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How to Measure Employee Performance: Effective Tools and Techniques

HR & workforce management

Author

Lorelei Trisca

Published

July 22, 2024

Last Update

July 23, 2024

Table of Contents

Tools and techniques for measuring employee performance

Key metrics for measuring employee performance

Challenges in measuring employee performance

How do influential companies measure employee performance?

Streamline performance measurement with Deel Engage

Evaluating the quality of an employee’s work, identifying top and underperforming employees, and boosting employee productivity are essential aspects of performance management.

This guide will explore the most effective tools and techniques for measuring employee performance. Use the various actionable strategies and steps to enhance productivity, foster engagement, and drive overall organizational performance.

Tools and techniques for measuring employee performance

There are multiple methods to measure individual employees’ performance. We will examine the most effective ones below.

While it is not necessary to use all of these methods simultaneously, you can select the appropriate combination that aligns with organizational needs and is feasible, given your available resources.

Manager appraisals

Manager appraisals offer a structured way to evaluate employee performance and share constructive feedback. Appraisals with defined performance rating scales ensure consistency and objectivity in evaluations.

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Performance review form on Deel Engage

Organizations can use rating scales to ensure a structured and comprehensive evaluation process that provides clear and actionable feedback.

Here are a few examples of rating scales:

1-5 numeric scale: This scale assigns a numerical value to performance levels.

  1. Unsatisfactory
  2. Needs improvement
  3. Satisfactory
  4. Exceeds expectations
  5. Outstanding

1-5 descriptive scale: This scale uses descriptive labels to evaluate performance levels, providing clear descriptions for each level.

  1. Unsatisfactory: Performance fails to meet the minimum standards and requires significant improvement
  2. Needs improvement: Performance occasionally meets expectations but generally falls short and needs development
  3. Meets expectations: Performance consistently meets expectations and fulfills the standard requirements
  4. Exceeds expectations: Performance often surpasses the standard requirements and expectations
  5. Outstanding: Performance consistently surpasses expectations and is exemplary in all aspects

1-5 frequency scale: This scale measures how often a particular behavior or result is observed, helping gauge consistency and reliability.

  1. Never: The behavior or result is never observed
  2. Rarely: The behavior or result is seldom observed
  3. Sometimes: The behavior or result is observed occasionally
  4. Often: The behavior or result is observed frequently
  5. Always: The behavior or result is consistently observed without fail

To conduct effective appraisals:

  • Prepare thoroughly: Gather data from various sources like performance metrics, customer feedback, and project deliverables
  • Be objective: Use the defined rating scales to avoid personal biases and ensure fairness
  • Provide specific feedback: Highlight particular examples of strengths and areas for improvement to make feedback actionable
  • Set goals: Collaborate with key stakeholders to set realistic and achievable individual goals for the next review period, aligning them with overall organizational objectives

360-degree feedback

360-degree feedback measures individual performance and seeks feedback from multiple sources, including self-evaluation and feedback from supervisors, peers, direct reports, and sometimes external stakeholders.

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360 feedback summary on Deel Engage

Performance is measured by aggregating and analyzing feedback from all sources. Reviewers receive feedback forms or surveys where they rate the employee. Anonymizing the feedback can be used to encourage honesty and objectivity.

Complimentary resources

Competency-based performance appraisals

Competency-based performance appraisals involve measuring how well an employee:

  • Performs specific tasks
  • Shows skills
  • Demonstrates behaviors that serve the mission of their role

This method is resource-intensive, especially during the preparation and set-up phase. You need to:

  • Define the competencies to measure (core, functional, technical, and managerial competencies)
  • Identify the behaviors that demonstrate them
  • Decide on expected levels of competency mastery for all roles and levels in the organization

Consult our in-depth tutorials and free templates:

Example: In a competency-based appraisal, a project manager is evaluated on competencies such as project planning, risk management, and team leadership. The appraisal examines, among other things, how effectively the manager identifies potential risks and develops mitigation strategies. Feedback from team members might highlight the manager’s ability to lead the team through challenging projects, providing a comprehensive view of their performance.

Free template

Unlock employee potential with competency-based performance reviews
Start giving your employees tailored feedback and development opportunities to achieve their full potential. Enhance your performance management process today.

