Managing staff performance

Many business owners find that the daily demands of running a business keep them from properly evaluating and managing their employees' performance. However, making the time to review employee performance and give regular feedback, can help you achieve your business goals and grow a strong, loyal and effective team.

Regular and ongoing performance management can help to:

  • create a culture of open communication and feedback
  • improve employee performance and increase skills
  • create motivated and accountable employees
  • lower staff turnover.

Staff performance management processes

Benefits of a staff performance management process

A performance management process can help you:

  • determine if your employees are fulfilling their job descriptions
  • identify performance issues, so you can take steps to address them
  • identify training and development needs
  • define roles and responsibilities
  • ensure that every employee knows how they contribute to your business
  • identify opportunities to better align employees' roles with the direction of your business
  • make decisions about wage increases and rewarding employees who bring value to your business.

It also offers employees the opportunity to plan their career development and review their work performance.

Develop your staff performance management process

Get input and create ownership

Involve your staff or management team when you develop and implement your performance management process. This will help to create ownership of the process and a positive culture of feedback and improvement.

Your performance management process should:

  • include clear goals and objectives for each employee
  • show how these the goals link up with your business objectives
  • identify the attitudes, knowledge and skills employees need to do their job effectively
  • offer coaching, training and development programs to support and improve your employees' performance
  • include regular and ongoing performance monitoring, feedback and support (such as formal and informal reviews)
  • keep all documents related to the planning and review of your employee's performance confidential.

Using performance management software

There are many software packages available to help small businesses with their performance management processes. You can do research online or speak with a human resources (HR) professional to help you decide what will work best for your business.

Preparing for staff performance reviews

Performance management reviews can be difficult. Giving open and honest feedback is not always easy. Good preparation can make it a more supportive and effective experience. Take the time to understand each employee and their roles and be clear about what you expect.

Make sure you understand where your business is heading. Share this with your employees to ensure you're all working towards the same goals and objectives.

Use position descriptions to be clear about:

  • what the employee is expected to do
  • the skills and knowledge needed for the role.

Review the goals and KPIs you set for your team members. Use these targets to measure performance, identify concerns and reward achievements. You can use a combination of measures, for example:

  • quantity—the number of product units processed, sold or made each week (a product can be anything from a strategy document to a retail item)
  • quality—the number of units that failed to meet your quality standards (work rejected or redone)
  • punctuality—arriving to start work, meetings or appointments on time
  • positive feedback from customers—using customer satisfaction surveys and business records
  • meeting deadlines—work performed efficiently within required timeframes
  • cost-effectiveness—the value of financial benefits secured by the employee measured against the cost of securing those benefits
  • creativity—creative approaches to achieving results that are consistent with your business values
  • behaviours that harm the workplace environment—such as gossip, patterns of criticism and negativity, argumentative or confrontational behaviour
  • following policy—performance aligns with the values and objectives of your business
  • appraisals—assessments by their supervisor, team members and themselves.

Ask yourself...

  • How has the employee performed over the period?
  • What did they do well?
  • What could they have done better?

Design a performance plan form that clarifies the review process for employees and allows you to keep a written record of the review meetings. Your form should include sections to record the:

  • names and titles of the employee and the supervisor doing the review
  • review dates
  • tasks and responsibilities (goals and KPIs)
  • outcomes and ratings
  • areas for development and actions
  • training and development needs
  • comments from employee and supervisor
  • supervisor and employee signatures.

Performance plan and review template

You can use our performance plan and review template to guide and record your performance discussions. It allows you to:

  • set goals (or key performance indicators)
  • give feedback on the employee's conduct
  • create a step-by-step development plan.

Use the template as is, or adapt it to your needs,

You can:

  • ask your management team for any documented feedback—both positive and constructive—involving your employees
  • review customer complaint and feedback records related to your employees.

Keep in mind...

  • Only use information from the period that you are reviewing.
  • A performance review is not the right time to formally address performance concerns—handle these concerns in a separate counselling discussion.

Prepare your staff for feedback. Let them know:

  • they'll receive feedback on their performance
  • that the purpose of the feedback is to recognise their value to your business and help them reach their potential.

Ask your employees to prepare for the review session by thinking about their role and their performance.

Also encourage employees to give you feedback about their job, your leadership, and your business. This can be valuable when you're doing your business planning. Your employees will also feel more recognised and understood if you consider and act on their concerns and comments.

Have regular discussions

Try to schedule formal performance review sessions in your business once or twice a year. This will encourage your team to view performance reviews as part of a normal, healthy business function.

