Effective employee performance management begins by establishing the position’s areas of responsibility — typically outlined in a job description — and clearly defined, measurable expectations for those actions, deliverables, or results. This is where the effective use of KPIs across all functions of the business and at all levels of the organization is critical.

As with the metrics commonly used for the overall business, in many cases owners and managers do a sufficient job of identifying the metrics and establishing the accompanying targets or expectations for frontline employees. Technicians are expected to perform a certain number of jobs or generate a minimum amount of revenue per day. Project managers are expected to see that jobs are completed within the committed schedule and at a gross profit margin at least equal to the target percentage set in the business plan. Levels of customer satisfaction should be included in the metrics for these positions. Feedback from your customers is powerful information on how effectively your “face to the customer” employees are delivering a positive experience in addition to timely and high-quality workmanship. Every effort should be made to get an evaluation survey into the hands of each customer and to follow up to retrieve as many completed surveys as possible.

Where gaps often exist in establishing metrics that will be used to measure employee performance and setting expectations for the level of performance is with department heads and other management positions, especially in non-operations functions. Let’s examine some performance indicators that are most appropriate for evaluating these employees.

Finance

The overall business performance measures mentioned earlier are typically financial metrics. However, there are metrics that are appropriate at the bookkeeper or accountant level.

• Invoice Lag – The time between the job being completed and the creation of the final invoice; measured in days.
• Accounts Receivable – Measured both as “days outstanding” based on the past 90 days invoicing rate and in terms of aging. It is common to set a percent of total receivables or a dollar amount as the upper limit for receivables in the “over 60 days” categories.
• Accurate and Timely Reports – Creation of accurate Income Statement and Balance Sheet reports by the X workday of each month.

Human Resources

Whether this is a full-time position or a responsibility that falls under an administration manager, there are aspects of the HR function that can be measured objectively.

• Completing training on how to conduct effective performance reviews.
• Creating and implementing a standardized hiring process, including assessment criteria for candidates by position.
• Conducting an exit interview for each employee who is separated from the company.

Sales and Marketing

Whoever is responsible to manage the business development function has metrics that are applicable to that specific position.

• Holding consistent, weekly sales meetings with agendas published in advance.
• Spending a minimum of two days per month riding with each business development rep. to assess performance and coach technique.
• Completing X number of customer meetings per month with designated strategic accounts.

Operations

As organizations grow, more frontline employees are added and team leaders, supervisors, or production managers are put in place to adequately train, manage, develop, and motivate the increasing number of team members. While these supervisory personnel are ultimately responsible for the frontline associates achieving target levels of performance, there are metrics for operations apart from those we covered above that are important for tracking each person’s development and growth.

• Conducting X number of team meetings each week.
• Doing ride-a-longs or completing a weekly performance evaluation for each team member.
• Providing X hours of training for team members each month.

The important point is that while it may be accurate to say that everyone in operations is responsible for the company reaching its revenue goal and gross profit percentage targets, there are responsibilities — typically defined in a job description for each specific position — owned by each person in a supervisory role that can be transformed into performance metrics with measurable, defined expectations or targets.

When defining the metrics to be used to measure individual employee performance, which is especially critical if the metrics are included as part of a compensation model used to calculate bonuses or commission payments, keep in mind that balance is key. Balance in the sense that employees will focus on the elements of their job or their performance that will result in their KPIs being met or exceeded. If the metrics in place for a specific position, for example, focus only on the quantity of work completed without measuring quality or timeliness, the results will likely be a performance that makes the employee’s numbers look good but does not serve the overall interests of the business.

Having appropriate metrics in place for each function, department, and level within an organization creates the foundation for effective employee motivation, performance assessment, and development. This is a clear example of what is meant by working on your business rather than in it. These performance indicators—including expectations that are consistent with the organization’s business plan—combined with timely and accurate reporting of actual performance will lead to greater employee engagement, higher job satisfaction, and improved overall performance. No matter whether it’s sports, education, or business we need to know how well we’re doing in order to provide consistent feedback to team members.