Management by objectives

Management by objectives (MBO) is a strategic management model aiming to improve an organization’s performance by clearly defining objectives agreed upon by management and employees. It helps teams focus on achievable goals and work collaboratively toward them through a series of organized steps

The MBO process generally involves the following steps:

  • Setting objectives: Management works with employees to outline clear, achievable goals
  • Developing action plans: Together, they determine the course of action needed to reach these goals
  • Continual monitoring: Managers regularly check on progress, making sure everyone’s on track
  • Performance evaluation: Managers assess the results against the set objectives
  • Providing feedback: Managers recognize achievements and suggest improvements to support employee development
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Creating a new goal on Deel Engage

Performance in the MBO model is measured by comparing the actual results against the predefined objectives.

Example: If the objective is to increase sales revenue by 20% in the next quarter, the performance evaluation will involve reviewing the sales figures at the end of the quarter. The key performance indicators (KPIs) might include:

  • The total revenue generated
  • The success of the marketing campaign
  • Improvements in the sales team’s conversion rates

The MBO approach involves both performance measurement and management. This means monitoring performance—gathering quantitative data—and taking action to help employees improve performance and foster continuous learning.

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OKR performance management

OKR performance management is a framework for setting and tracking progress toward business objectives.

OKR stands for objectives and key results. It’s a goal-setting framework designed to set and track progress toward business objectives:

  • Objectives: High-level, qualitative benchmarks define what companies want to achieve—they’re aspirational and motivating and should align with the organization’s vision and strategic goals
  • Key results: A set of metrics measure progress and success toward these objectives—they should be quantifiable and achievable, lead to objective grading, and act as milestones or specific results companies want to achieve as part of an objective

This method ensures performance evaluations are objective, data-driven, and aligned with the broader organizational goals. It also drives engagement by connecting employees’ daily activities to the company’s strategic vision.

Example: If an employee’s objective is to enhance customer satisfaction, reviewers will evaluate their performance based on how effectively they meet the key results, such as increasing net promoter scores (NPS) or reducing response times.

Continuous performance monitoring

Continuous performance monitoring involves a more dynamic and responsive approach, using real-time metrics and analytics via performance management software and regular one-on-one meetings.

Performance management software has revolutionized performance tracking, allowing companies to collect and analyze real-time data on various performance indicators.

Using HR analytics, for example, managers can gain valuable insights into team members, quickly identifying trends and areas for improvement.

Some benefits include:

  • Immediate feedback: Real-time metrics enable immediate feedback, helping workers understand their performance on a day-to-day basis
  • Data-driven decisions: Analytics provide objective data that can guide managerial decisions, from training needs to recognizing high performers
  • Proactive management: Continuous data collection helps in identifying potential issues before they become problematic so that managers can make timely interventions

“Performance data is the center of everything. More important than attrition. More important than engagement. It is the most important thing you can collect in HR analytics because the rest of your data tells you very little without it. [...] We need to understand where and why great work is happening.”—Jessica Zwaan, Chief Operating Officer at Talentful.

Balanced scorecard

An employee scorecard is a management tool used to monitor employee performance. It outlines every individual’s role and contribution to the company’s goals, helping individuals plan, prioritize, and improve their performance.

Performance is measured using specific metrics and KPIs that align with the company’s strategic objectives. These metrics could include financial performance, customer satisfaction, internal process efficiency, and learning and growth targets.

Example: A salesperson has a balanced scorecard with KPIs such as quarterly sales targets, customer retention rates, and new client acquisition. Tracking these metrics lets the employee see how well they meet their goals.

Key metrics for measuring employee performance

Once you have selected a method for collecting and measuring employee performance data, the next step is defining performance metrics. At this step, you need to answer the question: What makes a worker an effective contributor in a specific role, level, team, or department?

We will review a few core employee performance metrics that can significantly benefit any organization.

Productivity metrics

Productivity measures employees' efficiency in completing tasks and contributing to organizational goals. High productivity indicates effective time management and task prioritization, directly impacting the company’s bottom line.

Example: The number of projects an employee completes within a set timeframe—an employee completes five client reports weekly.

How to measure productivity: Continuous performance monitoring is best suited for measuring productivity. Continuously track task completion rates, project deadlines, and output quality using real-time metrics and analytics, allowing for timely adjustments and feedback.

Quality of work metrics

Quality of work assesses the accuracy, thoroughness, and competence demonstrated in an employee’s output. High-quality work ensures tasks are completed to a high standard, reducing the need for rework and maintaining customer satisfaction.

