Performance management – techniques for effective improvement plans Every business owner dreams of having a high-performing workforce. Here’s how to set and deliver targets for individual, and business, success. Written by Helena Young Updated on 7 November 2023 Our experts We are a team of writers, experimenters and researchers providing you with the best advice with zero bias or partiality. Written and reviewed by: Helena Young Lead Writer Performance management refers to efforts taken by managers to monitor and evaluate an employees' work, in order to help them to reach the best of their abilities within a role. Of course, judging how good someone is at their job depends on the culture and strategy of the business. That’s why many HR teams use KPIs or key performance indicators to design their own unique methods of measuring productivity and efficiency.However you define workforce success, performance management is key. It’s a collaborative process where both manager and employee agree to a list of expectations, goals, and targets. Harder still? These individual aims must also align with the company’s overall vision.Below, we’ll cover every aspect of the performance management process. From setting expectations, to providing feedback, to managing the difficult process of performance improvement plans, we’ll explain how to foster a culture of continuous growth and improvement in the workplace. This article will cover: What is performance management? The performance management cycle explained How to do a performance review Setting objectives for performance management What are the challenges of performance management? Conclusion Performance Management FAQs What is performance management?The primary goal of performance management is to create a work setting where employees feel motivated and supported to perform to the best of their abilities, and in alignment with the organisation's overall goals.The term is deceptively simple. But as any manager knows, there is (sadly) no shortcut to a super productive and high-powered workforce. That’s why performance management refers to a diverse range of business and managerial techniques.There are five common strategies that supervisors use to manage staff performance. These are:Objective setting – usually in the form of development KPIs, these goals should be measurable and achievable within a specific timeframeProgress monitoring – tracking of employees' performance against the set goals helps workers stay on track and engagedFeedback – whether positive or constructive, feedback helps employees spot opportunities for improvementRecognition – rewarding employees can boost morale and motivationCoaching – a supportive leadership style can serve to aid employees’ learning and developmentWhy is performance management important?Performance management is important for both individuals and organisations. It gives managers an understanding of the top performing (and underperforming) employees. These are both crucial insights for improving productivity and overall business performance.At a personal level, it’s important to remember that every employee must start somewhere. Performance management also provides opportunities for skill development and growth through coaching, training, and constructive feedback.There is a psychological component here. When a manager shows genuine care about an employee’s career progression as part of their leadership style, the employee will feel valued and appreciated. This is almost guaranteed to keep employees engaged and committed to their workload.Having a performance management system in place also sets clear expectations and standards for employees to meet. The worker knows how to succeed and is accountable for the task; building trust with the employer.In other words, it’s a win for both parties.What are the benefits of performance management?One of the key benefits of performance management is that it helps with succession planning. Companies can identify potential or upcoming leaders, ensuring a qualified talent pool for senior or leadership positions in future.Even if you don’t end up developing the next CEO, there’s a major benefit. Addressing skills gaps within your staffing enhances employee value, leading to greater efficiency and overall workforce productivity.This is also a more cost-efficient people investment strategy. Putting money into internal talent development limits recruitment and onboarding costs and preserves company culture, improving loyalty and reducing staff turnover.In fact, a report by e-learning solutions provider IMC recently found that 86% of employees would remain with their current employer for longer if they had offered more learning and development (L&D) opportunities. The performance management cycle explainedDefining a subjective concept like performance management can sometimes feel redundant – especially given the diversity of today’s workforces.After all, no employee is the same, and it’s important that new hires feel comfortable to bring their unique working style to their role.The performance management cycle aims to address this challenge. It’s a four-step model that gives management and employees a structured process to organise their development, while still leaving room for flexibility.The four foundations of the cycle are planning, monitoring, reviewing, and rating. Whatever format managers choose to monitor an employee’s performance via, their method should follow the below outline as the smoothest course for corrections and development.Created using Canva1. PlanManagers work to establish a clear set of performance expectations that align with the organisation’s Objectives and Key Results (OKRs). Employees are invited to state what skills they want to develop, and how their learnings will benefit the company.2. MonitorManagers meet with employees on a monthly or quarterly basis to check in on progress towards goals and offer help if needed. These meetups also give space for new goals to be introduced that align the business direction.3. ReviewOne year after the goals were set, managers organise a formal meeting with the employee to review if the goals were met, and how positive the experience was. Keep the tone positive and solution-oriented. Now is also the time to discuss takeaways for future improvement.4. RewardManagers distribute merit-based rewards in recognition of the employee’s time spent meeting objectives with incentives. These can be financial (a bonus), progressive (a promotion) or social (a positive write-up by a manager).Don’t get carried away with participation trophy medals, however. Colleagues rewarded without cause could hit staff morale. But, employees that see a high-performer receive fair remuneration will see the tangible value of reaching their goals. How to do a performance reviewAppraisals are a delicate balance. Managers need to give an accurate reflection on the work of the employee and motivate the individual by identifying opportunities for