What Is Performance Management And How Can You Get It Right?
According to research from Willis Towers Watson, organizations that are effectively using their performance management are 1.48x as likely to report having significantly higher financial performance than their industry peers and 1.25x as likely to report having higher employee productivity.
Performance management is a crucial talent management function requiring thoughtful design and implementation to ensure it doesn’t regress into a perfunctory box-checking exercise.
So, without further ado, use this guide to help you understand what performance management is and how to approach it effectively in your org.
What Is Performance Management?
Performance management is an ongoing process used by organizations to monitor, evaluate, and improve employee performance. It involves setting clear goals and expectations, providing regular feedback, and assessing progress.
The process typically includes goal-setting, continuous monitoring and feedback, mentoring, coaching, formal reviews, and development planning to ensure employees are engaged, motivated, aligned with the company’s strategic objectives, and performing at the desired levels.
Performance management aims to enhance productivity, support employee development, and drive overall business success by creating a structured approach to performance improvement.
Why Is Performance Management Important?
The performance management stats tell it all. An effective performance management should aim to:
- Increase productivity: The process of setting performance expectations has been found to increase productivity by 15%.
- Aligns individual and organizational goals: A key goal is ensuring that employees' efforts contribute directly to the company's strategic objectives, creating a unified direction for the organization.
- Promotes continuous improvement: Ideally, it should encourage a culture of ongoing feedback in which team members feel supported and comfortable being open and honest with each other.
- Supports employee development: Performance management helps identify training needs and career development opportunities, helping employees grow within the organization.
- Increases employee engagement and motivation: Providing development opportunities and recognizing and rewarding high performance boosts morale, motivation, job satisfaction, and retention.
- Improves decision-making: It provides data and insights that help managers identify high-potential talent and make informed decisions about promotions, compensation, and succession planning.
- Mitigates legal risks: Proper documentation of performance-related information can protect the organization in case of legal disputes or grievances.
Overall, effective performance management helps organizations achieve their goals while supporting employee growth and development. It’s a win-win!
The Performance Management Cycle
Performance management works best as a continuous process, based on constructive feedback and trust, that helps employees achieve their full potential while aligning their efforts with the organization's goals.
Here’s how it typically functions:
1. Goal-setting
The process starts with setting clear, specific, and measurable objectives for employees in alignment with the organization's broader goals and objectives.
2. Monitoring progress
Employees' performance is tracked against their set goals. Managers and direct reports are responsible for tracking progress, identifying and working through any obstacles, and making necessary adjustments.
Regular performance discussions ensure that goals remain relevant and employees stay on track. This includes informal check-ins, mentoring, and coaching to guide employees toward achieving their goals.
When performance gaps are identified, employees may be given development opportunities, such as training programs, workshops, or coaching.
For employees who consistently fail to meet expectations, a performance improvement plan may be created, outlining specific areas for improvement, steps to take, and a timeline for reassessment.
Lastly, another important aspect is ensuring high performers are appropriately recognized for their achievements.
3. Formal performance reviews
At scheduled intervals (e.g., quarterly reviews or bi-annually or annually), formal evaluations are conducted to assess performance against employee goals.
These reviews involve a detailed discussion about achievements, challenges, and areas for development.
4. Review and adjustment of goals
As business priorities change, performance goals may need to be adjusted. Regular review ensures that objectives remain aligned with the organization’s evolving strategy.
Organizations may also want to carry out performance calibration sessions from time to time to ensure fair and comprehensive performance management across the org.
Performance Management Methods
Performance management is a mix of different activities, philosophies, and methodologies that work in concert to create the overall system. No two systems will look the same, but here are some common elements.
Management by objectives (MBO)
Employees and managers collaboratively set specific, measurable goals aligned with organizational priorities, which creates a clear focus and sense of accountability.
For example, a marketing manager and their team member set a goal to increase social media engagement by 20% over the next quarter. Together, they define specific, measurable actions to reach this goal, such as posting three times weekly, running two targeted ad campaigns, and analyzing engagement metrics biweekly to adjust strategies.
Throughout the quarter, they meet to track progress and discuss any challenges. At the end of the period, they review the results against the 20% target, evaluating the team member's performance based on the outcomes and steps taken, and set new objectives based on their findings.
OKRs (objectives and key results)
OKRs combine aspirational goals with measurable key results, motivating employees to push beyond routine tasks and aim for impactful achievements.
Here’s a brief example of OKRs in action:
Objective: Enhance customer satisfaction for the support team.
Key Results:
- Increase the average customer satisfaction score from 4.2 to 4.5 by the end of the quarter.
- Reduce average response time for support tickets from 8 hours to 4 hours.
- Implement a customer feedback survey for all resolved tickets, achieving a 50% response rate.
