Performance Management: Definition, Process, Cycle, Features

Normally, the model of performance management is forward-looking and relies on hindsight.

Though organizational culture is evolving to incorporate the continuous feedback that is provided by technology, where managers can outline problems based on current employee performance and initiate rectification measures to bring the employee back on track.

In This Article

What Is Performance Management?

Performance management is a broad term that describes the process of managing the performance of employees traditionally.

It considers the employee or a worker to be a performer formulating work deliverables that need to be addressed and tracked.

Why Is Performance Management Critical?

Left unmanaged performance management can be unpredictable, which means your business would be unpredictable. However, when taking an active role in performance management, you give your employees direction, clarity and purpose to give their best at work.

It is necessary that you need to distinguish between performance management today along with legacy performance management measures. The unrelenting pace in today’s world calls for a resilient and vibrant workforce.

Performance management enables the employees to contribute their best and drives business impact.

Definition Of Performance Management

Performance management is a recurring procedure of communication between employees and managers that contributes to an organization’s strategic objectives.

The definition has undergone a major change since the primitive days when it evolved. It was an annual process, though it is now a continuous evaluation process.

The objective is to ensure that the employees are performing consistently during the year, address any issues that may arise, and contribute to a dip in performance.

Some workers perceive their organization’s performance management as subjective, confusing, and infrequent.

This happens to be the current stage of performance management. It has undergone a major transformation with automation, where the process is streamlined so that the performance of the employees can be managed strategically.

This is an era of recurring performance management, and you need to know about it.

Importance Of Performance Management

The reasons why performance management is important are

  • Performance management supplements the annual performance review, preparing employees and their managers about what to expect during the annual appraisal process. It would keep the employee and the employer in the loop about any changes, and the best that can be done is to streamline the process so that overall performance improves.
  • For employees, continuous performance indicates that the managers value them. Employees believe that the managers are interested in getting the work done and care about the goals or other issues they encounter during their work. This means you are also open to receiving constructive feedback.

Performance Management Cycle

The performance management cycle comprises a series of five steps. All the steps are imperative, irrespective of how you review employee performance.


This step entails setting goals and communicating them to them. To attract quality candidates, these goals need to be mentioned in the job description and reiterated if the candidate joins the organization.

It all depends upon the performance management process in your organization, as you want to assign a percentage of these goals to evaluate their achievement.


In this phase, managers must monitor employee performance based on the goal. At this juncture, continuous performance management comes into the picture.

With the right performance management tools, you can track the teams’ performance in real-time and take corrective action when necessary.


This process involves using the data obtained from the monitoring phase to enhance the performance of the employees.

It may involve suggesting a refresher course or handing them an assignment to improve their knowledge and performance on the job.

It would also indicate altering the course of employee development to sustain excellence and improve performance.


Every employee must be rated regularly and at the time of the performance appraisal. Ratings are necessary to identify the stage of employee performance and implement changes accordingly. Managers or peers can provide these ratings for 360-degree feedback.


There is a need to recognize and reward good performance because it is an important aspect of the performance management process.

This can be done with a simple “thank you” or by resorting to any social recognition mechanisms that recognize and reward excellent performers in an organization.

How To Improve Performance Management Process?

To improve the performance management process, you need to ask the following set of questions:

What are the expectations of the workforce from performance management strategies?

The tools of performance management can either help or hinder your workforce.

However, if you intend to make changes to any process, you must first understand why they are not working. Take time to evaluate what your employees expect from a performance management strategy.

Doing this means there is no better option than interacting with your employees. The employees and the managers are more likely to have strong opinions that they will be more than happy to share with you.

As part of the next step, you need to convey your findings to the relevant decision-makers who may sponsor and drive the change.

Are you adept at delivering continuous performance management?

Employers want their employees to be happy. But this is not the only thing that an employee wants from an employer. Rather, they want to be motivated and understand why their work matters and is important. An experience in performance management delivers value to an employee whose focus is on increasing motivation.

To drive motivation, there must be frequent conversations between the employees and the employers so that progress, goals, and personal achievement are at the top of the agenda.

A successful, frequent conversation should be light and focus on the future agenda of the employees.

Are managers well equipped with the tools to cope with the performance management process?

The manager’s role is critical when it comes to effectively implementing a performance management process.

This would make it easier to ensure that the managers are trained and receive useful feedback as part of the recurring process.

You should spend time interacting with talent management practices to ensure that everyone is on the same page when it comes to casual or regular conversations.

