How to measure employee performance

Are you a new manager or leader overseeing a team? What an exciting role to be in!

Measuring employee performance is an essential part of managing and leading a team. There’s a reason why performance management has been around as long as it has – it helps you understand how well your team members are performing, identify areas they can improve on, and enable you to make more informed decisions about promotions, bonuses, and other forms of recognition.

With so many performance metrics and methods out there, it can get very overwhelming to determine what the best way to evaluate employee performance is. But fret not — we’re here to help.

Let’s explore the most effective ways to measure employee performance and share some tips on the available tools and techniques you can use.

What is employee performance?

Employee performance refers to how well an individual employee is able to perform their role and achieve job-related goals and objectives. It encompasses a wide range of factors, such as productivity, quality of work, attendance, punctuality, teamwork, and adherence to company policies and procedures.

Employee performance can be evaluated using a variety of methods, such as:

• Quantitative metrics (sales figures, number of customer complaints, number of errors made etc);
• Qualitative measures (feedback from supervisors, managers, and peers);
• Self-evaluation (employees assess their own performance); and
• 360-degree evaluations (where an employee’s performance is evaluated by a variety of stakeholders, such as supervisors, peers, and direct reports).

It’s important to remember that employee performance isn’t just about achieving measurable outcomes — such as hitting sales targets or meeting deadlines. It also includes other aspects like their communication skills, attitude, behaviour, and how well they interact with other colleagues.

In essence, employee performance is a comprehensive evaluation of how well an employee is able to perform their job, and contribute to the success of the organisation.

Why should leaders be measuring employee performance?

1. To help employees improve

A team that doesn’t reflect, doesn’t grow. By measuring employee performance, leaders can identify areas where team members are struggling and provide them with the support they need to improve. This might involve training programs, coaching, or mentoring resources that you can direct them to.

Employees are your biggest asset — you’ll want to invest in them and develop their potential to the fullest to ensure innovation, creativity, growth and transformation.

2. To facilitate fair and consistent evaluations

Fair and consistent evaluations of team members are extremely important when making decisions about promotions, bonuses, and other forms of recognition. It allows managers to make more informed decisions, such as whether to retain, promote or restructure employees.

3. To improve employee engagement and motivation

When leaders provide regular feedback through employee performance reviews, they are more likely to feel engaged and motivated to achieve their goals. This can lead to increased productivity, improved job satisfaction, and reduced turnover.

Studies have shown that four out of five employees appreciate both positive and negative feedback, with 40% of respondents that experience little or no feedback identifying as actively disengaged. Companies that implement regular feedback also experience 14.9% lower turnover rates.

When employees have a clear understanding of how their performance is measured and how it impacts their compensation and career advancement, they will likely be more motivated to improve their performance.

4. To achieve better business results

Leaders can better understand how well their team members are contributing to the organisation’s overall performance through performance evaluations. By focusing on key metrics and making data-driven decisions, leaders can identify areas for improvement and make the necessary changes that can result in better business outcomes.

5. To develop succession planning

Through employee performance evaluations, leaders will be able to identify high performing employees and plan for future workforce needs to ensure the smooth continuity of business operations. By having a pool of potential candidates ready to take on new roles within the organisation, you’re prepping the business for continual growth and expansion while ensuring employee development.

6. To facilitate open communication

Performance evaluations provide an opportunity for employees to discuss their goals and accomplishments with their managers regularly. That encourages more open and honest conversations, and also helps to create a transparent culture of communication across the business.

What are some common employee performance metrics?

Employee performance metrics will differ for certain types of roles and industries, so you need to determine which ones will work best for your employees.

It’s impossible (and also unfair) to use just one single metric to evaluate an employee’s performance — so the key is to combine both qualitative and quantitative metrics.

