2 Dec 2020

Performance
management: an
introduction
Understand how to build an effective approach to performance management, including
the tools that can support it

Introduction
If people are the greatest creators of value in organisations, then good performance
management is critical for an organisation’s success. Employees need to understand
what’s expected of them, and to achieve those goals they must be managed so that
they’re motivated, have the necessary skills, resources and support, and are accountable.
Performance management aims to monitor, maintain and improve employee
performance in line with an organisation's objectives. It’s a not a single activity, but rather
a group of practices that should be approached holistically.

This factsheet explores critical aspects to get right in performance management, as well
as recent changes in thinking. It summarises some of the main tools used in performance
management, including objective setting, performance ratings, performance appraisals
and feedback, learning and development, and performance-related pay.

What is performance management?

For professions involved in ensuring organisational performance, such as HR, a big
challenge is to lever the relationship between the people working in the enterprise and
the value they deliver. Performance management is the attempt to maximise this value
creation and ensure that employees contribute to business objectives. It should align with
organisational strategy and suit the type of jobs in question.

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There’s no standard definition of performance management but it describes activities
that:

Establish objectives through which individuals and teams can see their part in the
organisation’s mission and strategy.

Improve performance among employees, teams and, ultimately, organisations.

Hold people to account for their performance by linking it to reward, career

progression and termination of contracts.

At its best, performance management is a holistic set of processes and centred on two-
way discussion and regular, frank, yet supportive feedback of progress towards
objectives. It brings together many principles that enable good people management
practice, including learning and development, performance measurement and
organisational development. It’s often misunderstood to be synonymous with the
‘traditional’ annual review, or performance improvement plans to deal with
underperformance, but it is broader than both these things.

Effective performance management relies on both formal and informal processes. It

involves planning – for example, defining and reviewing objectives, linking ways of
achieving those objectives to business plans, and setting measures of success. These are
often discussed in meetings between the line manager and employees, known as
performance review or appraisal.

People managers are thus central to performance management. Ideally, they reinforce
the links between organisational and individual objectives, give feedback that motivates
employees and helps them improve, and hold them to account. Managers need to be
suitably skilled to do this and in turn need to be supported by HR processes that are fit
for purpose.

But performance management is not only a manager-led activity – it also involves

establishing a climate in which individuals and groups take responsibility for the
continuous improvement of business processes and their own skills, behaviours and
contributions. Much of how performance is discussed is shaped by behavioural norms or
culture, so communications and leadership throughout the organisation will set a
precedent and shape how colleagues discuss performance more widely.

Listen to our podcast Strength in numbers: what’s new in performance management.

How does performance management work?

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The elements of performance management may be similar across different organisations,
but there’s no single best approach. Each organisation should develop practices that are
relevant to their specific context and their actual (or desired) organisational culture.
There should also be flexibility within the system to account for the different ways teams
or functions operate within a single organisation.

Performance management is a continuous cycle, not an isolated event. Because

performance management integrates various HR activities, an overarching structure or
framework is needed for the different parts to work together.

An organisation’s strategic goals should be the starting point for departmental goals,
followed by agreement on individual performance and development priorities. Individuals
and managers can then draw up plans and monitor performance continuously. Feedback
and reviewing progress against objectives should be regular, and could be supported
through the year by periodic formal performance reviews, as well as by goal setting,
project planning and training.

Video: Changing trends in performance

management
In this video, Jonny Gifford, Senior Adviser for Organisational Behaviour at the CIPD,
explores the changing trends in performance management over recent years.
Play Video

Please scroll to the bottom of the factsheet to view the transcript of this video.

Challenges to traditional performance

management practices
Having remained fairly stable for two or three decades, many employers have adapted
their approaches to performance management over the last few years, in particular in
response to a number of articles challenging received wisdom. The broad thrust is that
‘traditional’ practices – in particular, the dreaded ‘annual appraisal’ – are outdated, if
indeed they ever worked.

But popular changes may just be the latest fads and fashions. What’s the evidence on
what’s actually effective in improving performance? Our evidence review Could do better?
Assessing what works in performance management, summarises the body of research to

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help employers make grounded decisions on what’s most likely to be effective in
improving performance.

We found that, at a basic level, the established performance management chain still
holds, as in Diagram 1 below.

However, there are a number of important factors that employers should be careful not
to take for granted, as shown in Diagram 2 below. Based on the best available evidence, a
fuller model of target-setting and performance appraisal should consider the following:

Objectives can be specific and challenging (often labelled ‘SMART’) but this may not
always be the best approach. Sometimes objectives focused on behaviour or on
learning, or even ‘do-your-best’ objectives can be more effetcive, especially for
complex tasks.

There are two main reasons for performance ratings and the purpose should
always be clear. Using them for administrative purposes (for example, to inform pay
decisions) leads to a different approach than if they are being used to support
people development and improve performance.

Performance ratings can be biased for various reasons, but there are things we
can do to reduce bias. For example, making managers feel more accountable for
ratings they give their staff by having an independent person check them can reduce
favouritism.

How employees react to feedback is a vital factor in whether it improves

performance. Reactions are influenced by an individual’s personality (for example,
their self-esteem and openness) and how they perceive the appraisal (for example,
whether it is fair and participative.

There's more on these points below.

Diagram 1: Links in the performance management chain

(36 KB)

Diagram 2: Factors affecting the performance management cycle

(203 KB)

Objectives and performance standards

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Setting performance objectives for individuals, departments and the organisation is an
important aspect of managing performance. These objectives can be expressed as targets
to be met (such as sales levels), ad hoc tasks to be completed by specified dates, or
ongoing standards to be met. They may be directly related to team or organisational key
performance indicators or personal; for example, taking the form of developmental
objectives for individuals.

