What to Look For in a Performance Management System

Find out what features to look for in a performance management system, with advice from an experienced HR Director to HRs looking for a new tool.

One of the main goals of HRs in growing organizations is to establish a performance management and goal-setting process, which is vital to support organizational and individual employees’ growth.

However, there are many ways to go about performance management – and numerous performance management systems on the market.

In this guide, we outline the main reasons why companies implement performance management systems, how these tools benefit your organization, and which capabilities you should look for to enrich your core HR tech stack.

This article is part of the “People Ops Guide for CHROs” e-book that’s in preparation. Be the first to find out once it's out.

What is a performance management system?

A performance management system is a tool that lets you track employees’ performance in order to align employees' work across the organization with strategic business goals and achieve better work efficiency. It’s useful for companies of all sizes but in particular for fast-scaling ones.

But, while 98% of businesses know that performance management is important, 64% of them admit they don’t have an effective way to approach it. That’s where a performance management system comes in.

Why do organizations use performance management systems?

A good performance management system allows the organization as a whole to be aligned and work towards strategic goals. It also helps employees see how their performance contributes to the success of the organization.

But that's just one side of it.

A performance management system also helps establish and nurture a culture of feedback, allows HR and team leads to track and support their employees as they develop professionally, and lets the organization plan its capabilities strategically.

Here is how a performance management system helps in these regards:

Achieve company objectives through goal scaling and execution tracking

Each organization is focused on hitting its objectives. But these are often large-scale, long-term goals that are easy to lose track of, so they need to be broken down into specific subgoals.

Naturally, this doesn’t happen by itself and is precisely the reason why organizations implement performance management systems: to track employees’ execution of the goals previously set.

The company-wide goals can be scaled down into departmental, team, and individual goals to keep everybody aligned and working towards the same objective.

Track employee performance

Tracking employee performance with a performance management system helps HRs adjust salaries and optimize benefits and rewards systems. If you want to drive performance-based recognition, then a performance management system is a must.

Build a culture of feedback

It’s hard to grow and improve performance without feedback. Still, the nature of feedback has changed to be less of a once-in-a-year event into a continuous performance feedback cycle — both employees and 95% of managers have reported they’re unhappy with traditional performance reviews.

That’s why many performance management systems feature asking for feedback or incorporate planning for frequent feedback sessions.

Nurture employee development

Diligent performance tracking helps leaders spot top performers and plan their development, as well as to get better insights into cross-departmental dynamics.

Performance management systems also help HRs to notice the employees that are at risk of leaving, thus allowing them to act and prevent it or plan for the future.

With a people analytics platform like Orgnostic, you can get an insight into which of your employees are likely to leave the company, based on their tenure, and then act to keep your talent.

The probability of leaving indicates the expected probability that an employee will leave the company at the specific year of tenure.

Plan capabilities strategically

Some employees also show leadership potential, so performance tracking solutions help HR plan for long-term succession and in-house talent development for other roles.

What are the benefits of a performance management system for your organization?

Besides the main goal of performance tracking and goal alignment, performance management systems bring a handful of other benefits, including reporting, development planning, and a more equitable rewards system across the organization.

Better tracking & reports, data-driven growth, and performance optimization

When implemented across the whole organization, a performance management system gives you a wealth of data on performance.

It provides you with a good basis for data-driven growth and performance optimization on a higher level. On a smaller scale, it gives team leaders better tracking and reports insights to manage their teams’ execution.

Easier employee development planning

Performance management tools give team leaders and HRs a good overview of individual employees’ performance. On a granular level, it gets easier to plan for employees’ development and growth with actual data in hand.

Many companies introduce  management solutions primarily to better support their employees’ learning and development.

Making the rewards system fair across the organization

Fast-scaling companies can have big discrepancies in salaries. A performance management system allows the HR team to introduce pay for performance culture and level the playing field for all employees.

With the Orgnostic people analytics platform, you can get insights into any rewards discrepancy across various demographics, including gender, role, team, or location.

Tracking the pay gap between employees

Improved employee retention and employee experience

Although performance management software helps with organizational goal alignment, it plays an important role in employee experience, too.

