How Employee Performance Is Measured and Why It's Important

By Indeed Editorial Team

Updated October 25, 2022 | Published September 29, 2021

Updated October 25, 2022

Published September 29, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Measuring employee performance helps each business operate and grow to the best of its ability. Evaluating employee performance can lead to greater profits for the company, increased employee motivation, and higher job satisfaction. Understanding how to measure employee performance can make you a more effective manager. In this article, we explore how employee performance is measured, discuss why employee performance measurement is important, and review the metrics that need to be measured.

How employee performance is measured

How employee performance is measured depends on the employee's job profile and tasks. To gather the most accurate data, you will need to implement different approaches to performance measurement for the different employees in your company. Here are eight methods that you can use to measure employee performance accurately:

1. Measuring objective management

In order to measure objectives achieved by employees, measure their productivity in ways that inform you about their contribution to the company's goals. For this method to work, you must give employees clear individual goals to work towards and all the tools they will need to meet these set goals.

Managers and employees should meet regularly to assess the progress made and solve any issues as they occur. Measuring employee performance at regular intervals throughout the year helps them stay focussed on their individual goals, which will help the company move towards its goals.

2. Measuring by the quantity produced

A quantitative method of performance measurement calculates employee productivity by the number of products delivered within a timeframe. This method is simple, saves time, and works best for small businesses. You can make this type of productivity measurement either by the number of products created, or by the monetary value of the product or service. When using this method, factor in elements out of the employee's control, such as waiting for parts to be delivered, the length of the job training period, or broken equipment.

3. Measuring through 360-degree feedback

As this method uses the feedback and comments of colleagues to measure employee performance, it works best in smaller departments, where everyone in the team interacts with each other often. These colleagues are those that the employee interacts with daily, who know the employee's credentials, job duties, role in the company, and so on. To achieve accurate evaluation, train the colleagues who evaluate on how to offer impartial feedback that is based solely on the employee's professional capabilities, and not base their comments on personal feelings towards the employee.

Related: How To Motivate Employees

4. Measuring by sales

There are many factors involved in measuring a salesperson's performance with total accuracy. The best way to start their performance measurement is by recording the following numbers within a decided period:

  • total number of sales

  • value in dollars of the sales completed

  • number of sales made to existing customers

  • number of new customers gained

  • number of calls made to potential clients

  • expenses occurred per sale

To ensure accuracy, establish a baseline for the sales performance based on your company size, business market, and product type. A good place to start is to research businesses that are like yours and carry similar products.

5. Measuring by service provided

Measuring employee performance by the service provided can be more challenging than measuring sales. Service businesses measure employee performance by tasks completed, or customers served within a time frame, speed of the service, customer feedback, or even by evaluating the department or team.

When choosing a baseline for measurement, factor in the issues an employee may face when delivering the service. Issues such as broken equipment, shortage of staff, or even outdated technology can hinder the efficiency of the service provided. According to the business type, it is better to update your baseline every 12 months according to current industry standards and market conditions.

6. Measuring employee time management

This method measures employee performance by tracking how much time an employee takes to complete their work. You can collect data such as how much time employees spend on one task, how long they take breaks, and how many vacation or sick days they take. The bigger your company gets, the harder it becomes to measure how an individual employee spends his/her time.

Thankfully, there is software that can gauge how long employees are productive at work. This requires employees to update their progress on their work regularly. This helps them to not procrastinate and provides a clear picture of how long it takes for employees to complete a certain task.

7. Measuring by profit

Many small and medium-sized businesses prefer to measure employee performance solely based on the amount of profit gained by the employee for the business. Not measuring all the movements of individual employees and focusing only on the bottom line allows the employees to be creative with their work. It saves a lot of time for the management as they only need to watch high-level activities. Team effectiveness is an excellent area of measurement, which measures the amount of gross profit brought in against every dollar spent on the salary of the employees on the team.

8. Measuring quality of work

You can measure employee performance by whether they completed the assigned work on time. These days, employees' personal and professional lives are so overlapped that measuring their performance based on time spent at work does not yield accurate results. Best performance measurement systems are the ones that are based on outcomes instead of employee habits and behaviour.

Related: What Is a Performance Improvement Plan? (With an Example)

Why measure employee performance?

Many organizations are considering a performance evaluation model where there are frequent check-ins with the employees about their performance, goals, and development in the company. Here is why measuring employee performance is important for the employer and the employee:

Helps employee growth

Supervisors need to be attentive to measure their employees' performances accurately and provide constructive feedback or offer praise to their team. Employees want to improve and grow, and useful feedback helps them recognize the areas they could improve upon. Accurately measuring the performance of employees allows you to offer specific feedback that helps them continuously grow in their role, leading to employee satisfaction.

Supports goal-setting

Employees perform better when they have an obvious goal they are working towards. Without employee input or their performance data, these goals can be too ambitious or too easy. Conversation between managers and employees about company goals and how the employee can contribute is essential when setting goals. Employers who meet with employees regularly to discuss their projects and goals are more likely to have a team that meets company goals and contributes to the growth of the company.

Helps measure company performance

Based on how the employees are performing on their goals and projects, you can assess the company's performance and growth. Measuring the performance of the employees can help you learn about the company's organizational culture and how it affects employees. Employee performance reflects the organization. If several employees are underperforming, it may be a sign to assess the systems put in place at the organization, such as the employee performance measurement system.

Provides an understanding of company culture

Measuring employee performance and coupling its results with the employee experience information and engagement surveys can offer insights into your high performing employees' success. You can then evaluate what makes top employees successful and implement a company culture that can help other employees become top performers as well.

Helps create fair employee recognition

A fair employee performance measurement system is vital in deciding employee roles and compensation. A fair performance measurement allows top performers to get the recognition they deserve and low performers to get the personalized feedback and coaching they need to improve. Along with enhancing company performance, improving individual employee performance also helps boost employee morale.

Related: Importance and Common Types of Compensation

What to measure to evaluate employee performance

Tracking the right performance metrics is important when measuring employee performance. Here are a few points you may need to consider when evaluating employee performance:

  • Execution of work: Monitor how they execute their tasks by measuring their ability to prioritize and delegate tasks to complete the work on time.

  • Quality of work: Products or services delivered by the team have to meet the company's requirements. If there are delays in production or project deadlines, employee performance measures can help you identify any underlying issues and offer solutions to those problems.

  • Punctuality: Performance evaluation helps you understand if underperforming employees have issues at work or in their personal lives, and ways you can help them perform better.

  • Attitude: It is easier for employees with a positive attitude to collaborate with others and accept feedback and criticism well to achieve the best results.

  • Creativity: Employee creativity could discover novel approaches to a task or investing time in learning new skills for self-growth.

  • Sales revenue: The company moves towards its goals better when it has employees who consistently meet their set sales and revenue goals. Such employees can offer advice and teach the rest of the team how to achieve great sales results.

  • Personal habits: Certain personal habits of employees can affect their performance at work, either positively or negatively. A well-planned company behavioural code helps guide employee conduct to better improve their work performance.

  • Customer feedback: Employees who often receive positive feedback from customers and their colleagues will ultimately have excellent results on their performance measurements.

Now that we've explored how employee performance is measured and discussed why employee performance measurement is important, you'll be in a better position to create your own system in your workplace.

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