Key Elements of a Performance Management Framework

Do your employees know how they’re doing? If you honestly answer, "Probably not," you aren’t alone.

In one survey, large companies cited a loss of around $62.4 million per year due to poor communication between and among management and employees.

If you have a smaller company, you probably aren’t losing tens of millions of dollars each year, but chances are, you’re losing a lot.

It could be the cost of hiring new talent because you’re dealing with a higher-than-average turnover rate. It isn’t uncommon for employees to want to jump ship if they feel like they aren’t being heard, or if they feel like management isn’t transparent and fair.

You could lose money due to poor performance because employees don’t understand your expectations. They don’t realize they should be doing something a certain way, or they don’t feel motivated to strive for more.

No matter what the reason, a performance management framework can help.

The right framework gives managers and employees the rails upon which to communicate. It can also boost employee satisfaction, improve company culture, and increase productivity.

Here’s everything you need to know about how to build an effective performance management framework.

What is a Performance Management Framework?

A performance framework is used to monitor the productivity of employees, but it is so much more than that. An effective framework can align individual goals with company goals. It can clarify expectations, help you pivot your operations, and more.

The right framework gives you and your employees a system to achieve goals, whether they are individual, managerial, or company-wide.

But, to get the most out of the framework you adopt, you have to make sure it includes the right steps.

Steps to Creating a Performance Management Framework

A performance management framework isn’t meant to be static. It’s not something you can set and forget. It’s something that should evolve with your company and the needs of your employees.

The following steps are vital to any system, but they should be revisited and tweaked according to your needs:

• Schedule your review cadence
• Identify goals and metrics
• Build in continuous feedback
• Plan out your data reporting

Schedule your review cadence

First, you have to consider how often reviews are going to take place. We challenge you to think carefully about the cadence that would work best for your team. Don’t choose the most convenient one.

For example, annual reviews sound nice on the surface because you only have to worry about them once a year. That may be true, but 80% of employees would rather receive immediate feedback than wait for an annual performance review. Plus, waiting an entire year means your employees have 12 months to do things the wrong way. They also have 12 months to consider other jobs ahead of their next review.

Weekly check-ins are a great option, but they can be cumbersome. There’s no point in meeting once a week if you can’t plan a quality meeting.

Think about what works best for your team and don’t be afraid to tweak things as you go. You might find that weekly check-ins work best if your team works on short-term projects. Quarterly reviews are great if you work on long-term projects.

Identify goals and metrics

It’s a good idea to think about goals and metrics as you’re thinking about the cadence of your review process. The types of goals you have for your business and the metrics you want to measure may lend themselves well to a shorter or longer review cycle.

Start by identifying a broad goal that you want employees to accomplish. Then, use key performance indicators (KPIs) to measure whether the goal is being achieved.

The great thing about KPIs is that they are clear and they are measurable. You can collate data about individual employees, teams, departments, and the company as a whole to make more informed decisions.

Goals work best when employees have ownership over the goals that are being set. Invite them to create goals of their own. It’s always worthwhile to support your employees in setting meaningful goals, even if not every one of their goals can be measured precisely.

Build in continuous feedback

Regardless of the review cadence you choose, try to find a way to incorporate continuous feedback into your employee performance management framework.

Continuous feedback means feedback that is delivered regularly. It could be daily, weekly, monthly, or quarterly.

It doesn’t have to be formal either. Unlike reviews and check-ins that require a meeting, giving continuous feedback might mean sending a quick email or passing along the latest customer reviews.

Performance management software makes delivering continuous feedback easy. Managers can upload information and employees can log in at any time to get the feedback they crave.

Plan out your data reporting

Your performance management framework should act as a scaffold, starting with each employee. It then incorporates team and department goals before including company-wide goals. That means it’s important to plan out your data reporting.

Software can create reports for individual employees. It can also produce reports that show big-picture trends.

Scaffolding the data in this way lets you identify top performers. You can also see how many people are contributing to which goals, and how different departments compare. You can even track employee performance trends year to year.

You don’t have to report on all data frequently. If you have data that relates to individual employee performance, update it often. If you have company-wide data, you might only collate it once or twice per year.

What Are the Different Performance Management Frameworks?

Incorporating the previous four steps is only the first stage of the process. The steps can be incorporated into different types of performance management frameworks.

Each framework allows you to support the goals you have for your business and your employees in different ways.

They include:

• OKRs
• Balanced scorecard
• Annual reviews
• 360 Reviews
• Management by objectives
• Custom performance management process

OKRs

Objective and key results (OKRs) are like KPIs, as they are a way to measure goals, but OKRs can go where KPIs can’t.

OKRs help you measure goals, whether they're easy to measure or not. OKRs automatically encompass any KPIs you may have. Plus, they let you create measurable steps towards difficult goals that may seem hard to quantify.

OKRs let you create a performance management framework that strikes a balance between qualitative and quantitative. An OKR-based framework lets you identify and measure any goal you want—not only the goals that are simple to measure.

