Performance management is about more than annual reviews. It’s a key part of the strategic work to ensure that not only are employees performing well at an individual level, but growing in their careers and working toward company goals.
For employers, there’s a strong business case for a robust performance management system, too. Top-notch systems establish a foundation for setting bonuses and raises, identifying high-performing workers, boosting employee engagement, and retaining great workers.
And employee engagement and retention, in particular, are more important than ever as workers quit their jobs at escalating and historic rates nearly two years into the COVID-19 pandemic, according to the US Bureau of Labor Statistics (BLS).
A performance management system provides the transparency required to stem that tide of resignations, said Jennifer Durbin Tuffy, founder of executive coaching practice Scoutenger. “There’s less angst about a performance review process if you know what’s going to be in the system, when to expect the cycle to start, and what to expect throughout the cycle,” said Tuffy.
But often, as businesses launch, investment in anything beyond spreadsheets to track performance reviews gets pushed down the to-do list. Performance management is an investment that comes with a significant payoff, though, in terms of employee growth, engagement, satisfaction, and retention — and failing to institute a comprehensive, cohesive performance management system can be to the detriment of the organization.
So how do you know if your company needs one? Here are 10 signs it's time to invest in performance management software and systems to support the growth of your employees and your organization.
10 Signs Your Company Needs a Performance Management System
1. Your organization has more than 20 employees.
When companies first launch, employees often wear multiple hats, said Jana Tulloch, principal consultant for Tulloch Consulting, an HR strategy consultancy. Because the team is small, “it's easier to keep in your line of sight what the deliverables are,” said Tulloch.
But, as teams scale, communication and clarity about individuals’ roles becomes more complicated, Tulloch noted. In her experience, companies should start streamlining performance management processes and consider investing in automated systems that make it easy to track, in real-time, how employees are performing, once they hit 20 team members.
“As team size grows, managers suddenly find it harder to keep that communication line open around deliverables all the time like they once did,” Tulloch said. “And now they need to document it more closely.
“Time is money, and having a system in place that helps you automate is key,” she continued. “Automation saves time, and it also becomes your record of the process that a deliverable has taken.”
2. Employee retention is a growing problem.
Employees who say that their manager involves them in goal-setting are 3.6 times more likely to be engaged at work, according to one Gallup survey. And engaged employees, according to the Corporate Leadership Council, which is now part of technology research and consulting company Gartner, are 87% less likely to leave their employer. A performance management system can help to ensure that employees and managers are effectively communicating about goals, objectives, and career growth.
“Today’s talent expects that you’re going to partner with them to develop and grow them,” said Jessica Donahue, founder and Human Resources consultant at Adjunct Leadership Consulting, an HR consulting firm. “Without [a performance management process] in place, [employees] start to question, ‘Will there be a plan for me?’”
3. Company targets and organizational goals are frequently missed.
Without the right performance management system in place, HR teams and executive leaders may not have the metrics they need to diagnose why company targets are missed, said Rahul Bhargava, partner at management consulting firm PurpleCrest.
“Because of a broken or inefficient performance management process, employees do not know [how] their everyday work or their individual goals contribute to the overall strategy,” Bhargava noted. A performance management system can bridge that gap in strategy execution, identifying problem areas and ensuring that everybody is moving in the right direction, he said.
4. High-potential employees aren’t delivering.
You may have hired those hot-shot software developers to tackle long-standing product issues. But if they aren’t delivering, that’s a warning sign that you need better workflows to rate employee goals and performance and highlight competencies for those individuals, Bhargava said. A performance management system can do that.
“If the high-potential employees you hire are failing to perform under established quality standards and your HR department cannot identify any interventions that could help, then it’s a sign of needing an enhanced performance management system,” he said.
5. Performance reviews aren’t fact-based.
For many employers and employees, annual performance reviews are a drain, requiring a scramble to remember the important wins and missteps over the previous 12 months. When organizations don’t have a system in place that makes it easy to note those highs and lows throughout the year, it can be impossible to pull up factual information when it’s needed. Conversely, a strong performance management system can track important performance metrics and pull in data that allows for 360-degree feedback from across an organization.
