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Performance management originated because organizations needed a fair way to determine compensation; by measuring employee's performance, they had clear standards for who received what bonus or salary increase. Today, however, the old structure of compensation through merit budgets is all but obsolete: While pay is still determined by performance, it's not the sole driver for compensation—creating a lack of purpose for traditional "performance management" programs. So, how can leaders today discover a newer, more relevant purpose?

Organizations have not, for the most part, solved the pesky business problem of maximizing human performance, which means there is still plenty of need for performance management—especially if you consider that optimum people performance is the key to better business performance.But it's a new kind of management we need: one focused on improving performance, not just measuring it.

The path to defining your organization's goal for performance management comes down to context. Performance management isn't the same for every company, and it shouldn't be—but the new purpose is essentially the same. It's time for performance management to improve performance—and in order to do that, you need to ask where your organization currently stands, where it wants to be and how it will get there.

1) How Is Our Organization Performing Today?

It is easy to look at the financials of your business to answer this question, but I suggest the real answer lies within the productivity of your workforce.

To arrive at a good baseline, you need data. While most organizations are hard pressed to answer this question empirically, you likely have qualitative data that can tell a robust story. Look at your employees' productivity levels. Then, ask your employees about their performance: Do they have what they need to meet the performance standards? Do they know what the performance standards are?

2) What Is Leadership Doing?

Ask your leaders the same question as your employees: Do their employees have what they need to perform to the best of their ability?

Now, compare what you heard from the employees with what you learned from the leaders. Is there a disconnect?

If employees and leaders aren't used to being asked this question, their responses may be shallow—more money, more training, more everything. By opening this dialogue, however, you have the chance to drill deeper and set realistic expectations and better solutions.

3) What's the Plan for Improvement?

Now that you have your baseline of suggestions from employees and managers, pick two or three of the changes that you believe will have the greatest impact on improving human performance. Make a plan to address each of those changes, and carry out the plan. Create a process that encourages regular, two-way dialogue about progress on each of these changes.

For example, suppose you found in your baseline research that employees are uncertain of the standards of performance they are expected to maintain. This is a leadership issue. A basic requirement of leaders is to set expectations for their employees. Unless they are capable of setting good performance standards, and engaging in two-way dialogue with their teams, improving human performance is a serendipitous act, not an intentional one. The solution is to start small: focus on a few core expectations, and communicate that to leaders and employees. (If setting clear expectations is something your management team lacks, you can lead them by example.)

The purpose of performance management—which is ultimately communication—is to improve your performance. Performance improves when individuals do good work that aligns to the business objectives. Individuals do good work when they know what is expected, and receive helpful feedback and critical resources. This logic trail—communication from management leads to employee engagement leads to improved performance—is not rocket science. But those too busy to have these important conversations will continue to struggle and will never be able to truly answer the question, "What's the purpose of our performance management?"

Photo: Twenty20