Which of the following is the final step in the performance management process?

The performance management cycle process has undergone significant changes over recent years. Traditionally, performance management was structured around formal annual appraisals and little more. More recently, companies are appreciating the benefits of implementing a more modern and rounded approach. With this approach, the performance management cycle is focused on continuous performance management and the gathering of 360 feedback.

As an employer, it’s important that you keep up with these changes in order to get the most from your workforce. This explains why, according to Gartner, 81% of HR leaders are currently making changes to the way they manage the cycle of performance.

In this guide, we will share everything you need to know about managing each stage of the performance management cycle so that you can set your company up for future success.

Table of Contents

1. What is the Performance Management Cycle?
2. Performance Management Models: A Comparison
3. 4 Stages of the Performance Management Cycle Process
4. Performance Management Cycle Example

What is the Performance Management Cycle?

Employee performance management is a tool used by HR departments to monitor and evaluate the productivity of the workforce. It involves processes and activities that focus on skills, resources, and support in order to maintain and improve employee performance in line with an organization’s objectives. The ultimate aim is to create a high-performance culture where people can perform to the best of their abilities and produce the highest quality work.

The performance management cycle is part of the continuous performance management process. Examples of performance management processes and tools include regular performance appraisals, key performance indicators (KPIs), and performance management dashboards.

The cycle model is based on 4 key pillars: planning, monitoring, reviewing and rewarding. The aim is to establish performance goals in line with organizational objectives, and regularly monitor and review the progress of employees through 360 feedback. The model also promotes the rewarding of high-performing employees through established employee recognition programs.

Benefits of the Performance Management Cycle

The benefits of creating a solid performance management cycle include:

• Increased engagement, as your employees are 2.5 times more likely to engaged with their work if they feel you are holding them accountable for their performance.
• Higher retention levels, as your employees perform better when you give them regular feedback and support to develop their skills.
• Stronger relationships, as regular appraisals will help to develop trust between your managers and their teams.
• Better business results, as the entire workforce is aligned with a high performance cycle and working towards the same goals.

Performance Management Models: A Comparison

Before we discuss the different stages in the performance cycle, let’s take a look at a couple of commonly used performance management models.

Most companies these days rely on one of two methods for evaluating performance: management by objectives, and 360 feedback.

Whilst these models are valuable, they can be lacking if you use them as a standalone tool. They are far more valuable if you use them as part of a broader performance management strategy where you take into account both solid metrics and employee feedback.

Management by Objectives

Management by objectives (MBO) is a strategic performance management model that is based on progress towards established employee performance metrics. With this management model, you assign points to assigned objectives based on their level of importance. You then award these points to employees when they reach their set goals.

This model is based on the belief that the right analytics can help you establish what is working well, whether the performance of employees is contributing to the achievement of business goals, and what performance improvement plan needs to be created in order to support future growth plans.

Other similar models include the 9 box grid (where a 9 box matrix template is used to visualize employee performance and potential on a scale) and stack ranking (where, controversially, you reward the top 20% of performers and fire the bottom 10%).

360 Degree Feedback

Another increasingly popular performance management model is 360 feedback. This is where you measure employee performance from all angles, not just from the perspective of your managers. This might include peer feedback, self-assessments, customer feedback and, in the case of managers, team feedback. You can collect feedback through surveys, interviews, self-appraisals, and regular 360 feedback sessions.

360 degree feedback is a multidimensional approach that can help your employees understand their strengths and weaknesses and the impact their performance levels have on the business as a whole. It can be a great tool for promoting self-reflection and encouraging your employees to be more accountable for their own performance levels.

4 Stages of the Performance Management Cycle Process

The cycle of performance is based on 4 key pillars: planning, monitoring, reviewing and rewarding.

Let’s take a look at each of these 4 stages in a bit more detail to help you understand the performance management cycle.

Plan

The first stage in the cycle of performance improvement is planning. This is where you meet with management and establish your organizational goals and objectives for the next performance management cycle. You obviously need to take your business strategy into account for this. However, you also need to consider the personal objectives of all employees and teams, including development goals, specific tasks, targets, actions and behaviors.

Once you’ve established individual and overall objectives, you need to create personal development plans for all your employees. These should detail all the skills, knowledge and behaviors employees need to develop in order to help the company reach its goals. You could also launch a performance coaching program to guide your employees.

Monitor

The next stage of the performance management cycle is monitoring. This is a key stage as it helps you ensure your employees are on track.

Compared to traditional models, with the performance management cycle you should focus on continuous monitoring. The more regularly you track performance and monitor your metrics, the more effective the model will be.

Ideally, managers should meet with employees on a monthly basis to discuss their performance. They should also offer guidance and support when needed. Make sure you adjust performance goals in line with gathered metrics and feedback. This will help you identify and address any concerns before they have a negative impact on performance.

Review

You might think that reviewing is the same as monitoring, but there is actually an important distinction here. Understanding this distinction will help you create a more effective performance management cycle.

When you monitor you focus on short, specific check-in sessions. These sessions help you see how an employee is progressing and if they need support. When you review, you take a step back and measure an employee’s overall development over the past cycle period. You should therefore hold your monitoring sessions at the end of each cycle.

During this review stage, which can be held together with a typical employee performance review, you should conduct a thorough 360 Performance Assessment. You should also encourage employees to conduct a self-appraisal so that they can assess their own development.

This 360 approach to performance appraisal benefits employees far more than just holding an annual salary review or occasional performance review for remote employees. It also helps you establish the impact of performance improvement activities so that you can make the necessary adjustments to your strategy.

Reward

The final stage in the performance management cycle is rewarding high-performing employees. Don’t skip this step as recognition is vital for employee motivation and engagement. You need to recognize and reward good work. You can use strategies like salary increases, bonuses, pay for performance, extra vacation time, or promotions.

The reward and recognition program you choose is up to you. What matters is that you show your employees that you value their hard work. This will motivate them to continue working hard and committing to the overall objectives of the company.

Performance Management Cycle Example

Let’s finish by taking a look at an example of an effective performance management cycle in action. Hopefully, this will help you understand the benefits of a cycle of performance in practical terms, not just as a theory.

The example we are going to look at is Adobe, the American multinational computer software company.

Adobe calculated that its managers were spending around 80,000 hours a year on performance reviews. Despite this huge number, employees still reported feeling dissatisfied with the process. Managers and employees were going through the motions, but it wasn’t having a positive impact on performance. On the contrary – employees were so demotivated that turnover was at an all-time high.

Something needed to change.

So Adobe came up with a solution. The company’s leadership team launched a new performance management cycle system. The key pillars Adobe chose for its system were (you guessed it) planning, monitoring, reviewing and rewarding.

Adobe trained its managers so that they were better equipped to perform more regular check-ins and offer guidance and support when needed. The company gave management more freedom in how they structured their employee review sessions. Managers also had more discretion in salaries and promotions. And Adobe regularly invited its employees to participate in ‘pulse surveys’ to evaluate how well they thought their managers were doing.

As a result of this simple shift to a modern performance management cycle strategy, turnover dropped by 30% and employee performance and motivation levels soared.