In general, you can split employee performance metrics into 3 core categories:

1. Work quality metrics;
2. Work quantity metrics; and
3. Work efficiency metrics.

Work quality metrics

Having a high output of work doesn’t necessarily translate to quality work. Just because your employee is spending lots of time in office, or finishing their projects by the deadline, doesn’t mean they’re a star performer. You need to be measuring their performance based on the work done and the results achieved.

In most companies this is done through performance reviews by the direct manager, where employees are assessed on several criteria but primarily on the quality of their work. However, if you’re still using the outdated method of conducting annual performance appraisals, it’s time to switch things up and provide consistent feedback instead.

Another metric used to measure the quality of work is the number of errors made. For example, in software development teams even the smallest error can stop the entire program from working and impact the business greatly. Or numerical errors in an accounting team could also lead to huge consequences.

Work quantity metrics

There are many ways to measure the quantity of work an employee has produced, and this varies from industry to industry. In short, it’s essentially key performance indicators (KPIs) that are linked directly to an employee’s role.

It could be the number of units produced, number of tasks completed, or amount of work done in a given time period. For example, for the development department it could be the number of lines of code written per day. For the customer service department it could be the number of calls handled per hour. For the sales department it could be the volume of sales made in a month.

These numeric KPIs serve as a benchmark for you to gauge an employee’s quantity of work. It shows how productive they are, and whether they are performing at the level they are expected to.

Work efficiency metrics

These measure how effectively an employee uses their time and resources to complete their work. For example, the number of process steps required to complete a task, or the amount of time required to complete a task or project.

The key difference between productivity and efficiency is that when you are measuring productivity, you are measuring the amount of hours taken to deliver a high output of work. Efficiency on the other hand, is measuring the ability to produce valuable work in the least amount of time.

Techniques for assessing employee performance

1. 360-degree feedback

What exactly does 360-degree feedback mean? As the name suggests, it entails compiling the different perspectives of numerous people that an employee works with.

360-degree feedback doesn’t just include the traditional top-down manager-to-employee feedback, it also includes feedback from direct reports and peers. Organisations differ in the way they compile it, but overall it’s aimed at giving employees a more holistic view of their performance and professional development.

It’s becoming increasingly popular in recent years — an estimated 85% of Fortune 500 companies now incorporate 360-degree feedback as part of how they measure employee performance.

If you’re keen to find out more about how to effectively conduct a 360-feedback review, check out our guide here. And don’t worry about the execution — it may sound like it requires a lot of admin and paperwork, but you can utilise performance management software like Employment Hero to make it easy and fuss-free.

By leveraging automation, you can easily request and receive feedback from employees across the business, set performance metrics for the employee to be graded against, and choose the specific criteria you want to check – such as leadership, teamwork or communication. You can choose to include self-reviews, choose who to add as peer reviewers, and customise the questions involved. You can even send out reminders to people to complete a review!

2. OKRs

OKRs stand for Objectives and Key Results — and they’re a favourite here at Employment Hero as well. They are created both top-down and bottom-up, and give employees the opportunity to have a say in how they will help to achieve the company OKRs. They are also designed to be publicly seen and set for everyone inside the business.

One important thing to note is that OKRs and KPIs are different even though they both measure performance and success within a business. KPIs are quantifiable goals, tangible outcomes with measurable results. OKRs on the other hand, are qualitative goals designed to help you achieve a bold, ambitious mission rather than a specific tangible outcome.

Find out everything you need to know about OKRs here.

3. 1:1 meetings

We’ve mentioned previously about how important it is for managers to give employees frequent feedback, and that’s where 1:1 meetings come in.

An annual performance evaluation is often more susceptible to recency bias, which is the tendency to focus on the most recent time period instead of the total time period. This happens because it’s always easier to remember things that happened recently rather than a few months ago.

Regular 1:1 meetings circumvent this because it provides managers with the opportunity to check on an employee’s progress regularly. Having a dedicated time in your calendar allows you to connect and communicate with your direct reports about their performance, priorities, challenges, and individual goals.

