Trouble calculating ROI of performance management? Do this.

By 
Rhea Dabas
Published on 
Apr 27, 2023
Performance management is vital to business success, but people leaders struggle to convey its ROI. Here's how you can show the ROI of performance management.

Key takeaways

  • Performance management is vital to business success, but people leaders struggle to convey its ROI
  • KPIs and metrics such as retention rate, eNPS, and quality of hire can help you make your case
  • COVID-19 made performance management even more important to effective workforce management

Performance management is one of the indispensable pillars of modern business. It helps people stay engaged and productive at their work and committed to the company goals. People leaders don't need any convincing that performance management has a positive impact on business outcomes. C-suite knows the value of goal-setting, feedback, and performance reviews.

But performance management processes do cost time and money. Gallup estimates performance reviews alone cost companies with 10,000 employees between $2.4 million to $35 million per year—a lot of money for dismal results. Gallup also found that only 14% of employees say that reviews inspire them to improve their performance. As a result, many Fortune 500 companies have ditched traditional performance management altogether.

Why Performance management matter?

It's no secret that performance management is essential to the success of any organization. After all, how can you ensure that your employees are meeting or exceeding expectations if you're not regularly assessing their performance?

Unfortunately, performance management is often seen as a chore by both managers and employees. This can lead to half-hearted efforts and, ultimately, ineffective performance management systems.

So why does performance management matter? Here are four key reasons:

1. It Helps You Attract and Retain Top Talent

Organizations with strong performance management systems are more likely to attract and retain top talent. This is because high-performing employees want to work for organizations that invest in their development and career growth. When they see that an organization is committed to helping them improve and grow, they're more likely to stay with the company.

2. It Improves Employee Engagement

Engaged employees are more productive, more innovative, and more likely to stick around. Performance management can help improve employee engagement by ensuring that employees feel like their work is meaningful and that their career goals are aligned with the organization's objectives.

3. It Drives Business Results

Organizations with effective performance management systems are more likely to achieve their business goals. This is because performance management provides a framework for setting and measuring progress against specific objectives. When everyone in the organization is working towards the same goal, it's easier to make real progress.

4. It Helps You Build a Positive Culture

A positive workplace culture is essential to the success of any organization. Performance management can help you build a positive culture by promoting transparency, open communication, and mutual respect. When everyone in the organization is on the same page, it's easier to create a positive and productive work environment.

performance management is key to the success of any organization. By attracting and retaining top talent, improving employee engagement, driving business results, and building a positive culture, performance management can help your organization reach new heights.

So, as a people leader, how can you convince key stakeholders of performance management's value? How can you show them its ROI to get buy-in for new programs that you have in mind?

Also, the pandemic has made top-line executives more dependent on people leaders to navigate the ever-changing world of work. But unlike people leaders who deal with both quantitative and qualitative aspects of the workforce, executives are more numbers-driven. While C-suite already knows about critical metrics such as employee turnover rate and eNPS, you also have other KPIs that you can use to show the ROI of performance management.

Aligned goals and accountability

Effective goal-setting, an integral part of performance management, helps align people's goals with the company's. When those two are in line, and everyone has a clear picture of company goals, it steers people towards achieving them. This alignment is critical to not only business outcomes but also employee commitment. Effective goal-setting also holds people accountable for their performance, preventing finger-pointing and other unproductive behavior.

Measurable business outcomes

Measurable performance management processes help companies stay data-driven. People leaders use many KPIs to report on performance: turnover rate, eNPS, quality of hire, etc. These measurable processes empower leaders to make bias-free decisions based on data rather than "gut feel." Employees also appreciate numbers that are transparent and fair rather than opaque. This data-driven approach ultimately feeds back into people's performance, results, and company revenues.

Increased employee engagement

Gallup estimates companies lose about $7 trillion globally because of disengaged people. Effective performance management boosts employee engagement, a quantitative and qualitative measure of the relationship between the company and its people. It lets people know where they stand and empowers them to repeat their success and learn from their failures—creating engagement. Engaged employees feel motivated to contribute, more productive, and eager to grow in their roles.

Better employee retention

Retention has become crucial for companies as 55% of people plan to change their jobs within a year. Josh Bersin of Deloitte believes the cost of losing an employee to be from tens of thousands of dollars to 2x their annual salary. Performance management helps people set and achieve goals, grow in their careers, and bring transparency to everyday work processes. When people have a clear idea of what managers expect, their contribution, and career growth, they will likely stick around longer.

A driver of upskilling

Spurred by the pandemic, companies are digitizing rapidly, which will have a big impact on the skills people need to remain competitive. Modern performance feedback, which separates compensation from development, helps people upskill and stay relevant in the workforce. When they get to know the specific areas where they need to improve, they learn the required skills and then invest them back into their work—unlocking growth for themselves and the company.

Transparency among people

Gallup polls found that 70% of people who quit jobs cite their manager as the reason. Manager 1:1s and peer feedback foster transparency between managers and employees and among coworkers. In addition, modern goal-setting frameworks such as OKRs give people greater insight into their coworkers' goals, helping them know each other's needs and priorities. This visibility among people creates trust and improves the employee experience.

Better teamwork and collaboration

Transparent goal-setting lets people better understand their coworkers' motivation and perspectives. They start working towards their goals as a team rather than chasing their objectives with a competitive mindset. As a result, people start setting more ambitious goals, taking ownership of projects, and delivering performance.

Performance management is vital to business success. Investing in performance processes isn't just another best practice, but it's how you will excel as a company and surge past the competition. When effective, it helps your people's and company's best interests come together to create a winning combination.

Measure and boost your performance management ROI by empowering your people to share feedback, set and track goals, and deliver performance reviews—with Mesh. Schedule a demo to know more.

Did you like this article? Find more great content on our blog page that will help you become a better people leader. Like social media? Follow us on LinkedIn, Facebook, Instagram, and Twitter.

About the Author

Rhea stands as a highly esteemed contributor to our guides, showcasing a genuine dedication to disseminating insights and expertise acquired from influential leaders in the realm of fostering high performance. In her capacity as an author, Rhea is focused on enhancing the understanding of performance management principles, delivering readers indispensable guidance to navigate the ever-evolving landscape of today's business environment.
Linkedin
Rhea Dabas
Head of Design
Blogs
6
min

Career Pathing 101: What It Is and Why It Matters

Read more
Blogs
6
min

25 Must-Ask Employee Engagement Survey Questions

Read more
Blogs
5
min

Upward feedback: How to ask for and act on it

Read more

Like what you see?

Consider joining our email community of 7,000+ HR professionals!
Be the first to hear about our educational content sprinkled with a little bit of entertainment. We NEVER pitch slap, and we DON’T spam. 

Heading

By 
This is some text inside of a div block.
Published on 
This is some text inside of a div block.
This is some text inside of a div block.

About Author

This is some text inside of a div block.
Linkedin
This is some text inside of a div block.
This is some text inside of a div block.

Introducing GenAI for Performance Management (Coming Soon)

We are building AI models that can help save your organization save a tonne of time and make performance enablement a lot easier.