What is performance management? A guide for hiring managers

Performance management is all about setting clear goals and providing regular feedback for each employee to help you achieve your organizational goals. While there’s clear value in performance management when it comes to employee development and retention, it can also provide value during the hiring process.

Having a performance management plan helps hiring managers to write better job descriptions, identify the key skills needed for success in a role, and give applicants a clear picture of what success looks like in your organization.

Here’s an introductory guide to performance management, its many benefits, and how to make it part of your organizational strategy.

What is performance management?

Performance management is an ongoing dedication to improving employee performance and engagement in line with your company’s goals, values, and business objectives. Performance management aims to boost company performance by maximizing individual performance through goal setting, collaboration, and feedback.

In practice, this means giving guidance to employees on how they can improve their individual performance while helping them see how their individual efforts contribute to the organization as a whole.

Performance management is not a one-time event or box to check off—it’s a holistic, continuous effort that’s built into your company’s strategic planning, compensation model, personal development plans, and HR technology stack.

A rounded performance management strategy will include:

• Company-wide goals

• Collaborative and agile goal-setting with employees

• Regular performance check-ins and one-on-ones

• Ongoing coaching and career pathing

• Timely rewards and recognition

• 360-degree feedback

• Succession planning

Overall, a performance management strategy gives managers the tools and insights they need to have more productive conversations and relationships with employees.

Performance management vs. performance appraisals

Before we go any further, it’s important to clarify that performance management is not simply a performance appraisal or a review.

A performance appraisal is a one-time evaluation or review of an employee’s past performance. Appraisals come in the form of retrospective feedback after a predetermined period, most often once or twice a year.

Appraisals are retrospective—feedback about a team member’s skills, strengths, and weaknesses is held for periodic reviews.

In contrast, performance management is a holistic, long-term strategic approach where thoughtful goal-setting and regular, timely feedback are used to continuously coach employees to impact their role.

Performance management is proactive—transparent goals are set with the employee in advance, and feedback is given continuously relative to those goals. 

Performance appraisals are part of a complete performance management strategy.

The many benefits of performance management

Implementing a performance management system from the ground up is an intimidating prospect. But, if executed properly, the effort is worth it.

Here are just a few of the benefits of performance management.

Define clear organizational goals: Strong performance management starts with setting clear objectives for the entire organization. Having everyone on the same page as to what you’re trying to accomplish together has innumerable benefits.

Create objective measures of success: Once you have clear organizational goals, you can create objective measures for success at the team and individual levels. With clear team-wide and individual OKRs and/or KPIs, everyone knows what’s expected of them.

Reduce bias and subjectivity: Transparent performance management provides an objective framework when it comes to performance reviews, raises, bonuses, and promotions—minimizing unconscious bias.

Identify HR goals and challenges: Thanks to goal setting and regular employee touchpoints, your HR team can more quickly and proactively identify organizational priorities—such as reducing employee turnover or improving succession planning.

Create better job descriptions: Setting clear goals and expectations per role can help you write great job descriptions, making it easier to identify the key skills necessary to succeed in the role.

Track and improve quality of hire: Having a process to measure employee performance results in the ability to track your quality of hire. As a hiring manager, you can then apply your learnings back into the hiring process to improve your quality of hire the next time you have a vacancy.

Motivate your team: Seeing how their personal goals contribute to the whole not only gives your team members a target to shoot for but also makes them feel part of something greater than themselves—an essential aspect of employee engagement. Gartner found that employers with high-utility performance management plans had 14% higher engagement.

Improve performance: All of the above benefits compound into a more developed, productive workforce that’s pulling in the same direction. According to the same Gartner study, workforce performance was 24% higher at companies with strong performance management plans.

Key phases of the performance management cycle

What does performance management look like in practice?

Think of performance management as a cycle or a feedback loop broken into four phases:

1. Plan: Individual goals are created based on organizational objectives

2. Act: Employees follow their personal development plans to achieve their goals

3. Monitor: Managers and employees communicate regularly about performance

4. Review: Reflect on and reward achievements and learnings

But before we get into more details on each phase of the performance management cycle, it’s crucial to understand that these phases do not happen in isolation. They are not discrete steps that happen one by one.

