Performance management is a common practice in companies, despite some issues. Learn how to avoid these common mistakes to succeed in performance management

What’s performance management? To put it simply, the goal of performance management is to close the gap between a company’s desired results and its actual results. Even though the details may change, companies generally follow the same steps:

  1. Establish goals and objectives that derive from a strategy
  2. Monitor how those goals and objectives are satisfied
  3. Evaluate the performance, generally in the form of performance reviews
  4. Adjust system for better performance by fixing performance problems
  5. Reward top performance

What could go wrong with that? Apparently, a lot.

In fact, performance management is one of the most hotly debated topics in management. It is the object of much criticism if not ridicule: useless, inefficient, antagonizing, overly complex, hated by employees and managers, referred to as one of the 7 deadly diseases of management, it’s even seen as a source of actual brain damage.

And yet, most companies still implement performance management process. Not because they are masochists, but because they answer to a profound need: creating order out of chaos by planning, setting goals and executing them to improve the company’s outcomes.

Performance management is an endeavour fraught with problems and pitfalls, but still necessary, and the first step in overcoming those problems is to become aware of them.

1. You don’t understand what performance management actually is


Probably the most common misunderstanding about performance management is that it is not the same thing as performance review. The performance appraisal is only a part of the whole process outlined above.

Worse, performance management is often confused with the mostly outdated annual performance review. If it is to be taken seriously, performance should be monitored on an ongoing basis so that problems are fixed when they arise, and opportunities exploited as soon as possible. It is a continuous process, not an event.

Thinking this way is one of the things that get organizations into trouble, because the yearly appraisal process, no matter how well designed, is not enough to ensure that employees perform at their best.

It is also not a purely administrative burden: performance management is about making people and organisations more efficient in a measurable way, not about filling forms and having meetings to collect data that will never be used.

Basic misunderstandings about performance management explain both why it is reviled, and why it is inefficient when companies decide to go through with it even though they are missing critical pieces of the puzzle.

2. You think performance management is a silver bullet

Very often, performance management is seen as a kind of monolithic solution that will fix every problem in a company. Company isn’t doing so good? Performance-manage the hell out of it. But companies are far too complex for that to exist.

As Alfredo Behrens highlighted in an HBR article:

What are we looking for? Improved alignment? Fair compensation? Competency development? Let's stop thinking a single approach can change our organizations. We need more purpose, realistic values, increased feedback, more autonomy, better recruitment approaches, only to cite some of the changes we need to go through.”

Performance management is not a single comprehensive theory that can be applied blindly. It’s more of a bag of tricks that need to be applied with high dexterity so that your efforts in one area do not cancel out with efforts made in another.

3. You’re over-enthusiastic about it

Who would not be enthusiastic about a system that purports to make their company more efficient, and thus more profitable?

The promise of increased performance is alluring, and many companies engage in performance management programs without fully committing to what they entail.

Uninformed management will blindly apply flavor-of-the-month practices with no regard for company fit, become disillusioned when the results are not up to par after an unreasonably short delay, and get discouraged with the whole idea of performance management.

Damage results from implementing new practices that may seem compelling but are difficult or impractical to sustain, the consequences of which are implementation failure, eroded credibility, and increasingly negative attitudes towards performance management.

Implementing new practices that produce sustainable results is a long term project. It needs to be seen as such from the outset, which means getting thoroughly educated on the subject to avoid succumbing to fads, and wisely choosing the particular implementation that will fit the company.

Performance management has been vulnerable to fads, more so than seems to be the case with other human capital systems. In the last 20 years, there have been fads to evaluate results, competencies, behaviours, and contributions; to rate performance using highly differentiated 5, 7 or 9 point scales, much simpler pass-fail scales, strictly developmental scales, or no scales and instead prepare written narratives; to collect ratings from supervisors, peers, customers, or the employees themselves; to cascade goals from the highest organisational level to individual employees, establish individual objectives that are rated directly, or not to include goals; and the list goes on.

Be wary of fads.

4. Your managers don’t buy it

When you decide to implement a system to manage performance, much of the work will fall on your managers. They will need to be trained and helped in many areas to ensure that the program works.

They will need to know what to say during an appraisal meeting, how to provide feedback efficiently throughout the year, how to measure their team’s performance, etc.

But more importantly, you need to tell them why they should be interested in it at all. Support from leadership is fundamental, and to get that support, you need to explain how the program fits within the organisation’s strategy. How is the information going to be used? What’s in it for them? Understanding the value of performance management is capital for it to work.

To help achieve that, you should provide your managers with material that will help them understand and later execute on their new tasks.

5. Your employees don’t buy it

Employees also need to believe that performance management will benefit them before they begin to apply its principles. If you want your employees to start focusing on the right things, to get better at what they’re doing, you need to show them that it is in their best interest.

