Guide to performance reviews: How to run an effective employee performance review

Performance management is critical in any organisation, from the smallest start-up to the largest corporation. If done well, it can ensure employees have achieved their goals and align with business objectives. If done poorly, it can cause unnecessary stress and conflict in the workplace and result in unhappy, unproductive employees. This guide to performance reviews explores what performance management is and what effective performance management looks like.

What is performance management?

The process of evaluating and improving an employee's performance is called performance management.

At its core, performance management is about getting the most out of people — helping employees be as productive and effective as possible.

Performance management is setting goals and supporting employees to reach them while tracking their progress and making adjustments.

Performance management objectives give direction and a focus to employees in the workplace. Performance management should show employees what is expected from them in their roles and what they need to do to progress within the organisation.

A manager's responsibilities include setting objectives in collaboration with their employees, monitoring progress against these goals, and providing necessary guidance, feedback and training to help the employee succeed.

For employees, this means they know what success in the role looks like, can improve through constructive feedback and, crucially, feel they are listened to and understood.

Setting relevant goals and objectives has proven benefits such as better employee engagement, improved organisational culture, higher quality work outputs, increased productivity and more.

Why is performance management important?

Performance management ensures all employees know what they are working towards, have the skills to make that happen, and work together to help the business get to where it needs to be. It is the tool that ensures any organisation's most valuable asset is working to its full potential.

Imagine the employees within your organisation are musicians in an orchestra. They may all be world-class musicians and were selected for their talent and compatibility. 

In this scenario, performance management is like the orchestra conductor, providing instructions to each musician and helping them play in harmony and rhythm. They are working towards a common goal.

Without a conductor, the musicians lack a singular direction. The orchestra may sound fine to an untrained ear, but someone may miss their cue without a conductor, falling out of sync. This lack of clarity might lead to communication breakdowns within the orchestra, strained relationships, and your world-class musicians may leave to find a more organised rival to perform with.

Apply this to your organisation, and it's easy to understand why employee performance management is so important. An organisation can survive without it, but if its competitors have an effective performance management process, they're likely to have an edge and retain their best employees for longer, as they will be challenged and fulfilled in their roles.  

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How does performance management work?

Consistency and effective communication is the key to good performance management. Everyone must know what they're responsible for, where they stand with the rest of the team — and each other — and what they are working towards so your business grows.

While each approach will be different depending on the needs of the organisation and its employees, the basic building blocks required will be the same. These are:

1. Setting goals

Creating SMART (specific, meaningful, achievable, relevant and timed) objectives for your employees is a key part of an effective performance management process. They should be set collaboratively and agreed on by the line manager and the employee. They should also align with the organisation’s overall objectives, so that every employee is pulling in the same direction.

2. Holding regular reviews

Setting goals and objectives is fruitless without regular performance appraisals or reviews. How these are conducted can be up to the organisation or even agreed upon between the employees and line managers. The frequency of these reviews may vary depending on the needs of the organisation or the employee. They need to be regular enough to provide relevant feedback and keep employees focused but not so frequent that there is nothing useful to discuss.

3. Regular check-ins

Check-ins or 1-2-1's can provide a less formal way to review employee performance. As the name suggests, they are brief meetings to see how things are going, highlight any problems that need to be addressed and give a chance for the employee to say if they are struggling with anything. They're vital in helping an employee feel listened to and valued. Our free check-in template is a great place to start if you need help structuring yours.

How has performance management changed to reflect hybrid working?

More and more organisations are adopting hybrid working, with 38% of adults in 2022 reporting that they had worked from home at some point during the previous week.

Regular catch-ups become even more critical for workers who are in the office less frequently because there are fewer opportunities to grab a colleague or manager for a quick chat or some advice.

Some of Appraisd's customers have adapted their processes to accommodate the needs of a hybrid workforce, making changes such as more frequent reviews or a particular focus on wellbeing. 

For tips on how you can optimise performance management for hybrid workforces, watch our webinar on the topic.

Looking to review or kickstart your business hybrid working strategy?

In our webinar: "Treading the tightrope: Optimising performance in a hybrid world" we discuss all things hybrid working and provide valuable insight into how organisations can review, or start their hybrid journey.

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What is continuous performance management?

Continuous performance management aims to keep objectives front and centre, part of an employee's working day. Rather than relying on one annual appraisal, a single opportunity every year to review objectives and receive feedback, a continuous approach involves more regular reviews and check-ins.