Instead, these phases overlap organically and feed back into each other. They should all happen continuously. For example, performance plans should change when circumstances change, and feedback shouldn’t wait until some predetermined time.

These phases are a framework to help you think about the necessary components of a strong performance management plan.

With that said, let’s explore each phase.

Phase 1 – Plan

First is the planning and goal-setting phase. In this phase, the manager and employee agree on performance criteria that the employee will be evaluated against.

These performance criteria should take the form of SMART goals:

• Specific – Goals should be narrowly and clearly focused

• Measurable – Objective numbers make it easy to assess if you accomplished the goal

• Attainable – Goals should be moderately challenging but realistic and within the control of your team members

• Relevant – Individual goals should be meaningful to the team member while also aligning with organizational goals.

• Time-bound – Goals should have target end dates.

For example, a SMART goal for a recruiter may be “Reduce time-to-hire by 10% by next quarter.” The goal has a specific, measurable outcome tied back to company goals that can be attained by a specific end date (and we’re assuming it’s within the employee’s control to impact this goal).

If you need inspiration for goals, here are a few types of goals you can consider:

• Job description goals: These goals take the employee’s predetermined job duties and turn them into measurable achievements.

• Project goals: These goals focus on what needs to be accomplished in the form of key deliverables or project milestones.

• Behavioral goals: These goals focus on how work should be accomplished. For example, adopting a new tool, learning a new skill, or adhering to certain best practices.

• Stretch goals: These goals push the employee towards growth, challenging them to take on expanded responsibilities beyond their job description.

Tip: Goal setting works best when it’s employee-led. Challenge each of your team members to create their own performance management plan by coming up with three to five of their own SMART goals, including at least one stretch goal. You can help them refine their goals, but they should own the process.

Phase 2 – Act

In this phase, the employee works towards achieving their goals. This may sound simple in theory, but it’s the easiest step to take for granted.

Why? Because stuff happens, and we get busy.

When an unexpected project pops up, it can be easy to abandon previously set goals and milestones. It’s easy to say, “I’ll do it later when I have time,” but that time may never come. A few months later, you may look back at your goals and see you didn’t achieve any of them.

Tip: Encourage your team to treat their goals as their North Star, but give them the freedom to adjust their goals as circumstances change. As new projects come up, provide them with the courage to say, “I can’t take this new project on and achieve my goals.” This makes it easier for them to understand and set their own priorities and avoid chasing new shiny objects that don’t add value.

Phase 3 – Monitor

This phase involves checking in and tracking progress towards the employee’s goals. This responsibility should be shared by the manager and the employee, as both parties should be equally invested in the employee achieving their goals.

As a manager, your goal should be frequent, transparent communication that strengthens the relationship between you and your team members. It’s your responsibility to provide support in whatever form it’s needed.

Here’s a multi-faceted approach to monitoring and encouraging performance:

• Tracking tool or system: Create a tracking spreadsheet or use a performance management tool so your employee can track their performance against their goals. Bonus points if it’s automated!

• Regular feedback: Give timely, frequent feedback so your team members can stay on track. Be thoughtful about how you give feedback, but don’t wait too long to share it.

• One-on-one meetings: Hold weekly or bi-weekly one-on-one meetings with each of your reports. Give them the space to talk about their achievements and what’s blocking them from achieving their goals.

• Coaching sessions: When employees need additional support or constructive feedback, hold a dedicated coaching session.

• Encouragement and appreciation: Don’t wait for major review cycles to offer encouragement. Show appreciation regularly, even if it’s just saying thanks.

Tip: Listening is the best skill you can have as a coach. Do more listening than talking in your one-on-ones. Don’t feel the need to fill every silence. This will help you understand your employee’s mindset.

Phase 4 – Review

The review phase is a periodic assessment of the employee’s achievements and learnings measured against their goals. The performance review is an opportunity to provide constructive feedback about performance, show recognition, adjust future objectives, and evaluate compensation.

How often you carry out the review process is up to your organization—whether it’s once per quarter, every six months, or annually—but it’s highly recommended to keep them on a regimented schedule.

