The Importance & Benefits of Managing Employee Performance (2024)

An effective Performance Management strategy can ensure your employees’ activities and output are in line with your wider business objectives and can be critical to business success and employee productivity. The benefits of an effective Performance Management strategy include:

• Highlighting training gaps and where further training is needed.
• Boosting employee morale and in turn, productivity and performance.
• Helps identify the right employees for promotion.
• Improves workforce planning, including managing workloads and delegation.
• Boosts employee retention/reduces employee turnover.
• Gives employees more autonomy to manage their responsibilities.

What is Performance Management?

Performance Management begins with clear job descriptions and recruitment processes that help you bring on board the right people, and onboarding programmes to help them hit the ground running.

It’s a framework that will help employees perform and reach their potential, creating an environment where they can thrive.

Once in the job, it means a never-ending cycle of education, coaching and feedback. Turning every interaction between manager and employee into a learning experience and a chance for the employee to be heard.

It’s this mentality that really underpins a Performance Management strategy. Recognising that feedback and direction isn’t something that should happen annually, but is integral to your employees’ everyday experience.

Progressive organisations are now implementing a more continuous approach to managing, motivating and rewarding good performance. Research has found that 74% of managers that are effectively coaching and developing their employees say a Performance Management system is effective. 62% of these say their business’ performance is better than their competitors (Mckinsey, 2018). A key way to recognize these efforts is also to award employees with crystal, metal or glass plaques.

Importance of Performance Management

Continuous, effective Performance Management helps foster an open dialogue between employees, management and the company as a whole. This increases trust and ensures everyone feels better supported and more engaged. Without this, employees are more likely to feel detached from their work and its role within the organisation, which is very likely to result in a higher rate of staff turnover.

8 Benefits of Performance Management

Aside from the aforementioned boost in profitability, what other benefits can Performance Management deliver?

1. Highlights training needs

Introducing more frequent reviews, whether formal or informal, can help to better understand the skill set of employees. Providing an open forum for employees to share and discuss their roles regularly can help to identify training needs before they have an impact on productivity.

Whether your employees need to brush up on a certain skill or simply get up to speed with new trends for their role; Performance Management and regular reviews can help to identify any shortcomings or future training requirements.

2. Boosts morale

Everyone likes being told they’re doing a good job. Performance reviews provide the perfect setting to formalise and document praise. But reviews shouldn’t just be about setting objectives for the coming quarter. It should also provide an environment for a line manager to recognise individuals on their team.

Happy employees are productive employees. A staggering 69% of employees say they would work harder if they felt their efforts were being recognised. No longer is a paycheck enough recognition but regular feedback and reviews are key to maintaining employee morale.

3. Helps with identifying the right employees for promotion

Regular reviews are a great way to better understand the performance of your employees and their suitability for promotion.

All employees will be going through the same performance review process. As such managers can better evaluate them for promotion, salary increases or transfer in the same, consistent manner. Not only will this help to ensure the right employee is chosen for promotion; but will allow for more transparency and fairness in your selection process.

4. Helps define career paths

Clearly defined, identifiable career paths provide employees with a goal within the organisation, boosting motivation and significantly reducing staff turnover.

5. Supports workforce planning

Frequent reviews with employees as part of a wider Performance Management strategy can also help with workforce planning. Discussing current and future workloads with employees can help to identify any requirements for future staff.

What’s more, if your employees are struggling with their current workloads; provisions can be made to share the load amongst other team members and prioritise the most important tasks.

6. Increases employee retention

Research by HR Daily Advisor earlier this year found that companies who implement regular employee feedback have turnover rates that are 14.9% lower than for employees who receive no feedback. High staff turnover could have a major impact on your company. Not to mention the impact on staff morale and simply getting things done.

The nature of Performance Management ensures that the expectations of your employees and their objectives are clear and regularly reviewed. What’s more, the introduction of regular feedback sessions and reviews allows an employee to raise and resolve any issues.

When employees have the chance to regularly interact with their managers, communication becomes more fluid and easy. Furthermore, managers are kept in the loop regarding their team’s progress and any potential issues.

A good performance review strategy will allow for regular feedback – both formal and informal. It will prioritise employee recognition and encourage learning and development.

