward completing goals and allowing employees to give and receive immediate feedback.
• Customer and employee surveys or focus groups highlight how well a company (or leader) is meeting the needs and expectations of customers and employees.

Modern performance management and measurement address the following concerns:

• Employee welfare: What are the causes and current levels of stress, burnout, turnover, and negative comments?
• Personal benefits: Why should an employee or team improve performance, and why is the employee or team underperforming or encountering recurrent problems?
• Short-term results: Is the employee and team meeting goals this day, month, or quarter; where are they struggling, and what actions can be taken?

TIP: Make sure that employees have access to the information about their performance so that they can make adjustments themselves or ask for help before trouble escalates.

Take Action: Use What You Learn

The effectiveness of performance management efforts depends on (a) whether the company and team achieve the stated goals, (b) whether the data collected relates to and objectively measures those goals, and (c) whether the company or leader then takes action—and lets it be known that action was taken—based on the results.

Take the case of Adobe, where regular check-ins result in a 30% drop in voluntary turnover and a rise in involuntary turnover. For Adobe, this was a win, as the numbers indicated that high performing employees were staying, but ineffective employees were being asked to leave rather than being carried year after year. For another company, that same data might be considered a loss in coaching and mentoring opportunities or might be completely irrelevant. Interpretation depends on the original decision on the goals and measurements important to the company, its leaders, and its employees.

In addition, the data gathered must be analyzed and applied used wisely. Almost all modern companies have found that grading employees according to a set standard interferes with their engagement and productivity. Forced ranking of employees more often reflects the manager’s bias rather than the individual employee’s actual potential or contribution; because it follows a bell curve, it also under-rewards some high achievers and artificially forces some mid-level achievers to the bottom.

When data is used instead as a basis for continual conversations about goals and as an indication where coaching would be helpful, everyone benefits the employee, the team, and the company.

To improve performance management, actions must:

• Focus on building skills, so that employees feel empowered to continually grow and achieve
• Build relationships between leaders and teams, so that the team feels supported and communication flows in both directions
• Break the link between performance and compensation, keeping compensation aligned with the marketplace but offering consistent high achievers other opportunities: a chance to lead, take courses, or otherwise stretch their skills
• Coach everyone, including managers and mid-level achievers

TIP: Make sure you measure the right goals. If you want higher-income customers, for example, then measuring the number of customers a salesperson visits in a day would lead more but not necessarily wealthier customers.

Rethink Performance Management

Modern performance management requires not only defined goals but an immediate and clear response when a goal is reached or in danger of not being reached. Therefore, openness is required up and down the company structure, with employees able to keep and access data on their own progress. Conversations should occur frequently and end with a clear action plan. You should review your performance management philosophy and process frequently to ensure that it still aligns with the company, team, and individual goals.