Once again, how you structure performance reviews is up to you, but they’re most successful when they’re an open dialog between the manager and the employee. It shouldn’t be a top-down, manager-led review. It should be a chance to have a meaningful discussion about what performance looks like and what comes next.

Ideally, a performance review should include:

• 360-degree feedback or or multi-rater feedback: In addition to feedback from their manager and peers, the employee should complete a self-assessment

• Written documentation: Every aspect of the performance review should be captured in a document for everyone’s future reference

• One-on-one meeting time: Don’t dump a performance review in an email. Dedicate time to discussing the review in a one-on-one meeting.

• Rewards and recognition: You may choose to include your salary or bonus evaluation process in your review process

Remember: this isn’t only a chance to reward or punish. Your objective should be to keep your employee motivated leading into goal setting for the next performance cycle.

This process should help you define your top performers (who should be rewarded as such), adequate performers, and those who need performance improvement plans. This is also a time to evaluate your succession planning.

Tip: While it’s vital to schedule salary reviews, timely recognition and appreciation have been shown to have a more significant impact on performance. Don’t wait until your formal review process to recognize your employees for their great work.

Performance management best practices

It takes some experimentation to get performance management right. 

According to Gartner, 87% of HR leaders were considering changes to their performance reviews in 2020—signaling that nearly everyone felt they could improve their processes.

Here’s some advice for getting the most out of your performance management strategy from the start:

Set clear organizational goals first: Employees need to understand the big picture before knowing where they fit into it. Be sure you’ve communicated your organizational goals to your team before asking them to set personal goals.

Get organizational buy-in: Performance management isn’t an HR-only task, it’s an everyone task. It’s a time-consuming yet essential process, so you’ll have more success if you get buy-in from upper management.

Pre-plan everything: If you don’t put performance management on the calendar, it will never happen. Set hard dates for each step in the process (e.g., setting goals, doing check-ins, holding reviews) and hold everyone to it.

Ensure your performance management plan is sustainable: Don’t bog your performance management plan down with unnecessarily heavy processes. Keep the process as nimble as possible, and automate whatever you can. You’ll need to repeat it over and over, so look for optimizations where you can.

Collaborate. Collaborate. Collaborate: Involve employees as much as possible in setting their own goals. Let your employees share their goals with each other. Show them your own goals. Everyone will feel more confident and empowered when you set the goals together.

Promote a culture of acceptance and transparency: The entire performance management process will be far more fruitful if there’s a culture of open communication. Employees should feel comfortable expressing their wins, concerns, and struggles.

Measure things that matter: It’s tempting to create goals simply because you can easily track them. Make sure you set measurable goals that promote the right behavior because they’re meant to be motivational.

Help set stretch goals: Goals should be attainable but challenging. It may be tough for junior employees or new hires to set realistic stretch goals for themselves, so this is where you, as the hiring manager, can provide a lot of value.

Be consistent: Hold training sessions for managers to ensure that you don’t have “tough” or “easy” reviewers. Solicit 360-degree feedback so that your review process is less prone to individual bias.

Give timely recognition and feedback: This is worth repeating. Recognize and reward good performance when it happens rather than waiting for a review cycle. Recognition could be as simple as a thank-you email or a $20 gift card.

Set goals for results AND behaviors: Goals for how work is achieved can be just as impactful as goals for what is achieved.

Don’t make goals your only performance rating: If rewards or performance reviews are based entirely on goals, it can encourage employees to set goals that are too easy to attain. It can also lead to inflexibility, where employees ignore newly emerging priorities in favor of working towards their preset individual goals.

Make employee assessments part of your performance management process

After a few cycles through the performance management process, you’ll have a clear picture of what success looks like for any given role.

When it comes to hiring again for that role—whether it’s to scale up or as a backfill—you should hire with the confidence that you’re choosing candidates that have the necessary skills to succeed.

TestGorilla’s pre-employment assessments make it easy to test candidates on their hard and soft skills. With TestGorilla, you can pick the relevant tests for that role and pre-screen candidates with complete objectivity.

To hire the right candidates and get your performance management plan off to a great start, sign up for a free plan today.