How Continuous Performance Management Drives Engagement
As the new year kicks off, many employees prepare for the dreaded annual performance review: what have I done right? What have I done wrong? Does my boss see how hard I'm working? Will she remember the account I won seven months ago? What do I need to work on? Do I make the cut?
When an employee walks into their manager's office once a year for their review, it can feel more like a hot seat than a safe place. In many cases, employees don't know what to expect, fear for their job safety, or leave feeling undervalued - which surfaced as a particular pain point for many workers around the world in 2022. As 2023 brings with it the need to continually address talent retention and employee engagement, recent research is leading organizations to an evolving solution to stress-inducing evaluations: continuous performance management.
What is Continuous Performance Management?
Continuous performance management (CPM) is a straightforward concept: it's when management evaluates employee performance on a continuous basis. Instead of relying on traditional annual reviews, companies who adopt CPM strategies initiate casual, regular 1:1 meetings between employees and supervisors and hold more frequent formal performance reviews. Jessica Kriegal, EdD – a workplace culture expert who has consulted for the likes of Toyota and the Federal Reserve – identifies CPM as a performance management trend for forward-thinking organizations in 2022.
The conceptual difference between CPM and traditional annual reviews is the continuity of a current, functional feedback that CPM provides, as opposed to a buildup of observations over a year, some of which may no longer apply to the employee's current role. For companies who have embraced a culture in which CPM succeeds, the frequent feedback paves a two-way street between employees and managers where projects become a collaboration of real-time discussion, advice, and action.
Why the Switch?
Why are companies abandoning traditional annual reviews and taking on the time commitment that continuous performance management demands? In short, they don't have time not to.
Annual Reviews
A 2019 Gallup study showed that a company of 10,000 employees could spend anywhere from $2-$35 million worth of working hours per year on annual reviews. If you break down that math, that's $240-$3,500 per employee. What's the payoff? 55% of workers who say the review did no good, and 33% of workers saying the reviews actually set them back. Many go into the review fearful that it will introduce negative feedback, personal improvement plans, or even the threat of termination.
In that same year, a Workhuman study showed that between 2016 and 2019, the percentage of companies using only annual reports fell from 82% to 54%. Clearly, companies understand that this approach is losing traction. What does a CPM strategy offer?
Continuous Performance Management
Continuous performance management motivates and empowers employees to ask questions, lead discussions, clarify deliverables, and eliminate surprises between themselves and their manager. When feedback is up to date, both parties can course correct in real-time and avoid major task derailments.
But what does this mean for a company's bottom line? Organizations that implement CPM strategies:
When a company has high engaged employees, they:
Considering that in 2022, onboarding a new recruit could cost the company more than 3x the employee's salary, strategies that lead to a low turnover rate are worth the time.
In essence, CPM strategies create a supportive environment by giving employees and managers a platform for common ground and clear, real-time communication. When employees feel supported, engagement metrics rise. When engagement levels are strong, companies reap the benefits of increased productivity and sales, talent retention, and reduced recruitment costs.
How to Implement Continuous Performance Management
Continuous performance management styles will vary from company to company. There are several strategies that leadership may choose from to fit their company culture. Time intervals to keep the process "continuous" are relative. Where weekly check-ins may work for one organization, another may only need monthly. However you choose to implement CPM, remember that the underlying success factor is its cyclical nature. If you consistently share feedback, it stops being a daunting interaction and starts becoming productive work sessions between employees and management.
Here's a common, step-by-step approach to implementing CPM in your organization.
1:1 Check-ins
With a recurrence of anywhere from weekly to quarterly, 1:1 check-ins are the cultural backbone to CPM. Employees and managers participate in short, regular meetings where employees take the lead.
This is a chance for employees to take charge of their workload, honestly communicate struggles, discuss career opportunities, and ask for direction. Managers can use this time to provide encouragement and feedback on current projects, act as a sounding board, and clarify expectations and instructions.
Shorter Performance Evaluation Cycles
These meetings should ideally take place anywhere from monthly to bi-annually. A happy medium between 1:1s and annual reviews, these evaluations let the employee know how they are progressing within the context of recent projects.
A main setback of relying only on annual reviews is the recency bias , in which management evaluates employees on their most recent performance rather than the entire year. Both good and bad performances can get overlooked and employees may miss out on deserved recognition, which fuels disengagement. Regular evaluations take less time to prepare, and if used in conjunction with 1:1s, should eliminate surprises and reorient any misdirection.
Metrics
Regular evaluations give you the chance to collect more real-time and accurate data. There should be a system that collects both quantitative and qualitative data, including summaries of employees' performances, observations, statistics, and records of deliverables they did or did not meet.
