A Guide to the Performance Management Cycle

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The performance management cycle is a reoccurring phenomenon in every organization. In this article, the third in our performance management series, we will explain the performance management cycle, how it is evolving, and how to leverage it for the good of both employees and the business.

What is the performance management cycle?
The performance management cycle model
Performance management in four stages
Continuous performance management
Conclusion
FAQ


What is the performance management cycle?

The performance management cycle is an annually reoccurring phenomenon in which employees are evaluated throughout the year. All employees go through this cycle, starting with goal-setting at the beginning of the year, followed by the monitoring of their progress, helping them develop to do better, and ending with a formal evaluation afterward.

The goal of this cycle is to develop and execute employee performance plans. These plans help in focusing employee efforts on achieving organizational goals which, in turn, helps to align employee priorities with the goals of the organization.

In this 4-minute Learning Bite, we explain what the performance management cycle is, what its various stages are, and how you can leverage it for the good of both employees and the business.   

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It is important to realize that the goal of the performance management cycle is explicitly aimed at improving performance. All the activities that we will discuss in the performance cycle model are aimed at setting goals and coaching the employee to reach or even overreach, these goals.

Another element I would like to point out is that performance management can work for both individual employees as well as teams. In this article, the term employees can be replaced by teams and work just as well as a guide to managing the performance of teams.

The performance management cycle model

One of the earliest versions of a performance management model has been published by Peter Drucker. In his 1954 book The Practice of Management, he proposed Management by Objectives (MBO).

MBO proposes that individual goals should be aligned with organizational goals. It is the responsibility of management to cascade higher level, organizational goals into smaller, individual goals. This way the employee is contributing towards realizing the goals of the overall business. This alignment between individual and team objectives and the organizational goals is not always easy to achieve but a good goal to keep in mind.

The performance management cycle model that we propose is a four-stage model:

  • The model starts with planning, which involves setting goals and defining success metrics, usually at the beginning of the year. Once goals are set;
  • The second stage involves monitoring the progress of these goals. If there is potential for improvement, or performance is lacking;
  • Employee development takes place;
  • The employee is then rated and rewarded on their performance, and the cycle starts again.

Although for many, this cycle starts at the beginning of the year, it is very much a continuous process. If goals shift, goals should be set again. If ratings are low, development takes higher priority, and if halfway through the year a more senior job opens up and the employee is ready to take it on, the reward comes early.

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Performance management in four stages

AIHR-4-Stages-of-Performance-Management

The process is divided into four stages. Let’s go over them one by one.

  • Planning: The planning phase revolves around setting performance expectations for the employee. These are often planned and are also included in the job descriptions. It is best practice to actively involve the employee in this planning process. According to a meta-analysis by Cawly, Keeping & Levy (1998), this involvement increases satisfaction with the performance cycle, as well as perceived fairness, usefulness, and motivation to improve. Employee performance plans should also be flexible so they can be adjusted for changing objectives and requirements along the way. For more information about planning and goal setting, the SMART goal-setting process is a useful framework.
  • Monitoring: In the monitoring phase, the goals set in the planning phase are actively tracked. Monitoring involves the continuous measuring of performance and providing feedback on progress towards the goals. By monitoring continuously, the manager or supervisor can correct in case of suboptimal performance, rather than finding this out at the end of the year when it is too late. Especially when dealing with highly educated professionals, it is important to focus on whether the goal is achieved instead of how it is achieved. A manager should stay away from micromanagement and determining exactly how this goal has to be achieved. Good management practices are key when it comes to effective monitoring. To learn more about this, read our article 5 Tips to ace your employee performance management process.
  • Developing: Development plays a key role in improving performance. As a result of active monitoring, areas of improvement can be identified. This can be underperformance that should be corrected or areas of superior performance in which the employee wants to excel even further. This can be achieved in the form of training and development but also through challenging assignments and other opportunities for personal and professional growth.
  • Rating & rewarding: Rating performance is an inevitability to determine the added value of employees to the organization. This is usually done during the employee’s (bi) annual performance appraisal. In case of continuous subpar performance, the employee might not be in the right function or organization, and parties should say goodbye. In case of superior performance, the employee should be recognized for their performance. This can be through giving them praise, a raise, time off, recognition items, a promotion, or all of the above!

Continuous performance management: Speeding up the cycle

If you wanted to create a computer program in the ‘90s, you would list user requirements, send this document to developers, have them work on it for 1-2 years, and then receive the finished end product. This end product was usually riddled with bugs and outdated in case of shifting user requirements.

This process was problematic, as it had very few opportunities to get feedback from users or update changing user requirements over time. In response to this slow and inefficient way of creating software, the agile movement began. Agile was characterized by continuous feedback, a focus on customer satisfaction by delivering early and continuous valuable software, by welcoming changing requirements, and by delivering software frequently (in sprints of one or two weeks instead of months).

You probably sense where this is going: this agile approach to managing software projects is also highly relevant in developing people. In continuous performance management, the performance management cycle is considerably sped up.

For example, instead of communicating feedback once or twice a year and then waiting six months for the next formal evaluation, feedback is given much more frequently. This higher frequency helps in steering appropriate behavior when job requirements change. More frequent contact and sit-downs between supervisor and employee also enable faster learning.

Continuous performance management is key when it comes to continuous learning and (continuous) improvement of employees. Instead of going through the performance management cycle once or twice annually, you go through it at least once a month. This helps develop employees – and enables a faster realization of organizational goals.

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Conclusion

These are the four stages of the performance management cycle. It is important to remember that performance management is not a fully top-down process. Rather, it is a shared responsibility between the manager and the employee.

Emphasizing this shared responsibility will make the whole process more effective. The employee will be most motivated when he or she feels involved in the process and understands why their goals matter to their colleagues and the rest of the organization. This makes monitoring progress on goals much easier as well.

It is the manager’s responsibility to create this buy-in and mutual commitment to the goals in the performance management cycle.

FAQ

What is the performance management cycle?

The performance management cycle is an annually reoccurring phenomenon in which employees are evaluated throughout the year.

What are the four stages of a performance management cycle?

A typical performance management cycle is divided into four stages: planning, monitoring, developing, rating & rewarding. After this, the cycle starts again.

What is continuous performance management?

In continuous performance management, the performance management cycle is considerably sped up. Instead of going through the performance management cycle once or twice annually, you go through it at least once a month.

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