growth and development.The key is to take an empathetic, people-first approach to performance analysis that walks the tightrope between these two tasks.Here are seven best practice steps to ensure managers conduct a structured and thoughtful performance review process:Step 1. Prepare ahead of time: Review the employee's job description. Gather previously stated goals and performance metrics, self-assessments and peer feedback. This will help to give a well-rounded picture of the worker’s performance outside of any personal, subjective assessment.Step 2. Adopt a positive and constructive tone: Notify the worker well in advance of the upcoming review, and let them know of any materials they should prepare. During the meeting, craft a comfortable, non-confrontational atmosphere. Discuss areas where the employee went over or above expectations, referring to concrete examples.Step 3. Address areas for Improvement: Engage in a candid dialogue about aspects where the employee may have veered from expectations. It's pivotal to focus on behaviour and outcomes, steering clear of discussions about personal traits or character. This ensures the discourse stays solution-oriented.Step 4. Set goals: Collaborate on new performance goals and objectives for a set time period ahead (the next quarter, or the whole year, as appropriate). Speak to the employee to understand their strengths and aspirations, and how these might align with both organisational objectives and individual growth (more on this below).Step 5. Employee self-assessment: Hand the microphone over to the employee, and ask for their thoughts on performance. This helps build trust among employees, who feel like their opinion is valued, and accountability by allowing them to cement their objectives for the year ahead.During this stage, managers should listen actively to the employee's input and concerns and address any questions or clarifications they may have. This is particularly important during probationary periods, when the employee’s performance influences if they pass or fail.Step 6. Design a development plan: Now, it’s time to look ahead. Keeping in mind the respective ambitions of the company, discuss how the latter may develop new skills to bolster their career. Design a plan that identifies the relevant resources and training required to meet these targets.Step 7. Provide written feedback: Finally, schedule regular check-ins to monitor progress on goals. Post-meeting, send a written summary of the discussion, including any agreed targets, to the worker. Keep communication lines open for ongoing feedback and support.What is a performance improvement plan?A performance improvement plan (PIP) is a process that outlines the steps an underperforming employee must take to improve their conduct or productivity at work.Unlike a development plan, which is usually designed for an employee who shows potential and a desire for career advancement, a PIP is typically introduced when a worker’s performance falls below acceptable standards or expectations.Common issues that might trigger a PIP include missing deadlines, submitting poor work, and exhibiting skill gaps that hinder job performance or business growth.PIPs test the employee’s willingness and ability to improve. Like all assessments, there should be a pass/fail element involved. Being unable to meet the new standards set by the PIP will result in further action, including even dismissal.Remember, a PIP is designed to rectify performance deficiencies. It should only be initiated if there is a particular concern that needs to be addressed – not as a way to accelerate the termination process.Additionally a PIP must not be designed so that it is arguably impossible to pass – it should be a fair support structure for an employee to rise within. Should they fail the PIP, their manager then has fair grounds for termination.How to create a PIPMost PIPs follow a similar structure. They usually start by specifying the amount of time the employee has to demonstrate improvement, typically between 30 to 90 days.If senior leadership decides that a PIP is appropriate, the employee’s supervisor should design a PIP and submit it to the HR manager for approval. Here’s how that should work in three steps:1. Develop a PIP: The manager should begin by identifying examples of specific performance issues or deficiencies that need improvement. Engage the employee with the process, and ask them to suggest any other reasonable performance goals.These should be formulated as an action plan to establish clear milestones for the worker to meet. Include metrics to measure progress, and clarify what success looks like for ‘passing’ the PIP.2. Meet with the employee: because the PIP is a formal process, best practice demands it includes a discussion between the manager, employee, and a HR representative.This is to confirm that the worker has been given a fair opportunity to understand what is happening, the timeline to meet the new standards, and has a chance to ask any questions.Throughout the PIP process, the employee should be given the opportunity to meet with their manager regularly to discuss their progress.3. Monitor progress: Typically, a person on a PIP has a deadline they must meet to ‘pass’ the process. Whatever the time frame allotted, it should provide a realistic amount of time for improvement.Keep an eye on how the employee is performing throughout the interim between the initial meeting and the deadline. Record any notable examples of good performance or underachieving.4. PIP outcome meeting and letterIf insufficient progress has been made in the allotted time frame, bosses may consider more extreme measures, like investing in new training or terminating the employee.Schedule an outcome meeting at the end of the PIP when you will let the worker know what has been decided. If the conclusion is to terminate, communicate this both in person and in writing. Provide clear reasoning set against the failure to hit PIP objectives Setting objectives for performance managementWhether as part of a development plan or a PIP, the performance management process should always culminate in the setting of new targets for the employee to accomplish.This is to ensure that the worker knows what steps they need to take to improve their performance. Managers are recommended to suggest around three to six performance objectives for employees to meet, to maximise their chances of being realised.For example, a junior marketing executive may be given the following SMART objective to “improve presentation and communication skills.”This objective is beneficial to the worker in that it focuses on improving soft skills essential for marketing professionals, such as public speaking and effective communication.However, it is also advantageous for the firm, by bestowing a valuable skill for future potential leadership.How to set objectivesCompanies should use SMART objectives to focus and define each objective. It serves to keep all aims