Do you know how your workforce feels about your company’s performance management model? Chances are, employees and leadership alike are unsatisfied with it. Gallup research indicates that only 2% of CHROs believe their performance management model is effective, and just one in five employees say performance reviews are transparent, fair, or motivate them to improve. That leaves a substantial gap between what we’re doing and what we should be doing to manage performance effectively.
Your people are your most valuable asset, and meeting business goals hinges on their productivity and work quality. Why wouldn’t you invest in tools and strategies that help them do their best? Companies that do are reaping the rewards in the form of increased employee engagement and retention. Plus, they’re four times more likely to outperform their competitors.
If the traditional performance management model isn’t working for you, or maybe your company is reinstating reviews after a pandemic pause, you have options. There’s no one right way to evaluate your employees, but you do need a fair and effective performance management model to ensure goals are met. The key is finding an approach that aligns with your company’s culture, values, and objectives while empowering your workforce to thrive.
Don’t underestimate the importance of performance management — it’s more than just reviews or ratings. It’s a strategic HR function that drives growth, accountability, and collaboration.
Let’s explore how to rethink your approach and build a model that works for everyone.
What Is a Performance Management Model?
A performance management model is the process by which companies set goals for employees, give feedback, monitor progress, evaluate performance, address subpar results, and reward great work. It often includes learning and development (L&D), too, offering employees opportunities to enhance their strengths and gain new skills.
Great performance management can set your organization apart as an employer and play a significant role in attracting top talent and retaining your existing workforce. It’s what enables you to build teams of high-performing employees who are loyal and invested in your company’s mission.
When done well, performance management models help foster a culture of continuous improvement. With individual goals and organizational objectives aligned, every employee can see how they contribute to company success and how their colleagues do, too.
Key Features of Performance Management Models
Though the specific performance management processes used at each company vary, the key elements of every performance management model are consistent. That’s because for every company, the ultimate goal of this strategy is to help employees achieve their goals.
Your company’s specific objectives, like ensuring fairness or increasing long-term retention, help you determine which performance management processes to implement. For example, if your goal is to increase retention, you’d prioritize processes that drive engagement, like weekly one-on-one meetings between managers and employees.
Focus on the right elements to create a model that both evaluates performance fairly, clearly, and often, and inspires growth, collaboration, and accountability. These five key features form the foundation of any effective performance management strategy.
1. Goal Alignment
72% of employees said goal setting is a strong motivator — but much less so if their priorities aren’t aligned with business objectives. When employees see how their work impacts the bigger picture, they’re more engaged and committed to achieving success. So it’s no surprise that aligning goals can improve productivity by 22 percent.
With clear, measurable goals that connect individual contributions to the company’s mission, everyone can rest assured they’re all rowing in the same direction.
2. Continuous Feedback
Annual reviews alone don’t cut it anymore. Employees crave regular, constructive feedback to understand how they’re doing and where they can improve. Unfortunately, it’s a seemingly rare occurrence. But when they are getting consistent feedback, they’re more productive and happier at work.
The numbers don’t lie:
- Only 5% of employees say they’re getting helpful feedback.
- 80% of employees who received meaningful feedback in the past week are fully engaged at work.
- Employees are nearly four times more likely to strongly agree they’re motivated to do their best when they receive daily feedback rather than annual feedback.
Continuous feedback fosters open communication, builds trust between managers and employees, and allows for real-time course corrections that keep performance on track.
3. Performance Measurement
You can’t improve what you don’t measure. Effective performance management models require concrete metrics and benchmarks to evaluate success. There are a number of ways you can measure performance, like key performance indicators (KPIs), peer reviews, and self-assessments. The key is using a combination of qualitative and quantitative methods for fair, well-rounded reviews.
Whatever your methods, consistent measurement helps keep everyone accountable and provides a roadmap for growth.
4. Employee Development
A great performance management model doesn’t just evaluate employees’ skills — it aims to elevate them. With a strategy that includes learning and development opportunities, mentorship, and personalized career paths, you empower employees to build on their strengths and gain new skills. That benefits individual learners and helps your organization build resilience.
L&D is quickly becoming a necessity, too. A “skills crisis” is imminent, with many businesses short on the skills they need to succeed. On the bright side, investing in L&D brings benefits, including increased retention.
