Business performance management

What Are the 5 Main Elements of Managing Employee Performance?

As a business owner or manager the people you manage are critical to the success of the business or department you run, but to achieve that success everybody needs to be heading in the right (the same) direction. Performance management is a means to help us get there.

While there are many elements that go into performance management there are perhaps five key areas that are fundamental to its success:

  1. Planning and goal setting
  2. Management and employee involvement
  3. Monitoring and feedback
  4. Development and improvement
  5. Reward and compensation

What is Performance Management?

Does the very phrase ‘Performance Management’ have you running for the hills as you remember the often painfully awkward ‘reviews’ you had to endure?

You know, the ones where your manager knew they had to carry them out but really didn’t understand why and were therefore woefully unprepared.

Sadly, those sort of experiences are not uncommon. However, the reality is that without some sort of benchmarking and reporting process, how can an individual or business really know where they stand?

Unless you can look back to where you started from compared to the position you are currently in how do you know if there has been progress?

Take that further – without a clear understanding of the past it can be difficult to adequately plan a future.

This still leaves the question – What is performance management?

Well it isn’t (or shouldn’t be) a simple tick box exercise that leads (or not) to a bonus/salary increase.

A good performance management system should help align a team to business objectives whilst also supporting and developing staff and helping boost their performance. It should ensure that systems, departments, teams and processes all work together to optimise business goals.

Ticking boxes on a one size fits all form won’t cut it any longer!

If you have the time, we recommend you take a read of the Sloan Review which shows how far performance reviews have moved over the past 20 years or so.

“To win in the marketplace you must first win in the workplace.”

Douglas Conant

Case Study

I remember a client once telling me how he’d joined a business overseas and sat down with the CEO to agree personal performance targets. The business was a Free Trade Zone: an inward investment, semi-governmental organisation attracting businesses to invest in their town. It was essentially a new role.

Most clients of the FTZ were importers and traders: importing goods and selling them into the local market or wider region. Typically one- or two-man bands, these types of businesses were the bread and butter of the organisation.

His job, however, was to attract more value-added businesses such as manufacturing and processing businesses – a size and type of investment that takes considerably longer, and considerably more effort, to target and encourage to invest.

My client sat down with the CEO to discuss goals and planning. After some time the CEO ended up saying “Just make up a figure [for the number of value-added businesses that would invest over the coming year]. We need a figure and it doesn’t really matter if you don’t hit it.”

A figure was arrived at, it wasn’t reached, and my client was taken to task for not achieving it! To top it off, he was also only on three-month contracts!

Why Does Performance Measurement Matter?

It matters because, as we said above, it is impossible to track progress unless there is a baseline or benchmark to compare it with.

Without knowing where you are, and where you’ve come from, planning for the next phase is nigh on impossible.

Imagine planning a round the world trip without knowing where each leg of the journey would start and finish … you couldn’t really, could you especially if you were using planes, trains and ships which operate to their own schedules.

Your teams are effectively your transport in the above analogy – and just like the planes, trains and ships your people have their own schedules and unique differences. Get them to the right place, with the right knowledge, right mindset and the right equipment and they will take you on the next leg.

People respond to facts, figures and achievable targets – humans are (mostly) a competitive bunch, set a challenge based on what has previously been achieved and your people will go after it.

BUT you can’t set targets without data or information and you won’t collect the relevant data without having a plan and a system in place!

Whilst there may be different nuances and fine points depending on industry/profession, the basic 5 Elements of Performance Management are applicable across the board.


Performance management is important in any type of business.

Planning and Goal Setting

  • The way this planning is approached may be job or role dependent. A production operative is very different to a surgeon, yet, they share the same ultimate goal: to be better at what they do, have a more fulfilling experience, and hopefully earn more money. It is the nuances and subtleties that will change – not the fundamentals
  • Have you heard of SMART goals? It is an acronym in relation to goal setting of Specific. Measurable. Achievable. Relevant. Timely. A framework by which to build plans for an individual, team or business. Some people see SMART goals as problematical with their basis in achieving an end point – the theory being you could be setting a low achiever up to fail, thus ultimately demoralising that individual. With input from everyone though, this scenario should be avoidable
  • Setting expectations is as important as setting goals – but maybe just not as specific. However, letting someone know what you expect of them has a more persuasive tone than ‘you will’. When someone believes that they are believed in and that they are seen as a trusted team member they start to have faith in their own abilities
  • You can have all the SMART goals, and expectations in the world but if they aren’t aligned to company strategy and goals then they may as well be written on toilet paper and flushed down the loo! Your teams will be confused and no one will reach their objectives
  • Part of the process of reviewing teams should be seeing if you have any ‘square pegs in round holes’. You may come across individuals who will never achieve their potential in their current role but could shine in another area of the company. Don’t become so rigid that you are unable to see the benefits to the individual and ultimately the business if you are able to reassign someone to a better role for them

The absolute lynchpin and foundation stone of Performance Management is planning! “Planning is bringing the future into the present so that you can do something about it now.” 

Alan Lakein, author

Management and Employee Involvement

If you have ever tried to make a change in your business without fully involving all your staff, you’ll be aware that imposing a Performance Management Review without a buy-in from everyone is not going to work!