With continuous metrics and reliable data collection methods, you can identify and close performance gaps, set clear goals, recognize employees who could advance their career, and identify new positions to grow your organization.
The Secret Sauce
Ultimately, strategies, techniques, and metrics will only take you so far. For a continuous performance management strategy to truly work, it has to flow from a company culture that respects the employee. "Feedback needs to be treated as an employee empowerment tool and not as a punitive measure." Zirulnik, 2020
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Huyett: A Case Study
Why is a fastener manufacturer and distributor commenting on the benefits of continuous performance management? Because we know from experience that it works.
Why it Works
The core motivation behind adopting new management strategies in 2010, including CPM, was a desire to shift Huyett's company culture. Tim O'Keeffe, Huyett's CEO, understood that no change in process would matter if the culture didn't uphold its core principles.
"The first problem I realized is that we had a cultural problem... to be a professional company, you have to carry yourself with integrity and care, and you have to approach the business of business as a practicing professional." O'Keeffe, Jan/Feb AFJ, 2013
Among several new strategies, Huyett implemented CPM to elevate productivity, increase internal transparency, promote employee value, clarify expectations, and streamline workflows.
How it Works
Huyett chose to implement bi-weekly half-hour 1:1s, quarterly evaluations, and self-assessments.
Employees take the lead in 1:1s by outlining their upcoming projects, expressing concerns, and clarifying goals. They can also discuss career opportunities and take appropriate steps under their manager's encouragement and guidance. This fosters trust, loyalty, and engagement.
Our quarterly evaluation is a calculated, unbiased task of collecting metrics, which is followed up by an in-person discussion of that data. Data collection includes:
Importantly, these metrics are measured in context. Each employee is unique and performs under their own set of stresses, wins, losses, and capabilities. With shorter time periods to evaluate, managers can connect performance to individual expectations with more consideration towards unique circumstances.
The summary of all metrics ends in each employee receiving a result:
No single result leads to termination or promotion. Rather, results signal next steps, whether it be a personal improvement plan, discussions about a higher career path, or a continuation of current goals. As the employee has been participating in bi-weekly 1:1s, the result is typically expected.
As an additional metric, Huyett includes self-assessments in quarterly reviews. Employees evaluate the same metrics about themselves as their manager will, and the results are shared between the two. This is a critical element of clarity. When an employee ranks themselves highly on resource allocation or leadership skills while their manager ranks them lower, this stimulates a conversation of expectations.
The Benefits
Walker Hermann, Huyett's HR Generalist, summarizes the benefits of our continuous performance management well: "In an 8-year span, Huyett has increased 3-month average sales per employee by 74.2%, with an increase of total personnel by only 46.8%." Since managers and HR collect and evaluate CPM metrics, we can attribute a large portion of that sales momentum to our management strategies.
Additionally, our employee retention rate has increased around 5% over the past seven years, factoring in the COVID pandemic and the Great Resignation. This, in combination with our sales per employee percentages, signals a higher level of engagement from Huyett team members, which is a direct benefit of CPM. As Huyett continues to retain talent, we lower recruitment costs of replacing that talent.
Most importantly to our people, continuous performance management fosters trustworthy, consistent, and transparent communication between team members and team leaders. When people have clear direction and a safe place to discuss roadblocks in real-time before they snowball, teams complete projects more quickly, more efficiently, and with higher levels of trust. Our company culture attracts individuals who actively uphold that environment and truly value their coworkers. We understand that our success depends on employee investment, and we nurture that success by investing in them.
Next Steps For You
If you're looking to implement continuous performance management in your organization, here are a few suggestions to get you started.
1. Evaluate your company culture.
The point of CPM is to empower employees to reach their full potential of productivity with regular check-ins to keep them on track. This means managers need to switch priorities from scoring employees to developing them. If your company isn't ready to embrace this mindset, consider initiating a culture shift.
2. Consult performance management literature.
To learn about management mindsets that foster success for CPM, it's helpful to consult experts. We're listing a few sources that helped us develop our management mentality. As you're engaging with new perspectives, keep in mind: "There's no way to get better at something you only hear about once a year." Daniel Pink
3. Look at companies who have successfully implemented CPM.
Major companies are embracing CPM, and people are talking about it. Here are a few that stand out with their own unique approaches:
4. Get started.
Start outlining how to implement continuous performance management with these helpful tips about talking to managers.
5. Customize your CPM approach to your organization.
GE and IBM decided to integrate innovative annual reviews into their CPM approach, while Adobe eliminated official reviews altogether. At Huyett, triannual evaluations work best with our data collection methods. Each company has its own culture, unique talent, and specific goals. Your performance management strategy should reflect that originality.
Continuous performance management is a cost-effective strategy that helps employees feel valued, keeps more people actively engaged with projects, and gives them the tools to succeed.