The Purpose of Performance Management: 5 Options [Free PDF]

Performance Management is a big idea. We’re talking about improving the performance of every employee at your organization.

How do you even begin to tackle something like that? At PerformYard, we believe the first step should be defining your purpose.

If you are developing a new performance management strategy you’ll find yourself pulled in many directions. Someone on your team will push for OKRs, another person will tell you about the weekly 1-on-1 process they read about, and another will recite the Adobe quarterly check-in case study.

The best way to evaluate all the ideas that will be thrown your way is to start with a clear sense of why you’re developing a new strategy and what you’re trying to achieve.

Choosing a purpose is one part of designing a modern performance management system. For everything else you need to get started, read our full guide here.

Choosing a Purpose

The purpose of performance management is to ensure employees and teams are given the resources they need to develop, the recognition they deserve to be motivated, and the accountability to know what is expected. Performance management ensures that teams are aligned on priorities and that the organization’s values are reinforced in practice.

⮕ Click here to download our free PDF detailing the 5 purposes of performance management

That being said, improving in some of these areas is more critical than others. Your opportunity as an HR leader is to identify the right components to prioritize as you implement performance management strategies across your organization.

So we’ll get to the five purposes quickly, but it is important to mention this first. You can’t do all five!

Maybe you can if you’re already crushing three or four of them and you want to layer on a new initiative, but most of us aren’t there.

It is very important to focus with a new initiative, and so you should choose one or two from the following list. Kick those out of the park first, then layer in others.

So, how do you choose?

One purpose will tend to be a better fit and have a bigger impact depending on the type of organization you manage. So think about your organization along the following lines, and then map your needs to the best purpose for you.

Decision Rights - How and by whom are decisions made?

Information - How does knowledge move around your organization?

Motivators - What drives your people to perform?

Structure - What are the lines and boxes that connect people?

This framework comes from a great little book called Results: Keep What's Good, Fix What's Wrong, and Unlock Great Performance. Check it out if you’d like to go deeper on diagnosing the performance needs of your organization.

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The 5 Purposes

Let's get to why you’re here. But don’t forget that you should be thinking about choosing the right purpose for you, not how you can do all five!

1. Accountability

This is the old standard, and while it has fallen out of favor in recent years, it absolutely still has a place.

Performance management systems that focus on accountability evaluate employees against standards. A classic example would be the sales quota.

These systems can work very well because employees know what is expected of them and are highly motivated to achieve the standard.

What the standard is and how it is established is very important. It helps to have many people at your organization performing the same well-defined role. For example, with 15 sales professionals doing the same job, you can begin to standardize what level of performance is and is not acceptable.

Beyond setting the level of performance, it is also important to determine how you will measure performance. Unfortunately, there is rarely a straightforward way to measure high-performance, so we rely on metrics that are just indicators. We must choose these indicators carefully to prevent people from gaming our system.

There are many examples of accountability standards gone wrong.

Public school teachers “teaching to the test” is one. Some school districts are heavily incentivizing teachers based on their students test results and so teachers focus more on the test than on the thing the test is designed to measure.

Another example is the Wells Fargo fake accounts scandal. Bank employees were so fearful of getting fired for not opening up enough new accounts that they began to open fraudulent accounts to keep their jobs.

With the right system and the right employees we believe there is still a place for accountability focused performance management.

Best for:

Organizations with well-defined roles, many people in those roles and measurable results. It also helps to have a large pool of qualified candidates to fill vacancies.

How it can go wrong:

Employees could be tempted to game the system as we see with “teaching to the test” and the Wells Fargo scandal.

2. Development

Development focused performance management is having its day! Popular tactics like weekly 1-on-1s, continuous feedback, and engagement surveys fall squarely in a development focused performance management strategy. The idea behind a development focus is that employees don’t need to be forced to perform, they want to perform well and just need to be developed.

The increasing need for agility, creativity, teamwork, self-direction and other totems of the modern workplace have all made it difficult to effectively apply accountability standards, which has increased the organizations taking on a development focus. Additionally, a tight labor market for many roles has led organizations to eliminate any sources of employee dissatisfaction. Being rated and ranked is not something most of us enjoy, so moving away from accountability is a way to appease employees.

However, while development-focused performance management is spreading, it has always been an important part of the professional services industry. For these firms, turning college students into high-paid advisors is part of the business model. Structured training and regular development conversations are the status quo.

It is important to note that just because development focused performance management is popular, doesn't mean it’s for everyone. It tends to work best for employees who have a lot of intrinsic motivation to improve their performance. This could be due to competition for career advancements like in professional services, it could be due to a desire to develop skills like in tech or creative work, some combination, or something else entirely.

If your employees don’t live for their work and think of their job as just a paycheck, you’ll either need to change their mindset or not use a development focus.