5. Recognition and Reward
Acknowledging great work seems simple, and it is. It’s also one of the most impactful ways to boost morale and motivation. Whether it’s a shoutout in a team meeting or a heartfelt thank you, recognition shows your team members that their efforts are valued.
Don’t forget the power of rewards, either. You might think rewards are limited to bonuses or raises, but while financial incentives are certainly motivating, you have other options. Gift cards, extra PTO, or a team lunch or outing are popular reward options.
Use rewards and recognition to foster a culture of appreciation that drives engagement and encourages others to strive for excellence.
Comparing 6 Common Performance Management Models
The same underlying principles guide each performance management model, but their methods vary. It’s important to understand each of them so you can choose the model — or combination of models — that works best for your people.
As you take on performance management planning, keep these models in mind. Each model has its own upsides and challenges, and the right choice depends on your company’s culture, goals, and workforce needs. For many companies, blending elements from multiple models to create a tailored approach is the best strategy.
Objectives and Key Results (OKR)
The OKR model focuses on setting ambitious goals and tracking progress through key results. Objectives are aspirational goals, like increasing brand awareness or delighting customers. (Note: these objectives are different from the company’s mission and vision, but similar in that they are ambitious and far-reaching.) Key results are the SMART goals that help you reach those big objectives, like garnering one million brand impressions in Q1 or achieving a 100% support ticket resolution rate.
Because goals are often shared across teams and departments, OKRs help encourage transparency and alignment. They’re flexible and can be closely tracked, making them ideal for fast-paced work environments where priorities shift frequently.
Balanced Scorecard
The balanced scorecard (BSC) evaluates different areas of performance to ensure a “balanced” evaluation. A BSC is most often used to assess business performance, but it can also be adapted to work for individual reviews.
The BSC compares:
- Financial performance: How did the employee’s performance impact revenue (e.g., creating revenue, managing costs, ROI)?
- Customer satisfaction: How did the employee impact customer satisfaction, retention, or acquisition?
- Internal processes: Is the employee efficient and productive? Do they deliver projects on time and follow necessary processes and procedures?
- Learning and growth: Has the employee gained new skills or knowledge by participating in training or innovating on an important project?
Using a BSC ensures that no single metric dominates decision-making. It encourages employees not just to achieve their goals, but to make an impact. BSCs are particularly effective for companies looking to balance short-term results with long-term strategy.
Annual or Semi-Annual Performance Cycle
The annual review might be outdated and unpopular, but not if it’s used in conjunction with other performance management models. You might also choose to do semi-annual or even quarterly reviews to take some of the pressure off once-a-year assessments.
This traditional model involves setting goals at the start of a defined period — typically each year or six months — conducting a mid-cycle check-in, and wrapping up with a formal review. While regular feedback is much preferred to reviews once or twice a year, the structure gives everyone a clear timeline for evaluating progress. Pair performance evaluations with ongoing feedback to address their limitations and keep employees on track between review periods.
360-Degree Feedback
With 360-degree feedback, it’s all in the name. This model gathers input from a number of people who work with each employee — managers, peers, direct reports, and even customers — to provide a 360-degree view of their performance. Given that 77% of HR leaders feel reviews don’t accurately reflect how employees are doing, incorporating 360 feedback is a great way to increase reliability.
By drawing on multiple perspectives, 360 reviews help reduce bias and uncover areas for improvement that might otherwise go unnoticed. This approach is especially valuable for leadership development because it fosters self-awareness and provides actionable insights for growth.
Management by Objectives (MBO)
MBO emphasizes setting SMART goals collaboratively between managers and employees. Together, they review progress regularly, with success determined by whether employees meet, exceed, or fail to meet their objectives. This model works best in goal-driven environments where clarity and accountability are key.
The MBO model does require strong communication and participation from managers to be effective. Their involvement is significant — 70% of the variance in engagement between teams is determined by managers. This model is a powerful tool if your goals for revamping performance strategy include clarifying expectations and collaborative goal-setting.
Continuous Performance Management
Continuous performance management is arguably the most impactful model, considering the fact that a majority of employees want more feedback than they’re getting now. It focuses on frequent performance conversations, real-time feedback, and regular goal updates. It’s particularly useful for companies in dynamic industries where agility is essential.
