Performance management

Employees are the motor of your business. Managing their performance effectively is key for achieving your company’s goals.

A structured process is needed to do this. Performance management should be aligned with your strategic objectives and should include a few key features, such as performance indicators, good communication and support for underperforming employees.

“Many businesses manage employee performance in an ad hoc way, with little planning. This can hurt your results, create a poor culture and lead to high turnover,” says Adam Nalepa, a Senior Business Advisor with BDC’s Advisory Services specializing in human resources.

Nalepa says the answer is some planning: It lets you take the guesswork out of managing your team’s performance, guides them to pull together and reduces inequitable treatment of employees.

What is a performance management process?

Performance management is a structured process for guiding employees to effectively carry out their work. The goal is to encourage behaviour that allows your business to achieve its strategic objectives.

The process breaks down into three steps.

1. Plan

The first step is to get a clear picture of your company. Review your:

• strategic goals
• mission, vision and values 
• environmental, social and governance (ESG) factors important to the business

Your business goals should be the key drivers of all activities in the company. If they or other elements in the list above need refreshing, now is the time to do it. Lack of clarity at this point will lead to confusion and ineffectiveness later.

“It’s important to start with a look at the bigger picture,” Nalepa says. “No business can grow and scale by being ad hoc and just hoping for the best. You should have clear business goals, and all of your activities should align with those.”

2. Define

Next, define employee behaviours and objectives that will allow your business to achieve its goals. Each employee should have their own list of needed behaviours and objectives suited to their function, experience and capabilities.

These are typically detailed in an individual performance plan. It’s best if the plan follows a few basic principles. It should:

• be aligned with your business goals
• clearly describe how the job is to be performed
• be mutually understood by management and the employee
• be developed collaboratively with the employee
• set out the behaviours and values expected
• be reasonable and attainable by the employee, yet challenging enough to stretch them

It’s important for objectives to be expressed in clear and measurable terms. For a salesperson, this could include a unique annual sales target based on their experience, past performance and company sales goals.

“It’s on a case-by-case basis,” Nalepa says. “If they’re a senior employee and are being paid more, you’ll want to get more productivity out of that individual.”

Start with two or three objectives or key performance indicators for each employee. You can add more as you become comfortable with the process.

“Keep it simple at the start,” Nalepa says. “You don’t want to make it too complex for the employee trying to achieve those goals. That can demotivate and worry people. If you keep it simple, it’s also easier to monitor and use it to have conversations to support employees.”

SMART versus BARS objectives

One common method of setting employee objectives and measuring their performance is called SMART (sometimes known as “management by objectives”). SMART stands for:

• Specific—what needs to be achieved and how
• Measurable—can be measured in a straightforward way
• Achievable—feasible
• Relevant—pertinent to the role
• Time-bound—based on a reasonable timeframe that is within reach for the person

A second common method is the Behaviourally Anchored Rating Scale (BARS), which assesses employee performance according to these categories:

• Excellent (4)—Clearly meets the company’s expectations and exceeds some of them
• Completely satisfactory (3)—Fully meets the company’s expectations with some exceptions
• Satisfactory (2)—Generally meets the company’s expectations with some exceptions
• Unsatisfactory (1)—Has difficulty meeting most of the company’s expectations

When using the BARS method, it’s important to support assessments with explanations and concrete examples. Evaluate behaviour and results, not personality traits.

3. Communicate, monitor and follow-up

Now you’re ready to develop a process of regularly measuring employee performance, documenting it, providing feedback and supporting needed employee behaviours.

Start by clearly communicating to employees the objectives and behaviours you hope to see. Next, have managers begin documenting employee performance using the criteria you set out.

Also create a timetable of regular performance review meetings with employees. Nalepa recommends having performance review meetings once a month or quarter—certainly more often than once a year.

Your job is to support your employees

“The last thing you want is an end-of-the-year performance review where you tell the employee they didn't hit their target, but there was no intervention, discussion or communication leading up to it. Employees shouldn’t be blindsided by the performance appraisal. Communication is key—your job as an employer is to support your employees.”

Ask employees how they think they’re doing and what they think could help them do their job better. And consider offering incentives to encourage the behaviours you want, such as bonuses and non-financial rewards.

Make sure managers understand that performance management is central to achieving your business goals—not just an afterthought.

Don’t just go through the motions

“Managers sometimes have a framework in place, but they treat it as if they’re going through the motions and not really caring about the individual, their development or their performance,” Nalepa says.

“Performance management isn’t just another exercise to check off a box. Managers need to show they care about employees and communicate how their work fits into the bigger picture of the company’s success.”

At performance review meetings, be sure to recognize strong performance. “It’s important to motivate employees and help them feel fulfilled by recognizing their hard work and successes,” Nalepa says.

“Also, if they’re exceeding their objectives, find out what they’re doing that’s working so well so that other team members can learn from it.”

Get feedback to help employees

If employees underperform, regular meetings give you a chance to spot and address this promptly. “If there needs to be an intervention, it’s important to

support employees to reach their objectives,” Nalepa says. “Ask them to explain what’s stopping them from achieving their goals. Is there too much on their plate? Is it too complex? Do they need training?”

