The importance of KPIs: defining and measuring employee success

By Ceri Hohner 

Key Performance Indicators, or ‘KPIs’, are a common tool used to manage employees, but unfortunately, they often get a bad rap from both managers and workers for being onerous, inappropriate, time-consuming to enforce and assess, or just one more acronym mistakenly spelt with an apostrophe (despite being a plural, not a possessive noun). So why do businesses still use them?

Because KPIs are, as the name unironically suggests, key. These documents can be very powerful tools for employers that impose clarity and transparency, improve productivity, make performance easier to assess, and when combined with position descriptions, even help in termination and restructure processes.

And it’s not only senior employees who should have KPIs. All roles, from the junior apprentice to the CEO, should have clearly defined documents that set out their role’s purpose, minimum qualifications and skills, and the key performance indicators of that position. It may sound like a fair chunk of hard work to set this set up in your business, but we can promise you that it will be worth it in the long term.

Here are some of the benefits of implementing well-defined KPIs:

1. Clear goals and achievements equals immeasurable value

Both the employee, their manager, and the business as a whole, have an understanding of what the role is supposed to achieve. The employee knows what to spend their hours doing, the manager is aware of whether the employee is on the right track, and the employer can assess the employee’s contribution to the business.

It may sound obvious but consider the reverse: an employee who isn’t sure what job they’re supposed to perform so they only do the tasks they enjoy or have traditionally undertaken, a manager who isn’t comfortable directing the employee to perform different tasks or disciplining them for poor performance, and an employer who never points out an employee’s performance because there’s nothing to assess them against.

A well-thought-out KPI structure can add immeasurable value to the business in terms of confidence, productivity, and efficiency.

2. Smoother performance management

With KPIs to compare against, an employee can be performance managed quicker and with less risk. It is important to have a clear set of expectations that can be easily identified if an employee meets those criteria. Without KPIs, an employer will find it difficult to take performance management action against an employee: these employers will need to implement an additional time-consuming step of outlining their expectations of the employee and their role before further action can be taken such as a performance improvement plan

Additionally, clearly communicated KPIs help performance discussions to be undertaken more efficiently, reducing allegations of individual managers acting unfairly or capriciously, or concerns that the business has “moved the goalposts” in respect of the expectations.

3. A sense of purpose

Particularly when combined with a job description, KPIs can give employees a sense of purpose, an understanding of where they fit into the business structure, and the importance of their contributions to the overall organisation. KPIs help the employees to aim for goals, to push themselves and their teams, to reach and exceed expectations, and understand where their performance is lacking so it can be improved upon.

KPIs are especially important in the current environment with many employees working from home, to offer a strong sense of purpose and structure.

KPIs should be drafted as obtainable, appropriate, and realistic goals that reflect the employee’s experience and seniority, the purposes of the business, and the nature of the industry. KPIs can be flexible, expressed as ranges or with stretch goals, and if identified to be unrealistic, should be amended to better suit the employee and employer.

How you define KPIs will heavily depend on the role and the industry. Sales employees may be measured by the number or value of sales they make, while HR employees may be assessed by employee turnover and the results of engagement surveys. Dentists may have KPIs relating to billings, while the targets of programming staff may be based on the speed and accuracy of their code development. As such, KPIs must be carefully considered, clearly defined, and continuously monitored.

It’s a mutually beneficial arrangement: KPIs which are well-considered and consistently relied upon can provide substantial benefits to both the employee and the business in terms of productivity, efficiency and transparency.

Have a question about KPIs or performance management?

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Ceri Hohner is a Senior Associate and solicitor at FCB Workplace Law (our parent company) who has assisted clients across Australia from a range of industries and businesses.