The 5 stages of a performance management cycle you should know

Highly-productive employees share several core similarities: 

1. They report feeling recognized for their performance
2. They’re encouraged to develop further professionally
3. They’re fully aware of what’s expected of them
4. They’re also aware of how they’re meeting those expectations

What else do all of those factors have in common?

They’re the core elements of an effective performance management cycle. 

But what exactly is a performance management cycle and what does it involve? How does it help maximize performance within a business? And how can HR teams implement the five key stages to create a powerful lift in employee performance? 

Those are exactly the questions we’ll answer in this guide.

What is a performance management cycle?

Before we dive into the stages that make up an effective performance management program, let’s go over what a performance management cycle truly is—or should be. 

There is still a rift between the “old” way and the “new” way with which HR teams and managers approach performance management. 

On the one hand, there is the traditional process, where reviewing and managing performance happens once yearly and revolves around a singular, annual review.

On the other hand, there is the more modern approach, which is an always-on performance management process built on annual reviews plus frequent milestone reviews (and usually leverages nimble performance management software). 

A great performance management cycle should be an iterative, ongoing process of employee evaluation. This approach creates a positive work environment—one where open, regular communication and goal-setting boosts morale and motivation to grow—all of which are the biggest factors impacting retention. 

Why does that matter?

It can cost up to two times an employee’s salary to replace them if they quit to go find another job.

Creating a better performance management process does require more input as well as access to connected data, but new tech is now making it easier than ever to make this happen.

Let’s take a look at the five performance management stages.

The 5 stages of a performance management cycle

There are five stages to any performance management cycle. Let’s break down each stage and understand what’s most important to focus on in each stage.

Planning

Each performance management cycle should start with managers and employees aligning on performance expectations, performance goals, and key performance indicators (KPIs). This is crucial for ensuring that employees understand the criteria they will be held to in their eventual performance review.

This is also a perfect time to encourage personal employee goals—such as learning new skills, developing competencies, or taking on additional projects—and ideally aligning them with company goals.

These types of goals can keep employees motivated throughout the cycle and may give managers insight into how to coach their direct reports toward achieving more than just their basic job requirements.

Monitoring

Once performance expectations are established in the planning phase, it’s time to move on to implementation. As employees start working towards their goals, managers should actively track their progress.

Monitoring is core to how management teams execute the performance management cycle. At this step, continually observing and providing feedback allows managers to address suboptimal performance on an ongoing basis as well as recognizing overperformance.

A helpful tool for monitoring progress are weekly one-on-one meetings, which give employees and management a chance to align on progress, share feedback, and work through roadblocks.  

It’s important that managers focus on coaching and supporting goal achievement during these meetings instead of micromanaging day-to-day tasks. 

Developing

Development goes hand-in-hand with monitoring. That’s why you’ll sometimes see “monitoring” and “developing” grouped together.

It’s important to note that development doesn’t just mean acting on underperformance, you can also zero in on overperformance to boost it even further. 

At this phase, it’s the responsibility of managers to implement creative development opportunities that meet the employee where they are and to take them toward the goals they want to achieve.

Development programs may include:

• Skills gap analyses
• Upskilling/reskilling courses 
• Peer-to-peer coaching
• Matching with an internal mentor
• Team challenges that gamify performance improvement
• Knowledge-sharing activities (hackathons, lunch and learns, etc.)

Rating

Next comes the evaluation and scoring of an employee's performance. Transparent communication between the planning and rating stages will minimize surprises when it comes time for ratings. 

This is an opportunity to address any areas of underperformance while also recognizing and rewarding (more on that next) standout talent.

One critical aspect for HR leaders and managers to consider during this phase is unconscious biases, which can be caused by:

• How similar or different demographically the person being reviewed is
• How the current person compares to the last person they reviewed 
• How the person performed in the last cycle  
• Your first impression of the person on review
• A sense of sympathy for the person

Bias can influence performance reviews, especially when a manager is solely responsible for rating an employee's overall performance. To reduce bias and create a fairer performance appraisal, many organizations adopt 360-degree feedback. This incorporates peer reviews to provide a broad and diverse perspective of performance.

