What is a performance management cycle? Simply put, it’s an ongoing process of evaluating and improving employee performance. This process involves goal-setting, monitoring progress, measuring success, and rewarding employees. Needless to say, strengthening this process is central to improving HR operations.
The traditional performance management cycle urgently needs an upgrade. Only 2% of companies feel they have a great performance management cycle. These systems are often too rigid to meet the needs of today’s fast-changing workplace, for one thing. Additionally, they fail to empower employees or provide adequate feedback, notes Gallup.
Clearly, it’s time for some big changes.
Let’s explore the importance of the performance management cycle in business. Then, we’ll dive into emerging best practices.
Table of Contents
Benefits of a Great Performance Management Cycle
A well-designed performance management cycle will shape organizational success in the following ways.
Accurately Tracking Patterns in Performance
First, a well-developed review cycle lets you accurately track and respond to patterns. You’ll be able to spot patterns more clearly with more frequent reviews, as we’ll discuss. As a result, you can promote faster and more effective employee growth.
Engaging and Empowering Employees
The “quiet quitting” epidemic speaks to a lack of employee engagement. That’s when people stay in their jobs but stop putting in the effort to excel. Instead, they settle for mediocrity.
Outstanding performance management and review practices can be a game-changer here. They empower employees to take charge of their growth. Plus, they help workers align team and personal goals with business strategy.
Making Effective Decisions
A great performance management cycle informs decision-making. Leaders can make smart choices about promotions, role changes, and salary increases. Plus, they can plan for succession wisely.
Effective performance management begins with adopting a good model, as we’ll cover next.
A Performance Management Cycle Model
Let’s examine the elements of a good performance management cycle. Then, we’ll review the timing and roles involved.
Stages of a Performance Management Cycle
The four phases of the performance management cycle are as follows:
- Planning team and employee goals.
- Monitoring performance and progress.
- Reviewing employees’ achievements and challenges.
- Rewarding employees for their hard work.
These stages have long been accepted as part of a good performance management model. But traditionally, the cycle lasted a full year. That means many months would go by between the planning and review stages. Today, fast-paced changes in the business landscape could make those initial plans irrelevant long before the formal review.
Instead, we urge organizations to use a continuous performance management cycle. It includes all four stages, but with a very different time frame.
The Continuous Performance Management Cycle Schedule
How does a continuous performance management cycle differ from a traditional one? Unlike in the traditional model, the above four stages occur continuously. Managers and employees update plans as needed during one-on-ones. Then, they move through this four-stage cycle in the span of weeks rather than months.
Many experts advocate dropping annual reviews in favor of this model. “The challenge with annual reviews is that they’re a collection of indirect, out-of-context feedback that a supervisor or boss is supposed to deliver long after a project has ended, so the feedback is no longer educational or useful,” says Susan Clarke, co-founder of coaching and consulting firm Thrive.
The continuous performance management cycle includes more frequent, less labor-intensive performance reviews, as SHRM notes. Many organizations now give reviews once per quarter. This also normalizes the reviews, making them feel less daunting. Some companies are even giving monthly or biweekly reviews.
Managers should give feedback to each employee on a daily basis, too. Continuous feedback is the foundation of this performance management model.
This approach provides the direction people need to stay focused and engaged. That’s especially true for remote and hybrid teams, as well as those dealing with disruption.
Roles and Responsibilities in the Performance Management Cycle
Supervisors, HR managers, and employees all hold important roles in this process. Let’s examine them now.
Managers are responsible for carrying out the performance management cycle with each direct report. This involves the following responsibilities:
- Working with employees to create goals and a personal development plan.
- Delivering regular feedback to employees.
- Monitoring their progress toward goals.
- Conducting performance reviews.
- Sharing rewards and appreciation.
Rewards can range from smaller incentives to nominations for raises and promotions.
HR managers are an integral part of any performance management cycle. They should monitor the review process. This means looking for ways to improve it. They should strive to detect and address any bias, for instance. Moreover, HR should work to standardize the process across the organization to ensure fairness. As part of this effort, HR should work to implement tools that streamline the process. They should also train managers on how to use them.
Employees should give feedback to their manager as well as receive it. Their feedback can address strengths and weaknesses of the organization or manager. Prior to performance reviews, employees can also complete self-reviews. In this process, they should prepare examples of challenges and successes to share with their manager.
Additionally, employees should give team members continuous real-time feedback. Coworkers who work closely together can share advice and appreciation on a daily basis.
Now, let’s explore best practices for implementing a successful performance management cycle.
