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Employee performance management has moved beyond annual appraisals. It is continuously evolving. One study performed by McKinsey put forward an argument in favor of a shift from an individual-oriented performance management model to one based on team performance. It seems that organizations are taking the think tank's advice.

To understand why managing employee performance plays such an important role in your business's bottom line, we need to get into its benefits, how to approach it effectively, and how it impacts employee productivity. Let us dive right in.

What is employee performance management?

Employee performance management is not just about measuring and improving the performance of the employees. It is also about aligning individual objectives with that of the organization and vice versa.

The performance management process is essentially continuous rather than an annual review. The goal of performance management focuses on building your employees' ability to perform their work better. Skills improvement and professional development are both essential parts of performance management.

However, performance management is also a two-way street. You need to gauge whether an employee is a fit for their job and whether the job utilizes the employee's skill set to its fullest. In other words, it involves aligning one's job assignments and skills with the goals of the employee's team and organization.

Benefits of measuring and managing employee performance

Management expert Peter Drucker once famously said, "What gets measured gets managed." In an age where employers look at performance as more than the revenue their employees bring into the company, this saying is still relevant.

You can't manage something you don't know. Measuring employee performance is the first step in managing and eventually improving it.

Why should your company measure employee performance in the first place? One recent study published by Capgemini argues that employee performance, including productivity and engagement, is closely linked to the employee experience. In other words, high-performing employees and teams work in a high-performance workplace and vice-versa.

Implementing an employee performance management system will benefit your organization in the following ways:

1. Provide opportunities for staff growth and development

As a manager, you can influence your organization's performance by paying close attention to the performance of the people working with you.

However, you need to implement an employee performance management system to record your observations and compare them to specific growth and development targets. Otherwise, you'll just be making uninformed guesses.

By using an employee performance management system, you'll have all the data you need to identify opportunities for improvement, as well as to predict your employees' career trajectory.

For example, suppose an employee does poorly in numerical tasks but has excellent communication skills. In that case, you can either provide them with training in numbers or steer them towards a career path that can maximize their existing strengths.

2. Align goals more accurately

Before you set your goals, you need to assess your team's skills, availability, and performance. By measuring and managing employee performance, you get a better idea of your team's ability to accomplish goals. As a result, you can either adjust your goals to account for your team's strengths and weaknesses or hire additional resources who can help you reach your targets.

The first step in employee management is recruiting or assigning the right person for the job. It is, therefore, important to have a holistic approach leveraging business acumen for an effective role assignment process.

Once that is done, you should set performance goals with your new employee with the organization's larger goals in mind. This might not seem easy if the employee works remotely. Still, constant check-ins and alignment sessions, they will understand how you will monitor their performance for the remainder of the assessment period.

3. Gain a better understanding of your business's performance

People make organizations, and it is their collective performance that drives growth. Therefore, it is easy to understand why you need to measure individual performance to understand organizational performance better.

This is particularly true for small businesses, where the output of a few employees can spell the difference between turning a profit or operating at a deficit. Performing employee appraisals can help you identify top performers and those who need improvement.

It can also help you identify both knowledge gaps that cause your business to perform below expectations and employee capabilities that you can use in the future.

4. Fine-tune your business policies

To build a company culture that attracts and retains great employees, you need to combine your employee performance appraisal data with the employee experience. You can collect this at different touchpoints in the employee lifecycle. These points include periodic employee satisfaction surveys and exit interviews.

When you analyze employee experience data in the context of employee performance, you can have a clearer view of the effect of one on the other.

For instance, if an employee says that they wish they could have worked remotely more often in their exit interview, you can draw a correlation between the lack of remote working options and suboptimal performance.

You can also make your analysis as granular as possible to identify previously-unknown factors that affect employee performance. For example, a study published by the University of Oxford discovered that more windows (and natural light) in the workplace had a positive effect on sales and efficiency.

You can then use these insights to establish a workplace culture that encourages employees to perform better while maintaining a healthy work-life balance.

5. Establish a culture of fair recognition

Using employee performance reviews, you can establish a culture of fair recognition in your organization. On the one hand, by identifying top performers and rewarding them, you show your workforce that you appreciate and recognize hard work. It is crucial to do this, as employee recognition is the number one factor driving employee engagement and productivity.