A continuous approach has the benefit of addressing issues as they arise. More regular check-ins provide the opportunity to adjust objectives should the need arise, reflecting changing priorities within the business or the macroeconomic environment. 

Annual reviews or appraisals are not fit for purpose in the modern workplace. For example, if a goal is set in January, an employee may only think about it just before their review, when they may rush to get it completed or find it is impossible to achieve. In this scenario, the employee isn't developing, and business objectives aren't being met. This illustrates why a more continuous performance management approach could be more effective than annual appraisals.

More frequent reviews provide a safe place for employees to discuss current obstacles and questions when they arise, rather than ignoring them and struggling in silence. This can help boost employee well-being and ensure they can get help when needed.

What are the benefits of performance management?

Performance management is one of the most important things you can do to support your employees. It provides clear expectations, helps to engage employees, improve their well-being and provides feedback and recognition that motivates them and keeps them engaged in their role. Here are a few of the key benefits: 

1. They set clear expectations 

These are very important for any employee in any role. They help employees know what's expected of them, what tasks they should work on and when they need to complete. This keeps employees focused and connected with the business, no matter where or how they are performing. This is especially important for remote teams or new hires needing more guidance to get up to speed with their role.

2. Regular performance reviews help innovation

Regular check-ins allow employees to discuss new ideas with their line managers. Giving employees a platform to express themselves and run with their ideas is a great way to improve performance and engagement.

3. Employee well-being is monitored 

Effective performance management helps support employee well-being by providing a regular sounding board for any issues or grievances. HR can work with line managers to provide resources for employees who need additional support. This means employees can get help when they need it without suffering in silence. 

4. Managers and employees can give feedback

Performance reviews provide an opportunity for both managers and employees to provide feedback. They allow managers to recognise the success of their employees and encourage them when things aren't going as planned. They allow employees to share with their managers how they would like to be managed and what approach they find most helpful.

Performance management is a great way to support your employees wherever they work,  helping to create a more engaged and productive workplace culture.

What is a performance management system?

A performance management system is a process that helps you identify, monitor, and manage the various aspects of an employee's performance. It should include tools for measuring performance and providing feedback and a structured approach to reviewing employees' performance. Crucially, a sound performance management system will help to retain the business’s strategic direction and organisational objectives within reviews.

A clear, structured approach to performance reviews or appraisals can benefit employers and employees. Employees will see how their work is assessed, which will help them feel as though they have direction and focus. A structured system will reassure employees that reviews are being conducted fairly and consistently across the organisation.

A performance management system can help track goals and allow line managers, HR and senior leaders to access past reviews. An effective performance management system saves a significant amount of time for line managers and HR, providing a centralised, consistent approach that everyone understands and can follow easily. This allows line managers and HR teams to dedicate their time to more critical tasks rather than swamping them with admin. 

What is a performance management process?

A performance management process includes three parts:

1. Objectives — setting goals agreed by employees and managers
2. Monitoring — regularly checking in to track the progress of the goals
3. Supporting — evaluating the result of the goals, adjusting the strategy where needed

Keeping track of all steps within the performance management process can be challenging without using an effective performance management online system. A good system can automate manual processes and ensure everyone is on the same page about expectations.

Why is it essential to have an effective performance management tool to support your process?

An intuitive online system that employees and managers find easy to use, which provides HR with the data they need to monitor progress and keep senior leaders informed, is invaluable to an organisation.

A study conducted by Gallup found that the most engaged employees were those with regular contact with their managers and whose managers used effective performance management.

An article on Forbes reported that highly engaged teams achieve 21% greater profitability for the organisation they work for. 

Three ways that a performance management tool can benefit your work environment are:

1. Improve employee retention

Employees are much more likely to stay with an organisation when they see a clear path for training and development. Providing tangible career progression opportunities is a great way to retain employees, and through regular reviews and feedback, a path to the next step may feel clearer. 

2. Reduce absenteeism

Engaged employees are more likely to want to come to work. If they are enthusiastic about something they’re working on, that duvet day might seem less tempting. When employees feel like the organisation cares for their health and trusts them to call in sick appropriately, they will often reciprocate that trust. 

3. Improve productivity and performance

Setting clear goals and expectations gives employees direction. This‌ will help them understand where best to focus their attention. Knowing how to best serve the company's goals and objectives will provide the employee with purpose and help to improve results. 

What does best-practice performance management look like?

