What is performance management?

Performance management increases retention, boosts performance, and promotes employee autonomy.

If you’ve ever been involved in an employee review, or sat down for a strategy meeting between an employee and a member of management, then you’ve already experienced performance management. But while these are reliable examples, the reality is that performance management goes well beyond the annual one on one with the boss.

Performance management is a set of processes aimed at developing an employee so they can perform their job effectively. It relies on ongoing communication between supervisor and employee in support of accomplishing the strategic objectives of the organization. The goal of performance management is to improve employee performance in a way that is constructive and enduring—it is a continuous process that, when used correctly, can produce continuous improvement.

What does employee performance management include?

As previously stated, performance management is not restricted to the annual performance reviews; it’s a system that expands throughout the entire duration of an employee's tenure with the company. As such, performance management includes every interaction that management has with an employee, at every step of the employee journey. Ideally, it should turn each of these interactions into a positive learning opportunity.

Components of a performance management system

Performance management systems may take many forms, and yours will likely be unique to your company values, culture, and goals. Nevertheless, most follow a similar structure. Common components/actions of a performance management system include the following:

  • Crating clear job descriptions
  • Recruiting qualified candidates
  • Interviewing candidates
  • Further meeting with and testing candidates to determine strengths
  • Selecting the most qualified candidates based on ability and cultural fit
  • Extending job offers to qualified candidates and negotiating terms of employment
  • Welcoming new employees to the company
  • Orienting and integrating new employees into the company and culture
  • Negotiating performance- and accomplishment-based standards
  • Providing further training and education
  • Delivering direct feedback
  • Conducting regular performance-development discussions
  • Creating employee recognition and reward systems
  • Offering career development and promotional opportunities
  • Assisting with exit interviews to determine cause of departure

What performance management is not

Performance management is not a single event or tool. It’s not an employee review, survey, or self-evaluation, and it’s not the technologies that exist to promote improved performance. Performance management is bigger; it encompasses and includes various actions and their associated resources, but performance management itself is a process—one that continues to take effect through the entirety of the employee journey.

For an organization to be successful, it needs to have a clear idea of what its employees are doing. Without this knowledge, it is much more difficult for management to guide employees and accurately direct their efforts. Performance management creates a system designed to establish roles and responsibilities, recognize individual strengths and weaknesses, communicate feedback, reward exceptional behavior, and promote ongoing innovation. In short, performance management is important in that it gives teams and individuals the support and feedback they need to do their best.

Benefits of effective employee performance management

Performance management exists to optimize employee performance, so it naturally delivers on all of the benefits that come as a result of having a workforce that is reaching its potential. This includes increased productivity and revenue. But more specifically, performance management helps address three major problems that most organizations face:

  • Engaging employees
    If your organization prefers to conduct appraisals and employee reviews on a yearly basis, you might be waiting too long to provide essential feedback. Unfortunately, operating without feedback tends to negatively impact engagement.

    More-regular, consistent communication and training improves employee engagement, which in turn has a positive impact on absenteeism, turnover, safety incidents, product and work quality, and customer experience.

  • Retaining top talent
    Employees who feel as though they are working in a vacuum, with no real feedback or development, are less likely to remain personally committed to an organization. On the other hand, organizations that promote frequent discussion to evaluate performance, workshop solutions, and deliver education enjoy increased employee loyalty.

    Essentially, as employees see that you are willing to invest more time and effort into them, they are incentivized to invest more effort in your organization. This means that they’ll be more likely not only to remain with the company longer, but also continually work to improve their performance.

  • Developing internal leadership
    Recruiting outside agents into leadership positions can be costly and time consuming, and should that new hire not end up fitting well with the company culture, all of that investment may end up going to waste. Promoting proven internal employees to leadership positions mitigates much of that risk.

    Through effective performance management, you can groom your top employees for future management positions, providing training and feedback designed to help them develop the right leadership skills.

With the understanding that performance management is an ongoing process, it would be inaccurate to visualize it as a sequence of steps. Instead, think of performance management as a cycle—one that is constantly repeating itself, while also adapting to incorporate new discussions. Here, we take a closer look at the four phases of the performance management cycle:

Phase 1: Planning performance goals

The first phase of the performance cycle is focused on planning. Here, organizations and employees work together to establish expectations. Performance expectations may cover a wide range—everything from hours spent in the office to compliance with company policies, but they usually fall into one of two categories: results and actions. Results are what the employee produces or accomplishes, and actions are the methods and behaviors demonstrated during the process.

With expectations firmly in mind, work together to establish SMART (Specific, Measurable, Achievable, Relevant, Time-Bound) goals. These SMART goals should each contribute to various company objectives, but they should also relate to personal development for the employee.

Identify the actions that should be taken within the next few months. Then, review the performance expectations within the employee’s job requirements, and make updates where necessary. Remember that this should be a collaborative effort between management and the employee; working together to construct a personal development plan that can help guide future action, and show the commitment that both sides have to improving performance. 