“An employee performance review that doesn’t contain facts is unhelpful. It often leads to more problems than solutions,” said Bhargava. “Facts can come from everywhere in the organization — peers, managers, direct reports — even from external clients and partners. It's a warning sign when the performance review is becoming challenging.”
6. Performance management practices aren’t consistent.
As companies scale, the work to deliver performance appraisals, continuous feedback, talent management, and other initiatives becomes more complicated. And, over time, especially when performance management is tracked via spreadsheets and other manual processes, departments may develop different policies and practices around employee reviews.
The accounting department, for example, might have a holistic, formal approach, while the product development team may be more scattered. That can lead to unhappy workers, Tuffy cautioned. “Once you hit scale or become a more complex organization, systemizing it is so critical,” she said.
Performance management systems add consistency to performance reviews across a company, ensuring that individual employees — regardless of their role or department — are evaluated in the appropriate way and at the right cadence, and that this process is conducted uniformly throughout the entire organization.
“When you’re managing everything through a document and not a system, you don’t have a way to centrally manage all of the reviews,” Tuffy said. “You don’t actually know if all of the managers across the organization are evaluating their staff on a consistent basis.”
7. New managers don’t know how to evaluate their direct reports.
Performance management systems help organizations set clear expectations around annual reviews, performance appraisal, continuous performance management, and employee development. When these systems are clearly spelled out within a formal system, managers — especially new ones — don’t have to figure it out on their own. They have a template.
“For new managers, this is incredibly helpful,” noted Tuffy. “They just have to follow the process. They have a resource to go to if they have questions.”
8. The company is gearing up for big growth — and funding.
A performance management system provides a proof-point for investors that an organization is making smart decisions around its workforce, Donahue said. She recently worked with a startup that hadn’t formalized its performance review and improvement plan processes; it was only able to secure funding after promising to put them in place.
“If you think about a performance improvement plan [and] being able to put an employee on [one], you don’t just need the PIP — you need all of the policies and processes behind it,” Donahue pointed out. “It has to be a holistic approach to how an organization [is] going to monitor the performance of [its] people, assess it, and use it to make decisions.”
9. Claims of wrongful termination are popping up.
Without a system that formalizes the process to review employee performance and provides regular feedback to employees, organizations often don’t have the information they need to support the firing of an individual.
“It’s a liability issue,” warned Donahue. “If you don’t have a way that you are measuring performance and then you willy-nilly decide that you’re letting someone go, you’re firing someone without any data to back up that decision [and] you put yourself at risk of a wrongful termination claim.”
10. Job candidates go elsewhere.
Career development and advancement is important to today’s workers, especially millennials. Gallup research found that 87% of millennials rated growth and development as important to them in a job. A clear process for growing within an organization — and earning the merit raises that go with it — is essential even during hiring, said Donahue. During the interview process for potential new hires, if an organization can’t spell out their processes for doling out feedback, raises, and bonuses, that’s a red flag for some, she noted.
“If there’s another organization that they’re talking to that has a very clearly laid-out way where success is identified [and] rewarded and they are financially recognized for that, then they may be more inclined to go with that proven system,” Donahue explained. “People care about their pay. Anything where you can tell them, ‘This is how we can help you make more’ — that’s something that’s going to be a priority for them.”
The best and most effective performance management systems provide a blueprint for employee success and organizational growth. Instead of reviews and metrics scattered across emails and spreadsheets, automated platforms package everything together in a single, integrated product.
That one-stop shop cultivates productive conversations between managers and employees about strategic goals, employee development, and employee experience. And it ultimately provides the framework to ensure that employees are focused on driving their careers and their employers’ success forward.
The workplace — and workers’ expectations — are shifting tremendously. A comprehensive performance management system like Lattice, which spells out not just expectations for employees, but provides opportunities for them to learn and grow in their careers, will be essential. Contact us to learn more and schedule a demo.