Best-practice performance management recognises, evaluates, and rewards job performance that aligns with an organisation's goals. It's not just about how employees perform on the job, but also about how they grow and develop as professionals.

That means that best-practice performance management should include:

• A strategy for employee training and development opportunities that allows employees to grow in their roles and achieve their career aspirations. It should also align with the broader organisational objectives and business strategy.

• A way to recognise employees for their achievements, including regular feedback and rewarding exceptional performance with career progression opportunities.

• A system of continuous performance management that allows employers to evaluate employee progress regularly and identify areas where more training may be required. It also allows goals to be adjusted if required.

• A culture of collaboration between employees and managers where employees are empowered to take ownership of their personal development and feel trusted and supported.

What business insights can performance management provide?

Performance management is a way for your business to stay in touch with its employees and help them understand their roles. You can use it to:

1. Show how much employees are engaged with their role and the business.
2. Reveal training gaps
3. Highlight those who may be ready to progress and those who might be at risk of leaving the business.
4. Show which managers are comfortable with the people management part of their role and which ones may need additional support and training

By consistently measuring the results of your employee performance reviews, you may more accurately understand the parts of the business that are performing well and that people resonate with.

You may spot patterns. For example, is there a particular problem that continually leads to staff leaving? Or perhaps a line manager keeps seeing successes in their team. By reviewing their performance management process, you may repeat this success with other team members.

Employees who care about the business's success are often the first to flag an issue, and proactive employees may have even considered a resolution to these issues. Regular and continual performance management will help to catch these issues before they grow.

What is needed to make performance management successful?

There are several elements that all feed into creating an effective performance management system.

1. The process itself
   This should be unique to the business as it's likely to be tied to company objectives. Some organisations will benefit from regular peer reviews, while others may find that key performance indicators, or KPI's, work best for them. In some cases, both will be beneficial. The important thing is to develop the approach that works best for your organisation.

2. Performance management tools
   A performance management platform like Appraisd is a great place to start when developing your performance management strategy. It can help HR teams and line managers to create objectives, streamline processes and develop proactive conversations. Our Performance ROI calculator shows how much a performance management tool can benefit your business, saving valuable time and money.

3. Senior management buy-in
   Effective performance management requires buy-in from the leadership team. Without their support and them leading by example, a performance management process struggles to gain traction within the business. This is also important to ensure that all individual objectives eventually align with the organisation's objectives pre-agreed with the management team.

4. A supportive culture
   Good performance strongly connects to positive, healthy organisational culture. A supportive culture will allow employees to grow and learn in a way best suited to their needs. You can learn more about how to build an effective performance management culture in our guide to performance management.

5. Training
   Looking for training gaps is a significant part of a successful performance management process as it shows employees that you prioritise their development. It also makes sense from a business success perspective because you're filling gaps within the organisation with internal talent — which is far more cost-effective than hiring externally.

These elements are only some of the pillars of a successful performance management system. Ultimately, many more building blocks go into a performance management cycle. These may include agreeing on performance targets with senior management, practising transparent communication, agreeing on performance measurement metrics and performance coaching.

Performance management should be nuanced and unique to the organisation. Appraisd understands this and has built a performance management tool that is flexible to the needs of each organisation's requirements and can evolve with a business as it grows.

What is the future of performance management?

As work evolves in organisations, so will performance management. More flexible, inclusive working arrangements that allow employees to have a degree of autonomy over where and when they work means employees require different kinds of support. If hybrid working is to be successful, trust needs to be built and maintained between employees and their line managers, and regular check-ins and reviews help to create this. 

The key to successful performance management will be flexibility. You need to design an approach that understands employee's needs and supports their well-being and ensures organisations reach their objectives. Employee recognition will play an even more important role as happy, engaged employees are more likely to stay long-term and be productive in their roles.

Another noticeable trend is the move toward little and often, allowing line managers to check in regularly and track goals for continuous improvement. This agile approach leaves the “once and done” process in the past, allowing objectives to be assessed regularly — ensuring they remain fit for purpose.

Employees should be encouraged to be involved in the process as much as the HR team or their line manager, building greater collaboration. If you would like help building a performance management process fit for the modern workforce, book a demo with Appraisd. Our knowledgeable, friendly team can help you create a process that works for your business, supporting improved employee performance and well-being. 

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We help businesses streamline their performance management processes as well as supporting them through implementation and beyhond. Ready to have a chat about your needs and desired outcomes?

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