In addition, when managers offer additional fringe benefits as part of performance reviews, it can help align employee goals with company goals and create a more engaged workforce, which leads to better performance and retention.

7. Delivers greater employee autonomy

Once your employees are aware of the wider business’ objectives and their contribution to those; they are relatively free to make their own choices about how they go about their responsibilities. As a result, employees are happier, more committed, more productive and more loyal than those whose every action is dictated.

Line managers will have the reassurance of regular feedback sessions and discussions to review an employee’s progress against their agreed objectives. This fosters a culture of trust and initiative amongst your employees. A culture where ideas and creativity flow freely. Such a culture will only stand to benefit your business in the long term.

8. Improves accountability

Accountability plays an important role in the success of an organisation, but ensuring effective accountability isn’t easy. Often, accountability is equated to a culture of blame. This is not only wrong but highly detrimental to company culture and employee morale. Effective accountability defines a company’s mission, values, and goals, and ensure each individual understands their role within that.

Natural HR makes introducing a Performance Management process to your business a breeze. You can build custom Performance Management forms, set up a schedule and send out timely reminders to both employees and managers to keep things on track. Get a free demo today to find out how we can support your Performance Management strategy in 2022.

How to get started with Performance Management

In the era of instant feedback – where reviews and ratings govern many of our daily decisions – the annual employee appraisal can be considered antiquated at best.

Twelve months is a long time in business, yet many will happily leave it this long to provide any genuine feedback to their staff. This often stunts an employee’s potential, to the detriment of both the individual and the business.

An approach that provides ongoing, genuine and consistent support for employee development and growth – even before they join the business. Such a shift in approach will, of course, take time to implement. Here are four steps you can take to start the process:

1. Define your objectives

Performance Management is a somewhat broad term, and no two businesses will go about its implementation the same way.

To help define your strategy, it’s important to have clear goals and objectives in mind, beyond simply ‘helping employees do better’. Raising morale or boosting productivity will naturally have an impact on your bottom line, but without a clear goal, success is hard to measure.

You should, therefore, look to set and document some clear objectives that can be tracked. This could be certain financial goals, improved staff retention numbers or increased satisfaction scores in customer service surveys. Ultimately, your Performance Management programme should align with your organisation’s strategic goals.

2. Communicate the benefits

In aiding the development of employee skills and encouraging them to reach their potential, a Performance Management framework can be great. But it’s important to realise that employees could perceive your intentions very differently.

Workers might see the continuous coaching ethos as micro-managing, or perceive the added focus on performance as extra pressure. Similarly, managers themselves may worry about how they’ll fit more regular catch-up sessions into an already busy schedule.

Communicating your plans and objectives clearly and honestly will help people buy into the new approach. Explain exactly what changes you’re making, why you’re making them and what it means for individuals going forward.

Remember that from an employee perspective, performance evaluation is linked to salary. So be clear on how it will affect wage increases and promotions. If you’re moving away from annual appraisals, you can bet the first question on employees’ minds will be: “When do we get our salary reviewed?

3. Train your managers

It’s widely accepted that for a modern manager to succeed, they must be able to coach. But that’s not to say every manager has the natural ability to do so.

If you’re asking managers to make feedback and coaching a key part of their relationship with employees, give them the confidence and skill set to do so. Whether through workshops or one-on-one sessions, think about how you will give your managers the training they need. How can you use that time to further communicate the benefits your Performance Management programme will bring?

4. Take advantage of technology

Perhaps the most fundamental first step towards efficient, effective Performance Management is finding the right technology to support it.

Many cloud-based HR platforms provide Performance Management functionality to help shape and support your new, improved processes. Built-in workflows and goal-setting features are geared towards managing and motivating performance on a continuous basis.

Goal setting functions typically allow you to set and communicate goals at both company and employee level. This will help to keep individuals engaged in their work by regularly refreshing targets.

Meanwhile, customised schedules and automatic reminders can help ensure that both managers and employees stay on track with regular catch-ups.

Conclusion on Performance Management benefits

Performance Management frameworks are already yielding positive results for adopters – encouraging more businesses to rethink their approach to appraisals.

Don’t just introduce a Performance Management plan for the sake of it. It’s important to set clear objectives and monitor its ongoing success. After all, in the culture of Performance Management, even your Performance Management programme itself can benefit from constant feedback and review.