Another note on development: It is not the same thing as learning management. You don’t need to have very structured training to run a development focused strategy. Google famously gave employees “flex-time” to pursue their interests at work. This is a development-focused tactic that had no top-down direction at all.

⮕ Click here to download our free PDF detailing the 5 purposes of performance management

Best for:

Knowledge workers, team based work, or employees with a lot of self-direction.

How it can go wrong:

Employees need to be intrinsically motivated to improve their performance. We often see tech companies struggle to build sales teams because sales lends itself to an accountability/recognition focus, while many tech companies embrace a development focus with their engineering teams.

3. Recognition

One of the most common complaints about informal continuous feedback strategies is that employees don’t know where they stand. CEB conducted research on organizations that had dropped ratings and rankings. One employee in the study shared the following:

“I have these great conversations where I thought they were providing feedback, but it was like me reading my horoscope. I only found out the truth about my performance when I didn’t get a raise. If I had gotten a score, I would’ve had more clarity.”

Your most driven employees likely embrace some level of competition with their peers and also have aggressive personal goals. These employees want to know if they’re on the right track and if they're achieving their goals.

Deloitte recognized this in its performance management redesign. In the HBR article about its new performance management strategy, Deloitte said:

“We began by stating as clearly as we could what performance management is actually for, at least as far as Deloitte is concerned. We articulated three objectives for our new system. The first was clear: It would allow us to recognize performance, particularly through variable compensation.”

The result for Deloitte was a short four question manager review, with three of the questions designed to recognize top performers, and one designed to call out low performance. The questions were:

1. I would award this person the highest bonus. [Disagree to agree scale]
2. I always want this person on my team. [Disagree to agree scale]
3. This person is ready for promotion. [Yes or No]
4. This person is at risk for low performance. [Yes or No]

Deloitte did other things with its performance management strategy as well, but its primary focus was to recognize, compensate and promote its highest performing employees.

Recognition for high performance can backfire, especially if it involves extreme compensation. You could find yourself rewarding the most unscrupulous of your employees, which is a big part of what took down Enron. If you don’t set guide rails, extremely driven employees might do whatever it takes to win, even if that means committing fraud. This usually happens when the rewards start to become extreme.

Recognition can also fail if the act of recognition feels empty. If you’re putting up an employee-of-the-month plaque and your employees don’t respect or care about the honor, then your recognition efforts will fail.

The form of recognition needs to let employees know they are achieving their personal goals. For some organizations, employees' personal goals and work goals are just harder to align.

Best for:

Organizations with highly motivated and driven employees, opportunities to promote from within, and room to give some variable compensation.

How it can go wrong:

Extreme recognition can lead to extreme, and maybe even fraudulent, behavior from your most driven and unscrupulous employees. Empty recognition or recognition for things your employees just don’t care about won’t have much of an effect.

4. Alignment

Alignment embraces the idea that you don’t need to manage people’s performance, you need to get out of their way. If you can clearly articulate what needs to get done, your employees will get after it and make it happen. This is the realm of goals and OKRs.

Jon Stein of Betterment wrote a fantastic post for First Round Review on how he thinks about performance management. He said that you must “start with the why.” You already know we love that. Then he laid out his three goals for an effective system:

1. Create clear lanes for your team to run; and align your structure key and processes to achieve what needs to get done.
2. Empower employees to run as well and as fast as they can in the right direction by providing the right context.
3. Define measurable goals to hit in a way that makes it clear to everyone what they're supposed to be doing every day.

There is nothing in these three objectives about holding people accountable, developing employees, or recognizing achievement. Jon Stein is laser-focused on alignment through clearly articulating goals and expectations. (To be fair, I’m sure Betterment does many of the other things on this list, but with this initiative they were focused on alignment.)

Stein eventually arrived at a very effective system, but it took some trial and error to get there. One of the greatest challenges was setting goals in an uncertain and dynamic environment. How do you both 1) Tell employees what they should be doing, but 2) Don’t micromanage or overprescribe, leaving them room to run and adapt.

This is one of the most common downfalls of systems that focus on alignment. It is very hard to set great goals. When alignment systems are done poorly, they don’t give everyone room to run in the right direction, they strangle action and encourage odd behavior.

One example from the Betterment case study was what happened when they introduced team goals. The teams became aggressively siloed and even competitive with each other because everyone was focused not on company success, but on team success.

Best for:

Flat organizations with highly distributed decision making and information flows. Hierarchical organizations are just naturally better at alignment and don’t need as much help. Flat organizations need a way to get everyone moving in the same direction.

How it can go wrong:

Whatever you measure will improve, but it can be hard to know what to measure. There is no simple measure for high performance.

Related: How Lockheed Martin Approaches Performance Management

5. Reinforcing Values

So, what if your employees are all naturally accountable, pursue their own development, are happy with their level of recognition, and know exactly what to do. Is there any performance management work to be done?

