Geoffrey Caesar, Solicitor

Performance management ensures that employees meet the expectations and standards of their roles and provides them with the necessary support, feedback, and development opportunities to improve their performance. Performance management is about dealing with poor performance, recognising and rewarding good performance, and aligning individual goals with organisational objectives.

Performance management is a crucial responsibility of line managers and HR professionals, and it should be carried out fairly, consistently and transparently, per the legal framework and best practice. In this blog post, I will outline some of the main aspects of performance management, such as objective setting, performance reviews, performance-related pay, and how to handle capability and conduct issues. I will also provide examples of how employers can implement effective performance management systems.

Objective setting

One of the first steps in performance management is to set clear and realistic objectives for each employee based on their role, skills and potential. Goals should be SMART (specific, measurable, achievable, relevant and time-bound) and should be agreed between the employee and their manager. Objectives should also be aligned with the organisation’s strategy and values and reflect the employee’s contribution to the business’s overall success.

Objective setting is an ongoing process that requires regular review and adjustment, depending on the changing needs of the organisation and the employee. It is essential to monitor progress, provide feedback and recognise achievements throughout the year, not just at the end of a performance cycle. This can motivate employees, identify any performance gaps, and plan for future development.

Performance reviews

Performance reviews are formal meetings between employees and their managers, usually held annually or biannually, to evaluate their performance against their objectives, competencies and expectations. Performance reviews are an opportunity to:

• review the employee’s achievements, strengths and areas for improvement
• provide constructive feedback and coaching
• agree on new or revised objectives for the next period
• discuss career aspirations and development plans
• address any concerns or issues that may affect performance

Performance reviews should be based on evidence, such as data, feedback from colleagues or customers, or work samples. They should also be consistent across the organisation, using a standard format or template and following a transparent rating system or scale. Performance reviews should be documented and signed by both parties and kept in the employee’s file.

Performance-related pay

Performance-related pay (PRP) is a form of reward that links pay to performance, individually or collectively. PRP can take various forms, such as bonuses, commissions, profit-sharing schemes or pay rises. PRP aims to incentivise employees to achieve their objectives, improve their performance and align their interests with the organisation’s.

PRP can positively affect motivation, productivity and retention but can also have negative consequences if not designed or implemented correctly. For example, PRP can create competition or conflict among employees, encourage short-termism or unethical behaviour, or demotivate employees who feel unfairly rewarded or assessed. Therefore, PRP should be:

• based on clear and objective criteria that are communicated to employees
• linked to measurable outcomes that are within the employee’s control
• proportionate to the level of performance and contribution
• consistent with the organisation’s culture and values
• reviewed regularly to ensure its effectiveness and fairness

Capability and conduct issues

Sometimes, despite having clear objectives, regular feedback and appropriate support, an employee may fail to meet the required performance standards. This may be due to either capability or conduct issues.

Capability issues relate to an employee’s ability to do their job effectively. They may arise from factors such as lack of skills, knowledge or experience; health problems; personal circumstances; or changes in the role or organisation. Capability issues usually take time to be intentional and wilful.

Conduct issues are related to an employee’s behaviour at work. They may arise from factors such as poor attitude, lack of commitment, dishonesty, breach of policies or rules, or misconduct towards colleagues or customers. Conduct issues are usually deliberate or negligent.

The employer should try to understand the reasons for poor performance before acting. The employer should also follow a fair procedure that allows the employee to improve their performance before considering dismissal. The procedure may vary depending on whether it is a capability or conduct issue.

For capability issues:

• The employer should meet with the employee to discuss their performance concerns and identify any underlying causes.
• The employer should support the employee through training, coaching, mentoring or counselling.
• The employer should set realistic improvement targets and monitor progress reasonably.
• The employer should give regular feedback and recognition to the employee.
• The employer should review the employee’s performance at the end of the improvement period and decide on the next steps.
• The employer should follow a capability procedure if they have one or a performance management procedure if they do not.
• The employer should consider dismissal only as a last resort and only after exhausting all other options.

For conduct issues:

• The employer should meet with the employee to investigate the allegations and hear their side of the story.
• The employer should gather evidence, such as witness statements, documents or records, to support their findings.
• The employer should follow a disciplinary procedure, which may involve issuing warnings, sanctions or suspension.
• The employer should decide on the appropriate action, considering the nature and severity of the misconduct, the employee’s record and any mitigating circumstances.
• The employer should inform the employee of their decision and their right to appeal.

Examples of performance management systems

There is no one-size-fits-all approach to performance management. Organisations may adopt different systems, methods or tools to suit their needs, objectives and culture. Here are some examples of how some organisations might implement performance management systems in their workplaces:

• Acme Ltd is a small software company that uses a 360-degree feedback system to assess its employees’ performance. This means that employees receive feedback from their managers and their peers, subordinates, customers and other stakeholders. The feedback is collected through an online survey and summarised in a report highlighting the employee’s strengths, weaknesses and development areas. The report is then discussed with the employee and their manager in a performance review meeting, where they agree on new objectives and action plans for the following year.
• Beta Inc. is a large manufacturing company that uses a balanced scorecard system to measure its employees’ performance. This means that employees are evaluated against four perspectives: financial, customer, internal processes and learning and growth. Each perspective has specific objectives, indicators, and targets aligned with the organisation’s strategy and vision. The employees’ performance is tracked and reported through a dashboard that shows their progress and results. The dashboard is then used as a basis for performance reviews, rewards and recognition.
• Gamma Co is a medium-sized consultancy firm that uses a personal development plan (PDP) system to manage its employees’ performance. This means that employees are responsible for setting objectives, identifying learning needs and planning development activities. The employees’ objectives are linked to the organisation’s goals and values and reflect their career aspirations and interests. The employees’ PDPs are reviewed and approved by their managers, who provide guidance, support and feedback throughout the year. The PDPs are then updated and revised at the end of each performance cycle.

Conclusion

Performance management is a vital process that can help employers and employees achieve their goals, improve their performance and develop their potential. Performance management should be based on clear objectives, regular feedback, fair assessment and appropriate reward. Performance management should also be tailored to the needs and culture of each organisation, and follow the legal framework and best practice. By implementing effective performance management systems, employers can enhance their productivity, quality and reputation, and employees can enhance their satisfaction, engagement and career prospects.