6 Purposes of Performance Management in HRM

Performance management tools are meant to create lasting change and grow a positive culture in your business. While performance management may look different from organization to organization, it helps enhance every business in areas from employer-employee relationships and communication to better customer engagement based on better employee engagement and even improved sales or productivity.

There are several pieces of performance management, however, that should be taken into account when creating the best possible performance management plan for your business. These are the general goals or outcomes to work towards creating and implementing your performance management systems.

What is the true purpose of performance management?

1. Alignment: Performance management is meant to be more than just annual reviews that help managers decide raises. Performance management is a process that helps your employees better understand their role in the overall goals of the business. How does each employee contribute to the bottom line and how does their day-to-day effort help the efforts of the business towards their goals? Too many employees are removed from the big picture issues of their company and how it relates to their job. Performance management helps to align the job responsibilities with company objectives in a meaningful way that helps employees feel more engaged.
2. Guidance and support: Even the best, most capable employees need guidance. Whether its feedback on what they’re doing well, what they could be doing better or how their career path may look with the company over time, employees benefit from open, honest, direct communication with their managers and supervisors to help keep them informed of everything from their successes to their potential promotions or even their problems. A once a year style review has fallen out of favor, as it is too infrequent a conversation to help produce real change, real results, or real engagement from an employee. Offering development opportunities for employees is seen as a risk for some businesses – what if they take our offer for educational reimbursement and earn certifications that they go on to use at another company, some organizations ask – but more often than not, the employees who feel their company values them and are invested in them are more productive and are retained to the business longer.
3. Pre-emptive problem solving: Employees need to know the expectations, and consistent performance management conversations help to set those expectations. That also means that when an employee is missing the mark, you can help identify it and potentially help to correct problems. This might be through formal training or even just some clear conversations and plans, but no matter what form it takes, investing in your employees is almost always a benefit to your business. It can also sometimes help you identify a problem employee that you’ll need to let go and knowing this sooner rather than later can save your business time and money.
4. Improves productivity: Employees who understand their place in the business and have clear expectations about their role are more productive and engaged in their work. This can not only help grow your bottom line with employees producing more every day, but it can also improve the longevity of employee tenure with your company, helping to drive down overall hiring costs and ensure that positions aren’t open too long, contributing to lost productivity.
5. Identifying talent gaps: When your HR team is engaging with employees and managers about employee process and performance, you’re able to see the possibilities and potential, as well as where problems may be prone to happen. You can more easily see the need for additional positions or new hires – having a more holistic view of the entire process can give your business more information to make better business decisions that ultimately serve everyone from individual employees to overworked teams to lagging business units.
6. Documentation: Formal performance management gives your business the opportunity to document everything from complaints and problems to praise and promotions. Businesses of every size need to have documentation of the communication between employees and HR to make sure that there is the appropriate paperwork available in case there’s ever a legal issue or dispute.

The Association for Talent Development notes, “Dissatisfaction with performance management is at an all-time high. What’s more, performance management activities such as formal goal-setting processes, mid-year, and year-end reviews, and extensive rating and calibration processes cost the average organization millions of dollars annually. Yet research shows individual performance management ratings have no correlation with business unit performance.” Businesses can avoid these performance management problems by being aware of the purposes of performance management for their business; more than just going through the motions of telling your employees what they are and aren’t doing well, performance management processes should be a holistic approach to understanding what motivates your employees, what they struggle with, what their strengths are, and how their work impacts the business. This leads to higher employee engagement and better business results.