This continuous approach means that performance discussions are timely and relevant, so employees can apply feedback immediately. Instead of getting feedback after failing to meet a goal, they can adjust along the way. They feel supported, the impact on productivity is reduced, and both employees and the business can smash their goals.
The Benefits of Implementing a Strong Performance Management Model
While evaluating performance and progress is essential, that’s not the only reason to adhere to a performance management model. The model ensures every employee understands what’s required of them and the role they play in furthering company goals. Aligning your people and your organization is the formula for driving productivity, engagement, and growth at every level.
Here’s how the right model can transform your organization:
1. Improved Productivity and Performance
McKinsey research shows that even among other high-performing organizations, those that prioritize developing their people are the highest performers. When employees know what’s expected of them, get regular feedback, and have opportunities to grow, they’re more focused and motivated, driving better results across the board. That translates into a workforce that is not only capable of resiliency during a crisis (like the global pandemic), but is capable of driving growth in crisis years.
2. Increased Employee Engagement
The verdict from employees on performance management is a resounding one — they want more of it. They want clear direction, more conversations with managers, and more support to do their best. When that happens, they get more work done, come up with more creative ideas, and tend to stay loyal to their employer.
3. Reliance on Data-Driven Decisions
Strong performance management models rely on measurable data to determine success. That ensures employees are evaluated objectively and their performance ratings are not based on opinions or feelings. Data also enables leaders to make informed decisions about promotions, raises, resource allocation, and more. Many companies use performance management software
With data, you can identify trends and areas for improvement in real time and make proactive adjustments to keep goals on track. For example, you might notice a downturn in productivity across several departments that happens around the same time each year. In response, your HR team might introduce a seasonal reward program ahead of the anticipated downturn. The data will show its impact, and you can continue the reward program or try a different approach.
4. Reduced Employee Turnover
When employees know what’s expected of them, have access to learning opportunities, and are recognized for their hard work, retention rates can increase by up to 34 percent. A performance management model that increases transparency, fuels growth, and celebrates achievements plays a major role in building a loyal, high-performing workforce.
How to Choose the Right Performance Management Model for Your Organization
Whether you’re just tweaking a few of your processes or overhauling your entire performance management model, be thoughtful. Take the time to consider the impact of any changes so you make smart decisions instead of relying on gut feeling.
1. Consider Your Goals
Start by identifying what you want to achieve with your performance management strategy. Are you focused on improving retention, driving innovation, or increasing accountability? Understanding your goals will help guide you toward the model — or combination of models — that best supports them.
2. Align with Company Culture
Your performance management model should reflect your company’s culture and values. For example, if collaboration is one of your core values, incorporating 360-degree feedback emphasizes teamwork and supports that value. A model that aligns with your culture will feel authentic and resonate with employees.
3. Support Your Performance Management Model with Technology
The right tools can make all the difference. With performance management software, your team is able to streamline processes like tracking goals, collecting feedback, and analyzing data. You’ll save time and create consistent processes, all while uncovering practical insights you can use to improve your strategy.
Look for a performance management system that integrates seamlessly with your existing HR tech and supports your chosen model. With the right technology, you can simplify performance management, enhance transparency, and ensure your strategy evolves alongside the company.
4. Incorporate Employee Feedback
Your employees are the ones directly impacted by your performance management model, so their input is invaluable. Regularly ask for their feedback to understand what’s working and what isn’t, and use those insights to refine your approach. When you listen to your employees and adjust performance management processes to meet their needs, they’re more likely to trust your approach, making it more likely to succeed.
Support Your Performance Management Strategy with ClearCompany
Building an effective performance management model takes time and thoughtful planning, but you don’t have to do it alone. Start by evaluating your current process and focusing on giving better feedback — small changes can make a big impact.
ClearCompany’s Mid-Year Performance Review bundle is here to help. With this resource, you’ll get:
- A checklist to help refresh your review process
- Tips for preparing for mid-year reviews
- Best practices for giving constructive feedback
- Advice on how to ask for and receive feedback from your employees
With these tools, you’ll be ready to take the first step toward a stronger, more effective performance management strategy. Download the bundle now.
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