2020/21 is unlikely to have been the year that you reviewed your organisations performance management system… but it might be on your to-do list for 2021/22. In this article Katy Marshall, Reward Director at Turning Point HR Solutions, answers key questions on performance management and suggests changes organisations can make to their performance management systems that will support agile working and can ultimately improve organisational performance.

Traditional methods of performance management have been on the decline for many years, and in 2019 several high-profile HR commentators claimed it was the end of the traditional annual review with organisations instead opting for more regular conversations about employee’s performance. The events of 2020 meant that most organisations did not develop their performance management processes to this end, and many organisational development projects were halted. However, with many businesses looking to change working practices in 2021, opting for more agile arrangements and remote working, there is an opportunity to make small, thoughtful changes to performance management systems, processes and activities that can improve their effectiveness and help align processes to the new ways of working that are on the horizon. These small changes can help improve organisational productivity and performance and help organisations regain lost ground lost post pandemic. First of all though…

What is performance management?

The CIPD says that performance management is critical for an organisation’s success and that it aims to monitor, maintain, and improve employee performance in line with organisational objectives. They say is a not a single activity, but rather a group of practices that should be approached holistically.

Objective or goal setting

Clear objectives are vital to measure performance, and we would recommend that managers involve employees in setting these objectives. That doesn’t mean letting employees set objectives themselves, but instead that managers consider feedback and discuss and explore objectives fully to ensure understanding and buy-in. Explain the rationale behind the objective, ensure it is SMART, agree how the objective will be met and what behaviours are necessary to achieve it. This must be done at the start of the year so that the employee has clear goals to work towards from an early stage. Objectives should be cascaded down to an individual or team level, but employees should be able to understand how their objectives contribute to wider business objectives or strategies.

360 Degree Feedback

360 degree systems can provide more informed feedback on performance. However, organisational maturity is key to a 360-degree system working effectively. If 360-degree feedback is new to your organisation, an initial integration to your existing performance management or appraisal systems can be to add stats or feedback from client or employee surveys. Incorporating direct feedback from colleagues, team members, direct reports and clients is something that is better developed over time as robust performance management systems are developed and the organisation grows in confidence with their use.

10-minute check-ins

Studies have shown that short, regular conversations between managers and their direct reports are much more effective at keeping employees focussed on their goals than the typical annual appraisal. These conversations can be as short as a 10-minute monthly check-in if all is going well. Where things are not on track, at a team or individual level, managers should invest more ensuring that they address performance issues informally at an early stage, and if informal discussions prove ineffective to getting performance back on track, then considering more formal performance management processes offering appropriate support and training where necessary. Managers should be able to seek HR support advice during formal performance management to ensure risks are mitigated and any interventions are effective and fair.

Management resources and training (and difficult conversations!)

Of course, managers need to have the time and resources to ensure these conversations can take place, and so an organisational level there needs to be acceptance and investment in this. Managers must also be very clear about how performance management systems operate and understand that they are accountable for ensuring the conversations take place and policy and processes are followed. They must also have confidence articulating the system to their direct report and in having the difficult conversations that they are likely to have to have to tackle areas of underperformance within their teams. Management training is a MUST for any organisation embarking upon a new, or updated, performance management system and clear systems, processes and policies must be documented.

So, the end of the annual appraisal?

At Turning Point HR Solutions – we think not, and we work with clients all over the UK and in an extremely wide variety of sectors. Based on feedback from our clients we think annual reviews or appraisals are here to stay. One reason is because for many employer’s performance management processes are aligned to the financial year and so it is an ideal time for employees and their managers to reflect on pay, performance, and market rates. This is particularly relevant when performance contributes to, or has a direct effect on, an employees pay. Or where there is high demand on the market for particular roles or skills.

However, we recognise that annual reviews or appraisals are unlikely to be effective and have a real impact on performance if they are the only conversation that takes place throughout the year. In addition, if there is no real structure to the conversation, or evidence to show whether the employee has or has not successfully met their goals the conversation may end up being meaningless. Preparation is key for managers – considering the conversations throughout the year and evidence gathered to support the decisions made. Annual reviews should be a time to reflect on the past year, consider cumulative performance and set goals for the employee for the coming year. There should be no surprises though! If performance has been poor, it should have been picked up long before the annual review – realistic expectations should be maintained through regular performance conversations.

Record keeping

Evidence on performance is essential to ensure that informed decisions can be made and rationalised to employees. Also that employees can be recognised for high performance, and risks mitigated in situations of poor performance. Recording praise or complaints, statistics and performance against targets are key. Focussing on positive feedback as well as negative can ensure employees are recognised for high performance and motivated to succeed. For all meetings, notes should be taken, even from short catch ups, and circulated to confirm discussions afterwards. For more formal discussions review forms should be completed and circulated to the employee afterwards.

Remote working

With a move to more agile working arrangements, what happens to performance management – meetings and conversations that would normally take place in the office and face to face? Time will tell what works best, but we would suggest that scheduling some performance discussions for the office could be a good way to keep managers in touch with their direct reports. They could be scheduled around team or client meetings and help maintain and build company culture, perhaps being coupled with a team lunch or a team building event. Of course, short positive check-ins at busy times can easily be handled online but reserving more difficult or formal conversations for times when face to face discussions can take place could help avoid misunderstandings and mean more in-depth and valuable discussions – rather than cries of “Sandra, you’ve frozen!” in the middle of a zoom call about a client complaint.

How can performance link to pay and reward

We mentioned above that performance reviews often involve discussions about pay for many organisations. This is particularly the case where some form of performance related pay (PRP) or contribution pay is engaged by an organisation or market rates are reviewed regularly. Performance related pay involves designing systems and processes to measure employee’s performance and then linking the employees pay to their performance. Links can be strong or soft, so for example, commission for a Sales Executive that is linked to sales will be a strong and obvious example of performance related pay. A bonus linked to performance or set individual objectives is another example of a reward linked to performance. Progression through a pay range that depends upon sign off on acceptable performance could be a softer link and there is a myriad of options for employers seeking to implement some form of PRP in between these examples. PRP often gets negative press, and we would recommend that where any PRP mechanisms are engaged they must be carefully developed and designed to motivate the right behaviours, and, that employees and managers have a clear line of sight between the goal or target, what is required of them, and what the reward will be. Regular feedback on progress during performance conversations is key to this.

Total reward integration and impact on performance

It is always important to remember that over the years several studies have shown that pay is a ‘hygiene’ factor i.e., while it serves to stop employees be coming dissatisfied or demotivated, it isn’t guaranteed to motivate everyone to perform better or be more productive. From that perspective, it is essential to ensure that your performance management system incorporates, or links to, non-financial recognition incentives and initiatives and considers the effect on performance and engagement of the wider working environment and company culture.

Turning Point HR Solutions are a Pay and Reward Consultancy. We are specialists and have a wealth of experience advising clients on pay and reward and performance management systems at all levels and in all sectors. We also have excellent software solutions that can help you understand market rates for roles based all over the world and ensure that your pay arrangements are fair and legally compliant. Please get in touch with us to find out more katy.marshall@turningpointhr.com or click here.