Today, many employers do not solely rely on measurements of employees’ outputs.

Rather, they balance these with learning and development objectives and assessments of
employees’ behaviour, such as how supportive they are of colleagues. These can be of
longer-term importance to the organisation. For example, there’s good evidence that
social cohesion is an important factor driving performance in knowledge organisations,
so it’s important for such employers to promote collegiate and collaborative behaviour.
Performance management is one way of doing this.

It’s often said that objectives should be SMART – typically, Specific, Measurable, Achievable
(yet stretching), Relevant, and Time-bound. As we argue in our Could do better? report,
the best evidence supports this in some contexts but not others. In straightforward tasks,
goals that are specific and stretching do increase performance, but in 'complex' jobs
(such as those which involve making analysis-based decisions or adapting to unfamiliar
cues), they do not. Here, vaguer outcome objectives focused on ‘doing one’s best’ work
better, and best of all are objectives focused on learning or behaviour.

Whatever their nature, objectives should be clearly relevant to the overall purpose of the
job, team and organisation. Our research found that employees do need to be committed
to them, but they do not need to set their own objectives – indeed, targets tend to be
more powerful when they are set by one’s manager.

Employers can also opt for objectives on team-level performance rather than individual
level. Both types can work well; the important thing is to match objectives to the nature of
the work. In one job, good performance may purely be a factor of individual application; in
another job it may rely much more on teamwork. If striking a balance between individual
and team objectives, employers should be careful that they do not undermine each
other.

Learning and development

Performance management often focuses almost purely on assessing employees’ past
performance and linking it to administrative decisions (for example, on pay). This is a
mistake. If the ultimate aim is to improve performance, there should also be a strong
focus on how employees need to develop. Performance conversations should thus help

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employees to learn from their experiences and identify other relevant learning and
development opportunities.

A number of organisations use personal development plans (PDPs) to set out actions they
propose to take in this regard. Sometimes, a review of employees’ potential and
development needs is grouped with the performance appraisal and called a performance
development review (PDR).

You can explore more on how learning supports workplace performance in our learning
and development strategy factsheet.

Performance reviews
Performance reviews are a process by which managers assess workers’ performance and
discuss this with them. Assessing and feeding back on performance is a critical factor in
making targets effective, as monitoring our progress towards objectives is strongly
motivational. Traditionally, reviewing performance has often been an annual process, but
this should not be the case. It should be a regular occurrence; for example, happening at
the end of a piece of work or every few months, depending on the nature of a person’s
job. Reviews can involve face-to-face conversations between managers and their staff,
360-degree feedback, and assessments against performance targets. They can also
benefit from a strengths-based approach.

Performance-related pay
Linking levels of pay to individual, team and organisational performance is a traditional,
and still common, approach. In organisations that have performance-related pay (PRP),
performance management is an inseparable aspect of pay reviews. However, the
relationship between pay and performance is a widely debated aspect of performance
management. Find out more in our performance-related pay factsheet.

Useful contacts and further reading

Contacts

Acas – Performance management

Center for Evidence-Based Management provides a database of evidence summaries on

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effective management

Books and reports

ACAS. (2018) ‘Improvement required’? A mixed-methods study of employers’ use of

performance management systems. London: Acas.

ARMSTRONG, M. (2017) Armstrong's handbook of performance management: an

evidence-based guide to delivering high performance. 6th ed. London: Kogan Page.

ASHDOWN, L. (2018) Performance management: a practical introduction. 2nd ed. HR

Fundamentals. London: CIPD and Kogan Page.

Visit the CIPD and Kogan Page Bookshop to see all our priced publications currently in
print.

Journal articles

ARMSTRONG, M. (2017) How can we fix performance management?People

Management (online). 17 November.

CAPPELLI, P. and TAVIS, A. (2016) The performance management revolution. Harvard

Business Review. Vol 94, No 10, October. pp58-67. Reviewed in In a Nutshell, issue 62.

FARAGHER, J. (2018) How to get managers on board with performance management.

People Management (online). 24 May.

MURPHY, K. (2019) Performance evaluation will not die, but it should. Human Resource
Management Journal (online). 16 October. Reviewed in In a Nutshell, issue 92.

CIPD members can use our online journals to find articles from over 300 journal titles
relevant to HR.

Members and People Management subscribers can see articles on the People
Management website.

This factsheet was last updated by Jonny Gifford.

Video transcript
There have been a lot of changes to performance management over recent years, or at

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least some organisations have made massive changes. Our own research shows that a lot
of these trends are really helpful. So we find the research backs up the view that
performance management should be done more continually. Appraisal is not just
something that happens once or twice a year, but it's more ongoing performance
conversations that we need to be cultivating.

But there were also some ideas that we challenge when we look at the research. So for
example, the idea that employees need to be involved in setting their own targets. It may
sound counterintuitive, but this is not something which is backed up by research.

There are a range of factors in performance management to try and get right -
performance management is not a single technique. One of the examples that I think is
very positive is bringing in a strengths-based approach when you're looking at helping
people to learn and improve their performance. The idea of this comes from appreciative
inquiry. It's the idea that your opportunities for growth and improvement don't come so
much from fixing your weaknesses or correcting what you're not good at. It comes more
from understanding what it is you've been doing that's worked well. What was it that you
did that contributed to that, and how can you expand on, build on, replicate that in other
areas of your work.

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