Best Practices in the Performance Management Cycle
Today, best practices utilize a mix of human skills and technology. Here are our most crucial recommendations.
Give Daily Feedback
As mentioned, feedback must become a daily practice. Tools can help make that happen. Use an instant feedback tool to allow managers to give feedback in real time. Further, make sure you’re using a tool that tracks feedback managers give. That way, managers and HR can review feedback patterns over the past quarter or year. Plus, HR can ensure all employees are getting a similar amount of feedback.
This is a great way to ensure your performance management cycle is serving its purpose.
Focus on Strengths-Based Feedback
Do give constructive criticism when necessary. But this criticism will feel more palatable when the majority of your feedback focuses on strengths. That doesn’t mean just commending employees for a job well done. Rather, you can also share ways to build upon existing strengths. State specific behaviors they can engage in more in their work.
Having frequent conversations about a range of topics will also build trust, notes Gallup. Then, when you do share critiques, they’ll be well-received.
Rely on Real-Time Data
Managers don’t just need to share real-time feedback; they also need to use real-time data to provide it. Today’s best analytical tools can deliver up-to-the-moment performance data. So, managers shouldn’t be relying on gut feelings. Instead, they must consider whether their observations match the data, as Jessica Kriegel writes in Forbes.
Like many industries, great data can greatly improve the information found as a result of the performance management cycle.
Leverage Analytical Tools
Performance review software will help guide you through a successful process. It can generate the most relevant evaluation questions along with rating scales. But other technologies will prove instrumental as well.
Use performance management software as a part of the performance management cycle. Along with supporting continuous development, it will inform your performance reviews. At review time, managers will have a wealth of accurate information on employee progress. Plus, a good tool will distill this performance information into easy-to-digest findings.
Deliver Appraisals at Natural Times in Project Cycles
Managers shouldn’t necessarily follow a strict schedule in delivering reviews. Instead, they can deliver evaluations at natural times in work cycles. For example, they could review employees directly after completion of a project.
Evaluate Teams, Not Just Individuals
Let’s face it—the standard performance review is highly individualistic. It looks at how each contributor performs, but not teams as a whole. Some organizations are turning to team reviews instead. We recommend using team appraisals to complement individual reviews.
Why? Some teams function better than others, even though each has talented members. And in today’s organizations, teams often reform continuously around specific projects. So, evaluate whole teams. This allows you to study what works and what doesn’t when forming groups. Plus, it emphasizes collaboration, prompting employees to focus on working together effectively.
Set Team Goals
By the same token, teams should set goals collectively. Each team should autonomously discuss its goals (along with its manager). Taking an active role in goal-setting will boost their investment in achieving them. And doing this as a team will foster a spirit of collaboration. Then, individuals can set personal goals that align with the team ones. The performance management cycle can be used similarly for organizational goals.
Use FAST Goals
MIT Sloan Management Review recommends dropping SMART goals in favor of FAST goals—at least for performance management.
What does FAST stand for?
- Frequently discussed. Ongoing conversations address progress, reallocate resources, reprioritize objectives, and share observations.
- Ambitious. Goals should be tough but not impossible.
- Specific. Clear metrics and milestones show how to move toward each goal and monitor progress.
- Transparent. The whole organization and other stakeholders should be able to see goals and progress toward them. This boosts accountability for achieving them.
“SMART goals undervalue ambition, focus narrowly on individual performance, and ignore the importance of discussing goals throughout the year,” says MIT Sloan. SMART goals lead people to play it safe and make them less likely to achieve ambitious outcomes, they assert.
In fact, people sometimes set goals they’re sure to achieve. This practice (known as “sandbagging”) can make performance appear stronger than it actually is, the authors continue. Savvy managers can spot this trend and coach employees to aim higher with FAST goals. These more ambitious goals promote agility and seizing of big opportunities as changes occur.
Link Performance to a Transparent Compensation Structure
Tie performance to a clearly designed, transparent compensation structure. This will affirm and uphold your commitment to equity. Ultimately, that will help keep talented employees loyal to your organization.
Gallup adds that organizations may not want to rely on incentives. In uncertain times, incentive-based pay can become more fear-inducing than motivating.
Adapt Goals Periodically
In times of disruption, goals often need to shift. Revisit goals during quarterly reviews or even more frequently. Having “agile goals” will help you respond swiftly and effectively to uncertainty. “Employees and managers should be on the lookout for opportunities to pivot with changes to business needs and be rewarded for identifying new ways to make a positive impact,” says Gallup.
As you can see, performance management has been changing dramatically. Follow these strategies to upgrade your current system for 2023 and beyond!
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