The culture of performance feedback means that employees can rely on clear expectations from their leaders. Moreover, employees will be motivated and engaged for several reasons:

  1. Getting a sense of their performance with frequent feedback
  2. Seeing how their work fits into a larger, company-wide scheme
  3. They will have a more clear picture of their growth and development plans.

In turn, knowing that their organizations nurture their growth and the feedback culture is strong, employees will be more likely to stay with a company, thus increasing retention.

One way to support employee development is to cater to their specific career growth needs. A good starting point is to look at the reasons for which some employees leave your organization and address the root cause. With the Orgnostic people analytics platform, you can get these insights in minutes.

Tracking employee's reasons for leaving your organization

Key components of a performance management system

In comparison to HRIS and ATS systems, the market for performance management systems is less saturated.

Your enterprise HRIS systems may already  feature some performance management capabilities, but there are also standalone products that can act as an add-on to your existing HR stack.

You might not need to use all the features of these tools, and they’re not a prerequisite for high-quality performance management. Still, there are some features you should look for in your performance management system:

Feedback and reviews

Nowadays, employees expect feedback to be frequent and to go both ways.

That’s why your performance management system should allow employees to ask for feedback and not just have it mandated by the management. Moreover, having templates and questions for in-depth performance reviews as well as for more frequent feedback sessions is a plus.

Goal alignment & goal tracking

The process of goal-setting and tracking on a company-wide level has two objectives.

First, it helps you  align everybody’s work so it can be optimized.

Second, it lets you allow employees to see how their work fits into a bigger puzzle and how their day-to-day actions contribute to achieving company-wide goals.

For example, if you’re working with an OKR methodology, it would be great for your employees to see how their individual OKRs connect to the higher-level goals.

Learning & development planning

One of the major reasons for implementing performance management is to support employees’ development. Therefore, the software itself needs to have the capabilities to plan for employees’ growth.

Since there are standalone products for learning and development, it’s a good option to have the two tools integrated for optimal use.

Integrations with other tools

Integration with other solutions is important to broaden the functionality of your software. Also, integrations are important to drive the adoption of the tool.

For example, connecting the performance management system with Slack will allow employees to get notifications about certain actions they need to take inside the tool. This way, you’re meeting your employees where they are, helping them adopt the tool more easily.

Planning organizational improvement

A performance management system should be your main support in planning not only for an individual's, but also for organizational improvement. This means that you should be able, in collaboration with managers and leadership, to derive a company-wide action plan supported by the data and insights you get from the tool.

Choosing your tool: prioritize process over software

Is buying and implementing a performance management system enough to improve your organizational performance?

Klaudija Šarkanj, HR Director at Gideon Brothers, says no.

“You need to know what your goal is before introducing performance management software”, says Klaudija. “Are you looking at it purely as a tool to rate people’s performance and adjust salaries and rewards? Or is your goal to support employees’ growth and development above all?”

In her opinion, performance management and the goal-setting process should be prioritized over software.

Moreover, Klaudija advocates for HRs to take on employees’ perspectives and introduce performance management software as a part of the holistic employee experience. After all, 51% of employees say that annual reviews are inaccurate, and 53% report that annual feedback doesn’t motivate them.

As such, Klaudija says, it’s important to look for a user-friendly and flexible solution that will help you drive user adoption and follow your growth as a company.

Klaudija and her team are currently testing their new performance management system on themselves — a team of 15 HRs that will explore the best way to utilize their new solution before introducing it to the entire company.

They want to see what’s the best way to use the software at hand before educating managers and employees on how to do it, and they are fully aware that not all teams will use it in the same way.

Clear goals and a performance management process are crucial

A performance management and goal-setting solutions are useful tools to support performance tracking, goal alignment, and employee development planning.

According to Klaudija, it’s important to emphasize creating and implementing a high-quality performance management process over going in-depth on software features. If she’d have to give one piece of advice to HRs in the process of acquiring a performance tracking solution, it’s to buy it for employees, not HR.

With that in mind, we encourage you to prioritize ease of use and integration capabilities when purchasing your performance management system.

On one hand, employees will gladly use it.

On the other hand, you will get more accurate reports. Integrations with a people analytics platform such as Orgnostic will allow you to extract important data and make sense of it to further improve your organizational performance.

Big thanks to Klaudija Šarkanj, HR Director at Gideon Brothers, for helping us write this article by sharing her experience and insights 🙌

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