Specific, Measurable, Achievable, Realistic, and Time-bound.Specific – keep the objectives focused and clear. Miscommunication is the enemy of success when it comes to business goalsMeasurable – the stated target should include a metric that you will use to track progress towards a goalAchievable – consider the employee's job duties, responsibilities, and skill level to ensure you’re not chasing a performance pipedreamRelevant – the objectives should also be aligned with the company's overall goals, otherwise there is little point to their being attainedTime-bound – any target needs a deadline to aim for to give the employee urgency. This also makes monitoring progress simplerFor example, for our junior marketing manager, the general instruction to improve presentation and communication skills would become:“Enhance presentation and communication skills by participating in bi-monthly internal marketing meetings, and deliver at least one presentation each month for the next quarter.”How to monitor objectives‘Measurable’ is a very important criteria when setting objectives. Managers must take care to track and record any headway made towards a performance target, so they can more easily quantify what success looks like for the employee.This also gives staff a clearer picture of what they are working towards, rather than a vague and confusing approximation.Project management software is a helpful business tool for measuring progress. Managers can use it to build a bespoke Gantt chart that tracks the entire performance management lifecycle from beginning to end.You can also use it to store relevant information and documents as evidence (important for PIPs). The best systems even allow users to build webforms to collect information from employees about their progress, and any feedback they have. What are the challenges of performance management?You might be the best HR manager in the world, yet there is no guarantee that your development and management strategy will foster the best talent within your sector.Here are the three most common challenges that managers may need to navigate during the performance management process (and how to deal with them when they occur):1. Gaining employee buy-in: If a worker is not committed to actioning their targets, managers might as well write them off.Following the performance management cycle helps to avoid this outcome. During the planning stage, involve the employee in setting their own goals and objectives. Monitor their progress via 121 regular meetings, to prove your commitment to helping them grow and advance in their careers.Also ensure that the performance management process is linked to the reward system. Once annual performance reviews are complete, recognise high-performing employees with tangible benefits and perks, to evince how the process can benefit them.2. Setting the right objectives: Rushing the planning process is a surefire way to decide on unachievable and irrelevant targets that will undoubtedly be missed by the worker.Are the goals SMART? Are they aligned with the department’s or team’s objectives? Does the employee want to grow in the area you’re suggesting? All these questions must be answerable before management can feel confident that aims will – and should – be delivered.3. Giving constructive feedback: Performance reviews can involve discussing areas where the employee needs improvement or makes mistakes. Managers may fear their words will be met with defensiveness or anger, making the process emotionally challenging.Train managers on how to frame feedback constructively, rather than negatively. Develop their communication skills using managerial training, to ensure that all evaluations are oriented towards solutions and betterment.4. Handling the emotional toll:Don’t forget the pressure that a PIP can have on management teams. Telling an employee they are flunking at work can be emotionally taxing for the supervisor.Help bosses navigate this challenge effectively, and maintain composure and objectivity. Encourage them to focus their energy on achieving the worker’s objectives, and let them know they can seek HR guidance when needed.Documenting all interactions is crucial for reference and accountability. Ultimately, the goal is to support the employee's professional growth, but this should not come at the expense of a manager’s health and wellbeing. ConclusionGiven the current labour challenges affecting businesses, effective performance management is an ace up the employer’s sleeve. Investing internally provides a cost-efficient route to enhanced employee productivity, skill development, and morale.Not that these benefits come free. Managers need to straddle the line between criticism and over-praising to ensure that they offer an accurate picture of the employee’s capabilities and interests.Failure to do so could result in staff missing their performance objectives and requiring a PIP; two outcomes that have real, negative repercussions for the business.This article provides the know-how for implementing your own performance management system. Using these tips, you’ll be able to build a long-term strategy for securing a productive and high-performing workforce, and with it, future company success. Performance Management FAQs Is performance management a hard skill? Performance management is a tricky subject because there are so many business risks. Being too critical of staff may cause them to feel demotivated, but not pointing out areas for improvement could result in a stagnant team that doesn’t grow. Either scenario also wastes time and resources spent managing the employee, jeopardising business success. How long should a PIP last? A performance improvement plan (PIP) needs to give the employee enough time to reach the requested goals and objectives. This means they can range from anywhere between 30 to 90 days, with regular check-ins scheduled to track progress. How can you measure employee performance? Employee performance is subjective, making it hard to judge improvement. To get around this, managers should quantify the performance using key performance indicators (KPIs). These are business metrics which provide a target for employees to aim for, such as recording the number of new client contracts signed per quarter for a sales representative. Share this post facebook twitter linkedin Written by: Helena Young Lead Writer Helena is Lead Writer at Startups. As resident people and premises expert, she's an authority on topics such as business energy, office and coworking spaces, and project management software. With a background in PR and marketing, Helena also manages the Startups 100 Index and is passionate about giving early-stage startups a platform to boost their brands. From interviewing Wetherspoon's boss Tim Martin to spotting data-led working from home trends, her insight has been featured by major trade publications including the ICAEW, and news outlets like the BBC, ITV News, Daily Express, and HuffPost UK.