How much is bad performance management costing you?

Are you managing your employees with the same level of care you afford your business balance sheet?

In Google's first letter to investors, the founding team explained that, “it is easy to be penny wise and pound foolish with respect to benefits that can save employees considerable time and improve their health and productivity.”

But people are much trickier to manage than any number in a spreadsheet. If your performance management system is suffering from a lack of efficiency, you could be letting time, money and talent slip through the cracks.

What does a bad system look like?

Before looking at what a bad system can cost you, it's important to know what a bad system looks like. Here are some of the classic failings of a poorly run performance management system:

• They're a time-consuming bottleneck for HR
• Employees don’t get feedback often (see above)
• The feedback they do get is vague, generic, or confusing
• Feedback doesn’t stress the goal of their department or the mission of the business
• The feedback doesn’t emphasize the positive, making employees feel undervalued

In an effort to bypass the HR bottleneck, many managers try to reinvent the wheel themselves.

But a fragmented and siloed approach only ends up making things less fair. Employees in the same job classification get reviews at different times, self-assessments get skipped and there's no guarantee that the review criteria are subjective. Now your employees are skeptical of their managers, not just HR.

The hard and soft costs of a bad system

The cost of employee turnover can range from between 6 months of the position's salary to 2 years for highly paid executive roles. And these are just some of the hard costs.

The fact is, the way your employees feel has a lot to do with the way your customers feel. And while the soft costs can be trickier to measure, they definitely have an impact on your bottom line.

In fact, according to Gallup, engaged employees are more likely to improve customer relationships, which results in a 20% increase in sales. Of course, the amount of energy and excitement your employees feel at work has everything to do with the approach of your managers.

But do they have the tools they need to lead effectively?

What does a good system look like?

Okay. We now know that a bad performance management system is pretty awful. But what does a good system look like?

A good system will make it easy to:

• Get everyone in the company on board with the vision (even if it changes overnight)
• Give regular and useful feedback to employees
• Stay honest and hold people accountable while still focusing on strengths
• Focus on the conversation, not the process
• Make a clear connection between strategy, mission and performance

As you'd expect, a great performance management system is truly the opposite of a poorly run system. Instead of costing you money just to keep it running, it's actively driving value throughout your organization.

The value of a good performance management system

Research firm McKinsey found that organizations with good talent management outperformed their peers by 22%. And Watson Wyatt found that similar good practices could increase company value by 30%.

Whether you boil it down to lower turnover rates, better productivity or increased revenues, the one thing that ties it all together is a commitment to practical, real-world employee recognition. (After all, there's a reason Fortune’s '100 Best Companies to Work For' regularly outperform the S&P 500.)

A truly effective performance management system goes beyond the generic everyone-gets-an-above-average-rating review system to giving you a structured approach for connecting with your employees in a focused and practical way.

And while it's not necessary to hire chefs for in-office meals or fit the rec room with the latest high-tech meditation pods, it IS important to accept that your people are your biggest assets. And it's people (not investors, numbers or algorithms) who make sure that companies like GE, Google, and even your own organization, consistently outperform the competition.

Thinking about designing a modern performance management strategy for your organization? Start here: Getting Started with Modern Performance Management