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How to Measure Performance Management Effectiveness and Efficiency

It is not an easy task to measure performance management system effectiveness. There are various aspects to consider when evaluating the performance management process.

Human resources should focus on measuring employee performance as well as managing performance, the efficiency of the manager-employee relationships, if the performance goals are being achieved or the levels of employee engagement and satisfaction.

It is a task more complex you might initially assume. Therefore, it is important to dedicate the necessary time and resources to make sure your evaluation is going to help you evaluate the current situation, identify the areas necessary to focus on to improve the performance of your business and develop an adequate strategy to reach those goals.


5 Tips to Measure the Effectiveness of Performance Management System

tips to measure performance management effectiveness

1. Benchmark best performance management system practices

Research the best practices and appropriate measures to inform yourself what success looks like in performance management in general and your industry. It is important to dedicate time to research to understand what success looks like.

Examine success stories of companies similar to yours, explore and analyze the current performance management trends to provide yourself with a comprehensive understanding of the best practices.


2. Define organizational goals and objectives

What is it that your company attempts to achieve? Are you trying to improve organizational performance or individual performance? Or are you focusing on increasing employee motivation and engagement?

In order to make the plan effective it is important it is specific, measurable, achievable, relevant and timely. To find out more about how to set such a SMART goal read our essential guide for SMART goals.


3. Establish Your Success Measures

Once you have established your goals you need to define measures to identify if your objectives were met. Some of the usual measures of performance management effectiveness include:

  • Increase or decrease in profitability

At the end of the day increasing profitability and growing revenues is the aim of every business.

  • Productivity rate

It is calculated as the total output of your employees divided by the hours worked.

  • Quality of personal goals and rate of their achievement

Assessing the quality of goals; how SMART are they, and whether or not are they aligned with the wider organizational objectives.

  • The response rate of employees and managers to performance management activities

What is the response rate to the employee performance reviews? How many of your employees successfully set their goals? Does management provide constructive ongoing feedback?

  • Employee engagement survey results

Evaluating and measuring the levels of employee engagement will provide you with an ample understanding of the effectiveness of your performance management process.

  • Performance review results

If there is a significant number of negative performance reviews and underperforming employees it is a sign that there is something wrong with your performance management system.

  • Employee turnover rates

It is the number or the percentage of the employees that leave your organization and need to be replaced. The rate can help you evaluate the cost to hire for budgeting purposes and highlight issues with management.

  • Employee satisfaction index

It is based on three questions;

  1. How satisfied are your employees with their current workplace?
  2. How well does their current workplace meet their expectations?
  3. How close is the current workplace to their ideal one?

The employee rates each of the questions on a scale of 1 to 10 (one being the lowest score and 10 the best one). The Employee Satisfaction index is then calculated as ES= ((question mean value ÷ 3) – 1) ÷9*100


4. Evaluate the Results

Based on the baseline you calculated and the benchmark you can justify if you are satisfied with the performance or not. It is important to frequently build reports.

Remember to acknowledge and celebrate success. Even if you are satisfied with your performance it is important to track and assess the progress on a regular basis. Performance management is a process that should be continuously measured and adjusted to meet the everchanging needs of your employees and business.


5. Take Action on the Results

Develop a strategy and set new goals on how to improve the deficient performance or problems in your performance management process. Make sure to make the new goals specific, measurable, achievable, relevant and with a clear timeline.


However, we are aware that implementing change in your organization can be challenging. Hence, we have created a guide to help you implement change in your organization.

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