The collective groans at the end of the year when performance evaluations come around may make you think these systems are nothing but extra work for no gain. The truth is that an effective performance management system is vital to an improving business, but the key word there is effective: one that works with employees and managers alike to encourage development and increase the productivity and quality of work done.

Employees and managers who aren’t getting anything out of their end-of-year reviews should stop and consider whether they’re using the system correctly, because when a performance management system works, it benefits everyone.

What Is Performance Management?

The purpose of performance management systems is to evaluate an employee’s work against the expectations set out by their position and by their manager to determine how the employee is doing in that role. Most performance management systems operate on an annual basis, usually using the end of the calendar year to review the previous year’s efforts and set new targets for the upcoming year.

Depending on the organization, there may be mid-year checkpoints built into the system. Often, the performance review process will include a self-evaluation by the employee, followed by an evaluation by their manager and a meeting to discuss any discrepancies.

The performance management system helps to ensure that the company’s goals are met in an efficient, timely and successful manner. These goals are often set by a CEO, president or executive board and filtered down through the management chain to be adopted by departments and individuals. Being able to take an executive’s vision statement and translate it into meaningful work at the contributor level helps keep everyone focused on the same set of long-term goals for the company.

Project Management Goals

In practice, goals are usually divided into two categories: quantitative goals (for example: cut 15 percent of Program X cost; submit six new reports) and qualitative goals (for example: expanding technical knowledge; showing collaboration). The quantitative goals, or the “what,” define the projects and other work assigned to that employee and encompass the concrete evidence of work that employee has turned in. These should be clearly defined and easy to confirm.

Qualitative goals, or the “hows,” are often more difficult for management to define or for employees to answer, but they’re almost more important than the actual quantity of work done by the employee. For example: good communication is important, but what should a teammate submit within their performance review to prove that they’ve used good communication? These “softer” skills should be discussed with teammates frequently to ensure they understand expectations and tailor their behavior at work to emphasize these competencies.

Performance Management Process

Performance management systems are used because it’s important for a business to have some kind of metric of acceptable performance. This comes into play on both sides of the performance scale; having a record of performance history is necessary when looking to promote a good employee or fire an unsuccessful one.

In the case of promotion, management usually requires evidence that the employee has been outperforming the expectations for their current role for an extended period of time. Good performance reviews can track this, such that the history is evident in that employee’s records. Stellar performance can then be rewarded with a raise or promotion.

In the case where an employee is not performing well in their position, a careful performance evaluation can help show that employee the gaps between their performance and the expectation; it will also help the manager develop an improvement plan for that employee. Managing an underperforming employee takes a lot of time and effort on the manager’s part to explore potential improvement or look for other areas where that employee may be successful; the records of a performance improvement plan are crucial to that process.

Checking in with Management

For all other happily performing employees, the performance management process is a chance to check in with management and ensure everything is on the right track. A good performance management system won’t just focus on the extreme cases; it’s important to take the time to connect with all employees and reassure them their contributions are noticed and valued. It’s also a chance to plot a future course: where do employees see themselves in three years or in five years? What tools will they need to start developing now to help them realize that path?

Where Is Performance Management Useful?

Performance management isn’t just paperwork. It’s meant to be an extended conversation between an employee and their supervisor or manager, and when those conversations continue, performance improves. In today’s workplaces, many employees can feel like their work vanishes up the chain of command with no recognition; touching base with their manager can give them the feedback and acknowledgment they need to feel secure in their work. In this case, the performance management system acts as encouragement, to ensure employees the quality of their work is appreciated.

When employees fully understand the expectations and are given the tools they need to meet those expectations, workplace efficiency increases, as well as workplace satisfaction. When goals are muddy or unclear, employees often either misinterpret them or only feel compelled to do the bare minimum. Goals that are clearly defined will help motivate teammates, and having a clear target will also help teammates come forward when they need help, or when other business systems are failing them and making that target unachievable. This can highlight internal business weaknesses that management may not have seen.

Benefits to Workplace Satisfaction

Performance management can also increase feelings of teamwork and camaraderie, which can improve the quality and quantity of output. When a target is clearly defined – say, a production target for the year – it’s easy to break that down into daily, weekly or monthly values individual contributors can understand. This means instead of pitting themselves against each other in competition, teammates will bond together to improve their efficiency in the hopes of meeting – or exceeding – the given targets.

Performance Management Benefits Teammates

From a teammate’s point of view, the performance management cycle may seem redundant, useless or even undesirable, depending on the workplace culture surrounding employee development. This is a symptom of an unsuccessful system. When the performance management system works, it’s a powerful tool employees can use to get what they want.

For example, employees can use positive performance ratings as evidence that they are qualified for raises and/or promotions. An employee who routinely gets great comments in fields related to leadership and teamwork can argue they’re qualified for that management position that just opened up; likewise, employees who show that they’ve exceeded sales targets or cost-cutting levels can use this to ask for increased bonuses.

Performance management can be used strategically even in cases where employees are marked as needing improvement; teammates can use these areas as the basis to request additional training, development or even classes that will increase their skill set.

Driving a Business Forward

Performance management systems need to be positive tools used to help employees, managers and the company meet their goals. Be sure that your performance evaluation system is useful and effective, rather than an annual annoyance, to make sure your employees stay engaged and on track. When used strategically, employee performance can be the fuel that keeps the business moving forward. Therefore, the importance of performance management systems can’t be understated.