A good performance management system will help them on a personal level to answer a number of problems they face:

  1. How good/bad am I doing?
  2. How can I do better from my side?
  3. How can the organization change to help me be more efficient?

You need to show them how their and the organisation’s goals align, for example by finding a good way to reward performance. After all, if your employees are not performing at their best, something must be amiss with your performance management.

6. You are not committed enough

If you do decide to go forward and implement some form of performance management, you have to commit to it for a long enough period if you want to see any results. The plan has to be executed well, and from start to finish.

Very often, managers, teams or individual employees will feel ill at ease with a system that tells them they are underperforming. They might want to blame the system, or worse, game the system. Some data will be ignored, hidden, conveniently forgotten, or tweaked.

The system will become more and more useless, wasting much of the time and effort that went into setting it up in the first place.

That’s why it is imperative that on top of strong employee and manager buy-in, you accompany your effort with processes that help them deal with performance on a day to day basis. How can they identify the cause of the issue? Is it the metrics that are wrong, outdated? Is it a team problem? An individual problem?

Managers and executives need to understand that the framework may have ‘bugs’ that must be fixed, and avoid always blaming the employees when things go wrong.

7. You’ve picked the wrong goals to optimize


You have to be incredibly careful with the goals you decide to set, and the way you will measure success.

Some metrics might seem like obvious performance levers to optimise, but what you have to pay attention to is potential unintended consequences.

Here is an illustration of a typical case of a badly chosen metric:

We also discovered that how we measured people’s performance was hurting our improvement efforts,” said the customer service manager. “One of our production manager’s main goals was to keep his employees 100% utilized. Even though he verbally supported our improvement efforts, he blocked most of the lean initiatives. It turns out that he was worried that if the team figured out a way to improve the process, they might get stuff done faster and if they ran out of things to work on, his employees’ utilization rate would drop and he would fail to meet his objectives.

8. You’re setting goals the wrong way


You’ve got everybody on board, everyone is ready to see what will come of the system if they commit to it.

So you start setting goals that you will use to compare against you actual performance.

That’s where a lot of things can go wrong, and many management horror stories begin.

  1. Goals that are set at the top are not cascaded properly down the organisation, because they are too general and provide no guidance for implementation
  2. Goals become outdated but are still pursued to conform to the process, causing delays and misalignment with sudden strategy changes
  3. Goals cannot be updated because managers are given no information as to how to do that
  4. Goals are pursued by individuals in their own interest instead of the interest of their team or organisation
  5. Etc. Etc.

You might have heard of SMART goals (an acronym for Specific, Measurable, Attainable, Relevant, and Time-framed), often presented as a sure-fire way of setting goals efficiently. But it turns out SMART goals may not always be so smart, or at least as guaranteed to work as predicted.

That’s what Pulakos and O’Leary seem to believe:

Jobs that lend themselves best to setting goals have relatively static performance requirements and defined productivity metrics, for example, many manufacturing jobs.
[...] However, setting goals for today's increasingly knowledge and service-based jobs is more challenging. The fluid and unpredictable nature of these jobs means that one's objectives can change frequently, necessitating continual revision and increasing the work associated with performance goals (Cascio, 1998; Pulakos, Muller-Hanson, & O'Leary, 2007; Pulakos & O'Leary, 2010). Even when jobs are relatively predictable, goals set at the start ofthe performance cycle often carmot account for special assignments or other duties that may arise during the year. Goals also do not work well when goal attainment is dependent on factors outside the employee's control or team-oriented (Locke & Latham, 1990; Lawler, 1994; Ployhart & Weekley 2009). Some jobs do not lend themselves to setting objectives at all, such as many R&D jobs in which it is impossible to predict when and what discoveries will occur.

Many authors echo that sentiment, such as Harry Levinson in Management by Whose Objectives?

The higher a person rises in an organization and the more varied and subtle the work, the more difficult it is to pin down objectives that represent more than a fraction of his or her effort.

The authors advocate for a more informal approach to goal setting with regular discussions between managers and employees.

9. You don’t give feedback often enough, and don’t know how to do it


More regular discussions brings us to the topic of feedback and communication.

According to research done by SAP, employees, and especially millennial employees, are asking for more and more feedback.


Unlike in the old once-a-year performance review paradigm, employees are expecting to get feedback on a more regular basis.

Instead of storing up feedback to lash it out during performance appraisal, it might be advisable to apply a simpler principle: give feedback as soon a problem begins to appear, but also give positive feedback when things are running smoothly. That way, you’re not hiding and bad surprises for the annual review when it comes up.

As obvious as it may seem, a performant organisation is one that does not wait for a year to fix its problems.

Of course, that leaves open the question of how exactly that feedback should be provided.