Example: The error rate in a data entry task—an employee maintaining a 99% accuracy rate in entered data over a month.

How to measure work quality: Manager appraisals are effective for evaluating the quality of work. Managers can provide detailed assessments of an employee’s accuracy and thoroughness, supplemented by specific examples and areas for improvement.

Attendance and punctuality

Attendance and punctuality track how reliably employees show up for work and meet their scheduled hours. Consistent attendance and punctuality are essential for maintaining team productivity and meeting organizational deadlines.

In many roles, deadlines are vital for good business and happy clients. Use deadline success rates to express the importance of staying on schedule for employees who procrastinate or fall behind.

Additionally, a point system can track overall attendance performance based on tardiness, absences, and no-shows to quantify reliability.

Example: An employee maintains a 98% attendance rate and consistently arrives on time for scheduled shifts over a quarter. A simple success rate or +/- of days early or late on projects will show who is good at time management and could use extra support.

How to measure attendance and punctuality: Continuous performance monitoring is ideal for tracking attendance and punctuality. Using automated time-tracking systems, gather real-time data on attendance records and punctuality, enabling prompt identification and addressing of any issues.

Initiative and proactiveness

Initiative and proactiveness measure an employee’s ability to identify opportunities for improvement, take on new responsibilities, and solve problems independently. Employees who show initiative contribute to innovation and drive continuous improvement within the organization.

Example: The number of new projects or improvement initiatives an employee proposes and starts each quarter can be a measurable metric for initiative and proactiveness.

How to measure initiative and proactiveness: 360-degree feedback effectively evaluates initiative and proactiveness. Gathering input from peers, managers, and subordinates can give a comprehensive view of how often and effectively an employee takes the initiative and acts proactively within the team.

Team collaboration

Team collaboration is a performance metric that measures an employee’s ability to work effectively with others, contribute to group objectives, and foster a cooperative work environment. It is generally a core competency in most organizations.

Consult our guide to identify and use core competencies to create competency models.

Measuring teamwork and communication can be challenging. Assessing competencies is not as straightforward as evaluating goal completion or punctuality. Competency assessments leave more space for rater bias to creep into the reviews.

Example: A measurable metric for collaboration and teamwork could be the number of successful team projects an employee contributes to each quarter, such as actively participating in three major team projects.

How to measure team collaboration: 360-degree feedback is well-suited for evaluating collaboration and teamwork. Collecting feedback from peers, managers, and subordinates can give you a comprehensive view of an employee’s ability to work effectively within a team.

Challenges in measuring employee performance

Examining how people are doing in their roles comes with its own set of challenges. People managers need to navigate these challenges to keep assessments accurate and fair. Here are some common challenges and ways to address them.

Addressing subjectivity and bias

Challenge: Subjectivity and bias can distort performance evaluations, leading to unfair assessments and affecting employee morale.

Solution:

  • Implement standardized metrics: Use objective performance metrics and rating scales to minimize subjectivity
  • Train evaluators: Provide training for managers on unconscious bias and fair evaluation practices
  • 360-degree feedback: Incorporate feedback from multiple sources, including peers, subordinates, and self-assessments, to provide a well-rounded view of performance

Addressing resistance to feedback

Challenge: Employees may resist feedback, viewing it as criticism rather than an opportunity for growth.

Solution:

  • Create a feedback culture: Foster a culture where feedback is a positive and integral part of professional development by encouraging workers to share feedback with each other and their superiors
  • Regular check-ins: Conduct regular, informal check-ins to make feedback a routine part of the work process rather than a once-a-year event
  • Constructive communication: Train managers to deliver feedback constructively, focusing on specific behaviors and outcomes rather than personal attributes

Balancing qualitative and quantitative measures

Challenge: Relying too heavily on quantitative metrics can overlook the qualitative aspects of performance, such as creativity, teamwork, and leadership.

Solution:

  • Use a balanced scorecard: Combine quantitative metrics (e.g., sales numbers, project completion rates) with qualitative assessments (e.g., peer reviews, self-assessments)
  • Qualitative evaluation criteria: Develop clear criteria for qualitative measures to ensure consistent and fair employee appraisals
  • Document success stories: Encourage managers to document specific examples of both quantitative achievements and qualitative contributions

Ensuring employee buy-in and participation

Challenge: Without employee buy-in, performance measurement systems can fail, leading to disengagement and lack of participation.

