Good performance management is key to employee motivation and organisational success. Now, new research from Henley Management College and Hay Group identifies an approach to managing and measuring employee performance that is enabling top companies to thrive, and reveals that companies must move beyond purely financial goals to achieve world-class results from their workforce.

The book “Managing and Measuring Employee Performance” identifies a framework that captures the two opposites of performance management, described as ‘performance development’ and ‘performance measurement’, to show that the world's most successful companies are flourishing as they balance the two approaches to performance management.

The research analyses current practice in performance management and examines how ‘current practice’ differs from ‘best practice’, as exemplified by the World’s most admired companies. To consider ‘best practice’ the book presents an analysis of research by FORTUNE magazine and Hay Group (2004 and 2005), which reveals that performance management within the identified most admired organisations include measures on teamwork, long-term thinking, building human capital and customer loyalty.

In contrast, measurement-dominated approaches to performance management focusing on financial targets and metrics are typical of average organisations. Top organisations also focus on how leaders build human capital by developing and managing talent and motivating employees.

Most importantly, the findings suggest that highly respected companies are unique in that they combine elements of both development and measurement approaches.

“Managing and Measuring Employee Performance” includes a survey of 400 line managers to discover their views on performance management practice. The analysis highlights the marked rise of measurement based approaches over the past 10 years. It also suggests that line managers value the role that measurement plays in providing clarity and benchmarks of performance.

Co-author Elizabeth Houldsworth, Associate Professor of Henley Management College, said: “Performance management is an important issue for all HR practitioners and line managers. Our new book goes some way to identifying how to create a world-class workforce.

“Trends in HR often go hand in hand with political trends. Along with New Labour’s focus on targets and measurement of success there has been a trend towards more measurement-based approaches in HR in place of the emphasis on incorporating competencies, which was popular in the 1990s. As trends change in terms of performance management practice, the tendency has been to ignore what was good about previous approaches– be it development or measurement based.”

“Over the past decade line manager acceptance of the need for performance management has increased, and HR professionals are becoming more sophisticated in their approaches. What practitioners need to do now is blend approaches. The challenge is to combine performance measurement with good management and development activities.”

The challenge for HR practitioners lies in pushing the performance management agenda ‘further up the food chain’ within an organisation so that it is seen as a key management process.

Co-author Dr Dilum Jirasinghe, a Managing Consultant at Hay Group, said: “While most organisations understand the importance of company strategy and have a plan in place to realise it, the best are organised to implement the strategy. They ensure the functions required to execute planning are in place: their ‘organisation design’ is fit for purpose.”