In addition, having the right psychology will ensure that your continuous performance management strategy is successful.

The era of automated performance management

An investment in technology will lead to improvement only if there is a performance management strategy in place.

Without that, an automated solution can turn out to be a burden for a manager.

When no strategic vision is in place, an organization may fall behind when it comes to automating the process.

Each employee is a stakeholder who is going to benefit from an organization-wide implementation of an automated performance management system.

At the same time, they need to be aware of the goals they are looking to achieve through an effective performance management system.

Key Features Of Effective Performance Management Software

Any software has to be chosen with a few considerations in mind.

  • Customization: It should be tailored to your organization and your performance management strategy.
  • Objectivity: It should be able to deliver objective metrics based on which managers may evolve their performance evaluation.
  • Transparency: the confusion that managers or teams experience during performance management should be eliminated.
  • Frequency: It has to be allowed in real-time, with periodic employee ratings and instant feedback.

Based on the above parameters, an ideal performance management tool needs to incorporate the following features:

  • Dynamic goal-setting: the employees’ goals should be aligned with the company’s goals. A solution should allow for the opportunity to change the goal as and when needed.
  • Communication on the go: A quality performance management solution should include an in-built chat feature that allows managers and employees to interact at any time of day. A timely and quick chat among the team members ensures that the communication is effortful and transparent.
  • Recurring performance evaluation: managers should be able to set up self-assessment modules along with general evaluation questions that PMS delivers. This will give managers a clear picture of how employees perceive their job roles.
  • Scheduling tools: Scheduling for team members is provided to plan tasks, complete meetings, and collaborate with the other team members. This may be an excellent tool for managers who work remotely or in the field.
  • Recognition tool: PMS needs a platform where the managers can shout out to the members when they are doing well. Integration with an email that provides direct and instant feedback is another feature that motivates employees and encourages positive employee engagement.
  • 360-degree feedback—from multiple sources or 360-degree feedback—is essential for effective performance management. It will avoid the bias that tends to arise when a single person evaluates an employee.
  • Project performance tracking tools: tools such as time sheets that show employees how to track their time should be provided. AI. Intelligence tools provide features that track project-related keywords via email and other communication methods.
  • Performance comparison: the managers should be able to track the performance of all the team members or those who are assigned to a particular project. The tools should be handy so that they can generate a performance comparison tool automatically.
  • Automated notifications and reminders: Give a gentle nudge to employees or managers and notify them about the deadlines of a particular project. General updates would enable them to change the process and expect a rise in the performance of the employees through performance management.
  • Data security: granular level data about an individual employee must be protected by a strong wall. Make sure that the tool that you are using offers robust data security and protection features.

What is vital when implementing a performance management system is that both the employees and the managers need to be trained in using the system for maximum efficiency.

The choice of a PMS needs to be made by a vendor who provides sufficient support.

What Is Traditional Performance Management?

Traditional performance management is performance-driven and process-driven and not people are driven.

You will set goals; the employees are rated on an appraisal form, take stock of the top performers and reprimand all those whose performance is not according to the mark.

Even though employees do not like it. Most times, the reasons why employees are known to resist traditional performance management due to the following reasons

  • Appraisal hypocrisy
  • Rater errors
  • A system of poor informal feedback
  • Rating bias
  • Poor communication during the formal feedback sessions
  • The mismatch between self-appraisal and rater appraisal

Large companies attempt to standardize the performance management process by resorting to the use of online tools that capture feedback and ratings.

More and more employees have gone on to ditch the traditional performance review process. The annual feedback process is being replaced with a traditional one–on–one feedback interaction process.

Which Performance Management Processes Cannot Be Automated?

Performance management happens to be a people-centric process. For a technological performance management solution, it may not be possible to have harsh conversations with the managers. This is one of the things that managers need to take ownership of.

Though feedback conversations are not easy, they can turn into coaching sessions and honest discussions when you supplement them with objective data developed by a performance management strategy.

Such data can also help eliminate any bias by making the employees aware that they are being judged objectively.

The Best Practices Of Performance Management

Some of the best practices for effective performance management are as follows:

A well-developed strategy for performance management

A few of the questions that a well-developed performance management strategy will address are as follows:

  • How frequently does employee performance get evaluated? Is it going to be quarterly, monthly, or yearly?
  • What is the approach that the feedback conversion may follow?
  • How will the evaluation system and feedback approach be implemented?

All this can be undertaken with an automated performance management tool that allows you to set goals and communicate on the move.

