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    The Principles and Purpose of Performance Management: A Primer for HR

    June 23, 2022

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    Purpose & Principles of Performance Management

    Around 84% of HR professionals feel performance management has changed significantly after the COVID-19 pandemic. This makes it essential for organizations to revisit the purposes, principles, and best practices driving their performance management strategy. This article explains seven vital goals in this function and its driving principles.  

    As HR evolves in the post-pandemic era in a competitive business environment, it is crucial to consider the purpose of performance management at your company. According to recent research, 84% of HR professionals feel performance management has changed after COVID-19, and 44% say it has become more digital and technology-driven. For 1 in 3 companies, performance management now also touches upon issues unrelated to core performance, such as employee wellbeing.  

    In this context, what is the ultimate purpose of the performance management function? The answer will vary from company to company and determine the principles you use to drive performance management.  

    Learn More: Manager Is the New HR 

    What Is the Purpose of Performance Management?

    Broadly, performance management can address seven different objectives and purposes. These are to: 

    1. Improve employee outcomes within a specific time

    Improving employee outcomes is among the most critical purposes of performance management. Companies analyze performance methods and then implement interventions to boost employee outcomes during a given week, month, quarter, or any other period. This primarily applies to companies and business units where performance is easy to measure. Performance management can ensure that employees produce better results for the organization in terms of volume and quality of products/services delivered. 

    2. Increase employee skill sets and capabilities

    Another purpose of performance management is to improve the workforce’s ability to do a job, whether or not it leads to direct and immediate productivity outcomes. For example, a company may want to train its employees in a new skill that is gaining importance in the industry, even if it has no ongoing project requiring that skill. This performance management goal also focuses on individual capabilities and helps close gaps in a person’s skills profile. For example, performance management systems may detect the lack of proficiency in a specific skill and recommend learning or upskilling programs that the employee can take. The purpose of performance management is not just to meet immediate or short-term requirements but also to help plan for the future and chase long-term goals. 

    3. Build and maintain documentation

    Another common purpose of performance management in large organizations and highly regulated industries is documentation. With a robust performance management system in place, HR departments can ensure that there is a record of every decision, clear justification for appraisals, objective screening during the recruitment process, adherence to regulations in terms of wages, and so on. That is why documentation is one of the top reasons for investing in a performance management system. The body of records built via systematic performance management will be beneficial during internal and independent audits. 

    4. Identify organizational roadblocks

    Sometimes, when a company perceives a roadblock to organizational growth and its general health, it will take up performance management as a corrective tactic. HR teams and other stakeholders will analyze employee performance at various levels to identify the root cause of the problem. This specific purpose of performance management typically comes into play in response to adverse market dynamics, such as a challenging economy or the unexpected rise of a competitor. Companies may also adopt this strategy after a merger, an acquisition, or a funding round, to start the next phase of their organizational trajectory on the right foot. 

    5. Maintain accountability and transparency

    This is considered a secondary purpose of performance management but is an important one nonetheless. A well-defined performance management blueprint ensures complete transparency around who does what and maps accountability for all faults/errors. It also ensures that employees are fairly rewarded for their achievements and not overlooked due to bias or insufficient documentation. It provides clarity about the person responsible for a new idea or innovation, and so rewards and compensation types can be aligned accordingly. This performance management objective is usually a top priority for high-growth organizations.

    Learn More: The Ultimate Guide To Mastering Continuous Feedback

    6. Align employees with company culture and values 

    HR leaders, managers, and team leaders, and an employee’s surrounding community influence and motivate the person to adopt a set of values and behavioral traits. A robust performance management process will ensure that these cultural aspects are taken care of in addition to other job role-specific aspects that the performance management function oversees. This mainly comes into play when achieving diversity & inclusion goals, eliminating toxic work pressure, acclimatizing to a hybrid work culture, and other intangible company processes equally important for its success. 

    7. Drive feedback and strengthen relationships

    Improving employee engagement, team building, and fostering closer interpersonal relationships are also reasons why companies introduce performance management processes. As part of this process, managers and employees have regular conversations where they provide feedback on their work. Regular one-on-one sessions, social recognition, and other such elements of performance management play an essential role in strengthening interpersonal relationships in the workplace.

    Organizations typically choose one or a few of these purposes and design their performance management programs accordingly. The central purpose of performance management will depend on the nature of your business and business goals for the ongoing fiscal or five-year period.

    Learn More: The Ultimate Guide To Multi-stakeholder Feedback 

    What Are the Principles of Performance Management? 

    Organizations must keep a few vital principles in mind to set up a successful performance management framework. The principles of performance management are a set of rules and best practices that govern an organization’s performance management strategy. They guide the HR department, middle managers, and team leaders in making the most optimal workforce-related decisions and help obtain leadership approval for adopting the right technology to execute the plan.  

    These principles include: 

    • Incorporating a 360-degree feedback system: A 360-degree feedback system moves away from the single-rater system that has been a common practice for decades. It invites feedback on an employee’s performance from juniors, seniors, and peers instead of the manager alone.  
    • Reducing silos: Performance management can suffer due to both interdepartmental silos as well as technology fragmentation. Therefore, a fundamental principle of performance management is to enable collaboration across stakeholders and technology interfaces.  
    • Having frequent one-on-one conversations: A manager or team leader must speak with an employee weekly or twice a month. These one-on-one sessions drive two-way feedback between the manager and the employee and maintain transparency in the performance assessment process.  
    • Being proactive rather than reactive:  A modern performance management strategy must anticipate future needs. In addition to looking back at past performance, identifying gaps or mistakes, and fixing them, a strong performance management strategy will help organizations plan for the future. It will help predict improvement areas, plan for business requirements, optimize existing talent, etc.  
    • Prioritizing employee development: Traditionally, the sole purpose of performance management was to determine employees’ wages. Today, performance management covers a lot more. Employee engagement and development have become a priority. A good performance management strategy will help a business nurture its existing talent and save on hiring costs.  
    • Adopting technology: Performance management must be technology-driven to keep up with this complex set of objectives and requirements. HR technology improves the efficiency of performance management processes. For instance, analytics tools can detect performance trends, online forums can drive feedback, and data dashboards can aid decision-making.  

    Learn More: The Ultimate Guide To Building a Successful Rewards Program 

    As in the case of performance management goals, its principles, too, can vary across organizations. For instance, one company can decide to focus on quantifiable outcomes alone; a different company measures both quantifiable as well as subjective opinions. No matter the nature of your framework, it is vital to craft it based on the principles and purpose of performance management most aligned with your company’s aims and values.  

    Further Reading 

    If you are looking for more information on performance management, here are three rich resources you can read:

    Find out how Darwinbox can help you achieve your organization goals by keeping in mind the principles and purpose of performance management; book a demo today! 

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