The 4 Crucial Stages of a Successful Performance Management Cycle


HR Insights for ProfessionalsThe latest thought leadership for HR pros

Wednesday, January 25, 2023

A solid performance management cycle is crucial for performance and engagement, so how can you adapt yours to be as efficient as possible?

Article 5 Minutes
The 4 Crucial Stages of a Successful Performance Management Cycle

Every organization wants its employees to be working at maximum efficiency. To achieve that, staff need to feel empowered, aligned and recognized for their efforts. This means you’ll need a system that lets your managers train, monitor and motivate employees - a performance management cycle.

Within this process, personal development is placed as a priority. Between an employee and their manager, this includes knowledge, skills and behaviors staff might need to grow and, ultimately, achieve overall business goals.

What is a performance management cycle?

A performance management cycle is a process that facilitates employees to maximize engagement and productivity. Usually, they span a year and integrate support, feedback and evaluation to promote growth and align personal goals with those of the organization.

At its core, a performance management cycle helps managers to provide constant support to their staff, therefore streamlining efforts towards business goals. Having this framework in place shows you what success looks like, as well as how you aim to achieve it as a team.

Why do you need a performance management cycle?

Offering frequent feedback and evaluations to employees helps them understand their position in the company and enriches their working experience. Moreover, having regular two-way feedback makes staff feel their voices are being heard and, subsequently, leads to higher retention for top employees.

What are the 4 crucial stages of a performance management cycle?

The performance management cycle is a concept that originated in Peter Drucker’s 1954 book, ‘Management by Objects’. The idea was to break down overarching goals into specific team, or even individual, objectives.

The performance management cycle has since been through several stages of refinement and adapted into a four-stage process, including the following:

  • Plan
  • Act
  • Track
  • Review

Since then, it’s been adapted many times in an attempt to satisfy the present-day demands of organizations. Today, the four crucial stages are summarized as:

  • Planning
  • Monitoring
  • Reviewing
  • Rewarding

1. Planning

Outlining goals is a crucial aspect of your performance management cycle. During this initial phase, you’ll align business, team and employee goals to ensure every member of the group is working towards a common objective.

It’s important to delineate company aims immediately, before looking at ways to incorporate individual objectives within the strategy. Ideally, the wider company goals will offer employees the opportunity to exercise their existing skills, as well as develop new ones.

Once you’ve settled on your business targets, bring in your employees to collaboratively determine team and individual goals. By involving them in the process, they’ll find performance management much fairer, as they can more clearly understand the reasons behind each objective.

To maximize efficiency, utilize the SMART framework when setting individual goals. As a reminder, this means creating objectives that are:

  • Specific
  • Measurable
  • Actionable
  • Relevant
  • Time-bound

2. Monitoring

Traditional performance management has seen managers checking in on employees once or twice per year, leaving large amounts of unmonitored time in which team members could be wide of the target.

The monitoring stage of the performance management cycle is where managers track the progress employees are making towards the specific goals you outlined during planning. This is when you can help your teams by providing resources and discussing their performance in group, or one-to-one meetings.

3. Reviewing

As the cycle comes to an end, management will conduct a review with each employee to assess their performance against the initial objectives. Providing the first two stages were smooth, the meeting should feel like nothing more than a formality, as there will already have been plenty of opportunities to catch up.

The reviewing stage is much more like a traditional annual review, in which you’ll have the chance to measure and give feedback on each employee’s performance and development over the cycle. The discussion should be a chance for both the manager and employee to share constructive feedback. Some of the questions that should be posed are:

  • Were the original goals realistic?
  • Did the employee overachieve or underachieve and what enabled them to do so?
  • Did the business offer enough support?
  • Are the processes in place optimal, or could they be improved?

4. Rewarding

A motivated team is a better team. Rewarding employees is directly linked to their performance, with one study showing a 40% increase in engagement for employees who feel their good work has been recognized. The final stage of the performance management cycle is about just that.

For employees who didn’t meet their goals, management will have to decide on appropriate actions. These might be things such as warnings, fines or even termination. Conversely, team members who have met objectives, or even overachieved, should be shown appreciation by the organization. Some common ways of recognizing employee performance include:

  • Increase in salary
  • Bonuses
  • Extra vacations
  • Awards
  • Promotions

What are the benefits of a performance management cycle?

Upon implementing a performance management cycle as a business process, you’ll start to reap the rewards of a framework that supports personal development alongside organizational goals.

Conducting frequent reviews will allow you to better understand your employees and, in particular, where they might require training. Whether staff need to catch up with new trends, or require a new skill for the role, performance management will identify this.

Moreover, you’ll be boosting morale by providing support and recognition to your staff, as well as identifying candidates for promotion and improving employee retention. Therefore, to ensure productivity and business success, it’s important to fine-tune your performance management process to be the best it can be.

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