How to Design a Performance Management Cycle

Employees crave feedback about their performance on the job. Still, only 20% of employees say their company’s performance management motivates them to do great work.

This highlights how important it is to be strategic when managing employee performance. You can motivate your employees to give you their best with the right approach. With the wrong approach, you demotivate your employees and waste everyone’s time.

So, what is the right approach? And what is the performance management cycle definition anyway?

A performance management cycle involves planning, checking, and measuring employee performance. The goal is continuous improvement.

The trick to doing a performance management cycle is to dig into each step of the process and tailor it to fit your needs.

Here’s everything you need to know about designing a performance management cycle today:

• Planning at the beginning of the Performance Management Cycle
• Monitoring Employee Performance
• Rating and Reviewing Employee Performance
• Rewarding Employees for Their Performance
• Analyze and Renew the Performance Management Cycle

Feeling overwhelmed by it all? Check out our handy performance management cycle pdf! It’s a great way to visualize the performance management cycle at a glance.

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What is the Performance Cycle?

Definition of the Performance Management Cycle

The performance management cycle is a systematic process that helps organizations manage and improve employee performance. It involves a series of steps designed to align employee activities with organizational goals. The cycle aims to foster continuous growth and development through regular planning, monitoring, and feedback. The cycle is not just about annual reviews; instead, it focuses on ongoing dialogue between employers and employees, ensuring that expectations are clear and objectives are met efficiently.

Importance of a Structured Performance Cycle

A well-structured performance cycle is crucial for the success of any organization. It provides a framework that helps managers and HR departments to systematically evaluate and guide employee performance. This is essential for identifying potential areas of improvement, nurturing talent, and achieving strategic objectives. A structured cycle ensures that all employees are aware of their roles and responsibilities, thereby reducing confusion and increasing organizational efficiency. Additionally, it fosters a culture of transparency and open communication, which can significantly enhance employee satisfaction and retention.

Overview of Planning, Monitoring, Reviewing, and Renewing

The performance cycle consists of several steps—planning, monitoring, reviewing, and renewing—each playing a vital role in the continuous improvement of performance. The planning phase involves setting clear, measurable goals and objectives for employees. Monitoring is the ongoing observation and feedback process, ensuring that employees are on track and any issues are addressed promptly. During the reviewing phase, performance is assessed against the set objectives, providing a basis for rewarding or improving employee output. The renewing step focuses on analyzing the outcomes of the cycle and making necessary adjustments for the next one, ensuring that the cycle remains relevant and effective over time.

What are the 5 Stages of the Performance Management Cycle?

The performance management cycle is a crucial framework in any organization that aims to foster growth and development among its employees. Understanding its five stages—Planning, Monitoring, Developing, Rating/Reviewing, and Rewarding—is essential for enhancing employee engagement and achieving organizational goals.

Planning

The first stage, Planning, involves setting individual and team goals that align with the company’s strategic objectives. It is crucial that these goals are clear, measurable, and achievable. This stage lays the groundwork for performance expectations and is pivotal for ensuring that employees have a clear understanding of what is required of them. PerformYard can assist in breaking down these broad goals into smaller, manageable objectives, providing a roadmap for success.

Monitoring

The Monitoring stage focuses on tracking the progress of employees towards their goals. Regular check-ins and feedback sessions are integral to this phase. This ongoing process not just keeps employees on track but also provides an opportunity to recalibrate efforts if needed. Using tools like PerformYard, HR professionals can streamline these interactions, ensuring timely feedback and adjustments.

Developing

The Developing phase is centered around personal and professional growth. It is about empowering employees through training and development opportunities that enhance their skills and capabilities. In this context, PerformYard offers solutions that help identify skill gaps and provide the necessary resources and training to bridge these gaps.

Rating/Reviewing

Rating or Reviewing is the fourth stage where performance is evaluated against the set objectives. This evaluation is crucial for recognizing achievements and addressing areas needing improvement. It involves a comprehensive analysis of performance outcomes and ensures that employees receive constructive feedback. With PerformYard, organizations can ensure that reviewing processes are fair, transparent, and aligned with company objectives.

Rewarding

The final stage, Rewarding, acknowledges and celebrates employee accomplishments. Recognition can range from financial incentives to career advancement opportunities, which motivate employees and reinforce desired behaviors. PerformYard provides robust mechanisms to identify exceptional performance and ensure that rewards are distributed in a manner that is fair and motivating.

By integrating these stages with tools like PerformYard, organizations can create a dynamic performance management cycle that not only enhances productivity but also boosts morale and engagement among employees. This cycle is not a one-time event but an ongoing strategy for continuous improvement and success.

What are the 4 Areas of the Performance Management Cycle?

Goal Setting and Expectations

Setting goals and clear expectations is the cornerstone of an effective performance management cycle. This stage involves aligning individual objectives with the overall strategy and vision of the company. Ensuring that employees understand what is expected of them can lead to higher engagement and productivity. It is essential to create SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals to guide employees' efforts and maintain motivation throughout the performance period.