Managers should also be sensitive to other motivators that may be important to employees such as:

• engagement, their ideas being valued and being empowered to make decisions
• professional development, learning and being challenged
• a flexible, equitable, inclusive and diverse workplace

Why is managing performance important? 

Poor performance management can have significant impacts on a business. “A lot of businesses don’t communicate to employees what they want or document their performance,” Nalepa says. “They just rely on gut feeling to evaluate, encourage and support their team. This can hurt your results, productivity and retention.” 

Robust performance management, on the other hand, can benefit companies in numerous ways.

Better results 

Robust performance management helps your company hit its targets and achieve its goals.

Employee satisfaction 

“Good performance management helps create a more equitable environment where everyone feels that they're being treated the same as everyone else,” Nalepa says. “It’s very important for people to feel like they’re part of the group and everyone is treated the same.”

Poor performance management can result in feelings of favouritism because of ad hoc evaluations by managers. 

Well-defined employee objectives 

A performance management system allows you to optimize individual and overall KPIs best suited to your business.

“In some businesses, people are achieving their goals, but the company still isn’t achieving its corporate goals,” Nalepa says. “This suggests there’s a disconnect between the individual KPIs and overall business goals. The company should review its performance management to ensure those are aligned.”

Engagement 

Managing performance well can give your team a stronger sense of engagement and clarity about your business objectives and employees’ role in helping achieve them.

“Employees go into work every day and need to know what value they bring to the business” Nalepa says. “They need to have a sense of purpose—feel that they're building something and helping an organization that's trying to attain something. They need to understand how their performance links to the bigger picture of it all.”

Appropriate incentives, support and discipline 

Good planning allows your business to document and identify excellent or subpar performance and deal with both in a structured way. You can set appropriate bonuses and other incentives for outperforming employees. Those who need support may benefit from a performance management plan. And chronic underperformance may need to be addressed by a disciplinary plan.

“Recognize successes and support employees who need help,” Nalepa says. “A formal framework is essential to helping you identify when someone is not performing well. It allows you to govern by more than just gut feelings and support employees to do their job. You may also need documentation of underperformance to create a performance improvement plan or take other measures.”

Career progression 

Good planning helps optimize career development and promotions. It allows you to know which employees warrant advancement or other opportunities. “If I want a person to move up in the organization, but I don’t have any performance management plan, how do I know they achieved their goals and responsibilities?” Nalepa asks.

“How do I know they’re doing well or not? It’s important to link career progression and performance. If we don’t have anything in place, it’s really tough to promote someone other than through, ‘I just like the person.’”

Clear roles and positive culture 

Performance management helps clarify the roles and responsibilities of employees and foster a positive business culture. “Blurred roles, employee dissatisfaction and complaining about a poor culture are often traced back to poor performance management,” Nalepa says.

What is included in a performance management plan? 

A performance management plan is typically divided into three parts based on the three elements in the performance management process outlined above.

1. Business objectives 

Describe your company’s strategic objectives, vision, mission, values and any ESG factors.

2. Employee behaviours and objectives 

For each employee, define the behaviours and objectives needed for them to play their part in achieving your business goals. This should include two or three individual KPIs, such as a sales target, customer satisfaction or a productivity metric (depending on the employee’s function).

3. Communication, monitoring and follow-up 

Develop a plan to clearly communicate desired behaviours and objectives to employees and document their performance. Outline a timetable of regular meetings to review their performance (ideally once a month or quarter).

Also establish: 

• incentives to encourage good behaviour
• a career progression plan to promote high-performing employees
• a performance improvement plan to support employees who fail to perform to expectations

Also be sure to provide managers with adequate training to put your plan into place and motivate employees to perform to expectations.

How can managers conduct effective employee performance reviews? 

Performance reviews should be based on specific, quantifiable information documented as part of the employee’s individual performance plan. “Reviews are a time to go over the employee objectives and behaviours and how well they’re being attained,” Nalepa says.

“If you use clear data, it’s a lot easier for an individual to understand and to feel like they’re being treated fairly and equitably. Keep emotion out of it, and focus on performance, not personality. It’s also important to be empathetic and put yourself in the employee’s shoes.”

Data also makes it easier to have difficult conversations in case of underperformance. “You can show how it impacted the organization and get feedback from the employee on what can be done to change their performance,” Nalepa says.

What kind of tools and training can help managers with the performance process? 

Managers should be familiar with the company’s performance management plan and individual performance plans of team members. Managers should have the tools they need to document their employees’ performance. They should also be familiar with the following documents:

• the company’s strategic objectives, vision, mission, values and any ESG factors 
• timetable of performance review meetings 
• the company’s incentive plan and career progression plan for high-performing employees 
• performance improvement plan and disciplinary plan for underperforming employees

Businesses should also offer managers training to implement the company’s performance management plan. Training can be especially important for first-time managers, such as a field employee promoted to management. “They might have done a great job before, but they may need training to do a good job as a manager,” Nalepa says.

It’s important to provide management training on how to interact with employees, and to do so with emotional intelligence and awareness of diversity. Topics to cover include how managers can: 

• communicate with employees 
• have difficult conversations  
• recognize good work 
• motivate employees 

“Managers are the ones who will put your plan into action, so they need support as well to ensure your company achieves its goals.” 

Related definitions

Find out more in our glossary