On the other hand, an employee lacking in his performance will need closer management. Identifying weak performers on time is important so you can set up a development plan to improve their skills and reduce errors.

If that does not work, you need to decide and communicate the consequences to the workforce to get their act together accordingly. Missing either one of these can have a severe impact on your business.

How do you manage employee performance effectively?

Good performance management entails more than just building a productive workplace. Establishing an effective employee performance management strategy requires leadership, good social skills, the ability to give constructive feedback, and teamwork.

1. Set clear goals and objectives

Without well-defined goals, you and your team will not have an idea of your progress and how much ground you need to cover. Most management experts believe in a few basic principles of goal setting:

These principles provide leaders with a good idea of the goals they need to set for themselves and their teams.

You may also use the SMART criteria while deciding on team goals:

  • ✅ Specific: What are you looking to accomplish, and what are the steps to it?
  • ✅ Measurable: What are the key performance indicators of the goal?
  • ✅ Achievable: Is this goal based upon realistic metrics? Is the employee equipped enough to achieve it?
  • ✅ Relevant: Does it fit well in the employee's overall work profile and company priorities?
  • ✅ Time-based: What are the deadlines for each goal?

Here is an example of a SMART goal board from Hubspot -

Goal setting is essential for managing employee performance in any team but is even more crucial for remote teams. Remote teams may feel completely lost if they are not given a clear direction in terms of the goals and objectives of a company, as they are not communicating with their core team every day.

The goals you set for your employees will depend on their line of work. For example, if you employ graphic designers, you can gauge the quality of their work and their adherence to branding guidelines. If you manage a data analysis team, you can use data quality metrics as your basis for performance management.

2. Use software for performance management

You need a way to track progress efficiently, and ideally, the information you are gathering should be accessible to everyone. Using Google Sheets or Microsoft Excel is not uncommon for employee management, but dedicated performance management software will make things easier and more streamlined for you.

Real-time management: Some tools may offer the capability to monitor your team's performance in real-time, often through features like time tracking or integration with time tracking apps. It allows you to gain immediate insights into your team's productivity, project status, and individual contributions.

Here are some factors to consider when choosing employee performance management software:

  • 💸 Cost: Enterprise-level software might be out of your budget, such as SuccessFactors or Workday. You can use performance management software targeted towards small businesses instead.
  • 🔗 Features and integrations: Most employee performance management software have some level of integration with other HR-related systems, including payroll and employee recognition solutions. These integrations will make the experience streamlined for your employees and the HR team.
  • 🔧 Ease of use and training: Performance management software has many moving parts, and it's quite easy to get lost in all the features. Aim for simplicity when you're looking for a system for your team.

Most software for employee performance management has a flexible approach and can build dashboards per your specific needs. You may try out demos to choose the right product.

3. Provide regular performance feedback

Providing relevant and regular feedback 📝 is an essential element of performance management. It can take many forms:

  • Managers give feedback to employees as part of a performance review.
  • Employees provide feedback to their managers.
  • Implementing peer-to-peer feedback.

You might wonder how frequently you should provide feedback.

According to Gallup, millennial workers work best when given meaningful feedback daily.

However, the type of feedback millennials consider meaningful does not fit squarely into the categories found in typical periodic assessment sessions. Instead, the discussions should focus on recognition, career direction, and employee emotions, particularly in times of uncertainty such as a global pandemic.

Also, how you give the feedback can change the results to a large extent. For example:

  • Instead of saying something didn't work, explain why and place it within the larger context of the business.
  • Instead of saying "good job", say what worked.
  • Instead of dwelling on what went wrong, invite the employee to discuss what they can do better in the future.

Basically, instead of talking like a boss, talk like a team member and avoid adverse and judgemental phrasing. Good performance management software comes in handy in managing feedback effectively.


It is clear now that the benefits of measuring and managing employee performance take care of more things than one can imagine. The entire work environment is uplifted from employee development, improved relationships between managers and employees, bringing synergy between teams, hitting targets, and beyond.

So in case, you were wondering how to manage employee performance effectively, you can now start building a robust process and make it a continuous one as it is supposed to be.

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Akshay Chakrapani

Akshay Chakrapani LinkedIn

Akshay Chakrapani is a good content writer who loves to explore various content styles and categories. He writes unique content on LinkedIn. His hobbies are reading novels and listening to music.