Solution:

  • Involve employees in the process: Engage employees in designing the performance measurement system to ensure it meets their needs and expectations
  • Transparency: Communicate the purpose, process, and benefits of performance measurement to all employees
  • Incentives: Offer incentives for participation, like recognition, career development opportunities, and performance-based rewards

Tackle these challenges proactively to create a fair, effective, and engaging performance measurement system that benefits employees and the organization. Using these suggestions will help you deal with the complexities of performance management and develop a culture of continuous improvement.

How do influential companies measure employee performance?

Below are three examples of how successful businesses measure employee performance and effectively use results.

Facebook

Though Facebook only runs employee performance reviews bi-annually, it is a very in-depth process incorporating 360-degree feedback tools and a complex rating system.

Facebook uses a seven-tier scale ranging from “does not meet expectations” to “greatly exceeds expectations.” Their scale also includes a "redefine" pinnacle for employees whose performance is quite literally off the scale.

Learning and development is one of the four main pillars used in these reviews, which shows the importance of employee growth and upskilling.

Read this case study about employee performance measurement at Facebook/Meta.

Netflix

Netflix has also implemented 360-degree feedback. However, they use it as a replacement for performance reviews rather than a supplementary method. These reviews are not limited to a yearly schedule, allowing for frequent feedback and constant accountability. This approach gives management a well-rounded view of each worker.

Employees can submit reviews for as many coworkers as they wish. Rather than using a rating scale, Netflix focuses on constant support and feedback to keep employees moving forward.

The “Keeper Test” asks managers, “How hard would you fight to keep this employee if we had to make cuts?”

Read the complete case study on measuring employee performance at Netflix.

Cisco

Unsurprisingly, the American-based tech company Cisco heavily embraces technology and automation when measuring employee performance.

“Team Space” is their digital feedback system, which measures performance for over 70,000 employees. The software focuses on employee strengths and offers real-time feedback. This way, managers can address issues as they arise and find opportunities to enhance and utilize their workers’ skills.

Focusing on employee growth, rather than scores and ratings, drives Cisco’s performance measurement program.

Learn more about Cisco performance reviews in this case study.

Streamline performance measurement with Deel Engage

Deel Engage massively enhances the performance measurement process by providing tools for:

  • Setting performance goals at individual, team, department, and organizational levels
  • Collecting and analyzing feedback from multiple sources (peers, managers, and self-evaluations)
  • Automating performance review workflows (automatically adding employees according to criteria such as hire date or belonging to specific departments or groups)
  • Streamlining notifications and reminders for all participants
  • Identifying skill gaps and areas for improvement
  • Creating training programs that address performance gaps with a wide range of learning resources

Deel Engage ensures that performance measurement is fair, consistent, and aligned with organizational goals. Use our talent management suite to support employee development and business success.

Request your free demo today.

FAQs

The most common method for measuring employee performance is the performance appraisal or performance review. This process typically involves a scheduled evaluation, during which managers and superiors assess the employee’s performance against predefined criteria. At the end of the review cycle, managers share the feedback and set goals with the employee for the next period.

For a sales representative, a key performance indicator for employee performance might be the number of sales made or the sales value over a specific period.

For a customer success representative, a KPI for performance is the NPS, which measures the likelihood of customers recommending a company product or service to others.

A marketing manager’s KPI for performance is the customer acquisition cost (CAC). This metric represents the cost of acquiring a new customer. It combines marketing and sales costs, including wages, marketing mediums, advertising costs, and any other expenses related to bringing in a new lead and converting them to a customer.

HR teams typically employ a combination of qualitative and quantitative methods. These can include self-assessments, peer reviews, manager evaluations, 360-degree feedback, and tracking of quantitative metrics or KPIs relevant to the employee’s role. HR often uses software systems to consolidate and analyze this data for better insights.

  • Quality: Focus on how well an employee performs work and whether it meets or exceeds standards
  • Quantity: Focus on the volume or amount of work an employee produces
  • Timeliness: Focus on how quickly and punctually an employee completes tasks
  • Cost-efficiency: Focus on ensuring an employee does their tasks most resource-effectively

Examples include productivity, quality of work, attendance and punctuality, initiative and proactiveness, teamwork, and communication skills.

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