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Performance management and employee engagement have traditionally been two separate facets of HR's role. But, in order to get the most from their people, organisations should look at aligning the two.
It's well understood that there's a strong link between employee engagement and overall business performance. While there is a clear correlation between the two, bringing performance management and engagement into alignment requires careful balancing by HR departments. These two activities grew out of quite different parts of HR:
- The CIPD defines performance management as ‘the activity and set of processes that aim to maintain and improve employee performance in line with an organisation's objectives’.
- Although there are many concepts of employee engagement, it typically focuses on listening and feedback. According to Gallup (2004), employee engagement isn’t binary. There are actually three classifications; engaged, not engaged, and actively disengaged.
Processes that focus only on engagement and that aren't linked to performance management may not serve the organisation's best interests. It's only by bringing the two concepts together that HR can create programmes that lead to happiness and success at work. When companies help people to develop their skills and recognise them for great performance, engagement increases.
A balanced approach
The combined approach can be very powerful. A £7 billion integrated global health company that took part in Harvard Business Review Analytic Services research has tied engagement to metrics including patient satisfaction scores, quality scores, patient safety, readmissions, and even hospital revenue. It found a strong correlation between near-miss safety incidents and low employee engagement, too.
Likewise, a 7,000-person software company with offices in the US, India, the Philippines and Spain has demonstrated a positive correlation of +0.97 between engagement and the company's stock price. A correlation of +1.0 is a perfect correlation, meaning that the variables in question, in this case engagement and stock price, move together in the same direction and by the same percentage.
Finally, the research found that those respondents who agree with the statement "We do a good job linking employee performance/engagement to business outcomes," outperformed the rest of the respondents on a variety of business metrics, from revenue growth, quality, customer satisfaction, productivity to profitability, and more.
Of course, ensuring that performance management and employee engagement work in partnership isn't easy. The two disciplines have evolved in their own silo, which means they are likely to use separate systems, rely on disparate data, and have different people managing them.
Bringing the two together requires a new approach. Having integrated systems and processes is the ideal, but the reality is that most organisations still operate with engagement and performance management in those silos.
The role of line managers
The manager's role in an integrated approach is critical. The key is for companies to equip managers with the skills and mind-set to manage performance in this new, unified and agile way, and offer managers training to focus on development and coaching. Discussing engagement scores frequently at management meetings, with a focus on conversations and taking action, needs to become commonplace.
Effective performance management that also increases engagement requires the right data and tools in addition to training. Without access to the right data, managers will struggle to take effective action.
Finally, by providing them with access to the data and the tools they need, managers can have much more meaningful employee conversations about priorities, goals, and growth.
By viewing performance management and engagement in this way, organisations can reap the benefits of both happy employees and productivity gains.