In this OKR, the objective is a clear, aspirational goal (improving customer satisfaction), while the key results are specific, measurable outcomes that indicate progress toward achieving that objective.
This structure provides the team with focused targets that contribute to the broader goal. You can take a deeper dive into OKRs in our article What are OKRs?
SMART Goals
SMART goals are structured to be Specific, Measurable, Achievable, Relevant, and Time-bound, helping ensure that goals are clear and attainable within a set timeframe.
Example: A sales representative sets the goal to increase monthly sales revenue.
- Specific: Increase monthly sales revenue by 15%.
- Measurable: Track progress through monthly revenue reports.
- Achievable: Set this goal based on recent monthly revenue trends and available sales resources.
- Relevant: Align this goal with the company’s focus on revenue growth.
- Time-Bound: Achieve this goal by the end of the next quarter.
This SMART goal gives the sales representative a clear target, realistic milestones, and a deadline, making it easier to track and achieve.
Read more in our article on how to set SMART goals.
360-degree feedback
360-degree feedback is one of the most popular methods for developing managers in organizations, but it’s useful for everyone.
This method provides a comprehensive view by gathering feedback from peers, managers, subordinates, and sometimes clients, promoting a well-rounded understanding of performance.
It can, however, be time-consuming and may lead to biased feedback if not managed carefully.
This is a topic in itself, but in her excellent article on 360-degree feedback Lockhart Lance shares some best practices:
- Managers should seek to identify a handful of people that each of their employees actively collaborates with. Who do they serve? Who relies on them for effective work outcomes? Who are their stakeholders? Who is impacted by their work?
- Define relevant performance dimensions using current job analyses, or senior management’s beliefs about the behaviors they want to develop and reward in the future.
- Use a rating system like the Likert scale, which asks for a rating on a set of performance dimensions on a numeric scale e.g. 1-5 (1—strongly disagree, 6—strongly agree), as this is simple but provides enough flexibility for the rater to distinguish between merely average performance and high performance.
You can also use 360-degree feedback software to help facilitate the process.
Performance appraisals
Sometimes performance management and performance appraisals get confused.
The latter is a formal evaluation conducted periodically (often annually) as part of performance management practices to assess an employee’s achievements, strengths, and areas for improvement, typically influencing decisions on promotions, raises, or development plans.
Example: A software engineer undergoes an annual performance appraisal with their manager.
- Preparation: The manager and engineer review key projects completed over the year, focusing on measurable outcomes, such as bug fixes, feature development, and client feedback.
- Evaluation: The manager rates the engineer’s performance across core competencies (e.g., technical skills, teamwork, and problem-solving) using a standardized performance rating scale.
- Feedback: During the appraisal meeting, the manager asks performance review questions, provides constructive feedback, acknowledges achievements, and discusses areas for growth.
- Goal setting: Based on the appraisal, they collaboratively set goals for the next period, such as learning a new framework or reducing error rates by 15%.
This performance appraisal aims to give the software engineer structured feedback on their past performance, helping them understand their strengths and focus areas for development in the coming year.
For a deeper dive, check out Liz Lockhart Lance’s excellent article on how to conduct a performance review. You can also use our handy performance review template.
Get our Performance Review template!
Continuous performance management
Continuous performance management supplements more formal appraisals with a system of regular, ongoing feedback and check-ins (quarterly and mid-year reviews are becoming common also) to help employees stay aligned with goals and receive timely support for improvement.
Example: A project manager and team member agree on a continuous improvement plan to enhance project efficiency.
- Set objectives: At the start of each quarter, set a clear objective, such as reducing project turnaround time by 10%.
- Regular check-ins: Hold biweekly check-ins to review progress, address challenges, and make adjustments to the project approach as needed.
- Real-time feedback: Provide immediate feedback after significant milestones or challenges, helping the team member learn and adapt in real time.
- Monthly reflection: Review monthly data on project timelines and identify specific areas where efficiency improved or could improve further.
Coaching
Coaching in performance management involves providing employees with personalized guidance and feedback, helping them develop specific skills, overcome challenges, and achieve their performance goals.
Example: A customer service representative works with a coach to improve communication and conflict resolution skills.
- Identify focus areas: The coach and employee agree to focus on handling difficult customer interactions and improving response clarity.
- Set specific goals: Together, they set goals such as reducing average resolution time by 20% and increasing customer satisfaction scores by the next quarter.
- Regular coaching sessions: They meet weekly to review recent interactions, discuss strategies for handling challenging situations, and practice effective communication techniques.
- Feedback and adjustment: After each session, the coach provides immediate feedback on improvements, adjusting techniques as needed to ensure continuous progress.
This coaching approach offers the employee targeted support and actionable guidance, helping them build confidence and mastery in key performance areas.