No unwanted meetings are necessary, and employees are free to modify the goals or plans that they have assigned.

Open and effective communication

Frequent monitoring can help initiate conversations about employee issues. Poor performance or negative employee sentiment can only be addressed when communication in an organization is transparent and open.

The culture of communication is developed by the hiring manager, who is adept at providing positive or constructive feedback to the managers who are known to motivate the employees. They are also accountable for their work.

Regular monitoring

From the point of view of HR, it means that you are tracking employees in real time and monitoring the outcomes and output that an employee delivers.

With the aid of a sentiment analysis tool, an eye is kept on employee sentiment so that the managers can understand the mood of their teams.

With the technical tools available, regular monitoring at a granular level is an easy task.

With the objective data that automated performance management software can reveal, the process makes it easy to start a conversation with the employees.

What Is The Future Of Performance Management?

Performance management is a practice that is engaging, conversing with learning, and career management.

Performance management on an annual basis is going out of style.

Since the concept of performance management evolves, so do the practices associated with it.

For example, Netflix has abandoned annual performance management practices in favor of “fluid performance management,” which requires a recurring and agile approach to performance management.

The concept of one-on-one feedback is gaining importance.

It has to be stated that the replacement of annual feedback does not reduce the scope of one-on-one feedback.

Such feedback is necessary because it connects the employee’s goals to the goals of the organization.

If the need arises, managers can coach the employees, and workflow can be tweaked to achieve the organizational goals.

Performance management at a technical level is gaining prominence.

From a technological standpoint, we anticipate that smart machines and artificial and cognitive intelligence will comply with individual goals.

There is a vision where advanced capabilities are expected to be used.

Performance Management Examples

What does modern performance management look like in practice? Below are a couple of examples where you can implement a performance management process in detail

Managing a remote sales team

Take into consideration how sales leaders have gone on to manage remote teams. Since the day-to-day performance has changed, so is the case with performance management.

An onboarding process needs to include online modules, and phone conversations should accommodate video and phone calls.

The sales team must communicate in a virtual environment. The sales manager plays an essential role in shifting the sales process, but they need active help from the HR department.

Managing a cross-functional team

A cross-functional team can be challenging to manage since it is in a new environment with managers they have not worked with before.

A cross-functional team leader must focus on the performance outcomes. Hence it is equally important for a manager to be precise on their expectations from each employee and how they will measure the performance.

The Benefits Of Performance Management

Performance management is a good bet for an organization from both sides. It is not a way to enhance profit margins, but it will help an organization at various levels. So let us figure out the benefits for both the employee and the employer.

For employees

  • High morale– A well-executed performance management provides direct benefits to the employees. On top of the list are positive morale, and an overly structured review could create anxiety in the employees. Less structure is going to boost the morale of the employees.
  • Employee growth along with development– apart from morale, performance management formulates a persistent methodology to foster employee growth and development. Employees receiving investment and regular coaching from management create a strong relationship that produces better developmental results.
  • Employee autonomy– the best part about a performance management tool is that it enhances employee autonomy. The objective is to provide employees with a degree of self-management. They can do things in their way till the point of time assured results emerge.

For employers

  • More excellent retention– anything that will boost morale is expected to improve employee retention. A lower turnover of staff indicates it means less amount of time is spent on recruiting, hiring, and training costs.
  • Higher engagement– this fluid style of performance management enhances the interaction level between the employees and the employer. This will provide a lot of information to the management and contact when they need to select relevant people for particular tasks and promotions. If the managers have a finger on the team’s pulse, they can make an informed decision regarding the choice of personnel.
  • Better leadership– Performance management provides more opportunities for leaders to showcase their leadership skills. There is an improvement in the communication levels that enables employees and managers to understand each other for the best results.

What Are Some Of The Mistakes Of Performance Management?

One of the issues confronting traditional performance management is that it is going to inspire employees differently than a newer form of employee engagement will do.

Instead, it punishes the employees who do not meet the objectives by reducing the bonus or subjecting them to a warning.

The top performers need to be more motivated and have to sit with quarterly or annual reviews based on their performance, which will miss out on the innovative ideas they have contributed.

It needs to measure its overall value to the team and the company. The newer forms of performance management focus on the employees, empowering them to manage their performance with better results.

The terminology is changing from performance Management To Working As A Person.

Tips On How To Manage Employee Performance

If you want to get the most from your employees, engage more and manage less. There are a few steps to managing employee performance in a way that inspires and motivates the workers to give their best.

