Why Performance Management Is Important (With Team Benefits)

By Indeed Editorial Team

Published May 23, 2022

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.

Employee performance can have a significant impact on business operations. Many companies use a regular performance review process to assess employee performance. Others may benefit from a more sophisticated employee performance management system, which increases employee participation in the review process. In this article, we discuss why performance management is important, compare continuous and annual methods, consider the benefits for employee recognition, and assess the impacts of performance management on team building and goal setting.

Why performance management is important

If you work in human resources or as a supervisor, you may want to know more about why performance management is important. While employee assessment remains the core function, performance management is a more comprehensive way of measuring employee performance and can increase staff engagement in the process. It aims to provide more timely and relevant insights into the challenges employees may face, so management can make the necessary decisions to improve work processes. It can help to identify problem areas more quickly and also allows employees to share their perspectives.

Related: Performance Review Phrases and How to Interpret Them

Annual vs. continuous performance management

The two major types of performance review systems are the traditional annual method and the continuous method. While both methods provide a way for management and employees to review performance, raise concerns, and recognize or reward employee achievements, they differ fundamentally in their objectives, formats, and scope. Here are some distinctions between the two systems:

Traditional annual performance review

Under this traditional framework, supervisors meet with employees at the end of the year to discuss their performance in the last 12 months, answer questions, and set goals for the coming period. This type of regular performance review aims to provide a setting to address concerns and determine a future direction for an employee's work. Because these reviews are formal and standardized in nature, they may be less able to address unique situations, and the insights they provide into employee behaviour may be less relevant if they occur once per year.

The other aims of employee review sessions are to plan future targets and outline objectives or milestones for the employee to achieve in the coming year. While annual reviews can provide structure to the employee assessment process, they may offer fewer opportunities to analyze performance and make adjustments. Employees may also feel less comfortable discussing their experiences in a formal context, particularly if they aren't familiar with the person conducting the assessment. Annual reviews can also focus on past behaviour, so any rewards or disciplinary measures for past work may be less relevant by the time of the review.

Comprehensive performance management system

Comprehensive performance management is also known as agile performance management, which refers to the flexible nature of this review system. It aims to open an ongoing communication channel between employees and supervisors and can encourage a dialogue to continuously improve work processes. This type of system can make it easier for managers to address issues directly so that they don't develop into more complex challenges. It also allows supervisors to provide real-time feedback and guidance that employees can implement, increasing the agility of a company's operations.

While the continuous method can result in more effective reviews, it also serves another function. The open channels of communication under this framework can give employees a platform to address concerns as they arise, which can help them feel supported in their roles. They're able to seek guidance as necessary and can expect timely recognition for their achievements and successes. Ongoing feedback can be easier to implement and is more likely to have a real impact on an employee's performance. Multiple small changes may also be easier to implement than a block of recommendations at the end of the year.

Related: Performance Review Goals (Definition, Types, and Importance)

Benefits for employee recognition

The responsive nature of agile performance management can also make it easier to recognize and celebrate team successes and individual achievements. When the assessment process is more collaborative, employees may feel more invested in the team's success and more responsible for their work. Greater engagement and a sense of team unity can also increase employee loyalty, which can reduce staff turnover. This can help staff to grow in their roles as they may remain in the same position for longer and accumulate valuable experience. The potential for growth in a role can also be a strong incentive for employee retention.

If employees know that supervisors are observing and appraising their work regularly, they're also more likely to want to do a good job. Regular opportunities for recognition and celebration of employee successes can increase motivation in a team. For example, if you're a supervisor using comprehensive performance management techniques, you can take advantage of up-to-date information about employee performance to plan the distribution of incentives or rewards at weekly check-in meetings.

Related: How Employee Performance Is Measured and Why It's Important

Impacts on team building

Because performance management is an ongoing process, it can keep employees more engaged with a company as they've many opportunities to voice concerns and receive feedback on their work performance. Some companies may use a blended performance review system, where supervisors assess employees but also incorporate an element of peer review. Often, employees can receive valuable and targeted feedback from colleagues who've in-depth knowledge of their department and working environment. This can encourage the exchange of ideas and collaboration among team members.

Employee engagement can also increase when team members feel that they have agency in the execution of their work and that they can contribute to decision-making affecting the team. When performance management supports employees, in addition to assessing them, team members may be more willing to express their ideas and opinions. This can lead to more fertile and productive discussions, a more collaborative atmosphere, and innovative solutions to work challenges.

Related: How To Write an Employee Recognition Letter

Impacts on goal setting

One of the greatest benefits of agile performance management is how it can affect the setting of employee targets and team objectives for future periods. Because management carries out these assessments and adjustments regularly, employees can get a clearer sense of how their performance relates to the overall progress of company objectives. Teams that understand their objectives and individual responsibilities, monitor their progress in detail, and communicate regularly are more likely to work efficiently and achieve their goals sooner.

Supervisors often use the SMART method as part of their goal-setting strategy. This can help to provide a framework for discussions and outline a plan of action for each team member in service of a team goal. SMART goals are well-defined, actionable, and limited in scope, and meet the following criteria:

Specific

A well-formulated goal is as specific as possible and ideally answers the questions of who, where, what, when, why, and how. This can also include considering which resources you require or what limits your team may face. Clearly communicating a goal and why it's important can help motivate a team and let them visualize the end result.

Measurable

Setting measurable goals involves defining a quantitative element that you can measure as you track progress toward a goal. You can use any unit of measurement relevant to your situation as long as it lets you track development over time. For example, you might set a sales goal to achieve a particular level of sales revenue, or you may want to transition your office to paperless operations within the next 12 months.

Achievable

It's important that goals are realistic and that a company develops them to match the existing resources, skills, or capabilities of employees. Overly ambitious goals can demotivate team members if they don't feel like they're making measurable progress. Limiting the scope of your goal to focus on specific and achievable objectives can make it easier to plan a project timeline and incorporate milestones. This way, team members can assess their progress, identify successful strategies, and make any necessary adjustments.

Relevant

Effective goals are usually relevant to all members of an organization, including the employees who are responsible for executing them. Ideally, a supervisor can match the talents and skills of team members to different parts of the task and distribute assignments effectively. When team members understand the intention and purpose of supporting a project or task, they're more likely to feel motivated and equipped to achieve it.

Time-based

Deadlines and milestones are some of the most important elements in goal setting and performance management in general. Planning these points in advance of a project can help team members to focus on the most important elements of a task and coordinate their approach if necessary. Establishing time limits for different parts of a project can also help a team to overcome any obstacles and help it finish certain aspects sooner. Pre-planned deadlines can help instil a sense of urgency and keep a project's momentum going.

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