Phase 2: Implementing employee goals

During phase 2, employees review their goals and take necessary steps to achieve them. This phase is a continuous one, occurring throughout the year as employees work with management to implement and follow their personal development plans.

Phase 3: Tracking progress

The tracking phase tasks management with monitoring employee progress, while also providing support wherever necessary. Committing to regular feedback allows management and employees to identify problems and make course corrections quickly, rather than waiting for these issues to become unmanageable.

In this phase, it is the responsibility of management to identify and mitigate any potential blockers that might be standing in the way, and to offer professional-development resources, training, and coaching to help ensure employee success.

Phase 4: Reviewing performance

The final stage of the performance management cycle brings the employee and management back together in a review setting. Here, they can discuss goal progress, assess training and development opportunities, review achievements, discuss possible advancement opportunities, reaffirm or reevaluate career goals, and evaluate the employee’s overall performance. This review is also an ideal time to work together to establish what steps should come next.

Again, relegating this phase to a yearly performance review may be an ineffectual approach. Instead, more regularly implementing this phase in concordance with the other three phases can ensure ongoing improvement.

Performance management can and should be tailored to the specific needs of your organization. However successful businesses have identified several basic elements that help contribute to performance management success. These elements include the following:

ITSM Value Creation

Recruiting and hiring

Although many will argue that performance management begins only after an employee has been hired, the truth is that by clearly identifying goals before even posting a job is fundamental to ensuring you are setting future team members up for success. Promoting effective performance management at this stage involves creating clear job descriptions and using an employee recruitment plan that identifies the selection team.

As you recruit skilled candidates for interviews, evaluate their strengths, weaknesses, and abilities, as well as whether they will be a good fit for your established company culture. Meet with top candidates more than once, and use employee testing and assignments where appropriate to the position.

Once you’ve selected the best candidates, negotiate the terms of employment and finalize the hiring process.


Rather than waiting for employees to fully acclimate to their positions, make sure to incorporate performance management into the onboarding process. Their first days and months in a new position is when an employee will be introduced to the people and processes they will be working with. Perhaps more than that, it’s when they will begin to get a feel for your company’s performance culture.

As new hires join your company, effective performance management incorporates new employee orientation. It may also involve assigning a mentor or taking other actions. The purpose of onboarding is to effectively integrate the new employee into your organization and culture.

Goal setting

The earlier you can establish goals, the more quickly a new employee can begin improving their performance. Bring employees and their supervisors together early and often to negotiate requirements and accomplishment-based performance standards, outcomes, and measures. Allowing employees to collaborate in setting their own goals and aligning them with larger company objectives leads to improved employee autonomy and ownership.

Progress monitoring

It’s worth reiterating that a yearly performance review may not be regular enough to effectively monitor and evaluate employee performance. Instead, effective performance management relies on a consistent cadence of meetings designed to help realign employee goals, prioritize projects, and identify and mitigate any blockers to employee progress.

Employee development

Top talent is exceptional for a reason: It drives itself to improve. If you hire skilled individuals but don’t offer them any chance at professional development, then they will likely grow bored and move on. At the same time, by improving employee capabilities, your organization will benefit from the development of their additional skills. Allow for lateral movement within a company, as well as transfers to different locations.

Ensure that your performance management strategy includes robust employee development options, so that your most valuable resources don’t stagnate. This may include job shadowing and other education and training, as needed.

Employee recognition

It’s natural to want to be recognized for a job well done. This is especially true for employees—when employee recognition is not included in performance management processes, employees tend to become dissatisfied and disengaged. Prioritize effective compensation and recognition systems within your organization to reward your people for ongoing contributions. 

Regular feedback

Probably the most common theme in effective performance management is frequent feedback. Regular reviews and honest evaluations, along with quarterly performance development planning discussions, will give employees not only the insights they need to improve, but also show them that management is committed to their success.

Additionally, recognize that feedback flows both ways; allowing employees to evaluate management is also essential in improving performance. Assisting in exit interviews, for example, will allow you to gather vital feedback on possible issues within your organization that might be contributing to turnover. 

Businesses of all sizes need a proper performance management tool with the right features. The system should streamline the performance management process while easing it every step of the way. Some ideal tools include:

  • Goal management: An integral part of performance management is setting and managing goals. A solution should have a place with several goal options, the ability to track the goals, and space to leave relevant notes about the goals. This can also be useful in the implementation of SMART goals, which can help employees find a direction between performance reviews.
  • Adaptable performance review forms: Reviewers need flexibility in the review process, regardless of whether the review is more simple or more comprehensive. Consistent and detailed forms can prevent any ambiguity to increase the quality and effectiveness of reviews.
  • Recognitions: A rewards management system can help in the implementation of recognition systems like performance pay and long-term incentive programs.
  • Improvement plans: Performance management systems should be able to automatically track employee performance, then implement a performance improvement plan if there is a decline in employee performance.

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