By aligning goals, there is a need to focus on the overall business objectives.

Start the process with what your business is all about. The moment you share what you are trying to accomplish, which is the mission and vision, you invite the employee to be part of the solution.

Employees are motivated when they understand what the business is all about, and they are bound to give their best.

A productive way to engage the employees is to engage and motivate their performance. It would be to share your goals and motivate your employees to give their best.

Regular interaction with your staff about work performance

Keep going when your employees agree to help you. The conversation has started, and it is the right time to maximize performance, as the lines of communication have to be open.

When it is traditional performance management, the performance goals would be documented on a form and may not be revised for 6 to 12 months in a year.

There is little value in that as the company would have changed direction by the end of the year.

Measure and adapt

One of the tricks of measuring performance is tracking the workers’ progress so that you can reward them in real-time.

Research indicates that employees are motivated when they are part of a team and see their goals achieved.

To manage employees’ performance, you need to measure and track it, but this has to be done collaboratively. Then the data can be used to inspire and motivate your employees.

Think along the lines of a performance management system.

Performance management software aims to standardize how you document and disseminate the information related to a performance management system.

The review system is known to schedule interactions between managers and employees.

Many options can exist for this software, but a few key features can make or break the experience of using this system.

One of the vital features that you need to consider is a self-portal at the end of the Employees.

Best Practices For Measuring The Performance Of Employees?

You will be aware of whether the performance is improving at the time you have clear metrics. Use the right metrics to ensure that you are tracking the correct information.

This is the most vital measure in indicating whether the employees are achieving their objectives.

If there is a misalignment between what managers expect from the employees and what they can deliver may skew your results.

Make it a point that the employees and the managers are on the same page with performance expectations.

Implementation of SMART goals

Smart goals are specific, measurable, achievable, relevant, and time-bound. Setting goals makes performance tracking an easy task.

Please tell the employees that they should mention their goals and the specific actions they intend to take to achieve them.

Set measurable objectives

Key results and objectives are the goal-setting framework that outlines what you are trying to achieve and how you intend to do the same.

The key results are the required events or milestones that indicate the progress toward the objectives. There is a need to find the critical result regarding a specific objective.

The employee performance metrics are to be measured

Metrics point to quantifiable and qualitative measures that managers agree upon for measuring performance against expectations.

The metrics are expected to look beyond the organization and its job roles. The employee performance metrics specify efficiency and reduce the number of errors.

Adoption of modern performance tools and software

The data collected by performance appraisals and metrics is challenging to evaluate.

The tools or software of performance management can automate the process of data collection and automate it over some time.

These templates can help managers understand performance data and make valid references.

Factors Influencing Employee Performance

There is more to managing performance than changing how employees and managers react.

Several other factors influence employee performance at a structural level.

Workplace culture

A workplace culture influences every aspect of employee performance which includes performance management.

Culture is what your organization values, prioritize and rewards. Employees who feel valued by spending more time in the office are likely to work long hours.

When empowering employee growth and development signals, you value the contributions and outcomes of each employee and look forward to investing in their potential.

Do take note of the fact that company culture is not monolithic.


Recognition is an essential aspect of a sound performance management module. They appreciate the excellent work of each employee, and the value they provide each team member gives them confidence.

This can enhance morale, and the employees can invest more to enhance their performance.

Implementation of recognition at an organizational level where you need to incorporate it into the check-in structures.

An effective way to do this is to include shout-outs during the team process.

Growth opportunities

The ability to grow and progress is one of the critical performance motivators. When employees feel appreciated on their work front, they are more likely to be productive and contribute to the team’s goals.

It is better to develop an internal talent hub to empower internal mobility. This would allow you to communicate opportunities to your team members, catalog their skills within the workforce, and determine how they can reach others in achieving the organizational goals.

Clarity of objectives

At the highest level, good objectives begin with an employee strategy. There is a need to align the goals with that of the organization, the leadership team has to set the goals precisely, and the business has to be clear when it comes to its priorities.

With the guidance of HR, the departmental heads may take these objectives to the teams and collaborate on how they can move the business forward.

However, the alignment process will only stay on track at the point in time you will have the objectives clear.


In a nutshell, for a performance management module to be successful, it has to be backed up by a good communication plan that will demonstrate the purpose of the system and how the employee is going to benefit. With all these insights, the takeaways for HR are clear.

There has to be a synchronization of an effective performance management system with managers who have people skills and are able to provide feedback on a regular basis.

It results in a highly motivated workforce, not to mention measurable results.

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