Employee Performance Review

An employee performance review is a systematic process of measuring and analysing employee achievements and behaviours, which helps to determine their actual effectiveness. It is a key tool for HR departments (human resources management) and managers, enabling them to monitor progress towards company goals and identify areas requiring improvement.

How to effectively measure and increase productivity in your company?

According to McKinsey & Company research, companies that regularly conduct employee performance reviews report, on average, 17% higher productivity and 21% higher profitability compared to organisations that do not.

Types of work performance and their measurement

Work performance can be categorised in several ways, each requiring a different approach to assessment:

1. Quantitative Performance

Measures the output of work in relation to units produced or tasks completed within a specified time.

Example indicator: Number of customers served per hour of work.

2. Qualitative Performance

Assesses the accuracy, precision, and quality of an employee's work.

Example indicator: Percentage of tasks completed without needing corrections.

3. Cost Performance

Determines the ratio of financial outlay to results obtained.

Example indicator: Cost of acquiring one customer.

4. Time Performance

Analyses the time required to complete specific tasks.

Example indicator: Average project completion time.

Work performance indicators and how to calculate them

To effectively measure performance, it's worth using specific KPIs tailored to the organisation's needs:

How to calculate work performance?

The basic formula for work performance is to establish the output of one employee (e.g., products manufactured by an employee) within a specified unit of time.

Work Performance = Output (Result) / Work Input

Example indicators for various departments:

• Sales: Sales value / Number of working hours
• Customer service: Number of issues resolved / Number of working hours
• Production: Number of units produced / Number of man-hours
• Marketing: Number of leads generated / Marketing budget

It is important that key indicators are:

• Measurable
• Linked to company goals
• Trackable over time
• Understandable to employees

Methods and techniques for employee performance review:

There are many performance review methods that can be adapted to an organisation's needs. The approaches you can use include:

• Scaling method – comparing an employee's results with predetermined standards.
• Managerial review – a direct manager assesses performance based on observations and results.
• 360-degree feedback – gathering opinions from superiors, colleagues, subordinates, and customers.
• Goal-based review – verifying the degree of achievement of previously set goals.
• Self-assessment – the employee evaluates their own performance, which is later verified by their manager.
• Employee ranking – comparing the performance of all team members.

How to measure work performance improvement?

Measuring performance improvement requires a systematic approach:

1. Establish a baseline performance level – measure the current performance of a specific employee in key areas.
2. Set performance improvement goals – ensure they are realistic and measurable.
3. Monitor progress – implement regular checkpoints.
4. Compare results – contrast current measurements with the baseline level.
5. Provide feedback – regularly discuss results with employees.

To improve employee performance, monitoring and reviewing work performance should be conducted regularly, but not too frequently – employees need time to improve and implement new solutions. When assessing performance, it's also important to consider factors beyond employees' control and dependent on working conditions, tools used, etc.

The increase in work performance can be calculated using the formula:

Performance Increase = ((New Performance – Baseline Performance) / Baseline Performance) × 100

Employee performance reviews can bring many benefits, such as:

• Enables identification of an employee's strengths and weaknesses, allowing for the implementation of actions to help them improve their performance.
• Helps identify employee training needs and develop career progression plans.
• Enables assessment of the effectiveness of training programmes and other investments in employee development.
• Can serve as a basis for decisions regarding promotions, pay rises, or dismissals.
• Allows comparison of the performance of different employees to determine who best achieves organisational goals.
• From a business perspective, it facilitates overall organisational performance management.

At the same time, employee performance reviews can come with certain challenges, such as evaluator subjectivity, lack of clear criteria for assessing work results, or employee resistance to such a process. Therefore, it is important that performance reviews are conducted transparently, fairly, and based on clear criteria.

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When is it worthwhile to introduce work performance reviews in a company?

Systematic performance reviews are worth introducing when:

• The company employs over 50 people
• A noticeable decline in team productivity is observed
• It is difficult to identify the sources of operational problems
• Pay rises or promotions dependent on results are planned
• The company wants to increase competitiveness by optimising processes
• There is a need to structure feedback for employees

Benefits of implementing performance reviews

A systematic approach to performance review yields tangible benefits:

1. For the organisation:

• Increased overall productivity (average 14% according to Deloitte)
• Better resource allocation
• Increased innovation (22% according to Harvard Business Review)
• Increased profitability

1. For the HR department:

• Objective data for personnel decisions
• Identification of training needs
• Better matching of competencies to positions

1. For managers:

• Clear criteria for subordinate assessment
• Tools for team motivation
• Ability to quickly identify problems

1. For employees:

• Clear expectations
• Regular feedback on results
• Opportunity for development in specific areas

Challenges in performance review

Implementing a performance review system can encounter certain obstacles:

• Subjectivity of evaluators
• Difficulty in establishing adequate indicators for some positions
• Employee resistance to appraisal
• Lack of connection between overall employee performance and set goals
• Focus on short-term results at the expense of long-term strategy
• Failure to consider the impact of working conditions or environment on performance (e.g., available tools, implemented innovations)

Another problem in performance management can be the ambiguity or confusion between the concepts of productivity, efficiency, and quality of work.

What is the difference between quality, productivity, and efficiency of work?

These three concepts are often confused, yet they represent different aspects of employee evaluation:

Example: An employee might show high productivity (creates many reports in a short time) but low quality (reports contain errors) and average efficiency (some reports are not actually used).

For your company's business goals to be achievable, it is necessary to consider the efficiency, quality, and productivity indicators of each of your employees across the entire company.

It is also always worth remembering that the review process has a psychological impact on the entire team. It should motivate employees to work more effectively. If incorrectly introduced, it can lead to employees being more inclined to circumvent the system – e.g., they complete more tasks but lower their quality. Therefore, calculating productivity should always take into account the impact of measurement on other work indicators.

Summary

Employee performance review is a key element of modern human resources management. It not only allows for the identification of areas requiring improvement but also for strategic planning of organisational development. Companies that regularly and systematically review their employees' performance can expect increased productivity, innovation, and competitiveness in the market.

It is important to remember that the best results come from a balanced approach, considering both quantitative and qualitative aspects of work. A well-designed performance review system should serve not only the employer but also support the professional development of employees.