Balanced scorecard

The balanced scorecard approach encourages you to take a big-picture view of how your entire company is performing. You’ll review the performance of individual employees, as well as:

• Financial performance and the effective use of resources
• Customer satisfaction, retention, and value
• Efficiency and quality of internal processes
• Infrastructure and technology
• Human capital and culture

This type of framework is more labor-intensive than others. That said, it does provide you with an integrated view of employee performance.

Annual reviews

Many organizations choose an annual review process because it’s simple. Everyone can focus on getting the work done for 11 months of the year before buckling down and engaging in the process during the 12th month.

There’s nothing wrong with an annual review as long as it isn’t the only review you conduct throughout the year.

For example, you might set goals and crunch the numbers once a year, but you might schedule check-in meetings throughout the year too. Employees and managers can use this time to modify goals, bring up concerns, and build a more trusting relationship.

360 Reviews

Instead of relying on manager feedback alone, 360 reviews gather input from other employees. This type of framework is ideal for employees who work on project-based teams. It also works for employees who have cross-functional roles within the organization.

It's a great way for employees from all levels of the company to provide feedback. Peer feedback shows the impact each employee has within the company.

Make sure you're prepared. There can be dozens, or even hundreds, of different reviews that have to find their way to the right people. A software program like PerformYard can greatly simplify the process. It streamlines 360 reviews in even the largest organizations.

Management by objectives

Management by objectives (MBO) starts with company objectives first. Once they have been identified, individual goals are aligned with those objectives.

MBO ensures every employee is working towards their objectives. It also has the power to make employees feel like they're part of something bigger. They end up feeling more included and motivated to get the work done because they can see how they are integral to the operation of the company.

The process includes:

• Defining organizational objectives
• Translating those objectives into goals
• Monitoring employee performance
• Evaluating their progress
• Rewarding employees for reaching their goals

Custom performance management process

Like the idea of going with an MBO, but want peers to be part of the process with a 360 review? Do you like the idea of combining the balanced scorecard with annual reviews?

You should tailor the performance management process to your organization. You can pull aspects of different frameworks together depending on your needs.

Customize a performance management framework ahead of your next review cycle.  Don’t be afraid to tweak things even after you’ve established your process. You may choose to focus on different things from one cycle to the next. You may also decide to tweak the process for different teams. That way, they’ll receive feedback relevant to their role within your organization.

Related: How Lockheed Martin Approaches Performance Management

5 Tips for Building a Performance Management Framework

Between customizing a framework and incorporating all the right steps, there's a lot to wrap your head around.

Here are a few tips for building an employee performance management framework:

• Get manager and employee input
• Use a centralized performance management platform
• Aim for more frequent touchpoints
• Collect and analyze the data
• Customize it to your unique organization

Get manager and employee input

McKinsey is leading the way in performance management frameworks. They understand the importance of teams. The work world is no longer about a hierarchy of power, with everyone out for themselves. Instead, a shift is taking place from "me" to "we." Everyone gets involved in the performance management process from start to finish.

Don’t tell your employees which goals they should achieve. Let them plan their own goals and exactly how they are going to achieve them.

Don’t dole out the latest performance review document to your managers. Let them create a format with the questions that work for them.

Create an open dialog with managers and employees to create a performance management framework from the ground up. Everyone will feel more ownership over the process, and the more ownership they feel, the more engaged they will be.

Use a centralized performance management platform

The paperwork for a performance cycle can get out of hand fast. You have to send reminders to ensure everyone fills out forms ahead of their meeting. Then you have to tell everyone when to meet. 

That doesn’t even include what you do with the notes taken during the meeting.

A centralized performance management platform like PerformYard simplifies the process. It provides a place to store important documents. Plus, it sends automated reminders to clarify expectations and save time.

Aim for more frequent touchpoints

A lot of the world’s top companies are choosing to ditch the annual review. It doesn’t allow you to gauge performance accurately because a lot can happen between reviews when they only take place once every 12 months.

That doesn’t mean you have to ditch the annual review altogether, but it does mean you should aim to add frequent touchpoints to the process. Schedule informal check-ins once a week, once a month, or once every three months.

They don’t have to come with paperwork. It can be a time for you to get together with employees and ask how they’re feeling about work. You can update annual goals collect feedback or talk in the spirit of building a more trusting relationship.

Collect and analyze the data

If you take the time to plan out your data reporting as we suggested, you have to make sure you take the time to collect and analyze it!

Save yourself the headache of doing it by hand and use performance management software to do it for you. PerformYard is one such software.

All you have to do is input the data and run the report. PerformYard will crunch the numbers for you. The platform can also present the information in bar graphs, pie charts, and other visualizations.

Customize it to your unique organization

We have mentioned it throughout this article, but we'll mention it again.

You can and should customize every step of planning a performance management framework.

That also means being willing to start small and customize things as you go along.

Here’s an example. You be overwhelmed by the idea of collecting and analyzing data if you're building a framework from the ground up. Don’t let it stop you from running your first round of performance reviews! You can always add data reporting with the next review cycle. And who knows? Running the first round of reviews may illuminate exactly what you need to measure.