Mentorship
Mentorship pairs employees with experienced mentors who provide long-term guidance, career advice, and support, helping mentees navigate challenges and grow professionally.
Example: A junior software developer is paired with a senior developer to build technical and career skills.
- Define development goals: The mentor and mentee outline key goals, such as enhancing coding skills in a specific language and understanding best practices in software design.
- Regular mentorship meetings: They schedule monthly sessions where the mentee can ask questions, review recent projects, and receive advice on tackling technical challenges.
- Career guidance and skill-building: The mentor provides insights into career growth opportunities, suggests relevant training, and assigns coding exercises to deepen technical expertise.
- Ongoing support and networking: Beyond skill development, the mentor introduces the mentee to networking opportunities and shares broader career insights, building the mentee’s confidence and industry knowledge.
You can take a deeper dive in Alex Link’s excellent article on starting a mentorship program.
How To Improve Your Performance Management Process
A little less than a third (37%) of respondents in a Betterworks study believe that their company’s performance management process helps them improve their performance.
Reasons cited were lack of fairness, the ability to align with their company’s strategic goals, and career growth.
So, to create an effective performance management process, consider these strategies:
1. Ensure goals are clear and relevant
There’s a lot of debate about which goal-setting methodology is best, which I won’t delve into here (but we’re fans of SMART goals).
At a minimum, however, goals should be aligned across the organization starting with high-level organizational goals that then ‘cascade’ down to the individual level.
This ensures everyone’s work is aligned and helps workers see how they’re contributing to the organization. Lockhart Lance’s excellent article on cascading goals is a useful resource here.
2. Switch to continuous performance management
Research from Betterworks found that organizations that adopt a continuous performance management process reported outperforming or significantly outperforming their competition at a 24% higher rate.
So, what does this mean exactly?
- Move away from annual reviews to ongoing feedback and more regular check-ins including quarterly or mid-year reviews.
- Incorporate informal feedback opportunities, such as coaching sessions or one-on-one meetings.
- Focus on both strengths and areas for improvement, offering constructive suggestions.
Another advantage is that managers and individual contributors put a lot of effort into annual reviews and a more continuous system helps make this process easier.
“One approach that’s transformed our performance management process is the “growth snapshot.”
These snapshots are designed to be quick check-ins where we discuss just one thing the team member is working on improving and one thing they’re proud of.
Keeping it simple and personal makes space for meaningful conversations without the overwhelming feeling of a full review. This also shifts the focus to progress and self-reflection, rather than waiting to discuss performance once a year.
It’s amazing how much a 15-minute snapshot can reveal, and I’ve found it leads to deeper engagement and a stronger sense of purpose among our team.”—Kalli Hale, General Dentist, The Airway Dentist.
3. Train leaders in effective performance management
While managers play a critical role in performance management, in the Willis Towers Watson study mentioned in the intro, only half of respondents agreed or strongly agreed that managers in their organizations are effective at assessing (55%) or differentiating (50%) the performance of their direct reports.
Many people become managers with little to no formal training, so, as part of their performance management early on, it’s worth training managers on your performance management process and enabling them with the skills to create goals, deliver constructive feedback, conduct evaluations, coach, and support employee development.
This is particularly true in industries with high turnover rates. Retail performance management strategies, for example, is highly sought after by employees, with roughly 80-90% saying they'd welcome more feedback.
4. Use 360-degree feedback
While managers should have a handle on the performance of their team members, they’re not the only ones. Also, who better to provide feedback on managers than their direct reports?
One caveat is that this is more a development method used to provide employees with a well-rounded view of their strengths and areas for growth versus decisions about promotions or raises etc.
5. Encourage employee involvement
Like most with most HR products, it’s good practice to involve the end user in their creation.
When it comes to performance management, this means involving employees in goal-setting and self-assessment to increase engagement and sense of ownership and allowing them to share their feedback on the performance management process and suggest improvements.
As Mike Fretto, Creative Director at Neighbor, highlights, “When I put my team in charge of setting goals and evaluating their progress, I take a lot of work off of my plate, and also help my people develop their skills, their autonomy, and their sense of professional direction”
6. Focus on development, not just evaluation
Prioritize employee growth by creating personalized development plans that provide workers with a roadmap for the development they can work into their goals.
Offer training, mentorship, and resources to help employees improve their skills and advance their careers.
For your own development, you might consider a course on performance management to help you refine your techniques and discover new ways to help employees grow.
7. Recognize and reward performance
It's no secret that linking performance outcomes to rewards such as bonuses or promotions is a highly effective tactic, but it’s easier said than done.
Potential pitfalls include subjectivity, complexity, a toxic culture, and short-term thinking.
