What is the Best Way to Track Employee Performance?

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Tracking employee performance may be an important task for HR professionals, but the words ‘performance appraisal’ strike fear into the hearts of many employees and HRs alike.

Research suggests that the majority of employees do not believe that the annual performance review improves their performance at all, while nearly 30% of US employees report being so put off by a bad performance review that they have started looking for a new job. Meanwhile, HR pros overwhelmingly dislike performance appraisals and consider them to be inaccurate.

So, with the traditional annual appraisal slowly dying, what is the best way to track employee performance? Let’s take a look. 

Why track employee performance?

Despite the bad rap that performance appraisals often get, some form of performance management is essential in the modern workplace. By monitoring and evaluating performance, HR teams can:

  • Monitor the top and bottom performing employees 
  • Increase accuracy of compensation management; adjust compensation, bonuses, and pay rises in line with performance
  • Identify and nurture employee strengths (essential for effective talent management)
  • Evaluate weaknesses and skills gaps for training opportunities 
  • Provide feedback and create performance improvement plans to increase productivity
  • Set goals and expectations to motivate employees
  • Make promotion decisions 
  • Ensure that the workforce’s productivity is in line with business goals and strategy

With HR professionals increasingly moving from an administrative to a strategic role in the modern workplace, performance and talent management is of key importance.

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Problems with the annual appraisal

The traditional method for tracking employee performance is the much-disliked annual appraisal. These formal appraisals are unpopular among employees, managers, and HR specialists alike: 95% of managers report being dissatisfied with formal employee appraisals, while 90% of HR professionals consider them to be inaccurate.

To understand how to track employee performance more effectively, we first need to take a closer look at the problems with the traditional performance review process. 


Firstly, the infrequent nature of these appraisals means that it can take many months to identify performance issues or successes. Consequently, performance issues may go unnoticed for many months, with employees not receiving the support they need to improve their performance and productivity. On the other hand, great employee performance may go unnoticed for a long time, limiting the well-deserved recognition these individuals receive and potentially damaging their motivation.

Bias creeps in

Without standardised metrics to track employee performance, it’s easy for the personal bias of managers to creep in. This can lead to a lack of objectivity in the talent management process. 

The yearly approach also leads to the problem of recency bias, where only the most recent performance of an employee is judged, ignoring their performance in the remaining 11 months of the year. This means that a hardworking and high-performing employee who has a bad month leading up to their performance review, perhaps because of ill health or family reasons, may not see the rest of their performance reflected in their review, whereas a low-performing employee who has a burst of productivity just before the appraisal may be unfairly  rewarded.  

Negative impact on employees

From the perspective of employee engagement and morale, annual performance reviews can be problematic. In fact, 35% of Millennials report that the annual review has made them cry. Instead of motivating and engaging employees, formal appraisals can be a source of distress. Research from Gallup suggests that performance reviews have a negative impact on employee engagement, with only 10% feeling engaged following negative performance feedback.

Damage to company culture

Following on from the previous point, this old-fashioned process of performance management can be detrimental to company culture. Employees commonly complain that they feel annual appraisals are untimely, disrespectful, and ineffective at rewarding high performers or dealing with poor performers. This can damage company culture, with employees feeling that performance management is unfair or inefficient. In fact, one survey found that 57% of employees reported that the annual review process made them feel as though they were competing against their coworkers — not ideal for teamwork or company culture.

Ineffective goal-setting

In an annual performance review, goal-setting is too limited to be effective. With only an annual check-in, it’s difficult for employees and their managers to set clear goals that are appropriate for a whole year. 

Despite the overwhelming dislike of the annual performance review from HR, employees, and managers alike, these problems do not signal the death of performance management. Tracking and improving employees’ performance can be made easier and more effective by replacing a single annual review with an ongoing, year-round performance management strategy aided by performance management software. 

Performance management software: A better way to track performance

Performance management software is designed to streamline and enhance the performance management process. In contrast to the traditional system of the rare or annual employee appraisal, this HR software supports your performance management efforts all year round. 

Using a high quality performance management module in your HR software, you can embed performance management processes into your organisation’s day-to-day routine. Effective performance management software sends automated alerts for managers and employees to provide their discrete contributions to customisable performance review forms, detailed employee tracking, real-time analytics to support performance management with data insights, and much more. 

Let’s take a look at some of the biggest benefits of using HR software to enhance employee performance management. 

A consistent, year-round approach

Instead of the single, dreaded performance appraisal which is known to distress employees and frustrate managers and HR, performance management software allows year-round check-ins on a regular basis. This allows for a more consistent and holistic approach to performance management. With continuous feedback and learning throughout the year, employees have more opportunities for self-monitoring and development. 

Open communication without fear of confrontation

While the fear of confrontation and criticism damages the efficacy of the traditional performance review meeting, year-round feedback facilitated by your Human Resources software provides a more open channel for better communication. Performance management software allows employees and managers to contribute discretely to their performance tracking forms, making it easier to be honest and open throughout the process. 

Bias-free and data-led

Using software to track staff performance eliminates the guesswork and subjectivity that are a weakness of the traditional manager-led annual appraisal. Using ready-to-view employee performance metrics, managers can provide bias-free feedback. With months or years of monitored performance data as well as information about sick leave, annual leave, time-tracking, and more at your fingertips, recency bias can be eliminated from the process. 

Empower employees to take control of performance management

With its self-service capabilities, performance management software gives employees more control over the performance management process. They are able to log on and add their self-assessments to performance review documentation or monitor their previous individual goals and feedback. By providing employees with opportunities to take ownership of their own performance, HR software has the benefit of improving employee engagement and motivation. 

Save thousands of hours

With talent management software, you can free up thousands of hours of valuable HR time. By automating time-consuming tasks and reducing the amount of admin to be chased, HR software can free up HR staff to work more effectively and strategically. 

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Try XCD HR solution for performance management today

Ready to bring your performance management into the 21st century? XCD’s HR and Payroll solution has a powerful performance management module with everything you need to unlock your employees’ potential and help HR work more strategically.

With a range of great features such as: 

  • Configurable performance review forms which can be tailored to the individual or department — there’s no one-size-fits-all in performance management
  • Automated alerts for actions so HR no longer have to waste hours chasing managers and employees for their evaluations
  • Employee tracking in real time for up-to-date metrics and analytics
  • Live analytics and reporting for overall employee productivity and performance, bringing useful metrics to leadership decisions
  • An intuitive and easy-to-use interface for better buy-in from employees and managers alike

Learn more about the ROI of your HR software and what XCD HR solution could improve for you: