Implementing a Modern Performance Management System

By Casey Pechan
Updated September 16, 2022
6 minute read

Performance management methods today would be unrecognizable to many of yesterday’s business leaders. Few human resources programs have experienced so much growth and change in such a short time. But those changes have been for the better: Modern performance management models have shed the bureaucracy of the annual review in favor of a more dynamic and engaging model.

New performance management systems put people first. The new model considers each team member’s performance potential and professional goals. Managers and their reports work together to develop a performance plan that moves the individual, the team, and the business forward.

Here’s how to implement a modern performance management model at your company.

What Is Modern Performance Management?

Old processes for managing performance and output were limited to annual reviews. The rest of the year, employees remained in the dark regarding their performance. Without a line of communication with their managers, employees wouldn’t know whether their performance meets expectations. This old model can feel very punitive and judgmental — and won’t help improve performance.

Modern methods of performance management focus on people and potential. Instead of looking backward and chastising an employee for something that happened as long as a year ago, modern methods look ahead to improve strengths and overcome weaknesses in daily performance. 

New processes are fluid and fit into the daily flow of work. They hinge upon frequent candid conversations between managers and employees. Their goal is to enable improved performance to drive better business results.

One key difference between old and new performance management models is that the old models are primarily focused on determining compensation, while new models typically aren’t. It’s challenging to have candid conversations about performance when employees know that the outcome can affect their paychecks. Disentangle performance conversations from compensation so that team members feel more comfortable approaching their managers to ask for frank feedback.

Invest in Performance Enablement

Modern methods of performance appraisal look forward instead of backward. Here are some ways to assess performance without losing sight of overall business goals.

Psychological appraisals look at an employee’s potential. This performance review method employs valid and reliable assessments to understand each employee’s performance strengths. Armed with this information, managers can learn how to manage the employee’s work to help them shine in the future. HR can develop guidelines for managing performance based on an employee’s psychological profile. 

Similarly, the assessment center method uses simulations to predict future performance. HR can use the results of these assessments to inform the opportunities given to each employee and how to develop them moving forward. Work with your assessment vendor to understand the different categories of employee performance. Use that information to establish career paths where employees can exercise their strengths.

The psychological appraisal and assessment center methods rely on scientifically valid performance data to help you understand what motivates employee performance. This data informs how HR teams continue to upskill and develop talent. 

Performance enablement should align with larger company goals. Many companies use management by objectives (MBO) to give employees greater insight into how their work drives business results. Using this model, managers cascade business objectives to the individual level to define each employee’s performance objectives. 

But while MBOs show employees what they need to accomplish, objectives and key results (OKRs) show them how to achieve their goals. The key results portion of the OKR model lays out clear actions that the objective owner(s) must take to accomplish their stated objectives. With clear performance objectives, employees can see how their work drives business results, improving their engagement with their daily work.

Combined with traditional performance appraisal processes, such as the behaviorally anchored rating scale (BARS) or the critical incident technique (CIT), performance enablement empowers managers and employees to only look backward to understand behaviors that inform future success.

6 Best Practices for Modern Performance Management

Shifting from an annual review process to a new performance management model may require substantial changes to your daily operations, especially for managers. Here are six best practices for implementing new trends in performance management systems.

Implement Company-wide OKRs

OKRs can guide performance by aligning it with larger company goals. Set the business’s OKRs in the C-suite based on where leaders want the company to go. From there, with a comprehensive roadmap in place, each department, team, and individual sets their own goals that drive the business in the right direction. 

The OKR process helps employees see how they drive business results, and that sense of purpose can increase employee engagement. 

Practice Agile Goal-Setting

Agility is key to driving business results in a chaotic business environment and is a distinct advantage of modern performance management. Because performance conversations happen directly in the workflow, employees can pivot their priorities as needed. 

Agility is essential during the goal-setting process. Keep your objectives flexible to accommodate changes in the business environment. Return to your goals every quarter to decide whether you’re still headed in the desired direction as the world evolves around you. 

Provide Real-Time Feedback

Employees need feedback regularly, ideally in real-time and within the workflow. Open communication channels can help managers and employees stay in touch during work hours and provide feedback on output as needed. 

Train managers to be more alert to employee needs during the workday. Managers must be more intentional in providing feedback to employees, especially in remote work scenarios. 

But be careful: Too much feedback can overwhelm employees. You need to help managers find the right balance and prioritize giving the most useful, actionable feedback. Good feedback should include praise for employee strengths, gentle constructive criticism, and suggestions for improving weaknesses. 

To be effective, this type of feedback must come from a place of trust. If employees don’t feel like managers have their best interests in mind, they can begin to feel attacked or run down.

Incorporate Professional Development and Training

Because performance enablement looks forward, it prioritizes ongoing learning for team members. Have managers and their reports work together to identify learning goals for each employee for the quarter. Ensure that all managers know the company’s learning resources, such as learning management systems, course subscriptions, or learning reimbursements.

HR can collaborate with the learning and development team to recommend specific learning opportunities based on each employee’s performance potential profile. 

Recognize Daily Performance Achievements

New performance management trends rely on enhanced communication, including better performance recognition. Managers need to hone their interpersonal skills to recognize and acknowledge when team members complete tasks that drive the business forward or stretch their abilities.

These skills don’t come easily to most managers, however. Historically, we’ve promoted managers for being top performers, not for their innate leadership skills. Develop training courses to help direct managers practice interpersonal skills. Managers can learn from role-playing scenarios and apply those practices to actual interactions with their team members.

Give Employees a Voice as Evaluators

Modern performance management brings team members into the process as collaborators. Instead of simply taking orders, they must also have a chance to voice their opinions. 

You need to collect and act on employee thoughts in two ways: First, employees should have a say in setting their OKRs. When the goal-setting process is genuinely collaborative, employees become more engaged. And since they have the best understanding of their work, they can think strategically about how their role can drive company OKRs.

Second, employees should participate in 360 feedback of their managers to help them become better team leads. Providing actionable feedback won’t come easy to everyone, and managers need to hear what actions they’ve taken that work best for their team. HR can collect this feedback to continue developing manager training courses. 

4 Phases of New Performance Management

As with any new program, you must take a phased approach to implement a modern performance management system so stakeholders can get used to the new model. Here are the four phases of implementing your new program.

Planning

The success of your program depends on the work that goes into the front end. Best practices should be part of every program, but incorporating them into your company processes depends on your culture. Modern performance management isn’t one-size-fits-all, and to make it work, you’ll need to account for manager training, learning and development resources, and behavioral norms, among other things.

Set clear goals for the program based on what you need to improve in the workforce. Define what good performance looks like, then put metrics against it so that you can measure the program’s effectiveness. Your performance metrics might look at productivity and engagement, for example. These metrics should align with your values and company culture.

Monitoring

Once you’ve developed your plan for implementing your new performance management model, select a small team or department to pilot the program. A pilot gives you a chance to monitor and adjust on a small scale before rolling it out across the company.

After working out the kinks on a small scale, plan a phased rollout in other departments. Watch for problem areas (lack of training or communication around the change, for example), and plan to overcome those challenges.

Reviewing

With your plan implemented, you need to determine whether it’s having the intended effect on improving performance, productivity, and engagement (or whatever metrics you set during the planning process). 

Use historical performance data to review the progress of your new program. Are employees performing better since they’ve been receiving ongoing feedback? What can you do to course-correct and improve the results?

If your program isn’t producing the results you expected, that’s OK. One of the tenets of agility is to fail fast to learn fast, so if something isn’t working, learn why. Then make changes designed to improve results. Repeat this process until you find the right mix that produces your desired results.

Rewarding

Performance management touches every single person at your company, so making the transition isn’t going to be easy. It requires a lot of training, communication, and practice to deploy effectively in daily operations. 

Reward managers for their efforts in learning and implementing the program, especially because much of the responsibility falls to them. Keep talking about the program to keep it top of mind, and always recognize the people who make it happen on the front lines.

Change Minds to Improve Performance

Consider adopting modern performance management if you want to empower better productivity, engagement, and purpose in your workforce. The mindset shift alone will help managers better recognize each team member’s value to the organization. And when HR leaders and managers collaborate to understand each employee’s potential and goals, you unleash the combined power of each employee’s investment, loyalty, and aspirations. 

Put that power into practice at your company, and see where your workforce can take you.

To learn more about performance management practices, read this new world of work report.

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