To get the most out of your team members, it’s important to have an effective performance management system in place. It’s something that most team leaders say they’re aware of. And yet, just because you have a performance management system, that doesn’t mean it’s working as well as it could. Even a well-intentioned performance management system may be ineffectual, and for any number of reasons.

To implement an effective performance management system, we must first define what that is and what it looks like.

Effective Performance Management System

What is a Performance Management System?

When I talk about a performance management system, I’m referencing the environment you create in your workplace and the extent to which that environment empowers everyone on the team to do their absolute best work. I’m talking about the formal processes by which you articulate employee responsibilities; monitor their performance; and provide feedback and course-corrections as needed.

An effective performance management system is one that’s just, fair, efficient, and results in your team members making continuous improvements. This encompasses your own, personal performance as well as the performance of your team members.

Does all of that describe your performance management system? If not, there are several reasons why. It’s in the interest of every team leader to implement a performance management system.

 Core Components of and Effective Performance Management System

  • Job Descriptions –Establishing clear job descriptions so that each team member knows what they should be doing. what are the responsibilities associated with each role?
  • On Boarding Procedures- This is critical for new employees to get oriented with their new environment. This helps to ensure that your new team members have a foundation for success. This enhances the employee experience and helps to increase retention.
  • Continuing Education – Implementing a system that provides employees with ongoing teaching, coaching, feedback, and professional development attracts top talent.
  • Career Development – Ensure that there are some formal career development opportunities in place for the members of your team. This also enhances the employee experience and increases retention.
  • Compensation Systems –Verify and make sure that your compensation systems are sufficiently rewarding. The people who make a meaningful contribution to the team and the bottom line need to be recognized.

These are some of the big-picture items to think about as you ask, what is effective performance management? Crucially, though, an effective performance management system doesn’t just have the right pieces. It also puts those pieces together in a way that’s holistic and systematic.

What are the Benefits of a Performance Management System?

Putting an effective performance management process into place may seem like a daunting task. Let me assure you that it comes with significant benefits. Here are just some of the advantages your team can anticipate when you adopt a performance management system.

Consistency with your process – The way you choose employees to take on new projects, to be transferred, to be promoted, or to be terminated. A more formalized performance management process helps you apply a consistent standard to all your staffing decisions, ensuring that you always have the right person in each role.

Motivation for all your team members. When you implement an effective performance management process, you create objective standards for employee appraisal and review. This can be incredibly motivating; team members have a clearer sense of what they need to do and how they’ll be measured if they want to advance.

Increased morale and employee retention. With improved motivation comes higher morale and better retention of your top talents… all of which makes your team more productive and more efficient.

Positive impact on the organization. Here’s where we get into some of the fun stuff! Organizational psychology has proven again and Benefits of a Performance Management System again that employees who recognize clear standards of accountability will become more responsible. And when employees become more responsible, they tend to have a more positive impact on the business, including a more positive financial impact!

Recognition of training needs. Another important benefit of a performance management system is that it helps you identify the areas where your employees would most benefit from formal training. In other words, it empowers you to make prudent decisions about when to bring in an executive consultant or coach!

Minimization of firing risks. Finally, note that terminating employees can be a risky thing. Even when a team member is underperforming, you may question whether you can safely terminate their employment without the risk of legal action. When you have an employee performance system in place, however, it means there are formal standards of accountability, so you can document and prove that the employee in question is falling short. This can help shield you from legal risk.

As you think about putting a performance management system process into place, these are just some of the benefits you should have on your radar.

Common Reasons Performance Management Systems Fail

You don’t offer employee feedback in a timely manner. Let’s say you observe an employee making a critical error. What do you do? Do you stop and offer a clear correction without delay? Or do you wait a few months for the employee’s annual review to roll around? It may sound like a silly question, but you’d be surprised how many team leaders save all serious feedback for that once-a-year review… which effectively deprives employees of the ongoing, in-the-moment feedback they really need.

A related problem that I often see: Companies that do the bare minimum by putting an annual review process in place, then don’t even follow through with that! If you promise your team members an annual review, it’s vital that you follow through!

You don’t provide employees with the right kinds of goals. Another potential problem is inappropriate goal setting. An effective performance management system will always give employees some clear benchmarks to strive for. Some of the biggest goal setting problems include:Setting goals that aren’t objective or quantifiable; goals that can’t really be measured or tracked in any meaningful way.

Failing to set stretch goals; even your best employees should be given something to reach for. Goals should be attainable, but not too easy!

Setting goals that aren’t aligned with the company’s overall goals, or with the goals of the other team members.

You don’t provide employees a path to improvement. When an employee messes up, or fails to meet their goals, it can be demoralizing for everyone. Remember that the function of an effective performance management system is to provide a clear path to performance improvement. Don’t fall into the easy trap of being purely punitive. Give struggling employees the road map they need to get back on track.

An effective performance management system will always give employees some clear benchmarks. You don’t put it down in writing, Document Everything! Have a set time when employee reviews take place.

Share the goals you set for employees, and the progress they’ve made since their previous review. Write down any disciplinary actions you must take. Your performance management system should always include clearly articulated justifications for why you do what you do.

Ignoring problem employees. You may not like to initiate disciplinary action; you may not want to even think about firing someone. And you may be at a loss for more positive, proactive measures to help your struggling employees. But if you have someone who is toxic or who just doesn’t pull their weight, that’s something that’s bound to have an adverse impact on employee morale. An effective performance management system will always include a framework for dealing with problem employees, rather than letting their issues fester.

You don’t recognize your high achievers. One more thing to note: People like to be praised, and to have their good work acknowledged. It doesn’t necessarily mean you need a ticker-tape parade for each employee who does good work but do take a minute to offer a proverbial pat on the back when warranted. This can be an important way to boost morale and keep those high achievers fully engaged.

How to Get Started

Now we come to the action items. If your business doesn’t have a performance management system process in place, how can you start one? Here are some very brief suggestions that I’d recommend.

Evaluate your current processes for appraising and instructing employees. Do you have formal standards in place? What kind of feedback do you provide, and at what intervals?

Identify your organizational goals. What would you like to see your team accomplish? How might a performance management system help you progress toward these goals?

Draft some formal performance expectations and ensure that you share them with all your employees. Clarify the level at which you expect employees to perform.

Institute a system for providing feedback to employees, whether that’s annually, bi-monthly, or even weekly.

Make sure you’re evaluating your own processes, too! Take stock of what’s working and what isn’t with your performance management system and adjust as needed.

As you can tell, there are a number of ways in which performance management systems can fall apart. Let me add just a couple of further words of caution.

One, the only thing worse than an ineffective employee management system is not having a system at all! And two, team leaders and HR professionals should be reviewing and reassessing their system regularly. Make continuous improvement your goal!

The Solutions Oriented LeaderReady to Chat?

More questions about how to have an effective performance management system? That’s something I’m always game to chat about. Reach out and let’s get into the weeds of your company’s performance management opportunities. Contact me at or call 888-267-6098.

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