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The birth of a company can be an exciting time — but it can also be an overwhelming experience. There is so much to do and so many things to remember, seemingly all of it of critical importance. When things get overwhelming, it’s important to get back to basics and remember that at the core of it all are your employees — your people, their efforts, and their loyalty. If you want to inspire great levels of employee engagement and cultivate an environment conducive to great productivity, it’s important to put a lot of time and effort into creating a motivational performance management system.

Below, we’ll explore what every business owner should know about performance management, what practices to avoid, and what tools have been shown to be effective.

What to Consider When Starting a Performance Management System from Scratch

So where do you start when it comes to creating a performance management system? Before you can make any substantial decisions, you should first decide on your company’s particular values. Your values are important to every aspect of your organization and will influence everything from your recruitment to your overriding objectives, so it's important that they are given serious thought. Whether your company values transparency, creativity or flexibility, these are all values that can be considered and implemented into your performance management system.

It will help to ask yourself the following questions. They will help guide and influence your performance management processes going forward:

  • Will my company's performance discussions be annual or more frequent?
  • What will my company's attitude be towards flexibility?
  • How much autonomy will I give my employees?
  • How will I ensure a culture of authentic and transparent communication?
  • How will my company address ongoing training needs?

Motivational Performance Management Practices

Certain processes have been shown to be motivational, resulting in greater levels of performance and engagement. Science and studies exist to back up these processes, and companies around the world have begun to implement them and reap the rewards.

Below are just a few you should consider integrating as part of your performance management system:

1. Regular coaching conversations — Employees need, and deserve, feedback on a regular basis. When feedback is prompt, specific and regular, employees are better able to adjust and perform above and beyond expectations. Regular coaching conversations also allow for employee and manager to establish a trusting relationship, which is important when you consider how critical managers are to employee engagement levels.

2. Clear SMART objectives — Incredibly, according to research, only about half of employees know exactly what is expected of them at work. If employees don’t know what they are meant to be doing, it’s impossible for them to satisfy their managers and contribute to their company in any meaningful way, even if this is something they care deeply about. Companies who work closely with their employees and create SMART objectives are much more productive, and their employees are much more confident in their roles. Keep this process collaborative, and be transparent about organizational objectives so employees can align their goals upward.

3. Employee recognition schemes — If you want enthusiastic employees, extrinsic motivators, such as money, will only get you so far. According to one notable study, 70% of respondents stated their most meaningful recognition had 'no dollar value', while 83% of participants claimed recognition of their work was more fulfilling than monetary reward. Yet another source confirms that something as little as a handwritten 'thank you' can have a longer lasting motivational impact than money.

To truly motivate your employees, they need something more intrinsic, such as recognition of a job well done. Take the time to thank your employees for their efforts, and you will be rewarded by them being eager to go that extra mile.

Outdated and Uninspiring Performance Management Tools

Given that performance management is an ever-evolving field, there are certain performance management tools that are becoming outdated and irrelevant. These include:

1. Performance ratings — It can be tempting to incorporate the use of performance ratings, as HR loves certain metrics that can be used as an indicator of how well a given team is performing. However, ratings that reduce employees to numbers and don’t take into consideration the various intricacies and complexities of a given role are more detrimental than helpful. Performance ratings have been shown to prompt a fight or flight response in employees. This isn’t the state of mind you want your employees to be in if you want to inspire great performance.

2. Stack ranking systems — Thankfully, stack ranking systems, also known as “rank and yank” systems, are fast becoming extinct. Such systems involve rating employees and using these ratings each year as a basis to fire a certain percentage of the workforce. For example, the bottom 10% in your organization might be fired each year — regardless of how well they actually performed, how much they have improved, and their level of dedication. Such systems breed insecurity and unhealthy competition and should be avoided.

3. Annual appraisals — As with stack ranking, annual appraisals are falling out of favor. In an age when employees expect constant communication and regular feedback, single yearly appraisals no longer provide any value or service. They are unhelpful, they attempt to accomplish too much in one sitting, and they are dreaded by employees and managers alike. This is why so many companies are transitioning to continuous performance management.

Performance management isn’t simple or straightforward — it is an area of business that can easily go wrong, resulting in a workforce that is frustrated and completely disengaged with their company. Done right, however, and with enough effort, you have the ability to create a company filled with dedicated and enthusiastic employees who come to work each day eager to help your business thrive and grow.

Performance Management Is a Fluid Field — Keep Up to Date with Trends

Now that we have covered the basics, it’s important to keep up-to-date. Performance management is that it is an area constantly evolving. What motivates and engages one generation won’t necessarily have the same impact on the next. In addition to this, with changes in technology and advancements in fields like human psychology, it’s imperative that HR departments stay up to date with performance management trends and adapt accordingly. Organizational change is never easy and requires true dedication in terms of time and effort, but a willingness to accept change keeps companies competitive and relevant in the long run.

About the Author(s)

Stuart Hearn

Stuart Hearn is a speaker, people management specialist and the CEO & Founder of performance-tech company Clear Review. Stuart has over 20 years’ HR experience and helps organizations to embed practices that engage, develop, and retain top employees.

CEO & Founder , Clear Review
performance management