Performance Management Cycle: A Comprehensive Guide

Written By
Unmesh Lamture

Topic
Performance Management

While goal setting, tracking, and rewards are the foundations of performance management, there are many other components in the process. To operate an effective performance management cycle, human resource (HR) professionals and leadership teams need to collaborate to create a performance management program, plan the performance management cycle, and educate employees. Here is a complete guide to help you through the process.

It is a well-known fact that employees who are recognized and rewarded are more productive and perform better than those who are not. In fact, employee turnover is 14.9% lower in companies that provide timely feedback and 24% of employees said they would quit their jobs if leaders failed to provide adequate performance feedback or foster growth.

A robust performance management cycle is an effective way of engaging with employees and providing them with timely feedback, appreciation, rewards, and motivation. It helps create a sense of value for each individual’s contribution, thereby instilling loyalty and encouraging retention.

In addition to motivating employees, effective feedback can lead to higher productivity, job satisfaction, and higher retention. Performance management can also create competitive advantage for the organization, which helps them attract and retain top talent.

What Is a Performance Management Cycle?

The performance management cycle is a continuous process that involves setting individual goals and tracking performance while working towards the overall objectives of the organization. It empowers employees to deliver high-quality output effectively and efficiently and provides learning opportunities for further growth and career development.

During a typical performance management cycle, a manager:

Maps relevant goals in line with the organization’s overall business goals
Assesses the employee’s ability to achieve these goals

Mentors and provides resources and support where required
Recognizes and rewards high performers

An effective performance management cycle helps managers and leaders get the most out of their teams, while enabling individuals to thrive professionally.

The Performance Management Cycle

An effective performance management cycle model has four stages:

1. Planning: This is typically done at the beginning of the cycle and entails establishing goals and identifying performance measures.

2. Tracking/Monitoring: This involves measuring progress made vis-a-vis set goals.

3. Reviewing: This refers to reviewing employee performance and supporting employees with development programs wherever necessary.

4. Rewarding: This is the phase where employees are graded and rewarded for their performance.

The performance management cycle is a continuous process. Some organizations do this once a year, but it can also be a continuous process. For example, if an employee fails to meet performance targets, training sessions can be planned accordingly even if it isn’t the scheduled, year-end review. Conversely, if an employee exceeds expectations, they can be rewarded or promoted as the need arises instead of waiting for the annual cycle.

Learn More: Top 10 Performance Appraisal Methods to boost Workplace Culture

Stages Of a Performance Management Cycle

We now offer a more detailed insight into the four stages mentioned above:

1. Planning

This is the first stage of the performance management cycle. Leaders and managers initiate the process by outlining the organization’s goals and strategies for the year. These are then broken down into smaller goals and objectives for individual employees. The exercise becomes more meaningful when the individual is actively involved in the planning process. This collaborative effort ensures transparency and ensures they are more invested in achieving the goals.

According to Globoforce data, 51% of employees feel annual evaluations are inaccurate, and 53% find them uninspiring. This can be remedied through effective goal planning. The HR team can play a critical role in bridging this gap, educating employees, and building trust in the performance management process by actively including both managers and teams in the planning process.

Organizations can use frameworks like the SMART goal setting process to set effective goals.

SMART is an acronym for:

Specific: Each goal must have detailed criteria for success. This includes what must be accomplished, how it must be executed, and why it is vital.
Measurable: A goal must have clearly defined parameters that can be tracked and measured to indicate success and progress.

Achievable: Goals must strike a balance between the best outcome for the organization and what can be realistically achieved. They should challenge the employee, but not be impossible to achieve.
Relevant: Goals should be relevant for the employee, based on skill sets, abilities, and ambitions, while aligning with the overall goals of the organization.
Time-bound: Each goal should have a defined time within which it has to be achieved. A specific, pre-agreed deadline helps employees know when they are expected to complete a goal.

Co-creating development plans and goals with employees at the beginning of the performance management cycle provides an opportunity to identify areas of training and development that employees may need to improve performance.

Learn More: Alignment is Everything - Are Your Company Goals Cascaded or Delegated?

2. Monitoring

Monitoring involves continuous observation, measurement of performance, and feedback conversations.

To ensure timely completion of goals, it is important to break down annual goals into smaller subgoals.