To combat this, in his excellent article on performance-based compensation, Alex Link provides us with some best practices to help get it right:
- Foster team collaboration by balancing individual performance incentives with team contribution recognition. Create a culture of knowledge sharing to boost teamwork opportunities.
- Be transparent about your performance-based compensation structure and how it links with performance. Transparency reduces uncertainties and builds employee confidence levels. Here's some advice on how to discuss compensation.
- Be flexible with your strategy and be prepared to make changes when your business needs change. Accept feedback and refine your compensation system regularly.
- Be vigilant about negative impacts such as employees only working on short-term goals or unhealthy competition and address issues promptly.
But rewards and recognition don’t always have to be monetary. Employee recognition programs also include public and private recognition such as in meetings, Slack channels, newsletters, or company social media channels.
8. Keep it simple
Like everything else, performance management must walk the line between effort vs payoff. Here are some principles to keep it simple and increase the likelihood of adoption:
- Supplement the annual review with shorter, more frequent check-ins (e.g., monthly or quarterly) and a continuous feedback process that makes performance management part of the normal workflow.
- Create a one-page template that captures essential information: goals, progress, strengths, and one or two areas for growth. This minimizes paperwork and keeps the review focused.
- Explain the why. As Joey Price, CEO of Jumpstart HR, explains “Make sure team members know why they must participate in the performance management process, what turnaround times are expected, and how to prioritize workload in the midst of performance review season. This gives top-down vision for why performance management is an organizational priority and helps everyone remain accountable to finishing on time”.
- Use technology and automation (more on this below).
Automating Performance Management
Using performance management software or similar can help simplify and automate the performance management process, making it more efficient and less labor-intensive.
Tools like BambooHR, SAP SuccessFactors, and Workday can streamline performance tracking by offering templates for evaluations, feedback collection, and development plans.
These platforms also enable automated goal tracking to set and monitor goals in real-time, with automated reminders for deadlines, progress updates, and scheduled review meetings.
This approach minimizes the need for manual input and ensures that everyone stays on track.
Automating feedback requests and collection is another significant benefit. Performance software, like Leapsome and many other systems, can be set up to prompt for feedback after completing key projects or milestones, or even on a recurring basis.
Many platforms offer 360-degree feedback tools that send requests to relevant stakeholders, compiling responses into a comprehensive view of employee performance.
Regular check-ins and reviews can also be automated with performance appraisal tools that schedule recurring meetings, with reminders to ensure consistency.
Performance management software can track performance metrics, generate real-time reports, and analyze trends, providing managers with insights on productivity and engagement through automated dashboards. Many systems, like Betterworks, also use AI to analyze trends and spot gaps easier.
Additionally, automating performance documentation saves time by automatically logging feedback, achievements, and disciplinary actions directly into employee records.
Integrating performance software with employee recognition platforms and payroll systems streamlines reward and compensation programs based on performance outcomes.
AI-driven tools can even suggest relevant training programs and development resources for employees based on identified performance gaps, creating a personalized development plan that updates as employees meet milestones and integrates with learning management systems.
Performance Management Examples
As mentioned earlier, no two performance management systems will look the same. They’re a reflection of the culture of the organization as much as anything else, and can even differ within organizations themselves.
Here’s how some famous and successful organizations approach it.
Google—Objectives and Key Results (OKRs)
Google famously pioneered OKR use to align employees' individual goals with company-wide objectives.
Each employee sets measurable objectives with specific key results that contribute to the company's broader objectives.
OKRs are reviewed quarterly, allowing for agile adjustments and continuous alignment with the fast-changing tech environment.
This approach promotes transparency, as OKRs are visible throughout the organization, encouraging collaboration and accountability.
Microsoft’s growth mindset and continuous feedback
Microsoft moved away from traditional annual reviews to a continuous performance management system, emphasizing a "growth mindset."
Managers regularly check in with employees, providing ongoing feedback to help them develop skills, adapt to changes, and achieve their goals, creating an environment focused on learning and growth.
Adobe’s check-in model
Adobe replaced annual performance reviews with a "check-in" model, where managers and employees engage in regular, informal feedback conversations.
This approach emphasizes real-time feedback and development, with no formal ratings, which reduces review-related stress and keeps employees engaged in their development.
Deloitte simplified and forward-looking assessments
Deloitte revamped its performance management process to focus on real-time feedback, frequent check-ins, and "performance snapshots," which assess employees based on potential future actions, such as promotions or pay increases. This forward-looking approach centers on growth and reduces the need for backward-looking evaluations.
General Electric's agile performance development
GE transitioned from annual appraisals to a more agile, continuous feedback model called "Performance Development."
Using the custom built PD@GE app, employees receive real-time feedback and can update their goals frequently, enabling the company to stay responsive and keep up with industry changes.
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