Rewarding

Regularly recognizing hard work isn't just a gesture, it's a key final step in this cycle.

Recognition boosts motivation, employee engagement, productivity, and loyalty. Yet, only one-third of employees feel their work is currently being recognized.

Here are some ways to celebrate employees' accomplishments:

• Host an awards ceremony to provide public recognition 
• Build a peer-to-peer recognition program
• Offer personalized gifts related to hobbies, favorite foods, etc.
• Gift a VIP parking spot for a month
• Offer access to personal development programs
• Extend additional paid time off
• Offer compensation in the form of stock options, a bonus, or a raise
• Grant a promotion

Tiering your approach to provide rewards commensurate with improvements or achievements can make this phase of the cycle even more impactful. 

Key roles in the performance management cycle

There are 3 key roles that are involved in performance management. Let’s take a look at each role’s responsibilities and how they interact with each other.

HR Professionals

Ultimately, strategic HR teams should be the drivers of the cycle by overseeing and leading performance management at a high level.

Their core job is creating the structure, education, and support that make the cycle function effectively.

This involves: 

• Putting performance rating system into place
• Ensuring that managers and employees understand their roles and responsibilities throughout this process
• Setting dates and reminders for each step of the performance cycle process
• Training managers on using the performance rating system, giving actionable feedback, having productive conversations, and setting goals collaboratively
• Educating on biases to ensure consistent and equitable employee ratings and rewards 
• Remaining available for guidance

Managers

Managers are the boots-on-the-ground leaders who work with the performance cycles. Their buy-in and participation is key because it will trickle down to the employees and create a culture of always-on performance management.

This involves: 

• Collaborating with direct reports to set performance expectations and solidify goals
• Conducting regular check-ins to monitor progress, address obstacles, and provide coaching
• Gathering feedback to ensure a fair performance assessment and develop relevant, actionable next steps
• Finalizing and delivering employee ratings, rewards, and feedback
• Assisting in creating performance improvement plans (as needed) and continuing to monitor and support progress

Employees

Employees are primarily on the receiving end of the activities that take place in the performance management cycle. However, HR and management should also solicit feedback from employees in the form of 360-degree reviews as well as pulse surveys. This is vital to make sure that the performance management system is driving employee engagement.

In addition, there are several ways in which employees can participate in their own career development and contribute to improving the performance management process. 

This involves: 

• Working alongside managers to create performance objectives that align with their professional development plans where possible
• Regularly updating management on goal progress and requesting help on any hurdles affecting it 
• Maintaining their own record of professional achievements to ensure a fair and comprehensive review, rating, and reward at the end of the cycle

Performance management software

It’s no secret that HR teams are already stretched pretty thin and often under resourced. This has historically posed a barrier to  implementing continuous performance management cycles. But this is quickly changing.

Thanks to new HR software, HR leaders are able to now roll out smooth and collaborative performance management cycles. The key to this is being able to connect your data as well as all the various modules of your HR systems (HCM, HRIS, etc.).

With Rippling’s performance management software, HR teams can now align on goals, automate review cycles, calibrate consistent and fair ratings, manage shifting roles and compensation, and report on performance, all from one platform. And, when you have Rippling connected with the rest of your systems, employee performance is always easy to track across multiple modules. This means any new data can simply be pushed from one place and quickly populated everywhere.

Conclusion

Creating an effective performance management cycle can significantly impact organizational success in terms of productivity, retention, career growth, and overall business results.

Rippling is a best in class tool that strategic HR leaders can apply to help managers align expectations, monitor progress, foster employee development, conduct fair evaluations, and reward achievements in a way that creates a positive, motivated, and goals-driven team.

It’s time to spin up effective, lasting performance management cycles. Request a live demo or view a video tour of Rippling today.