Managing and measuring employee performance can be a source of struggle and debate for many organizations. Should employees receive a performance score? Who should provide employees with feedback and with what frequency?
One thing’s for sure: having an exceptional performance management cycle can have a lasting impact on employee engagement and company growth.
But how should companies measure their team’s performance? And what tools provide a holistic understanding of employee growth? In this article, we’ll explain why it’s necessary to review performance and go through ways of measuring employee performance. Lastly, we’ll share and discuss the success stories of three well-known companies.
Table of Contents
Why measure employee performance
Before discussing performance evaluation strategies, let’s go over some of the reasons why measuring employee performance is needed in the first place. More often than not, both managers and employees dread performance reviews. In fact, many argue that performance reviews are part of an archaic model that is no longer needed nor relevant in today’s working reality. However, there is evidence that suggests otherwise.
Over 87% of Facebook employees indicated that they prefer to keep performance reviews, according to a recent Harvard Business Review report. The reasons why?
By providing employees with feedback about their performance, employers can promote fairness, transparency, and development. Without performance reviews, employers still need to make choices regarding their employees and they need to use the information to back up their decisions. As a result, employers rate and evaluate employees behind closed doors, without their participation or input.
Although performance appraisals alone might not be a sufficient representation of how much effort that employees put forth, they do open the door to conversation and dialogue. And this dialogue is even more effective when it occurs continually.
5 ways of measuring employee performance
Let’s begin by pointing out that there is no one “right way” of evaluating and managing employee performance. The truth is, many businesses adopt several models. After all, the more information and data available, the better off you are.
Here are some different tactics that many businesses implement to have a well-rounded understanding of their team’s efforts.
Use a 9-box grid
A 9-box grid is a performance management tool that allows employers to consider and evaluate employee performance and potential. Essentially, it is a 3×3 square chart (9 boxes total) with the x-axis representing potential and the y-axis representing performance. During evaluations, employees receive a numerical score for their potential and performance. Then, managers plot these scores onto the 9-box grid.
Afterward, employers look into the specific archetypes that define employees based on their 9-box results. Those who receive both high performance and potential scores are star employees who often advance up the career ladder fairly quickly. Whereas those who have high performance but low potential are so-called workhorses that might be well-placed in their current position.
9-box charts are an excellent way for employers to make sure that employees are a good fit for their given roles. And, they can be especially effective when used in tandem with career pathing tools, like Factorial’s OKR software, to ensure that employees are fulfilling their long-term professional development objectives.
360-degree feedback
360-degree feedback is a way of measuring employee performance in which an employee’s manager, peers, direct reports, and customers provide feedback. This is not to be confused with 180-degree feedback, in which only an employee’s manager and colleagues are part of the process.
Having more participation provides employers with a wider range of information and a more comprehensive understanding of the employee’s performance, skill sets, and areas of improvement. Some employers choose to use a 360-degree excel template to organize, score, and keep track of questions. An even better and more reliable option is to manage 360 feedback with performance management software.
NPS
An NPS or “Net Promoter Score” is an HR metric that reflects a customer’s satisfaction, and loyalty. And, depending on the employee’s role, it can also be an indicator of performance. To determine an NPS, customers provide a number between 1-10 on how likely they are to recommend the company’s product or services to other potential clients.
Frequently, this score is taken into consideration when evaluating employees working in customer service or sales. It’s not necessarily a stand-alone implication of strong or weak performance. Rather, it’s more of a metric that allows employers to understand how employees interact beyond the office walls.
Absenteeism rate
Another metric that employers will want to take into account when evaluating employee performance is their absenteeism rate. While it’s not the sole indicator of performance quality, high employee absenteeism is a definite cause for concern. Often, it means that employees are struggling with their responsibilities. As a result, they might be experiencing burnout, excessive stress, and illness due to a high workload.
It’s best to look at employee absenteeism in conjunction with other performance indicators. For example, if an employee is frequently absent and is regularly experiencing communication problems with clients and colleagues, it might be a red flag worth investigating. They might feel overwhelmed or struggle with prioritization and time management.
Management by objectives
Last but not least, we have management by objectives (MOB). Essentially, MBO is a way of measuring employee performance based on their ability to achieve goals. Under this model, employees play an active role in setting individual objectives and timeframes, based on the company’s overarching strategic vision. Many employers implement management by objectives in order to boost engagement levels and productivity.
This model can be potentially effective for teams, and increase feelings of collaboration and involvement. However, note that it’s a management structure that requires a high level of trust, communication, and psychological safety. Otherwise, employees might develop unhealthy work habits and the environment can become toxic. While being goal-focused is a definite asset, it’s important to simultaneously prioritize company cultural values and work-life balance.
Examples
Now that we’ve gone through some of the best ways of measuring employee performance, let’s take a look at how Netflix, General Electrics (GE), and Adobe manage performance.
Netflix
Every spring, Netflix uses 360 review techniques to have an ample understanding of employee performance. During yearly reviews, Netflix encourages their employees to reflect and provide honest feedback to their colleagues, supervisors, and direct reports. Employees can discuss anything that they want about anyone in the company, whether they be working in an entry-level or executive role.
Although there is no set structure for these reviews, the company suggests that employees provide feedback using a “start, stop, continue” template. This helps reviewers to organize their thoughts and provides reviewees with clear information about what they should start doing, stop doing, and continue doing.
General Electrics (GE)
In the past, General Electrics used a forced ranking system in which employees were evaluated annually and given a score based on their performance. Those who had a performance score in the bottom tenth percentile of the company were either denied promotion or terminated from their position.
In 2016, General Electrics decided to do away with this model and replaced rigid performance scores with continuous employee feedback and coaching. Overall, this transition has paid off and has helped GE to build a more communicative and people-focused company culture.
Adobe
Like General Electrics, Adobe previously managed performance through a forced ranking system and cast employees into four categories based on their performance scores: high performer, strong performer, solid performer, and low performer. Under this system, there were quotas that limited how many employees could qualify as high performers.
Needless to say, this “rank and yank” system caused many cultural problems, undue stress for management, and excessive voluntary turnover.
Once they realized that quotas and forced ranking evaluations were causing damage, Adobe decided to do away with them entirely. Instead, they opted to replace their scoring system with more informal and frequent check-ins. In these sessions, managers review employee contributions, reward accomplishments, and provide and receive feedback. Through their efforts, Adobe has managed to reduce voluntary attrition by 30%.
Conclusion
Measuring employee performance effectively can help to create a healthy work environment and boost retention rates. To sum up, here are some key takeaways from everything we’ve covered:
- Performance appraisals can promote transparency and fairness within an organization. Regular feedback allows employees to voice their concerns, ideas, and opinions.
- Continual performance feedback works best. Rather than just sticking to traditional annual performance reviews, it’s better to have regular check-in sessions and surveys.
- Using a variety of performance review methods often yields the best results. 360-degree feedback will give you a more complete picture of employee progress and how team members are functioning in your organization.
- It’s important to find the right tools to measure and track employee performance. While templates can be helpful, the best way to organize feedback, generate templates, and distribute reviews is with performance management software.
When it comes to performance reviews, finding the right software is key. With Factorial’s all-in-one solution, you can generate 360-degree feedback, automate review requests, define and track OKRs, and more. Get started with Factorial today.
