Performance Management: What is it and Why is it Important

Posted: November 29, 2021

At Daeco, we strongly believe that every company should have some sort of performance management process in place. Whether you’re a company with only one employee or a company with over 250, it’s important to have a feedback process that sets clear expectations, where workers are acknowledged for their contributions and leaders are providing the right coaching and mentoring for their staff. 

Before we take a deep dive into why we believe all companies should have a performance  management system, let’s take a step back and look at what exactly this could look like for your organization. 

What is Performance Management? 

In a nutshell, performance management is the opportunity for an employer to discuss and highlight an employee’s skills, achievements, areas of opportunity and individual contributions to the organization and then together determine an action plan for the year ahead.

The first and most important step to this process is the discussion. At Daeco, we use a tool called a Performance and Career Development Discussions (PCDD) which is part of the performance management process that includes a formal sit-down discussion of an employee’s overall performance. Some organizations coincide these formal discussions with a compensation review and use the results to determine if any adjustments are needed; others look at compensation at another point during the year.

In this process, there are five goals: 

  1. To motivate and improve employee performance. 
  2. To develop employees. 
  3. To better align organizational goals with the goals of the employees. 
  4. To identify top talent for succession planning. 
  5. To develop a culture of communication, transparency, accountability, and collaboration. 

While these discussions are crucial in getting the ball rolling, it’s ultimately how they’re conducted and what evaluation method is chosen that determines its true effectiveness. If done properly, these conversations can be used to: 

  1. Empower your employees to reach organizational and personal goals. 
  2. Identify any growth opportunities for additional training, education or potential cross training. 
  3. Identify potential areas of improvement in a collaborative setting that strengthens the employee and leader relationship. 

If not done properly, you may be left with: 

  1. Employees feeling unsatisfied, unappreciated, undervalued, not feeling personally cared about, confused on their role or purpose, stressed and less productive. 
  2. Negative impacts on organizational success, culture, inadequate succession planning, loss of talent, skills and investment due to turnover. 

In the past, most organizations relied on a numerical or alpha grade rating system when evaluating their employees. The problem with this approach is that people tend to focus more on their rating rather than having a focused discussion around their performance. As a result, the discussion doesn’t fully encapsulate the true strengths, weaknesses, and contributions of the employee. This is the reason why many companies are now gravitating towards other types of modern performance appraisal methods. 

Now that we have a better understanding of what performance management is, let’s dig a bit deeper into the essential parts of this process. 

Clearly Defining Job Roles and Responsibilities

In order to fully integrate the culture you want into your organization and build long-term success, you must clearly define your employee’s job. This means having a comprehensive description of roles and responsibilities, long and short-term goals, identifying an organization’s key objectives and developing criteria and a clear system of measurement for how those objectives and goals are assessed. Once you’ve established what you expect from your employees, then, and only then, can you fully evaluate their performance.

Succession Planning 

Establishing the organization’s strategic goals and values and helping employees set goals for contributing, plays a crucial role in aligning the organization’s culture with their performance management process. In case the need arises to fill internal roles, this identifies which employees are on a path to successfully transition. Not only that, but it sets expectations, defines career paths for employees, provides training and development and promotes talent from within. When an employee has a plan for personal and professional development, it reduces turnover and aids in retaining top talent all while working towards a mutual business goal of success. 

Why is it important to have a Performance Management Process? 

The discussions that are made within this process are a valuable opportunity for an employer to define what an employee’s role and responsibilities are while ensuring the employee understands what is expected from them regarding good performance. From there, they’re able to identify areas of growth or improvement, while acknowledging where an employee is excelling. These tools can be used to create a proper action plan that is measurable and will help the employee determine how they fit into the big picture – helping the organization obtain their mission and ultimately be profitable! 

With the help of an effective performance management system, employees are able to reach their full potential. Maximizing staff talents and skills by reinforcing their strengths, identifying areas for development, providing the best training and involving them in setting goals can empower them. 

Something to keep in mind is that not all organizations will approach performance management the same. It really depends on their culture. For instance, how often performance discussions happen and whether or not it includes both formal and informal feedback. “Coaching in the moment” and not leaving an issue to be addressed until the formal performance discussion process helps send a clear and consistent message about expectations and helps employees to focus on where they need further development. 

Performance management should be top of mind and an ongoing commitment for you as a leader.  You will also want to reflect from time to time to ensure you are promoting the goals established for the organization and your employees and ask yourself: 

  1. Am I helping maximize the employees and their talents and skills? 
  2. Do I provide leadership, training and communicate all necessary tools to employees to achieve job performance standards, personal and career development? 
  3. Do I provide feedback, both positive and constructive, on performance? 
  4. Do I train and provide guidance to help employees to obtain performance improvement? 

At Daeco, we are committed to ensuring you have a system that is customized to your organization and is simple and clear and has “buy in” from the top-down. Ultimately, our goal is to help you develop a culture of communication, transparency, accountability, and collaboration. 

If you have any questions about this process or are looking for HR support on how to go about implementing a performance management system, contact us today!