The Value of a Good Performance Management System
Updated: Apr 27
Many companies are unhappy with their performance management system. Around 70% of companies feel that their performance management system is average or below average, according to a 2014 Brandon Hall Group Study. Another study suggests that this number is higher with 95% of managers being unhappy with their organization's performance management process. However, many organizations may be hesitant on switching from their current (and generally antiquated) performance management system.
In this article, we list 4 reasons why you should consider switching to a great performance management system.
1) Saves organization's time, money, and resources
According to a study by CEB, managers spend 210 hours a year on performance management and employees spend 40 hours per year. This is a lot of time and resources spent on a process that is ineffective. Only 8% of companies believe their performance management process is highly effective in driving business value, while 58% say it’s not an effective use of time.
A great performance management system helps make performance reviews more streamlined. It should not be hard to set up a review or give feedback. We recommend that you focus on performance solutions that help automate and store all performance data. With less time focused on administrative work, managers can spend more time with what matters most - their direct reports and clients.
2) Better talent and training decisions
If your organization is still measuring performance only once a year (i.e., the traditional annual review), your employee performance data will be fraught with biases. How can you expect to make accurate training and promotion decisions based on one data point?
To put it simply, you can’t. And most HR/talent executives and managers know this. According to a CEB study, 95% of managers reported being “unhappy” with traditional performance management.
Now, we are not saying to completely scrap annual performance reviews, but rather annual performance reviews should be supplemented with ongoing feedback. Performance management systems act as the one place to store and analyze all that ongoing feedback data so you can make better promotion decisions, as well as recommend appropriate training to employees that need it.
3) Increases employee engagement
A good performance management system should develop, motivate, and engage employees. A study by the Society for Human Resource Management found that 90% of traditional performance appraisals (i.e, annual appraisals) are painful and don’t work and that they produce an extremely low percentage of top performers. In an article published in the The Psychological Bulletin, psychologists A. Kluger and A. Denisi report on their meta-analysis of 607 studies of performance evaluations and concluded that at least 30% of the performance reviews ended up in decreased employee performance. A survey by TriNet and Wakefield Research found that 22% of full time Millennial employees preferred to call in sick then face their annual performance reviews.
Disengaged employees have 37% higher absenteeism, 18% lower productivity and 15% lower profitability. - Gallup
A good performance management system that supports ongoing feedback can help decrease the fear of annual performance review. Breaking down these feedback barriers and creating employees starts with enabling a culture of feedback. While the thought of giving continuous feedback might scare some managers, it is important to note that 65% of employees actually want more feedback, and a significantly larger number (57%) preferred corrective feedback, while 43% preferred praise/recognition.
Now, we would be remiss if we didn't point out that feedback is a double edge sword - poorly delivered feedback can actually be worse than no feedback at all. Before you tell your managers to give more feedback, ensure that they are properly trained to give effective feedback. Check out our article on how to to give effective feedback. We also have some feedback examples that can help you get started.
4) Helps support promotion and compensation decisions
A great performance management system that is collecting the right data can help you make the right people decisions. Promotion and compensation can be tricky to approach. Having a robust system that allows transparency surrounding the strengths and weaknesses of employees can help make decisions seem fair (or at least understandable) in the eyes of talent leaders, managers, and direct reports.
Finally, we want to point out that not all performance management solutions are created equally. Many have their angles and quirks - ensure that you find a solution that works with your company culture.
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If you are interested to see if Pavestep would be a good fit for your organization, feel free to request a demo!