At the Stanley Clark School, a K-8 institution in South Bend, Indiana, the Head of School Melissa Grubb went with another approach. Her focus was on instilling a set of values in every employee. She wrote about her process for Gibson’s blog.

The idea is to bring the organization’s values off the wall and into conversations between employees. At Stanley Clark, teachers reflect on 6 questions and 30 statements before having a regular conversation with their manager. The goal is to increase self-awareness within the context of the school’s culture.

The values/expectations are well articulated and target issues that Melissa has recognized as vitally important to a great school culture. The hope is that if employees embrace these values, the results will trickle down to every element of performance.

To get this right, it’s so important that your values are well articulated. This means more than short ambiguous slogans. Values should be turned into practical expectations that everyone can understand.

Some examples of Stanley Clark’s 30 statements are:

• Situations usually improve when I am part of them.
• I am usually pleasant to be around.
• I control tone well in both written and oral communications.

Additionally, your process should focus on self-reflection and conversation with others. Cultural values can’t be reinforced just by checking boxes on a form.

Finally, be sure your values are being informed by the actual values of your organization. If values are established top-down and employees don’t buy in, you will have just built a big waste of time.

Best for:

Organizations that struggle with toxic cultures. Some public sector organizations fall into this category.

How it can go wrong:

It’s hard to know what cultural values to emphasize. If you get it wrong employees will resent the process and consider it a useless exercise.

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Accountability vs Growth in Performance Management

There is a revolution happening in Performance Management. It is easy to see at corporate leaders like Adobe, IBM, Microsoft, Deloitte, Accenture, GAP, and General Electric, but the revolution is happening everywhere.

The revolution is being driven by employees. The traditional end-of-year performance review has not fit with modern company and employee goals for many years now and employees are demanding a change. This has forced many HR departments to design new modern performance management strategies.

A Deloitte manager described their old review process as “an investment of 1.8 million hours across the firm that didn’t fit our business needs anymore.”

Performance management can go one of two ways. You are either putting structure in place to force accountability (Jack Welch asking the bottom 10% to leave) or you are creating an environment that helps employees grow. If you have a once-a-year process that emphasizes financial rewards and punishments, whether you want to or not you are focusing on holding people accountable for past behavior rather than improving current and future performance.

Accountability and growth are both important, but as the labor market heats up the need to go beyond just accountability is more important than ever.

An employee has little to no motivation to participate in a system that is just about accountability, and managers don't like it either. Beyond that, it is an impossible task. How is anyone supposed to summarize a years worth of work into a single conversation.

Employees want a focus on growth. This often takes the form of regular checkins where the conversations can be about fixing issues going forward rather than revisiting issues from the past. Managers also prefer a growth focus, research has shown that managers are far more likely to give regular feedback than year-end feedback because it feels more natural and can be framed as a growth opportunity rather than a reckoning.

However, despite overwhelming support for moving away from traditional accountability focused performance appraisals, there are many issues that remain. In fact many of the industry leaders we mentioned in the first paragraph have returned to numerical ratings and some sort of year end review, but more on that in a moment.

The four biggest challenges of moving away from a structured system are...

1. Aligning individual and company goals
2. Avoiding legal trouble
3. Rewarding Performance
4. Identifying poor performers

The Third Way

The most progressive companies which all started removing qualitative year-end performance reviews a few years ago have begun to bring them back for the reasons stated above, but that doesn't mean they've returned to their old ways.

Companies have adopted a third way. Now companies like General Electric are having their managers meet regularly with employees as part of the natural flow of the business. This means at the end of projects, when roles change, or when issues arise. These natural checkins are recorded in simple technology solutions like GE's PD@GE which allows managers to quickly jot down notes after meetings without all the traditional paperwork overhead associated with HR meetings.

Then at the end of the year the manager can compile a years worth of real-time feedback with the press of a button, add a quick summary and give the employee a more accurate rating of their performance. This end of year meeting also become less of a reckoning and more of a simple qualitative summary of past discussions.

How Are We Supposed To Manage This?

Interestingly, one of the challengers to this new way in performance management has been HR departments. Despite understanding the benefits the process has not been achievable with their outdated systems for managing reviews.

The answer is technology. The industry leaders we've been discussing have all turned to software to manage the continuous feedback and end-of-year feedback processes. This has left HR to spend less time cajoling managers and forcing through review sign-offs on time and more time on creating a review process that is effective at driving growth and accountability in the company's employees. Companies like GAP have seen an increase in the coaching they can provide to managers on the best way to mentor and lead their teams to improvement since implementing their performance management software.

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What’s Next?

Once you’ve decided what matters, it’s time to build your process. Evaluate every performance management tactic with the lens of “does this advance our purpose?”

Don’t let your process become bloated. If you keep it simple and focused you will have much more success getting employees to adopt it.

⮕ Click here to download our free PDF detailing the 5 purposes of performance management