  • For reviews to work people need to know that it is not just another tick box exercise, the results of which will be stuffed away never to see the light of day again. Engage people in the exercise, explain why it is necessary and what they can expect out of it
  • DO NOT attempt to enforce the review from the top! Most people won’t care that the MD or CEO has insisted on the process, they will however like to know that they will be listened to, understood and be part of any improvement actions

“The way your employees feel is the way your customers will feel. And if your employees don’t feel valued, neither will your customers.”

Sybil F. Stershic, author

Monitoring and Feedback

The process is going to need to be carefully tracked and monitored, and feedback given at individual, team and department level – no point in collecting the data without sharing it and putting it to work.

  • The feedback intervals will be down to personal and business preference and could be monthly, quarterly or even annually (although little tangible benefit will be gained by leaving a year between checks)
  • The method of measuring performance is going to vary between organisation too. Some may be based on sales, others on output, yet others on service levels or duty of care. Only the individual business will know which matrix is applicable for them.
  • There are many different ‘pen and paper’ ways of recording Performance Management measurement: 360° feedbacks, one to ones, monitoring SMART goals. If you want to go a little high tech have a look at the infographic below (the link to the full web page is here)
  • Remember, for feedback to work it has to come from both sides and both sides need to be in agreement
A selection of performance review softwares
Source: Technology

Development and Improvement

If your Performance Management Review has done a great job you should be able to see how your employees are performing and if they have any knowledge shortfalls to fill.

Few people see a job simply as a means to an end today. Jobs need to be fulfilling: provide a sense of achievement, a sense of community and progress that would otherwise mean a very humdrum and dull existence.

  • Offer staff the chance to improve themselves by providing training and development
  • This could be via online resources, day release, or in-house training. Bottom line, improving your staff will ultimately improve your businesses bottom line

Reward and Compensation

Do you need a carrot and a stick approach to underline your commitment to the review process? As noted, people tend to expect rewards – especially if they are performing above expectations. Ideas include:

  • A salary increase
  • A yearly one-off bonus
  • Shares in the company
  • Seats on the board
  • Extra holiday time
  • Promotion
  • Increased recognition amongst peers

Be imaginative but make the reward relevant and worthwhile.

“Always treat your employees exactly as you want them to treat your best customers.”

Steven R. Covey


Are you a business owner struggling with time for reviews? We can help!

Key Components of Performance Management

However you opt to undertake Performance Management reviews in your business and whatever means you choose to record and action the points that arise, you must at all times ensure:

  • Consistency – do not end up in the ‘one rule for one person, and another for someone else’ scenario. Be fair! There’s no point demoralising one group of staff or individual by treating them poorly in comparison to someone else – people talk
  • Accuracy – it doesn’t matter how you choose to record the outcomes, but make sure you get it right. If someone said a certain thing don’t ‘interpret’ what they say – record it verbatim
  • Futureproof– remember you are looking ahead as well as looking back. What is working today may change tomorrow. Be flexible enough to allow for changes, for staff development and growth
  • Employee engagement – in other words keep your staff happy because a happy team is more likely to be a successful and productive one
  • Ease of use – the easier a system is for people to use, the more likely they are to use it and to use it well. That’s why some of the online tools shown above can be useful – we’re all so used to keypads that the process will feel familiar, even if the program isn’t.

Case Study

Another client I remember once telling me a job he’d applied for included bonuses. He was offered the position and yet as he was the Marketing Manager, the boss (the owner of the business) had said how difficult it was to measure performance in marketing vis-à-vis sales, for example. The MD also used to say that “if the business succeeded, then everyone else would succeed”.

Not surprisingly, he felt demoralised everyone else was getting incentives and he wasn’t, even more so when he entered the business into national and industry awards, came finalists in nine, and one of which the business won which must have added tangible goodwill (is there such a thing?) to the business.

To put the cherry on the cake, the bosses came into the business one day and told everyone they’d sold it and that was the last they would see of them. He was doubly annoyed as he’d also been rung by a number of recruitment agencies for a similar position which he’d turned down out of loyalty! Understandably he was rather unimpressed.

The moral of the story: if you’re going to offer incentives, offer them to everyone or no one at all. Be consistent!

“The greatest enemy of progress is not stagnation, but false progress.”

Sydney J. Harris

Performance Management Top Tips

  • Performance Management should be seen as key to a business’s success
  • It should be tailored to your own needs (even if based around generic systems)
  • Your employees have to understand – why – what – how – when, and, what’s in it for them
  • Use your data!
  • Include employee development as a part of the review – help your teams grow
  • Plan for the short, mid and long term


Whilst we may still remember the bad old days of enforced Performance Management Reviews where we never actually felt a part of something useful, there is no doubt that carrying out reviews is actually a very useful process for a business to engage in.

The manner in which they are carried out however needs to be appropriate to the specific business and even industry.

With the correct tools, the engagement of all the personnel and the resolve to use the data gathered effectively, then you have a potentially powerful set of information at hand.

How you choose to use it is of course up to you – but we’d suggested burying it in the back of a drawer is not an option, unless you want to demoralise and demotivate your staff and perpetuate the idea that Performance Management is a waste of time.

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