- 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.
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.