The ROI of Performance Management: Why Reviews, Goals, and Feedback Matter

As an HR professional, you don’t need convincing that performance management processes — including goal setting, feedback, and reviews — positively impact employees and the business. That’s why People teams rate performance management as a top-five priority heading into 2021.

But convincing other key stakeholders isn’t always so easy. You’ll also have to earn buy-in from the C-suite, managers, and employees. Thankfully, you’ll have ample evidence to point to when making your case.

1. Performance management drives retention.

Employees prefer working in environments where they’re challenged. One LinkedIn study found that over 90% of individuals would stay at a job longer if it helped them grow. Another survey found that two-thirds of employees want more feedback from their manager and peers. If your company wants to mitigate costly turnover, it needs to take performance management seriously.

“Lower performance, dissatisfaction, low motivation, low morale, and ultimately, resignations —  these all cost money. Each and every one of these issues appears without performance management,” said Nelson Sherwin, HR Manager at PEO Companies. If you’re looking to show the ROI behind your performance management processes, start by positioning them as drivers of retention. After all, CEOs rank employee turnover and attrition as two of HR’s most important metrics.

“Employee retention is especially important to prioritize because of the cost of recruitment, training, and onboarding. There is so much time, money, and effort invested in that process that is ultimately lost should the employee decide to move on,” Sherwin said. If you aren’t challenging high performers and coaching them to be even better, the cost of losing them will far exceed the expense of implementing performance management processes or software. 

2. Goals empower teams to prioritize.

We all want to make an impact. But how much of our day-to-day is meaningful versus busy work? One of the most valuable benefits of a performance management framework that includes goal setting is that it empowers teams to get their priorities straight.

“The point of performance management, including goals, is ensuring that people know whether they’re getting the right things done in the right ways. Without it, people don't know what to keep doing and what to change,” said Dr. Orin Davis, a human capital management researcher at the Quality of Life Laboratory. “Your return on investment is the difference in value between the job being done, and the job being done well.”

This clarity also gives less-experienced managers the confidence to have data-backed performance conversations.

“When I ask managers what their vision for their team is, or what they expect from the team, I often get a quizzical look as the response,” said Irial O'Farrell, a learning and development consultant at Evolution Consulting. One of the essential responsibilities of any manager, Farrell argues, is to ensure direct reports are positioned to drive value for the business. But how can they be expected to do so if tangible goals aren’t being set? “Lack of clarity makes setting objectives or giving feedback very difficult and uncomfortable. Effective performance management actually supports managers and makes their lives easier, not harder,” she said.

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3. Performance management makes output measurable.

Being “data-driven” isn’t an aspiration, it’s an expectation. That’s why every business function, from marketing to recruiting, has its list of key performance indicators (KPIs) to share in the boardroom or at all-hands meetings. But despite business leaders’ mission to measure everything, companies usually fall short in one critical area: employee performance.

“If you’re trying to convince management to implement a performance process, start by selling them on the opportunity to gain data on output,” said John Ross, President of Test Prep Insight. The value of being able to report on performance isn’t for the sake of finger pointing — it’s about identifying whether responsibilities need to be reshuffled or additional coaching is needed.

Experts cited another critical benefit to data-driven performance management. When managers take a more methodical approach to reviews, “gut feel” and unconscious bias play less prominent roles in staffing decisions. “Employees will appreciate the transparency and fairness that regular ratings give. When the decisions aren’t being made arbitrarily, this ultimately feeds back into [employees’] performance, results, and your revenue as a whole,” said Grant Aldrich, founder of Online Degree. 

4. Goals and reviews are powerful motivators. 

Even a rudimentary performance management process can motivate employees. For example, one university study found that simply writing down a goal makes you 42% more likely to achieve it. That’s a dynamic that Dr. Cabot Jaffee, an organizational psychologist at AlignMark, has seen play out over his 35-year career — and well before it.

“Going back to grade school, if a student asked if a topic was on the test and the teacher said ‘no,’ there’s a good chance no one paid attention. It’s no different in business,” Jaffee said. He added that if you set goals and expectations that are realistic, accountability acts as a positive motivator. “If all employees are held accountable through quantifiable and qualitative measures, then the activities will get executed.”

There’s another, more tangible motivator besides employee psychology. If your company opts to link compensation and performance, the additional incentive could also improve employee output.

“Engaging employees in HR initiatives is so much easier when they see the benefits. That’s why we decided to integrate our bonus system into our performance management program, said Jessica Lim, HR Manager at LiveCareer. “This approach helped us motivate our teams, made us more accountable, and brought positive results for our business in the long run.”

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Investing in performance management isn’t just a best practice, it’s a prerequisite for business success. Lattice’s HR software empowers your team to share feedback, set and track goals, manage performance reviews, and more  — helping you make a return on that investment even sooner.

An independent study by Forrester Consulting found that Lattice’s software had a three-month payback period and delivered a 195% return on investment. To read the full study, click here. If you’d like to see our platform in action, schedule a demo today.