Performance Monitoring

Effective performance monitoring involves tracking progress and providing feedback as necessary. This stage is not about micromanaging, but rather about ensuring that employees have the resources and support they need to overcome obstacles and meet their goals. Frequent check-ins and utilizing feedback tools, such as those offered by PerformYard, can help bridge gaps quickly and efficiently, making sure that employees stay on track.

Performance Feedback

Performance feedback is crucial for continuous development and improvement. Constructive feedback addresses strengths and identifies areas of improvement, providing employees with a clear path to enhance their skills and contributions. Employing tools like PerformYard’s continuous feedback software can create a culture of regular and meaningful communication, further aiding employee development and engagement.

Performance Rating

The performance rating stage involves a formal evaluation of an employee's performance. This area of the cycle measures how well employees have met their objectives and adhered to the set expectations. A well-structured performance rating system can provide valuable insights for both managers and employees, facilitating better decision-making related to promotions, training, and rewards. Using data-driven tools can help ensure fairness and objectivity in the evaluation process, enhancing the credibility of performance assessments.

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Planning at the Start of the Performance Management Cycle

Many HR professionals believe that the performance review is the star of the performance management cycle.

That isn’t the case.

Instead, it’s the planning you do at the beginning that is the most important part of the cycle. Without a great plan, you’re attempting to reach your destination without a road map. You’ll end up taking a lot of wrong turns, and you may not reach your goal at all. Plus, your employees may give up on their trek and set a new destination in their sights—a new job.

After all, 85% of employees consider quitting if they felt like they received an unfair performance review. If a performance review is unfair, it's almost always because the planning phase didn’t receive the attention it deserves.

The planning phase is also a good time to dig into the performance management cycle according to Michael Armstrong. Armstrong's Handbook of Performance Management can teach you to assess and improve performance.

You can break down the planning phase into a few steps:

• Goal setting
• Mapping out how many check-ins you’ll have
• Setting up review forms

Goal setting

Employees should work towards achieving company goals, but that doesn’t mean you make a list of goals and hand them out to your employees. They have goals of their own they should be working towards, which means it’s important to involve them in the process.

Use SMART goals when working with employees to develop goals of their own. Integrate absolute goals, relative goals, and sustainment goals that relate to company targets. A comprehensive performance management platform can help you create and track goals.

If how your employees achieve their goals is important, make sure you outline the process during the planning phase. If it’s not outlined, focus on whether the person achieved the goal —not how they achieved it. This prevents micromanagement and feelings of frustration. Those feelings can arise when employees reach a goal but discover after the fact that management doesn’t like the way they went about it.

Mapping out how many check-ins you’ll have

92% of employees want feedback more often than once a year.

That’s where check-ins come in!

Check-ins are like mini-performance reviews without all the fuss. They can be informal, which means you don’t need pre-planning. They allow employees to check in with HR and management about the progress they are making toward their goals.

You can schedule a few check-in times during the performance management cycle. Scheduling frequency depends on your employees, their jobs, and their past performance.

A new employee might receive weekly check-ins. Established employees may receive check-ins monthly or quarterly.

Setting up review forms

The planning phase is also when you should iron out the forms you’ll use at the formal review. It can seem overwhelming, but it doesn’t have to be. Check out these handy performance review templates from PerformYard that can work as-is, or tailored to fit your needs.

Provide your employees with access to the form during the planning phase, even though they won’t be filling it out yet. By being transparent about what they can expect, they are less likely to feel ambushed when formal review time rolls around.

You may also want to decide if you want to use forms during your check-ins. A form isn’t necessary, but it can help employees and managers organize their thoughts ahead of an informal meeting.

Monitoring Employee Performance

Once you have a plan in place and employees are in on that plan, it’s time to start the monitoring phase.

Traditional annual performance reviews often overlook this step. That’s how you end up with half of your employees feeling surprised by a rating they receive during a performance review. Employees who receive a surprise negative review show a 23% drop in engagement.

Monitoring employees ahead of a formal review allows you to discuss achievements and shortcomings in the moment. You’re more likely to resolve issues ahead of the formal performance review and avoid surprising employees in the formal review.

The monitoring phase can include:

• Check-ins
• Feedback
• Performance improvement plan and/or professional development

Check-ins

You decided how many check-ins to have during the planning phase. The monitoring phase is when you begin to have those check-ins.

There are a few ways to make sure your check-ins are successful.

First, focus on making the check-in feel like a two-way conversation. That means asking questions and listening to answers.

Then, limit the agenda to one or two items. That way everyone leaves the meeting feeling good that they accomplished what was planned.

There is a big difference between checking in on employees and checking up on them. When you approach each meeting with these tips, you leave room for the employee to act autonomously during the meeting. You instill a sense of trust by allowing them to make any necessary changes ahead of the next meeting.

Provide Feedback

Check-ins are only effective if you can provide meaningful feedback. That means making time for positive feedback, but it also means knowing how to deliver negative feedback.

Skip the compliment sandwich. Instead, be straightforward about negative feedback. Employees don't want you to sugarcoat it, but they do appreciate action-focused feedback. This kind of feedback makes employees feel empowered to make changes. Backward-facing, character-focused feedback makes employees feel dejected.

