Performance Management Guide and Essential Tips for HR

Fewer than 18% of HR leaders believe performance management is effective at achieving its primary objective. In response to complaints that the process is too burdensome, most HR leaders are trying to scale down the effort involved. This is the wrong focus.

When performance management has high utility, organizations can see a 24% increase in employee performance. Instead of scaling back performance management efforts, increase the utility or usefulness of the performance management process, prioritizing the changes that give employees what they need. 

Three key strategies increase performance management’s utility: 

Business-driven HR strategies enable businesses to customize performance management for their needs. HR works with the business to establish which performance management practices should be standardized throughout the organization and which performance management practices can be customized to varying degrees. 

To implement customized performance management activities effectively, identify the level of customization for different practices based on risk level and business need:

• Core standards are those practices that should stay the same for every business unit. When the risk associated with customizing a particular performance management practice is high and/or your business needs have little differentiation, consider a standardized approach. Consider which performance management practices are essential drivers of culture or help uphold key tenets of your talent management philosophies; these practices should remain standard.

• Moderate customization balances customizing performance management with maintaining oversight. In cases where business unit differentiation involves moderate to high level of risk, use moderate customizations to meet business needs without hindering other talent management processes or causing risk to the organization.

• Maximum customization gives business unit leaders the freedom to fully customize performance management or even exclude certain performance management practices. This works best where business differentiation poses minimal risk to the organization but would potentially yield a strong business benefit.

Employee-owned strategies empower employees to adapt performance management practices to their needs. To enable effective employee ownership of performance management design, organizations should deliberately reframe the roles of different stakeholders in the process:

• HR shifts from owners to consultants, providing expertise in talent management and project facilitation.

• Employees are no longer treated just as consumers but as designers of performance management, actively leading the design from ideation through rollout.

• Senior leadership shifts from bystanders to enablers, actively embracing the employee-led initiative and providing visible support without biasing the design.

Work-centered strategies drive collaborative work. Efforts to improve collaboration’s effectiveness through performance management typically fail because employees don’t see a clear individual benefit to effective collaboration, or they don’t understand what specific actions they need to take to collaborate effectively.

The key to overcoming these barriers is to appeal not to employees’ desire to work better with their colleagues but to employees’ own self-interest. Employees are more likely to collaborate if they understand what collaboration looks like for them as an individual and perceive collaboration to be in their self-interest.

Optimal performance is different from high performance. High performance is a common standard set by the organization that employees can meet or exceed, whereas optimal performance is relative to the individual’s own capabilities and circumstances. Only 51% of employees rated as “exceeds” or “far exceeds” are performing optimally. 

To achieve optimal employee performance in an unbounded work environment, address the three main burdens on performance:

• Excessive “work to do work”: Spending significant time on work that is not formally assigned or considered part of workloads or goals but that is necessary to accomplish formal tasks (such as having to set up a virtual whiteboarding software to run a hybrid brainstorming session)

• Fatigue: Being emotionally drained, overworked and out of energy

• Futility: Feeling anxious or hopeless about if they are performing enough or how they are performing in comparison to peers

When employees struggle with “work to do work,” fatigue and futility, most HR leaders will either continue to invest in employee agency to drive more effective processes or bring back constraints from prepandemic ways of working, such as return-to-office mandates.

Supporting agency alone is not sufficient to drive optimal performance. And reintroducing constraints can dampen the high levels of performance that unbounded work unlocked. 

A third, better option is to guide employee agency with performance cues.

Performance cues help employees navigate unbounded work environments, aiding in performance improvement.

Organizations that use performance cues see the proportion of employees in the optimal performance zone more than double. Performance cues guide employees’ choices about their performance while allowing them to make the best decision for themselves and the organization. This guided agency approach allows you to maximize the benefits of unbounded work while also ensuring employees still have agency.

The three types of performance cues are:

• Path cues: When employees can choose when, where and how to work, it becomes far easier for them to demonstrate these effective behaviors. But high autonomy also increases the time spent on “work to do work.” To help employees work efficiently, provide a path cue in the form of context — contextualized information that helps employees understand or predict the implications of their work-related decisions.

• Pace cues: Building wellness into work helps employees see how their wellness impacts performance and makes it easier to manage the intensity of work. Adding a pace cue helps reduce employee fatigue by up to 41% and makes employees 2.8 times more likely to achieve optimal performance.

• Progress cues: Employees want to understand how they are progressing to be sure they are delivering the type of impact required to be considered a high performer. Recognizing high-performance actions as they occur and continuing to inspire high performers help employees see their progress in real time versus wondering if their efforts are making a difference.