Managers then meet with their teams on a monthly or quarterly basis, to check their progress, provide support when needed, solve challenges that might arise, and adjust goals or timelines, if necessary. Regular tracking engages both the manager and the team members to course-correct in case of suboptimal performance or inefficient results.

3. Reviewing

This is a critical stage of the performance management cycle. At the end of each cycle, employees meet with their managers to review progress and check whether goals were met. These conversations highlight successes and identify areas of development.

The review process helps an organization evaluate its employees’ success in achieving the goals, and make note of any developmental needs. Additionally, reviews are an excellent opportunity to discuss challenges the employee faced during the past year and present them with workable solutions for the future.

Here are some aspects that can be evaluated during the review process:

Did the employee find the goals challenging enough to stay motivated?

Did the goals align with the organization’s overall objectives?
Did the employee feel supported in the process of achieving their goals?
Did the goals push the employee to learn, grow, and learn any new skills?
What were some of the challenges the employee faced?
What can the organization learn from the employee?

Going forward, how can we set goals differently?
How was the goal-setting process? Did the employee need further clarity or assistance?

4. Rewarding

The fourth stage of the performance management cycle is rewarding high-performing employees.

Employees who don't feel appreciated when they accomplish good work are nearly twice as likely to be looking for different jobs. Furthermore, statistics reveal that 79% of those who left their jobs do so because of a "lack of appreciation." According to a LinkedIn study, 69% of e mployees say they would work harder if their contributions were better recognized.

There is a lot of evidence that shows how recognizing and rewarding employees also benefits organizations. It engages and motivates employees, which, in turn, leads to higher rates of retention and productivity.

Rewards can include:

Monetary benefits:

Salary increase
One-time cash bonus
Stock options

Other benefits:

Public/organization-wide recognition
More paid holidays
Flexible working options
Promotions
Opportunities to work on special projects

Learn More: 30 best Employee Rewards and Recognition slogans that really work

The Benefits Of a Performance Management Cycle

The benefits of a performance management cycle have been proven time and again. Each stage of the cycle plays a critical role and helps both employees and the organization grow. An effectively planned and executed performance management cycle helps boost employee productivity by ensuring that both the organization's and individual’s goals are met.

Best Practices for Developing a Performance Management Cycle

Here are a few things to keep in mind while crafting your performance management process so it is effective.

Make it collaborative: Goal setting is at the heart of any performance management cycle. Instead of making it a management team’s task, involving employees will build transparency and trust, and motivate them to be more invested in achieving the organization’s goals.

Keep communication channels open: Effective communication is critical for the successful implementation of performance management. Regular check-ins, frequent progress tracking and timely feedback are essential to ensure course correction when necessary.
Provide support: For any performance management process to be effective, supporting employees to achieve the defined goals is imperative. This includes providing access to resources, coaching, and one-on-one conversations. This kind of support can help employees work through possible challenges and roadblocks.
Keep it flexible: Though goals are defined at the beginning of the cycle, there should be some scope for flexibility based on the progress and feedback, or evolving business goals that might change due to market conditions.
Focus on the results: Managers should focus on the results and let employees choose how they want to achieve them, unless the performance standards are suboptimal.

Digital Performance Management Systems

Digital performance management systems are more effective than paper-based ones. They offer benefits such as increased employee productivity, higher employee engagement and rates of retention, reduced human error, increased cost-effectiveness, scope for personalization, etc.

Some of the key benefits of using a digital performance management system:

Streamlines the goal-setting process
Motivates employees through gamification
Reduces communication barriers
Cost-effective
Reduces human error

Provides a high-touch experience
Provides employee performance data

Darwinbox has a robust performance management platform that enables companies to plan, execute, and monitor performance management cycles. The performance management module offers four sections:

Goals, to align employee output with the organization’s goals,
Conversations, to enable seamless communication between all stakeholders
Analytics, offering a 360-degree view of talent profiles through role-wise dashboards and downloadable insights
Talent Development, to create personalized development plans, generate learning recommendations, and ease merit and succession planning.

Darwinbox’s Performance Management module has helped 650+ organizations craft a culture of high performance. We have ensured 97% on-time completion of performance cycles with 90% adoption of 360-degree feedback.

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