Why performance management and engagement should be linked

Employee engagement and performance management have traditionally been two separate facets of HR’s role. But both need to be better aligned for organisations to get the most from their people, argues Jim Barnett.

It’s well understood that there’s a strong link between employee engagement and overall business performance. Three-quarters of respondents to a recent survey from The Harvard Business Review Analytic Services strongly agreed that engaged employees tend to be higher performers, while nearly as many, 69%, strongly agreed that it is difficult to improve performance without also improving engagement.

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, with performance management approaches tending to focus on assessment and employee engagement typically focusing on listening and feedback.

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.

Knowing this should create a sense of urgency for organisations of all sizes to better integrate engagement into performance management processes.

A balanced approach

The combined approach can be very powerful. A $9 billion integrated global health company that took part in the HBR 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 discrete parts of the organisation, 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 silos.

The role of line managers

The manager’s role in an integrated approach is critical, as indicated in the Harvard Business Review research. Respondents said employee relationships with their supervisor has a greater impact on engagement than anything else.

The key is for companies to equip managers with the skills and mindset 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.