It also helps to set clear expectations, and identify action items or tasks that contribute towards that employee’s objectives, OKRs, and KPIs. 1:1 meetings also provide a safe space for managers to provide constructive feedback on an employee’s overall performance and areas for improvement.

4. Progressive performance reviews

Notice we mention ‘progressive’ and not ‘annual’?

Annual reviews are a traditional method of performance evaluation, but problems can arise when it’s the only feedback employees get. Rather than purely relying on annual reviews, consider implementing quarterly reviews instead. Companies like Adobe have done so, ditching traditional annual performance reviews in favour of a quarterly check-in model.

It enables frequent feedback and discussions, and more importantly, creates more opportunities for timely recognition of wins and high performance. You wouldn’t want to be giving delayed recognition to an employee for a successful project completed in Q1 only at the end of the year, would you?

Annual reviews in isolation tend to create stress and anxiety for employees — because it places more pressure on them to work harder and exceed expectations in the months leading up to it. Rather than making performance reviews a lengthy process that fills employees with dread, scrap long questions with essay-like responses in favour of quarterly reviews with shorter, straightforward questions instead.

If you need a helping hand — we’ve created these performance review templates for managers, to help guide conversations with your direct reports.

How can managers and leaders measure their own performance?

Now that you know how to better measure employee performance, you might be wondering — how do I measure my own performance?

1. Identify your SMART benchmarks

As a manager and leader, you have your own OKRs and KPIs to accomplish — which are specific, measurable, achievable, realistic, and time-bound (SMART). These act as good benchmarks in measuring your performance, be it achieving organisational objectives or getting new talents, clients, and business partnerships on board.

2. Gather employee feedback

Good leaders are best represented by employees who work for them, so getting their feedback is an effective way to evaluate your own performance as a leader. Consider asking them to complete a survey with guided and open-ended questions, or initiate an honest and open conversation during 1:1 meetings.

Your employees know you best since you work so closely with them, and your words, actions and decisions impact them greatly. Ask them questions about your ability to delegate responsibilities effectively, resolve their challenges, guide the team through a crisis, satisfaction levels with your communication and management style, and more.

Through their responses, you’ll gain valuable insight on how your team perceives you and how you can improve further as a leader.

3. Embrace peer reviews

Another great source of feedback would be your peers and fellow leaders. As experienced managers and executives themselves, they will be able to offer a different perspective and rate your abilities as a leader in aspects like communication, stakeholder management, strategic thinking and more.

4. Analyse overall team performance

Looking at how well your team performs under your leadership is also a key indicator of your own performance. Are your employees productive and producing quality work? Are they motivated and engaged or constantly absent and disengaged? Do they work well together and complete projects on time? Is the turnover rate in your team high?

All these factors will indicate how effective you are as a manager and leader.

5. Use leadership assessment tools

There are many leadership assessment tools available that can help you identify your leadership capabilities and strengths. They also enable you to figure out how you’d best fit in your role and in the organisation.

Tools like DISC, Myers-Briggs Type Indicator (MBTI), Gallup’s Strength Finder, Enneagram and more allow you to uncover your unique leadership style, assess your current performance, and identify a clear, actionable path to better leadership.

Effective performance management drives business success

If there’s one key takeaway from all of this, it’s that measuring employee performance shouldn’t be a one-off event done annually, but rather, an ongoing process that requires consistent effort. Regularly evaluating employee performance will be transformative to both you and other employees in the organisation.

By using all of the tools and techniques we’ve mentioned above, you can create a performance measurement system that is fair, effective, and beneficial for everyone.

Did you know Employment Hero has its own performance management system that streamlines measuring performance with automated performance reports? From 1:1 meetings to OKRs, 360-degree feedback and performance reviews, you can do everything all on one single platform. It’s incredibly fuss-free and convenient!

A successful performance review process will lead to more engaged employees, increase productivity and drive profitability in your business. Download our manager’s guide to performance reviews below to find out more.