You have probably heard about constructive and negative feedback: the latter is to be avoided. If there is a performance issue, do not linger on the issue itself, explain how to fix it, and how to make the employee better.

Good communication will be required at all stages of the performance management process, and it is especially important with more sensitive subjects.

10. Your focus is too narrow

As we have seen in point 7, picking the wrong goals can have disastrous consequences.

One way to avoid that is to adopt a broader focus: do not insist only on increasing sales, profits or stock price, which tend to lead to internal rivalries and value destruction.

In fact, Peter Drucker himself, creator of Management By Objectives, one of the most famous ancestors of the performance management tradition, thought that performance objectives should be set in no less than eight key areas:

  1. Market standing
  2. Innovation
  3. Productivity
  4. Physical and financial resources
  5. Profitability
  6. Management performance and development
  7. Worker performance and attitude
  8. Public responsibility

That may seem like a lot, but focusing on a broad set of areas allows for them to act as a checks-and-balances system that will prevent the search for performance in one area to damage other parts of the business.

11. You’re only paying attention to individuals, not to other layers

As we’ve alluded to earlier, performance management is mostly known for its dreaded performance appraisals.

The problem with annual performance appraisals is not only their inefficiency and destructive effects on morale, it is also their centeredness on the individual employee.

Performance problems are seen only individually: you fix a cog in the machine to improve performance.

But a more holistic approach is necessary. What needs improvement could be the environment, the processes used by the team, the structure of the business unit, the organisation as a whole, you name it.

Worse, even assuming that performance improvements in each individual guarantees aggregate improvement is not warranted.

Here again, a broader vision is required to assess performance improvements and avoid illusions.

12. You’re putting the manager-employee relationship at risk


Pulakos and O’Leary emphasise the issue in their paper:

Done effectively, performance management communicates what's important to the organization, drives employees to achieve results, and implements the organization's strategy. Done poorly, performance management not only fails to achieve these benefits but can also undermine employee confidence and damage relationships.

Here, the system can work against the relationships, which will cause people to enforce the system and strain relationships, or keep their relationships and make the system ineffective.

For example, employees want guidance, but they don’t want it to be documented because it could undermine their advancement. Conversely, managers feel compelled to overrate their employees to avoid adverse effects on morale and motivation.

Collaborative culture is slowly destroyed by the constant comparing of employees by managers during reviews, not to mention the concerns about the accuracy and fairness of the process.

And for good reason:

[Performance reviews are] wildly inaccurate, for one: CEB’s research finds that two-thirds of employees who receive the highest scores in a typical performance management system are not actually the organization’s highest performers. Go figure. The reviews are ineffective, too: Managers told CEB that conventional reviews only generate a 3- to 5-percent improvement in employee performance. They’re also surprisingly inadequate: Just 23 percent of HR folks surveyed by the firm say they’re satisfied with their organizations’ performance evaluations, down from more than 50 percent a decade ago. Eighty-five percent have either made changes in the past year in hopes of improvement or plan to do so in the next year.

13. You’re not doing anything with the information


If you’ve managed to overcome all the issues so far, and have a functional performance management system running, you’re probably collecting a lot of data about the performance of your staff.

Now is the time to use it. Not just file the reports and never read them again, but analyse them and offer useful recommendations to change your organisation and improve its performance.

The information collected should help managers explain the situation more clearly and take informed decisions.

  • Did the employee get unclear objectives?
  • Is the employee missing a critical skill to achieve his job more efficiently?
  • Is he missing an important resource?
  • Is he disengaged, lacking motivation?

Now that you have a more precise understanding of the performance problem, you can solve it more easily.

14. You’re not leveraging technology

Many of the problems outline above may seem simple to fix to younger audiences well versed in new technologies. Need to change objectives on the fly? Why don’t you? Isn’t there an app for that? Why wait for the yearly paper form to fill and give back to your manager?

Here’s what Silvia Vorhauser-Smith wrote in a Forbes article a couple years ago:

We work online, shop online, socialize online, we are connected 24/7 – online.
Enterprise technologies are not far behind. Perhaps you are still in a workplace that restricts or bans social media, but they are in decline. Perhaps your organization refuses cloud-based applications for privacy or security reasons, but they are in decline. The fact is: organizations that try to block out the world simply ostracize themselves. And they are in decline.
An agile, social and mobile work environment. You will set dynamic goals and adjust them in response to change; your manager will provide just-in-time coaching wherever you are; skills and knowledge you need will be recommended and streamed to you; your performance journal will continuously capture and cluster feedback, ideas and suggestions from your peers and customers; your formal annual performance review will be permanently deleted from your calendar…and you will finally be in a position to manage your own career.

Although her vision has not come to pass as quickly as she expected, we expect it will soon or later. And its main driver will be new technology.