Performance improvement plan and/or professional development

There’s no need to jump into a performance improvement plan after a single check-in meeting. It’s important to give employees a chance to get back on track on their own. However, if they are still struggling after a few meetings or after the formal review, it may be time to consider a performance improvement plan. 

You should also consider whether the employee is struggling because they don’t have the skills or the resources to meet their goals. In this case, professional development opportunities should be considered.

Rating and Reviewing Employee Performance

Think of rating and reviewing employee performance as part of the official review. This component involves monitoring employee performance, but it also requires additional tasks like:

• Choose the type of review
• Gathering reviews
• Analyzing the data

Choose the type of review

An annual review is a natural choice, but it’s also a good idea to look into other types of reviews. You may decide to scrap the annual review altogether. Alternatively, you could add other types of reviews to the performance management cycle.

Not sure what kind of review to go with?

Go back to those review forms you were working on during the planning phase. What kinds of information did you feel was important to include? That can help you choose the right type of review to plan.

For example, if many of the questions have to do with how well employees work on a team, you may want to consider a 360 review. If questions address how well employees do when compared to others, you might want to go with ranking appraisals.

Gather reviews

Gathering reviews can be the most time-consuming part of the performance management cycle. You have to distribute the right forms to the right people. You have to ensure they fill them out thoughtfully and on-time. Running reviews can feel like its own full-time job.

It doesn’t have to be! Dedicated performance management software, like PerformYard, can make it way easier. You can create forms and store them on the platform. You can also automate tasks, like reminders to employees to fill out forms, so that you don’t have to do it manually.

Analyze the data

Organizing data can be a headache too, but it’s vital to the process. Data is factual, clear, and impersonal. Running reviews based on data helps employees feel like they’re tackling a problem with management. They won’t feel like managers are accusing them of underperforming without valid data to back it up. 

Before you can analyze the data, you have to organize the information that you gathered during check-ins.

PerformYard’s software makes it so you don’t have to do it all manually. It can track data as you go and create reports automatically. That way you have accurate visuals to illuminate individual, team, and company-wide performance.

Rewarding Employees for Their Performance

Data informs another important task—it tells you who to reward for a job well done. By using data, you ensure rewards are predictable and fair. The data makes it clear who has earned a reward. You have to figure out what kind of reward to choose.

A few options include:

• Financial rewards
• Perks and benefits
• Non-financial rewards

Financial rewards

Financial rewards are a great option, and they are also the most universally appreciated. They can include a pay raise or a bonus, but they can also include discounts and gift cards.

If you decide to go with a discount or a gift card, make sure it’s something your employees will use. Let them choose the gift card or discount they want. That way, they aren’t stuck feeling underappreciated because they got a gift card to a store they never shop at.

Perks and benefits

Perks and benefits are also a great way to reward employees. Workplace flexibility is one very much appreciated perk that you can use as a reward. Allow employees to come in late or leave early, or provide them with extra days off to use as they please.

You could contribute more to a 401k as a perk for a job well done. Alternatively, you could focus on wellness-based rewards like gym memberships.

Non-financial rewards

Non-financial rewards have the potential to be even more meaningful than other types of rewards if they are done the right way.

One out of five employees prefer opportunities for career development to monetary rewards. Consider providing the option to take a class or attend a corporate retreat.

You might also consider a public awards ceremony where employees are recognized in front of their peers.

Platforms like PerformYard let peers and management can leave comments and reviews for employees. Those notes help when reviews roll around. They can also boost morale when employees receive a positive review from others during the work day.

Analyze and Renew the Performance Management Cycle

Getting through a review cycle is a time to celebrate and congratulate everyone for a job well done, but that doesn’t mean it’s time to move on. It’s important to analyze how the performance management cycle went and prepare to renew it for the next cycle.

This process might include:

• Review cycle timing
• Consider different types of reviews
• Other barriers to overcome

Review cycle timing

How did the timing work out? Did you find it difficult to conduct an annual review when an employee completed multiple projects throughout the year? Did employees feel like check-ins were too frequent? Or maybe not frequent enough?

Now is the time to make changes to your review cycle if they are needed. For example, you might decide to renew the cycle after each project instead of at the end of the year. Alternatively, you might conduct some check-ins over Zoom instead of trying to do them all in person.

Get feedback from employees. After all, they are the ones who crave more frequent feedback! Ask them how they felt about the last cycle and make adjustments based on their input.

Consider different types of reviews

How did check-ins go? How about formal reviews? Was it frustrating for employees to wait an entire year for a formal review, even with check-ins in between?

Explore other types of reviews that may serve your needs better. A few you might want to consider using next time include:

• Client appraisals
• Bi-annual formal reviews
• Project-based reviews
• Rating appraisals

Other barriers to overcome

There are other barriers you may have faced during the performance management cycle. After the cycle is complete, and as you're preparing for the next cycle, is the best time to tackle them.

They might include:

• Inconsistent processes that make it difficult for employees to anticipate feedback
• Lack of communication leaves employees guessing whether their work was acceptable or whether they're doing a good job
• Limited motivation by employees who don't feel challenged to grow, develop, and achieve their goals