But remember that ongoing, informal performance conversations between supervisors and employees are an important part of the performance management process.

Regular discussions are needed to:

  • monitor current performance
  • drive future performance
  • ensure everyone is working towards business and individual goals.

Conducting staff performance reviews

Approach performance review discussions positively. This will help build your employee's confidence in the process.

Supervisors who have daily contact with the employees are usually the best people to run the performance review sessions. If you're not involved in the session, you may want to see the results and discuss them with your senior staff members. Also make sure your management team:

  • applies your performance standards fairly across the team
  • handles sensitive conversations with consideration.

Allow around 1 hour for performance review sessions—this gives employees enough time to become comfortable in the discussion and carefully work through the process.

Consider the space you choose for your performance conversations carefully. Think about:

  • privacy
  • location options (e.g. inside or outside, at the office or at a café)
  • time (e.g. between peak times; during the employee's normal working hours)
  • noise
  • comfort level (e.g. seating and a space to write).

Acknowledge the strengths and contributions of employees early in the discussion. Giving them credit for their efforts will:

  • let them know they're valued
  • make them more receptive to any constructive feedback that may follow
  • help them enter the conversation comfortably.

Discussions should be clear and collaborative two-way conversations between the supervisor and the employee about current performance, development and growth. Work through the goals or KPIs one by one. Focus on areas:

  • of accomplishment
  • where the employee may need support or development
  • where there is opportunity to improve.

Consider the preferences of your employees when you decide on ways to solve or resolve issues or reward performance.

Allow employees to choose their own solutions, where appropriate. They'll be more likely to adopt solutions and suggestions for improvement they have identified.

Agree on a new or revised set of goals or KPIs. Discuss your initial proposals for training and development, incentives, or other measures. Be positive, confident and realistic when you make recommendations about training and development needs.

Clearly record:

  • the agreement on the goals or KPIs
  • timeframes for meeting these targets. This will help your employees to see their progress and allow you to measure the progress
  • training and development recommendations
  • rewards and incentives
  • any issues for further discussion or follow-up.

Keeping a record of performance reviews will help to guide future reviews and decisions about employee development.

Include records of inappropriate incidents or behaviours from the performance review period.

Dealing with underperformance issues

Handle underperformance issues as soon as they come up—don't wait for a scheduled 6-month or annual review.


Counselling is usually the first step in addressing performance issues—normally in the form of a discussion between the employee and their supervisor. During this discussion, the supervisor can:

  • identify the specific areas that need to be improved
  • find out if the employee needs any guidance or support to meet expectations.

As part of this discussion, the supervisor could also develop an action plan with the employee and get their commitment to the plan.

You must provide the employee with an opportunity to:

  • respond to your concerns
  • improve their performance within a reasonable time.

Write down the outcome of the counselling session, including the improvement actions required.

Disciplinary action

When dealing with issues of serious underperformance we recommend you seek advice and support from a HR professional or an employment lawyer.

If day to day support, coaching or counselling does not improve the employee's performance, you may decide to take disciplinary action.

Before issuing a formal warning:

  • confirm the standard of performance that's required
  • explain to the employee how their performance is not meeting the required standard.

Disciplinary action will vary from case to case. In some circumstances, it may be appropriate to give an employee more than 1 written warning before ending their employment. However, if it's justified by an employee's performance, you may decide not to give a written warning.

Read more about managing performance and warnings from the Fair Work Ombudsman.

Tips for making the most of performance reviews

Effective performance reviews can benefit your employees and your business. Consider these tips to help you get the best results.

If you've offered to work with an employee on an issue, schedule time for the necessary discussions and steps. Employees who are encouraged by your support, will quickly become disappointed if you don't follow through.

Identify training and development opportunities to develop the skills your employees need. Schedule routine catch-ups with your employees to see how they're progressing.

Learn more about staff training, development and mentoring for your employees.

Consider rewards for your employees that match their needs. Some employees might, for example, find flexible working hours or extra leave more motivating than financial rewards. By personalising incentives, you also show that you're paying attention to your employees and their needs.

If you choose financial incentives make sure your policy is:

  • clear
  • fairly applied
  • based on well-defined criteria.

You might consider a one-off, flat bonus for specific employees at the end of the financial year, or percentage increases based on employee performance levels.

A good performance review process is ongoing. Use the performance review process to build stronger, open relationships between your supervisors and employees.

Emphasise the importance of ongoing feedback and ensure you and your team continue to identify development needs and measure their success. Investing in your employees can help create a lasting, loyal and expert team.

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